-----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, Af2Hyt8fiLDqWSN1TTmtl7EoqrsvbxM+QZSLMmyy1v51z2ldJU0onJ42XMWA1RiP K+W10sNszV2JQNWqobKe8A== 0000950152-01-503666.txt : 20010813 0000950152-01-503666.hdr.sgml : 20010813 ACCESSION NUMBER: 0000950152-01-503666 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20010810 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: DIEBOLD INC CENTRAL INDEX KEY: 0000028823 STANDARD INDUSTRIAL CLASSIFICATION: CALCULATING & ACCOUNTING MACHINES (NO ELECTRONIC COMPUTERS) [3578] IRS NUMBER: 340183970 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: P.O. BOX 3077 STREET 2: 5995 MAYFAIR RD CITY: CANTON STATE: OH ZIP: 44720-8077 BUSINESS PHONE: 3304904000 MAIL ADDRESS: STREET 1: PO BOX 3077 CITY: CANTON STATE: OH ZIP: 44720-8077 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: GLOBAL ELECTION SYSTEMS INC CENTRAL INDEX KEY: 0001060444 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 850394190 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-61831 FILM NUMBER: 1703037 BUSINESS ADDRESS: STREET 1: 1611 WILMETH ROAD CITY: MCKINNEY STATE: TX ZIP: 75069-8250 BUSINESS PHONE: 9725426000 MAIL ADDRESS: STREET 1: 1611 WILMETH ROAD CITY: MCKINNEY STATE: TX ZIP: 75069-8250 SC 13D 1 l89855asc13d.txt DIEBOLD/GLOBAL ELECTION SYSTEMS, INC. SC 13D 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 GLOBAL ELECTION SYSTEMS INC. (Name of Issuer) COMMON STOCK, WITHOUT PAR VALUE (Title and Class of Securities) -------------- (CUSIP No. 3792L108) Warren W. Dettinger Vice President, General Counsel and Assistant Secretary 5995 Mayfair Rd. North Canton, OH 44720-8077 (330) 490-4000 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) August 8, 2001 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. | | NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Section 240.13d-7 for other parties to whom copies are to be sent. (Continued on following pages) (Page 1 of 8 Pages) - ------ (1) The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter the disclosures provided in a prior cover page. The information required in the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Action of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the "Notes") 2 13D CUSIP NO. 3792L108 PAGE 2 OF 8 1 S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS Diebold, Incorporated - -------------------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |_| (b) |_| - -------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS WC - -------------------------------------------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(D) OR 2(E) |_| - -------------------------------------------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Ohio - -------------------------------------------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 4,388,418* OWNED BY ---------------------------------------------------------------------------- EACH 8 SHARED VOTING POWER REPORTING None PERSON WITH ---------------------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER 4,388,418* ---------------------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER None ---------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 4,388,418* - -------------------------------------------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - -------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 19.9%* - -------------------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON
CO SEE INSTRUCTIONS BEFORE FILLING OUT! - ---------------------- * Maximum number of shares of Global common stock issuable upon conversion of amounts outstanding under loan agreement at a conversion price of $1.135 per share. An additional 16,868 shares of Global common stock may be issued upon the conversion of amounts outstanding under the loan agreement and up to 250,000 additional shares of Global common stock may be issued upon the exercise of warrants issued in connection with the loan agreement at a conversion/exercise price of $1.135 per share, in each case following the approval of Global's stockholders. These additional shares would represent an additional .01% of Global's outstanding shares. (PAGE 2 OF 8) 3 ITEM 1. SECURITY AND ISSUER This Statement on Schedule 13D (this "Statement") relates to the common stock, no par value (the "Common Stock"), of Global Election Systems Inc. ("Global"). The principal executive offices of Global are located at 1611 Wilmeth Road, McKinney, TX 75069-8250. ITEM 2. IDENTITY AND BACKGROUND This Statement is filed by Diebold, Incorporated, an Ohio corporation ("Diebold"). Diebold's stock is listed for trading on the New York Stock Exchange. Diebold provides integrated self-service delivery systems and services. Diebold's principal place of business is 5995 Mayfair Road, North Canton, Ohio 44720-8077. During the last five years, neither Diebold nor, to the best of Diebold's knowledge, any executive officer or director of Diebold has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). During the last five years, neither Diebold nor, to the best of Diebold's knowledge, any executive officer or director of Diebold has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or state securities laws or finding any violation of such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. Diebold utilized cash on hand and working capital to fund the bridge loan. The warrant was issued to purchase 250,000 shares was issued in connection with the execution of the bridge loan agreement. Diebold is a party to a contract manufacturing agreement with Global pursuant to which Diebold will manufacture products for Global. Pursuant to the terms of the contract manufacturing agreement, Diebold was granted an option to purchase Global's common stock in the event Global fails to pay Diebold amounts due and owing under the contract manufacturing agreement for 30 days after the same first became due. The aggregate number of shares which Diebold is entitled to purchase is equal to 115% of such overdue amount divided by 85% of the average of the three lowest closing bid prices for Global's common stock during the ten consecutive trading days preceding the notice of exercise of the option by Diebold. Diebold disclaims beneficial ownership of the shares referred to in this paragraph until such time as Global defaults under its payment obligations pursuant to the terms of the contract manufacturing agreement. ITEM 4. PURPOSE OF THE TRANSACTION. The responses to Items 2 and 3 of this Statement are incorporated herein by this reference. The bridge loan and related warrants were entered into in connection with Diebold's and Global's execution of a non-binding letter of intent with respect to a possible business combination transaction of Global by Diebold. The proceeds of the bridge loan are being used (Page 3 of 8) 4 by Global to pay off trade creditors and for general working capital purposes to support Global's business during the pendency of the potential combination transaction. While the letter of intent contemplates an acquisition by Diebold of all of Global's outstanding common stock, Diebold is under no binding obligation to proceed with such transaction and there can be no assurance that such transaction will be completed or as to the timing or terms thereof. As described above, Diebold has also entered into a manufacturing contract transaction with Global pursuant to which Diebold will manufacture certain products of Global on Global's behalf. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) Aggregate number of Global common shares outstanding: 20,695,340 (As of 6/28/01) Number of Global common shares beneficially owned by Diebold: 4,388,418* Percentage of Global common shares beneficially owned by Diebold: 19.9%* (b) Diebold has the sole power to vote and dispose of 4,388,418 Global common shares. (c) None (d) None (e) None
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. The responses to Items 3 and 4 are incorporated herein by this reference. Bridge Loan Agreement, as amended. Diebold entered into a bridge loan agreement pursuant to which Diebold agreed to lend Global up to $5,000,000 (the "Bridge Loan"). All accrued and unpaid principal and interest under the Bridge Loan is convertible into Global common stock. The initial conversion price is $1.135 per share. The number of shares of Global common stock that may be issued pursuant to Diebold's conversion rights cannot exceed 19.9% of Global's common stock (presently 4,388,418 shares) without the approval of Global's stockholders. The Bridge Loan matures 180 days following the initial closing which occurred on July 5, 2001. Diebold is entitled to one representative on Global's board of directors if the Bridge Loan remains outstanding for more than 130 days following the initial closing. The Bridge Loan bears interest at the rate of 12% per annum, payable quarterly in cash or, at the - ---------- * Maximum number of shares of Global common stock issuable upon conversion of amounts outstanding under loan agreement at a conversion price of $1.135 per share. An additional 16,868 shares of Global common stock may be issued upon the conversion of amounts outstanding under the loan agreement and up to 250,000 additional shares of Global common stock may be issued upon the exercise of warrants issued in connection with the loan agreement at a conversion/exercise price of $1.135 per share, in each case following the approval of Global's stockholders. These additional shares would represent an additional .01% of Global's outstanding shares. (Page 4 of 8) 5 election of Diebold, Common Stock (at the then-effective conversion price). The Bridge Loan provides for option and mandatory prepayment and conversion into Common Stock at the option of Diebold. Reference is made to the Bridge Loan, as amended, attached hereto as Exhibits 99.1 and 99.2 for the complete details of the Bridge Loan. Warrant, as amended. Global issued Diebold a warrant to purchase 250,000 shares at an exercise price of $1.135 per share (subject to adjustment) in connection with the Bridge Loan. The warrant has a term of five years. Contract Manufacturing Agreement, as Amended. Diebold and Global are parties to a contract manufacturing agreement pursuant to which Diebold has agreed to manufacture certain products for Global. Diebold receives payment for the manufacturing services rendered and was granted a security interest in certain assets of Global securing such obligations. Global has agreed to indemnify Diebold in certain circumstances as more fully set forth in the contract manufacturing agreement. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. 99.1 Bridge Loan Agreement, dated as of June 29, 2001, by and between Diebold and Global. 99.2 Amendment No. 1 to Bridge Loan Agreement, dated as of August 3, 2001, by and between Diebold and Global. 99.3 Warrant to Purchase 250,000 shares of Global's Common Stock, dated as of August 3, 2001, as amended. 99.4 Contract Manufacturing Agreement, dated as of June 21, 2001, by and between Diebold and Global. 99.5 Amendment No. 1 to Contract Manufacturing Agreement, dated as of August 3, 2001, by and between Diebold and Global. (Page 5 of 8) 6 SIGNATURE After reasonable inquiry and to the best of the undersigned's knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct and agrees that this Statement may be filed on behalf of the undersigned by Diebold, Incorporated. August 9, 2001 DIEBOLD, INCORPORATED By: /s/ Gregory T. Geswein ---------------------------------------------------- Name: Gregory T. Geswein Title: Senior Vice President and Chief Financial Officer (Page 6 of 8) 7 SCHEDULE 1 ITEM 2: IDENTITY AND BACKGROUND The following table sets forth the name, present principal occupation or employment of each director and executive officer of Diebold. Unless otherwise indicated below, each individual is a citizen of the United States of America. DIEBOLD, INCORPORATED
Name Present Principal Occupation or Employment - --------------------------------------- ---------------------------------------------------------------- Walden W. O'Dell Chairman of the Board, President and Chief Executive Officer Wesley B. Vance President, North America Gregory T. Geswein Senior Vice President and Chief Financial Officer David Bucci Senior Vice President, Customer Solutions Group Michael J. Hillock President, International Operations Charles J. Bechtel Group Vice President and Chief Information Officer Thomas W. Swidarski Vice President, Strategic Development James L.M. Chen Vice President and Managing Director, Asia Pacific (Citizen of Taiwan) Warren W. Dettinger Vice President, General Counsel and Assistant Secretary Reinoud G. J. Drenth Vice President and Managing Director, Europe, Middle East and Africa (Citizen of The Netherlands) Donald E. Eagon, Jr. Vice President, Global Communications and Investor Relations Jack E. Finefrock Vice President, Retail Solutions Group Charee Francis-Vogelsang Vice President and Secretary Bartholomew J. Frazzitta Vice President, Retail and Physical Security Group Larry D. Ingram Vice President, Procurement and Services Dennis M. Moriarty Vice President, Customer Satisfaction Anthony J. Rusciano Vice President, National Accounts Charles B. Scheurer Vice President, Human Resources Ernesto R. Unanue Vice President and Managing Director, Latin America (Citizen of Argentina) Robert J. Warren Vice President and Treasurer Louis V. Bockius III Director Richard L. Crandall Director Gale S. Fitzgerald Director Donald R. Gant Director L. Lindsey Halstead Director Phillip B. Lassiter Director John N. Lauer Director William F. Massy Director Eric J. Roorda Director (Citizen of Brazil) W. R. Timken, Jr. Director
(Page 7 of 8) 8 EXHIBIT INDEX
No. Description - ----- --------------------------------------------------------------------------------------------------------- 99.1 Bridge Loan Agreement, dated as of June 29, 2001, by and among Diebold and Global. 99.2 Amendment No. 1 to Bridge Loan Agreement, dated as of August 3, 2001, by and between Diebold and Global. 99.3 Warrant to Purchase 250,000 shares of Global's Common Stock, dated as of August 3, 2001, as amended. 99.4 Contract Manufacturing Agreement, dated as of June 21, 2001, by and between Diebold and Global. 99.5 Amendment No. 1 to Contract Manufacturing Agreement, dated as of August 3, 2001, by and between Diebold and Global.
(Page 8 of 8) EX-99.1 3 l89855aex99-1.txt EXHIBIT 99.1 1 Exhibit 99.1 This BRIDGE LOAN AGREEMENT, dated as of June 29, 2001 (the "Agreement"), is entered into by and between GLOBAL ELECTION SYSTEMS INC., a company organized under the laws of the Province of British Columbia, Canada, as borrower ("Borrower"), and DIEBOLD, INCORPORATED, an Ohio corporation, as lender ("Lender"). RECITALS A. Lender and Borrower have executed a letter of intent dated as of June 19, 2001 (the "LOI") pursuant to which Lender and Borrower have agreed to consider a possible business combination transaction pursuant to which Lender would acquire all of Borrower Common Stock in exchange for shares of Lender's common stock at a price of U.S.$1.50 per share of Borrower Common Stock (the "Merger"). B. In consideration of Borrower's covenants and agreements in the LOI and this Agreement, Lender has agreed to extend credit to Borrower in an amount up to U.S. $5,000,000 to provide short-term financing for Borrower's business on the terms and conditions set forth in this Agreement. Now, therefore, for good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, Borrower and each of the other Loan Parties agree as follows: I. DEFINITIONS 1.1 Definitions. (a) As used in this Agreement, the following terms used in this Agreement with initial capital letters will have the respective meanings set forth in this Section 1.1: "Affiliate": with respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 20% or more of the voting securities of a Person shall be deemed to be control. "Affiliate Transaction": as defined in Section 6.5. "Agreement": as defined in the preamble hereto. "Borrower": as defined in the preamble hereto. "Borrower Benefit Plans": as defined in Section 3.15(a). 2 "Borrower Common Stock": as defined in Section 3.3(a). "Borrower Disclosure Letter": as defined in the preamble to Article III. "Borrower Financial Statements": as defined in Section 3.7(b). "Borrower Preferred Stock": as defined in Section 3.3(a). "Borrower Reports": as defined in Section 3.7(a). "Business Day": a day other than Saturday, Sunday or a day on which banks in New York, New York are authorized or required to be closed. "Canadian Competition Laws": as defined in Section 3.5(b). "Capital Lease Obligations": any indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. "Capital Stock": with respect to any Person, any shares of a series or class of stock or any other interest or participation of such Person that confers the right to receive a share of the profits and losses of, or distribution of assets of, such Person. "Code": the Internal Revenue Code of 1986, as amended from time to time and the Income Tax Act (Canada), as amended from time to time. "Collateral": the assets and property of the Loan Parties securing the Liabilities, as more fully described in the Collateral and Guarantee Agreement. "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its Property is bound. "Conversion Price": a price per share of Borrower Common Stock equal to the lesser of (i) $1.50 (subject to adjustment pursuant to Article IV) (the "Fixed Conversion Price") or (ii) 85% of the Fair Market Value of the Borrower Common Stock. "Convertible Securities": as defined in Section 4.4(b). "Debt": as defined in Section 2.3 hereof. "Environmental Laws": any and all laws, rules, orders, regulations, statutes, ordinances, guidelines, codes, decrees, or other legally enforceable requirements (including, without limitation, common law) of any United States, Canadian, state, local, provincial, municipal or other Governmental Authority, regulating, relating to or imposing liability or standards of conduct concerning protection of the environment or of human health, or employee health and safety, as has been, is now, or may at any time hereafter be, in effect. 2 3 "Environmental Permits": any and all permits, licenses, approvals, registrations, notifications, exemptions and any other authorization required under any Environmental Law. "Equity Interests": Capital Stock and all warrants, options or other rights to acquire Capital Stock. