-----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, HUgp7cq2HyH1iWQ5FJ3e3xN4JXFGgsDKp/ohs8ZH6mO9Sn1UQcRaLlqdycr4EadA apJlFbuhI3/o+/G1n4UVuw== 0001047469-99-026793.txt : 19990712 0001047469-99-026793.hdr.sgml : 19990712 ACCESSION NUMBER: 0001047469-99-026793 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 34 FILED AS OF DATE: 19990709 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOMAHAWK CORP CENTRAL INDEX KEY: 0001028434 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-82515 FILM NUMBER: 99661168 BUSINESS ADDRESS: STREET 1: 8315 CASTURY CT STREET 2: SUITE 200 CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6198747692 MAIL ADDRESS: STREET 1: 8315 CASTURY CT STREET 2: SUTIE 200 CITY: SAN DIEGO STATE: CA ZIP: 92121 S-4 1 S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1999 REGISTRATION NO. 333-_____ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------------------- TOMAHAWK CORPORATION (Exact name of registrant as specified in its charter) ALBERTA, CANADA 7374 -- (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or organization)Classification Code Number) Identification No.) 8315 Century Park Court, Suite 200, San Diego, California 92123, (619) 874-7692 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) --------------------------------- Steven M. Caira President, Chief Executive Officer and Chairman of the Board 8315 Century Park Court, Suite 200, San Diego, California 92123, (619) 874-7692 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPIES TO: John J. Hentrich, Esq. Baker & McKenzie 101 West Broadway, 12th Floor, San Diego, California 92101, (619) 236-1441 --------------------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------------- Amount Proposed Maximum Proposed Maximum Title of Each Class of Securities to be To Be Offering Price Aggregate Offering Amount of Registered Registered (1) Per Share Price (2) Registration Fee - --------------------------------------------- ---------------- --------------------- ---------------------- ------------------- Common Stock, $0.001 par value............. 5,650,300 $ 1.65 $ 9,322,995 $ 2,595 - -------------------------------------------------------------------------------------------------------------------------------
(1) Amount of shares of common stock to be registered based on the estimated number of outstanding common shares after the completion of the one-for-fifteen consolidation of Registrant's common shares. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f)(1) of the Securities Act of 1933, as amended. Pursuant to Rule 457(f)(1), the maximum offering price per share is $1.65, the U.S. dollar equivalent (based on the closing exchange rate on July 6, 1999, of the average of the bid and asked prices of the Registrant's common shares as reported by The Alberta Stock Exchange on July 6, 1999, multiplied by fifteen to account for the one-for-fifteen common share consolidation. The maximum aggregate offering price of $9,322,995 is the product of $1.65 and the number of shares of the Registrant's Common Stock being registered hereby. --------------------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with the provisions of Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TOMAHAWK CORPORATION 5,650,300 SHARES OF COMMON STOCK NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS PROPOSED DELAWARE DOMESTICATION--YOUR VOTE IS VERY IMPORTANT We are calling an annual and special meeting for our shareholders to: - Receive and consider the financial statements of TomaHawk Corporation for the year ended December 31, 1998 and the auditors' report thereon; - Fix the number of directors to be elected at the annual and special meeting; - Elect four directors; - Appoint the auditors of TomaHawk Corporation; and - Authorize TomaHawk Corporation to issue shares through one or more private placements. In addition, you will be asked to vote on the following proposal: - To approve TomaHawk Corporation's change in jurisdiction of incorporation from the Province of Alberta, Canada to the State of Delaware, U.S.A. and to make certain other amendments to our articles of incorporation and bylaws regarding the domestication into Delaware. If this domestication into Delaware is approved, then we will adjourn the annual and special meeting, effect a one-for-fifteen consolidation of the common shares, and complete the Delaware domestication. After we have completed the Delaware domestication, we will reconvene the annual and special meeting, and request that you vote on five proposed amendments to the new Delaware corporation's certificate of incorporation and bylaws. You should review the accompanying Proxy Statement and Information Circular for more information on the specific proposals to be voted on at the annual and special meeting. Under Alberta corporate law, the proposed domestication from Alberta to Delaware requires shareholder approval. (See "Summary--The Annual and Special Meeting; Voting; Proxies--Voting.") Our board of directors believes that it is in our best interests and in the best interests of our shareholders to domesticate into Delaware. The new Delaware corporation will be called TomaHawk Engineering, Inc., and will continue to operate as the parent holding company of TomaHawk II, Inc., our operating subsidiary. If TomaHawk Corporation domesticates into Delaware, then you automatically will own shares of common stock of the new Delaware corporation unless you exercise your right of dissent. The shares of common stock of the new Delaware corporation will continue to trade on The Alberta Stock Exchange, but will trade under the symbol "THK" instead of our current trading symbol "TKC." If you properly dissent to the Delaware domestication, then you may obtain payment of the fair value of your common shares of the existing Alberta corporation instead of receiving shares of common stock of the new Delaware corporation. Our board of directors recommends that you vote "FOR" the Delaware domestication and each of the other proposals. See "Summary--The Annual and Special Meeting; Voting; Proxies." The annual and special meeting will be held at 10:00 a.m., San Diego time, on ______________, 1999 at 8315 Century Park Court, Suite 200, San Diego, California. YOU SHOULD REVIEW THE RISK FACTORS BEGINNING ON PAGE 10 OF THE ACCOMPANYING PROXY STATEMENT AND INFORMATION CIRCULAR FOR A DISCUSSION OF VARIOUS RISKS RELATING TO THE PROPOSED DELAWARE DOMESTICATION AND TO OUR CONTINUING OPERATIONS. PLEASE NOTE THAT NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE OR PROVINCIAL SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THE PROXY STATEMENT AND INFORMATION CIRCULAR IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The accompanying Proxy Statement and Information Circular provides additional information relating to the proposals to be voted on at the annual and special meeting. You should read the entire Proxy Statement and Information Circular carefully. We first mailed the accompanying Proxy Statement and Information Circular to our shareholders on or about ______________, 1999. Sincerely, Steven M. Caira President, Chief Executive Officer, Acting Chief Financial Officer and Chairman of the Board PROXY STATEMENT AND INFORMATION CIRCULAR TABLE OF CONTENTS
PAGE ---- PROXY STATEMENT AND INFORMATION CIRCULAR.........................................................................1 SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.......................................................................1 TRADEMARKS.......................................................................................................1 SUMMARY..........................................................................................................2 Risk Factors............................................................................................2 General Information about the Delaware Domestication....................................................2 The Annual and Special Meeting; Voting; Proxies.........................................................3 Proposals to be Voted on at the Annual and Special Meeting.....................................3 Voting.........................................................................................3 Proxies........................................................................................4 The Existing Alberta corporation........................................................................5 More Details about the Delaware Domestication...........................................................5 Board of Directors Recommendation..............................................................5 Reasons for the Delaware Domestication.........................................................5 Conditions to Consummation of the Delaware Domestication.......................................6 One-for-Fifteen Common Share Consolidation.....................................................6 Effective Time of the Delaware Domestication...................................................6 Exchange of Share Certificates.................................................................6 Comparison of Rights of Shareholders....................................................................6 Tax Considerations......................................................................................7 Canadian Federal Income Tax Considerations.....................................................7 U.S. Federal Income Tax Considerations.........................................................7 Dissenter's Rights......................................................................................8 Regulatory Approval.....................................................................................8 Security Ownership of Company Management................................................................8 Market Information......................................................................................8 RISK FACTORS....................................................................................................10 Risk Factors Relating to the Delaware Domestication....................................................10 We may be subject to Canadian federal income tax liability as a result of the Delaware domestication..................................................................10 Holders of common shares in Canadian registered retirement savings plans may be subject to Canadian federal income tax liability............................................10 The Delaware domestication will affect your rights as a shareholder...........................10 Certain proposed provisions of the new Delaware corporation's certificate of incorporation and bylaws may deter takeover attempts..........................................................11 Risk Factors Relating to our Continuing Operations.....................................................12 Our limited working capital may prevent us from continuing as a going concern.................12 We will require additional financing to continue operating our business.......................12 We depend on contracts funded by the U.S. government to provide the majority of our revenues.............................................................................12 Our revenues fluctuate based on the U.S. government's spending cycle..........................13 We have experienced significant fluctuations in our operating results.........................13 The U.S. government can generally terminate, without penalty, the contracts that provide the majority of our revenues....................................................................13 We cannot guarantee that we will continue to successfully obtain contracts through the U.S. government's bidding process................................................................14 We may not attract, motivate and retain key executives and employees .........................14 We may not retain the consultant that coordinates our marketing efforts directed at the U.S. government..................................................................................14 Our private sector revenues are highly vulnerable to changes in spending priorities in the defense and aerospace industries............................................................15 We derive a substantial portion of our revenues from short-term contracts.....................15 Fixed price contracts may adversely affect our profitability..................................15 We may not manage effectively the challenges presented by our rapid growth....................15 We face potential competition from the in-house capabilities of certain customers.............15 We face potential competition from new document conversion outsourcing businesses because of the relatively low costs of entry...........................................................16 i Our engineering and precision machining services may expose us to product liability...........16 Certain of our services utilize processes and software that may not be protected by trade secret laws.................................................................................16 Certain of our services depend on technology licensed from third parties......................16 New technologies could render certain of our services obsolete or unmarketable................17 Our officers, directors and significant shareholders have the power to influence the election of directors and the passage of shareholder proposals because they collectively hold a substantial number of common shares.........................................................17 We may be subject to liability for unauthorized disclosures of confidential information.......17 Our common shares may be subject to wide fluctations in value and limited trading volume......17 Our shares of common stock will be considered "penny stock" and therefore subject to additional SEC regulations, which may make it more difficult to sell these shares............17 Future sales of our common stock in the public market may affect adversely the price of our common stock and our ability to raise additional funds through equity issuances.............18 We do not pay dividends on our common shares..................................................18 Your investment in our common stock is subject to currency exchange rate risk.................19 We may be exposed to unanticipated year 2000 problems.........................................19 We may be exposed to our customers' year 2000 problems........................................19 We may be exposed to our suppliers' year 2000 problems........................................19 THE ANNUAL AND SPECIAL MEETING..................................................................................20 Proposals to be Voted on at the Annual and Special Meeting.............................................20 Record Date; Voting Rights.............................................................................21 Quorum; Vote Required for Adoption.....................................................................21 Proxies ..............................................................................................22 General.......................................................................................22 Revocation....................................................................................23 Validity......................................................................................23 Solicitation of Proxies.......................................................................23 PARTICULARS OF MATTERS TO BE ACTED UPON.........................................................................24 PROPOSAL ONE--FIXING THE NUMBER OF DIRECTORS....................................................................24 Fixing Number of Directors.............................................................................24 Vote Required..........................................................................................24 PROPOSAL TWO--ELECTION OF DIRECTORS.............................................................................25 Information Regarding Director Nominees................................................................25 Board of Directors.....................................................................................27 Board Meetings and Committees..........................................................................27 Compensation of the Existing Alberta Corporation's Directors...........................................27 Board of Directors Interlocks and Insider Participation................................................27 Compiance with Section 16(a) of the Securities Exchange Act of 1934....................................27 Vote Required..........................................................................................27 PROPOSAL THREE--RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS.............................................29 General ..............................................................................................29 Vote Required..........................................................................................29 PROPOSAL FOUR--AUTHORIZATION TO CONDUCT PRIVATE PLACEMENTS......................................................30 General ..............................................................................................30 The Proposed Resolution................................................................................30 Vote Required..........................................................................................31 PROPOSAL FIVE--DOMESTICATION INTO THE STATE OF DELAWARE.........................................................32 General ..............................................................................................32 Principal Reasons for the Delaware Domestication.......................................................33 Simplification of Corporate Structure.........................................................33 Commercial Advantage..........................................................................33 No Business Reason to Remain Domiciled in Canada..............................................33 Reduction of Canadian Tax and Regulatory Obligations..........................................33 Advantages of Delaware Law....................................................................33 Change in Par Value of Equity Securities...............................................................34 Board of Directors has Discretion to Effect Delaware Domestication.....................................34 Corporate Governance Differences; Delaware and Alberta Law Comparisons.................................34 Shareholder Quorum...................................................................34 Supermajority........................................................................34 ii Required Approvals of Shareholders...................................................35 Examination of Corporate Records.....................................................35 Minority (Dissenter's) Rights........................................................35 Disqualification of Directors........................................................36 Personal Liability of Directors......................................................36 Indemnification......................................................................37 Cumulative Voting for the Election of Directors......................................37 Loans to Officers and Employees......................................................38 Dividends and Repurchases of Shares..................................................38 Interested Director Transactions.....................................................38 Anti-Takeover Effects................................................................38 Regulatory Approval....................................................................................41 Tax Considerations.....................................................................................41 Canadian Federal Income Tax Considerations....................................................41 United States Federal Income Tax Considerations...............................................44 Right Of Dissent.......................................................................................47 General.......................................................................................47 Fair Market Valuation.........................................................................47 Valuation by Application to Court.............................................................47 Restrictions on Right of Dissent..............................................................47 Action Required to Exercise Right of Dissent..................................................48 Rights of Dissenting Shareholders.............................................................48 Securities Law Consequences............................................................................49 United States Securities Law Consequences.....................................................49 Canadian Securities Law Consequences..........................................................49 Exchange of Share Certificates.........................................................................49 The Delaware Domestication Resolution..................................................................49 Vote Required..........................................................................................51 PROPOSAL SIX--AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS TO REQUIRE ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND PROPOSALS....................................52 General ..............................................................................................52 Reasons for Stockholder Approval.......................................................................53 Potential Anti-Takeover Effects........................................................................53 The Proposed Amendments................................................................................53 Vote Required..........................................................................................55 PROPOSAL SEVEN--AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS TO PROHIBIT STOCKHOLDERS FROM CALLING SPECIAL MEETINGS OF THE STOCKHOLDERS.........................................56 General ..............................................................................................56 Reasons for Stockholder Approval.......................................................................56 Potential Anti-Takeover Effects........................................................................56 The Proposed Amendments................................................................................57 Vote Required..........................................................................................57 PROPOSAL EIGHT--AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION TO ELIMINATE ACTIONS OF THE STOCKHOLDERS BY WRITTEN CONSENT WITHOUT A MEETING.......................................58 General ..............................................................................................58 Reasons for Stockholder Approval.......................................................................58 Potential Anti-Takeover Effects........................................................................58 The Proposed Amendment.................................................................................59 Vote Required..........................................................................................59 PROPOSAL NINE--AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS TO REQUIRE A SUPERMAJORITY VOTE TO AMEND CERTAIN PROVISIONS OF THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS............................................................................60 General ..............................................................................................60 Reasons for Stockholder Approval.......................................................................60 Potential Anti-Takeover Effects........................................................................60 The Proposed Amendments................................................................................61 Vote Required..........................................................................................61 iii PROPOSAL TEN--APPROVAL OF FORM INDEMNIFICATION AGREEMENT........................................................62 General ..............................................................................................62 Terms of the Indemnification Agreements................................................................63 Reasons For Shareholder Approval.......................................................................63 Vote Required..........................................................................................63 ANTI-TAKEOVER MEASURES CURRENTLY INCLUDED IN THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS.............................................................................................64 Blank Check Preferred Stock............................................................................64 Section 203 of the General Corporation Law of the State of Delaware....................................64 No Cumulative Voting...................................................................................65 DESCRIPTION OF CAPITAL STOCK....................................................................................66 Common Stock...........................................................................................66 Preferred Stock........................................................................................66 Dividends and Liquidation Preference..........................................................66 Conversion Right..............................................................................67 Cancellation of Preferred Stock...............................................................67 Change of Control Provisions...........................................................................67 Blank Check Preferred Stock...................................................................67 Increased Stockholder Vote for Amendment of Certificate of Incorporation or Bylaws............67 Proposal Six -- Advance Notice of Stockholder Nominations and Proposals.......................68 Proposal Seven -- Elimination of the Ability of Stockholders to Call a Special Meeting.......68 Proposal Eight -- Stockholders Cannot Take Action by Written Consent..........................68 Proposal Nine -- Increased Stockholder Vote for Amendment of the Certain Provisions of the Certificate of Incorporation and Bylaws.....................................................68 Section 203 of General Corporation Law of the State of Delaware...............................68 Transfer Agent and Registrar...........................................................................69 Disclosure of SEC Position on Indemnification for Securities Act Liabilities...........................69 BUSINESS .......................................................................................................70 Overview ..............................................................................................70 Corporate History......................................................................................70 Services ..............................................................................................71 Document Imaging and Conversion Services......................................................71 Engineering and Manufacturing Services........................................................72 Sales and Marketing....................................................................................73 ADCS Program and Government Contracts..................................................................74 ADCS Program..................................................................................74 Intergraph Contracts..........................................................................74 General Services Administration Contract......................................................74 Competition............................................................................................75 Customers..............................................................................................75 Proprietary Rights.....................................................................................75 Employees..............................................................................................75 Acquisition............................................................................................76 Facilities............................................................................................ 76 Legal Proceedings......................................................................................76 MARKET FOR THE EXISTING ALBERTA CORPORATION'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.....................78 Market Price Information...............................................................................78 Holders ..............................................................................................78 Dividend Policy........................................................................................78 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................79 Overview ..............................................................................................79 Results of Operations..................................................................................80 Three Months Ended March 31, 1999 Compared with Three Months Ended March 31, 1998..............................................................................80 Year Ended December 31, 1998 Compared with Year Ended December 31, 1997................................81 Liquidity and Capital Resources........................................................................83 Year 2000 Compliance...................................................................................83 Internal Year 2000 Readiness..................................................................84 Year 2000 Readiness of our Suppliers and Customers............................................84 Change In Accountants..................................................................................84 iv SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..................................................85 MANAGEMENT......................................................................................................88 EXECUTIVE COMPENSATION..........................................................................................90 Summary Compensation...................................................................................90 Stock Option Plan......................................................................................91 Stock Options Granted In The Year Ended December 31, 1998..............................................92 Common Shares Underlying Unexercised Options and Option Values.........................................93 Employment Agreements..................................................................................93 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................................94 Consulting Arrangement with Capstone National Partners, LLC............................................94 Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders..........94 Restructuring of Notes........................................................................94 Variable Accounting Treatment.................................................................95 Indebtedness of the Existing Alberta Corporation to its Directors, Officers, and Significant Shareholders..................................................................................95 Indebtedness to Directors and Officers........................................................95 Indebtedness to Significant Shareholder.......................................................96 INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON........................................................96 Indemnification........................................................................................96 INTEREST OF NAMED EXPERTS AND COUNSEL...........................................................................96 LEGAL MATTERS...................................................................................................96 TAX MATTERS.....................................................................................................97 EXPERTS.........................................................................................................97 AVAILABLE INFORMATION...........................................................................................97 OTHER MATTERS...................................................................................................97 SHAREHOLDER PROPOSALS...........................................................................................97 APPROVAL OF DIRECTORS...........................................................................................97 CERTIFICATE OF TOMAHAWK CORPORATION.............................................................................98 TOMAHAWK CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ...............................................F-1 APPENDIX I.....................................................................................................A-1 APPENDIX II....................................................................................................B-1 APPENDIX III...................................................................................................C-1 APPENDIX IV....................................................................................................D-1
v PROXY STATEMENT AND INFORMATION CIRCULAR SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS The information presented in this Proxy Statement and Information Circular includes certain "forward-looking statements." You should not rely excessively on these forward-looking statements, because they are only predictions based on our current expectations and assumptions. Forward-looking statements often contain words like "estimate," "anticipate," "believe" or "expect." Many known and unknown risks and uncertainties, including those described under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" (and elsewhere in this Proxy Statement and Information Circular) could cause our actual results to differ materially from those indicated in these forward-looking statements. For example, the U.S. Internal Revenue Service or the Canadian Department of National Revenue, Customs, Excise and Taxation may not agree with the conclusions reached by our tax advisors regarding the tax consequences of the Delaware domestication for our shareholders, resulting in different tax consequences than are discussed in this Proxy Statement and Information Circular. You should review carefully the risks and uncertainties identified in this Proxy Statement and Information Circular, including the risk factors beginning on page 10. We have no obligation to update or announce revisions to any forward-looking statements to reflect actual events or developments. All future written and oral forward-looking statements made by us or by persons acting on our behalf are expressly qualified in their entirety by this notice. WHILE WE INCLUDE FORWARD-LOOKING STATEMENTS FOR THE NEW DELAWARE CORPORATION OF WHICH YOU SHOULD BE AWARE, PLEASE NOTE THAT THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT PROVIDED IN SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 ARE NOT AVAILABLE TO THE NEW DELAWARE CORPORATION AS A NEW ISSUER. TRADEMARKS TomaHawk-TM- and TomaHawk II-TM- are trademarks of the existing Alberta corporation. All other trademarks and registered trademarks used in this Prospectus and Information Circular are the property of their respective owners. 1 SUMMARY THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY STATEMENT AND INFORMATION CIRCULAR. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD READ CAREFULLY THIS ENTIRE PROXY STATEMENT AND INFORMATION CIRCULAR, INCLUDING ITS APPENDICES, TO UNDERSTAND THE DELAWARE DOMESTICATION MORE FULLY, AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE DELAWARE DOMESTICATION. RISK FACTORS YOU SHOULD REVIEW AND CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 10, ESPECIALLY THOSE RISKS RELATING TO THE DELAWARE DOMESTICATION AND RELATED TAX CONSEQUENCES. GENERAL INFORMATION ABOUT THE DELAWARE DOMESTICATION We propose to change our jurisdiction of incorporation from the Province of Alberta, Canada to the State of Delaware, U.S.A. This change is referred to as a "domestication." After the Delaware domestication, we will become a new Delaware corporation called TomaHawk Engineering, Inc. Our board of directors recommends that you vote "FOR" the domestication. Please note the following issues concerning the Delaware domestication: - If the shareholders approve the Delaware domestication, then, prior to effecting the Delaware domestication, we will conduct a one-for-fifteen consolidation of our common shares; - As a result of the Delaware domestication, you will become a stockholder of the new Delaware corporation; - Until the anticipated merger of the new Delaware corporation and its wholly-owned operating subsidiary TomaHawk II, Inc., the new Delaware corporation will continue to act as the parent holding company for TomaHawk II, Inc., which will continue to engage in the same business in which it currently engages; - As a stockholder of the new Delaware corporation, your relative voting rights and ownership interest will be substantially similar to the rights and interests that you currently have as a shareholder of the existing Alberta corporation; and - As a stockholder of the new Delaware corporation, your shares of common stock will continue to be listed on The Alberta Stock Exchange. 2 THE ANNUAL AND SPECIAL MEETING; VOTING; PROXIES PROPOSALS TO BE VOTED ON AT THE ANNUAL AND SPECIAL MEETING. We will hold the annual and special meeting of our shareholders at 10:00 a.m., San Diego time, on ______________, 1999 at 8315 Century Park Court, Suite 200, San Diego, California. At the annual and special meeting, we will ask that you: - receive and consider our consolidated financial statements for the year ended December 31, 1998 and the auditors' report thereon; and - consider and vote on the following proposals: 1. To fix the number of directors to be elected at the annual and special meeting at four; 2. To elect four directors; 3. To appoint the independent auditors of TomaHawk Corporation and to authorize our directors to fix their remuneration as our independent auditors; 4. To consider, and, if deemed advisable by our shareholders, to pass an ordinary resolution authorizing the issuance, in one or more private placements, of a number of securities that could result in TomaHawk Corporation issuing, during the next 12 months, a number of securities that exceeds 25% but is not greater than 100% of the issued and outstanding securities, subject to the restrictions described in this Proxy Statement and Information Circular; 5. To approve TomaHawk Corporation's change in jurisdiction of incorporation from the Province of Alberta, Canada to the State of Delaware, U.S.A. and to make certain other amendments to our articles of incorporation and bylaws regarding the domestication into Delaware. See "Proposal Five--Domestication into the State of Delaware." If the domestication into Delaware is approved, then we will adjourn the annual and special meeting, effect a one-for-fifteen consolidation of the common shares, and complete the Delaware domestication. After we have completed the Delaware domestication, we will reconvene the annual and special meeting, and request that you vote on the following five proposals relating to the new Delaware corporation: 6. To require advance notice of stockholder nominations and proposals; 7. To prevent the stockholders from calling special meetings of the stockholders; 8. To prohibit stockholder action by written consent; 9. To require a supermajority vote to amend certain provisions of the new Delaware corporation's certificate of incorporation and bylaws; and 10. To approve the adoption of a form indemnification agreement for the new Delaware corporation's directors and executive officers. VOTING. You can vote at the annual and special meeting if you own any common shares or Class A Series III Preferred Shares of TomaHawk Corporation at the close of business on ____________, 1999, also known as the record date. For Proposal Five, you are entitled to one vote for each common 3 share and one vote for each Class A Series III Preferred Share that you hold on the record date. The holders of common shares and Class A Series III Preferred Shares will vote as a single class on Proposal Five. THE HOLDERS OF CLASS A SERIES III PREFERRED SHARES WILL NOT VOTE ON PROPOSALS ONE THROUGH FOUR AND SIX THROUGH NINE. You may vote your shares in person by attending the annual and special meeting or by mailing, faxing or delivering your proxy to our president, Steven M. Caira, c/o CIBC Mellon Trust Company, 600 Dome Tower, 333 - 7th Avenue S.W., Calgary, Alberta T2P 2Z1, not later than 10:00 a.m. (San Diego time) on ______________, 1999, or by the close of business on the last business day before any adjournment of the annual and special meeting. At the annual and special meeting, with respect to Proposals One through Five, we will not consider abstentions and broker "non-votes" for purposes of obtaining a quorum or in determining whether Proposal Five passes. Approval of Proposals One through Four requires the affirmative vote of the holders of a majority of the common shares represented and voting at the annual and special meeting. Approval of Proposal Five requires the affirmative vote of the holders of 66 2/3% of the common shares and Class A Series III Preferred Shares, voting as one class, represented and voting at the annual and special meeting. With respect to Proposals Six through Nine, we will consider abstentions and broker "non-votes" as "present" for purposes of obtaining a quorum but will not count them as votes cast in determining whether Proposals Six through Nine pass. Approval of Proposals Six through Nine requires the affirmative vote of a majority of the holders of shares of common stock represented and voting at the annual and special meeting. Therefore, abstentions and broker "non-votes" will have the same effect as votes cast against each of Proposals Six through Nine. We will consider abstentions as "present" for purposes of obtaining a quorum but will not count them as votes cast in determining whether Proposal Ten passes. Approval of Proposal Ten requires the affirmative vote of a majority of the votes present or represented by proxy and entitled to vote on this subject matter at the meeting and held by disinterested stockholders. Since each director and each executive officer is an interested party with respect to this matter, shares owned directly or indirectly by any director or executive officer may not be voted on this proposal although they will be counted for purposes of determining whether a quorum is present. Broker non-votes will not be treated as entitled to vote on this subject matter at the meeting. See "The Annual and Special Meeting--Record Date; Voting Rights" and "--Quorum; Vote Required for Adoption." PROXIES. Our board of directors is soliciting from you the accompanying proxy. You may grant a proxy to vote for or against the proposal to approve the Delaware domestication and each of the proposals related to the new Delaware corporation. For a proxy to be effective, our president must receive the proxy not later than 10:00 a.m. (San Diego time) on ______________, 1999, or by the close of business on the last business day before any adjournment of the annual and special meeting. Your properly executed proxy will determine how your common shares or Class A Series III Preferred Shares will be voted. You should be aware that, if you properly execute your proxy card without indicating how you want to vote, then your shares will be voted "FOR" the proposal to approve the Delaware domestication and each of the proposals related to the new Delaware corporation. You may revoke a proxy at any time before its exercise by following the proxy revocation instructions described under the section entitled "The Annual and Special Meeting--Proxies--Revocation." If your shares are held in the name of a bank, broker or other nominee, then you should follow the instructions provided by the bank, broker or other nominee on voting your shares and in revoking your previously voted shares. See "The Annual and Special Meeting--Proxies." 4 THE EXISTING ALBERTA CORPORATION TomaHawk Corporation currently is incorporated under the laws of the Province of Alberta, Canada. The existing Alberta corporation is the parent holding company of TomaHawk II, Inc., an Illinois corporation. TomaHawk II, Inc. provides document imaging and conversion services, engineering design and manufacturing services to both the U.S. federal government and commercial customers. The existing Alberta corporation manages its day-to-day activities from the principal executive offices of TomaHawk II, Inc., located at 8315 Century Park Court, Suite 200, San Diego, California 92123. Our telephone number is (619) 874-7692, and our Internet address is http://www.tomahawk.com. TomaHawk Corporation is a small business issuer as defined by Regulation S-B under the Securities Act. MORE DETAILS ABOUT THE DELAWARE DOMESTICATION BOARD OF DIRECTORS RECOMMENDATION. Our board of directors has approved unanimously the Delaware domestication and the proposals related to the new Delaware corporation, and recommends that you vote "FOR" the approval of the Delaware domestication and these other proposals. In determining to recommend the Delaware domestication, our board of directors consulted with the existing Alberta corporation's management, who reported to the directors on their consultation with our financial advisors and tax advisors, and considered various factors, including those described below under the sections entitled "--Reasons for the Delaware Domestication," "Proposal Five--Domestication into the State of Delaware--Certain United States Federal Income Tax Considerations" and "--Certain Canadian Federal Income Tax Considerations." REASONS FOR THE DELAWARE DOMESTICATION. Because the focus of our operations and business is in the United States, our board of directors believes that it is preferable to be governed by the laws of a state of the United States. In addition, our board of directors recommends the Delaware domestication for the following reasons: - Our board of directors believes that our current corporate structure is unnecessarily complicated, and that it is in our best interests to consolidate our corporate structure into one Delaware corporation. Alberta corporate law does not permit an Alberta corporation to merge with corporations incorporated outside of Alberta. The Delaware domestication will allow us to merge with TomaHawk II, Inc. in the future; - Our board of directors believes that we will gain a commercial advantage by domesticating into Delaware because certain potential customers may desire to work exclusively with U.S. companies; - Our board of directors believes that there is no business reason for our continued incorporation in Canada, given that we have no facilities, employees or operations in Canada, and most of our shareholders and customers are in the United States; - Our board of directors believes that by domesticating into Delaware, we will reduce our Canadian corporate tax and reporting obligations; and - The State of Delaware has adopted comprehensive, modern and flexible corporate laws, and its courts have developed considerable expertise in dealing with corporate issues, developing a substantial body of case law and establishing public policies with respect to Delaware corporations. Our board of directors therefore believes that domesticating into Delaware is in our best interests and the best interests of our shareholders. 5 See "Proposal Five--Domestication into the State of Delaware--Principal Reasons for the Delaware Domestication." CONDITIONS TO CONSUMMATION OF THE DELAWARE DOMESTICATION. Holders of 66 2/3% of the common shares and Class A Series III Preferred Shares, voting together as a single class, present or represented by proxy and voting at the annual and special meeting must approve the Delaware domestication. Our board of directors may choose, however, not to complete the Delaware domestication for any reason, including the following: - If the Delaware domestication results in an unreasonably high tax liability for the existing Alberta corporation (see "Proposal Five--Domestication into the State of Delaware--Tax Considerations--Canadian Federal Income Tax Considerations--Canadian Federal Income Tax Consequences to the Existing Alberta Corporation"); - If a significant number of the shareholders exercise their right of dissent; or - If any other circumstance arises that convinces our board of directors that the Delaware domestication would not be in the best interests of our company and our shareholders. ONE-FOR-FIFTEEN COMMON SHARE CONSOLIDATION. If the shareholders approve the Delaware domestication, then, before completing the Delaware domestication, subject to approval by The Alberta Stock Exchange, we will effect a one-for-fifteen consolidation of the common shares and corresponding name change of the existing Alberta corporation whereby TomaHawk Corporation will be renamed TomaHawk Engineering, Inc. Our shareholders authorized this common share consolidation and name change on September 22, 1998. EFFECTIVE TIME OF THE DELAWARE DOMESTICATION. The Delaware domestication will become effective as soon as the appropriate Certificate of Domestication is filed with the Secretary of State of the State of Delaware. If the shareholders approve the Delaware domestication, then we intend to adjourn the annual and special meeting for a short period to enable us to file the necessary documents with the Secretary of State of the State of Delaware to effect the Delaware domestication. EXCHANGE OF SHARE CERTIFICATES. If the Delaware domestication is completed and you have not exercised your right of dissent, then your common shares automatically will convert into shares of common stock and your Class A Series III Preferred Shares automatically will convert into shares of Class A Preferred Stock of the new Delaware corporation at the effective time of the Delaware domestication. Following the Delaware domestication, we will issue to you certificates bearing the name of the new Delaware corporation upon your surrender to us of certificates representing the existing common shares and Class A Series III Preferred Shares for transfer or exchange. See "Proposal Five--Domestication into the State of Delaware--Exchange of Share Certificates." COMPARISON OF RIGHTS OF SHAREHOLDERS The principal attributes of the common shares of the existing Alberta corporation and the common stock of the new Delaware corporation will be similar. However, certain differences exist concerning the rights of shareholders under Alberta corporate law and Delaware corporate law. In addition, certain differences exist among the existing Alberta corporation's articles of incorporation and bylaws and the new Delaware corporation's certificate of incorporation and bylaws. See "Proposal Five--Domestication into the State of Delaware--Corporate Governance Differences; Delaware and Alberta Law Comparisons." 6 TAX CONSIDERATIONS CANADIAN FEDERAL INCOME TAX CONSIDERATIONS. This section briefly summarizes the opinion of our Canadian tax advisors, the Ernst & Young LLP International member firm in Canada, regarding the Canadian federal income tax consequences of the Delaware domestication. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS WITH RESPECT TO YOUR PARTICULAR CIRCUMSTANCES. See "Proposal Five--Domestication into the State of Delaware--Tax Considerations--Canadian Federal Income Tax Considerations." For Canadian federal income tax purposes, the existing Alberta corporation will be deemed to have disposed of all of its assets on the effective date of the Delaware domestication for an amount equal to the fair market value of these assets. If these deemed proceeds exceed the cost or adjusted cost base of the existing Alberta corporation's assets, then the excess, or three-fourths of the excess in the case of a capital property, will be included in income on that date. To the extent these amounts exceed any deductions otherwise available, then the existing Alberta corporation will incur a tax liability in Canada. In addition, the Delaware domestication will subject the existing Alberta corporation to a special exit tax on the difference between the aggregate fair market value of the assets and the aggregate of the liabilities and paid-up capital of the shares of the existing Alberta corporation immediately before the Delaware domestication is completed. See "Proposal Five--Domestication into the State of Delaware--Tax Considerations--Canadian Federal Income Tax Considerations--Canadian Federal Income Tax Consequences to the Existing Alberta Corporation." Your Canadian federal income tax consequences from the Delaware domestication will vary depending on whether you are an individual, corporation, resident or non-resident of Canada, and on whether or not you dissent with respect to the Delaware domestication. See "Proposal Five--Domestication into the State of Delaware--Tax Considerations--Canadian Federal Income Tax Considerations." If you do not dissent with respect to the Delaware domestication, then you generally will not be considered to have disposed of your common shares, and you should not have any immediate Canadian tax consequences. If you dissent with respect to the Delaware domestication and if you require the existing Alberta corporation to purchase for cash your common shares, then you generally will be considered to have received a dividend on the redemption of your common shares, and you may incur Canadian tax liability. See "Proposal Five--Domestication into the State of Delaware--Tax Considerations--Canadian Federal Income Tax Considerations." The one-for-fifteen consolidation of the common shares of the existing Alberta corporation will be considered a disposition for Canadian federal income tax purposes; however, the disposition occurs at your adjusted cost base, and, therefore, you will not recognize any capital gain or loss as a result of the consolidation. The consolidation will result in a proportional adjustment to the adjusted cost base of the reduced number of common shares held by each shareholder. U.S. FEDERAL INCOME TAX CONSIDERATIONS. This section briefly summarizes the opinion of our U.S. tax advisors, Ernst & Young LLP, regarding the U.S. federal income tax consequences of the Delaware domestication. This discussion does not address certain U.S. federal income tax consequences applicable to U.S. Shareholders that owned or own (directly or indirectly) 10% or more of the voting power of the existing Alberta corporation at any time during the five year period ending on the date that the Delaware domestication is completed. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS WITH RESPECT TO YOUR PARTICULAR CIRCUMSTANCES. See "Proposal Five--Domestication into the State of Delaware--Tax Considerations--United States Federal Income Tax Considerations." The Delaware domestication will constitute a tax-free reorganization under the U.S. Internal Revenue Code of 1986. As a result, the existing Alberta corporation will not have any immediate U.S. federal tax consequences. See "Proposal Five--Domestication into the State of Delaware--Tax 7 Considerations--United States Federal Income Tax Considerations--U.S. Federal Income Tax Consequences to the Existing Alberta Corporation." Your U.S. tax consequences from the Delaware domestication will vary depending on whether you are a resident or non-resident of the United States, and on whether or not you dissent with respect to the Delaware domestication. See "Proposal Five--Domestication into the State of Delaware--Tax Considerations--United States Federal Income Tax Considerations." If you do not reside in the United States, and if you do not dissent with respect to the Delaware domestication, then you will not recognize any gain or loss from the Delaware domestication. If you do reside within the United States, then you likely will not recognize any gain or loss from the Delaware domestication. See "Proposal Five--Domestication into the State of Delaware--Tax Considerations--United States Federal Income Tax Considerations--Residents of the United States--Non-Dissenting Shareholders." If you are subject to U.S. federal income tax and if you dissent with respect to the Delaware domestication, then any cash that you receive in payment for your shares of the existing Alberta corporation will be treated as cash received to redeem your common shares. As a result, you may have to recognize capital gain or loss or ordinary income as a result of the Delaware domestication. The one-for-fifteen consolidation of the common shares will not be considered a disposition for U.S. tax purposes. You therefore will not realize any capital gain or loss as a result of the common share consolidation. DISSENTER'S RIGHTS If you choose to vote against the Delaware domestication and the Delaware domestication is consummated, then, under Alberta corporate law, you may exercise dissenter's rights and have the existing Alberta corporation pay to you in cash the fair value of your common shares. IF YOU FAIL TO COMPLY STRICTLY WITH THE REQUIREMENTS OF THE BUSINESS CORPORATIONS ACT (ALBERTA), THEN YOU MAY LOSE YOUR RIGHT OF DISSENT. ACCORDINGLY, IF YOU WISH TO DEMAND DISSENTER'S RIGHTS, THEN WE URGE YOU TO READ CAREFULLY "PROPOSAL FIVE--DOMESTICATION INTO THE STATE OF DELAWARE--RIGHT OF DISSENT" AND THE COPY OF SECTION 184 OF THE BUSINESS CORPORATIONS ACT (ALBERTA) SHOWN IN APPENDIX I TO THIS PROXY STATEMENT AND INFORMATION CIRCULAR. REGULATORY APPROVAL The existing Alberta corporation will apply to the Registrar of Corporations for the Province of Alberta for permission to domesticate our company into the State of Delaware. We must obtain this approval for the Delaware domestication to take place. We also must file a Certificate of Domestication with the Secretary of State of the State of Delaware. There are no other regulatory approvals necessary for consummation of the Delaware domestication. SECURITY OWNERSHIP OF COMPANY MANAGEMENT As of May 31, 1999, the directors and executive officers of the existing Alberta corporation and its subsidiary TomaHawk II, Inc. beneficially owned common shares representing approximately 24.2% of the total outstanding common shares. See "Security Ownership of Certain Beneficial Owners and Management." MARKET INFORMATION Our common shares are quoted on The Alberta Stock Exchange under the trading symbol "TKC." After the Delaware domestication is completed, our shares of common stock will be quoted on The 8 Alberta Stock Exchange under the trading symbol "THK." On May 31, 1999, the closing price of our common shares was Cdn. $0.20 (US $0.14). The following table sets forth the high and low closing prices of our common shares in Canadian dollars as reported by The Alberta Stock Exchange for the calendar period indicated. The high and low closing prices also are listed in U.S. dollars (based on the currency exchange rate on the date the listed price was reported on The Alberta Stock Exchange). The prices below represent prices between dealers, without adjustment for retail mark-ups, mark-downs or commissions, and may not reflect actual transactions.
