-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H2T210ZFe9GRHMo9Nj9FwVyRo1OD2/S8Z/P3oGwowtb97Zx90Py27QmD8ub9VNvA kbpK/NwdeP1PErgPC1Ow2w== /in/edgar/work/0001096906-00-000256/0001096906-00-000256.txt : 20001016 0001096906-00-000256.hdr.sgml : 20001016 ACCESSION NUMBER: 0001096906-00-000256 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20001013 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MILINX BUSINESS GROUP INC CENTRAL INDEX KEY: 0001088815 STANDARD INDUSTRIAL CLASSIFICATION: [9995 ] IRS NUMBER: 522175692 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-26421 FILM NUMBER: 740164 BUSINESS ADDRESS: STREET 1: 900 1080 HOWE STREET V6Z2T1 STREET 2: VANCOUVER BRITISH COLUMBIA CITY: CANADA V6Z2T1 STATE: A1 ZIP: 00000 BUSINESS PHONE: 6046475407 MAIL ADDRESS: STREET 1: 1001 FOURTH AVE PLZ STREET 2: SUITE 3226 CITY: SEATTLE STATE: WA ZIP: 98154 FORMER COMPANY: FORMER CONFORMED NAME: FORESTAY CORP DATE OF NAME CHANGE: 19990616 10-K 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT Pursuant to section 13 or 15(d)Of the Securities Exchange Act of 1934 For the fiscal year ended June 30, 2000 - Commission File #000-26421 Milinx Business Group, Inc. ---------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 91-1954074 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Suite 3827 - 1001 4th Avenue, Seattle, WA, 98154 -------------------------------------------------- (Address of principal executive offices) (Zip Code) (206) 621.7032 & (604) 647.7600 --------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Common Stock (Title of class) 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. [X]Yes [ ]No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) 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. [ ] Aggregate market value of voting stock held by non-affiliates of the registrant as of September 30, 2000: Number of shares of common stock outstanding as of September 30, 2000: 16,600,644 Documents incorporated by reference: None OMB APPROVAL OMB Number: 3235-0063 Expires: March 31,2003 Estimated average burden hours per response: 430.00
Table of Contents Item 1. Business..................................................................................................3 Item 2. Properties................................................................................................9 Item 3. Legal Proceedings........................................................................................10 Item 4. Submission of Matters to a Vote of Security Holders......................................................10 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......... Item 6. Selected Financial Data........................................................ Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................... Item 8. Financial Statements and Supplementary Data.................................... Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Item 10. Directors and Executive Officers of the Registrant............................ Item 11. Executive Compensation........................................................ Item 12. Security Ownership of Certain Beneficial Owners and Management................ Item 13. Certain Relationships and Related Transactions................................ Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. Item 15. Signatures....................................................................
PART I Item 1.Business. EXCEPT FOR HISTORICAL INFORMATION, THE FOLLOWING DESCRIPTION OF OUR BUSINESS CONTAINS FORWARD-LOOKING STATEMENTS BASED UPON OUR PRESENT EXPECTATIONS AND PROJECTIONS, WHICH INVOLVE CONSIDERABLE RISK AND UNCERTAINTY. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF A MULTITUDE OF FACTORS INCLUDING THOSE SET FORTH IN THIS ANNUAL REPORT. UNLESS SPECIFIED OTHERWISE AS USED HEREIN, THE TERMS "WE"," US", OR "OUR" REFER TO MILINX BUSINESS GROUP, INC. AND ITS WHOLLY OWNED SUBSIDIARIES. About Milinx The Company was incorporated in the State of Delaware on December 10, 1998 and commenced active operations in February 1999. Milinx is an Application Service Provider (ASP) whose market focus principally encompasses the SOHO (Small Office/Home Office), SME (Small/Medium Enterprise), and various Reseller market sectors in North America. The term ASP did not even exist until 1998, when Clare Gillan, an IT Industry analyst with International Data Corporation, defined this term to describe this new software rental model. The term ASP as used in this document is a company that is remotely hosting a software application and providing access and use of it to clients over a secure network on a recurring fee or subscription basis. These services are delivered over a Wide Area Network (WAN) or a secure Virtual Private Network (VPN) in both cases usually over the Internet. On December 9, 1999, Milinx entered into a Stock Exchange Agreement with Forestay Corporation, a public reporting company registered in Delaware, to acquire all assets and liabilities of that Company in exchange for 250,000 shares of our common stock. As a consequence of that acquisition, we then elected successor status under the Exchange Act 12g-3. The terms and conditions of that Agreement are set forth in detail in our Form 8-K filed on January 15, 2000, and Form 8-KA filed on February 15,2000. Our Firm is headquartered in Seattle, Washington but our primary business operations are presently conducted by our wholly owned British Columbia subsidiary, Milinx Business Services, Inc., in Vancouver, BC. Our first Data Center is domiciled in Vancouver, along with all of our 106 employees including 15 in Administration, 2 in Corporate Finance, 11 in Accounting 29 in Business Development, Marketing, and Customer Support, 28 in IT and Web Development Services, 9 in Research and Advanced Technology, 6 in Data Center Security and Management, and 5 in Investor Relations. The Company expects to relocate its Administration and Marketing activities to Seattle, Washington by June 30, 2001 but intends to continue to maintain significant operations in British Columbia to service our clientele and to continue to enjoy what we perceive to be the benefits of the lower cost of doing our business in that Province as compared with most metropolitan areas in the United States. Also, in that all of the Company's revenues are collected in US Dollars and most of its recurring expenditures are paid in Canadian Dollars, Milinx presently enjoys a favorable exchange rate financial benefit. While the Data Center in Vancouver can service up to 1,000,000 subscribers, we intend to establish similar facilities in the United States and then expand to serve markets in Europe and Asia. The ASP Business Opportunity We believe that the ASP delivery model of Information Technology Services (IT) is very well positioned to become the dominant global business computing model of the 21st Century, based upon forecasts of market penetration from leading technology research analysts expanding from US $6 billion dollars in 2001 (Forrester), US $23 billion dollars in 2003, to US $44 billion dollars in 2004 (Ovum). According to International Data Corporation "...the ASP Model will function like a `disruptive innovation', threatening to encroach upon and displace existing ways of doing business for all sorts of IT vendors". To the customer, the ASP model appears to offer the following distinct advantages: o Lower Total Cost of Ownership. o The latest software is readily available and more affordable. o Applications can be deployed much more expeditiously. o Focus can be on the customer's core competency rather than supporting and implementing expensive IT applications. o Changing to newer and more productive software and hardware is much more rapid and less expensive. o Scalability is insured as the right solutions are put in place and then expanded. o Capital can be freed to invest in the business. o No IT Staff or consultants need to be retained by the customer. The Milinx Approach We intend to utilize our core competency as a full-service Application Service Provider to become a leading firm in the middle ground of the ASP Market with our focus encompassing both the customers sought and the applications delivered to them. It is not the intention of Milinx to initially compete with other ASPs in providing complex applications to large corporations. There are many ASPs in that market segment who, in our opinion, are finding acceptance by prospective clients difficult as those firms have already invested in extensive and expensive IT solutions that they will only slowly abandon. We believe that initial market penetration is much more likely to occur through an entry level suite of products targeting smaller and medium sized businesses which tend to be more adaptable, open to new innovations, and lack the capital resources for technology infrastructure and qualified IT personnel. The strategic plan is to focus our initial efforts on providing our customers with an integrated application solution set that addresses the core needs of businesses, expands presence, increases productivity, and builds lasting relationships. Our Customer Sales and Support Center is available for all levels of assistance and is staffed by competent personnel on a twenty four hours a day seven days a week (24/7) basis. We believe that our extensive investment and total commitment to this effort will greatly enhance our ability to acquire and retain subscribers and facilitate the sale of our existing and new offerings to them. SOFTWARE APPLICATIONS AND PATENTS PENDING ----------------------------------------- The Company has purchased software licenses for Virtual Office and Unified Messaging from iPlanet (a Sun/Netscape Alliance) and Uforce Inc. to accommodate 500,000 subscribers with additional payments required to reach 1,000,000 subscribers. In addition, we purchased BillerXpert, which provides Internet bill presentment and payment solutions to our customers. Many of our competitors base their business model on reselling third party applications, which rapidly leads to lower commoditization pricing. At Milinx, however, we are focused on developing innovative proprietary technology that is either unique to us or enhances the third party applications that we deliver to customers. We believe this business strategy will create our sustainable competitive advantage, so critical to short and long-term success. The Company has eight patent-pending applications, which are under review in both Canada and the United States. If these patents are granted to us, they have an expiration date of twenty (20) years from date of filing. In our opinion, this approach will distinguish us dramatically in the marketplace by adding value to our services along with the avoidance of expensive licensing agreements with third party vendors. PRODUCT OVERVIEW ---------------- Milinx is now and will be making our initial offering to customers in three increments that began in June 2000 and will conclude in April 2001. However, as market conditions dictate and the results of our Research and Development efforts come to fruition, new services may be added to supplement present offerings and continually expand our product line. Initially, our two primary target markets for Milinx's services will be the Small Office/Home Office (SOHO) market (under 10 employees) and the Small to Medium Enterprises (SME) market (under 500 employees). Already available are the following services: miOffice: Servicing both the SOHO and SME markets, this suite of applications currently includes collaboration and file-sharing applications as well as e-mail and calendaring solutions. miMessaging: This Unified Messaging solution includes the ability to have all voice, paging, fax and e-mail messages sent to one mailbox for dissemination to the customer, as well as expanded functions to include "follow-me messaging", voice recognition and text-to speech conversion. October to December 2000 The fourth quarter of 2000 is expected by us to see the following new services added to the Milinx suite of offerings: miTraining: Focused primarily to the SOHO market, this Internet based application suite provides online training for our clientele. miBilling: Expected to be deployed by the end of 2000,this application is targeted at SOHO and SME organizations that want to avail themselves of, web centric business billing techniques and procedures to properly control and monitor their accounts receivables with the latest technology available. miCommerce: This website-creation solution is aimed at the SOHO and SME businesses that seek to establish an online catalogue and sell their products securely over the Internet with instant credit card billing and transaction remittances. Currently, in the final stage of development, it is expected to be ready for deployment during the fourth quarter of 2000. January to March 2001 miOffice VO: Aimed at the SOHO and SME markets, this next stage of MiOffice will include word processing, presentation and spreadsheet solutions. This suite of products is currently in the developmental stage, and with integration into our suite of services by March 2001. miCRM: Customer Relationship Management (CRM) solutions are by definition intended to centralize and organize all customer information for any company. Milinx's solution is expected to be available in early 2001 to service a primary target market of SMEs along with a secondary market of SOHOs. miPortal: This application creates a secure, customized online environment that allows our customers to bring employees, partners, suppliers and customers together onto the same web centric environment. This development-stage solution is expected to deploy late in the first quarter of 2001. miCast: This application increases the versatility and utility of e-mail, allowing our customers to add voiceover functionality to their e-mails without significantly increasing the size of the e-mail file. In the development stage, this solution is expected to be available by April 2001. MARKETING AND SALES CHANNELS ---------------------------- With the completion of our first Data Center in August 2000, the implementation of our Marketing Plan began in earnest. We researched our known and perceived competitors along with identifying the initial suite of offerings that would be most appealing to the marketplace. Initially, we are offering our products through three distinct, but complementary, sales channels: o Direct Corporate Sales Force: Targeting businesses of sufficient existing or potential size to justify the deployment of Milinx Sales Personnel, supplemented by IT Professionals, to address technical challenges and issues. Usually, this is a firm of 100+ employees that would greatly benefit from outsourcing some or all of its applications. o Direct Sales Network: An independent targeted group of 5,000 business professionals who contract with our wholly owned subsidiary, ASP Technology One, Inc., to resell Milinx products for a commission, specifically oriented to the SOHO and SME markets. o Internet Service Providers (ISPs) and Telcos: Offering Milinx Products to the existing customer base of these firms in a revenue sharing model. As an example, in September 2000, we successfully concluded a Strategic Marketing Alliance with AOL Canada to offer our services to that firm's subscribers. We expect that this marketing opportunity will expand and allow us valuable entree into a very wide spectrum of geographic locations. By leveraging these alliances we expect to be able to introduce our services to millions of users in a very cost effective and timely manner. We believe that the timing is very opportune for this business model for the following reasons: o Rapidly increasing awareness and acceptance of web based software solutions. o The exponential growth that has occurred and we expect to continue to occur of E-Commerce and Internet usage (according to CommerceNet Research Center, projected users will number 490 million in 2002). o The availability of web based software products. o The expanding demands of small and medium sized businesses for cost effective, robust, and the latest IT Solutions along with a profitable and facile Internet presence. collectively, in our opinion, the offerings with which Milinx has entered the ASP market represent a suite of products encompassing depth, functionality and comprehensiveness for our key target sectors, and positions the Company to score rapid penetration gains that we believe necessary to achieve a significant market share. Competition ----------- The markets for our services are now, and will continue to be, extremely competitive. To obtain customers, we are and will be are expending considerable financial resources on marketing our services. These payments include advertising, commissions, share warrants and options and other financial inducements. In that many of our competition have substantially more capital resources than Milinx, our ability to compete may be impaired now and in the future. There are over 600 firms that classify all or a significant portion of their business to be functionally ASP in nature and many more that provide IT services over the Internet. However, the two principal differentiating factors are the comprehensiveness of the product offerings and competitiveness of the pricing structure to our customers. First, Milinx is a "pure play" ASP which purposely does not now offer ancillary Internet services. We believe that our concentrated focus on our core business is the most expedient route to positive cash flow and profitability. In our opinion, new web centric business applications will significantly dilute revenues currently being derived through high margin consulting services. Second, our market focus is, by design, targeted to the SMEs and SOHOs rather than on being an Enterprise Resource Provider ("ERP") to Fortune 2000 Companies, which, in our opinion, is the most difficult market segment to penetrate and unquestionably is the most competitive. We believe that the strategy of many of our competitors is fallacious in that reselling standardized third party applications through restrictive licensing agreements will quickly lead to intense price competition and low profit margins. The development of proprietary applications and less expensive indirect sales channels will, in our opinion, give Milinx a distinct cost advantage although third party applications would be expeditious to implement. Our present and prospective competitors include other ASPs, systems integrators, ISPs, software companies, and telecommunication companies ("Telcos"). Unlike Milinx, many of these firms have long established operating histories and substantial financial resources. However, we believe the Company can secure a profitable and long term market niche by providing the following services: o A comprehensive suite of services that is secure, scaleable, functional, and reliable. o Proprietary applications, which do not merely resell other third party applications. o Competitive subscription fees. o Customized web sites unique to that customer. o All basic IT business services for our target market. o Total quality 24/7 customer service. o Strategic relationships to build customer base through indirect channels. ASPs. We compete with other companies whose stated core business is providing ASP services. These competitors include USinternetworking, FutureLink, Corio, Applicast, Interliant, Interpath, NaviSite, Telecomputing, and Breakaway. SYSTEMS INTEGRATORS. We compete with many well established commercial systems integrators who bundle their consulting services with hardware and software providers to provide outsourcing for the customer. Examples of these include Andersen Consulting, Breakaway Solutions, iXL, Enterprises, EDS, KPMG, PricewaterhouseCoopers, and MCI Systemhouse. ISPs AND WEB HOSTING COMPANIES. We expect that business oriented North American ISPs and Web Hosting firms will begin to expand their product line to include service offerings with Internet and Web Hosting on a subscription basis. Among these are AOL, Concentric Networks, Frontier Corporation, MindSpring Enterprises, NETCOM On-Line Communications Services, Verio, Exodus, UUNet Technologies, Verizon, PSINet, and Digex. SOFTWARE COMPANIES. Many of the established and significant software application companies either now have or will in the near future offer application solutions for rent over the Internet. Some that already do include SAP, Oracle, IBM, JD Edwards, Microsoft, Siebel Systems, and PeopleSoft. In June 2000, Microsoft announced a new .Net Strategy that will be implemented by subscriptions over the Internet within the next two years, offering their world-renowned existing and expanded product line. TELCOS. Many long distance companies, regional Bell operating companies, and competitive local exchange carriers now offer Internet services to their clientele. Although these firms have traditionally not been nimble in identifying and serving new markets, the expansive size of their networks and abundant financial resources make them potentially formidable adversaries. ALTHOUGH MILINX BELIEVES THAT ITS CURRENT AND FUTURE AVAILABLE SERVICE OFFERINGS DO OR WILL COMPETE FAVORABLY, WE MIGHT NOT BE ABLE TO MAINTAIN OUR COMPETITIVE POSITION AGAINST PRESENT AND FUTURE COMPETITORS. MANY HAVE LONGER OPERATING HISTORIES AND SIGNIFICANTLY GREATER FINANCIAL, TECHNICAL, MARKETING AND OTHER RESOURCES THAN US. THESE COMPANIES MAY WELL BE ABLE TO RESPOND MORE QUICKLY TO NEW OR CHANGING OPPORTUNITIES, CHALLENGES, TECHNOLOGIES, STANDARDS OR CUSTOMER REQUIREMENTS. Item 2. Properties. Seattle Head Office: 2 offices at 3827-1001 Fourth Avenue. Vancouver Administration Offices: 13,000 square feet at 1080 Howe Street houses our Administration functions, including Accounting, Business Development and Marketing, Research & Development, Communications, Legal, Human Resources, Investor Relations and Intellectual Property Departments, as well as a few members of our corporate IT department. Vancouver Data Center: 14, 005 square feet at 1045 Howe Street houses our Data Centre, Client Services, Web Team and the remainder of our IT department. New Location for Vancouver Administration Offices: Beginning December 1st, 2000, we will be leasing 23,226 square feet at 595 Burrard Street. Our administrative departments will begin moving on January 15th. Item 3. Legal Proceedings. (a) On January 11, 2000, Interactive Intelligence, Inc. ("Interactive") advanced a claim through the American Arbitration Association for $3,900,000.00 US funds for an alleged breach of a Software License Agreement. Interactive is the owner of a software program designed to handle intra company telecommunications and small answering services. The Company had responded to Interactive's Arbitration claim by denying any amount was owing and counterclaiming against Interactive for damages stemming from Interactive's failure to deliver a workable system. On February 2, 2000, the Company commenced suit in the Supreme Court of British Columbia, (the "British Columbia Lawsuit"), naming as defendants, Interactive and others. This matter was ultimately settled with neither party receiving any payment from the other. Each party bore their own costs. Milinx's legal expenses incurred in the fiscal year ending June 30, 2000 amounted to $106,393.49 (b) On October 4, 2000, two former employees of the Company's subsidiary, Milinx Business Services, Inc., ("Services"), Don Williams and Reza Bazargan advanced separate actions in British Columbia Supreme Court against Services alleging breach of their employment severance agreements and claiming unspecified damages. Services will be vigorously defending these actions and counterclaiming against the respective individuals for breach of employment and severance agreements and claiming return of funds paid out under their respective severance agreements and damages for wrongful breach. PART II Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of security holders in fiscal year 2000. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. MARKET INFORMATION On June 8, 2000 our common stock began trading, under Rule 211, on the NASD Over the Counter Bulletin Board National Quotation System, under the trading symbol "MIXBA". The following sets forth the average closing prices for high and low bid information for the quarterly periods indicated: 2000 High Low ---- ----- ------ Quarter ended June 30/00 $8 $5.625 Quarter ended September 30/00 $7.375 $4.125 The above market quotations were taken directly from the NASDAQ website and reflect inter-dealer prices without retail mark-up, mark-down or commission and may not accurately represent actual transactions. HOLDERS a) Common Equity. As of September 30, 2000 there were approximately nine hundred eighty two (982) registered shareholders of record of common stock. b) Preferred Convertible to Common Equity. As of September 30, 2000 there were approximately four (4) shareholders of record of Series A Preferred shares. As of September 30, 2000 there were approximately sixteen (16) shareholders of record of Series C Preferred shares. DIVIDENDS No dividends have been declared since inception. RECENT SALES OF UNREGISTERED SECURITIES During the period from inception to June 30, 1999, the Company issued the following unregistered securities. Unless indicated, cash and net proceeds are the same. Also unless indicated, sales under Rule 506 were to persons believed to be accredited investors, as defined in Regulation D: On February 12, 1999 the Company completed a placement under Rule 504 of Regulation D, selling 4,300,000 shares of its voting common stock for total cash proceeds of $100,000.00. Also on February 12, 1999 under Regulation S, Rule 506, the Company completed a private placement, issuing 2,925,000 Series A Preferred shares to two of the Company's directors, including the President, and to its legal counsel for total cash proceeds of $2,925.00; also at that time, the Company issued 45,000 shares of its voting common stock to an officer of the Company for total cash proceeds of $45.00. Each share of Series A Preferred stock is entitled to 2 times voting rights of the common shares to which they may be converted on all matters on which shareholders are entitled to vote and can be converted into shares of common stock at a ratio of 3 shares of common stock for each share of Series A Preferred stock. Series A Preferred stock has a preference on dividends, liquidation and merger at $0.32 per share. On March 15, 1999 under Regulation S, the Company issued to Credit Assure International Inc. an option to purchase 750,000 shares of the Company's Preferred A stock for $27,000 total cash proceeds. Options were granted on March 15, 1999 and exercised on April 6, 1999. Due to the absence of any market for the Company's preferred stock, value of the option, if any, at the date of grant was considered negligible. On March 19, 1999 the Company completed a placement under Rule 504 of Regulation D selling 1,300,000 shares of its voting common stock for total proceeds of $130,000.00. On March 26, 1999, under Regulation S, Credit Assure International Inc. exercised its option on 750,000 Series A Preferred shares for total cash proceeds of $27,000.00. On April 2, 1999 the Company completed a private placement under Rule 701 of Regulation D, selling 675,000 shares of its voting common stock for total cash proceeds of $33,750.00 to directors, including the President, officers and consultants of the Company. On April 5, 1999 the Company completed a placement under Rule 504 of Regulation D, selling 1,800,000 shares of its voting common stock for total proceeds of $320,000.00. On April 20, 1999 200,000 options were granted under Rule 701 to four of the Company's sales associates permitting the purchase of common shares at $2.00 per share effective July 15, 1999 and expiring on March 31, 2001. Using an option valuation model, fair value of the options at the date of grant was determined to be negligible due to low stock volatility and options being "out of the money" at the date of the grant. On May 25, 1999 the Company completed a private placement under Regulation S, Rule 701, selling 350,000 shares of its voting common stock for total proceeds of $17,500 to an officer of the Company. The proceeds were collected in full prior to the issuance of the financial statements; however, the proceeds were included in total accounts receivable at June 30, 1999. On May 25, 1999, under Rule 506, 900,000 1999 Internal Warrant A were privately issued to a director and the Company's legal counsel. These warrants are exercisable at $ 4.00 per common share until January 31, 2001. The warrants were issued for cash proceeds of $200.00. From June 19, 1999 through to December 31, 1999 the Company sold 1,681,250 Class A units at $2.00 per unit for total cash proceeds of $3,362,500. In May 2000, unit holders exercised their right to convert these units into Series B Preferred shares and all outstanding Class A units were converted into 1,681,250 Series B Preferred shares and 840,625 International A Warrants, as more specifically stated below. On June 30, 1999, under Regulation S, the Company privately issued 295,000 Class A units at $2.00 per unit to Trans Research International Ltd. for total cash proceeds of $590,000.00. Subsequent to June 30, 1999, the Company issued the following: On July 25, 1999 under Regulation S, 650,000 1999 Internal Warrant B were issued to two directors. These warrants are exercisable at $6.00 per Series A Preferred share until March 31, 2005. On September 30, 1999, also under Regulation S, the Company issued 613,750 1999 Class A units at $2.00 per unit to North American Funding Limited for total cash proceeds of $1,227,500. On October 15, 1999 under Regulation S, the Company issued 375,000 of its common shares to Milinx International Inc., (Cayman), as consideration for intellectual property. Also on October 15, 1999 the Company issued 50,000 common shares to Credit Assure International Inc. as consideration for intellectual property and trademarks. On October 31, 1999 the Company issued privately under Regulation S, 163,500 1999 Class A units at $2.00 per unit for total cash proceeds of $327,000.00 to Millennium Three Holdings Ltd. On November 11, 1999 the Company allotted 71,000 common shares for issuance to employees of its subsidiary, Milinx Business Services, Inc. under Regulation S, Rule 701. The shares were issued at $0.05 per common share for total cash proceeds of $3,550.00. On November 30, 1999 under Regulation S, the Company issued privately 212,500 1999 Class A units at $2.00 per unit for total cash proceeds of $425,000.00 to Millennium Three Holdings Ltd. As of December 9, 1999 James Medley, a new member of the Board of Directors was awarded 180,000 common warrants under Rule 506, at an exercise price of $4.00 per share. These Warrants expire on January 31, 2001. Also on December 9, 1999 the outstanding shares of Forestay Corporation, a Delaware Corporation, were exchanged for 250,000 shares of common stock of the Company, under Rule 506, in a transaction in which Forestay became a wholly owned subsidiary of the Company. On December 31, 1999 under Regulation S, the Company issued to Millennium Three Holdings Ltd. 396,500 1999 Class A Units at $2.00 per unit for total cash proceeds of $793,000.00. From January 1, 2000 to June 30, 2000 the Company issued privately, under Regulation S, Rule 506, 4,986,923 Class D Units for cash proceeds net of commissions of $9,097,662. During this same period, 2,624,412 Class D Units were converted to 2,624,412 Preferred C Series shares and 1,312,206 D Warrants for total cash proceeds to the Company of $2,625.00. On January 31, 2000, under Regulation S, the Company issued privately 325,500 1999 Class A Units at $2.00 per unit for total cash proceeds of $651,000.00. As of May 10, 2000, the Company awarded a grant of 39,000 shares each, in escrow, to two of its executives. The shares are to be granted subsequent to the Company completing a Form S-8 registration of its common stock. Due to price volatility of the Company's stock, the Company is unable to determine the amount of additional compensation that will be recorded at the time such shares are issued. In May 2000, under Reg. S, 1,681,250 Class A Units were converted to 1,681,250 Series B Preferred shares and 840,625 1999 International A Warrants netting total cash proceeds to the Company of $1,682.00. From May to June 2000, under Rule 506, 417,000 shares of Series C preferred stock were converted to 417,000 shares of the Company's voting stock at shareholder's request. Also from May to June 2000, under Rule 506, 2,624,412 Class D Units were converted into 2,624,412 shares of Series C Preferred stock and 1,312,206 Class D Warrants. In June 2000, under Rule 506, 417,000 shares of Series C Preferred shares were converted into 417,000 common stock shares at the stockholder's request. In June 2000, under Rule 506, 37,500 Class D Warrants were converted into 37,500 common stock shares of the Company's voting common stock for total cash proceeds of $75,000.00. Subsequent to June 30, 2000, under Regulation S, the Company has sold 89,997 common shares at $4.50 per share for total cash proceeds of $404,986.00. Also subsequent to June 30, 2000, 448,187 Class D Warrant were converted to 448,157 common shares for total cash proceeds to the Company of $896,374. Subsequent to June 30, 2000, investors converted 906,912 Unit D to 906,912 Series C Preferred shares and 453,456 Warrant D for total cash proceeds to the Company of $907.00. Since, investors converted 906,912 Series C Preferred shares to 906,912 common shares. Subsequent to June 30, 2000, 38,989 common shares were awarded to legal counsel in settlement for legal fees and future legal fees of $77,985, under Rule 506. Counsel was further awarded a Warrant as of October 12, 2000 for a term ending June 30, 2002, to purchase up to 100,000 common shares, warrant consideration set at $250.00 with an exercise price being the lowest closing share price on either October 12 or 13, 2000. The warrant was otherwise in the same terms and conditions as the warrant issued to James Medley, Director. All above proceeds were used for general working capital and operating purposes, including the lease and rental of equipment, legal, accounting and transfer agent fees, construction of the Company's data center, as well salaries to employees, directors and officers of the Company. Item 6. Selected Financial Data.
Milinx Business Group, Inc. and Subsidiaries Reg. 229.301. Item 301 June 30, 2000 and 1999 Year ended Six months ended June 30, 2000 June 30, 2000 ----------------- ----------------- Operating revenues 197,193 43,424 (Loss) continuing operations (6,636,452) (844,250) (Loss) continuing operations per common share - basic and diluted (.74) (.32) Cash 2,162,430 4,522 Property and equipment, net of accumulated depreciation 3,572,168 714,232 Other assets - software licenses 2,036,985 261,250 Total assets 8,993,249 1,107,537 Capital lease obligations, long term 927,808 -
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. The following discussion and analysis should be read together with the financial statements and related notes of Milinx included in this filing. The discussion contains forward-looking statements involving risks and uncertainties, such as our future plans, projections, objectives, expectations and intentions. Our actual results could differ materially from those anticipated in such forward-looking statements wherever they appear in this filing. Significant factors that could cause or contribute to differences include those discussed in "Risk Factors" as well as those set forth throughout this filing and other filings previously made by the Company. The forward-looking statements contained herein are made as of the date of this filing and we assume no obligation to update these forward-looking statements or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements. See Risk Factors. Our View of the Economy The United States is now in the tenth year of the strongest economic expansion in its history with exceptional uninterrupted growth in Gross Domestic Product ("GDP"), low unemployment, real income growth, high job creation, acceptable levels of inflation, a strong currency and record levels of capital expenditures. The Technology Sector of the economy has unquestionably been the most significant contributor to this record expansion providing increases to business productivity, thereby abating an increase in inflation, high paying jobs, and capital formation. Canada just began its recovery in 1995 and there is empirical evidence to suggest that its economic growth in relative terms will meet or exceed those of the United States in the next two years. However, oil prices have recently escalated dramatically to the highest levels seen since the Persian Gulf War in 1990 and the trade deficit with the rest of the world may well set a record of over $300 billion dollars in 2000. While petroleum products now account for less than 3% of GDP, dramatic oil price escalation in the past has contributed significantly to economic recessions and, therefore, we cannot be completely sanguine that the economic expansion will not be retarded by this occurrence. In addition, if the US dollar begins to weaken, the Federal Reserve Board may well be forced to increase interest rates to support the currency, which could also have negative effects on the economy. In recent months, there has been a noticeable slowing in technology expenditures as individuals and businesses have retrenched purchases of personal computers and software. We think this trend is temporary as both evaluate the most advantageous and inexpensive venue to access the Internet for e-commerce, business-to-business transactions and communication. Since the first quarter of 2000, the US stock markets have been in some turmoil. In particular, the shares of many technology firms have significantly declined as investors seem well to have returned to fundamentals seeking investment opportunities that promise near term positive cash flow and profitability in their business plans. There is no question that achievement of performance has now replaced "concepts" in the mind of individual and institutional investors. We see this as a positive trend for those firms that can meet or exceed expectations. Alternatively, the share prices of companies that do not achieve forecasted results will suffer significant losses. Milinx Overview Our Company was incorporated in the State of Delaware in December 1998 and commenced active operations on February 10, 1999. Since that time, we have invested substantial financial resources in computer hardware, software, integration technology, proprietary applications, and skilled, experienced personnel with the objective to become a leading Application Service Provider ("ASP") targeting our services principally to the SME (small and medium sized enterprises) and SOHO (small office and home office) markets on a subscription basis. Since 1998, we provided IT services under the trade name "Business Builder Toolbox"(BBT) but the system discontinued services on June 30,2000. In August 2000, we opened our first Data Center in a 14,000 square feet floor of an office building in Vancouver, BC. Milinx has formed an alliance among Sun Microsystems, Inc., Netscape Communications Corporation, and their affiliate, iPlanet, to potentially provide a wide array of services in a secure environment. Although our Data Center can service up to 1,000,000 customers, Milinx intends to expand into the United States which can be accomplished rapidly with either "mini" data centers or co-located facilities with other companies. We propose to set standards of excellent service within the context of a "Total Customer Experience" by providing application implementation, integration, and management. This value proposition enables our customers to: Gain access to integrated applications that automate their internal processes and their exchanges with suppliers, partners, and customers. Minimize the considerable upfront costs of licensing enterprise software and implementing them on their existing systems allowing businesses to expend valuable resources on their core competencies. Reduce considerably the time and expenditures of constantly upgrading and integrating computer software and hardware. Outsource their IT requirements and be provided with total Customer Sales and Support on a 24/7 basis. We believe that our sustainable competitive advantage will be the ultimate comprehensiveness of our services, the reliability and scalability of our industry leading hardware and software, and proprietary applications unique to and totally owned by Milinx. Results of Operations Revenue: Fiscal year 2000 was a one of investment, development and recruitment of personnel to be able to achieve our goal of becoming a leading ASP service provider. For the year, we had total net sales of $197,193 as compared with $43,424 in 1999. All revenue was generated from the BBT suite of services which was discontinued on June 30,2000. All future revenue will be generated from present and future offerings of ASP services to customers. Cost of Sales: Milinx had cost of sales of $48,112 and $365,449 for fiscal years 1999 and 2000 respectively. All costs were attributed to the services provided to customers of the BBT. These were principally phone lines and service ($195,395), commissions paid ($51,912), and marketing ($94,371). With the ASP business model, these expenses will increase significantly in the future. In September 2000, we concluded a 24 month branding, promotional, and marketing Agreement with AOL Canada (AOL) that provided, among other terms and conditions, for a $237,793 payment by Milinx in four quarterly installments and all revenue to be shared 80% to us and 20% to AOL. As the Company aggressively expands marketing our services, it is highly likely that we will be entering into similar agreements, paying commissions, bonuses, and other sales inducements, including options or warrants to purchase Milinx's common stock. Gross Profit (Loss): The gross loss from providing services for the BBT increased from $4,688 in 1999 to$168,256 in fiscal year 2000. Selling, General, and Administrative Expenses: These expenses increased significantly to $6,442,914 in 2000 from $839,192 in 1999. This increase of $5,603,722 between 1999 and 2000 was principally a result of the following: o Amortization of computer hardware, software, and licenses increased $412,212 to $454, 244 as the Company acquired the assets integral to its ASP business. This expense is likely to increase in future years. o Licensing and software write-downs were $304,500 as the Company expenses discontinued or unusable software. In 1999, there was no such expense and is not likely to recur in the future years. o Consulting fees increased $589,858 to $652,498 due to necessity of retaining third parties for systems integration and others to advise the firm on its business operations. By expanding operations geographically and outsourcing the development of proprietary technology, this expense is likely to further increase. o Office expenses increased from $15,633 to $202,816 or $187,183. As the Company completes occupancy of its relocated. Administrative Offices and opens new offices, this expense will increase significantly. o Legal expenditures increased $365,525 to $482,441. In that Milinx will have to continue to raise significant equity capital and expand its business operations, this expense will continue to increase in future years. o Rent increased from $24,466 to $208,937 or $184,495. In 2000, this expense included occupancy costs for the Data Center and expanded administrative office space. The Company is committed to occupy new office space at 595 Burrard Street, Vancouver, BC. which, commencing December 1,2000, will increase our monthly rental expense by $49,833. With our planned geographic expansion, this expense will increase substantially in 2001. o Travel and entertainment of $298,587 increased $259,025 from $39,562.As we continue to grow, these expenses will increase commensurately. o Wages, salaries, and benefits of $2,972,149 increased significantly from $322,172 as new personnel was rapidly added in fiscal year 2000 to administrate, develop, market, and service its ASP product line. With the planned expansion of Milinx, additional personnel will have to be hired further increasing this expenditure in the future. o Payment of compensation through the issuance of stock totaled $318,835. There was no such expense for this item in 1999 as the shares of the common stock were not trading. Presuming the share price Milinx stock increases in the future, there will be a commensurate increase in this expense. Net Loss from Operations The net loss from operations increased from $844,250 to $6,636,452 or $5,792,180. Liquidity and Capital Resources As of June 30, 2000, we had cash resources of $2,162,445 on hand which was an increase of $2,157,923 from June 30,1999. Working capital was $1,579,629 as compared with a working capital deficit of $443,669 in 1999. During the year, the Company raised $11,573,951 from equity security financing. Principally, these funds were used to fund operations and acquire computer hardware, software, and licenses incident and necessary to its ASP service offerings to customers. Subsequent to June 30,2000, the Company received $3,584,748 by the exercise of D Unit Investor Warrants for 1,792,374 shares of common stock at an exercise price of $2.00 per share. In addition, we financed our computer hardware purchases by the use of lease obligations aggregating $1,463,869. In August 2000, the Company began offering to accredited investors 2,500,000 common shares of Milinx stock at a price of $4.50 a share or $11,250,000. As of the date of this filing, $404,990 had been received from this offering. We believe that the proceeds of this offering combined with the revenue derived from operations will be sufficient to fund our operations for the next twelve months. However, if the common stock offering is not successful and the revenues from operations do not meet projections, the Company will not be able to fund present or planned operations. Were either or both of these events to occur, Milinx would have to significantly curtail operations and seek other sources of financing that may or may not be available. Risk Factors Investing in our Company involves risk. You should carefully consider the risks and uncertainties described in this filing before making an investment decision. These risks and uncertainties are not the only ones that we face or that may adversely affect our business. If any of the following risks or uncertainties actually occur, our business, financial condition, or results of operations could be materially adversely affected. This report also contains forward-looking statements that inherently involve risk and uncertainty. Our actual results could differ materially from those described in the forward-looking statements. This could occur because of the risks described in this filing or other unanticipated events and occurrences not now foreseen. The Application Service Provider (ASP) Business Model has not yet been proven. Of the 600 firms that classify all or a portion of their business as ASP in nature. Currently, we not aware of any that are presently profitable. Our success depends upon the acceptance and increased use of Internet based business software solutions and we cannot be sure that this will happen. Our business model is based upon the market acceptance of Internet based software solutions by our potential customers. The marketing of software over the Internet has only begun to evolve and could be adversely effected by a number of factors including, but not limited to, security concerns, inadequate network delivery, and inconsistent performance by the Internet. We are competing with Companies with much greater capital resources and longer operating histories The ASP market is now and will continue to be extremely competitive. Many of these firms either have on hand available considerable financial resources not available to us. Milinx is presently operating at a loss and experiencing negative cash flow. While we began operating in February 1999, our Data Center was not opened until August 2000 enabling us to market our services. Starting our Company involved substantial capital and other expenditures. Developing and marketing our services will involve considerable additional capital and expenditures. Our present monthly cash flow deficit is $1,500,000 and could increase to $2,000,000 in December 2000 if revenue projections are not met. Milinx continues to operate at a substantial monthly cash flow deficit that has only been funded by equity capital to date. While we anticipate recurring revenue to increase monthly, there is no assurance that this will occur. The Company will need significant additional financing to complete development of its product line and proprietary applications that we may not be able to obtain either on terms acceptable to us or at all. Since its inception, we have relied almost exclusively on equity capital to fund our operations and capital expenditures. In the fiscal year ending June 30,2000 Milinx spent $3,626,184 for fixed assets, property, and equipment. While we have received $16,380,119 in equity funding, the Company has raised these funds itself and there is no assurance that this can occur in the future. The marketing of services just began in August 2000 and there is no assurance that the product line or pricing will be successful. As of the date of this filing, the Company has two services to offer to customers with the remainder to be available late in 2000 or the first quarter of 2001. Presently, we do not have a sufficient number of subscribers to ratify either our products or pricing. None of our proprietary applications is now in service and none are commercially proven. At the core of our Business Model is the development and market acceptance of our proprietary applications only one of which is now in service. If we are unable to complete our proprietary applications, we will have to rent or purchase applications, which will substantially increase the amount of financing required and increase the expenses of the Company. The marketing of our services has just commenced and will involve considerable funding which is not now available. Initially, the Company intends to market its services through licensed Resellers, our Direct Sales Force, and Internet Service Providers. To date, we have only begun to expend significant funds on marketing but equity funding and revenue, which is by no means assured, can only meet future planned expenditures. Additional key personnel will need to be hired and existing personnel retained to fulfill the Company's Business Plan which will be challenging and increase expenditures. Although we have built our staff with experienced and qualified professional staff, additional personnel will need to be hired in a very competitive workplace environment. We have certain of our key personnel under management contracts and are expanding our efforts to include them all. The Company presently enjoys lower costs of doing business by its principal operations being domiciled in Vancouver, BC. However, these cost advantages in the future are not assured. Presently, we operate most of our business through our wholly owned subsidiary, Milinx Business Services, Inc. The costs of doing business in British Columbia are significantly lower than major metropolitan areas in the United States. Also, in that most of our expenditures are dominated in Canadian dollar while projected revenues are to be in US dollars, a significant exchange benefit accrues to our benefit. However, these advantages may not continue at present levels or at all. The trading price of our common stock could be subject to significant fluctuations. The common shares of Milinx began trading on the NASD Over the Counter Bulletin Board ("OTCBB") on June 8, 2000. While to date our share price has fluctuated between a high of $7.50 and a low of $4.125, stock trading on the OTCBB is generally more susceptible to considerably wider price changes, there is no assurance this could not happen to us. The substantial number of future shares available for sale could adversely effect the market price of our common stock. As of August 31,2000, Milinx had 15,926,915 shares outstanding but if all of the preferred shares convertible to common and options and warrants are exercised, that would increase the number of shares to approximately 35,000,000. We cannot predict the effect, if any, that future sales of common stock would have on our share price. Item 10. Directors and Executive Officers of the Registrant. (a) Listing and biographies
Name Age Position Maynard Dokken 37 President and Chief Executive Officer Mikiko Fujisawa 33 Corporate Secretary, Treasurer & Director John Burns 59 Director James Medley 59 Director Barry Phillips 61 Director James W Summers 55 Chief Financial Officer Douglas A. Hicks 36 Executive Vice President of Business Development Clare Cremer 58 Senior Vice President of IT Edwin Mark 33 Senior Vice president, Legal and Corporate Counsel Jonathan Myers 53 Senior Vice President of Client Operations Grenfell Featherstone 50 Vice President of Intellectual Property Lance Drozda 29 Vice President Emerging Technologies Gary MacDonald 32 Vice President of Investor Relations Rafeh Hulays 43 Vice president of R&D/Advanced Services Bill J. Bilic 40 Chief Software Architect James B. Maedel 38 Manager of Human Resources Rudi Epp 49 Director of Web Development Allan Wong 31 Manager of Infrastructure Applications Pamela Oram 52 Manager of the Client Contact Center David G. Libby 50 Group Controller Eric B. Westra 40 Project Manager and Presales Engineer
Maynard L. Dokken, President, CEO, and Corporate Director He is the founder of the Company and was experienced in the real estate development business prior to his interest in Internet related businesses. He commenced researching the feasibility of introducing a new unique credit card product in 1994. After spending in excess of US$1,000,000 on the project, here engineered the idea of offering another consumer card to the general public in 1997. He turned his energies to the Internet and telecommunications industries. He is currently the majority shareholder of Milinx Business Group, Inc. He also controls two Companies that have licenses or other arrangements with Milinx: Milinx International and Credit Assure International, Inc. He is married to Mikiko Fujisawa, Director, Secretary, and Treasurer. Mikiko Fujisawa, Corporate Director, Secretary, and Treasurer After four years of experience as an executive assistant at Lapine Corporation and Osaka Gas Co. Ltd, Ms. Fujisawa returned to college for a brief period of study. After her graduation in 1996, she worked briefly at the daily newspaper Chugoku Shinbun-Sya before moving to North America in 1997 and becoming a Director of 545731 BC Ltd, She was responsible for most of the day-to-day management of that company. She has been a Director and the Corporate Secretary of Milinx Business Group since its incorporation in 1998, and as of May 10, 2000 has added the duties of Treasurer. She has been a Director and the Corporate Secretary of Milinx Business Services since its incorporation in 1999, and Corporate Secretary of Credit Assure International, Inc. since incorporation in 1999. She is the wife of Maynard L. Dokken. John S. Burns, Director John S. Burns Q.C., a Director since June 2000, has been a partner of the law firm Bennett Jones in Calgary, Alberta since October 1990. His areas of practice are principally corporate, corporate finance and securities law. Mr. Burns acts for public and private corporations, securities issuers and underwriters. His practice focuses on mergers and acquisitions, public and private offerings, corporate restructurings, cross-border financings and oil, gas and banking transactions. He has participated in conferences and panels and has authored a number of papers and articles with respect to these areas of law. Mr. Burns served as a Public Governor of the Alberta Stock Exchange from 1983 to 1998. He has also served as a member of the Board of Governors of the Olympic Trust of Canada, Strathcona-Tweedsmuir School and is a member of the law societies of Alberta and Upper Canada and the Calgary and Canadian Bar Associations. Mr. Burns graduated for the University of Alberta with a Bachelor of Arts degree in 1963 and a law degree from Dalhousie Law School in 1966. He is a board member of the following publicly held companies: AdvantEDGE International Inc., Canadian 88 Energy Corp., Crispin Resources Limited, Fossil Bay Resources Ltd., Glacier Ventures International Corporation , Gulfstream Resources Canada Limited, International Utility Structures Inc., JAWS Technologies Inc., Milinx Business Group, Inc., PetroSantander Inc., Superior Propane Income Fund, World Wide Warranty Inc., and Xentel Interactive Inc. James R. Medley, Chairman of the Audit Committee and Director A Director since December 1999, Mr. Medley is the founder and president of Laux Medley Norris, Inc., investment advisors and business counselors since 1976. He currently serves as Director, Treasurer and CFO for Leading-Edge Earth Products, Inc., a publicly traded development stage company. Mr. Medley has 25 years of experience in diverse areas of financial management and analysis, managing portfolios including precious metals, securities and real estate. He develops financial plans and strategies, proformas, financial analysis and cash flow forecasting for businesses, advises companies on Securities Exchange Commission reporting matters and produces financial proformas for start-up companies. Mr. Medley graduated from Naval Air Training Command, Maintenance Management Information Systems at Ohio University, University of Washington Graduate School of Business Administration, and Wentworth Institute as a Mechanical Engineer in Machine Design. He spent ten years in the United States Navy becoming a Standardization Officer in Naval Air advance Training Command and as a Carrier Aircraft Commander before starting Laux Medley Norris, Inc. in Seattle, WA. Mr. Medley is President, Investment Advisor and Director of Leading Edge Earth Products, and Treasurer/Director of Laux Medley Norris Barry W. Phillips, Director Mr. Phillips was employed with the Canadian Imperial Bank of Commerce both in Canada and internationally, from 1956 to 1977 and his experience included: operations, human resource management, executive training, corporate lending, branch management, corporate marketing and international money management. He has been working at his own management consulting firm since it was established in 1977 in Winnipeg, Manitoba, specializing in corporate finance and reorganizations, mergers and acquisitions, succession planning and sale of businesses and the implementation of financial and management information systems. He is on the advisory board of five private companies, a director of three private mining companies and has retired from the Boards of two public companies. Mr. Phillips was a Director, Treasurer, and CFO of the Company since its inception in February 1999 until April 2000. He retired as Treasurer and CFO in April 2000 but remains as a Director. Mr. Phillips is a Director of Sterling Resources, Inc., Baker Lake Gold Mines, Inc., Mirador Mining Ltd., and Global Games, Ltd. James W. Summers, Chief Financial Officer Prior to joining Milinx in April 2000, Mr. Summers career spanned than 28 years of experience as a CEO, CFO, and director and senior officer of substantial real estate investment, development, and construction firms and was one of the founders of two financial institutions in the State of Washington. In 1997, as Executive Vice President of First Wellington Crown Corporation (a subsidiary of The Triple Five Group), he established the Washington State office of a major multinational real estate development firm. Prior to that, he was General Manager of the real estate operations of Sundquist Homes, Inc from 1993 to 1997. Mr. Summers was President/Owner of Pennhill Corporation, a management consulting and real estate development firm. From 1974 to 1990, he was Chairman, CEO and CFO of the largest residential builder/developer based in the Pacific Northwest. He graduated from the University of Scranton with dual majors in Accounting and English, and studied finance at The Stern School of Business at New York University. Douglas R. Hicks, Executive Vice President of Business Development Mr. Hicks came to Milinx in July 2000 after two years as a Regional Business Manager for iPlanet E-Commerce Solutions, a Sun-Netscape Alliance. He handled a broad portfolio of Internet infrastructure and e-commerce applications software and services, helping Fortune 2000 and well-funded startup firms grow by leveraging the Internet. His specialty is addressing the needs of business through the enabling of innovative technology solutions and building markets for technology-oriented companies. Before his sojourn at iPlanet, Mr. Hicks was Manager, Western Region at Rogers from 1996 to 1998. From 1994-1996, he was Strategic Accounts Manager at AT&T. Clarence C. Cremer, Senior Vice President of Information Technology Mr. Cremer joined Milinx in June 2000 after an extensive career in Information Technology management and implementation. From 1989 to 1998, he was the Regional Vice President of the Internet consulting firm of LGS Group, Inc. From 1998 to 2000, he was President of C-Log Business Solutions Inc., an independent consulting company in Winnipeg, Manitoba. Edwin Mark, Senior Vice President, Legal and Corporate Counsel Specializing in corporate and commercial law, Mr. Mark came to Milinx in July 1999 after seven years with the law firm of Mair, Jensen and Blair. He also brings with him experience as a co-founder of the Entrepreneurs Business Group, and has held the position of Legal Chair with the United Way (Kamloops, B.C.) as well as directorships with the University College of the Cariboo Sports Task Force and the Kamloops Foundation. Jonathan Myers, Senior Vice President of Client Operations In addition to his Master's Certificate in Project Management from George Washington University, Mr. Myers brings a wealth of experience to Milinx. He joined the Company in 1999 after 30 years experience with BC Telecom (now Telus). In his 18 years there as a Regional and National Service Manager, he was responsible for the Western Canadian Data Network of the Royal Bank Financial Group, the National Network of the Hong Kong Bank (HSBC), and the Year 2000 conversion program for the Insurance Corporation of B.C. Grenfell Featherstone, Vice President of Intellectual Property With an extensive academic background, Mr. Featherstone taught English, History of Ideas and Debating for 20 years before retiring in 1996. He has considerable experience in academic administration and spent the years since his teaching career as a consultant specializing in Board/CEO policy, strategic planning and communications, before joining Milinx in 1999. Lance Drozda, Vice President of Emerging Technologies Before joining Milinx Mr. Drozda worked for two years at iPlanet E-Commerce Solutions, a Sun/Netscape Alliance, where he was a System Engineer and post-sales Account Manager specializing in Internet e-commerce technologies. He was involved with selling and implementing iPlanet products and services with telecommunications companies, Internet Service Providers and ASPs. Prior to iPlanet , he spent four years with EDS Systemhouse as a Senior Systems Analyst and Project Manager for multiple initiatives, including two-and-three-tier client/server based applications. Gary MacDonald, Vice President of Investor Relations Gary MacDonald possesses an extensive background in both the securities and entertainment industries, with more than 12 years experience as a securities trader on the Vancouver and New York Stock Exchanges and as a partner in Dimac Capital Corp. (financings, acquisitions and local and foreign market management/compliances). Since 1993, Mr. MacDonald has worked for, and currently serves on the boards of, a number of online companies, while his previous investor relations experience includes senior positions with a number of publicly traded companies. He has also consulted extensively in the areas of financing, investor, corporate, and exchange relations, and marketing. Mr. MacDonald has six years experience in the film and television industries, from full production of his own programs to executive producing, with more than 70 film and television productions to his credit. He received a Bachelor of Commerce Degree, with an economics major, from the University of British Columbia. Mr. MacDonald is a Director of the following companies: Authenticorp.com, Boomerama.com, Eye2buy.com, World Best Buy.com, Valley High Ventures, Metallex Ventures, Sovereign Chief Ventures, Consolidated AGX Corp., and Dimac Capital Corporation. Rafeh Hulays, Vice President of Research and Development/Advanced Services Doctor Rafeh Hulays is the R&D/Advance Services Vice President, responsible for next generation services and products. He received his Ph.D. in Electrical and Computer Engineering from the University of British Columbia. At the University, Dr. Hulays had a leading role in the Advanced Communications Technology Satellite (ACTS) propagation experiment (A NASA-JPL-CRC project). Dr. Hulays also worked as a prime Research Assistant on several contracts funded by the Communications Research Center to study the effect of precipitation on broadband wireless communication systems. From 1995 to 1997 Dr. Hulays worked at PCS Wireless, Inc. - initially as a Systems Design Engineer, and later as Technology and Advanced R&D Manager. He was involved in an electronics commerce startup (MediaLink Communications Limited) from 1997 to 1999, where he acted as the Managing Director. His responsibilities also included business development and project management. As a Program Manager at Elcombe Systems Limited (A Newbridge networks spin-off) from 1999 until joining Milinx in June 2000, Dr. Hulays was responsible for the overall development of the company's new generation product. Dr. Hulays has nine scientific papers published in Journals and conferences, a patent application and his research was the basis of a Canadian recommendation to the International Telecommunications Union. Rudi Epp, Director of Web Development Mr. Epp brings 25 years of varied experience in technical management in numerous roles, specializing in Applications Development and Applications Management. Before joining Milinx in February 2000, he spent 3 years at Information Systems Management (ISM-BC), where he worked as a Business Systems Analyst and Project Manager for initiatives that included a web-based Contract Management system. Before his years at ISM-BC, Mr. Epp worked at BC Telecom (now Telus) from 1989 to 1995. He has a Diploma in Computer Programming with a Business Systems Option. James B. Maedel, Manager of Human Resources Prior to joining Milinx in March 1999, Mr. Maedel has 12 years of senior management experience specializing in human resources, operations, sales, business development, and call center.. After graduating from the University of Waterloo, he spent 1 year managing the Call Centre for Future Shop, handling issues from over 100 stores throughout Canada and the US. He spent 5 years as a Regional Manager with Interactive Media Corporation, during which time he was responsible for the operation of 9 branch offices, primarily handling HR issues. Before coming to Milinx, Mr. Maedel spent 6 years at Agency Rent A Car in various business development roles from both a sales and operational perspective. Bill J. Bilic, Prior to joining Milinx in October 2000, Mr. Bilic was a Technical Director at Blast Radius Inc. since 1999.. He specialized in the software development management, software architecture and deployment of e-business solutions. In addition to establishing and maintaining technical direction of the company, he has been instrumental in designing and building global brands online presence to enable their business and services over the Internet, such as Nintendo, Kenwood, Nike, etc. Before Blast Radius, Mr. Bilic was with United Nations until 1995, Kellogg's from 1995 to 1996, NBTel from 1996 to 1998, and Irving Oil from 1998 to 1999. Allan Wong, Manager of Infrastructure Applications Mr. Wong joined Milinx in July 2000 after two years with iPlanet E-Commerce solutions, a Sun/Netscape Alliance. He was a Senior Consultant for Worldwide Professional Services and specialized in the architecture and deployment of infrastructure and e-commerce solutions. He has helped global Internet Service Providers, telecommunications companies and major financial enterprises enable their business and services over the Internet. As a solution expert, he believes the key to infrastructure deployment is the easy integration of software and hardware. His focus is on security, reliability, scalability and efficiency. Before his stint at iPlanet, he worked at InfoNet from 1994 to 1998. Pamela Oram, Manager of the Client Sales and Contact Center Ms. Orem has more than 20 years experience in management including business development, operations, sales and marketing, customer service, call center and help desk. As call center manager for Multiactive Software from 1998 to 1999, she presided over an eight-fold expansion of the center. As President of her own consulting firm from 1979 until coming to Milinx in September 2000, Pamela assisted several small, medium and large companies develop client services, inside sales, after-sales implementation and customer service. David G. Libby, Group Controller Prior to joining Milinx in August 1999, Mr. Libby was Controller of Surfwood Supply Ltd. since 1995 with full responsibilities for all accounting matters and the audited financial statements. He implemented a new financial control software system including inventory control and detailed tracking of services and rentals. He is a graduate of the University of British Columbia with a Bachelor of Commerce. Eric. B. Westra, Project Manager and Presales Engineer A 1995 graduate in Computer Information Systems from Okanagan University College, Mr. Westra's technical background includes working as a Systems Analyst for BC Trade Development Corporation and the Vancouver office of the BC Premier from 1995 to 1996, as well as Network Support Analyst for a leading network solutions provider from 1996 to 1997. In 1997, he returned to work in the media as a journalist and news anchor until joining Milinx in 1999. His broadcasting experience includes radio and television hosting, program direction, news anchoring, and acting as corporate spokesperson for various clients over a 15-year period. (b) Beneficial Ownership Reporting Compliance Maynard Dokken, President, Forms 3 and 5, one transaction filed late. Mikiko Fujisawa, Corporate Secretary, Forms 3 and 5, one transaction filed late. James Medley, Director, Forms 3 and 5, one transaction filed late. Barry Phillips, Director, Forms 3 and 5, one transaction filed late. James W. Summers, Chief Financial Officer, Forms 3 and 5, one transaction filed late. Edwin Mark, Vice President & Corporate Counsel, Forms 3 and 5, one transaction filed late. Clare Cremer, Forms 3 and 5, one transaction filed late. Doug Hicks, Forms 3 and 5, one transaction filed late. Max W. Tomaszewski, Form 3. all persons above are now believed by the Company to be current as of the date of this filing. Item 11. Executive Compensation. (b) Summary Compensation Table
Annual Compensation Fiscal Securities Year Other Annual Underlying All Other Name and Principal Position Salary ($) Bonus ($) Compensation Options Compensation - --------------------------------------------------------------------------------------------------------------------------- Maynard L. Dokken 2000 $ 118,367 President, CEO, and Director 1999 $ 29,554 Douglas A. Hicks 2000 $ 17,006 Executive Vice President (1) James W. Summers 2000 $ 21,400 39,000 (2) 39,000 Shares Chief Financial Officer (2) of common stock Clarence C. Cremer 2000 $ 6,216 $ 21,839 80,000 Senior Vice President(3) Mikiko Fujisawa 2000 $ 85,714 Secretary, Treasurer, and Director 1999 $ 19,702 Edwin Mark 2000 $ 73,376 (4)39,000 shares Senior Vice President(4) of common stock (d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table.
OPTIONS GRANTED IN THE LAST FISCAL YEAR In the fiscal year ended June 30,2000, the Company granted options under the 1997-9 Option Plan or Resolutions of the Board of Directors totaling 4,905,250 common shares of Milinx stock.
% of Total Options Granted to # of Securities Employees in Exercise Expiration Name Underlying Options Fiscal Year Price Date - ---------------------------------- -------------------------- ----------------------- --------------- ------------------- Maynard L. Dokken 250000 5% $2.00 1/31/02 Douglas A. Hicks 108000 2% $2.00 5/31/04 Douglas A. Hicks 650000 13% $3.00 6/30/03 James W. Summers (1) 100000 2% $4.50 12/31/01 Clarence C. Cremer 150000 3% $2.00 5/31/03 Clarence C. Cremer 10000 0% $2.00 5/31/02 Mikiko Fujisawa 150000 3% $2.00 1/31/02 Edwin Mark 50000 1% $2.00 5/31/01 200000 4% $0.001 5/31/05
TOTAL EMPLOYEE OPTIONS ISSUED IN FISCAL 2000: 4,905,250 Closing Share Price At October 12,2000: 4.75 (1) James W. Summers is the Beneficiary of a Trust administered by an Independent trustee. (g) Compensation of Directors. The Company has three outside Directors, Barry W. Phillips, and James R. Medley, and John S. Burns. The compensation for each is different reflecting tenure with Milinx, prior services to us or the time the Director has been able to devote in advising Management on its ongoing operations. For his services to Milinx as a consultant in the fiscal year ended June 30,2000, Mr. Phillips was paid $38,682. No cash payments to him since his retirement as CFO and Treasurer in April 2000. He has 70,000 shares of common stock, 250,000 Employee Options at $2.00, and 500,000 Internal A warrants exchangeable at $4.00 per share and expiring on January 31,2001. Mr. Medley is paid $3,000 monthly for his advice to the Company and has Warrants for 180,000 fully vested shares at a price of $4.50 per common share expiring on January 31,2002. Mr. Burns is to be granted Warrants on 180,000 shares of common stock at the market price on date of grant expiring on January 31,2002. During the fiscal year ended June 30,2000, the law firm of which Mr. Burns is a partner was paid $70,734 for services rendered the Company. (h) Employment Contracts and Termination of Employment and Change-in-Control Arrangements. We have entered into employment agreements with each of our named executive officers. Each agreement has a fixed base salary and bonuses or stock grants that were approved by our Board of Directors. Among other terms and conditions, each employee agrees that title to all intellectual property while in the employ of Milinx is the sole property of the Company. There are restrictive covenants in the agreements ranging from six months to two years during which time the employee cannot solicit any business from any present or former customers of the Company, solicit the services of anyone in the employ of Milinx, or compete with us in any respect. Our Employment Agreements with our Executive Officers can be summarized as follows: Maynard L. Dokken---A new employment agreement is being negotiated between Mr. Dokken and the Board of Directors. The terms and conditions of this agreement will be fully disclosed in our next regular filing. His present salary is $118,367 per annum. Douglas A. Hicks---A signing bonus of $17,006 plus an annual salary and monthly cash bonuses aggregating $316,898. An option to purchase up to 108,000 shares of common stock at $2.00 per share vesting equally over 36 months with an expiration of May 31,2004. These shares will continue to vest whether or not he is an employee of Milinx. An option to purchase up to 650,000 shares of common stock at a price of $3.00 vesting quarterly in 12 equal installments commencing July 1,2000. James W. Summers---An annual salary of $192,000 plus 3,250 shares of common stock at par value for 12 months commencing June 1,2000. Also, Mr. Summers is the beneficiary of a Support Trust administered by an Independent Trustee with an option to purchase up to 100,000 of Milinx common shares at a price of $4.50 vesting quarterly in equal installments over 6 quarters. Clarence C. Cremer---An annual salary of $146,041. He has an option to purchase up to 150,000 shares of common stock at a price of $2.00 per share vesting quarterly in 12 equal installments and an additional option to purchase up to 10,000 common shares at $2.00 per share expiring May 31, 2002. Mikiko Fujisawa---A new employment agreement is being negotiated between Ms. Fujisawa and the Board of Directors. The terms and conditions of this agreement will be fully disclosed in our next regular filing. Her present salary is $85,714 per annum. Edwin Mark---An annual salary of $112,245. Mr. Mark also has an option to purchase up to 50,000 common shares vesting equally over 4 quarters through June 1,2001 and an option to purchase up to 200,000 shares at a price of $.001 per share through March 31,2005 which will fully vested as of March 31,2001. (i) Additional Information with Respect to Compensation Committee Interlocks and Insider Participation in Compensation Decisions. At time of filing, Milinx Business Group, Inc. has not formed a compensation committee. Until such a committee can be formed, the duties traditionally considered to belong to the compensation committee have been undertaken by Maynard Dokken, President and CEO, and James W. Summers, Chief Financial Officer, neither of whom sit on any compensation committee. (k) Performance Graph CARIO PERFORMANCE GRAPH [GRAPHIC OMITTED] USINTERNETWORKING PERFORMANCE GRAPH [GRAPHIC OMITTED] FUTURELINK PERFORMANCE GRAPH [GRAPHIC OMITTED] Item 12. Security Ownership of Certain Beneficial Owners and Management. (a) Beneficial Ownership The following table sets forth information regarding the beneficial ownership of our common stock as of September 30, 2000 for the following: o each person who is known to us to be the beneficial owner of more than 5% of the outstanding common stock; o each of our Directors; o each of our named Executive Officers; o all of our Directors and Executive Officers as a group. Shares of common stock that a person has the right to acquire under options, warrants or other arrangements within 60 days of September 30, 2000 are deemed outstanding for purposes of computing the percentage ownership of the person who has the right to acquire the shares but are not deemed outstanding for computing the percentage ownership of any other person. Except as provided for under applicable community property laws or as indicated in the footnotes to the table, each stockholder identified in the table possesses sole voting and investment power with respect to all shares of common stock shown as beneficially owned by that stockholder. The number and percentage of shares beneficially owned are based on 16,600,644 shares of common stock outstanding as of September 30, 2000. Beneficial ownership is determined in general, as a person who has voting power or investment power with respect to securities and is treated as a beneficial owner of those securities. Unless otherwise indicated, addresses for the beneficial owners of 5% or more of the Company's voting securities are in care of the registrant at Suite 3827, 1001 Fourth Avenue, Seattle, Washington, 98154.
Name and Address of Amount and Nature of Percent of Title of Class Beneficial Owner Beneficial Ownership (1)(2) Class (3) - --------------- ------------------------------------------ ------------------------------- ----------------- Common Maynard Dokken 8,250,000 (4) 34% Common Mikiko Fujisawa 3,600,000 (5) 18% Common Dr. Bruce Butcher 913,989 (6) 5% Common Credit Assure International Inc. 2.300,000 (7) 12% Common Millennium Three Holdings Ltd. 1,158,750 (8) 7% Common Trans Research International Ltd. 935,250 (9) 6% Common North American Funding Limited 920,625 (10) 6% Common Bountiful Prosperity Limited 409,342 (11) 2% Notes: (1) Includes Warrants, Options and Preferred as converted to common. (2) Preferred shares Series A vote two times the common shares into which they may be converted on all matters. (3) Based on 16,600,644 common shares. Where beneficial shares are included, beneficial shares are added to the common to calculate the % of class. (4) Maynard Dokken owns 2,250,000 Series A Preferred shares and 300,000 common shares, and is married to Mikiko Fujisawa; and he controls Credit Assure International Ltd, which owns 750,000 Series A Preferred shares and 50,000 common shares. He also has 400,000 1999 Internal B warrants, exchangeable at $6.00 per share for 400,000 Series A Preferred shares. Shares include 600,000 preferred series A shares in Trust for Ms. Fujisawa. All but 300,000 shares are beneficially owned. (5) Mikiko Fujisawa owns 850,000 Series A Preferred shares and 300,000 common shares and is married to Maynard Dokken; and she has a minor interest in Credit Assure International Ltd. Mikiko also has 250,000 1999 Internal B warrants, exchangeable at $6.00 per share for 250,000 Series A Preferred shares; all but 300,000 shares are beneficially owned. Shares include 600,000 preferred series A shares held in Trust for Mr. Dokken. (6) Dr. Butcher owns 75,000 Series A Preferred Shares, 88,989 common shares, 500,000 1999 Internal A Warrants @ $/share, expiring 1/31/2001, and 100,000 2000 Warrants @ approx. $4.7/share, expiring 6/30/2002. All but 88,989 shares are beneficially owned. (7) Credit Assure International Ltd. owns 750,000 Preferred A shares and 50,000 common shares. All but 50,000 shares are beneficially owned. May be considered beneficially owned by Maynard Dokken and Mikiko Fujisawa. (8) Millennium Three Holdings Ltd. owns 386,250 1999 International Class A Warrants and 772,500 common shares. 386,250 shares are beneficially owned. May be affiliate of other shareholders (10-11 below) but unable to determine if affiliated. (9) Trans Research International Ltd. owns 620,000 common shares and 147,500 1999 International Class A Warrants, and 167,750 Class D Warrants. See Note (9). 315,250 shares are beneficially owned. (10) North American Funding Ltd. owns 306,875 1999 International Class A Warrants and 613,750 common shares. See note (9) above. 306,875 shares are beneficially owned. (11) Bountiful Prosperity has 409,342 Class E Warrants convertible to 409,342 common shares at $2.00 per share. All are beneficially owned. Affiliate status is unknown. (b) Management Ownership.
Unless otherwise indicated, addresses for Management owning the Company's voting securities are in care of the registrant at Suite 3827, 1001 Fourth Avenue, Seattle, Washington, 98154.