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time, and its Canadian equivalent. "Event of Default": any of the events specified in Section 7.1, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Exchange Act": as defined in Section 3.7(a). "Existing Indebtedness": the aggregate principal amount of secured and perfected Indebtedness of Borrower and its Subsidiaries (other than Indebtedness under this Agreement) in existence on the Closing Date, until such amounts are repaid. "Fair Market Value": of a share of Borrower Common Stock will be deemed to be the weighted average of the trading prices during the five consecutive trading days immediately prior to the date of mailing of the Notice of Conversion as reported by Bloomberg Financial LP using the AQR function. "GAAP": United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, the statements and pronouncements of the Financial Accounting Standards Board and such other statements by such other entities as have been approved by a significant segment of the accounting profession, which are applicable at the Closing Date. "Governmental Authority": any nation or government, any state, provincial or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory, or administrative functions of or pertaining to government, including, without limitation, any quasi-governmental, supranational, statutory, environmental entity and any stock exchange, court or arbitral body. "Guarantee": a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Hazardous Substances": as defined in Section 3.14(b). "Indebtedness": with respect to any Person, without duplication, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing 3 4 Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any Property, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and to the extent not otherwise included, the Guarantee by such Person of any Indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the face amount thereof, in the case of any Indebtedness with respect to acceptances, letters of credit and similar facilities, (ii) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest, and (iii) the principal amount thereof, together with any interest thereon that is past due, in the case of any other Indebtedness, provided, however, that in each case, with respect to any Indebtedness of any Person secured by a Lien on any asset of such Person and non-recourse to such Person, the amount of such Indebtedness shall be the lesser of (A) the principal amount thereof and (B) the fair market value of the Property subject to such Lien. "Indemnitee": as defined in Section 8.5(a). "Initial Closing Date": as defined in Section 2.8 hereof. "Intellectual Property": as defined in Section 3.17(a)(i). "Intellectual Property of Borrower": as defined in Section 3.17(a)(ii). "Knowledge": the actual knowledge of the Persons listed on Schedule 1 and any director or officer of Borrower, if any, not so listed, in each case after due inquiry. "Law": as defined in Section 3.5(a). "Leased Properties": as defined in Section 3.12(a). "Lender": as defined in the preamble hereto. "Lender Designee": as defined in Section 5.7. "Liabilities": all of Borrower's liabilities, obligations and indebtedness to Lender of any and every kind and nature, whether now or hereafter owing, arising, due or payable and however evidenced, created, incurred, acquired or owing, whether primary, secondary, direct, contingent, fixed or otherwise (including obligations of performance) and whether arising or existing under written agreement, oral agreement or operation of law, arising from Borrower's indebtedness and obligations to Lender under this Agreement or any other Loan Document. "Lien": with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in any asset and any filing of or agreement 4 5 to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Loan Amount": as defined in Section 2.1. "Loan Documents": this Agreement, the Collateral and Guarantee Agreement, the Warrant, the Registration Rights Agreement, the Stockholder Indemnity Agreement and the Director and Officer Indemnity Agreement, in each case executed by the parties thereto and any financing statements, filings or documents required to be delivered or filed pursuant to any of the foregoing. "Loan Parties": (i) Borrower and (ii) Borrower's direct and indirect Subsidiaries as of the Closing Date who are parties to a Collateral and Guarantee Agreement in their joint and several capacity as guarantors. "LOI": as defined in the recitals hereto. "Losses": as defined in Section 8.5(a). "Material Adverse Effect": any change, effect, violation, inaccuracy, event or condition that, individually or together with all such changes, effects, violations, inaccuracies, events or conditions, has had or could reasonably be expected to (a) have a material adverse effect on the business, prospects, operations, property or condition (financial or otherwise) of Borrower and its Subsidiaries, taken as a whole, (b) have a material adverse effect on the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies, taken as a whole, of Lender hereunder or thereunder, or (c) prevent or materially delay any of the Loan Party's or Lender's ability to consummate the transactions contemplated herein or in any other Loan Document. "Material Contracts": as defined in Section 3.13(a). "Maturity Date": the date that is 180 calendar days after the Closing Date. "Measurement Date": as defined in Section 3.3(b). "Merger": as defined in the recitals hereto. "Multiemployer Plan": as defined in Section 3.15(c). "New York Court": as defined in Section 8.14(a). "Notice of Conversion": as defined in Section 4.1. "Order": as defined in Section 3.5(a). "Permits": as defined in Section 3.6. 5 6 "Person": any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Authority or any other entity. "Property": any right or interest in or to property, of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, Equity Interests. "Requirement of Law": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any Law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject. "Restricted Payments": as defined in Section 6.1. "Sale Transaction": any transaction or series of transactions involving or which would result in (i) the consolidation, merger or other form of corporate reorganization of the Borrower in which the stockholders of Borrower immediately prior to such transaction fail to hold such number of shares of Capital Stock as would represent a majority of the voting power of Borrower or the surviving entity, as the case may be, following such transaction, (ii) a sale, lease or exchange by Borrower of all or substantially all of its assets (including Borrower's Subsidiaries) to a third party, or (iii) the transfer of more than 50% of the Capital Stock of Borrower to any Person not an Affiliate of Borrower prior to such transfer. "Securities Act": as defined in Section 3.7(a). "Solvent": when used with respect to any Person, means that, as of any date of determination, (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise", as of such date, as such quoted terms are determined in accordance with applicable Laws governing determinations of the insolvency of debtors, (b) the "present fair saleable value", as such quoted term is determined in accordance with applicable Laws governing determinations of the insolvency of debtors, of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability, of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) "debt" means liability on a "claim" and (ii) "claim" means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. 6 7 "Stock Option Plans": as defined in Section 3.3(b). "Subsidiary": with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person and (ii) any partnership, one or more of the general partners or managing general partners of which is such Person or an entity described in clause (i) and related to such Person. "Tax Authority": as defined in Section 3.11(b). "Taxes": as defined in Section 3.11(b). "Tax Return": as defined in Section 3.11(b). (b) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto. (c) As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms, to the extent not otherwise defined in Section 1.1, shall have the respective meanings given to them under GAAP. (d) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (e) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. II. LOAN OBLIGATIONS AND REPAYMENT 2.1 Loan Amount. (a) Lender hereby agrees, upon and subject to the terms and conditions of this Agreement, to lend and make available to Borrower up to the aggregate principal sum of FIVE MILLION DOLLARS (U.S. $5,000,000) (the "Loan Amount"). (b) Subject to the delivery of the items identified in Section 2.8 hereof, (i) $1,550,000 of the Loan Amount (less a $250,000 origination fee and $100,000 in respect of Lender's fees and expenses pursuant to Section 8.1, which will be deducted by Lender from the portion of the Loan Amount to be paid to Borrower) will be paid to Borrower on the first Business Day immediately following the Initial Closing Date, and (ii) the balance of the Loan Amount will be paid to Borrower on the first Business Day following satisfaction of the conditions set forth in Section 2.9 hereof. 7 8 2.2 Interest. Interest (computed on the basis of a 360-day year or the actual days elapsed) will accrue on the unpaid balance of the Loan Amount at a rate per annum of 12%. Such interest shall be payable (i) on the last Business Day of any calendar quarter, (ii) upon repayment of the Loan Amount pursuant to Section 2.3, and (iii) if the Loan Amount is to be converted pursuant to Article IV, on the date of such conversion. All overdue outstanding principal and interest or other overdue amounts shall bear interest at a rate per annum of 15% payable on demand. 2.3 Repayment. Subject to Article IV, Borrower shall repay the aggregate unpaid principal amount of the Loan Amount then owing by Borrower to Lender, and interest accrued thereon (at the rate specified in Section 2.2 above), together with any costs and expenses or other amounts owing by Borrower to Lender pursuant to the Loan Documents (together, the "Debt") on the Maturity Date (or, if earlier, immediately upon demand by Lender following the occurrence of an Event of Default) to such account of Lender as Lender may designate by notice to Borrower in writing. All amounts repaid under this Agreement shall be credited first to interest and then to principal. 2.4 Optional Prepayment. Borrower, at any time, may prepay all or a portion of the unpaid principal amount of the Loan Amount and interest thereon prior to the Maturity Date, upon one Business Day's prior notice to Lender, at a cash price equal to the higher of (i) 145% of the principal amount thereof plus accrued and unpaid interest or (ii) 145% of the value of the conversion rights with respect to the principal amount thereof plus accrued and unpaid interest set forth in Article IV. 2.5 Mandatory Prepayment. Borrower will, simultaneously with the execution of an agreement constituting a Sale Transaction, prepay the unpaid principal amount of the Loan Amount at a cash price equal to the higher of (i) 145% of the principal amount thereof plus accrued and unpaid interest or (ii) 145% of the value of the conversion rights with respect to the principal amount thereof plus accrued and unpaid interest set forth in Article IV. 2.6 No Withholdings. All sums payable by Borrower to Lender under this Agreement shall be paid without any Lien, set-off, counterclaim, withholding, deduction or similar claim whatsoever unless required by law, in which event, Borrower will, simultaneously with the making of the relevant payment under this Agreement, pay to Lender such additional amount as will result in the receipt by Lender of the full amount which would otherwise have been receivable and will supply Lender promptly with evidence satisfactory to Lender that Borrower has accounted to the relevant authority for the sum withheld or deducted. 2.7 Use of Proceeds. Borrower will use proceeds from the Loan Amount to finance its working capital needs up through and including the date of the consummation of the Merger. 2.8 Initial Closing Documentation. On the date hereof (the "Initial Closing Date"), Lender shall have received each of the following, in form and substance satisfactory to 8 9 Lender and its counsel, duly executed by each of the parties thereto, and each such document shall be in full force and effect: (a) the Collateral and Guarantee Agreement in the form of Exhibit A attached hereto, together with the certificates representing the shares of Capital Stock of each of Borrower's Subsidiaries, as well as stock powers with respect thereto endorsed in blank, and the UCC-1 financing statements; (b) the Registration Rights Agreement, in the form of Exhibit B attached hereto; (c) the Stockholder Indemnity Agreement, in the form of Exhibit C attached hereto; (d) the resolutions of the Borrower's Board of Directors relating to the removal of a member of Borrower's Board and the appointment of Lender's Designee; (e) the Hibernia Letter Agreement, in the form of Exhibit D attached hereto; (f) the Hilliard, Lyons Letter Agreement, in the form of Exhibit E attached hereto; (g) the Warrant, in the form of Exhibit F attached hereto, for 77,500 shares of Borrower Common Stock; (h) a certificate, executed by the President and Chief Operating Officer of Borrower, certifying that the representations and warranties set forth in Article III are true and correct; (i) resolutions of the Board of Directors of each Loan Party authorizing (i) the execution, delivery and performance of the Loan Documents to which such Loan Party is a party, (ii) the consummation of the transactions contemplated by the Loan Documents to which such Loan Party is a party, and (iii) all other actions to be taken by each Loan Party in connection with the Loan Documents to which such Loan Party is a party; (j) a certificate, executed by the Secretary or Assistant Secretary of each Loan Party, dated as of the Closing Date, as to (i) the incumbency, and containing the specimen signature or signatures, of the Person or Persons authorized to execute the Loan Documents to which such Loan Party is a party, together with evidence of the incumbency of such Secretary or Assistant Secretary, and (ii) the authenticity and completeness of the certificate of incorporation and by-laws (or similar governing documents) of each Loan Party; (k) certificates of status or good standing of Borrower from the Registrar of Companies of British Columbia, Canada dated not earlier than seven days prior to the Closing Date, and of each state or other jurisdiction in which Borrower is qualified to do business dated not earlier than 14 days prior to the Closing Date; 9 10 (l) certificates of status or good standing of each of Borrower's Subsidiaries from the office of the Secretary of State (or similar Governmental Authority) of the jurisdiction of such Subsidiary's jurisdiction of incorporation dated not earlier than seven days prior to the Closing Date, and of each state or other jurisdiction in which such Subsidiary is qualified to do business dated not earlier than 14 days prior to the Closing Date; and (m) a legal opinion of United States and Canadian counsel to Borrower addressed to Lender and dated as of the Closing Date. 2.9 Closings; Conditions to Closings. (a) The closing of the first installment of the Loan Amount (the "Initial Closing") will take place at the offices of Winstead Sechrest & Minick located at 5400 Renaissance Tower, 1201 Elm Street, Dallas, Texas 75207-2199, at 10:00 a.m. Dallas time. (b) The closing of the remaining portion of the Loan Amount (the "Subsequent Closing") will take place at the offices of Winstead Sechrest & Minick, at 10:00 a.m. Dallas time, on the Business Day following satisfaction or waiver of the following conditions: (i) Written approval from the Toronto Stock Exchange concerning the transactions contemplated in the Loan Documents, including without limitation, the Warrant; (ii) Completion of Lender's due diligence review of Borrower to Lender or its representatives to Lender's satisfaction in its sole discretion. The Loan Parties acknowledge and agree that Lender's consummation of the Initial Closing is not intended to charge Lender with knowledge of any diligence materials (including the Schedules hereto) prepared and forwarded to Lender and its representatives on or before the date of such Initial Closing and that neither Lender nor its representatives was afforded adequate time with which to digest, investigate and make inquiries concerning the materials furnished on or prior to the date of the Initial Closing. The Loan Parties further acknowledge and agree that Lender's consummation of the Initial Closing does not act as a waiver of Lender's rights to forego consummation of the Subsequent Closing on the basis of this condition precedent; (iii) (A) The representations and warranties of the Loan Parties made in any of the Loan Documents shall be true and correct in all respects (or, if any such representation is not expressly qualified by "materiality," "Material Adverse Effect" or words of similar import, then in all material respects), as of the date of the Subsequent Closing as though made as of the date of the Subsequent Closing and (B) the Loan Parties shall have performed and complied in all material respects with all terms, agreements and covenants contained in this Agreement or in any of the other Loan Documents required to be performed or complied with by any of the Loan Parties on or before the date of the Subsequent Closing; 10 11 (iv) No action, suit or proceeding challenging this Agreement or any of the other Loan Documents or the transactions contemplated hereby or thereby or seeking to prohibit, alter, prevent or materially delay the Subsequent Closing or seeking material damages will have been instituted or threatened by any Person; (v) No provision of any applicable Law and no Order of any Governmental Authority will be in effect which will prohibit the consummation of the Subsequent Closing; (vi) Prior to the date of the Subsequent Closing, no event shall have occurred which, individually or when considered together with all other matters, has had, or could reasonably be expected to have, a Material Adverse Effect; and (vii) Lender shall have received a Warrant, in the form of Exhibit F, for 172,500 shares of Borrower Common Stock. III. REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Lender as of the Closing Date that, except as set forth in a letter delivered to Lender simultaneously with the execution of this Agreement signed by Borrower's President and Chief Operating Officer and making specific reference to the applicable Section of this Agreement to which such disclosure relates (the "Borrower Disclosure Letter"), as follows: 3.1 Existence; Good Standing; Corporate Authority. Each of the Loan Parties is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Each of the Loan Parties is extraprovincially registered or otherwise duly licensed or qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified or to be in good standing could not reasonably be expected to have a Material Adverse Effect. Each of the Loan Parties has all requisite corporate power and authority to own, operate and lease its properties and carry on its business as now conducted. The copies of the constituent documents of the Loan Parties previously delivered to Lender are true, correct and complete. 3.2 Authorization, Validity and Effect of Loan Documents. Each Loan Party has the requisite corporate power and authority to execute and deliver the Loan Documents to which it is a party. Each of the Loan Documents to which each Loan Party is a party and the consummation by any of the Loan Parties of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on behalf of each Loan Party. Each of the Loan Documents has been duly and validly executed and delivered by the Loan Parties, as applicable and constitutes the valid and binding obligations of the Loan Parties, enforceable against each Loan Party in accordance with their respective terms, except that (i) such enforceability may be subject to applicable bankruptcy, insolvency or other similar laws now or hereinafter in 11 12 effect affecting creditors' rights generally, (ii) the availability of the remedy of specific performance or injunctive or other forms of equitable relief may be subject to equitable defenses and would be subject to the discretion of the court before which any proceeding therefor may be brought, and (iii) rights to indemnification may be limited by public policy considerations. 3.3 Capitalization. (a) The authorized Capital Stock of Borrower consists of 100,000,000 shares of common stock with no par value per share (the "Borrower Common Stock") and 20,000,000 shares of convertible voting preferred stock with no par value per share (the "Borrower Preferred Stock"). The authorized Capital Stock of each Subsidiary is described on Section 3.3 of the Borrower Disclosure Letter. Borrower owns all of the issued and outstanding shares of Capital Stock and Equity Interests of its Subsidiaries, free and clear of all Liens. (b) As of the close of business on the last Business Day immediately preceding the date hereof (the "Measurement Date"), (i) 20,695,340 shares of Borrower Common Stock were issued and outstanding, each of which was duly authorized, validly issued, fully paid and nonassessable and issued free of any preemptive rights, (ii) no shares of Borrower Preferred Stock were issued and outstanding, and (iii) options to purchase not more than 1,980,000 shares of Borrower Common Stock in the aggregate were outstanding under Borrower's stock option plans, each of which is listed on Section 3.3 of the Borrower Disclosure Letter (the "Stock Option Plans") (including the holders thereof, the expiration date, the exercise prices thereof and the dates of grant). (c) Since the Measurement Date, no additional shares of Capital Stock of Borrower or any of its Subsidiaries have been issued and no Equity Interests in relation thereto have been granted. Except as set forth on Section 3.3 of the Borrower Disclosure Letter, neither Borrower nor any Subsidiary has any outstanding bonds, debentures, notes or other securities or obligations the holders of which have the right to vote or which are or were convertible into or exercisable for its respective Capital Stock. There are not at the date of this Agreement any Equity Interests which obligate Borrower or any of its Subsidiaries to issue, exchange, transfer or sell any shares of Capital Stock of Borrower or any of its Subsidiaries, other than shares of Borrower Common Stock issuable under the Stock Option Plans or awards granted pursuant thereto. There are no outstanding Contractual Obligations of Borrower or any of its Subsidiaries (x) to repurchase, redeem or otherwise acquire any shares of Capital Stock of Borrower or any of its Subsidiaries, or (y) to vote or to dispose of any shares of the Capital Stock of Borrower or any of its Subsidiaries. Except as contemplated by this Agreement or as described in this Section 3.3, none of Borrower or any of its Subsidiaries has any obligation to issue, transfer or sell any shares of its Capital Stock. 