CLOSING PRICES -------------------------------------------------------------------- HIGH LOW -------------------------------- --------------------------------- 1999 First Quarter Cdn. $0.35 (US $0.23) Cdn. $0.22 (US $0.15) 1998 Fourth Quarter Cdn. $0.40 (US $0.26) Cdn. $0.25 (US $0.16) Third Quarter Cdn. $0.47 (US $0.31) Cdn. $0.28 (US $0.18) Second Quarter Cdn. $0.56 (US $0.39) Cdn. $0.20 (US $0.14) First Quarter Cdn. $0.34 (US $0.24) Cdn. $0.23 (US $0.16) 1997 Fourth Quarter Cdn. $0.30 (US $0.22) Cdn. $0.20 (US $0.14) Third Quarter Cdn. $0.34 (US $0.24) Cdn. $0.17 (US $0.12) Second Quarter Cdn. $0.27 (US $0.19) Cdn. $0.16 (US $0.12) First Quarter Cdn. $0.35 (US $0.26) Cdn. $0.21 (US $0.15)
The existing Alberta corporation has never declared a cash dividend on its common shares. 9 RISK FACTORS You should evaluate carefully all of the information contained and incorporated by reference in this Proxy Statement and Information Circular and, in particular, the following risk factors. References below to the existing Alberta corporation include its subsidiary, TomaHawk II, Inc. RISK FACTORS RELATING TO THE DELAWARE DOMESTICATION WE MAY BE SUBJECT TO CANADIAN FEDERAL INCOME TAX LIABILITY AS A RESULT OF THE DELAWARE DOMESTICATION. Upon the completion of the Delaware domestication, the existing Alberta corporation will be deemed under Canadian tax law to dispose of all of its assets for an amount equal to the fair market value of these assets on the effective date of the Delaware domestication. If the deemed proceeds exceed the cost or adjusted cost base of the existing Alberta corporation's assets on that date, then the existing Alberta corporation will be required to include the excess, or three-quarters of the excess in the case of capital property, as income for Canadian tax purposes. To the extent that the amount included in income is not offset by available deductions, it will be subject to Canadian tax at an effective rate of 39%. In addition, completing the Delaware domestication will require us to pay a special 5% exit tax on the difference between the aggregate fair market value of our assets and the aggregate amount of our liabilities immediately before the Delaware domestication is completed and the paid-up capital of the common shares. We have not applied to the Canadian tax authorities for a ruling on these matters. We anticipate that we will owe a certain amount of Canadian federal taxes based on certain valuations and positions. However, the Canadian federal tax authorities might not accept our valuations or positions and could claim that we owe additional taxes as a result of this transaction. See "Proposal Five--Domestication into the State of Delaware--Tax Considerations--Canadian Federal Income Tax Considerations." HOLDERS OF COMMON SHARES IN CANADIAN REGISTERED RETIREMENT SAVINGS PLANS MAY BE SUBJECT TO CANADIAN FEDERAL INCOME TAX LIABILITY. If the Delaware domestication is completed, then the new Delaware corporation's shares will constitute "foreign property" for purposes of deferred income plans such as registered retirement savings plans. The conversion of the common shares to "foreign property" may cause certain deferred income plans holding common shares to exceed their foreign property limits. If the Delaware domestication causes your registered retirement savings plan to exceed its foreign property limit, then your registered retirement savings plan may be subject to certain penalties assessed by the Canadian Department of National Revenue, Customs, Excise and Taxation, and you may be forced to sell all or a portion of your shares of the new Delaware corporation. We cannot guarantee the price that you will receive from these sales. See "Proposal Five--Domestication into the State of Delaware--Tax Considerations--Canadian Federal Income Tax Considerations--Residents of Canada--Non-Dissenting Shareholders." THE DELAWARE DOMESTICATION WILL AFFECT YOUR RIGHTS AS A SHAREHOLDER. After the Delaware domestication, you will become a stockholder of the new Delaware corporation. Currently, we are incorporated in Alberta, Canada and governed by Alberta corporate law and our current articles of incorporation and bylaws. After the Delaware domestication, we will be incorporated in the State of Delaware, U.S.A. and governed by Delaware corporate law and a new certificate of incorporation and bylaws. There are certain differences in corporate law and shareholder rights between the two jurisdictions that could affect adversely the rights that you currently enjoy as a shareholder of the existing Alberta corporation. These differences are summarized below, but you should 10 read the section "Proposal Five--Domestication into the State of Delaware--Corporate Governance Differences; Delaware and Alberta Law Comparisons" for a more complete description of these differences: - CERTAIN PROVISIONS OF DELAWARE CORPORATE LAW MAY DETER TAKEOVER ATTEMPTS. Delaware corporate law prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years from the time when the person became an interested stockholder unless certain conditions are met. This prohibition could delay or make more difficult a merger, tender offer or proxy contest involving the new Delaware corporation, and could limit the price that certain investors might be willing to pay in the future for shares of the new Delaware corporation's common stock. There is no comparable provision under Alberta corporate law. See "Description of Capital Stock--Change of Control Provisions." - UNDER DELAWARE CORPORATE LAW, CERTAIN EXTRAORDINARY TRANSACTIONS REQUIRE THE APPROVAL OF ONLY A SIMPLE MAJORITY OF STOCKHOLDERS. Alberta corporate law requires that certain extraordinary transactions, such as mergers, sales of substantially all of a corporation's assets or change in a corporation's domicile, be approved by a two-thirds majority of the shares voting at a shareholders meeting. The simple majority vote requirement in Delaware could allow a group of stockholders to more easily approve a transaction to the detriment of minority stockholders. See "Proposal Five--Domestication into the State of Delaware--Corporate Governance Differences; Delaware and Alberta Law Comparisons--Required Approvals of Shareholders." - DISSENTER'S RIGHTS PROVIDED BY DELAWARE CORPORATE LAW ARE NOT AS EXTENSIVE AS THOSE PROVIDED BY ALBERTA CORPORATE LAW, GIVEN THAT THEY APPLY TO A NARROWER RANGE OF CORPORATE ACTION. Although the certificate of incorporation of the new Delaware corporation will expand dissenter's rights to mirror those provided by Alberta corporate law, the certificate of incorporation could be amended in the future to eliminate these additional dissenter's rights. By approving the Delaware domestication, you may therefore agree to forego certain dissenter's rights available to you under Alberta corporate law. See "Proposal Five--Domestication into the State of Delaware--Corporate Governance Differences; Delaware and Alberta Law Comparisons--Minority (Dissenter's) Rights." CERTAIN PROPOSED PROVISIONS OF THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS MAY DETER TAKEOVER ATTEMPTS. The proposed amendments described in Proposals Six through Nine could delay, defer or prevent a change in control of the new Delaware corporation and could limit the price that certain investors might be willing to pay in the future for shares of the new Delaware corporation's common stock. If approved, these proposed amendments will: - require advance stockholder notice to nominate directors and raise matters at the annual stockholders meeting; - prohibit stockholders from calling special meetings of stockholders; - eliminate the right of stockholders to act by written consent without a meeting; and - increase the percentage vote needed to amend the new Delaware corporation's certificate of incorporation and bylaws. 11 For a more complete description of these amendments and their potential anti-takeover effects, see "Proposal Five--Domestication into the State of Delaware--Corporate Governance Differences, Delaware and Alberta Law Comparisons--Anti-Takeover Effects," Proposals Six through Nine and "Description of Capital Stock--Change of Control Provisions." RISK FACTORS RELATING TO OUR CONTINUING OPERATIONS If the Delaware domestication is completed, then the following risk factors will continue to apply to the new Delaware corporation: OUR LIMITED WORKING CAPITAL MAY PREVENT US FROM CONTINUING AS A GOING CONCERN. Our independent auditor's report on our December 31, 1998 financial statements contains an explanatory paragraph which indicates that there is substantial doubt as to our ability to continue as a going concern. As of March 31, 1999, we had a working capital deficit of $2.1 million and an accumulated deficit of $11.3 million since our inception. We had losses of $1.6 million for the year ended December 31, 1998, and $859,000 for the quarter ended March 31, 1999, and expect our losses to continue. Our available cash and future earnings may not be sufficient to fund our operations and successfully implement our business plan. We expect that we will need to obtain additional financing to continue operations, but we might not be able to raise additional capital on favorable terms, if at all. Unless we generate consistent positive cash flows from operations for the immediate and foreseeable future, we may be required to cease or substantially reduce our operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." WE WILL REQUIRE ADDITIONAL FINANCING TO CONTINUE OPERATING OUR BUSINESS. We have limited cash resources and expect that we will need to obtain additional debt and/or equity financing to continue operations. As of March 31, 1999 we had a negative working capital balance of $2.1 million, and the report of our independent auditors for the year ended December 31, 1998 included a qualification relating to our ability to continue as a going concern. (See "--Our limited working capital may prevent us from continuing as a going concern.") However, we might not be able to raise additional funds on favorable terms, if at all, and any funds that we can raise may not be sufficient to allow us to continue operations long enough to become profitable. If we cannot raise additional capital, then our ability to continue our operations may be seriously impaired. The operation and expansion of our precision machining, in particular, require considerable capital expenditures. We have relied heavily on our working capital line of credit to fund continuing operations, and expect to continue to utilize this line of credit to the extent that cash flow does not meet our working capital requirements. However, we are currently unable to utilize this line of credit because as of March 31, 1999, the balance outstanding exceeded the amount available for borrowing based on our eligible accounts receivable by $169,000. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." WE DEPEND ON CONTRACTS FUNDED BY THE U.S. GOVERNMENT TO PROVIDE THE MAJORITY OF OUR REVENUES. Approximately 69.0% of our total revenues in fiscal year 1998 and 53.6% of our total revenues in 1997, respectively, resulted from document conversion contracts or subcontracts funded by the U.S. Department of Defense. Accordingly, changes in government contracting policies or the U.S. Department of Defense's funding levels or priorities may affect materially and adversely our future revenues. Although we are trying to diversify into commercial markets, we believe that we will continue to depend 12 on our ability to participate in government contract programs in the future. Among the factors that could affect materially and adversely our government contracting business are: - changes in government funding priorities away from document conversion; - changes in government procurement practices and policies; and - technological developments that make our services obsolete. See "Business--ADCS Program and Government Contracts." OUR REVENUES FLUCTUATE BASED ON THE U.S. GOVERNMENT'S SPENDING CYCLE. Our revenues from government funded contracts and subcontracts can fluctuate significantly from quarter to quarter. These fluctuations in the government's spending cycle could affect materially and adversely our quarterly performance and the price of our stock, depending on: - the timing and amount of Congressional appropriations to the Automated Document Conversion Systems program (see "Business--ADCS Program and Government Contracts"); - variances between anticipated budgets and Congressional appropriations; - the timing and amount of allocations and contracts by each of the armed services; - the release of funds for awarded projects; - any delay in accumulating the documents to be converted; and - any changes in policy or budgetary measures that adversely affect government contracts in general. In addition, these fluctuations could increase significantly from disruptions in the U.S. Department of Defense's contracting operations due to year 2000 compliance problems. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Compliance--Year 2000 Readiness of our Suppliers and Customers." WE HAVE EXPERIENCED SIGNIFICANT FLUCTUATIONS IN OUR OPERATING RESULTS. Our revenues, particularly those from contracts funded by the U.S. Department of Defense, have been subject to significant fluctuations, and we expect these fluctuations to continue. Our commercial backlog and new commercial contracts currently do not provide enough revenues to offset the effects of the fluctuation in government funded revenues on our operating results. In addition, delays in the initiation of new commercial document conversion projects may aggravate these fluctuations. Although we have begun to concentrate more of our sales and marketing efforts in the commercial sector, these efforts have not yet increased substantially our percentage of revenues derived from private sector customers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." THE U.S. GOVERNMENT CAN GENERALLY TERMINATE, WITHOUT PENALTY, THE CONTRACTS THAT PROVIDE THE MAJORITY OF OUR REVENUES. Government contracts awarded to us typically contain provisions that permit the government customer to terminate the contract on short notice, with or without cause. In addition, government agencies generally are not obligated to renew contracts after the completion of the initial period of 13 performance. The unexpected termination of or our inability to renew one or more significant contracts could result in severe revenue shortfalls, which, without corresponding reductions in expenses, could negatively affect our financial condition. WE CANNOT GUARANTEE THAT WE WILL CONTINUE TO SUCCESSFULLY OBTAIN CONTRACTS THROUGH THE U.S. GOVERNMENT'S BIDDING PROCESS. To obtain contracts from U.S. government agencies, we frequently need to participate in a competitive bidding process. We may not obtain a sufficient number of contracts through the competitive bidding process to allow us to become profitable. To succeed in this competitive bidding process, we must estimate a cost structure for servicing the proposed contract, the time required to establish operations and the likely terms of the proposals submitted by competitors. We must assemble and submit a large volume of information on a rigid timetable set by the awarding agency. Our proposal must be competitive with other bids, but allow us to earn a profit on the services that we perform. Upon expiration of the initial period of performance, contracts may be subjected to a competitive re-bidding process. Our ability to respond successfully to the competitive bidding process in the future will have an important impact on our ability to obtain new contracts in the future. WE MAY NOT ATTRACT, MOTIVATE AND RETAIN KEY EXECUTIVES AND EMPLOYEES. Our success depends in large part on the continued service of our key technical, marketing, sales and management personnel, and our ability to continue to attract, motivate and retain highly qualified employees. These personnel are in short supply, and the competition for their services is intense. This shortage is especially true for design engineers, numerical control programmers and experienced "Auto-CAD" drafters, which are critical to our engineering and manufacturing services. With the exception of Steven M. Caira, our president and chief executive officer, who has agreed to the terms of an employment agreement, none of our key personnel has entered into employment contracts. The loss of the services of key personnel or our failure to attract additional qualified employees could materially and adversely affect our ability to deliver services to our customers in a timely manner, if at all. In addition, we have obtained contracts from certain customers due to relationships between these customers and certain key personnel. These customers may not continue to utilize our services at historical levels, if at all, if we lose any these employees. WE MAY NOT RETAIN THE CONSULTANT THAT COORDINATES OUR MARKETING EFFORTS DIRECTED AT THE U.S. GOVERNMENT. We have engaged marketing consultants to establish and maintain relationships with members of Congress and government agencies and to identify and pursue potential projects. We currently retain an outside federal marketing consulting firm to coordinate our government marketing efforts. In 1998, certain principals at this consulting firm played key roles in helping us acquire contracts and subcontracts funded by the U.S. Department of Defense that provided 69.0% of our total revenues. We currently do not have a written contract with this consulting firm, which might not continue to provide its marketing services to us. Our failure to continue to retain this consulting firm could affect materially and adversely our ability to obtain contracts funded by the U.S. government. See "Certain Relationships and Related Transactions--Consulting Arrangement with Capstone National Partners, LLC" and "Business--Sales and Marketing." 14 OUR PRIVATE SECTOR REVENUES ARE HIGHLY VULNERABLE TO CHANGES IN SPENDING PRIORITIES IN THE DEFENSE AND AEROSPACE INDUSTRIES. We primarily derive our commercial revenues from a relatively small number of customers in the aerospace and defense industries. Changes in the business conditions or the spending priorities of these industries in general or these customers in particular could cause a material reduction in demand for our services. In addition, delays in the initiation of new document conversion projects could adversely affect our quarterly operating results. We may not be able to maintain long-term relationships with our significant commercial customers, and we also may not be able to expand our customer base to different industries. Downturns in the aerospace or defense industries therefore could affect negatively our business and our ability to generate future revenues. See "Business--Customers." WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUES FROM SHORT-TERM CONTRACTS. We derive a significant amount of our revenues from services provided under short-term purchase orders in response to customer requests or on a project-by-project basis. In addition, customers generally can terminate our orders at any time without penalty. We anticipate that we will continue to derive a significant amount of our revenues from these short-term purchase orders. However, existing clients may not continue to use our services at historical levels, if at all. Furthermore, we may not be able to obtain new contracts, and existing or future contracts may be terminated before we have fully completed the orders. FIXED PRICE CONTRACTS MAY ADVERSELY AFFECT OUR PROFITABILITY. A substantial portion of our service contracts are fixed price contracts. Consequently, regardless of how much time or how many resources we devote to a contract, our customer pays a fixed price that has been agreed upon ahead of time. Failure to anticipate technical problems, to estimate costs accurately, or to control costs during performance of a fixed price contract may reduce our profit or cause a loss. We might not achieve the profitability we expect under our fixed price contracts, and may in fact incur losses on fixed price contracts in the future. WE MAY NOT MANAGE EFFECTIVELY THE CHALLENGES PRESENTED BY OUR RAPID GROWTH. We currently are experiencing a period of rapid growth that has placed significant and increasing demands on our management and operational, technical, financial and other resources. This growth has: - increased our funding requirements for working capital and capital expenditures; - caused us to expand our efforts to recruit qualified personnel; - forced us to expand our operational capacity and to operate at or near peak capacity; and - caused us to increase our expenditures on quality control. We may not address successfully the demands caused by our rapid growth. WE FACE POTENTIAL COMPETITION FROM THE IN-HOUSE CAPABILITIES OF CERTAIN CUSTOMERS. A significant source of our potential competition comes from the in-house capabilities of our target customer base. Many of our customers include large national or multinational companies that have sufficient financial resources to develop or expand their in-house capabilities. These businesses may: - stop outsourcing their engineering services and document imaging and conversion needs; - move in-house the services that they currently outsource; or - develop existing in-house capabilities into a competitive service business. 15 We might not compete successfully against current or future competitors, and competitive pressures may affect negatively our ability to obtain new contracts in the future. WE FACE POTENTIAL COMPETITION FROM NEW DOCUMENT CONVERSION OUTSOURCING BUSINESSES BECAUSE OF THE RELATIVELY LOW COSTS OF ENTRY. Our document conversion services accounted for approximately 77.1% of our revenues in 1998. Although there are currently relatively few document conversion outsourcing businesses competing with us, the capital equipment requirements for starting a document conversion business are relatively low. In addition, document conversion software is commercially available. Potential competitors, including companies with greater financial, technical and marketing resources, therefore may enter or increase their focus on document conversion services. The entry of competitors in the document conversion business or in our other business segments could prevent us from obtaining new contracts in the future. OUR ENGINEERING AND PRECISION MACHINING SERVICES MAY EXPOSE US TO PRODUCT LIABILITY. We provide engineering and precision machining services to produce parts and tools used to fabricate or maintain our customers' products. If we produce a part or a tool, or provide services relating to a part or tool, that is in any way defective, we may be exposed to substantial liabilities. For example, the failure of an airframe, aircraft engine or other aircraft part incorporating parts that we manufactured, or that was serviced or manufactured by a tool that we designed and/or manufactured, could result in material claims against us. Although we have instituted quality control procedures that we believe produce parts and tools of the highest quality, we may become subject to future proceedings alleging defects in our parts and/or tools. We maintain insurance to protect against claims associated with our design and numerical control programming services, and are in the process of acquiring insurance coverage to protect against claims relating to our manufacture of parts or tools for our customers. We might not be able to obtain insurance coverage for product liability claims at commercially reasonable rates, and any insurance that we do obtain might be insufficient to cover any claims that might arise. Even unsuccessful claims could force us to incur significant litigation costs and divert our management's attention from our business. See "Business--Services--Engineering and Manufacturing Services." CERTAIN OF OUR SERVICES UTILIZE PROCESSES AND SOFTWARE THAT MAY NOT BE PROTECTED BY TRADE SECRET LAWS. We regard certain of our processes and software as proprietary and rely primarily on trade secret laws and employee and third-party nondisclosure agreements to protect our proprietary rights. However, one or more of our employees may leave and attempt to utilize our proprietary processes to compete against us. In addition, although we have one patent pending relating to a proprietary process for the conversion of certain types of design drawings, much of the technology that we use in providing services is not proprietary and could be utilized by our competitors. This situation is particularly true for our document conversion business, which accounted for approximately 77.1% of our revenues in 1998. Our competitors may develop independently or utilize existing technologies to offer services that are substantially equivalent or superior to the services that we offer. CERTAIN OF OUR SERVICES DEPEND ON TECHNOLOGY LICENSED FROM THIRD PARTIES. Many of our services utilize software or other intellectual property licensed from third parties. We may have to seek new or renew existing licenses in the future. The inability to obtain certain licenses or other rights on favorable terms, or the need to engage in litigation over these licenses or rights, could harm seriously our ability to provide services to our customers. 16 NEW TECHNOLOGIES COULD RENDER CERTAIN OF OUR SERVICES OBSOLETE OR UNMARKETABLE. Our document conversion services, which accounted for approximately 77.1% of our revenues during 1998, could become obsolete by the development of improved commercially available software that is capable of converting documents to computer aided design ("CAD") ready computer files. Our failure to develop and introduce enhancements in existing services and new services in a timely and cost-effective manner in response to changing technologies or customer requirements could affect materially and adversely our ability to obtain new contracts from new or existing customers. OUR OFFICERS, DIRECTORS AND SIGNIFICANT SHAREHOLDERS HAVE THE POWER TO INFLUENCE THE ELECTION OF DIRECTORS AND THE PASSAGE OF SHAREHOLDER PROPOSALS BECAUSE THEY COLLECTIVELY HOLD A SUBSTANTIAL NUMBER OF COMMON SHARES. As of May 31, 1999, our executive officers and directors and the executive officers and directors of our subsidiary, TomaHawk II, Inc., beneficially owned 24.2% of the total outstanding common shares. If the Delaware domestication is approved, then they will own approximately 24.2% of the total issued and outstanding shares of common stock of the new Delaware corporation. Accordingly, our executive officers and directors and their affiliates may influence the election of directors and corporate actions requiring stockholder approval. This concentration of ownership could limit the price that certain investors might be willing to pay in the future for shares of common stock, and could make it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control of the new Delaware corporation. See "Security Ownership of Certain Beneficial Owners and Management." WE MAY BE SUBJECT TO LIABILITY FOR UNAUTHORIZED DISCLOSURES OF CONFIDENTIAL INFORMATION. Our customers sometimes provide documents containing confidential and other sensitive information to us in connection with our performance of certain services. Although we have established procedures intended to prevent any unauthorized disclosure of this information, we might be found liable for any unauthorized disclosure. OUR COMMON SHARES MAY BE SUBJECT TO WIDE FLUCTUATIONS IN VALUE AND LIMITED TRADING VOLUME. Our common shares are quoted on The Alberta Stock Exchange. If the Delaware domestication occurs, then the new Delaware corporation's common stock will continue to be listed on The Alberta Stock Exchange. Based upon the historical performance of our common shares, we anticipate that the share price of the common stock may be subject to wide fluctuations because of limited trading volume, quarterly variations in operating results, changes in earnings announcements of contract awards and technological developments by us or by our competitors, general market conditions or other events largely outside of our control. These fluctuations may be disproportionate or unrelated to our operating performance. These broad market fluctuations, general economic conditions or other factors outside our control may affect adversely the market price for the new Delaware corporation's stock. See "Market for the Existing Alberta Corporation's Common Equity and Related Shareholder Matters--Market Price Information." OUR SHARES OF COMMON STOCK WILL BE CONSIDERED "PENNY STOCK" AND THEREFORE SUBJECT TO ADDITIONAL SEC REGULATIONS, WHICH MAY MAKE IT MORE DIFFICULT TO SELL THESE SHARES. By filing this Proxy Statement and Information Circular with the SEC, we will be registering each of our outstanding shares of common stock, and will therefore become a reporting company under the Securities Exchange Act. Because of the price and certain other characteristics of the shares of common stock, upon the completion of the Delaware domestication, our shares of common stock will be classified 17 as "penny stock" as defined in the Securities Exchange Act. Accordingly, the new Delaware corporation's common stock will be subject to the penny stock rules adopted by the SEC under the Securities Exchange Act. The penny stock rules generally impose additional sales practice and disclosure requirements upon broker-dealers who sell our securities to persons other than certain "accredited investors" or in transactions not recommended by the broker-dealer. Accredited investors generally are institutions with assets greater than US $5,000,000 or individuals with net worth greater than US $1,000,000 or annual incomes exceeding US $200,000, or US $300,000 jointly with their spouse. For transactions covered by the penny stock rules, the broker-dealer must make a suitability determination for each purchaser and receive the purchaser's written agreement prior to the sale. In addition, the broker-dealer must make certain mandated disclosures in penny stock transactions, including the actual sale or purchase price and actual bid and offer quotation, and the compensation to be received by the broker-dealer and certain associated persons, and deliver certain disclosures required by the SEC. Consequently, you may find it more difficult to dispose of or obtain accurate quotations of the share price of the new Delaware corporation's common stock. For example, before effecting the transaction, broker-dealers selling these securities must provide their customers with a document that discloses the risks of investing in these securities. Furthermore, if the person purchasing the securities is someone other than an accredited investor or an established customer of the broker-dealer, then the broker-dealer also must approve the potential customer's account by obtaining information concerning the customer's financial situation, investment experience and investment objectives. The broker-dealer also must determine whether the transaction is suitable for the customer and whether the customer has sufficient knowledge and experience in financial matters to be reasonably expected to be capable of evaluating the risk of transactions in these securities. Accordingly, the SEC's rules may limit the number of potential purchasers of the shares of the new Delaware corporation's common stock. Moreover, various state securities laws impose restrictions on transferring penny stocks, which may impair your ability to sell shares of the new Delaware corporation's common stock. FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY AFFECT ADVERSELY THE PRICE OF OUR COMMON STOCK AND OUR ABILITY TO RAISE ADDITIONAL FUNDS THROUGH EQUITY ISSUANCES. The sale of substantial amounts of common stock in the public market (or the prospect of these sales) or the sale or issuance of convertible securities or warrants could affect adversely the market price of our common stock. By filing this Proxy Statement and Information Circular with the SEC, we will be registering each of our outstanding shares of common stock. Accordingly, substantially all of the issued and outstanding shares of common stock will be freely tradable once the registration statement is effective, including approximately 39,650,600 shares of common stock received in exchange for common shares that are currently subject to certain U.S. trading restrictions. In addition, as of May 31, 1999, we had outstanding options to purchase 7,330,570 common shares and debt convertible into 1,474,565 common shares. We also have outstanding 750,000 shares of Class A Series III Preferred Shares, which potentially are convertible into 7,500,000 common shares upon our achievement of certain financial milestones. See "Description of Capital Stock." WE DO NOT PAY DIVIDENDS ON OUR COMMON SHARES. We have never paid cash dividends on our common shares. Our current policy is to retain earnings, if any, to finance the anticipated growth of our business. Our board of directors will determine whether to pay any dividends, depending upon our operating results, financial condition, capital requirements, general business conditions and other factors that our board of directors deems relevant. We may procure credit from third parties for additional capital for expansion and business development activities. Any credit facility that we procure may limit or restrict our ability to pay cash dividends under 18 certain circumstances. If the Delaware domestication is approved, then our dividend policy likely will remain the same. YOUR INVESTMENT IN OUR COMMON STOCK IS SUBJECT TO CURRENCY EXCHANGE RATE RISK. Our common shares are traded in Canadian dollars. If the Delaware domestication is completed, then the new Delaware corporation's common stock will continue to be traded in Canadian dollars. Fluctuations in exchange rates may affect materially and adversely your return on investment in the common stock. These fluctuations may have a material adverse effect on the value in U.S. dollars of an investment in the new Delaware corporation's common stock. WE MAY BE EXPOSED TO UNANTICIPATED YEAR 2000 PROBLEMS. We use a significant number of computer software programs and operating systems in our internal operations. To the extent that these software applications contain a source code that is unable to interpret appropriately the upcoming calendar year 2000, some level of modification or even possible replacement of source code or applications will be necessary. We currently are modifying, replacing and/or upgrading our computer software programs and operating systems, as necessary, to make them year 2000 compliant and we intend to complete our year 2000 compliance program in the fourth quarter of 1999. We anticipate that our expenditures for year 2000 compliance will not be significant. However, we may incur unanticipated costs or systems interruptions that could have a material adverse effect on our financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Compliance--Internal Year 2000 Readiness." WE MAY BE EXPOSED TO OUR CUSTOMERS' YEAR 2000 PROBLEMS. The failure by our customers to be year 2000 compliant may have a material adverse effect on our ability to obtain new contracts or receive payments from noncompliant customers. To the extent that our customers devote significant resources to making their information systems year 2000 compliant, they may be compelled to reduce their expenditures on our services. Because of the revenues we derive from contracts funded by the U.S. Department of Defense, we are especially vulnerable to any year 2000 related disruptions to the U.S. government's contracting operations. According to published reports, which we have not verified, the U.S. government may not be fully year 2000 compliant on a timely basis. This noncompliance could delay the issuance of new contracts or payment of funds to us. In addition, our customers also may reduce their expenditures on our services to the extent they suffer a reduction in earnings from their customers' year 2000 problems. WE MAY BE EXPOSED TO OUR SUPPLIERS' YEAR 2000 PROBLEMS. Certain of our services depend on the timely delivery of supplies. To the extent that our vendors experience year 2000 compliance problems, our ability to timely provide machined products to our customers may be affected adversely. Delays in product deliveries could affect materially and adversely our ability to obtain new orders from these customers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Compliance--Year 2000 Readiness of our Suppliers and Customers." 19 THE ANNUAL AND SPECIAL MEETING This Proxy Statement and Information Circular constitutes a prospectus of TomaHawk Corporation and a proxy statement in connection with the solicitation of proxies for use at the annual and special meeting of TomaHawk Corporation's shareholders. Unless otherwise indicated or the context otherwise requires, references to "the existing Alberta corporation" or the "new Delaware corporation" will include its subsidiary, TomaHawk II, Inc. PROPOSALS TO BE VOTED ON AT THE ANNUAL AND SPECIAL MEETING An annual and special meeting of TomaHawk Corporation's shareholders will be held on ______________, 1999 at 8315 Century Park Court, Suite 200, San Diego, California at 10:00 a.m., local time, to: - receive and consider our consolidated financial statements for the year ended December 31, 1998 and the auditors' report thereon; and - consider and vote on the following proposals: 1. To fix the number of directors to be elected at the annual and special meeting at four; 2. To elect four directors; 3. To appoint the independent auditors of TomaHawk Corporation and to authorize our directors to fix their remuneration as our independent auditors; 4. To consider, and, if deemed advisable by our shareholders, to pass an ordinary resolution authorizing the issuance, in one or more private placements, of a number of securities that could result in TomaHawk Corporation issuing, during the next 12 months, a number of securities that exceeds 25% but is not greater than 100% of the issued and outstanding securities, subject to the restrictions described in this Proxy Statement and Information Circular; 5. To approve TomaHawk Corporation's change in jurisdiction of incorporation from the Province of Alberta, Canada to the State of Delaware, U.S.A. and to make certain other amendments to our articles of incorporation and bylaws regarding the domestication into Delaware. See "Proposal Five--Domestication into the State of Delaware." If the domestication into Delaware is approved, then we will adjourn the annual and special meeting, effect a one-for-fifteen consolidation of the common shares, and complete the Delaware domestication. After we have completed the Delaware domestication, we will reconvene the annual and special meeting, and request that you vote on the following five proposals relating to the new Delaware corporation: 6. To require advance notice of stockholder nominations and proposals; 7. To prevent the stockholders from calling special meetings of the stockholders; 8. To prohibit stockholder action by written consent; 9. To require a supermajority vote to amend certain provisions of the new Delaware corporation's certificate of incorporation and bylaws; and 20 10. To approve the adoption of a form indemnification agreement for the new Delaware corporation's directors and executive officers. We do not know of any other matters that likely will be brought before the annual and special meeting. However, if any other matters properly come before the annual and special meeting, then the persons named in the enclosed proxy will vote the proxy in accordance with their best judgment on these matters. Our board of directors has unanimously approved, and recommends that shareholders vote "FOR," each of the above listed proposals. RECORD DATE; VOTING RIGHTS Only shareholders of record at the close of business on _________________, 1999, also known as the record date, will be entitled to notice of and to vote, or to grant proxies to vote, at the annual and special meeting. Each shareholder of record on the record date will be entitled to one vote for each common share, and, with respect to Proposal Five, to one vote for each Class A Series III Preferred Share, that he holds on the record date. The holders of common shares and Class A Series III Preferred Shares will vote on Proposal Five as a single class. HOLDERS OF CLASS A SERIES III PREFERRED SHARES WILL NOT VOTE ON PROPOSALS ONE THROUGH FOUR AND SIX THROUGH NINE. We will prepare a list of shareholders showing the number of common shares and Class A Series III Preferred Shares owned by each shareholder as of the record date. A shareholder named in the list will be entitled to one vote for each common share (and, with respect to Proposal Five, to one vote for each Class A Series III Preferred Share) shown opposite his name. If the shareholder transferred any shares after the completion of this list, then the person receiving the shares is entitled to vote the shares only if he establishes to us that he owns the shares and demands that his name be included in the list of shareholders eligible to vote at the annual and special meeting. The recipient must make this demand no later than ten days before the annual and special meeting. The vote of any shareholder who is represented at the annual and special meeting by proxy will be cast as specified by the proxy or, if no vote is specified, the vote will be cast "FOR" each of the above listed proposals. Any shareholder of record who is present at the annual and special meeting in person will be entitled to vote at the annual and special meeting regardless of whether the shareholder has previously granted a proxy. QUORUM; VOTE REQUIRED FOR ADOPTION A quorum for the transaction of business at the annual and special meeting will occur if at least two individuals appear at the annual and special meeting in person or by proxy holding or representing at least twenty percent (20%) of the issued and outstanding common shares and Class A Series III Preferred Shares entitled to vote at the annual and special meeting. On all matters that may come before the annual and special meeting, shareholders of the existing Alberta corporation on the record date are entitled to one vote for each common share held of record. Proposals One through Four require the affirmative votes of the holders of a majority of the shares of common stock represented and voting at the annual and special meeting. HOLDERS OF CLASS A SERIES III PREFERRED SHARES WILL NOT VOTE ON PROPOSALS ONE THROUGH FOUR. Broker non-votes will not be treated as entitled to vote on these proposals at the meeting. 21 On Proposal Five, shareholders are also entitled to one vote for each Class A Series III Preferred Share held of record. Approval of this proposal requires the affirmative votes of holders of not less than two-thirds of the common shares and Class A Series III Preferred Shares, voting as a single class, represented and voting at the annual and special meeting. Abstentions and broker "non-votes" will not be counted as present for purposes of obtaining a quorum and will not be counted in determining whether Proposal Five passes. Proposals Six through Nine require the affirmative votes of the holders of a majority of the shares of common stock represented and voting at the annual and special meeting. HOLDERS OF CLASS A SERIES III PREFERRED SHARES WILL NOT VOTE ON PROPOSALS SIX THROUGH NINE. Abstentions and broker "non-votes" will be counted as present for purposes of obtaining a quorum but will not be treated as votes in favor of the proposals. Accordingly, abstentions and broker "non-votes" will have the effect of votes against Proposals Six through Nine. Approval of Proposal Ten requires the affirmative vote of a majority of the common shares present or represented by proxy and entitled to vote on this subject matter at the meeting and held by disinterested stockholders. HOLDERS OF CLASS A SERIES III PREFERRED SHARES WILL NOT VOTE ON PROPOSAL TEN. Since each director and each executive officer is an interested party with respect to this matter, shares owned directly or indirectly by any director or executive officer may not be voted on this proposal although they will be counted for purposes of determining whether a quorum is present. Broker non-votes will not be treated as entitled to vote on this proposal at the meeting. As of the record date, there were _________ common shares and _________ Class A Series III Preferred Shares outstanding. In addition, as of the record date, our directors and executive officers and the directors and executive officers of our subsidiary TomaHawk II, Inc. beneficially owned, in the aggregate, __________ common shares, which is approximately _____% of the shares entitled to vote at the annual and special meeting. They have indicated their intention to vote those shares in favor of the proposal to approve the Delaware domestication and the other five proposals. PROXIES GENERAL. Each holder of our common shares and Class A Series III Preferred Shares as of the record date will receive the accompanying proxy. Shareholders may grant a proxy to vote for or against, or to abstain from voting on, any of the proposals by appropriately marking the proxy card, executing the proxy card in the space provided and returning it to the transfer agent. Shareholders who hold their common shares in the name of a bank, broker or other nominee should follow the instructions provided by their bank, broker or nominee on voting their shares. You must instruct your broker to vote your shares or the broker will not vote your shares. Broker "non-votes" will have the same effect as votes cast against the proposals. To be effective, you must mail, fax, or deliver your proxy to our president, Steven M. Caira, c/o CIBC Mellon Trust Company, 600 The Dome Tower, 333-7th Avenue S.W., Calgary, Alberta T2P 2Z1. All proxies must be received not later than 10:00 a.m. (San Diego time) on _____________, 1999 or by the close of business on the last business day before any adjournment of the annual and special meeting. Common shares represented by a properly executed proxy will be voted in the manner specified by the proxy. If you properly execute your proxy without indicating how you want to vote, then your shares will be voted "FOR" the proposals. If any other matters are properly presented at the annual and special meeting for consideration, including consideration of a motion to adjourn the annual and special meeting to another time and/or place (including adjournments for the purpose of soliciting additional proxies), then the persons named in 22 the proxy card and acting thereunder will have the discretion to vote on these other matters in accordance with their best judgment. REVOCATION. You may revoke any proxy given pursuant to this solicitation at any time before its exercise by: - appearing at the annual and special meeting, revoking your proxy and voting in person; - delivering written notice of the revocation, executed by you or your attorney, to the registered office of the existing Alberta corporation no later than the last business day preceding the date of the annual and special meeting; - delivering written notice of the revocation, executed by you or your attorney, to the chairman of the annual and special meeting before the start of the annual and special meeting; or - properly completing and executing a later-dated proxy and delivering it to the president of the existing Alberta corporation, care of CIBC Mellon Trust (as described in "--General" above) or the chairman of the annual and special meeting at or before the annual and special meeting. You may attend the annual and special meeting even if you have granted a proxy. However, your presence without voting at the annual and special meeting will not automatically revoke a proxy, and any revocation during the annual and special meeting will not affect votes previously taken. Shareholders who hold their common shares in the name of a bank, broker or other nominee should follow the instructions provided by their bank, broker or nominee in revoking their previously voted shares. VALIDITY. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of proxies will be determined by the inspectors of election of the annual and special meeting. The inspectors' determination will be final and binding. Our board of directors will have the right to waive any irregularities or conditions as to the manner of voting. We may accept proxies by any reasonable form of communication, so long as we can reasonably determine that the shareholder authorized the communication. SOLICITATION OF PROXIES. Our board of directors is soliciting the accompanying proxy. We will bear the expenses of preparing, printing and mailing the proxy and the materials used in the proxy solicitation. Our directors, executive officers and employees will solicit proxies by personal interview, telephone and telegram without additional compensation for their services,. We also may make arrangements with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation materials to the beneficial owners of the common shares held by these persons. We will reimburse our directors, executive officers and employees for reasonable expenses incurred by them in connection with their solicitation efforts. 23 PARTICULARS OF MATTERS TO BE ACTED UPON PROPOSAL ONE FIXING THE NUMBER OF DIRECTORS Our board of directors currently consists of four directors, each of whose term of office will expire at the annual and special meeting. At the annual and special meeting, you will be asked to consider, and if thought fit, approve a resolution fixing the number of directors to be elected at four. FIXING NUMBER OF DIRECTORS At the annual and special meeting, we propose that our shareholders fix at four the number of directors to be elected at the annual and special meeting to hold office until our next annual meeting or until their successors are elected or appointed, subject to our articles of incorporation and bylaws. Holders of proxies solicited by this Proxy Statement and Information Circular will vote the proxies received by them as directed on the proxy card or if no direction is made, in favor of fixing the number of directors to be elected at the annual meeting at a maximum of four, subject to amendment between annual meetings by our board of directors. VOTE REQUIRED Fixing the number of directors at four requires the approval of a majority of the votes cast by the holders of common shares present or represented by proxy at the annual and special meeting on this proposal. Under Alberta corporate law, abstentions and broker non-votes are not counted as for purposes of determining the presence or absence of a quorum for the transaction of business, and are not counted as votes cast. Accordingly, abstentions and broker non-votes with respect to this proposal will not be considered and will not be counted in determining whether this proposal passes. Our board of directors recommends that you vote "FOR" fixing the number of directors at four. 24 PROPOSAL TWO ELECTION OF DIRECTORS Our board of directors currently consists of four directors, each of whose term of office will expire at the annual and special meeting. At the annual and special meeting, you will be asked to consider, and if thought fit, approve a resolution providing that four directors be elected to hold office until the next Annual Meeting or until their successors are elected or appointed. INFORMATION REGARDING DIRECTOR NOMINEES The following table sets forth the names, ages, principal occupations for the periods indicated and other directorships of the four director nominees, each of whom is currently a director of the existing Alberta corporation. Information as to the stock ownership of each director nominee and all current directors and executive officers of the existing Alberta corporation as a group is set forth below under "Security Ownership of Certain Beneficial Owners and Management."