Amount and Nature of Name and Address of Beneficial Ownership Percent of Title of Class Beneficial Owner (1)(2) Class (3) - --------------- ---------------------------------------------- --------------------------- ---------------- Common Maynard Dokken See (a) above 34% Common Mikiko Fujisawa See (a) above 18% Common Douglas Martin 180,000 (1) Common Barry W. Phillips 720,000 (2) 4% Common John Burns (3) -- Common James Medley 180,000 (4) 01% Common James W. Summers 139,000 (5) 01% Common Doug Hicks 758,000 (6) 04% Common Clare Cremer 160,000 (7) 01% Common Edwin Mark 289,000 (8) 02% Common All Officers and Directors as a Group 14,276,000 (10) 47% Notes: (1) Mr. Martin is a Director nominee and has not accepted the position as of October 12, 2000. All would be beneficially owned, and exercisable as warrant for a period of three years from issuance. Exercise price approximately $4.50 per share. (2) Barry Phillips has 70,000 common shares, 250,000 Employee Options at $2.00 per share, and 400,000 1999 Internal A Warrants at $4.00 per share, expiring 1/31/2001. All but 70,000 shares are beneficially owned. (3) Mr. Burns has not yet been awarded Warrants, but is expected to be awarded Warrants on the same basis as Mr. Martin. Not included in total. (4) Mr. Medley has Warrants at $4.50 per share expiring January 1, 2001. All are beneficially owned. Warrants have a cashless exercise feature. (5) Mr. Summer has 100,000 Warrants vesting equally over 18 months, cashless or exercisable under Form S-8 at $4.50 per share, and 39,000 common shares awarded to be registered under Form S-8, held in escrow and released ratably over one year. Common Shares have not yet been issued. All but 39,000 shares are beneficially owned. (6) Mr. Hicks has 108,000 options at $2.00 per share, and 650,000 options at $3.00 per share, vesting over time. All are beneficially owned. (7) Mr.Cremer has 10,000 options at $2.00 per share expiring May 31, 2002, and 150,000 options at $2.00 per share expiring May 31, 2005. All shares are beneficially owned. (8) Mr. Mark has 200,000 employee options exercisable over time at a nominal amount, and 50,000 options at $2.00 per share expiring May 31, 2002; he also has 39,000 shares awarded under S-8 Registration which are to be held in escrow and released ratably over one year. None of the common shares have been issued. All but the 39,000 shares are beneficially owned. (9) Totals are based on those listed above. (10) Does not include Credit Assure shares which is an affiliate of Mr. Dokken and Ms Fujisawa
(c) Changes in Control of Registrant There are no arrangements that would result in a change of control. Item 13. Certain Relationships and Related Transactions. The Company's majority stockholder and President has controlling interest in the following companies: Milinx Marketing Group, Inc. (Texas), Milinx Marketing Group, Inc. (British Columbia), Milinx Management Corporation, Credit Assure International, Inc., and Assured Card Corporation (currently inactive). Effective April 1, 1999, Milinx Marketing Group, Inc. (British Columbia) sold all of its tangible and intangible assets to Milinx - BC, in exchange for $96,948 (CND) or approximately $65,900 (US) promissory note that bears interest at 10% per annum. The full amount was repaid to Milinx Marketing Group prior to June 30, 2000. On February 12, 1999, the Company entered into a management agreement with Milinx Management Corporation ("Milinx Management"). Under the terms of the agreement Milinx Management was to provide management, administrative and marketing services to the Company in consideration for payment of all of the associated expenses to be incurred by Milinx Management in connection with providing the services, including personnel costs. In addition, Milinx Management was entitled to a management fee equal to fifteen percent of the expenses to be billed to the Company. Before this agreement was terminated on April 1, 1999, the Company received services from Milinx Management, totaling approximately $44,800. By June 30, 2000, the Company paid all but $3,586 of these fees. The balance bears no interest and is due on demand. On October 15, 1999 the Company acquired substantially all assets of Milinx International, Inc. for consideration of 375,000 of the Company's common shares. Due to unavailability of the information related to the cost of assets acquired, the Company valued shares exchanged based on the present value of the future payments due under the original license agreement (see note E). The value of the consideration paid and the unamortized book value of the original license agreement were written off at the time of acquisition. On October 15, 1999, Credit Assure International, Inc. received 50,000 common shares from Milinx Business Group in exchange for intellectual property and trademarks. Due to unavailability of the cost information related to the intangibles acquired, the Company valued transaction using estimated fair value of the shares exchanged of $25,000. Acquisition costs were immediately written off as an expense. During the year ended June 30, 2000, Milinx - BC also incurred various expenses on behalf of Milinx Marketing Group, Inc. (Milinx Marketing) totaling $82,644. At June 30, 2000, the entire balance was recorded as a receivable from Milinx Marketing. During the year ended June 30, 2000, the Company entered into a management and financial consulting services agreement with a company controlled by a director. The agreement expired March 31, 2000 and required up to $1,200 in weekly payments for services rendered by this director. The Company incurred $48,800 under this agreement during the year ended June 30, 2000. The entire balance was paid in full prior to June 30, 2000. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (k) List the following documents filed as a part of the report:
Exhibit Number Description - -------------- --------------------------------------------------------------------------------------------------- 2.1 Stock exchange agreement between Forestay and Milinx Business Group, Inc. 3.1 Articles of incorporation of Milinx Business Group, Inc. 3.2 Corporate by-laws of Milinx Business Group, Inc. 3.3 Instruments defining the Rights of Security Holders 10.1 Lease agreement between 356535 B.C. LTD and Milinx Marketing Group, Inc. 10.2 Lease agreement between 356535 B.C. LTD and Milinx Marketing Group, Inc. 10.3 Lease agreement between Chung Ping Cheng and Milinx Marketing Group, Inc. 10.4 Lease agreement between Great Northwest Inc. and Milinx Business Services, Inc. 10.5 Lease agreement between 1045 Howe Street ??? Inc. .? Ltd.? and Milinx Business Services, Inc. 10.6 Addendum to lease agreement between 1045 Howe Street ??? Inc.? Ltd.? and Milinx Business Services, Inc. 10.7 Offer to sublease between Bema Gold Corp. and Milinx Business Services, Inc. (To Be Added By Amendment) 10.8 Offer to lease between Bentall Properties and Milinx Business Services, Inc. (To Be Added By Amendment) 10.9 Schedule B - attachment to 10.8 above - Three Bentall Centre Sample Lease (To Be Added By Amendment) 10.10 Agreement between AOL Inc. and Milinx Business Services, Inc. (To Be Added By Amendment) 10.11 Private Label Partnership Agreement between Tornado, Inc. and Milinx Business Services, Inc. (To Be Added By Amendment) 10.12 Executive Services Agreement between Milinx Business Services Inc. and Clare Cremer (To Be Added By Amendment) 10.13 Executive Services Agreement between Milinx Business Services Inc. and James W. Summers (To Be Added By Amendment) 10.14 Executive Services Agreement between Milinx Business Services Inc. and Doug Hicks (To Be Added By Amendment) 10.15 Employment Agreement between Milinx Business Services Inc. and Edwin Mark (To Be Added By Amendment) 10.16 Compensatory Contract (Options) - Maynard Dokken (To Be Added By Amendment) 10.17 Compensatory Contract (Options) - Mikiko Fujisawa (To Be Added By Amendment) 10.18 Compensatory Contract (Options) - Doug Hicks(To Be Added By Amendment) 10.19 Compensatory Contract (Options) - Edwin Mark (To Be Added By Amendment) 10.20 Compensatory Contract (Options) - Barry Phillips (To Be Added By Amendment) 10.21 Compensatory Contract (Options) - James W. Summers (To Be Added By Amendment) 10.22 Compensatory Contract (Options) - Clare Cremer (To Be Added By Amendment) 10.23 Compensatory Contract (Warrants) - Bruce Butcher (To Be Added By Amendment) 10.24 Compensatory Contract (Warrants) - James Medley (To Be Added By Amendment) 10.25 Compensatory Contract (Warrants) - Maynard Dokken (To Be Added By Amendment) 10.26 Compensatory Contract (Warrants) - Mikiko Fujisawa (To Be Added By Amendment) 10.27 Compensatory Contract (Warrants) - TPG Capital Corporation (To Be Added By Amendment) 10.28 Compensatory Contract (Warrants) - Barry Phillips (To Be Added By Amendment) 10.30 Compensatory Contract (Warrants) - Frank Birkholz (To Be Added By Amendment) 10.31 Compensatory Contract (Warrants) - Jim Summers (To Be Added By Amendment) 21.1 Subsidiary List(To Be Added By Amendment) 23.1 Consent by Grant Thornton(To Be Added By Amendment) 27.1 Financial Data Schedule
Item 15. Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report 10K to be signed on its behalf by the undersigned, thereunto duly authorized on the 12 day of October, 2000. Milinx Business Group, Inc. By: /s/ Maynard Dokken -------------------------------------- Maynard Dokken, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons in the capacities and on the dates indicated. /s/ Maynard Dokken Maynard Dokken, President and Chief Executive Officer October 12, 2000 /s/ Mikiko Fujisawa Mikiko Fujisawa, Corporate Secretary, Treasurer and Director October 12, 2000 /s/ Jim Summers Jim Summers, Chief Financial Officer October 12, 2000 /s/ Dave Libby Dave Libby, Controller October 12, 2000 /s/ Barry Phillips Barry Phillips, Director October 12, 2000 /s/ James Medley James Medley, Director October 12, 2000 Consolidated Financial Statements and Report of Independent Certified Public Accountants MILINX BUSINESS GROUP, INC. AND SUBSIDIARIES June 30, 2000 and 1999 C O N T E N T S Page REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3 FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS 4 CONSOLIDATED STATEMENTS OF OPERATIONS 5 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 6 CONSOLIDATED STATEMENTS OF CASH FLOWS 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9 Report of Independent Certified Public Accountants Board of Directors and Stockholders Milinx Business Group, Inc. We have audited the accompanying consolidated balance sheet of Milinx Business Group, Inc. (a Delaware corporation) and its Subsidiaries, (the Company) as of June 30, 2000 and 1999 and the related consolidated statements of operations, stockholders' equity, and cash flows for the year ended June 30, 2000 and the six months ended June 30, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Milinx Business Group, Inc. and its Subsidiaries, as of June 30, 2000 and 1999, and the results of their consolidated operations and their cash flows for the year ended June 30, 2000 and the six months ended June 30, 1999, in conformity with accounting principles generally accepted in the United States of America. GRANT THORNTON LLP Seattle, Washington August 29, 2000 3
Milinx Business Group, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS ASSETS June 30, June 30, 2000 1999 ------------- --------------- CURRENT ASSETS Cash $ 2,162,430 $ 4,522 Receivables Trade 9,334 17,151 Subscriptions 323,721 - Goods and services tax 327,149 - Employee and stockholders 20,692 - Other - 50,675 ------------- --------------- Total receivables 680,896 67,826 Due from Milinx Marketing Group 82,644 - Security deposits 209,362 - Prepaid rent and other 43,549 34,873 ------------- --------------- Total current assets 3,178,881 107,221 PROPERTY AND EQUIPMENT-AT COST, net of accumulated depreciation 3,572,168 714,232 OTHER ASSETS Licenses 2,036,985 261,250 Capital lease deposits 203,915 - Security deposits 1,300 24,834 ------------- --------------- $ 8,993,249 $ 1,107,537 ============= =============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 981,233 $ 391,412 Accrued liabilities 279,758 105,079 Due to Milinx Marketing Group, Inc. - 25,813 Due to Milinx Management Corporation 3,586 3,586 Due to Milinx International, Inc. - current portion - 25,000 Capital lease obligations - current portion 536,061 - Customer deposits 2,529 - ------------ --------------- Total current liabilities 1,803,167 550,890 CAPITAL LEASE OBLIGATIONS, net of current portion 927,808 - DUE TO MILINX INTERNATIONAL, INC., less current portion - 200,000 COMMITMENTS - - STOCKHOLDERS' EQUITY Series A 10% non-cumulative, voting convertible preferred stock, liquidation 3,675 3,675 value of $1,176,000 Series B 10% non-cumulative, voting convertible preferred stock, liquidation 1,681 - value of $3,362,500 Series C 10% non-cumulative, voting convertible preferred stock, liquidation 2,207 - value of $2,207,412 Common stock 9,671 8,470 Additional paid in capital 14,908,291 1,209,275 Unearned compensation (1,102,626) - Accumulated deficit (7,480,702) (844,250) Accumulated other comprehensive deficit (79,923) (20,523) ------------ --------------- 6,262,274 356,647 ------------ --------------- $ 8,993,249 $ 1,107,537 ============ ===============
The accompanying notes are an integral part of these statements. 4
Milinx Business Group, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS Year ended Six months ended June 30, 2000 June 30, 1999 ------------------ ---------------------- Net sales $ 197,193 $ 43,424 Cost of sales 365,449 48,112 ------------------ ---------------------- Gross profit (loss) (168,256) (4,688) ------------------ ---------------------- Selling, general and administrative expenses 6,442,914 839,192 Other expenses (income) Interest 31,515 - Miscellaneous (6,233) 370 ------------------ ---------------------- 25,282 370 Net loss $ (6,636,452) $ (844,250) ================== ====================== Net loss per common share - basic and diluted $ (0.74) $ (0.32) ================== ======================
The accompanying notes are an integral part of these statements. 5
Milinx Business Group, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the six months ended June 30, 1999 and the year ended June 30, 2000 Common Stock Additional Series A Preferred Series B Preferred Series C Preferred Paid in Stock Stock Stock Capital Shares Amount Shares Amount Shares Amount Shares Amount Balance at January 1, - $ - - $ - - $ - $ - $ - 1999 Issuance of common stock through series of private placements 8,470,000 $ 8,470 592,825 Issuance of Series A preferred stock to officers and legal counsel 2,925,000 2,925 Issuance of Series A preferred stock through exercise of stock options by 26,250 Credit Assure 750,000 750 Issuance of Internal Warrants A to a director and legal 200 counsel Issuance of Class A units to various 590,000 investors Foreign currency translation adjustment Net loss for the six months ended June 30, 1999 ---------- -------- --------- -------- --------- -------- ----------- -------- ----------- Balance at June 30, 3,675,000 3,675 - - - - 8,470,000 8,470 1,209,275 1999 Issuance of common stock in asset purchase transactions - - - - - - 425,000 425 174,700 Issuance of common stock as part of reverse acquisition - - - - - - 250,000 250 250 Issuance of Class A units to various - - - - - - - - 2,772,500 investors Issuance of Class D units to various - - - - - - - - 9,097,662 investors Issuance of Series C preferred stock and Class D Warrants to various investors through a conversion - - - - 2,624,412 2,624 - - 1 of Class D units Issuance of common stock to investors through a conversion of Series C preferred - - - - (417,000) (417) 417,000 417 - Issuance of common stock to an investor through a conversion of Class D warrants - - - - - - 37,500 38 74,962 Issuance of Series B preferred stock and 1999 International A warrants to various investors through a - - 1,681,250 1,681 - - - - 1 conversion of Class A Units Issuance of common stock to employees - - - - - - 71,000 71 35,479 Grant of warrants for legal services - - - - - - - - 122,000 Grant of stock options to employees - - - - - - - - 1,421,461 Current year amortization of - - - - - - - - - deferred compensation Change in cumulative translation adjustment - - - - - - - - - Net loss for year ended June 30, 2000 - - - - - - - - - ---------- -------- --------- -------- --------- -------- --------- -------- ----------- Balance at June 30, 2000 3,675,000 $ 3,675 1,681,250 $ 1,681 2,207,412 $ 2,207 9,670,500 $ 9,671 $14,908,291 ========== ========= ========= ======== ========== ======== ========= ======== ===========
The accompanying notes are an integral part of this statement. Milinx Business Group, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the six months ended June 30, 1999 and the year ended June 30, 2000 (CONTINUED)
Unearned Accumulated Accumulated Total Compensation Deficit Other Comprehensive Deficit Balance at Jan. 1, 1999 $ - $ - $ - $ - Issuance of common stock through series of private placements 601,295 Issuance of Series A preferred stock to officers and legal counsel 2,925 Issuance of Series A Preferred stock through Exercise of stock options By Credit Assure 27,000 Issuance of Internal Warrants A to a director and legal counsel 200 Issuance of Class A units to various investors 590,000 Foreign currency Translation adjustment (20,523) (20,523) Net loss for the Six months ended June 30, 1999 (844,250) (844,250) ----------------- -------------- ----------- ------------ Balance at June 30, 1999 (844,250) (20,52) 356,647 Issuance of common Stock in asset Purchase transactions - - - 175,125 Issuance of common Stock as part of Reverse acquisition - - - 500 Issuance of Class A Units to various Investors - - - 2,772,500 Issuance of Class D Units to various Investors - - - 9,097,662 Issuance of Series C Preferred stock and Class D Warrants to Various investors Through a conversion Of Class D units - - - 2,625 Issuance of common stock To an investor through a Conversion of Class C Preferred - - - - Issuance of common stock To an investor through Conversion of Class D Warrants - - - 75,000 Issuance of Series B Preferred stock and 1999 International A warrants To various investors Through a conversion of Class A units - - - 1,682 Issuance of common Stock to employees - 35,550 Grant of warrants For legal services - - 122,000 Grant of stock options To employees (1,421,461) - - - Current year amortization Of deferred compensation 318,835 - - 318,835 Change in cumulative Translation adjustment - - (59,400) (59,400) Net loss for year ended June 30, 2000 - (6,636,452) - (6,636,452) ----------------- -------------- ----------- ------------ Balance at (1,102,626) $ (7,480,702) $ (79,923) $ 6,262,27 June 30, 2000 ================= ============== =========== ===========
The accompanying notes are an integral part of this statement. 7
Milinx Business Group, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended Six months ended June 30, 2000 June 30, 1999 Increase (Decrease) in cash Cash flows from operating activities Net loss $ (6,636,452) $ (844,250) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 450,814 42,362 Write off of license and trademark costs 304,500 - Employee stock and stock option compensation 350,835 - Warrants issued for services 122,000 - Changes in assets and liabilities Receivables (289,349) (67,826) Security deposits and prepaid expenses (194,504) (34,873) Accounts payable, accrued liabilities and customer 447,756 496,491 deposits Related party receivables (82,644) (36,282) -------------- ---------------------- Net cash used in operating activities (5,527,044) (444,378) Cash flows from investing activities Acquisition of fixed assets (1,782,659) (677,163) Increase in licenses (1,843,525) (50,000) Cash acquired through Forestay 500 - Capital lease deposits (203,915) (24,834) -------------- ---------------------- Net cash used in investing activities (3,829,599) (751,997) Cash flows from financing activities Proceeds from issuance of common stock 75,000 601,295 Proceeds from issuance of preferred stock 4,307 2,925 Proceeds from issuance of Class A Units 2,772,500 590,000 Proceeds from issuance of Class D Units 8,773,941 - Proceeds form issuance of 1999 Internal Warrants A - 200 Proceeds from exercise of stock options - 27,000 Proceeds from sale of common stock to employees 3,550 - Payments on capital lease obligations (55,347) - -------------- ---------------------- Net cash provided by financing activities 11,573,951 1,221,420 Effect of the exchange rate changes on cash (59,400) (20,523) -------------- ---------------------- Net increase in cash and cash equivalents 2,157,908 4,522 Cash and cash equivalents at beginning of year 4,522 - -------------- ---------------------- Cash and cash equivalents at end of year $ 2,162,430 $ 4,522 ============== ====================== Cash paid for Interest $ 8,272 $ 1,652 Taxes - - Non-cash disclosures: Equipment under capital lease $ 2,016,198 - Note issued in connection with asset acquisition $ - 65,681
The accompanying notes are an integral part of these statements. 8 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Milinx Business Group, Inc. (Milinx - Delaware) was incorporated on December 10, 1998 in the state of Delaware as Milinx Marketing Group, Inc. and commenced its operations on February 10, 1999. Effective April 1, 1999, the Company formed a wholly-owned Canadian subsidiary, Milinx Business Services, Inc. (Milinx - BC) to develop and market its product in Canada. Both companies have adopted June 30 fiscal year ends. Effective May 5, 1999, Milinx - Delaware changed its name to Milinx Business Group, Inc. On December 9, 1999, through a transaction structured as a reverse acquisition, Milinx - Delaware acquired Forestay Corporation, a reporting company registered in Delaware. The Company elected successor status under Exchange Act Rule 12g-3(a) and became a reporting company effective February 15, 2000. The Company began trading in the OTC market on June 8, 2000. Milinx Business Group, Inc. and its subsidiaries (collectively referred thereto as "the Company") are developing and marketing business application products including Unified Messaging, Virtual Office Systems, and supplying communication productivity, and e-commerce functionality. The Company is targeting Small and Medium Enterprises (SMEs) in the business Application Service Provider (ASP) market in North America. 1. Principles of Consolidation --------------------------- The financial statements include the accounts of the Milinx - Delaware and its wholly owned Subsidiaries. All significant intercompany balances and transactions have been eliminated. 2. Revenue Recognition ------------------- Revenue from month-to-month subscriber contracts is recognized monthly as earned. 3. Property and Equipment ---------------------- Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful life ranging as follows: Computer hardware and telecommunication equipment 2 - 3 years Computer software 3 years Furniture and fixtures 2 - 3 years Leasehold improvements The lesser of the lease term or the estimated useful life of the asset 9 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 4. Licenses -------- The Company capitalizes costs of software licenses acquired from third party vendors. Amortization is computed using the ratio of current users over the estimated total number of users during estimated useful life of each license. The estimated useful life is determined as the lesser of the license term or estimated life of the license and generally ranges from 2 to 3 years. The Company evaluates capitalized licensing costs quarterly to determine potential impairment. 5. Loss per share -------------- Basic loss per share is based on the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding during the year ended June 30, 2000 and the six months ended June 30, 1999 was 8,972,958 and 2,656,040, respectively. Diluted loss per share includes the effect of all potentially dilutive common stock equivalents. Diluted loss per share for the year ended June 30, 2000 and the six months ended June 30, 1999 equaled basic loss per share due to antidilutive effect of the common stock equivalents. 6. Translation Adjustments ----------------------- The Company considers the U.S. dollar its functional currency. Milinx - BC's functional currency is the Canadian dollar. Translation adjustments resulting from the process of translating the subsidiaries financial statements into U.S. dollars for consolidation purposes is reported as a separate component of stockholders' equity. 7. Comprehensive Income -------------------- The Company adopted SFAS 130, Reporting Comprehensive Income. The statement requires inclusion of foreign currency translation adjustments, reported separately in stockholders' equity, in other comprehensive income. The Company had no other comprehensive income items for the year ended June 30, 2000 and the six months ended June 30, 1999. The Company's total comprehensive loss for the year ended June 30, 2000 and the six months ended June 30, 1999 was $6,695,852 and $864,773, respectively. 8. Accounting Estimates -------------------- In preparing the Company's financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 9. New Accounting Pronouncements ----------------------------- In December 1999, The Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company has not assessed the effect that such adoption may have on its consolidated results of operations and financial position. 10 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued In March 2000, Financial Accounting Board of Standards issued Financial Interpretation No. 44 (FIN 44) Accounting for Certain Transactions involving Stock Compensation. The provisions of FIN 44 are effective July 1, 2000, and, except for certain types of modifications, will be applied prospectively to new awards, exchanges of awards in business combinations, modifications of outstanding awards, and changes in grantee status that occur on or after that date. The adoption of FIN 44 could have a material effect on the future consolidated results of its operations and financial position. 10. Reclassifications ----------------- Certain reclassifications have been made to prior period numbers to conform to current year classifications. NOTE B - MANAGEMENT PLANS The Company's negative cash flow from operations is expected to continue through the first two quarters of fiscal year 2001. Until subscription revenue exceeds cash operating expenditures, which the Company expects to occur by the first calendar quarter of 2001, substantial additional equity capital will have to be raised to fund capital expenditures and operations. In the year ending June 30, 2000, the Company raised $11,573,951 in equity capital without the benefit of an operating Data Center, software applications or an ability to market any of its services. Subsequent to June 30, 2000, the Company raised $1,326,920 (unaudited) from the conversion of 663,460 in Class D Warrants to common shares prior to August 29, 2000. The Company is in the process of completing a private placement of 2,500,000 shares of common stock at a price of $4.50 per share for a total of $11,250,000. While certain expressions of interest have been received, no significant amounts have been raised prior to August 29, 2000. Management believes that completion of the private placement along with the ability since only August, 2000 to solicit subscribers and build recurring revenue, there will be more than sufficient funding for current operations through June 30, 2001. If the private placement is not successful and projected revenues do not materialize as forecasted, the Company will immediately reduce operating expenses as much as necessary and defer or cancel planned geographic expansion and capital expenditures. In addition, the Company will pursue aggressively direct and intermediary third party equity funding sources that were not required in raising the equity funding to date. 11 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 NOTE C - PROPERTY AND EQUIPMENT June 30, June 30, 2000 1999 ------------ ------------ Computer hardware and telecommunication equipment $ 2,763,822 $ 248,137 Computer software 395,461 340,296 Furniture and fixtures 259,707 75,476 Leasehold improvements 625,729 78,935 ------------ ------------ 4,044,719 742,844 Accumulated depreciation and amortization 472,551 28,612 ------------ ------------ $ 3,572,168 $ 714,232 ============ ============ NOTE D - RELATED PARTY TRANSACTIONS The Company's majority stockholder and President has controlling interest in the following companies: Milinx Marketing Group, Inc. (Texas), Milinx Marketing Group, Inc. (British Columbia), Milinx Management Corporation, Credit Assure International, Inc., Assured Card Corporation (currently inactive). Effective April 1, 1999, Milinx Marketing Group, Inc. (British Columbia) sold all of its tangible and intangible assets to Milinx - BC, in exchange for a $96,948 (CND) or approximately $65,900 (US) promissory note that bears interest at 10% per annum. The full amount was repaid to Milinx Marketing Group prior to June 30, 2000. On February 12, 1999, the Company entered into a management agreement with Milinx Management Corporation ("Milinx Management"). Under the terms of the agreement Milinx Management was to provide management, administrative and marketing services to the Company in consideration for payment of all of the associated expenses to be incurred by the Milinx Management in connection with providing the services, including personnel costs. In addition, Milinx Management was entitled to a management fee equal to fifteen percent of the expenses to be billed to the Company. Before this agreement was terminated on April 1, 1999, the Company received services from Milinx Management, totaling approximately $44,800. By June 30, 2000, the Company paid all but $3,586 of these fees. The balance bears no interest and is due on demand. On October 15, 1999 the Company acquired substantially all assets of Milinx International, Inc. for consideration of 375,000 of the Company's common shares. Due to unavailability of the information related to the cost of assets acquired, the Company valued shares exchanged based on the present value of the future payments due under the original license agreement (see note E). The value of the consideration paid and the unamortized book value of the original license agreement were written off at the time of acquisition. 12 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 On October 15, 1999, Credit Assure International, Inc. received 50,000 common shares from Milinx Business Group in exchange for intellectual property and trademarks. Due to unavailability of the cost information related to the intangibles acquired, the Company valued transaction using estimated fair value of the shares exchanged of $25,000. Acquisition costs were immediately written off as an expense. During the year ended June 30, 2000, Milinx - BC also incurred various expenses on behalf of Milinx Marketing Group, Inc. (Milinx Marketing) totaling $82,644. At June 30, 2000, the entire balance was recorded as a receivable from Milinx Marketing. During the year ended June 30, 2000, the Company entered into a management and financial consulting services agreement with a company controlled by a director. The agreement expired March 31, 2000 and required up to $1,200 in weekly payments for services rendered by this director. The Company incurred $48,800 under this agreement during the year ended June 30, 2000. The entire balance was paid in full prior to June 30, 2000. NOTE E - LICENSES On February 12, 1999, the Company signed a ten-year license agreement with Milinx International, Inc. ("Milinx International"), an affiliated company (see note D). The agreement granted the Company an exclusive right to use Internet and communication technologies, software, trade secrets and marketing systems for Milinx products in North America. The agreement called for $50,000 to be paid by August 12, 1999, and nine yearly payments of $25,000 commencing February 12, 2000. On October 15, 1999 the Company acquired substantially all of the assets of Milinx International for consideration of 375,000 of the Company's common shares. In connection with the acquisition, the NOTE E - LICENSES - continued unamortized value of the license was written off (see note D). During the year ended June 30, 2000 and the six months ended June 30, 1999, amortization expense on the license was $6,875 and $13,750, respectively. The Company entered into a licensing agreement with Intraware, a partner of the SUN/Netscape Alliance (iPlanet) on April 27, 2000. This licensing provides for 500,000 seats of SUN/Netscape Alliance software for Virtual Office and Unified Messaging and 500,000 seats of U-Force Unified Messaging. The total cost of $1,695,115 for this licensing was paid prior to June 30, 2000, except for two payments of $146,730, which are included in the accounts payable at June 30, 2000. The licensing will be amortized based on the number of seats in use. As of June 30, 2000, the Data Center was not fully operational and, thus, no amortization was recognized in the consolidated financial statements. The Company, in June 2000, entered into several other licensing agreements for use in its new Data Center, at a total cost of $341,870. Some of the features of these licenses are to enable subscribers to view and to "drill down" into their statement detail via the Internet. As of June 30, 2000, the Data Center was not fully operational and, thus, no amortization was recognized in the consolidated financial statements. 13 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 NOTE F - TRADEMARKS On March 15, 1999, the Company entered into an agreement with Credit Assure International, Inc. ("Credit Assure"), an affiliated company (see note D). Under the agreement, the Company was granted an exclusive right to use the "CreditAssure" trademark and serve as its exclusive distributor and marketer in the United States and Canada. In consideration of the rights received, the Company granted Credit Assure an option to purchase 750,000 shares of the Company's Preferred A Stock for $27,000. Options were granted on March 15, 1999 and exercised on April 6, 1999. Due to the absence of any market for the Company's preferred stock, value of the option, if any, at the date of grant was considered negligible. On October 15, 1999, the Company acquired substantially all assets of Credit Assure for consideration of 50,000 shares of the Company's common stock (see note D). NOTE G - STOCKHOLDERS' EQUITY The Company has the following types of securities authorized and outstanding: Common Stock - $0.001 par value, 210,000,000 shares authorized, 9,670,500 shares outstanding. On June 12, 1999, the Board of directors resolved to increase the authorized shares to 210,000,000 from 45,000,000 and approved a two for one stock split on the Company's common stock to facilitate proposed financing plans. However, on November 4, 1999, the Board of Directors voted to reverse the foregoing stock split and to consolidate the issued and outstanding shares of common stock at a ratio of one for two, thus, effectively, negating the June 12, 1999 stock split. The number of authorized shares remained at 210,000,000. Preferred Stock - 100,000,000 shares of preferred stock authorized and designated into series as follows: Series A $0.001 par value, 10% non-cumulative, voting, convertible preferred stock - 15,000,000 shares authorized, 3,675,000 shares issued and outstanding. Series A preferred stockholders are entitled to a non-cumulative 10% cash dividend. Each share has a $.32 liquidation preference in addition to any declared and unpaid dividends outstanding at the time of liquidation (up to $.32 of accumulated dividends per each Series A preferred share). Each preferred stockholder is entitled to a number of votes that equals twice the number of common shares into which said Series A preferred stock may be converted but no less than six votes for each Series A preferred share. General conversion provisions entitle each preferred share to be converted into three common stock shares. The agreement also has variable conversion provisions designed to prevent dilution of the preferred stockholders' position. No shares can be converted during the twelve months following issuance. The agreement also contains automatic conversion provisions at the election of the Company. At June 30, 2000, the conversion ratio of Series A preferred stock into common stock was 1:3. Series B no par value voting, convertible preferred stock - 10,000,000 shares authorized, 1,681,250 shares issued and outstanding. Each share of Series B preferred stock has a $2.00 liquidation preference. Each preferred stockholder is entitled to a number of votes that equals the number of common shares into which said Series B preferred stock may be converted. General conversion provisions entitle each preferred share to be converted into one common stock share. The agreement also has variable conversion provisions designed to prevent dilution of the preferred stockholders' position. No shares can be converted until after December 31, 1999. The agreement also contains automatic conversion provisions at the election of the Company. At June 30, 2000, the conversion ratio of Series B preferred stock into common stock was 1:1. 14 NOTE G - STOCKHOLDERS' EQUITY - continued Series C $0.001 par value, 10% non-cumulative, voting, convertible preferred stock - 10,000,000 shares authorized, 2,207,412 shares issued and outstanding. Series C preferred stockholders are entitled to a non-cumulative 10% cash dividend. Each share of Series C preferred stock has a $1.00 liquidation preference less accumulated total dividends paid up to the time of liquidation. Each preferred stockholder is entitled to a number of votes that equals the number of common shares into which said Series C preferred stock may be converted. General conversion provisions entitle each preferred share to be converted into one common stock share. The agreement also has variable conversion provisions designed to prevent dilution of the preferred stockholders' position. The agreement also contains automatic conversion provisions at election of the Company. At June 30, 2000, the conversion ratio Series C preferred stock to common was 1:1. Of the authorized preferred stock, 65,000,000 shares have not yet been designated to a Series. Warrants - As of June 30, 2000 the Company has authorized the following warrants: 1999 Internal Warrant A, 900,000 warrants authorized These warrants are exchangeable for common shares at $4.50 per share until January 31, 2002. As of June 30, 2000, 900,000 1999 Internal Warrants A were issued and outstanding. 1999 International Warrant A, 840,625 warrants authorized These warrants are exchangeable for common shares at $2.00 per common share until September 30, 2000. As of June 30, 2000 there were 840,625 1999 International Warrants A issued and outstanding. The Company, at a nominal sum, may repurchase these warrants if the common shares of the Company trade at $2.40 for five consecutive trading days and the warrant is not exercised. None of the warrants have been repurchased by the Company. 1999 Internal Warrant B, 650,000 warrants authorized These warrants are exchangeable for Series A Preferred shares at $6.00 per share until March 31, 2005. At June 30, 2000, there were 650,000 1999 Internal Warrant B issued and outstanding. 15 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and1999 NOTE G - STOCKHOLDERS' EQUITY - Continued Class A Warrants, 500,000 warrants authorized These warrants are exchangeable for common shares at $5.00 per common share until September 30, 2000. The Company, at a nominal sum, may repurchase these warrants if the common shares of the Company trade at $7.50 for five consecutive trading days and the warrant is not exercised. At June 30, 2000, there were no Class A Warrants issued. Class B Warrants, 500,000 warrants authorized These warrants are exchangeable for common shares at $7.50 per common share until September 30, 2000. The Company, at a nominal sum, may repurchase these warrants if the common shares of the Company trade at $10.00 for five consecutive trading days and the warrant is not exercised. At June 30, 2000, there were no Class B Warrants issued. Class D Warrants, 5,000,000 warrants authorized These warrants are exchangeable for common shares at $2.00 per common share until November 15, 2000. The Company, at a nominal sum, may repurchase these warrants if the common shares of the Company trade at $2.80 for five consecutive trading days and the warrant is not exercised. During the year ended June 30, 2000, 1,312,206 Class D warrants were issued through a conversion of Class D units. After conversion of 37,500 Class D warrants into 37,500 common shares, 1,274,706 Class D warrants remained outstanding at June 30, 2000. Class E Warrants, 1,000,000 warrants authorized These warrants are exchangeable for common shares at $2.00 per common share until December 31, 2000. At June 30, 2000 there were no Class E Warrants issued. Units - the Company authorized the following types of hybrid securities: 1999 Class A Units, 1,681,250 authorized Each unit has a right to purchase one Series B preferred share and 1/2 1999 International Warrant A at a nominal amount of $0.001001. At June 30, 2000, there were no Class A units outstanding. 1999 Class C Units, 10,000,000 authorized These units have a right to purchase one Series B preferred share, 1/2 Class A Warrant, and 1/2 Class B Warrant at a nominal amount at $0.001002. At June 30, 2000 there were no Class C Units issued. 1999 Class D Units, 10,000,000 authorized These units have a right to purchase one Series C preferred share and 1/2 Class D Warrant at a nominal amount of $0.001001. At June 30, 2000, there were 2,362,511 Class D units outstanding. Issuances At June 30, 2000, the Company recorded $323,721 in subscriptions receivable related to equity sales transactions further described. This amount was collected in full subsequent to June 30, 2000. 16 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 NOTE G - STOCKHOLDERS' EQUITY - Continued The Company has issued the following types of securities. Common Stock During the six months ended June 30, 1999, the Company sold 8,470,000 shares of its voting common stock through several rounds of placements under Rules 504 and 701 of Regulation D with prices ranging from $0.001 to $0.18 for total proceeds of $601,295. On October 15, 1999, the Company issued 375,000 to Milinx International, Inc. in exchange for intellectual property (see note D). On the same date, the Company issued 50,000 shares to Credit Assure International, Inc. in exchange for intellectual trademark and other intellectual property (see note D). On November 11, 1999 the Company allotted 71,000 common shares for issuance to employees of the subsidiaries. The shares were issued at $0.05 per common share for total cash proceeds of $3,550. In connection with the issuance, the Company recorded compensation expense of $32,000 representing the excess of fair value of the Company's common stock on the date of grant over the employee purchase price. On December 9, 1999, the Company issued 250,000 shares to stockholders of Forestay Corporation in a reverse merger transaction (see note A). On May 10, 2000, the Company authorized grant of 39,000 shares each to two of its executives. The shares are to be granted subsequent to the Company's completing S-2 filing necessary to register its common stock shares. From May to June 2000, 417,000 shares of Series C preferred stock were converted in 417,000 shares of the Company's voting common stock at stockholders' request. In June 2000, 37,500 Class D warrants were converted into 37,500 common stock shares of the Company's voting common stock for total cash proceeds of $75,000. Preferred Stock On February 12, 1999, the Company issued 2,925,000 Series A preferred shares (as a private placement) to two of the Company's directors and to its legal counsel for cash proceeds of $2,925. On March 26, 1999, Credit Assure exercised its previously granted option to purchase 750,000 Series A preferred shares for total cash proceeds to the Company of $27,000. In May 2000, 1,681,250 Class A Units were converted to 1,681,250 Series B preferred shares and 840,625 1999 International A Warrants resulting in cash proceeds to the Company of $1,682. 17 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 NOTE G - STOCKHOLDERS' EQUITY - Continued From May to June 2000, 2,624,412 Class D Units were converted into 2,624,412 shares of Series C preferred stock and 1,312,206 Class D Warrants. In June 2000, 417,000 shares of Series C preferred were converted into 417,000 common stock shares at the stockholders' request. Units From June 1999 through December 31, 1999, the Company sold 1,681,250 Class A Units at $2.00 per unit for total proceeds of $3,362,500. In May 2000 unit holders exercised their right to convert these units into Series B preferred shares and all outstanding Class A Units were converted into 1,681,250 Series B preferred shares and 840,625 International A Warrants. From January 1, 2000 to June 30, 2000, the Company issued privately 4,986,923 1999 Class D units for cash proceeds (net of commissions) of $9,097,662. During this same period, 2,624,412 Class D units were converted to 2,624,412 Preferred C Series shares and 1,312,206 Class D Warrants for total proceeds to the Company of $2,625. Warrants On May 25, 1999, 900,000 1999 Internal Warrant A were privately issued to a consultant and the Company's legal counsel. These warrants were exercisable immediately at $7.50 per common share until January 31, 2003. The warrants were issued for cash proceeds of $200. On May 10, 2000, the Board authorized reduction of the warrant's exercise price to $4.50 and amended the expiration date to January 31, 2002. In connection with this modification, the Company recorded $108,000 in additional consulting and legal expenses. The amount was computed using the Black-Scholes pricing model with a risk free rate of 5.67%, 83% volatility, 0% dividend rate and estimated remaining life of 1.6 years. On July 25, 1999, 650,000 1999 Internal Warrant B were issued to two directors. These warrants are vested immediately and exercisable at $6.00 per Series A preferred share until March 31, 2005. On December 9, 1999, a new director was awarded 90,000 common stock warrants to be vested quarterly over a two year period and exchangeable into common shares at an exercise price of $7.50 per share until December 31, 2002. On May 10, 2000, the Board authorized the reduction of the warrant's exercise price to $4.50, the increase of the number of warrants to 180,000 and to decrease the exercise period to January 31, 2002. Due to the May 10, 2000 modification, the warrants will be subject to quarterly remeasurement with adjustments in value being recorded as an increase or reduction in compensation expense in subsequent financial statements due to the implementation of FIN 44. On May 10, 2000, the Company granted 100,000 fully vested common stock warrants, with an exercise price of $4.50 as an additional compensation for legal services performed. The warrants expire January 31, 2001 and were valued using the Black - Scholes pricing model with a risk free rate of 5.67%, 83% and 0% volatility and dividend rate, respectively, and estimated life of approximately 0.7 years. In connection with this transaction the Company recorded $14,000 in additional legal fees. 18 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 NOTE H- STOCK OPTIONS Employee-Associates Incentive Warrant Plan On March 15, 1999, the Company's Board of Directors approved the 1999 Employee-Associates Incentive Warrant Plan. The plan was established as compensation incentive for retention and motivation of employees and independent contractors. A total of up to 780,000 warrants could be authorized to be issued (Rule 701) under this plan. The warrants could be purchased by qualified employees at $0.05 per warrant. Each warrant entitled a warrant holder to purchase one share of the Company's voting common stock at a maximum exercise price of $2 per share. The exercise price varies based on the underlying stock performance. No warrants were issued under the plan through the period ending June 30, 1999, and this plan was subsequently replaced with the 1999-7 Employee Stock Option Plan. 1999-7 Employee Stock Option Plan On July 14, 1999, the Directors approved the creation of the 1999-7 Employee Stock Option Plan (the Plan) to replace the Employee-Associates Incentive Warrant Plan. Under this plan, the Company may grant up to 4,000,000 options (Rule 701) to employees to acquire one common share per option of the Subsidiaries at an exercise price of $0.002 to $2.00 per share commencing December 31, 1999 and expiring March 31, 2005. After November 4, 1999 reverse stock split (see note G), each option is now convertible into 1/2 share of the Company's common stock. On November 10, 1999, the number of options under this plan was increased to 6,000,000. The options granted under the Plan have both time and performance vesting components. Time vested shares vest in increments through March 31, 2001 and have a set exercise price of $0.002 per share. Performance vested shares have a exercise price of $2.00 and vest upon achievement of predetermined milestones through January 1, 2001. On December 3, 1999, the Board of Directors modified the options granted under the Plan to time vest 60% of the original performance vested shares. The modification had no effect on the June 30, 2000 consolidated results of operations due to the exercise price exceeding the fair value of the underlying common stock on the date of the modification. Upon adoption of FIN 44, modified options will be remeasured quarterly with adjustments in value being recorded as increase or decrease in employee compensation expense. Due to the exercise price of the time vested options being below fair value of the Company's stock on the date of grant, in accordance with Accounting Principle Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, the Company recorded $1,421,461 in deferred compensation. This deferred compensation is to be amortized over the vesting period of the underlying options. During the year ended June 30, 2000, the Company recorded $318,835 in amortization related to the options vested through June 30, 2000. Director and Executive Stock Option Plan On July 25, 1999, the Directors authorized 1,000,000 options for directors and executives. Each option would entitle its holder to acquire one share of the Company's common stock per each option granted. These options are exercisable for the period from July 25, 1999 to March 31, 2005. Option prices are generally equal to the fair market value of the shares of the Company's common stock on the date of grant. Options, generally, vest over a three-year period and expire three to five years from the date of the grant. 19 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 NOTE H - STOCK OPTIONS - Continued Summary of stock option activities The following is a summary of the employee stock option information for the year ended June 30, 2000 (all option information has been adjusted for the November 1999 reverse stock split). Weighted Average Shares Exercise Price ------------- ----------------- Options outstanding at June 30, 1999 - $ - Options granted 4,666,250 1.81 Options forfeitured 218,000 0.66 Options exercised - - ------------- ----------------- Options outstanding at June 30, 2000 4,448,250 $ 1.87 Number of options available for grants 2,551,750 The following table summarizes information about options granted during the year ended June 30, 2000.
Weighted Average Weighted Average Fair Exercise Price value Exercise price exceeds market price at grant date $2.54 $0.85 Exercise price equals market price at grant date $2.89 $1.82 Exercise price is below market price at grant date $0.002 $1.24
The following table summarizes information about options outstanding at June 30, 2000. Options Outstanding Options Exercisable ----------------------------------------------------------- --------------------------------------- Weighted Weighted Average Average Range of Number Exercise Price Remaining Number Weighted Average Exercise Prices Outstanding Price Contractual Life Exercisable Exercise Price - -------------------- --------------- ---------------- --------------------- ------------- ---------------------- $0.002-$1.00 1,400,125 $0.002 4.75 280,025 $0.002 $ 1.01-$2.00 1,776,125 $2.00 3.94 643,656 $2.00 $ 2.01-$3.00 650,000 $3.00 4.75 - - $ 4.00-$5.00 622,000 $4.50 4.18 15,550 4.50 --------------- ------------- 4,448,250 939,231 $1.45 =============== ============= The weighted average fair value of the options granted during the year ended June 30, 2000 was $1.28.
20 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 NOTE H - STOCK OPTIONS - Continued The Company accounts for its stock-based compensation plan in accordance with APB Opinion No. 25, under which no compensation is recognized in connection with options granted to employees except if options are granted with a strike price below fair value of the underlying stock. The Company adopted the disclosure requirements SFAS No. 123, Accounting for Stock-Based Compensation. Accordingly, the Company is required to calculate and present the pro forma effect of all awards granted. For disclosure purposes, the fair value of each option granted to an employee has been estimated as of the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 5.67%, dividend yield 0%, volatility of 83%, and expected lives of approximately 4 to 5 years. Based on the computed option values and the number of the options issued, had the Company recognized compensation expense, the following would have been its effect on the Company's net loss: Year ended June 30, 2000 ----------------- Net loss - --------------------- As reported $ 6,636,452 Pro forma 8,033,231 Loss per share - --------------------- As reported $ (0.74) Pro forma (0.90) On April 20, 1999, 200,000 options were granted (under Rule 701) to four of the Company's non-employee sales associates permitting the purchase of common shares at $2.00 per share effective July 15, 1999 and expiring on March 31, 2001. Using an option valuation model, fair value of the options at the date of grant was determined to be negligible due to low stock volatility and options being "out of the money" at the date of grant. NOTE I - INCOME TAXES The Company accounts for income taxes on the liability method, as provided by Statement of Financial Accounting Standards 109, Accounting for Income Taxes (SFAS No. 109). Milinx - Delaware is primarily a United States taxpayer, while Milinx - BC primarily files in Canada. The income tax provisions reconciled to the tax computed at the statutory federal rate for the year ended June 30, 2000 and the six months ended June 30, 1999 were:
2000 1999 2000 1999 Milinx - Delaware Milinx - Delaware Milinx - BC Milinx - BC --------------------- --------------------- --------------------- ---------------------- Tax benefit at statutory rate $ (483,640) $ (93,766) $ (1,772,753) $ (197,589) Permanent differences 627 - 10,834 - Canadian tax rate differences - - (669,691) - Increase in valuation allowance 483,013 93,766 2,431,610 197,589 --------------------- --------------------- --------------------- ---------------------- Total $ - $ - $ - $ - ===================== ===================== ===================== ======================
21 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 NOTE I - INCOME TAXES - continued
The components of deferred taxes are as follows at June 30, 2000 and 1999: 2000 1999 2000 1999 Milinx - Delaware Milinx - Delaware Milinx - BC Milinx - BC --------------------- --------------------- --------------------- ---------------------- Deferred tax asset: Net operating loss 210,532 carryforward $ 396,082 $ 64,186 $ 2,792,551 $ Depreciation - - (169,085) (12,943) Stock options and warrants 149,884 - - - Organization costs 29,087 29,580 - - Other 1,726 - 5,734 - Valuation allowance (576,779) (93,766) (2,629,200) (197,589) --------------------- --------------------- --------------------- ---------------------- $ - $ - $ - $ - ===================== ===================== ===================== ======================
The Company has established the above valuation allowances as of June 30, 2000 and 1999 due to uncertainty of future realization of deferred tax assets. Total valuation allowance increased by $2,914,624 from June 30, 1999 to June 30, 2000, primarily due to current year temporary differences. At June 30, 2000, the Company has $6,841,074 in net operating loss carryforwards for federal income tax purposes available to offset future income which expire in 2020. Included in this amount is $6,121,329 of net operating loss for Canadian income tax purposes which, if utilized before expiring in the next seven years, will result in additional tax savings of approximately $711,000. Potential changes, if any, in the company's ownership could result in limitations on the use of its net operating loss carryforwards. NOTE J - COMMITMENTS AND CONTINGENCIES 1. Operating Leases The Company has obligations under long term, non-cancelable operating leases for premises and equipment. Lease terms range from 4 to 5 years. The future minimum payments are as follows: Year ending June 30, 2001 $ 208,755 2002 197,085 2003 200,640 2004 193,853 2005 36,332 ---------------------- Total minimum lease payments $ 836,666 ====================== 22 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 NOTE J - COMMITMENTS AND CONTINGENCIES - continued Consolidated rent expenses for the year ended June 30, 2000 and the six months ended June 30, 1999, were approximately $287,000 and $32,000, respectively. 2. Capital Leases In connection with the opening of new Data Center, the Company entered into several capital lease agreements ranging in duration from two to three years. As of June 30, 2000, the future minimum lease payments under these agreements are as follows. Year ending June 30, 2001 $ 680,256 2002 649,912 2003 377,578 ------------------ 1,707,746 Less: interest (at 12%) (243,877) ------------------ Present value of capital lease obligations 1,463,869 Current portion of capital lease obligations 536,061 ------------------ Long term portion of capital lease obligations $ 927,808 ================== As of June 30, 2000, the capitalized cost of equipment under capital leases was $2,016,200. During the year ended June 30, 2000, the Company recorded $114,865 in amortization expense on equipment under capital leases. In June 2000, the Company entered into three other capital lease agreement and made downpayments on two of them totaling $203,915. Due to equipment not being delivered until subsequent to June 30, 2000, no capital lease obligation was recorded as it relates to these arrangements and, thus, future payments are not included in capital lease obligation schedule. The downpayments made were shown as other current assets on June 30, 2000 consolidated balance sheet. New leases range in duration from 2 to three years and require monthly payments ranging from $1,540 to $31,870. 23 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 NOTE J - COMMITMENTS AND CONTINGENCIES - continued 3. Employment Agreements At June 30, 2000, the Company has employment contracts with two of its officers/directors requiring monthly compensation payments of $17,250 in aggregate and expiring on December 9, 2002. Total payments due are as follows. Year ending June 30, 2001 $ 207,000 2002 207,000 2003 86,250 ------------- $ 500,250 ============= Total unpaid compensation under contracts as of June 30, 2000 and 1999, were $7,590 and $51,750, respectively and was included in accrued liabilities in the accompanying consolidated balance sheet. 4. Legal Two related claims or potential claims involving computer software licensing were asserted against the Company. KRP Communications, Ltd. ("KRP") claimed the sum of $210,048 Canadian funds for an alleged failure to pay timely license fees for computer software. On January 11, 2000, Interactive Intelligence, Inc. ("Interactive") advanced a claim through the American Arbitration association for $3,900,000 U.S. funds for an alleged breach of a Software License Agreement. KRP was Interactive's reseller. Interactive was the owner of a software program designed to handle intra company telecommunications and small answering services. The Company responded to Interactive's Arbitration claim by denying any liability and counterclaimed against Interactive for damages stemming from Interactive's failure to deliver a workable system. On February 2, 2000, the Company commenced suit in the Supreme Court of British Columbia, (the "British Columbia Lawsuit"), naming as defendants KRP, Interactive and others. During March, 2000, both claims were completely dismissed at no cost to the Company. From time to time, the Company is a party to various legal proceedings incidental to its business. The Company believes that none of the other presently pending legal proceedings will have a material adverse effect upon its consolidated financial position, results of operations, or liquidity. NOTE K - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Year ended June 30, 2000 Quarter 1st 2nd 3rd 4th Net sales $ 45,971 $ 53,839 $ 56,926 $ 40,457 Gross profit (54,686) (5,936) (56,277) (51,357) Net loss from operations (1,126,559) (1,550,732) (1,580,343) (2,378,818) Net loss per common share - basic and diluted $ (0.13) $ (0.17) $ (0.17) $ ( 0.25)
24 Milinx Business Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and 1999 NOTE K - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) - continued
Year ended June 30, 1999 Quarter 1st 2nd 3rd 4th Net sales N/A N/A $ 16,740 $ 26,684 Gross profit N/A N/A (870) (3,818) Net loss N/A N/A 153,316 690,934 Net loss per common share - basic and diluted N/A N/A $ (0.02) $ (0.08)
NOTE L - SUBSEQUENT EVENTS Subsequent to June 30, 2000, investors converted 1,829,111 Class D Units to 1,829,111 Series C preferred shares and 914,555 Class D Warrants for total proceeds to the Company of $1,829. Subsequent to June 30, 2000, investors converted 2,207,412 Series C preferred shares to 2,207,412 common shares. Subsequent to June 30, 2000, 663,460 Class D Warrants were converted to 663,460 common shares for total cash proceeds to the Company of $1,326,920. 25 EX-2.1 2 0002.txt AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") among FORESTAY CORPORATION, a Delaware corporation ("Forestay"), MILINX BUSINESS GROUP, INC., a Delaware corporation ("Milinx") and the persons listed in Exhibit A hereof (collectively the "Shareholders"), being the owners of record of all of the issued and outstanding stock of Forestay. Whereas, Milinx wishes to acquire and the Shareholders wish to transfer all of the issued and outstanding securities of Forestay in a transaction intended to qualify as a reorganization within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. Now, therefore, Forestay, Milinx and the Shareholders adopt this plan of reorganization and agree as follows: 1. EXCHANGE OF STOCK 1.1. NUMBER OF SHARES. The Shareholders agree to transfer to Milinx at the Closing (defined below) the number of shares of common stock of Forestay, $.0001 par value per share, shown opposite their names in Exhibit A, in exchange pro rata for an aggregate of 250,000 shares of voting common stock of Milinx, $0.0001 par value per share. 1.2. EXCHANGE OF CERTIFICATES. Each holder of an outstanding certificate or certificates theretofore representing shares of Forestay common stock shall surrender such certificate(s) for cancellation to Milinx, and shall receive in exchange a certificate or certificates representing the number of full shares of Milinx common stock into which the shares of Forestay common stock represented by the certificate or certificates so surrendered shall have been converted. The transfer of Forestay shares by the Shareholders shall be effected by the delivery to Milinx at the Closing of certificates representing the transferred shares endorsed in blank or accompanied by stock powers executed in blank. 1.3. FRACTIONAL SHARES. Fractional shares of Milinx common stock shall not be issued, but in lieu thereof Milinx shall round up fractional shares to the next highest whole number. 1.4. FURTHER ASSURANCES. At the Closing and from time to time thereafter, the Shareholders shall execute such additional instruments and take such other action as Milinx may request in order more effectively to sell, transfer, and assign the transferred stock to Milinx and to confirm Milinx's title thereto. 2. RATIO OF EXCHANGE. The securities of Forestay owned by the Shareholders, and the relative securities of Milinx for which they will be exchanged, are set out opposite their names in Exhibit A. 3. CLOSING. 3.1. TIME AND PLACE. The Closing contemplated herein shall be held as soon as possible, but in any event no later than December 9, 1999 at the offices of Cassidy & Associates at 1504 R Street, NW, Washington, D.C. unless another place or time is agreed upon in writing by the parties 1 without requiring the meeting of the parties hereof. All proceedings to be taken and all documents to be executed at the Closing shall be deemed to have been taken, delivered and executed simultaneously, and no proceeding shall be deemed taken nor documents deemed executed or delivered until all have been taken, delivered and executed. The date of Closing may be accelerated or extended by agreement of the parties. 3.2. FORM OF DOCUMENTS. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission required by this Agreement or any signature required thereon may be used in lieu of an original writing or transmission or signature for any and all purposes for which the original could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission or original signature. 4. UNEXCHANGED CERTIFICATES. Until surrendered, each outstanding certificate that prior to the Closing represented Forestay common stock shall be deemed for all purposes, other than the payment of dividends or other distributions, to evidence ownership of the number of shares of Milinx common stock into which it was converted. No dividend or other distribution shall be paid to the holders of certificates of Forestay common stock until presented for exchange at which time any outstanding dividends or other distributions shall be paid. 5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS The Shareholders, individually and separately, represent and warrant as follows: 5.1. TITLE TO SHARES. The Shareholders, and each of them, are the owners, free and clear of any liens and encumbrances, of the number of Forestay shares which are listed in the attached Exhibit 1 and which they have contracted to exchange. 5.2. LITIGATION. There is no litigation or proceeding pending, or to any Shareholder's knowledge threatened, against or relating to shares of Forestay held by the Shareholders. 6. REPRESENTATIONS AND WARRANTIES OF FORESTAY. Forestay represents and warrants that: 6.1. CORPORATE ORGANIZATION AND GOOD STANDING. Forestay is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and is qualified to do business as a foreign corporation in each jurisdiction, if any, in which its property or business requires such qualification. 6.2. REPORTING COMPANY STATUS. Forestay has filed with the Securities and Exchange Commission a registration statement on Form 10-SB which became effective pursuant to the Securities Exchange Act of 1934 and is a reporting company pursuant to ss.12(g) thereunder. 6.3. REPORTING COMPANY FILINGS. Forestay has timely filed and is current on all reports required to be filed by it pursuant to ss.13 of the Securities Exchange Act of 1934. 2 6.4. CAPITALIZATION. Forestay's authorized capital stock consists of 100,000,000 shares of Common Stock, $.0001 par value, of which 5,000,000 shares are issued and outstanding, and 20,000,000 shares of Preferred Stock, of which no shares are issued or outstanding. 6.5. ISSUED STOCK. All the outstanding shares of its Common Stock are duly authorized and validly issued, fully paid and non-assessable. 6.6. STOCK RIGHTS. Except as set out by attached schedule, there are no stock grants, options, rights, warrants or other rights to purchase or obtain Forestay Common or Preferred Stock issued or committed to be issued. 6.7. CORPORATE AUTHORITY. Forestay has all requisite corporate power and authority to own, operate and lease its properties, to carry on its business as it is now being conducted and to execute, deliver, perform and conclude the transactions contemplated by this Agreement and all other agreements and instruments related to this agreement. 6.8. AUTHORIZATION. Execution of this agreement has been duly authorized and approved by Forestay's board of directors. 6.9. SUBSIDIARIES. Forestay has no subsidiaries. 6.10. FINANCIAL STATEMENTS. Forestay's financial statements dated as of June 7, 1999 copies of which will have been delivered by Forestay to Milinx prior to the Closing Date (the "Forestay Financial Statements"), fairly present the financial condition of Forestay as of the date therein and the results of its operations for the periods then ended in conformity with generally accepted accounting principles consistently applied. 6.11. ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent reflected or reserved against in the Forestay Financial Statements, Forestay did not have at that date any liabilities or obligations (secured, unsecured, contingent, or otherwise) of a nature customarily reflected in a corporate balance sheet prepared in accordance with generally accepted accounting principles. 6.12. NO MATERIAL CHANGES. Except as set out by attached schedule, there has been no material adverse change in the business, properties, or financial condition of Forestay since the date of the Forestay Financial Statements. 6.13. LITIGATION. Except as set out by attached schedule, there is not, to the knowledge of Forestay, any pending, threatened, or existing litigation, bankruptcy, criminal, civil, or regulatory proceeding or investigation, threatened or contemplated against Forestay or against any of its officers. 6.14. CONTRACTS. Except as set out by attached schedule, Forestay is not a party to any material contract not in the ordinary course of business that is to be performed in whole or in part at or after the date of this agreement. 6.15. TITLE. Except as set out by attached schedule, Forestay has good and marketable title to all the real property and good and valid title to all other property included in the Forestay Financial Statements. Except as set out in the balance sheet thereof, the properties of Forestay are not subject 3 to any mortgage, encumbrance, or lien of any kind except minor encumbrances that do not materially interfere with the use of the property in the conduct of the business of Forestay. 6.16. TAX RETURNS. Except as set out by attached schedule, all required tax returns for federal, state, county, municipal, local, foreign and other taxes and assessments have been properly prepared and filed by Forestay for all years for which such returns are due unless an extension for filing any such return has been filed. Any and all federal, state, county, municipal, local, foreign and other taxes and assessments, including any and all interest, penalties and additions imposed with respect to such amounts have been paid or provided for. The provisions for federal and state taxes reflected in the Forestay Financial Statements are adequate to cover any such taxes that may be assessed against Forestay in respect of its business and its operations during the periods covered by the Forestay Financial Statements and all prior periods. 6.17. NO VIOLATION. The Closing will not constitute or result in a breach or default under any provision of any charter, bylaw, indenture, mortgage, lease, or agreement, or any order, judgment, decree, law, or regulation to which any property of Forestay is subject or by which Forestay is bound. 7. REPRESENTATIONS AND WARRANTIES OF MILINX. Milinx represents and warrants that: 7.1. CORPORATE ORGANIZATION AND GOOD STANDING. Milinx is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and is qualified to do business as a foreign corporation in each jurisdiction, if any, in which its property or business requires such qualification. 7.2. CAPITALIZATION. Milinx's authorized capital stock consists of 210,000,000 shares of Common Stock, $.001 par value, of which 8,970,000 shares are issued and outstanding, and 40,000,000 shares of preferred stock, $.001 par value, of which 3,675,000 Series A shares are issued and outstanding. 7.3. ISSUED STOCK. All the outstanding shares of its Common Stock are duly authorized and validly issued, fully paid and non-assessable. 7.4. STOCK RIGHTS. Except as set out by attached schedule, there are no stock grants, options, rights, warrants or other rights to purchase or obtain Milinx Common or Preferred Stock issued or committed to be issued. 7.5. CORPORATE AUTHORITY. Milinx has all requisite corporate power and authority to own, operate and lease its properties, to carry on its business as it is now being conducted and to execute, deliver, perform and conclude the transactions contemplated by this Agreement and all other agreements and instruments related to this agreement. 7.6. AUTHORIZATION. Execution of this agreement has been duly authorized and approved by Milinx's board of directors. 7.7. SUBSIDIARIES. As set out in schedule attached hereto, Milinx has four subsidiaries. 7.8. FINANCIAL STATEMENTS. Milinx's draft audited financial statements, which are subject 4 to revision, dated as of June 30, 1999, financial statements copies of which will have been delivered by Milinx to Forestay prior to the Closing Date (the "Milinx Financial Statements"), fairly present the financial condition of Milinx as of the date therein and the results of its operations for the periods then ended in conformity with generally accepted accounting principles consistently applied. 7.9. ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent reflected or reserved against in the Milinx Financial Statements, Milinx did not have at that date any liabilities or obligations (secured, unsecured, contingent, or otherwise) of a nature customarily reflected in a corporate balance sheet prepared in accordance with generally accepted accounting principles. 7.10. NO MATERIAL CHANGES. Except as set out by attached schedule, there has been no material adverse change in the business, properties, or financial condition of Milinx since the date of the Milinx Financial Statements. 7.11. LITIGATION. Except as set out by attached schedule, there is not, to the knowledge of Milinx, any pending, threatened, or existing litigation, bankruptcy, criminal, civil, or regulatory proceeding or investigation, threatened or contemplated against Milinx or against any of its officers. 7.12. CONTRACTS. Except as set out by attached schedule, Milinx is not a party to any material contract not in the ordinary course of business that is to be performed in whole or in part at or after the date of this agreement. 7.13. TITLE. Except as set out by attached schedule, Milinx has good and marketable title to all the real property and good and valid title to all other property included in the Milinx Financial Statements. Except as set out in the balance sheet thereof, the properties of Milinx are not subject to any mortgage, encumbrance, or lien of any kind except minor encumbrances that do not materially interfere with the use of the property in the conduct of the business of Milinx. 7.14. TAX RETURNS. Except as set out by attached schedule, all required tax returns for federal, state, county, municipal, local, foreign and other taxes and assessments have been properly prepared and filed by Milinx for all years for which such returns are due unless an extension for filing any such return has been filed. Any and all federal, state, county, municipal, local, foreign and other taxes and assessments, including any and all interest, penalties and additions imposed with respect to such amounts have been paid or provided for. The provisions for federal and state taxes reflected in the Milinx Financial Statements are adequate to cover any such taxes that may be assessed against Milinx in respect of its business and its operations during the periods covered by the Milinx Financial Statements and all prior periods. 7.15. NO VIOLATION. The Closing will not constitute or result in a breach or default under any provision of any charter, bylaw, indenture, mortgage, lease, or agreement, or any order, judgment, decree, law, or regulation to which any property of Milinx is subject or by which Milinx is bound. 8. CONDUCT PENDING THE CLOSING Forestay, Milinx and the Shareholders covenant that between the date of this Agreement and the Closing as to each of them: 5 8.1. No change will be made in the charter documents, by-laws, or other corporate documents of Forestay. 8.2. Forestay will use its best efforts to maintain and preserve its business organization, employee relationships, and goodwill intact, and will not enter into any material commitment except in the ordinary course of business. 8.3. No change will be made in the charter documents, by-laws, or other corporate documents of Milinx. 8.4. Milinx will use its best efforts to maintain and preserve its business organization, employee relationships, and goodwill intact, and will not enter into any material commitment except in the ordinary course of business. 8.5. None of the Shareholders will sell, transfer, assign, hypothecate, lien, or otherwise dispose or encumber the Forestay shares of common stock owned by them. 9. CONDITIONS PRECEDENT TO OBLIGATION OF THE SHAREHOLDERS The Shareholder's obligation to consummate this exchange shall be subject to fulfillment on or before the Closing of each of the following conditions, unless waived in writing by the Shareholders as appropriate: 9.1. MILINX'S REPRESENTATIONS AND WARRANTIES. The representations and warranties of Milinx set forth herein shall be true and correct at the Closing as though made at and as of that date, except as affected by transactions contemplated hereby. 9.2. MILINX'S COVENANTS. Milinx shall have performed all covenants required by this Agreement to be performed by it on or before the Closing. 9.3. BOARD OF DIRECTOR APPROVAL. This Agreement shall have been approved by the Board of Directors of Milinx. 9.4. SUPPORTING DOCUMENTS OF MILINX. Milinx shall have delivered to the Shareholders the following documents in form and substance reasonably satisfactory to the Shareholders: (a) A good standing certificate from the jurisdiction of Milinx's organization stating that Milinx is a corporation duly organized, validly existing, and in good standing; (b) Secretary's certificate stating that Milinx's authorized capital stock is as set forth herein; (c) Certified copies of the resolutions of the board of directors of Milinx authorizing the execution of this Agreement and the consummation hereof; (d) Secretary's certificate of incumbency of the officers and directors of Milinx; (e) Milinx's draft audited Financial Statements (subject to revision) for the period ended June 30, 1999; and 6 (f) Any document as may be specified herein or required to satisfy the conditions, representations and warranties enumerated elsewhere herein. 10. CONDITIONS PRECEDENT TO OBLIGATION OF MILINX Milinx's obligation to consummate this exchange shall be subject to fulfillment on or before the Closing of each of the following conditions, unless waived in writing by Milinx: 10.1. SHAREHOLDERS' REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Shareholders set forth herein shall be true and correct at the Closing as though made at and as of that date, except as affected by transactions contemplated hereby. 10.2. SHAREHOLDERS' COVENANTS. The Shareholders shall have performed all covenants required by this Agreement to be performed by them on or before the Closing. 10.3. FORESTAY'S REPRESENTATIONS AND WARRANTIES. The representations and warranties of Forestay set forth herein shall be true and correct at the Closing as though made at and as of that date, except as affected by transactions contemplated hereby. 10.4. FORESTAY'S COVENANTS. Forestay shall have performed all covenants required by this Agreement to be performed by them on or before the Closing. 10.5. BOARD OF DIRECTOR APPROVAL. This Agreement shall have been approved by the Board of Directors of Forestay. 10.6. SUPPORTING DOCUMENTS OF FORESTAY. Forestay shall have delivered to the Shareholders the following documents in form and substance reasonably satisfactory to the Shareholders: (a) A good standing certificate from the jurisdiction of Forestay's organization stating that Forestay is a corporation duly organized, validly existing, and in good standing; (b) Secretary's certificate stating that Forestay's authorized capital stock is as set forth herein; (c) Certified copies of the resolutions of the board of directors of Forestay authorizing the execution of this Agreement and the consummation hereof; (d) Secretary's certificate of incumbency of the officers and directors of Forestay; (e) Forestay's Financial Statements; and (f) Any document as may be specified herein or required to satisfy the conditions, representations and warranties enumerated elsewhere herein. 11. SHAREHOLDER REPRESENTATIVE. The Shareholders hereby irrevocably designate and appoint Cassidy & Associates, 1504 R Street, N.W. Washington, District of Columbia 20009, as 7 their agent and attorney in fact (the "Shareholders' Representative") with full power and authority until the Closing to execute, deliver, and receive on their behalf all notices, requests, and other communications hereunder; to fix and alter on their behalf the date, time, and place of the Closing; to waive, amend, or modify any provisions of this Agreement, and to take such other action on their behalf in connection with this Agreement, the Closing, and the transactions contemplated hereby as such agent or agents deem appropriate; provided, however, that no such waiver, amendment, or modification may be made if it would decrease the number of shares to be issued to the Shareholders hereunder or increase the extent of their obligation to indemnify Reorganization hereunder. 12. TERMINATION. This Agreement may be terminated (1) by mutual consent in writing; (2) by any of the Shareholders, Milinx or Forestay if there has been a material misrepresentation or material breach of any warranty or covenant by any other party; or (3) by any of the Shareholders, Milinx or Forestay if the Closing shall not have taken place within 15 days following execution of this Agreement, unless adjourned to a later date by mutual consent in writing. 13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Shareholders, Milinx and Forestay set out herein shall survive the Closing. 14. ARBITRATION 14.1. SCOPE. The parties hereby agree that any and all claims (except only for requests for injunctive or other equitable relief) whether existing now, in the past or in the future as to which the parties or any affiliates may be adverse parties, and whether arising out of this agreement or from any other cause, will be resolved by arbitration before the American Arbitration Association within the District of Columbia. 14.2. CONSENT TO JURISDICTION, SITUS AND JUDGEMENT. The parties hereby irrevocably consent to the jurisdiction of the American Arbitration Association and the situs of the arbitration (and any requests for injunctive or other equitable relief) within the District of Columbia. Any award in arbitration may be entered in any domestic or foreign court having jurisdiction over the enforcement of such awards. 14.3. APPLICABLE LAW. The law applicable to the arbitration and this agreement shall be that of the State of Delaware, determined without regard to its provisions which would otherwise apply to a question of conflict of laws. 14.4. DISCLOSURE AND DISCOVERY. The arbitrator may, in its discretion, allow the parties to make reasonable disclosure and discovery in regard to any matters which are the subject of the arbitration and to compel compliance with such disclosure and discovery order. The arbitrator may order the parties to comply with all or any of the disclosure and discovery provisions of the Federal Rules of Civil Procedure, as they then exist, as may be modified by the arbitrator consistent with the desire to simplify the conduct and minimize the expense of the arbitration. 14.5. RULES OF LAW. Regardless of any practices of arbitration to the contrary, the arbitrator will apply the rules of contract and other law of the jurisdiction whose law applies to the arbitration so that the decision of the arbitrator will be, as much as possible, the same as if the dispute had been determined by a court of competent jurisdiction. 8 14.6. FINALITY AND FEES. Any award or decision by the American Arbitration Association shall be final, binding and non-appealable except as to errors of law or the failure of the arbitrator to adhere to the arbitration provisions contained in this agreement. Each party to the arbitration shall pay its own costs and counsel fees except as specifically provided otherwise in this agreement. 14.7. MEASURE OF DAMAGES. In any adverse action, the parties shall restrict themselves to claims for compensatory damages and\or securities issued or to be issued and no claims shall be made by any party or affiliate for lost profits, punitive or multiple damages. 14.8. COVENANT NOT TO SUE. The parties covenant that under no conditions will any party or any affiliate file any action against the other (except only requests for injunctive or other equitable relief) in any forum other than before the American Arbitration Association, and the parties agree that any such action, if filed, shall be dismissed upon application and shall be referred for arbitration hereunder with costs and attorney's fees to the prevailing party. 14.9. INTENTION. It is the intention of the parties and their affiliates that all disputes of any nature between them, whenever arising, whether in regard to this agreement or any other matter, from whatever cause, based on whatever law, rule or regulation, whether statutory or common law, and however characterized, be decided by arbitration as provided herein and that no party or affiliate be required to litigate in any other forum any disputes or other matters except for requests for injunctive or equitable relief. This agreement shall be interpreted in conformance with this stated intent of the parties and their affiliates. 14.10. SURVIVAL. The provisions for arbitration contained herein shall survive the termination of this agreement for any reason. 15. GENERAL PROVISIONS. 15.1. FURTHER ASSURANCES. From time to time, each party will execute such additional instruments and take such actions as may be reasonably required to carry out the intent and purposes of this agreement. 15.2. WAIVER. Any failure on the part of either party hereto to comply with any of its obligations, agreements, or conditions hereunder may be waived in writing by the party to whom such compliance is owed. 15.3. BROKERS. Each party agrees to indemnify and hold harmless the other party against any fee, loss, or expense arising out of claims by brokers or finders employed or alleged to have been employed by the indemnifying party. 15.4. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been given if delivered in person or sent by prepaid first-class certified mail, return receipt requested, or recognized commercial courier service, as follows: If to Forestay, to: Forestay Corporation 1504 R Street, N.W. 9 Washington, District of Columbia 20009 If to Milinx, to: Milinx Business Group Corporation c/o Butcher & Williams Suite 3827 1001 Fourth Avenue Plaza Seattle, Washington 98154 If to the Shareholders, to: Cassidy & Associates 1504 R Street, N.W. Washington, District of Columbia 20009 15.5. GOVERNING LAW. This agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware. 15.6. ASSIGNMENT. This agreement shall inure to the benefit of, and be binding upon, the parties hereto and their successors and assigns; provided, however, that any assignment by either party of its rights under this agreement without the written consent of the other party shall be void. 15.7. COUNTERPARTS. This agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signatures sent by facsimile transmission shall be deemed to be evidence of the original execution thereof. 15.8. EXCHANGE AGENT AND CLOSING DATE. The Exchange Agent shall be the law firm of Cassidy & Associates, Washington, D.C. The Closing shall take place upon the fulfillment by each party of all the conditions of Closing required herein, but not later December 9, 1999 unless extended by mutual consent of the parties. 10 15.9. REVIEW OF AGREEMENT. Each party acknowledges that it has had time to review this agreement and, as desired, consult with counsel. In the interpretation of this agreement, no adverse presumption shall be made against any party on the basis that it has prepared, or participated in the preparation of, this agreement. 15.10. SCHEDULES. All schedules attached hereto, if any, shall be acknowledged by each party by signature or initials thereon and shall be dated. 15.11. EFFECTIVE DATE. This effective date of this agreement shall be December 8, 1999. 11 SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION AMONG FORESTAY, MILINX AND THE SHAREHOLDERS OF FORESTAY IN WITNESS WHEREOF, the parties have executed this agreement. FORESTAY CORPORATION By ______________________________________ James M. Cassidy President MILINX BUSINESS GROUP CORPORATION By ______________________________________ Maynard L. Dokken President THE SHAREHOLDERS OF FORESTAY CORPORATION: TPG CAPITAL CORPORATION: By ______________________________________ James M. Cassidy, President 12 Exhibit A Number of Number of Forestay Shares Milinx Name of To Be Shares To Be Shareholder Address Exchanged Received 5,000,000 250,000 TPG Capital Corporation 1504 R St. NW, Washington DC 20009 13 SCHEDULE 7.5- STOCK RIGHTS FOR MILINX STOCK