3.4 Other Interests. Except for interests in Borrower's Subsidiaries, neither Borrower nor any of its Subsidiaries owns, directly or indirectly, any Capital Stock or interest or investment (whether equity or debt) in any domestic or foreign corporation, company, partnership, joint venture, business, trust or other Person. 12 13 3.5 No Conflict; Required Filings and Consents. (a) The execution, delivery and performance of each Loan Document to which any Loan Party is a party do not, and the consummation by such Loan Party of the transactions contemplated hereby and thereby will not, (i) conflict with or violate such Loan Party's organizational documents, (ii) subject to the making of the filings, notifications or registrations and obtaining any approvals identified in Section 3.5 of the Borrower Disclosure Letter, conflict with or violate any domestic or foreign statute, rule, regulation or other legal requirement ("Law") or order, judgment, injunction or decree ("Order") applicable to any Loan Party or by which any Property or asset of any Loan Party is bound or affected, or (iii) result in any material breach of or constitute a default (or an event which with or without notice or lapse of time or both would become a default) under, result in the loss of a material benefit under, or give to others any right of purchase or sale, or any right of termination, amendment, acceleration, increased payments or cancellation of, or result in the creation of a Lien on any Property or asset of any Loan Party pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or Contractual Obligation to which any Loan Party is a party or by which any Loan Party or any Property or asset of any Loan Party is bound or affected. (b) The execution, delivery and performance of each Loan Document to which any of the Loan Parties is a party do not, and the consummation by any of the Loan Parties of the transactions contemplated hereby and thereby will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, except (i) for (A) the applicable notification requirements of the Investment Canada Act, as amended, or the Competition Act (Canada), as amended, if any under either such statute, and the rules, regulations and policies promulgated thereunder (collectively, the "Canadian Competition Laws"),and (B) the consents, approvals and authorizations set forth in Section 3.5 of the Borrower Disclosure Letter, and (ii) where the failure to obtain any such consent, approval, authorization or permit, or to make any such filing or notification, could not reasonably be expected to have a Material Adverse Effect. 3.6 Compliance with Laws. Neither Borrower nor any of its Subsidiaries is in conflict with, or in default or material violation of, (a) any Law or Order applicable to Borrower or any of its Subsidiaries or by which any Property or asset of Borrower or any of its Subsidiaries is bound or affected or (b) any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or Contractual Obligation to which Borrower or any of its Subsidiaries is a party or by which Borrower or any of its Subsidiaries or any property or asset of Borrower or any of its Subsidiaries is bound or affected, and to the Knowledge of Borrower, neither Borrower nor any of its Subsidiaries is under review or investigation with respect to or has been threatened to be charged with or given notice of any violation of any Law or Order. Borrower and its Subsidiaries hold all licenses, permits, orders, registrations and other authorizations ("Permits") and have taken all actions required by applicable Law or regulations of any Governmental Authority in connection with their respective business as now conducted. 3.7 SEC Documents. (a) Borrower has timely filed all forms, reports and documents required to be filed by it with the Securities and Exchange Commission (the 13 14 "SEC") since January 1, 1998 (collectively, the "Borrower Reports"). As of their respective dates, the Borrower Reports (i) complied in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations thereunder and the securities legislation of the Provinces of British Columbia, Albert and Ontario, Canada and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The representation in clause (ii) of the preceding sentence does not apply to any misstatement or omission in any Borrower Report filed prior to the date of this Agreement which was superseded by a subsequent Borrower Report filed prior to the date of this Agreement. No Subsidiary of Borrower is required to file any periodic reports with the SEC or any Canadian securities regulatory authority under the Exchange Act. (b) Each of the financial statements included in or incorporated by reference into the Borrower Reports (including the related notes and schedules) (the "Borrower Financial Statements") presents fairly, in all material respects, the consolidated financial position of Borrower and its Subsidiaries as of its date and, to the extent applicable, the results of operations, retained earnings or cash flows, as the case may be, of Borrower and its Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to normal recurring year-end audit adjustments, none of which will be material in kind or amount), in each case in accordance with GAAP during the periods involved, except as may be noted therein. 3.8 No Undisclosed Material Liabilities. There are no material liabilities or obligations of Borrower or any of its Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise that would result in such a liability, other than (a) liabilities or obligations disclosed in the Borrower Financial Statements and (b) liabilities or obligations incurred in the ordinary course of business consistent with past practices since January 1, 2001, none of which could reasonably be expected to have a Material Adverse Effect. 3.9 Litigation. There are no actions, suits or proceedings pending, publicly announced or, to the Knowledge of Borrower, threatened against or affecting Borrower or any of its Subsidiaries and there are no Orders of any Governmental Authority outstanding against Borrower or any of its Subsidiaries. 3.10 Absence of Certain Changes. From January 1, 2001 through the date of this Agreement, Borrower and its Subsidiaries have conducted their respective businesses in the ordinary course consistent with past practice and there has not been any Material Adverse Effect, except in either case as have been disclosed in Borrower's periodic reports filed with the SEC. Since January 1, 2001, Borrower has not taken, and has not permitted any of its Subsidiaries to take, any of the following actions: (i) other than dividends and distributions (including liquidating distributions) by a direct or indirect wholly owned Subsidiary of Borrower to its 14 15 parent, (i) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its Capital Stock, (ii) split, combine or reclassify any of its Capital Stock, or (iii) purchase, redeem or otherwise acquire any shares of Capital Stock of Borrower or any of its Subsidiaries or any other securities thereof or any Equity Interests to acquire any such shares or other securities; (ii) issue, deliver, sell, pledge or otherwise encumber any shares of its Capital Stock, other than pursuant to the Stock Option Plans; (iii) amend its organizational documents; (iv) acquire by merging or consolidating with, or by purchasing all or substantially all of the assets of, or in any other manner, any business or material assets or stock of any Person or division thereof in a transaction or series of related transactions; (v) sell, lease, license, mortgage or otherwise encumber or subject to any Lien or otherwise dispose of any of its Properties or assets other than the sale of Inventory in the ordinary course of business; or (vi) incur or Guarantee any Indebtedness, issue or sell any debt securities or warrants or other rights to acquire any debt securities of Borrower or any of its Subsidiaries. 3.11 Taxes. (a) Each of Borrower and its Subsidiaries and any consolidated, combined, unitary or aggregate group for tax purposes of which Borrower or any Subsidiary of Borrower is or has been a member has timely filed all Tax Returns required to be filed by it (after giving effect to any extension properly granted by a Tax Authority having authority to do so) and has timely paid (or Borrower has timely paid on its behalf) all Taxes required to be paid by it (whether or not shown on such Tax Returns), except Taxes that are being contested in good faith by appropriate proceedings and for which Borrower or the applicable Subsidiary of Borrower shall have set aside on its books adequate reserves. Each such Tax Return is complete and accurate in all material respects. The most recent financial statements contained in the Borrower Reports reflect an adequate reserve for all material Taxes payable by Borrower and its Subsidiaries for all taxable periods and portions thereof through the date of such financial statements. Neither Borrower nor any of its Subsidiaries has incurred any material liability for Taxes other than in the ordinary course of business. No event has occurred, and no condition or circumstance exists, which would present a risk that any material Tax described in the preceding sentence will be imposed upon Borrower or any Subsidiary of Borrower. No material deficiencies for any Taxes have been proposed, asserted or assessed against Borrower or any Subsidiary of Borrower, and no requests for waivers of the time to assess any such Taxes are pending and no extensions of time to assess any such Taxes are in effect and no Tax Returns of Borrower or any of its Subsidiaries are currently being audited by any applicable Tax Authority or are threatened with any such audit. All material Taxes required to be 15 16 withheld, collected and paid over to any Tax Authority by Borrower and any Subsidiary of Borrower have been timely withheld, collected and paid over to the proper Tax Authority. No Tax Authority has imposed a Lien against Borrower or any of its Subsidiaries or any of their respective Properties for any Taxes payable pending actions or proceedings by any Tax Authority for assessment or collection of any Tax. Complete copies of all national, provincial, federal, state and local income or franchise Tax Returns that have been filed by Borrower and each Subsidiary of Borrower for all taxable years beginning on or after January 1, 1994, all extensions filed with any Tax Authority that are currently in effect and all written communications with a Tax Authority relating thereto have been made available to Purchaser and its representatives. No written claim has been made by a Tax Authority in a jurisdiction where Borrower or any Subsidiary of Borrower does not file Tax Returns that it is or may be subject to taxation by the jurisdiction. Neither Borrower nor any Subsidiary of Borrower is party to, nor has any liability under (including liability with respect to any predecessor entity), any indemnification, allocation or sharing agreement with respect to Taxes. (b) For purposes of this Agreement, (i) "Taxes" means all taxes, charges, fees, levies or other assessments imposed by any federal, state, or local taxing authority (including any non-U.S. taxing authority), including, but not limited to, income, gross receipts, excise, property, sales, use, transfer, payroll, license, ad valorem, value added, withholding, social security, national insurance (or other similar contributions or payments), franchise, estimated, severance, stamp, and other taxes (including any interest, fines, penalties or additions attributable to or imposed on or with respect to any such taxes, charges, fees, levies or other assessments), (ii) "Tax Return" means any return, report, information return or other document (including any related or supporting information and, where applicable, profit and loss accounts and balance sheets) with respect to Taxes, and (iii) "Tax Authority" shall mean the Internal Revenue Service and any other domestic or foreign bureau, department, entity, agency or other Governmental Authority responsible for the administration of any Tax, including, without limitation the Canada Customs and Revenue Agency. 3.12 Properties. (a) Neither Borrower nor any of its Subsidiaries owns any real property. Borrower or one of its Subsidiaries has a valid leasehold interest in the real properties identified in Section 3.12 of the Borrower Disclosure Letter (collectively with all buildings, structures and other improvements thereon, the "Leased Properties" and each, collectively with all buildings, structures and other improvements thereon, a "Leased Property"), which are all of the real properties that are leased by Borrower and its Subsidiaries as of the date hereof. None of the Leased Properties is subject to any rights of way, written agreements, Laws, ordinances and regulations affecting building use or occupancy or reservations of an interest in title that could, individually or in the aggregate, materially interfere with the present use of any of the Leased Properties subject thereto or affected thereby or otherwise materially impair business operations conducted by Borrower and its Subsidiaries. (b) Neither Borrower nor any of its Subsidiaries has received written notice of any violation of any Law with respect to any of the Leased Properties. Neither Borrower nor any of its Subsidiaries has received any written notice with respect to any the 16 17 Leased Properties to the effect that any condemnation or rezoning proceedings are pending or threatened. 3.13 Contracts; Debt Instruments. (a) There have been delivered to Lender true, correct and complete copies of all of the following contracts to which Borrower or any of its Subsidiaries is a party or by which any of them or their respective Properties is bound (collectively, the "Material Contracts"): (i) agreements pursuant to which Borrower or its Subsidiaries holds or grants a leasehold interest in or otherwise has an economic interest in any real property; (ii) contracts with any current or former officer or director of Borrower or any of its Subsidiaries; (iii) contracts (A) for the sale of any of the material assets of Borrower or any of its Subsidiaries or the acquisition of any material amount of assets by Borrower or any of its Subsidiaries or (B) for the grant to any Person of any rights to purchase any of its material assets; (iv) contracts which restrict Borrower or any of its Subsidiaries from competing in any line of business or with any person in any geographical area in any material manner or which restrict any other Person from competing with Borrower or any of its Subsidiaries in any line of business or in any geographical area in any material manner; (v) loan commitments, indentures, credit agreements, security agreements, guarantees, promissory notes, letters of credit, hedging obligations, capitalized lease obligations, take or pay contracts and other contracts relating to Indebtedness (whether owed by or held by Borrower or any Subsidiary); (vi) all joint venture agreements; (vii) sales agency and reseller agreements; and (viii) any material contract not made in the ordinary course of business. (b) All of the Material Contracts are in full force and effect and are the legal, valid and binding obligations of Borrower and/or its Subsidiaries, enforceable against them in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). Neither Borrower nor any of its Subsidiaries is in breach or default under any Material Contract nor, to the Knowledge of Borrower, is any other party to any Material Contract in breach or default thereunder. 3.14 Environmental Matters. (a) None of Borrower or any of its Subsidiaries nor, to the Knowledge of Borrower, any other Person has caused or permitted (i) the presence of any Hazardous Substances on any of the Leased Properties or (ii) any spills, releases, discharges or disposal of Hazardous Substances to have occurred or be presently occurring on or from the Leased Properties. Borrower and its Subsidiaries have complied in all material respects with all applicable Environmental Laws, including all regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Substances. Borrower and its Subsidiaries have obtained, currently maintain and, as currently operating are in compliance in all material respects with, all Environmental Permits for the conduct of the business and operations of Borrower and its Subsidiaries in the manner now conducted. To the Knowledge of Borrower, there are no actions or proceedings pending or threatened to revoke or materially modify such Environmental Permits. No Hazardous Substances have been used, stored, 17 18 manufactured, treated, processed or transported to or from any such Leased Property by Borrower and its Subsidiaries, except in compliance in all material respects with Environmental Laws and in a manner that does not result in liability under applicable Environmental Laws. None of Borrower or any of its Subsidiaries has received any written notice of potential responsibility, letter of inquiry or written notice of alleged liability from any Person regarding such Leased Property or the business conducted thereon. No investigation, action or review is pending or, to the Knowledge of Borrower, threatened by any Governmental Authority or other Person against Borrower or any of its Subsidiaries under any Environmental Law. For the purposes of this Section 3.14 only, "Leased Properties" shall be deemed to include all property formerly owned, operated or leased by Borrower or its current or former Subsidiaries, solely, however, as to the period of time when such property was so owned, operated or leased by Borrower or its current or former Subsidiaries. Borrower has previously delivered to Purchaser complete copies of all final versions of environmental investigations and testing or analysis that are in the possession, custody or control of any of Borrower or any of its Subsidiaries with respect to the environmental condition of the Leased Properties. (b) For purposes of this Agreement, the term "Hazardous Substances" means: (A) those materials, pollutants and/or substances defined in or regulated under any Environmental Law, including the following national Canadian statutes and their provincial counterparts, as each may be amended from time to time, and all rules regulations and policies promulgated thereunder: Canadian Environmental Protection Act, 1999, the Fisheries Act, the Transportation of Dangerous Goods Act, 1992, the British Columbia Drinking Water Protection Act, the British Columbia Health Act, the British Columbia Pesticide Control Act and the British Columbia Waste Management Act; (B) those materials, pollutants and/or substances defined in or regulated under the following United States federal statutes and their state counterparts, as each may be amended from time to time, and all rules, regulations and policies promulgated thereunder: the Hazardous Materials Transportation Act of 1980, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Toxic Substances Control Act and the Clean Air Act; (C) petroleum and petroleum products including crude oil and any fractions thereof; (D) natural gas, synthetic gas and any mixtures thereof; (E) radon; (F) asbestos; (G) any other contaminant; and (H) any materials, pollutants and/or substance with respect to which any Governmental Authority requires environmental investigation, monitoring, reporting or remediation. 