NAME AGE PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS AND OTHER DIRECTOR DIRECTORSHIPS SINCE - ------------------- ----- -------------------------------------------------------- ------------ STEVEN M. CAIRA 42 Mr. Caira has served: 1994 - since May 11, 1999, as the acting chief financial officer of Tomahawk Corporation; - since February 1994, as the president, chief executive officer and chairman of the board of directors of TomaHawk Corporation and TomaHawk II, Inc.; - from May 1993 to February 1994, as the Director of National Operations of TomaHawk II, Inc.; - from December 1984 to May 1992, as a manager of Rohr, Inc. assuming a wide range of managerial responsibilities, including: - program manager for the (Air Force) F-22 fighter program; - manager, information systems services; - manager of various financial and production functions; and - from June 1992 to May 1993, as Director of Production and Customer Services for Point Control of Eugene, Oregon. Mr. Caira also served as Production Control Manager for General Dynamics in San Diego, California, as Manager of Industrial Engineering and Plant Services for General Dynamics in Fort Worth, Texas, and as an Industrial Engineer and Computer Programmer for Boeing Aircraft. Mr. Caira received a Bachelors of Science in Mechanical Engineering from the University of Lowell in Lowell, Massachusetts in 1978, and an AIIMS Executive MBA from the University of Washington in 1986.
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NAME AGE PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS AND OTHER DIRECTOR DIRECTORSHIPS SINCE - ------------------- ----- -------------------------------------------------------- ------------ THOMAS M. DUSMET 46 Mr. Dusmet has served: 1995 - since September 1995, as the secretary and a director of TomaHawk Corporation; - since February 1996, as an investment advisor with Nesbitt Burns Inc., a Canadian investment banking firm; - from February 1995 to February 1996, as President and a director of 1110060 Ontario Inc., an independent roofing materials and products sales company; and - from November 1989 to February 1995, as General Manager of Nord Bitumi Canada, Ltd., a roofing distribution company. DOUGLAS W. LOUGHRAN 58 Mr. Loughran has served: 1995 - since September 1995, as a director of TomaHawk Corporation; - since July 1998, as president of Pieces Reliable Ltd., a wholesale distribution company; - since June 1993, as president of Reliable Parts Inc., a wholesale distribution company; - since October 1989, as president of Columbia Distributors Ltd., a wholesale distribution company; - since 1980, as president of R&D Business Systems Ltd., a computer programming company; and - since 1957, as president of Reliable Parts Ltd., a wholesale distribution company. JONATHAN F. TURPIN 66 Mr. Turpin has served: 1995 - since September 1995, as a director of TomaHawk Corporation; and - from April 1981 to November 1994, as the vice president and general manager of Canadian Transport Co. Ltd., a British Columbia deep sea ship operating company. Mr. Turpin is currently retired, and has worked occasionally as a marine consultant for Fraser River Harbour Commission of New Westminster, British Columbia.
26 For a listing of the number of shares beneficially owned by each of the above listed director nominees, see "Securities Ownership of Certain Beneficial Owners and Management." BOARD OF DIRECTORS The existing Alberta corporation's articles of incorporation provide for a range of one to nine directors, with the current authorized number set at four. Each director is to be elected for a term of one year, and to hold office until his or her successor is duly elected and qualified. In each case, a director serves for the designated term and until his or her respective successor is duly elected and qualified, unless he resigns or his seat on the board of directors becomes vacant due to his death, removal or other cause. BOARD MEETINGS AND COMMITTEES During the year ended December 31, 1998, the existing Alberta corporation's board of directors held ______ meetings. Each director attended at least 75% of the meetings held during 1998. The existing Alberta corporation's board of directors has appointed an audit committee consisting of Mr. Turpin, Mr. Dusmet and Mr. Loughran. However, the audit committee has not met regularly and its duties have been discharged by the entire board of directors at regular board of directors meetings. The board of directors does not maintain a compensation committee or a nominating committee. COMPENSATION OF THE EXISTING ALBERTA CORPORATION'S DIRECTORS We do not pay compensation on a regular basis to our directors for their services as directors, but we do reimburse them for their reasonable expenses for attending board of directors meetings. In 1998, after not paying any compensation to our directors from 1995 through 1997, we paid a total of US $34,270 to each of our directors to allow them to exercise options to purchase 175,000 common shares and to pay their resulting tax obligations. This amount included our accrual of an obligation to pay US $7,808 to each of our directors. In addition, on March 18, 1998, we granted to each of our directors 225,000 options to purchase common shares, vesting over a six month period, at an exercise price of Cdn. $0.22 per share, which was Cdn. $0.03 below the closing price of our common shares that day. BOARD OF DIRECTORS INTERLOCKS AND INSIDER PARTICIPATION There are no interlocking relationships between our board of directors and the board of directors or compensation committee of any other company. This type of interlocking relationship did not exist at any time during the year ended December 31, 1998. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act requires a reporting company's officers, directors, and persons who own more than ten percent of a registered class of the reporting company's equity securities to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than ten percent stockholders are required by regulations of the SEC to furnish the company with copies of all Section 16(a) forms that they file. If the Delaware domestication is approved, then we will become a reporting company. However, we are currently not a reporting company, and our officers, directors and greater than ten percent stockholders are therefore not required to file Section 16(a) reports at this time. VOTE REQUIRED The four director nominees receiving the highest number of affirmative votes of the common shares present in person or represented by proxy at the annual and special meeting shall be elected as directors of the existing Alberta corporation. 27 Under Alberta law, votes withheld from any director nominee are counted for purposes of determining the presence or absence of a quorum for the transaction of business, but have no other legal effect. Holders of proxies solicited by this Proxy Statement and Information Circular will vote the proxies received by them as directed on the proxy card or if no direction is made, for the election of our board's nominees. If any of the director nominees is unable or declines to serve as a director at the time of the annual and special meeting, the proxy holders will vote for a nominee designated by the present board of directors to fill the vacancy. It is not presently expected that any of the nominees will be unable or will decline to serve as a director. Our board of directors recommends a vote "FOR" each of the above listed director nominees. 28 PROPOSAL THREE APPOINTMENT OF INDEPENDENT AUDITORS GENERAL Our board of directors recommends that you vote to appoint Ernst & Young as our independent auditors for the year ended December 31, 1999. Ernst & Young LLP has served as our independent auditors since December 30, 1997 (see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Change in Accountants." A representative of Ernst & Young LLP is expected to attend the annual and special meeting with the opportunity to make a statement if he desires to do so, and is expected to be available to respond to your questions. Holders of proxies solicited by this Proxy Statement and Information Circular will vote the proxies received by them as directed on the proxy card or if no direction is made, in favor of re-appointing Ernst & Young LLP as our independent auditors. VOTE REQUIRED Appointment of Ernst & Young LLP as independent auditors requires the approval of a majority of the votes cast by the holders of common shares present or represented by proxy at the annual and special meeting on this proposal. Under Alberta corporate law, abstentions and broker non-votes are not counted as for purposes of determining the presence or absence of a quorum for the transaction of business, and are not counted as votes cast. Accordingly, abstentions and broker non-votes with respect to this proposal will not be considered and will not be counted in determining whether this proposal passes. Our board of directors recommends that you vote "FOR" the appointment of Ernst & Young LLP as our independent auditors. 29 PROPOSAL FOUR AUTHORIZATION TO CONDUCT PRIVATE PLACEMENTS GENERAL The rules of The Alberta Stock Exchange provide that the aggregate number of securities which are issued pursuant to private placement transactions during any six month period generally cannot exceed 25% of the issuer's outstanding securities. However, The Alberta Stock Exchange may consider a request by a listed company to exceed the 25% limit and may in certain circumstances require shareholder approval of such an increase. The application of this requirement may restrict our ability to raise capital in the future through private placements of our securities. In particular, our board of directors considers it to be in our best interests for us to retain flexibility in raising equity for working capital. The Alberta Stock Exchange has advised that it will accept advance approval by a company's shareholders in anticipation of private placements that may exceed the 25% rule, providing such placements are completed within 12 months of the date the company's shareholders provide this advance approval. By approving this proposal, you will be satisfying this advance shareholder approval requirement. Any private placement that we undertake will remain subject to regulatory approval, including approval of the Alberta Stock Exchange. Any future private placement that we undertake pursuant to this proposal will be subject to the following additional restrictions: - it cannot result in a change of control of TomaHawk Corporation; - it cannot exceed 100% of our issued and outstanding securities; - it must be completed within twelve months following the date the advance shareholder approval is given; and - it must comply with the private placement pricing rules of The Alberta Stock Exchange, which currently require that the price per security must not be lower than the closing market price of the security on The Alberta Stock Exchange on the trading day prior to the date notice of the private placement is given to The Alberta Stock Exchange, less the applicable discount, as follows:
Closing Market Price Maximum Discount -------------------- ---------------- Cdn. $0.50 or less 25% Cdn. $0.51 - $1.00 20% Cdn. $1.01 - $2.00 18% Cdn. $2.01 - $5.00 15% over Cdn. $5.00 10%
We will negotiate a private placement only if our board of directors believes that the subscription price is reasonable under the circumstances and if the funds are required to continue or expand our activities. IF THIS PROPOSAL IS APPROVED, WE MAY SELL COMMON SHARES THROUGH PRIVATE PLACEMENTS AUTHORIZED BY THIS PROPOSAL TO DIRECTORS, OFFICERS, EMPLOYEES AND OTHER INSIDERS OF THE EXISTING ALBERTA CORPORATION. THE PROPOSED RESOLUTION The text of the ordinary resolution to be considered at the meeting approving the private placement is as follows: 30 "BE IT RESOLVED, as an ordinary resolution, that the issuance by the Corporation in one or more private placements of such number of securities that could result in the Corporation issuing during the next twelve (12) months an amount of common shares that exceeds 25% but is equal to or less than 100% of the Corporation's issued and outstanding common shares, subject to the restrictions described in the Information Circular of the Corporation dated April 8, 1999, including regulatory approval, be and is hereby approved." VOTE REQUIRED The authorization of future private placements requires the approval of a majority of the votes cast by the holders of common shares present or represented by proxy at the annual and special meeting on this proposal. Under Alberta corporate law, abstentions and broker non-votes are not counted as for purposes of determining the presence or absence of a quorum for the transaction of business, and are not counted as votes cast. Accordingly, abstentions and broker non-votes with respect to this proposal will not be considered and will not be counted in determining whether this proposal passes. Our board of directors recommends that you vote "FOR" the authorization of future private placements. 31 PROPOSAL FIVE DOMESTICATION INTO THE STATE OF DELAWARE GENERAL The existing Alberta corporation is a corporation formed and operating under the corporate laws of Alberta. You will be asked at the annual and special meeting to pass a resolution that: - authorizes the existing Alberta corporation to domesticate into the State of Delaware pursuant to Section 388 of the General Corporation Law of the State of Delaware, thereby continuing the existing Alberta corporation as if it had been originally incorporated under Delaware corporate law as a Delaware corporation; and - changes the existing Alberta corporation's authorized capital from: - an unlimited number of common shares without par value; - an unlimited number of class "B" common non-voting shares without par value; - an unlimited number of preferred shares without par value; - a first series of preferred shares consisting of 100,000 shares without nominal or par value, designated as 6% non-cumulative redeemable retractable first preferred shares, Series A; and - an unlimited number of Class A, Series I, Series II and Series III Preferred Shares; to: - 20,000,000 shares of common stock, US $0.001 par value per share; - 750,000 shares of Class A Preferred Stock, US $0.001 par value per share; and - 750,000 shares of preferred stock, US $0.001 par value per share. If the shareholders approve this proposal, then, before completing the Delaware domestication, subject to approval by The Alberta Stock Exchange, we will effect a one-for-fifteen consolidation of the common shares and corresponding name change of the existing Alberta corporation whereby TomaHawk Corporation will be renamed TomaHawk Engineering, Inc. Our shareholders authorized this common share consolidation and name change on September 22, 1998. After the one-for-fifteen common share consolidation is completed, the new Delaware corporation's authorized share capital will consist of 20,000,000 shares of common stock, 750,000 shares of Class A Preferred Stock and 750,000 shares of preferred stock. No fractional shares will be issued in the common share consolidation. Any fractional shares remaining after aggregating all fractional shares held by a shareholder will be rounded up to the nearest whole share. For example, if you hold 100 common shares before the common share consolidation, then after the common share consolidation you will hold seven shares of common stock. Upon the effectiveness of the Delaware domestication, the BUSINESS CORPORATIONS ACT (Alberta) will cease to apply and Delaware corporate law will govern us as if the existing Alberta corporation had been incorporated originally in Delaware. Except as is otherwise described in this Proxy Statement and Information Circular, the Delaware domestication will not cause any change in our business, assets, liabilities, net worth or management. After the Delaware domestication, you will hold securities of the new Delaware corporation, and the common stock of the Delaware Corporation will continue to trade on The Alberta Stock Exchange. We do not anticipate that any shares of the Class A Preferred Stock or the preferred stock will trade publicly on any exchange. Upon consummation of the Delaware domestication, the new Delaware corporation will file a Current Report on 32 Form 8-K with the SEC to reflect the Delaware domestication for the purposes of Section 15(d) of the Securities Exchange Act. You have the right to dissent to the Delaware domestication (see "--Right of Dissent"). If you choose to exercise your dissenter's rights and we effect the Delaware domestication, then we will be required to purchase for cash your common shares at their fair value as of __________, 1999. If enough of our shareholders dissent to the Delaware domestication, then our obligation to purchase their common shares could affect adversely our financial condition. Accordingly, if our board of directors determines that completing the Delaware domestication will not be in our best interests, then our board of directors will not proceed with the Delaware domestication. PRINCIPAL REASONS FOR THE DELAWARE DOMESTICATION Our board of directors believes that the focus of our operations and business is in the United States. Accordingly, our board of directors believes that the laws of a state of the United States should govern our company. In addition, the following factors weigh in favor of our domesticating into Delaware: SIMPLIFICATION OF CORPORATE STRUCTURE. Our board of directors believes that our corporate structure is unnecessarily complicated and that we should consolidate our corporate structure. To this end, we recently amalgamated with TomaHawk Imaging & Financial, Inc., a wholly-owned subsidiary and the former parent of TomaHawk II, Inc. We would like to further simplify our corporate structure by merging with TomaHawk II, Inc. after the completion of the Delaware domestication. However, Alberta corporate law does not permit an Alberta corporation to merge with non-Alberta corporations. Effecting the Delaware domestication will allow us to merge with our subsidiary TomaHawk II, Inc. in the future, thereby completing the consolidation of our corporate structure. COMMERCIAL ADVANTAGE. Virtually all of our significant customers are located within the United States. Although our status as a Canadian company does not preclude us from performing services for these customers, it has at times complicated our sales negotiations in the past and may disadvantage our future negotiations if potential customers are reluctant to work with a foreign service provider. We believe this disadvantage may occur particularly in the aerospace and defense industries. We believe that eliminating this potential disadvantage will help us attract more business. For these reasons, our board of directors believes that we will gain a commercial advantage by domesticating into Delaware. NO BUSINESS REASON TO REMAIN DOMICILED IN CANADA. We currently do not have any business reason for our incorporation in Canada. In addition, we have no facilities, employees or operations in Canada, and most of our shareholders are located within the United States. REDUCTION OF CANADIAN TAX AND REGULATORY OBLIGATIONS. As an Alberta corporation, we currently are subject to Canadian tax requirements. We also are subject to tax in the United States because our operations are conducted through our subsidiary, TomaHawk II, Inc., an Illinois corporation. By domesticating into Delaware, our board of directors believes that we will reduce significantly our ongoing Canadian tax obligations. In addition, we will eliminate our need to comply with the regulations of the Registrar of Corporations for the Province of Alberta and Alberta corporate law. You should note, however, that, if we complete the Delaware domestication, then we will have to comply with U.S. securities regulations. ADVANTAGES OF DELAWARE LAW. For many years, Delaware has encouraged incorporation in that state and has adopted comprehensive, modern and flexible corporate laws, which are periodically updated and revised to meet changing business needs. In addition, the Delaware courts have developed considerable expertise in dealing with corporate issues and have developed a substantial body of case law interpreting Delaware corporate law and establishing public policies with respect to Delaware corporations. As a result, many major corporations have chosen to incorporate in Delaware or have later reincorporated in Delaware in a manner similar to our proposed domestication. 33 CHANGE IN PAR VALUE OF EQUITY SECURITIES In connection with the proposed Delaware domestication, our board of directors has proposed that we establish a par value of the shares of our common stock, preferred stock and Class A Preferred Stock of US $0.001 par value per share. The existing Alberta corporation's capital stock has no par value. Our board of directors believes that the change will be in our best interests and the best interests of our stockholders, because the Delaware franchise fees applicable to no par value shares are significantly higher than those for US $0.001 par value shares. Par value represents the minimum consideration which must be received by a company for the issuance of a share of stock. The change in par value will have no effect upon your rights as a shareholder. By voting in favor of the Delaware domestication, you are voting in favor of establishing the US $0.001 par value per share of our shares of common stock, preferred stock and Class A Preferred Stock. If this Proposal Five is approved, then the new Delaware corporation's certificate of incorporation to be filed with the Secretary of State of the State of Delaware will reflect this change. BOARD OF DIRECTORS HAS DISCRETION TO EFFECT DELAWARE DOMESTICATION Notwithstanding the shareholders' approval of the Delaware domestication, our board of directors may elect not to effect the Delaware domestication if, for example: - the Delaware domestication causes the existing Alberta corporation to incur substantial tax liability; - a significant number of the shareholders exercise dissenter's rights; or - our board of directors determines that the Delaware domestication is not in the best interests of TomaHawk Corporation and its shareholders. If the Delaware domestication is not effected, then we will remain an Alberta corporation. CORPORATE GOVERNANCE DIFFERENCES; DELAWARE AND ALBERTA LAW COMPARISONS. By approving the Delaware domestication, you will approve the proposed certificate of incorporation (attached hereto as APPENDIX II) and bylaws (attached hereto as APPENDIX III), and agree to hold securities in a corporation governed by Delaware corporate law. In exercising your vote, you should consider the distinctions between Delaware and Alberta corporate law, some of which are outlined below. Delaware corporate law and the new Delaware corporation's certificate of incorporation and bylaws differ in many respects from Alberta corporate law and the existing Alberta corporation's charter documents. Please note, however, that the new Delaware corporation's certificate of incorporation includes certain shareholder rights required by Alberta corporate law to effect the Delaware domestication. The following discussion summarizes certain differences that could affect materially your rights as a shareholder. THE FOLLOWING SUMMARIES OF THE NEW DELAWARE CORPORATION'S PROPOSED CERTIFICATE OF INCORPORATION AND BYLAWS ARE NOT COMPLETE AND SHOULD BE READ IN CONJUNCTION WITH THE NEW DELAWARE CORPORATION'S PROPOSED CERTIFICATE OF INCORPORATION (ATTACHED AS APPENDIX II) AND BYLAWS (ATTACHED AS APPENDIX III). SHAREHOLDER QUORUM. Under our current bylaws, the presence of at least two individuals holding or representing a total of at least 20% of our outstanding shares that are entitled to attend and vote at the meeting constitutes a quorum. Under Delaware corporate law, a corporation's certificate of incorporation and bylaws may specify the number of shares necessary to constitute a quorum at any meeting of stockholders; provided, however, that a quorum may not consist of less than one-third of the shares entitled to vote at the meeting. The new Delaware corporation's proposed bylaws provide that a majority of the shares entitled to vote, present in person or represented by proxy, is required for a quorum at a meeting of stockholders. SUPERMAJORITY. Alberta corporate law requires, and Delaware corporate law permits, the adoption of a higher requisite vote for certain types of corporate action, subject to certain limitations. Alberta corporate law 34 provides that the approval of two-thirds of the votes present and voting at an annual and special meeting of shareholders is required to amend the existing Alberta corporation's charter documents, including changing the corporation's name, altering its share capital or any of the rights attached to any shares and approving certain extraordinary corporate transactions. Delaware corporate law generally has no limit on how high a percentage the vote must be, provided that the supermajority requirements are specified in a corporation's certificate of incorporation. Proposal Nine would amend the new Delaware corporation's certificate of incorporation and bylaws to provide for a supermajority vote to amend certain sections of the certificate of incorporation and bylaws. See "Proposal Nine--Amendment to the New Delaware Corporation's Certificate of Incorporation and Bylaws to Require a Supermajority Vote to Amend Certain Provisions of the New Delaware Corporation's Certificate of Incorporation and Bylaws." REQUIRED APPROVALS OF SHAREHOLDERS. Alberta corporate law requires that at least two-thirds of the votes present or represented by proxy and voting at a meeting must approve various extraordinary corporate transactions, including mergers, the sale of substantially all of a corporation's assets or the change of a corporation's domicile. Under Delaware corporate law, stockholders holding a majority of the outstanding shares entitled to vote generally must approve these extraordinary transactions. Because the existing Alberta corporation's quorum requirements are more easily met than those of the new Delaware corporation (see "--Shareholder Quorum"), shareholder action can be taken under Alberta corporate law with a smaller percentage of the vote than is required under Delaware corporate law. EXAMINATION OF CORPORATE RECORDS. Under Alberta corporate law, a corporation's directors and shareholders, including their agents and legal representatives, may examine the following documents free of charge during the corporation's usual business hours: - the articles of incorporation, bylaws and all amendments thereto; - any unanimous shareholder agreement and all amendments thereto; - the minutes of all shareholders' meetings and resolutions; - the securities register; - copies of the financial statements; and - copies of all documents filed with the Registrar of Corporations of the Province of Alberta. In addition, shareholders are entitled upon request, without charge, to one copy of the corporation's articles of incorporation and bylaws, including any amendments thereto, and to one copy of any unanimous shareholder agreement, including any amendments thereto. Under Delaware corporate law, stockholders have the right for any proper purpose to inspect, upon written demand under oath stating the purpose for the inspection, the corporation's stock ledger, list of stockholders, and its other books and records, and to make copies or extracts of the same. A proper purpose means a purpose reasonably related to a person's interest as a stockholder. MINORITY (DISSENTER'S) RIGHTS. Under Alberta corporate law, holders of shares of any class of the existing Alberta corporation have the right to dissent from certain corporate acts involving: - amendments to the existing Alberta corporation's articles of incorporation to add, change or remove any provisions restricting the issue or transfer of shares of that class; - amendments to the existing Alberta corporation's articles of incorporation to change or remove any restriction on the business in which the corporation may engage; - amalgamation with a corporation which is not wholly owned by the existing Alberta corporation; - continuation under the laws of another jurisdiction; and - transfers of substantially all of the existing Alberta corporation's assets. 35 Under Delaware corporate law, stockholders have the right to dissent and exercise appraisal rights only with respect to certain forms of corporate mergers and consolidations. In addition, under Delaware corporate law, appraisal rights are not available with respect to any shares of stock if, at the record date fixed to determine the stockholders entitled to vote on the merger or consolidation: - the shares were listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc.; or - the shares were held of record by more than 2,000 holders. However, appraisal rights are available if, under the terms of an agreement of merger or consolidation, the stockholders are required to accept for their stock something other than: - shares of stock of the surviving corporation; - shares of stock of any other corporation which is listed on a national securities exchange or designated as a national market system security or an interdealer quotation system by the National Association of Securities Dealers, Inc. or which has more than 2,000 stockholders of record; - cash instead of fractional shares; and/or - any combination of the above. The new Delaware corporation's certificate of incorporation will provide the same dissenter's rights as provided by Alberta corporate law. However, the new Delaware corporation's certificate of incorporation could be amended in the future to eliminate this type of dissenter's rights. THEREFORE, IN APPROVING THE DELAWARE DOMESTICATION, YOU MAY FOREGO THE MORE EXTENSIVE DISSENTER'S RIGHTS UNDER ALBERTA CORPORATE LAW WITH RESPECT TO FUTURE ACTIONS. DISQUALIFICATION OF DIRECTORS. Alberta corporate law prohibits the following persons from serving as a director: - persons under age 18; - persons who are mentally infirm; - corporations; and - undischarged bankrupts. Delaware corporate law contains no comparable statutory prohibitions. PERSONAL LIABILITY OF DIRECTORS. Alberta corporate law provides that every director, in exercising his powers and discharging his duties, will act honestly and in good faith and in the best interests of the corporation and exercise the care, diligence and skill of a reasonably prudent person. Alberta corporate law also specifically imposes joint and several personal liability upon directors who vote for or consent to a resolution that violates applicable provisions of Alberta corporate law relating to the acquisition of a corporation's own shares, the payment of commissions on a sale of a corporation's shares, the payment of dividends, financial assistance, payment of an indemnity, or payment to a shareholder, subject to certain limited defenses. Alberta corporate law provides that this liability is in addition to and not instead of any liability imposed on a director by any other legislation, regulation or rule of law. Alberta corporate law entitles a shareholder or a director of the corporation, with the approval of the Court of Queen's Bench of Alberta and in the name of the corporation, to commence legal proceedings to enforce a duty or right owed to the corporation or to obtain monetary damages for breach of the right or duty whether the right or duty arises under Alberta corporate law. Shareholders may bring derivative actions on behalf of a corporation 36 against the corporation's directors for cash damages or to enforce rights or duties owed by the director to the corporation. Under Alberta corporate law, there is no statutory limitation with respect to the monetary liability that may be imposed on directors and the existing Alberta corporation's articles of incorporation and bylaws do not contain these limitations. Under Delaware corporate law, the directors of a corporation act in a fiduciary capacity and owe the duties of loyalty and due care to the corporation and its stockholders. Delaware corporate law entitles a stockholder to bring derivative actions against officers and directors of a corporation for breach of their fiduciary duty to the corporation and its stockholders or for other fraudulent misconduct, so long as the stockholder was a stockholder of the corporation at the time of the transaction in question or that he or she obtained the stock thereafter solely by operation of law. Delaware corporate law permits a corporation to adopt a provision in its certificate of incorporation eliminating the liability of a director to the corporation or its stockholders for monetary damages for breach of the director's fiduciary duty of care, except where the liability arises from: - a breach of the director's duty of loyalty to the corporation or its stockholders; - acts or omissions not in good faith, involving intentional misconduct or a knowing violation of law; - unlawfully paying a dividend, approving stock repurchases or redemptions; or - a transaction where the director derived an improper personal benefit. The new Delaware corporation's certificate of incorporation eliminates the liability of its directors to the fullest extent permissible under applicable law. The foregoing limitations on monetary damages have no effect, however, on the standard of care to which directors must conform or the availability of monetary damages. INDEMNIFICATION. Delaware corporate law generally provides that a corporation shall indemnify a director against all costs, charges and expenses actually and reasonably incurred by the director, including an amount paid to settle an action or satisfy a judgment in a civil, criminal or administrative action to which the director is a party by reason of his having been a director, provided that the director was acting in good faith. The indemnification permitted under Delaware corporate law does not differ substantially in nature or extent from that permitted under Alberta corporate law and currently provided for in the articles of incorporation and bylaws of the existing Alberta corporation. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or controlling persons, the SEC has indicated that this indemnification is against public policy as expressed in the Securities Act. After the Delaware domestication, we intend to enter into indemnification agreements with our directors and executive officers. See "Proposal Ten--Approval of Form Indemnification Agreement." CUMULATIVE VOTING FOR THE ELECTION OF DIRECTORS. Cumulative voting entitles each shareholder to cast a number of votes that is equal to the number of voting shares held by the shareholder multiplied by the total number of directors to be elected. Shareholders may cast these votes for one nominee or distribute the votes among up to as many candidates as there are positions to be filled. Without cumulative voting, a shareholder or group of shareholders must hold a majority of the voting shares to cause the election of one or more nominees. Cumulative voting enables a minority shareholder or group of shareholders holding a relatively small number of shares to elect a representative or representatives to the board of directors. Under Alberta corporate law and Delaware corporate law, cumulative voting is permitted only if provided for in a corporation's articles of incorporation or certificate of incorporation. Neither the existing Alberta corporation's articles of incorporation nor the new Delaware corporation's proposed certificate of incorporation provide for cumulative voting. 37 LOANS TO OFFICERS AND EMPLOYEES. Under Alberta corporate law, a corporation may give financial assistance to: - any person in the ordinary course of business if the lending of the money is part of the ordinary business of the corporation; - any person on account of expenditures incurred or to be incurred on behalf of the corporation; - to the corporation's holding company; - to the corporation's subsidiary; - to the corporation's (or its affiliates') employees for the purchase of a home; or - to the corporation's (or its affiliates') employees in accordance with a plan for the purchase of the corporation's shares to be held by a trustee; provided that (1) the corporation is not insolvent (or, in the case of a loan, would not be made insolvent by giving the loan) at the time it gives the financial assistance, and (2) the realizable value of the corporation's assets would not be less than the aggregate of its liabilities and stated capital after giving effect to the financial assistance. Under Delaware corporate law, a corporation may make loan subsidies (including loans to directors who are also officers or employees) when these loans, in the judgment of the directors, may reasonably be expected to benefit the corporation. DIVIDENDS AND REPURCHASES OF SHARES. Alberta corporate law prohibits a corporation from acquiring any of its own shares if the corporation is insolvent or would be rendered insolvent by the acquisition. The declaration and payment of dividends is regulated entirely by a corporation's articles of incorporation, which typically give the directors authority to declare dividends. Delaware corporate law permits a corporation to declare and pay dividends out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year. However, the amount of capital of the corporation following the declaration and payment of the dividend cannot be less than the aggregate amount of the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets. In addition, Delaware corporate law generally provides that a corporation may redeem or repurchase its shares only if the redemption or repurchase would not impair the capital of the corporation. INTERESTED DIRECTOR TRANSACTIONS. Under Alberta corporate law, transactions in which a director has an interest are valid if the transaction is fair and reasonable at the time it was entered into and, after full disclosure by the interested director, the transaction is approved by either a majority of (1) the directors not involved in the transaction at a meeting at which a quorum is present, or (2) the shareholders. If a director or officer fails to disclose his interest in a material transaction, a court may, on the application of the corporation or any of its shareholders, set aside the transaction. Under Delaware corporate law, if board approval is sought, then the transaction must be approved by a majority of the disinterested directors (even if the number of disinterested directors does not constitute a quorum). ANTI-TAKEOVER EFFECTS. Certain provisions of Delaware corporate law, of the new Delaware corporation's certificate of incorporation and bylaws, and the proposed amendments to the new Delaware corporation's certificate of incorporation and bylaws may have an anti-takeover effect. See Proposals Six through Nine and "Description of Capital Stock Change of Control Provisions." These provisions may delay, defer or prevent a hostile tender offer or takeover attempt that a stockholder might consider in his or her best interest, including those attempts that might result in the payment of an additional amount over the market price for the shares held by stockholders. Despite these anti-takeover implications, the proposals to be voted on at the annual and special meeting are not intended to prevent an acquisition of the existing Alberta corporation. We are not aware of any effort to accumulate the 38 existing Alberta corporation's securities or to obtain control of the existing Alberta corporation by means of a merger, tender offer or solicitation in opposition to management or otherwise. - DELAWARE ANTI-TAKEOVER LAW. Section 203 of the General Corporation Law of the State of Delaware applies to a Delaware corporation with a class of voting stock listed on a national securities exchange, authorized for quotation on an interdealer quotation system or held of record by 2,000 or more persons. In general, Section 203 prevents an "interested stockholder" (defined generally as any person owning 15% or more of a corporation's outstanding voting stock, including the person's affiliates and associates) from engaging in a "business combination" with a Delaware corporation for three years following the time the person became an interested stockholder, unless: - before the person became an interested stockholder, the board of directors approved the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; - upon consummation of the transactions which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding stock held by directors who are also officers of the corporation and by employee stock plans that do not provide employees with the rights to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or - at or subsequent to the time the person became an interested stockholder, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders by the affirmative vote of the holders of at least 66 2/3% of the outstanding voting stock of the corporation not owned by the interested stockholder. The restrictions described above do not apply to certain business combinations proposed by an interested stockholder following the announcement of one of certain extraordinary transactions involving the corporation and a person who had not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporation's directors. - SIZE OF THE BOARD OF DIRECTORS. Alberta corporate law provides that the board of directors may fix the exact number of directors within a stated range specified in the corporation's charter documents, if that stated range has been approved by the shareholders. Delaware corporate law permits the corporation to adopt a provision in its certificate of incorporation or bylaws authorizing the board of directors alone to change the authorized number or the range of directors by amendment to the bylaws. The new Delaware corporation's proposed certificate of incorporation provides that the number of directors will be as specified in its bylaws and authorizes the board of directors to make, alter, amend or repeal the bylaws. The ability of the board of directors to alter the size of the board of directors without stockholder approval will enable the new Delaware corporation to respond quickly to a potential opportunity to attract the services of a qualified director or to eliminate a vacancy for which a suitable candidate is not available. - ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS. Under Alberta corporate law, we must, not less than 42 days before a general meeting at which a director is to be elected, publish in a Calgary newspaper an advance notice of the record date of the meeting giving the date of the meeting. We must mail proxy solicitation materials to registered shareholders not less than 21 days before the meeting. Shareholders holding not less than 5% of the shares entitled to vote at a meeting may submit a written proposal to management of a corporation for the election of directors at least 90 days before the anniversary date of the previous annual meeting of shareholders. However, this requirement does not preclude shareholders from nominating directors at the annual meeting of shareholders. 