- ---------------------------------------- ---------------------------------------------------------- ------------------------ TYPE CHARACTERISTICS # ISSUED - ---------------------------------------- ---------------------------------------------------------- ------------------------ 1999 Class A Unit Convertible to 1 Series B Preferred Share plus 1/2 1999 1,069,750 International Warrant A - ---------------------------------------- ---------------------------------------------------------- ------------------------ 1999 Internal Warrant A Exercisable for 1 common share @ $7.50 each 900,000 - ---------------------------------------- ---------------------------------------------------------- ------------------------ 1999 Internal Warrant B Exercisable for 1 Preferred A Share @ $6.00 each 650,000 - ---------------------------------------- ---------------------------------------------------------- ------------------------ Options- Exercisable for 1 common share @ $2.00 each Sales Associates 200,000 Directors 500,000 Director and Executive 500,000 - ---------------------------------------- ---------------------------------------------------------- ------------------------ Options- Exercisable for 1/2 Common Share @ $0.10 to current market 2,700,000 Employee Incentive Program value - ---------------------------------------- ---------------------------------------------------------- ------------------------
14 SCHEDULE 7.13- MILINX MATERIAL CONTRACTS 1. Interactive Intelligence Software Licensing Agreement 2. KRP Communications Ltd. Software and Hardware Reseller Agreement 15 EX-3.1 3 0003.txt State of Delaware Office of the Secretary of State --------------------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF INCORPORATION OF "MILINX MARKETING GROUP, INC." FILED IN THIS OFFICE ON THE TENTH DAY OF DECEMBER, A.D. 1998, AT 9 O'CLOCK A.M. A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS. /S/ Edward J. Freel [Graphic Omitted] -------------------------------------- Edward J. Freel, Secretary of State Authentication: 9455006 Date: 12-11-98 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED ON 09:00 AM 12/10/1998 981476254 - 2977488 CERTIFICATE OF INCORPORATION OF MILINX MARKETING GROUP, INC. The undersigned, a natural person, for the purposed of organizing a corporation for conducting the business and promotional purposes hereinafter stated, under the provisions and subject to the requirements of the laws of the State of Delaware (particularly Chapter 1, title 8 of the Delaware Code and the acts amendatory thereof and supplemental thereto, and known, identified and referred to as the "General Corporation Law of the State of Delaware"), hereby certifies that: First: The name of the corporation (hereinafter called the Corporation") is MILINX MARKETING GROUP, INC. Second: The address, including street, number, city, and county of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, City of Wilmington 19805, County of New Castle; and the name of the registered agent of the Corporation at said address is Corporation Service Company. Third: The nature of the business and the purposes to be conducted and promoted by the Corporation shall be to engage in any lawful act or activity for which corporations may be organized under the laws of the State of Delaware. Fourth: The total number of shares which the Corporation shall have authority to issue shall be 50,000,000 Shares. Par value of said shares shall be $.001. Said shares shall consist of 45,000,000 Common Shares and 5,000,000 Preferred Shares. Shares of a Class may be increased or decreased (but not below those outstanding) without an affirmative vote of that Class. Each Common Share shall have one vote, and each Preferred Share or Series thereof, shall have no votes or such votes per share as may be specified in the Designation of Rights and Preferences for said Preferred Shares or Series thereof. The Board of Directors of the Corporation is authorized, to the maximum extent provided by law, unless otherwise provided herein, to provide for the issuance of Preferred Shares or to provide for the issuance of shares of Preferred Stock in one or more series, to establish from time to time the number of shares in each such series, and to fix the designations, voting powers, preferences, rights and qualifications, limitations or restrictions of the shares of Preferred Stock or such Series. Shares may be redeemable or convertible on such terms as conditions as may be determined by the Board of Directors. 1 Fifth: The name and address of the incorporator is as follows: Bruce A. Butcher, JSD Butcher & Williams, P.S. Suite 3827 1001 Fourth Avenue Seattle, WA 98154 Sixth: The Corporation shall have perpetual existence. Seventh: The Directors shall have the power to adopt, amend or repeal the By-Laws except as otherwise provided by the By-Laws. Eighth: The personal liability of the Directors of the Corporation is eliminated to the fullest extent permitted by the provisions of P. (8) of subsection (b) of ss.102 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented. Ninth: The Corporation expressly elects not to be governed byss.203 of the General Corporation Law of the State of Delaware. Tenth: The Corporation shall have the power to indemnify those persons whom it may indemnify under ss. 145 of the General Corporation Law of the State of Delaware to the maximum extent provided by law. Eleventh: The number of Directors which the Corporation shall initially have shall be three, whose names and addresses are: Maynard L. Dokken Mikiko Fujisawa Barry W. Phillips 3827 1001 Fourth Avenue 3827 1001 Fourth Avenue 3827 1001 Fourth Avenue Seattle, WA 98154 Seattle, WA 98154 Seattle, WA 98154 The number of Directors which the Corporation may hereafter have may be more or less than three, and shall be as determined by Directors resolution or the By-Laws. Twelfth: The Corporation reserves the right to amend this Certificate from time to time and in any manner as may be permitted by law, and all rights granted hereunder are subject to such reservation. The effective time of this Certificate and the time when its corporate existence shall commence shall be the date of filing hereof. Signed this 10th day of December, 1998 By /s/ Bruce A. Butcher - ------------------------------------------- Bruce A. Butcher, JSD Incorporator 2 State of Delaware Office of the Secretary of State --------------------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF INCORPORATION OF "MILINX MARKETING GROUP, INC." FILED IN THIS OFFICE ON THE ELEVENTH DAY OF FEBRUARY, A.D. 1999, AT 9 O'CLOCK A.M. A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS. /S/ Edward J. Freel [Graphic Omitted] -------------------------------------- Edward J. Freel, Secretary of State Authentication: 9573046 Date: 02-11-99 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF MILINX MARKETING GROUP, INC. Pursuant to ss. 241 of the Corporate Code of the State of Delaware, the undersigned, being the designated Officer for the execution hereof for the Corporation, MILINX MARKETING GROUP, INC. (the "Corporation") does hereby Certify as follows: First: The name of this Corporation is MILINX MARKETING GROUP, INC. Second: The Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on December 10, 1998. Third: No shares of the Corporation have been issued or payment received therefore. Fourth: The Certificate of Incorporation of the Corporation is hereby amended to add a new Article Thirteen to provide for increases and decreases in the authorized number of common shares by a vote of all of the shares of the corporation notwithstanding the provisions of 8 Delaware Code ss. 242(b)(2) (as amended from time to time) which provides for a class vote for such changes, accordingly Article Thirteen of the Certificate of Incorporation shall be added as follow: Article "Thirteen" "The number of authorized Common Shares may increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the corporation entitled to vote irrespective of ss.242(b)(2) of the Delaware Corporate Code (as it may be from time to time amended)." Fifth: This amendment to the Certificate of Incorporation of the Corporation was approved by a majority of its Board of Directors, no shares having been issued and no payment having been received therefore ad was duly adopted pursuant to ss. 241 of the Delaware Corporate Code. In Witness whereof, the undersigned designated Officer has executed this Certificate this 10th day of February, 1999. Milinx Marketing Group, Inc. By: /s/ Maynard L. Dokken Maynard L. Dokken, President, Designated Officer STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED ON 09:00 AM 2/11/1999 991055576 - 2977488 STATE OF WASHINGTON [GRAPHIC OMITTED] SECRETARY OF STATE I, RALPH MUNRO, Secretary of State of the State of Washington and custodian of its seal, hereby issue this CERTIFICATE OF AUTHORITY To MILINX BUSINESS GROUP, INC. A Delaware Profit Corporation. An Application for this Certificate of Authority to transact business or conduct affairs in Washington State was filed for record in this office on the date indicated below. UBI Number: 601958964 Date June 04, 1999 [Graphic Omitted] Given under my hand and the Seal of the State of Washington at Olympia, the State Capital /s/ Ralph Munro ----------------------------------- Ralph Munro, Secretary of State STATE OF WASHINGTON [GRAPHIC OMITTED] SECRETARY OF STATE I, RALPH MUNRO, Secretary of State of the State of Washington and custodian of its seal, hereby issue this CERTIFICATE OF EXISTENCE/AUTHORIZATION OF MILINX BUSINESS GROUP, INC. I FURTHER CERTIFY that the records on file in this office show that the above named profit corporation was formed under the laws of the State of Delaware and was issued a Certificate of Authority in Washington on June 4, 1999. I FURTHER CERTIFY that as of the date of this certificate, no Certificate of Withdrawal has been filed, and that the corporation is duly authorized to transact business in the corporate form in the State of Washington. Date June 7, 1999 [Graphic Omitted] Given under my hand and the Seal of the State of Washington at Olympia, the State Capital /s/ Ralph Munro ----------------------------------------- Ralph Munro, Secretary of State CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF MILINX MARKETING GROUP, INC. --------------------------------------- MILINX MARKETING GROUP, INC., a corporation organized and existing under and by virtue of the general corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of said corporation, at a meeting duly convened and held, adopted the following resolution: RESOLVED that the Board of Directors hereby declares it advisable and in the best interest of the Company that Article FIRST of the Certificate of Incorporation be amended to read as follows: FIRST: The name of this corporation shall be: MILINX BUSINESS GROUP, INC. SECOND: That the said amendment has been consented to and authorized by the holders of a majority of the issued and outstanding stock entitle to vote by written consent given in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. THIRD. That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 and 228 of the general Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said corporation has caused this Certificate to be signed by Mikiko Fujisawa this 5th day of May A.D. 1999. /s/ Mikiko Fujisawa ----------------------------------------- Authorized Officer Mikiko Fujisawa (Secretary) State of Delaware Office of the Secretary of State --------------------------------------------- I,EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "MILINX BUSINESS GROUP, INC." FILED IN THIS OFFICE ON THE SIXTEENTH DAY OF JUNE, A.D. 1999, AT 9:05 O'CLOCK A.M. A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS. /S/ Edward J. Freel [Graphic Omitted] -------------------------------------- Edward J. Freel, Secretary of State Authentication: 9811826 Date: 06-17-99 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF Milinx Business Group, Inc. Milinx Business Group, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Company"), does hereby certify: FIRST: That Article FOURTH of the Certificate of Incorporation of the Company is hereby amended by increasing the number of shares of Preferred and Common Stock authorized and by adding to the end thereof a new paragraph reading in its entirety as follows: "The total number of shares which the Corporation shall have authority to issue shall be 250,000,000 Shares. Par value of said shares shall be $.001. Said shares shall consist of 210,00,000 Common Shares and 40,000,000 Preferred Shares. Shares of a Class may be increased or decreased (but not below those outstanding) without an affirmative vote of that Class. Each Common Share shall have one vote, and each Preferred Share, or Series thereof, shall have no votes or such votes per share as may be specified in the Designation of Rights and Preferences for said Preferred Shares or Series thereof. The Board of Directors of the Corporation is authorized, to the maximum extent provided by law, unless otherwise provided herein, to provide for the issuance of Preferred Shares or to provide for the issuance of shares of Preferred Stock in one or more series, to establish from time to time the number of shares in each such series, and to fix the designations, voting powers, preferences, conversion rights, rights and qualifications limitations or restrictions of the shares of Preferred Stock or such Series. Shares may be redeemable or convertible on such terms as conditions as may be determined by the Board of Directors." "The issued and outstanding shares of common stock, of the Company shall be and hereby are reclassified and subdivided into a greater number of shares of common stock, as the case may be, at a ratio of 1:2, such that each share of common, stock issued and outstanding shall be reclassified subdivided into and become respectively two shares of common stock. Fractional shares resulting from the reclassification and combination shall be rounded to the nearest thousandth of a share; shares or rights convertible into common shares prior to the date of this Certificate shall be convertible in two shares for each one common shares provided in such conversion right unless right is provided in the conversion instrument." SECOND That the foregoing amendment was duly adopted by the Board of Directors and stockholders of the Company in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. THIRD: That the effective date of this Certificate of Amendment shall be midnight on the day it is filed with the Secretary of State. IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment to be signed by its duly authorized officer this 14th day of June, 1999. Milinx Business Group, Inc. By: /s/ Mikiko Fujisawa ------------------------------------- Mikiko Fujisawa, Vice President Designated Officer for Signature State of Delaware Office of the Secretary of State --------------------------------------------- I,EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "MILINX BUSINESS GROUP, INC." FILED IN THIS OFFICE ON THE SIXTEENTH DAY OF JUNE, A.D. 1999, AT 9 O'CLOCK A.M. A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS. /S/ Edward J. Freel [Graphic Omitted] -------------------------------------- Edward J. Freel, Secretary of State Authentication: 9817823 Date: 06-21-99 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF MILINX BUSINESS GROUP, INC. Pursuant to ss. 242 of the Corporate Code of the State of Delaware, the undersigned, being the Secretary for the execution hereof for this Corporation, MILINX BUSINESS GROUP INC (the "Corporation") does hereby Certify as follows: First: The name of this Corporation is MILINX BUSINESS GROUP, INC. Second: The Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on December 10, 1998. Third: Shares of the Corporation have been issued for payment therefore. Fourth: The Certificate of Incorporation of the Corporation is hereby amended by Amending the Designations of Rights of Series A Shares by increasing the authorized number of said Shares to 15,000,000 from 5,000,000 and by increasing the conversion ratio to common shares provided in ss. 5(c) from 2 shares to 3 shares for each Series A Preferred Share as stated in the Amended Designation attached hereto. Fifth: This amendment to the Certificate of Incorporation of the Corporation was approved by a majority of its Board of Directors, and by a majority consent action of the Series A Preferred Shares and an absolute majority of all shares of the Corporation entitled to vote thereon. In Witness wereof, the undersigned Secretary has executed this Certificate this 14th day of June, 1999. Milinx Business Group, Inc. By: /s/ Mikiko Fujisawa ------------------------------------- Mikiko Fujisawa, Vice President Designated Officer for Signature CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF MILINX BUSINESS GROUP, INC. Pursuant to ss.242 of the Corporate Code of the State of Delaware, the undersigned, being the designated Officer for the execution hereof for this Corporation, MILINX BUSINESS GROUP, INC., (the "Corporation") does hereby Certify as follows: First: The name of this Corporation is MILINX BUSINESS GROUP, INC. Second: The Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on December 10, 1998. Third: The Series A Preferred Shares of the Corporation have been issued for payment received therefore. There have been no Series B Preferred Shares issued. Fourth: The Certificate of Incorporation of the Corporation is hereby amended by amendment to the Certificate of Designation of Rights of Series A Preferred Shares as set out in attached Exhibit "A" and summarized as follows: ss.7(a) to eliminate the power to restrict the powers and preferences by other Series of preferred shares. Fifth: The Certificate of Incorporation of the Corporation is hereby amended by amendment of the Certificate of Designation of Rights of Series B Shares as set out in attached Exhibit "B" and summarized as follows: ss.1(a), (b), 2(a) to decrease the preference amount from $4.00 to $3.00; ss.3(a) to clarify the voting rights respecting voting equivalent to the common shares into which Preferred Series B may be converted; ss.4(a) to permit conversion after December 31, 1999; (h) by decreasing the anti-dilution from $2.00 to $1.00; and ss.5(a) to eliminate the power to restrict the powers and preferences by other Series of Preferred Shares. Sixth: This amendment to the Certificate of Incorporation of the Corporation was approved by a majority of its Board of Directors, and by a majority consent action of the Series A Preferred Shares and an absolute majority of all shares of the Corporation entitled to vote thereon. In Witness whereof, the undersigned designated Officer has executed this Certificate this 29th day of September, 1999. Milinx Business Group, Inc. By: /s/ ------------------------- Milalas Fujisawa Designated Officer CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF Milinx Business Group, Inc. Milinx. Business Group, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Company"), does hereby certify: FIRST: That Article FOURTH of the Certificate of Incorporation of the Company is hereby amended to provide for a consolidation of issued and outstanding shares of Common Stock by adding to the end thereof a new paragraph reading as follows: "As at, the date of this Cdrtificate, the issued and outstanding shares of common stock -of the Company shalt-be, and hereby are reclassified and combined into a. lesser number of shares of cornmon stock, as the case may be, at a ratio of 2:1, ..--such,:th ch -two. ~QQmmon stock issued and - -outstanding~,shal-l-L.,b.e--,~,.--,,~ml,- reclassified and combined,inte-and become respectively one share of common. Fractional shares resulting- from*--the reclassification and combination shall -be~-- rounded to the nearest thousandth of a share. Shares or rights convertible into comm-on'shares prior to the-,dat,04-thi~s Certificate shall be convertible in V2 ~share --o I n for-each " .e. common-%share- ovided in- such conversion right .unless an~_!?.. adjustment right is provided iii1hetonversion instrument." SECOND: That the, Certificate of Incorporation of the Corporation is hereby amended by amendment of the Certificate of Designation of Rights of Series B Shares as follows: ss. I (a), (b), 2(a) to decrease the preference amount from $3.00 to $2.00. THIRD: That the foregoing amendments were duly adopted by the Board of Directors and stockholders of the Company in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. FOURTH: That the effective date of this Certificate of Amendment shall be midnight on the day it is filed with the Secretary of State. IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment to be signed by its duly authorized officer this 4th day of November, 1999. MILINX AUSINES S_ GROUP, INC. s e MikikoT!i'aN,/a, le'-Vresident Designated Officer for Signature CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF MILINX BUSEMS GROUP, INC. Milinx Busiam Group, Inc. a corporation organized and mdsting under and by virtue of the General Corporation Law of the State of Delaware- (the "Company"), does hereby certify: FIRST: The Certificate of Incorporation of the Company in effict as of the date and time of filing of-this Certificate shall be amended to include an mirortasc in its authorized preferred:stock and to provide fbr a non-voting advisory board, as follows: ARTICU, FOURTH: Article Fourth sWl be amended to increase the authorized numberofpmftred sham from 40,000,000 to 100,000,000. ARTICLE FOURTEENTH A new Article Fourteenth isadded to read as follows: .'The Board of Dirwtors may establish one or more Boards of Advisors who shall be non-voting wid may be provided compensation for services in conjunction dmrAth. The Board of Di=tors may provide that all or individual members of one or more of such Boards sW be given notice of all Board of Directors meetings and the right to attend and make comments therein." SECOND.- That the fbregoing amendments were duly adopted by the Board of Directors and stockholders of the Company in amordwme with the provisions of Sections 228 and 242 of the Ge=al Corporation Law of the State of Delaware. IN WITNESS WHERBOF, the Congmy has caused this Certificate of Amendment to be signed by its dWy authorized officer this I e day of January, 2000. MILINX BUSINESS GROUP, INC. By: /S/ Designated Officer EX-3.2 4 0004.txt Milinx Marketing Group, Inc. A Delaware Corporation ARTICLE I OFFICES Section 1. Registered Office. The registered office of the,corporation in the,State of Delaware, shall be located.at 1, 013 Centre Road, Wilmington. Delaware: 19805,,in the County of New Castle. The name of the cor oration.'s,registered, pgept,.at such. address p shall be Corporation Service Company. The,re istered-offip n 9 ,A e a , ~iq~.,,regjs:,t red .agent of the corporation may be changed from time to time by action of the board of directors. m___ I- __h- offices afsuich other Section 2PY_~hSr Offices. The Corpo9~tpyn, .places, both within and without.the State of Delaware., as the board of directors may -fromfirne, to time determine. or,the businessof thezorporation mayr ARTICLE II MEETINGS OF STOCKHOLDERS Section 1: S pecigi I Weeti rigs... Special meetings of sto6kholdiers-may be,,called for any purpose (including,. without: limlitatJ on, the filling of b66rd.,.-vaca nci , e s, and,., newly created directorships), and ma be held . at Such time and' I "thin .6~ withoutthe y -p ace,wi, State of Delaware, as ~hall be stated in a notice of meeting- or' in a duly'exec'ut'e r d waiver of notice thereof. Such meetings may be called at an time.,4y.two.or more.members of the board of directors, th`6 president or the holders Of ghar-6.s ..entit.I.e.d'to.cast not less than a, majority of the.,votes at.the. me6ting'or the holders -of, fifty prpent.,(~PO Q) of the ,outstanding shares of any serie's or' 'class "of the corporation,s capital stock. Section 3. Place of Meet~s. The board of directors may designp,tp-any. place, either within or without the Stafa, of Delaware,. as the, , pla I ce of meetin Jo r any,annual meeting or for any special meeting called by the board of directors. If no designation is made, or if a special meeting is otherwise called, the place of meeting shall be the principal executive office of the corporation. Section 4. Notice. Whenever stockholders ~are- required or permitted to take action at a meeting, written or pFinted.notice stating-the place, date, time, and, in the case of special meetings, the purpose(i~,"of-such--r . heeAin:~g',, shall be given to each stockholder entitled to vote at such meeting not less - -tharil 0 nor more than 60 days before the date of the meeting. All such notices shall'be delivered, either personally or by mail, by or at the direction of the board of directors~,-.',t'h~e..'P'eq~'sident or the secretary, and if mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage _prepaid, addressed to. the stockholder at his, her or its address as the same appears,on-the-r'e6orcls of t*he orp "oration- ftond'a"n'~ce,-:6 a person at a~'meeting, shall constitutenatheapersonTattends'for'theh expr butifies s be bab useAN6 rrib6f i!'ig."i's ni "ot IaM-61`11y c ;iI l6id": 6 r-~'coniven6d Section 5. Stockholders List. The, officer having charge of the stock ledger of 1he cor porat10"daysb6fore. every meeting'of the~-stodkholders, a C6 PI& IV to ',v6t6L, --at sucmeeting 'arranged in t6~ I i. m St ~'of 'the'- std6khblders -en 1 6 oi*6 h k--s t6ckhb-I.d&r, and-Ft. e~"n'umber 6f,shares alphabetical owing:1 B ah. registered in the name of -each.stockholder-- Such list shalEbe open to the examination i ofany stockholder, for any purpvs.e-_germane1o -the - --mee~mg.,-A.ur ng ordinary business hours, fo16-theriod r-a placeawithin 4the city wherV,03.,plape,-gp1at(J4_q1,ss.Aecified in the notice of the ,L a't:lh6:-,o c1ce' er meeting or, if not so specifie1'44 -e-'the:meetin-q is to be held. The list _pt-at-theAinie~-and pl, q, ee, ng during the whole shall also bell'produced.and.kq- to eof,' a 1d:-& -4g -.si ,ime thein e. by I't- t6, kh6ldb; is 'd Oe, y .6,n 'Secti u -1&~eptooaCtntpwh or -,a_, Mzw 6 st- s ~Q~ b the Quor I e aw; ~4rw -5- -6rp6ratiorls certifiutstanfing.'sharestofothe'a'm8ijotity OT t c he d d corporation entitled to vote,. represented in person ot-by proxy, shall' constitute a quorum at a meeting ..of stockholders. If less -than a,mqjorit:V--of the outstanding shares are repreir1g,daamajoPresentede- ma S areS,1SOL,re y- adjourn the meeting from time"tof~imd in accordance with" ectidn of "this 'Article, unti a quorum sh;41,1 e-~ sent or represent d 6tioh2 7. A iourned Meetings.' Md tomanother time and place, riffice' need adf6urned mee ing if the time and place' give n 0 , the -thereof h I -, -, -."' - - .; - are announce at t e meetihg,~ -at which -. e a gourn M;eht it, taken.- At the adjourned V' meeting tration may thans I act e corpoi -;iiy-'business w ic might have e0h transacted at the original meeting. If,the adjournment is for more than thirty days, or if after the adjounme-r(t a' new !record, date is - fixed"lor the" adjjb'urnec!7-~ meeting- - -a - tice of the no e rititled. to vote at the adjo&6 d"'meeffrig shall be dKidn to each stockholder of record e theeting- Section 8. Vote Required. When a quorum'is'present, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the question is one upon wh.ich by express., provisions of an applicable law. Pr of the corporation's certificate of incorporation-a-.-different vote is-required, in which case such,ex ress p provision shall govern -and control the, decision of. such - question. Where a. separate vote by class is required the affirmativeyote,~-ofth jp e q jority of shares,,of --such class -a present it,th,e,-.,T,-oftsuch,class, y prpxya unless the~.auestionjs, onQ,.4pon,:whJch, by-express ~provisjo s--otap-appl,icable law or of the corporation's,-pertificate of..i.nco,r,,pgr~ati,on,,a-d,ifferent,~v-ote-.is -requi.red,-in which case such express provision shall govern and control the decision of such question. Section 9. Voting Rights. Except as otherwise provided by the General Corporation Law of the State of Delaware or- by the certificate of incorporation of the corporation or any amendments thereto, every stockholder shall at every meeting of the stockholders be entitled to one. vote. in., person. or by:proxy for. each share. of common stock held by such stockholder- Section 10. Rroxies. stockholder.,,entitled-,to,- vote e at a m eting of stockholders orJo expdjss~c-nsena or,, e --- t ito -corpor te, action, riting-vithout a meeting Tay. authorizIsanother Dorjo.iR(.),4ttby~pTfqr him, her -pxy. ~-E evy,yroxy the, st -must -beockhQlderyg.pkRt~ip -Ah.~;proxy,~.or-b. ~this~:I-her--or As attorney4- -aft Ire -s -.,.-..-fact. No proxy shall -be voted-or'acted,ju.PD-o- er.th eyp~PrOivm,.,~it unless.the -~date, p I proxy -prevides for a--Wf.ss.Ja pee.,ji-revocable, if it y.,,,px. quted,:, pro) states that -it. is irrevocarble,, and if, and.-..oply.4~-., long,.-as, it - is;.coupled.,with on interest sufficienirreVocable support anjrrevocabl-q4-p pWer,., ,adet, - -.J-terest..in~.ffie -stock ardless of whether the interest with which it is coupjlq4~rJs--.kn, n r itself or an interest in the corporation -generally Section 1provided.,b-inrtheen ;Consent. ,U.nless corporation's certificate of incor.poration, .~.anyaqtion. r.equi red. ta-be: taken, at apy; an n u a I -or special meeting- of stockholder&-ofAhe corpora ion, or any a t cbowwh ich mwbe,taken at any -annual orspecial,meeting, of such stockholders, -may be taken:without a meeting, without prior -notice-and withouta vote, if ~a - -consent(s) in writing~-.- sefting-forth the.action so taken, and bearing the. ~-dates..;of signature ~, of-the stockholders who. signed the consent(s), shall: be signed, by the. , holders of,,putstanding ~shlare& of stock.7having Inot less..than a majority~of the'-shares entitlerd.towate, or, if,greater- not less thamAhe min-imum number.of votes that-would be:,necessar. -tqpL;th.,orize ~or take,~s-uch. action -at a meeting at which all shares, -.entitled to vote. thereon, were present7,a nd voted, and shall be -delivered to the corporation #y. Aelivery to - its registered-, -office -Jni the state of ,Delaware, or the cor oration's principal place:,of business, oran officer or -agent -of,the corporation having cust - ody ~of. the-,book(s) in:whic4--proPeedJ.n.g5 of meetings of--the stockholders are recorded. Delivery.madeto-the,cor oration~sl gistered officershall be by hand or by certified or registered mail, return receipt requested, provided, however, that no consent(s) delivered by certified or registered mail shall be deemed..delivered until sucoffice.n,(Alla~econsentsy r received ~ at,.the properly delivered in accordance with this section shall be-deemed-to be recorded when so delivered. No written consentshall be effective-to take the corporate action referred to therein unless, -within -si)dy days 'of the earl ie'st~'d ated consent delivered to the corporation as requir-writteni-cons-ents-'-sighed by the- holders of a I sufficient number of'-shareslo:-take su&h cor~'-por8f6'r~-a--ctioT~n-1:~ar'~e"z.'so recorded'.' Prompt notice of the taking of the' "corporate 'action without'a meeting 'by less,than unanimous written consent shall be-;dive;h,t6 thos-6'stodk libild6rswh o' -- li'aw`&~no contented, in writing. Any ~action' taken p-dr~ijant~-to;"-s~dc'h,-w-'~n-ft e- . n"',,c~o"nseiif~,s)'6f,,Ihe"~,c,;s~to~tkhdl'd'i~-r,t,E~ha'iI have'the 'force anif-t"kcn b -h re-' same as a e y the stockhorld6-rsa4a, rhie6tifig t e 'kf. ARTICLE III DIRECTORS Section 1. General Powers. The~businesgan affairsbf the corporation ~shall-be managed by or under the direction of the board of diredtoirs.`1 -Office. _The'-number of dF of thit Article, 111. 6ch d.iredtor 61ikt6d, tsft I hold"bffid&`-Ontil' a successor is- duly ts -bf , libi,"kd6athas __elert6dUfie6t"'d,.'_~iftte,h e- edl'- _h' reina A emoVa ----- ny director or 1W~bf` t C&IS-0 y directorsb d t 4 ~,.With r P "the holders of a ~'may: e remove ~a ti -n-b,,' W: ~'itho U ,.-~,,ni~ijotity~of~,lhei~h~aresth6n'~dMitliad~ft,'6~'vbtd'.at-ai-n;~6led-t~i'on dir'ec't'D~'~rs',,-ProVid6d~,hoWeVer, Or! r Airectors ri68 ~,Wh, ene--aire'"entitlied",tob~elect~.on,6 br,mo -e -by the pAn-i&pdration,-, e provis s fi ft, - fl". 11", - ' Ah "" ' ` ion ' 6Uthis -tectiorf- shall applyi in4espedt'to- th6~ rem ovial~with6ut- cabs&c or a: diredt-brIf6r,direct. 6rs so ~Ou h reg "elec'ted,-.to.~thevot-L-~of',thf~-~l~ioldef&'A'of't,he-~ ts;tandift .'s~- a of that class or series -and Utstand*ri "sha th6r). not- to,,itg: %vote or6shasoal,Wh6le, proVidedfur - in thetevent~cany stockholders'of the,,corporation ba e entereagreement which'provides h -1- t b -,,e n 'for~the~man`ner-Jn wh-ich-Ahe-Airectors of # a. corpora i, n are~ 6 6' ldcted a4 d osuch stockholders have so, ~daused -the 616ction-1dir6dt6r(H "dir b 'I A- cd6Tdahde With,such agreOment-,(as the removed from1h L- board'-'Of 'directors 7on y~ in:-,A Sarne,rnay be'amended fr6m,time:lo,timei"~'the:"".Stobkhold erg, Agreement!'), for so long ag-1,(i)-such agreement;;,-has--~beeri ~ -filed with~,;-'_the"~lcofporatiOn r and '(ii):-has not been terminated.~ AnydireCtorhla~ resign at anytime up6ht-`Wriften' in otice~ to the;corpo ration. Ely- Exoopt as" :otherwise -Provided 1he Section 4certificate.of ,incorporation of -the -corporation -or ;any~ amendmeints thereto, Vacancies and: newly created directorships resulting from ~any increase in the'--authorised number of. directors may be filled by -a majority vote of remaining members of the Board. Each director so ByLaws 4 chosen shall hold office until a successor is duly:,plected -and qualified,, or until his or her earlier death, resignation or removal as herein-provided. - -each.,"newly-Plected board of Section 5. Annual Meetings. The annual meeting,~.,of directors shall be held without~other notice than this bylaw immediately after, and at the same-place as, the,annual meeting of,.stockholders. Sectio,n-6. Other Meetingsand Notice. Rpgkilar~m.eeti,ng~i;...,Q..t~.e.,r~,han the,annual A meeting, of the board of directors may be held without notice..at~quch_7~'time and at such place as shall from time to time be determined by resolution of the board. Special meetingsof -the board- of directors may be called by ~or at the ~req~uest ~of the - president or vice -prebydent on at -least,,.24 hours- notice to, each, director,, either, telephone, by mail, - or telegrap~; in like manner and - on like flotice the president must calla special meting,on. the written. request of at,-leastla majority..of theadirectors.. 7.- Quorum-. Bpguired~, Vote-, and Adiournment-I& ajority:-of the total number.-of-d-iractors. -shall constitute a:.quorum,.for;.the~'transaction,~of business;.--1he'_v-_-ote -p.f -a-majodty., of-directors.preseattata meetingiatmhich-,- a,.quorum -is.~-pr~.e-sentvzt,-rAl~-be--the act..of-.~the.-b.oard-of-,di.rectors,.~-~,4- -quorum.shall hot -.be~ present-iat_1Wy_.--me.eb-n -,--of.,,_the. Jg present -.-thereat may ado,. m -the - --m _g~-frbrn me7to j. u eetin time, Withaut.-not[ce other thaN opuncement at the meeting,~._ until: a --quorun,'-~shafl_be present. by, Section 8rdCofmdirect~regolutiony,, __p _gt~ P j;Rajq(rt~whole-o~b ard-~.,&Wg.,-,c.ommiftees,~each~.,.co,-m~m-.,i,.t~tee.-to consist--r-.,mor qfthe corporation:-which to-,-th w-,extept;p towided-, C in.such resol utio rj.'or, these bylaws shall have;an.d.,may-exerpise.~-'~the.-powers~,bf the,'bo-ard of directors in the management and affairs of the corporation- -,,except as-,otherwise limited by law. The board of directors may designate one or-more directors as alternate members of any committee, who may ' replace any absent or disqualified member at any meeting of the committee. Such do"mmittee(s) shall have such name(s) as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of , its meetings and report the same to the board of directors when required. Section 9eptors.rhee Rules. ~Each committee. of the.,,~boardc - -of-,dir ay,fix its - --by, ~own ru..Iesof,procedzure andshall hold its2meetings as provided. - -such ~ ru les,,7except as May otherwise be provided by...a resolution:of the board.'-Of rd,iredtors-designating such committee. Unless. otherwise providedin such.a reso-lutioni the 'Presence,,of at--least a majority of the-mem,bers of the committee shall',.Ibe-ne.cessary,to.~constituti~.~a quorum. In the event that a member and that member's alternate, ff.-alternates'zire'designated ~by the board of directors as provided in -Section-8 of this Articles 111, of such committee is or are absent or disqualified, the member(s) thereof prese Int at any meting and not disqualified from-voting, whether or not such :member(s) constitute:~a quorum, may ByLaws 5 unanimously appoint ~anothet'-aiembet,bf the-~board ~of diredtors16 act at' the meotinN in place of any such absent or disqLiaIified!hiemb&. Section 1O.'-Cotrimunications Eguipment. Members. of -the board of"directors or any committee thereof -may participate _~in -and act -at-~any meeting -of"such board or committee through the use of A----c6nfe_rdnc6 tbl' h6he', , ~br--~,bfher communications equipment by means of which all persons participating in:-the meeting can hear each io other,--and; participation in AhO meeting puftuant~_-to-it h s ecti ri_-~ hall constitute -presence in person at1hemeeting. rh n f'A -nt "Ani"'i e b' -of the - -Section 1 1.,:Wlaiver of ~Notic-6 an d _Prdsu Ptio, ssei y,m m er ba m -ittee er6of"Who i,~-Ptese"nt'~-_at`5 M6btih4'sK6Il be o rd of Airectors ot' ath-"'co' ni conclusively presumed 16- have,),WajVed-- - - notice , of 'sudh: -meeting '~6xcbpt: when- such member attends,forthe exoress.pUrpose .-of bbjbctinss.: at the beginning of the, meeting to ...the transaction of any business because the meeting is not lawfully called or convened. to tiny,.,adtion taken mi;=Iess his,or;her dissent., Kalfp- e-en er',6othh -- m, g ;b 'd'-, he4n s Y 6~, 6 "etih - -nlbs s~his or go writtewdithentlo suchcction --shall-be~file&With Ahe -pi6r, , 646-tin _g as, e-se retary eetingl~,'isterd':mailadjotirnme6t~,AberLejbf-,,O",,h,dil,b6-"-.f'6rw~i d -&,aWy Rer ~i,,ddj rheoting. *06 he-secretarrywof ~~the: corlibrati6fl, iffi. M"i'd -b ,----a ---the OUR3,10 ~Lae - i 4, %uch right to -diss' pt sha W ny_--~ be n. 6 'S t-ap W -rw of such actid -Gonsent,rictedsby:thetar Action by Written, on's re a re ~ ~be q, I " 'd " - '109' d -ifle UEL 14,,~ -_ jak n at r Pq ti ,of...th - -,-board ~"of ars in rhitt6e4be;--,-,tadken. _a~ -'b ~meetingl o imitt _*fflft f ;-if'- IF--memb e~ may ~ e, -h fi -the,,miMutds'of proceediings of -:cGnsent thereto - in writing arid t., 0 writing(s)laee iled with --Ahe,,board or-committee. ARTICLE IV 'OFFICERS SeGtion 1 . Number. The officers of the corporation shall be elected by the board of -d,irea~.rchairmanaj,;4ficany -is.,.0lected.,; a Presidjea,, one or more vice.presidents,-a -secretaryv'r'ja treasuret-;-land-such. other ~officers :and tgssistant~ officers as may:be,Aeemed neces ' sary or -desirable,by the board -of-d i rectors-. ~Any'number of .offices. may ~ be. held by the Same: person, exceptthat rioi:person. ~ may -simultaneously hold1he office 7of president,~and-secretary. ]n lts~,discretioh~ the"'board of directors may choose not to,fiil any-Offiiceforany~periodlas it may deem,,advis%able. Section 2..-:Election -and Term of Office. The officers W,the, corporation shall be elected -annually by the board', of---~d i rectors at its first meeting'~held after each annual meeting of stockholders or as soon thereafter as conveniently may be: The president ByLaws shall appoint other officers to serve. for such terms, as, he-,or-she, deems desirable. Vacancies may,. be filled pr. new.:.offices created- and-fi-Hed=at7arry-.- meetin * g-of the board of directors. Each -officer sh-all h9ld,office-until, a successor is- du,l.y..,-,elected.,and~qualified or until his or her earlier death-, resigpation or removal as hereinafter -provided Airec Section .torsmayv.al..Any -officer or -.agen,t elected _by the, - boarldoof erit,:Ahwe.,best.~interests of -the corporation would~be served -thereby, but such-rem oval, sh-alkbe.,without, rejudice P to the contract-~rigfits, ff any'.of-thie.person so~removed.- Section 4. Vacancies. Any vacancy occurring in any office because.of death, resignatithe boardvof,, disqu.a.lification, or-otherwise-, imav y . ..... directors for the unexpired portion.-pf, the -term by-the board .of directors-,then ~in office. -,~o rs-'shall -be- fixe&~by -the Section,. 5. Compensation. 4Qompensation,,!of all fficer board of directors,, ando._:.,np_~,.-vpfficer s h be-,prevented-from, .-receiving- ..such ~of the,-corpo-ratiom virtue ofbisw. her~also being,_adirector' t, 76 - OIG _-Section -6- The Pretive-lofficertofithes,, 11-be the chiet R, _lax _q 'the %at - -K_ wgpeorporation.,. . Inf,jhe~-.,Obsence.: of. the, Ghajrmra&tefz .-Board-oi-i - -,-Ghairman~of the oard shall have:np 1, imeetings of the elec te-d,,,th.e--resi.dan ~ILzhall preside.#at - -board of ~dire~ct,,Ors:-at,,,...whic~'h;,~,h.e or sheJs~pr6se_n _stockholders ~and - --t;_,(ii)~rsubject to the .Q~boardof%dir t P of. th e.c ors,,,. charg a ass, ff 'M a airs -ext bw rtyio ,the c rpprationi, nd.,q- d 0 ce ,e hd-,.mp oyees; .p I-orders :ra-d reSG1QtJ -A he - rdi-#~Amto ~ ngd ee that a] a oal. rs re_~Icarned_ YAWall-s he~presjident shall,,haversuc owers. an& T p0daft Mother duties OT as may beay-beswovided~:in.he board of directors.,or -as-.m y- - -these.~bylaws. - -Section,7, Vice-presidents. The vice--!president,,,,if` ~any,,,(or ~if - -.therellgbal[bemore than one, .,the vice-presidents) or any other- person So r designated-~by-.-resolution of the Board..,Iof Directors or--a designated tommiftee,~;thereof.:.in~the.~ord-er:determined,~.by the shall,, in,-theabsence ordisability.,of the, resident,~_-actwith all of the board:of P.irectors. powers and be-subject to~ all the restrictions- of the president: , The - -~vJc&-,President, if any (or if there shall be more than one, the vice-presidents) or any other person so designated by resolution of the~-.Board-j-Of-,.Directors'or a; desitinated,commiftee thereof, -shall also.perform such ~other_Auties..:and ~'ha-vmeFz.uch -other powers as:the,'b6ard of Airectors, the president or these,bylaws- may, rfrom-time_1o time, - -prescribe.- Section 8. The Secreta[y and Assistant Secretaries. The secretary shall attend ith rd ~of directors, a1l meetihbs-~,of _,the-~ c m mitt J all meetiand allthe, boa meetings of the ,.~stockholder& ,and4 ~record: 6W-the- proceedings-., of :,the.,meetings in a book(s) to be kept for that.,purpose. Under the president!s.supervision,-,the secretary (i) shall, give, or cause tobe given, zll,:notices required:to be-given by,these bylaws eor by law; (ii) shall have such powers Wd perform such duties as the, board: -of directors, the president or these bylaws may, from time to time, prescribe; and (iii) shall have custody ByLawt 7 -shall Ahe'corporate seal; of Ahe corporation., The secretary, or ~an:assistant secretary, have authority to affix-the corporate seal to, ahy..Ithstfurnerit requiring ft and-When so 4 ~,oftb thre su h 'affixed, lit-may be attested--by hi 'or ~ her -s-ig-hatUrie- y- --sigribtu -.of c assistant s secretary. ~ The board ~of direc,orsofficerv0,gendfa " thority :1 .:au -'-to any othe 't affix the seal of the corporation and to attest the affixing by his or her signature. The assistant z sec retary, or: if the&eb6 m6r.6 Aftan~ oh6,,~lhd,"a'-ssi!ss.tant--tecrotaries:~ n the order 76'6 - -orAisability of'th6sedrdtary, perform.'powers:-ubf--.IM,~-ds . ec I retar ' y~,4nd - -shMI-porform: such other duties and have such other,-,."p~6w6rs%,~,th6qUd;ss.rd~;.o rf diredtotsl'the president, or secretary may, from time to time, prescribe. Section r qi:Thbtr6aturo :(i)'i!ss.h l[bave - -9l The Treasurer~-andAssitta -e r, r - the Custody- of the::,. corporatSO-euritios';- -,(ii) shall:'Reep Iull a nd ' accurate accounts of receipts and disbursements in books belonging to the corporation; (iii) shall,-,~depositb;ll",mon~ies'-.and.,,-otherfvdiuabi-el,.t',fif46,ts,rin~-',,- the--'n-g~M~'iEi--ain.d't&',t~h,(~'b-reditofthe bez n zq~pqrati-orc[eEa6J-,aWth"-oard-,,~(5f..~-dirs~to ~Iiv).shall, cause- the, -fu ds of the corporatioh-A-o ~en,rs..uGhAi9bursain ent8fia'v- e'boeFhAuly Mjltheeiiked, taking- proper- -vouchers for- stteh-;zdjsbursement,ss.; (v) shall render to the president- and- Ihe-,.bq;Kd--, f, ectGlar"AMt"I 1* 0 to -dir a It eting.- r.~,-,en'h-te.i~-f 'i , t o rs,-,-s-o- wec rs,-, a~ W V e-qures,~of~.ithe,cou4hd (,vi)~,dhall 8ve~,suz, PIOW 'r I t. , Job -h e n-erform - -suc-,h,-the~borard~-oftdit-M.tbrs-7,-Ihe.,Pe6by.derr-it-,~,dr"- J r -thes': 'ilawsmayL.1frem-A eto h, theIr easu rev-7z give the _d tI'Gp=,-.lmn - :*hjCW9WAMhk--,Wffd-Jer.' dP ev. M) i6 -Z h rY~ "six Ft f c W ", d 4 ~wj*,-,04 ~,S"-u~ Ydq'0IQT-_Yt0AW0oa,.r 0. 1; "M _g d fa A A c _,:.tr bt,; h _11fo r; Ih _: 'Ast - rat ~'i he Aerforina, eeGf easur .,,d 16- r 6 fiLor pa ~U es~404bftaffi W_o a -mrs ire0fn' h or ~r valf- R dt B) do'dMian; -emov 'I ooksj~_--~ papers', ~voucherp-,;4bther, rbpe"_y F~kp in the -_b possession or under the controVof the treasurer belonging to the corporation. The surers in the 10. - -,.,Other.- Officers - Assistant:Y0.fficem',6 nd,~ Agents Officers, assistant -officers.and agents,, if any,,.~oth~er~.4h~,,,a-,n,.t,,hosel.-,Whose~,.du-ties,.~..are.,-~pr.ovid for,irf,-these bylaws, shall-,-,h-ave such authotity,-arTd-,per,,form--Such as-may from, time-Ao:Aime be prescribed by resolution of the board of directors. e bse Section 1 1.-.Absence xor Disabi lily -.of Officers., In,th :case-of the~,a mce or disabilit.y,-!of:any- officer, -of.,Ihe, corporation t.a'ndL;of,~,any.~,-per.,s.on.~.hereby ',author ' ized.-Io act in such officer's place Aurin g~such officee~sz-absenc~e--or.d:~isability, the board7;of directors ,may by resolution delegate the powers and - duties of such;officer to any other officer or to any director, or to any other person'Whom it"May.select. ByLaws 8 ARTICLE V. CERTIFICATES'OF~ STOCK Section 1. Form. Every: hcylder.,of, s-tockrin:the corporation -shall: be, entitled to have a certificate signed: by, or-in the-name.bf-the zccirpo-ratiom by-.- i) the'~Ghairman of'-the board or the:president -and (ii)~ the treasurer or secretary.-or an assi ttant secretary. of the corporation, certifying. the number-of: shares -owned by,such-- holder.' in the -corporation. If such a certificate is,countersigned:(1)iby a, transfer:agentor,an assistant-trAfisfer-, agent other than the corpor,.byna;registrar,.eothere-thanothe corporation.or its employee --the signature of any,such chairmanf,,of1he board, president, - -vice-president,- secretaryl.-or assistant.. secretary may-,--be -,facsimiles.. ,In ,case a ny officer(s) -who.- have signed, or whose facsimile-,zignatu re(s),- hava-,been -used_on, any such certificate(s) shall cease to be such officer(s) of the corp.oration~whether""becaiiise of death, resignation or otherwise before such certificate(s) have been delivered by the corporation, - -such zertificate(s),-may nevertheless~66&sqed,', and delivered as, M oiVii-the - -such it a s mile -signatbre(s)4iave person:-o~-certificawCoii-ord: _'00 ,~een-~used-~-tbi-.-e-reorr--~had nbt-~qceass..dd,..,-Io~,be-,~su'ah",,-bffi6,6r(,s), ofl, the rpbratr certificates-Jor-shares shall~. I be-.-con~-iss.-ecutiVely,-kni-umbored-~or otherwise ide'ritiffecl, e~%pdrzd --to whorn--Ah'O"' aTes- thdr 'are:,: iss-ued~,_._ Wit,11*1he" name .,ofnth represented eby-. -F I " 0- 10 Sbariea!,-,of stock.jof_the, corporation,~.-shall~-,oh,,~,lyi~be,: trahsferred,7,,on the:ibooksaof 1he corporati6h-~',-by,"71 lI6ihblder,of.*,tdd duly-aitith ia-writing,j-u n,:,, utrender_.,to-_M,.w_-,, =rT atibn,-,~ibf 1he"- rtificate(g): ~~for'_"?suth-zhzres Pq _s -,or Oce -the s t t eilt ppropriate,%peran)-~ "he ~atj hi c I tyi -PVU- c h uch evidence of endo..rse.6-1boy,~ S I th- -en-dolrtWHAh _6 mrpdrdti ~t4may 'sfer; -aufh~`~dth&-xhatt ag~,' -c oh- accompanied by..'all . necessary, ~ stock: transfer';stamps. In"that eventr,itshalrl be.ythe-duty-_.of~ the, torporati'm to-;isss.u'e 4~-- now certifitate't6 r th6~ person -cancel the ~,old.-,cerflficate(otd,the'tramaction oh,itss.~bdoks. ther entitled eto4--, e The.board,of ,-di-rOctors,,.,may.appo.int~a-~ban,k or,---trust~cbmpany.-6rg6nized"und'r the 1aws -or:any state thereof~:agenttor~registrar,,or_both of the UnJted:States ansfer, in ~connection Vith7the transfer of any~ class-orseries of,,securiti6s of theborporation. Section 2. Lost Certificates. The board, of- directors may direct a -new certificate(s) to be issued in place of any certificate.(s) previously issued by the corporation alleged~.10, hav1e-~b,e,e.n-,,Jb.s-t,. stolen,, of ..destroyed:,,,, upon. the making of an affidavitlof -that fact by the -person'. --,claiming the ~cortificato~bf:ttOtkto belb!ss.f,`~stole'n, or .destroyeof ~directorsorizing suchJssue of a snew certificatd(s) ,may,Jn. its Aiscretion and~:asa condition precedent t6,,the', isst-jahoethoreof,-reqUire the owner,of puch l6st'--- stolen, or destroyed certificate(~),: or]hit; or her; leg 7 a I - re ~ resentative, to give the corporation a bond sufficient,to-,indem-nify'the corporation-ag'8inst'bny claim that may be made against the corporation onractountoif the, loss, theft or destruction of any such certificate or the issuance of such now certificate., ByLaws 9 Section 3. Fixing a Record Date for Stockholder Meetings. In order that the corporation may determine the stockholders- entitled to -notice of or to vote at any meeting of stockholders oC6hy I aidjourrim-ent -thereof, the board of directors.may fix a record date, which record date shall not precede the date upon which the resolution fixing the mrecord~'.,date is~!adopted- by.th~eib.~eard-zf~.directors,,- __ n4mhich. corddate shall a Te ~.not be.the:dateaof-suchy,'meefii-sg.If-noan~ n rs,-. record -date- ~,is.,Axed by the.~board~ tf',directo :~.~ th!&' eercord: date -for doteirmihing of'stoc~kh~olderg-sha~ll.~bo-'the stockhold ers..---. entitled-to, notice Pf i~ri-to --vote 8.~_Mweeting.; 'd" tonw ,:Close -,of business --on: the day-~Jmmediataly prece, ingAhe --.,day v hich:notibOis-giveri,or ft, 'dihfte if notice --is waived, -at-Ahe clo'sEi.-of busiriess~zn'~.tftd day imft ~,- a , ly preceding Ahb,Aay on.,whichofhztmeeting ~is:held.,,,.,.-~A-1-~'determin ation ckhold6rg-~of.7recordli~en-titied to ice,-of or to.-vote at -.a meeting.- ofztockhoIders,.,s:haII applyAckany adjocti riment -of the -notJ e -new , T '-d 'date for ..meeting-,~.'provide.,ecorowev., r-rthat,the.board-~,--ofL,diro~ctors~mayfrx~g~ Abe,adjourned:meeting... Section. 4..-. Fixing -a Record 0_ate-forActiQn=ss.*A ' qz0onsent= -4er that-the - -CoTpo.ration- irnay --determine -the stockh,,O.ld6rs;,ent-itib.d-~-~t,6.; c-Onsent-to, corporate action in -wrifin ,.w,,itho-ut a~i7rleeting - -,th.L--~bo~-ard-~of-:-,,dire-ct6t-,.ss.it ya ~r;ecord,-e-d.dte~-,'--wh:ich'~rec-ord _g;~ il i8 fix ale -ecede the, I- date,~--,U Von. - Wh ie & iesolution fixing~4h&-recerd~ date is ---d -shall- not.--.pr r .,p y~, he-boa.rd--,~o.if,-d~irectors,,-. nd.--_whic;IiAia &-,ih hnot be.more en, -,~a a'ted~ b -t all Aays fter ut on. A e rec6rd datei., adopt6d4by1he:~board of -date U-pon, which,,-the ~iresolxingAb -is tPr, --jf no record-.Aate~,bas been fixeftyr- 1recorz&d9t for e 'th.,e~,rd,,,Iof-direictoTs.r.:rt-he,~ '~'7j,"~bkjfth-ing - stockh diders, ;~.-.enti led~ rt.M--'OT6te-' actidth~~-,Witho'ut a t --,t6,~,consen ti-~7': MW is-, be wh ovripr~adtio in vithe -board,.nt 3i:ecIuittotk _,enn thell-first-2 - -date ~ .0 --~,which-~a~signed.,Wriften~.-- oft 6'm i "ke n. o r - n ~coq tv-settin, g~ 4drth, --be-taken-As -delim-'ered, o1'Ah6'-d-dffi.,-dTMM z MYV&IjVety~, df Rae i n .,the: State of-: D.6laware,,..,its..,~pr~nc--,Ip.aI .,plAce--4.f b, U."sinian--%of15icer7 r zfgent 1 of, the -porratioJ -0-f b.db lof meetingg of hav- ng:~ --custody k-I.Ani oT ~stockholders are-recorded-.'~ w;Del,ivery--,made4..toiLt~h"e,,;,G.oTp.-a~rat.ion-s~reg,istered~-o.,ff.ficers~, be by,- y.,,certified,,or gistered;, m- 'I; r r' -,recej equested:,'_J-fii'ro ~record)'-date bas -1i and ~rer b aJ , etu n pti~ - -e.,boar-d~-.---o"iriectors-.-.and'is.ri,or;~-Itaction~, been :.fixed by th requ ired -by --statute,, tha,-reco..rdl~d ate -for Aeterm i n i n 'ttockhold rs-' erititledwito-z-onsent to I g e ~ corporate action in writing without a meeting shall be at the close of business on the Aay--on which the. board!ofid i rectors,adopts the respluti-Ontakini ci-such,pri-pirl-action. iSection,.5. Fixing a,Re.cord. Date, for Dther-,P u rposes;W J,n' Ord er t46t Ahe:,cmr oration may, determine the, stockholdert~gentitled tooreceive.-Pavment of any -.dJvid:end1_,or:O'ther distribution or, allotment, r,~' .,.y right$r,of the~-stoc,,kholders,en,,titled~.~.tol~.exe.rcis.e.- any ~rrights ~o an in respect ~of Tany ~ch a,.ngei . conversion,~or,,-exch.angel,,,af stock --or. forAhe.. - purposes of-any ct -boar-,,d,,of,d;irectors~,may,-,,.,fix-a~,re.cord date;.--which record - ate:,shall ,other1awful a- ion, th.ei. ,d not precede .1hes,datle -upon ..,which.~the,..reso,l~uti.Q,~n--,,fix.ing.--the:re-cord-,-,.-,,d,ate~-is adopted,~-and which,record date shatl.w. be~,I-Priortotsuch, action. ~. If notecord -ri sixy,,days date is fixed, the, record date:,for determining s.tockhGlders for,-any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. 11-JI. ByLaws- 10 other rights to which those seeking, indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to acti-on--in'-s-u-ch -persons &flcial capacity and as to action in another capacity while holding such office. Section 7. -The corporation- shall. hq.v ,e,Ahe,power to pure hase, and maintain Insurance on behalf of any- -person .-who is or wa s-,a, dirm.piloyee oT.,agent of the corporation, or~ is or was.- servirig;at.the r~equest',~iof.,the~corp.or~atio,n-.as;a director,., officer, .employee or agent. of another -corporation,~-~partnership, joint venture, trust. orother enterprise,.-: against any ]iability. -asserted - against -such persow~and, incurred. by such person in, any such~ capacity, or, ar.is,ing out of such, , pgr4on?s- statusps such,: whether or not. the corppration: ~Would have the. power~.Ao Andernnify such,;~ person against such liability under this section. Section.8,e.cr puTposAnclude,iin Article, refe rencestofIh -,orpor.atio. shal.1, addition to tha--resultin co:rooration-l-~;~any--~constituent':.,,corp t -9 T ora iQn,., (inclu, di constituent.-of-a -constituent) ~absorbeql~in-, a.,consojidation--or Merger-which,;:.Tif its~.separate existence ha~ ' ~-contin~ ' ued, would.hqyev4ad~poWer and authorityAo,indemnif~ its.directors,- - officers,pand'-emplbyaes-w,agerit any erson wholis,or w s a director.'efficcif- and employees or agent of such ~ constituent corporation, or is or was serving at the -tor offi rj,4emp~!qye~ew agent ofrequest -of such~,-rconstituent corporation as- a,,Oirecanother.corporatj n ;'i.par-tnership,-,,joiTttfx.e,ntp,,r-e,-~trus,,,t, or othor~enter .e, shall'. star d ~:im pris n the , samunder this'-Atingtor.,--surviving~tresiDbct~..,it.o ~.Ahe.i-,,nr gesu. corporation as such person would--have-witli- respeetAalsuch- constituent co rpo ration.- -if its separate existbrTc6,had contiriuo~&, Section 9. -For, purposes -of this Articie, references to."O.ther.~...e-n~torprises"-l.shall,,i-n-clude employee ~benefit- plans;;, references to,~,taxesn-s-assessed-,Ahclude~.an onz, person --with, respect:,..tQ.,.-,any-.employee-~ benefit plam~ and~-references Ao o"serving at the,request of -the corpor,ation".-shall.-include anyv.service.as a-Airector, ,officer, employee or agent of:.the corporation which-- imposes.. duties oa -,or Jnvolves zervices-by, such director, officer, emploype or - -.~emp.loyeel-~b-e~n-efit4,.-,p.lan-- its participants or ~beneficiaries; and~,a person, ~wli o -,acted Jn good-faith -ziid. in, a manner such perse, reasonablin - -of -the,,.,~ participant&-,and W -believed,,to ~-b ~An--Ahe--, tereStT beneficiaries of an employee benefit plan shall be deemed to -have,i acted in,;a ~.manner IL not opposed to the best interests of the corporation" as referred to in this section. The indemnification and advancement of expenses provided iby:-6r g(qRt6d-IpUrsuant to, this section shall, unless otherwise provided,when ,authorized oriratified, continue as to a person who has ceased to be a director, offider, employee or agent and shall inure to the benefit of the iheirs, ~executors and:administratorg,,rof -such:a;person. ByLaws- 13 ARTICLEVIVI- - -G L 'ISIONS ~ENIE~ PROV Section 1. Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if -any, may be declared by the boardtdoIaw.directors- at any'.1'regUlat-'Or -spedial mleOfing, "M ay be, ~paid in cash,'.." in -.-property --&~ -in shariet" f th apit I stOck,'bUbject to the provisions -of the certificate of ;ihc birporatidn. - --1Befor.&",p8ym6nt of any dividend', oijt-~o - -may be sftanyi'Athds -of--the, cotporationL-dVaflable for 'dividends `Ihi k-p sum(s) as"the d i reictofs~- from tIM a to tirhiE~Jn Ahiek-,absduf discretibh~ n roper as a reserve.(s).- Aa, meet ~'tontingbncies, :,dr 46r-.~Jeqti, liking- diVidends',. or f repairing or maintaining anyproperty of the corpoiatiort:or any other purpose a ndAhe A i rectors may modify-or abolish any suchreserve in the manner in which it:Wat'creAtbd-.~ - rs Siaction, 2'.~ZGheckt,, tDrafts or;Ord6'. iVchebksj,drAftsor. other orders. for the y y r- i1a, the 'corporation'--' ii - d art tfier~t6vidences of -paymenvf ~of mohib 0 ff lIfn t, d ot -~J xd d th' the -corpora, bn----thalV-be "sigb6d :-sl n obted-ness- ssue . - -In e --na -me',of by- IT-'officer(s), -46 ~.agrent(s-) of the-Gorporation and irFLsuchz-rnan'ner,?a` sh, ll:'be d~etermihed.-'~bLy-tO!!~6lution of of6-,66(R)rd-,~& d i recto rs!or a,-, d 6 ly'aidthonied 66 rn MYM66 VNe reoU A o e ~'C ets. Th elb oa rd of % d irot tor t Ma a u ,h 4 d z a hv, of fi de r (s),, o r a n y SeGt~on,& wontrzr Ah-e corpanytion to entdr-ihto~.-gny~"Gbntra-dt~;~br-to:~ "*h am-6`6f -~Afi - - -be 700".mqy ..g.en milror con~fined--to-speciftt.'ins.tarTces-,'-~ Section 4Theocorporation may lend money to, or guarantee any -obligation- of, ~-orployeerofsthe,corporatidno~orcof or r emr ~any%.,,offiaer dr,empi ee wha~is--a- director, df!thaicorporation or its zubsi'Iud.-crewment~,.df 1.1he". directors- ~ such.,,1oatn.;,~---guaranty or eriefit, the ~torporation.;- The, 11 an ',,g:uaranty assistance,may reasonably_~Ibe0jexpecttd to b" .,or other assistance~ May be with orvWithout.linteregt, and M, a ' be, unsecured, or ~secured Y, Without limitation, ain --such -manner.as,,"the,-board of directors - -shall-' pprove, including it,sec io othing An-th- 'ti n' contained shall be pledge of ~ shares".of. stock of'orporationtatn. N -to deny,- -of --or wafhankly. of the-.,c deemed limit, or irestrict the-~powers -guaranty - -commonlaw'-.0r: under--ahy statute. 17 i,~ Section -5. Fiscal -_,Y-6ar.. The fisca I year of the 'Corporation shall- be ~fixed by resolution -of the board ofdired-tors..!- Section 6. ~ Corporate ~ Seal. i The-,board -ofAirectors shall,-,-,Provide. a- corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the corporation and, the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ByLaw~ 14 Section 6. Registered Stockholders. Prior-to--Ahe surrenderto the corporatiorn of --the certificate(s) for a-shar6(s)-oVstock~with -a'request1o-'re0ord AM - -transfer of.~such share(s), the corporation may Areat-~ -the- -~registered - owner:,ag';.the, ~i person entitled to o vote, --to, receive'. notification'- - --and' otherwls-6mltoi exercise'all',41the receive. dividendsi.t all,:;not b6- A nd to recognizo~'any I i - bou .rights and powers~of,-an-----o..wner.---..,~Th-e--~:corporat*on~"gh -of any -,eq: itable. or other- claim to:--or int e'rest, in'._s-uch::shar-e(s,)- on" the';,part~- U _whother~or:not it shall,,fiave express-.-or.-other notice thereof: Section. for-inbtheiption Jor 'Stock. ~,Unless:--,~otherwige ~subscription agreement,- subscfiptions4or- shares shall-be paid i in'; full-- dt- such tirhe,,~ or in such instalimentss.~Iand at such -times, as hall-be determined by1h&~boar&ofAirectors. Any.call made- by:the board of directors- for.payment--on subscriptions ghtilkbe as to all shares of the same class or as to all shares of the same ss.fB ries. In case of e Ac" en' it 'd . ""'payment ~is'_dUb,: the default in- the -paym-Ut"hf anyi ~r instalment orr All~ Wh ~-may - -proceed.~ to collect. them:a t-orporationP.ount idue rin-Ahe za; e rnabrier as- any, debt Aue the corporation. ARTICLE-V--~, Indemnification of Officers, Directors, Employees and Agents-, - ----insurance. pll, indemnify.-ap - _p.,prspri, W _Oiona-l.y,The.-,corporation sh ~h -,a-ppr.ty,,.or is d to, be,rtyd thfieatene, a- pa. or-,,e,.mate ~y Y_ featened, q pb ad ~ partg.~W-ghr.'th inistrative i h. g orileted actio'herzivil_ id, edin,,,,-W_he#, sq it,,, qe, q th~an:an n on _rq~ -;, Wor,,in P ,.!easqP of ..the -fa_.-&Airect. ent_,-of-.Jhe --P y cor oration., or is or was servin,,g,att-"erf-,,q,4e-s~t,:~of t1he,-corpqr ion., qp.~ d irector, ;.officer Ah ~employee or agent-ofwq,otru.stoother on,., -PpEk4pership, j-pint,lyent, r enterprise:, against.jp0gqnmeepts,cfinesgand, aftorneys'_ ~ fees~ amounts -an,dd reasonably.-nincurred,a~b , the ioerson in Y connection with such action, spitvr pr9peeding.ifthm.-Pprsop. ;acted inoood faith,and Jn a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and,, with. respect.. to -any. rjmin 1-.~pqtion-,~.or prjQqeeding, _had~ no reasonable cause -to. believe, , the,-.person's conduct.was un,la 1. ThqAermination..of any action,,-,suit or proceeding,b~yjudgpment -order. settlement. conviction, or -upon a.plea of nolo.-contendere or-fts,,equivalent, shall not :~--of,-.itself~--cr.eate~,,a~,-,,pr-e!,Su,~,nptionr".,that:-the person did notact in good faith. and 1-in, -a manner.which th,e,perpon ,-Tpaso n ably believed to be in or not opposed toAhe best interests. of the cor oration and. with respect to: any Section 2. The corporation shall indemnify any person who was or is a party or is threatened to be made a pArty,to L any threatened, -pending. orcompleted action or, suit of, by or in the right of the corporation to procure a judgment in its favor by reason, the ByLaws fact that the person is or was a director, officer, employee or. agent of the corporation, orJs or w-'aseae~dirqctor,h-officer,:em'floyeeqor9T .P -priseagent~ -,Of another, co-moration, -,-Partnership,, Joint-pventurel -Irust, ~ ortoth.er en teragainst expenses - -(in.cluding.-afto.rneys'-:-,fees)~,actuailly...and.,r.easonably,,iricurred..by~ ~ f suc[tactiomorsuit if the:~Person in.,,clo.nnectionw-itti,~thi.,.e,,,defento.,~O.r.seftleimie 'o -not -a .man ner,.-,,~th.,e--perrsphi~,,~- reaso nably_. bel ieved- to -be in--or. acted in i good -.faith, and; in.. ~,Qpposedto-,the best.-interests. of-,I.h-e-.~,coroGr--ation.~-an~d,~-~,except~'~that~,rno-~indemnific,ation-.,,sh be made in respect of anY,-.IGlaJm,f issue-or-M, atter,--,asIo4 which ~suthi,~person ~sfiallr:,have been adjudged to be liable to the corporation unless and only to the extent that the 'a i ~y -,-.w,, -uc -, -on.., ---.s it Court of Ghancer. Qrthe-courtin oriU.,swasbroUgt- shal[ determine PA _h a bilit, ut - n view-. of~ 11, the upon-appljcqt-ion - -that,, ~Aes_qd_-a.ey~;dalbii tion-, -1i circumstances of the case,--s-uch, P.Prs ri.'isifairly ond::teeisonablyLentitl'ed;td,,in,'dem.nify for ;s.uchexppnses,which-?0he,.C ourt ofiChancery r~,suc-h:other~,,,rco~urt--~!ghalI deem,proper.,,, -or - -?officer~-of a.corporationr,has _Section: 3. -To the extent that.a Dresent or-4rormer direct -or - -been successfu;t-~on,,the~-merits,---orl-otherwise-.,-.in.defen8e:-.cifany--action.,. proceeding referred to in -subsections (a) and-(b):of this section, or in defense,,,of any~claim, -issue- -or - matter thereln,s-uch -person shall _~be:-indemnified against expenses (including attorneys.' fees) actually. and- reasonably inc~Fe such. personin connection therewith. Section. 4. Any indemnification under subsections (1) and (2) of this section (u '_`~as-- u o zed in th6:~ cifLc- trdered by'a7eod d- aft b&WJtig, rAff n 'ortyth spe i f I` di 'hat %in rm` ib"i"i t"?"presen ;o -ormer-r ire or, ic, case-upona, deter M., 'e-Verson-,hat,met is I 64 16- ;1 P qyee gen Ae 6 d 6 dk,,~'- e hii.W- s. d6sidti 6 a)-an; -on fl!io~ dl'i(bl~;6f*!I~hi~'ton!-,S,,itch~--- ~d6ter Miriation sfia`IlLb6~Oftadbw- ith r6i_`rst--- Wh6l ',a dir o~ office r; at o - -aVe on ror the a:'rWer ~y f Ith"' d"rectors,w o -are no ~ parties to lire of`s~uch, dieter MMA io- ri#Yv 6:6 4'~ 16; *1 y such: action,.suft',&I'Or-od - dI,g e ee Ve-6 h ob "g"h I'- hiff W'iq "Uorurn or.,(2)'by a~ccVmmittee of such direct&s~ d" i a e - t, , o ,s c ireo ors-, even esign"t d byrnajdnty-vo,,'&-_&: U__ `h d".'- t ihoug'Nes!ss.Ihan a .11, A 1,-- ~ t. ---- - _t. - o L- re- are no;, s Of- 'if e". _h -di t"' i rebt, by quorum, ~-or (3) if ~the ch i',direc ors,~ -or - i -.que irec Ors-so d independe(4)lb-'the-oodkhdlders'.n~ a~_~Wrifttdiin T-dip Y tt- ,I "incurr' d. b "in office r or ~directoL lxpenses., Section ~_(Jncludih`q'La orneys eedy-1- e y a r in A. m tiv &4646sti ti* d orproceeding Ae-f6hding, any- diVff, cri `fihal',~ad ~iiigaMive-ec ion,,sui e Ymay --,be~ tpai&;byth'e-'--c' -oration in-advanc&'~*oflh- nauxisposiion,o suc actio' -orp-' n, sui or lUoVtuch director 'or -officer to ~proceeding upon:, r~eceio--*-"bfan;:dn'd&ftaki'h,~o b -or ofi%bbM J L t' 1'd"~t:l - 'd I repay such amount if'Ws4#1l uli ima e y e 1i e ermine tha suc person is no entitled to ~~be ihdes"Idithorize.-In "s 'secion.,7 uc ~expenses '-dorpbraai- U "d th i ti 5-8 h r: dir er (including aftorneyss."rfeeS) irtburr-ed byf6rrhe dors arid'dfficers-oroth ethp 6yees and agents may be so paid'upon such terms and conditions, if ~any, as the corporation deems appropriate. 'a exclusive o f any ByLawz 12 Section 7. Voting Securities Owned--By- Corgoration. , Voting__securities_ inany other corpration held by the corporation shall be voted- by the president, u Mess the board of directors specifically confers authority -to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution. Section 8. Inspection of Books and Records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean any purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied -by a power of attorney or such other writing which authorizes the attorney or other agent to "' so act on behalf of the stockholder. The demand under oath shall be directed to-the corporation at its registered office in the State of Delaware or-at its principal place of-business. Section 9, Section Headings. Section headings in these bylaWo---are for convenience of reference only and shall not be given any substantive effect'in- limiting or otherwise construing any provision herein. Section 10. Inconsistent Provisions. In the event that any provisibm.,,bf these bylaw-sliis`~or becomes inconsistent with any provision of 1he corporatiOn's-carti icate of incorporation,; -the --General Corporation Law of the State of Delaware-;.-oTzEany- -other applicable law, such provision of these bylaws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect.. ARTICLE VIII AMENDMENTS These bylaws may be amended, altered, or repealed and new bylaws adopted at any meeting of the board of directors by a majority vote. The fact that the power to adopt, amend, alter, or repeal the bylaws has been conferred Upon the board of directors shall not divest the stockholders of the same powers. 1 1-1/ 1 ByLaws 15 EX-3.3 5 0005.txt STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATION FILED 09:00 AM 02/12/1999 991060073-- 2977488 Certificte of Designation of Rights of Series A Perferred Shares of MILINX MARKETING GROUP, INC Pursuant to Section 151 (g )of Title 8.of the General Corporate Law of the Sate of Delaware and Article V of the Articles of Incorporation, the Directors hereby designate The voting powers, designations, preferences, rights and qualification, limitations and restrictionsof: "Series A Preferred Shares' And there is authorized to be issued 5,000,000 shares thereof with the following rights, terms and preferences: 1. Dividends. Right to Preferential Dividends. Subject to the rights and preferences of other classes or series of Preferred Shares, the Holders of the then outstanding Series A Preferred Shares {.except when there' shall have been either a.notification of election for conversion by the Holders under Section 5(a), hereunder, or the conditions shall have been fulfilled for a conversion by the Company as provided in Section 5(b)hereunder, whether or not notification thereof has been made by the Company, (unless the Company shall expressly give notice it elects not to require such conversion)) shall be entitled to receive, if, when, and as declared by the Board, out of any funds legally available _herefore, a non-cumulative preference of 10% on cash dividends up to S .32 maximum total accumulated dividends per Seres A Preferred Share held thereby. These dividends shall be payable, when and as declared by the Board. Dividends on the Series A Preferred Shares shall be non-cumulative, there shall be no minimum dividends, and no rights shall accrue to the Holders of the Series A Preferred Shares in the event that the Company shall fail to declare or pay dividends on the Series A Preferred Shares, whether or not the earnings of the Company in that previous fiscal year were sufficient to pay such dividends in whole or in part. In the event that the number of outstanding Series A Preferred Shares are adjusted by stock split, reverse split, or other corporate action, the prefereace stated herein shall be adjusted accordingly. The balance of any such dividends so declared shall be allocated as between Series A Preferred Shares and Common Shares as if said Series A Preferred Shares had been converted to Common Shares based on the Conversion Ratio (as adjusted) provided hereion, and as to any other classes or series of Perferred Shares in accordance with the rights and preference thereof. 2. Liquidation Rights of Series A Perferred Shares. (a) Perference. Subject to the rights and preferences of other classes or series of Perferred Shares in the event of any liquidation, dissolution, or winding-up of the Company, whether voluntary, {except when there shall have been either a notifcation of election for conversion by the Holders under Section 5(a), hereunder, or the conditions shall have been fulfilled for a conversion by the Company as provided in Section 5(b) hereunder, whether or not notification thereof has been made by the Milinx Preferred Shares. Series A Page 2 Company, (unlcss the Company shall expressly give notice it elects not to require such conversion)) the Holders of the Series A Preferred Shares then outstanding shall be entitled to be paid out of the assets of the Company availablefor distribution to its shareholders, whether such assets are capital, surplus, or earnings, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the Common Stock, an amount equal to $ .32 per Series A Preferred Share held thereby plus an amount equal to all declared and unpaid dividends thereon, less accumulated total dividends paid thereto (but not less than zero). If upon any liquidation, dissolution, or winding up of the Company, whether voluntaty or involuntary, the assets to be distributed to the Holders of the Series A Preferred Shares shall be insufficient to permit the payment to such shareholders of the full preferential amount aforesaid, then all of the assets of the Company to be distributed shailbe distributed ratably to the Holders of the Series A Preferred Shares, subject to any r guts or preferences of any other classes or series of Preferred Shares, on the basis of the number of shares of Series A Preferred Shares so held. - (b) Payments to Common Stock. After thc preferred payment of S .32 per Serics A Preferred Share is made to Holders of the Series A Preferred Shares the Holders of the Series A Preferred Shares shall be entitled to share with Common Shares, based on the adjusted conversion ratio of Preferred Series A Shares to Common Shares as if converted, and as to other Classes or Series of Preferred Shares based on the conversion ratio of said Shares to Common as if converted'or as otherwise provided in the rights and designations thereof as may from time to time beniade by the Board of Directors, all remaining assets of the Company to be distributed. (c) Effect of Adjusiments of Shares. In the event that the number of outstanding Series A Preferred Shares are adjusted by stock split, reverse split, or other corporate action, the preference stated herein shall be adjusted accordingly. 3. Merger, Consolidation. (a) Preference. Subject to the rights and preferences of other classes or series of Preferred Shares in the event of any merger or share exchange of the Company, or a sale or other disposition of all or substantially aU of the assets of the Company (except when there shall have been either a notification of election for conversion by the Holders under Section 5(a), hereunder, or the conditions shall have been fulfilled for a conversion by the Company a.s provided in Section 5(b) hereunder, whether or not notification thereof has been made by the Company, (unless the Company shall expressly give notice it elects not iorequirc such convcrsion)} ihc Holders of the Series A Preferred Shares thcn outstanding shall be entitled to receive, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the Common Stock, for each share of such Series A Preferred Stock so held, in cash or in securities (including, without limitation, debt securities) received from the acquiring corporation, at the closing of any such transaction, an amount equal to S .32 per Series A Preferred Shar; plus an amount equal to all declared and unpaid dividends thereon, less total accumulated dividends paid thereto (but not less than zero). In the event that the number of outstanding Series A Page 2 Preferred Shares are adjustedby stock split, reverse split, or other corporate action, the preference stated herein shall be adjusted accordingly (b) RemainingProceeds. Subject to the rights and preferences of other classes or series of Preferred Shares after the payment or distribution to the Holders of the Series A Preferred Shares of the full preferential amount the Holders of the Series A Preferred Shares, Holders of other Series or Classes of Preferred Shares according to the Rights and Designations thereof and Holders of Common Stock then outstanding shall be entitled to receive ratably, with all Series A Preferred Shares treated as if it had been converted into Common Stock pursuant to Section 5 hereof, all remaining proceeds of the Company to be distributed. (c) Valuation of securities received pursuant to a merger, share exchange, sale of substantially all the assets or similar transaiction. In the event that a transaction occurs pursuant to which non-cash assets are-received and to which this Section applies, the assets -received for the purposes of this Section shall be valued as follows: (i) If the assets received are securities that are listed on NASDAQ or an exchange, the value shall be deemed to be the 3 day high average closing price (or average between bid/ask if OTC) on such exchange or NASDAQ over the 30 day period prior to the closing of the transaction by which the securities are received. (ii) If the assets received are of readily ascertainable market value, then that value shall be used. (iii) If the assets are unlisted securities or other assets that do not have a readily ascertainable value, the Board of Directors in good faith will value said assets. (iv) The fact that assets exist which-may require a valuation process as described herein shall not delay closing the transaction by which the assets are being received. (d) Notice. With respect to any transaction which involves merger or exchange of shares, or a sale of substantially all the assets not in the ordinary course of business, the Series A shareholders shall receive not less then ten days notice of the transaction and the terms and conditions thereof. 4. Voting Rights~ (a) Each Holder of Series A Preferred Shares shall be entitled to vote on all matters whatever upon which shareholders may vote, including election of the Board of Directors and, except as otherwise expressly provided herein, shall be entitled to the number of votes that equal twice the number of Common Shares to which said Series A Preferred Shares could be converted, but not less than 4 Common Shares for eachh 1 Series A Preferred Share (adjusted for consolidations and dividends of Common Shares). (b) Unless otherwise required -by law, Series A Preferred shareholders and Commen shareholders shall vote together on all matters upon which shareholders are permitted to vote and not as separate classes. In those cases where Series A Perferred Shareholders are required by law to vote as a sepal-ate class, the vote required by said class for approval of the proposed action shall be a simple majority of the class. (c) Voting rights shall be adjusted in-the event of adjustments in -the Conversion Ratio, except that -increases or reductions that apply equally to Series A Preferred Shares and Common Shares shall not cause an adjustment to be made. 5. Conversion. The Company and the Holders of Series A Preferred Shares shall have the following conversion rights: (a) Right to Convert. Each share of Series A Preferred Shares shall be convertible, if there shall be sufficent Common Shares authorized and issuable therefor at the option of the Holder as follows, (i)none for the 12 month period following issuance to the Holder unless-a greater amount is approved by the Company-, (ii) 100% of the Series A Preferred Shares held by the Holder may be converted to Common Shares following the initial twelve months after issuance to the Holder thereof into fully paid and non assessable shares of Common Stock at the Conversion Rate set forth in Section 5(c) hereunder (as adjusted). In the event that Series A Preferred-Shares subject thereto shall have been transferred, the-time period for conversion shall be measured from the date of issuance to the initial Holder hereof. (b) Automatic Conversion at Election of Company. --------- ------------- -------- -- ------- (i) Each share of Series A Preferred Shares shall automatically at the election of the Company be converted into shares of Common Stock based on the then effective Conversion Rate set forth in Section 5(c) hereunder (as adjusted) if any one of the following -shall-ocour: (A) The Holders of 51% of the Series A Preferred Shares outstanding have given notice of election to convert as provided herein in Section 6; (B) The Board-of Directors of the Company shall have approved a plan of reorganization, exchange, merger or consolidation to which the Company is a party, or an acquisition of the Company, (C) Immediately upon the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, with respect to the Common Stock of the Company (including shares registered by selling Series A Preferred shareholders) where the amount of such securities sold is S5,000,000 or more; (D) When the Company shall have a net worth of (pound)5,000,000 or more; (E) After the Common Shares shall have been listed - on NASDAQ for a period of not less than three months. (ii) Upon the occurrence of any of the events specified in paragraph 5(b)(i) and the election (if applicable) being so made by the Company, the outstanding shares of Series A Preferred Shares shall be converted automatically without any further action by the Holders of such Series A Preferred Shares and whether or not the certificates representing such Series A Preferred Shares are surrendered to the Company or its transfer agent-, provided however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon the conversion unless the certificates evidencing such Series A Preferred Shares are either delivered to `the Company or its transfer agent, or the Holder notifies the Company or its transfer agent that such certificate have been lost, stolen~or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any Loss incurred by it in connection with such certificates. The conversion shall be deemed to have occurred immediately prior to `the business day on which the Series A certificates are to be surrendered, and the person entitled to receive the. Common shares upon such a conversion shall be deemed a Common Shareholder of record as of that date. (c) Conversion Rate, adjustments. Except as provided elsewhere herein for adjustment of conversion based on share price, recapitalization or other factors, the Conversion Rate `is Two Common Shares for One Series A Preferred Share. The Conversion Rate shall be subject to adjustment from time to time as provided below; no adjustment shall apply after a Series-A Preferred Share has been converted. (d) Mechanics of Conversion. Each Holder of Series A Preferred Shares who desires to convert the same into shares of Common Stock shall surrender the certificate, duly endorsed, at the office of the Company orof any transfer agent for the Series A Preferred Shares or Common Stock, and shall give written notice to the Company at such office that such Holder elects to convert the same and shall state therein the number of shares of Series A Preferred Shares being converted. Thereupon the Company shall promptly issue and deliver to such Holder a certificate or certificates for the number of shares of Common Stock to which such Holder is entitled. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate representing the Series A Preferred Shares to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record Holder of such shares of Common Stock on such date. (e) Adjustment for Stock Splits and Combinations. If the Company at any time or from time to time effects a subdivision of the outstanding Common Stock, the Conversion Rate then in effect immediately before that subdivision shall be proportionately increased, and conversely, if the Company at any time or from time to `time combines the outstanding shares of Common Stock into a smaller number of shares, the Conversion Rate then in effect immediately before the combination shall be proportionately decreased. Any adjustment under this subsection (e) shall become effective at the close of business on the date the subdivision or combination becomes effective. Subdivisions or combinations of Series A Preferred Shares shall be similarly considered to compute the final adjustment to the Conversion Rate to reflect stock splits and combinations. (f) Adjustments for Reclassification. Exchange and Substitution. In the event that at any time or from time to time, the Common Stock issuable upon the conversion of the Series A Preferred Shares is changed into `the same or a different number Of shares of any class or classes of stock, `whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, exchange of shares, or sale of assets, provided for elsewhere in this Section), then and in any such event each Holder of Series A Preferred Shares shall have the right thereafter to convert such stock into the kind and the maximum amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change, by Holders of shares of Common Stock into which such shares of Series A Preferred Shares could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein. (g) Reorganizations, Mergers1 Consolidations or Sales of Assets. If at any time or from time to time there is a. capital reorganization of the Common Stock (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section) or a merger or exchange of shares of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person, then as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the Holders of the Sales A Preferred Shares shall have the right thereafter to convert such stock into the number of shares of stock or other securities or property to which a Holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section with respect to the rights of the Holders of the Series A Preferred Shares after the reorganization, merger, consolidation or sale to the end `that the provisions of this Section (including adjustment of the Conversion Rate then in effect and the number of shares receivable upon conversion of the Series A Preferred Shares) shall be applicable after that event and be as nearly equivalent as may be practicable. (11) Sale of Common Shares Below $1.00 per Share (1) After June 1, 1999, if at any time or from time to time, the Company issues or sells, or is deemed by the express provisions of this subsection (i) to `have issued or sold, additional shares of Common Stock (as hereinafter defined), for an effective price (as hereinafter defined) that is less than $1.00Share (or as adjusted after application of adjustments provided in sections (e),(f),(g) hereabove), then in addition to any other adjustments provided herein and in each such case the then existing Conversion Rate shall be increased, the increase being computed to reflect the proportionate decrease in price over all of the previously existing Common Shares such lower price would produce. Thus, if (before any other adjustments provided herein) there were 10,000,000 Shares of Common Stock outstanding and 1,000,000 Common Shares were sold at $.20/ share, the 10,000,000 Common Shares would be valued at $1.00/share ($10,000,000), plus the 1,000,000 Common Shares newly sold at $200,000, and the result, 1.1,000,000 Common Shares would be divided into $10,200,000. The resultant difference between such number and $1.00 per Comnon Share would be the basis to adjust the Conversion Rate to reflect the dilution. (ii)For the purpose of making any adjustment required under subsection 5(h)(i), the consideration received by the Company for any issue or sale of securities shall (aa) to the extent it consists of cash be computed at the amount of cash for which the securities are sold, (bb) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board. (i) Fractional Shares. Series A Preferred Shares may be issued in fractional amounts. (j)Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting `the conversion of the shares of the Series A Shares, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of ihe Series A Preferred Shares that shall be convertible at that time; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Shares that shall'be convertible at that time, the Company will take such corporate action as may. in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. Should this action require the affinnative vote of the Holders of Series A Preferred Shares, whether as a `Class or voted with Common Shares, said Holders of Series A Preferred Shares shall be deemed solely for this purpose to have consented thereto, and shall be deemed to irrevocably constituted management of the Company as their proxy and attorney in fact solely for this purpose to execute such documents as may be required to effect this consent. 