3.15 Borrower Benefit Plans; ERISA Compliance. (a) Except for Borrower's mandatory participation in the Canada Pension Plan or Quebec Pension Plan, Employment Insurance Program and applicable provincial workers' compensation programs, there are no compensation, bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option or other stock related rights, fringe benefit, retirement, vacation, disability, death benefit, supplemental unemployment benefits, hospitalization, medical, dental, life, severance, post-employment benefits or other plan, agreement, arrangement, policies or 18 19 understanding, or employment severance, retention, consulting, change of control or similar agreement whether formal or informal, oral or written, providing benefits to any current or former employee, officer, director or shareholder of Borrower or any of its Subsidiaries or to which Borrower or any of its Subsidiaries contributes or is or was obligated to contribute (collectively, the "Borrower Benefit Plans," which will include each "employee benefit plan" (within the meaning of Section 3(3) of ERISA or its Canadian equivalent), whether or not subject to ERISA, but shall not include any Multiemployer Plan (as defined below)). Section 3.15(a) of the Borrower Disclosure Letter contains a true and complete list of all agreements or plans providing for termination or severance pay to any officer, director or employee of Borrower. (b) Each Borrower Benefit Plan has been administered in all material respects in accordance with its terms and all applicable Laws, including ERISA, the Code, and their respective Canadian equivalents. Each Borrower Benefit Plan is in compliance with all applicable Laws, including the applicable provisions of ERISA, the Code and any similar Canadian statute. Each Borrower Benefit Plan that is intended to be qualified under Section 401(a) or 401(k), of the Code (or its Canadian equivalent) is so qualified and each trust established in connection with any Borrower Benefit Plan that is intended to be exempt from federal income taxation under Section 501(a) of the Code (or its Canadian counterpart) is so exempt. No fact or event has occurred which is reasonably likely to affect adversely the qualified status of any such Borrower Benefit Plan or the exempt status of any such trust. All contributions to, and payments from, each Borrower Benefit Plan and Multiemployer Plan that are required to be made in accordance with such Plans and applicable Laws (including ERISA, the Code and their respective Canadian equivalents) have been timely made. (c) No Borrower Benefit Plan is or at any time was (i) subject to Title IV of ERISA (or its Canadian equivalent) or (ii) subject to the minimum funding standards of Section 302 of ERISA or Section 412 of the Code (or their respective Canadian equivalents). Neither Parent nor any of its Subsidiaries contributes to any "multiemployer plan" within the meaning of Section 3(37) of ERISA or a "multiple employer plan" within the meaning of Section 3(40) of ERISA or their Canadian equivalents (each a "Multiemployer Plan"). (d) No Borrower Benefit Plan provides medical benefits (whether or not insured) with respect to current or former employees, officers or directors after retirement or other termination of service. (e) The consummation of the transactions contemplated by this Agreement will not, either alone or in combination with another event, (i) entitle any current or former employee, officer or director of Borrower to severance pay, unemployment compensation or any other payment or (ii) accelerate the time of payment or vesting, or increase the amount of compensation, equity rights or benefits due any such employee, officer or director. (f) With respect to each Borrower Benefit Plan, Borrower has delivered to Lender a true and complete copy of: (A) each writing constituting a part of such Borrower Benefit Plan, including without limitation all Borrower Benefit Plan documents and trust 19 20 agreements; (B) the most recent Annual Report (Form 5500 Series) and accompanying schedule (and Canadian equivalents), if any; (C) the most recent annual financial report, if any; (D) the most recent actuarial report, if any; (E) the most recent determination letter from the IRS (and Canadian equivalent), if any. (g) With respect to each Borrower Benefit Plan, there have been no prohibited transactions or breaches of any of the duties imposed on "fiduciaries" (within the meaning of Section 3(21) of ERISA or its Canadian equivalent) by ERISA (or its Canadian equivalent) with respect to Borrower Benefit Plans that would result in any liability or excise tax under ERISA, the Code or their respective Canadian equivalents. (h) There has been no amendment to, written interpretation of or announcement (whether or not written) by Borrower or any of its Subsidiaries relating to, or change in employee participation or coverage under, any Borrower Benefit Plan which would increase materially the expense of maintaining such Borrower Benefit Plan above the level of the expense incurred in respect thereof for the 12 months ended on the date of the most recent balance sheet for Borrower and its Subsidiaries. (i) All contributions and payments due under each Borrower Benefit Plan have either been discharged and paid or are adequately reflected as a liability on the most recent balance sheet for Borrower and its Subsidiaries in accordance with GAAP. (j) Neither Borrower nor any of its Subsidiaries is a party to or subject to any organizing drive, certification, union contract or collective bargaining agreement, (ii) Borrower and its Subsidiaries are in compliance in all material respects with all currently applicable domestic or Canadian national or provincial laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and are not engaged in any unfair labor practice that would affect Borrower in any material respect, and (iii) there is no unfair labor practice complaint pending or, to the Knowledge of Borrower, threatened against Borrower or any of its Subsidiaries before the National Labor Relations Board (or its Canadian national or provincial counterpart) that would affect Borrower in any material respect. 3.16 Related Party Transactions. Except for such of the following as were described in Borrower's Annual Report on Form 10-KSB for the year ended June 30, 2000, neither Borrower nor any of its Subsidiaries has any Contractual Obligation or arrangement with any Person who is an officer, director or Affiliate of Borrower or any of its Subsidiaries, or any lineal descendent of any of the foregoing, or any entity in which any of the foregoing has an economic interest (excluding ownership of stock of publicly owned companies) that would be required to be disclosed under Section 404 of Regulation S-K promulgated under the Securities Act. 3.17 Intellectual Property. (a) For purposes of this Agreement, the following terms have the following meanings: (i) "Intellectual Property" includes without limitation any or all of the following and all rights associated therewith: (A) all registered domestic and 20 21 foreign patents and applications therefor and all reissues, divisions, renewals, extensions, continuations and continuations-in-part thereof; (B) all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology, technical data and customer lists, rights of privacy and publicity, and all documentation relating to any of the foregoing; (C) all copyrights, copyright registrations and applications therefor, and all other rights corresponding thereto throughout the world; (D) all mask works, mask work registrations and applications therefor; (E) all industrial designs and any registrations and applications therefor; (F) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor and all goodwill associated therewith; and (G) all computer software including all source code, object code, firmware, development tools, files, records and data, all media on which any of the foregoing is recorded, and all documentation related to any of the foregoing. (ii) "Intellectual Property of Borrower" means any Intellectual Property that: (A) is owned by or exclusively licensed to Borrower or any Subsidiary or (B) is used in the operation of the businesses of Borrower or any Subsidiary, including the design and use of the products of Borrower or any Subsidiary as they currently operate. (b) Section 3.17 of the Borrower Disclosure Letter lists all registrations of Intellectual Property of Borrower and all applications for registration of Intellectual Property of Borrower. Such registrations, to the extent completed and fully registered, are subsisting, all necessary registration and renewal fees in connection with such registrations have been made and all necessary documents and certificates in connection with such registrations have been filed with the relevant patent, copyrights and trademark authorities in the United States or other foreign jurisdiction for the purposes of maintaining such Intellectual Property registrations. No Person has any rights to use any of the Intellectual Property of Borrower or, to the Knowledge of Borrower, is infringing or misappropriating any of the Intellectual Property of Borrower, (ii) neither Borrower nor any Subsidiary has granted to any Person, nor authorized any Person to retain, any rights in the Intellectual Property of Borrower, and (iii) Borrower or any Subsidiary owns and has good and exclusive title to each item of owned Intellectual Property of Borrower, free and clear of any Lien, except Liens permitted by Section 6.3 hereof, or Borrower or any Subsidiary, and has the right, pursuant to a valid Contract to use or operate under, all other Intellectual Property of Borrower. The operation of the businesses of Borrower or any Subsidiary as they currently are conducted does not infringe the Intellectual Property rights of any other Person, and neither Borrower nor any Subsidiary has received notice from any Person that the operation of its respective businesses infringes the Intellectual Property rights of any Person. There are no Contracts between Borrower or any other Subsidiary and any other Person with respect to the Intellectual Property of Borrower in respect of which there is any dispute known to Borrower or any Subsidiary regarding the scope of such agreement, or performance under such Contract, including with respect to any payments to be made or received by Borrower or any Subsidiary. 21 22 3.18 Solvent Financial Condition. Each Loan Party is, after giving effect to the transactions contemplated herein and in the other Loan Documents, Solvent. 3.19 Board Approval of the LOI and Merger. The Board of Directors of Borrower at a duly held meeting has approved and authorized (i) the Borrower to proceed with the Merger, (ii) the provisions of the LOI that are binding as to Borrower, and (iii) the Board to recommend to the Borrower's stockholders the approval of the Merger, subject to the exercise of the Board's fiduciary duties. 3.20 No Brokers. Neither Borrower nor any of its Subsidiaries has entered into any contract, arrangement or understanding with any Person or firm which may result in the obligation of Borrower, any of Borrower's Subsidiaries or Lender to pay any investment banker's or finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to any of the Loan Documents or the consummation of the transactions contemplated hereby or thereby. 3.21 Statements True and Correct. The representations made by Borrower in this Agreement do not contain as of the date made any untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. IV. CONVERSION 4.1 Conversion. Lender may elect at any time, upon two Business Days' prior written notice to Borrower (the "Notice of Conversion"), to convert all or any portion of the then outstanding and unpaid Loan Amount into Borrower Common Stock at the Conversion Price as of the date of mailing of the Notice of Conversion; provided, however, that Lender shall not be entitled, without the prior approval of Borrower's stockholders, to convert such amount of the then outstanding and unpaid Loan Amount as would cause Borrower to issue more than 19.9% of the total issued and outstanding shares of Borrower Common Stock as of the date of such conversion. 4.2 Adjustments. If Borrower shall, at any time during which this Agreement is in effect, (i) pay a stock dividend or make a distribution to holders of Borrower Common Stock in shares of its Borrower Common Stock, (ii) subdivide its outstanding shares of Borrower Common Stock, (iii) combine its outstanding shares of Borrower Common Stock into a smaller number of shares, or (iv) issue by reclassification of its shares of Borrower Common Stock any shares of Capital Stock of Borrower, then thereafter the Fixed Conversion Price after such change shall in case of an increase in the number of shares be proportionately decreased, and in case of a decrease in the number of shares be proportionately increased. 4.3 Reorganization, Reclassification, Share Exchange or Merger. (a) If at any time during which this Agreement is in effect Borrower is a party to any agreement providing for (i) any capital reorganization or reclassification of the Capital Stock of Borrower or (ii) any share exchange or merger of Borrower with another corporation, in such a way that holders of Borrower Common Stock shall be entitled to receive cash, 22 23 shares of stock or securities or assets (collectively, and regardless of whether received in connection with a merger or some other form of corporate reorganization, the "Merger Consideration") with respect to or in exchange for Borrower Common Stock, then, as a condition to such reorganization, reclassification, share exchange or merger, the successor entity (if other than Borrower) resulting from such transaction shall assume by written instrument the obligation to deliver to the Lender, upon conversion of the Loan Amount, such cash, shares of stock or securities or assets as the Lender would have been entitled to receive had the Lender converted the Loan Amount immediately prior to the closing of such transaction. (b) In connection with any capital reorganization or reclassification of the Capital Stock of Borrower or any share exchange or merger of Borrower with another person, if Borrower shall fix a record date for the making of a distribution to holders of Borrower Common Stock of (i) assets (other than cash dividends or cash distributions payable out of consolidated net income or earned surplus or dividends payable in Borrower Common Stock), (ii) evidences of indebtedness or other securities of Borrower or of any person (except for Borrower Common Stock), or (iii) subscription rights, options or warrants to purchase any of the foregoing assets or securities, whether or not such rights, options or warrants are immediately exercisable, to the extent such rights, options or warrants have not expired, then Borrower shall make provisions for the Lender to receive, and the Lender shall be entitled upon conversion of the Loan Amount, evidences of indebtedness, securities or such other rights, options or warrants, as if the Lender had converted the Loan Amount on or before such record date. 4.4 Notification to Lender. (a) Upon each adjustment to the Fixed Conversion Price pursuant to this Agreement, Borrower shall give written notice thereof to the Lender within ten days after the date of such adjustment, which notice shall set forth the calculation of the Fixed Conversion Price before and after such adjustment and the facts upon which such calculations are based. (b) If at any time: (i) Borrower shall offer for subscription pro rata to the holders of its Borrower Common Stock any additional shares of stock of any class or other rights; (ii) the Board of Directors (or any committee thereof) shall authorize or approve any capital reorganization, or reclassification of the capital stock of Borrower, or share exchange or merger of Borrower with, or sale, disposition or other conveyance of all or substantially all of its assets to, any Person; (iii) Borrower (or any other party) shall institute any proceeding seeking an order for relief under any United States or Canadian bankruptcy laws or seeking to adjudicate Borrower as bankrupt or insolvent, or seeking dissolution, liquidation or winding up of Borrower or seeking reorganization under any law relating to bankruptcy or insolvency; then, within ten days of the date of any such occurrence, Borrower shall give the Lender written notice describing in reasonable detail such occurrence. 23 24 4.5 Certain Events. If any event occurs as to which the provisions of this Article IV are not strictly applicable or, if strictly applicable would not fairly protect the rights of the Lender in accordance with the essential intent and principles of such provisions, then Borrower and the Lender shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect the Lender's rights as aforesaid. V. AFFIRMATIVE COVENANTS Borrower hereby agrees that, so long as any Liabilities are owing to Lender hereunder, Borrower shall, and shall cause each of its Subsidiaries to: 5.1 Certificates; Other Information. Furnish to Lender: (a) at the request of Lender, a certificate of an executive officer of Borrower stating that to the best of such officer's Knowledge, Borrower and its Subsidiaries during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such officer has obtained no Knowledge of any Event of Default except as specified in such certificate; and (b) promptly, such financial and other information as Lender may from time to time reasonably request. 5.2 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material Contractual Obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of Borrower or its Subsidiaries, as the case may be. 5.3 Conduct of Business and Maintenance of Existence, etc. (a) (i) Preserve, renew and keep in full force and effect its corporate existence and (ii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business; and (b) comply with all Contractual Obligations and requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.4 Maintenance of Property; Insurance. (a) Keep all material Property and systems useful and necessary in its business in good working order and condition, ordinary wear and tear and damage occurring as a result of a casualty event excepted and (b) maintain with financially sound and reputable insurance companies insurance on all its Property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business. 24 25 5.5 Inspection of Property; Books and Records; Discussions. (a) Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all requirements of Law shall be made of all dealings and transactions in relation to its business and activities and (b) permit representatives of Lender to visit and inspect any of its Properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of Borrower and its Subsidiaries with officers and employees of Borrower and its Subsidiaries and with its independent certified public accountants. 5.6 Notices. Promptly give notice to Lender of: (a) the occurrence of any Event of Default or any event that could reasonably be expected to result in an Event of Default; (b) any (i) default or event of default under any Contractual Obligation of Borrower or any of its Subsidiaries or (ii) litigation, proceeding or, to the Knowledge of Borrower, investigation which may exist at any time between Borrower or any of its Subsidiaries and any Governmental Authority, which in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (c) the following events, as soon as possible and in any event within five Business Days after Borrower knows or has reason to have Knowledge thereof: (i) the occurrence of any reportable event with respect to any Borrower Benefit Plan, a failure to make any required contribution to a Borrower Benefit Plan, the creation of any Lien on the assets of a Borrower Benefit Plan or any withdrawal from, or the termination, ERISA reorganization or insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by Borrower or any Affiliate or any Multiemployer Plan with respect to the withdrawal from, or the termination, ERISA reorganization or insolvency of, any Borrower Benefit Plan; and (d) any development, change, condition or event which has had or could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this Section shall be accompanied by a statement of an executive officer of Borrower setting forth details of the occurrence referred to therein and stating what action Borrower or the relevant Subsidiary proposes to take with respect thereto. 