39 If approved, Proposal Six will require that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual or a special meeting of stockholders, must provide timely notice of the proposal or nomination in writing. To be timely, a stockholder's notice will have to be delivered to, or mailed and received at, our principal executive offices: - for an annual meeting, not less than seventy days nor more than ninety days before the anniversary date of the immediately preceding annual meeting of stockholders, and - for a special meeting, not more than ninety days before the special meeting, and not less than the later of seventy days before the special meeting or ten days after the public announcement of the date of the meeting. Proposal Six also specifies certain requirements for a stockholder's notice to be in proper written form. These provisions may preclude some stockholders from bringing matters before the stockholders at an annual or special meeting or from making nominations for directors at an annual or special meeting. - SPECIAL MEETINGS OF SHAREHOLDERS. Alberta corporate law provides that the board of directors or the holders of 5% of the outstanding shares with a right to vote can call a special meeting. Under Delaware corporate law, a special meeting may be called by the board of directors or by any other person authorized to do so in the corporation's certificate of incorporation or bylaws. The new Delaware corporation's proposed bylaws authorize the board of directors or any stockholder or stockholders collectively representing 5% of the outstanding shares of common stock to call a special meeting. If Proposal Seven is approved, then only our board of directors will be authorized to call a special meeting of stockholders. See "Proposal Seven--Amendment to the New Delaware Corporation's Certificate of Incorporation and Bylaws to Prohibit Stockholders from Calling Special Meetings of the Stockholders." - SHAREHOLDER ACTION BY WRITTEN CONSENT. Under Alberta corporate law, a resolution in writing signed by all of the shareholders entitled to vote on that resolution is as valid as a vote taken at a meeting of shareholders. Under Delaware corporate law, a majority of stockholders entitled to vote on a proposal may execute an action by written consent instead of a stockholder meeting, unless this right is eliminated in the corporation's certificate of incorporation. If approved, Proposal Five will eliminate the stockholders' ability to act by written consent. Elimination of written consents of stockholders could lengthen the amount of time required to take stockholder actions, because certain actions by written consent are not subject to the minimum notice requirement of a stockholders meeting. The elimination of stockholders' written consents may deter, however, hostile takeover attempts by preventing a holder or group of holders controlling a majority in interest of a corporation's capital stock from amending the corporation's certificate of incorporation or bylaws or removing directors by means of a stockholder's written consent. - AMENDMENTS TO THE CERTIFICATE OF INCORPORATION AND BYLAWS. The existing Alberta corporation's articles of incorporation may be amended if approved by two-thirds of the votes cast at a shareholders meeting. Amendments to the existing Alberta corporation's bylaws, however, may be made by a simple majority of the votes cast. An amendment to the existing Alberta corporation's articles of incorporation becomes effective on the date shown in the certificate of amendment issued by the Registrar of Corporations for the Province of Alberta on receipt of the articles of amendment. Delaware corporate law provides that the vote of holders of a majority of the outstanding shares entitled to vote is required to alter, amend, change or repeal a corporation's certificate of incorporation, unless a greater vote is otherwise specified in the certificate of incorporation. If Proposal Nine is approved, then a two-thirds vote will be required to amend certain provisions of the new Delaware corporation's certificate of incorporation and bylaws. (See "Proposal Nine--Amendment to the New Delaware Corporation's Certificate of Incorporation and Bylaws to Require a Supermajority Vote to Amend Certain Provisions of the New Delaware Corporation's 40 Certificate of Incorporation and Bylaws"). This limitation on the ability of stockholders to amend the new Delaware corporation's charter documents may make a potential change in control of the new Delaware corporation a lengthier and more difficult process. See "Proposal Nine--Amendment to the New Delaware Corporation's Certificate of Incorporation and Bylaws to Require a Supermajority Vote to Amend Certain Provisions of the New Delaware Corporation's Certificate of Incorporation and Bylaws." REGULATORY APPROVAL The existing Alberta corporation will apply to the Registrar of Corporations for the Province of Alberta for permission to continue the existing Alberta corporation into the State of Delaware. This approval must be obtained for the Delaware domestication to take place. The existing Alberta corporation must also file a Certificate of Domestication with the Secretary of State of the State of Delaware. There are no other regulatory approvals necessary for consummation of the Delaware domestication. TAX CONSIDERATIONS The following sections summarize certain provisions of U.S. federal and Canadian federal income tax laws that may affect us and our shareholders. This summary applies to shareholders that are corporations or individuals resident in Canada or the United States who hold their shares as capital property. This summary generally does not apply to shareholders that are trusts, deferred income plans or similar entities. Although this summary discusses certain tax considerations that we deem material to your decision regarding Proposal Five, it does not discuss all of the U.S. federal and Canadian federal income tax consequences that may be relevant to you, nor will it apply to the same extent or in the same way to all shareholders. We provide no information with respect to the effect of any state, local or provincial tax law, rule or regulation, or any foreign tax law, other than the federal income tax law of Canada and the United States to the extent specifically described in this discussion. WE URGE YOU TO CONSULT WITH YOUR OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO YOU OF THE DELAWARE DOMESTICATION. We have not sought an advance tax ruling or interpretation from any tax authority with respect to any of the transactions discussed in this Proxy Statement and Information Circular. Consequently, the tax consequences to you could differ from the consequences discussed below. CANADIAN FEDERAL INCOME TAX CONSIDERATIONS. This discussion of potential tax consequences is included for general information only. It does not address the provincial, local or foreign tax aspects of the Delaware domestication. The following summary is based on: - provisions of the INCOME TAX ACT (Canada), as amended to date; - regulations related to the INCOME TAX ACT (Canada); - draft legislation amending the INCOME TAX ACT (Canada) and its related regulations that was released prior to the date of this Proxy Statement and Information Circular; - the Canada - U.S. Tax Convention, as amended to date; and - where applicable, our tax advisors' understanding of the current administrative practices and policies of the Canadian Department of National Revenue, Customs, Excise and Taxation. Changes to relevant Canadian federal income tax law could affect the opinions discussed in this Proxy Statement and Information Circular. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE DELAWARE DOMESTICATION TO YOU, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, PROVINCIAL, LOCAL AND FOREIGN TAX LAWS. 41 RESIDENTS OF CANADA. This discussion generally addresses certain Canadian federal income tax consequences of the Delaware domestication to shareholders residing in Canada that, within the meaning of the INCOME TAX ACT (Canada): - hold their shares of the existing Alberta corporation as "capital property;" and - deal at arm's length with the existing Alberta corporation. Your common shares generally will be considered "capital property" under Canadian tax law unless you: - are a trader or dealer in securities; or - hold the shares for a purpose other than investment. NON-DISSENTING SHAREHOLDERS. If you are a resident Canadian shareholder and do not dissent to the Delaware domestication, then you generally will not be considered to have disposed of your common shares as a result of the Delaware domestication. The adjusted cost base of your shares of the new Delaware corporation's stock will equal the adjusted cost base of your shares of the existing Alberta corporation immediately prior to the Delaware domestication. Upon the completion of the Delaware domestication, the shares of the new Delaware corporation's capital stock will constitute "foreign property" for purposes of deferred income plans in Canada, such as registered retirement savings plans. A Canadian deferred income plan may not hold more than 20% of its investments (based on original cost) in foreign property without incurring tax penalties. If you hold any shares of TomaHawk Corporation in a deferred income plan, then you should carefully review your foreign property limits and consult your tax advisors. If you are a Canadian resident, then you must include in your income for Canadian federal income tax purposes 100% of the Canadian dollar equivalent of the amount of any dividend that you receive from the new Delaware corporation at any time after the completion of the Delaware domestication. Dividends paid by the new Delaware corporation also would be subject to U.S. withholding tax. Depending on your particular circumstances, this withholding tax may or may not qualify for a credit against Canadian federal income tax or a deduction against Canadian taxable income. DISSENTING SHAREHOLDERS. If you dissent to the Delaware domestication and we complete the Delaware domestication, then you will be treated as if you had received a dividend equal to the amount of the excess, if any, of the amount deemed paid for your shares over the amount of the paid-up capital of your shares. Under Canadian tax law, an individual shareholder resident in Canada who dissents to the Delaware domestication is required to include as income 125% of the actual amount of this dividend and is entitled to claim a dividend tax credit equal to 13.33% of the grossed up amount in calculating Canadian federal income tax payable. A private corporation resident in Canada would be subject to a tax of 33 1/3% to the extent that the amount received for the shares exceeds the paid-up capital of the shares, provided that you did not own more than 10% of the common shares at the time of the Delaware domestication. A private corporation will receive a tax refund with respect to dividends received from the new Delaware corporation equal to $1 for each $3 in dividends received, so long as the private corporation passes the dividends through to its shareholders. In addition to the deemed dividend discussed above, you will be considered to have disposed of your shares for "proceeds of disposition" equal to the paid-up capital of your shares on the deemed sale of your shares. If these proceeds exceed the adjusted cost base of your shares, then you will realize a capital gain. Under Canadian tax law, three-fourths of this capital gain will be included in income for Canadian tax purposes in the year that you exercise your right of dissent. If the proceeds are less than the adjusted cost base of your shares, then you will incur a capital loss. Under Canadian tax law, three-fourths of this 42 capital loss can be used to offset current year capital gains. If the capital loss exceeds current year capital gains, then any excess can be carried back three years or forward indefinitely to offset capital gains in those periods. If the adjusted cost base of your shares is equal to the paid-up capital of the shares, then you will not realize any capital gain or loss. SHAREHOLDERS NOT RESIDENT IN CANADA. The following summary generally applies to you if you: - are not a resident of Canada; - do not use or hold or are not deemed to use or hold your shares in carrying on a business in Canada, including a life insurance business; - deal at arm's length with the existing Alberta corporation; and - hold your shares as capital property. NON-DISSENTING SHAREHOLDERS. If you do not dissent to the Delaware domestication, then, upon the completion of the Delaware domestication, you generally will not be considered to have disposed of your common shares as a result of the Delaware domestication. The adjusted cost base of your shares of the new Delaware corporation's stock will equal the adjusted cost base of your shares of the existing Alberta corporation immediately prior to the Delaware domestication. Any dividends that you receive from the new Delaware corporation after the Delaware domestication will not be subject to Canadian federal income tax. DISSENTING SHAREHOLDERS. If you dissent to the Delaware domestication and we complete the Delaware domestication, then you will be treated as if you had received a dividend from the deemed purchase of your shares equal to the amount of the excess, if any, of the amount paid for your shares over the amount of the paid-up capital of your shares. You then will be subject to Canadian withholding tax of 25% of the amount of the dividend. The withholding tax rate may be reduced pursuant to the terms of an applicable tax treaty. Under the Canada - U.S. Tax Convention, for example, the applicable withholding tax rate would be: - 15% of the amount of the dividend for dividends paid to individuals or corporate shareholders owning less than 10% of the existing Alberta corporation's outstanding voting shares; or - 5% of the amount of the dividend for corporate shareholders owning more than 10% of the existing Alberta corporation's outstanding voting shares. Depending on your particular circumstances, the tax withheld may or may not qualify for a credit against income tax or a deduction against taxable income in your jurisdiction of taxation. As a dissenting shareholder who is not a Canadian resident, any capital gains that you realized as a result of the Delaware domestication are only subject to Canadian federal income taxation if the shares constitute "taxable Canadian property" to you. The common shares generally will not constitute "taxable Canadian property," as defined by the INCOME TAX ACT (Canada), to a dissenting shareholder who is not a Canadian resident, unless at any time within the five years preceding the disposition of the shares: - you, together with any other person or entity not dealing at arm's length with you, owned and/or had options to acquire 25% or more of the issued shares of any class of series of capital stock of the existing Alberta corporation; - you, upon ceasing to be a resident of Canada, elected under the INCOME TAX ACT (Canada) to have the existing Alberta corporation's shares treated as "taxable Canadian property;" or 43 - the shares of the existing Alberta corporation were acquired in circumstances in which they were deemed to be taxable Canadian property. CANADIAN FEDERAL INCOME TAX CONSEQUENCES TO THE EXISTING ALBERTA CORPORATION. If we proceed with the Delaware domestication, then the existing Alberta corporation will be deemed to have: - a year end immediately prior to the Delaware domestication; - disposed of each of its assets for an amount equal to the fair market value of the assets; and - immediately reacquired each of its assets at a cost equal to the fair market value of the assets. The deemed disposition of assets may give rise to income or loss, or capital gains or capital losses depending on whether the fair market value of the assets are greater than or less than their cost or adjusted cost base. The resulting net income or loss and three-fourths of the net capital gains will be included in computing the existing Alberta corporation's taxable income for the fiscal period ending immediately prior to the Delaware domestication. If the amounts included in computing the existing Alberta corporation's taxable income exceed available deductions, then the excess amount will be subject to Canadian tax at an effective rate of 39%. In addition, a 25% exit tax generally will apply to the amount by which the aggregate fair market value of the existing Alberta corporation's assets immediately prior to the Delaware domestication exceeds the aggregate of its liabilities (including liability for income tax for our taxable year ending immediately prior to the Delaware domestication) and its paid-up capital of all of its issued and outstanding shares, excluding the paid-up capital in respect of all dissenting shareholders whose shares have been redeemed. The general tax rate of 25% is reduced to 5% pursuant to the Canada - U.S. Tax Convention. This exit tax is payable by the existing Alberta corporation within six months after the end of the taxable year ending immediately prior to the Delaware domestication. Upon the completion of the Delaware domestication, the existing Alberta corporation will be deemed to have been incorporated in Delaware for Canadian federal income tax purposes and generally will be subject to federal income tax in Canada for: - business income attributable to a permanent establishment in Canada; - gains realized on disposition of taxable Canadian property; and - withholding tax in respect of Canadian source passive income such as dividends and interest. CONSEQUENCES OF THE ONE-FOR-FIFTEEN COMMON SHARE CONSOLIDATION. The one-for-fifteen common share consolidation will not result in a disposition of your common shares for income tax purposes under Canadian tax law. However, you will not realize any capital gain or capital loss as a result of the common share consolidation as your proceeds of disposition are deemed to equal your adjusted cost base. After the common share consolidation is effected, the adjusted cost base and paid-up capital of your common shares will be equal to the aggregate adjusted cost base and paid-up capital of your pre-consolidated common shares divided by the new number of common shares. UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS. This discussion of potential tax consequences is included for general information only. It does not address the state, local or foreign tax aspects of the Delaware domestication. The discussion is based on: - currently existing provisions of the U.S. Internal Revenue Code; - existing and proposed treasury regulations relating to the U.S. Internal Revenue Code; and 44 - current administrative rulings and court decisions. Changes to relevant law could affect the validity of this discussion. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE DELAWARE DOMESTICATION TO YOU, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS. This discussion does not address certain U.S. federal income tax consequences applicable to U.S. shareholders who own or owned (directly or indirectly) 10% or more of the voting power of the existing Alberta corporation at any time during the five-year period ending on the date when the Delaware domestication is completed. RESIDENTS OF THE UNITED STATES. This discussion generally addresses certain U.S. federal income tax consequences of the Delaware domestication to shareholders residing in the United States. The Delaware domestication will be treated for U.S. federal income tax purposes as a transfer by the existing Alberta Corporation of all of its assets and liabilities to the new Delaware corporation in exchange for stock of the new Delaware corporation. The existing Alberta corporation then will be deemed to distribute this stock of the new Delaware corporation to its shareholders. NON-DISSENTING SHAREHOLDERS. If you do not dissent to the Delaware domestication, then you will not realize any capital gain or loss from the deemed transfer of shares of the existing Alberta corporation for stock of the new Delaware corporation, assuming that: - the existing Alberta corporation has not been a controlled foreign corporation, as defined by U.S. tax law, at any time during the five years ending on the date of the Delaware domestication; - certain proposed regulations (which, if finalized at least 30 days before the domestication, would require you to recognize gain realized on the exchange) are not effective as of the date of the Delaware domestication; - the existing Alberta corporation is not a passive foreign investment corporation; and - you file the appropriate notice with the U.S. Internal Revenue Service. Our tax advisor, Ernst & Young LLP, has not made any determination as to whether the existing Alberta corporation is, or has ever been, a controlled foreign corporation or a passive foreign investment corporation. Your basis in the stock of the new Delaware corporation that you receive after the Delaware domestication generally will be equal to your basis in the shares of the existing Alberta corporation prior to the Delaware domestication, increased by any income (e.g., deemed dividends) or gain that you recognize as a result of the Delaware domestication. Generally, if you do not dissent to the Delaware domestication, then you will have a holding period for the stock of the new Delaware corporation that you receive after the Delaware domestication equal to your holding period for the shares of the existing Alberta corporation immediately prior to the Delaware domestication. DISSENTING SHAREHOLDERS. If you dissent to the Delaware domestication, then you generally will be treated as having received cash in redemption of your shares. As a result, you may have to recognize capital gain or loss or ordinary income as a result of the Delaware domestication. YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR AS TO THE SPECIFIC U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DELAWARE DOMESTICATION TO YOU. 45 SHAREHOLDERS NOT RESIDENT IN THE UNITED STATES. The following summary generally applies to you if you do not reside in the United States and hold your shares as a capital asset. The Delaware domestication will be treated for U.S. federal income tax purposes as a transfer by the existing Alberta Corporation of all of its assets and liabilities to the new Delaware corporation in exchange for stock of the new Delaware corporation. The existing Alberta corporation will then be deemed to liquidate and distribute the stock of the new Delaware corporation to its shareholders. NON-DISSENTING SHAREHOLDERS. If you are not a U.S. resident and you do not dissent to the Delaware domestication, then you will not recognize any gain or loss from the deemed receipt of shares of the new Delaware corporation's common stock solely in exchange for your common shares. Generally, if you are not a U.S. resident and you do not dissent to the Delaware domestication, then you will have a basis in the stock of the new Delaware corporation that you receive after the Delaware domestication equal to your basis in the shares of the existing Alberta corporation prior to the Delaware domestication. DISSENTING SHAREHOLDERS. If you dissent to the Delaware domestication and you are subject to U.S. federal income tax, then you generally will be treated as having received cash in redemption of your shares. As a result, you may have to recognize capital gain or loss or ordinary income as a result of the Delaware domestication. You should consult with your own tax advisor as to the specific U.S. federal income tax consequences of the Delaware domestication to you. U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE EXISTING ALBERTA CORPORATION. The Delaware domestication will be treated as an exchange by the existing Alberta corporation of its assets and its liabilities for stock of the new Delaware corporation and will constitute a tax-free reorganization under the U.S. Internal Revenue Code. As a result, the existing Alberta corporation will not recognize any gain or loss from the deemed transfer of its assets to the new Delaware corporation, and the new Delaware corporation will not recognize any gain or loss. The new Delaware corporation's basis in and holding period of the assets of the existing Alberta corporation after the Delaware domestication will be the same as the existing Alberta corporation's basis in and holding period of its assets prior to the Delaware domestication. The taxable year of the existing Alberta corporation will end on the date when the Delaware domestication is completed. The new Delaware corporation's first taxable year will begin on the day after the Delaware domestication is completed and will end on December 31, 1999. CONSEQUENCES OF THE ONE-FOR-FIFTEEN COMMON SHARE CONSOLIDATION. Our tax advisors, Ernst & Young LLP, believe that under existing U.S. federal income tax laws and regulations, the one-for-fifteen consolidation of the common shares will constitute a recapitalization and, therefore, a tax-free reorganization under the U.S. Internal Revenue Code. As a result, no gain or loss will be recognized by the existing Alberta corporation from the common share consolidation. Generally, no gain or loss will be recognized by the exchanging shareholders from the common share consolidation. Your aggregate basis in your common shares after the common share consolidation will be equal to your aggregate basis in your pre-consolidation common shares. This aggregate basis must be allocated pro rata among the number of common shares that you own after the common share consolidation. The holding period for your common shares after the common share consolidation will include the holding period for your pre-consolidation common shares, provided that your common shares are held as a capital asset on the date of the common share consolidation. This holding period must be allocated pro rata among the common shares that you own immediately following the common share consolidation. For example, if before the common share consolidation you had held 15 common shares for one month and 15 46 common shares for two years, then, after the common share consolidation, you would hold two shares of common stock, each with a holding period as follows: - 50% of each share will have a one month holding period; and - 50% of each share will have a two year holding period. RIGHT OF DISSENT GENERAL. The following description of the right of shareholders to dissent to the Delaware domestication is not a comprehensive statement of the procedures to be followed by a dissenting shareholder who seeks payment of the fair value of his common shares or Class A Series III Preferred Shares. This description is qualified in its entirety by the reference to the full text of Section 184 of the BUSINESS CORPORATIONS ACT (Alberta) which is attached to this Proxy Statement and Information Circular as APPENDIX I. The statutory provisions covering the right of dissent and appraisal are technical and complex. IF YOU WISH TO EXERCISE YOUR RIGHT OF DISSENT AND APPRAISAL IN RESPECT OF THE DELAWARE DOMESTICATION, THEN YOU SHOULD SEEK YOUR OWN LEGAL ADVICE, AS FAILURE TO COMPLY STRICTLY WITH THE PROVISIONS OF SECTION 184 OF THE BUSINESS CORPORATIONS ACT (ALBERTA) MAY RESULT IN A LOSS OF ALL RIGHTS THEREUNDER. If the number of shareholders exercising their right of dissent could adversely affect our financial condition, then our board of directors may abandon the Delaware domestication. FAIR MARKET VALUATION. You are entitled to dissent and to have us pay to you the fair value of your common shares or Class A Series III Preferred Shares, determined as of the close of business on the last business day before the annual and special meeting. VALUATION BY APPLICATION TO COURT. If the Delaware domestication is passed, then either a shareholder or the existing Alberta corporation may apply to the Court of Queen's Bench of Alberta, Canada (the "Court") to fix the fair value of your shares. If an application is made to the Court, unless the Court otherwise orders, then we must send to each dissenting shareholder a written offer to pay to the dissenting shareholder an amount considered by the existing Alberta corporation to be the fair value of the shares. The offer to each dissenting shareholder must be on the same terms and contain or be accompanied by a statement showing how the fair value was determined. If you choose to dissent, then you may enter into an agreement with us for the purchase of your common shares or Class A Series III Preferred Shares, in the amount offered by us or otherwise, at any time before the Court pronounces an order fixing the fair value of the common shares or the Class A Series III Preferred Shares. On an application under Section 184 of the BUSINESS CORPORATION ACT (Alberta), the Court must make an order fixing the fair value of the shares of all dissenting shareholders, giving judgment in that amount against us and in favor of each dissenting shareholder, and fixing the time within which we must pay each dissenting shareholder. The Court may allow a reasonable rate of interest on the amount payable to each dissenting shareholder from the date on which the dissenting shareholder ceases to have any rights as a shareholder of the existing Alberta corporation until the date of payment. RESTRICTIONS ON RIGHT OF DISSENT. You are not entitled to dissent with respect to any shares if you vote (or instruct or are deemed, by submission of an incomplete proxy, to have instructed a proxyholder to vote) any shares in favor of the Delaware domestication, but you may abstain from voting on the Delaware domestication (or submitting a proxy) without affecting your right of dissent. You may dissent only with respect to the common shares or Class A Series III Preferred Shares that you hold on your own behalf or on behalf of any one beneficial owner and registered in your name. IF YOU ARE A BENEFICIAL OWNER OF COMMON SHARES OR CLASS A SERIES III PREFERRED SHARES REGISTERED IN THE NAME OF A BROKER, CUSTODIAN, NOMINEE OR OTHER INTERMEDIARY AND YOU WISH TO DISSENT, THEN YOU SHOULD BE AWARE THAT ONLY THE REGISTERED OWNER OF THE SHARES IS ENTITLED TO DISSENT. ACCORDINGLY, IF YOU WANT TO EXERCISE YOUR RIGHT TO DISSENT, THEN YOU MUST MAKE ARRANGEMENTS FOR THE COMMON SHARES OR CLASS A SERIES III PREFERRED SHARES THAT YOU BENEFICIALLY OWN TO BE REGISTERED IN YOUR NAME BEFORE THE TIME THAT WE MUST RECEIVE THE WRITTEN 47 OBJECTION TO THE DELAWARE DOMESTICATION OR, ALTERNATIVELY, YOU MUST MAKE ARRANGEMENTS FOR THE REGISTERED HOLDER OF YOUR COMMON SHARES OR CLASS A SERIES III PREFERRED SHARES TO DISSENT ON YOUR BEHALF. ACTION REQUIRED TO EXERCISE RIGHT OF DISSENT. If you choose to dissent, then you must send us a written objection to the Delaware domestication, which must be received by our president, Steven M. Caira, at our registered office, 1400, 350-7th Avenue S.W., Calgary, Alberta, Canada T2P 3N9 or the chairman of the annual and special meeting at or before the annual and special meeting. A vote against the Delaware domestication, an abstention or the execution of a proxy to vote against the Delaware domestication does not constitute the required written objection, but you need not vote your shares against the Delaware domestication to dissent. If you dissent to the Delaware domestication, then you are not required to give security for costs in respect of an application to the Court to fix the fair value of your shares, and, except in special circumstances, you will not be required to pay the costs of the application or appraisal. RIGHTS OF DISSENTING SHAREHOLDERS. A dissenting shareholder does not have any rights as a shareholder, other than the right to be paid the fair value of his or her shares, on the earliest of: - the effective date of the Delaware domestication; - the making of an agreement between the existing Alberta corporation and the dissenting shareholder as to the payment to be made for the dissenting shareholder's shares; or - the pronouncement of the order of the Court fixing the fair value of the shares. Until any of the foregoing events occur, a dissenting shareholder may withdraw his dissent or we may rescind the Delaware domestication. In either event, proceedings under Section 184 will automatically terminate. We will not make a payment to a dissenting shareholder under Section 184 if there are reasonable grounds for believing that we are, or would after the payment be, unable to pay our liabilities as they become due, or that the realizable value of our assets would thereby be less than the aggregate of our liabilities. If this situation occurs, then we will notify each dissenting shareholder that we are unable lawfully to pay the dissenting shareholder for its shares, in which case the dissenting shareholder may, by written notice to us within 30 days after receipt of this notice, withdraw its written notice of dissent. In this case, we would be deemed to have consented to the withdrawal and the shareholder would be reinstated to its full rights as a shareholder of the existing Alberta corporation. The above summary does not provide a comprehensive statement of the procedures that you must follow to receive payment of the fair value of your shares. IF YOU WISH TO EXERCISE YOUR RIGHT OF DISSENT AND APPRAISAL IN RESPECT OF THE DELAWARE DOMESTICATION, THEN YOU SHOULD SEEK YOUR OWN LEGAL ADVICE, AS FAILURE TO COMPLY STRICTLY WITH THE PROVISIONS OF SECTION 184 OF THE BUSINESS CORPORATIONS ACT (ALBERTA) MAY RESULT IN A LOSS OF ALL RIGHTS THEREUNDER. 48 SECURITIES LAW CONSEQUENCES UNITED STATES SECURITIES LAW CONSEQUENCES. Unless you are deemed to be an "affiliate" (as defined under the Securities Act) of the existing Alberta corporation before the Delaware domestication, then all of the shares of common stock that you receive in the Delaware domestication will be freely transferable, except as described under "Canadian Securities Law Consequences" below. If you are an affiliate of the existing Alberta corporation, then you may resell your shares only in accordance with the resale provisions of Rule 144 promulgated, or as otherwise permitted, under the Securities Act. Persons who may be deemed to be affiliates of the existing Alberta corporation generally include individuals or entities that control, are controlled by, or are under common control with, the existing Alberta corporation and may include certain officers and directors of the existing Alberta corporation as well as principal shareholders of the party or persons who hold restricted shares. CANADIAN SECURITIES LAW CONSEQUENCES. If you are a Canadian resident, then the shares of common stock or Class A Preferred Stock that you receive after the Delaware domestication will continue to be subject to any applicable resale restrictions imposed by the securities laws of the province of Canada in which you are resident. EXCHANGE OF SHARE CERTIFICATES Following the effective date of the Delaware domestication, existing holders of common shares will become holders of shares of the new Delaware corporation's common stock and existing holders of the Class A Series III Preferred Shares will become holders of shares of the new Delaware corporation's Class A Preferred Stock. This conversion will occur regardless of when the certificates formerly representing common shares or Class A Series III Preferred Shares are surrendered. Shortly after the effective date of the Delaware domestication, we will provide each of the holders of common shares with a letter of transmittal containing instructions on how to exchange certificates formerly representing common shares for certificates representing shares of common stock. Upon our receipt of this letter of transmittal and the certificate(s) formerly representing common shares, we will issue a certificate representing the appropriate number of shares of common stock. We will provide a similar letter to each holder of Class A Series III Preferred Shares. THE DELAWARE DOMESTICATION RESOLUTION Based on the foregoing discussion, our board of directors has approved and believes that it is in the best interests of the existing Alberta corporation and its shareholders to domesticate the existing Alberta corporation into the State of Delaware. To reduce the franchise fees payable to the Delaware corporate authorities following the Delaware domestication, our board of directors believes that it is in our best interests and the best interests of our shareholders to alter our authorized capital from: - an unlimited number of common shares without par value; - an unlimited number of Class "B" non-voting common shares; and - an unlimited number of preferred shares without par value (of which a first series of preferred shares consisting of 100,000 shares without par value have been created, designated as 6% non-cumulative redeemable retractable first preferred shares, Series A and an unlimited number of Class A Series I, Series II and Series III Preferred Shares have been created); to (after giving effect to the common share consolidation): - 20,000,000 shares of common stock, par value of US $0.001 per share; - 750,000 shares of Class A Preferred Stock, par value of US $0.001 per share; and - 750,000 shares of preferred stock, par value of US $0.001 per share. If the shareholders approve this proposal, then, before completing the Delaware domestication and subject to approval by The Alberta Stock Exchange, we will effect a one-for-fifteen consolidation of the common shares 49 and corresponding name change whereby the existing Alberta corporation will be renamed TomaHawk Engineering, Inc. Our shareholders authorized this common share consolidation and name change on September 22, 1998. Accordingly, you will be asked at the annual and special meeting to approve the following resolution changing our jurisdiction of incorporation from Alberta to Delaware, altering our authorized share capital and approving a new certificate of incorporation and bylaws, in substantially the following terms: "BE IT RESOLVED AS A SPECIAL RESOLUTION THAT: 1. the continuance of the Company out of the jurisdiction of the BUSINESS CORPORATIONS ACT (Alberta) to the State of Delaware pursuant to Section 388 of the General Corporation Law of the State of Delaware be and is hereby approved; 2. the Company obtain the approval of the Registrar appointed under the BUSINESS CORPORATIONS ACT (Alberta) that the Company be permitted to continue into and be registered as a "Corporation" in the State of Delaware pursuant to the General Corporation Law of the State of Delaware; 3. the Company make application to the appropriate authorities in the State of Delaware for consent to be domesticated into and registered as a "Corporation" pursuant to the General Corporation Law of the State of Delaware; 4. effective on the date of domestication of the Company under the General Corporation Law of the State of Delaware and after giving effect to the one-for-fifteen common share consolidation (the "Share Consolidation"), the authorized share capital of the Company be reconstituted as 20,000,000 shares of common stock, each with a par value of US $0.001 per share, 750,000 shares of preferred stock, each with a par value of US $0.001 per share, and 750,000 shares of Class A Preferred Stock, each with a par value of US $0.001 per share, all having the rights, privileges, restrictions and conditions as set forth in APPENDIX II attached to the Proxy Statement and Information Circular (the "Information Circular") of the Company dated __________, 1999; 5. effective on the date of domestication of the Company under the General Corporation Law of the State of Delaware, the Company's issued and outstanding common shares shall each be replaced with a share of common stock with a par value of US $0.001 per share having the rights, privileges, restrictions and conditions as set forth in APPENDIX II attached to the Information Circular and each issued and outstanding Class A Series III Preferred Share of the Company shall be replaced with a share of Class A Preferred Stock having the rights, privileges and restrictions and conditions as set forth in APPENDIX II to the Information Circular; 6. effective on the date of domestication of the Company under the General Corporation Law of the State of Delaware, the Company adopt in substitution for its existing Articles of Incorporation and Bylaws a Certificate of Incorporation and Bylaws in the form attached as APPENDIX II and APPENDIX III, respectively, to the Proxy Statement and Information Circular, with such amendments thereto as the director or officer executing the same may approve, such approval to be conclusively evidenced by his signature thereto; 7. any of the directors or officers of the Company is hereby authorized to make such applications, execute such documents, and do such further and other acts and things as may be necessary or advisable in connection with the foregoing; and 8. the directors of the Corporation may abandon the domestication application without further approval of the shareholders at any time prior to the Company's registration as a "Corporation" pursuant to the General Corporation Law of the State of Delaware." 