6. Registration Rights (a) At any time after Series A Preferred Shares shall have been converted into Common Shares at the election of the Company as provided in Section 5(b) and the Company shall have exercised its right to require conversion thereunder, or if the Holders of a majority of the Series A Preferred Shares shall have given notice of election for Conversion as provided in Section 5(a), the Holders of a majority of the Series A Preferred Shares may request "piggyback' registration of the Common Shares in conjunction with a registration planned by the Company subject to underwriter approval. (b) Upon such a request being made by the Holders of a majority of the series A Preferred Shares, the Company will notify all of the remaining Holders of Series A Preferred Shares as well as all Holders of Common Share who shall have previously converted Series A,Perfered shares (but not the successor thereof if by sale) shall be deemed to have requested the registration and shall be fully subjected thereto. (c) The Company will use its best efforts to effect a single public registration on the appropriate form available thereto of all converted shares. The Company will be under no obligation to secure an underwriter or other seller `for the shares and sales of shares after the registration will be solely the responsibility of the Holder thereof. (d) To the extent required to effect the registration, converting shareholders shall fully cooperate with the Company and its counsel. Failure to cooperate will entitle the Company to exclude a Holder from the registration. Effect of Issuance of other Series of Preferred Share~ (a) Nothing contained in this designation of rights shill limit the ability of the Company to authorize and issue other Series of Preferred Shares or other classes of Preferred Shares with rights or preferences that are senior to these Series A Preferred Shares or that limit or reduce the rights or preferences of these Series A Preferred Shares. In the event that other Series or Classes of Preferred Shares are authorized and issued, unless otherwise provided in the designation of rights of said other Series or Classes, these Series A Preferred Shares shall vote on all matters based on the conversion rates adjusted into common shares provided herein, and said such other preferred shares shall have such voting rights as is provided in the designation thereof~ thus, if there were 1000 Series A Preferred Shares Issued, they would have the voting rights of 1,000,000 Shares of Common Stock, and if 1000 other preferred shares had voting rights of 1,000,000 shares of Common Stock, and there were 10,000,000 shares of Common Stock issued and outstanding, then in all votes for the Board of Directors, or any other matters in which shareholders may vote, all Common Shareholders, and a.1l Preferred Shareholders shall vote together, and Preferred Shares would have the weight based on their conversion into comrnon. There shall be no class votes of these Series A Preferred Shares unless said vote is non-waivable and is required by law (b) Unless otherwise provided in the designation of rights and preferences of other preferred shares, any preferences of these Series A Preferred Shares shall be ratable with other series or classes of Preferred Shares that may be hereafter designated. Dated this 11th day of February, 1999 By /s/ Barry W. Phillips, Treasurer and Designated Officer AMENDED Certificate of Designation of Rights of Series A Preferred Shares Of Milinx Business Group, Inc. Pursuant to Section 151 (g) of the Title 8 of the General Corporate Law of the State of Delaware and Article V of the Articles of Incorporation, the Directors hereby designate The voting powers, designations, preferences, rights and qualifications, limitations and restrictions of "Series A Preferred Shares" 1. Dividends Right to Preferential Dividends. Subject to the rights and preferences of other classes or series of Preferred Shares, the Holders of the then outstanding Series A Preferred Shares {except when there shall have been either a notification of election for conversion by the Holders under Section 5 (a), hereunder, or the conditions shall have been fulfilled for a conversion by the Company as provided in Section 5(b) hereunder, whether or not notification thereof has been made by the Company, (unless the Company shall expressly give notice it elects not to require such conversion} shall be entitled to receive, if, when, and as declared by the Board, out of any funds legally available thereof, a non-cumulative preference of 10% on cash dividends up to $ .32 maximum total accumulated dividends per Series A Preferred Share held thereby. These dividends shall be payable, when and as declared by the Board. Dividends on the Series A Preferred Shares shall be non-cumulative, there shall be no minimum dividends, and no rights shall accrue to the Holders of the Series A Preferred Shares in the event that the Company shall fail to declare or pay dividends on the Series A Preferred Shares, whether or not the earnings of the Company in that previous fiscal year were sufficient to pay such dividends in whole or in part. In the event that the number of outstanding Series A Preferred Shares are adjusted by stock split, reverse split, or other corporate action, the preference stated herein shall be adjusted accordingly. The balance of any such dividends so declared shall be allocated as between Series A Preferred Shares and Common Shares as if said Series A Preferred Shares had been converted to Common Shares based on the Conversion Ratio (as adjusted) provided herein, and as to any other classes or series of Preferred Shares in accordance with the rights and preferences thereof. 2. Liquidation Rights of Series A Preferred Shares (a) Preference. Subject to the rights and preferences of other classes or series of Preferred Shares in the event of any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, {except when there shall have been either a notification of election for conversion by the Holders under Section 5 (a), hereunder, or the conditions shall have been fulfilled for a conversion by the Company as provided in Section 5(b) hereunder, whether or not notification thereof has been made by the Company, (unless the Company shall expressly give notice it elects not to require such conversion)} Page 1 The Holders of the Series A Preferred Shares, then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its shareholders, whether such assts are capital, surplus, or earnings, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the Common Stock, an amount equal to $.32 per Series A Preferred Share held thereby plus an amount equal to all declared and unpaid dividends thereon, less accumulated total dividends paid thereto (but not less than zero). If upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the assets to be distributed to the Holders of the Series A Preferred Shares shall be insufficient to permit the payment to such shareholders of the full preferential amount aforesaid, then all of the assets of the Company to be distributed shall be distributed ratably to the Holders of the Series A Preferred Shares, subject to any rights or preferences of any other classes or series of Preferred Shares, on the basis of the number of shares of Series A Preferred Shares so held. (b) Payments to Common Stock After the preferred payment of $.32 per Series A Preferred Share is made to Holders of the Series A Preferred Shares the Holders of the Series A Preferred Shares shall be entitled to share with Common Shares, based on the adjusted conversion ratio of Preferred Series A Shares to Common Shares as if converted, and as to other Classes or Series of Preferred Shares based on the conversion ratio of said Shares to Common as if converted or as otherwise provided in the rights and designations thereof as may from time to time be made by the Board of Directors, all remaining assets of the Company to be distributed. (c) Effect of Adjustments of Shares. In the event that the number of outstanding Series A Preferred Shares are adjusted by stock split, reverse split, or other corporate action, the preference stated herein shall be adjusted accordingly. 3. Merger, Consolidation (a) Preference. Subject to the rights and preferences of other classes or series of Preferred Shares in the event of any merger or share exchange of the Company, or a sale or other disposition of all or substantially all of the assets of the Company {except when there shall have been either a notification of election for conversion by the Holders under Section 5 (a), hereunder, or the conditions shall have been fulfilled for a conversion by the Company as provided in Section 5(b) hereunder, whether or not notification thereof has been made by the Company, (unless the Company shall expressly give notice it elects not to require such conversion)} the Holders of the Series A Preferred Shares then outstanding shall be entitled to receive, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the Common Stock, for each share of such Series A Preferred Stock so held, in cash or in securities (including, without limitation, debt securities) received from the acquiring corporation, at the closing of any Such transaction, an amount equal to $.32 per Series A Preferred Shares, plus an amount equal to all declared and unpaid dividends thereon, less total accumulated dividends paid thereto (but not less than zero). In the event that the number of outstanding Series A Preferred Shares are adjusted by stock split, reverse split, or other corporate action, the preference stated herein shall be adjusted accordingly. (b) Remaining Proceeds. Subject to the rights and preferences of other classes or series of Preferred Shares after the payment or distribution to the Holders of the Series A Preferred Shares of the full preferential amount, the Holders of the Series A Preferred Shares, Holders of other Series or Classes of Preferred Shares according to the Rights and Designations thereof and Holders of Common Stock then outstanding shall be entitle to receive ratably, with al Series A Preferred Shares treated as if it had been converted into Common Stock pursuant to Section 5 hereof, all remaining proceeds of the Company to be distributed. (c) Valuation of securities received pursuant to a merger, share exchange, sale of substantially all the assets or similar transaction. In the event that a transaction occurs pursuant to which a non-cash assts are received an to which this Section applies, the assets received for the purposes of this Section shall be valued as follows: (i) If the assets received are securities that are listed on NASDAQ or an exchange, the value shall be deemed to be the 3 day high average closing price (or average between bid/ask if OTC) on such exchange or NASDAQ over the 30 day period prior to the closing of the transaction by which the securities are received. (ii) If the assets received are of readily ascertainable market value then that value shall be used. (iii) If the assets are unlisted securities or other assets that do not have a readily ascertainable value, the Board of Directors in good faith will value said assets. (iv) If the fact that assets exist which may require a valuation process as described herein shall not delay closing the transaction by which the assets are being received. (d) Notice With respect to any transaction which involves a merger or exchange of shares, or a sale of substantially all the assets not in the ordinary course of business, the Series A shareholders shall receive not less than ten days notice of the transaction and the terms and conditions thereof. 4. Voting Rights (a) Each Holder of Series A Preferred Shares shall be entitles to vote on all matters whatever upon which shareholders may vote, including election of the Board of Directors.and,eShaitbe'entitledlb -theesslyprovided h- number.-of-votes-that -.equal 1wice thenumbbr-,of GominonVW" Vilich"Said Sefies A Preferred Shares~couldbe convertfor,eaclr,o~'Serieshiiii 6~06mm.OwSh A Preferred Sbare~(adjusted for -cons6lidations~'giind-di.vidiftidg-'i6f-c,- (b Unless otherwise required by law, Series A Preferr - ed shareholders and Common,,sbareholders,shaH,vbtet6gpt,ber,'~on -all 4nattirsuMdrs are peffnitted to e696,6_a'~sietillw.heft-Seirilea?A' Preferred Shar-eholders'aex-askA"otiiequired'1by,saia~e..m1a!,"Sdp - -~class.,.f6r,,fapproval~.,.of~4emaj6nity~of`'the~claisg.-shd bezwif -ghf - ---"the J (c) --,Y, n Votingri s.shallibe-,adjusted'A' mventdfadjustmeh.ts"n the-c-onversion -Ratio.,,,except ~that -increiscs,or,reductions thAvapply eq6allyto'.Series X-Preferr&&Shares and Common Shares-shall not,cause an adjustment to be made. 4 The, ,C7,omp ersvf-S-eri iany;_=d: -,old es,,APrcfar-ed- in's Pon -a -of en'es-,-A,~.-P-rtfetT,-M--!Shar6s,shWI be (a), Rkghrlo Convert. -..E Ch share. - -.S 'b -i 41~ ~suffic-ent,,C-ommn-Shar-es,,4Ahbriz~ed,-and7.iso~r at -follow"S4" oneforth qZwedth Ip wur --gsuance to apFmv_ed.'kby 6ei.qbm 1QW, C e-S-eries A -f ng-the -Preferred SharIder may be.converied:to:Common Shares- 611bV6 a 16-1h,606lident -fV-,irft1cW-- &Md7.&dh--` assemble shares of Common Stock at the Conversion Rate sc hereunder (as adjusted). In the event that Series.A Preferred Shares~subject thereto shall have been trans&rted- -the timepcnod,for~-,onversion~shdPbe--measured-ftom the date of issuance here ,itothe-initidlof,lder (b) Automatic Conversion at Election of Cg=4M. (i ~-Jlach shart-o-f Se ~es~A,~Pri~fer-red,;Sharits~shaU-,automaft)icaUy~at..the election n of the Company be converted into'shares of Common'Sto6kbased on the then effective Conversion Rate set forth in Section 5(c) hereunder (as ---,#ad s*-Iiifqnc~of Jhe& dlowi,, -,shalfx b , ~v ~qg 1A) The' ju _;-ofi Senc~s,A,--PreferrediShares;oikstanding~hav,,e-givennotice-of election t9,conveq.-as:prDvided.- -ein,;in,.S 5~ e o r ct -her -6ct -4 B) Th -.Board,. M e ors of the Company shallhaveapiproved, a plan.-of-,reorganization, texchange, merger or consolidation to, which the Company is a party, or an acquisition,of the Company; (C) Immediately upon the.,dosing: of an underwritten public offering pursuant to an effective registration statem, ept under- the Securities Aztof,49334~,A& amended, with respect to the-, lbe-Company, including-shares registered-by selling Common Stock of, Milinx PrelerrePagea4es, Arriended Series A Series A Preferred shareholders) where the amount of such -securities sold is 35,000 ore-, (1p) When the, Company - -shall have a net worth.of 000 or m_,I $5,000,900-or more. (E.) After the Common Shares, shalLhave been listed on _NASDAQ for a period of not less than three months. (ii). upon'the occurTence of any of the events specified- in -paragraph: 5(b.Xi) and the eIecIiop.(ifapp!jc0te) being so made by the Company, the outstanding Shares of Seq.'e:s A Preferred, Shares Ahall-be converted. automaticaU withou any further.action.-by the Holders of such Series A t Preferred Shares and.-whether or-not t.be.certificates-_representing.such Series A Preferred Shares are surrendered to the Company or its transfer agent; providpdathowever, -that the,,Compan y shallnot be oblig ed to ssu the sham o Commow Stock issuable upon ie certificates evidencing . f the conv-ersion.uniess..the.cer,tificates evidencing such Series A-Preferred Shares are eit* delivered to the. Corrtpzu~y or its,trapffer Agent or the Holder notifiesany,orits transfer-agent that such,certificate have beenlost,.istolen.pr.,destroved,.and~,exewtes an agreement satisfactoryt.qft., inpapytOndemaj. 'the-Companyhromany,loss incuro4_by_ii-:mlbppneaiort--witcates-. conversion,ghall be deemed.to. haveoc.ourred immediatelyiprior to the,busines& day on which the Series A 6ertificates are. to be Wn-endered, and the person entitled. to g~i~,e P~Lqommpn , suqh-,a conversion.shall be deemed a Common ShareholdCr-oftew dr .Of- -T, goo., ffiardate.~ ,,,,,-.,,-,,,(c).Coriversion2Rate,gustments.. ,F-xcept-" vide"sewhereberein for 7.00 adjustment of.ponce,,iqp-based on;s other actors, the Conversion Rate is Three Common Shares-for One-series APrqferred -Share.:. The Conversion Rate shall'be subject to adjustment from time -to time as~provided below;Lno adjustmerit-shall. Apply after a Series A Preferred Share. has-been converted.,,. (d) Mec cs of Conversio Each Holder of-Series A Preferred Shares who e- sarnie'into, sharcate, Common Stock shall surrenderthe c desires to conv _rt be ertifi duly endo,rsed,_iLt.the,office of the Company or of any transfer agent for the Series A Prefen-ed.Shares, or Conanon Stock, and shall givewritten notice tothe Company at- such office that,such -Holder elects to convert the same and sball istate therein the number.of shares of Series- A Preferred Shares beingconverted. ThereuponAhe.-Companyshall promptly issue and,deliYer to such Holdera certificate Pr certificates for the number of shares of Comm.on.Stock to which,such Holder is entitled. ~Such conversion shall be,, deemed to have been made immediately,prior-to the close of business,on-the date of such surre:qde)r ofthe certificate' representing the Series. A Preferred,Shares tobe converted, And the person entitled to receive the shares of Common Stock issuable.upon such conversion shall be treated for all purposes as the record Holder of such shares of Common Stock on such date, time totime~effects a--subdivisio'n of the butgandills Common Stock, the Conversion tetheninelf :immed-a-tely-befrti natelyuincreased,shall-b P nb' the outstanding and conversely, if the-C-om-pany at anytime or from time to-tune con' ines shares of Common Stock into a smaller number of shares, the.Conversion Rate then-in effectAmmediarely -before the coly~d__:oeasedlAnbe pro~ortibnate ecr, y adjustmentitind~ffbctiirblift'(e) shall 6 ' k -- I he dlose of business on the date the subdivisionLot-c6mbuiation becomes-effective. ' tibilivisions; or combinations of Series A.Prefbrred'Sbards~ slidlfb6 kmiltily cons"ide r&d to" compute the final adjustment to the Conve mi-onRate toreflect stotksp,lits and 66mDinations.- - -~(f,).-~'Adjustment~-fj6rReclassificafim~'~-Exchabs~M, In the event that at.~anytixne,orfrotnt el tirrieitthe-Co-m-mo'n'StidA,-e~'-u'pon~6e conversion of-the Series,A~Preferred Shares-lis -changed-intb_Ahe salnieor,_ i'Merent number of shares of any class or, clasw~6fvock-,,-w PM, auo, (other than c-o irbinationof or-- it iliiLimoia,66k-dividiiiid~Orareorgm tonmerger, any.such,event 6ad Ider-of Series A Preferrdd:Shar&~shalthay& the right thereaf* to -c6hilmrsuch'. woka. h- 9& thie;~hw e kc iii if 6% s and~pro.pedy;rec,eii~&le,upon~stich~reicapitafintiol~-reclassifica 'on or: other change, by Holders,.of,sharesfofz,C-,eiamon~Stock-,ixitb whidli-such sh.aiesx, oPSeri I es'A Preferred.Shares -c-QuIdAlavebOPPO~P~iV)niaat#ly-pnorlosuch4~ion~ reclassification or ___--chan e a111-sub Of, -~u =n as- W, sprovi AM -f -Cons t time or a q&fio Lbbs 6rgq s ftom -ti, me, recapitalization;,,sti wivision~ combination, reclass'ification:4 exdoiie of snares provided for!e1sewbere -in4hist6fttion) -or, -wmerger,orlex'c"hange sh ofthe ompany~M6-or into another corporation, or lhe-tAle of allor ssubstantiio4fl ofthe Company s properties and assets to any other person, then as a part of such reorganization, merger, consolidation,&essoe-,~ dders'oftbe' e - -Seri s A Preferred pr6vision4hAllbe-'mad ' Ahat4h H Shares shaffhavwthe right thereafterlo convert sucli sto'ek- int6lthe riumbdr,of shares of stock or-other.s6cunti6vor property to which a~Hblder ofthe number"o f ~hms of Common -,Stock -deliverable -upon conversi , on woul&rhave been entitled on -such capital reorganization-,, merger,'- tconsolidation, or sale. -in any such tais_e,~ appropriai adjustment shall be -made.in- th6,apolication;of the provisions, ofrthis~Sbctio I n wit - fik-respect _ to the rights of the Holders on~tmerger,,g- A-Preferred-~Shares after ih6,rp6 consolidation or ~sale-to the- end tharthe provisionsoflhis~'s6cfi -on" 'fincludinjkAdl6stment of the.Conversion Rate -,then in~ effect- and We nUinber--of-shares ~eceivable upon conversion of the.Series A-Preferred'Shares)-shall beappliclible after that event and be as;n'early equivalent -,as may be practicable~ (h) Sale of Common Shares Below S2.00 12er Share. (i) After June 1, 1999, if at any. time,or -from time.to. timei.the Company issues or sells~_or is,deemed.by,#eex .ppsp.r.ovisions-ofti~ussubsecuon(i) to have issued or sold~ additional shares of Common Stock (as hereinafter defined),,fbr an eff-ectiveprice;(as .hqeji~fter-defined)4hat_ is. less -than $2.OOShare.(9ras Adjusted afterapp! ion of. adjustments provided fin sectio (e),(f),(g)_hprtab9ve),, 0 ents ns-ep~.i4addi4ont anypthera4justm provided herein and in eachisuch cW#~e then ~existmg Conversion Rate shall be increased the increase.b ing, cQmp eM9pted to reflelct the. proportionate decrease in price over all of the previously existing Common Shares su& lower pripewpuld - -produce. (ii) For the purpose of mal4ng any~adjustmeritreq*ed under subsection. 5(h)(i), the considerationreceived by,tho-Com.any for any issue or sme of securities shall (aa) to the extent it consists of cash be computed at the amount of cash for whichAe:sewrities awm"-(bh)-_to the extent it consists of prpperW otherthan caskbe.?computed-At the fair value of that property as determined in good,fhith~ by4he Board., (i) fractional b;z;issuedinefractionalredSham, amounts. Rg~rvaiqon-of Stock Issuable 11pon C-onver.sion',~,-.,T-.he-Com0any- shall at all times -reserve, and keep availabps,.out, iefits. authorized,~, _t;ed shares~of~Common fi -po Stock, solely: orthe.pur se_ofefares,nof-htheoSeriesoA Shares, suchnumberof its Ahares-ointimeoto timebe sufficient to ef~em.thq:,converse Shares that.shall,be convertible, at- that timqand,ifat anyfime the. number -of authorized but unissued shares ofCommon Stock shall, not be sufficient to effbct the,conversion of all outstandin g shares -of the SeriesA Preferred,Shares-tbat shall be -.convertible at that time, the ~Company will, take such corporate . action:as ~may~-Jnjhe opinionof.its, counseL be ~necessary to increase its,authorized but unissued sharesof Common Stock to such number ,of shares as shall be sufficient. for such purpose. _ Shouldthis.actionrequire. the affirmative ,vote of the.Holderslof Series A. P.refen-ed:,-Sh~wes,.whetbe,,r,,asa,-Class~or-,voted with Common Shares, saidHolders of Series A.-Preferred Shares Ishallbc deemed,solely for this purpose to have consented thereto, and,, shE4, be deemed to irrevocably,constituted management. of the_~, Company.. astheir proxy and attorney in fact:solely for-, this:purpose to execute such documents asmay be required -to efFect this. consent. 6. . Relostration Rights (a) At any time after. Series A Preferred Shares- shall 1have been. converted into Common Shares at the election of the Company as provided in Section 5(b) - -and the Comparry shall have exercised its fight to require conversion thereunder, or if the Holders of a majority of the Series A Preferred Shares shalLhave given notice of election for Conversion as provided in Section 5(a), the Holders of a majority of the Series A Preferred Shares"may'request "piggybacV -registration of the-Common Shares in conjunction with~ a registration -planned -by the;Cotnpany -subject to underwriter approval. U pon such -a Tequest beifig'made-by theHolders of a majority of the Series A Preferred Sbaresi the Company vAlFnotify~all ofthe remaining Holders of Series A Preferred Shares as well as -all Holders, of Common Shares who, slWl -have previously eries convertedS ' A*Prdfl~ ~",-,-"Sh-ar6g-(bui-n6tTthe:suc6essortherecififby sale), and they shall be deemedistration andushall beFefully subject thereto. (c) The Company will luse i&bestlifforteto- effect a single public registration on the appropriate form available thereto of all converted shares. The Company will be under no obligation to secure an underwriter or othersellet for thel shares and sales of shares after the registration -will be solely the-fespohsibility oftheHolder thereof - -(d) To!the~extconverting-4shareholders shall My cooperate wicounsel.oFailure-tb cooperate -will entitle the Company to exclude a Holder from the,registratiorL, 7. Efrect-4- uAuce4f-4A'herSer4es Vf TWerred'Shares (a) Nothing contained inthis idesignation of rights shall limit the ability.of the Comp %authorize,,aM',--.isstie.ot,'heT,,'Siifies-I.Of P.~rdferred,-~ShA-me,,or.other. classes WS~orVrefl 5~,ftt~are ;, - s I enior - -',Sl A MnW t %ese ~ di Im-ut-or redbce~thd tij)xts or-prd4renWsI,6T-tbese Series A Preferf ~vlhiht:.zvent,thgt~cither"Series or Classes of:Prdbrr6d~Sharesare: -fiii~nldss*therwise provided -inthe-t esignationbf fights of -said,~oth~r-Seriesior~Ctiams,,t-4itse!Senes A ~PreferredShares sbaU - -vote -on RIF - ron ~thw-conversiori ratesiadjusted,4nto common- ghEir6sprovided - -herein, -and -6aid.,s-neh~otherpref6rred-sham -shall -havesuch voting-tights as is provided inAhe designationthereofthus, if there~were,1000 Series A-Preferred "of Shares Issued, ~they 'would have the voting-rights' -1,000,000 -Shares of, Common Stock.,and if 1000ztherpreffifed shares,,had voting ri6ts of 1,000,000 shares of Conunon"Stock,.and,,ihere-~.w'ere---~I 0,000~OW shares ofCommorrStoe-k - -issued and outstanding, theii-,,i.n~afl.votes.!forthe-tioard of Directors; or any other-matters in which shareholders:may vote, all Eornmon Shareholders, andAlPreferred Shareholders shall.-vote together, andPrefer-red.'ShareSwould lave the weight based on their conversiominto -common. ~ There shall be n6 classvotes of these Series A Preferred Shares unless said vote is non-waivable and is required by law. (b) Unless otherwise, provided in the designation of rights and ~preferences of other preferred shares~ any preferences of these Series A Preferred Shares shall be other seriesor.classes of-Preferred Shares that may be hereafter designated. Dated this Ath day of June, 19,99 By: C5, 4't; ~ IG IWUnx Preferred-Page,,BAnvencied Series A STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09.00 AM 0611711999 991244095 - 2977468 Certificate of Designation of Rights of Series B Preferred Shares Of Milinix Business Group, Inc. Pursuant to Section 151 (g) of Title 8 of the'Geheral orporate Law of the State of Deiaware and Article V of the A?1icles ofIncorporation, the Directors hereby designate The voting powers, designations, preferences, rights and qualifications, limitations and restrictions of: "Series B Preferred Shares9' And there is-authorized to be issued 10,000,000-shares'thereof with the following rights, terms and preferences: NiZ n- Rights of Ser iqui xatio rife ies B rred Shares. (a) Pr8ference."S ubJ ect tothe rights, and, p references of other cl asses, Or series of -,d Shares in the event ofariy liquidation, dissol ution, or win ng-upofthe di C~_ Coany, whether voluntary or involuntary, (except when there -shall .,have been CAW".a felec 'on for conversion by the Holders under Section 4(4),,,hereu de lions,,AalLh - been- Ifilled fora, ave 1b conversio n-bythe,Company.,as. provvidedtim,. Section 4(b) hereunder, whether or not notification thereof has been made by the Company, (unless the Company shall expressly give notice it elects -,riot to. require such conversion)),tht Holders of the Series B Preferred Shares-then outstanding shall be entitled to be paid,out ofthe assets of the Company available for distribution to its shareholders, whether such assets. are capital, surplus, or earnings, before any payment or -declaration and setting apart for payment of any amount shall be made in respect of the Common Stock, - -an amount equal to $ 4.00 per Series B Preferred Shareheld thereby, less accumulated total dividends paid-thereto (but not less than zero).- If upon any liquidation, dissolution, or winding -up of the Company, whether voluntary orinvoluntary, the assets to be distributed to the Holders of the Series B Preferred Shares shall be insufficient to permil the payment-to such shareholders-of the full preferential, amount aforesaid, then all of the assets of the Company~tob ebstributed shall be-distributed ratably to the Holders of the Series B Preferred'ShaTes, ~ubjecfto any rights or preferences of any other classes or series of Preferred Shares, on the basis of the number of shares of Series B Preferred Shares so held. (b) Payments to Common Stock. After the preferred payment of $ 4.00 per Series B Preferred Share is made to Holders of the Series B Preferred Shares the Holders of the Series B Preferred Shares shall be entitled to share with Common Shares, based on the adjusted conversion ratio of Preferred Series B Shares to Common Shares as if converted, and as to other Classes or Series of Preferred Shares based on the conversion ratio of said Shares to Common as if converted or as otherwise provided in the rights and designation's thereof as may from time to time be made by the Board of Directors, all remaining assets of the Company to be distributed. (c) Effect of Adjustments of Shares. In the event that the number of outstan ding Series B Preferred Shares are a~ojuste_d by.stock split, revers . e split, or other corporate action, the preference itatie'd herein ~hail be adjusted accordingly. 2. Merger, Cons6lidafio'n. (a) Preference. Subject to the rights and preferences of other classes or series Preferred Shares in the event dfa~ny merger or share excb . ange of the Company, or a sale or other disposition of all or substantially all of the assets of the Company {except when there shall have been eithera notification of electionfor conversion by. the Holders-under Section 4(a), hereunder, or the conditions sh.all-hue-been-f~lf-illed-for a conver on by the Company as provided in Section 4(b) hereunder, whether or not notification -thereof has been made by the-Company., (unless-the. Company shall expressly give notice it elects not to require such conversion)) the Holders-bf-1he Series B Preferr~d Shares then outstanding shall.be -e~ntitlddv- re.pei*e-r!!~ _,apyw ayment-ordeclaration.and setting apart for payment of a-n-'y-amou'nt.'s-hall-"be~,mE6ffi~in respect of the Common Stock-, for each share of such.Scries7'3-`Pfbferfed* Stock sb1-he-l&,z,, in-cash or in securities (.including, without limitation, debt securities) mceived-from the acquiring corporation, at,the closing.of any such trans Uifl7 tie BPreferred Share ess actim an-amount--e -6s- -total a6c U_m` dlaitcl ~di"Vid6nds-'.;thedevenCthafthe'number T~rdf~i-r ares are split, -reverse split 6f'other of outstanding'ea-sh"s;,B~- corporateladion; TheAptef 6ence'djusted*accordingly . ~b):RerriainingTroceeds. Subject to the ri , gbts and~preferences , of other classes or -series ofPreferred Shares,aifteuthe payrnenfor,distribution to the Holders of the Series B Preferred Share&of the fullLpreferential. amount', the Holdersl:of the Series -,B Preferred Shares, Holders of other Serieslor Classes of Preferred Shares,according to the Rights and Designations thereof and-Holders-of Common.Stock then outstandirig shall:be -entitled to receive. ratably xvith,all Series B Preferred Shares treated as if it had been converted into Common Stock pursuant to Section .4 hereof, all remaining.proceeds of the Company to be distributed.' (c) Valuation of securities-received pursuant to a-merger, share exchange, sale of substantially all the.assets or siinila'r"transaction. In the event thata transaction occ hr, pursuant to which non-cash assets are- received and towhich this Section applies,t assets recei Ved for the purposes of this Section shall be valued as follows: (i) If the assets received are securities that are'listed on NASDAQ or an exchange, the value shall.be deemed to be the 3 day high average closing price (or average between' bid/asilif OTC) 'on such exchange or NASDAQ,over the 36 day period prior to the closifij of the transaction by which the securities are received. (ii) If the assets received are of readily ascertainable market value, then that value shall be used. (iii) If the assets- are -unlisted securities or -other -assets that do not have a readily ascertainable value, the.Board,of Directors in goodfaitb will value said assets. (iv) The fact,that assd.ts.,exist.which.may~.require~a'valuation process as described herein shall not delay closing the,transaction by which the assets are being received. (d) Notice, With respect to zny~ transaction which involves a merger or exchange of shares, or a sale of substantially all 4he assets not in the-ordinary course of business, the Series B,shareholders shall receive not less,than ten days notice-of the transaction and the terms and conditions thereof. Vating'Rights. (a) Each Hol der of Series B Preferred Shares -shallFbe- entitled to vote -on aff Board-of ~-matters whatever upon which shareholders may vote, includirfg--election of the Directors and, except as otherwise expressly provided heroin, shall be entitled to the -ibe - -_,thun r~ ..-to wh es~- 0;,motes.xhat equal the number of`~Common_Shidhssaid-Seri 2it, 'iT -C Shares fbr~ea_61h.L'~.:-i M6 6& Shares could be,convertedlbutmot less th=-2 ommon I~rqforred Share(adj usted forconslo idations zhddi'vidends -of Common- Shams)_ (b) Unless otherwise required by law,'Senes B Rreferred shareholders, others Series Preferred shareholders (subjeatto the Designationsr,thereof), and Common shareholders shall vote together on all matters upon which shareholders are permitted to vote and not as separate classes..,In thos; casesrwhere Senes~ B Preferred Shareholders are required by law to vote as a separate classthe vote required by mid class for approval of the proposed action -shall -be. a simple majority of the class. (c) Voting-rights.shall be.adj.usted in the event of adjustments in the Conversion Ratio, except that. increases or reductions that apply equally to'Series B Preferred Shares and Common Shares shall not cause an adjustment to be made, 4. Conversion. The Company and the Holders of Series;B Preferred Shares: shall have the following conversion rights: (a) Ri-ghtto Convert. Each share of Series BrPTeferred Shares 'shall be' .convertible, if there shall -be sufficent Common Shares authorized and issuable therefor at the option of the-Holder as provided'i In-Section (c) at any time aRer September 30,1999. (b) Automatic Conversion at Election of ComPany. (1) Each.share of Series B Preferre&Shares:shall automatically at the el ection of the Company -be -converted into shares of Common Stock based on the then effective Conversion Rate set forth in Section 4(c) hereunder (as adjusted) if any one of the following shall occur: (A) The Holders of 5.1% of the Series~B.Preferred Shares outstanding have given .notice of electim. to'convert asp rovided herein in Section 61 (B) The Board of Directors of the Company shall have approved a plan of reorganization, ekchange, merger or consolidation to which the Company is a party... -,or-an acquisition of the~Cornpany;~ (C) Immediately upon the -an eff ti closing-,of -anecdvewritten public, uffering-pursuant-,to registration statement under the S=udties_Aaof' -1933, asamended,:with respect to the Common Stock of the Company (inaluding-shares rg isterC -by selling -Scries.,BPreferred shareholders) where the amount e d ofsuch-securities sold -is-~$-.M,000,000 or more; (D)Vhen, the Company (E)After the Common .ShaTes.shaU'bave~-been:.Ij~t~. SDAQ for a-penod;of not less than -thTee-,mdhths' e -,ev pati -ft & pec' ed-irrpar V.. aph-A(b)(i) i~,,U -the - -bocurren' M" ents s Ifi ffie,.,,ele (Jfa-to the, ~Ah&t clion'. ,Iiaiblo~i~ng,somade,,byThelComt*n Y" rp aT hal tstandintshards.-,of Serioj& 0-11 -Rrp ~ioally,without-.44~1- tion4bylhe Holders of such Series B -hethe~_- otthe certificates-representing such r Preferred,,-Sha~br'iid _W Series 8 - --Pre-fer.red,~hares..aTe~,surrendered,,to the',Company. ~or its transfer agent;. provided -however-,that the. Company -shall not be -obligated to cer-tificates,,e-~i.dencing.t-he~shares~of.~Common~-stock issuable upon the-eco,oversion:unless,the,certi-ficates evidencing such Series B Preferred Shares -are either delivered to th6'.~Company or, its-transfer agent,- or the Holder notifies the Company or its transfer agent that such certificate have been lost, stolemor destroyedand executes an -agreement satisfactory tothe . Company to indernnify the i Company from any loss incurred by-Itin connectionxwthzsuch certificates. The conversion shall be deemed to have occurred immediately prior to the business day on which.the Series B certificates are to be surrendered~ -and-Ithe person entitledto receive the Common shares upon such a conversion shall be deemed.a Common Shareholder of record as of that ~ date.,: (c) Conversion Rate, adjustments. Except as provided elsewhere herein for adjustment of conversion based on share-price, recapitalizationor other factors, the Conversion Rate is Two Common ~ Shares, for One Series. B-. Preferred Share. The .Conversion Rate shall be subjectlo adj ustment,from time to., time as provided below; no adjustment shall apply after a Series B Preferred Share has been converted. - -(d) Mecbanics,of Conversion. Each.Holder ofSeries B Preferred Shareswho ,desires - to convert.1he same.into shares qUCommon Stock shall suri--ender the certificate, duty pridorsedat-the office ofthe Company or of any -transfer agentfior the Series B Preferred Shares or Con mon,Stock,,and shall. give Written.notice to the Company at such office, that such Holder ele'ets to convertthesame and shall.-state,iherein-the number of shares of Series,BPTeferred Shares being converted.:. Thereupon the C panyshall proMptly.is d deliver to such Holdera certificate or certificates. for the number of shares-~pf Common-Stock towhich such Holder.i5 -entitled. . Such-conversion shall be, deemed to have been made immediately, prior to the close-of business on the.date,of such surrender of-the certificate representing the Series B Preferred Shares to be converted, and the person entitled to receive, the, shares of-Common Stock issuable upon isuch conversion shall be treated for all purposes as the record Holder of such shares of Common Stock on such date. (e) Adjustment for Stock Splits and Combination . If the, Company at -anytime r from time to time,.e ffects, a subdivision of the-, outstanding Common Stock-,the-.::- -,onv ,effect -immediat-.rsubdivis'~shafl-_e -that, -7b - -ersionRate then. in I on m to .Proportionately increased, and conversely, if the Com pany at anytime or fro -time Aj, in.e.-combines.the;,outstandmg shares of Common: Stock-iritoa-smal ler number.-of shares, the Conversio' n~ Rate I then in.effect -immediately before the combination shall be., ption tely - -decreased., Any.,adjustment:,under.-t.his-,s.ubsec-tion.~q)~sliall,'..6d rt a effoctive~;At4he close, ofbusiness- on. the date the..suhdi.Vision. or., combinatiom, Deco m.es v6.- -S.4aivisiInY~or.com binations of Series B;Preferred,Shares~shall be !final adiustment..to -the ~Convvrsion Rate,to. reflect. st6ck,',,-splits--__ qomputq.the - -and ~combinations. (f) --Adjustments,for Reclassification, ~xchange and Substitution. In the event that at any time.~or -from.time to -time, the Common Stock issuable. upon the conversion of the Series B Preferred, Shares ischanged into the sam e or a differe. anumber of shares of any class or classes of stock, whet-her by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, exchangeof shares, or sale of assets, provided for-els6where in-this Section), then and in any such event each Holder of Series B Preferred Shares sball have the right thereafter to convert such stock into the kind and the maximum amount of stock and other securities. and,property receivable upon such-reca italization reclassifieation or _p other change, by Holders- ofshares.of Common Stockinto which such sharesof Series B Preferred Shares could, have been;converted immediately prior -to such recapitalization, reclassification,or charige,all subjdcl to further adjustment as provided herein. (g) ReorgMizations, Mergers, 'Consolidations or Sales of Assets. If -at any time or from time to time there is a capital reorganizationof the Common &Gck (other than a recapitalization, subdivision, combination; r6classification, or exchange of shares provided for elsewhere in this Section) or a MeTgeT orexchange of shares of the Company with or into another corporation, or the sale of all or substantiallyall of the Company's properties and assets to any other person, then as a part of such reorganization, merger, -consolidation or sale, provision. shall be made so that the Holders of the Sen'es B 'Preferred.:Shares shal 1: have tfie-~ right therdaftdr-to cbrivert -such stock into the number of shafts of stock-or other securities or property towhic'h -a Hold6r,bf the number.of shares of Comm oneStock deliverablempon conv&ss.i6n would havebeen entitled on such capitaltdorganization, merg6r, -consolidation, ousale. In any'such case, appropriate adjustment shall be made in the application of fhe~pi6visions_of this'Section with respect to the rights of the HoldeMbf the Series B Preferred Shartvafterthd-~ reorganization, merger, consolidation or sale to the end, that the,'Provisibns of this Section (including adjustment -of the Conversion Rate then -in -eftct'ahd the nuniberof shares receivable upon conversion -.Of the I Series B Preferred Shares)-shall be applicable; after that event-and be as nearly equivalent as may-be practicable., (h) Sale of Common Shares Below S2.00 pqr S are' _O)After Sune 30,1 99.9,4fkany..time.or ftom.tim&-..to tirde'i-the Company issuesor--sells,torisded dd-by-the:expr.e~spr6,~isioris6fthis~siib~ction 'sharesbfCoirfimon~Stact(as orilVe ectiv "he~r6inafter de,pr-i6e,~(se4he then-txkiAing n. ~d :the-initrea'se bbing computed to bhversio 'Rate shifl 'e:45crease :e ect-,the pToportio q;Wepease, in viiceover:a]lof,, ffi-&-previousIv T nat uld-prbduce; purpose of making any adjustment required - -under subsection 4(h)(~),- the consideration received by the Company for any issue or sale of securities shall (aa),lo.the extent,,it.cotisists -of-,.cash be.,computed atthe amount of cash - -for which the securities are sold, (bb) to Ahe,extent it,consists of 'propertyather-Ahan,cash, be compatedat-the fair value of that property as determined in ~good. faith- by the BoaTd. .(i) Fractional Shares. Series B, Preferred Shares may be,issued in fractional amounts. Reservation~of StockIssuable Upon Conversion.. -The Company shall at all times reserve; and -keep availableoutof its;authorized b-ut,unisgued!shares:of~C-6iimon Stock,: solely for the purpose of,.effecting:thetonversion of the shares of the Series B Shares, such number of its shares of Common Stock as shall from: time to timebe sufficient to effect the conversion of all outstanding shares of the Series B Preferred Shares that shaltbe converti - ble at-that-time; and if at any time the -nurnber of authorized but unissued shares of Commow Stock- shal I not be-sufficieritto effect the conversion of all then- outstanding shares of theSeries B Preferred Shares that s-bAll be~convertible at that time, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its. authorized but unissued sharesof Common Stock to such number of shares as shall be sufficient for such purpose. Should this action require the affirmative vote of the Holders of Series B Preferred Shares, whether as a Class or voted with Common Shares, said Holders of Series B Preferred Shares shall be deemed solely for this purpose to have consented thereto, and shall be deemed to irrevocably constituted management of the Company as their proxy and attorney in fact solely for this purpose to execute such documents as may be required to effect this consent. 5. Effect of Issuance of other Series of Preferred Shares (a)Nothing contained in this designation of rights shall limit the ability of the Company to authorize and issue other Series of Preferred Shares or other classes of Preferred Shares with rights or preferences that are senior to these Series B Preferred Shares or that limit or reduce the rights or preferences of these Series B Preferred Shares. In the event that other Series or Classes of Preferred Shares are authorized and issued, unless otherwise provided in the designation of rights of said other Series or Classes, these Series B Preferred Shares shall: vote on all matters based on the conversion rates adjusted nto common shares,-~provided. herein, and said such other preferred shares shall have such voting-rights as is provided in the designation thereof There shall be no class votes ofihese-Series B Preferred Shares unless said vote is non-waivable and is required by-law Unless otherwise provided in the designation of rights and preferenceg,~.',bfoth.er lial'! b- preferred shares, any preferences of these Series B Preferred Sba'res,s 'ratable with other series or classes- of Preferred Shares that may be .7. designated. Dated this 15th th day of June 1999 By: /s/ Mikiko Fujisawa STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 1111211999 Of MUbw Bminess Group, Inc. Pursu t6 &6tion 151 W -of 7-Itle 8 of-the GeniialCor - - A 0 *6 he i~le aht ' po it la ~ ft S- of De Ware and A rticle Kof tho Articles - - effi rafiom,the& ~Idiihereb~ designate ts and qudlific The voting powepreferences, righali-ons'l6itations, and re-stricti6m o -Series C 1~i ed.Shares". And there isauthorized.-Io be:is;sucd40r'000;000 shares;thereofwith the following rights, tc= and-pref:rences klQft i - -ri In -pre, -:o other 'Rif 'N ds,-.-Su*kf 6- _d^ f c. asses r series, h 6 03 6" d, 0 ip PrcfmTed,Sha=1cxcaPt When there shall have, been either a notificz-flonof election for con~6isiork_b .,y,UWNd'01d6r,tz-orl&-coikdon Sto. hs 'he' Aft"ihall have 7-77" 7. -~41 co"5 -, - A; 4- -5 -f -. ~ PFPY Actioic - X. W -or no;,~rq a qq!k. ereof has a- mpany Y v ifle'-d t07 Uie shall~.4pnjsl 1ii1M ladry., r therefor apon.,quing re p 1~7 ~- 1 "1 7 - " ce of 10 *,_*n,caihdi_viden -WYA,777~74 77 totalace Addimu'lends per ~en'I=C_Prehe Thesv~ dividends ,y - =dShW h,014,0web sh~all_be - i - . - _Y~ Y~thoiaoord ,pa 0 - shares shall be non-curnulative, them "I be no minimum diAdends, and no rights shall accrue to the Holders ofthe~Series -C Pref vlenttlat. the Company shall fail,to,declazzior.,' di "dends- the Seni-6,C-Prefin-ed -Shares, wheitheror. not the par ; V.1 on c=inpcof-thei~C,ompt6y-itf-dwprevious-fis6g-yw-,-wttemfficiat,lo- ',sUc-h dividends pay in whole oTinpait In the event that the number of ouWAhdink9e6e,4'C?rAferrcd Shares are adjusted by stock split, reverse split or other corporate action, the prefervmce stated herein shall be adjusted accordingly. Tbc balance of any suchdivid -so dedla' r-cd,ihall be allocated as between Series C Preferred Shares and Common Shares, as if said Series C PrefckredS Iiidbocn 66mirQ-6 Con- m on the Conversion Ratio (as i M- 16 y othir '. c . lasses or .__ senes ok'Preferred Shares in a=rdance ~wifli fh~ii 6ts 2.00 ~jqi~6tio,ii"Ri0ti"61,Se' CPiefeffidS6' (a) Prehcrenc Su~ject to the.righ and pr;f -.,.,of other classes or series - - -p , g=cL of PTeforied Shares in the event of any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, (except when there shall have been either a noti.ficidon of election for conversion Arnanded WAUrM PapfIrred Shares, Swim C V929 by,the Holders under,SecUon 4(a) herpmdor, or.:tIne cqn4idqns~shall have been fulfilled for a conversion I~y Company as provided In Section 4(b) hereunder, whetAcroof has been made by the IAPtifiCatiGn Company.. (unless the Conipany shall expressly give notice it elects not to ,rpq 4; the edes, referred ares jiqh-conversion))~ 1~*k ofthe-S CP Sh Apz~ p~shallbcvnthl tD._bcpw4.,ouuofJhc assetii 4 the' od )ai, u~onto,iii cr-suchassets -are cdoiw. surf4greany payrne . nt or do laration gs, 00, setting apart for payment of any% amount shall be made in respect of the Coa=on Stock, an amount equal, to S 1.00.Der Series C Preferred Share ess" W- "t divide dipaid thereto (but not low held thereby, I ""a6cft , ktad than Zero). If upon ainy liquidation, dissolution, or winding- up of the Man Yj"Wbether- -assd lo~bbidistributedw V unfvy, ;01 j~the, ts the Holders of the Series C Pref;rr6d Sham shall be insaifficim"o-permit -the paymcM - -Ashareholdeis~ the AM preferential amount aforesaid, then- alLof the -assetsof, the ~C- orn~any to -be distributed sh#1 p.,~distdbute&4- ratably tolheHoldm of the Serie's C Preferred Sbares, M%jeCt W MY--- ow othcr,cla res-bagedowthd',co th,;WLM~ ~dnv ~ZVW`o tild6~' 0 ~~gkrhorn-UMCA,641m 4,5o stri -ir=gdiqg-lasseiiof,,thecok4awto"t)i~ffi buted. Effectgf A~dlq=oiftsy Zveilt --a nu~iki of standing cerefor-red-Sharld are adjusted-?by,-stookspli~,ravasd -$Cries &here action, pref ==c state be~ 3.00 Mervkr,~ PPM04 (a~ pr* er asses _nces pf oth A or.,sedes Shares in e eve f pt, o ;ny. mgger or share exchange, of the Company,'ora-sWeor'o-,ther.~l.-,wA6'~4.all;6r-oubstmtiW' 7`~ assets of the CC,pemyMi6rca pn notification of election for conversion by the-Holdersunder Section 4(a), .q. ,U or-a 'on by the Company as provided in Section 4(b) hereunder, whether or not notification thereof has-been mad&by the Coirnpany, (unless the Company Amended MMnx PrPager2d shares, sarles C V9.U shall expressly give notice it elects not to require such conversion)) the Holders of the Series C Prelen-ed-S*qsffien outstanding shall be entitled to receive, bef6many pAym,~ntjq T. 4eplo#eq 2~R~4g apart for payment a MM94 , ;ock, f oaq amou, f t~h or each shimbf C W,.in zgh or. in securities luding, without'16i on, debt securities) received from the acquiring corporation, at the, closing of any such transaction, an amount equal to $1.00 per Series C Preferred Share, less-total accurn4gted'dividends paid thereto (but not less than zero). In the event that the ~~ of outa=ding Series C Preferred Sham.are adjuste#~Iy~tp* sp4 3myerse split, or other (b) R g Proc I i~ 'and prqfarences of other cla! ise I s 1. or series of Piefa-rred ShapBs-after-the, rnantor distribution to the i1irs of I prefe ed~' Shares of -fill F (C) of substartic'y ;I&Iiil assets a or transactiOn.ow, M-.,PWB =- ed. and to 'which thi S app. s , ection 't.1m.imc-b~m:eivedfor~-the.purposes of this Section gWl'be VMued fbUOWS: as (i) If the assets, received are securities tMt an listed, on NASDAQ or an exchange, the value shall be deemed to be the 3 day high &verage,qlosIngpnc ~.ouaveMqbetpme -Wd/askfif OTC) on such eicharige'Or NASDAQ over the 30 dayp od or to the -closizig of the transaction by which the securities am received. (ii) if the assets re , ceived - of Teadily,43certainable market value~ then that value shallbe.used. (iii) If the assets are unlisied securities or other assets that do not have a readily ascertainable value, thetorsin good faith will value I S . aid assets. (iv) ,~fwffiatas3ets-exist.wliichmay-re -a valuation process as qmm described herein-zhall not delay-closing the transaction by which the assets are being received, Amended Well= PPager3ed Sharm, Berim C V9.29 Witb- (d) Ngtj~ on which involVes a, merger or efth" if b Assets not in the UrMo IM9.1 ~O's C.A~64ers shall receive not action and the and conditions AessIban tenAii6~ ih ,th 4.00 V-~ftg Mob (a) -Each H' d r C_PrtfiirtaS~ '_SbAllU entitled to vote on all ft Wh&c'v'tr,'V-po-n,,W 6-4 1. a' . ay I-- yotq, MOluding election of the Board of Direct6rs and, exccpt~as otherwise'e-xpr'e'ss,l,y,-provided herein, shall be entitled -to &e number of yotes,"that equal the number of Common 10 W converted shi o_ d W` a- vi sp -ig kend ~~ '~ d t psi6d pxnnionS6res). 0 U _061,6 Tequ ed,-b a es Pf~`i hirehold iffi- y S, MI&AIP ~1W- Desi' tRm';_`s,therepp &W 1 gnaqf 'o 75 ttedA&V' 6 e-, "no asileparate claiies e, ~~I-~`;- ef 4CIp ~ W7M d are,req y, aw to vo- te as d"' ase ft Ir*fW'idd*,"iId aofIhe_._ I-para f9k ro -of-the class. be--a simp y AM, UU; 3 Mo- n ~o pit - -cqtwjy to Of" "R 116.6 ons 'C "P696ife S~ ~shlll not -cause an adjustment-to be made. "Convenion'! Thp-'Compio~'thsballdhavefthei~ries- Mg followingconversion. i 'h -1.00000 Rilaht to CQ rt. Each share of Series C Preferred Shares,shall be Zonve~ ibld~thbui6l 4hall be-W "C authorized and issuable therefor atthe optiou;dihi~H Idei it pn~dded in Section (c) at any time afta December 31, 1999. (b) Automatic- C-onvefti& idEli6ti~pf Corn (i) Each share of Series C Pref=cd Shares shall.automatically at the eJectkm-of.thwCJin - ;J a 15adve Cbh*crsi6n Rate fo in - -Stockbased-,Olsetfrthhefi -111A , Section 4(c) herezmddr (ass.Awed) if a I ny oxic of the followin Afnendvid MIUnxPagef4nvd Sham, Swries C V9M AJ 4 ~%, le es- Shal!1-60=`~(A)r The, HdIi-dersbf 5j%bfthe-Siri CPreferred -Shaics ou havitilvev"I'loti6c oftlictio-a to convert as pided. in Sb66ah;6;-(B) TT-h6-Boka--of-Vh= tors of the '~P "0 -CM6 dia Miie:Oprov, tf too gdon, exchange, C erdr ompany is a pam, or an '~Rcq PC, -me Y- , ~ tim clos ing of registration with shams .......... (D) When -the Co;npai~Y.slialfta;4 &P06i&6f$'10--,000A00 or more; (E)After th*;~Ctim~ Sbart~hi4b^6'`ezi -listed on NASDAQ for a period if not less,than flizve, months. graph the Shares diall the cilcvi es~ or not the 'Shares are x, id ;p vi to d' Ue c X-OPPYI, issuabIe upon v s a Series C or Its transfer wefflapk~ ffi6 d- ageM or the Bolder notifies the Com or *tq,tr -%fi t that or, stfo d,,.and executes an ye agreernent iidiew y C' '0 to -I 6;ih~ the Company :roin. "--'dby-it'in6 on i4th any SSr'Ifidu I rie certificates. -7 ber~'converslotfth& de~lohavi6cc immediately pnor W tk-b are to be' e owentid "' to'Tective e on=on e~d -.-A C ~t upon si IckikWiv - em . owobIff-be deeifiMl~omrnon Shie,661d6f" -of r6664 ii or, th, t 'dij (c)-, 'Con-y6ftiokRaty, f4witrnerits.", lt~ept as '. pmviijilledr e JjS~ere herein for an or other "on, 'adju dftaii ion, SerieS C factorsi'llhe C0nUeneionAAe'-'- ~ fidcorninon on te_' I bt b" dt toadjustment from ?refbr-rdd 'Share. T-IeC6n time tottim'-e'"I!~-,PrOdddd be-AlC`iAi-P-`n&" .p a Strip py cr a Prefenvd Share has been convi~rt6d. (d) Mechanics of Coriversiom- Ea~h J4oldleri (if Series C Prefened Shares who desirUs to convert the'same kto shares of Common Stock shall sun-ender Amenftd Milinx Prwhrmd ww", sems c vs.29 pap 5 th ~F~, uly-endors gftjo 4~pfftConq=y or of any YTI~sftF-agep Series C.P~Mfexed SharewCommon Stock, and shall that such Holder W*qi notic,,;-V,*-Qqm_panjM Office pgv, ~",~#Aglmwp .00 the number of sham of RM* ~7 - shall for ad. 4 !h,,po. or to -Ahe, of the =tif icate nverteA d son .th d i~co an the per entitl #iq.!s -.,$WWw upon such M uable "the, purpo 4*cord Holder of such sharcs,-6tcomm Stock-on on,__ (c) AdLugMg_qt,fbr ss.ta & Solits and Combiggtons.an _Wth CovWoy~ f-~tbe outstian ding j ..qff'ptiMMe40t0Y_ ore k9n om ~Ate :bef MY P03,MRSOM and conversely, if tbo - -M. 60 -the OUt3tand-ing Ines --shaiis~Urt-ammo :8to k4pto.. -Conversion 6m~i~ybpfprqlthp, 0 -subsection, (a) shall -~Xl 7W=_ T f bw -thesubdivision -or s C -'ons. zvj R nix Inthe event J0 ailol~ to& po Ihe 4-yMeAq~A eX,,qM "~,"S issuable u n in 0 enei JRrt - to the same or a -of gq)~cjas qp stocl~, whether by ree on, -t.qr.P*r0*IqI*,than a subdivision or ;com, 0 Om, Paz ex shares, or s4l"f rovidek, cts,,,p ~, j-* el qi saw here in this da,;nrmch-event.each, AD Series C Preferred Shares.shall hi ri&,~to.c'onvertsuch stock into the kind and - -of stock,andic?#k unties-andprope J, #y bl, DA~4 K#p0itall" pqni~* _,k;#LcMA3p-Jpther chtmge, by COMMOU, :R0*4raS Of SCriC3 C as; could haynp,beqnpq~l W,!F0 #ptglyrprior to such _MpqInI* iifl ~o -chap ~;q 0.0-1Wfirther idj!"o;`4--~ -i-l-, -bj wanentas prov Min. - -9.00000 RepEMizations- MIMers. Consolidations.or Sales atAssets. If at any time ortram time UAI.Wi _peoM on of the Common AMD.ndad MQInx rW*rred 3hans, W06 C V9.2g I Stock (other th= A rmapitalizatiQ.116, sFb-4iAss.ion, combination, reclassification or qoang; of,~_ yT,' ~*,for-,;1semhere in this Vtthq,q()fnpany with or into anothe;.coqqropr~ so substai~ Lof the Company's propotes.gpd,assets tq-,2ny.q ,Okep 1-14,parvof -such reorpp~p%p c-9 psal; r si 4WI be made so w,44p~ piq 'Fr-qA-m -that t be-Rolders of~the-Seriea Aares,shatthave tha sight thereafter to. such- of J#tqfiWp~of- Shares- stock or other -WL, ~JoIO.q~ of =Niowwoul& -been entitled on 'P 4 hm w Q~I~Stoc v V _'P _91~ConV n. MMpri conpli r"I R=Zabp ~~or sale Ih my such 'cM of the prov*j*--of-Abi-rca~p -the Holders of the #on,with _pqcvtcJbeiriSbxs.of.. goriiib P- t md9a, consolidation e 4-_ ha pro, IS ,.,orsal i9psof thi's ~j4qcfl= ~Cmcluding adjustment of t-hcCozrvczm ~*qin t-and ithe~nusnber-of-,shares receivable 0 upon, convmion~ofthe-:SeTics.,(~Pi-i~.f_,w,,ed- -ba,, al -,bd applicable after that event and W~n'culy equivalent as may-In practicable. (h) 'Sale of Common Shares ]aglow SLQO-pz Share, 7~71 After.~e 9 -ia ~,tEmetor,~,from-.timt,,to~time, the at _W, *~3 CO si 's-of 3,qr WAy-express provi on thissub I hav 4 diti6rdlzharis of r 600) fbr. tflectivc ~ price (as Commonsi;&' hq--inafta ded 'hereinafta dqf(ordastatustod -idediii,sectiohs (c),(J~,(g) pwi _)Ahm - -~dd~anyAotheradjustmezsts provided Jn herein ai4i'.~eachsuchwo--Ihe thewcxistinwConversion Rate shall be increwed, increase being computed to reflect the ppo 'c6mmon-SharesaWk cewould preduce,(U) For the .-.,pur ~q ust=trequired znder.,subsecdon Pos~ f;4~My ;dj *W~tbeZGnsidqation redeived- by1he, CotrIfAny., -Ior any issue or 'Oalc~of se=-'U;& shall ~.(aq). toAhe.extentitconsists',,of cash be 'ties ar id, _,pd at-theamoupt, cash.,$ compffi of -which'the.-,own eso -to, zxtentit OonsJstsof,.pvpe'rty 'the - -othert'anfeashbe rompsted at:"rvalue of-that property-as determinadmi good faith by the Board. W EMqtjznal-Shares. Series. CPrefcrmd Shares maybe issuedin fractional amounts. (J) Reservation of Stock Issuabic Lbmn Conversion. 'Me Company shall at all times reserve and keep avOable out of its authorized but unissued sham Amended hMIInz Pan*e7red Shams, series c v9= c Aodryffir-i6"Fifir 6ieof e conversion of the sha'r'es-of the-fiar6i"! i6&i of"Its, gh~df Common Stock tmthall-frorn firai-164ki'a - - ciii1tto-6541 - a conversion of all Ou&Ii&"M*Ii wtw 2 shiii~-'"l be ized but to 6-k ~66tbi~ cfrza the ft`iiii~67dielS~ t"Prefen-ed Shares tvi -6= C 66 ~--oh b lb&-, such corporate 'n ss Ilie ew increase its io M "p, bt~ 'CounseL, arY lhon2i, 'ut, ber of ft num i~laction require sharesm'; or su -'Pi#'Po ~,thezaffiirrn whether Asf , , ass a- C nsented of the _ICWMPM~ e to Wcecu Isuc. 77- y. 'h RegistiestionRig ts e Z_ Thcc 6 Will, Ri'hts Agreement %%rithHolders of enter into A R-04,~ C wy-O~W~sc 3t wt Preferre& G.'sh6W,sv I il -~ pwswar. va. 4P-dhi olft H 1,6r the benefit of P 6h-4 W`M&,~I !'0, "Me the. It -cornmis ;514xCM=r,,cUV.dnhx;, tv t ommon Stockacquired upono Serl~, V =ayi A, req =mber of Holders Y, Wing deft Milinx is Ab Adt. ~b) Anmjont~-WS'efled'S-PM elijible must request the to ow'. ~ 14tauce-': 9, 'Pem 111 Pstre-ti ,to I - -IMYof multiple 'y 4ii h QAh t~hibiv VrI` ffflik*'Is"reporting under P2 of 'anes 10 ;Ve:ritW ~~4aV ' of `con Company), the 410 I mm.6hShAr6s4n4Y demand a giSUatio , ~Wjiich.,djj; -aft"-- _C Te TIP pany Wffl**Otbr undertake~ subject to the toks listedbel excapflons-'andoW.,i ti (c) There will be only one demand registration, so holders of Prcf=ed Shares ty to convert and particip4tt in the registration. Amended Milinx PrafBerad Shares, Seri" C V9.29 (d)Those not so electing will lose their regisuvdon rights. This does not preclude sales under Rule 144 or other available exemptions to such a holder. (e) Registration rights terminate Dn November 15, 20DO. (f) Registration may be delayed or suspended ifthe CompW is engaged in an offering or is about to engage in an oftning whae the placement agent or underwriter requests such a suspension, in which cue registration may be further delayed if a lockup is required thereby. (g) In addition, in the event of certain Company events, such as a merger or other significant event, an existing registration may be suspended or a pending registratiori-delayed so that adequate disclosure of the event. in the opinion of the Company, may be~ eflected. In all cases, the shareholders who are selling - pursisant to the registration will be considered "selling shareholde&'and i~ill be required to dcliver prospectuses and other requirements underthe Securities Act of 1933. 7.00 Effect of Issuance of other Series of Preferred Shares Nothing contained in this designation of rights shall limit the,abiliry of the ~Conipany to authorize and issue other -Series of Preferred Sham or other classes o0referasdii~h61a.sII ses ofent that Prefen-ed Shares are, authorized, and Issuediunless; otherwise provided in the designation of rights of said other Series or -Classes, these Series C Prefen-ed Sharesshall vote on all matters based on .,the Oonvmion rates adjusted into common sham provided herein, and sold such other preferred shares shall have such voting rights as is provided in the designation thereof There shall be no cIass votes of these Series C Preferred Shares unless said vote is non-waivable and is required by law. (b) Unless other-wise provided in the designation of rights and preferences of other preferred shares, any, preferences of these Series C.Preferred Shares shall be ratable with other series or classes of Preferred Shares that may be hereafta designated. Dated this 11 "day ofNovember, 1999. By: Barry Philips, Designated Officer EX-10.1 6 0006.txt LEASE THIS INDENTURE made the 24th day of June, 1999. BETWEEN 356535 B.C. LTD., having an office at #503 -1080 Howe Street, Vancouver, British Columbia V6Z 2T1 (hereinafter called the "Landlord") OF THE FIRST PART AND: MILINX MARKETING GROUP INC. of 9th Floor -1080 Howe Street, Vancouver, British Columbia (hereinafter called the "Tenant") OF THE SECOND PART WITNESS that in consideration of the rents, covenants and agreements hereinafter reserved and contained on the part of the Tenant (and the Indemnitor, if any) to be paid, observed and performed, the Landlord hereby demises and leases unto the Tenant the Premises hereinafter described, all on the terms, conditions and covenants as hereinafter set forth. 1. DEFINITTONS 1.1 In this Lease (a) "Base Building Work" means installation of the standard Building t-bar ceiling, light fixtures, sprinklers, HVAC (including heat pumps and ducting) and window blinds; (b) "Building" means the building of which the Premises form a part; (c) "Commencement Date" means the 15th day of August. 1999; (d) "Deposit" means the deposit described in subsection 3.3. (e) "Flxturing Period" means the period commencing the 15th day of June, 1999 and ending on the 14th day of August, 1999; (f) "Lands" means those lands and premises situate in the City of Vancouver, Province of British comprising District Lot 541, Strata Plan LMS1608; (g) "Lease Year" means each twelve (12) consecutive calendar month period commencing on the 1st day of the month following the Commencement Date; (h) "Operating Expenses' means those operating expenses described in subsection 4.1 hereof; (i) "Premises" means those portions of the Lands known as suite nos. 802, 803, 804, 805 and 8O6, 1080 Howe Street, being Strata Lots 41, 42, 43, 44 and 45, -1- respectively, comprising four thousand seven hundred and thirty-four (4,734) rentable square feet; (j) "Rent" the term "rent" used herein shall include basic rent as set forth in subsections 3. 1 and 17.1, Operating Expenses and additional rent as set forth in subsection 4.4; and (k) "Term" means the period of Four (4) years and Eleven (11) months commencing on the Commencement Date and ending on the 14th day of July, 2004. 1.2 Interpretation. Where required, the singular number shall be deemed to include the plural and the neuter gender shall include the masculine or feminine. Where there is more than one Tenant, they shall be jointly and severally bound to the fulfillment of their obligations hereunder. 1.3 Severability. If anyone or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect. the validity, legality and enforceability of such provision or provisions shall not in any way be affected or impaired thereby in any other jurisdiction and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby in any other jurisdiction and the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby; 1.4 Included Words. Words importing the singular include the plural and vice-versa, and words importing gender include all genders. 1.5 Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions whether oral or written, of the parties and there are no warranties, representations or other agreements between the parties in connection with the subject matter hereof except as specifically set forth herein. 1.6 Headings. The section and subsection headings are included solely for convenience, are not intended to be full or accurate descriptions of the content, or to be considered part of this Agreement. 1.7 Cross-references. Unless otherwise stated, all references in this Agreement to a designated "section", "subsection" or other subdivision is to the designated section, subsection or other subdivision of this Agreement. 1.8 Currency. Unless otherwise indicated, all dollar amounts referred to in this Agreement are in Canadian funds. 1.9 Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia, and the laws of Canada applicable therein, and will be treated in all respects as a British Columbia contract. 2. TERM 2.1 The Landlord leases the Premises to the Tenant for and during the Term, unless sooner terminated as hereinafter provided. -2- 3. BASIC RENT 3.1 Basic Rent. The Tenant shall pay throughout the Term, without deduction, setoff or abatement, to the Landlord at the address of the Landlord specified herein or to such other place as the Landlord may direct in writing from time to time, basic rent, commencing on the Commencement Date, payable in advance on the first day of each month by way of equal monthly installments as follows: Basic Rent Per Square Period Foot Per Annum Period Monthly of Term Triple Net Basic Rent Basic Rent -------------- --------------------- ------------ ---------- August 15, 1999- $11.00 $47,734.50 $4,339.50 July 14, 2000 July 15, 2000- $11.00 $52,074.00 $4,339.50 July 14, 2001 July 15, 2001- $11.50 $54,441.00 $4,536.75 July 14, 2002 July 15, 2002- $12.00 $113.616.00 $4,734.00 July 14, 2004 3.2 Adjustments. In the event that the Commencement Date is not the first day of the month, or in the event the Lease expires or is determined on a date other than the last day of the month, the rent payable hereunder shall be adjusted accordingly. 3.3 Deposit. The Landlord acknowledges being in receipt of a damage and security deposit (the "Deposit") from the Tenant in the amount of Fifteen Thousand Seven Hundred Thirty Eight Dollars and Three Cents ($15,738.03), which sum the Landlord will hold without interest and apply against the Rent due together with Goods and Services Tax thereon in respect of the last two (2) months of the Term, provided that: (a) the Tenant has not committed any default under the Lease prior to the time of such application; (b) the Premises are not damaged and are left in a condition satisfactory to the Landlord upon the expiration or termination of this Lease; and (c) the Tenant has not failed to vacate the Premises at the proper time. If any of the foregoing has occurred, the Landlord shall be entitled (without prejudice to any other rights and remedies available to it) to use, retain or apply all or part of the Deposit for the payment of any rent which the Tenant has not paid when due or as compensation on account of any loss or damage arising from the breach or default by the Tenant of any provision of this Lease. If the Landlord uses, retains or applies all or part of the Deposit for a purpose other than payment of the aforesaid months' Rent plus Goods and Services Tax, then the Tenant will, forthwith upon demand, pay to the landlord the amount required to restore the Deposit to its original amount. -3- 4. ADDITIONAL PAYMENTS 4.1 Definition of Operating Expenses. "Operating Expenses" shall mean and include all expenses incurred and payable in connection with the ownership, operation, maintenance, repair and management of the Premises and the improvements thereon and, without restricting the generality of the foregoing, shall include: (a) all taxes, rates and assessments, whether general or special, levied or assessed for municipal, school or other purposes, or levied or assessed by any lawful government authority for such purposes with respect to the said Premises, but excluding taxes on income or profits; (b) the cost of insurance which the Landlord may obtain in respect of the Premises, and any deductible amount up to a maximum of One Thousand ($1,000.00) Dollars applicable to any claim made by the Landlord under such insurance; (c) maintenance fees, assessments, management fees and all other charges and expenses charged by the Strata Corporation including but not limited to such charges for repairing, operating and maintaining the Building and the equipment servicing the Building and of all replacements and modifications to the Building and such equipment, including those made in order to comply with laws or regulations affecting the Building or the Premises but excluding any special assessments levied by the Strata Corporation in respect of repairs to the Building or the Building's structural walls, roof, plumbing, heating and ventilation systems, or exterior; (d) all ordinary costs and expenses of the Landlord for repairing, operating and maintaining the Premises and the equipment servicing the Premises; and (e) any and all license fees and taxes imposed in connection with the occupancy of the Premises or with the particular business of the Tenant or in connection with any form of equipment or machinery used by the Tenant in the Premises. 4.2 Payment of Operating Expenses. The Tenant shall pay one hundred (100%) percent of the Operating Expenses. The amount of Operating Expenses and other additional rent which the Tenant is to pay under this Lease shall be estimated by the Landlord for the Lease Year and the Tenant shall pay 1/12th of such estimated amount and monthly installments in advance on the first day of each and every month throughout the Term. Notwithstanding the foregoing, if the Landlord is required to prepay any amount which it is entitled to collect in whole or in part from the Tenant, including, but not limited to, the expenses referred to in subsection 4.1 (a), or if the Landlord is required to pay any such amount more frequently and required as at the commencement date of the Term then the Tenant shall pay to the Landlord such amount calculated in accordance with this Lease forth with upon demand. Within ninety (90) days after the end of each Lease Year the Landlord shall furnish to the Tenant a statement of the actual costs upon which the Operating Expenses and additional rent are calculated. If the amount payable by the Tenant as shown on the statement is greater or less than the Operating Expenses and additional rent paid by the Tenant then the amount refundable to the Tenant or due and payable to the Landlord, as the case may be, shall be made within fourteen (14) days after delivery of the statement. 4.3 Net Lease. Except as may be otherwise provided herein with regard to structural and other capital repairs to the Building which are to be the Landlord's costs hereunder, the parties hereto agree that it is their purpose, intent and agreement that the rent herein shall be absolutely net to the Landlord so that this Lease shall yield net to the Landlord the rent free -4- of any charges, assessments, impositions or deductions of any kind and without abatement, deduction or setoff and under no other circumstances or conditions, whether now existing or hereafter arising or whether beyond the present contemplation of the parties, shall the Landlord be required to make any payments of any kind whatsoever, or be under any obligation or liability hereunder. All costs, expenses and other obligations of every kind and nature whatsoever relating to the premises including additional rent shall be paid by the Tenant (except as herein expressly set forth). 4.4 Additional Rent. Without prejudice to any of the remedies of the Landlord herein, any money payable by the Tenant to the Landlord hereunder, whether defined as rent or otherwise, shall be deemed to be rent, shall be paid as additional rent, shall be collectible as rent and, unless otherwise provided in this Lease, shall be payable either on demand or when stated herein to be due or if not so stated and arising from payments made by the Landlord, then same shall be due and be paid with the monthly instalment of rent following the date that payment was made by the Landlord. 4.5 Rent Arrears. Any rent not paid on the due date shall, without prejudice to any of the rights of the Landlord arising from such breach, bear interest at the prime rate of interest charged by the Hongkong Bank of Canada on commercial loans to its most credit worthy customers in Canada plus five (5%) percent per annum from such due date until paid. 4.6 GST. Notwithstanding any other provision of this Lease, the Tenant shall pay to the Landlord an amount equal to any and all Goods and Services Tax at the full tax rate applicable from time to time in respect of the rent payable and property taxes of the Premises pursuant to this Lease. The amount of Goods and Services Tax so payable by the Tenant shall be calculated by the Landlord in accordance with the applicable legislation and shall be paid to the Landlord at the same time as the amounts to which such Goods and Services Tax apply. The amount payable by the Tenant under this subsection shall be deemed not to be rent, but the Landlord shall have all of the same remedies for and rights of recovery of such amount as it has for recovery of rent under this Lease. 5. USE OF THE PREMISES 5.1. Nature of Business. In respect of Shop A for printers and light production (but subject to compliannce with all applicable Bylaws and Regulations) The Tenant shall use the Premises continuously throughout the Term for the purpose of a business office only (including internet system, development, and telecom related purposes) and for no other purposes without the prior written consent of the Landlord, which consent the Landlord may arbitrarily withhold in its sole discretion and, subject to the provisions of section 12 hereof, shall not permit any part of the Premises to be used or occupied by any person other than the Tenant, its employees and invitees. 5.2 Business Name. The Tenant will conduct business on or from the Premises under the name of "Milinx Marketing Group" and the names of the Tenant's affiliated companies. 6. TENANT'S COVENANTS THE TENANT COVENANTS WITH THE LANDLORD: 6.1 Rent. To pay rent and to pay all sums payable herein as additional rent, without any abatement, setoff, compensation or deduction whatsoever. -5- 6.2 Utility Charges. To pay promptly all charges for gas, water and sewer, electricity, telephone service, fuel and other utilities supplied to or used by the Tenant or consumed in or on the Premises. 6.3 Overloading Utility Facilities. Not to install equipment in or on the Premises that may exceed or overload the capacity of utility facilities. 6.4 Overloading Floors. Not to place in or on the Premises any safe, heavy equipment or other heavy item, which may exceed the specifications for the Building relating to bearing loads, without obtaining the prior written consent of the Landlord. 6.5 Maintenance. To pay all charges for the operation and maintenance of all equipment, facilities and services, including lighting, mechanical and heating and air conditioning facilities, and of all computer and telecommunications equipment and services, and all charges for re-lamping of light fixtures within the Premises. 6.6 Glass. To restore forthwith at the Tenant's expense and with glass of the same colour and quality, any broken or damaged glass on the Premises. 6.7 Metering. At its own expense, if requested by the Landlord, to install separate meters to record the rate of consumption of the utilities described in subsection 6.2 hereof. 6.8 Repairs. To maintain and keep in good repair, at its own expense, the Premises including any leasehold improvements and all trade fixtures therein, the store front, all glass and utilities and all heating, air-conditioning and ventilating equipment therein, save and except for structural defects and for maintenance and repairs that are the responsibility of the Strata Corporation, and to forthwith repair the Premises according to notice given in writing by the Landlord or its agents where such repairs are the Tenant's responsibility hereunder. 6.9 Entry to Inspect. To permit the Landlord, its agents or employees at all reasonable times and at any time in the case of an emergency, to enter and view the state of repair and to repair the Premises according to notice given in writing as provided in subsection 6.8 hereof, to the extent of the obligations of the Tenant as herein provided. 6.10 Condition of Premises. To keep the Premises free of rubbish and debris at all times and to provide proper receptacles for waste and rubbish. 6.11 Waste and Nuisance. Not to do, suffer or permit any act or neglect which may in any manner, directly or indirectly, cause injury or damage to the Premises or to the Building or to any equipment therein, or to any fixtures or appurtenances thereof or which may be or become a nuisance or interference to any of the occupants of the Building or which may, in the opinion of the Landlord, render the Building or any part thereof less desirable or injure the reputation thereof as a first class building. 6.12 Hazardous Materials. To ensure that the Tenant, its agents, employees and contractors shall not use, manufacture, store or dispose of any flammable explosives, hazardous or toxic wastes or materials, or other similar substances on, under or about the Premises or the Building. 6.13 Rules and Regulations of the Landlord. To ensure that the Tenant and its servants, employees and agent shall observe faithfully and comply strictly with such reasonable rules and regulations as the Landlord may from time to time adopt. Written notice of any additional rules and regulations shall be given to the Tenant. Nothing in this Lease contained shall be -6- construed to impose upon the Landlord any duty or obligation to enforce the rules and regulations, or the terms, covenants or conditions in any other lease against any other tenant or occupant of the Building and the Landlord shall not be liable to the Tenant for violation of the same by any other occupant or tenant, its servants, employees, agents, visitors or licensees. 6.14 Signs. Not to paint, display, inscribe, place or affix any sign, fixture, advertisement, notice, lettering or direction on any part of the outside of the Building or the Premises or which would be visible from the outside the Building or the Premises without the Landlord's prior written consent, which consent the Landlord may arbitrarily withhold in its sole discretion. 6.15 Show Premises. During the last six (6) months of the Term to permit a notice "To Let" to be put and remain on the Premises in a conspicuous position and to permit the Landlord or its agents to exhibit the Premises to prospective tenants during normal business hours and to exhibit the Premises for the purposes of the Landlord's own financing, refinancing and to exhibit the Premises to any prospective purchaser of the Building or of the Landlord's interest therein but not so as to cause any undue interference of the Tenant's business. 6.16 Insurance. To obtain arid maintain throughout the Term and any extension or renewal thereof, at the expense of the Tenant, but for the common benefit of the Landlord and the Tenant: (a) comprehensive general public liability (including bodily injury, death and property damage) insurance on an occurrence basis with respect to the business carried on, or in or from the Premises and the Tenant's use and occupancy thereof of not less than Three Million ($3,000,000.00) Dollars; and (b) all risk direct damage insurance upon its fixtures, improvements and all parts of the Premises which the Tenant is obligated to repair under subsections 6.6 and 6.8 hereof, to the full replacement value thereof, and broad boiler insurance on any boiler in the Premises; and each insurance referred in subsections 6.16(a) and (b) shall include the Landlord as a named insured as its interest may appear, and shall protect the Landlord in respect of claims by the Tenant as if the Landlord were separately insured; and all insurance required to be maintained by the Tenant hereunder shall be on terms and with insurers to which the Landlord has no reasonable objection and shall provide that such insurers shall provide to the Landlord thirty (30) days prior written notice of cancellation or material alteration of such terms. The Tenant shall furnish to the Landlord certificates or other evidence acceptable to the Landlord as to the insurance from time to time required to be effected by the Tenant and its renewal or continuation in force. If the Tenant shall fail to take out, renew and keep in force such insurance, the Landlord may do so as the agent of the Tenant and the Tenant shall repay to the Landlord any amounts paid by the Landlord as premiums forthwith upon demand. If any policy of insurance upon the Building or the Premises or any part thereof shall be cancelled by the insurer by reason of the use or occupation of the Premises or any part thereof by the Tenant or by anyone permitted by the Tenant to be on or in the Premises, the Landlord may, at its option, determine this Lease forthwith by leaving upon the Premises notice in writing of its intention to do so and thereupon rent and any other payments for which the Tenant is liable under this Lease shall be paid in full to the date of such determination, and the Tenant shall immediately deliver up possession of the Premises to the Landlord and the Landlord may re-enter and take possession of the Premises. -7- 6.17 Invalidation of Insurance. Not to do or permit anything to be done whereby any policy of insurance on the Building or the Premises or any part thereof may become void or voidable or whereby the premium thereon may be increased other than in the ordinary course of business as permitted under subsection 5.1. 6.18 Notice of Defects. To give the Landlord immediate notice in case of fire or accident or malfunctioning of any of the mechanical or electrical systems in the Premises or in the Building of which the Tenant or its employees may be aware. The Tenant covenants and agrees that the Landlord shall at all times be at liberty to approve of and permit the erection or placement of signs and advertisements by other tenants in the Building of which the Premises herein form a part on the exterior of the said Building. 6.19 Governmental Regulations. To abide by and comply with all bylaws, building codes, rules and regulations of any federal, provincial, municipal or other governmental authority which in any manner relate to or affect the Premises and the conduct of the Tenant's business thereon and to indemnify and save harmless the Landlord from any costs, charges and damage which the Landlord may incur or suffer by reason of the breach of any such bylaw, building code, rule or regulation. 6.20 Indemnity. To indemnify the Landlord and save it harmless from any and all liability, damage, cost, claims, and causes of action whatsoever arising from any breach or violation by the Tenant of any of the Tenant's covenants or obligations under this Lease or from the use and occupation of the Premises by the Tenant hereunder, its employees, agents, customers, contractors or other invitees, licensees or concessionaires or by anyone permitted by the Tenant to be on the Premises, or from the Tenant's failure to abide by and comply with all laws, rules and regulations of every municipal or other authority which in any manner may relate to or affect the business conducted on or the use of the Premises by the Tenant. 6.21 Peaceful Surrender. At the expiration of the Term or any extension or renewal thereof, or upon sooner termination of this Lease, to peaceably surrender and yield up to the Landlord the Premises in good and substantial condition and repair. 7. LANDLORD'S COVENANTS THE LANDLORD COVENANTS WITH THE TENANT: 7.1 Quiet Enjoyment. For quiet enjoyment. 7.2 Repairs. The Landlord shall use its best efforts to cause the Strata Corporation to repair and maintain the Building and the structure of the Premises and all systems and equipment servicing the Premises, subject to section 10. 8 IMPROVEMENTS 8.1 Alterations. The Tenant agrees not to make any alterations, additions or improvements in or to the Premises without obtaining the Landlord's prior written consent, such consent not to be unreasonably withheld. The Tenant shall provide the Landlord with all drawings, specifications and other information required by the Landlord in respect of such proposed work and shall reimburse the Landlord for any costs incurred in respect of professional consultants retained by the Landlord to assist with the Landlord's assessment of such proposed work. All such work shall be done only by contractors or tradesmen or mechanics approved in writing by the Landlord and at the Tenant's sole expense and at such time and in -8- such manner as the Landlord may approve. No alterations, additions, or improvements shall be made to the Premises without the Tenant first obtaining all necessary permits (including building permits) and said alterations, additions or improvements shall be carried out diligently and in a timely and workmanlike manner until all necessary final approvals are obtained including final inspections from all requisite departments of the City of Vancouver, 8.2 Intentionally Deleted. 8.3 Builders Lien. The Tenant shall indemnify and save the Landlord harmless from and against all claims which may arise pursuant to the Builders Lien Act of British Columbia as it may from time to time be amended in respect of any materials or services supplied in respect to the Premises and the Tenant shall forthwith remove any builders liens placed against the lands of which the Premises form a part and the Tenant shall allow the Landlord to post and to keep posted on the Premises any notice which the Landlord may wish to post under the provisions at the said Builders Lien Act. 8.4 Tenant's Chattels. All articles of personal property and all furniture, business and trade fixtures, and machinery and equipment, owned or installed by the Tenant at the expense of the Tenant in the Premises shall remain the property of the Tenant and may be removed by the Tenant at its expense, provided that the Tenant shall repair any damage to the Premises or the Building caused by the removal of same and further provided that if the Tenant does not remove such property forthwith after written demand by the Landlord, such property shall, if the Landlord elects, be deemed to become the property of the Landlord or the Landlord may remove the same at the expense of the Tenant, in which case the cost of such removal shall be paid by the Tenant forthwith to the Landlord on demand and the Landlord shall not be responsible for any loss or damage to such property because of such removal. 8.5 Fixturing Period. During the Fixturing Period the Tenant may occupy the Premises jointly with the Landlord and the Landlord's contractor and agents and shall not be responsible for Basic Rent and Additional Rent hereunder, except that the Tenant shall be responsible for the utility costs separately metered or charged in respect of the Premises and shall be bound by all other terms of this Lease from the date of first occupancy of the Premises by the Tenant for the purpose of fixturing the Premises. 8.6 Completion of the Premises. The Tenant shall be responsible for all work required by the Tenant to complete the Premises for occupancy including the installation of all telephone, computer and special communications equipment, wiring and fixtures. Any work for which the Tenant is responsible shall be designed, performed and completed subject to the Landlord's approval, not to be unreasonably withheld, it being agreed that such work shall be completed within the Fixturing Period. 8.7 Failure to Open for Business. If the Tenant fails to open the Premises for business fully fixtured, stocked and staffed by the expiry of the Fixturing Period then the Landlord, in addition to the remedies herein provided, may terminate this Lease upon not less than thirty (30) days notice to the Tenant unless the Tenant opens for business fully fixtured, stocked and staffed before the expiration of the notice. 