5.7 Lender's Board Designee. In the event that the Loan Amount remains outstanding for more than 130 days following the Closing Date, Lender will be entitled to designate one member (the "Lender Designee") to Borrower's Board of Directors for so long as any Liabilities are owing to Lender hereunder. In the event that the Loan Amount remains outstanding for more than 130 days following the Closing Date, Borrower will cause its Board of Directors to hold a meeting on the next Business Day for the purposes of: (i) approving and adopting the resolutions referenced in Section 25 26 2.8(d) hereof, (ii) authorizing Borrower to enter into a Director and Officer Indemnity Agreement in favor of the Lender Designee in the form attached hereto as Exhibit G, and (iii) authorizing Borrower to cause the Lender Designee to be covered under a directors' and officers' liability insurance policy. 5.8 Merger Documents; Board Approval of the Merger. As promptly as practicable following the Closing Date, Borrower will work in good faith with Lender to negotiate and prepare the definitive agreements relating to the Merger and the taking of all requisite actions to consummate the Merger. Subject to the exercise of its fiduciary duties under applicable Law, the Board of Directors of Borrower shall include, in any required communication with Borrower's stockholders relating to the Merger, its unanimous recommendation that the Merger should be approved by its stockholders. 5.9 Use of Proceeds. Borrower will use the proceeds from the portion of the Loan Amount paid to Borrower on the Initial Closing Date to pay its Contractual Obligations to trade creditors as of the Initial Closing Date and Borrower will use the remaining proceeds of the Loan Amount to finance its working capital needs up through and including the date of consummation of the Merger. 5.10 No Dilutive Issuances. Until the later of the date (i) the Warrant has been exercised in full or the exercise period thereunder has expired and (ii) this Agreement has terminated and the entire principal amount of the Loan paid in full or converted into Borrower Common Stock, Borrower will not: (a) issue or sell any shares of Borrower Common Stock, including any treasury shares, for less than U.S.$1.50 per share; (b) except pursuant to the Borrower's Stock Option Plans, issue or sell any rights to subscribe for or to purchase, or any warrants or options for the purchase of Borrower Common Stock or securities convertible into or exchangeable for shares of Borrower Common Stock (each, a "Convertible Security") for an amount which, when added to the amount payable upon the exercise, conversion or exchange of such Convertible Security, would be less than U.S.$1.50 per share of Borrower Common Stock; (c) pay a stock dividend or make a distribution to holders of Borrower Common Stock in shares of its Borrower Common Stock; (d) subdivide its outstanding shares of Borrower Common Stock; (e) combine its outstanding shares of Borrower Common Stock into a smaller number of shares, or (f) issue by reclassification of its shares of Borrower Common Stock any shares of capital stock of Borrower. 5.11 Reformation of Agreement. In the event that (i) the Warrant or any of the other Loan Documents needs to be modified in order to obtain the written approval of TSE or (ii) any court of competent jurisdiction holds any provision of any of the Loan 26 27 Documents unenforceable, Borrower and Lender agree that the Loan Documents will be amended to the minimum extent necessary to achieve such approval or enforceability, as the case may be, and any requisite modifications to the Loan Documents will be made in the sole discretion of Lender and its counsel. 5.12 Further Assurances. Execute and deliver, or cause to be executed and delivered, such additional instruments, certificates or documents, and take all such actions, as Lender may reasonably request, for the purposes of implementing or effectuating the provisions of this Agreement and the other Loan Documents. Upon the exercise by Lender of any power, right, privilege or remedy pursuant to this Agreement or the other Loan Documents which requires any consent, approval, recording, qualification or authorization of any Governmental Authority, Borrower will execute and deliver, or will cause the execution and delivery of, all applications, certifications, installments and other documents and papers that Lender may be required to obtain from the Borrower or any of its Subsidiaries for such governmental consent, approval, recording, qualification or authorization. VI. NEGATIVE COVENANTS Borrower hereby agrees that, so long as any Liabilities are owing to Lender hereunder, Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: 6.1 Limitation on Restricted Payments. (a) (i) Declare or pay any dividend or make any other payment or distribution on account of Borrower's or any of its Subsidiaries' Equity Interests; (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of Borrower or its Subsidiaries; or (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of Borrower, except a payment of interest or principal at its stated maturity (all such payments and other actions set forth in clauses (i) through (iii) above being collectively referred to as "Restricted Payments"). (b) The foregoing provisions shall not prohibit (i) the payment of any dividend or distribution by a Subsidiary to the holders of its common Equity Interests so long as Borrower or a Subsidiary receives at least its pro rata share of such dividend or distribution in accordance with its Equity Interests, (ii) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of Borrower or any Affiliates of Borrower that are held by any member of Borrower's (or any of its Subsidiaries) management pursuant to the Stock Option Plans, or (iii) payments to Affiliates of Borrower in amounts equal to the amounts required for such Affiliates to pay any federal, provincial, state or local or foreign income Taxes to the extent that such income Taxes are attributable to the income of Borrower and/or its Subsidiaries; provided, however, that at the time of, and after giving effect to, any Restricted Payment permitted above, no Event of Default shall have occurred and be continuing or would occur as a consequence thereof. 27 28 6.2 Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock. Create, incur, issue, assume, Guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to any Indebtedness (other than Existing Indebtedness) and Borrower will not issue any Borrower Preferred Stock and will not permit any of its Subsidiaries to issue any shares of its preferred stock (other than to Borrower or another wholly-owned Subsidiary of Borrower). 6.3 Limitation on Liens. Create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind securing Indebtedness or trade payables upon any of their Property or assets, now owned or hereafter acquired. (a) Liens in favor of the Lender; (b) Liens incurred in connection with Existing Indebtedness; (c) Encumbrances consisting of minor easements, zoning restrictions, or other restrictions on the use of real property that do not (individually or in the aggregate) materially affect the value of the assets encumbered thereby or materially impair the ability of the Loan Parties to use such assets in their respective businesses, and none of which is violated in any material respect by existing or proposed structures or land use; (d) Liens for Taxes, assessments, or other governmental charges which are not delinquent or which are being contested in good faith and for which adequate reserves have been established; (e) Liens of mechanics, materialmen, warehousemen, carriers or other similar statutory Liens securing obligations that are not yet due and are incurred in the ordinary course of business; (f) Financing statements filed in connection with operating lease transactions; and (g) Liens resulting from good faith deposits to secure payments of workmen's compensation or other social security programs or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, or contracts (other than for payment of Indebtedness), or leases made in the ordinary course of business. 6.4 Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries. Create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i)(x) pay dividends or make any other distributions to Borrower or any of its Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (y) pay any Indebtedness owed to Borrower or any of its Subsidiaries, (ii) make loans or advances to the Borrower or any of its Subsidiaries, on (iii) transfer any of its Properties or assets to Borrower or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) Existing Indebtedness 28 29 as in effect on the Closing Date, (b) this Agreement and the Liabilities, (c) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business, (d) purchase money obligations for Property acquired in the ordinary course of business, or (e) applicable Law or any applicable rule, regulation or Order. 6.5 Limitation on Transactions with Affiliates. Make any payment to, or sell, lease, transfer or otherwise dispose of any Properties or assets to, or purchase any Property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of any such Person (each of the foregoing, an "Affiliate Transaction"), unless such Affiliate Transaction is on terms that are no less favorable to Borrower or the relevant Subsidiary than those that would have been obtained in a comparable transaction by Borrower or such Subsidiary with an unrelated Person; provided, that none of the following shall be deemed to be Affiliate Transactions: (1) any employment agreement entered into by Borrower or any of its Subsidiaries in the ordinary course of business, (2) transactions between or among any of Borrower and/or its wholly-owned Subsidiaries, (3) Restricted Payments that are permitted by Section 6.1, (4) fees and compensation paid to members of the Boards of Directors of Borrower and its Subsidiaries in their capacity as such, to the extent such fees and compensation are reasonable and customary, and (5) fees and compensation paid to, and indemnity provided on behalf of, officers, directors or employees of the Borrower or any of its Subsidiaries, as determined by the Board of Directors of Borrower or of any such Subsidiary, to the extent such fees, compensation and indemnities are reasonable and customary. 6.6 Limitation on Sales or Issuances of Capital Stock of Subsidiaries. (i) Transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Subsidiary to any Person (other than Borrower or a wholly-owned Subsidiary of Borrower), or (ii) permit any of its Subsidiaries to issue any of its Equity Interests to any Person (other than to Borrower or a wholly-owned Subsidiary of Borrower). 6.7 Limitation on Lines of Business. Enter into any business, either directly or through any Subsidiary, except for any activities that constitute their respective lines of business as of the Initial Closing Date. 6.8 Limitation on Changes to Constituent Documents. Amend any provision of its certificate of incorporation or by-laws (or similar governing documents). VII. EVENTS OF DEFAULT 7.1 Events of Default. The following shall be Events of Default ("Events of Default") hereunder: (a) the nonpayment when due of any part of the Debt and the continuation of such nonpayment for more than three Business Days; (b) the making by Borrower or any of its Subsidiaries of an assignment of this Agreement for the benefit of creditors; 29 30 (c) the appointment of a trustee or receiver for Borrower or any of its Subsidiaries or for any of their respective Property; (d) the commencement of any proceedings by or against Borrower or any of its Subsidiaries under any existing or future Law of any jurisdiction relating to bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt, receivership, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts; provided, that any such proceeding involuntarily commenced against Borrower or any of its Subsidiaries (and not voluntarily by Borrower or any of its Subsidiaries) shall not have been dismissed within 60 calendar days of such commencement; (e) any statement, representation or warranty made by Borrower or its Subsidiaries, as applicable, in this Agreement, in any officer's certificate or otherwise made to Lender in connection with this Agreement being inaccurate in any material respect on the date made, and the failure of Borrower to cure such breach within five Business Days after written notice from Lender; (f) the failure by Borrower or its Subsidiaries to observe or comply with any agreement or covenant contained in any Loan Document, and the failure of Borrower to cure or cause to be cured such failure with five Business Days after written notice from Lender; (g) the security granted by Borrower or its Subsidiaries to Lender under any Loan Document ceasing to be valid or enforceable or of the same effect and priority as purported to be created thereby; (h) any Loan Document ceasing to be valid and enforceable in any respect or Borrower or its Subsidiaries challenging the validity or enforceability of any Loan Document or any terms hereof or thereof; and (i) the rendering of any judgment, Order or decree for the payment of money in the aggregate in excess of U.S.$50,000 against Borrower or its Subsidiaries which remains unpaid for 30 calendar days. 7.2 Consequences of an Event of Default. If any Event of Default shall occur, then: (a) the Debt shall, at Lender's option, become at once due and payable without notice, presentment, demand of payment, protest or notice of dishonor, each of which is hereby expressly waived; and (b) Lender shall have all rights and remedies available to it under applicable Law, including its rights and remedies pursuant to any Loan Document. VIII. MISCELLANEOUS 8.1 Costs and Expenses. Borrower shall pay to Lender and be liable to Lender for all reasonable out-of-pocket costs and expenses of every kind incurred by Lender in 30 31 connection with the preparation, negotiation, execution, amendment and enforcement of its rights under any of the Loan Documents, including, without limitation, reasonable attorneys' fees. 8.2 Assignment. This Agreement and the obligations hereunder may not be assigned by Borrower without the prior written consent of Lender. Borrower hereby expressly agrees and acknowledges that Lender may at any time, without the consent of Borrower, assign all or any part of its rights and obligations under this Agreement to any Affiliate of Lender; provided that such assignment shall not reduce Lender's obligations or liability under this Agreement. 8.3 Maturity on Business Day. If the Debt becomes due and payable, whether upon maturity or the occurrence of an Event of Default, or otherwise, on a day which is not a Business Day, the Debt shall be payable on the next succeeding Business Day. 8.4 Binding Effect. This Agreement is binding upon Borrower and its successors and permitted assigns pursuant to Section 8.2. 8.5 Indemnity. (a) Borrower agrees to indemnify, reimburse and hold Lender, its successors, permitted assigns, officers, directors, employees, agents and representatives (collectively, the "Indemnitees") harmless from any and all liabilities, obligations, losses, damages, penalties, claims, demands, actions, suits, judgments and any and all reasonable fees, costs and expenses (including reasonable attorneys' fees and expenses) (collectively, "Losses") of whatsoever kind and nature imposed on, asserted against or incurred by any of the Indemnitees in any way arising out of, or resulting from, (i) any Loan Document or in connection with the enforcement of any of the terms of, or the creation, perfection, preservation or protection of any rights hereunder or thereunder (including any security interests created thereunder), (ii) the manufacture, ownership, ordering, purchase, delivery, control, acceptance, lease, financing, possession, operation, condition, sale, return or other disposition, or use of the Collateral (including, without limitation, latent or other defects, whether or not discoverable), or (iii) any misrepresentation by any Loan Party in any Loan Document, or in any statement or writing contemplated by or made or delivered pursuant to or in connection therewith; provided, that no Indemnitee shall be indemnified hereunder for any Losses to the extent caused by the Indemnitee's intentional violation of any Law. Borrower agrees that upon written notice by any Indemnitee of the assertion of such Loss, Borrower shall assume full responsibility for the defense thereof. Each Indemnitee agrees to promptly notify Borrower of any Losses for which Lender will seek indemnification pursuant to this Section 8.5; provided that the failure to deliver such notice will not relieve Borrower of any liability, except to the extent Borrower was materially prejudiced by the failure to deliver such notice. (b) If and to the extent that the obligations of Borrower under this Section 8.5 are unenforceable for any reason, Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of such Losses which are permissible under applicable Law. 31 32 (c) The indemnity obligations of Borrower contained in this Section 8.5 shall continue in full force and effect notwithstanding the full repayment of all amounts owing under or in respect of this Agreement and the payment of all of the other Liabilities and notwithstanding the discharge thereof. 8.6 No Oral Changes. This Agreement may not be changed orally, but only in a written instrument signed by Borrower and Lender. 8.7 Notices. Except as otherwise expressly provided herein, all notices and other communications hereunder shall be in writing (including facsimile communication) and shall be mailed, faxed or delivered to the parties hereto at the respective address set forth below and shall be effective when received: (a) if to Borrower or any Subsidiary, at: Global Election Systems, Inc. 1611 Wilmeth Road McKinney, TX 75069 Attention: Michael Rasmussen Facsimile: (972) 542-6044 (b) if to Lender, at: Diebold, Incorporated 5995 Mayfair Road P.O. Box 3077 North Canton, OH 44720-8077 Attention: Gregory T. Geswein Facsimile: (330) 490-4555 8.8 Heading Descriptive. The headings of the several Articles and Sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 8.9 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered (including by facsimile) shall be an original, but all of which shall together constitute one and the same instrument. 8.10 Delay in Enforcement; Remedies Cumulative. No delay on the part of Lender in exercising any of its options, powers or rights, and no partial or single exercise thereof, shall constitute a waiver thereof in any other instance. The options, powers, rights and other remedies of Lender specified herein are in addition to those otherwise created or existing at law or in equity or by statute or otherwise. 8.11 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions 32 33 hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.12 Governing Law. This Agreement will be construed and enforced in accordance with, and the rights of the parties will be governed by, the laws of the State of New York (including for such purpose Sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York), without regard to the conflict of law rules of such State. 