50 VOTE REQUIRED The Delaware domestication requires the approval of two-thirds of the votes cast by the holders of common shares and Class A Series III Preferred Shares present or represented by proxy and voting as one class at the annual and special meeting on this proposal. Under Alberta corporate law, abstentions and broker non-votes are not counted as for purposes of determining the presence or absence of a quorum for the transaction of business, and are not counted as votes cast. Accordingly, abstentions and broker non-votes with respect to this proposal will not be considered and will not be counted in determining whether this proposal passes. Our board of directors has approved unanimously the Delaware domestication of the existing Alberta corporation under the provisions of Section 182 of the BUSINESS CORPORATIONS ACT (Alberta) and Section 388 of the General Corporation Law of the State of Delaware and recommends that you vote "FOR" the Delaware domestication. 51 PROPOSAL SIX AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS TO REQUIRE ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND PROPOSALS GENERAL The new Delaware corporation's certificate of incorporation (attached hereto as APPENDIX II) and bylaws (attached hereto as APPENDIX III) do not currently provide for the timing of any notice that stockholders must give to us before they may nominate a candidate for the board of directors or make a proposal to be voted on at an annual stockholders meeting. Our board of directors therefore has adopted, subject to stockholder approval, proposed amendments to the new Delaware corporation's certificate of incorporation and bylaws that will provide a detailed notice procedure for stockholder nominations of candidates for election as directors and stockholder proposals to be brought before an annual meeting of stockholders. If this proposal is approved, then: - only persons who are nominated by or at the direction of our board of directors, or by a stockholder who has given timely prior written notice to our secretary before the meeting at which directors are to be elected, will be eligible for election as directors; and - stockholder proposals must be submitted in writing in a timely manner to be considered at any annual meeting. If this proposal is approved, then, in order to be considered timely, a stockholder must deliver his notice for director nominations or stockholder proposals to us: - for an annual meeting, not less than seventy days nor more than ninety days before the anniversary date of the immediately preceding annual meeting of stockholders, and - for a special meeting, not more than ninety days before the special meeting, and not less than the later of seventy days before the special meeting or ten days after the public announcement of the date of the meeting. If this proposal is approved, then notice from a stockholder who proposes to nominate a person at a meeting for election as a director must contain the following information about the nominee: - age; - business and residence addresses; - principal occupation; - the class and number of shares of common stock or other capital stock beneficially owned; - the consent of the person to be nominated; and - any other information required to be included in a proxy statement soliciting proxies for the election of the proposed nominee. The nominating stockholder must also disclose his name, address, and the number of shares of stock that he owns. If this proposal is approved, then notice relating to a stockholder proposal must contain certain information about the proposal and the stockholder making the proposal, including a brief description of the proposal, the proposing stockholder's name and address, and the number of shares of stock that the proposing stockholder owns. 52 REASONS FOR STOCKHOLDER APPROVAL By requiring advance notice of director nominations by stockholders, our board of directors will have a meaningful opportunity to consider the qualifications of the proposed nominees and, if deemed necessary or desirable by our board of directors, to inform stockholders about the qualifications of the proposed nominees. Similarly, by requiring advance notice of stockholder proposals, our board of directors will have a more orderly procedure for conducting annual meetings of stockholders and a meaningful opportunity to analyze the proposals and to decide whether it is appropriate to either omit the proposal or inform our stockholders, before these meetings, of any proposal to be introduced at these meetings. The advance notice requirement also allows our board of directors to weigh the merits of the proposal and prepare an analysis and a recommendation for our stockholders to consider. Finally, these procedures will give stockholders sufficient time to determine whether they desire to attend the annual meeting of stockholders, or whether they wish to grant a proxy to our management as to the disposition of any stockholder proposals. POTENTIAL ANTI-TAKEOVER EFFECTS Although the proposed amendments do not give our board of directors any power to approve or disapprove stockholder nominations or proposals, they may discourage or make it more difficult to bring a nomination or proposal to a vote. The proposed amendments also may discourage a stockholder from conducting a solicitation of proxies to elect his own slate of directors or otherwise attempting to obtain control of the new Delaware corporation, even though this action might be beneficial to the new Delaware corporation and our stockholders. For these reasons, this proposal may have an anti-takeover effect, particularly when combined with Seven through Nine. Our board of directors nonetheless believes that it is important that it give advance notice of and consideration to any stockholder nominations or proposals and that stockholders have the opportunity to consider carefully any matters that may affect their rights. In addition, our board of directors believes that the proposed amendments will help assure the continuity and stability of our business and reduce our vulnerability to unsolicited takeover proposals that could curtail our board of directors ability to negotiate effectively on behalf of all of our stockholders. See "Proposal Five--Domestication into the State of Delaware--Corporate Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover Effects." While they may be deemed to have potential anti-takeover effects, the proposed amendments are not prompted by any specific effort or takeover threat that we currently perceive. We presently are not aware of any attempt to take over or acquire the existing Alberta corporation or to remove our incumbent management. THE PROPOSED AMENDMENTS If the stockholders approve this Proposal Six, then our board of directors will amend the new Delaware corporation's certificate of incorporation by adding the following section after Article SIXTH, Section (5): "(6) Advance notice of stockholder nominations for the election of directors and proposals to be voted on at stockholder meetings shall be given in the manner provided in the bylaws of the Corporation." If the stockholders approve this Proposal Six, then our board of directors also will amend the new Delaware corporation's bylaws by adding the following section after Section 1.12: "Section 1.13. STOCKHOLDER NOMINATIONS AND PROPOSALS (A) ANNUAL MEETINGS OF STOCKHOLDERS. (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the Corporation's notice of meeting delivered pursuant to Section 1.3 of these bylaws, (b) by or at the direction of the Chairman or the Board of 53 Directors or (c) by any stockholder of the Corporation who is entitled to vote at the meeting, who complied with the notice procedures set forth in clauses (2) and (3) of this paragraph (A) of this bylaw and who was a stockholder of record at the time such notice is delivered to the Secretary of the Corporation. (2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of this bylaw, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than seventy days nor more than ninety days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than twenty days, or delayed by more than seventy days, from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the ninetieth day prior to such annual meeting and not later than the close of business on the later of the seventieth day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth: (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation that are owned beneficially and of record by such stockholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this bylaw to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least eighty days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation. (B) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting pursuant to Section 1.3 of these bylaws. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is entitled to vote at the meeting, who complies with the notice procedures set forth in this bylaw and who is a stockholder of record at the time such notice is delivered to the Secretary of the Corporation. Nominations by stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice as required by paragraph (A)(2) of this bylaw shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the ninetieth day prior to such special 54 meeting and not later than the close of business on the later of the seventieth day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above. (C) GENERAL. (1) Only persons who are nominated in accordance with the procedures set forth in this bylaw shall be eligible to serve as director and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this bylaw. Except as otherwise provided by law, the Certificate of Incorporation or these bylaws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this bylaw and, if any proposed nomination or business is not in compliance with this bylaw, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this bylaw, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this bylaw, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this bylaw. Nothing in this bylaw shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act." VOTE REQUIRED The approval of the proposed amendments to the new Delaware corporation's certificate of incorporation and bylaws to require advance notice of stockholder nominations and proposals requires the affirmative vote of a majority of all outstanding shares of common stock as of ___________, 1999, the record date. Under Delaware law, we will count abstentions and broker non-votes to determine the presence or absence of a quorum for the transaction of business, but we will not count them as votes cast. Accordingly, abstentions and broker non-votes will have the effect of votes against the proposal. Our board of directors has unanimously approved and recommends that you vote "FOR" the adoption of the proposed amendments to the new Delaware corporation's certificate of incorporation and bylaws to require advance notice of stockholder nominations and proposals to be voted on at annual meetings of stockholders. 55 PROPOSAL SEVEN AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS TO PROHIBIT STOCKHOLDERS FROM CALLING SPECIAL MEETINGS OF THE STOCKHOLDERS GENERAL The bylaws of the new Delaware corporation currently provide that our board of directors or holders of at least 5% of the outstanding shares of common stock may call special meetings of the stockholders. Our board of directors has adopted, subject to stockholder approval, amendments to the new Delaware corporation's certificate of incorporation and bylaws to prohibit our stockholders from calling a special meeting of stockholders. If this proposal is approved, then only our board of directors will be permitted to call a special meeting of stockholders. REASONS FOR STOCKHOLDER APPROVAL If approved, this proposal will prevent stockholders from forcing stockholder consideration of a proposal over the opposition of our board of directors by calling a special meeting of stockholders before the next annual meeting. In addition, a stockholder will not have the ability to force stockholder consideration of a proposal over the opposition of our board of directors by calling a special meeting of stockholders earlier than our board believes to be appropriate. As a result, the proposed amendments will enable our board of directors to conduct stockholder meetings in an orderly manner and to adequately inform stockholders of the matters to be considered at any special meeting of stockholders. This proposed amendment, in conjunction with Proposals Six, Eight and Nine, is intended to protect against attempts to acquire control of the new Delaware corporation by coercive and unfair practices that do not treat all shareholders equally. For example, an acquiror may propose a two-tiered takeover bid that forces stockholders to sell or risk receiving an even lower price in the second step of the transaction. The acquiror also may use the threat of a proxy fight and/or a takeover bid as a means of forcing the new Delaware corporation to repurchase the acquiror's shares at a substantial premium over the market price. By preventing the stockholders from calling a special meeting, this proposed amendment is intended to encourage potential acquirors to negotiate with our board of directors before making a takeover bid. These negotiations should provide our board of directors with the time it needs to evaluate any takeover proposal and to review alternatives with a goal of maximizing value for all of our stockholders. If these negotiations produce a proposal that our board of directors believes is fair to all of our stockholders, then our board of directors will call a special meeting to vote on the takeover proposal. POTENTIAL ANTI-TAKEOVER EFFECTS If this proposal is approved, then it may discourage or make it more difficult to attempt to take control of the new Delaware corporation, even though this action might be beneficial to the new Delaware corporation and our stockholders. Potential acquirors would be forced to wait for the next annual meeting to attempt a takeover. This proposal therefore may have an anti-takeover effect, particularly when combined with Proposals Six, Eight and Nine. See "Proposal Five--Domestication into the State of Delaware--Corporate Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover Effects--Special Meetings of Shareholders." While it may be deemed to have potential anti-takeover effects, the proposed amendments are not prompted by any specific effort or takeover threat that we currently perceive. We presently are not aware of any attempt to take over or acquire the existing Alberta corporation or to remove our incumbent management. 56 THE PROPOSED AMENDMENTS If the stockholders approve this Proposal Seven, then our board of directors will amend the new Delaware corporation's certificate of incorporation by adding the following section after Article SIXTH, Section (6): "(7) Special meetings of stockholders may be called only by the Board of Directors, and may not be called by any other person or persons." If the stockholders approve this Proposal Seven, then our board of directors also will amend the new Delaware corporation's bylaws by deleting the phrase "or by holders of shares of Common Stock of the Corporation representing 5% of the outstanding shares" from the first sentence of Section 1.2, and adding the phrase "but such special meetings may not be called by any other person or persons." VOTE REQUIRED The approval of the proposed amendments to the new Delaware corporation's certificate of incorporation and bylaws to prohibit stockholders from calling special meetings of stockholders requires the affirmative vote of a majority of all outstanding shares of common stock as of ___________, 1999, the record date. Under Delaware law, we will count abstentions and broker non-votes to determine the presence or absence of a quorum for the transaction of business, but we will not count them as votes cast. Accordingly, abstentions and broker non-votes will have the effect of votes against the proposal. Our board of directors has unanimously approved and recommends that you vote "FOR" the adoption of the proposed amendments to the new Delaware corporation's certificate of incorporation and bylaws to prohibit stockholders from calling special meetings of stockholders. 57 PROPOSAL EIGHT AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION TO ELIMINATE ACTIONS OF THE STOCKHOLDERS BY WRITTEN CONSENT WITHOUT A MEETING GENERAL Under Delaware corporate law, stockholders may take any action required or permitted to be taken by stockholders without a meeting, without prior notice and without a stockholder vote if a written consent setting forth the action to be taken is signed by the holders of stock having the requisite number of votes needed to approve the action. However, Delaware corporate law provides that a corporation's certificate of incorporation may require that its stockholders act at an annual or special meeting and prohibit stockholder action by written consent. The new Delaware corporation's certificate of incorporation (attached hereto as APPENDIX II) currently does not prohibit this type of action by written consent. Consequently, a person or group of persons holding a majority interest in the new Delaware corporation could take significant corporate action without giving to all stockholders advance notice or the opportunity to vote. Our board of directors therefore has adopted, subject to stockholder approval, an amendment to the new Delaware corporation's certificate of incorporation that will prevent the new Delaware corporation's stockholders from taking action without a meeting by written consent. REASONS FOR STOCKHOLDER APPROVAL Our board of directors believes that it is in the best interests of our stockholders to be advised of in advance and given the opportunity to vote on any significant corporate action that requires their approval. If action by written consent without a meeting is permitted, then a majority of the stockholders could consent in writing to certain action without advance notice to the other stockholders. Requiring advance notice of proposed stockholder action provides all stockholders with the opportunity to express their views on the proposed action and to obtain the support or opposition of other stockholders. Our board of directors believes that stockholder decisions that have been reached only after all stockholders have received notice and have had an opportunity to express their views will better reflect the best interests of all of our stockholders. Like Proposal Seven, this proposed amendment is intended to protect against attempts to acquire control of the new Delaware corporation by coercive and unfair practices that do not treat all shareholders equally. By forcing our stockholders to take action only at a meeting, this proposed amendment is intended to prevent a potential acquiror from taking control of our company by soliciting the written consent of a simple majority of our stockholders. This proposal should encourage potential acquirors to negotiate with our board of directors before making a takeover bid. These negotiations should provide our board of directors with the time it needs to evaluate any takeover proposal and to review alternatives with a goal of maximizing value for all of our stockholders. This proposal is also intended to prevent a potential acquiror from avoiding the requirements of Proposal Seven by taking action without holding a stockholders meeting. POTENTIAL ANTI-TAKEOVER EFFECTS Action by written consent may, in some circumstances, permit our stockholders to take action opposed by our board of directors more rapidly than would be possible if a meeting were required. Action by written consent may include proposals to approve offers to acquire the new Delaware corporation, to acquire the assets of the new Delaware corporation or to replace members of our board of directors, which proposals our board of directors may oppose. The proposed amendment to the new Delaware corporation's certificate of incorporation therefore may complicate or delay any attempt to assume control of the new Delaware corporation without the approval of our board of directors. This provision may discourage or make it more difficult to complete a merger, tender offer, proxy contest or the assumption of control and removal of our incumbent management, even though this action might be beneficial to the new Delaware corporation and our stockholders. Our board of directors nonetheless believes that it is important that it give advance notice of and consideration to any stockholder action and that 58 stockholders discuss at a meeting any matters which may affect their rights. See "Proposal Five--Domestication into the State of Delaware--Corporate Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover Effects." While it may be deemed to have potential anti-takeover effects, the proposed amendment is not prompted by any specific effort or takeover threat that we currently perceive. We presently are not aware of any attempt to take over or acquire the existing Alberta corporation or to remove our incumbent management. THE PROPOSED AMENDMENT If our stockholders approve this Proposal Eight, then our board of directors will amend the new Delaware corporation's certificate of incorporation by adding the following section after Article SIXTH, Section (7): "(8) No action that is required or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders may be effected by written consent of stockholders in lieu of a meeting of stockholders." VOTE REQUIRED The approval of the proposed amendment to the new Delaware corporation's certificate of incorporation to eliminate the right to act by written consent requires the affirmative vote of a majority of all outstanding shares of common stock as of ___________, 1999, the record date. Under Delaware law, we will count abstentions and broker non-votes to determine the presence or absence of a quorum for the transaction of business, but we will not count them as votes cast. Accordingly, abstentions and broker non-votes will have the effect of votes against the proposal. Our board of directors has unanimously approved and recommends that you vote "FOR" the amendment to the new Delaware corporation's certificate of incorporation to eliminate the right to act by written consent. 59 PROPOSAL NINE AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS TO REQUIRE A SUPERMAJORITY VOTE TO AMEND CERTAIN PROVISIONS OF THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS GENERAL Delaware law provides that the vote of the holders of a majority of the outstanding shares entitled to vote is required to alter, amend, change or repeal a corporation's certificate of incorporation, unless otherwise specified in the corporation's certificate of incorporation or bylaws. Our board of directors has adopted, subject to stockholder approval, amendments to the new Delaware corporation's certificate of incorporation and bylaws that would require the affirmative vote of the holders of at least two-thirds of the outstanding shares entitled to vote to amend Article SIXTH of the new Delaware corporation's certificate of incorporation, and Sections 1.2 and 1.13 of the new Delaware corporation's bylaws, which govern: - the size of our board of directors; - the elimination of actions by written consent of stockholders; - advance notice requirements; - the removal of directors; and - the filling of vacancies on the board of directors. REASONS FOR STOCKHOLDER APPROVAL As discussed above in Proposals Six through Eight, our board of directors believes it is in the best interests of our stockholders to be advised of in advance and given the opportunity to consider and vote on any significant corporate action that requires the approval of the stockholders. The proposed amendments described in Proposals Six through Eight are intended to further this goal. This Proposal Nine is designed to prevent a stockholder with a majority of the voting power from avoiding the protections of the proposed amendments described in Proposals Six through Eight by simply repealing them. This proposed amendment, like Proposals Six through Eight, is intended to protect against attempts to acquire control of the new Delaware corporation by coercive and unfair practices that do not treat all shareholders equally. By forcing potential acquirors to comply with the protections of the proposed amendments in Proposals Six through Eight, this proposed amendment should force potential acquirors to negotiate with our board of directors before making a takeover bid. These negotiations should provide our board of directors with the time it needs to evaluate any takeover proposal and to review alternatives with a goal of maximizing value for all of our stockholders. POTENTIAL ANTI-TAKEOVER EFFECTS This supermajority voting provision may discourage or make it more difficult to complete a merger, tender offer, proxy contest or the assumption of control and removal of our incumbent management, even though this action might be beneficial to the new Delaware corporation and our stockholders. While it may be deemed to have potential anti-takeover effects, the proposed Articles THIRTEENTH and FOURTEENTH are not prompted by any specific effort or takeover threat that we currently perceive. We presently are not aware of any attempt to take over or acquire the existing Alberta corporation or to remove our incumbent management. See "Proposal Five--Domestication into the State of Delaware--Corporate Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover Effects." 60 THE PROPOSED AMENDMENTS If the stockholders approve this Proposal Nine, then our board of directors will amend the new Delaware corporation's certificate of incorporation by deleting Article THIRTEENTH and replacing it with the following: "THIRTEENTH. Notwithstanding any other provisions of this Certificate of Incorporation or the bylaws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation or the bylaws of the Corporation), the affirmative vote of the holders of two-thirds of the total voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal, or adopt any provision inconsistent with, this Article THIRTEENTH or Articles SIXTH or FOURTEENTH." "FOURTEENTH. Notwithstanding any other provisions of this Certificate of Incorporation or the bylaws of the Corporation (and notwithstanding the fact that a lesser percentage maybe specified by law, this Certificate of Incorporation or the bylaws of the Corporation), the affirmative vote of the holders of two-thirds of all outstanding shares of common stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal, or adopt any provision inconsistent with, Sections 1.2, 1.13 or 7.6 of the Corporation's bylaws." If the stockholders approve this Proposal Nine, then our board of directors will also amend the new Delaware corporation's bylaws by deleting Section 7.6 and replacing it with the following: "Section 7.6. AMENDMENTS. These bylaws may be altered, amended or repealed, and new bylaws made, at any meeting of the Board of Directors or of the stockholders, provided notice of the proposed change was given in the notice of the meeting and, in the case of a meeting of the Board, in a notice given not less than two days prior to the meeting; PROVIDED, HOWEVER, that, in the case of amendments by stockholders, notwithstanding any other provisions of these bylaws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the capital stock of the Corporation required by law, the Certificate of Incorporation or these bylaws, the affirmative vote of the holders of at least two-thirds of the total voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal, or adopt any provision inconsistent with, this Section 7.6 or any provision of Sections 1.2 or 1.13 of these bylaws." VOTE REQUIRED The approval of the proposed amendments to the new Delaware corporation's certificate of incorporation and bylaws to require a supermajority vote to amend the new Delaware corporation's certificate of incorporation or bylaws requires the affirmative vote of a majority of all outstanding shares of common stock as of ___________, 1999, the record date. Under Delaware law, we will count abstentions and broker non-votes to determine the presence or absence of a quorum for the transaction of business, but we will not count them as votes cast. Accordingly, abstentions and broker non-votes will have the effect of votes against the proposal. Our board of directors has unanimously approved and recommends that you vote "FOR" the proposed amendments to require a supermajority vote to amend the new Delaware corporation's certificate of incorporation or bylaws. 61 PROPOSAL TEN APPROVAL OF FORM INDEMNIFICATION AGREEMENT GENERAL We intend to enter into indemnification agreements with our directors and executive officers upon the effectiveness of the Delaware domestication. These indemnification agreements will, among other things, provide the maximum protection permitted by Delaware law for the indemnification of the directors and executive officers of the new Delaware corporation. Section 144 of the General Corporation Law of the State of Delaware provides that no transaction between the corporation and: - one or more of its directors or officers; - any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers; or - any other corporation, partnership, association, or other organization in which one or more of its directors or officers have a financial interest; is void solely because (1) the relationship exists, (2) the director or officer is present or participates in the board meeting which authorizes the transaction, or (3) the director's or officer's votes are counted for authorizing the transaction, if: - the material facts relating to the director's or officer's relationship or interest are disclosed or are known to the board of directors and a majority of the disinterested directors authorizes the transaction in good faith, even though the disinterested directors do not constitute a quorum; - the material facts relating to the director's or officer's relationship or interest are disclosed or are known to the stockholders entitled to vote on the transaction, and the transaction is specifically approved in good faith by vote of the stockholders; or - the transaction is fair to the corporation as of the time it is authorized, approved or ratified, by the board of directors or the stockholders. If the stockholders approve the Delaware domestication, then the new Delaware corporation intends to enter into indemnification agreements with each of its directors and executive officers. Although we believe that the indemnification agreements are just and reasonable, and that stockholder approval therefore may not be required, we believe that it is appropriate to submit the indemnification agreements to our stockholders for consideration. If the indemnification agreements are approved, then no stockholder may later claim that the indemnification agreements are invalid due to improper authorization. If the indemnification agreements are not approved, then a stockholder may claim that the agreements are invalid. If a stockholder does assert this type of claim, then the person asserting the validity of the agreements may have the burden of proving that they were just and reasonable to the new Delaware corporation at the time they were authorized. Insurance has traditionally provided additional protection to directors and officers by covering litigation expenses and judgments in a wide range of cases, even if a corporation cannot indemnify them directly. In recent years, however, insurance for director and officer liability has become either unavailable or available only in reduced amounts and at substantially increased prices. In light of this situation, our board of directors has determined that it is in our best interests to supplement any insurance coverage that the new Delaware corporation may maintain by entering into the indemnification agreements. We request that you review and approve the proposed form of indemnification agreement in substantially the form attached hereto as APPENDIX IV. Please read the attached agreement in its entirety. 62 TERMS OF THE INDEMNIFICATION AGREEMENTS The proposed form of indemnification agreement is intended to provide the maximum indemnification to our directors and executive officers allowed under Delaware corporate law, including indemnification not expressly permitted by the statute. The proposed form of indemnification agreement covers all expenses, judgments, penalties, fines and amounts paid in settlement (if approved in advance by the new Delaware corporation) arising from claims based on the indemnified party's action or inaction while serving as a director or executive officer of the new Delaware corporation, any subsidiary or another entity (if at the new Delaware corporation's request). Indemnification would not be available, however, for a claim if a court determines that indemnification is not permitted under applicable law. The proposed form of indemnification agreement also provides for the prompt advancement of all expenses incurred in connection with any claim. If it is later determined that the indemnified party was not entitled to indemnification, then he is obligated to reimburse the new Delaware corporation for all amounts advanced. The proposed form of indemnification agreement also provides that it is not exclusive, although it does prohibit double payment. While the proposed form of indemnification agreement does not require the new Delaware corporation to maintain liability insurance for directors and executive officers, if a policy exists, then indemnification must be provided for any liability in excess of the maximum coverage afforded under the liability insurance policy. The proposed form of indemnification agreement, together with the limitation of liability provided by the new Delaware corporation's certificate of incorporation, will reduce significantly the number of instances in which directors might be held liable to the new Delaware corporation or its stockholders for monetary damages. Therefore, you should note that the directors have a direct personal interest in the approval of the indemnification agreements. Steven M. Caira, our president, chief executive officer, acting chief financial officer and chairman of the board of directors is currently a defendant in a pending lawsuit. See "Business--Legal Proceedings." A verdict for the plaintiff in this suit might result in a claim for indemnification under the indemnification agreements. We are not aware of any other pending or threatened litigation involving any of our other directors or executive officers. REASONS FOR THE STOCKHOLDER APPROVAL We believe that our stockholders should approve the proposed form of indemnification agreement because: - the increasing hazard and related expense of unfounded litigation against directors, executive officers and other service providers; - the general unavailability of liability insurance for directors and executive officers or significant limitations in the amount and breadth of the coverage; - dramatic increases in premiums for liability insurance for directors and executive officers; and - our potential inability to continue to attract and retain qualified directors and executive officers in light of these circumstances. Although the foregoing concerns have not prevented us from attracting and retaining directors and executive officers, our board of directors believes that the indemnification agreements will strengthen our ability to attract and retain the services of knowledgeable and experienced persons who can make a significant contribution to our success. We believe that the indemnification agreements will complement the indemnity available under Delaware corporate law, the new Delaware corporation's certificate of incorporation and bylaws, and any insurance policies that the new Delaware corporation may maintain. VOTE REQUIRED The approval of the form indemnification agreements requires the affirmative vote of a majority of the votes present or represented by proxy and entitled to vote on this subject matter at the meeting and held by 63 disinterested stockholders. Since each director and each executive officer is an interested party with respect to this matter, shares owned directly or indirectly by any director or executive officer may not be voted on this proposal although they will be counted for purposes of determining whether a quorum is present. Under Delaware law, we will count abstentions to determine the presence or absence of a quorum for the transaction of business, but we will not count them as votes cast. Accordingly, abstentions will have the effect of votes against the proposal. A broker non-vote will not be treated as entitled to vote on this subject matter at the meeting. Our board of directors has unanimously approved and recommends that you vote "FOR" the approval of the proposed form of indemnification agreement. ANTI-TAKEOVER MEASURES CURRENTLY INCLUDED IN THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS Delaware corporate law and the new Delaware corporation's certificate of incorporation and bylaws currently include several provisions that could discourage or make it more difficult to complete a merger, tender offer, proxy contest or the assumption of control and removal of our incumbent management. These anti-takeover effects could deter actions that might be beneficial to the new Delaware corporation and our stockholders. BLANK CHECK PREFERRED STOCK. The term "blank check preferred stock" refers to the inclusion of a provision in a company's certificate of incorporation that allows the company's board of directors to issue preferred stock and to determine the characteristics of that preferred stock. The new Delaware corporation's certificate of incorporation contains a blank check preferred stock provision that authorizes our board of directors to issue shares of preferred stock in one or more series and to determine the preferred stock's characteristics, including voting and conversion rights. In addition, our board of directors may redeem all or any part of any series of preferred stock at any time in compliance with the terms of the preferred stock. Faced with an attempted hostile takeover, our board of directors could use this blank check preferred stock to create dilutive effects, voting impediments or buyout obstacles, or to otherwise frustrate persons seeking to acquire control of the new Delaware corporation. SECTION 203 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE. After the Delaware domestication, we will be governed by Delaware corporate law, including Section 203 of the General Corporation Law of the State of Delaware. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years following the time that the person became an interested stockholder, unless (with certain exceptions) our board of directors approves the business combination or the transaction in which the person became an interested stockholder. Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. In addition, an interested stockholder is generally a person who, together with affiliates and associates, owns, or within three years before the determination of interested stockholder status, did own, 15% or more of a corporation's voting stock. This provision could have anti-takeover effects with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that might offer a premium over the market price of the common stock. See "Proposal Five--Domestication into the State of Delaware--Corporate Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover Effects--Delaware Anti-Takeover Law." 64 NO CUMULATIVE VOTING. The new Delaware corporation's certificate of incorporation does not authorize cumulative voting for the election of directors. Cumulative voting would enable substantial minority stockholders to have representation on our board of directors. The absence of cumulative voting could therefore be considered as an anti-takeover measure. Our board of directors does not intend to propose any amendments to the new Delaware corporation's certificate of incorporation or bylaws, other than Proposals Six through Nine, which would impact an attempt by a third party to obtain control of the new Delaware corporation. You should read Proposals Six through Nine for a more complete description of the potential anti-takeover effects created by these proposals. 