9. LIMITATIONS ON LANDLORD'S LIABILITY 9.1 General limitation of Liability. The Landlord shall not be responsible for any damage which may be caused nor shall the Tenant be entitled to claim any diminution of rent or other compensation should it become advisable, in the sole discretion of the Landlord, to stop, or if -9- there is otherwise a stoppage in, the operation of any heating apparatus or any air conditioning apparatus or any electric or water service, or any of the engines, boilers or machinery pertaining thereto but in such case the Landlord shall use its best efforts to recommence any such operations as may have been affected and the Landlord shall not be liable for any damage which may be caused to the Tenant or to the employees of the Tenant as a result of such stoppages. The Landlord shall not be liable for any damage in or upon the Premises, arising from any reason or cause whatsoever, including any default or neglect by the Strata Corporation relating to its responsibilities as a strata corporation, or for any personal injuries sustained by the Tenant, its officers or employees or other persons, or for any property loss howsoever occurring and the Tenant shall have no right to diminution of rent in any of such cases; and, without restricting the generality of the foregoing, the Landlord shall not be liable for any injury or damage to person or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain, or snow or leaks from any part of the Building, or from pipes, appliances or plumbing works or from the roof, street or subsurface or from any other place or by dampness or for any such injury or damage by any cause of whatsoever nature, 9.2 Interruptions. The Landlord does not warrant that any service or facility provided by it hereunder will be free from interruption caused or required by maintenance, repairs, renewals, modifications, strikes, riots, insurrections, labour controversies, accidents, fuel shortages, government intervention, force majeure, act of God or other cause or causes beyond the Landlord's reasonable care and control. No such interruption shall be deemed an eviction or disturbance of the Tenant's enjoyment of the Premises nor render the Landlord liable in damages to the Tenant nor relieve the parties from their obligations under this Lease. 9.3 No Representations. The Tenant acknowledges having made its own independent investigation of the Premises and of the Building and as to the condition of same and as to the laws, by-laws and regulations which affect the operation of any business in the Premises and the Tenant states that in entering into this Lease it has not relied on any representations or promises as to these or other matters by the Landlord and states that there are no representations, warranties or conditions other than those expressed in this Lease and no agreement collateral hereto shall be binding upon the Landlord unless made in writing and signed by or on behalf of the Landlord. 10. DAMAGE TO OR DESTRUCTION OF THE PREMISES 10.1 Damage and Repair. In the event that the Premises or the Building are damaged by fire or other casualty so as to render the Premises partially or wholly unfit for occupancy then; (a) if the damage cannot be repaired in the opinion of the Landlord's architect within one hundred twenty (120) days after the date thereof, the Landlord may terminate this Lease as of the said date, by notice to the Tenant within thirty (30) days after such damage and. in that case, the Tenant shall immediately surrender the Premises to the Landlord and shall pay rent accrued to the date on which the said damage occurred but shall not be entitled to any damages or compensation; (b) if the damage can be repaired in the opinion of the Landlord's architect within one hundred twenty (120) days after the date thereof or if the Landlord shall not have given notice of termination pursuant to the provisions of subsection 10.1 (a) hereof, the Landlord shall, or the Tenant, or both, as the case may be (according to the nature of the damage and their respective obligations to repair), forthwith commence -10- and carry out with due diligence the repair thereof I and this Lease shall continue in full force and effect. In the event of substantial damage to the Building such that the Strata Corporation resolves not the rebuild the Building then, notwithstanding the foregoing, this Lease shall be terminated as of the date of the damage and, in that case, the Tenant shall immediately surrender the Premises to the Landlord and shall pay rent accrued to the date on which the said damage occurred but shall not be entitled to any damages or compensation. 10.2 Abatement of Rent. Unless the damage under subsection 10.1 (b) is caused by the negligence of the Tenant or its assignee, sublessee, concessionaire, licensee, or officer, employee, customer or other invitee of any of them, the rent payable under this Lease shall abate proportionately, having regard to such part of the Premises as have been rendered unfit for occupancy, until the repairs which are the obligation at the Landlord have been completed. 11. EXPROPRIATION 11.1 If the Building shall be acquired or condemned by any authority having the power for such acquisition or condemnation, for any public or quasi-public use or purpose, then and in that event the Term of this Lease shall cease from the date of entry by such authority .If only a portion of the Building shall be so acquired or condemned but affecting Premises, this Lease shall cease and terminate at the Landlord's option and, if such option is not exercised by the Landlord, an equitable adjustment of rent, payable by the Tenant for the remaining portion of the Premises, shall be made. In either event, however, and whether all or only a portion of the Building shall be so acquired or condemned, nothing herein contained shall prevent the Landlord or the Tenant or both from recovering damages from such authority for the value of their respective interests or for such other damages and expenses as are allowed by law. 12. ASSIGNMENT AND SUBLETTING 12.1 Prohibition on Assignment and Subletting. The Tenant shall not assign, sublet, grant any right of occupancy of all or part of the Premises or grant or permit any charge or encumbrance against the Premises or the Tenant's interest therein without the Landlord's prior consent in writing, which consent shall not be unreasonably withheld, provided that the Tenant has not defaulted in payment of any Rent under this Lease and is not in default under this Lease at the time of the request for consent and that no such assignment, subletting or grant for which such consent has been provided shall in any manner release the Tenant from any covenant to be observed or performed by it hereunder. The Tenant acknowledges that it shall be reasonable for the Landlord to consider, among other things, the responsibility, reputation, financial standing and business of the proposed assignee, sublessee or grantee. Any such assignment, sublease or grant relating to this Lease if consented to by the Landlord will be prepared by the Landlord or its solicitors, and all legal costs of its preparation will be paid by the Tenant. Notwithstanding the foregoing, provided that the Tenant has not defaulted under this Lease, the Tenant shall be entitled to assign or sublet all or a portion of the Premises to any company that is non-arm's length to the Tenant, without the Landlord's consent, upon written notice to the Landlord. 12.2 No Waiver and Implications of Failure to Obtain Consent. The consent by the Landlord to an assignment or subletting will not constitute a waiver of its consent to a subsequent assignment or subletting. This prohibition against assignment or subletting includes a prohibition against an assignment or subletting by operation of law. If this Lease is assigned, -11- or if all or part of the Premises is sublet or occupied by anybody other than the Tenant, in any case without the consent of the Landlord when required, the Landlord may collect rent from the assignee, subtenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, sublease, occupancy or collection will be considered a waiver of this covenant, or the acceptance of the subtenant or occupant as tenant. 12.3 Change in Control. In the event that the Tenant is a corporation and if after the date of the execution of this Lease the shares of the Tenant are transferred by sale, assignment, bequest, inheritance, operation of law or other disposition, or issued by subscription or allotment, or cancelled or redeemed, so as to result in a change in the effective voting or other control of the Tenant, or if other steps are taken to accomplish such a change in control, then the Tenant will promptly notify the Landlord in writing of the change in control the same will be considered to be an assignment of this Lease to which section 12.1 applies. This paragraph shall not apply in the event that the Tenant has its voting shares publicly trading on any stock exchange. 13. CERTIFICATE, ATTORNMENT AND SUBORDINATION 13.1 Certificate as to Lease. The Tenant shall from time to time, and within ten (10) days of receiving request from the Landlord, execute and deliver to any proposed purchaser or proposed or existing mortgagee of the Premises, a certificate acknowledging the following: (a) the Tenant is in possession of the Premises; (b) this Lease is in full force and effect and unamended, or if the same has been amended, specifying such amendments; (c) the Landlord is not currently in default under any term, condition or covenant required to be performed by the Landlord hereunder, or if the Landlord is in default under any one or more of such terms, conditions or covenants, specifying the nature of each such default; (d) the date to which the rents hereunder have been paid; (e) the amount of any deposit hereunder; and (f) there is no right of setoff against any rents due hereunder . 13.2 Attornment. The Tenant shall, if requested to do so by the Landlord, agree with any mortgagee of the whole or any portion of the Premises to attorn to and become the tenant of such mortgagee if the mortgagee shall become a mortgagee in possession, if such mortgagee shall agree that so long as the Tenant pays the rent and observes and performs the covenants and provisos herein contained on its part to be performed, the Tenant shall be entitled to hold, occupy and enjoy the Premises, subject to any rights the mortgagee may have as a lessor, free from any interference by the mortgagee or any person claiming by or through the mortgagee. 13.3 Subordination. This Lease shall be deemed to be subordinate to any charge or mortgage, including any deeds of trust and mortgages and all indentures supplemental thereto, which now or hereafter during the Term affect or relate to the Premises and all modifications or renewals thereof. The Tenant agrees to execute promptly from time to time any assurance which the Landlord may require to confirm this subordination and hereby constitutes the Landlord, the agent or attorney of the Tenant for the purpose of executing any such assurance and of making application at any time and from time to time to register the postponement of this Lease in favour of any such mortgage or charge in order to give effect -12- thereto, provided that such mortgage or charge shall permit the Tenant to continue in quiet possession of the Premises in accordance with the terms and conditions of this Lease so long as the Tenant is not in default hereunder whether such mortgage or charge is in good standing or not. 14. DEFAULT 14.1 Re-entry. If and whenever the rent hereby reserved or any additional rent as herein described or any part thereof, whether the same are lawfully demanded or not, is not paid when due, or if the Tenant (or the Indemnitor, if any) shall violate or neglect any other covenant, agreement or stipulation herein contained on its part to be kept, performed or observed for a period of seven (7) days after notice thereof from the Landlord, or if the Premises shall become vacated or remain unoccupied for fifteen (15) days, then the Landlord, in addition to any other remedy now or hereafter provided by law, may at its option and without notice terminate this Lease forthwith and re-enter and take possession of the Premises immediately by force if necessary, and may remove all persons and property therefrom and may use such force and assistance in making such removal as the Landlord may deem advisable to recover at once full and exclusive possession of the Premises and such re-entry shall not operate as a waiver or satisfaction in whole or in part of any right, claim or demand arising out of or connected with any breach or violation by the Tenant of any covenant or agreement on its part to be performed or observed. 14.2 Bankruptcy. If the Term hereby granted or any of the goods or chattels of the Tenant or the Indemnitor shall be at any time seized in execution or attachment by a creditor of the Tenant (or the Indemnitor, if any) or if the Tenant (or the Indemnitor, if any) shall make an assignment for the benefit of creditors or a bulk sale or become bankrupt or insolvent or take the benefit of any Act now or hereafter in force for bankrupt or insolvent debtors, or if the Tenant (or the Indemnitor, if any) is a corporation and an order shall be made for the winding up of the Tenant or any Indemnitor, as the case may be, or other termination of its corporate existence, then this Lease shall, at the option of the Landlord, cease and determine and the Term shall immediately become forfeit and the then current month's rent and the next ensuing three (3) months' rent shall immediately become due and payable and the Landlord may re- enter and take possession of the Premises as though the Tenant or other occupants of the Premises were holding over after the expiration of the Term without any right whatever . 14.3 Right to Relet. If the Landlord re-enters, as herein provided, it may either terminate this Lease or it may from time to time without terminating the Tenant's obligations under this Lease, make alterations and repairs considered by the Landlord necessary to facilitate a reletting, and relet the Premises or any part thereof as agents of the Tenant for such term or terms and at such rental or rentals and upon such other terms and conditions as the Landlord in its reasonable discretion considers advisable. Upon each reletting all rent and other monies received by the Landlord from the reletting will be applied, firstly to the payment of indebtedness other than rent due hereunder from the Tenant to the Landlord, secondly to the payment of costs and expenses of the reletting including brokerage fees and solicitor's fees and costs of the alterations and repairs, and thirdly to the payment of rent due and unpaid hereunder. The residue, if any, will be held by the Landlord and applied in payment of future rent as it becomes due and payable. If rent received from the reletting during a month is less than the rent to be paid during that month by the Tenant, the Tenant will pay the deficiency to the Landlord. The deficiency will be calculated and paid monthly. No re-entry by the Landlord will be construed as an election on its part to terminate this Lease unless a written notice of that intention is given to the Tenant. Despite a reletting without termination, the Landlord may elect at any time to terminate this Lease for a previous breach. If the Landlord -13- terminates this Lease for any breach, in addition to other remedies it may recover from the Tenant all damages it incurs by reason of the breach including the cost of recovering the Premises, reasonable legal fees and the worth at the time of termination of the excess, if any, of the amount of rent and charges equivalent to the rent reserved in this Lease for the remainder of the Term over the then reasonable rental value of the Premises for the remainder of the Term, all of which amounts immediately will be due and payable by the Tenant to the Landlord. In determining the rent which would be payable by the Tenant after default, the annual rent for each year of unexpired Term will be equal to the averaged fixed basic rent paid or payable by the Tenant from the beginning of the Term to the time of default, or during the preceding three (3) full calendar years, whichever period is shorter . 14.4 Distress. If the Landlord shall be entitled to levy distress against the goods and chattels of the Tenant, it may use such force as it may deem necessary for the purpose and for gaining admission to the Premises without being liable to any action in respect thereof or for any loss or damage occasioned thereby and the Tenant hereby expressly releases the Landlord from all actions, proceedings, claims or demands whatsoever for or on account or in respect of any such forcible entry or any loss or damage sustained by the Tenant in connection therewith. 14.5 Performing Tenant's Obligations. If the Tenant fails to perform an obligation of the Tenant under this Lease. the Landlord may perform the obligation and for that purpose may enter upon the Premises without notice and do such things upon or in respect of the Premises as the Landlord considers necessary. The Tenant will pay as additional rent all expenses incurred by or on behalf of the landlord under this subsection plus ten (10%) percent for overhead upon presentation of a bill therefor. The Landlord will not be liable to the Tenant for loss or damages resulting from such action by the Landlord. 14.6 Landlord's Expenses Enforcing Lease. In the event that it shall be necessary for the Landlord to retain the services of a lawyer or bailiff or any other proper person for the purpose of assisting the Landlord in enforcing any of its rights hereunder, the Landlord shall be entitled to collect from the Tenant the cost of all such services incurred by the Landlord as if the same were rent reserved and in arrears hereunder. 15. CONDOMINIUM ACT PROVISIONS 15.1 Interpretation. In this section 15 and where used elsewhere in this Lease, the following words shall have the following meanings: (a) "Condominium Act" means the Condominium Act, R.S.B.C., 1996, Chapter 64 and any amendments and successor legislation thereto; (b) "Strata Corporation" means the Strata Corporation created pursuant to the Condominium Act with respect to the Building; (c) "By-laws" means the by-laws of the Strata Corporation in force under the Condominium Act as amended by the Strata Corporation from time to time; (d) "Rules and Regulations" means the rules and regulations of the Strata Corporation from time to time; (e) "Owner" means owner as that term is defined in the Condominium Act; (f) "Strata Lot" means a strata lot as that term is defined in the Condominium Act. -14- 15.2 Tenant's Obligations. Notwithstanding any other provision of this Lease, the Tenant hereby agrees as follows: (a) to comply with the Condominium Act and the By-laws and Rules and Regulations; (b) at the time of execution of this Lease, to deliver to the Landlord an executed Form "D" under the Condominium Act with respect to the Premises; (c ) to promptly pay to the Landlord as additional rent the amount of all regular monthly strata maintenance fees which may be levied by the Strata Corporation from time to time during the Term against the Landlord as Owner of the Premises, provided that the Tenant shall have no obligation to pay for special assessments; and (d) that if, pursuant to the Condominium Act, a Form "B" thereunder is registered against title to the Premises the Tenant shall within ten (10) days after receipt of notice thereof obtain and file a discharge of the Form "B" from title to the Premises. 15.3 No Assignment as Owner. Nothing herein contained shall be construed or deemed to be an assignment by the Landlord to the Tenant of any of the Landlord's rights and powers as Owner of the Premises. 15.4 Strata Corporation. The Landlord and the Tenant agree that the provisions contained in this Lease shall be subject to and deemed to be modified as required to comply with the terms of the Condominium Act, the By-laws and Rules and Regulations to reflect the fact that the Premises comprise a strata lot of which the Landlord is Owner and that certain payments and obligations of the Landlord hereunder may in fact be made or performed by the Strata Corporation. Where any payments to be made or obligations to be performed or which may be made or performed by the Landlord hereunder are in fact made or performed by the Strata Corporation the Landlord shall be deemed to have fulfilled its obligations hereunder and any corresponding repayment or obligations of the Tenant may thereafter be made to or performed for the benefit of the Strata Corporation where any obligations to be performed by the Landlord hereunder are obligations of the Strata Corporation under the Condominium Act or the Bylaws or the Rules and Regulations, the Landlord's obligation shall be interpreted as meaning that the Landlord shall use its best efforts to cause the Strata Corporation to perform such obligations. 16. RENEWAL 16.1 Provided that, and for so long as the Tenant pays the Rent and performs each and every of the covenants, conditions and agreements in the Lease reserved and contained and on the part of the Tenant to be paid and performed and is not and has not been in default in respect of any of the same and there has been no adverse change of any sort in the Tenant's financial condition or capacity the Landlord will, upon the request in writing by the Tenant given at least six (6) months and not more than twelve (12) months prior to the expiration of the Term (the "Notice Period"), grant to the Tenant a renewal lease of the Premises for one (1) further term of five (5) years upon and subject to the covenants, conditions and agreements as are set forth in the Landlord's standard form of lease for the Building then in use, save and except that the renewal lease shall not contain any provision for further renewal and the annual basic rent shall be the market rate for similar premises of similar size, use and location one hundred twenty (120) days prior to the expiry date of this Lease, without deduction of allowance for or consideration of any tenant inducements, leasehold improvement allowances, rent free periods, lease take-overs, turnkey or "build-to-suit" arrangements or other concession or inducement offered of given by landlords to achieve -15- such rental (the "New Annual Basic Rent"). If requested by the Tenant during the Notice Period, the Landlord will provide the Tenant with a copy of its standard form of lease for the Building then in use. The New Annual Basic Rent shall be mutually agreed to by the Landlord and the Tenant at least ninety (90) days prior to the expiration of the Term, and failing agreement shall be determined by three (3) accredited real estate brokers (the "Three Experts") at least thirty (30) days prior to the expiration of the Term, which experts shall be familiar with rental rates in the area of the Premises, one of whom shall be appointed by the Landlord (the "Landlord's Expert") and all costs associated with the Landlord's Expert shall be the sole responsibility of the Landlord, and one expert shall be appointed by the Tenant (the "Tenant's Expert") and all costs associated with the Tenant's Expert shall be the sole responsibility of the Tenant. The appointment of the third expert (the "Third Expert") shall be agreed upon by the Landlord's Expert and the Tenant's Expert and 50% of costs attributable to the Third Expert shall be borne by the Tenant and the remaining 50% of costs attributable to the Third Expert shall be borne by the Landlord. Together the Three Experts, acting reasonably, shall make the final determination of the New Annual Basic Rent and should the Three Experts be unable to agree among themselves on the determination, the opinion of the majority, being two (2) of the Three Experts, shall be final and binding on the Landlord and Tenant. The determination of the New Annual Basic Rent shall be considered an arbitration pursuant to the Commercial Arbitration Act of British Columbia. 16.2 In the event that the New Annual Basic Rent is determined by the Three Experts pursuant to subsection 16.1, such New Annual Basic Rent shall apply to the first and second years of the renewal term, the annual basic rent in respect of the third year of the renewal term shall be Fifty (50) Cents per square foot higher than the annual basic rent in effect during the second year of the renewal term and the annual basic rent in respect of the fourth and fifth years of the renewal term shall be Fifty (50) Cents per square foot higher than the annual basic rent in effect during the third year of the renewal term. 17. OVERHOLDING 17.1 If the Tenant shall continue to occupy the Premises after the expiration of the renewal term which may be granted hereby and the Landlord shall accept rent, the new tenancy thereby created shall be deemed to be a monthly tenancy with the basic rent equal to one hundred and twenty-five percent (125%) of the basic monthly rent for the last month of the Term and shall be otherwise subject to the covenants and conditions including additional rent and Goods and Services Tax in this Lease insofar as the same are applicable to a tenancy from month to month. 18. WAIVER 18.1 The failure of the Landlord or the Tenant to insist upon strict performance of any covenant or condition contained in the Lease or in the rules and regulations attached hereto shall not be construed as a waiver or relinquishment in the future of any such covenant, condition or rules and regulations. The acceptance of any rent or the performance of any obligations hereunder by a person other than the Tenant shall not be construed as an admission by the Landlord of any right, title or interest of such person as a subtenant, assignee, transferee or otherwise in the place and stead of the Tenant. All rights and remedies of the Landlord in this Lease contained shall be cumulative and not alternative. -16- 19. NOTICES 19.1 Any notice, waiver or other communication required or permitted to be given hereunder shall be in writing and signed by or on behalf of such party and shall be given to the other party by delivery thereto, or by sending by prepaid registered mail, telex, facsimile, telegram or cable to the address of the other party as hereinbefore set forth or to such other address of which notice is given, and any notice shall be deemed not to have been sufficiently given until it is received. Any notice or other communication contemplated herein shall be deemed to have been received on the day delivered, if delivered, on the fourth business day following the mailing thereof, if sent by registered mail, and the second business day following the transmittal thereof, if sent by telex, facsimile, telegram or cable. If normal mail, telex, facsimile, telegram or cable service shall be interrupted by strike, slowdown, force major or other cause, the party sending the notice shall utilize any of the such services which have not been so interrupted or shall deliver such notice in order to ensure prompt receipt of same by the other party . 20. MISCELLANEOUS 20.1 Amendment. No alteration, amendment, change or addition to this Lease will be binding upon the Landlord and the Tenant unless in writing and signed by the parties hereto. 20.2 Time of the Essence. Time is of the essence of this Lease and each provision hereof. 20.3 No Registration. This Lease or any notice hereof or any caution or other instrument indicating an interest in the Premises by virtue of this Lease shall not be executed in registerable form nor registered against the title to the Premises. 20.4 Further Assurances. Each of the parties hereby covenants and agrees to execute any further and other documents and instruments and to do any further and other things that may be necessary to implement and carry out the intent of this Agreement. 20.5 Successors and Assigns. This Agreement shall enure to the benefit of and be binding upon the parties hereto, their respective heirs, executors, administrators, successors and permitted assigns. 21. ADDITIONAL PROVISIONS 21.1 Landlord's Base Building Work. The Landlord shall be responsible for completing the Base Building Work in respect of the Premises. Notwithstanding the foregoing, upon the Landlord commencing the Base Building Work the Tenant shall pay the Landlord, as contribution to the cost of such work, the sum of Fifteen Thousand Seven Hundred and Thirty- Eight Dollars and Three Cents ($15,738.03) (plus any applicable GST). The Landlord shall work in conjunction with the Tenant and the Tenant's architect/space planner and make its best efforts to complete the Base Building Work by the 15th day of July, 1999. If the Landlord does not complete the Landlord's Base Building Work as aforesaid then the Tenant may, but shall not be obligated to, complete such work at its cost and set-off such costs against Rent payable hereunder provided that; (a) the terms and conditions of subsection 8.1 shall apply; and -17- (b) such Tenant's costs are reasonable and represent the lowest of three (3) arms-length bids, copies of which are to be provided to the Landlord together with such other documents that the Landlord may reasonably request for verification of such costs. 21.1 Cancellation. The Tenant shall have the right to cancel this Lease concurrently with any proper and valid cancellation of the lease dated the 19th day of May, 1999 between the Landlord and the Tenant in respect of Strata Lots 2, 46, 47 and 48 comprising a portion of the lands pursuant to subsection 21.6 of that lease. The parties hereto have executed this Lease on the day and year first above written. 356535 B.C. LTD. by its ) Authorized Signatory(ies): ) ) ) /s/ ) - ----------------------------- ) Authorized Signatory ) ) ) - ----------------------------- ) Authorized Signatory ) ) MILINX MARKETING GROUP INC. by its ) Authorized Signatory(ies): ) ) - ----------------------------- ) Authorized Signatory ) ) ) - ----------------------------- ) Authorized Signatory ) 21.3 Right of First Refusal to Lease or Purchase Suites 200, 201, 204, 205, 207, 304, 504, 505, 701, 702 and 703 - 1080 Howe Street Vancouver, B.C. -18- EX-10.2 7 0007.txt LEASE THIS INDENTURE made the 19th day of May, 1999. BETWEEN: 356535 B.C. LTD.. having an office at #902 - 1080 Howe Street, Vancouver, British Columbia V6Z 2Tl (hereinafter called the "Landlord") OF THE FIRST PART AND: MILINX MARKETING GROUP INC. of #901,1080 Howe Street, Vancouver, British Columbia (hereinafter called the "Tenant") OF THE SECOND PART WITNESS that in consideration of the rents, covenants and agreements hereinafter reserved and contained on the part of the Tenant (and the indemnitor, if any) to be paid, observed and performed, the Landlord hereby demises and leases unto the Tenant the Premises hereinafter described, all on the terms, conditions and covenants as hereinafter set forth. 1. DEFINITIONS 1.1 In this Lease: (a) "Base Building Work" means installation of the standard Building t-bar ceiling, light fixtures, sprinklers, HVAC (including heat pumps and ducting), and window blinds and, to the extent that such work pertains to the ground floor, shall include installation of 208 volt service; (b) "Building" means the building of which the Premises form a part; (c) "Commencement Date" means the later of: (i) the first day of July, 1999; and (ii) the day following the expiry of the Fixturing Period. (d) "Deposit" means the deposit described in subsection 3.3. (e) "Fixturing Period" means the period commencing the 15th day of May, 1999 and ending on the 15th day of July, 1999, provided that such period may be extended up to the 31 st day of July, 1 999 upon written notice to the Landlord from the Tenant; (f) "Landlord's 8th Floor Suites" means those portions of the Lands known as suite nos. 802, 803, 804, 805 and 806, 1080 Howe Street, being Strata Lots 41, 42, 43, 44 and 45, respectively; (g) "Lands" means those lands and premises situate in the City of Vancouver, Province of British comprising District Lot 541, Strata Plan LMS1608; -1- (h) "Lease Year" means each twelve (12) consecutive calendar month period commencing on the 1st day of the month following the Commencement Date; (i) "Operating Expenses" means those operating expenses described in subsection 4.1 hereof; (j) "Premises" means those portions of the Lands at 1080 Howe Street known as: A. shop A, being Strata Lot 2 ('Shop A"); B. suite no. 901, being a portion of Strata Lot 46 as outlined in red on the plan attached hereto as Schedule "A" ("Suite No. 901"); C. suite no. 902, being Strata Lot 47 together with a portion of Strata Lot 46 and Strata Lot 48 as outlined in red on the plan attached hereto as Schedule 'A" ('Suite No. 902'); and D. suite-no. 903, being a portion of Strata Lot 48 as outlined in red on the plan attached hereto as Schedule "A" (Suite No. 903") comprising six thousand three hundred and fifty-six (6,356) rentable square feet; (k) "Rent" the term "rent" used herein shall include basic rent as set forth in subsections 3.1 and 17.1, Operating Expenses and additional rent as set forth in subsection 4.4; and (l) "Term" means the period of Five (5) years commencing on the Commencement Date. 1.2 Interpretation. Where required, the singular number shall be deemed to include the plural and the neuter gender shall include the masculine or feminine. Where there is more than one Tenant, they shall be jointly and severally bound to the fulfillment of their obligations hereunder. 1.3 Severability. If any one or more of the provisions contained in this Agreement Should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of such provision or provisions shall not in any way be affected or impaired thereby in any other jurisdiction and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby in any other jurisdiction and the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby; 1.4 Included Words. Words importing the singular include the plural and vice-versa, and words importing gender include all genders. 1.5 Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions whether oral or written, of the parties and there are no warranties, representations or other agreements between the parties in connection with the subject matter hereof except as specifically set forth herein. 1.6 Headings. The section and subsection headings are included solely for convenience, are not intended to be full or accurate descriptions of the content, or to be considered part of this Agreement. 1.7 Cross-references. Unless otherwise stated, all references in this Agreement to a designated "section", "subsection" or other subdivision is to the designated section, subsection or other subdivision of this Agreement. -2- 1.8 Currency. Unless otherwise indicated, all dollar amounts referred to in this Agreement are in Canadian funds. 1.9 Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia, and the laws of Canada applicable therein, and will be treated in all respects as a British Columbia contract. 2. TERM 2.1 The Landlord leases the Premises to the Tenant for and during the Term, unless sooner terminated as hereinafter provided. 3. BASIC RENT 3.1 Basic Rent. The Tenant shall pay throughout the Term, without deduction, setoff or abatement, to the Landlord at the address of the Landlord specified herein or to such other place as the Landlord may direct in writing from time to time, annual basic rent, commencing on the Commencement Date, payable in advance on the first day of each month by way of equal monthly installments as follows: Basic Rent Per Square Year(s) Foot Per Annum Annual Monthly Of Term Triple Net Basic Rent Basic Rent - ------- ---------------- ----------- ---------- 1-2 $ 11.00 $69,916.00 $5,826.33 3 $ 11.50 $73,094.00 $6,091.17 4-5 $ 12.00 $76,272.00 $6,356.00 3.2. Adjustments. In the event that the Commencement Date is not the first day of the month, or in the event the Lease expires or is determined on a date other than the last day of the month, the rent payable hereunder shall be adjusted accordingly. 3.3 Deposit. The Landlord acknowledges being in receipt of a damage and security deposit (the "Deposit") from the Tenant in the amount of Twenty Thousand Dollars ($20,000.00), which sum the Landlord will hold without interest and apply against the Rent due together with Goods and Services Tax thereon in respect of the last two (2) months of the Term, provided that: (a) the Tenant has not committed any default under the Lease prior to the time of such application; (b) the Premises are not damaged and are left in a condition satisfactory to the Landlord upon the expiration or termination of this Lease; and (c) the Tenant has not failed to vacate the Premises at the proper time. If any of the foregoing has occurred, the Landlord shall be entitled (without prejudice to any other rights and remedies available to it) to use, retain or apply all or part of the Deposit for the payment of any rent which the Tenant has not paid when due or as compensation on account of any loss or damage arising from the breach or default by the Tenant of any provision of this Lease. If the Landlord uses, retains or applies all or part of the Deposit for a purpose other than payment of the aforesaid months' Rent plus Goods and Services Tax, -3- then the Tenant will, forthwith upon demand, pay to the Landlord the amount required to restore the Deposit to its original amount. 4. ADDITIONAL PAYMENTS 4.1 Definition of Operating Expenses. "Operating Expenses" shall mean and include all expenses incurred and payable in connection with the ownership, operation, maintenance, repair and management of the Premises and the improvements thereon and, without restricting the generality of the foregoing, shall include: (a) all taxes, rates and assessments, whether general or special, levied or assessed for municipal, school or other purposes, or levied or assessed by any lawful government authority for such purposes with respect to the said Premises, but excluding taxes on income or profits; (b) the cost of insurance which the Landlord may obtain in respect of the Premises, and any deductible amount up to a maximum of One Thousand ($1,000.00) Dollars applicable to any claim made by the Landlord under such insurance; (c) maintenance fees, assessments, management fees and all other charges and expenses charged by the Strata Corporation including but not limited to such charges for repairing, operating and maintaining the Building and the equipment servicing the Building and of all replacements and modifications to the Building and such equipment, including those made in order to comply with laws or regulations affecting the Building or the Premises but excluding any special assessments levied by the Strata Corporation in respect of repairs to the Building or the Building's structural walls, roof, plumbing, heating and ventilation systems, or exterior; (d) all ordinary costs and expenses of the Landlord for repairing, operating and maintaining the Premises and the equipment servicing the Premises; and (e) any and all license fees and taxes imposed in connection with the occupancy of the Premises or with the particular business of the Tenant or in connection with any form of equipment or machinery used by the Tenant in the Premises. 4.2 Payment of Operating Expenses. The Tenant shall pay one hundred (100%) percent of the Operating Expenses. The amount of Operating Expenses and other additional rent which the Tenant is to pay under this Lease shall be estimated by the Landlord for the Lease Year and the Tenant shall pay 1/12th of such estimated amount and monthly installments in advance on the first day of each and every month throughout the Term. Notwithstanding the foregoing, if the Landlord is required to prepay any amount which it is entitled to collect in whole or in part from the Tenant, including, but not limited to, the expenses referred to in subsection 4.1 (a), or if the Landlord is required to pay any such amount more frequently and required as at the commencement date of the Term then the Tenant shall pay to the Landlord such amount calculated in accordance with this Lease forth with upon demand. Within ninety (90) days after the end of each Lease Year the Landlord shall furnish to the Tenant a statement of the actual costs upon which the Operating Expenses and additional rent are calculated. If the amount payable by the Tenant as shown on the statement is greater or less than the Operating Expenses and additional rent paid by the Tenant then the amount refundable to the Tenant or due and payable to the Landlord, as the case may be, shall be made within fourteen (14) days after delivery of the statement. 4.3 Net Lease. Except as may be otherwise provided herein with regard to structural and other capital repairs to the Building which are to be the Landlord's costs hereunder, the parties hereto agree that it is their purpose, intent and agreement that the rent herein shall be -4- absolutely net to the Landlord so that this Lease shall yield net to the Landlord the rent free of any charges, assessments, impositions or deductions of any kind and without abatement, deduction or setoff and under no other circumstances or conditions, whether now existing or hereafter arising or whether beyond the present contemplation of the parties, shall the Landlord be required to make any payments of any kind whatsoever, or be under any obligation or liability hereunder. All costs, expenses and other obligations of every kind and nature whatsoever relating to the premises including additional rent shall be paid by the Tenant (except as herein expressly set forth). 4.4 Additional Rent. Without prejudice to any of the remedies of the Landlord herein, any money payable by the Tenant to the Landlord hereunder, whether defined as rent or otherwise, shall be deemed to be rent, shall be paid as additional rent, shall be collectible as rent and, unless otherwise provided in this Lease, shall be payable either on demand or when stated herein to be due or if not so stated and arising from payments made by the Landlord, then same shall be due and be paid with the monthly instalment of rent following the date that payment was made by the Landlord. 4.5 Rent Arrears. Any rent not paid on the due date shall, without prejudice to any of the rights of the Landlord arising from such breach, bear interest at the prime rate of interest charged by the Hongkong Bank of Canada on commercial loans to its most credit worthy customers in Canada plus five (5%) percent per annum from such due date until paid. 4.6 GST. Notwithstanding any other provision of this Lease, the Tenant shall pay to the Landlord an amount equal to any and all Goods and Services Tax at the full tax rate applicable from time to time in respect of the rent payable and property taxes of the Premises pursuant to this Lease. The amount of Goods and Services Tax so payable by the Tenant shall be calculated by the Landlord in accordance with the applicable legislation and shall be paid to the Landlord at the same time as the amounts to which such Goods and Services Tax apply. The amount payable by the Tenant under this subsection shall be deemed not to be rent, but the Landlord shall have all of the same remedies for and rights of recovery of such amount as it has for recovery of rent under this Lease. 5. USE OF THE PREMISES 5.1 Nature of Business. The Tenant shall use the Premises continuously throughout the Term for the purpose of a business office including internet system development and telecom related purposes only or, in respect of Shop A, for printing and light production (but subject to compliance with all applicable governmental laws, bylaws and regulations and specifically not for retail) and for no other purposes without the prior written consent of the Landlord, which consent the Landlord may arbitrarily withhold in its sole discretion and, subject to the provisions of section 12 hereof, shall not permit any part of the Premises to be used or occupied by any person other than the Tenant, its employees and invitees. 5.2 Business Name. The Tenant will conduct business on or from the Premises under the name of "Milinx Marketing Group" and the names of the Tenant's affiliated companies. 6. TENANT'S COVENANTS THE TENANT COVENANTS WITH THE LANDLORD: 6.1 Rent. To pay rent and to pay all sums payable herein as additional rent, without any abatement, setoff, compensation or deduction whatsoever. -5- 6.2 Utility Charges. To pay promptly all charges for gas, water and sewer, electricity, telephone service, fuel and other utilities supplied to or used by the Tenant or consumed in or on the Premises. 6.3 Overloading Utility Facilities. Not to install equipment in or on the Premises that may exceed or overload the capacity of utility facilities. 6.4 Overloading Floors. Not to place in or on the Premises any safe, heavy equipment or other heavy item, which may exceed the specifications for the Building relating to bearing loads, without obtaining the prior written consent of the Landlord. 6.5 Maintenance. To pay all charges for the operation and maintenance of all equipment, facilities and services, including lighting, mechanical and heating and air conditioning facilities, and of all computer and telecommunications equipment and services, and all charges for re-lamping of light fixtures within the Premises. 6.6 Glass. To restore forthwith at the Tenant's expense and with glass of the same colour and quality, any broken or damaged glass on the Premises. 6.7 Metering. At its own expense, if requested by the Landlord, to install separate meters to record the rate of consumption of the utilities described in subsection 6.2 hereof. 6.8 Repairs. To maintain and keep in good repair, at its own expense, the Premises including any leasehold improvements and all trade fixtures therein, the store front, all glass and utilities and all heating, air-conditioning and ventilating equipment therein, save and except for structural defects and for maintenance and repairs that are the responsibility of the Strata Corporation, and to forthwith repair the Premises according to notice given in writing by the Landlord or its agents where such repairs are the Tenants responsibility hereunder. 6.9 Entry to Inspect. To permit the Landlord, its agents or employees at all reasonable times and at any time in the case of an emergency, to enter and view the state of repair and to repair the Premises according to notice given in writing as provided in subsection 6.8 hereof, to the extent of the obligations of the Tenant as herein provided. 6.10 Condition of Premises. To keep the Premises free of rubbish and debris at all times and to provide proper receptacles for waste and rubbish. 6.11 Waste and Nuisance. Not to do, suffer or permit any act or neglect which may in any manner, directly or indirectly, cause injury or damage to the Premises or to the Building or to any equipment therein, or to any fixtures or appurtenances thereof or which may be or become a nuisance or interference to any of the occupants of the Building or which may, in the opinion of the Landlord, render the Building or any part thereof less desirable or injure the reputation thereof as a first class building. 6.12 Hazardous Materials. To ensure that the Tenant, its agents, employees and contractors shall not use, manufacture, store or dispose of any flammable explosives, hazardous or toxic wastes or materials, or other similar substances on, under or about the Premises or the Building. 6.13 Rules and Regulations of the Landlord. To ensure that the Tenant and its servants, employees and agent shall observe faithfully and comply strictly with such reasonable rules and regulations as the Landlord may from time to time adopt. Written notice of any additional rules and regulations shall be given to the Tenant. Nothing in this Lease contained shall be construed to impose upon the Landlord any duty or obligation to enforce the rules and regulations, or the terms, covenants or conditions in any other lease against any other tenant -6- or occupant of the Building and the Landlord shall not be liable to the Tenant for violation of the same by any other occupant or tenant, its servants, employees, agents, visitors or licensees. 6.14 Signs. Not to paint, display, inscribe, place or affix any sign, fixture, advertisement, notice, lettering or direction on any part of the outside of the Building or the Premises or which would be visible from the outside the Building or the Premises without the Landlord's prior written consent, which consent the Landlord may arbitrarily withhold in its sole discretion. 6.15 Show Premises. During the last six (6) months of the Term to permit a notice "To Let" to be put and remain on the Premises in a conspicuous position and to permit the Landlord or its agents to exhibit the Premises to prospective tenants during normal business hours and to exhibit the Premises for the purposes of the Landlord's own financing, refinancing and to exhibit the Premises to any prospective purchaser of the Building or of the Landlord's interest therein but not so as to cause any undue interference of the Tenant's business. 6.16 Insurance. To obtain and maintain throughout the Term and any extension or renewal thereof, at the expense of the Tenant, but for the common benefit of the Landlord and the Tenant: (a) comprehensive general public liability (including bodily injury, death and property damage) insurance on an occurrence basis with respect to the business carried on, or in or from the Premises and the Tenant's use and occupancy thereof of not less than Three Million ($3,000,000.00) Dollars; and (b) all risk direct damage insurance upon its fixtures, improvements and all parts of the Premises which the Tenant is obligated to repair under subsections 6.6 and 6.8 hereof, to the full replacement value thereof, and broad boiler insurance on any boiler in the Premises; and each insurance referred in subsections 6.16(a) and (b) shall include the Landlord as a named insured as its interest may appear, and shall protect the Landlord in respect of claims by the Tenant as if the Landlord were separately insured; and all insurance required to be maintained by the Tenant hereunder shall be on terms and with insurers to which the Landlord has no reasonable objection and shall provide that such insurers shall provide to the Landlord thirty (30) days prior written notice of cancellation or material alteration of such terms. The Tenant shall furnish to the Landlord certificates or other evidence acceptable to the Landlord as to the insurance from time to time required to be effected by the Tenant and its renewal or continuation in force. If the Tenant shall fail to take out, renew and keep in force such insurance, the Landlord may do so as the agent of the Tenant and the Tenant shall repay to the Landlord any amounts paid by the Landlord as premiums forthwith upon demand. If any policy of insurance upon the Building or the Premises or any part thereof shall be cancelled by the insurer by reason of the use or occupation of the Premises or any part thereof by the Tenant or by anyone permitted by the Tenant to be on or in the Premises, the Landlord may, at its option, determine this Lease forthwith by leaving upon the Premises notice in writing of its intention to do so and thereupon rent and any other payments for which the Tenant is liable under this Lease shall be paid in full to the date of such determination, and the Tenant shall immediately deliver up possession of the Premises to the Landlord and the Landlord may re-enter and take possession of the Premises. 6.17 Invalidation of Insurance. Not to do or permit anything to be done whereby any policy of insurance on the Building or the Premises or any part thereof may become void Dr voidable or whereby the premium thereon may be increased other than the ordinary course of business as permitted under paragraph 5.1. -7- 6.18 Notice of Defects. To give the Landlord immediate notice in case of fire or accident or malfunctioning of any of the mechanical or electrical systems in the Premises or in the Building of which the Tenant or its employees may be aware. The Tenant covenants and agrees that the Landlord shall at all times be at liberty to approve of and permit the erection or placement of signs and advertisements by other tenants in the Building of which the Premises herein form a part on the exterior of the said Building. 6.19 Governmental Regulations. To abide by and comply with all bylaws, building codes, rules and regulations of any federal, provincial, municipal or other governmental authority which in any manner relate to or affect the Premises and the conduct of the Tenant's business thereon and to indemnity and save harmless the Landlord from any costs, charges and damage which the Landlord may incur or suffer by reason of the breach of any such bylaw, building code, rule or regulation. 6.20 Indemnity. To indemnity the Landlord and save it harmless from any and all liability, damage, cost, claims, and causes of action whatsoever arising from any breach or violation by the Tenant of any of the Tenant's covenants or obligations under this Lease or from the use and occupation of the Premises by the Tenant hereunder, its employees, agents, customers, contractors or other invitees, licensees or concessionaires or by anyone permitted by the Tenant to be on the Premises, or from the Tenant's failure to abide by and comply with all laws, rules and regulations of every municipal or other authority which in any manner may relate to or affect the business conducted on or the use of the Premises by the Tenant. 6.21 Peaceful Surrender. At the expiration of the Term or any extension or renewal thereof, or upon sooner termination of this Lease, to peaceably surrender and yield up to the Landlord the Premises in good and substantial condition and repair. 7. LANDLORD'S COVENANTS 7.1 THE LANDLORD COVENANTS WITH THE TENANT: 7.1 Quiet Environment. For quiet enjoyment. 7.2 Repairs. The Landlord shall use its best efforts to cause the Strata Corporation to repair and maintain the Building and the structure of the Premises and all systems and equipment servicing the Premises, subject to section 10. 8. IMPROVEMENTS 8.1 Alterations. The Tenant agrees not to make any alterations, additions or improvements in or to the Premises without obtaining the Landlord's prior written consent, such consent not to be unreasonably withheld. The Tenant shall provide the Landlord with all drawings, specifications and other information required by the Landlord in respect of such proposed work and shall reimburse the Landlord for any costs incurred in respect of professional consultants retained by the Landlord to assist with the Landlord's assessment of such proposed work. All such work shall be done only by contractors or tradesmen or mechanics approved in writing by the Landlord and at the Tenant's sole expense and at such time and in such manner as the Landlord may approve. No alterations, additions or improvements shall be made to the Premises without the Tenant first obtaining all necessary permits (including building permits) and said alterations, additions or improvements shall be carried out diligently and in a timely and workmanlike manner until all necessary final approvals are obtained including final inspections from all requisite departments of the City of Vancouver. 8.2 Intentionally Deleted. -8- 8.3 Builders Lien. The Tenant shall indemnify and save the Landlord harmless from and against all claims which may arise pursuant to the Builders Lien Act of British Columbia as it may from time to time be amended in respect of any materials or services supplied in respect to the Premises and the Tenant shall forthwith remove any builders liens placed against the lands of which the Premises form a part and the Tenant shall allow the Landlord to post and to keep posted on the Premises any notice which the Landlord may wish to post under the provisions of the said Builders Lien Act. 8.4 Tenant's Chattels. All articles of personal property and all furniture, business and trade fixtures, and machinery and equipment, owned or installed by the Tenant at the expense of the Tenant in the Premises shall remain the property of the Tenant and may be removed by the Tenant at its expense, provided that the Tenant shall repair any damage to the Premises or the Building caused by the removal of same and further provided that if the Tenant does not remove such property forthwith after written demand by the Landlord, such property shall, if the Landlord elects, be deemed to become the property of the Landlord or the Landlord may remove the same at the expense of the Tenant, in which case the cost of such removal shall be paid by the Tenant forthwith to the Landlord on demand and the Landlord shall not be responsible for any loss or damage to such property because of such removal. 8.5 Fixturing Period. During the Fixturing Period the Tenant may occupy the Premises jointly with the Landlord and the Landlord's contractor and agents and shall not be responsible for Basic Rent and Additional Rent hereunder, except that the Tenant shall be responsible for the utility costs separately metered or charged in respect of the Premises and shall be bound by all other terms of this Lease from the date of first occupancy of the Premises by the Tenant for the purpose of fixturing the Premises. Notwithstanding the foregoing, the Tenant shall only be entitled to occupy Suite No. 902 once the Landlord has vacated same and the Tenant shall be responsible for Rent hereunder for the period commencing from the date of such vacating to the expiry of the Fixturing Period. 8.6 Completion of the Premises. The Tenant shall be responsible for all work required by the Tenant to complete the Premises for occupancy including the installation of all telephone, computer and special communications equipment, wiring and fixtures. Any work for which the Tenant is responsible shall be designed, performed and completed subject to the Landlord's approval, not to be unreasonably withheld, it being agreed that such work shall be completed within the Fixturing Period. 8.7 Failure to Open for Business. If the Tenant fails to open the Premises for business fully fixtured, stocked and staffed by the expiry of the Fixturing Period then the Landlord, in addition to the remedies herein provided, may terminate this Lease upon not less than thirty (30) days notice to the Tenant unless the Tenant opens for business fully fixtured, stocked and staffed before the expiration of the notice. 9. LIMITATIONS ON LANDLORDS LIABILITY 9.1 General Limitation of Liability. The Landlord shall not be responsible for any damage which may be caused nor shall the Tenant be entitled to claim any diminution of rent or other compensation should it become advisable, in the sole discretion of the Landlord, to stop, or if there is otherwise a stoppage in, the operation of any heating apparatus or any air conditioning apparatus or any electric or water service, or any of the engines, boilers or machinery pertaining thereto but in such case the Landlord shall use its best efforts to recommence any such operations as may have been affected and the Landlord shall not be liable for any damage which may be caused to the Tenant or to the employees of the Tenant as a result of such stoppages. The Landlord shall not be liable for any damage in or upon the Premises, arising from any reason or cause whatsoever, including any default or neglect -9- by the Strata Corporation relating to its responsibilities as a strata corporation, or for any personal injuries sustained by the Tenant, its officers or employees or other persons, or for any property loss howsoever occurring and the Tenant shall have no right to diminution of rent in any of such cases; and, without restricting the generality of the foregoing, the Landlord shall not be liable for any injury or damage to person or property resulting from fire, explosion, failing plaster, steam, gas, electricity, water, rain, or snow or leaks from any part of the Building, or from pipes, appliances or plumbing works or from the roof, street or subsurface or from any other place or by dampness or for any such injury or damage by any cause of whatsoever nature. 9.2 Interruptions. The Landlord does not warrant that any service or facility provided by it hereunder will be free from interruption caused or required by maintenance, repairs, renewals, modifications, strikes, riots, insurrections, labour controversies, accidents, fuel shortages, government intervention, force majeure, act of God or other cause or causes beyond the Landlord's reasonable care and control. No such interruption shall be deemed an eviction or disturbance of the Tenant's enjoyment of the Premises nor render the Landlord liable in damages to the Tenant nor relieve the parties from their obligations under this Lease. 9.3 No Representations. The Tenant acknowledges having made its own independent investigation of the Premises and of the Building and as to the condition of same and as to the laws, by-laws and regulations which affect the operation of any business in the Premises and the Tenant states that in entering into this Lease it has not relied on any representations or promises as to these or other matters by the Landlord and states that there are no representations, warranties or conditions other than those expressed in this Lease and no agreement collateral hereto shall be binding upon the Landlord unless made in writing and signed by or on behalf of the Landlord. 10. DAMAGE TO OR DESTRUCTION OF THE PREMISES 10.1 Damage and Repair. In the event that the Premises or the Building are damaged by fire or other casualty so as to render the Premises partially or wholly unfit for occupancy then: (a) if the damage cannot be repaired in the opinion of the Landlord's architect within one hundred twenty (120) days after the date thereof, the Landlord may terminate this Lease as of the said date, by notice to the Tenant within thirty (30) days after such damage and, in that case, the Tenant shall immediately surrender the Premises to the Landlord and shall pay rent accrued to the date on which the said damage occurred but shall not be entitled to any damages or compensation; (b) if the damage can be repaired in the opinion of the Landlord's architect within one hundred twenty (120) days after the date thereof or if the Landlord shall not have given notice of termination pursuant to the provisions of subsection 10.1(a) hereof, the Landlord shall, or the Tenant, or both, as the case may be (according to the nature of the damage and their respective obligations to repair), forthwith commence and carry out with due diligence the repair thereof, and this Lease shall continue in full force and effect. In the event of substantial damage to the Building such that the Strata Corporation resolves not the rebuild the Building then, notwithstanding the foregoing, this Lease shall be terminated as of the date of the damage and, in that case, the Tenant shall immediately surrender the Premises to the Landlord and shall pay rent accrued to the date on which the said damage occurred but shall not be entitled to any damages or compensation. -10- 10.2 Abatement of Rent. Unless the damage under subsection 10.1(b) is caused by the negligence of the Tenant or its assignee, sublessee, concessionaire, licensee, or officer, employee, customer or other invitee of any of them, the rent payable under this Lease shall abate proportionately, having regard to such part of the Premises as have been rendered unfit for occupancy, until the repairs which are the obligation of the Landlord have been completed. 11. EXPROPRIATION 11.1 If the Building shall be acquired or condemned by any authority having the power for such acquisition or condemnation, for any public or quasi-public use or purpose, then and in that event the Term of this Lease shall cease from the date of entry by such authority. If only a portion of the Building shall be so acquired or condemned but affecting Premises, this Lease shall cease and terminate at the Landlord's option and, if such option is not exercised by the Landlord, an equitable adjustment of rent, payable by the Tenant for the remaining portion of the Premises, shall be made. In either event, however, and whether all or only a portion of the Building shall be so acquired or condemned, nothing herein contained shall prevent the Landlord or the Tenant or both from recovering damages from such authority for the value of their respective interests or for such other damages and expenses as are allowed by law. 12. ASSIGNMENT AND SUBLETTING 12.1 Prohibition on Assignment and Subletting. The Tenant shall not assign, sublet, grant any right of occupancy of all or part of the Premises or grant or permit any charge or encumbrance against the Premises or the Tenant's interest therein without the Landlord's prior consent in writing, which consent shall not be unreasonably withheld, provided that the Tenant has not defaulted in payment of any Rent under this Lease and is not in default under this Lease at the time of the request for consent and that no such assignment, subletting or grant for which such consent has been provided shall in any manner release the Tenant from any covenant to be observed or performed by it hereunder. The Tenant acknowledges that it shall be reasonable for the Landlord to consider, among other things, the responsibility, reputation, financial standing and business of the proposed assignee, sublessee or grantee. Any such assignment, sublease or grant relating to this Lease if consented to by the Landlord will be prepared by the Landlord or its solicitors, and all legal costs of its preparation will be paid by the Tenant. Notwithstanding the foregoing, provided that the Tenant has not defaulted under this Lease, the Tenant shall be entitled to assign or sublet all or a portion of the Premises to any company that is non-arm's length to the Tenant, without the Landlord's consent, upon written notice to the Landlord. 12.2 No Waiver and Implications of Failure to Obtain Consent. The consent by the Landlord to an assignment or subletting will not constitute a waiver of its consent to a subsequent assignment or subletting. This prohibition against assignment or subletting includes a prohibition against an assignment or subletting by operation of law. If this Lease is assigned, or if all or part of the Premises is sublet or occupied by anybody other than the Tenant, in any case without the consent of the Landlord when required, the Landlord may collect rent from the assignee, subtenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, sublease, occupancy or collection will be considered a waiver of this covenant, or the acceptance of the subtenant or occupant as tenant. 12.3 Change in Control. In the event that the Tenant is a corporation and if after the date of the execution of this Lease the shares of the Tenant are transferred by sale, assignment, bequest, inheritance, operation of law or other disposition, or issued by subscription or allotment, or cancelled or redeemed, so as to result in a change in the effective voting or other control of the Tenant, or if other steps are taken to accomplish such a change in -11- control, then the Tenant will promptly notify the Landlord in writing of the change in control the same will be considered to be an assignment of this Lease to which section 12.1 applies. This paragraph shall not apply in the event that the Tenant has its voting shares publicly trading on any stock exchange. 13. CERTIFICATE, ATTORNMENT AND SUBORDINATION 13.1 Certificate as to Lease. The Tenant shall from time to time, and within ten (10) days of receiving request from the Landlord, execute and deliver to any proposed purchaser or proposed or existing mortgagee of the Premises, a certificate acknowledging the following: (a) the Tenant is in possession of the Premises; (b) this Lease is in full force and effect and unamended, or if the same has been amended, specifying such amendments; (c) the Landlord is not currently in default under any term, condition or covenant required to be performed by the Landlord hereunder, or if the Landlord is in default under any one or more of such terms, conditions or covenants, specifying the nature of each such default; (d) the date to which the rents hereunder have been paid; (e) the amount of any deposit hereunder; (f) and there is no right of setoff against any rents due hereunder. 13.2 Attornment. The Tenant shall, it requested to do so by the Landlord, agree with any mortgagee of the whole or any portion of the Premises to attorn to and become the tenant of such mortgagee if the mortgagee shall become a mortgagee in possession, if such mortgagee shall agree that so long as the Tenant pays the rent and observes and performs the covenants and provisos herein contained on its part to be performed, the Tenant shall be entitled to hold, occupy and enjoy the Premises, subject to any rights the mortgagee may have as a lessor, free from any interference by the mortgagee or any person claiming by or through the mortgagee. 13.3 Subordination. This Lease shall be deemed to be subordinate to any charge or mortgage, including any deeds of trust and mortgages and all indentures supplemental thereto, which now or hereafter during the Term affect or relate to the Premises and all modifications or renewals thereof. The Tenant agrees to execute promptly from time to time any assurance which the Landlord may require to confirm this subordination and hereby constitutes the Landlord, the agent or attorney of the Tenant for the purpose of executing any such assurance and of making application at any time and from time to time to register the postponement of this Lease in favour of any such mortgage or charge in order to give effect thereto, provided that such mortgage or charge shall permit the Tenant to continue in quiet possession of the Premises in accordance with the terms and conditions of this Lease so long as the Tenant is not in default hereunder whether such mortgage or charge is in good standing or not. 14. DEFAULT 14.1 Re-entry. If and whenever the rent hereby reserved or any additional rent as herein described or any part thereof, whether the same are lawfully demanded or not, is not paid when due, or if the Tenant (or the Indemnitor, if any) shall violate or neglect any other covenant, agreement or stipulation herein contained on its part to be kept, performed or observed for a period of seven (7) days after notice thereof from the Landlord, or if the Premises shall become vacated or remain unoccupied for fifteen (15) days, then the -12- Landlord, in addition to any other remedy now or hereafter provided by law. r-nay at its option and without notice terminate this Lease forthwith and re-enter and take possession of the Premises immediately by force if necessary, and may remove all persons and property therefrom and may use such force and assistance in making such removal as the Landlord may deem advisable to recover at once full and exclusive possession of the Premises and such re-entry shall not operate as a waiver or satisfaction in whole or in part of any right, claim or demand arising out of or connected with any breach or violation by the Tenant of any covenant or agreement on its part to be performed or observed. 14.2 Bankruptcy. If the Term hereby granted or any of the goods or chattels of the Tenant or the Indemnitor shall be at any time seized in execution or attachment by a creditor of the Tenant (or the Indemnitor, if any) or if the Tenant (or the Indemnitor, if any) shall make an assignment for the benefit of creditors or a bulk sale or become bankrupt or insolvent or take the benefit of any Act now or hereafter in force for bankrupt or insolvent debtors, or if the Tenant (or the Indemnitor, if any) is a corporation and an order shall be made for the winding up of the Tenant or any Indemnitor, as the case may be, or other termination of its corporate existence, then this Lease shall, at the option of the Landlord, cease and determine and the Term shall immediately become forfeit and the then current month's rent and the next ensuing three (3) months' rent shall immediately become due and payable and the Landlord may re-enter and take possession of the Premises as though the Tenant or other occupants of the Premises were holding over after the expiration of the Term without any right whatever. 14.3 Right to Relet. If the Landlord re-enters, as herein provided, it may either terminate this Lease or it may from time to time without terminating the Tenant's obligations under this Lease, make alterations and repairs considered by the Landlord necessary to facilitate a reletting, and relet the Premises or any part thereof as agents of the Tenant for such term or terms and at such rental or rentals and upon such other terms and conditions as the Landlord in its reasonable discretion considers advisable. Upon each reletting all rent and other monies received by the Landlord from the reletting will be applied, firstly to the payment of indebtedness other than rent due hereunder from the Tenant to the Landlord, secondly to the payment of costs and expenses of the reletting including brokerage fees and solicitor's fees and costs of the alterations and repairs, and thirdly to the payment of rent due and unpaid hereunder. The residue, if any, will be held by the Landlord and applied in payment of future rent as it becomes due and payable. If rent received from the reletting during a month is less than the rent to be paid during that month by the Tenant, the Tenant will pay the deficiency to the Landlord. The deficiency will be calculated and paid monthly. No re-entry by the Landlord will be construed as an election on its part to terminate this Lease unless a written notice of that intention is given to the Tenant. Despite a reletting without termination, the Landlord may elect at any time to terminate this Lease for a previous breach. If the Landlord terminates this Lease for any breach, in addition to other remedies it may recover from the Tenant all damages it incurs by reason of the breach including the cost of recovering the Premises, reasonable legal fees and the worth at the time of termination of the excess, if any, of the amount of rent and charges equivalent to the rent reserved in this Lease for the remainder of the Term over the then reasonable rental value of the Premises for the remainder of the Term, all of which amounts immediately will be due and payable by the Tenant to the Landlord. In determining the rent which would be payable by the Tenant after default, the annual rent for each year of unexpired Term will be equal to the averaged fixed basic rent paid or payable by the Tenant from the beginning of the Term to the time of default, or during the preceding three (3) full calendar years, whichever period is shorter. 14.4 Distress. If the Landlord shall be entitled to levy distress against the goods and chattels of the Tenant, it may use such force as it may deem necessary for the purpose and for gaining admission to the Premises without being liable to any action in respect thereof or for any loss or damage occasioned thereby and the Tenant hereby expressly releases the Landlord from -13- all actions, proceedings, claims or demands whatsoever for or on account or in respect of any such forcible entry or any loss or damage sustained by the Tenant in connection therewith. 14.5 Performing Tenant's Obligations. If the Tenant fails to perform an obligation of the Tenant under this Lease, the Landlord may perform the obligation and for that purpose may enter upon the Premises without notice and do such things upon or in respect of the Premises as the Landlord considers necessary. The Tenant will pay as additional rent all expenses incurred by or on behalf of the Landlord under this subsection plus ten (10%) percent for overhead upon presentation of a bill therefor. The Landlord will not be liable to the Tenant for loss or damages resulting from such action by the Landlord. 14.6 Landlord's Expenses Enforcing Lease. In the event that it shall be necessary for the Landlord to retain the services of a lawyer or bailiff or any other proper person for the purpose of assisting the Landlord in enforcing any of its rights hereunder, the Landlord shall be entitled to collect from the Tenant the cost of all such services incurred by the Landlord as if the same were rent reserved and in arrears hereunder. 15. CONDOMINIUM ACT PROVISIONS. 15.1 Interpretation. In this section 15 and where used elsewhere in this Lease, the following words shall have the following meanings: (a) "Condominium Act" means the Condominium Act, R.S.B.C., 1996, Chapter 64 and any amendments and successor legislation thereto; (b) "Strata Corporation" means the Strata Corporation created pursuant to the Condominium Act with respect to the Building; (c) "By-laws' means the by-laws of the Strata Corporation in force under the Condominium Act as amended by the Strata Corporation from time to time; (d) "Rules and Regulations" means the rules and regulations of the Strata Corporation from time to time; (e) "Owner" means owner as that term is defined in the Condominium Act, (f) "Strata Lot" means a strata lot as that term is defined in the Condominium Act. 15.2 Tenant's Obligations. Notwithstanding any other provision of this Lease, the Tenant hereby agrees as follows: (a) to comply with the Condominium Act and the By-laws and Rules and Regulations; (b) at the time of execution of this Lease, to deliver to the Landlord an executed Form 'D' under the Condominium Act with respect to the Premises; (c) to promptly pay to the Landlord as additional rent the amount of all regular monthly strata maintenance fees which may be levied by the Strata Corporation from time to time during the Term against the Landlord as Owner of the Premises, provided that the Tenant shall have no obligation to pay for special assessments; and (d) that if, pursuant to the Condominium Act, a Form "B" thereunder is registered against title to the Premises the Tenant shall within ten (10) days after receipt of notice thereof obtain and file a discharge of the Form 'B" from title to the Premises. -14- 15.3 No Assignment as Owner. Nothing herein contained shall be construed or deemed to be an assignment by the Landlord to the Tenant of any of the Landlord's rights and powers as Owner of the Premises. 15.4 Strata Corporation. The Landlord and the Tenant agree that the provisions contained in this Lease shall be subject to and deemed to be modified as required to comply with the terms of the Condominium Act, the By-laws and Rules and Regulations to reflect the fact that the Premises comprise a strata lot of which the Landlord is Owner and that certain payments and obligations of the Landlord hereunder may in fact be made or performed by the Strata Corporation. Where any payments to be made or obligations to be performed or which may be made or performed by the Landlord hereunder are in fact made or performed by the Strata Corporation the Landlord shall be deemed to have fulfilled its obligations hereunder and any corresponding repayment or obligations of the Tenant may thereafter be made to or performed for the benefit of the Strata Corporation where any obligations to be performed by the Landlord hereunder are obligations of the Strata Corporation under the Condominium Act or the Bylaws or the Rules and Regulations, the Landlord's obligation shall be interpreted as meaning that the Landlord shall use its best efforts to cause the Strata Corporation to perform such obligations. 16. RENEWAL 16.1 Provided that, and for so long as the Tenant pays the Rent and performs each and every of the covenants, conditions and agreements in the Lease reserved and contained and on the part of the Tenant to be paid and performed and is not and has not been in default in respect of any of the same and there has been no adverse change of any sort in the Tenant's financial condition or capacity the Landlord will, upon the request in writing by the Tenant given at least six (6) months and not more than twelve (12) months prior to the expiration of the Term (the "Notice Period"), grant to the Tenant a renewal lease of the Premises for one (1) further term of five (5) years upon and subject to the covenants, conditions and agreements as are set forth in the Landlord's standard form of lease for the Building then in use, save and except that the renewal lease shall not contain any provision for further renewal and the annual basic rent shall be the market rate for similar premises of similar size, use and location one hundred twenty (120) days prior to the expiry date of this Lease, without deduction of allowance for or consideration of any tenant inducements, leasehold improvement allowances, rent free periods, lease takeovers, turnkey or "build-to-suit" arrangements or other concession or inducement offered of given by landlords to achieve such rental (the "New Annual Basic Rent"). If requested by the Tenant during the Notice Period, the Landlord will provide the Tenant with a copy of its standard form of lease for the Building then in use. The New Annual Basic Rent shall be mutually agreed to by the Landlord and the Tenant at least ninety (90) days prior to the expiration of the Term, and failing agreement shall be determined by three (3) accredited real estate brokers (the 'Three Experts") at least thirty (30) days prior to the expiration of the Term, which experts shall be familiar with rental rates in the area of the Premises, one of whom shall be appointed by the Landlord (the "Landlord's Expert') and all costs associated with the Landlord's Expert shall be the sole responsibility of the Landlord, and one expert shall be appointed by the Tenant (the "Tenant's Expert") and all costs associated with the Tenant's Expert shall be the sole responsibility of the Tenant. The appointment of the third expert (the "Third Expert") shall be agreed upon by the Landlord's Expert and the Tenant's Expert and 50% of costs attributable to the Third Expert shall be borne by the Tenant and the remaining 50% of costs attributable to the Third Expert shall be borne by the Landlord. Together the Three Experts, acting reasonably, shall make the final determination of the New Annual Basic Rent and should the Three Experts be unable to agree among themselves on the determination, the opinion of the majority, being two (2) of the Three Experts, shall be final and binding on the Landlord and -15- Tenant. The determination of the New Annual Basic Rent shall be considered an arbitration pursuant to the Commercial Arbitration Act of British Columbia. 16.2 In the event that the New Annual Basic Rent is determined by the Three Experts pursuant to subsection 16.1, such New Annual Basic Rent shall apply to the first and second years of the renewal term, the annual basic rent in respect of the third year of the renewal term shall be Fifty (.50) Cents per square foot higher than the annual basic rent in effect during the second year of the renewal term and the annual basic rent in respect of the fourth and fifth years of the renewal term shall be Fifty (.50) Cents per square foot higher than the annual basic rent in effect during the third year of the renewal term. 17. OVERHOLDING 17.1 If the Tenant shall continue to occupy the Premises after the expiration of the renewal term which may be granted hereby and the Landlord shall accept rent, the new tenancy thereby created shall be deemed to be a monthly tenancy with the basic rent equal to one hundred and twenty-five percent (125%) of the basic monthly rent for the last month of the Term and shall be otherwise subject to the covenants and conditions including additional rent and Goods and Services Tax in this Lease insofar as the same are applicable to a tenancy from month to month. 18. WAIVER 18.1 The failure of the Landlord or the Tenant to insist upon strict performance of any covenant or condition contained in the Lease or in the rules and regulations attached hereto shall not be construed as a waiver or relinquishment in the future of any such covenant, condition or rules and regulations. The acceptance of any rent or the performance of any obligations hereunder by a person other than the Tenant shall not be construed as an admission by the Landlord of any right, title or interest of such person as a subtenant, assignee, transferee or otherwise in the place and stead of the Tenant. All rights and remedies of the Landlord in this Lease contained shall be cumulative and not alternative. 19. NOTICES Notice. 19.1 Any notice, waiver or other communication required or permitted to be given hereunder shall be in writing and signed by or on behalf of such party and shall be given to the other party by delivery thereto, or by sending by prepaid registered mail, telex, facsimile, telegram or cable to the address of the other party as hereinbefore set forth or to such other address of which notice is given, and any notice shall be deemed not to have been sufficiently given until it is received. Any notice or other communication contemplated herein shall be deemed to have been received on the day delivered, if delivered, on the fourth business day following the mailing thereof, if sent by registered mail, and the second business day following the transmittal thereof, if sent by telex, facsimile, telegram or cable. If normal mail, telex, facsimile, telegram or cable service shall be interrupted by strike, slowdown, force major or other cause, the party sending the notice shall utilize any of the such services which have not been so interrupted or shall deliver such notice in order to ensure prompt receipt of same by the other party. 20. MISCELLANEOUS 20.1 Amendment. No alteration, amendment, change or addition to this Lease will be binding upon the Landlord and the Tenant unless in writing and signed by the parties hereto. 20.2 Time of the Essence. Time is of the essence of this Lease and each provision hereof. -16- 20.3 No Registration. This Lease or any notice hereof or any caution or other instrument indicating an interest in the Premises by virtue of this Lease shall not be executed in registerable form nor registered against the title to the Premises. 20.4 Further Assurances. Each of the parties hereby covenants and agrees to execute any further and other documents and instruments and to do any further and other things that may be necessary to implement and carry out the intent of this Agreement. 20.5 Successors and Assigns. This Agreement shall enure to the benefit of and be binding upon the parties hereto, their respective heirs, executors, administrators, successors and permitted assigns. 21. ADDITIONAL PROVISIONS 21.1 Parking. The Landlord shall make available to the Tenant throughout the Term and any renewal thereof the use of up to ten (10) designated parking stalls in the underground parking of the Building at the prevailing market rental rates in effect from time to time, provided that the Tenant notifies the Landlord, in writing, of its parking requirements at least two (2) months in advance. Any additional parking stalls required by the Tenant would be subject to availability and at prevailing market rental rates. 