8.13 Recovery of Litigation Costs. If any legal action or other proceeding is brought for the enforcement of any Loan Document, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of any Loan Document, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled. 8.14 Jurisdiction; Consent to Service of Process. (a) Each party hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the New York state court located in the Borough of Manhattan, City of New York or the United States District for the Southern District of New York (as applicable, a "New York Court"), and any appellate court from any such court, in any suit, action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment resulting from any such suit, action or proceeding, and each party hereby irrevocably and unconditionally agrees that all claims in respect of any such suit, action or proceeding may be heard and determined in the New York Court. (b) It will be a condition precedent to each party's right to bring any such suit, action or proceeding that such suit, action or proceeding, in the first instance, be brought in the New York Court (unless such suit, action or proceeding is brought solely to obtain discovery or to enforce a judgment), and if each such court refuses to accept jurisdiction with respect thereto, such suit, action or proceeding may be brought in any other court with jurisdiction; provided that the foregoing will not apply to any suit, action or proceeding by a party seeking indemnification or contribution pursuant to this Agreement or any other Loan Document or otherwise in respect of a suit, action or proceeding against such party by a thirty party if such suit, action or proceeding by such party seeking indemnification or contribution is brought in the same court as the suit, action or proceeding against such party. (c) No party may move to (i) transfer any such suit, action or proceeding from the New York Court to another jurisdiction, (ii) consolidate any such suit, action or proceeding brought in the New York Court with a suit, action or proceeding in another jurisdiction, or (iii) dismiss any such suit, action or proceeding brought in the New York Court for the purpose of bringing the same in another jurisdiction. (d) Each party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, (i) any objection which it may now or 33 34 hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in the New York Court, (ii) the defense of an inconvenient forum to the maintenance of such suit, action or proceeding in any such court, and (iii) the right to object, with respect to such suit, action or proceeding, that such court does not have jurisdiction over such party. Each party irrevocably consents to service of process in any manner permitted by law. 8.15 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY. 8.16 No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of each Loan Document. In the event an ambiguity or question of intent or interpretation arises, each Loan Document shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of any Loan Document. 8.17 Acknowledgements. Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party; (b) Lender does not have any fiduciary relationship with or duty to Borrower or its Subsidiaries arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Borrower and its Subsidiaries, on the one hand, and Lender, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among Borrower and its Subsidiaries and Lender. 8.18 Entire Agreement. The Loan Documents constitute the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations and undertakings of the parties, whether oral or written, with respect to such subject matter, provided, however, that the LOI will remain in full force and effect in accordance with its terms to the extent not inconsistent with the provisions of any Loan Document (including, without limitation, any provision in the LOI with respect to exclusivity, publicity or the payment by Borrower of any break-up or termination fee). 34 35 IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be executed and delivered by one of its duly authorized representatives as of the date first written above. DIEBOLD, INCORPORATED, as Lender By: /s/ Gregory T. Geswein ------------------------- Name: Gregory T. Geswein Title: Senior Vice President and Chief Financial Officer GLOBAL ELECTION SYSTEMS INC., as Borrower By: /s/ Larry Ensminger ------------------------- Name: Larry Ensminger Title: Secretary and Vice President, Acquisitions and Mergers 36 Schedule 1 PERSONS WITH KNOWLEDGE EX-99.2 4 l89855aex99-2.txt EXHIBIT 99.2 1 Exhibit 99.2 AMENDMENT NO. 1 TO BRIDGE LOAN AGREEMENT This Amendment No. 1 to Bridge Loan Agreement (this "Amendment"), dated as of August 3, 2001, by and between Diebold Incorporated, an Ohio corporation ("Diebold"), and Global Election Systems Inc., a corporation organized under the laws of British Columbia ("Global"), amends the Bridge Loan Agreement, dated as of June 29, 2001 (the "Bridge Loan Agreement"), between Diebold and Global. RECITALS WHEREAS, Diebold and Global entered into that certain Bridge Loan Agreement dated as of June 29, 2001. WHEREAS, Diebold and Global desire to amend certain provisions of the Bridge Loan Agreement as set forth in this Amendment. NOW THEREFORE, in consideration of the terms and conditions contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. RECITAL A of the Bridge Loan Agreement is hereby deleted in its entirety and replaced with the following: "Lender and Borrower have executed a letter of intent dated as of June 19, 2001, as amended by that certain letter agreement dated as of August 2, 2001 (the "LOI") pursuant to which the Lender and the Borrower have agreed to consider a possible business combination transaction pursuant to which Lender would acquire all of the Borrower's issued and outstanding Common Stock in exchange for a combination of shares of Lender's common stock and cash valuing Borrower's Common Stock at a price of U.S. $1.135 per share (the "Merger"). 2. The definition of "Conversion Price" set forth in the Bridge Loan Agreement is hereby amended by deleting "$1.50" and replacing it with "$1.135". 3. The definition of "Existing Indebtedness" is hereby amended by deleting "Closing Date" and replacing it with "Initial Closing Date". 4. The definition of "Fair Market Value" is hereby amended by deleting "five" before "trading days" and replacing it with "ten". 5. The definition of "Maturity Date" is hereby amended by deleting "Closing Date" and replacing it with "Initial Closing Date". 6. Section 5.10(a) of the Bridge Loan Agreement is hereby amended by deleting "$1.50" and replacing it with "$1.135". 2 7. Section 5.10(b) of the Bridge Loan Agreement is hereby amended by deleting "$1.50" and replacing it with "$1.135". 8. Except as expressly amended hereby, the Bridge Loan Agreement remains in full force and effect. 9. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same instrument. 2 3 IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date and year first written above. DIEBOLD, INCORPORATED, as Lender By: /s/ Gregory T. Geswein -------------------------------------- Name: Gregory T. Geswein Title: Senior Vice President and Chief Financial Officer GLOBAL ELECTION SYSTEMS INC., as Borrower By: /s/ Robert Urosevich -------------------------------------- Name: Robert Urosevich Title: President and Chief Operating Officer 3 EX-99.3 5 l89855aex99-3.txt EXHIBIT 99.3 1 Exhibit 99.3 THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY CANADIAN, STATE OR PROVINCIAL SECURITIES LAWS. THESE SECURITIES MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND ANY APPLICABLE CANADIAN, STATE OR PROVINCIAL SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. August 3, 2001 WARRANT TO PURCHASE COMMON SHARES This certifies that DIEBOLD, INCORPORATED, an Ohio corporation (together with its successors, assigns and transferees, the "Investor"), is entitled to subscribe for and purchase 250,000 fully paid and nonassessable shares (the "Shares") of common stock, without par value (the "Common Stock"), of GLOBAL ELECTION SYSTEMS INC., a company organized under the laws of the Province of British Columbia, Canada (the "Company"), for an exercise price per share equal to US$1.135 (the "Exercise Price"), subject to adjustment as hereinafter set forth. This Warrant is issued pursuant to the Bridge Loan Agreement, dated as of June 29, 2001, as amended by Amendment No. 1 to Bridge Loan Agreement, dated as of August 3, 2001 (the "Effective Date"), between the Investor and the Company (the "Loan Agreement"). 1. Term. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time from and after the Effective Date until the earlier to occur of (i) the exercise of all of the rights represented by this Warrant and (ii) the fifth anniversary of the Effective Date (such period, the "Term"). 2. Method of Exercise; Payment; Issuance of New Warrant. (a) The purchase right represented by this Warrant may be exercised by the Investor, in whole or in part during the Term, at the election of the Investor, by the surrender of this Warrant (with the notice of exercise substantially in the form attached hereto as Exhibit A duly completed and executed) at the principal office of the Company and by the payment to the Company, by certified or bank check, of an amount equal to the Exercise Price multiplied by the number of Shares then being purchased. The person or persons in whose name(s) any certificate(s) representing Shares are issuable upon exercise of this Warrant will be deemed to have become the holder(s) of record of, and will be treated for all purposes as the record holder(s) of, the Shares represented thereby (and such Shares will be deemed to have been issued) at the opening of business on the date upon which this Warrant is exercised. In the event of any exercise of the rights represented by this Warrant, certificates for the Shares so purchased will be delivered to the Investor as soon as possible and in any event within ten calendar days after such 2 exercise and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant has not then been exercised will also be issued to the Investor as soon as possible and in any event within such ten-day period. (b) If any of the following occurs during the Term: (i) a consolidation or merger of the Company with or into another entity (other than any merger as to which the Company is the surviving corporation and there is no change in the capital stock of the Company), (ii) a liquidating dividend of the Company, or (iii) a tender offer or exchange offer with respect to the Common Stock (other than a tender offer opposed by the Company's board of directors) (each, an "Event"), then, in connection with any such Event, the Investor will have the right, subject to paragraph (c) below, in lieu of exercising such Warrant in advance of such Event and receiving the consideration that the Investor upon exercise of such Warrant would receive in connection with such consolidation or merger, liquidating dividend or tender offer (the "Event Consideration"), upon surrender of the Warrant certificate evidencing such Warrant to the Company or its duly authorized agent or to the depositary or exchange agent, as the case may be, to receive the Event Consideration with respect to the Shares for which such Warrant is exercisable reduced by the Exercise Price. Such reduction in the Event Consideration will first be applied to any cash included in the Event Consideration and, to the extent that such cash is less than the Exercise Price, the amount of the securities or other property to be received by the Investor will be reduced by an amount that, together with any such cash, is equal to the Exercise Price as determined by mutual agreement of the Company and the Investor. The provisions of this paragraph (b) will also apply to successive Events. (c) The Company will furnish the Investor with prompt written notice of an Event following its approval by the Company's Board of Directors. Thereafter, the Investor will make an irrevocable election whether to exercise this Warrant in accordance with paragraph (a) hereof or to not exercise this Warrant by delivery of written notice to the Company to that effect. The Investor will make such election at any time following the Investor's receipt of the Company's notice until 10 days prior: (A) to the date of the meeting of the Company's shareholders at which the Company's shareholders will be asked to approve an Event of the type described in paragraph (b)(i) hereof, (B) to the date of making the dividend in the case of an Event of the type described in paragraph (b)(ii) hereof, or (C) to the expiration date (or its Canadian equivalent) in the case of an Event of the type described in paragraph (b)(iii) hereof. In the case of successive Events, the Investor may make its election at any time until the latest of the foregoing dates. (d) The issuance of certificates upon exercise of this Warrant will be made without charge to the holder for any issuance tax (excluding any income tax liability 2 3 imposed on the holder, or any predecessor or successor in interest to the holder) in respect thereof or any other cost incurred by the Company in connection with such exercise and the related issuance of such certificates. (e) The Company will not close its books for the transfer of this Warrant or of any of the securities issued or issuable upon the exercise of this Warrant in any manner that interferes with the timely exercise of this Warrant. The Company will from time to time take all such action as may be necessary to assure that the par value per share of the unissued shares acquirable upon exercise of this Warrant is at all times equal to or less than the amount required by law for the valid issuance of the securities issuable upon the exercise of this Warrant at the Exercise Price. 3. Stock Fully Paid; Reservation of Shares. All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of Shares to provide for the exercise of the rights represented by this Warrant. 4. Adjustments. If the Company shall, during the Term, (i) pay a stock dividend or make a distribution to holders of Common Stock in shares of its Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares, or (iv) issue by reclassification of its shares of Common Stock any shares of capital stock of the Company, then thereafter the number of Shares shall be automatically (and without notice or further action) increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of Common Stock by reason of such change, and the per share Exercise Price of this Warrant after such change shall in case of an increase in the number of shares be proportionately decreased, and in case of a decrease in the number of shares be proportionately increased, so that the aggregate Exercise Price of this Warrant shall be unchanged by such change. 5. Reorganization, Reclassification, Share Exchange or Merger. (a) If at any time during the Term the Company is a party to any agreement providing for (i) any capital reorganization or reclassification of the capital stock of the Company or (ii) any share exchange or merger of the Company with another corporation, in such a way that holders of Common Stock shall be entitled to receive cash, shares of stock or securities or assets (collectively, and regardless of whether received in connection with a merger or some other form of corporate reorganization, the "Merger Consideration") with respect to or in exchange for Common Stock, then, as a condition to such reorganization, reclassification, share exchange or merger, the successor entity (if other than the Company) resulting from such transaction shall assume by written instrument the obligation to deliver to the Investor, upon exercise of this Warrant, such cash, shares of stock or securities or assets as the Investor would have been entitled to 3 4 receive had the Investor exercised the Warrant immediately prior to the closing of such transaction. (b) In connection with any capital reorganization or reclassification of the capital stock of the Company or any share exchange or merger of the Company with another person, if the Company shall fix a record date for the making of a distribution to holders of Common Stock of (i) assets (other than cash dividends or cash distributions payable out of consolidated net income or earned surplus or dividends payable in Common Stock), (ii) evidences of indebtedness or other securities of the Company or of any person (except for Common Stock), or (iii) subscription rights, options or warrants to purchase any of the foregoing assets or securities, whether or not such rights, options or warrants are immediately exercisable, to the extent such rights, options or warrants have not expired, then the Company shall make provisions for the Investor to receive, and the Investor shall be entitled upon exercise of this Warrant, evidences of indebtedness, securities or such other rights, options or warrants, as if the Investor had exercised this Warrant on or before such record date. 6. Notification to Investor. (a) Upon each adjustment pursuant to Sections 4 or 5 hereof, the Company shall give written notice thereof to the Investor within ten days after the date of such adjustment, which notice shall set forth the calculation of the number of shares of Common Stock issuable upon exercise of the rights represented by this Warrant before and after such adjustment and the facts upon which such calculations are based. 7. Certain Events. If any event occurs as to which the provisions of this Warrant are not strictly applicable or, if strictly applicable would not fairly protect the rights of the Investor in accordance with the essential intent and principles of such provisions, then the Company and the Investor shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect the Investor's rights as aforesaid. 8. Rights as Stockholder; Information. Except as set forth herein, no holder of this Warrant, as such, will be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant has been exercised and the Shares purchasable upon the exercise hereof are deliverable, as provided herein. 9. Modification and Waiver. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the Company and the Investor. The Company will not, by amendment of the 4 5 Company's Memorandum or Articles, bylaws or other constituent documents or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Investor against impairment. 10. Transfers. (a) This Warrant and all rights hereunder are transferable, in whole or in part, upon (i) notice to the Company and (ii) surrender of the Warrant with a properly executed assignment (in the form of Exhibit B hereto) at the principal office of the Company, by which the transferee of the Warrant agrees to be bound by all of the terms and conditions of this Warrant. The Investor and any permitted transferee will be entitled to all the benefits set forth in the Registration Rights Agreement, dated as of the Effective Date (the "Registration Rights Agreement"), to which the Company is a party with respect to the Shares and the Shares will be deemed "Registrable Securities" for purposes of the Registration Rights Agreement. (b) The Company will maintain a register containing the names and addresses of the registered holder of this Warrant. Any registered holder may change such registered holder's address as shown on the warrant register by written notice to the Company requesting such change. 11. Representations and Warranties. The Company represents and warrants that, as of the date hereof, the 250,000 Shares issued upon exercise of this Warrant represent .01% of the Fully Diluted Common Stock. For purposes of this Warrant, the term "Fully Diluted Common Stock" means the sum as of the date hereof of all issued and outstanding Common Stock and any other equity securities of the Company having rights to vote generally for the election of directors of the Company and any securities convertible into or exercisable for Common Stock or such other securities, in each case, on an as-converted or as-exercised basis (including the Shares and shares of Common Stock issuable pursuant to the exercise of options or other awards granted to employees, officers and directors of the Company pursuant to the Company Stock Option Plans, but excluding the shares of Common Stock issuable upon conversion of the loan pursuant to the Loan Agreement). 12. Notices. For all purposes of this Warrant, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder will be in writing and will be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof confirmed), or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid or one business day after having been sent for next-day delivery by a nationally recognized overnight courier service, addressed to the Company and to the Investor at the address shown on the signature page hereto, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address will be effective only upon receipt. The Investor and the Company may change the 5 6 notice address at any time by delivering a written notice to the other, which notice will be deemed effective in accordance with the immediately preceding sentence. 