65 DESCRIPTION OF CAPITAL STOCK The existing Alberta corporation's authorized capital stock consists of an unlimited number of common shares and an unlimited number of preferred shares. If the Delaware domestication is completed, after giving effect to the one-for-fifteen common share consolidation, then the authorized capital of the new Delaware corporation will consist of 20,000,000 shares of common stock, par value US $0.001 per share, 750,000 shares of Class A Preferred Stock, par value US $0.001 per share, and 750,000 shares of preferred stock, par value US $0.001 per share. The following summaries of certain provisions of the common stock and preferred stock are not complete. You should review the new Delaware corporation's certificate of incorporation, a copy of which is attached as APPENDIX II. COMMON STOCK As of May 31, 1999, the existing Alberta corporation had 84,744,165 common shares outstanding. If the Delaware domestication is completed, then the holders of common shares will become holders of shares of common stock of the new Delaware corporation. After giving effect to the common share consolidation, there will be approximately 5,650,300 shares of common stock outstanding. The holders of the existing Alberta corporation's common shares are entitled to, among other things: - one vote per share on all matters submitted to a shareholder vote; - receive a pro rata share of any dividends declared by our board of directors out of funds legally available for paying dividends subject to preferences applicable to outstanding shares of Class A Series III Preferred Shares (see "--Preferred Stock--Dividends and Liquidation Preference"); and - if the existing Alberta corporation is liquidated, dissolved or wound-up, receive a pro rata share of all assets remaining after we have paid our liabilities and the liquidation preference of the Class A Series III Preferred Shares (see "--Preferred Stock--Dividends and Liquidation Preference"). Holders of the existing Alberta corporation's common shares have no preemptive rights and no rights to convert their common shares into any other securities. In addition, there are no redemption or sinking fund provisions with respect to the common shares. All of the outstanding common shares are fully paid and non-assessable. The rights, preferences and privileges of holders of common shares are subject to, and may be affected adversely by, the rights of the holders of shares of the Class A Series III Preferred Shares and any series of preferred shares that the existing Alberta corporation may designate and issue in the future. The rights of the holders of common stock after the Delaware domestication will be substantially similar to the rights of the holders of common shares. For a description of the differences of stockholder rights after the Delaware domestication, see "Proposal Five--Domestication into the State of Delaware Corporate Governance Differences; Delaware and Alberta Law Comparisons." PREFERRED STOCK As of May 31, 1999, the existing Alberta corporation had 750,000 Class A Series III Preferred Shares outstanding. If the Delaware domestication is completed, then the holders of Class A Series III Preferred Shares will receive shares of Class A Preferred Stock of the new Delaware corporation. Although the one-for-fifteen common share consolidation will affect the conversion ratio of the shares of Class A Preferred Stock, the conversion will not affect the number of outstanding shares of Class A Preferred Stock. See "--Conversion Right." DIVIDENDS AND LIQUIDATION PREFERENCE. Holders of Class A Series III Preferred Shares are entitled to a pro-rata share of any dividends declared by our board of directors, so long as the dividends are paid out of funds legally available for paying dividends. If the existing Alberta corporation liquidates, dissolves, sells all of our assets or distributes any of our capital before we distribute anything to the holders of common shares, holders of 66 Class A Series III Preferred Shares are entitled to receive US $0.001 for each Class A Series III Preferred Shares held and a pro-rata share of any unpaid dividends accrued with respect to each preferred share held. CONVERSION RIGHT. Each Class A Series III Preferred Share may be converted into ten common shares if our subsidiary TomaHawk II, Inc. earns Cdn. $2.50 per shares in net income after tax, but adjusted to add back the following expenses: - depletion - deferred taxes; - amortization of goodwill; and - deferred research and development costs. If the Delaware domestication is completed and TomaHawk II, Inc. earns Cdn. $2.50 per share in adjusted net income after tax, then, after giving effect to the one-for-fifteen common share consolidation, each share of Class A Preferred Stock may be converted into 0.67 shares of common stock of the new Delaware corporation. Our articles of incorporation also permit us to apply to The Alberta Stock Exchange to amend the terms of conversion. The Class A Preferred Stock will be cancelled if they are not eligible for conversion by December 31, 1999. After the Delaware domestication, the rights of holders of Class A Preferred Stock will be substantially similar to the rights that they have as holders of Class A Series III Preferred Shares. For a description of the differences of stockholder rights after the Delaware domestication, see "Proposal Five--Domestication into the State of Delaware Corporate Governance Differences; Delaware and Alberta Law Comparisons." CANCELLATION OF PREFERRED STOCK. If we become insolvent, file or have filed against us a petition in bankruptcy, or stop operating our business, then the Class A Series III Preferred Shares must be surrendered to us for cancellation. CHANGE OF CONTROL PROVISIONS The existing Alberta corporation's articles of incorporation and bylaws include certain provisions that may discourage or make it more difficult to take control of the existing Alberta corporation. These provisions include: BLANK CHECK PREFERRED STOCK. The existing Alberta corporation currently is authorized to issue an unlimited number of preferred shares by action of our board of directors without further action by our shareholders. Our board of directors could authorize the issuance of preferred shares with special voting and other rights that could deter, or hinder the completion of, any proposed tender offer, merger or other attempt to gain control of our company which is not approved by our board of directors, to the extent permissible under applicable law. Issuance of preferred shares could make removal of incumbent management more difficult, even if this removal were viewed to be in the best interests of our shareholders. We have no present plans to issue additional preferred shares. INCREASED STOCKHOLDER VOTE FOR AMENDMENT OF CERTIFICATE OF INCORPORATION OR BYLAWS Under Alberta corporate law, amendments to our articles of incorporation require the approval of two-thirds of the outstanding shares entitled to vote on the amendment. This requirement makes it more difficult to amend our articles of incorporation, including those provisions that tend to deter takeover attempts. Obtaining a greater than majority vote can be difficult, especially if our management opposes the proposed action. As of May 31, 1999, our directors and executive officers and the directors and executive officers of TomaHawk II, Inc. held an aggregate of 24.2% of the outstanding common shares. If the Delaware domestication is approved, then these provisions will be included in the new Delaware corporation's certificate of incorporation and bylaws. In addition, if approved, the proposed amendments to the new Delaware corporation's certificate of incorporation and bylaws described in Proposals Six through Nine of this Proxy Statement and Information Circular also may deter an attempt to take control of the new Delaware corporation. These proposed amendments are: 67 PROPOSAL SIX -- ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND PROPOSALS. If approved, Proposal Six would require that stockholders provide us with advance notice of all nominations for the election of directors and proposals to be considered at a meeting of stockholders. This proposal also would require stockholders to provide us with certain information about their nominees and proposals. See "Proposal Six--Amendment to the New Delaware Corporation's Certificate of Incorporation and Bylaws to Require Advance Notice of Stockholder Nominations and Proposals-- General." The advance notice requirement would not give to our board of directors the power to approve or disapprove stockholder nominations or proposals. However, it might preclude a contest for the election of directors if the nominating stockholder does not follow the established procedures. See "Proposal Five--Domestication into the State of Delaware--Corporate Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover Effects--Advance Notice Requirements for Shareholder Proposals and Director Nominations." PROPOSAL SEVEN -- ELIMINATION OF THE ABILITY OF STOCKHOLDERS TO CALL A SPECIAL MEETING If approved, Proposal Seven would eliminate the stockholders' ability to call a special meeting. When combined with the elimination of the stockholders' ability to act by written consent in Proposal Eight, this amendment would prevent our stockholders from taking any action opposed by our board of directors until the next annual meeting of stockholders. This proposal would make it more difficult to take control of the new Delaware corporation. See "Proposal Five--Domestication into the State of Delaware--Corporate Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover Effects--Special Meetings of Shareholders" and "Proposal Seven--Amendment to the New Delaware Corporation's Certificate of Incorporation and Bylaws to Prohibit Stockholders from Calling Special Meetings of the Stockholders." PROPOSAL EIGHT -- STOCKHOLDERS CANNOT TAKE ACTION BY WRITTEN CONSENT If Proposal Eight is approved, then our stockholders will not be able to take any action by written consent. If adopted, the proposed amendment would tend to support incumbent directors and management and make it more difficult for stockholders to take certain actions even if the actions are desired by the holders of a majority of the outstanding shares. See "Proposal Five--Domestication into the State of Delaware--Corporate Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover Effects--Shareholder Action by Written Consent" and "Proposal Eight--Amendment to the New Delaware Corporation's Certificate of Incorporation to Eliminate Actions of the Stockholders by Written Consent Without a Meeting." PROPOSAL NINE -- INCREASED STOCKHOLDER VOTE FOR AMENDMENT OF THE CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS. Under Delaware corporate law, a corporation's certificate of incorporation and bylaws can be amended by a simple majority of the shares entitled to vote on the amendment. If Proposal Nine is approved, then amendments to certain provisions of the new Delaware corporation's certificate of incorporation and bylaws would require the concurrence of the holders of at least two-thirds of the voting power of the new Delaware corporation entitled to vote on the amendment. This requirement is designed to prevent a stockholder controlling a majority of the voting power from avoiding the requirements of the anti-takeover provisions by simply repealing them. This proposal may tend to discourage takeover attempts. See "Proposal Five--Domestication into the State of Delaware--Corporate Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover Effects--Amendments to the Certificate of Incorporation and Bylaws" and "Proposal Nine--Amendment to the New Delaware Corporation's Certificate of Incorporation and Bylaws to Require a Supermajority Vote to Amend Certain Provisions of the New Delaware Corporation's Certificate of Incorporation and Bylaws." SECTION 203 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE. If the Delaware domestication is approved, then we will be governed by Delaware corporate law, including Section 203 of the General Corporation Law of the State of Delaware. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years following the time that the person became an interested stockholder, unless (with certain exceptions) our board of directors approves the business combination or the transaction in which the person became an interested stockholder. Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. In addition, an interested stockholder is generally a person who, together with affiliates and associates, owns (or within three years before the determination of interested stockholder status, did 68 own) 15% or more of a corporation's voting stock. This provision could have anti-takeover effects with respect to transactions not approved in advance by our board of directors, such as discouraging takeover attempts that might offer a premium over the market price of the common stock. See "Proposal Five--Domestication into the State of Delaware--Corporate Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover Effects--Delaware Anti-Takeover Law." TRANSFER AGENT AND REGISTRAR Our transfer agent and registrar for our common shares is CIBC Mellon Trust. If the Delaware domestication is approved, then our transfer agent and registrar for our common stock will continue to be CIBC Mellon Trust. DISCLOSURE OF SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES If the Delaware domestication and the proposed form of indemnification agreement are approved (see "Proposal Five--Delaware Domestication into the State of Delaware" and "Proposal Ten--Approval of Form Indemnification Agreement"), then the indemnification provisions provided in our certificate of incorporation, bylaws and agreements with directors and executive officers will provide for broad indemnification under Delaware corporate law with no express exclusion for liabilities arising under or in connection with the Securities Act. In the SEC's opinion, indemnification for liabilities arising under the Securities Act is against public policy and therefore is unenforceable. 69 BUSINESS OVERVIEW TomaHawk Corporation is the parent holding company of TomaHawk II, Inc., a Delaware corporation. TomaHawk II, Inc. provides document imaging and conversion, engineering design and manufacturing services to both the U.S. federal government and commercial customers. References to "TomaHawk," "we" or "us" include TomaHawk Corporation and TomaHawk II, Inc. Our current services include: - scanning and conversion of large and small technical documents to computer intelligent or computer-aided-design ("CAD") formats; - numerical control programming for the automated manufacture of parts and components; - tool design; - precision machining and inspection of parts and components; - engineering design and analysis of parts and components; and - reverse engineering of parts and components that do not have plans, drawings or models to allow for the creation of CAD format documents. Our services, described in more detail below, address significant needs of both large and small organizations in various industries, including defense, aerospace, engineering, architecture, automotive, telecommunications and utilities. To date, we have provided our services primarily to customers in the defense, aerospace, engineering and architecture industries. We provide a range of services to our customers throughout the design to manufacture life cycle of a product or project, including individual services as well as total project solutions that we refer to as "Paper to Parts." As an outsourcing resource, we provide services to our customers that they cannot perform internally or that supplement their existing capabilities. In addition, by utilizing our services, and not performing the same services in-house, our customers can determine more accurately project completion dates and control project costs, as we generally perform our services based on quoted budgets and delivery schedules. We believe that two emerging trends will continue to affect the current market for our services. The first trend is the continued evolution and acceptance of CAD technology. Some form of CAD technology is utilized in designing everything from manufactured parts to complex machinery. Our customers are beginning to convert their inventories of historical documents to electronic format to make them compatible with current CAD design. The second trend involves the current industry movement toward outsourcing an increasing number of tasks and services that can be performed more efficiently by independent suppliers. Companies and governmental agencies at all levels are downsizing and turning to outsourcing as a cost-effective alternative to maintaining in-house capabilities for non-core functions, tasks or services that they can purchase more efficiently from other companies. CORPORATE HISTORY The predecessor company of TomaHawk Corporation was originally incorporated in Alberta, Canada on September 10, 1986. TomaHawk II, Inc. was formed on February 3, 1993. Effective March 8, 1993, we acquired all of the issued and outstanding shares of capital of TomaHawk II, Inc. and commenced our current business operations. TomaHawk Corporation currently does not carry on any business other than acting as the parent holding company of TomaHawk II, Inc. TomaHawk II, Inc. is the sole operating subsidiary through which TomaHawk Corporation conducts its business operations. In order to simplify our capital structure, we intend to merge TomaHawk II, Inc. into TomaHawk Corporation at some time after the completion of the Delaware domestication. 70 TomaHawk Software, Inc., a corporation organized under the laws of India and located in Bangalore, India, is a wholly-owned subsidiary of TomaHawk II, Inc. SERVICES We offer document conversion, engineering and manufacturing services through two primary divisions: (1) document imaging and conversion services and (2) engineering and manufacturing services. DOCUMENT IMAGING AND CONVERSION SERVICES. Our document imaging and conversion services convert technical information from written form (i.e., paper, mylar, parchment, linen, etc.) to electronic format. In this division, we focus primarily on the conversion of technical, engineering and architectural drawings from their original source document to CAD formats. We convert the following types of documents: - engineering design drawings; - maps; - technical manuals; - electrical schematic drawings; - architectural design drawings; and - civil engineering/topographical drawings. Our primary document imaging and conversion services are described below: DOCUMENT CONVERSION SERVICES. Document conversion to intelligent electronic formats involves the conversion of documents to computer readable or "intelligent" formats. In this process, we convert scanned raster (or view only) images to geometric entities such as lines, circles, arcs and splines in a computer vector format to replicate the original design or drawing in an intelligent electronic or "CAD ready" format. Although adequate for most engineering applications, this format only replicates the design or drawing, but is not accurate to specific dimensions because original drawings often contain dimensional inaccuracies when drafted by hand. Similarly, we convert scanned text previously in raster format on smaller documents such as technical manuals to their simplest intelligent form (i.e. ASCII). Computers then can recognize this information for applications such as engineering changes and word processing. The process of taking a scanned image containing alphanumeric raster images and converting it into intelligent "ASCII" characters is called optical character recognition ("OCR"). Once in an intelligent (i.e. ASCII or vector) format, images are no longer simple pictures or text, but rather intelligent computer data that forms the basis for other, more advanced applications such as CAD applications. In addition to converting images to CAD ready formats, we convert images to "CAD perfect" format. CAD perfect format involves computer files containing a design or image that is dimensionally accurate even though the original source document is not necessarily accurate. We provide these CAD models in various application formats, including AutoCAD, CATIA, Unigraphics, IDEAS, Microstation and Pro-E. PRECISION CONVERSION SERVICES. Precision conversion services focus specifically on supporting customers in the aerospace industry. In this process, we convert large format drawings that are used traditionally in the design and manufacture of aircraft structural components and assemblies to CAD ready format. Because of the high degree of precision required in the aerospace industry, converted documents must match the original documents to a high degree of accuracy. Large format aerospace drawings were typically created by hand, on a one-to-one scale, to represent the exact shape and configuration of the parts to be manufactured. These drawings generally are 71 un-dimensioned and depict complex geometric entities. Reproduction of the geometry contained within the drawings using manual methods is very labor intensive and subject to error. By converting technical drawings into an electronic format, our precision conversion services allow our customers to work with and modify these drawings electronically to facilitate engineering changes and re-designs and provide the numerical data required to enable automatic machining of components (see "--Engineering and Manufacturing Services--Numerical Control Programming Services"). Additionally, the base material on which the drawings were created is often distorted due to age and exposure to varying environmental conditions over time. By converting the documents to an electronic format, we eliminate the possibility that damage or distortions will make these documents useless. In addition, our customers can use the electronic files to produce multiple copies or to use in direct manufacturing applications. Electronic conversion also eliminates the burden of handling and storing large, bulky design documents. DOCUMENT SCANNING SERVICES. Document (bulk) scanning involves the initial conversion process that transforms hard copy documents, such as blueprints, engineering drawings, maps and schematics, into raster formats. This process produces an "unintelligent" image, which may be stored, plotted and edited using an appropriate software package. Once documents are converted to a scanned electronic image, customers can store the information electronically for easier access and retrieval under more advanced indexing or networking methods. In addition, a customer can make these electronic files available throughout its enterprise, via local area networks and wide area networks, or store them locally using CD technology. Electronic files also allow for simple creation of additional copies and back-ups, and eliminate the risk of deterioration and damage. TEXT INSERTION AND CLEAN-UP SERVICES. Text insertion and clean-up services are common editing services that we provide after information has been scanned into a digital format. Text insertion involves the replacement of handwritten characters with type fonts. This process allows end-users to edit the text contained in the picture or raster image, while reducing text legibility problems. Our clean-up services involve the physical removal of pixels and clean-up of the scanned images of drawings that are of poor quality or have deteriorated over time. We use this service to eliminate folds, creases and tear lines, and restore faded documents. This effort promotes greater focus on the information content and serves to enhance document "view-ability." ENGINEERING AND MANUFACTURING SERVICES. This division provides the following services: - numerical control ("NC") programming; - tool engineering and design; - manufacturing and inspection; - engineering design; and - re-engineering and reverse engineering. Our primary engineering and manufacturing services are described below: NUMERICAL CONTROL PROGRAMMING SERVICES. Numerical control programming is the process of developing numerical (mathematical) controlled instructions for machine tools, called computerized numerical control ("CNC") machines. CNC machines are used to manufacture parts or tools from raw metal or castings. In addition to the numerically controlled programs, we provide all machine pre-planning, including machine set-up instructions, tool lists and cutter data, including the speed, feed and depth of cut, for the specific part or tool being machined. We also provide tool path verification before we release the data to the customer, which ensures that mistakes, which are inherent to this process because programs are developed manually, are found and corrected on the computer screen, rather than on the physical machine, which can be very costly to a customer. 72 TOOL ENGINEERING AND DESIGN SERVICES. Tool engineering and design involves the design of tools required to manufacture or produce parts or components. First, engineers analyze the part or component that needs to be manufactured. Next, the engineers design a tool that will accomplish the desired objective based on the form, fit and functional relationships of the needed part or component. Finally, the engineers document the means of performing the tasks and create detailed plans for the production of the tools necessary to build, handle and/or store parts used in manufacturing. Our tool design projects have included the design of assembly jigs, machine fixtures, composite lay-up tools, detail tools, structural weld jigs and trim and drill fixtures. MANUFACTURING AND INSPECTION SERVICES. Manufacturing and inspection services include precision part and component machining, utilizing three, four and five-axis CNC machines, and third-party inspection of parts utilizing computerized, programmable inspection equipment. In addition, we have established relationships with other local manufacturers to supplement our existing manufacturing capabilities. THREE-DIMENSIONAL COMPUTER DESIGN SERVICES. Three-dimensional computer design services involve the electronic construction of geometric shapes in a three-dimensional computer format. For example, a primary application of this process involves the electronic design and modeling of an aircraft part for eventual manufacturing and assembly into the aircraft. This type of modeling can include three dimensional wireframe or solid modeling. For solid modeling applications, we provide advanced surfacing services, including the electronic development and manipulation of surface contours for a part created in a three dimensional model. Solid models enable engineers to determine the exact form, fit and function of a part's geometry before constructing a prototype or any production hardware. This electronic simulation (or mock-up) streamlines the design process and brings products to market much more accurately, in much less time and at much less cost. SALES AND MARKETING We market our services to government agencies and private companies that have document conversion, engineering or manufacturing outsourcing requirements. Specifically, our marketing efforts are directed at governmental agencies such as the U.S. Department of Defense, as well as companies in the aerospace, defense, automotive, engineering, architecture, telecommunications and utilities industries. To date, we have been more successful in obtaining contracts from government agencies than from private companies. We recently have begun to focus additional marketing resources on the private sector in an effort to increase the proportion of our revenues derived from commercial sources. Our sales and marketing efforts are conducted by an outside federal marketing consulting firm, an in-house staff, and by independent sales representatives. We have retained Capstone National Partners, LLC, a federal marketing consulting firm, to coordinate our government marketing efforts. John Rogers, our former Vice President of Federal Sales and Marketing, is the president of Capstone National Partners, LLC. This consulting firm assists us in generating Congressional support and funding for our services, interfacing with high level Department of Defense officials, and marketing to and working with government agencies to identify opportunities for our services. We pay to Capstone National Partners, LLC a monthly retainer and a commission on our revenues from contracts that Capstone National Partners, LLC plays a significant role in obtaining on our behalf. We currently do not have a written agreement with Capstone National Partners, LLC. See "Risk Factors--Risk Factors Relating to our Continuing Operations--We may not be able to retain the consultant that coordinates our marketing efforts directed at the U.S. government." We currently employ eight sales and marketing personnel, of which six sell our document conversion services, one sells our engineering and manufacturing services, and one is responsible for national marketing. Three of our document conversion marketers are responsible for the western United States, two for the eastern United States, and one for the Midwest. We also retain four independent sales representatives that sell engineering and manufacturing services. Each of these independent representatives is responsible for specific segments of our engineering and manufacturing services, and markets these services on a national basis. 73 In March 1999, we entered into a teaming agreement with Oce Deutschland GmbH, a corporation organized under the laws of Germany specializing in the sale of copiers, scanners, plotters and other imaging equipment. Under this teaming agreement, Oce obtained exclusive rights to market our services in Germany. To date, we have received a small amount of business from this relationship. ADCS PROGRAM AND GOVERNMENT CONTRACTS ADCS PROGRAM. In 1998, we received approximately 69.0% of our total revenues from contracts for document conversion services funded by the U.S. Department of Defense through the Automated Document Conversion Systems ("ADCS") program. As a percentage of document conversion revenues, these contracts represented approximately 77.1% of our total document conversion service revenues in 1998. Congress created the ADCS program in 1993 to provide funding for the Department of Defense's initiative to convert its hard-copy documents into an electronic CAD-ready format. Annual funding for the ADCS program has increased steadily since its inception, from US $20 million in 1997, to US $40 million in 1998 and to US $45 million in 1999. Once Congress authorizes and appropriates funding, the Department of Defense selects specific projects for funding from a list of projects proposed by each of the armed services. INTERGRAPH CONTRACTS. During 1998, we received the majority of our document conversion revenues from ADCS related contracts through a subcontract agreement with Intergraph Corporation. Under this subcontract agreement, which we entered into in March 1997, we provide document conversion services under Intergraph Corporation's three prime contracts with the U.S. Department of the Navy: - Naval Sea Systems Command (NAVSEA) CAD-2; - Naval Facilities Engineering Command (NAVFAC) Installation Management/Facilities CAD-2; and - Naval Air Systems Command/Space and Naval Warfare Systems Command (NAVAIR/SPAWAR) CAD-2. These prime contracts are 12-year indefinite delivery indefinite quantity agreements, under which Intergraph Corporation and its subcontractors provide a wide range of CAD and computer-aided manufacturing ("CAM") products and services. We provide document conversion services under our subcontract with Intergraph Corporation on a time and effort basis. Labor rates for our services are based on rates for labor categories provided in the prime contract. We perform our services under the subcontract only upon our receipt of a purchase order that specifies: - the labor categories authorized to work on the project; - the authorized number of hours and labor rates for each of these labor categories; and - the period of performance, which generally ranges between six months and one year. GENERAL SERVICES ADMINISTRATION CONTRACT. We also provide document conversion services for the Department of Defense under a General Services Administration contract awarded to us in November 1998. This contract designates us as an approved General Services Administration vendor, and allows us to contract for document conversion services directly with government agencies. This contract does not result, however, in any specific orders for services. Specific orders for document conversion services under our General Services Administration contract are described in purchase orders that identify the nature, scope and price of the services to be performed. Orders for document conversion services under our General Services Administration contract are typically based on fixed prices negotiated in advance of the contract award. See "Risk Factors--Risk Factors relating to our Continuing Operations--Fixed price contracts may adversely affect our profitability." While we did not receive any revenue in 1998 through the General Services Administration contract, we believe that a significant 74 percentage of future work funded by the government will be contracted through the General Services Administration. Our General Services Administration contract expires on September 30, 2001. We believe that we will continue to rely heavily on the ADCS Program as a source of funding for Department of Defense related work, and on the Intergraph Corporation and General Services Administration contracts as contracting vehicles for this work. See "Risk Factors--Risk Factors Relating to our Continuing Operations--We depend on contracts funded by the U.S. government to provide the majority of our revenues." COMPETITION We compete primarily with small, local firms that individually do not offer the range of services that we provide. We are not aware of any competitor currently providing the same range of document conversion, engineering and manufacturing services that we provide. In addition, the number and size of competitors varies by geographic region. However, in many cases, our most significant competition comes from a customer or potential customer that continues to perform comparable services on an in-house basis. In addition to performing these services internally, these companies easily could elect to offer document conversion services to other companies. See "Risk Factors--Risk Factors Relating to our Continuing Operations--We face potential competition from the in-house capabilities of certain customers" and "--We face potential competition from new document conversion outsourcing businesses because of the relatively low costs of entry." We believe that the principal competitive factors in our business are technical understanding, capacity to handle large projects quickly, quality of the finished product, past contract performance, personnel qualifications and price. CUSTOMERS The majority of our revenues are derived from contracts funded by the U.S. Department of Defense. For the year ended December 31, 1998, the Department of Defense accounted for approximately 69.0% percent of our total sales. See "Risk Factors--Risk Factors Relating to our Continuing Operations--We depend on contracts funded by the U.S. government to provide the majority of our revenues." Our other customers are primarily large companies in the defense and aerospace industries, but we also have provided services to large and small customers in the automotive, engineering, architecture, telecommunications and utilities industries. See "Risk Factors--Risk Factors Relating to our Continuing Operations--Our private sector revenues are highly vulnerable to changes in spending priorities in the defense and aerospace industries." We currently are attempting to broaden our commercial customer base and increase the proportion of our revenues derived from commercial sources. PROPRIETARY RIGHTS We consider certain of the processes that we have developed internally and software that we have modified to be proprietary. We also have one patent pending relating to a proprietary process for the conversion of certain types of design drawings. We rely primarily on trade secret laws and employee and third-party nondisclosure agreements to protect our proprietary rights. We do not believe that any of our processes or services infringe on the proprietary rights of third parties. EMPLOYEES As of May 31, 1999, TomaHawk II, Inc. employed 121 persons, of whom 68 were engaged in document conversion services, 19 in engineering services, 11 in manufacturing and inspection services, 8 in sales, marketing, customer support and related activities, and 15 in management, administration and finance. As of the same date, TomaHawk Software, Inc., the wholly-owned subsidiary of TomaHawk II, Inc., employed 40 persons in Bangalore, India, of whom 35 were engaged in document conversion services and 5 in management, administration and finance. None of our employees is currently represented by a labor union. We consider our relations with our employees to be good. 75 ACQUISITION In an effort to expand our service offerings, TomaHawk II, Inc. acquired in August 1998 substantially all of the assets of Aerated Engineering Company, a precision machining company based in San Diego, California. TomaHawk II, Inc. uses the acquired equipment in performing its manufacturing services. We accounted for the acquisition under the purchase method of accounting. FACILITIES Our primary document conversion and engineering operations, as well as our manufacturing operations, are located in San Diego, California. We also have operation facilities in Vernon Hills, Illinois, Lynnwood, Washington and Bangalore, India. We also maintain sales offices in Washington, D.C. and Boston, Massachusetts. TomaHawk II, Inc. currently leases approximately 24,000 square feet of office and operations space located at 8315 Century Park Court, Suite 200, San Diego, California. The related lease expires on July 1, 2000. In addition, TomaHawk II, Inc. has entered into the following leases: - approximately 48,500 square feet of manufacturing space located at 7140 Opportunity Road, San Diego, California, pursuant to a lease expiring on December 3, 2003; - approximately 3,500 square feet of office and operations space located at 50 Lakeview Parkway, #101, Vernon Hills, Illinois, pursuant to a lease expiring on October 31, 2002; - approximately 1,200 square feet of office space located at 2901 North Sheffield, Chicago, Illinois, pursuant to a lease expiring on December 31, 2000; and - approximately 3,300 square feet of office and operations space in Bangalore, India, pursuant to a month-to-month lease. We believe that these facilities are adequate for our current business needs. We are also currently leasing approximately 1,600 square feet of office and operations space located at 19109 36th Ave. W, #203, Lynnwood, Washington, pursuant to a lease expiring on January 31, 2000. In May 1999, we provided notice of our intent to terminate the lease and vacate this space in August 1999. LEGAL PROCEEDINGS TomaHawk Corporation, together with TomaHawk II, Inc., our current chief executive officer, Steven M. Caira, and his wife, Renee Caira, are defendants in a lawsuit filed in the Superior Court for the State of California, County of San Mateo, entitled DENNIS R. DIRICCO, CO-TRUSTEE OF THE CONNIE DOHERTY LIVING TRUST V. TOMAHAWK II, INC., ET AL., Case No. 406661. In this action, the plaintiff makes numerous claims arising out of alleged agreements that plaintiff claims to have entered into in October 1994, pursuant to which: - we allegedly were obligated to issue 2,000,000 common shares to the plaintiff's wife as consideration for her transfer of the same number of shares to David Smoot, our former chairman and chief executive officer, in connection with the settlement of a lawsuit between Mr. DiRicco and Mr. Smoot (which did not involve TomaHawk Corporation or TomaHawk II, Inc.); and - our current chief executive officer and his wife allegedly would hold 1,000,000 common shares in trust for the plaintiff's wife and return them to her when they became freely tradable on The Alberta Stock Exchange. We have filed a demurrer to the complaint, which seeks to dismiss a number of the causes of action as a matter of law. We also have filed a motion to prevent the plaintiff from proceeding pro per and to force the plaintiff to obtain counsel. The court has not yet heard the demurrer or the motion. Although none of the defendants has filed an answer to the complaint, we and the other defendants will deny the material allegations, 76 claiming that they are without merit. We intend to defend this lawsuit vigorously, but cannot express an opinion of the likely outcome at this time. WE ALSO ARE AWARE OF OTHER POSSIBLE CLAIMS THAT MR. DIRICCO HAS FROM TIME TO TIME ASSERTED AGAINST US, TOMAHAWK II, INC. AND MANY OF OUR PRESENT AND FORMER OFFICERS AND DIRECTORS AND THE PRESENT AND FORMER OFFICERS AND DIRECTORS OF TOMAHAWK II, INC., NONE OF WHICH CLAIMS WE BELIEVE HAVE ANY MERIT. WE CURRENTLY ARE NOT AWARE OF ANY OTHER MATERIAL THREATENED OR PENDING LEGAL PROCEEDINGS. 77 MARKET FOR THE EXISTING ALBERTA CORPORATION'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS MARKET PRICE INFORMATION The existing Alberta corporation's common shares trade on The Alberta Stock Exchange under the symbol "TKC." After the Delaware domestication is completed, our common shares will trade on The Alberta Stock Exchange under the trading symbol "THK." On May 31, 1999, the common shares closed at Cdn. $0.20 (US $0.14) on The Alberta Stock Exchange. The following table sets forth the high and low closing prices of the common shares in Canadian dollars, as reported by The Alberta Stock Exchange, for the calendar period indicated. The high and low closing prices also are listed in U.S. dollars based on the currency exchange rate on the date when The Alberta Stock Exchange reported the listed price. The prices below represent prices between dealers, without adjustment for retail mark-ups, mark-downs or commissions, and may not reflect actual transactions.