21.2 Right of First Refusal to Lease Portion of Eighth Floor. Provided that the Tenant has not defaulted in payment of any Rent under this Lease and is not in default under this Lease, if at any time during the Term or any renewal term the Landlord receives an acceptable written offer from a third party (the "Third-Party Offer') to lease all or any of the Landlord's 8th Floor Suites, the Landlord shall notify the Tenant in writing stating the terms of the Third-Party Offer (the "Notice") and the Tenant shall have the right to lease the space referred to in the Third-Party Offer upon the same terms and conditions as are contained in the Third-Party Offer, provided that the Tenant must exercise such right by written notice to the Landlord within three (3) business days after the date of receipt of the Notice save and except that, notwithstanding the terms and conditions of the Third-Party Offer: (a) the Landlord shall be responsible for completing the Base Building Work in respect of the subject space; (b) upon completion of the Base Building Work the Tenant shall have a two (2) month Fixturing period, during which time the Tenant shall not be responsible for Rent but shall be responsible for the utility costs separately metered or charged in respect of the subject space and shall be bound by all other terms of the Landlord's then current form of lease from the date of first occupancy of the subject space by the Tenant for the purposes of Fixturing the subject space; and (c) the commencement date of the term in respect of the lease for the subject space shall be the day following the expiry of the aforesaid Fixturing period. If the Tenant shall fail to exercise such right as aforesaid then the Tenant's right of first refusal to lease the space referred to in the Third-Party Offer thereupon shall terminate. Notwithstanding that the Tenant does not exercise its right of first refusal in respect of any space referred to in a Third-Party Offer, the Tenant's right of first refusal in respect of any subsequent offer to lease any of the balance of the Landlord's 8th Floor Suites shall continue throughout the Term and any renewal term. 21.3 Landlord's Base Building Work. The Landlord shall be responsible for completing the Base Building Work in respect of the Premises (with the exception of Suite No. 902) and the installation of the heat pump unit in Suite No. 903. The Landlord shall work in conjunction with the Tenant and the Tenant's architect/space planner and make its best efforts to -17- complete the Base Building Work by the 15th day of May, 1999. If the Landlord does not complete the Landlord's Base Building Work as aforesaid then the Tenant may, but shall not be obligated to, complete such work at its cost and set-off such costs against Rent payable hereunder provided that: (a) the terms and conditions of subsection 8.1 shall apply; and (b) such Tenant's costs are reasonable and represent the lowest of three (3) arms-length bids, copies of which are to be provided to the Landlord together with such other documents that the Landlord may reasonably request for verification of such costs. 21.4 Suite No. 902. To compensate the Landlord for the existing improvements to Suite No. 902, the Tenant shall pay to the Landlord the following sums: (a) Ten Thousand ($1 0,000.00) Dollars upon execution of this Lease; (b) Thirty Thousand ($30,000.00) Dollars upon the later of the 31st day of May, 1999 and the Landlord vacating Suite No. 902; and (c) Twenty Thousand ($20,000.00) Dollars within ninety (90) days after the Landlord has vacated Suite No. 902. 21.5 Option to Lease Portion of Eighth Floor. Subject to any of the Landlord's 8th Floor Suites having been leased or agreed to be leased to another tenant as contemplated under subsection 21.2, the Tenant shall have the right to lease the Landlord's 8th Floor Suites upon the following terms and conditions: (a) the Tenant may provide written notice to the Landlord at any time during the initial Term of this Lease advising of which of the Landlord's 8th Floor Suites it would like to lease (the "Additional 8th Floor Suite"), wherefore the Landlord shall be responsible for completing the Base Building Work in respect thereof. Notwithstanding the foregoing, the Tenant shall be obligated to give notice to lease one (1) of the Landlord's 8th Floor Suites within ninety (90) days after the Landlord has vacated Suite No. 902 as contemplated under subsection 21.4; (b) upon the Landlord commencing the Base Building Work in respect of the Additional 8th Floor Suite the Tenant shall pay the Landlord, as a contribution to the cost of such work, the following sum (plus any applicable GST): $20,000 x square footage of Additional 8th Floor Suite square footage of all of Building's 8th floor Strata Lots (c) the terms and conditions of the lease for the Additional 8th Floor Suite shall be the same terms and conditions as are contained in the Landlord's then current form of lease, subject to the following: (i) the Tenant shall have a two (2) month Fixturing period commencing upon the completion of the Landlord's Base Building Work in respect of the Additional 8th Floor Suite during which period the Tenant shall not be responsible for Rent hereunder, but shall be responsible for the utility costs separately metered or charged in respect of the Additional 8th Floor Suite and shall be bound by all other terms of lease from the date of first occupancy of the Additional 8th Floor Suite for the purposes of fixturing; 6435.136@000 -18- (ii) the term shall commence upon the earlier of the expiry of the Fixturing period referred to in subsection 21.5(c)(1) and the term shall end on the same day as the termination of this Lease; (iii)the basic rent per square foot for each year or part of a year shall equal the rent per square foot being charged from time to time under this Lease (for example, if the term of the lease in respect of the Additional 8th Floor Suite commences eighteen (1 8) months into the Term of this Lease then the rate per square foot under the lease shall be $1 1.00 for the first 6 months and $11.50 for the next 12 months; (iv) the lease shall have the same right of renewal as in this Lease; (v) a deposit shall be held against the last two (2) months' Rent and shall be equal to: $20,000 x square footage of Additional 8th Floor Suite square footage of all of the Building's 8th floor Strata Lots (d) the deposit referred to in subsection 21.5(c)(v) shall be paid to the Landlord upon the earlier of the execution of the lease and the Tenant first taking occupancy of the Additional 8th Floor Suite for the purposes of fixturing. 21.6 Cancellation. The Tenant shall have the right to cancel this Lease (which would also include any lease made pursuant to subsection 21.5) at any time during the 3rd, 4th and 5th years of the initial Term by way of providing at least three (3) months prior written notice together with a payment to the Landlord delivered with such notice in the amount of Sixty Thousand ($60,000.00) Dollars (plus any applicable GST). 21.7 Shop A. The Tenant acknowledges that all common areas must be kept clear and agrees not to use the area in front of Shop A for storage or packaging purposes and to keep such area clear at all times. 21.8 Lobby Renovation. Upon the written request from the Landlord at any time during the Term of this Lease or any renewal thereof, the Tenant shall surrender that portion of Shop A indicated as the cross-hatched area on the plan attached as Schedule 'B', being approximately ninety (90) square feet of rental area on the ground floor, for the purpose of the Landlord's renovation of the lobby. Upon making such written request: (a) the Tenant shall vacate the subject area within thirty (30) days of receiving such request; (b) the Landlord shall be responsible for constructing a new demising wall, at the Landlord's cost, to define the new rental area of Shop A and for installing utility grade double doors or an oversized single door from the lobby to Shop A; and (c) the Rent shall be adjusted in accordance with the reduced area of the Premises. 2.9 Card Reader. The Landlord agrees to request the Strata Corporation of the Building to install an electronic security card reader in the elevators of the Building as and when required by the Tenant and the Tenant acknowledges that the basis of such request and installation will be that the Tenant shall pay all costs for such installation and ongoing repairs thereto. 21.10Special Signage. The Landlord agrees to request the Strata Corporation of the Building to approve the installation of a pedestal sign bearing the Tenant's name to be placed outside of -19- the Building fronting Howe Street and the Tenant acknowledges that the basis of such request and installation will be that the Tenant shall pay ail costs for such installation and ongoing repairs thereto and the Tenant further acknowledges that the design and location of any such signage shall require the approval of the Landlord which approval shall not be unreasonably withheld. The parties hereto have executed this Lease on the day and year first above written. 356535 B.C. LTD. by its Authorized Signatory(ies): /s/ - ----------------------------- Authorized Signatory - ----------------------------- Authorized Signatory MILINX MARKETING GROUP, INC. by Its Authorized Signatory(ies): /s/ - ----------------------------- Authorized Signatory - ----------------------------- Authorized Signatory -20- EX-10.3 8 0008.txt LEASE THIS INDENTURE made the 1st day of August, 1999. BETWEEN: CHUNG PING CHENG and YUEH CHUN WU, 6790 Grant Place, Burnaby, British Columbia V5B 4X2 (hereinafter called the "Landlord") OF THE FIRST PART AND: MILINX MARKETING GROUP INC. of Suite No. 900 - 1080 Howe Street, Vancouver, British Columbia (hereinafter called the "Tenant") OF THE SECOND PART WITNESS that in consideration of the rents, covenants and agreements hereinafter reserved and contained on the part of the Tenant (and the Indemnitor, if any) to be paid, observed and performed, the Landlord hereby demises and leases unto the Tenant the Premises hereinafter described, all on the terms, conditions and covenants as hereinafter set forth. 1. DEFINITIONS 1.1 In this Lease: (a) "Base Building Work" means installation of the standard Building t-bar ceiling, light fixtures, sprinklers, HVAC (including heat pumps and ducting) and window blinds; (b) "Building" means the building of which the Premises form a part; (C) "Commencement Date" means the earlier of: (i) the date upon which the Tenant first carries on business in the Premises; and (ii) sixty (60) days after the Landlord completes the Base Building Work;; (d) "Deposit" means the deposit described in subsection 3.3. (e) "Fixturing Period" means the period commencing the date upon which the Landlord completes the Base Building Work and ending on the day prior to the Commencement Date; (f) "Lands" means those lands and premises situate in the City of Vancouver, Province of British comprising District Lot 541, Strata Plan LMS 1608; -1- (g) "Lease Year" means each twelve (12) consecutive calendar month commencing on the 1st day of the month following the Commencement Date; (h) "Operating Expenses" means those operating expenses described in subsection 4.1 hereof; (i) "Premises" means that portion of the Lands known as suite no. 801 - 1080 Howe Street, being Strata Lot 40, comprising one thousand two hundred and eighty-two (1,282) rentable square feet; (j) "Rent" the term "rent" used herein shall include basic rent as set forth in subsections 3.1 and 17.1, Operating Expenses and additional rent as set forth in subsection 4.4; and (k) "Term" means the period commencing on the Commencement Date and ending on the 30th day of June, 2004. 1.2 Interpretation. Where required, the singular number shall be deemed to include the plural and the neuter gender shall include the masculine or feminine. Where there is more than one Tenant, they shall be jointly and severally bound to the fulfillment of their obligations hereunder. 1.3 Severability. If any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of such provision or provisions shall not in any way be affected or impaired thereby in any other jurisdiction and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby in any other jurisdiction and the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby; 1.4 Included Words. Words importing the singular include the plural and vice-versa, and words importing gender include all genders. 1.5 Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions whether oral or written, of the parties and there are no warranties, representations or other agreements between the parties in connection with the subject matter hereof except as specifically set forth herein. 1.6 Headings. The section and subsection headings are included solely for convenience, are not intended to be full or accurate descriptions of the content, or to be considered part of this Agreement. 1.7 Cross-references. Unless otherwise stated, all references in this Agreement to a designated "section", "subsection" or other subdivision is to the designated section, subsection or other subdivision of this Agreement. 1.8 Currency. Unless otherwise indicated, all dollar amounts referred to in this Agreement are in Canadian funds. -2- 1.9 Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia, and the laws of Canada applicable therein, and will be treated in all respects as a British Columbia contract. 2. TERM 2.1 The Landlord leases the Premises to the Tenant for and during the Term, unless sooner terminated as hereinafter provided. 3. BASIC RENT BasicRent. The Tenant shall pay throughout the Term, without deduction, setoff or abatement, to the Landlord at the address of the Landlord specified herein or to such other place as the Landlord may direct in writing from time to time, basic rent, commencing on the Commencement Date, payable in advance on the first day of each month by way of equal monthly installments as follows: Basic Rent Per Square Period Foot Per Annum Period Monthly of Term Triple Net Basic Rent Basic Rent -------------- --------------------- ---------- ---------- Commencement $11.00 To be To be Date to June 30, Calculated Calculated 2001 July 1, 2001- $11.50 $14,743.00 $1,228.58 June 30, 2002 July 1, 2002- $12.00 $30,768.00 $1,282.00 June 30, 2004 3.2 Adjustments. In the event that the Commencement Date is not the first day of the month, or in the event the Lease expires or is determined on a date other than the last day of the month, the rent payable hereunder shall be adjusted accordingly. 3.3 Deposit. The Landlord acknowledges being in receipt of a damage and security deposit (the "Deposit") from the Tenant in the amount of Four Thousand Two Hundred Sixty-Two ($4,262.00) Dollars, which sum the Landlord will hold without interest and apply against the Rent due together with Goods and Services Tax thereon in respect of the last two (2) months of the Term, provided that: (a) the Tenant has not committed any default under the Lease prior to the time of such application; (b) the Premises are not damaged and are left in a condition satisfactory to the Landlord upon the expiration or termination of this Lease; and (c) the Tenant has not failed to vacate the Premises at the proper time. If any of the foregoing has occurred, the Landlord shall be entitled (without prejudice to any other rights and remedies available to it) to use, retain or apply all or part of the Deposit for -3- the payment of any rent which the Tenant has not paid when due or as compensation on account of any loss or damage arising from the breach or default by the Tenant of any provision of this Lease. If the Landlord uses, retains or applies all or part of the Deposit for a purpose other than payment of the aforesaid months' Rent plus Goods and Services Tax, then the Tenant will, forthwith upon demand, pay to the Landlord the amount required to restore the Deposit to its original amount. 4. ADDITIONAL PAYMENTS 4.1 Definition of Operating Expenses. "Operating Expenses" shall mean and include all expenses incurred and payable in connection with the ownership, operation, maintenance, repair and management of the Premises and the improvements thereon and, without restricting the generality of the foregoing, shall include: (a) all taxes, rates and assessments, whether general or special, levied or assessed for municipal, school or other purposes, or levied or assessed by any lawful government authority for such purposes with respect to the said Premises, but excluding taxes on income or profits; (b) the cost of insurance which the Landlord may obtain in respect of the Premises, and any deductible amount up to a maximum of One Thousand ($1,000.00) Dollars applicable to any claim made by the Landlord under such insurance; (C) maintenance fees, assessments, management fees and all other charges and expenses charged by the Strata Corporation including but not limited to such charges for repairing, operating and maintaining the Building and the equipment servicing the Building and of all replacements and modifications to the Building and such equipment, including those made in order to comply with laws or regulations affecting the Building or the Premises but excluding any special assessments levied by the Strata Corporation in respect of repairs to the Building or the Building's structural walls, roof, plumbing, heating and ventilation systems, or exterior; (d) all ordinary costs and expenses of the Landlord for repairing, operating and maintaining the Premises and the equipment servicing the Premises; and (e) any and all license fees and taxes imposed in connection with the occupancy of the Premises or with the particular business of the Tenant or in connection with any form of equipment or machinery used by the Tenant in the Premises. 4.2 Payment of Operating Expenses. The Tenant shall pay one hundred (100%) percent of the Operating Expenses. The amount of Operating Expenses and other additional rent which the Tenant is to pay under this Lease shall be estimated by the Landlord for the Lease Year and the Tenant shall pay 1/12th of such estimated amount and monthly installments in advance on the first day of each and every month throughout the Term. Notwithstanding the foregoing, if the Landlord is required to prepay any amount which it is entitled to collect in whole or in part from the Tenant, including, but not limited to, the expenses referred to in subsection 4.1(a), or if the Landlord is required to pay any such amount more frequently and required as at the commencement date of the Term then the Tenant shall pay to the Landlord such amount calculated in accordance with this Lease forth with upon demand. Within ninety (90) days after the end of each Lease Year the Landlord shall furnish to the Tenant a statement of the actual costs upon which the Operating Expenses and additional rent are -4- calculated. If the amount payable by the Tenant as shown on the statement is greater or less than the Operating Expenses and additional rent paid by the Tenant then the amount refundable to the Tenant or due and payable to the Landlord, as the case may be, shall be made within fourteen (14) days after delivery of the statement. 4.3 Net Lease. Except as may be otherwise provided herein with regard to structural and other capital repairs to the Building which are to be the Landlord's costs hereunder, the parties hereto agree that it is their purpose, intent and agreement that the rent herein shall be absolutely net to the Landlord so that this Lease shall yield net to the Landlord the rent free of any charges, assessments, impositions or deductions of any kind and without abatement, deduction or setoff and under no other circumstances or conditions, whether now existing or hereafter arising or whether beyond the present contemplation of the parties, shall the Landlord be required to make any payments of any kind whatsoever, or be under any obligation or liability hereunder. All costs, expenses and other obligations of every kind and nature whatsoever relating to the premises including additional rent shall be paid by the Tenant (except as herein expressly set forth). 4.4 Additional Rent. Without prejudice to any of the remedies of the Landlord herein, any money payable by the Tenant to the Landlord hereunder other than basic rent, whether defined as rent or otherwise, shall be deemed to be rent, shall be paid as additional rent, shall be collectible as rent and, unless otherwise provided in this Lease, shall be payable either on demand or when stated herein to be due or if not so stated and arising from payments made by the Landlord, then same shall be due and be paid with the monthly instalment of rent following the date that payment was made by the Landlord. 4.5 Rent Arrears. Any rent not paid on the due date shall, without prejudice to any of the rights of the Landlord arising from such breach, bear interest at the prime rate of interest charged by the Hongkong Bank of Canada on commercial loans to its most credit worthy customers in Canada plus five (5%) percent per annum from such due date until paid. 4.6 GST. Notwithstanding any other provision of this Lease, the Tenant shall pay to the Landlord an amount equal to any and all Goods and Services Tax at the full tax rate applicable from time to time in respect of the rent payable and property taxes of the Premises pursuant to this Lease. The amount of Goods and Services Tax so payable by the Tenant shall be calculated by the Landlord in accordance with the applicable legislation and shall be paid to the Landlord at the same time as the amounts to which such Goods and Services Tax apply. The amount payable by the Tenant under this subsection shall be deemed not to be rent, but the Landlord shall have all of the same remedies for and rights of recovery of such amount as it has for recovery of rent under this Lease. 5. USE OF THE PREMISES 5.1 Nature of Business. The Tenant shall use the Premises continuously throughout the Term for the purpose of a business office only (including internet system development and telecom related purposes) and for no other purposes without the prior written consent of the Landlord, which consent the Landlord may arbitrarily withhold in its sole discretion and, subject to the provisions of section 12 hereof, shall not permit any part of the Premises to be used or occupied by any person other than the Tenant, its employees and invitees. -5- 5.2 Business Name. The Tenant will conduct business on or from the Premises under the name of "Milinx Marketing Group" and the names of the Tenant's affiliated companies. 6. TENANT'S COVENANTS THE TENANT COVENANTS WITH THE LANDLORD: 6.1 Rent. To pay rent and to pay all sums payable herein as additional rent, without any abatement, setoff, compensation or deduction whatsoever. 6.2 Utility Charges. To pay promptly all charges for gas, water and sewer, electricity, telephone service, fuel and other utilities supplied to or used by the Tenant or consumed in or on the Premises. 6.3 Overloading Utility Facilities. Not to install equipment in or on the Premises that may exceed or overload the capacity of utility facilities. 6.4 Overloading Floors. Not to place in or on the Premises any safe, heavy equipment or other heavy item, which may exceed the specifications for the Building relating to bearing loads, without obtaining the prior written consent of the Landlord. 6.5 Maintenance. To pay all charges for the operation and maintenance of all equipment, facilities and services, including lighting, mechanical and heating and air conditioning facilities, and of all computer and telecommunications equipment and services, and all charges for re-lamping of light fixtures within the Premises. 6.6 Glass. To restore forthwith at the Tenants expense and with glass of the same colour and quality, any broken or damaged glass on the Premises. 6.7 Metering. At its own expense, if requested by the Landlord, to install separate meters to record the rate of consumption of the utilities described in subsection 6.2 hereof. 6.8 Repairs. To maintain and keep in good repair, at its own expense, the Premises including any leasehold improvements and all trade fixtures therein, the store front, all glass and utilities and all heating, air-conditioning and ventilating equipment therein, save and except for structural defects and for maintenance and repairs that are the responsibility of the Strata Corporation, and to forthwith repair the Premises according to notice given in writing by the Landlord or its agents where such repairs are the Tenants responsibility hereunder. 6.9 Entry to Inspect. To permit the Landlord, its agents or employees at all reasonable times and at any time in the case of an emergency, to enter and view the state of repair and to repair the Premises according to notice given in writing as provided in subsection 6.8 hereof, to the extent of the obligations of the Tenant as herein provided. 6.10 Condition of Premises. To keep the Premises free of rubbish and debris at all times and to provide proper receptacles for waste and rubbish. 6.11 Waste and Nuisance. Not to do, suffer or permit any act or neglect which may in any manner, directly or indirectly, cause injury or damage to the Premises or to the Building or to any equipment therein, or to any fixtures or appurtenances thereof or which may be or -6- become a nuisance or interference to any of the occupants of the Building or which may, in the opinion of the Landlord, render the Building or any part thereof less desirable or injure the reputation thereof as a first class building. 6.12 Hazardous Materials. To ensure that the Tenant, its agents, employees and contractors shall not use, manufacture, store or dispose of any flammable explosives, hazardous or toxic wastes or materials, or other similar substances on, under or about the Premises or the Building. 6.13 Rules and Regulations of the Landlord. To ensure that the Tenant and its servants, employees and agent shall observe faithfully and comply strictly with such reasonable rules and regulations as the Landlord may from time to time adopt. Written notice of any additional rules and regulations shall be given to the Tenant. Nothing in this Lease contained shall be construed to impose upon the Landlord any duty or obligation to enforce the rules and regulations, or the terms, covenants or conditions in any other lease against any other tenant or occupant of the Building and the Landlord shall not be liable to the Tenant for violation of the same by any other occupant or tenant, its servants, employees, agents, visitors or licensees. 6.14 Signs. Not to paint, display, inscribe, place or affix any sign, fixture, advertisement, notice, lettering or direction on any part of the outside of the Building or the Premises or which would be visible from the outside the Building or the Premises without the Landlord's prior written consent, which consent the Landlord may arbitrarily withhold in its sole discretion. 6.15 Show Premises. During the last six (6) months of the Term to permit a notice "To Let" to be put and remain on the Premises in a conspicuous position and to permit the Landlord or its agents to exhibit the Premises to prospective tenants during normal business hours and to exhibit the Premises for the purposes of the Landlord's own financing, refinancing and to exhibit the Premises to any prospective purchaser of the Building or of the Landlord's interest therein but not so as to cause any undue interference of the Tenant's business. 6.16 Insurance. To obtain and maintain throughout the Term and any extension or renewal thereof, at the expense of the Tenant, but for the common benefit. of the Landlord and the Tenant: (a) comprehensive general public liability (including bodily injury, death and property damage) insurance on an occurrence basis with respect to the business carried on, or in or from the Premises and the Tenants use and occupancy thereof of not less than Three Million ($3,000,000.00) Dollars; and (b) all risk direct damage insurance upon its fixtures, improvements and all parts of the Premises which the Tenant is obligated to repair under subsections 6.6 and 6.8 hereof, to the full replacement value thereof, and broad boiler insurance on any boiler in the Premises; and each insurance referred in subsections 6.16(a) and (b) shall include the Landlord as a named insured as its interest may appear, and shall protect the Landlord in respect of claims by the Tenant as if the Landlord were separately insured; and all insurance required to be maintained by the Tenant hereunder shall be on terms and with insurers to which the Landlord has no reasonable objection and shall provide that such insurers shall provide to the Landlord thirty (30) days prior written notice of cancellation or material alteration of such -7- terms. The Tenant shall furnish to the Landlord certificates or other evidence acceptable to the Landlord as to the insurance from time to time required to be effected by the Tenant and its renewal or continuation in force. If the Tenant shall fail to take out, renew and keep in force such insurance, the Landlord may do so as the agent of the Tenant and the Tenant shall repay to the Landlord any amounts paid by the Landlord as premiums forthwith upon demand. If any policy of insurance upon the Building or the Premises or any part thereof shall be cancelled by the insurer by reason of the use or occupation of the Premises or any part thereof by the Tenant or by anyone permitted by the Tenant to be on or in the Premises, the Landlord may, at its option, determine this Lease forthwith by leaving upon the Premises notice in writing of its intention to do so and thereupon rent and any other payments for which the Tenant is liable under this Lease shall be paid in full to the date of such determination, and the Tenant shall immediately deliver up possession of the Premises to the Landlord and the Landlord may re-enter and take possession of the Premises. 6.17 Invalidation of Insurance. Not to do or permit anything to be done whereby any policy of insurance on the Building or the Premises or any part thereof may become void or voidable or whereby the premium thereon may be increased other than in the ordinary course of business as permitted under subsection 5.1. 6.18 Notice of Defects. To give the Landlord immediate notice in case of fire or accident or malfunctioning of any of the mechanical or electrical systems in the Premises or in the Building of which the Tenant or its employees may be aware. The Tenant covenants and agrees that the Landlord shall at all times be at liberty to approve of and permit the erection or placement of signs and advertisements by other tenants in the Building of which the Premises herein form a part on the exterior of the said Building. 6.19 Governmental Regulations. To abide by and comply with all bylaws, building codes, rules and regulations of any federal, provincial, municipal or other governmental authority which in any manner relate to or affect the Premises and the conduct of the Tenant's business thereon and to indemnify and save harmless the Landlord from any costs, charges and damage which the Landlord may incur or suffer by reason of the breach of any such bylaw, building code, rule or regulation. 6.20 Indemnity. To indemnify the Landlord and save it harmless from any and all liability, damage, cost, claims, and causes of action whatsoever arising from any breach or violation by the Tenant of any of the Tenants covenants or obligations under this Lease or from the use and occupation of the Premises by the Tenant hereunder, its employees, agents, customers, contractors or other invitees, licensees or concessionaires or by anyone permitted by the Tenant to be on the Premises, or from the Tenant's failure to abide by and comply with all laws, rules and regulations of every municipal or other authority which in any manner may relate to or affect the business conducted on or the use of the Premises by the Tenant. 6.21 Peaceful Surrender. At the expiration of the Term or any extension or renewal thereof, or upon sooner termination of this Lease, to peaceably surrender and yield up to the Landlord the Premises in good and substantial condition and repair. -8- 7. THE LANDLORD COVENANTS WITH THE TENANT: 7.1 Quiet Enjoyment. For quiet enjoyment. 7.2 Repairs. The Landlord shall use its best efforts to cause the Strata Corporation to repair and maintain the Building and the structure of the Premises and all systems and equipment servicing the Premises, subject to section 10. 8. IMPROVEMENTS 8.1 Alterations. The Tenant agrees not to make any alterations, additions or improvements in or to the Premises without obtaining the Landlord's prior written consent, such consent not to be unreasonably withheld. The Tenant shall provide the Landlord with all drawings, specifications and other information required by the Landlord in respect of such proposed work and shall reimburse the Landlord for any costs incurred in respect of professional consultants retained by the Landlord to assist with the Landlord's assessment of such proposed work. All such work shall be done only by contractors or tradesmen or mechanics approved in writing by the Landlord and at the Tenant's sole expense and at such time and in such manner as the Landlord may approve. No alterations, additions or improvements shall be made to the Premises without the Tenant first obtaining all necessary permits (including building permits) and said alterations, additions or improvements shall be carried out diligently and in a timely and workmanlike manner until all necessary final approvals are obtained including final inspections from all requisite departments of the City of Vancouver. 8.2 Intentionally Deleted. 8.3 Builders Lien. The Tenant shall indemnify and save the Landlord harmless from and against all claims which may arise pursuant to the Builders Lien Act of British Columbia as it may from time to time be amended in respect of any materials or services supplied in respect to the Premises and the Tenant shall forthwith remove any builders liens placed against the lands of which the Premises form a part and the Tenant shall allow the Landlord to post and to keep posted on the Premises any notice which the Landlord may wish to post under the provisions of the said Builders Lien Act. 8.4 Tenants Chattels. All articles of personal property and all furniture, business and trade fixtures, and machinery and equipment, owned or installed by the Tenant at the expense of the Tenant in the Premises shall remain the property of the Tenant and may be removed by the Tenant at its expense, provided that the Tenant shall repair any damage to the Premises or the Building caused by the removal of same and further provided that if the Tenant does not remove such property forthwith after written demand by the Landlord, such property shall, if the Landlord elects, be deemed to become the property of the Landlord or the Landlord may remove the same at the expense of the Tenant, in which case the cost of such removal shall be paid by the Tenant forthwith to the Landlord on demand and the Landlord shall not be responsible for any loss or damage to such property because of such removal. 8.5 Fixturing Period. During the Fixturing Period the Tenant may occupy the Premises jointly with the Landlord and the Landlord's contractor and agents and shall not be responsible for basic -9- rent and additional rent hereunder, except that the Tenant shall be responsible for the utility costs separately metered or charged in respect of the Premises and shall be bound by all other terms of this Lease from the date of first occupancy of the Premises by the Tenant for the purpose of fixturing the Premises. 8.6 Completion of the Premises. The Tenant shall be responsible for all work required by the Tenant to complete the Premises for occupancy including the installation of all telephone, computer and special communications equipment, wiring and fixtures. Any work for which the Tenant is responsible shall be designed, performed and completed subject to the Landlord's approval, not to be unreasonably withheld, it being agreed that such work shall be completed within the Fixturing Period. 8.7 Failure to Open for Business. If the Tenant fails to open the Premises for business fully fixtured, stocked and staffed by the expiry of the Fixturing Period then the Landlord, in addition to the remedies herein provided, may terminate this Lease upon not less than thirty (30) days notice to the Tenant unless the Tenant opens for business fully fixtured, stocked and staffed before the expiration of the notice. 9. LIMITATIONS ON LANDLORD'S LIABILITY 9.1 General Limitation of Liability. The Landlord shall not be responsible for any damage which may be caused nor shall the Tenant be entitled to claim any diminution of rent or other compensation should it become advisable, in the sole discretion of the Landlord, to stop, or if there is otherwise a stoppage in, the operation of any heating apparatus or any air conditioning apparatus or any electric or water service, or any of the engines, boilers or machinery pertaining thereto but in such case the Landlord shall use its best efforts to recommence any such operations as may have been affected and the Landlord shall not be liable for any damage which may be caused to the Tenant or to the employees of the Tenant as a result of such stoppages. The Landlord shall not be liable for any damage in or upon the Premises, arising from any reason or cause whatsoever, including any default or neglect by the Strata Corporation relating to its responsibilities as a strata corporation, or for any personal injuries sustained by the Tenant, its officers or employees or other persons, or for any property loss howsoever occurring and the Tenant shall have no right to diminution of rent in any of such cases; and, without restricting the generality of the foregoing, the Landlord shall not be liable for any injury or damage to person or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain, or snow or leaks from any part of the Building, or from pipes, appliances or plumbing works or from the roof, street or subsurface or from any other place or by dampness or for any such injury or damage by any cause of whatsoever nature. 9.2 Interruptions. The Landlord does not warrant that any service or facility provided by it hereunder will be free from interruption caused or required by maintenance, repairs, renewals, modifications, strikes, riots, insurrections, labour controversies, accidents, fuel shortages, government intervention, force majeure, act of God or other cause or causes beyond the Landlord's reasonable care and control. No such interruption shall be deemed an eviction or disturbance of the Tenant's enjoyment of the Premises nor render the Landlord liable in damages to the Tenant nor relieve the parties from their obligations under this Lease. -10- 9.3 No Representations. The Tenant acknowledges having made its own independent investigation of the Premises and of the Building and as to the condition of same and as to the laws, by-laws and regulations which affect the operation of any business in the Premises and the Tenant states that in entering into this Lease it has not relied on any representations or promises as to these or other matters by the Landlord and states that there are no representations, warranties or conditions other than those expressed in this Lease and no agreement collateral hereto shall be binding upon the Landlord unless made in writing and signed by or on behalf of the Landlord. 10. DAMAGE TO OR DESTRUCTION OF THE PREMISES 10.1 Damage and Repair. In the event that the Premises or the Building are damaged by fire or other casualty so as to render the Premises partially or wholly unfit for occupancy then: (a) if the damage cannot be repaired in the opinion of the Landlord's architect within one hundred twenty (120) days after the date thereof, the Landlord may terminate this Lease as of the said date, by notice to the Tenant within thirty (30) days after such damage and, in that case, the Tenant shall immediately surrender the Premises to the Landlord and shall pay rent accrued to the date on which the said damage occurred but shall not be entitled to any damages or compensation; (b) if the damage can be repaired in the opinion of the Landlord's architect within one hundred twenty (120) days after the date thereof or if the Landlord shall not have given notice of termination pursuant to the provisions of subsection 10.1(a) hereof, the Landlord shall, or the Tenant, or both, as the case may be (according to the nature of the damage and their respective obligations to repair), forthwith commence and carry out with due diligence the repair thereof, and this Lease shall continue in full force and effect. In the event of substantial damage to the Building such that the Strata Corporation resolves not the rebuild the Building then, notwithstanding the foregoing, this Lease shall be terminated as of the date of the damage and, in that case, the Tenant shall immediately surrender the Premises to the Landlord and shall pay rent accrued to the date on which the said damage occurred but shall not be entitled to any damages or compensation. 10.2 Abatement of Rent. Unless the damage under subsection 10.1(b) is caused by the negligence of the Tenant or its assignee, sublessee, concessionaire, licensee, or officer, employee, customer or other invitee of any of them, the rent payable under this Lease shall abate proportionately, having regard to such part of the Premises as have been rendered unfit for occupancy, until the repairs which are the obligation of the Landlord have been completed. 11. EXPROPRIATION 11.1 If the Building shall be acquired or condemned by any authority having the power for such acquisition or condemnation, for any public or quasi-public use or purpose, then and in that event the Term of this Lease shall cease from the date of entry by such authority. If only a portion of the Building shall be so acquired or condemned but affecting Premises, this Lease shall cease and terminate at the Landlord's option and, if such option is not exercised by the Landlord, an equitable adjustment of rent, payable by the Tenant for the remaining portion of -11- the Premises, shall be made. In either event, however, and whether all or only a portion of the Building shall be so acquired or condemned, nothing herein contained shall prevent the Landlord or the Tenant or both from recovering damages from such authority for the value of their respective interests or for such other damages and expenses as are allowed by law. 12. ASSIGNMENT AND SUBLETTING 12.1 Prohibition on Assignment and Subletting. The Tenant shall not assign, sublet, grant any right of occupancy of all or part of the Premises or grant or permit any charge or encumbrance against the Premises or the Tenants interest therein without the Landlord's prior consent in writing, which consent shall not be unreasonably withheld, provided that the Tenant has not defaulted in payment of any Rent under this Lease and is not in default under this Lease at the time of the request for consent and that no such assignment, subletting or grant for Which such consent has been provided shall in any manner release the Tenant from any covenant to be observed or performed by it hereunder. The Tenant acknowledges that it shall be reasonable for the Landlord to consider, among other things, the responsibility, reputation, financial standing and business of the proposed assignee, sublessee or grantee. Any such assignment, sublease or grant relating to this Lease if consented to by the Landlord will be prepared by the Landlord or its solicitors, and all legal costs of its preparation will be paid by the Tenant. Notwithstanding the foregoing, provided that the Tenant has not defaulted under this Lease, the Tenant shall be entitled to assign or sublet all or a portion of the Premises to any company that is non-arm's length to the Tenant, without the Landlord's consent, upon written notice to the Landlord. 12.2 No Waiver and Implications of Failure to Obtain Consent. The consent by the Landlord to an assignment or subletting will not constitute a waiver of its consent to a subsequent assignment or subletting. This prohibition against assignment or subletting includes a prohibition against an assignment or subletting by operation of law. If this Lease is assigned, or if all or part of the Premises is sublet or occupied by anybody other than the Tenant, in any case without the consent of the Landlord when required, the Landlord may collect rent from the assignee, subtenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, sublease, occupancy or collection will be considered a waiver of this covenant, or the acceptance of the subtenant or occupant as tenant. 12.3 Change in Control. In the event that the Tenant is a corporation and if after the date of the execution of this Lease the shares of the Tenant are transferred by sale, assignment, bequest, inheritance, operation of law or other disposition, or issued by subscription or allotment, or cancelled or redeemed, so as to result in a change in the effective voting or other control of the Tenant, or if other steps are taken to accomplish such a change in control, then the Tenant will promptly notify the Landlord in writing of the change in control the same will be considered to be an assignment of this Lease to which section 12.1 applies. This paragraph shall not apply in the event that the Tenant has its voting shares publicly trading on any stock exchange. 13. CERTIFICATE, ATTORNMENT AND SUBORDINATION Certificate as to Lease. The Tenant shall from time to time, and within ten (10) days of receiving request from the Landlord, execute and deliver to any proposed purchaser or -12- (a) the Tenant is in possession of the Premises; (b) this Lease is in full force and effect and unamended, or if the same has been amended, specifying such amendments; (c) the Landlord is not currently in default under any term, condition or covenant required to be performed by the Landlord hereunder, or if the Landlord is in default under any one or more of such terms, conditions or covenants, specifying the nature of each such default; (d) the date to which the rents hereunder have been paid; (e) the amount of any deposit hereunder; and (f) there is no right of setoff against any rents due hereunder. 13.2 Attornment. The Tenant shall, if requested to do so by the Landlord, agree with any mortgagee of the whole or any portion of the Premises to attorn to and become the tenant of such mortgagee if the mortgagee shall become a mortgagee in possession, if such mortgagee shall agree that so long as the Tenant pays the rent and observes and performs the covenants and provisos herein contained on its part to be performed, the Tenant shall be entitled to hold, occupy and enjoy the Premises, subject to any rights the mortgagee may have as a lessor, free from any interference by the mortgagee or any person claiming by or through the mortgagee. 13.3 Subordination. This Lease shall be deemed to be subordinate to any charge or mortgage, including any deeds of trust and mortgages and all indentures supplemental thereto, which now or hereafter during the Term affect or relate to the Premises and all modifications or renewals thereof. The Tenant agrees to execute promptly from time to time any assurance which the Landlord may require to confirm this subordination and hereby constitutes the Landlord, the agent or attorney of the Tenant for the purpose of executing any such assurance and of making application at any time and from time to time to register the postponement of this Lease in favour of any such mortgage or charge in order to give effect thereto, provided that such mortgage or charge shall permit the Tenant to continue in quiet possession of the Premises in accordance with the terms and conditions of this Lease so long as the Tenant is not in default hereunder whether such mortgage or charge is in good standing or not. 14. DEFAULT 14.1 Re-entry. If and whenever the rent hereby reserved or any additional rent as herein described or any part thereof, whether the same are lawfully demanded or not, is not paid when due, or if the Tenant (or the Indemnitor, if any) shall violate or neglect any other covenant, agreement or stipulation herein contained on its part to be kept, performed or observed for a period of seven (7) days after notice thereof from the Landlord, or if the Premises shall become vacated or remain unoccupied for fifteen (15) days, then the Landlord, in addition to any other remedy now or hereafter provided by law, may at its option and without notice terminate this Lease forthwith and re-enter and take possession of the Premises immediately by force if necessary, and may remove all persons and property therefrom and may use such force and assistance in making such removal as the Landlord may deem advisable to recover at once full and exclusive possession of the Premises and --13-- such re-entry shall not operate as a waiver or satisfaction in whole or in part of any right, claim or demand arising out of or connected with any breach or violation by the Tenant of any covenant or agreement on its part to be performed or observed. 14.2 Bankruptcy. If the Term hereby granted or any of the goods or chattels of the Tenant or the Indemnitor shall be at any time seized in execution or attachment by a creditor of the Tenant (or the Indemnitor, if any) or if the Tenant (or the lndemnitor, if any) shall make an assignment for the benefit of creditors or a bulk sale or become bankrupt or insolvent or take the benefit of any Act now or hereafter in force for bankrupt or insolvent debtors, or if the Tenant (or the lndemnitor, if any) is a corporation and an order shall be made for the winding up of the Tenant or any Indemnitor, as the case may be, or other termination of its corporate existence, then this Lease shall, at the option of the Landlord, cease and determine and the Term shall immediately become forfeit and the then current month's rent and the next ensuing three (3) months' rent shall immediately become due and payable and the Landlord may re-enter and take possession of the Premises as though the Tenant or other occupants of the Premises were holding over after the expiration of the Term without any right whatever. 14.3 Right to Relet. If the Landlord re-enters, as herein provided, it may either terminate this Lease or it may from time to time without terminating the Tenant's obligations under this Lease, make alterations and repairs considered by the Landlord necessary to facilitate a reletting, and relet the Premises or any part thereof as agents of the Tenant for such term or terms and at such rental or rentals and upon such other terms and conditions as the Landlord in its reasonable discretion considers advisable. Upon each reletting all rent and other monies received by the Landlord from the reletting will be applied, firstly to the payment of indebtedness other than rent due hereunder from the Tenant to the Landlord, secondly to the payment of costs and expenses of the reletting including brokerage fees and solicitor's fees and costs of the alterations and repairs, and thirdly to the payment of rent due and unpaid hereunder. The residue, if any, will be held by the Landlord and applied in payment of future rent as it becomes due and payable. If rent received from the reletting during a month is less than the rent to be paid during that month by the Tenant, the Tenant will pay the deficiency to the Landlord. The deficiency will be calculated and paid monthly. No re-entry by the Landlord will be construed as an election on its part to terminate this Lease unless a written notice of that intention is given to the Tenant. Despite a reletting without termination, the Landlord may elect at any time to terminate this Lease for a previous breach. If the Landlord terminates this Lease for any breach, in addition to other remedies it may recover from the Tenant all damages it incurs by reason of the breath including the cost of recovering the Premises, reasonable legal fees and the worth at the time of termination of the excess, if any, of the amount of rent and charges equivalent to the rent reserved in this Lease for the remainder of the Term over the then reasonable rental value of the Premises for the remainder of the Term, all of which amounts immediately will be due and payable by the Tenant to the Landlord. In determining the rent which would be payable by the Tenant after default, the annual rent for each year of unexpired Term will be equal to the averaged fixed basic rent paid or payable by the Tenant from the beginning of the Term to the time of default, or during the preceding three (3) full calendar years, whichever period is shorter. 14.4 Distress. If the Landlord shall be entitled to levy distress against the goods and chattels of the Tenant, it may use such force as it may deem necessary for the purpose and for gaining admission to the Premises without being liable to any action in respect thereof or for any loss or damage occasioned thereby and the Tenant hereby expressly releases the Landlord from all actions, proceedings, claims or demands whatsoever for or on account or in respect of -14- any such forcible entry or any loss or damage sustained by the Tenant in connection therewith. 14.5 Performing Tenant's Obligations. If the Tenant fails to perform an obligation of the Tenant under this Lease, the Landlord may perform the obligation and for that purpose may enter upon the Premises without notice and do such things upon or in respect of the Premises as the Landlord considers necessary. The Tenant will pay as additional rent all expenses incurred by or on behalf of the Landlord under this subsection plus ten (10%) percent for overhead upon presentation of a bill therefor. The Landlord will not be liable to the Tenant for loss or damages resulting from such action by the Landlord. 14.6 Landlord's Expenses Enforcing Lease. In the event that it shall be necessary for the Landlord to retain the services of a lawyer or bailiff or any other proper person for the purpose of assisting the Landlord in enforcing any of its rights hereunder, the Landlord shall be entitled to collect from the Tenant the cost of all such services incurred by the Landlord as if the same were rent reserved and in arrears hereunder. 15. CONDOMINIUM ACT PROVISIONS 15.1 Interpretation. In this section 15 and where used elsewhere in this Lease, the following words shall have the following meanings: (a) "Condominium Act' means the Condominium Act, R.S.B.C., 1996, Chapter 64 and any amendments and successor legislation thereto; (b) "Strata Corporation" means the Strata Corporation created pursuant to the Condominium Act with respect to the Building; (c) "By-laws" means the by-laws of the Strata Corporation in force under the Condominium Act as amended by the Strata Corporation from time to time; (d) "Rules and Regulations" means the rules and regulations of the Strata Corporation from time to time; (e) "Owner" means owner as that term is defined in the Condominium Act; (f) "Strata Lot" means a strata lot as that term is defined in the Condominium Act. 15.2 Tenant's Obligations. Notwithstanding any other provision of this Lease, the Tenant hereby agrees as follows: (a) to comply with the Condominium Act and the By-laws and Rules and Regulations; (b) at the time of execution of this Lease, to deliver to the Landlord an executed Form "D" under the Condominium Act with respect to the Premises; (c) to promptly pay to the Landlord as additional rent the amount of all regular monthly strata maintenance fees which may be levied by the Strata Corporation from time to time during the Term against the Landlord as Owner of the Premises, provided that the Tenant shall have no obligation to pay for special assessments; and --15-- (d) that if, pursuant to the Condominium Act, a Form "B" thereunder is registered against title to the Premises the Tenant shall within ten (10) days after receipt of notice thereof obtain and file a discharge of the Form "B" from title to the Premises. 15.3 No Assignment as Owner. Nothing herein contained shall be construed or deemed to be an assignment by the Landlord to the Tenant of any of the Landlord's rights and powers as Owner of the Premises. 15.4 Strata Corporation. The Landlord and the Tenant agree that the provisions contained in this Lease shall be subject to and deemed to be modified as required to comply with the terms of the Condominium Act, the By-laws and Rules and Regulations to reflect the fact that the Premises comprise a strata lot of which the Landlord is Owner and that certain payments and obligations of the Landlord hereunder may in fact be made or performed by the Strata Corporation. Where any payments to be made or obligations to be performed or which may be made or performed by the Landlord hereunder are in fact made or performed by the Strata Corporation the Landlord shall be deemed to have fulfilled its obligations hereunder and any corresponding repayment or obligations of the Tenant may thereafter be made to or performed for the benefit of the Strata Corporation where any obligations to be performed by the Landlord hereunder are obligations of the Strata Corporation under the Condominium Act or the Bylaws or the Rules and Regulations, the Landlord's obligation shall be interpreted as meaning that the Landlord shall use its best efforts to cause the Strata Corporation to perform such obligations. 16. RENEWAL 16.1 Provided that, and for so long as the Tenant pays the Rent and performs each and every of the covenants, conditions and agreements in the Lease reserved and contained and on the part of the Tenant to be paid and performed and is not and has not been in default in respect of any of the same and there has been no adverse change of any sort in the Tenant's financial condition or capacity the Landlord will, upon the request in writing by the Tenant given at least six (6) months and not more than twelve (12) months prior to the expiration of the Term (the "Notice Period"), grant to the Tenant a renewal lease of the Premises for one (1) further term of five (5) years upon and subject to the covenants, conditions and agreements as are set forth in the Landlord's standard form of lease for the Building then in use, save and except that the renewal lease shall not contain any provision for further renewal and the annual basic rent shall be the market rate for similar premises of similar size, use and location one hundred twenty (120) days prior to the expiry date of this Lease, without deduction of allowance for or consideration of any tenant inducements, leasehold improvement allowances, rent free periods, lease take-overs, turnkey or "build-to-suit" arrangements or other concession or inducement offered of given by landlords to achieve such rental (the "New Annual Basic Rent"). If requested by the Tenant during the Notice Period, the Landlord will provide the Tenant with a copy of its standard form of lease for the Building then in use. The New Annual Basic Rent shall be mutually agreed to by the Landlord and the Tenant at least ninety (90) days prior to the expiration of the Term, and failing agreement shall be determined by three (3) accredited real estate brokers (the "Three Experts") at least thirty (30) days prior to the expiration of the Term, which experts shall be familiar with rental rates in the area of the Premises, one of whom shall be appointed by the Landlord (the "Landlord's Expert") and all costs associated with the Landlord's Expert shall be the sole responsibility of the Landlord, and one expert shall be appointed by the Tenant (the "Tenant's Expert") and all costs associated with the Tenant's Expert shall be the sole -16- responsibility of the Tenant. The appointment of the third expert (the "Third Expert") shall be agreed upon by the Landlord's Expert and the Tenant's Expert and 50% of costs attributable to the Third Expert shall be borne by the Tenant and the remaining 50% of costs attributable to the Third Expert shall be borne by the Landlord. Together the Three Experts, acting reasonably, shall make the final determination of the New Annual Basic Rent and should the Three Experts be unable to agree among themselves on the determination, the opinion of the majority, being two (2) of the Three Experts, shall be final and binding on the Landlord and Tenant. The determination of the New Annual Basic Rent shall be considered an arbitration pursuant to the Commercial Arbitration Act of British Columbia. 16.2 In the event that the New Annual Basic Rent is determined by the Three Experts pursuant to subsection 16.1, such New Annual Basic Rent shall apply to the first and second years of the renewal term, the annual basic rent in respect of the third year of the renewal term shall be Fifty (.50) Cents per square foot higher than the annual basic rent in effect during the second year of the renewal term and the annual basic rent in respect of the fourth and fifth years of the renewal term shall be Fifty (.50) Cents per square foot higher than the annual basic rent in effect during the third year of the renewal term. 17. OVERHOLDING 17.1 If the Tenant shall continue to occupy the Premises after the expiration of the renewal term which may be granted hereby and the Landlord shall accept rent, the new tenancy thereby created shall be deemed to be a monthly tenancy with the basic rent equal to one hundred and twenty-five percent (125%) of the basic monthly rent for the last month of the Term and shall be otherwise subject to the covenants and conditions including additional rent and Goods and Services Tax in this Lease insofar as the same are applicable to a tenancy from month to month. 18. WAIVER 18.1 The failure of the Landlord or the Tenant to insist upon strict performance of any covenant or condition contained in the Lease or in the rules and regulations attached hereto shall not be construed as a waiver or relinquishment in the future of any such covenant, condition or rules and regulations. The acceptance of any rent or the performance of any obligations hereunder by a person other than the Tenant shall not be construed as an admission by the Landlord of any right, title or interest of such person as a subtenant, assignee, transferee or otherwise in the place and stead of the Tenant. All rights and remedies of the Landlord in this Lease contained shall be cumulative and not alternative. 19. NOTICES 19.1 Notice. Any notice, waiver or other communication required or permitted to be given hereunder shall be in writing and signed by or on behalf of such party and shall be given to the other party by delivery thereto, or by sending by prepaid registered mail, telex, facsimile, telegram or cable to the address of the other party as hereinbefore set forth or to such other address of which notice is given, and any notice shall be deemed not to have been sufficiently given until it is received. Any notice or other communication contemplated herein shall be deemed to have been received on the day delivered, if delivered, on the fourth business day following the mailing thereof, if sent by registered mail, and the second -17- business day following the transmittal thereof, if sent by telex, facsimile, telegram or cable. If normal mail, telex, far-simile, telegram or r-able service shall be interrupted by strike, slowdown, force major or other cause, the party sending the notice shall utilize any of the such services which have not been so interrupted or shall deliver such notice in order to ensure prompt receipt of same by the other party. 20. MISCELLANEOUS 20.1 Amendment. No alteration, amendment, change or addition to this Lease will be binding upon the Landlord and the Tenant unless in writing and signed by the parties hereto. 20.2 Time of the Essence. Time is of the essence of this Lease and each provision hereof. 20.3 No Registration. This Lease or any notice hereof or any caution or other instrument indicating an interest in the Premises by virtue of this Lease shall not be executed in registerable form nor registered against the title to the Premises. 20.4 Further Assurances. Each of the parties hereby covenants and agrees to execute any further and other documents and instruments and to do any further and other things that may be necessary to implement and carry out the intent of this Agreement. 20.5 Successors and Assigns. This Agreement shall enure to the benefit of and be binding upon the parties hereto, their respective heirs, executors, administrators, successors and permitted assigns. 21. ADDITIONAL PROVISIONS 21.1 Landlord's Base Building Work. The Landlord shall be responsible for completing the Base Building Work in respect of the Premises. Notwithstanding the foregoing, upon the Landlord commencing the Base Building Work the Tenant shall pay the Landlord, as contribution to the cost of such work, the sum of Four Thousand Two Hundred and Sixty-Two ($4,262.00) Dollars (inclusive of any applicable GST). The Landlord shall work in conjunction with the Tenant and the Tenant's architect/space planner and make its best efforts to complete the Base Building Work as soon as reasonably possible. Notwithstanding the foregoing, the Tenant acknowledges that the Base Building Work is being installed in conjunction with similar work being installed by 356535 B.C. Ltd. elsewhere in the Building. If the Landlord does not complete the Landlord's Base Building Work as aforesaid then the Tenant may, but shall not be obligated to, complete such work at its cost and set-off such costs against Rent payable hereunder provided that: (a) the terms and conditions of subsection 8.1 shall apply; and (b) such Tenant's costs are reasonable and represent the lowest of three (3) arms-length bids, copies of which are to be provided to the Landlord together with such other documents that the Landlord may reasonably request for verification of such costs. 21.2 Cancellation. The Tenant shall have the night to cancel this Lease effective the 30th day of June, 2001 by way of providing at least three (3) months' prior written notice to the Landlord together with a payment to the Landlord delivered with such notice in the amount of Six Thousand Nine Hundred Thirty-Six ($6,936.00) Dollars (plus any applicable GST). -18- 21.3 Rebuilding Demising Wall. Upon the expiration or any earlier termination of the Term or any renewal thereof the Tenant shall rebuild, at the Tenant's cost, the demising wall between suite nos. 801 and 802 of the Building to the same standards and specifications as similar demising walls in the Building and, in doin so, the Tenant shall comply with subsections 6, 19, 8.1 and 8.3 or this Lease. The parties hereto have executed this Lease on the day and year first above written. SIGNED, SEALED AND DELIVERED BY CHUNG PING CHENG and YUEH CHUN WU In the presence of: /s/ /s/ - ------------------------------------------ ---------------------------------- Name Chung Ping Cheng - ------------------------------------------ /s/ Address ---------------------------------- Yueh Chun Wu - ------------------------------------------ - ------------------------------------------ Occupation MILINX MARKETING GROUP INC. by its Authorized Signatory (ies) /s/ - ---------------------------------------------- Authorized Signatory - ---------------------------------------------- Authorized Signatory -19- EX-10.4 9 0009.txt THIS LEASE made as of the 1st day of June, 2000. IN PURSUANCE OF THE LAND TRANSFER FORM ACT, PART 2. BETWEEN: GREAT NORTHWEST INDUSTRIES OF CANADA LTD., a company incorporated under the laws of the Province of British Columbia and having an office c/o PACIFICA FIRST MANAGEMENT LTD., #218 - 2006 Main Street, Vancouver, British Columbia, V5T 3C2 ("the Landlord") OF THE FIRST PART AND: MILINX BUSINESS SERVICES INC., a company duly incorporated under the laws of the Province of British Columbia and having an office at the 9th Floor, 1080 Howe Street, Vancouver, British Columbia, V6Z 2T1 ("the Tenent") OF THE SECOND PART PREMISES 1. PREMISES: In consideration of the rents, covenants, conditions and agreements hereinafter contained on the part of the Tenant to be paid, observed and performed, the Landlord hereby demises and leases unto the Tenant the premises described in the first part of Schedule "A" annexed hereto (the "Premises") on the terms, conditions and covenants hereinafter set forth (the Building of which the Premises form part is hereinafter referred to as the "Building"). TERM AND RENEWAL 2. TERM: To have and to hold the Premises for and during the term of THREE YEARS (3) years (the "Term") computed from the I st day of June, 20C)O, and from thenceforth ensuing and to be fully completed and ended on the 31 st clay of May, 2003. Page 2 3. TERMINATION OPTION: So long as the Tenant is not in default hereunder, and subject to the terms and conditions hereinafter set forth, the Tenant shall have the option of terminating the Term of this Lease (the "Option") at any time after May 31, 2001. The Option may only be exercised by delivery of written notice (the "Notice") by the Tenant to the Landlord at least three (3) months prior to the proposed termination date, which Notice shall clearly state that the Tenant has elected to exercise the option to terminate the Lease as set out in this paragraph. The Notice shall also state the termination date (which shall be a date after May 31, 2001) and shall not be effective unless it is accompanied with a certified cheque or bank draft equal to two months rent (including minimum rent, additional rent and Goods and Services Tax thereon) payable to the Landlord or its agent, Pacifica First Management Ltd. If the Tenant fails to vacate the Premises on or before the termination date specified in the Notice, the Landlord may, at its option, by written notice delivered to the Tenant at the Premises, deem the Tenant's Notice to exercise the Option null and void, in which case the Lease shall remain in full force and effect. RENT 4. RENT: Yielding and paying therefore during the Term hereby granted the sum of THIRTY-TWO THOUSAND NINE HUNDRED THIRTY-FOUR DOLLARS ($32,934.00) of lawful money of Canada, payable without deduction, abatement or set off whatsoever, in advance on the 1st day of each and every month in THIRTY-SIX (36) consecutive monthly instalments as follows: The sum of NINE HUNDRED FOURTEEN DOLLARS AND EIGHTY-THREE CENTS ($914.83) on the 1st day of June, 2000, and c3 like sum of NINE HUNDRED FOURTEEN DOLLARS AND EIGHTY-THREE CENTS ($914.83) on the 1st day of each and every month thereafter to and including the 1st day of May, 2003; A security/damage deposit (the "Deposit") of ONE THOUSAND SEVEN HUNDRED SEVENTEEN DOLLARS AND FORTY-SEVEN CENTS ($1,717.47) shall be paid by the Tenant to the Landlord upon execution of this Lease to be held by the Landlord as a deposit to secure fulfillment of the Tenant's obligations hereunder. In the event of default on the part of the Tenant of any of its obligations hereunder, the Landlord may, in its discretion, apply any or all of the Deposit towards fulfillment of the Tenant's obligations. In such event, the Tenant shall replenish the Deposit to its original level upon written request of the Landlord. Failure of the Tenant to replenish the Deposit to its original level as provided for herein shall constitute a material breach of this Lease and the Tenant hereby agrees that such breach shall be subject to the some consequences as if the Tenant had failed to pay rent when due. The Tenant may not, without the Landlord's written agreement, apply any or all of the Deposit towards payment of any rent or additional rent payable hereunder. The Deposit shall be repaid to the Tenant, without interest, upon termination of the Term as set out herein, provided that the Tenant has vacated the Premises and fulfilled all of its obligations hereunder. Page 3 The aforementioned rent payments plus any Operating Expenses (as hereinafter defined) payable by the Tenant to the Landlord on c3 monthly basis, together with Goods and Services Taxes thereon, shall be paid by way of post-dated cheques. The Tenant shall provide to the Landlord twelve post-dated cheques covering the said rent, Operating Expenses and Goods and Services Taxes prior to the beginning of each twelve month period of the Term. 5. If the Term commences on any day other than the first day of c3 month or expires on any day other than the last day of a month, the rent for the fraction of C3 month at the commencement and at the end of the Term shall be adjusted pro rata on a per them basis. 6. DEFINITIONS: In this Lease, the following phrases shall have the following meanings: a. "Taxes" means all taxes, rates, duties, levies and assessments whatsoever, whether general or special, whether municipal, provincial, federal, school or otherwise charged upon the Building, the lands and all improvements thereof, or upon the Landlord on account thereof including all taxes, rates, duties, levies and assessments for local improvements, and including all taxes, rates, duties, levies and assessments which may in future be levied in lieu of Taxes as hereinbefore defined and also any legal fees or appraisers' fees incurred by the Landlord in respect of any assessment, appeal or judicial review for the determination of Taxes as herein before defined; For greater certainty, Taxes shall exclude taxes on income and profits of the Landlord; b. "Operating Expenses" means the total amount paid or payable whether by the Landlord or others on behalf of the Landlord for taxes and for complete maintenance of the lands on which the Building is situate, the Building and the Premises, such as are in keeping with maintaining the standard of a first class Building, all repairs and replacements required for such maintenance, the costs of providing electricity not otherwise paid by tenants, the costs of painting interior areas not normally rented to tenants and the costs of painting and otherwise maintaining the outside of the Building, the costs of heating, the costs of snow removal, landscape maintenance, refuse removal and other costs in connection with the maintenance of common outside areas and facilities, water rates, Building and cleaning supplies, fire, casualty, liability and other insurance costs, salaries and wages, including employee benefits and Workers' Compensation Board assessment service contracts with independent contractors, maintenance fees, special levies approved by the Owners of the Strata Corporation in which the Premises form part, except for special levies passed in relation to structural repairs and replacements; management fees and all other expenses paid by or payable by the Landlord in connection with the ownership and operation of the Premises, but shall not include interest on debt or capital retirement of debt or any amounts directly chargeable by the Landlord to any tenant or tenants as otherwise provided herein; For greater certainty, Operating Expenses shall exclude the cost of structural repairs and replacements to the Building in which the Premises are situated; and c. "Accounting Year" means each 12 month period commencing January I and ending December 31, the whole part of which 12 month period is within the Term hereby demised. Page 4 7. ADDITIONAL RENT: The Tenant shall pay as additional rent to the Landlord by monthly instalments as may be fixed by the Landlord from time to time Operating Expenses. For the first year of the Term, the Landlord has estimated the Operating Expenses to be paid by the Tenant to be $690.28 per month. 8. ADJUSTMENTS: At the end of each Accounting Year, the Landlord shall compute the amount of Operating Expenses for such Accounting Year and the Tenant's Proportionate Share thereof. A statement showing these details shall be submitted to the Tenant stating also the amount of the monthly instaiments for the ensuing Accounting Year, and an adjustment between the parties equal to the amount of the surplus or deficiency of rent paid pursuant to clause 8 shall be made within 10 days from the date of delivery of such statement. TENANT'S COVENANTS 9. PAY RENT AND UTILITIES: The Tenant covenants with the Landlord to pay rent and to pay all rates and charges for water, heat, gas and electric light and/or power supplied to or used on the Premises. 10. PAY BUSINESS TAXES, ETC.: The Tenant covenants with the Landlord to pay all taxes, licenses, rates, duties, levies and assessments imposed or levied covering any period during the Term and relating to or in respect of the business or profession of the Tenant or relating to fixtures, machinery, chattels or equipment brought on to the Premises built, made or installed by the Tenant or at the Tenant's request, or being any special or additional taxes, licenses, rates, duties, levies and assessments which the Tenant or any subtenants, Concessionaires and licensees of the Tenant shall elect or cause to have the Premises or any part thereof assessed or charged with, whether any such taxes, licenses, rates, duties, levies and assessments are payable in law by the Tenant or by the Landlord. If at any time for any reason during the Term of this Lease the Landlord is required to pay any of the foregoing, then C3 sum equal to the amount so paid shall be paid by the Tenant to the Landlord forthwith upon demand. 11. REPAIRS: a. The Tenant covenants with the Landlord to repair, maintain and keep the Premises, with the appurtenances and all fixtures, in good and substantial repair when, where and so often as need shall be, reasonable wear and tear and damage by fire, lightning, tempest, earthquake, acts of God or the Queen's enemies, impact of aircraft, riots, insurrections, structural defects or weaknesses and explosion (unless caused by the negligence of the Tenant, its agents, employees, invitees, subtenants, concessionaires or licensees) only excepted, provided that the Tenant shall keep the Premises well pointed at all times in accordance with the Landlord's reasonable requests and in such condition as a careful owner would do. The colour of all painting shall first be approved in writing by the Landlord. Without limiting the generality of the foregoing, the Tenant shall promptly and diligently undertake and complete all normal maintenance, painting, repairs and replacements of all wall and floor coverings, curtains, blinds, drapes, and glass in or about the Premises from time to time and at all times during the Term hereof; Page 5 b. The Tenant covenants with the Landlord to permit the Landlord, its agents or employees, to enter and view the state of repair, to repair according to notice in writing except as aforesaid; and to leave the Premises at the expiration or sooner termination of this Lease in good repair except as aforesaid; and c. If the Tenant should fail to repair in accordance with the provisions hereof, the Landlord, its agents or employees, may forthwith enter the Premises and make the required repairs and for that purpose the Landlord may bring and leave upon the Premises all necessary tools, materials and equipment and the Landlord will not be liable to the Tenant for any inconvenience, annoyance or loss of business or any injury or damages suffered by the Tenant by reason of the Landlord effecting such repairs unless caused by the negligence of the Landlord, its agents or employees, and the expense of such repairs will be borne by the Tenant who shall pay it to the Landlord forthwith upon demand. 12. NUISANCE. The Tenant covenants with the Landlord that the Tenant shall not at any time during the Term, use, exercise or carry on or permit or suffer to be used, exercised or carried on, in or upon the Premises or any part thereof any noxious, noisome or offensive art, trade, business, occupation or calling, and no act, matter or thing whatsoever shall at any time during the Term be done in or upon the Premises or any part thereof which shall or may be or grow to be the annoyance, nuisance, damage or disturbance of the occupiers or owners of the Building or adjoining land and properties. 13. INCREASE OF INSURANCE RATES: The Tenant covenants with the Landlord that the Tenant will not do or omit or permit to be done or omitted to be done upon the Premises anything which shall cause the rate of insurance upon the Building or any part thereof to be increased and if the insurance rate shall be increased as aforesaid, the Tenant shall pay to the Landlord the amount by which the insurance premiums shall be so increased. If notice of cancellation shall be given respecting any insurance policy or if any insurance policy upon the Building or any part thereof shall be cancelled or refused to be renewed by an insurer by reason of the use or occupation of the Premises or any part thereof, the Tenant shall forthwith remedy or rectify such use or occupation upon being requested to do so in writing by the Landlord, and if the Tenant shall fail to do so forthwith the Landlord at its option may terminate this Lease forthwith by giving to the Tenant notice in writing of its intention so to do, and thereupon rent and any other payments for which the Tenant is liable under this Lease shall be apportioned and paid in full to the date of such termination of the Lease, and the Tenant shall immediately deliver up possession of the Premises to the Landlord. 14. COMPLY WITH LAWS: The Tenant shall promptly comply at its expense with all provisions of law including, without limitation, federal and provincial legislative enactments, building, zoning, development and other civic by-laws and any and all other governmental and municipal regulations, laws, orders, ordinances and directives which relate to the partitioning, operation and use of the Premises or equipment situate thereon and to making of any repairs, replacements, alterations, additions, changes, substitutions or improvements of or to the Premises, and with all police, fire and sanitary regulations or directives imposed or made by any federal, provincial or municipal or other authorities or by fire insurance underwriters or any association thereof, and observe and obey all government and municipal regulations and other requirements governing the conduct of all business conducted in the Premises, and all notices in pursuance of some and whether served upon the Landlord or the Tenant. Page 6 15. RULES AND REGULATIONS: The Tenant covenants with the Landlord that any and all reasonable rules and regulations that may be made by the Landlord and of which notice shall be given to the Tenant in writing shall be observed and performed by the Tenant, its invitees, servants, agents, subtenants, concessionaires and licensees, and all such rules and regulations shall be read as forming part of the terms and conditions of this Lease as if the some were embodied herein. 16. DAMAGE TO BUILDING BY TENANT: The Tenant covenants with the Landlord that the Tenant shall reimburse the Landlord for costs incurred by the Landlord in making good any damage caused to the Building or any appurtenances thereto as a result of the negligence or willful act of the Tenant, its invitees, servants, agents, subtenants, concessionaires and licensees. 17. ASSIGNING AND SUBLETTING: The Tenant covenants with the Landlord that the Tenant will not assign, sublet or part with the possession of the Premises or any part thereof without the prior written consent in writing of the Landlord, which consent shall not be unreasonably withheld. Provided that the Tenant shall, at the time the Tenant shall request the consent of the Landlord, deliver to the Landlord such information in writing (the "required information") as the Landlord may reasonably require respecting the proposed assignee, concessionaire, subtenant, or licensee, including the name, address, nature of business, financial responsibility and standing of such proposed assignee, concessionaire, subtenant or licensee. Provided that no such assignment, subletting or parting with possession shall release or relieve the Tenant from its obligations fully to perform and observe all the terms, covenants and conditions of this Lease on its part to be performed and observed. Further provided that no such assignments, subletting or parting with possession shall be made to any person, persons, firms, partnership or corporation carrying on any business which the Landlord may wish or be obliged to restrict by reason of any other lease or contract relating to any other nearby tenant of the Landlord. Further provided that if the Tenant is an incorporated company, any change in the control of such company shall be deemed, for the purposes hereof, to be an assignment of this Lease. 18. USE OF PREMISES: The Tenant covenants with the Landlord that the Premises shall not be used for any other purposes than as business office. The Tenant further covenants to operate and conduct its business upon the whole of the Premises in an up-to-date, high class and reputable manner. No auction, fire, bulk or bankruptcy sale shall be conducted on the Premises nor shall any special sale or sales be carried on therein other than such as are incidental to the normal routine of the Tenant's business upon the Premises with its regular customers. The Tenant further covenants to install and maintain at all times in the Premises first class trade fixtures and furniture adequate and appropriate for the business of the Tenant thereon. 19. LICENSES AND PERMITS: The Tenant shall secure any licence or permit from civic, municipal, provincial or other authorities which may be necessary for the conduct of the Tenant's business upon the Premises. The Tenant acknowledges that the Landlord has not made any warranties, representations, covenants or inducements of any kind that the Premises may be used for the purposes aforesaid, and agrees that the failure to secure such licence or permit, or its subsequent suspension or cancellation shall in no way affect the Tenant's obligations to the Landlord under this Lease. Page 7 20. OVERLOADING FLOORS: The Tenant covenants with the Landlord not to place on the Premises any safe, heavy business machine, machinery, equipment or other heavy thing without obtaining the prior written consent of the Landlord. 21. REFUSE, ETC.: The Tenant covenants with the Landlord that the Tenant shall not allow any refuse, garbage, or other loose or objectionable material to accumulate in or about the Premises and will at all times keep the Premises in clean and wholesome condition, and that the Tenant will keep clean and free from any rubbish, boxes, waste material, ice or snow, all walks, passages, yards and alleys adjacent to the Premises. The Tenant further covenants that the Tenant will not upon the termination of the Term leave upon the Premises any rubbish or waste material and will leave the Premises in a clean and tidy condition. 22. SALE AND RENT SIGNS AND ACCESS: The Tenant agrees that the Landlord shall have the right Within the three months next preceding the termination of the Term to place upon the Premises c3 notice, of reasonable dimensions and reasonably placed so as not to interfere with the business of the Tenant, stating that the Premises are for sale or to let and further provided that the Tenant will not remove or obscure such notice or permit the same to be removed or obscured. The Tenant further agrees to allow prospective purchasers or tenants to enter and inspect the Premises on week days during the said three months. 23. ACCESS FOR LANDLORD'S REPAIRS: The Tenant agrees that the Landlord, its employees and agents, shall have the right to enter the Premises at all reasonable times upon providing reasonable notice to the Tenant, to examine the same and make such repairs, alterations, improvements or additions as the Landlord may deem necessary or desirable in the Premises or as the Landlord may be required to make by law or in order to repair and maintain the Building. The Landlord, its employees and agents, shall be allowed to take into the Premises all material which may be required for such purpose and the rent reserved shall in no way abate while such repairs, alterations, improvements or additions are being made by reason of interruption of the business of the Tenant. The Landlord will exercise reasonable diligence so as to minimize the disturbance or interruption of the Tenant's operations. 