13. Binding Effect. The Company will, at the time of the exercise of this Warrant, in whole or in part, upon request of the Investor but at the Company's expense, acknowledge in writing its continuing obligation to the Investor in respect of any rights (including, without limitation, any right to registration of the Conversion Shares) to which the Investor shall continue to be entitled after such exercise in accordance with this Warrant; provided, that the failure of the Investor to make any such request shall not affect the continuing obligation of the Company to the Investor in respect of such rights. 14. Lost Warrants or Stock Certificates. The Company will, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or any stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 15. Descriptive Headings. The descriptive headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. 16. Governing Law. This Warrant will be construed and enforced in accordance with, and the rights of the parties will be governed by, the laws of the State of New York, without regard to the conflict of law rules of such State. 17. Remedies. In case any one or more of the covenants and agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or the Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant. 18. Recovery of Litigation Costs. If any legal action or other proceeding is brought for the enforcement of this Warrant, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Warrant, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled. 19. Counterparts. This Warrant may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed will be deemed to be an original and all of which taken together will constitute one and the same instrument. 6 7 20. Jurisdiction; Consent to Service of Process. (a) Each party hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the New York state court located in the Borough of Manhattan, City of New York or the United States District for the Southern District of New York (as applicable, a "New York Court"), and any appellate court from any such court, in any suit, action or proceeding arising out of or relating to this Warrant, or for recognition or enforcement of any judgment resulting from any such suit, action or proceeding, and each party hereby irrevocably and unconditionally agrees that all claims in respect of any such suit, action or proceeding may be heard and determined in the New York Court. (b) It will be a condition precedent to each party's right to bring any such suit, action or proceeding that such suit, action or proceeding, in the first instance, be brought in the New York Court (unless such suit, action or proceeding is brought solely to obtain discovery or to enforce a judgment), and if each such court refuses to accept jurisdiction with respect thereto, such suit, action or proceeding may be brought in any other court with jurisdiction; provided that the foregoing will not apply to any suit, action or proceeding by a party seeking indemnification or contribution pursuant to this Warrant or otherwise in respect of a suit, action or proceeding against such party by a thirty party if such suit, action or proceeding by such party seeking indemnification or contribution is brought in the same court as the suit, action or proceeding against such party. (c) No party may move to (i) transfer any such suit, action or proceeding from the New York Court to another jurisdiction, (ii) consolidate any such suit, action or proceeding brought in the New York Court with a suit, action or proceeding in another jurisdiction, or (iii) dismiss any such suit, action or proceeding brought in the New York Court for the purpose of bringing the same in another jurisdiction. (d) Each party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, (i) any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Warrant in the New York Court, (ii) the defense of an inconvenient forum to the maintenance of such suit, action or proceeding in any such court, and (iii) the right to object, with respect to such suit, action or proceeding, that such court does not have jurisdiction over such party. Each party irrevocably consents to service of process in any manner permitted by law. 21. Severability. If any term, provision, covenant or restriction of this Warrant is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein will remain in full force and effect and will in no way be affected, impaired or invalidated, and the parties hereto will use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants 7 8 and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. 22. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 23. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Warrant. In the event an ambiguity or question of intent or interpretation arises, this Warrant shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Warrant. 24. Entire Agreement. This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations and undertakings of the parties, whether oral or written, with respect to such subject matter. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by one of its duly authorized officers and the undersigned has accepted this Warrant and the terms and conditions hereof by its execution in the space provided below as of the date first written above. GLOBAL ELECTION SYSTEMS INC. By: /s/ Robert Urosevich ------------------------------- Name: Robert Urosevich Title: President and Chief Operating Officer Notice Address: c/o Global Election Systems, Inc. 1611 Wilmeth Road McKinney, TX 75069 Facsimile: (972) 542-6044 Attention: Michael Rasmussen Accepted: DIEBOLD, INCORPORATED By: /s/ Gregory T. Geswein ------------------------------- Name: Gregory T. Geswein Title: Senior Vice President and Chief Financial Officer 8 9 Notice Address: 5995 Mayfair Road P.O. Box 3077 North Canton, OH 44720-8077 Facsimile: (330) 490-4555 Attention: Gregory T. Geswein with a copy to: Jones, Day, Reavis & Pogue 599 Lexington Avenue New York, New York 10022 Facsimile No.: (212) 755-7306 Attention: Thomas W. Bark 9 10 EXHIBIT A NOTICE OF EXERCISE To: Global Election Systems Inc. 1. The undersigned hereby elects to purchase ________ shares of Common Stock pursuant to Section 2(a) of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 2. The undersigned hereby elects to purchase ________ shares of Common Stock pursuant to the terms of Section 2(b) of the attached Warrant. 3. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name or names as are specified below: ------------------------------ Name ------------------------------ ------------------------------ (Address) -------------------------------------- (Signature) -------------------------------------- (Date) A-1 11 EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, ___________ (the "Transferor") hereby sells, assigns and transfers to ___________ (the "Transferee") all of the rights of the undersigned under the attached Warrant with respect to ______ shares of Common Stock covered thereby (the "Warrant Shares"). The Transferee agrees to assume and be bound by all of the terms and conditions of the Warrant that are applicable to the Transferee with respect to the Warrant Shares. The notice address of the Transferee for purposes of Section 12 of the Warrant is set forth below. [TRANSFEROR] By: ___________________________ Name: Title: [TRANSFEREE] By: ___________________________ Name: Title: Notice Address: _______________ ________________________________ ________________________________ Facsimile: ____________________ Attention: ____________________ Dated: _________________________ B-1 EX-99.4 6 l89855aex99-4.txt EXHIBIT 99.4 1 Exhibit 99.4 Contract Manufacturing Agreement BY AND BETWEEN DIEBOLD, INCORPORATED ("Diebold") AND Global Election Systems, Inc. ("GES") - 1 - 2 CONTRACT MANUFACTURING AGREEMENT This Agreement is made and entered into this ______ day of June, 2001, by and between Diebold, Incorporated, a corporation organized and existing pursuant to the laws of the State of Ohio, U.S.A., having its principal place of business at 5995 Mayfair Road, P.O. Box 3077, North Canton, Ohio 44720-8077 ("DIEBOLD") and Global Election Systems, Inc., a corporation organized and existing pursuant to the laws of British Columbia, Canada, whose principal place of business is located at 1200 West 73rd Ave. Suite 350, Vancouver, British Columbia, Canada ("GES"). RECITALS WHEREAS, GES has requested that Diebold enter into this Contract Manufacturing Agreement ("Agreement") and thereby agree to manufacture for GES certain GES products as more specifically provided herein; and WHEREAS, GES has agreed to accept the rights, duties and obligations under this agreement and perform as set forth in this Agreement; NOW, THEREFORE, Diebold and GES agree as follows: PART 1 PRODUCTS Diebold will cause to be manufactured the products and other items set forth and specified in Exhibit A attached hereto ("Products") of which at least eighty percent (80%) will be for sale by GES to the County of Johnson County, Kansas (the "Customer"). The quantities shall be as set forth in Exhibit A. The quantities to be purchased are firm and not subject to adjustment or cancellation. It is understood that additional quantities of the Products may be added by express written agreement of the parties, provided either party may decline to add additional quantities in their sole and absolute discretion. Provided GES is otherwise in compliance herewith, GES may also purchase spare parts for the Products from time to time on such terms as Diebold may specify at the time of order. PART 2 PRODUCT SPECIFICATIONS AND CHANGES The current specifications for the Products are attached hereto as Exhibit B. GES shall at all times be solely responsible for the specifications and design of the product, even if such change originates with a Diebold suggestion or if the change is necessitated by Diebold's manufacturing process. If GES disagrees with a suggestion of Diebold or does not wish to make a change determined by Diebold to be required by Diebold's manufacturing process, GES may terminate further performance by Diebold and shall only be obligated to immediately pay Diebold for all of Diebold's costs of performance (including all purchased items or commitments to purchase) to the point of termination and such costs which may be incurred by Diebold in terminating further performance and cancellation of commitments made by Diebold in anticipation of performance. DIEBOLD CONFIDENTIAL -2- 3 GES shall have the right to modify or change the Product specifications at any time, upon thirty (30) days advance written notice to Diebold. Such written notice shall include a description of the specification changes and within a reasonable period thereafter, Diebold shall thereafter advise GES of any adjustments to the price and delivery availability of such Products resulting from such specification changes. Each party shall own all of the various intellectual properties resulting from the discoveries, inventions or other creative endeavors of such party, its officers, directors, agents or employees during the term of this Agreement. PART 3 GES'S CAPABILITIES GES represents that it currently has and shall maintain sufficient equipment, inventory, skills and capabilities to design, deliver and install the Products, as well as provide any and all support that may be required by Diebold to produce the Products or such support and maintenance as the Customer may require. GES represents that it is thoroughly familiar with such Products and accepts sole responsibility for insuring that all Products and spare parts sold by, to or for GES comply with any and all applicable state, federal or local laws, codes, rules, certifications, regulations, specifications, requirements and ordinances applicable in any jurisdictions where the GES Products are sold, delivered or installed, and whether the same be enacted, promulgated, adopted or otherwise made effective before or after the execution hereof. PART 4 PRICES; PAYMENT TERMS (a) PRICES. The prices which GES shall pay to Diebold for the Products and other services of Diebold shall be as set forth in Exhibit A attached hereto. In the event of a change in the specification, whether the change is based on a required manufacturing change by Diebold or otherwise, Diebold reserves the right to increase the price charged upon thirty (30) days written notice to GES. The prices for spare parts that Diebold may make available shall be those quoted by Diebold from time-to-time. Prices for spare parts may be raised by Diebold at any time, with or without notice to GES. (b) PAYMENT TERMS, INTEREST, SECURITY. Payment for all Products and payment for any spare parts purchased pursuant to this Agreement shall be made within thirty (30) days of the date the Products and spare parts are made available for shipment at Diebold's designated facility in the United States. Other payments shall be made as set forth in Exhibit A. Diebold reserves the right to limit the amount of Products shipped on credit pursuant to the immediately preceding payment terms, or to require payment in advance, collect on delivery, or other payment terms, including but not limited to payment by irrevocable letter of credit, at any time Diebold believes that GES's creditworthiness is impaired. Any payments not paid when due, and interest on payments not made when due, shall be assessed an administrative fee of five percent (5%) of the amount due and shall additionally bear interest at one and one-half percent (1-1/2%) for each month or part thereof that such amounts remain past due and unpaid, or the greatest rate permitted by law, whichever is less. GES hereby grants to Diebold a security interest in and to the inventory of GES, Products, spare parts, tooling, test equipment and software and certain other assets of GES as more fully provided in Exhibit D. Upon request of Diebold, GES shall execute a security agreement in form and substance as set forth in Exhibit D, along with UCC-1 forms and such other documents as Diebold may request. Such security interest shall secure any and all payments or other performance hereunder, including but not limited to the performance required of GES under Parts 13 and 14. DIEBOLD CONFIDENTIAL -3- 4 If requested by Diebold, GES shall assign to Diebold the right to receive payment under GES's agreement with the Customer. If such an assignment, in and of itself, would cause GES to breach such agreement, GES shall not be obligated to make such an assignment but GES shall appoint Diebold its agent for receipt of payments. GES shall supply a copy of such contract between it and the Customer. In order to further secure compensation and recourse to Diebold for its efforts and to help assure the potential for a third party or Diebold to support the Products in the event of a failure to perform of GES, GES hereby grants Diebold a license to the Global Election Management System ("GEMS") Software and any other software, other computer programs, manuals, documentation and the various information and intellectual property rights associated with the Products as set forth in Exhibit E. If requested by either party, the parties shall cooperate and attempt to negotiate a more complete license agreement consistent with the provisions of Exhibit E, which, when executed, shall be deemed to supercede the provisions of Exhibit E. Diebold is hereby granted an option to purchase shares of the publicly traded common stock of GES contingent upon the failure of GES to pay Diebold sums due Diebold and remaining unpaid for thirty (30) days after the same first became due. The aggregate value of the of shares which Diebold shall be entitled to purchase shall be equal to the amount then due to Diebold from GES plus 15% of such amount. The purchase price for each share shall be fifty percent (50%) of the average of the three (3) lowest closing bid prices for the common stock during the ten (10) consecutive trading days preceding the notice of exercise by Diebold. Diebold may issue such notice of exercise at any time following the coming into existence of the contingency described in the first sentence of this paragraph. The completion of such exercise shall occur within fifteen (15) days of the notice of exercise by Diebold. Diebold may pay GES for such shares by offsetting amounts due Diebold from GES. GES shall immediately upon execution hereof take any and all such actions as may be necessary to assure that the provisions hereof are fully operational by July 31, 2001. PART 5 PURCHASE ORDER TERMS NOT APPLICABLE The terms and conditions set forth in this Agreement shall always be the sole controlling ones and all preprinted terms and conditions contained in forms such as purchase orders used by GES shall be deemed deleted and inapplicable. PART 6 CANCELLATION CHARGES Within five (5) days of a request by Diebold, GES shall confirm that it intends to fully perform hereunder and reasonably believes that it has the financial and other resources required to do so. Should GES for any reason fail to make such confirmation or otherwise fail to take delivery of some or all of the Products within 30 days of the dates specified in Exhibit C, such failure shall be deemed a material breach of the Agreement and Diebold may deem the order cancelled and assess the cancellation charges equal to one hundred percent of the price to be charged for any affected Products that have been manufactured by Diebold and ninety percent (90%) of the price to be charged for those Products that have not been manufactured. Such amount is recognized by the parties as a liquidation of the damages to be incurred by Diebold related to such breach and not a penalty. PART 7 DELIVERY; DELIVERY DELAYS DIEBOLD CONFIDENTIAL -4- 5 Diebold will deliver all Products and spare parts ordered hereunder to GES, Ex Works, (INCOTERMS, 2000), Diebold's designated facility in the United States. Diebold shall not be obligated to deliver the goods if GES is not in full and complete compliance herewith. Diebold shall exercise commercially reasonable efforts to make the Products available for shipment by the dates specified in Exhibit C. As more fully set forth in Part 20, Diebold shall not be liable for delays in shipment for reasons beyond its reasonable control. If there is likely to be any delay in shipment, Diebold will notify GES of the relevant facts and circumstances concerning the delay within a reasonable time of becoming aware of the likelihood thereof. PART 8 TAXES, FEES AND DUTIES The prices at which Diebold offers to sell Products and spare parts pursuant to this Agreement do not include any taxes, fees or duties which may be levied on the Products or spare parts or the transaction inside or outside the U.S.A., including, without limitation, those levied by any governmental entity or unit. Any such taxes, fees or duties shall be paid by GES, and if Diebold is liable for the collection of the same, the amount thereof shall be paid by GES in addition to the prices provided herein for the Products and spare parts. PART 9 WARRANTIES; DISCLAIMERS AND LIMITATION OF LIABILITY (a) WARRANTIES. Diebold warrants only that the services provided hereunder to manufacture the Products and spare parts shall have been performed in a good and workmanlike manner and shall be free from defects in such workmanship at the time of delivery. GES shall assert any claim for a breach of such warranty by giving written notice to Diebold specifying in detail the workmanship defect found. Such notice of defect shall be given within ninety (90) days from the date of availability for shipment at the Ex Works site. Diebold's liability arising from, or in any way connected with this Agreement, or from the use or sale of the Products or spare parts, shall be limited solely and exclusively at Diebold's option to either the repair (at Diebold's designated facility) or replacement of the defective workmanship or spare parts, or return of the that portion of the price associated with Diebold's assembly of the allegedly defective Product. Transportation of