CLOSING PRICES --------------------------------------------------------- HIGH LOW --------------------------- -------------------------- 1999 First Quarter Cdn. $0.35 (US $0.23) Cdn. $0.22 (US $0.15) 1998 Fourth Quarter Cdn. $0.40 (US $0.26) Cdn. $0.25 (US $0.16) Third Quarter Cdn. $0.47 (US $0.31) Cdn. $0.28 (US $0.18) Second Quarter Cdn. $0.56 (US $0.39) Cdn. $0.20 (US $0.14) First Quarter Cdn. $0.34 (US $0.24) Cdn. $0.23 (US $0.16) 1997 Fourth Quarter Cdn. $0.30 (US $0.22) Cdn. $0.20 (US $0.14) Third Quarter Cdn. $0.34 (US $0.24) Cdn. $0.17 (US $0.12) Second Quarter Cdn. $0.27 (US $0.19) Cdn. $0.16 (US $0.12) First Quarter Cdn. $0.35 (US $0.26) Cdn. $0.21 (US $0.15)
HOLDERS On May 31, 1999, the number of holders of record of the common shares was approximately 170. We believe that the common shares are owned beneficially by approximately 700 persons. DIVIDEND POLICY We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any earnings for future growth and, therefore, do not intend to pay any cash dividends in the foreseeable future. Our board of directors may review our dividend policy from time to time in its sole discretion. 78 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains forward-looking statements based on our current expectations, estimates and projections about our industry, our beliefs and certain assumptions made by us. Forward-looking statements include statements preceded by, followed by or that include terms such as "may," "will," "should," "believes," "expects," "anticipates," "estimates," "continues" or similar expressions. These forward-looking statements involve risks and uncertainties, and our actual results may differ materially from those anticipated or expressed in these statements. Potential risks and uncertainties include, among others, those described under the "Risk Factors" section of this Proxy Statement and Information Circular. You should read the following discussion in conjunction with our audited consolidated financial statements and the accompanying notes. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. OVERVIEW TomaHawk Corporation is the parent holding company of TomaHawk II, Inc., an Illinois corporation that provides document imaging and conversion, engineering and manufacturing services. TomaHawk II, Inc. is the sole operating subsidiary through which TomaHawk Corporation currently conducts its business operations. TomaHawk II, Inc. began operations in March 1993 with the primary objective of providing document imaging and conversion services to the U.S. Department of Defense. In August 1996, TomaHawk II, Inc. expanded its service offerings to include numerical control programming, engineering, manufacturing and support services through the creation of its Engineering and Manufacturing Services Division. See "Business--Services." TomaHawk II, Inc. further expanded its services to include precision machining and manufacturing through its acquisition of Aerated Engineering Company in August 1998. See "Business--Acquisition." Although we have expanded our range of services, we continue to generate the majority of our revenues from our document imaging and conversion services. Revenues from these services represented 77.0% of our total revenues in 1998 and 63.7% of our total revenues in 1997. In 1998, engineering services generated 20.9% of our total revenues, down from 36.3% in 1997. We began offering precision machining services in August 1998, which generated 2.1% of our total revenues in 1998. Our business is highly dependent on contracts for document conversion services funded by the U.S. Department of Defense. See "Risk Factors--Risk Factors Relating to our Continuing Operations--We depend on contracts funded by the U.S. government to provide the majority of our revenues." Approximately 69.0% of our total revenues in 1998 and 53.6% of our total revenues in 1997 resulted from contracts or subcontracts for document conversion services funded by the U.S. Department of Defense. See "Business--ADCS Program and Government Contracts." The continued growth of revenues from our document conversion, engineering and manufacturing services is dependent on several factors, including: - authorized government funding levels for the ADCS program; - budgetary constraints and priorities of the U.S. Department of Defense and our commercial customers; - our reputation for providing timely and reliable services; and - the continuation of the trend of increased outsourcing of non-core business functions. We provide services under both time and material and fixed price contracts. Revenues earned under time and material contracts are based on the number of billable hours incurred and the negotiated hourly rate. We generally recognize revenues under time and material contracts as we perform the services. Revenues earned under fixed price contracts are based on negotiated contract prices. We generally recognize these revenues on a percentage of completion basis. 79 Our cost of revenues consists principally of wages and benefits, supplies and overhead charges such as rent, utilities and equipment costs associated with providing our services, and direct materials (unless purchased directly by our customer) in the case of our precision machining services. Our gross margin can be affected adversely if: - we cannot bill or fail to manage effectively our service activities; - there is a significant amount of unbillable time; or - we fail to properly price our fixed price contracts. General and administrative expenses include wages, benefits and other compensation expenses associated with our executive and middle management, professional fees for legal, tax and accounting services, facility costs and other accounting and administrative expenses. Marketing and sales expenses include wages, benefits and commissions for our sales representatives and marketing consultants and expenses related to our promotional activities and materials. Other expenses include interest expense related to debt and capital lease obligations and, in 1998, costs associated with our efforts to complete a financing to fund potential acquisitions that we ultimately ended. Our financial statements for the years ended December 31, 1997 and 1998 are stated in U.S. dollars (US $) and are prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). Our financial statements for prior years were prepared in accordance with Canadian GAAP. This change to U.S. GAAP significantly increased general and administrative expenses in 1998. See "--Results of Operations--Year Ended December 31, 1998 Compared with Year Ended December 31, 1997--General and Administrative Expenses." Our auditor's report on our financial statements as of December 31, 1998 contains an explanatory paragraph as to our ability to continue as a going concern because of our continuing operating losses. We had a working capital deficit as of December 31, 1998, of $1.7 million. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31, 1998. REVENUES. Our revenues for the three months ended March 31, 1999 were $2.5 million, representing a decrease of 27.9% compared to revenues of $3.4 million for the three months ended March 31, 1998. Our revenues from document conversion services totaled $1.8 million during the three months ended March 31, 1999, compared to $2.5 million during the three months ended March 31, 1998. The decreased revenues from these services resulted primarily from delays in our receipt of new orders for document conversion services in the first quarter of 1999 for projects funded by the U.S. Department of Defense. Revenues from engineering and manufacturing services were $638,000 during the three months ended March 31, 1999 compared to $934,000 during the three months ended March 31, 1998. The decreased revenues from these services resulted from the completion of certain contracts and a decrease in new contract awards during the first quarter of 1999. COST OF REVENUES. Our cost of revenues for the three months ended March 31, 1999 was $1.9 million, representing a decrease of 19.1% compared to $2.4 million for the three months ended March 31, 1998. This decrease resulted primarily from the decreased revenues relative to the first quarter of 1998. Gross profit decreased by $500,000, or 48.4%, from $1.0 million for the three months ended March 31, 1998 to $535,000 for the three months ended March 31, 1999. As a percentage of revenues, our gross margin was 21.5% in the three months ended March 31, 1999 compared to 30.1% in the three months ended March 31, 1998. This decrease in gross margin resulted primarily from higher direct costs, as a percentage of revenues, associated with new fixed price contract project start-up costs, and to the lower absorption of cost of sales overhead expenses as a result of lower revenues. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the three months ended March 31, 1999 were $835,000, compared to general and administrative expenses of $496,000 for the three months ended March 31, 1998. The increased general and administrative expenses during the first quarter of 1999 resulted primarily from: 80 - administrative expense associated with our manufacturing services division that we created in August 1998; - higher salaries, wages and related benefits associated with management and administrative staff additions; - higher legal and accounting fees associated with our efforts to domesticate into Delaware; and - higher non-cash compensation expenses associated with the valuation of notes receivable and issuance of stock options below their fair market value. As a percentage of revenues, general and administrative expenses were 33.7% in the three months ended March 31, 1999 compared to 14.4% in the three months ended March 31, 1998. This higher percentage in the first quarter of 1999 resulted primarily from the higher overall expenses and the lower revenues described above. MARKETING AND SALES EXPENSES. Marketing and sales expenses for the three months ended March 31, 1999 were $446,000, representing an increase of 22.6% compared to $364,000 for the three months ended March 31, 1998. These increased expenses resulted primarily from higher salaries, wages, related benefits and fees paid in connection with the hiring and retention of sales representatives and brokers and from higher travel and promotional expenses. As a percentage of revenues, marketing and sales expenses were 18.0% in the three months ended March 31, 1999, compared to 10.6% in the three months ended March 31, 1998. OTHER EXPENSES. Other expenses for the three months ended March 31, 1999 were $112,000, compared to $65,000 for the three months ended March 31, 1998. These increased expenses resulted from higher interest expenses incurred during the first quarter of 1999, resulting from higher average balances outstanding on our working capital credit line and to increases in the amounts related to leased equipment. NET LOSS. Our net loss for the three months ended March 31, 1999 was $859,000, compared to a net profit of $110,000 for the three months ended March 31, 1998. YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997. REVENUES. Our revenues for the year ended December 31, 1998 were $13.5 million, representing an increase of 46.0% compared to revenues of $9.3 million for the year ended December 31, 1997. This increase resulted primarily from the continued growth of our document conversion business as we obtained additional document conversion contracts funded by the U.S. Department of Defense. Our revenues from document conversion services totaled $10.4 million during 1998, representing an increase of 76.4% compared to revenues of $6.0 million during 1997. We do not expect, however, that our revenues from document conversion services will continue to increase at this growth rate in the future. Revenues from engineering and manufacturing services were $3.1 million during 1998 compared to $3.4 million during 1997. The decreased revenues from these services during 1998 resulted primarily from the completion of certain contracts and a decrease of new contracts awarded to us during 1998. COST OF REVENUES. Our cost of revenues for the year ended December 31, 1998 was $9.6 million, representing an increase of 33.8% compared to cost of revenues of $7.1 million for the year ended December 31, 1997. This increase resulted primarily from additional costs incurred relating to the increased revenues. Gross profit increased by $1.9 million, or 86.5%, from $2.1 million for the year ended December 31, 1997 to $4.0 million for the year ended December 31, 1998. As a percentage of revenues, our gross margin was 29.4% in 1998 compared to 23.0% in 1997. This increase in gross margin resulted primarily from increased revenues for document conversion services, which generally have a higher gross margin than revenues for engineering and manufacturing services, and greater absorption of overhead expenses by our higher revenue base. 81 GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the year ended December 31, 1998 were $3.2 million compared to general and administrative expenses of $1.4 million for the year ended December 31, 1997. General and administrative expenses for 1998 included non-cash expenses totaling approximately $843,000 recorded in connection with the change in the preparation of our financial statements from Canadian GAAP to U.S. GAAP. These non-cash expenses included: - $679,000 for compensation expense related to certain notes receivable previously granted to TomaHawk II, Inc. by certain management personnel and directors in connection with purchases of our common shares (see "Certain Relationships and Related Transactions--Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders--Variable Accounting Treatment"); and - $163,000 for compensation expense related to the issuance of stock options below fair market value, versus $5,000 in 1997. In 1997, we did not record compensation expense related to the above notes receivable. Under U.S. GAAP, our restructuring of the notes in 1998 required us to recognize compensation expense under the variable accounting rules. These modifications included an extension of their maturity dates and a conversion from full-recourse to non-recourse notes required us to record compensation expense based on changes in the market value of the common shares purchased with the notes. Based on this requirement, future increases in stock price will result in significant additional non-cash expenses during any period that these notes receivable remain outstanding. See "Certain Relationships and Related Transactions--Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders--Variable Accounting Treatment" and Note 5 to our Consolidated Financial Statements. The remaining significant factors accounting for the higher general and administrative expenses in 1998 include increased personnel costs, professional fees and facility costs related to our continued growth, and increased legal fees incurred in connection with litigation that we concluded and with potential acquisition opportunities that we pursued during the year. The higher expenses in 1998 also resulted from increased legal and accounting fees incurred in connection with our efforts to domesticate TomaHawk Corporation into Delaware. As a percentage of revenues, general and administrative expenses, excluding the non-cash charges mentioned above, were 17.6% in 1998 compared to 15.4% in 1997. This higher percentage in 1998 resulted from the factors discussed above. MARKETING AND SALES EXPENSES. Marketing and sales expenses for the year ended December 31, 1998 were $1.7 million, representing a 48.3% increase compared to marketing and sales expenses of $1.1 million for the year ended December 31, 1997. These increased expenses resulted primarily from higher sales commissions relating to our increased revenues, additional hires of sales personnel and increased promotional and marketing activities. As a percentage of revenues, marketing and sales expenses were 12.4% in 1998 and 12.2% in 1997. OTHER EXPENSES. Other expenses for the year ended December 31, 1998 were $637,000 compared to $136,000 for the year ended December 31, 1997. These increased expenses resulted from higher interest expense in 1998 of $321,000 compared to $136,000 in 1997, due primarily to higher average balances outstanding on our working capital credit line and higher interest amounts related to equipment obtained during 1998 under capital lease arrangements. In 1998, we also incurred non-recurring charges of $316,000 when we ceased our efforts to raise additional capital to fund potential acquisitions. NET LOSS. Our net loss for the year ended December 31, 1998 was $1.6 million compared to a net loss of $413,000 for the year ended December 31, 1997. 82 LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1999, we had negative working capital (current assets less current liabilities) of $2.2 million. This negative working capital balance has resulted primarily from our continued operating losses. Our negative working capital balance at March 31, 1999 includes $1.5 million in short-term bank debt under our working capital credit line. This credit facility provides for maximum borrowing of up to $3.0 million based on our eligible accounts receivable. Our current balance exceeds the amount available for borrowing based on our eligible accounts receivable by $169,000. Until our current receivable balances increase, we cannot borrow additional funds from this credit facility. The negative working capital balance as of March 31, 1999 represents a decrease in working capital of $500,000 from December 31, 1998, due primarily to our continued operating losses. As a result of the negative working capital balance as of December 31, 1998, the report of our independent auditors for the year ended December 31, 1998 included a qualification relating to our ability to continue as a going concern. See "Risk Factors--Risk Factors Relating to our Continuing Operations--Our limited working capital may prevent us from continuing as a going concern." Historically, we have funded operating losses through the issuance of equity and debt securities, and through borrowing under our bank credit facility. We have initiated efforts to restructure our bank credit facility and to raise up to $1.0 million for additional working capital through a private placement of equity or debt securities. However, we may not complete successfully this debt restructuring or this private placement and additional equity or debt financing may not be available at terms favorable to us, if at all. In addition, the sale of additional equity securities would dilute the holdings of our existing shareholders and the incurrence of debt would result in additional interest expense. YEAR 2000 COMPLIANCE Many existing computer systems and applications and other control devices use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the century. As a result, these systems, applications and other control devices could fail or create erroneous results unless corrected to process data related to the year 2000. The state of our year 2000 readiness may affect the services that we market, our information technology ("IT") systems, our non-IT systems and the systems of any third-parties with whom we have a material business relationship. We created a year 2000 plan in the fourth quarter of 1998 to identify, assess, remediate, replace and test the potential year 2000 vulnerability of our: - IT hardware; - IT software; - non-IT business systems; - telecommunications systems; - facilities; - suppliers; and - service providers. 83 INTERNAL YEAR 2000 READINESS. We currently are assessing the year 2000 readiness of our IT and non-IT infrastructure. We expect to complete our identification, assessment, remediation, replacement or testing of all critical systems by the end of October 1999. To date, we have tested all of our personal computers, which make up the majority of our hardware systems. All of our personal computers are either year 2000 compliant or require the computer's calendar system to be rolled over manually, which we have successfully tested. We also have tested our Unix systems and believe that they are year 2000 compliant except for one server unit. We will make this server unit compliant by replacing certain software by the end of October 1999. Although we have not tracked expenses related to our year 2000 readiness efforts separately, we estimate that our costs to date are less than $25,000, which amount primarily reflects internal labor costs associated with the development and implementation of our year 2000 plan. Our year 2000 readiness efforts to date have not disrupted our business and have not required the deferral of other IT projects. We do not expect that additional internal year 2000 costs will affect materially our business, financial condition and results of operations, and we do not expect any material disruption in our operations as a result of our failure to be year 2000 compliant. YEAR 2000 READINESS OF OUR SUPPLIERS AND CUSTOMERS. We have initiated communications with our key third-party suppliers to determine the extent to which we may be vulnerable to their failure to be year 2000 compliant in the products and services that they supply to us. Certain of our suppliers have provided certification letters indicating that their products or services are year 2000 compliant. Other suppliers are publicly traded corporations, which have disclosed their year 2000 readiness in SEC filings. We currently are completing our review of our key suppliers' year 2000 readiness and will contact any suppliers that have not yet provided us with adequate certification of their year 2000 compliance. Due to the technical sophistication of our key suppliers, we do not believe that a significant risk exists that our suppliers' state of year 2000 readiness will affect materially and adversely our business, financial condition and results of operations. We currently are developing a contingency plan to address our key supplier year 2000 compliance issues that may be identified through our ongoing assessment. We intend to complete this contingency plan by the end of October 1999. This contingency plan will identify potential new suppliers that are year 2000 compliant and back-up procedures for systems that fail to function properly. We do not believe that the costs associated with developing this contingency plan will be material. We currently do not know whether our key customers will be year 2000 compliant. If our key customers are not year 2000 compliant, then they more likely will suffer disruptions to their businesses that could cause them to delay or cancel new projects that we otherwise would have performed. We are sending letters to our key customers, including the U.S. Department of Defense, requesting information as to the state of their year 2000 readiness. This is especially true of U.S. government agencies because of our dependence on revenues from contracts funded by the U.S. Department of Defense. We will develop contingency plans according to the information contained in the responses that we receive. If some or all of our key customers are not compliant, then we could suffer lost contracts and delays in receiving payment for existing projects, any of which could affect materially and adversely our business, financial condition and results of operations. See "Risk Factors--Risk Factors Relating to our Continuing Operations--We may be exposed to our customers' year 2000 problems." CHANGE IN ACCOUNTANTS Effective December 30, 1997, we replaced our Canadian chartered accountant, Mathew J. Hoogendoorn, with Ernst & Young LLP. Our board of directors ratified the appointment of Ernst & Young LLP on June 3, 1998. The report of Mr. Hoogendoorn, dated May 27, 1997, on our financial statements as of and for the fiscal year ended December 31, 1996 did not contain an adverse opinion or a disclaimer opinion. In addition, we had no disagreements with Mr. Hoogendoorn during that time period. 84 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of May 31, 1999, certain information regarding the beneficial ownership of the existing Alberta corporation's common shares by: each person (including any group as that term is used in Section 13(d)(3) of the Securities Exchange Act) that we know to be the beneficial owner of more than 5% of our voting securities; each director; each of TomaHawk II, Inc.'s named executive officers listed in the Summary Compensation Table appearing below; and all of our directors and TomaHawk II, Inc.'s directors and executive officers as a group.
COMMON SHARES BENEFICIALLY CLASS A SERIES III PREFERRED OWNED (1) SHARES BENEFICIALLY OWNED -------------------------------- ------------------------------ NUMBER OF PERCENT OF NUMBER OF PERCENT OF NAME AND ADDRESS SHARES TOTAL SHARES TOTAL - ------------------------------------------------------ -------------- -------------- -------------- -------------- Norman F. Siegel(2) 18,568,079 21.5% -- -- 1836 N. Sedgwick Chicago, IL 60614 Steven M. Caira (3) 10,221,483 11.7% -- -- Chairman of the Board, President, and Chief Executive Officer of TomaHawk Corporation and TomaHawk II, Inc., and Acting Chief Financial Officer of TomaHawk Corporation Spirit Enterprise Limited 6,074,656 7.2% -- -- 1st Floor Columbus Centre Building P.O. Box 901 Road Town, Tortola British Virgin Islands Elliott Broidy (4) 4,527,200 5.3% -- -- c/o Broidy Capital Management 1801 Century Park East Suite 2150 Los Angeles, California 90067 Douglas W. Loughran (5) 3,034,600 3.6% -- -- Director of TomaHawk Corporation Phillip W. Card (6) 2,653,042 3.1% -- -- Vice President of Operations and Technology of TomaHawk II, Inc. and a Director of TomaHawk II, Inc. John F. Peace (7) 2,275,057 2.7% -- -- Director of TomaHawk II, Inc. Michael H. Lorber (8) 2,000,000 2.3% -- -- Vice President - Finance and Chief Financial Officer of TomaHawk II, Inc. and a Director of TomaHawk II, Inc. John C. Rogers (9) 1,257,401 1.5% -- -- Former Vice President - Federal Sales and Marketing of TomaHawk II, Inc. Thomas M. Dusmet (10) 1,150,000 1.4% -- -- Secretary and Director of TomaHawk Corporation Jonathan F. Turpin (11) 400,000 * -- -- Director of TomaHawk Corporation David P. Smoot -- -- 337,500 45% 1435 Camden Court Buffalo Grove, Illinois 60090 434556 B.C. Ltd. -- -- 337,500 45% 1590 - 609 Granville Street Vancouver, British Columbia All directors and executive officers of TomaHawk 21,734,182 24.2% -- -- Corporation and TomaHawk II, Inc. as a group (seven (7) persons)(12)
- --------------------------- 85 * Less than 1%. (1) Beneficial ownership is determined in accordance with the rules and regulation of the SEC and generally includes the power to vote or sell the securities. Stock options to purchase common shares which are currently exercisable or will become exercisable within 60 days of May 31, 1999 are deemed to be outstanding for purposes of computing the percentage of the shares held by an individual, but are not outstanding for purposes of computing the percentage of any other person. Except as indicated below in the other footnotes, and subject to community property laws where applicable, the persons named in the above table have sole voting and investment power with respect to all common shares shown as beneficially owned by them. (2) Includes 1,474,565 shares issuable under a convertible note which may be converted within 60 days of May 31, 1999. Also includes 6,431,896 shares held in trust by the existing Alberta corporation, over which Mr. Siegel possesses exclusive voting control. See "Certain Relationships and Related Transactions--Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders--Restructuring of Notes." (3) Includes 2,525,000 shares issuable under stock options exercisable within 60 days of May 31, 1999, including 25,000 shares issuable under stock options owned by Renee Caira, Mr. Caira's spouse. Also includes 5,640,636 shares held in trust by the existing Alberta corporation, over which Mr. Caira possesses exclusive voting control. See "Certain Relationships and Related Transactions--Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders--Restructuring of Notes." (4) Includes 906,733 shares held in trust by the existing Alberta corporation, over which Mr. Broidy possesses exclusive voting control. See "Certain Relationships and Related Transactions--Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders--Restructuring of Notes." (5) Includes 225,000 shares issuable under stock options exercisable within 60 days of May 31, 1999. Also includes 425,000 shares held in trust by the existing Alberta corporation, over which Mr. Loughran possesses exclusive voting control. See "Certain Relationships and Related Transactions--Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders--Restructuring of Notes." (6) Includes 700,000 shares issuable under stock options exercisable within 60 days of May 31, 1999. Also includes 1,547,020 shares held in trust by the existing Alberta corporation, over which Mr. Card possesses exclusive voting control. See "Certain Relationships and Related Transactions--Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders--Restructuring of Notes." (7) Includes 710,250 shares issuable under stock options exercisable within 60 days of May 31, 1999. Also includes 850,000 shares held in trust by the existing Alberta corporation, over which Mr. Peace possesses exclusive voting control. See "Certain Relationships and Related Transactions--Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders--Restructuring of Notes." (8) Includes 500,000 shares issuable under stock options exercisable within 60 days of May 31, 1999. Also includes 1,500,000 shares held in trust by the existing Alberta corporation, over which Mr. Lorber possesses exclusive voting control. See "Certain Relationships and Related Transactions--Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders--Restructuring of Notes." 86 (9) Includes 250,000 shares issuable under stock options exercisable within 60 days of May 31, 1999. Also includes 381,000 shares held in trust by the existing Alberta corporation, over which Mr. Rogers possesses exclusive voting control. See "Certain Relationships and Related Transactions--Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders--Restructuring of Notes." (10) Includes: 225,000 shares issuable under stock options exercisable within 60 days of May 31, 1999; 210,000 shares owned by Mr. Dusmet's spouse; 15,000 shares owned by 1110060 Ontario, Inc., a corporation organized under the laws of Ontario, Canada, which is jointly owned by Mr. Dusmet and his spouse; and 20,000 shares held in trust for Mr. Dusmet's children for which Mr. Dusmet is a trustee. Also includes 315,000 shares held in trust by the existing Alberta corporation, over which Mr. Dusmet possesses exclusive voting control. See "Certain Relationships and Related Transactions--Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders--Restructuring of Notes." Does not include 100,000 shares owned by Mr. Dusmet's father. (11) Includes 225,000 shares issuable under stock options exercisable within 60 days of May 31, 1999. (12) Includes: 5,110,250 shares issuable under stock options exercisable within 60 days of May 31, 1999, including 25,000 shares issuable under stock options owned by Mr. Caira's spouse; 210,000 shares owned by Mr. Dusmet's spouse; 15,000 shares owned by 1110060 Ontario, Inc., a corporation organized under the laws of Ontario, Canada, which is jointly owned by Mr. Dusmet and his spouse; and 20,000 shares held in trust for Mr. Dusmet's children for which Mr. Dusmet is a trustee. Does not include 100,000 shares owned by Mr. Dusmet's father. Also does not include 757,401 shares and 250,000 shares issuable under stock options exercisable within 60 of May 31, 1999 owned by Mr. Rogers. Also includes 10,277,656 shares held in trust by the existing Alberta corporation, over which certain executive officers and directors of TomaHawk Corporation and TomaHawk II, Inc. collectively possess exclusive voting control as described in footnotes 3, 5, 6, 7, 8 and 10. See "Certain Relationships and Related Transactions--Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders--Restructuring of Notes." 87 MANAGEMENT The directors and executive officers of the existing Alberta company and its subsidiary TomaHawk II, Inc. are as follows:
NAME OF DIRECTOR OR EXECUTIVE OFFICER AGE POSITION - ----------------------------------------- --------- ------------------------------------------------------------------ Steven M. Caira 42 Chairman of the Board, President, and Chief Executive Officer of TomaHawk Corporation and TomaHawk II, Inc. and Acting Chief Financial Officer of TomaHawk Corporation Thomas M. Dusmet 46 Director and Secretary of TomaHawk Corporation Douglas W. Loughran 58 Director of TomaHawk Corporation Jonathan F. Turpin 66 Director of TomaHawk Corporation Phillip W. Card 57 Vice President of Operations and Technology and a Director of TomaHawk II, Inc. Michael H. Lorber 43 Vice President of Finance, Chief Financial Officer and a Director of TomaHawk II, Inc. John F. Peace 54 Vice President of Engineering Services and a Director of TomaHawk II, Inc.
For a description of the background of each of our current directors, see "Proposal Two--Election of Directors--Information Regarding Director Nominees." A description of the background of each of our executive officers who is not a director follows: Mr. PHILLIP W. CARD has served: - since January 1996, as the vice president of operations and technology and a director of TomaHawk II, Inc.; - from January 1986 to December 1995, in a variety of positions for Rohr, Inc., including: - from February 1993 to December 1995, as manager of engineering information systems; - from February 1991 to February 1993, as director of management information systems; and - from 1968 to 1985, in a variety of positions with Boeing Computer Services Company of Seattle, Washington. In his last position with Boeing, Mr. Card oversaw and directed the Boeing Aerospace Company's information management and computer aided design/computer aided manufacturing (CAD/CAM) function. Mr. Card received a Bachelors of Science in Mathematics in 1964 and Masters of Science in Mathematics in 1966, each from the University of Montana. Mr. MICHAEL H. LORBER has served: - since October 1996, as vice president of finance, chief financial officer and a director of TomaHawk II, Inc.; 88 - from July 1994 to May 1995, as senior vice president of finance and chief financial officer of M.G. Products, a publicly traded manufacturer of decorative lighting and fixtures; and - from September 1988 to July 1994, and from May 1995 to October 1996, as vice president and chief financial officer of LIDAK Pharmaceuticals (now known as AVANIR Pharmaceuticals), a publicly traded biotechnology company. Mr. Lorber received a Bachelors of Science degree in Accounting from the University of Illinois in 1979. Mr. Lorber was certified by the State of California as a Certified Public Accountant in 1982. Mr. JOHN F. PEACE has served: - since June 1995, as a director of TomaHawk II, Inc.; - since December 1998, as the vice president of engineering services of TomaHawk II, Inc.; - from November 1993 to March 1997, as the chief operating officer of TomaHawk II, Inc.; - from March 1997 to December 1998, as Director of Precision Conversion of TomaHawk II, Inc.; - from July 1985 to November 1994, in a variety of management positions with Rohr, Inc., including: - manager, spares administration; - unit manager, assembly operations; and - chief, numerical control systems. Mr. Peace received the equivalent of a Bachelors of Science in Mechanical Engineering from Sheffield Technical College in Sheffield, England in 1965. 89 EXECUTIVE COMPENSATION SUMMARY COMPENSATION The following table shows, as to the Chief Executive Officer and each of the other four most highly compensated executive officers of TomaHawk II, Inc. (collectively, the "Named Executive Officers"), information concerning compensation awarded to, earned by or paid for services to the existing Alberta corporation and/or its subsidiary TomaHawk II, Inc. in all capacities during the fiscal years ended December 31, 1998 and 1997. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION --------------------------------------- ANNUAL COMPENSATION (1) AWARDS PAYOUTS --------------------- ------------------------- ------------ STOCK LONG-TERM ALL OTHER RESTRICTED OPTIONS INCENTIVE COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARDS (IN SHARES) PLAN PAYOUTS (2) - ------------------------------------- ------ ----------- -------- ------------ ----------- ------------ ------------ Steven M. Caira 1998 $300,000 $128,000 -- 2,500,000 -- -- President and Chief Executive 1997 237,500 $123,500 -- -- -- -- Officer of TomaHawk Corporation and TomaHawk II, Inc. and Acting Chief Financial Officer of TomaHawk Corporation John C. Rogers (3) 1998 $180,000 -- -- 250,000 -- $164,403 (4) Former Vice President of Federal 1997 $256,431(5) -- -- -- -- -- Sales and Marketing of TomaHawk II, Inc. Phillip W. Card 1998 $150,000 -- -- 700,000 -- -- Vice President of Operations and 1997 $129,750 -- -- -- -- -- Technology of TomaHawk II, Inc. Michael H. Lorber 1998 $150,000 -- -- 500,000 -- -- Vice President - Finance and 1997 $131,004 -- -- -- -- -- Chief Financial Officer of TomaHawk II, Inc. John F. Peace 1998 $111,441 -- -- 110,000 -- -- Vice President - Engineering 1997 $109,692 -- -- -- -- -- Services of TomaHawk II, Inc. William D. Koren (6) 1998 $100,008 -- -- 200,000 -- -- Director - New Business 1997 $98,831 -- -- -- -- -- Development of TomaHawk II, Inc.
--------------------------- (1) All compensation has been paid by TomaHawk II, Inc. TomaHawk Corporation has not paid any compensation to its executive officers. (2) Does not include amount of accounting expense attributed to compensation by variable accounting treatment. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Year Ended December 31, 1998 Compared with Year Ended December 31, 1997--General and Administrative Expenses" and "Certain Relationships and Related 90 Transactions--Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders--Variable Accounting Treatment." (3) During 1997, Mr. Rogers provided services to TomaHawk II, Inc. as a consultant. In January 1998, Mr. Rogers became an officer of TomaHawk II, Inc. However, as of January 1, 1999, Mr. Rogers resigned as an officer and returned to providing services to TomaHawk II, Inc. as a consultant. See "Certain Relationships and Related Transactions--Consulting Arrangement with Capstone National Partners, LLC." (4) Represents commissions from revenues derived from contracts and subcontracts funded by the U.S. Department of Defense pursuant to Mr. Rogers' compensation arrangement. See "Certain Relationships and Related Transactions--Consulting Arrangement with Capstone National Partners, LLC." (5) The compensation shown for 1997 represents broker fees and commissions earned by Mr. Rogers pursuant to a consulting arrangement with TomaHawk II, Inc. See "Certain Relationships and Related Transactions--Consulting Arrangement with Capstone National Partners, LLC." (6) Mr. Koren currently serves as TomaHawk II, Inc.'s Director of New Business Development. From August 1996 until August 1997, Mr. Koren served as TomaHawk II, Inc.'s Director of Engineering Services, and then served as TomaHawk II, Inc.'s Vice President of Engineering Services until December 1998. STOCK OPTION PLAN Our stock option plan provides for the grant of stock options to employees, directors and consultants. The rules of The Alberta Stock Exchange permit us to issue a total number of options equal to 10% of our outstanding common shares. As of May 31, 1999, we had granted options to purchase 7,330,570 common shares of the permissible pool of options to purchase 8,474,416 common shares. Our board of directors administers the stock option plan and determines the exercise price, term and vesting periods of options granted under the plan. The exercise price of stock options granted under the plan must be at least equal to 85% of the fair market value of the common shares on the date of grant. Option holders may pay the exercise price in cash, by certified check or by bank draft. Options are terminated 90 days after the participant ceases to be a director, officer or employee, and within 12 months after the participant's death. No insider or employee may be granted options to purchase an amount of common shares greater than 5% of the then outstanding common shares. For all other participants, this amount is limited to 1% of the then outstanding common shares. Our board of directors may amend, modify or terminate the stock option plan at any time without the consent of the optionees. However, any amendment, modification or termination will not affect options already granted under the plan. 91 STOCK OPTIONS GRANTED IN THE YEAR ENDED DECEMBER 31, 1998 The following table shows, as to the Named Executive Officers, information concerning stock options granted during the year ended December 31, 1998.