24. IMPROVEMENTS AND ALTERATIONS: a. The Tenant agrees not to make any alterations, additions or improvements in or to the Premises without obtaining the Landlord's prior written consent and all such work shall be done only by contractors or tradesmen or mechanics approved in writing by the Landlord and at the Tenant's sole expense and at such times and in such manner as the Landlord may approve. In case any alterations, additions or improvements are made to the Premises by the Tenant, the Tenant shall at the expiration or sooner termination of this Lease restore the Premises to a reasonable state of repair, reason- able wear and tear excepted, or, if the Landlord would prefer that such alterations, additions and improvements shall remain, in which case no compensation shall be allowed to the Tenant for the same, the Landlord may require the Tenant to restore the Premises to such extent as the Landlord may deem expedient although retaining as far as possible the alterations, additions and improvements, without in any case any compensation to the Tenant therefore; Page 8 b. All articles of personal property and all business and trade fixtures, machinery and equipment and furniture owned by the Tenant or installed by the Tenant in the Premises at the Tenants expense shall remain the property of the Tenant and may be removed by the Tenant at any time during the Term of this Lease, provided that the Tenant at its own expense shall repair any damage to the Premises or to the Building caused by such removal or by the original installation. The Landlord may require the Tenant to remove all or any part of such prop" at the expiration or sooner termination of this Lease and such removal shall be done at the Tenant's expense and the Tenant shall at its own expense repair any damage to the Premises or the Building caused by such removal or by the original installation. If the Tenant does not remove its property forthwith after written notice by the Landlord to that effect, such property shall, if the Landlord elects, be deemed to become the Landlord's prop" or the Landlord may remove the same at the expense of the Tenant and the cost of such removal and any necessary storage charges shall be paid by the Tenant forthwith to the Landlord on demand. The Landlord shall not be responsible for any loss or damage to such prop" because of such removal; and c. The Tenant covenants with the Landlord that the Tenant shall promptly pay all charges incurred by the Tenant for any work, materials or services that may be done, supplied or performed in respect to the Premises and shall forthwith discharge any liens at any time filed against and keep the lands and Building of which the Premises form a part free from liens and in the event that the Tenant fails to do so, the Landlord may, but shall be under no obligation to, obtain a discharge of any such lien in the name of the Tenant by payment or by giving security and any amount so paid together with all disbursements and costs in respect of such proceedings on a solicitor and client basis shall be forthwith due and payable by the Tenant to the Landlord as additional rent. The Tenant shall allow the Landlord to post and keep posted on the Premises any notices that the Landlord may desire to post under the provisions of the Builders Uien Act or other legislation. 25. SIGNS, ADVERTISING, ETC.: The Tenant shall not erect, install or display any exterior signs or interior window or door signs or advertising media or window or door lettering or placards without the previous written consent of the Landlord other than a suitable sign of a kind, size and design and in a location, first approved in writing by the Landlord, publicizing the Tenant's trade name and type of business, and upon the expiration or sooner termination of this Lease will remove the same. The Tenant shall not use any advertising media that the Landlord shall deem objectionable to it or other tenants such as loud speakers, phonographs, broadcasts or telecasts in a manner to be heard or seen outside the Premises. The Tenant shall not install any exterior lighting, plumbing fixtures, shades, awnings or decorations or install or erect any building, fence, aerial or mast or do any exterior painting or make any change to the front of the Premises without the previous written consent of the Landlord, and upon the expiration or sooner termination of this Lease will remove the same if required to do so by the Landlord. Page 9 The Tenant covenants with the Landlord to indemnify and save harmless the Landlord from and against any and all manner of claims, demands, actions or causes of action, damages, loss, costs or expenses which it may sustain, incur or be put to by reason Of any such signs Or other installations hereinbefore described now existing or which may hereafter be erected by the Tenant upon, over or projecting from or above the Premises, and will pay the premiums charged upon any bond of indemnity or liability policy in respect of such signs or other installations hereinbefore described issued upon demand of any authority; Provided always that the Landlord shall at all times be at liberty to examine the signs or other installations hereinbefore described and that the Tenant will repair Or strengthen the same upon notice from the Landlord, and if the Tenant shall fail to comply with such notice, the Landlord shall be at liberty to repair or strengthen the said signs or other installations hereinbefore described and the undertaking of such repairs or strengthening by the Landlord shall not be deemed an acknowledgment or admission of any liability or responsibility on the part of the Landlord. 26. INDEMNITY TO LANDLORD: The Tenant shall indemnify and save harmless the Landlord from any and all liabilities, damages, costs, claims, suits or actions arising out of: a. any breach, violation, or non-performance of any covenant, condition or agreement in this Lease set forth and contained on the part of the Tenant, to be fulfilled, kept, observed and performed; b. any damage to property while said property shall be in or about the Premises during the Term and any renewal or extension thereof; and c. any injury to any licensee, invitee, agent or employee of the Tenant, including death resulting at any time therefrom, occurring in or about the Premises and/or on the lands of which the Premises form a part during the Term and any renewal or extension thereof; and this indemnity shall survive the expiry or sooner termination of this Lease. 27. TENANT INSURANCE: a. The Tenant shall at its expense, provide and maintain in force during the Term of this Lease or of any renewal thereof: i. plate glass insurance, for the benefit of the Landlord and the Tenant, covering all plate glass in the Premises, including plate glass windows and doors, in an amount equal to the full insurable value thereof; ii. public liability insurance, for the benefit of the Landlord and the Tenant as their respective interests may appear, in the sum of FIVE MILLION DOLLARS ($5,000,000.00) in respect of injury or death to one or more persons or property damage; and iii. in the event that the Premises contain a boiler installation, or in the event that the same shall at any time during the Term be installed on the Premises, then boiler insurance for the benefit of the Landlord and the Tenant, in amounts satisfactory to the Landlord in respect of injury or death to one or more persons or property damage; Page 10 b. All insurance shall be effected with insurers and brokers and upon terms and conditions satisfactory to the Landlord and certified copies of all policies shall be delivered to the Landlord forthwith; c. All policies of insurance shall contain a waiver of subrogation clause in favour of the Landlord and shall also contain a clause requiring the insurer not to cancel or change the insurance without first giving the Landlord 30 days' prior written notice thereof; d. The Tenant agrees that if it does not provide or maintain in force such insurance, the Landlord may take out the necessary insurance and pay the premium therefor for periods of one (1) year at a time, and the Tenant shall pay to the Landlord the amount of such premium forthwith upon demand; and e. In the event that both the Landlord and the Tenant have claims to be indemnified under any such insurance, the indemnity shall be applied first to the settlement of the claim of the Landlord and the balance, if any, to the settlement of the claim of the Tenant. 28. DEFACING WALLS, ETC.: The Tenant, its servants, agents, concessionaires, subtenants and licenses will not drive nails or screws into, nor mark, cut, drill in or in any way deface, any walls, ceilings, partitions, floors, wood, stone or iron work without the written consent of the Landlord. 29. LANDLORD MAY PERFORM TENANT'S COVENANTS: If the Tenant shall fail to perform any of the covenants or obligations of the Tenant under or in respect of this Lease the Landlord may from time to time, in its discretion, perform or cause to be performed any of such covenants or obligations, or any part thereof and for such purpose may do such things as may be requisite, including without limiting the foregoing, may enter upon the Premises and do such things upon or in respect of the Premises or any part thereof as the Landlord may consider requisite or necessary. All expenses incurred and expenditures made by or on behalf of the Landlord under this paragraph shall be forthwith paid by the Tenant. 30. PAYMENTS TO THE LANDLORD: a. all payments required to be made by the Tenant under or in respect of this Lease shall be made, at such place or places as the Landlord may designate in writing, to the Landlord or to such agent or agents of the Landlord as the Landlord shall from time to time direct in writing to the Tenant. The Tenant shall pay to the Landlord interest at the rate of EIGHTEEN PER CENT (18%) per annum on all payments of rent and other sums required to be made under the provisions of this Lease which have become overdue so long as such payments remain unpaid; and b. All sums paid or expenses incurred hereunder by the Landlord, which ought to have been paid or incurred by the Tenant, or for which the Landlord hereunder is entitled to reimbursements from the Tenant, and any interest owing to the Landlord hereunder and any further sums due under this Lease to the Landlord by the Tenant may be recovered by the Landlord as additional rent by any and all remedies available to it for the recovery of rent in arrears. Page 11 31. PEACEFUL SURRENDER: The Tenant shall, at the expiration or sooner termination of the Term, peaceably surrender and yield up unto the Landlord the Premises and deliver to the Landlord all keys to the Premises. 32. FURTHER LAW INVOKED: The Tenant agrees with the Landlord that any rights or privileges which may accrue or enure to or for the benefit of the Landlord by virtue of any law governing the relations of landlord and tenant not specifically mentioned herein and not inconsistent with the terms and conditions hereof, and all rights of enforcement of some shall be deemed to be hereby reserved to and claimed by the Landlord. 33. DISTRESS: The Tenant agrees with the Landlord that if the Landlord, being entitled so to do, levies distress against the goods and chattels of the Tenant, such force as may be deemed necessary for the purpose and for gaining admission to the Premises may be used without the Landlord being liable to any action in respect thereof or for any loss or damage occasioned thereby and the Tenant hereby expressly releases the Landlord, its sefVC3nts and agents from all actions, proceedings, claims or demands whatsoever for or on account or in respect of any such forcible entry or any loss or damage sustained by the Tenant in connection therewith. Notwithstanding the benefit of any present or future law taking away or limiting the Landlord's night of distress, none of the goods and chattels of the Tenant on the Premises at any time shall be exempt from levy by distress. 34. REGISTRATION OF LEASE: The Tenant may only register this Leas.-- in the Land Title Office with the Landlord's written consent. If the Tenant elects to register the said Lease in the Land Title Office and the Landlord consents thereto, the cost of such registration, including the cost of putting this Lease into registrable form, shall be borne by the Tenant. 35. SUBORDINATION: If required by the Landlord so to do, the Tenant shall subordinate this Lease to any mortgages, including any deed of trust and mortgage and all indentures supplemented thereto, which now or hereafter during the term affect or relate to this Lease, the Premises and to all modifications or renewals thereof. The Tenant agrees to execute promptly from time to time any assurance which the Landlord may require to confirm this subordination and hereby constitutes the Landlord the agent or attorney of the Tenant for the purpose of executing any such assurance and of making application at any time and from time to time to register postponement of this Lease in favour of any such mortgage in order to give effect to the provisions of this clause. Provided that no such subordination shall be on terms as will permit the holder of such mortgage to disturb the occupation by the Tenant of the Premises so long as the Tenant shall perform all the terms, covenants, conditions, agreements and provisos contained in this Lease. 36. LEGAL FEES, ETC.: If the Landlord shall consider it desirable to retain the services of a lawyer or any other person reasonably necessary for the purpose of assisting the Landlord in enforcing any of its rights hereunder in the event of default on the part of the Tenant, it shall be entitled to collect from the Tenant the reasonable cost of all such services as if the same were rent. Any such legal costs to be paid by the Tenant to the Landlord hereunder shall be on a solicitor and client basis. Page 12 MUTUAL AGREEMENTS 37. DAMAGE TO THE PREMISES: a. If the Premises shall be damaged by fire or other casualty other than by reason of the fault or neglect of the Tenant, its invitees, servants, agents, concessionaires, subtenants or licensees, then the rent shall be abated in whole or in part according to the portion of the Premises which is non-usable by the Tenant until such damage is repaired; provided that there shall be no abatement for any time required for the replacement or repair of any property of the Tenant or of alterations, additions or improvements made by the Tenant which is in excess of the time required for the making of other necessary repairs or replacements; b. If the Premises are rendered untenantable by fire or other casualty and if the Landlord shall decide not to restore the same or if the Building shall be so damaged that the Landlord shall decide not to restore it, then or in any of such events, the Landlord shall within ninety (90) days after such fire or other casualty give the Tenant a notice in writing of such decision and thereupon the Term of this Lease shall expire forthwith and the Tenant shall vacate the Premises and surrender the same to the Landlord. In such event, the Tenant's liability for rent shall cease as of the day following the fire or other casualty; and c. Subject to the immediate preceding paragraph, if the Premises shall be damaged by fire or other casualty other than by reason of the fault or neglect of the Tenant, its invitees, servants, agents, concessionaires, subtenants or licensees, the damage to the Premises shall be repaired by the Landlord with reasonable diligence at its expense except that repairs to alterations, additions or improvements made by the Tenant shall be performed by the Landlord at the expense of the Tenant and the Tenant shall at its own expense make all repairs and replacements of property which the Tenant is entitled to remove under the provisions of this Lease. 38. BANKRUPTCY, ABANDONMENT, ETC.: The Tenant covenants and agrees with the Landlord that if the Term hereby granted or any of the goods and chattels of the Tenant on the Premises shall be at any time during the Term seized or taken in execution or attachment by any creditor of the Tenant or if the Tenant shall make any assignment for the benefit of creditors or any bulk sale or becoming bankrupt or insolvent shall take the benefit of any Act now or hereafter in force for bankruptcy or insolvent debtors or if any order shall be made for the winding-up of the Tenant, or if the Premises shall without the written consent of the Landlord become and remain vacant for a period of fifteen (15) days, or be used by any other persons than such are entitled to use them under the Terms of this Lease, or if the Tenant shall without the written consent of the Landlord abandon the Premises or sell or dispose of goods or chattels of the Tenant or remove them or any of them from the Premises so that there would not in the event of such abandonment, sale or disposal be sufficient goods on the Premises subject to distress to satisfy the rent above due or accruing due then and in every such case the then current month's rent and the next ensuing three (3) months' rent shall immediately become due and be paid and the Landlord may re-enter and take possession of the Premises as though the Tenant or the servants of the Tenant or any other occupant of the Premises were holding over after the expiration of the Term without any right whatever and the Term shall, at the option of the Landlord forthwith become forfeited and determined, and in every one of the cases above such accelerated rent shall be recoverable by the Landlord in the some manner as the rent hereby reserved and as if rent were in arrears and the said option shall be deemed to have been exercised if the Landlord or its agent gives notice in writing of the same to the Tenant in the manner in this Lease provided. Page 13 39. RE-ENTRY: a. Proviso for re-entry by the Landlord on non-payment of rent or non-performance of covenants or in the case of a seizure or forfeiture of the Term for any of the causes set forth in this Lease; b. Provided that notwithstanding anything contained in this Lease or any statutory provisions to the contrary, the Landlord's right of re-entry hereinbefore set forth shall become exercisable immediately upon such default being made; c. Provided also that in the event of re-entry being made, the Tenant shall be liable to the Landlord for the amount of the rent for the remainder of the Term of this Lease as if such re-entry had not been made, less the actual amount received by the Landlord after such re-entry in respect of any subsequent leasing applicable to the remainder of the Term; and d. Provided also that in the event of re-entry being made, the Landlord may re-enter and take possession of the Premises by force, if necessary, without any previous notice of intention to re-enter and may remove all persons and property therefrom and may use such force and assistance in making such removal as the Landlord may deem advisable and such r@--entry shall not operate as a waiver or satisfaction in whole or in part of any right, claim or demand arising out of or connected with any breach or violation by the Tenant of any covenant or agreement on its part to be performed. The Tenant hereby waives all claims of damage to or loss of the Tenant's property caused by the Landlord in re-entering and taking possession of the Premises. 40. OVERHOLDING: If the Tenant shall continue to occupy the Premises after the expiration of the Term granted hereby and the Landlord shall accept rent, the new tenancy thereby created shall be deemed to be a monthly tenancy and shall be subject to the covenants and conditions contained in this Lease insofar as the same are applicable to a tenancy from month to month save and except that the rental payable shall be as determined by the Landlord. 41. UNAVOIDABLE FAILURES OR DELAYS BY LANDLORD: Whenever and to the extent that the Landlord shall be unable to fulfill or shall be delayed or restricted in the fulfillment of any obligation hereunder by reason of being unable to obtain the material, goods, equipment, service, utility or labour required to enable it to fulfill obligation or by reason of any statute, low or order-in-council or any regulation or order passed or made pursuant thereto or by reason of the order or direction of any administration controller or board of any governmental department or officer or other authority or by reason of not being able to obtain any permission or authority required thereby or by reason of any other cause beyond its control whether of the foregoing character or not, the Landlord shall be relieved from the fulfillment of such obligation and the Tenant shall not be entitled to compensation for any business interruption or inconvenience, nuisance or discomfort thereby occasioned. There shall be no deduction from the rent by reason of any such failure or cause. 42. NOTICES: Any notice herein provided for or given hereunder if given by the Tenant to the Landlord shall be sufficiently given if mailed in Canada by registered mail, postage prepaid, to the Landlord at the address shown on page 1 of this Lease. Page 14 Any notice herein provided for or given hereunder, if given by the Landlord to the Tenant, shall be sufficiently given if mailed as aforesaid addressed to the Tenant at the Premises or left at the Premises. Any notice mailed as aforesaid shall be conclusively deemed to have been given on the second business day following the day on which such notice is mailed as aforesaid. Provided that if mailed should there be, between the time of mailing and the actual delivery or attempted delivery of such notice, a mail strike, slowdown or other problem which might affect delivery of such notice by the mails, then such notice shall only be deemed sufficiently given if and when actually delivered or an attempted delivery has been made. Either the Landlord or the Tenant may at any time give notice in writing to the other of any change of address of the party giving such notice and from and after the giving of such notice the address therein specified shall be deemed to be the address of such party for the giving of such notices thereafter. The word "notice" in this paragraph shall be deemed to include any request, demand, direction or statement in writing in this Lease provided or permitted to be given by the Landlord to the Tenant or by the Tenant to the Landlord. 43. EMINENT DOMAIN: If the whole or any part of the Premises shall be taken by any public authority under the power of eminent domain, the Term hereby granted shall thereupon cease insofar as it covers the Premises so taken from the day possession thereof shall be taken for such public purpose, and the Tenant shall be liable only for rent in respect of the Premises so taken up to the day of the taking thereof and if less than the whole be so taken, the Landlord may at its option cancel and terminate this Lease with respect to the remainder of the Premises, but notice of such cancellation must be given to the Tenant within thirty (30) days after such notice of such taking has been received by the Landlord, but if the Landlord shall not elect to cancel the Lease, then the Tenant shall remain in possession of the remainder of the Premises and the rent thereof shall be reduced in proportion of the floor space of the Premises hereby demised. All compensation or damages awarded in respect of such taking of the Premises and any diminution in value of the remainder thereof shall be the property of the Landlord, but the Tenant shall be entitled to receive such compensation or damages as it may be able to establish against such public authority in respect of loss of its business, depreciation of and cost of removal of stock and fixtures. 44. NON-WAIVER: The failure of the Landlord to insist upon strict performance of any covenant or agreement contained in this Lease or to exercise any right or option hereunder shall not be construed or operate as a waiver or relinquishment of the future of any such covenant, agreement, right or option and no waiver shall be inferred from or implied by anything done or omitted by the Landlord save only express waiver in writing. The acceptance of any rent from or the performance of any obligation hereunder by a person other than the Tenant shall not be construed as an admission by the Landlord of any right, title, or interest of such person as assignee, concessionaire, subtenant, licensee or otherwise in the place and stead of the Tenant. Page 15 45. LANDLORD NOT RESPONSIBLE FOR INJURIES, LOSS, DAMAGE, ETC.,: The Landlord shall not be responsible in any way for any injury to any person or for any loss of or damage to any property belonging to the Tenant or to other occupants of the Premises or to their respective invitees, licensees, agents, servants or other persons from time to time attending at the Premises while such person or property is in or about the Premises or the Building or the lands on which the Premises are situate, including but without limitation, any loss of or damage to any such prop" caused by theft or breakage, or by steam, water, rain or snow which may leak into, issue or flow from any part of the Premises or any adjacent or neighbouring lands or premises or from any other place or quarter or for any loss of or damage caused by or attributable to the condition or arrangements of any electric or other wiring or for any damage caused by smoke or anything done or omitted to be done by any other tenant of the Landlord or for any other loss whatsoever with respect to the Premises and/or any business carried on therein. 46. OCCUPANCY AVAILABILITY: If the Premises shall not be available for occupancy by the Tenant upon the date of commencement of the Term hereby demised, the rent under this Lease shall abate until the Premises are available for occupancy and the Landlord and its agents shall not be liable in any way for the consequences of occupancy not being available to the Tenant upon the date of commencement. 47. REPRESENTATIONS: The Tenant agrees that it has leased the Premises after examining the same and that no representations, warranties or conditions have been made other than those expressed herein, and that no argument collateral hereto shall be binding upon the Landlord unless it be made in writing and signed on behalf of the Landlord. 48. CONDEMNATION: It is agreed by and between the Landlord and the Tenant that in the event of the Premises being condemned in whole or in part other than as a result of the fault or neglect of the Tenant, its servants, agents, subtenants, concessionaires, or licensees, then the rent hereby reserved or a proportionate part thereof according to the nature and extent of the condemnation and all remedies for recovering the same shall be suspended and abated until the Premises, at the option of the Landlord, shall have been rebuilt and made fit for the purposes as aforesaid of the Tenant, failing which this Lease shall forthwith be terminated. The Landlord shall not be responsible for any loss, damage or expense which the Tenant may suffer or incur by reason of such condemnation. LANDLORD'S COVENANTS QUIET ENJOYMENT: 49. The Landlord covenants with the Tenant for quiet enjoyment. 49A. The Landlord shall use its best efforts to cause the Strata Corporation to repair and maintain the building and structure of the Premises and all systems servicing the Premises, subject to the provisions of paragraph 37 hereof. MISCELLANEOUS 50. HEADINGS: The headings to the clauses of this Lease are for convenience only and shall not constitute part of this Lease. Page 16 51. GENERAL: This Lease and everything herein contained shall enure to the benefit of and be binding upon the heirs, executors, administrators, successors, permitted assigns and other legal representatives, as the case may be, of each of the parties hereto. Where there are two or more Landlords, Tenants or Guarantors (if any), their obligations hereunder shall be joint and several. The words "Landlord", "Tenant", and "Guarantor", and the personal pronoun "if relating to any of the same shall be read and construed as "Landlord", "Tenant" and "Guarantor" and "his", "her", "Its" or "their" respectively as the number and gender Of the party or parties referred to each require, and the provisions herein shall be read with all the other grammatical changes thereby rendered necessary. 52. GOODS AND SERVICES TAX: The Tenant shall pay to the Landlord, in addition to any rent payable hereunder, Goods and Services Tax on the said rent. The said Goods and Services Tax shall be due and payable when the rent on which it is calculated becomes due and payable. For the purpose of this Lease, Goods and Services Tax shall be defined to include any tax implemented by any governmental authority to replace the current Goods and Services Tax and shall also include any other tax such as value-added tax, multistage tax, consumption tax or any other forms of taxes, fees or levies payable by the Tenant and collectable by the Landlord. IN WITNESS WHEREOF the parties hereto have caused this Lease to be executed the day and year first above written. GREAT NORTHWEST INDUSTRIES OF CANADA LTD. By its agent, Pacifica First Management Ltd. /s/ - -------------------------------------- Authorized Signatory MILINX BUSINESS SERVICES INC. Per: /s/ - -------------------------------------- Authorized Signatory Page 17 SCHEDULE "A" FIRST PART The Premises comprise the premises commonly known as Suite 501 - 1080 Howe Street, Vancouver, B. C. The Premises shall exclude the outside face of all perimeter walls of the Premises, but shall include glass in the said perimeter walls. EX-10.5 10 0010.txt L E A S E TABLE OF CONTENTS ARTICLE HEADING PAGE NO. ------------ -------------- ------------- DEFINITIONS 1 1.01 INTENT OF LEASE 1 2.01 DEMISE 2 2.02 TERM 2 3.01 RENT 2 4.01 ADDITIONAL RENT 2 5.01 PROPERTY TAX AND OPERATING EXPENSES 3 6.01 TENANT'S COVENANTS 4 7.01 ASSIGNING AND SUBLETTING 13 8.01 LANDLORD'S COVENANTS 13 9.01 DAMAGE, DESTRUCTION OF PREMISES 15 10.01 EXPROPRIATION 16 11.01 LANDLORD'S RIGHTS AND REMEDIES 16 12.01 NON-WAIVER 18 13.01 TENANT'S FIXTURES 19 14.01 FORCE MAJEURE 19 15.01 LIMITATION OF LANDLORD'S LIABILITY 19 16.01 RESERVATION TO LANDLORD 20 17.01 OVERHOLDING 20 18.01 SERVICE OF LEGAL DOCUMENTS 20 19.01 GENDER 21 20.01 DEFINITION 21 21.01 NOTICES 21 22.01 TIME OF ESSENCE 21 23.01 ENTIRE AGREEMENT 21 24.01 ENUREMENT 21 25.01 CAPTIONS 22 26.01 GOVERNING LAW 22 27.01 ACCEPTANCE 22 SCHEDULE "A" LEGAL DESCRIPTION SCHEDULE "B" SKETCH PLAN OF LEASED PREMISES SCHEDULE "C" STANDARD METHOD OF FLOOR MEASUREMENT SCHEDULE "D" RULES AND REGULATIONS SCHEDULE "E" OPERATING EXPENSES SCHEDULE "F" RENEWAL SCHEDULE "G" ADDENDUM TO LEASE SCHEDULE "H" LOCATION OF GENERATOR AND AIR CONDITIONER THIS INDENTURE OF LEASE made the, 31st day of May, 2000 BETWEEN: 1045 HOWE STREET HOLDINGS LTD., a body corporate, of the City of Vancouver, Province of British Columbia (hereinafter referred to as the "Landlord") OF THE FIRST PART AND: MILINX BUSINESS SERVICES, INC., a corporate body, of Suite 901, 1080 Howe Street, of the City of Vancouver, Province of British Columbia (hereinafter referred to as the "Tenant") OF THE SECOND PART WITNESSETH that in consideration of the mutual covenants, conditions and agreements herein contained, the Landlord and Tenant and covenantor covenant and agree as follows: In this Lease: (a) "Building" means the office and commercial complex and all appurtenances thereto (including Common Facilities as hereinafter defined), municipally addressed as 1045 Howe Street, Vancouver, B.C., and situate on the lands described in Schedule "All attached hereto (hereinafter called the "Lands", and together sometimes called the "Lands and Building"). (b) "Leased Premises" means that portion of the Floor shown outlined in red on the plan annexed hereto as Schedule "B" to this Lease. (c) Common Facilities" means the facilities within or serving the Building which are provided or designated by the Landlord for the use or benefit of Building tenants and/or their employees, customers and invitees, and includes without limitation, and as the same may be changed from time to time, entrances, lobbies, sidewalks, driveways, vestibules, corridors, passageways, stairways, public elevators, public washrooms, and, where applicable, loading and unloading areas, parking facilities, landscaped areas and service elevators, together with the facilities or equipment within or serving the Building and the tenants thereof, including, without limitation, mechanical and electrical rooms and the machinery and equipment therein, fire protection and detection equipment, duct shafts, Building storage areas and service areas. (d) "Normal Business Hours" means the hours from 8:00 a.m. to 6:00 p.m. Monday to Friday, inclusive of each week, exclusive of all statutory or legal holidays, or such other lesser hours as the Landlord may from time to time specify by regulation. (e) "Lease" means this Lease and the Schedules attached hereto. INTENT OF LEASE 1.01 The Tenant acknowledges and agrees that it is intended that this Lease shall be a completely carefree net lease for the Landlord yielding completely net to the Landlord the rentals herein provided for, and that the Landlord shall not be responsible during the term of the Lease for any costs, charges, expenses or outlays of any nature whatsoever, in respect of the said Lands, Building or improvements or the contents thereof, excepting only the Landlord's income tax in respect of income received from leasing the Leased Premises, and excepting principal and interest payments to be made in connection with any mortgage or other financing placed on the said Lands, Building and improvements thereon by the Landlord, and except also as expressly herein provided; and further, that all costs, expenses, obligations and liabilities of any kind and nature whatsoever relating to the Leased Premises and the Tenant's share -2- of all operating expenses, costs, obligations and liabilities of any kind and nature in respect of the said Lands, Building and improvements thereon which may arise or become due during or in respect of the term of this Lease shall be payable and will be paid by the Tenant without any variation, set-off or deduction, and the Tenant covenants and agrees to indemnify and save harmless the Landlord from and in respect of any and all such costs, expenses, obligations and liabilities. DEMISE 2.01 In consideration of the rent, covenants, agreements and conditions hereinafter reserved and contained on the part of the Tenant to be paid, observed, kept and performed, the Landlord hereby demises and leases to the Tenant and the Tenant hereby leases from the Landlord, the Leased Premises. TERM 2.02 To have and to hold the Leased Premises for a term (hereinafter called the "Term") of Four (4) years and Four (4) months, commencing on 2000 July 1, (hereinafter called the "Commencement Date") and ending on October 31, 2000 (hereinafter called the "Termination Date"). RENT 3.01 Yielding and paying annually therefor unto the Landlord at the Landlord's office (or to such other person or persons at such place or places as the Landlord may from time to time in writing designate) annual basic rent of One Hundred and Twenty Six Thousand and Forty Five Dollars ($126,045.00) plus GST, payable monthly in advance in the amount of $10,503.75 plus GST. It is understood and agreed that the aforesaid annual rent (hereinafter called "Basic Rent") is calculated on the basis of Fourteen Thousand and Five (14,005) square feet, more or less leased at the rate of Nine Dollars ($9.00) per square foot per annum. of Rentable Area and that the Rentable Area has been calculated in accordance with the Method of Floor Measurement annexed hereto as Schedule "C". ADDITIONAL RENT 4.01 In addition to the Basic Rent hereby reserved the Tenant agrees to pay to the Landlord a monthly amount (hereinafter called "Additional Rent") payable on the first day of each month during the Term consisting of: (a) One-twelfth (1/12th) of the Tenant's Proportionate Share of Property Tax for each Taxation Year, or portion thereof, occurring during the Term of this Lease (as such terms are defined in and as such Tax is estimated by the Landlord yearly in advance and determined in accordance with clause 5.01 of this Lease); and (b) One-twelfth (1/12th) of the Tenant's Proportionate Share of operating Expenses for each operating Year, or portion thereof, occurring during the Term of this Lease (as such terms are defined in and as such Expenses are estimated by the Landlord yearly in advance and determined in accordance with clause 5.01 of this Lease). Provided, however, that following the end of each Taxation Year and Operating Year occurring during the Term, the aggregate of such monthly charges paid by the Tenant during the relevant Taxation Years and Operating Years shall be adjusted appropriately by the Landlord on the basis of the actual amount payable by the Tenant for such Taxation Year and Operating Year pursuant to this Lease, and as set forth in a statement to be furnished by the Landlord to the Tenant following the expiration of such Taxation Year and Operating Year. Any resulting excess or deficiency being payable respectively by the Landlord to the - 3 - Tenant or by the Tenant to the Landlord shall be paid within thirty (30) days after the furnishing of each of such statement. Provided further that Basic Rent and Additional Rent are hereinafter sometimes called "Rental". PROPERTY TAX AND OPERATING EXPENSES 5. 01 The Tenant shall pay to the Landlord as Additional Rent the Tenant's Proportionate Share of the Property Tax for each Taxation Year and of the Operating Expenses for each Operating Year. The Tenant I s Proportionate Share of any such Property Tax and Operating Expenses shall be paid by the Tenant to the Landlord in the manner provided in this clause 5. The following words and phrases wherever used in this Lease shall have the following meanings: (a) "Property Tax" means all taxes, rates, duties, levies, fees, charges and assessments whatsoever, imposed, assessed, levied or charged on or against the Lands or the Building, on or against the Landlord on account of the Lands or Building or immovable accessories by any school, municipal, regional, provincial, federal, parliamentary or other governmental body, corporation or authority, including any amounts imposed, assessed, levied or charged in substitution for or in lieu of any such taxes, rates, duties, levies, fees, charges or assessments, but excluding such taxes and capital gains, profits, or excess profits taxes assessed upon the income of the Landlord. If the system of property taxation shall be altered or varied and if any new tax shall be levied or imposed on all or any portion of the Lands and Building and/or the revenues therefrom and/or the Landlord in substitution for and/or in addition to Property Tax presently levied or imposed, then any such new tax or levy shall be deemed to be the Property Tax. (b) "Taxation Year" means a consecutive twelve (12) month period ending June 30th or such other consecutive twelve (12) month period which may be determined from time to time by the Landlord. (c) "Operating Expenses" means and includes all expenses and costs incurred by the Landlord in connection with the operation, maintenance, repair and replacement of the Lands and Building to a first class standard all as set out in Schedule "E" of this Lease. (d) "Operating Year" means a consecutive twelve (12) month period ending December 31st, or such other consecutive twelve (12) month period as the Landlord from time to time may adopt. (e) "Tenant's Proportionate Share" means a fraction, being the numerator of which is the Rentable Area of the Leased Premises and the denominator of which is the aggregate Rentable Area of the Building, all expressed in square feet. The aggregate Rentable Area of the Building is one Hundred Thousand Eight Hundred and Ninety Two (100,892) square feet. (f) Janitorial services for the Leased Premises are to be provided by the Landlord with the cost to be included in the Operating Expenses. In the event that the Tenant elects to use its own Janitorial services, the Landlord shall deduct Five Cents ($0.05) per square foot per month from the Operating Expenses and the Tenant may reduce by Seven Hundred Dollars and Twenty Five Cents ($700.25) from the monthly Additional Rent payable by the Tenant. Notwithstanding the aforementioned definitions of Taxation Year and Operating Year, if and whenever a Taxation Year or an Operating Year shall be less than twelve (12) consecutive months having regard to the Commencement Date or Termination Date of the Term of this Lease, or to the adoption by the Landlord of an - 4 - Operating Year or of a Taxation Year other than as specified as aforesaid, then for the purposes of this Lease, such lesser period of time shall be deemed to be the Taxation Year and Operating Year applicable to such period and any and all appropriate adjustments shall be made with respect to such deemed Taxation Year and Operating Year. TENANT'S COVENANTS 6.01 The Tenant hereby covenants with the Landlord as follows: (a) The Tenant agrees to pay in lawful money of Canada to the Landlord the rents herein reserved at the times herein provided without any set-off, compensation or deduction whatsoever, at the office of the Landlord at the address specified or designated herein or at such other address as the Landlord may from time to time by notice in writing to the Tenant direct. All rent reserved herein including, without limitation, Basic Rent and Additional Rent, shall be deemed to accrue from day to day, or if for any reason it shall be necessary to calculate rent for irregular periods of less than one (1) year or less than one (1) month, rent shall be calculated so as to reflect such daily accrual. (b) Any and all other and further amounts which may at any time or times during the Term be or become payable or reimbursable by the Tenant to the Landlord under this Lease and whether designated as Additional Rent or otherwise, shall be paid or reimbursed by the Tenant to the Landlord promptly on demand and upon failure by the Tenant so to pay may be recoverable by the Landlord as rent in arrears by any and all remedies available to the Landlord for the recovery of rent in arrears. (c) The Tenant shall pay for all electricity consumed or used in the Leased Premises on a metered or on a Rentable Area basis, as applicable. The Tenant shall also pay for gas, water, telephone and other utility services consumed or used in the Leased Premises, including, without limitation, electricity and all other utilities used by the Tenant for laboratories and/or any special air-conditioning system servicing its computers. In addition, the Tenant shall pay for all utilities (including electricity) consumed by any other machinery or equipment owned by the Tenant whether situate within or without the Leased Premises. If any such utility service cannot reasonably be sub-metered separately from the same utility service provided to parts of the Building other than the Leased Premises, the Tenant shall pay for such utility service on a connected load and usage basis and as determined by the Landlord's Engineer. (d) Notwithstanding any provision in this Lease as to Operating Expenses (including Schedule "E"), the Tenant shall pay for all costs and expenses where the costs and expenses are incurred solely for the benefit of the Tenant or, if the Tenant enjoys the benefit of the same greater than on a pro rata basis with other tenants, then the Landlord may, acting reasonably, fix the amount payable by the Tenant (even where such costs and expenses might otherwise be Operating Expenses). (e) The Tenant shall pay, as and when due, all business taxes and any other taxes or licence fees imposed in respect of the occupation of and the operations conducted in, on or from the Leased Premises. The Tenant shall pay all taxes, rates and assessments levied, charged or assessed by any school, municipal, regional, provincial, federal or parliamentary body or authority against or in respect of personal property (other than that owned by the Landlord) situate in or on the Leased Premises or any part thereof (whether or not such personal property is owned by the Tenant and whether such taxes, rates and assessments are levied, charged or assessed to the Landlord or to the Tenant), such personal property to include, without limitation, fixtures, - 5 - improvements, machinery and equipment made and installed by the Tenant upon or in the Leased Premises, but not to include machinery and equipment of the Landlord. (f) If the Tenant shall elect or cause to have the Leased Premises or any part thereof assessed or charged with any separate School Tax or any special or additional Taxes the Tenant shall pay to the Landlord, as Additional Rent, as soon as the amount thereof is ascertained, any amount by which the Taxes on the Building or the Lands or on the Landlord on account thereof are thereby increased. (g) In the event of the Tenant failing to pay the aforesaid utilities, taxes, licence fees, rates or assessments which it has herein covenanted to pay and which may constitute a lien or charge upon the Leased Premises or its contents, or the Building or Lands, the Landlord may, if such default is not cured after the giving of ten (10) days' notice to the Tenant by the Landlord, pay all or any of the same and all such payments so made shall be recoverable in the same manner as rent in arrears; provided, however, that where there is a bona fide dispute of the amount or propriety of any payment alleged to be due from the Tenant and the Landlord is not prejudiced by non-payment, the Landlord may at its sole discretion pay or not pay the same until such dispute has been resolved either by agreement of the Tenant or by the decision of a competent authority, whichever is the earlier in date; whereupon such period of ten (10) days will be deemed to commence on the date of such agreement or decision. (h) The Tenant shall have no access to and shall not intermeddle with the electric lightbulbs, fluorescent tubes, starters, ballasts and fluorescent fixtures used in the Leased Premises. (i) The Tenant shall at its expense and throughout the Term, repair (and where necessary, replace) in a first class manner and keep whole and in a first class condition the Leased Premises (including any carpet installed therein) reasonable wear and tear, structural repair and replacement, and damage by fire, lightning and tempest and other casualty against which the Landlord is insured only excepted; and the said Tenant will repair according to notice, reasonable wear and tear, structural repair and replacement, and damage by fire, lightning and tempest and other casualty against which the Landlord is insured only excepted; and that he will keep and leave the Leased Premises in good repair, reasonable wear and tear, structural repair and replacement, and damage by fire, lightning and tempest and other casualty against which the Landlord is insured only excepted. For greater certainty, but not so as to restrict the generality of the foregoing, the Tenant shall repair and keep whole and in good condition all carpeting in the Leased Premises and all glass in the Leased Premises, and all glass, including plate glass forming part of the perimeter outside or other wall of the Leased Premises. (j) If the Building, including the Leased Premises, the elevators, boilers, engines, pipes or other apparatus (or any of them) used for the purpose of heating or air-conditioning the Building or operating the elevators, or if the water pipes, drainage pipes, electric lighting or other equipment of the Building or the roof or outside walls becomes damaged or destroyed through negligence, carelessness or misuse by the Tenant, his servants, agents, employees, or anyone permitted by him to be in the Building, or through him or them in any way damaging the heating apparatus, elevators, water pipes, drainage pipes or other equipment or part of the Building, the cost of the necessary repairs, replacements or alterations shall be the responsibility of the Tenant who shall pay such costs to the Landlord forthwith on demand. (k) The Tenant shall permit the Landlord, its servants or agents from time to time within Normal Business Hours, or at any time in the case of emergency, to enter and examine the state of - 6 - maintenance, repair and order of the Leased Premises, all equipment and fixtures within the Leased Premises and any improvements now or hereafter made to the Leased Premises and the Landlord may give notice to the Tenant requiring that the Tenant perform such maintenance or effect such repairs, decoration or replacement as may be found necessary from such examination; provided, however, that the failure of the Landlord to give such notice shall not relieve the Tenant from its obligations to maintain, repair, decorate and keep the Leased Premises and the Tenant's equipment, fixtures and improvements therein in good condition and in a good and tenantable state of maintenance, repair and decoration. The Tenant agrees that the Landlord shall have the right to enter the Leased Premises at all reasonable times during the Term to make repairs or alterations as the Landlord shall deem necessary for the safety or preservation or proper administration of the Leased Premises or any other portion of the Building, and the Landlord may for such purposes attach scaffolds or other temporary structures to the Leased Premises all without compensation or responsibility to the Tenant for any loss, injury, damage, inconvenience, discomfort or annoyance suffered by the Tenant. The Landlord, its servants or agents may at any time and from time to time enter upon the Leased Premises to remove any article or remedy any condition which in the opinion of the Landlord, reasonably arrived at, would be likely to lead to cancellation of any policy of insurance and such entry by the Landlord shall not be deemed to be re-entry. (1) The Tenant agrees that the Landlord, its agents, servants and employees shall not be liable for damage or injury to any property of the Tenant which is entrusted to the care or control of the Landlord, its agents, servants, or employees nor shall the Landlord, its agents, servants, employees or contractors be liable (save for its or their own negligence) for any damage suffered to the Leased Premises or the contents thereof by reason of the Landlord, its agents, servants, employees or contractors entering upon the Leased Premises to undertake any examination thereof or any work therein. (m) The Tenant shall, when necessary during the Term of this Lease and whether upon receipt of notice from the Landlord or not, perform, effect and pay for such maintenance, repairs, decoration or replacements as may be the responsibility of the Tenant under this Lease by the use of contractors or other qualified workmen approved by the Landlord in writing. In the event that the Tenant fails to comply with the Landlord's notice to effect maintenance, repairs, decoration or replacements within the time provided for in the Landlord's notice, then the Landlord may cause such maintenance, repairs, decoration or replacements to be undertaken and the Landlord shall be entitled to recover from the Tenant the cost thereof together with a fee for supervision of the carrying out of the Tenant's obligations, such fee to be an amount equal to ten (10%) percent of the costs incurred by the Landlord with respect thereto, which costs and fees shall be forthwith payable by the Tenant to the Landlord and shall be recoverable in the same manner as rent in arrears. (n) Upon the expiration of the Term of this Lease the Tenant shall deliver to the Landlord vacant and clean possession of the Leased Premises in the condition in which the Tenant is required to maintain the Leased Premises in accordance with the terms and provisions of this Lease, reasonable wear and tear excepted. The Tenant shall deliver to the Landlord all keys to the Leased Premises and the Building which the Tenant has in its possession. (o) The Tenant shall use and occupy the Leased Premises only for lawful purposes in connection with its corporate business, or professional offices, provided it shall comply with the requirements of federal, provincial and municipal laws and regulations. The Tenant shall not use or permit to be used the Leased Premises or any part thereof for any other purpose or - 7 - business without the written consent of the Landlord. Notwithstanding the foregoing, the Tenant shall not (i) have the right to conduct a restaurant, cafeteria, snack bar or other food dispensing operation in or from the Leased Premises; provided, however, that the Tenant shall have the right to designate a bag lunch area in the Leased Premises for the exclusive use of employees of the Tenant and the Tenant's employees shall have the right to boil water in such area for the purpose of brewing beverages; or (ii) use or permit the use of the Leased Premises or any part thereof for the conduct of any business which is, or is similar to, the business carried on by a Bank, or by a trust company, acceptance or loan corporation, or by a corporation or organization engaged in the business of accepting money on deposit or lending money, or any similar business. (p) The Tenant shall not use or permit to be used any part of the Leased Premises for any dangerous, noxious or offensive trade or business, nor use or permit it to be used in such manner as to cause a nuisance or otherwise cause or permit annoying noises or vibrations or offensive odours to emanate therefrom and the Tenant agrees that the Landlord shall determine in its own discretion if any such state or condition exists. The Tenant shall not permit or suffer any waste or damage, disfiguration, or injury to the Lands and the Building or any overloading of the floor or floors of the Leased Premises and the Tenant shall not place therein any safe, heavy business machine or other heavy object without first obtaining the written consent of the Landlord and the Tenant agrees that the Landlord shall determine in its own discretion if any state or condition of overloading exists or may exist. Any background music provided by the Tenant in the Leased Premises shall be from the same source as that provided by the Landlord in the Building or if no background music is provided by the Landlord, from such source as shall have been previously approved in writing by the Landlord. (q) The Tenant shall not do or permit to be done or omit to do anything or permit any omission which shall cause or shall have the effect of causing the rate of insurance upon the Building or any part thereof to be increased at any time during the Term, provided, however, that if such rate of insurance shall be increased as a result of the use and occupancy of the Leased Premises by the Tenant or any act or omission of the Tenant, the Tenant shall on demand pay to the Landlord the amount by which the insurance premium shall be so increased notwithstanding any other remedy the Landlord may have. If any policy of insurance upon the Building or any part thereof is cancelled or is threatened to be cancelled by the insurer thereunder by reason of the use or occupancy of the Leased Premised by the Tenant or by any act or omission of the Tenant, or such of same as may be permitted by the Tenant, the Landlord may forthwith terminate this Lease by notice in writing and thereupon rent and any other payments for which the Tenant is liable under this Lease shall be adjusted to the date of such termination and the Tenant shall immediately deliver up possession of the Leased Premises to the Landlord and the Landlord may forthwith re-enter and take possession of the same. (r) The Tenant shall not obstruct the Common Facilities or use the Common Facilities other than for their intended purpose. (s) If there is an air-conditioning system in the Building, the Tenant shall cause all Building standard sun curtains to be kept closed on all windows when exposed to the sun during the time when the air-conditioning system of the Building is in operation. The Tenant shall have the right to install over curtains, provided that any such over curtains shall be placed on the room side of the sun curtains supplied by the Landlord and provided that such over curtains shall not disrupt heating or air-conditioning functions and the Tenant shall be responsible for any damage to window glass caused by the use of such over curtains. (t) The Tenant shall at its expense comply with all provisions of law including, without limitation, federal and provincial - 8 - legislative enactments, building and other civic by-laws and any other governmental and municipal codes and regulations which relate to the Tenant's partitioning, equipment, operation and use of 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 or the conduct of any business conducted in or from the Leased Premises. The Tenant shall comply with all police, fire and sanitary regulations imposed by any federal, provincial or municipal authorities or made by fire insurance underwriters. (u) The Tenant shall not paint, display, inscribe, place or affix any sign, picture, advertisement, notice, lettering or direction on any part of the outside of the Building or visible from the outside of the Building, nor shall the Tenant paint, display, inscribe, place or affix any sign, picture, advertisement, notice, lettering or direction on the outside of the Leased Premises (or outside the Leased Premises but visible from the outside) without the written consent of the Landlord, such consent not to be unreasonable withheld. The Landlord shall prescribe, and the Tenant shall adopt, a uniform pattern of Tenant Identification signs to be placed on the outside of the doors leading to the Leased Premises. (v) The Tenant may, with the prior written consent of the Landlord (such consent not to be unreasonably withheld), from time to time during the Term, make such alterations, additions, substitutions and improvements to the Leased Premises or any part thereof as the Tenant may reasonably deem necessary or desirable to adapt the Leased Premises for its purposes, provided that the outside appearance and strength of the Building and the mechanical, electrical, plumbing and air-conditioning services thereof are not adversely affected. Prior to commencement of any such work the Tenant shall submit to the Landlord for approval drawings and specifications detailing such work, and the Tenant shall thereafter obtain the Landlord's prior written consent to any change or changes in such drawings and specifications. Such work may be performed by contractors or workmen engaged by the Tenant but in each case only as approved in writing by the Landlord (such approval not to be unreasonably withheld) and subject to all conditions which the Landlord may reasonably impose (including contractor's public liability insurance in reasonable amounts) and the Tenant shall, in the performance of any such work ensure, so far as may be possible, the progress and completion thereof without undue delay. Any such work shall be performed by competent contractors or workmen whose labour union affiliations are not incompatible with those of any workmen who may be employed in the Building of the Landlord, its contractors or sub-contractors. Provided, however, the only persons who shall in any way modify or work on mechanical, electrical, plumbing and air- conditioning systems shall be the contractors of the Landlord and the Tenant shall pay all of the Landlord's costs in regard to the same and, if required by the Landlord, shall post an amount set by the Landlord for such costs prior to any consent being required to be given by the Landlord for the purpose of making such alterations, additions, substitutions and improvements to the Leased Premises. The Tenant shall submit to the Landlord supervision of all work (although the Landlord shall be under no obligation to so supervise, and shall in no way be responsible for any loss as a result of not so supervising any part or all of such work) and shall promptly pay all charges or expenses pertaining to such supervision, including all charges reasonably made by the Landlord for the time spent and disbursements incurred by its employees or agents, and all fees and expenses charged by the Landlord's consultants, including and without limiting the generality thereof, the Landlord's Architect and Engineer. Supervision shall include the examination by the Landlord and its consultants, or any of them, of the Tenant's drawings and specifications in regard thereto. Any connections of apparatus to the electrical or telephone systems other than a connection to an existing base receptacle or any connection of apparatus to the - 9 - plumbing lines shall be deemed to be an alteration within the meaning of this clause. (w) To the extent permitted by law, the Tenant shall at all times indemnify and save harmless the Landlord of and from all loss and damage and all actions, claims, costs, demands, expenses, fines, liabilities and suits of any nature whatsoever for which the Landlord shall or may become liable, incur or suffer by reason of a breach, violation or non-performance by the Tenant of any covenant, term or provision hereof or by reason of any builders' or other liens for any work done or materials provided or services rendered for alterations, improvements, or repairs made by or on behalf of the Tenant to the Leased Premises, or by reason of any injury occasioned to or suffered by any person or damage to any property by reason of any wrongful act or omission, default or negligence on the part of the Tenant or any of its agents, concessionaires, contractors, customers, employees, invitees or licensees in or about the Land and Building. This indemnity shall survive the expiration or earlier ending of the Term. (x) The Tenant further agrees that the Landlord unless negligent shall not be liable or responsible in any way for any personal injury, including death or consequential damage of any nature whatsoever, however caused, that may be suffered or sustained by the Tenant or by any other person who may be upon the Lands and Building, including the Leased Premises; or any loss or damage of any nature whatsoever, however caused, to the Leased Premises, any property belonging to the Tenant or to the property of any person while such property is in or about the Lands and Building, including the Leased Premises; whether in the course of the performance of the Landlord's obligations under this Lease or otherwise, save such as is caused by the negligent act or omission of the Landlord or any of its agents, contractors or employees. (y) The Tenant further agrees that the Landlord unless negligent shall not, under any circumstances, and without in any way limiting the generality of paragraph 6.01 (x) hereof, be liable or responsible in any way for: (1) any loss or damage of any nature whatsoever: (a) caused by failure, by reason of breakdown or other cause, to supply adequate drainage, snow or ice removal or by interruptions of any utility or HVAC system, or other services, or by steam, water, rain, snow or other substances leaking into, issuing or flowing into any part of the Leased Premises or from the water, steam, sprinkler or drainage pipes or plumbing of the Building or from any other place or quarter; (b) caused by anything done or omitted to be done by any other Tenant of the Building; (c) however caused, if the Landlord, its agents, contractors, or employees enter upon the Leased Premises in the case of an emergency; or (2) any loss or damage of any nature whatsoever, however caused, to books, records, files, money, securities, negotiable instruments, papers or other valuables of the Tenant; (3) any business, economic or indirect loss or damage of the Tenant of any nature whatsoever, however caused; or (4) any loss against which the Tenant is obligated to insure against hereunder or has insured against. (z) (1) The Tenant shall, during the whole of the Term and during such other time as the Tenant occupies the Leased Premises, take out and maintain the following -10- insurance, at the Tenant Is sole expense, in such form and with such companies as the Landlord may reasonably approve: (a) comprehensive general liability insurance against claims for bodily injury, including death, and property damage or loss arising out of the use and/or occupation of the Leased Premises,, or the Tenant's business on or about the Leased Premises; such insurance shall be in the name of the Tenant and the Landlord shall be added to such insurance as an Additional Insured so as to indemnify and protect both the Tenant and the Landlord and shall contain a "cross liability" or "severability of interests" clause so that the Landlord and the Tenant may be insured in the same manner and to the same extent as if individual policies had been issued to each and shall be for the amount of not less than $3,000,000.00 combined single limit or such other amount as may be reasonably required by the Landlord from time to time; such comprehensive general liability insurance shall, for the Tenant's benefit only, include contractual liability insurance in a form and of a nature broad enough to ensure the obligations imposed upon the Tenant under the terms of this Lease and shall be extended to include the following extensions: non-owned automobiles, personal injury and tenant's fire legal liability; (b) all risk insurance upon its merchandise, stock-in-trade, furniture, fixtures and improvements and upon all other property in the Leased Premises owned by the Tenant or for which the Tenant is legally liable, and plate glass insurance, covering all plate glass in the Leased Premises, including plate glass windows and doors, store front thermopane, double set glass and lettering, if applicable, against breakage and damage from any cause, all in an amount equal to the full replacement value thereof, which amount in the event of a dispute shall be determined by the decision of the Landlord; (c) business interruption insurance on an all risk basis and on a form commonly known as the "Profits" form; and (d) owned automobile insurance with respect to all motor vehicles owned by the Tenant and operated in its business. (2) The policies of insurance referred to above shall contain the following: (a) provisions that the Landlord is protected notwithstanding any act, neglect, or misrepresentation of the Tenant which might otherwise result in the voiding of a claim under such policies and that such policies shall not be affected or invalidated by any act, omission or negligence of any third party which is not within the knowledge or control of the insurer(s); (b) provisions that such policies and the coverage evidenced thereby shall be primary and noncontributing with respect to any policies carried by the Landlord and that any coverage carried by the Landlord shall be excess coverage; (c) provisions that such policies of insurance shall not be cancelled without the insurer providing the - 11 - Landlord thirty (30) days' written notice stating when such cancellation shall be effective; (d) a waiver of subrogation as against the Landlord. (3) The Tenant shall further during the whole of the Term maintain such other insurance in such amounts and upon such terms as the Landlord may reasonably determine from time to time. (4) Evidence satisfactory to the Landlord of all such policies of insurance shall be provided to the Landlord upon request. (aa) Provided the Tenant has executed the within Lease and has the written consent of the Landlord, then, and in any event on or after the Commencement Date, the Tenant may, at its expense, paint and decorate the interior of the Leased Premises and appurtenances thereof and make such changes, alterations or improvements to and may paint and decorate the interior of the Leased Premises as will, in the judgment of the Tenant, better adapt the same for the purposes of its business provided that: (a) all changes, alterations, additions or improvements will require the written consent of the Landlord; (b) all the Tenant's partitioning work will be done in accordance with plans and specifications approved by the Landlord, such approval not to be unreasonably withheld, and in accordance with such conditions and regulations as may be adopted from time to time by the Landlord with respect to such partitioning work; (c) the Tenant may decorate and install fixtures and other equipment in the Leased Premises so long as such installation does not interfere with the operations of the Building on or about the Leased Premises, and it is agreed by the Tenant that the Landlord has no responsibility, risk or liability whatsoever for any loss or damage to any fixtures or other equipment so installed or left on the Leased Premises by the Tenant; (d) all changes, alterations, additions and improvements will comply with all statutes, regulations or by-laws of any municipal, provincial, federal or other authority. (bb) The Tenant shall permit the Landlord or its agents at any time within six (6) months before the end of the Term to enter the Leased Premises during Normal Business Hours in the company of prospective tenants for the purpose of showing the Leased Premises to such prospective tenants. The Landlord shall give the Tenant reasonable notice prior to entering the Leased Premises. For security and confidentiality reasons, an employee of the Tenant may accompany the prospective tenants during such showings provided the Tenant or its employees do not interfere with leasing efforts of the Landlord. (cc) The Tenant covenants and agrees that the rules and regulations hereto attached as Schedule "D" are part of this Lease and shall in all respects be observed and obeyed, conformed to and performed by the Tenant and its employees, servants, agents and invitees. The Landlord shall have the right to make such other further and reasonable rules and regulations relating to the Leased Premises and to the Building as in its judgment may from time to time be necessary for the proper operation of the Building. All such rules and regulations now and thereafter in force shall be read as forming part of the terms and conditions of this Lease as if the same were embodied herein. All such other - 12 - and further rules and regulations hereafter made by the Landlord shall be binding on the Tenant upon mailing a copy thereof to the Tenant, or by posting the same in a conspicuous place in the confines of the Building to be designated for such purpose. Nothing in this Lease contained shall be construed to impose upon the Landlord any duty or obligation to enforce the rules and regulations or the terms, covenants or conditions in any other lease against any other tenant of the Building, and the Landlord shall not be liable to the Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors or licensees. (dd) The Tenant agrees that this Lease is and shall be subject and subordinate to any mortgage or charge which may now or hereafter be placed by the Landlord against the Building, the Lands, or the Leased Premises. The Tenant further agrees that on the request at any time and from time to time of the Landlord or of any mortgagee or encumbrancer of the Building to either (i) attorn to such mortgagee or encumbrancer and become bound to it as its tenant of the Leased Premises for the then unexpired residue of the Term and upon the terms contained herein, or (ii) postpone and subordinate this Lease to the mortgage or encumbrance held by such mortgagee or encumbrancer with the intent and effect that this Lease and all the rights of the Tenant shall be subject to the rights of such mortgagee or encumbrancer as fully as if the mortgage or encumbrance had been made before the making of this Lease. Whichever of the foregoing may be requested (and notwithstanding that any previous attornment and subordination to such mortgagee or encumbrancer shall have been given) the Tenant shall execute promptly any instrument of attornment, postponement or subordination which may be so requested to give effect to the foregoing. (ee) The Tenant shall at any time and from time to time upon not less than ten (10) days' prior notice from the Landlord, execute and deliver to the Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the modifications and that the same is in full force and effect as modified), the amount of the Basic Rent and Additional Rent then being paid hereunder, the dates to which the same and other charges hereunder have been paid, by instalments or otherwise, and whether or not there is any default on the part of the Landlord of which the Tenant has notice. (ff) Should the Landlord convey or assign its interest in the Building and Lands or otherwise divest itself of its interest in the Building and Lands, it shall be relieved of all obligations under this Lease after the date of delivery of any such conveyance, assignment or transfer, save and except for the obligation to account to the Tenant for any monies due and payable to the Tenant by the Landlord pursuant to this Lease. (gg) The Tenant covenants with the Landlord that the Tenant shall promptly pay all charges incurred by the Tenant for any work, materials or services that may be done, supplied or performed or claimed to have been done, supplied or performed, in respect of the Leased Premises and shall forthwith and in any event in not less than ten (10) days after becoming aware of the same, discharge or cause to be discharged any lien or claim of lien registered against the title to the Lands and Building or any part thereof or affecting the same and, in the event that the Tenant fails to do so, the Landlord may, but shall be under no obligation to do so, pay into court the amount required to obtain a discharge of any such lien in the name of the Tenant and any amount so paid together with all disbursements and costs in respect of such proceedings on a solicitor and client basis shall be forthwith due and payable by the Tenant to the - 13 - Landlord as Additional Rent. The Tenant shall allow the Landlord to post and keep posted on the Leased Premises any notices that the Landlord may desire to post under the provisions of the Builders' or Mechanics' Lien Act or other legislation. (hh) Not to refer to the Building by any name other than by such name as may be designated from time to time by the Landlord and the Tenant shall use the name of the Building for the business address of the Tenant and for no other purpose. (ii) To use the Leased Premises for the purpose of a data center, call center and corporate office and for no other purpose whatsoever. (jj) The Tenant shall pay, if the Landlord elects not to include the cost of the same from time to time in Operating Expenses, the cost of installing, cleaning, maintaining, repairing and replacing electric lightbulbs, fluorescent tubes, starters, ballasts, fluorescent fixtures and other lighting equipment in the Leased Premises. In such event, the costs of the same in regard to the Common Facilities shall remain to that extent an Operating Expense. ASSIGNING AND SUBLETTING 7.01 Except as set out herein, the Tenant may not assign or sublet the Premises or any portion thereof without the Landlord's prior written consent. The Landlord will not unreasonably withhold consent to assignment or subletting so long as the Tenant is in full compliance with the provisions of the Lease. Notwithstanding the above, the Tenant shall be permitted to sublet or assign a portion of the Premises to related companies without the Landlord's consent or written notice to the Landlord provided the Tenant continues to be fully responsible for complying with all the terms and conditions of the Lease. The Tenant shall not otherwise part with possession of the whole or any part of the Leased Premises. LANDLORD'S COVENANTS 8.01 The Landlord covenants with the Tenant as follows: (a) Upon the payment of the rent hereby reserved at the times and in the manner herein provided and upon the observance and performance of each and every one of the covenants, conditions, restrictions and stipulations by the Tenant to be observed or performed, the Tenant shall and may peacefully and quietly possess and enjoy the Leased Premises during the Term of this Lease without any interruption from or by the Landlord or any persons lawfully claiming by, through or under it save and except as expressly provided in this Lease; provided and it is hereby agreed that in no event will the conduct of repairs, alterations, additions or renovations by the Landlord to the exterior or interior of the Leased Premises or the Building (nor construction work in, or upon the Building or the Leased Premises) constitutes a breach of this covenant for quiet enjoyment. (b) The Landlord shall permit the Tenant, its employees and all persons lawfully requiring communication with it to have access to the Leased Premises and to the Building during Normal Business Hours. At times other than Normal Business Hours access to the Building and the Leased Premises shall be in accordance with the rules and regulations established by the Landlord under this Lease. (c) The Landlord shall permit the Tenant, its employees, invitees, and licensees the right of access to and use of, in common with other tenants of the Building, the toilet and washroom facilities in the Building other than those provided exclusively - 14 - for the use of other tenants, and the Landlord shall keep such toilet and washroom facilities supplied with hot and cold water and in good repair and working order, reasonable wear and tear excepted. (d) The Landlord shall operate, maintain and clean the Building in accordance with building management standards as are established by custom and practice for comparable buildings in the City in which the said Lands and Building are situated. (e) The Landlord shall furnish sufficient heating to the Leased Premises during Normal Business Hours to the same standard of comfort as is established by custom and practice for comparable buildings in the City in which the said Lands and Building are situated. (f) Where there is an air-conditioning system in the Building, the Landlord shall furnish air-conditioning to those areas serviced by that system during Normal Business Hours to the same standard of comfort as is established by custom and practice for comparable buildings in the City in which the Lands and Building are situate. The Landlord shall, however, when requested by the Tenant, furnish air-conditioning to the Leased Premises other than during Normal Business Hours, but only at the expense of the Tenant and upon receipt of notice from the Tenant not less than twenty-four (24) hours in advance. The expense to the Tenant for such additional air-conditioning shall be equal to the Landlord's actual cost for labour and utilities used in the operating of the air-conditioning system during the period of such additional airconditioning. (g) The Landlord shall provide elevator service in the Building during Normal Business Hours and at least one passenger elevator for service to the Leased Premises at all other times. In the event any elevator in the Building is incapable of operating the Landlord shall repair such elevator with all due dispatch having regard to all of the circumstances. (h) The Landlord shall keep the Common Facilities in a proper state of repair, reasonable wear and tear and damage and destruction as covered by Article 10 excepted, and the Landlord will make all repairs and replacements to the Building elevators and to the Building heating and air-conditioning apparatus (other than such apparatus as may be the property of or as may have been installed by the Tenant). The Landlord will be responsible for the making of and payment for structural repairs to the Building and all of such repairs shall be made by the Landlord as expeditiously as reasonably possible in the circumstances; provided that the Landlord shall not be liable for any direct, indirect or consequential loss or damage to any person or property for any failure to do so, unless such loss or damage is caused by the wilful act or neglect of the Landlord. Provided further, however, that the obligations of the Landlord hereunder are subject to Article 9.01, it being the intent of the parties that this Article 8.01 shall only apply where Article 9.01 does not apply. (i) The Landlord shall pay when due Property Tax, rates and charges levied or assessed against the Lands and the Building, saving and excepting any tax on personal property or income, licences, fees, or other taxes or charges imposed upon the property, business or income of tenants and the use of any premises by tenants, including the Leased Premises. (j) The Landlord shall take out or cause to be taken out and keep or cause to be kept in full force and effect: (i) All Risk Insurance including flood and earthquake insurance, on the Lands and Building and including improvements, on a replacement cost basis, in an amount such as would be carried by a prudent owner, subject to such deductions and exceptions as the Landlord may - 15 - determine; such insurance shall be in a form or forms normally in use from time to time for buildings and improvements of similar nature similarly situated, including, should the Landlord so elect, insurance to cover any loss of rental income which may be sustained by the Landlord; (ii) boiler and machinery Insurance on such boilers and pressure vessels as may be installed or under the exclusive control of the Landlord in the Building (other than such boilers and pressure vessels to be insured by the Tenant hereunder); and, (iii) comprehensive general liability insurance against claims of bodily injury, including death and property damage or loss arising out of the use and/or occupation of the Building in an amount such as would be carried by a prudent owner but in any case of not less than $3,000,000.00 combined single limit, in such form and subject to such deductions and exceptions as the Landlord may determine; provided that nothing herein shall prevent the Landlord from providing or maintaining such broader coverage as the Landlord may determine. DAMAGE, DESTRUCTION OR PREMISES 9.01 It is understood and agreed that if during the Term of this Lease the said Building of which the Leased Premises form a part shall be damaged or destroyed by fire, lightning, tempest, impact of aircraft, acts of God or the Queen's enemies, riots, insurrections, explosion or other casualty, then and in each such event the following provisions shall have effect: (a) If the Leased Premises are rendered partially unfit for occupancy by the Tenant, the Basic Rent hereby reserved shall abate in part only in proportion that the part of the Leased Premises rendered unfit for occupancy bears to the whole of the Leased Premises or if the Leased Premises are rendered wholly unfit for occupancy, the Basic Rent hereby reserved shall be suspended in each case until the Leased Premises have been rebuilt and/or repaired or restored. (b) If it shall require more than forty-five (45) days to rebuild and/or repair and restore the Building or the Leased Premises and, if such damage or destruction shall have occurred within the last two years of the initial Term or a Renewal Term, if any, of this Lease, the Landlord shall not be obligated to rebuild and/or repair and restore the Building or the Leased Premises. The Tenant shall be released from any further obligation under the Lease if the Landlord elects not to rebuild and/or repair and restore the Leased Premises. (c) If the Landlord shall, pursuant to the provisions of this clause, be obligated to rebuild and/or repair and restore the Building of which the Leased Premises form a part, such rebuilding and/or repair and restoration shall be commenced promptly and shall be proceeded with all reasonable diligence so as to rebuild and/or repair and restore the Building of which the Leased Premises form a part as nearly as possible to the condition that they were in immediately before such damage or destruction or with such changes as the Landlord may determine. The Landlord shall not be liable to the Tenant for any loss or damage suffered by the Tenant as a result of any reasonable delay in repair which may arise by reason of adjustment of insurance on the part of the Landlord or on account of labour disagreements or any other cause beyond the Landlord's control. (d) It is expressly understood and agreed that in the event of an obligation of the Landlord to rebuild and/or repair or restore - 16 - the Building of which the Leased Premises form a part it shall not extend to or be deemed to include the rebuilding and/or repair and restoration of any alterations, additions, extensions, equipment or installations made by or for the Tenant upon the Leased Premises except for the floor covering installed for the Tenant by the Landlord. (e) Notwithstanding the foregoing, if, in the opinion of the Landlord's Architect, twenty (20%) percent or more of the Rentable Area of the Building, excluding the area contained within the Leased Premises, is damaged or destroyed and the Landlord elects, as a result thereof, to demolish the Building, then notwithstanding that the Leased Premises may be unaffected by such damage or destruction, and notwithstanding any covenant of the Landlord in this Lease, the Landlord may on its election terminate this Lease and the tenancy hereby created by giving to the Tenant, within sixty (60) days following the date of such damage or destruction, written notice of the Landlord's election so to demolish and terminate and in such event this Lease and the tenancy hereby created shall terminate sixty (60) days after the delivery of the said written notice and Basic Rent shall be adjusted to the date of expiration of the said sixty (60) day notice period, at which time the Tenant shall deliver up possession of the Leased Premises to the Landlord. EXPROPRIATION 10.01 If during the Term of this Lease the whole or any part of the Leased Premises or the Lands or Building are taken by expropriation, this Lease and the Term hereunder will not be cancellable in whole or in part, but the Landlord and the Tenant will each be entitled to such compensation with respect to their respective interests as the Court or tribunal determining such compensation may award. LANDLORD'S RIGHTS AND REMEDIES 11.01 If and whenever: (a) the Basic Rent hereby reserved or any part thereof or the Additional Rent or any other monies to be paid hereunder or any part thereof shall not be paid on the day appointed for payment thereof, whether lawfully demanded or not; or (b) there is a material breach or non-observance or nonperformance of any of the other covenants, agreements, provisos, conditions or rules and regulations on the part of the Tenant to be kept, observed or performed, and the same are not cured within five (5) business days of notice to so do (provided, however, if they cannot reasonably be so cured in that time, then in such additional time as may be reasonably necessary with the Tenant acting diligently to cure them forthwith); or (c) the Leased Premises shall be vacated or remain unoccupied for ten (10) business days; or (d) the Leased Premises shall be used, without the written consent of the Landlord, by any person other than the Tenant; or (e) the Leased Premises or any part thereof shall be used for any purpose other than that for which the same were let; or (f) the Term shall be taken in execution or attachment for any cause whatever; then, and in every such case, it shall be lawful for the Landlord at any time thereafter to enter into and upon the Leased Premises or any part thereof in the name of the whole and the same to have again, repossess and enjoy as of its former estate, anything in the Lease contained to the contrary notwithstanding. - 17 - 11.02 If the Term hereof or any of the goods and chattels of the Tenant shall be at any time seized in execution or attachment by any creditor of the Tenant or if a receiver or receive r-manage r is appointed in respect of any property of the Tenant or the Tenant shall make any assignment for the benefit of creditors or shall make any bulk sale or become bankrupt or insolvent or take the benefit of any act now or hereafter in force for bankrupt or insolvent debtors, or, if the Tenant is a corporation and any order shall be made for the winding-up of the Tenant, or other termination of the corporate existence of the Tenant, then in any such case this Lease shall, at the option of the Landlord, cease and terminate and the Term shall immediately become forfeited and void and the then current month's Basic Rent and the next ensuing three (3) months' minimum Basic Rent shall immediately become due and be paid and the Landlord may immediately claim the same together with any arrears then unpaid and any other amounts owing to the Landlord by the Tenant and the Landlord may without notice or any form of legal process forthwith re-enter upon and take possession of the Leased Premises and become the owner of and remove the Tenant's effects therefrom, any statute or law to the contrary notwithstanding, the whole without prejudice to and under reserve of, all other rights, remedies and recourses of the Landlord. 11.03 If at any time an action is brought for recovery of possession of the Leased Premises, or the recovery of rental or any part thereof, or because of a breach by act or omission of any other covenant herein contained on the part of the Tenant, and a breach is established, the Tenant shall pay to the Landlord all expenses incurred by the Landlord in the enforcement of its rights and remedies hereunder. 11.04 In case the Leased Premises shall be deserted or vacated, the Landlord shall have the right, if it thinks fit, to enter the same, as the agent of the Tenant either by force or otherwise without being liable to any prosecution therefor, and to relet the Leased Premises as the agent and at the risk of the said Tenant and to receive the rental therefor, and the Tenant shall pay any deficiency in Basic Rent, Additional Rent, or any other monies otherwise payable hereunder. 