allegedly defective Products or spare parts to and from Diebold's designated facility shall be at GES's sole cost and expense, and GES shall bear all risk of loss while such Products and spare parts are in transit. Diebold's obligation to repair, replace, or return the purchase price of any Product or spare Part asserted by GES to be defective in materials and workmanship shall be subject to Diebold's inspection and testing of the same upon its return to the designated Diebold facility. Repairs or replacements necessitated by neglect, misuse or abuse, or otherwise not covered by this warranty shall be carried out by Diebold at its then standard rates, charges and prices. (b) DISCLAIMERS AND LIMITATION OF LIABILITY. DIEBOLD MAKES NO OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, AND ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE SPECIFICALLY DISCLAIMED IN CONTRACT AND IN TORT LAW. GES shall be solely and exclusively liable for any warranties or representations about the Products and spare parts beyond those stated in this Part 9 and for any and all warranties or representations about the Products. DIEBOLD CONFIDENTIAL -5- 6 DIEBOLD SHALL NOT BE LIABLE FOR BURGLARY, ROBBERY OR LOSS OF VALUABLES, LOSS OF USE OR DATA, LOST PROFITS, INCREASED EXPENSE OF OPERATION, LOST OPPORTUNITY, NOR FOR ANY SPECIAL, INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES, WHETHER FORESEEABLE OR NOT WHETHER OR NOT MADE KNOWN TO DIEBOLD, ARISING FROM OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR THE USE OR SALE OF THE PRODUCTS OR SPARE PARTS, AND IT IS AGREED AND UNDERSTOOD THAT DIEBOLD SHALL HAVE NO DUTY TO INDEMNIFY GES OR GES'S CUSTOMERS FOR ANY LOSS, CLAIM, EXPENSE OR DAMAGE TO PERSONS OR PROPERTY ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR ANY PRODUCT OR SPARE PART. DIEBOLD DOES NOT WARRANT THAT THE PRODUCTS OR SPARE PARTS WILL OPERATE IN AN UNINTERRUPTED MANNER OR ERROR FREE. GES HAS SOLEY DETERMINED THE SUITABILITY OF THE DESIGN AND QUALITIES OF THE PRODUCT FOR THE INTENDED USE AND FUNCTION, INCLUDING BUT NOT LIMITED TO ANY CHANGES OR MODIFICATIONS SUGGESTED BY DIEBOLD. PART 10 LEGAL RELATIONSHIP GES buys the Products and spare parts on its own account from Diebold and uses and resells the Products and spare parts in its own name and for its own account. This Agreement shall not be deemed to create any relationship of employment, agency, partnership or joint venture between Diebold and GES. GES's status relative to Diebold shall be exclusively that of an independent contractor. GES shall have no right or authority to make, assume or create any express or implied representation or obligation on behalf of Diebold. PART 11 ASSIGNMENT AND SUCCESSORS Subject to the requirements of Part 4(b) above, GES shall have no authority to subcontract, sell, transfer, or assign any right, or delegate any obligation or duty, under this Agreement without Diebold's prior written consent, and any such consent, if given, shall not relieve GES of its duties and obligations hereunder. Diebold may delegate, subcontract, sell, transfer or assign any right or any obligation or duty under this Agreement upon written notice of the same to GES; provided, however, that Diebold remain primarily liable to GES for the performance of Diebold's obligations and duties hereunder and further provided that such person or entity shall agree to comply with the confidentiality provisions of Part 12. Any purported sale, transfer, or assignment or delegation in contravention of this Part 11 shall be deemed null and void and not binding on Diebold's obligation to perform under this Agreement as well as a breach hereof. PART 12 CONFIDENTIALITY The parties have entered into a Non-Disclosure Agreement dated January 25, 2001 ("NDA"). Such NDA is deemed incorporated herein by this reference and shall be deemed to continue through the duration of this Agreement and the permitted use by a party shall be deemed expanded to cover the parties respective rights and obligations hereunder. Additional information disclosed by the parties shall be deemed to be disclosed under the NDA to the extent the provisions thereof apply and the requirements thereof are met. Neither party has any right or interest in the trade secrets or other intellectual property of the other except as provided in Part 4(b) and Exhibit E. DIEBOLD CONFIDENTIAL -6- 7 Neither party shall disclose the terms or existence of this Agreement without the express written consent of the other. Each party shall ensure that any of its shareholders, directors, officers, employees, agents, servants, independent contractors, subsidiaries or affiliates which are given access to the other party's trade secrets will be validly bound, by contract, work rules or otherwise, by the same obligations of confidentiality as are provided for herein. Upon the termination of this Agreement for any cause, except as otherwise may be permitted in the NDA or this Agreement, each party shall continue to comply with the provisions of the NDA. Diebold reserves and retains, and this Agreement shall not reduce or limit, Diebold's rights to enter into agreements with others relating to the design, manufacture, supply, marketing, sale, lease, installation, service or support of goods, software and services similar to those that are the subject of this Agreement. PART 13 INDEMNITY GES agrees to indemnify, hold harmless and defend Diebold, including its affiliates, subsidiaries and related companies, from and against all claims, losses, liabilities, suits, actions, judgments, costs or expenses of whatever nature ("Claims") incurred by or brought against them or any one of them as a result of injury or other damage, claim or expense to persons or property arising or in any way connected with GES's activities or GES's customers' use of any Product or spare Part as well as Claims arising from the acts or omissions of GES, its agents, servants, employees and independent contractors. PART 14 INFRINGEMENT OF THIRD PARTY RIGHTS GES represents and warrants that the Products and spare parts do not infringe the patents, trademarks, trade dress, trade secrets or copyrights of third parties ("Third Party Rights"). GES shall defend, indemnify and hold Diebold harmless from any and all claims, suits, demands, actions loss, damage or expense associated with any such claim, suit, demand or action that may be brought against Diebold that allege that the Products or spare parts infringe Third Party Rights. In no event shall Diebold have any liability to GES whatsoever for infringement of Third Party Rights. PART 15 TERMINATION OF AGREEMENT, EFFECT OF TERMINATION Upon default of any term or provision of this Agreement, the non-defaulting party shall have the right at its option, to cancel this Agreement by sending the defaulting party a notice specifying the nature and character of such default. In the event that the default is not cured within ten (10) days of the date the defaulting party receives such notice of a financial default, or within thirty (30) days of the date the defaulting party receives notice of a non-financial default, the non-defaulting party may, in addition to all of its other rights hereunder, either terminate this Agreement without liability for such cancellation or suspend the performance of its obligations hereunder until such default is remedied. Suspension of performance shall not preclude termination DIEBOLD CONFIDENTIAL -7- 8 for other defaults, or the default causing the suspension if the same is not corrected within the applicable period of the imposition of the suspension. Upon any termination, expiration, cancellation or non-renewal of this Agreement, GES shall immediately return to Diebold all documents supplied by Diebold and all copies thereof in GES's possession or in the power and custody of any agent acting on behalf of GES, but the GES's obligations of confidentiality pursuant to Parts 4(b), 12, 13 and 14 shall thereafter continue. In the event of termination by Diebold based on a breach by GES, GES shall be deemed to have at the same time waived any rights it may have to prohibit or stop any GES employee or contractor from entering into a similar relationship with Diebold. PART 16 GOVERNING LAW; ARBITRATION This Agreement shall be governed and construed in accordance with the law of the State of Ohio, United States of America, applicable to transactions occurring wholly within such state by residents thereof, and specifically excluding the choice of law principles thereof. Any other laws which can be negated by agreement, including but not limited to the International Sale of Goods Law, are hereby negated and made ineffective by this Agreement. This Agreement shall be considered as having been made in the State of Ohio. Diebold and GES agree that any action for money or damages concerning or related to the Products or spare parts or arising out of this Agreement or a refusal to perform the whole or any part thereof or an assertion that a breach or default has occurred shall be settled by arbitration. Any arbitration proceeding shall be conducted pursuant to the applicable rules of the American Arbitration Association and judgment upon the award of the arbitrator may be entered in any court having jurisdiction thereof. Any laws allowing or providing for judicial review de novo of such arbitration are hereby waived, and the award of the arbitrator or arbitrators shall be final, binding and not subject to de novo review. In resolving any dispute by arbitration, the intent of the parties as expressed in this Agreement shall be controlling over any contrary presumption of law. The arbitrator or arbitrators shall have no power, authority or jurisdiction, however, to award any remedy different than or in excess of the remedy or remedies expressly provided in this Agreement, including but not limited to cases where the remedy or remedies are expressly provided herein as the sole and exclusive remedy or remedies (e.g., Parts 8 and 14). Further, the arbitrator or arbitrators shall have no power, authority or jurisdiction to award any remedy or remedies which exceeds the limitations of liability expressly provided in Parts 8 and 14 of this Agreement. Any arbitration or litigation conducted pursuant to or concerning this provision or the Agreement or the goods or services provided by Diebold shall be conducted in Cleveland, Ohio; provided however, the preceding shall not prevent Diebold from obtaining injunctive or any other equitable relief in an action in any court having jurisdiction thereof. The provisions of this Part 16 shall survive any completion, expiration, termination or cancellation of this Agreement. PART 17 NOTICES Any notification which is to be given to Diebold by GES pursuant to the provisions of this Agreement shall not be effective unless delivered by certified mail, return receipt requested, overnight courier service, or confirmed telex or facsimile transmission, at the addresses set forth DIEBOLD CONFIDENTIAL -8- 9 below: IF TO DIEBOLD: Mr. Wesley Vance President, Diebold North America Diebold, Incorporated 5995 Mayfair Road P. O. Box 3077 North Canton, Ohio 44720-8077, USA Facsimile No.: (330) 489-4997 WITH A COPY TO: Warren W. Dettinger, Esq. Vice President and General Counsel Diebold, Incorporated 5995 Mayfair Road P. O. Box 3077 North Canton, Ohio 44720-8077, USA Facsimile No.: (330) 490-4450 IF TO GES: Mr. Robert Urosevich President and Chief Operating Officer Global Election Systems 1611 Wilmeth Road McKinney, TX 75069, USA Facsimile No.: (972) 542-6044 or such other address as either party previously shall have notified the other party in writing pursuant to the terms of this Part 17. PART 18 WAIVER The failure of either Diebold or GES to enforce any term or provision of this Agreement or any failure to declare a default hereunder shall apply only to the particular instance and shall not operate as a continuing waiver or an estoppel barring enforcement of any subsequent default of that or any other term or provision hereof. PART 19 COMPUTER SOFTWARE AND FIRMWARE GES shall have full and complete responsibility to assure that the software programs to be DIEBOLD CONFIDENTIAL -9- 10 used as part of, or in conjunction with, the Products are properly and lawfully developed or obtained and that Diebold shall have such licenses as are necessary to perform its duties hereunder or otherwise exercise such rights as it may have under the Agreement. GES shall be responsible for all license fees to third parties and for assuring the compliance with any license terms in software licensed from third parties. PART 20 FORCE MAJEURE Should any circumstances beyond the reasonable control of Diebold ("Events of Force Majeure") occur that delay or render impossible the performance by Diebold of an obligation due under the provisions of this Agreement, such obligation will be postponed for such time as necessary, or cancelled if performance has been rendered impossible thereby. Events of Force Majeure shall include, without limitation, accidents, acts of God, civil commotion, strikes or labor disputes, export license restrictions, acts, laws, rules, regulations or other requirements of any government or government agency or other events beyond the reasonable control of Diebold. PART 21 SERVICING OF PRODUCTS GES shall assume any and all obligations, if any, imposed by contract or expressly or impliedly required by law for the repair and service of the Products and spare parts. PART 22 SAFETY REGULATIONS AND OTHER PRODUCT STANDARDS Diebold disclaims any familiarity with the safety regulations and other laws, regulations, specifications, standards or other requirements ("Requirements") of any kind or nature for the Products and spare parts. GES expressly assumes full, complete and total responsibility for compliance with any such Requirements, including, but not limited to, any necessary or desirable modifications to the Products or spare parts or the designs to aid in the compliance therewith. GES shall bear any and all costs and expenses for modifications, changes, testing, marking and other similar costs for marketing, sale or use of the Products and spare parts. GES shall indemnify, defend and hold harmless Diebold, its officers, directors, employees, agents, subcontractors and suppliers for any and all claims, suits, demands, loss, cost, damage and expense, including attorney's fees and the cost to enforce any breach hereof incurred by Diebold which are obligations of GES as described by this Part. PART 23 U.S. EXPORT AND CERTAIN OTHER LAWS This Agreement is subject to U.S. export laws and regulations, including specifically the United States Export Administration Act and the Export Administration Regulations issued thereunder. GES agrees that any Products and spare parts purchased from Diebold will be not be transferred or transshipped to any person, entity or country prohibited under U.S. export laws and regulations, to any nuclear end user, or to any entity whose name appears on the then current Table of Denial Orders issued under U.S. Export Administration Regulations. GES further agrees to comply with any and all applicable laws, regulations, treaties and other requirements, whether enacted in the United States or other jurisdictions, applicable to the shipment, import, and use of the Products and spare parts to any country in which they may be used. Diebold's agreement to sell Products and spare parts to GES hereunder is subject to the obtaining of any required export or other licenses or permits and Diebold shall not be liable to GES DIEBOLD CONFIDENTIAL -10- 11 for any loss or damage sustained by GES because of Diebold's inability to sell or deliver Products or spare parts to GES by reason of Diebold's inability to obtain the required licenses or permits. PART 24 SEVERABILITY The invalidity or unenforceability of any provision of this Agreement shall not affect the other provisions hereof and this Agreement shall be construed in all respects as if said invalid or unenforceable provisions were not contained herein. The parties agree to cooperate in any revisions or amendments of this Agreement which may be necessary to effect the intent of the parties in the event that any provision of this Agreement is deleted as herein provided. PART 25 LANGUAGE, SURVIVAL This Agreement shall be written in the English language and executed in duplicate copies, each of which shall be deemed an original. The portions of the various provisions of this Agreement that have potential for applicability subsequent to an event of completion, termination, nullification or cancellation of the Agreement for any reason shall be deemed to survive and continue in full force and effect after any such event. (Remainder of this page intentionally left blank) DIEBOLD CONFIDENTIAL -11- 12 PART 26 ENTIRE AGREEMENT; MODIFICATION This Agreement and the Exhibits attached hereto state the entire Agreement between Diebold and GES and supersede all proposals, communications, or agreements whether oral or written. The provisions of this Agreement are for the benefit of the parties hereto solely and not for the benefit of any other person or entity. No waiver, alteration, or modification of any of the provisions of this Agreement shall be binding unless in writing and signed by the duly authorized representatives of Diebold and GES. Any written waiver, alteration, or modification made in accordance with the provisions hereof shall be of no effect unless expressly incorporating this Agreement by reference. DIEBOLD AND GES HAVING AGREED TO ABIDE BY AND PERFORM ACCORDING TO PROVISIONS SET FORTH HEREINABOVE SIGNIFY THEIR ACCEPTANCE OF THIS AGREEMENT THROUGH THE SIGNATURES OF THEIR DULY AUTHORIZED REPRESENTATIVES. Accepted for Diebold DIEBOLD, INCORPORATED By: /s/ Gregory T. Geswein ------------------------------------------------- Title: Senior Vice President and Chief Financial Officer ------------------------------------------------- Date: ------------------------------------------------- Accepted for GES GLOBAL ELECTION SYSTEMS, INC. By: /s/ Robert Urosevich ------------------------------------------------- Title: President and Chief Operating Officer ------------------------------------------------- Date: ------------------------------------------------- DIEBOLD CONFIDENTIAL -12- EX-99.5 7 l89855aex99-5.txt EXHIBIT 99.5 1 Exhibit 99.5 AMENDMENT NO. 1 TO CONTRACT MANUFACTURING AGREEMENT This Amendment No. 1 to Contract Manufacturing Agreement (this "Amendment") is made and entered into this __ day of August, 2001, by and between Diebold Incorporated, a corporation organized and existing pursuant to the laws of the State of Ohio ("Diebold") and Global Election Systems Inc., a corporation organized and existing pursuant to the laws of British Columbia ("GES"). RECITALS WHEREAS, Diebold and GES entered into that certain Contract Manufacturing Agreement dated as of June 19, 2001 (the "Agreement"); and WHEREAS, Diebold and GES desire to amend certain provisions of the Agreement as set forth in this Amendment; NOW THEREFORE, in consideration of the terms and conditions contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Part 4(b) of the Agreement is hereby amended by deleting "fifty percent (50%)" in the third sentence of the last paragraph of Part 4(b) and replacing it with (eighty-five percent (85%)". 2. Part 4(b) is further amended by adding the following new sentence at the end of Part 4(b): "In no event shall the option described in this paragraph be exercisable for a number of shares of GES common stock in excess of the total number of shares of GES common stock issued and outstanding on the date of the exercise of such option." 3. Except as expressly amended hereby, the Agreement remains in full force and effect. 4. This Amendment may be executed in one or more counterparts each of which shall be deemed an original and all of which taken together shall constitute one and the same instrument. 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first written above. DIEBOLD INCORPORATED By: /s/ Gregory T. Geswein ------------------------ Name: Gregory T. Geswein Title: Senior Vice President and Chief Financial Officer GLOBAL ELECTION SYSTEMS INC. By: /s/ Robert Urosevich ------------------------ Name: Robert Urosevich Title: President and Chief Operating Office -----END PRIVACY-ENHANCED MESSAGE-----