11.05 It is hereby expressly understood and agreed that if at any time and so often as the same shall happen, the Tenant shall make default in the observance or performance of any of the Tenant's covenants herein contained, then the Landlord may, but shall not be obligated so to do, without waiving or releasing the Tenant from its obligations under the terms of this Lease, itself observe and perform the covenant or covenants in respect of which the Tenant has made default, or make payment of any monies that the Tenant has failed to pay; and all reasonable costs and expenses incurred by the Landlord in the observance or performance of such covenant or covenants including, without limitation, legal costs as between solicitor and client and any monies so paid by the Landlord, with interest thereon from the date upon which the Landlord shall have paid out the same at a rate equal to three (3%) percent per annum above the prevailing Prime Rate from time to time charged on demand commercial loans as determined by the Royal Bank of Canada at its Main Branch in the City of Vancouver, in the Province of British Columbia, such interest being payable and compounded monthly and calculated from the time the Landlord shall have paid out the same and shall be a charge on the Leased Premises in favour of the Landlord in priority to the interest of the Tenant hereunder and of any person claiming under or through the Tenant and all such costs, expenses, monies and interest thereon shall be payable by the Tenant, any such monies paid out by the Landlord as aforesaid, together with interest thereon forthwith on demand as Additional Rent, and the Landlord shall have the same rights and remedies and may take the same steps for the recovery thereof as for the recovery of rent in arrears. 11.06 The Tenant shall pay to the Landlord interest at the rate equal to three (3%) percent per annum, above the prevailing Prime Rate from time to time charged on demand commercial loans as determined by The Royal Bank of Canada at its Main Branch in the City of Vancouver, in the Province of British Columbia, on all payments of Basic Rent and other sums required to be made under this Lease which have become overdue so long as such payments remain unpaid. - 18 - 11. 07 No condoning, excusing or overlooking by the Landlord or Tenant of any default, breach or non-observance by the Tenant or the Landlord at any time or times in respect of any covenant, proviso or condition herein contained shall operate as a waiver of the Landlord's or the Tenant's rights hereunder in respect of any continuing or subsequent default, breach or non-observance, or so as to defeat or affect in any way the rights of the Landlord or the Tenant herein in respect of any such continuing or subsequent default or breach, and no waiver shall be inferred from or implied by anything done or omitted by the Landlord or the Tenant save only express waiver in writing. 11.08 All rights and remedies of the Landlord in this Lease contained shall be cumulative and not alternative. 11.09 The Tenant waives and renounces the benefit of any present or future law taking away or limiting the Landlord's right of distress on the property of the Tenant and, notwithstanding any such law, the Landlord may seize and sell all the Tenant's goods and property which at any time have been located within the Leased Premises whether within the Leased Premises or not and apply the proceeds of such sale upon Basic Rent outstanding and upon the costs of the seizure and sale in the same manner as might have been done if such law had not been passed. The Tenant further agrees that if it vacates the Leased Premises leaving any Basic Rent unpaid, the Landlord, in addition to any remedy otherwise provided by law, may seize and sell the said goods and property of the Tenant at any place to which the Tenant or any other person may have removed them, in the same manner as if such goods and property had remained upon the Leased Premises. For the purpose of making a distress or for the purpose of re-entry for any reason under this Lease, the Landlord by itself, its agents or Bailiffs may break open any door or window and enter upon the Leased Premises, and the Landlord, its agents and Bailiffs, shall not be liable for any action in respect thereof or for any loss or damage occasioned thereby. The Tenant hereby expressly releases the Landlord from all actions, proceedings, claims or demands whatsoever for or on account of or in respect of any such forcible entry or any loss or damage sustained by the Tenant in connection therewith. NON-WAIVER 12.01 No covenant, term or condition of this Lease shall be waived except by written consent of the Landlord and the forebearance or indulgence by the Landlord in any regard whatsoever shall not constitute a waiver of the covenant, term or condition to be performed by the Tenant and the Landlord shall be entitled to invoke any remedy available under this Lease or at law or in equity despite such forebearance or indulgence. The waiver of any breach of any covenant, term or condition by the Landlord shall not constitute a waiver of any other breach regardless of the Landlord's knowledge thereof. The acceptance by the Landlord of a part payment of any sums required to be paid hereunder shall not constitute waiver or release of the right of the Landlord to payment in full of such sums. The subsequent acceptance of rent by the Landlord shall not be deemed a waiver of any preceding breach of any obligation hereunder by the Tenant other than the failure to pay the particular rent so accepted and the acceptance by the Landlord of any rent from any person other than the Tenant shall not be construed as a recognition of any rights not herein expressly granted, or as a waiver of any of the Landlord's rights, or as an admission that such person is, or as a consent that such person shall be deemed to be, a sub-tenant under or assignee of this Lease. Nevertheless, the Landlord may accept rent from any person occupying the Leased Premises at any time without in any way waiving any right under this Lease. Any condoning, excusing or overlooking by the Landlord of any default, breach or non-performance by the Tenant at any time in respect of any payment, covenant, agreement, proviso or condition contained in this Lease shall not operate as a waiver of the Landlord's rights in respect of any subsequent and/or continuing default, breach or non-performance, or defeat or affect in any way the rights of the Landlord herein in respect of any subsequent default, breach or non-performance. Time shall be of and continue to be of the essence of this Lease and of all covenants, agreements, provisos and conditions contained in this Lease. - 19 - TENANT'S FIXTURES 13.01 The Tenant's fixtures (other than trade fixtures, computers and communications equipment), together with all alterations, additions, substitutions and improvements made and installed by the Tenant upon or in the Leased Premises and which in any manner are attached to, on, or under the floors, walls or ceilings of the Leased Premises shall upon the termination of this Lease become the Landlord's absolute property without compensation therefor to the Tenant, and shall not be removed by the Tenant either during or after the Term save as hereinafter provided. The making of the Tenant's repairs pursuant to this Lease or the making or permissible Tenant's improvements and alterations in accordance with this Lease shall not constitute a removal for the purposes thereof. Upon the termination of this Lease the Landlord may at its option and at the expense of the Tenant require the Tenant to remove any such fixtures, alterations, additions, substitutions and improvements made or installed by the Tenant upon or in the Leased Premises. The Tenant shall in the case of every removal, either during or at the end of the Term, make good any damage caused to the Leased Premises or to the Building in the course of such removal. Notwithstanding the above, the Tenant shall not be obligated to remove the office walls and partitions, and floor coverings which will be installed at the commencement of the Term as laid out in the floor plan in Schedule B. FORCE MAJEURE 14.01 Save and except for the obligations of the Tenant as set forth in this Lease to pay Basic Rent, Additional Rent and other monies to the Landlord, if either party shall fail to meet its obligations hereunder within the time prescribed, and such failure shall be caused or materially contributed to by force majeure (and for the purpose of this Lease, "force majeure" shall mean any acts of God, strikes, lockouts or other industrial disturbances, acts of the Queen's enemies, sabotage, war, blockade, insurrections, riots, epidemics, lightning, earthquakes, floods, storms, fires, washouts, nuclear and radiation activity or fallout, arrests, and restraints of rulers and people, civil disturbances, explosions, breakage of or accident to machinery, inability to obtain materials or equipment, 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 due diligence such party could not have been prevented, but lack of funds on the part of such party shall be deemed not to be a force majeure), such failure shall be deemed not to be a breach of the obligations of such party hereunder and the time for the performance of such obligations shall be extended accordingly. Provided, however, nothing contained in this clause shall extend or otherwise change the Termination Date hereof. LIMITATION OF LANDLORD'S LIABILITY 15.01 The Landlord shall not be liable or in any way responsible to the Tenant in respect of any loss, injury or damage suffered by the Tenant or others in respect of (i) the property of the Tenant or others from theft; (ii) indirect or consequential damage or damages for personal discomfort or illness or loss of business resulting from the interruption of the heating, ventilating and air-conditioning services or any utility services to be provided under this Lease by the Landlord; (iii) renovations, replacements or repairs to the Lands or Building or any part thereof; (iv) damage caused by other tenants, occupants or persons in the Leased Premises or other premises in the Building or the public, or damage caused in the course of construction or operation of any private or public work in which the Landlord is not directly or indirectly involved; (v) damage required to be insured against by the Tenant; and (vi) injury or damage (except where caused by the negligent acts or omissions of the Landlord but excluding injury or damage required to be insured against by the Tenant) to persons or property - 20 - resulting from fire, explosion, falling plaster, escaping steam or gas, electricity, water, rain or snow or leaks from any part of the Building including the Leased Premises, or from any pipes, appliances or plumbing work therein, or from dampness. 15.02 The term "Landlord" as used in this Lease so far as covenants or obligations on the part of the Landlord are concerned shall be limited to mean the Landlord as hereinbefore set out, while it retains its interest in the Lands, Building and Leased Premises but upon a transfer of that interest, the Landlord shall be automatically relieved, after the date of such transfer, of all personal liability arising out of the requirement for performance of any obligations on the part of the Landlord herein contained. RESERVATION TO LANDLORD 16.01 Any space within the Leased Premises used for stairways and passageways to other adjoining premises and stacks, shafts, pipes, conduits, ducts, or other Building facilities, the heating, electrical, plumbing, ventilation, air-conditioning and other Building systems, and the use thereof as well as access thereto through the Leased Premises for the purpose of use, operation, maintenance and repair are expressly reserved to the Landlord. Notwithstanding the reservation of such areas to the Landlord, the Tenant acknowledges that the cost of operation, maintenance and repair thereof, except structural repair and replacement, shall be included in Operating Expenses. OVERHOLDING 17. 01 Upon the expiration or earlier termination of the Term of this Lease, the Tenant shall quit and surrender the Leased Premises in good order and condition, reasonable wear and tear excepted, and the Tenant shall remove all its property therefrom except as otherwise provided in this Lease. If the Tenant remains in occupation beyond the expiration or earlier termination of this Lease, such continued occupation by the Tenant shall not have the effect of extending the Term or renewing the Term of this Lease for any period of time, notwithstanding any statute or law to the contrary, and the Tenant shall be presumed to occupy the Leased Premises against the will of the Landlord, who shall thereupon be entitled to make use of any and all remedies by law provided for the expulsion of the Tenant including all claims for loss or damages provided, however, that the Landlord may, at its option, give to the Tenant written notice that the Tenant may continue to occupy the Leased Premises under a tenancy from month to month and otherwise under the terms and conditions as the Landlord may specify in the said written notice, including Basic Rent therefor. Notwithstanding anything in this Lease to the contrary, if the Landlord does not give said written notice as stated in this clause, the tenancy resulting shall be a monthly tenancy only, at the monthly rental equivalent to one-tenth (1/10th) of the gross Basic Rent payable for the year immediately preceding and subject to termination at the election of the Landlord or the Tenant upon one (1) month's notice in writing, and subject also to the terms, conditions and covenants herein set out, except as to the length of tenancy, it being understood that the acceptance of Basic Rent or any implied condition in no way renews this Lease as a yearly tenancy. SERVICE OF LEGAL DOCUMENTS 18.01 Notwithstanding anything otherwise contained in this Lease and in addition to any other method of service that may be authorized by the Rules of Court, the Tenant hereby elects domicile at the Leased Premises for the purpose of service or formal receipt of any Writs of Summons or other legal documents in any action or proceeding whatsoever by the Landlord to enforce its rights hereunder. - 21 - GENDER 19.01 Where required the singular number shall be deemed to include the plural and the neuter gender the masculine or feminine. DEFINITION 20.01 The definition of any words in any paragraph of this Lease shall apply to such words when used in any other paragraph hereof whenever the context is consistent. NOTICES 21.01 All notices, demands and requests which may be or are required to be given under this Lease shall be in writing. All notices, demands and requests may be served personally, sent by registered mail or postage prepaid, addressed in each case delivered to or addressed to the Landlord as follows: Box 16, 1128 Hornby Street Vancouver, B. C., V6z 2L4 and to the Tenant at the Leased Premises or at the address set out in the description on page 1 of this Lease or at such other place within Canada as either of the Landlord or the Tenant may from time to time designate by written notice to the other. Notices, demands and requests which are served in the manner aforesaid shall be deemed sufficiently served or given for all purposes of this Lease, in the case of those personally served, on the day of such service, and in the case of those given by prepaid registered mail or postage prepaid, on the date three (3) days following the date of such posting as the case may be. Where the Leased Premises shall have been vacated or abandoned by the Tenant, any notice, demand or request shall be deemed sufficiently given, for all purposes of this Lease, if posted on the Leased Premises. TIME OF ESSENCE 22.01 Time shall be of the essence of this Lease. ENTIRE AGREEMENT 23. 01 The Tenant acknowledges that there have been no representations, warranties, agreements, covenants or conditions expressed or implied, affecting or relating to this Lease or the Leased Premises made or given by the Landlord or any agent, officer, employee or servant of the Landlord which are not set out in this Lease and that this Lease constitutes the entire agreement between the Landlord and Tenant and may not be modified except by subsequent agreement in writing duly signed by the Landlord and the Tenant. ENUREMENT 24.01 This indenture and everything herein contained shall enure to the benefit of and be binding upon the respective heirs, executors, administrators, successors, permitted assigns and other legal representatives, as the case may be, of each and every of the parties hereto, including the Covenantor, if any, and every reference herein to any party thereto shall include the heirs, executors, administrators, successors, permitted assigns and other legal representatives of such party, and where there is more than one tenant or there is a male or female party or a corporation, the provision hereof shall be read with all grammatical changes thereby rendered necessary and all covenants shall be deemed joint and several. - 22 - CAPTIONS 25. 01 The captions appearing in this Lease have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Lease, nor of any provision thereof. GOVERNING LAW 26.01 This Lease shall be construed and governed by the laws of the Province in which the Lands and Building are situate. Should any provision or condition of this Lease be or become illegal or not enforceable, it shall be considered separate and severable from this Lease and its remaining provisions and conditions shall remain in force and be binding upon the parties hereto as though the said provision or condition had never been included. ACCEPTANCE 27.01 The Tenant hereby accepts this Lease of the above described Leased Premises to be held by it as Tenant subject to the covenants, conditions and restrictions above and in the Schedules attached hereto set forth. The Tenant covenants and agrees with the Landlord that the Landlord shall not be obliged to execute or deliver this Lease in form registrable under the Land Title Act or any other statute governing registration and, further, that the Landlord shall not be obliged to deliver a plan in registrable form of the Building or the Lease Premises. IN WITNESS WHEREOF the parties hereto have executed this Lease by affixing their corporate seals by their authorized officers in that behalf, or by the Tenant's signature hereto, as of the day and year first above written. LANDLORD: The Corporate Seal of 1045 Howe Street Holdings Ltd. was hereunto affixed on this day of 2000 in the presence of: /s/ - --------------------------------- Signature Accountant - --------------------------------- Title TENANT: The Corporate Seal of Milinx Business Services, Inc. was hereunto affixed on this day of , 2000 in the presence of: /s/ - --------------------------------- Signature President - --------------------------------- Title SCHEDULE "A" LEGAL DESCRIPTION This is Schedule "A" to the Lease dated the 31st day of May, 2000 entered into between 1045 Howe Street Holdings Ltd. as Landlord, and Milinx Business Services, Inc. as Tenant. City of Vancouver, Lot "I", Block 81, District Lot 541, Plan 15494. SCHEDULE "B" FLOOR PLAN This is Schedule "B" to the Lease dated the 31st day of May, 2000 entered into between 1045 Howe Street Holdings Ltd. as Landlord, and Milinx Business Services, Inc. as Tenant. 14,005 square feet, more or less, as shown in red, on the Third floor [GRAPHIC OMITTED] Diagram of Floor Plan SCHEDULE C STANDARD METHOD OF FLOOR MEASUREMENT This is Schedule "C" to the Lease dated the day of 2000 entered into between 1045 Howe Street Holdings Ltd. as Landlord, and Milinx Business Services, Inc. as Tenant. PART I - SINGLE TENANCY FLOORS The Rentable Area of a single tenancy floor shall be the area within the outside walls computed by measuring from the inside surface of the outer masonry Building wall to the inside surface of the opposite outer masonry Building wall, or alternatively where the outer Building wall consists of fifty (50%) percent or more of glass, from the inside surface of such glass to the inside surface of the opposite outer masonry Building wall or the inside surface of the opposite glass, whichever is applicable; and shall include: (a) the areas of columns and projections necessary to the Building; and (b) air-conditioning shafts and ducts where a central air- conditioning system eliminates floor fan rooms; but shall exclude: the areas of the following core areas, with their enclosing walls (except where any such wall shall be common to an adjacent accessory area as described in Part II hereof or adjacent to another core area, then in any such case from the centre of such common wall): public stairs public elevator shafts flues vents stacks pipe shafts vertical ducts (except those referred to in (b) above). PART II- MULTIPLE TENANCY FLOORS The Rentable Area of the Leased Premises, where situate on a multiple tenancy floor, shall be the aggregate of: (a) the area of the Leased Premises computed by measuring from the inside surface of the outer masonry Building wall, or alternatively where the outer Building wall consists of fifty (50%) percent or more of glass, from the inside surface of such glass to the finished surface of the corridor side of the corridor partition and from the centre of the partitions that separate the Leased Premises from adjoining Rentable Areas and from the outer surface of walls enclosing accessory areas and core areas; and (b) a Proportionate Share of the areas of the following accessory areas: (i) public corridors and elevator lobbies, and with their enclosing walls (except when any such wall shall be common to an adjacent core area or adjacent to another accessory area, then in any such case from the centre of such common wall), and the following: public toilets janitor closets electrical closets - 2 - telephone closets air-conditioning rooms fan rooms air ducts (ii) air-conditioning shafts and ducts where a central air- conditioning system eliminates floor fan rooms; but shall exclude: the areas of the following core areas, with their enclosing walls (except where any such wall shall be common to an adjacent accessory area or adjacent to another core area, then in any such case from the centre of such common wall): public stairs public elevator shafts flues vents stacks pipe shafts vertical ducts (except those referred to in (b) above). For the purpose of this Part II "Proportionate Share" shall mean the product obtained by multiplying the aggregate area of all accessory areas on the respective floors by a fraction the numerator of which is the area of the Leased Premises and the denominator of which is the aggregate of the areas of all leasable premises on such floors. SCHEDULE "D" RULES AND REGULATIONS This is Schedule "D" to the Lease dated the 31st day of May, 2000 entered into between 1045 Howe Street Holdings Ltd. as Landlord, and Milinx Business Services, Inc. as Tenant. 1. The Landlord shall have the right to control and operate the Common Facilities in such manner as it deems best for the benefit of the tenants generally. No tenant shall invite to the Leased Premises, or permit the visit of, persons in such numbers or under such conditions as to interfere with the use and enjoyment of the Common Facilities by other tenants. 2. The Common Facilities shall not be encumbered or obstructed by tenants or tenants' agents, servants, employees, licensees or invitees, or be used by them for any purpose other than as set out in this Lease. The Landlord reserves the right to restrict and regulate the use of the aforementioned Common Facilities by tenants and tenants' agents, employees, servants, licensees and invitees and by persons making deliveries to tenants (including, but not limited to, the right to allocate certain elevator or elevators, if any, and the reasonable hours of use thereof for delivery service), and the right to designate which Building entrance or entrances shall be used by persons making deliveries to the Building. 3. No awnings or other projections shall be attached to the outside walls of the Building. No curtains, blinds, shades or screens other than those furnished or approved of by the Landlord shall be attached to, or hung in, or used in connection with, any window or door of the Leased Premises, without the prior written consent of the Landlord. Such curtains, blinds, shades, screens, or other fixtures must be of a quality, type, design and colour as approved by the Landlord, and attached in the manner approved by the Landlord. 4. No sign, advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by any tenant on any window or part of the outside or inside of the Leased Premises or the Building without the prior written consent of the Landlord. In the event of the violation of the foregoing by any tenant, the Landlord may remove same without any liability, and may charge the expense incurred by such removal to such tenant. Interior signs on doors shall be inscribed, painted, or affixed for tenants by the Landlord or by sign painters, first approved by the Landlord, at the expense of the tenants and shall be of a size, colour, and style acceptable to the Landlord. 5. The windows and doors and, if any, the sashes, sash doors, and skylights that reflect or admit light and air into the halls, passageways, or other public places in the Building shall not be covered or obstructed by tenants, nor shall any bottles, parcels, files, papers or other articles be placed on the windowsills. 6. No showcase or other articles shall be put in front of or affixed to any part of the exterior of the Building, nor placed in the halls, corridors, or vestibules without the prior written consent of the Landlord. 7. The toilets, urinals, sinks and other water apparatus shall not be used for any purposes 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 tenants by whom or by whose agents, servants, employees, customers or invitees the same was caused. Tenants shall not let the water run unless it is in actual use, and shall not deface or damage any part of the Building, nor drive nails, spikes, hooks, or screws into the walls or woodwork of the Building. -2- S. Tenants shall not mark, paint, drill into, or in any way deface any part of the Leased Premises or the Building. No boring, cutting or stringing of wires shall be permitted except with the prior written consent of the Landlord and as the Landlord may direct. Only contractors approved in writing by the Landlord may be employed by tenants for making repairs, changes or any improvements to the Leased Premises. Tenants shall not (without the Landlord's prior consent) lay floor coverings other than unaffixed rugs, so that the same shall come into direct contact with the floor of the Leased Premises and, if wall to wall carpeting, linoleum or other similar floor coverings other than the Building standard carpet are desired to be used and such use is approved by the Landlord, and if such floor coverings are placed or to be placed over tile flooring then an interlining of builder's deadening felt shall be first affixed to the floor, by a paste or other material soluble in water, the use of cement or similar adhesive material being expressly prohibited. Metal cabinets shall be set on a non-corrosive pad wherever the floors are tile. 9. No bicycles, vehicles or animals or birds of any kind shall be brought into or kept in or about the Building or the Leased Premises excepting that those vehicles so authorized by the Landlord may enter and be kept in the Building's parking facilities. 10. No space in the Building shall be used for manufacturing or for lodging, sleeping, residential purposes, or any immoral or illegal purposes. No space shall be used for the storage of merchandise or for the sale of merchandise, goods or property, other than in the ordinary course of business, and no auction sales shall be made by tenants without prior written consent of the Landlord. 11. Tenants shall not make, or permit to be made, any unseemly or disturbing noises or disturb or interfere with occupants of this or neighbouring buildings or premises or those having business with them whether by the use of any musical instrument, radio, television, talking machine, unmusical noise, whistling, singing or in any other way. Tenants shall not throw anything out of the doors, windows or skylights, if any, or down the passageways, stairs or elevator shafts nor sweep anything into the corridors, hallways or stairs of the Building. 12. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by tenants, nor shall any changes whatsoever be made to existing locks or the mechanics thereof except by the Landlord, at its option. Tenants shall not permit any duplicate keys to be made, but additional keys as reasonably required shall be supplied by the Landlord when requested by the Tenant in writing and such keys shall be paid for by the Tenant, and upon termination of the Tenant's Lease, the Tenant shall surrender to the Landlord all keys of the Leased Premises and other part or parts of the Building. 13. The Tenants and their agents, servants, contractors, invitees or employees, shall not bring in or take out, position, construct, install or move any safe, business machine or other heavy office equipment without first obtaining the consent in writing of the Landlord. In giving such consent, the Landlord shall have the right in its sole discretion to prescribe the weight permitted and the position thereof and the use and design of planks, skids or platforms to distribute the weight thereof. All damage done to the Building by moving or using any such heavy equipment or other office equipment or furniture shall be repaired at the expense of the tenant. The moving of all heavy equipment or other office equipment or furniture shall occur only outside of Normal Business Hours or at any other time consented to by the Landlord and the persons employed to move the same in and out of the Building must be acceptable to the Landlord. Safes and other heavy office equipment will be moved through the halls and corridors only upon steel bearing plates. No freight or bulky matter of any description will be received into the Building or carried in the elevators, except during hours approved by the Landlord. 14. Tenants shall not occupy or permit any portion of the Leased Premises to be occupied as an office for a public stenographer or typist, or for the possession, storage, manufacture, or sale of narcotics or drugs, except as incidental to the Tenant's main business. -3- 15. Tenants shall not use the name of the Building or the owner in any advertising without the express consent in writing of the Landlord. The Landlord shall have the right to prohibit any advertising by any tenant which in any way tends to impair the reputation of the Building or its desirability as a building, and upon written notice from the Landlord, tenants shall refrain from or discontinue such advertising. 16. All entrance doors in the Leased Premises shall be left locked and all windows shall be left closed by tenants when the Leased Premises are not in use. 17. The Landlord shall in no way be responsible to any tenant for 1 of property from the Leased Premises, however occurring, or for dam done to the furniture or other effects of any tenant by the Landlord's agents, janitors, cleaners, employees or contractors doing work in the Leased Premises. The tenant shall permit window cleaners to clean the windows of the Leased Premises during Normal Business Hours. 18. The requirements of tenants will be attended to only upon application to the Building manager or such other authorized representative as the Landlord may designate in writing. The Landlord's employees shall not perform any work or do anything outside of their regular duties, unless under specific instructions from the office of the Landlord, from the Building manager or other representative as aforesaid. 19. Canvassing, soliciting and peddling in the Building are prohibited, and tenants shall co-operate to prevent the same. 20. Any hand trucks, carryalls, or similar appliances used in the Building shall be equipped with rubber tires, side guards and such other safeguards as the Landlord shall require. 21. Without first obtaining the Landlord's written permission, tenants shall not install, attach, or bring into the Leased Premises any equipment (other than normal office equipment such as electric typewriters, calculators, and the like) or any instrument, duct, refrigerator, air conditioner, water cooler, or any other appliance requiring the use of gas, electric current, or water. Any breach of this rule will entitle the Landlord at the tenant's expense to enter into the Leased Premises and remove whatever the tenant may have so installed, attached or brought in. 22. The Landlord reserves the right to exclude from the Building outside of Normal Business Hours and during all hours on weekends all persons not authorized by a tenant in writing, by pass, or otherwise, to have access to the Building and the Leased Premises. Each tenant shall be responsible for all persons authorized by him to have access to the Building and shall be liable to the Landlord for all of their acts while in the Building. When security service is in effect, entrance to the Building, deliveries and exits shall be made via designated entrances and the Landlord may require all persons to sign a register on entering and leaving the Building. Any person found in the Building at such times without authorization or a pass will be subject to the surveillance of the employees and agents of the Landlord. The Landlord shall be under no responsibility for failure to enforce this rule. 23. The Tenant shall at all times keep all drapes, blinds or curtains adjusted to block the direct rays of the sun in order to avoid overloading the air-conditioning systems. 24. Neither tenants nor their servants, employees, agents, visitors, or licensees shall at any time bring or keep upon the Leased Premises any inflammable, combustible or explosive fluids, chemicals or substance, nor do nor permit to be done anything in conflict with any insurance policy which may or might be in force upon the Building or any part thereof or by reason of which any fire insurance premiums may be (or may be liable to be) increased; or with the laws relating to fires, or with the regulations of the Fire Department or the Health Department; or with any of the rules, regulations or ordinances of the City in which -4- the Leased Premises are located, or of any other duly constituted authority. 25. Tenants shall not, without first obtaining the Landlord's prior written approval, do any cooking, conduct any restaurant, luncheonette, or cafeteria for the sale or service of food or beverages to its employees or to others, or cause or permit any odours of cooking or other processes or any unusual or objectionable odours to emanate from the Leased Premises. Tenants shall not, without first obtaining the Landlord's prior written approval, install or permit the installation or use of any food, beverage, cigarette, cigar or stamp dispensing machine; or permit the delivery of any food or beverage to the Leased Premises except by such persons delivering the same as shall be approved by the Landlord. No food or beverage shall be carried in the public halls or elevators except in closed containers. 26. Except as may be otherwise approved by the Landlord, no tenant shall occupy or permit to be occupied any portion of the Leased Premises as an employment bureau, or advertise for labourers giving the Leased Premises as an address. 27. No tenant shall, at any time, while in or on any part of the Lands or Building, feed or leave any foodstuffs or any birds or other animals. 28. Each tenant shall keep its Leased Premises free of waste, rubbish and debris at all times and provide proper receptacles in the Leased Premises for waste and rubbish. 29. The Tenant shall be responsible for cleaning at reasonable time intervals any drapes and/or curtains that may be installed in the Leased Premises. 30. The Tenant shall not place, or permit to be placed, any signs of any nature whatsoever within the Leased Premises where the same can be seen from outside of the Leased Premises, and shall not place, or permit to be placed, any sign of its or any of its employees or permit its employees to place any sign within the Building or on or against the Building walls or on the Lands. 31. The Landlord reserves the right to promulgate, rescind, alter or waive the rules or regulations at any time prescribed for the Building when it is necessary, desirable or proper for its best interest and, in the opinion of the Landlord, for the best interests of the tenants. 32. The Landlord will publish from time to time emergency fire regulations and evacuation procedures in consultation with the applicable municipal authorities. The Tenant will, at the Landlord's request, appoint a premises warden (wardens for multi-floor users) who will be responsible for liaison with building management in all emergency matters and who will be responsible for instructing employees of the Tenant in all emergency matters. 33. The Tenant shall inform the Landlord immediately of the occurrence of any waste or damage, disfiguration or injury of the Lands, the Building, the Leased Premises or the fixtures or equipment therein or thereon. 34. The Tenant shall advise the Landlord immediately of the presence of and do all things necessary to remove any dangerous condition from time to time existing on the Leased Premises and arising as a result of the act or omission of the Tenant, its agents or servants. 35. The Tenant shall not permit smoking in the Building within or within the Leased Premises. SCHEDULE "E" OPERATING EXPENSES This is Schedule "E" to the Lease dated the 31st day of May, 2000 entered into between 1045 Howe Street Holdings Ltd. as Landlord, and Milinx Business Services, Inc. as Tenant. "Operating Expenses" means the aggregate of any and all costs and expenses incurred by the Landlord, without duplication thereof, which are attributable to the operation, supervision, maintenance and repair (including replacements but excluding structural repair and replacement) of the Building and the supervision, maintenance and operation of the Lands and shall include, but not be limited to: (1) Wages, salaries or other compensation for all employees, agents, or contractors of the Landlord performing services rendered in connection with the Lands and Building, including without limitation the superintendent of the Building along with his assistants and any clerical personnel, window cleaners, porters, janitors, cleaners and other handymen, watchmen, commissionaires, caretakers or security personnel, carpenters, engineers, firemen, mechanics, electricians, plumbers, painters and persons engaged in the operation, maintenance and repair of the heating, ventilating, air-conditioning, plumbing, electrical and elevator systems of the Building. (2) The cost of all employee benefits, including unemployment insurance, group insurance, worker's compensation insurance, pension plans and medical and dental premiums paid in connection with any of the Landlord's employees specified in (1) above. (3) The costs incurred to purchase and maintain uniforms supplied to any of the Landlord's employees specified in (1) above. (4) Costs incurred in lighting, sewer and sewer charges, cleaning, snow removal, garbage and waste removal, decorating, supervising, replacing, policing, striping, music rentals, loudspeaker systems, maintenance and monitoring of fire alarm systems, grounds maintenance, cleaning, maintaining and repairing of parking areas, Building exterior maintenance, telephone, stationery supplies and other materials, and service contracts in connection with, but not limited to, any mechanical, electrical, security, cleaning or elevator maintenance. (5) Costs incurred for fuel or other energy for heating, ventilating and air-conditioning systems thereof and for electricity, steam, water, oil, gas or other power required in connection with the lighting, use and operating of the Building. (6) The actual costs of all insurance as may be carried by the Landlord in respect of, or attributable to, the Building and the Lands or related thereto including without limitation fire and other perils, third party public liability and property damage, boiler and machinery and rental income insurance, more specifically defined in this Leases. (7) The costs of any modification and addition to the Building an/or the machinery and equipment therein and thereon when, in the reasonable opinion of the Landlord such expenditure may reduce Operating Expenses, or any additional equipment or improvements required by law or, in the Landlord's reasonable opinion, for the benefit or safety or the Building users. (8) The total annual amortization of capital costs and major repairs excluding structural repairs (on a straight line basis over the useful life or such other period as reasonable -2- determined by the Landlord), and the interest on the unamortized capital at a rate equivalent to the lending rate actually charged or chargeable by the Landlord's bankers from time to time on demand commercial loans made to the Landlord (and if different loans are at a different rate of interest, then the lowest of the same), of the cost of all furniture, machinery, equipment, replacements, modifications, additions and improvements to the Building which, in the Landlord's reasonable opinion, have an estimated useful life longer than one (1) fiscal year and the cost whereof has not previously been charged to the Tenant. (9) Sales and excise taxes on goods and services provided by the Landlord to manage, operate or maintain the Building and equipment. (10) Such portion of all taxes, other than Real Estate Taxes, as the Landlord shall have allocated to the Building and the Lands, including but not limited to Corporation Capital Tax (to a maximum of 25 cents per square foot), place of business taxes and other business or similar taxes assessed. (11) Any reasonable expenses including legal, appraisal, administration and overhead incurred by the Landlord verifying and/or obtaining or attempting to obtain a reduction of any Real Estate Taxes not otherwise provided for in this Lease. (12) Reasonable Fees and expenses of the Landlord's firm of accountants pertaining only to services performed in the preparation of any statements required specifically for the tenants under the provisions of this Lease. (13) A management Fee equal to three and a half (311%) percent of the Basic Rent payable to the Landlord in connection with the Leased Premises. (14) Such other direct operating costs, charges and expenditures of a like nature as may be incurred in respect of the proper preservation, protection, maintenance and operation of the Lands and Building. (15) Operating Expenses shall not include interest on debt or capital retirement of debt or amounts charged to depreciation except for depreciation or amortization of expense-reducing improvements and equipment or as otherwise provided herein. (16) Unless the Landlord elects to exclude these costs in regard to the Leased Premises by giving notice from time to time in writing to the Tenant, the cost of installing, cleaning, maintaining, repairing and replacing electric lightbulbs, fluorescent tubes, starters, ballasts, fluorescent fixtures and other lighting equipment in the Building. SCHEDULE "F" OPTION TO RENEW This is Schedule "F" to the Lease dated the 31st day of May, 2000 entered into between 1045 Howe Street Holdings Ltd. as Landlord, and Milinx Business Services, Inc. as Tenant. Upon the expiration of the Term herein granted, and provided that, and for so long only as the Tenant pays the rents and performs each and every of the covenants, conditions and agreements in the Lease reserved and contained and on the part of the Tenant to be paid and performed and is not and has not been in default in respect of any of the same and there has been no adverse change of any sort in the Tenant's financial condition or capacity, the Tenant shall have the right and option at his election to renew this Lease for an additional term of Five (5) years upon and subject to the covenants, conditions and agreements as art set forth in the Landlord's standard form of lease for the Building then in use. Such Renewal Term shall commence on the day immediately succeeding the expiration of the Term of this Lease (the "Renewal Date") and shall end at midnight of the day immediately preceding the fifth (5th) anniversary of the first day of the Renewal Term unless sooner terminated in accordance with the provisions of this Lease. The Tenant shall exercise such option to renew this Lease by giving notice in writing to the Landlord not earlier than twelve (12) months and not later than six (6) months prior to the last day of the Term of this Lease (the 'Notice Period"). . If requested by the Tenant during the Notice Period, the Landlord will provide the Tenant with a copy of its standard form of least for the Building then in use. In the event that the Tenant fails to give such notice to the Landlord as herein provided, the Lease shall automatically terminate at the end of the Term and the Tenant shall have no further option to extend this Lease The renewal lease shall not contain any provision for further renewal and the annual Net Rent shall be the market rate for similar premises of similar size, use and location one hundred twenty (120) days prior to the expiry date of this Lease, without deduction or allowance for or consideration of any tenant inducements, leasehold improvement allowances, rent free periods, lease take-overs, turnkey or "build-to-suit" arrangements or other concession or inducement offered or given by landlords to achieve such rental (the "New Annual Net Rent). The New Annual Net Rent shall be mutually agreed to by the Landlord and the 'Tenant at least ninety (90) days prior to the expiration of the Term, and failing agreement shall be determined by three (3) accredited real estate brokers (the "'Three Experts") at least thirty (30) days prior to the expiration of the Term, which experts shall be familiar with rental rates in the area of the Leased Premises, one of whom shall be appointed by the Landlord (the "Landlord's Expert") and all costs associated with the Landlord's expert shall be the sole responsibility of the Landlord, and one expert shall be appointed by the Tenant (the "Tenant's Expert") and all costs associated with the Tenant's Expert shall be the sole responsibility of the Tenant. The appointment of the third expert (the "Third Expert") shall be agreed upon by the Landlord's Expert and the Tenant's Expert and 50% of costs attributable to the Third Expert shall be borne by the Tenant and the remaining 50% of costs attributable to the Third Expert shall be borne by the Landlord. Together the Three Experts, acting reasonably, shall make the final determination of the New Annual Net Rent and should the Three Experts be unable to agree among themselves on the determination, the opinion of the majority, being 2 of the Three Experts, shall be final and binding on the Landlord and Tenant. In the event the Tenant is in default of any term of the Lease after he exercises his right to renew, then whether such default is cured or not the Landlord, notwithstanding any other remedy it may have, may terminate the renewal of the Lease and the Tenant shall have no further right to any renewal. SCHEDULE "G" ADDENDUM TO LEASE This is Schedule "G" to the Lease dated the 31st day of May, 2000 entered into between 1045 Howe Street Holdings Ltd. as Landlord, and Milinx Business Services, Inc. as Tenant. Right of Second Refusal to Lease Fourth and Fifth Floors If at any time during the Term hereof (or any renewal term) the Landlord receives an acceptable written offer to lease the whole or any part of rentable space on the Fourth and Fifth floors (hereinafter called "Additional Space") of the Building from a third party, the Landlord shall notify the Tenant in writing thereof and the Tenant shall have the right of second refusal to lease the Additional Space upon the same terms and conditions as are contained in the said acceptable offer to lease, provided that such right shall be exercised by notice in writing to the Landlord within three (3) business days after the date of receipt of the said notice; if the Tenant fails to exercise such right to lease the said Additional Space within such three (3) day period, its right of second refusal thereupon shall terminate. If the aforesaid right of second refusal is not exercised and further space on the fourth and fifth floors becomes available for rental during the Term hereof or any renewal term, the Tenant shall have the further right of second refusal concerning a subsequent offer to lease on the space, and so on from time to time. Landlord's Base Building Work The Landlord at its sole cost shall be responsible for the following work: (a) Demolish the existing improvements and corridors where required by the Tenant; (b) Prepare the floor to receive Tenant's choice of building standard carpet which is to be supplied and installed by the Landlord; (c) Replace or repair any damaged ceiling tiles to the Building's new standard; (d) Upgrade the third (3 d) floor elevator lobby and corridor to the standard on the fourth and fifth floors; and (e) Ensure Building HVAC system is in proper working condition and ready to receive Tenant's leasehold improvements and proper standard exterior window coverings are in place. The Tenant acknowledges that all above work had been completed to its satisfaction. Tenant's Work The Tenant shall be responsible for leasehold improvement work performed in the Premises. The Tenant shall be responsible for the installation and maintenance of its telephones, computers and special communications equipment, wiring and fixtures. At the expiry of the Term the Tenant shall have possession of such equipment. The Tenant shall be responsible for the preparation of all space plan services with respect to the Leasehold Improvements. The Tenant shall submit to the Landlord working drawings of the proposed Leasehold Improvements, which drawings must be approved by the Landlord prior to the commencement of any work. It is the Tenant's responsibility to secure with the Landlord's cooperation (such cooperation not to be unreasonably withheld), all the necessary building permits and approvals required by the City of Vancouver for the Leasehold Improvements. Such permits must be secured before any work shall commence on the Premises. The Tenant shall also be responsible for making application for -2- a certificate of occupancy as required by the City of Vancouver, and the Tenant shall not take occupancy of the Premises until such approval from the City has been obtained. Cancellation The Tenant shall have the right to cancel the Lease on/or anytime after the second (2nd ) anniversary of the Commencement Date providing at least six (6) months prior written notice is provided and the Tenant pays to the Landlord as a penalty four (4) months gross rent plus GST. The penalty payment shall be submitted at the time the notice is given. Fixturing Period The Tenant shall have a fixturing period prior to the Commencement Date in which to carry out construction of its Leasehold Improvements. Such fixturing period shall be provided free of Rent, operating expenses, and property taxes. The Tenant may also occupy the Premises during the Fixturing Period for the purpose of moving. Parking The Landlord shall make available to the Tenant at the Tenant's option up to eight (8) parking stalls to be located in the Building parking garage at the prevailing market rental rate from time to time, currently One hundred and Ten Dollars ($110.00) per month per stall, plus applicable taxes. The Landlord acknowledges that the Tenant shall use two of the parking stalls as identified in Schedule "H", to install emergency generators and air conditioning units. Upon termination of this Lease, The Tenant covenants that it will restore the stalls, and any other stalls it may use for the same purpose, to their previous conditions. Deposit The Landlord acknowledges receipt of a deposit of Forty Thousand Dollars ($40,000.00) from the Tenant which is to be applied equally by the Landlord towards the Tenant's first and last months gross rent. SCHEDULE "H" LOCATION OF GENERATOR AND AIR CONDITIONER UNIT This is Schedule "H" to the Lease dated the 31st day of May, 2000 entered into between 1045 Howe Street Holdings Ltd. as Landlord, and Millnx Business Services, Inc. as Tenant. Parking stalls identified with a "X" on the Second Floor Parking. 1045 HOWE STREET LANE LEVEL PARKING LANE [GRAPHIC OMITTED] DIAGRAM OF FLOOR PLAN EX-10.6 11 0011.txt ADDENDUM TO LEASE ----------------- Pursuant to the Lease dated May 31, 2000 between 1045 Howe Street Holdings Ltd. (the "Landlord") and Milinx Business Services, Inc. (the "Tenant") it is hereby agreed and understood that Schedule "H" shall be amended as follows: The location of the Tenant's Generator Unit shall be as shown in the location outlined in heavy black area on the second floor lane level parking area of the Building shown below ("Generator Area"). It is agreed that the Tenant shall be responsible for the installation, operation and maintenance of the Generator Unit and shall, upon expiration of this lease, return the Generator Area to its original condition upon request by the Landlord. It is agreed that the monthly rental for the Generator Area shall be $500 + GST througout the Term. We hereby agree to the above. 1045 Howe Street Holdings, LTD. Per: /s/ Date: October 2, 2000 ---------------------------- ------------------ (Authorized Signatory) MILINX BUSINESS SERVICES, INC. Per: /s/ CFO Date: 10/2/00 ---------------------------- ------------------ (Authorized Signatory) SUBLEASE AND CONSENT THIS SUBLEASE AND CONSENT ("Sublease") Is made as of the 1 day of April 2000, by and ------ between Butcher& Williams, P.S. ----------------------- ("Tenant"), having an address at 1001 Fourth Avenue ------------------ Suite 3827 - ---------------------------------------------------- Seattle, WA 98154 - ----------------------------------------------------------- Milinx Business Grout), Inc. - ---------------------------------------------------------------------- ("Sublessee"), having an address at 1001 Fourth Avenue Suite 3827 Seattle, WA 98154 Seafc, Inc. ("Landlord"), having an address at 1001 Fourth Avenue - ------------------ Suite 3615 - ---------------------------------------------------- Seattle, WA 98154 - ----------------------------------------------------------- A. Landlord or its predecessor in interest, and Tenant or its predecessor in interest, have heretofore entered into that certain lease dated April 221997 for premises (the "Premises") described as. Suite(s), or Room(s) 3827 initially containing approximately ~,706square feet in the property (the "Building") known as 1001 Fourth Avenue PlaZ2-located at 1001 Fourth Avenue, Seattle, WA, 98154 which lease has heretofore been amended or assigned by instruments dated; Januar~ 23, 1996 (collectively, the "Master Lease"). B. Sublessee desires to obtain space in the Building, Tenant desires to sublease space to Sublessee, and Landlord is willing to approve the Same, @11 on the terms and conditions hereinafter set forth. NOW, THEREFORE, for good and valuable consideration, the parties hereto agree as follows: 1. Tenant shall sublease to Sublessee and Sublessee shall sublease from Tenant approximately 150, rentable square feet of the Premises, as more fuily described in Exhjbit~'W' attached hereto (the "Sublease I _~Prernrises"), together with nonexclusive righis to use the conference room, reception and coov room.' 2. The term of this Sublease shall commence on April 1, 2000, (the "Commencement Date") and terminate on March 31, 2001 (the "Expiration Date"), unless sooner terminated, subject to Section 9, below. 3. Sublessee shall pay Tenant as basic rent One Thousand and 00/100 Dollars ($11_000.00 )per month, in advance on the first day of each month, commencing on Acrill,2000 and continuing each month thereafter during the term of this Sublease, and Sublessee shall pay ail other sums due as additional rental under the provisions of the Master Lease on the basic rental payment due date first occurring after the additional rental payment arises. Any such additional rental obligations shall be prorated based on the ratio of -F-the rentable square footage of the Sublease Premises to the rentable square footage of the Premises.- 4. Tenant hereby acknowledges receipt of 'he sum of n/a Dollars ($0.00) as a security deposit for the full and faithful performance of each and every provision of this Sublease to be performed by Subiessee. If Sublessee shall fully and faithfully perform every provision of this Sublease to be per-formed by Sublessee, said Security Deposit shall be reassign6d to Sublessee at 'he expiration of the term of this Sublease. It is understood by the parties hereto that Tenant shall not be required to keep said Security Deposit separate from its funds and Sublessee shall not be entitled to any interest on the Security Deposit. ~-. Sublessee shall perform and observe the terms and conditions to be performed on the part of Tenant under the provisions of the Master Lease, except for the payment of rent, and shall indemnify Tenant and Landlord against all claims, damages, costs and expenses arising out of Sublessee's failure to perform or observe any such terms or conditions, subject however to all the express terms and conditions of this Sublease. If Sublessee shall default hereunder and not cure within the times permitted for cure of such default under the Master Lease, Tenant shall have all remedies against Sublessee provided for Landlord under the Master Lease, and if such default shall constitute a default under the Master Lease, Landlord shall have all remedies available to Landlord thereunder. S. This Sublease shall be of no force or effect unless and until executed and delivered by ail parties hereto. No provision of this Sublease may be amended except in writing signed by all parties hereto or eir successors. By execution hereof, Tenant ratifies the Master Lease and Sublessee acknowl d e Iges that/ has rece edi~., Ys complete and correct copy of the Master Lease and is familiar with the terms th ereof. 7. Neither the Master Lease, nor this Sublease shall be deemed to grant Subl:/.,Ie ~Vght, whatsoever against Landlord. Sublessee hereby acknowledges and agrees that its sole remedy for any alleged or actual breach of its rights in connection with the Sublease Premises (as defined in the Sublease) shall be solely against Tenant. ffIN2ERT: Subicssec shall also pay for its proportionate use of office equipment and supplies. S S -* NSERT: Sublessce shall not have access to the attorneys' offices or clienr files. EXHIBfTJ ZOO'd dZE:ZO OO/ZT/OT T009 TLS Toe saD!^_taS aie_todAo3 [GRAPHIC OMITTED] [GRAPHIC OMITTED] 211- A, SUBLEASE AND CONSENT THJS SUBLEASE AND CONSENT ("Sublease") Is made as of the 1 day of April 2000, by and ------ between Butcher& Williams, P.S. - ----------------------- (`Tenant"), having an address at 1001 Fourth Avenue - ------------------ Suite 3827 - ---------------------------------------------------- Seattle, WA 98154 - ----------------------------------------------------------- Milinx Business Grout), Inc. - ---------------------------------------------------------------------- ("Sublessee"), having an address at 100 1 Fourth Avenue ------------------- Seafc, Inc. ("Landlord"), having an address at 1001 Fourth Avenue Suite 3615 Seattle, WA 98154 A. Landlord or its predecessor in interest, and Tenant or its predecessor in interest, have heretofore entered into that certain lease dated April 221997 for premises (the "Premises") described as Suite(s), or Room(s) 3827 initially containing approximately ~706square feet in the property (the "Building") known as 1001 Fourth Avenue PlaZ2-located at 1001 Fourth Avenue, Seattle, WA, 98154 which lease has heretofore been amended or assigned by instruments dated; January 23, 1996 (collectively, the "Master Lease"). B. Sublessee desires to obtain space in the Building, Tenant desires to sublease space to Sublessee, and Landlord is willing to approve the same, @11 on the terms and conditions hereinafter set forth. NOW, THEREFORE, for good and valuable consideration, the parties hereto agree as follows: 1. Tenant shall sublease to Sublessee and Sublessee shall sublease from Tenant approximately 150, rentable square feet of the Premises, as more fully described in Exhjbit~'W' attached 'hereto (the "Sublease F-,_~Prernises"), together with nonexclusive rights to use the conference room, reception and coov room.* 2. The term of this Sublease shall commence on April 1, 2000, (the "Commencement Date") and terminate on March 31, 2001 (the "Expiration Date"), unless sooner terminated, subject to Section 9, below. 3. Sublessee shall pay Tenant as basic rent One Thousand and 00/100 Dollars ($11_000.00 )per month, in advance on the first day of each month, commencing on Aorill,2000 and continuing each month thereafter during the term of this Sublease, and Sublessee shall pay ail other sums due as additional rental under the provisions of the Master Lease on the basic rental payment due date first occurring after the additional rental payment arises. Any such additional rental obligations shall be prorated based on the ratio of -F-the rentable square footage of the Sublease Premises to the rentable square footage of the Premises.- 4. Tenant hereby acknowledges receipt of 'he sum of n/a Dollars ($0.00) as a security deposit for the full and faithful performance of each and every provision of this Subleas~ 'to be performed by Subiessee, If Subjessee shall fully and faithfully perform every provision of this Sublease to be per-formed by Sublessee, said Security Deposit shall be reassign6d to Sublessee at 'he expiration of the term of this Sublease. It is understood by the parties hereto that Tenant shall not be required to keep said Security Deposit separate from its funds and Sublessee shall not be entitled to any interest on the Security Deposit. ~-. Sublessee shall perform and observe the terms and conditions to be per-formed on the part of Tenant under the provisions of the Master Lease, except for the payment of rent, and shall Indemnify Tenant and Landlord against all claims, damages, costs and expenses arising out of Sublessee's failure to perform or observe any such terms or conditions, subject however to all the express terms and conditions of this Sublease. If Sublessee shall default hereunder and not cure within the times permitted for cure of such default under the Master Lease, Tenant shall have all remedles against Sublessee provided for Landlord under the Master Lease, and if such default shall constitute a default under the Master Lease, Landlord shall have all remedies available to Landlord thereunder. 6. This Sublease shall be of no force or effect unless and until executed and delivered by ail parties hereto. No provision of this Sublease may be amended except in writing signed by all parties hereto or eir successors. By execution hereof, Tenant ratifies the Master Lease and Sublessee acknowl d e Iges that/ has rece ed,~., Ys complete and correct copy of the Master Lease and is familiar with the terms th ereof. 7. Neither the Master Lease, nor this Sublease shall be deemed to grant Subl:/-I_-~Y ~rght, whatsoever against Landlord. Sublessee hereby acknowledges and agrees that its sole remedy for any alleged or actual breach of its rights in connection with the Sublease Premises (as defined in the Sublease) shall be solely against Tenant. EINSERT: Subicssec shall also pay for its propordonatc use of office equipment and supplies. S S *INSERT: Sublessce shall not have access to the attorneys' offices or clienr file's. EXHIBfTJ ZOO ' d dZ6:7-0 OO/ZT/OT T009 TLS Toe saD! ^_taSa4.e_tod_io3 8. This Sublease shall not release Tenant from any existing or future duty, obligation or liability to Landlord pursuant to the Master Lease, nor shall this Sublease change, modify or amend the Master Lease in any manner. In particular, without prejudice to the generality of the foregoing, this Sublease shall not absolve Tenant from the requirement set forth in the Master Lease that Tenant obtain Landlord's prior written approval ther subleases. .J for any fur ................... ... 9. (a) In the event of Master Lease Termination (as hereinafter defined) prior to the termination of this Sublease, at Landlord's option, Sublessee agrees to aftorn to Landlord and to recognize Landlord as Sublessee's landlord under this Sublease, upon the terms and conditions and at the rental rate specified in this Sublease, and for the then remaining term of this Sublease, except that Landlord shall not be bound by any provision of this Sublease which in any way increases Landlord's duties, obligations or liabilities to Sublessee beyond those owed to Tenant under the Master Lease. Sublessee agrees to execute and deliver at any time and from time to time, upon the request of Landlord, any instruments which may be necessary or appropriate to evidence such attomment. Landlord shall not (I) be liable to Sublessee for any act, omission or breach of this Sublease by Tenant, (ii) be subject to any offsets or defenses which Sublessee might have against Tenant, (iii) be bound by any rent or additional rent which Sublessee might have paid in advance to Tenant, or (iv) be iL "I "AR.bound to honor any rights of Subiessee in any security deposit made with Tenant except to the extent Tenant has turned over such securi-ty deposit to Landlord. Tenant hereby agrees that in the event of Master Lease Termination, Tenant shall immediately pay or transfer to Landlord any security deposits, rent or other sums then held byTenant. (b) "Master Lease Termination" means any event, which by voluntary or involuntary act or by operation of law, might cause or permit the Master Lease to be terminated, expire, be cancelled, be foreclosed against, or otherwise come to an end, including but not limited to (1) a default by Tenant under the Master Lease of any of the tenns or provisions thereof; (2) foreclosure proceedings brought by the holder of any mortgage or trust deed to which the Master Lease is subject; or (3) the termination of Tenant's lea5ehold estate by dispossession proceeding or otherwise. (c) In the event of attornment hereunder, Landlord's liability shall be limited to matters arising during Landlord's ownership of the Building, and in the--event that Landlord (or any successor owner) shall convey or dispose of the Building to another party, such party shall thereupon be and become landlord hereunder and shall be deemed to have fully 2SSUmed and be liable for all obligations under this Sublease to be performed by Landlord which first arise after the date of conveyance, including the return of any security deposit, and Tenant shall attorn to such other party, and Landlord (or such successor owner) shalt, from and after the date of ty convevance, be free of all liabilities and obligations hereunder not then incurred. The liab of Landlord to Sublessee for any default by Landlord under this Sublease after such attornment, or arising in connection with Landlord's operation, management, leasing, repair, renovation, alteration, or any other matter relating to the Building or the Sublease Premises, shall be limited to the interest of the Landlord in the Building (and proceeds thereof). Under no circumstances shall any present or future general partner of Landlord (if Landlord is a partnership), or individual trustee or beneficiary (If Landlord or any partner of Landlord is a trust) have any liability for the performance of Landlord's obligations under this Sublease. 10. In addition to Landlord's rights under Section 9 hereof, in the event Tenant is in default under any of the terms and provisions of the Master Lease, Landlord may elect to receive directly from Sublessee ail sums due or payable to Tenant by Subiessee pursuant to this Sublease, and upon receipt of Landlord's notice, e d T ant Sublessee shall thereafter pay Landlord any sums becoming due or payable under this Subleas , an en shall receive from Landlord a corresponding credit *,or such sums against any and all payments then due or thereafter becoming due from Tenant. Neither the service of such written notice nor the receipt of such direct payments shall cause Landlord to assume any of Tenant's duties, obligations and/or liabilities under this Sublease, nor shall such event impose upon Landlord the duty or obligation to honor this Sublease, nor subsequently to accept Sublessee's aittornment pursuant to Section 9 (a) hereof. 11. Sublessee hereby acknowledges that it has read and has knowledge of all of the terms, provisions, rules and regulations of the Master Lease and agrees not to do or omit to do anything which would cause Tenant to. be in breacn of *he Master Lease. Any such act or omission shall also constitute a breach of this Sublease entitling Landlord to recover any damage, loss, cost, or expense which it thereby suffers, from Sublessee, whether or not Landlord proceeds against Tenant. If the Master Lease requires the payment of percentage rent, based on a percentage of gross sales or other sales in or from the Premises, Sublessee shall ;1: comply with all provisions of. the Master Lease respecting the same, including without limitation, all requirements conceming the keeping of books, records, and other items, and reporting of gross sales to Landlord. In such case, Sublessee's sales shall be included In Tenant's gross sales for purposes of computing Tenant's percentage rent obligations under the Master Lease. 12. In the event of any litigation between the parties hereto with respect to the subiect matter hereof, the unsuccessful party agrees to pay to the successful party all costs, expenses and reasonable attorneys fee I U incurred therein by the successf I party, which shall be included as a part of a judgment rendered therein. ~J'i I I, 13. This Sublease shall be binding upon and inure to the benefit of the parties' respective successors and assigns, subject at all times, to all agreements and restrictions contained in the Master Lease, and herein, with respect to subleasing, assignment, or other transfer. The agreements contained herein constitute the entire P7 understanding between the parties with respect to the subject matter hereof, and supersede all prior agreements, written or oral, inconsistent herewith. This Sublease may be amended only in writing, signed by all parties hereto. W, 14. Notices required or desired to be given hereunder shall be effective either upon personal delivery or three (3) days after deposit in the United States mail, by certified mail, return receipt recuested, addressed to the parties at the addresses set forth above. Any party may change its address for notice by giving notice in the manner hereinabove provided. 15. In order to help reimburse Landlord's legal and administrative expenses in reviewing this Sublease, Tenant shall have paid before or contemporaneously with its submission hereof for Landlord's review the non refundable amount of Three Hundred and no/100 Dollars ($300,00) (the "Submission Fee"). Landlord's r acceptance of such Submission Fee shall impose no duty or obligation upon Landlord to consent to the transaction contemplated herein nor to execute this Sublease. in the event that the foregoing Submission Fee has not been submitted before or contemporaneously with this Sublease, it shall become due as an additional rental obligation under the Master Lease, payable upon demand by Landlord, and shall become the joint and several obligation at the Tenant, and in the event this Sublease is executed by Landlord, of Sublessee. Tenant shall also promptly pay Landlord any share of subleasing premiums or profits, or other items, required under the Master Lease in connection with sublease approvals. 16. Notwithstanding anything to the contrary set forth herein or elsewhere. if the Master Lease was guaranteed at the time of execution or at any time prior hereto by any guarantor, then Landlord may at any time hereafter declare all of its agreements in this Sublease to be null and void and of no force and effect unless and until Landlord receives a counterpart of this Sublease indicating the approval thereof by any and ail such guarantor(s) and theirspouses. 17- Tenant and Sublessee agree to indemnify and hold Landlord harmless from and against any loss, cost, expense, damage or liability, including reasonable attorneys' fees, incurred as a result of a ciaim by any person or entity (i) that it is entitled to a commission, finders fee or like payment in connection with this Sublease or 0i) relating to or arising out of this Sublease or any related agreement or dealings. 'r 18. Tenant agrees to hold any and all payments due under this Sublease as a trust fund to be applied first te the satisfaction of ail of Tenant's obligations under the Master Lease and hereunder, before using any par, thereof for any other purpose. 19. Sublessee has insoected the Sublease Premises and agrees to accept the same a is' without any ...............agreements, representations, understandings or obligations on the part of Tenant to perform any alterations, r improvements except as expressly provided in any separate agreement that may be signed by the repairs c parties in connection herewith. Any construction, alterations or improvements made to the Sublease Premises by Sublessee shall be subject to Tenant's and Landlord's prior written approvalincluding without limitation, approval of the plans, specifications, contractors and subcontractors therefor, and all applicable terms and conditions of the Lease relating to construction, alterations or improvements of the Premises, and such other reasonable requirements or conditions as Tenant or Landlord may impose. During any period that Sublessee shall be permitted to enter the Sublease Premises prior to the Commencement Date other than to occupy the same (e.g., to perform alterations or improvements), Sublessee shall comply withall terms and provisions of this Sublease, except those provisions requiring payment of rentals. If Sublesseeshall be permitted to enter the Sublease Premises prior to the Commencement Date for the purpose of occur) ing the same, rentals shall y -Q commence on such date; if Sublessee shall commence occupying only a portion of the Sublease Premises prior to the Commencement Date, rentals shall be prorated based on the number of rentabie square feet occupied by. Sublessee. The Commencement Date shall be delayed and rentals from Sublessee to Tenant hereunder shall be abated with the extent that Tenant fails: (I) to substantially complete any improvements to the Sublease Premises required to be performed by Tenant under any separate agreement signed by both parties and approved by Landlord in connection herewith, or (ii) to deliver possession of the Sublease Premises for any other reason, including but not limited to holding over by prior occupants, except to the extent that Subiessee, contractors, agents or employees in any way contribute to either such failures. If Tenant so fails for a ninety J (90) day initial grace period, or such additional time as may be necessary due to strikes, acts of God, shortages of labor or materials, governmental requirements, acts or omissions of Sublessee, its contractors, agents or employees, or other causes beyond Tenant's reasonable control, Subiessee shall have the right to terminate this Sublease by written notice to Tenant any time thereafter up until Tenant substantlaily comoletes any such improvements and delivers the Sublease Premises to Sublessee. Any such celay in the Commencement Date shall not subject Tenant (or Landlord) to any liability for any loss or damage resulting therefrom, and Sublessee's sole remedy with respect thereto shall be the abatement of rentals and right to 3 [GRAPHIC OMITTED] terminate this Sublease described above. Upon any such termination, Tenant and Sublessee shall be entire[v relieved of their obligations hereunder, and any Security Deposit and rentals shall be returned to Sublessee. if the Commencement Date is delayed, the Expiration Date shall not be similarly extended, unless the parties expressly agree in writing. IN WITNESS WHEREOF, the following parties have executed this Sublease as of the date first written above: S. TENANT: BUTCHER& WILLIAMS,, By~ Name Typed: 6, L Title: SUBLESSEE: M INX BUSINESS GROUP, INC. By: Name Typed: Title: LANDLORD: SEAFO, INC., a Delaware corporation By: Name Typed: 4 LANDLORD ACKNOWLEDGMENT STATE OF NEW YORK )ss.: COUNTY OF I NC I certify that I know or have satisfactory evidence that \),k Is the person who appeared before me, and said Person acknowledged that (h~is= I trument, on oath stated that (heishe) was authorized to execute the instrument and acknowledged It as 1he \,),t of Seafo, Inc. to be the free and voluntary act of 7,~ I- such party for the uses and 11 ses mentioned in the ----------------- instrument, Dated: q 4) -Vork -cfNefw Notary Public In and for the State DEBRA D. MILONE iseal or stamp) Notary Public, State of New York Name Printed: No. 41-4704816 Qualified In Dutchess County My commission expires: Ceittificate Hed in New York Countli Commission Exoires TENANT ACKNOWLEDGMENTS 'J. Individual i STATE OF: nyik ss.: COUNTY OF: Notary Public In and for the County and State aforesaid, do hereby certify that 'I., the u as he uk-1 j, personally known to me to be the same person whose name Is subscribed to the foregoing in9ftirrient, a&e1red bet me this day In person and acknowledged that (halshia) signed the said instrument as his/her free and voluntary act, for the use and purposes therein set forth. GIVENunder y hand and official sea] this _dayof 19- p.. jJ I Notary Public Name Printed: My commission expires: CORPORATION STATE OF: COUNTY OF: f -Notary Pub for the said County On this the dav lo,,. bet re meIi dt a2Vjq0d In and 4a, -4o I to ak k mentsfly eKnown to me to in id o ake ad nowTedd a P~T, - - / t the A r of _,4i:*)e of the corporations deschtied in (he the forejoing instrum6nt, and acknowledged thallas' such officer, being authorized so to doishd) executed the foregoing instrument n behalf of said corporation by subscribing the name of if by himself;herself his/her free and 6, 0 as suco officer, as voluntary act, and as the free and voluntary act of saic uses and th Tora an P P.MesGrain on IN WITNESS WHEREOF. I hereunto set my Notary Public ze, Name Printed: My commission expires: iO IP S TATE OF: COUNTY OF: On this the day of I 9_ before me a Notary Public duly authorized In and for the said County in the State aforesaid to take acknowledgments personally appeared known to me to a general partner of a partnership known as one of the partnerships described in the foregoing Instrument, and acknowledged that being authorized so to do, (he,`she) executed the foregoing Instrument on behalf of said partnership by subscribing the name of said partnership by himself/herself, as such general partner, as horlher free and voluntary act, and as the free and voluntary act of said partnership, for the uses and purposes therein set forth. IN WITNESS WHEREOF, I hereunto set my hand and official seal. Notary Puo~ic Name Printed: 7 My commission eXDires: SUBLESSEE ACKNOWLEDGMENTS Individual STATE OF: COUNTY OF: -:4 1. the undersigned, asNotary Public in and for the County and State aforesaid, do hereby certify that personally known to me to he the same person whose name Is subscribed to the foregoing instrument. appeared before me this day In person and acknowledged that (helshe) signed the said Instrument as his/her free and voluntary act, for the uses and purposes therein set forth. GIVEN under my hand and official seal this day of Notarv Public Name Pnnted: My commission expires: CORPORATION STATE OF: ss.: -Y OF: COUNT On this the day of t!~__o before me a ary Public d I and for the said County lt.~taM nkledents perso~a in the StategagreS2i e ack I appeare known to me to A ow V4~ - D6 of the corporations described In 01, 3gc(ng instrument, and acknowledged t t as such Wwae,44ng authorized so toelshe) executed the foregoing instrument on behalf of said corporation by subscribing the naVy *&"Xraflon by himself/herself as such officer, as his/her free and voluntary act. and as the free and voluntaN act of sffl' pqp?qe th re, -f9ft uses and s e in, orth. dq= IN WITNESS WHEREOF, I hereunto set tZ -K Notary Public &I'l OtA Name Printed: 00 13' 0-0 '0* My commission expir es: PARTNERSHIP STATE OF: ~A COUNTY OF: On this the day of 19 before me a Notary Public: duiy autnonzed in and for the said Counry in the State aforesaid to take acknowledgments personally appeared known to one of the parinersnims me to a general partner of a partnership known as ciescribed in the foregoing instrument, and acknowledged that being authorized so to do. (he/she) executed the foregoing Instrument 4- on banalf of said pannershir) by subscribing the name of said partnership * himself/herself, as such general partner, as her/her fr e and voluntary act. and as th free and voluntary act of said partnershiti, for the uses and purposes therein set forth. IN WITNESS WHEREOF, I hereunto set my hand and official seal. Notary Public Name Printed: My commission expires: EXHIBIT A Tenant to attach floor plan showing Sublease Premises EX-10.7 12 0012.txt OFFER TO SUBLEASE To: CB Richard Ellis Limited # 600 - 111 West Georgia Street Vancouver, BC V6E 4M3 Attention: Mr. Howell Lyons Milinx Business Services, Inc. (the "Subtenant") hereby offers to sublease from Bena Gold Corporation (the "Sublandlord") a portion of the building located at 595 Burrard Street, Vancouver, BC (the "Building"), on the following terms and conditions: 1. PREMISES Being fifteen thousand nine hundred fifty five (15,955) square feet of rentable area on the thirty second (32nd) and portion of the thirty first (31st) floor as shown on the floor plan attached as Schedule "A" (the "Premises"). 2. TERM Commencing December 1, 2000 (the "Commencement Date") and expiring April 21, 2002. 3. RENTAL The annual rental shall be Three Hundred Fifty One Thousand Ten Dollars ($351,010.00), plus Goods and Services Tax ("GST"), and shall be paid in advance in equal monthly installments of Twenty Nine Thousand Two Hundred Fifty Dollars and Eighty Three Cents ($29,250.83) on the first day of each month of the term, on the basis of the rent being Twenty Two Dollars ($22.00) per square foot per annum, plus GST. 4. PROPERTY TAXES AND OPERATING EXPENSES The Subtenant shall be responsible and pay for its proportionate share of building property taxes and operating expenses, plus GST, as described in the Lease and currently estimated to be Fourteen Dollars and Eight Cents ($14.08) per square foot per annum for 2000. The Subtenant shall also pay for its business taxes and telephone charges. 5. COMMUNICATIONS EQUIPMENT The Subtenant shall be responsible for the installation and maintenance of its telephones, computers and special communications equipment. 6. STATE OF THE PREMISES The Sublandlord shall provide the Premises on an "as is" basis to include all existing built-in fixtures (excluding boardroom, audio visual components), shelves, desks, counters, cupboards and reception desk. [GRAPHIC OMITTED] Initials of Sublandlord and Subtenant -2- OFFER TO SUBLEASE (cont'd) 7. LEASEHOLD IMPROVEMENTS Any alterations the Subtenant wishes to carry out shall comply with the terms of the Lease and the Subtenant shall obtain any applicable approvals required by the City of Vancouver and the Landlord's architects, mechanical, electrical and structural consultants, at the Subtenant's cost. 8. PARKING The Subtenant shall make all parking arrangements directly with the Landlord. 9. SUBLEASE DOCUMENT This Offer together with the Lease shall constitute the Sublease Agreement. 10. USE OF PREMISES The Premises are to be used as a business office. 11. LEASE The Subtenant agrees to abide by and assume the terms, and conditions, rules and regulations contained in the Lease a copy of which shall be provided upon receipt of this Offer. 12. DEPOSIT All deposit monies, plus GST, required by this agreement shall be payable to: CB Richard Ellis Limited #600 - 111 West Georgia Street Vancouver, BC V6E 2M4 The Subtenant shall, within forty eight (48) hours of acceptance of the Offer to Sublease by the Sublandlord, tender a deposit cheque in the amount of Fifty One Thousand Three Hundred Twenty Nine Dollars ($51,329.00), including GST (the "Deposit"). Such Deposit shall be held in trust by CB Richard Ellis Limited and shall be applied towards payment of gross rent for the first month of the lease term. The Deposit shall be held in trust by CB Richard Ellis Limited until the Subtenant takes possession of the Premises, after which time the monies shall be transferred to the Sublandlord's account [GRAPHIC OMITTED] Initials of Sublandlord and Subtenant -3- OFFER TO SUBLEASE (cont'd) 13. SUBTENANT'S CONDITION This Offer to Sublease is conditional upon the Subtenant's Board of Directors approval and review and approval of the Lease for four (4) business days from the date of acceptance of the Offer. This condition is for the sole benefit of the Subtenant and may be waived at any time within the time period specified by delivery of written notice to CB Richard Ellis Limited. Should this condition not be removed then this Offer shall be null and void and all monies deposited by the Subtenant shall be returned promptly. 14. SUBLANDLORD'S CONDITION This Offer to Sublease is subject to the Sublandlord reviewing and approving the creditworthiness of the Subtenant within four (4) business days of acceptance of this Offer. This condition is for the sole benefit of the Sublandlord and may be waived at anytime within the time period specified by delivery of written notice to CB Richard Ellis Limited. Should this condition not be removed then this Offer shall be null and void and all monies deposited by the Subtenant shall be returned promptly. 15. PREPAID RENT The Subtenant shall pay to the Sublandlord (which shall be held in trust, with interest accruing to the Subtenant, by the Sublandlord's lawyers) the gross rent owing for the last six (6) months of the term. Half shall be due upon unconditional acceptance of this Offer to Sublease and the balance December 1, 2000. For the purpose of clarification the amounts are as follows: Upon Unconditional Acceptance $153,988.00 (including GST) December 1, 2000 $153,988.00 (including GST) 16. LANDLORD'S CONSENT This Offer to Sublease is subject to the consent of the Landlord in accordance with the terms of the Lease. 17. AGENCY DISCLOSURE The Sublandlord and the Subtenant acknowledge and agree that in accordance with the Code of Ethics of the Canadian Real Estate Association, CB Richard Ellis Limited (the "Agent") and Howell Lyons (the "Salesperson") have disclosed that they are acting in a limited dual agency capacity and will be compensated by the Sublandlord. [GRAPHIC OMITTED] Initials of Sublandlord and Subtenant -4- OFFER TO SUBLEASE (cont'd) 18. FACSIMILE TRANSMISSION A party hereto may signify its agreement to the terms hereof by facsimile transmission. A telecopy facsimile of this agreement received by a party hereto which shows the signature of the authorized signatory of the other party will be good proof of execution by that other party. 19. ACCEPTANCE The Counter Offer to Sublease is open for acceptance until 5:00 p.m. on the 8th day of August, 2000. DATED at Vancouver this 2nd day of August, 2000. MILINX BUSINESS SERVICES, INC. Per: /s/ /s/ - ---------------------------------- ---------------------------------- (Authorized Signatory) (Witness) We hereby accept this Offer to Sublease and agree to be bound by the terms and conditions contained herein. DATED at Vancouver this 3rd day of August, 2000. BEMA GOLD CORPORATION Per: /s/ /s/ - ---------------------------------- ---------------------------------- (Authorized Signatory) (Witness)) SCHEDULE "A" [GRAPHIC OMITTED] DESCRIPTION: FLOOR PLAN OF THE "PREMISES" [GRAPHIC OMITTED] Initials of Sublandlord and Subtenant EX-27 13 0013.txt
5 12-MOS JUN-30-2000 JUL-1-1999 JUN-30-2000 2162430 0 680896 0 0 3178881 4044719 472551 8993249 1803167 0 0 7563 9671 6245040 8993249 0 197193 0 365449 6442914 0 31515 (6636452) 0 (6636452) 0 0 0 (6636452) (0.74) (0.74)
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