INDIVIDUAL GRANTS -------------------------------------------------------------------------------------------- NUMBER OF SECURITIES % OF TOTAL OPTIONS UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE PER SHARE NAME GRANTED (1) IN 1998 (2) (3), (4) EXPIRATION DATE - ------------------------ -------------------- -------------------- ------------------------ ---------------- Steven M. Caira 2,500,000 42% $0.22 3/18/03 Michael H. Lorber 500,000 8% 0.22 3/18/03 Phillip W. Card 700,000 12% 0.22 3/18/03 John F. Peace 110,000 2% 0.22 3/18/03 John C. Rogers 250,000 4% 0.22 3/18/03 William D. Koren 200,000 3% 0.22 3/18/03
- --------------------------------- (1) These options were granted under the existing Alberta corporation's stock option plan. (2) Based on a total of 5,972,000 options granted to all employees during 1998. (3) Exercise price per share in Canadian dollars. (4) Exercise price is Cdn. $0.03 less than the closing price of the options on the date of grant. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Year Ended December 31, 1998 Compared with Year Ended December 31, 1997--General and Administrative Expenses" and "Certain Relationships and Related Transactions--Variable Accounting Treatment." 92 COMMON SHARES UNDERLYING UNEXERCISED OPTIONS AND OPTION VALUES The following table shows, as to the Named Executive Officers, information concerning stock options exercised during the year ended December 31, 1998 and unexercised stock options at December 31, 1998.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN THE MONEY DECEMBER 31, 1998 OPTIONS AT DECEMBER 31, 1998 (1) --------------------------------- ---------------------------------- SHARES ACQUIRED VALUE NAME ON EXERCISE RECEIVED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---------------------- ----------- ---------- --------------- --------------- --------------- --------------- Steven M. Caira 2,500,000 200,000 2,500,000 -- 150,000 -- Michael H. Lorber 500,000 40,000 500,000 -- 30,000 -- Phillip W. Card 425,000 49,750 700,000 -- 42,000 -- John F. Peace -- -- 710,250 -- 64,213 -- William D. Koren 150,000 15,375 250,000 -- 15,000 -- John C. Rogers -- -- 200,000 -- 12,000 --
- -------------------------------------- (1) Represents the difference between the exercise price of the outstanding options and the estimated market price of the common shares on December 31, 1998 of Cdn. $0.28 per share. EMPLOYMENT AGREEMENTS We recently agreed to the terms of an employment agreement with Stephen M. Caira, our president and chief executive officer. The agreement provides for a five year term at a base salary of $300,000 per year. Mr. Caira is also eligible for an annual bonus and a grant of stock options, each subject to the approval of our board of directors. In the event that Mr. Caira is terminated without good cause, he will be entitled to a severance payment equal to one year of salary plus one month of salary for each full year of his employment with our company at the time of his termination. We have no employment agreements with any of our other Named Executive Officers. 93 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None or our directors, officers, or insiders, or any associate or affiliate of any of the foregoing persons, has or had any material interest in any transaction since the beginning of our last completed fiscal year or any proposed transaction that has materially affected, or will materially affect us or any of our affiliates, except as disclosed below. References to "we" or "us" include TomaHawk Corporation and TomaHawk II, Inc. CONSULTING ARRANGEMENT WITH CAPSTONE NATIONAL PARTNERS, LLC We have retained Capstone National Partners, LLC, a federal marketing consulting firm, to coordinate our government marketing efforts. John Rogers, our former Vice President of Federal Sales and Marketing, is the president and majority member of Capstone National Partners, LLC. We pay to Capstone National Partners, LLC a monthly retainer in the amount of US $10,000 and a 5% commission on all revenues from contracts that Capstone National Partners, LLC plays a significant role in obtaining on our behalf. To date, Capstone National Partners, LLC has helped us obtain each of our contracts funded by the ADCS program. We currently do not have a written agreement with Capstone National Partners, LLC. See "Risk Factors--Risk Factors Relating to our Continuing Operations--We may not retain the consultant that coordinates our marketing efforts directed at the U.S. government." This arrangement was not in effect during 1998 when Mr. Rogers served as our Vice President of Federal Sales and Marketing. Instead, during 1998, we paid to Mr. Rogers a base salary of US $180,000, a 2% commission on all revenues up to US $5 million from contracts that he played a significant role in obtaining on our behalf, and a 2.5% commission on all revenues from US $5 million to US $10 million from these contracts. In 1998, these commissions totaled US $164,403. See "Executive Compensation--Summary Compensation." In 1997 we paid US $256,431 to Mr. Rogers through consulting arrangements with various consulting companies controlled by Mr. Rogers. See "Executive Compensation--Summary Compensation." INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS, SENIOR MANAGEMENT AND SIGNIFICANT SHAREHOLDERS RESTRUCTURING OF NOTES. Between October 1996 and January 1999 certain directors, executive officers, senior management and significant shareholders of TomaHawk Corporation and TomaHawk II, Inc. borrowed an aggregate of US $2,756,588 from Tomahawk II, Inc. to purchase common shares in connection with a private placement, exercise stock options or exercise warrants. As of May 31, 1999, an aggregate of US $2,606,588 remained outstanding. Each of these loans is evidenced by a promissory note and secured by the common shares purchased with the proceeds of the respective loan. We will hold each borrower's common shares in trust until the borrower has repaid his loan in full. All of the loans made between October 1996 and December 1997 were originally written as two-year non-recourse loans. In connection with the audit of our financial statements for the year ended December 31, 1997, our auditors informed us that because the notes were non-recourse, under U.S. GAAP, we were required to account for the notes under variable accounting treatment. Because this accounting treatment could have resulted in significant non-cash compensation expenses to the existing Alberta corporation, we restructured the notes to make them full-recourse. In addition, each of the loans we made to our directors, officers and shareholders between January 1998 and January 1999 were structured as full-recourse loans. In November 1998, when the original notes issued in 1996 reached their maturity dates, we agreed to extend the maturity dates of each of the outstanding notes until November 1, 1999. In connection with the audit of our 1998 financial statements, our auditors informed us that by extending the maturity date of the notes, the notes were again subject to variable accounting treatment. Because the notes were now subject to variable accounting treatment whether or not they were full-recourse notes, and because our original intention had been to have non-recourse notes secured by the common shares purchased with the proceeds of the loans, we elected to restructure the notes once again. Each of these notes is now therefore a non-interest bearing, non-recourse note, secured by the common shares purchased with the proceeds of the respective loan, and maturing on November 1, 2004. See "See 94 "Management's Discussion and Analysis of Financial Condition and Results of Operation--Results of Operations--Year Ended December 31, 1998 Compared with Year Ended December 31, 1997--General and Administrative Expenses." The following table shows, as to the directors, executive officers, senior management and significant shareholders that have restructured their notes, the amounts of outstanding indebtedness restructured and the number of common shares securing the restructured outstanding indebtedness:
AMOUNT OF OUTSTANDING COMMON SHARES SECURING NAME INDEBTEDNESS (US $) (1) OUTSTANDING INDEBTEDNESS ------------------------ -------------------------------------- ----------------------------------------- Norman F. Siegel $854,832 (2) 6,431,896 Steven M. Caira $735,295 (3) 5,640,636 Michael H. Lorber $188,974 1,500,000 Phillip W. Card $176,635 (4) 1,547,020 John F. Peace $110,775 850,000 Elliot Broidy $89,586 906,733 Douglas W. Loughran $60,775 425,000
(1) Includes only indebtedness in excess of US $60,000. (2) Reflects a payment in the amount of US $50,000 made after the loan but before the restructuring; does not include US $250,000 owed to Mr. Siegel by TomaHawk II, Inc. related to a convertible debenture (see "--Indebtedness of the Existing Alberta Corporation to its Directors, Officers, and Significant Shareholders--Indebtedness to Significant Shareholder"). (3) Reflects a payment in the amount of US $100,000 made after the loan but before the restructuring; does not include approximately US $88,000 owed to Mr. Caira by TomaHawk II, Inc. related to accrued bonuses and other expenses. (4) Does not include approximately US $100,000 owed to Mr. Card by TomaHawk II, Inc. related to accrued bonuses. VARIABLE ACCOUNTING TREATMENT. In order to conform with U.S. generally accepted accounting principals, we accounted for the restructured loans made to our directors, officers, and employees under accounting rules for variable instruments. These loans to our directors, officers and employees include the loans listed in the above table, as well as loans made to Mr. Dusmet, Mr. Rogers and two other officers of TomaHawk II, Inc. These variable accounting rules require that, until these loans are paid in full, we must record compensation expense on a quarterly basis equal to the amount of the increase in the fair market value of the common shares purchased with the loans. In 1998, this variable accounting treatment resulted in a non-cash, general and administrative expense of US $679,000. Until these loans are paid in full, we will continue to incur significant non-cash expenses if the fair market value of our common shares increases. See Note 5 to our Consolidated Financial Statements INDEBTEDNESS OF THE EXISTING ALBERTA CORPORATION TO ITS DIRECTORS, OFFICERS, AND SIGNIFICANT SHAREHOLDERS INDEBTEDNESS TO DIRECTORS AND OFFICERS. As of December 31, 1998, we owed $100,000 in accrued bonus to Philip W. Card, which we anticipate will be used to pay part of the outstanding balance on his note payable to us 95 (see "--Restructuring of Notes") and $87,697 in accrued bonus and expenses to Steven M. Caira. These liabilities are non-interest bearing, and will be settled through the normal course of business. INDEBTEDNESS TO SIGNIFICANT SHAREHOLDER. In December 1996, we borrowed US $250,000 from Norman F. Siegel, a shareholder owning approximately 21.5% of our outstanding common shares. We secured the loan with accounts receivable, intangible assets, and plant and equipment not otherwise pledged. In January 1997, we refinanced the loan by issuing a convertible debenture due January 8, 1999, bearing interest at prime plus 1% per annum. This indebtedness is convertible into our common shares at Cdn. $0.23 per share, up to a maximum of 1,474,565 common shares. In connection with this financing, we issued to Mr. Siegel a warrant for the purchase of 1,474,565 shares at a price of Cdn. $0.23 per share, expiring January 8, 1999. In January 1999, Mr. Siegel exercised this warrant through the issuance of a five year non-interest bearing note. At the same time, the maturity date of the US $250,000 note in favor of Mr. Siegel was extended until January 8, 2001. INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON INDEMNIFICATION Section 145 of the General Corporation Law of the State of Delaware provides that indemnification of directors, officers, employees and other agents of the corporation, and persons who serve at its request as directors, officers, employees or other agents of another organization, may be provided by it to whatever extent specified in or authorized by the articles of organization, a bylaw adopted by the shareholders or a vote adopted by the holders of a majority of the shares of stock entitled to vote on the election of directors. The new Delaware corporation's certificate of incorporation includes provisions eliminating the personal liability of the new Delaware corporation's directors for monetary damages resulting from breaches of their fiduciary duty except in certain circumstances. The new Delaware corporation's certificate of incorporation and bylaws provide indemnification to directors and officers against claims to the full extent allowable under Delaware corporate law. We also intend to enter into indemnification agreements with our directors and executive officers providing, among other things, that we provide defense costs against this type of claim, subject to reimbursement in certain events. See "Proposal Ten--Approval of Form Indemnification Agreement." Furthermore, we intend to maintain a directors and officers liability insurance policy. INTEREST OF NAMED EXPERTS AND COUNSEL Jonathan S. Kitchen, a partner in the law firm of Baker & McKenzie, currently owns 425,000 of our common shares (before the one-for-fifteen common share consolidation), which amount represents less than 1% of our outstanding common shares as of May 31, 1999. All of Mr. Kitchen's common shares are being registered under this Proxy Statement and Information Circular. Mr. Kitchen has represented us in connection with certain litigation matters. Apart from providing information with respect to ongoing litigation (see "Business--Legal Proceedings"), Mr. Kitchen was not involved in the preparation of this Proxy Statement and Information Circular. LEGAL MATTERS Certain matters with respect to the issuance of the shares of common stock and preferred stock in connection with the Delaware domestication will be passed upon by Baker & McKenzie, San Diego, California. 96 TAX MATTERS Ernst & Young LLP, our tax advisor, has rendered a tax opinion included as an exhibit to this S-4 registration statement. It is included on the authority of Ernst & Young LLP as an expert in tax matters. EXPERTS Our financial statements as of and for the year ended December 31, 1998 and 1997 included in this Proxy Statement and Information Circular, and elsewhere in the Registration Statement of which this Proxy Statement and Information Circular forms a part, have been audited by Ernst & Young LLP, independent auditors, as described in their report on our financial statements appearing in this Proxy Statement and Information Circular and elsewhere in the Registration Statement. The financial statements are included in this Proxy Statement and Information Circular and in the Registration Statement in reliance on the report of Ernst & Young LLP, upon the authority of that firm as experts in accounting and auditing. AVAILABLE INFORMATION We currently do not report under the Securities Exchange Act. We have filed with the SEC a registration statement on Form S-4 covering the shares of common stock described in this Proxy Statement and Information Circular. We have not included in this Proxy Statement and Information Circular certain information contained in the registration statement and you should refer to the registration statement and its exhibits for further information. For a fee, you may obtain a copy of the registration statement from the public reference section of the SEC at: Judiciary Plaza, 450 5th Street, N.W., Washington, D.C. 20549; and the SEC's Regional Offices located at 7 World Trade Center, Suite 1300, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. In addition, the SEC maintains a web site on the Internet at the address http://www.sec.gov that contains reports, proxy information statements and other information regarding registrants that file electronically with the SEC. After completion of this offering, we will be subject to the reporting requirements of the Securities Exchange Act. OTHER MATTERS We are not aware of any other matters which you will vote on at the annual and special meeting. If any other matter properly comes before the annual and special meeting, then the persons named in the enclosed form of proxy will vote the shares represented thereby in accordance with their best judgment on the matter. SHAREHOLDER PROPOSALS Any shareholder proposing to have any appropriate matter brought before the 2000 annual meeting of shareholders is required to submit a proposal in accordance with the SEC's proxy rules to the secretary of the new Delaware corporation not later than ____________, 2000, to be considered for inclusion in the 2000 proxy statement. APPROVAL OF DIRECTORS The contents of this Proxy Statement and Information Circular have been approved by the board of directors of TomaHawk Corporation. 97 CERTIFICATE OF TOMAHAWK CORPORATION The foregoing contains no untrue statement of a material fact and does not omit to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it was made. DATED at San Diego, California, this 8th day of July, 1999. /s/ STEVEN M. CAIRA - -------------------------------------------------------- STEVEN M. CAIRA CHAIRMAN OF THE BOARD, PRESIDENT, CHIEF EXECUTIVE OFFICER AND ACTING CHIEF FINANCIAL OFFICER 98 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TOMAHAWK CORPORATION PAGE ---- Report of Ernst & Young, LLP, Independent Auditors..............................F-2 Consolidated Balance Sheets at December 31, 1998 and 1997.......................F-3 Consolidated Statements of Operations for the years ended December 31, 1998 and 1997.....................................................................F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998 and 1997...................................................F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997................................................................F-6 Notes to Consolidated Financial Statements......................................F-7 Consolidated Balance Sheets at March 31, 1999 (unaudited) and December 31, 1998...........................................................F-22 Consolidated Statements of Operations for the Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited) ............................F-23 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 (unaudited) and 1998 (unaudited) ............................F-24 Notes to Unaudited Consolidated Financial Statements...........................F-25
F-1 Report of Ernst & Young LLP, Independent Auditors The Board of Directors and Stockholders Tomahawk Corporation We have audited the accompanying consolidated balance sheets of Tomahawk Corporation as of December 31, 1998 and 1997, and the related statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tomahawk Corporation at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in Note 1, at December 31, 1998 the Company had a working capital deficiency of $1.7 million. While management is actively seeking additional financing to ensure that the Company has sufficient working capital to fund its ongoing operations, there are no assurances that financing can be obtained. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements of the Company do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. ERNST & YOUNG LLP San Diego, California March 12, 1999 F-2 Tomahawk Corporation Consolidated Balance Sheets
DECEMBER 31, 1998 1997 ------------------------------------ ASSETS Current assets: Cash $ 169,129 $ 271,576 Accounts receivable, net of allowance for doubtful accounts of $298,939 in 1998 and $63,946 in 1997 2,178,353 2,072,388 Other current assets 89,724 186,546 ------------------------------------ Total current assets 2,437,206 2,530,510 Property and equipment, net 2,292,410 1,053,718 Goodwill, net of accumulated amortization of $78,271 in 1998 and $6,035 in 1997 1,507,737 29,960 Other assets 216,517 125,521 ------------------------------------ Total assets $ 6,453,870 $ 3,739,709 ------------------------------------ ------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 969,634 $ 1,120,172 Accrued expenses 967,867 826,721 Bank debt 1,383,081 661,519 Current maturities of long-term debt 165,000 - Convertible debenture to a shareholder, net 250,000 160,641 Current maturities of capital lease obligations 415,041 255,068 ------------------------------------ Total current liabilities 4,150,623 3,024,121 Long-term debt 935,000 - Capital lease obligations 977,180 268,880 Commitments and contingencies Stockholders' equity: Preferred stock, no par value; 750,000 and 1,500,000 shares authorized and outstanding at December 31, 1998 and 1997, respectively 547 1,094 Common stock, no par value; 83,269,600 and 69,055,649 shares authorized and outstanding at December 31, 1998 and 1997, respectively 9,358,973 7,432,422 Additional paid-in capital 3,895,837 3,026,762 Deferred compensation (26,430) - Notes receivable for purchase of common stock, net (2,379,690) (1,159,676) Obligation to issue common stock - 39,631 Accumulated deficit (10,458,170) (8,893,525) ------------------------------------ Total stockholders' equity 391,067 446,708 ------------------------------------ ------------------------------------ Total liabilities and stockholders' equity $ 6,453,870 $ 3,739,709 ------------------------------------ ------------------------------------
SEE ACCOMPANYING NOTES. F-3 Tomahawk Corporation Consolidated Statements of Operations
YEARS ENDED DECEMBER 31, 1998 1997 ------------------------------------ Net sales $ 13,546,510 $ 9,281,351 Cost of sales 9,564,315 7,145,864 ------------------------------------ Gross margin 3,982,195 2,135,487 Operating expenses: General and administrative 3,225,966 1,435,763 Marketing and sales 1,683,481 1,135,378 ------------------------------------ Total operating expenses 4,909,447 2,571,141 ------------------------------------ Loss from operations (927,252) (435,654) Other expenses: Interest expense (321,195) (136,336) Terminated offering costs (316,198) - Gain on settlement of debt - 158,672 ------------------------------------ Net loss $ (1,564,645) $ (413,318) ------------------------------------ ------------------------------------ Net loss per share - basic and diluted $ (.02) $ (.01) ------------------------------------ ------------------------------------ Weighted average shares used in computing net loss per share - basic and diluted 75,399,286 59,758,748 ------------------------------------ ------------------------------------
SEE ACCOMPANYING NOTES. F-4 Tomahawk Corporation Consolidated Statements of Stockholders' Equity Years ended December 31, 1998 and 1997
PREFERRED STOCK COMMON STOCK ADDITIONAL ------------------------------- -------------------------------- PAID-IN SHARES AMOUNT SHARES AMOUNT CAPITAL ------------------------------- ----------------------------------------------- Balance at December 31, 1996 2,250,000 $1,642 53,654,263 $ 5,497,222 $ 2,842,996 Cancellation of Series I preferred stock (750,000) (548) Common stock upon private placement - - 2,433,632 431,699 - Common stock issued upon exercise of warrants - - 12,677,754 1,462,516 - Common stock issued upon exercise of options - - 50,000 6,080 - Common stock issued upon acquisition of company - - 125,000 19,999 - Common stock issued for services - - 115,000 14,906 - Compensation expense related to stock options - - - - 5,048 Debt issuance costs upon issuance of warrants with convertible debenture - - - - 178,718 Net loss - - - - - ------------------------------------------------------------------------------- Balance at December 31, 1997 1,500,000 1,094 69,055,649 7,432,422 3,026,762 Cancellation of Series II preferred stock (750,000) (547) - - - Common stock issued upon exercise of warrants - - 9,566,281 1,373,334 - Common stock issued upon exercise of options - - 4,308,780 488,586 - Common stock issued upon acquisition of company - - 200,000 39,631 - Common stock issued in connection with litigation settlement - - 138,890 25,000 - Payments on notes receivable - - - - - Deferred compensation related to stock options - - - - 189,845 Amortization of deferred compensation - - - - - Compensation expense related to notes receivable from management personnel and - - - - 679,230 directors Net loss - - - - - ------------------------------------------------------------------------------- Balance at December 31, 1998 750,000 $ 547 83,269,600 $ 9,358,973 $ 3,895,837 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- NOTES RECEIVABLE FROM MANAGEMENT PERSONNEL, DIRECTORS, AND OBLIGATION TO TOTAL DEFERRED SIGNIFICANT ISSUE COMMON ACCUMULATED STOCKHOLDERS' COMPENSATION SHAREHOLDERS STOCK DEFICIT EQUITY ----------------------------------------------------------------------------- Balance at December 31, 1996 $ - $ (538,226) $ - $ (8,480,207) $ (676,573) Cancellation of Series I preferred stock - - - (548) Common stock upon private placement - - - - 431,699 Common stock issued upon exercise of warrants - (621,450) - - 841,066 Common stock issued upon exercise of options - - - - 6,080 Common stock issued upon acquisition of company - - 39,631 - 59,630 Common stock issued for services - - - - 14,906 Compensation expense related to stock options - - - - 5,048 Debt issuance costs upon issuance of warrants with convertible debenture - - - - 178,718 Net loss - - - (413,318) (413,318) ----------------------------------------------------------------------------- Balance at December 31, 1997 - (1,159,676) 39,631 (8,893,525) 446,708 Cancellation of Series II preferred stock - - - - (547) Common stock issued upon exercise of warrants - (984,140) - - 389,194 Common stock issued upon exercise of options - (290,885) - - 197,701 Common stock issued upon acquisition of company - - (39,631) - - Common stock issued in connection with litigation settlement - - - - 25,000 Payments on notes receivable - 55,011 - - 55,011 Deferred compensation related to stock options (189,845) - - - - Amortization of deferred compensation 163,415 - - - 163,415 Compensation expense related to notes receivable from management personnel and - - - - 679,230 directors Net loss - - - (1,564,645) (1,564,645) ----------------------------------------------------------------------------- Balance at December 31, 1998 $ (26,430) $ (2,379,690) $ - $(10,458,170) $ 391,067 ----------------------------------------------------------------------------- -----------------------------------------------------------------------------
SEE ACCOMPANYING NOTES. F-5 Tomahawk Corporation Consolidated Statements of Cash Flows
DECEMBER 31, 1998 1997 ------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,564,645) $ (413,318) Adjustments to reconcile net loss to net cash used in operating activities: Provision for doubtful accounts 164,050 60,502 Depreciation and amortization 636,282 250,157 Gain on settlement of debt - (158,672) Amortization of debt discount 89,359 89,359 Foreign currency loss 11,105 18,216 Legal settlement for stock 25,000 14,906 Compensation expense related to options 163,415 5,048 Compensation expense related to notes receivable from management personnel and directors 679,230 - Changes in operating assets and liabilities: Accounts receivable (270,015) (1,407,852) Other assets 5,826 (303,692) Accounts payable and accrued expenses (59,392) 791,356 ------------------------------------ Net cash used in operating activities (119,785) (1,053,990) CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for acquisition (439,569) - Purchases of property and equipment (516,234) (244,963) ------------------------------------ Net cash used for investing activities (955,803) (244,963) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of shares by private placement - 431,699 Private placement warrants exercised 389,194 841,068 Exercise of stock options 197,701 6,080 Issuance of shares related to acquisitions - 19,999 Increase in note payable - 12,423 Increase in bank indebtedness 721,562 661,519 Repayment of notes receivable 55,011 - Repayment of note payable - (187,577) Principal payments under capital lease obligations (390,327) (244,459) ------------------------------------ Net cash provided by financing activities 973,141 1,540,752 ------------------------------------ (Decrease) increase in cash (102,447) 241,799 Cash at beginning of year 271,576 29,777 ------------------------------------ Cash at end of year $ 169,129 $ 271,576 ------------------------------------ ------------------------------------ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 283,470 $ 183,653 ------------------------------------ ------------------------------------ SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: Purchase of equipment under capital leases $ 613,356 $ 768,407 ------------------------------------ ------------------------------------ Acquisition - See Note 2
SEE ACCOMPANYING NOTES. F-6 Tomahawk Corporation Notes to Consolidated Financial Statements December 31, 1998 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND BUSINESS The consolidated financial statements represent the consolidation of the accounts of Tomahawk Corporation, Tomahawk Imaging & Financial, Inc., Tomahawk II, Inc., and Tomahawk Software, Inc. (collectively the "Company"). Both Tomahawk Corporation and Tomahawk Imaging & Financial, Inc. are incorporated in Alberta, Canada and Tomahawk Corporation is a registrant on the Alberta Stock Exchange. Tomahawk Imaging & Financial, Inc. is a wholly-owned subsidiary of Tomahawk Corporation. Tomahawk II, Inc. is incorporated in the State of Illinois, USA and Tomahawk Software, Inc. ("TSI") is incorporated in India. Tomahawk II is a wholly-owned subsidiary of Tomahawk Imaging & Financial, Inc. TSI is a majority-owned subsidiary of Tomahawk II. (See Note 9). All significant intercompany accounts have been eliminated in consolidation. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States (US) and, unless otherwise indicated in US dollars; however, the Company will present the financial statements to the Alberta Stock Exchange. As required by the rules of the Alberta Stock Exchange, a reconciliation between the financial statements prepared in US GAAP and Canadian GAAP is presented in Note 10. The accompanying financial statements have also been prepared assuming that the Company is a going concern. At December 31, 1998, the Company had a working capital deficiency of $1.7 million. Management is actively seeking financing from both debt and equity sources to ensure the Company has sufficient working capital to fund its ongoing operations. While management believes that they will be successful, there are no assurances that financing can be obtained. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements of the Company do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. The Company provides engineering and manufacturing services to companies primarily in the aerospace, space and defense industries. Its dominant business consists of the conversion of hard copy documents such as blueprints and text into electronic computer aided design formats. The Company also performs engineering services, two and three dimensional modeling, tool design, numerical control ("NC") programming, and precision machining and manufacturing of parts and components. F-7 Tomahawk Corporation Notes to Consolidated Financial Statements (continued) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION Revenue on fixed-price contracts is recognized on a percentage-of-completion basis. Revenue on time and materials contracts are recognized as earned as services are performed at the applicable rates in accordance with the terms of the underlying contract. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PROPERTY AND EQUIPMENT Property and equipment are carried at cost, less accumulated depreciation. Depreciation is provided on a straight-line method over the estimated useful lives of the assets, which range from three to ten years. Amortization of leasehold improvements is provided over the lesser of the remaining lease term or the estimated useful life of the improvements. The Company leases machinery, computer hardware, computer software, and office furniture and fixtures. The leased assets meeting the requirements for capitalization are included as capitalized leased assets and are amortized over the equipment's useful life. GOODWILL Goodwill relating to cost in excess of net assets acquired arose from the acquisition of various companies (see Note 2). Goodwill is amortized over estimated useful lives ranging from five to ten years. FOREIGN CURRENCY TRANSLATION The Company has determined that the US dollar is the functional currency. Monetary assets and liabilities of the Company's operations which are denominated in currencies other than U.S. dollar are translated into US dollars at the exchange rate prevailing at year end. Non-monetary items are translated at historical rates. Revenue and expense transactions are translated at exchange rates prevailing at the transaction date. All exchange gains and losses are included in net earnings in the period in which they arise. F-8 Tomahawk Corporation Notes to Consolidated Financial Statements (continued) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK-BASED COMPENSATION As permitted by Statement of Financial Accounting Standards ("SFAS") 123, the Company has elected to follow Accounting Principles Board Opinion 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and related interpretations in accounting for its employee stock awards. Under APB 25, when the exercise price of the Company's employee stock awards is not less than the market price of the underlying stock on the date of grant, no compensation expense is recognized. NET LOSS PER SHARE In 1997, the Company adopted SFAS 128, "Earnings Per Share." SFAS 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported primary earnings per share. Since such securities are antidilutive there is no difference between basic and diluted earnings (loss) per share for any of the periods presented and none of the prior periods were required to be restated. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with SFAS 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, the Company reviews long-lived assets and intangible assets for impairment caused by events or changes in circumstances which indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of that asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeded the fair value of the assets. 2. ACQUISITIONS The following acquisitions were recorded using the purchase method of accounting. Their results of operations have been included in the consolidated financial statements since their respective dates of acquisition. During 1997, the Company acquired three businesses through the issuance of 325,000 shares of common stock valued at $59,630. As of December 31, 1997, the Company had issued 19,999 shares and had recorded an obligation to issue the remaining 39,631 shares. F-9 Tomahawk Corporation Notes to Consolidated Financial Statements (continued) 2. ACQUISITIONS (CONTINUED) These shares were issued in fiscal year 1998. In conjunction with these transactions, the Company acquired current assets of $115,419, capital assets of $195,909, and assumed liabilities of $291,391. The Company recorded approximately $40,000 of goodwill in connection with these acquisitions. One of the acquired businesses was a company that provided document conversion services; a second business provided NC programming and engineering services; and the third business provided high volume document scanning services. During 1998, the Company acquired certain assets of a precision machine shop for a total purchase price of $1,540,000. The acquisition was accounted for under the purchase method and the Company recorded goodwill of approximately $1,550,000 (which the Company is amortizing over ten years) and machinery and equipment of $635,000, net of liabilities for capital leases of $645,000. In connection with this acquisition, the Company's consideration was $400,000 in cash, $40,000 in acquisition costs, a note payable with the seller in the amount of $1,100,000. Interest at an annual rate of prime plus 1% is payable on the outstanding principal balance commencing December 19, 1998. The outstanding principal balance is payable over a 60-month period commencing March 19, 1999. 3. FINANCIAL STATEMENT INFORMATION PROPERTY AND EQUIPMENT Property and equipment are stated at cost and consist of the following:
DECEMBER 31, 1998 1997 ---------------------------------- Machinery and tools $ 1,027,149 $ - Computer hardware 929,414 623,342 Computer software 870,319 493,503 Office furniture, fixtures and equipment 325,787 271,237 Leasehold improvements 82,878 44,727 ---------------------------------- 3,235,547 1,432,809 Less accumulated depreciation and amortization (943,137) (379,091) ---------------------------------- ---------------------------------- $ 2,292,410 $ 1,053,718 ---------------------------------- ----------------------------------
Computer hardware and software, with a cost of $332,483 in 1997 were fully depreciated in 1997 and have been deducted from the cost and accumulated depreciation totals. F-10 Tomahawk Corporation Notes to Consolidated Financial Statements (continued) 3. FINANCIAL STATEMENT INFORMATION (CONTINUED) Equipment acquired under capital leases totaled $1,370,735 and $643,764 (net of accumulated amortization of $406,742 and $124,643 at December 31, 1998 and 1997, respectively). BANK LOANS In February 1997, the Company entered into a Revolving Credit Loan Agreement (the "Agreement") whereby the Company is able to borrow amounts not to exceed the lesser of: 1) $750,000; or 2) the sum of 65% of the Company's net current accounts receivable at that time. The Agreement was secured by substantially all of the assets of the Company. Interest accrued at the rate of the bank's prime plus 1.5% per annum (10.25% at December 31, 1997) and outstanding borrowings totaled approximately $640,000 at December 31, 1997. In March 1998, the Company paid in full the outstanding principal and interest balances and terminated the Agreement. As a result of one of the Company's 1997 acquisitions, the Company assumed a Revolving Promissory Draw Note (the "Note") whereby the Company was able to borrow amounts not to exceed $55,000. Interest under the Note accrued at the rate of prime plus 1.75% per annum. At December 31, 1997, the interest rate was 10.50% and outstanding borrowings totaled approximately $22,000. In February 1998, the Company paid in full the outstanding principal and interest balance and terminated the agreement. In March 1998, the Company entered into a Business Loan Agreement (the "Loan Agreement") to borrow up to a maximum of $2,000,000. The Loan Agreement was secured by substantially all of the assets of Tomahawk II and is guaranteed by the Company. Interest was payable at the bank's preferred rate plus 1% per annum due on April 1, 1998 and then monthly, thereafter, until payment in full of any principal outstanding under the Loan Agreement. Outstanding principal and any unpaid interest was due on February 28, 1999. At December 31, 1998, outstanding borrowings totaled approximately $1,383,081. In March 1999, the Company revised and amended the Loan Agreement by entering into an Amended and Restated Business Loan Agreement (the "Amended Loan Agreement") to borrow up to a maximum of $3,000,000 based on eligible accounts receivable. The Amended Loan Agreement is secured substantially by all of the assets of Tomahawk II and is guaranteed by the Company. Interest is payable at the bank's reference rate plus 1% per annum starting on April 1, 1999, and monthly thereafter, until payment in full of any principal outstanding under the Amended Loan Agreement. Outstanding principal and any unpaid interest is due on February 29, 2000. The Amended Loan Agreement F-11 Tomahawk Corporation Notes to Consolidated Financial Statements (continued) 3. FINANCIAL STATEMENT INFORMATION (CONTINUED) contains restrictive covenants subject to the bank's consent, including limitations on capital expenditures and restrictions on making any loans to officers, directors or shareholders of the Company. CONVERTIBLE DEBENTURE As of December 31, 1996, the Company had a $250,000 loan provided by a significant shareholder and secured by accounts receivable, intangible assets, and plant and equipment, not otherwise pledged. In 1997, the loan was refinanced by the issuance of a convertible debenture due January 8, 1999, bearing interest at prime plus 1% per annum. The indebtedness is convertible into common shares on the basis of Canadian (CN) $0.23 per share, to a maximum of 1,474,565 shares. In connection with the financing, the debenture holder was issued a warrant for the purchase of 1,474,565 shares at a price of CN$0.23 per share, which expired on January 8, 1999. Based on the estimated fair value of the attached warrant, $178,717 was booked as debt discount relating to the warrant for the purchase of 1,474,565 shares attached to the convertible debenture. The debt discount was amortized over approximately two years. Accordingly, the Company recognized $89,359 in expense as of December 31, 1998 and December 31, 1997, respectively. OTHER EXPENSES In fiscal year 1998, the Company ceased its efforts to complete an equity or debt financing and the related costs of $316,198 incurred through December 31, 1998, were charged to operations. In 1994, the Company purchased computer hardware and software and entered into a Secured Promissory Note (the "Promissory Note") in the original principal amount of approximately $403,000. The Promissory Note was secured by the computer assets purchased. The Promissory Note became past due in December 1996, and in April 1997, the Company negotiated a settlement of the full amount of the liability for $200,000. The settlement resulted in a gain of debt of $158,672. 4. SEGMENT AND RELATED INFORMATION The Company has two reportable segments as defined by FASB Statement 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The Company's reportable segments are business units that offer different services and are managed separately because each business requires different technology and marketing strategies. F-12 Tomahawk Corporation Notes to Consolidated Financial Statements (continued) 4. SEGMENT AND RELATED INFORMATION (CONTINUED) The document imaging and conversion services segment accounted for 77% of total revenues in 1998. The engineering and precision machining services segment accounted for 23% of total revenues in 1998. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The Company allocates resources and evaluates the performance of segments based on profit or loss from operations, excluding unusual gains or losses. The Company allocates general and administrative expenses to each segment based on their respective percentages of total revenue. Intersegment sales were not significant for any period. One customer of the document imaging and conversion services segment accounted for 67% and 35% of net sales in 1998 and 1997, respectively. Two additional customers of the document imaging and conversion services segment accounted for 12% and 11% of net sales in 1997. Information regarding industry segments for 1998 and 1997 is as follows:
FOR THE YEARS ENDED DECEMBER 31 1998 1997 - ------------------------------- ------------------------------------- Net sales: Document imaging and conversion services $10,424,953 $5,908,346 Engineering and precision machining services 3,121,557 3,373,005 ------------------------------------- Total consolidated net sales $13,546,510 $9,281,351 ------------------------------------- ------------------------------------- Cost of sales: Document imaging and conversion services $ 6,166,822 $4,154,081 Engineering and precision machining services 3,397,493 2,991,783 ------------------------------------- Total consolidated cost of sales $ 9,564,315 $7,145,864 ------------------------------------- ------------------------------------- Gross margin (loss): Document imaging and conversion services $ 4,258,404 $1,754,265 Engineering and precision machining services (276,209) 381,222 ------------------------------------- Total consolidated gross margin $ 3,982,195 $2,135,487 ------------------------------------- -------------------------------------
F-13 Tomahawk Corporation Notes to Consolidated Financial Statements (continued) 4. SEGMENT AND RELATED INFORMATION (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31 1998 1997 - ------------------------------- ------------------------------------ Income (loss) from operations before unallocated amount: Document imaging and conversion services $ 731,634 $ (249,057) Engineering and precision machining services (979,656) (186,597) ------------------------------------ Total loss from operations before unallocated amount (248,022) (435,654) Unallocated amount: Compensation expense related to notes receivable from management personnel and directors (679,230) - ------------------------------------ Total consolidated loss from operations $ (927,252) $ (435,654) ------------------------------------ ------------------------------------ Other unallocated amounts: Interest expense $ (321,195) $ (136,336) Terminated offering costs (316,198) - Gain on settlement of debt - 158,672 ------------------------------------ Total other unallocated amounts $ (637,393) $ 22,336 ------------------------------------ ------------------------------------ Net loss $ (1,564,645) $ (413,318) ------------------------------------ ------------------------------------ Depreciation and amortization deducted in arriving at operating income (loss) from operations: Document imaging and conversion services $ 254,823 $ 140,910 Engineering and precision machining services 309,223 103,212 ------------------------------------ 564,046 244,122 Goodwill amortization 72,236 6,035 ------------------------------------ $ 636,282 $ 250,157 ------------------------------------ ------------------------------------ Capital expenditures (including acquisitions and capital leases): Document conversion services $ 567,819 $ 407,539 Engineering and precision machining services 1,234,958 623,888 ------------------------------------ $ 1,802,777 $ 1,031,427 ------------------------------------ ------------------------------------ AT DECEMBER 31 1998 1997 - -------------- ------------------------------------ Total assets by segment: Document imaging and conversion services $ 2,592,638 $ 2,159,518 Engineering and precision machining services 3,584,801 1,060,494 Unallocated amounts 276,431 519,697 ------------------------------------ Total consolidated assets $6,453,870 $3,739,709 ------------------------------------ ------------------------------------
Assets located in foreign countries were not significant. F-14 Tomahawk Corporation Notes to Consolidated Financial Statements (continued) 5. STOCKHOLDERS' EQUITY PREFERRED STOCK In connection with the acquisition of Tomahawk Imaging & Financial Inc. ("TIFI") in March of 1993, the Company issued 2,250,000 Class A non-voting preferred shares. In 1997, the Company has 1,500,000 issued and outstanding preferred non-cumulative shares, 750,000 of the shares relate to Series II preferred shares and 750,000 of the shares relate to Series III preferred shares. At December 31, 1998, the Company had 750,000 shares of Series III preferred shares authorized and outstanding. For each CN$2.50 of cumulative cash flow, a share of Series III preferred shares is convertible into 10 common shares. In the event these shares are not converted nor eligible for conversion by the end of 1999, they will, subject to the discretion of the Alberta Stock Exchange, be returned to the Company for cancellation. The Company does not expect these shares to be eligible for conversion. In 1998 and 1997, the Company canceled the 750,000 shares of Series II preferred and the 750,000 shares of Series I preferred, respectively, as the performance criteria for their respective conversion was not met. PRIVATE PLACEMENT ISSUANCE OF SHARES In 1997, the Company issued 2,433,632 units (comprising 2,433,632 of common stock and warrants to purchase additional 1,216,816 shares of common stock at a price of CN $0.40 per share, which expired on March 24, 1999) at a price of CN$.1774 per unit. Various directors and officers of the Company have participated in this and previous private placements. WARRANTS Transactions for all warrants granted are summarized as follows:
WEIGHTED- AVERAGE NUMBER OF EXERCISE PRICE SHARES PER SHARE --------------------------------------- Warrants outstanding at December 31, 1996 28,827,365 CN$0.22 Issued 2,691,381 0.31 Exercised (12,677,754) 0.16 Canceled (557,274) 0.17 --------------------------------------- Warrants outstanding at December 31, 1997 18,283,718 0.28 Exercised (9,566,281) 0.22 Canceled (6,026,056) 0.36 --------------------------------------- Warrants outstanding at December 31, 1998 2,691,381 CN$0.31 --------------------------------------- ---------------------------------------
F-15 Tomahawk Corporation Notes to Consolidated Financial Statements (continued) 5. STOCKHOLDERS' EQUITY (CONTINUED) As discussed above in Note 3, the warrants outstanding at December 31, 1998 expired during March of 1999. The warrants exercised were originally sold to officers and directors for notes receivable and cash (see below). STOCK OPTIONS The Stock Option Plan (the "Plan") of Tomahawk is administered by the Board of Directors of the Company. The shares offered under the Plan consist of authorized but unissued common shares of the Company. The aggregate number of shares to be delivered upon the exercise of all options granted under the Plan shall not exceed 10% of the number of common shares outstanding at the date of grant. If any options granted under the Plan shall expire or terminate for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for the purpose of this Plan. The Board of Directors may in its sole discretion, determine the time during which options shall vest and the method of vesting, or that no vesting restriction shall exist. The 1993, 1994, 1995, and 1996 grants have no vesting restrictions. Starting in 1997, the Board of Directors has attached a six-month vesting period on all future option grants. The exercise price of the shares covered by each option shall be determined by the Board of Directors of the Company. The exercise price shall not be less than the price permitted by any stock exchange on which the common shares are then listed. The common shares are listed in the Alberta Stock Exchange (the "Exchange"). The Exchange permits up to a 15% discount on the fair market value of the stock on the date of grant. The Company has historically taken the allowable discount in determining the exercise price of the stock. However, in accordance with generally accepted accounting principles in the United States, under APB 25, when the exercise price of the Company's employee stock award is less than the market price of the underlying stock on the date of grant, compensation expense is recognized over the vesting period of the options. The Company has recognized compensation expense totaling $161,415 in December 31, 1998, none in 1997 and $2,848,044 for the periods prior to 1997. Also, based on the vesting period of the options, the Company has $26,430 in deferred compensation at December 31, 1998. Furthermore, pursuant to APB 25, when options are granted to non-employees (i.e., consultants) compensation expense is recognized immediately upon grant based on the total number of shares multiplied by fair market value on the date of grant. The Company has recognized compensation expense relating to grants to consultants of $1,762 and $5,048 in December 31, 1998 and 1997, respectively. As of December 31, F-16 Tomahawk Corporation Notes to Consolidated Financial Statements (continued) 5. STOCKHOLDERS' EQUITY (CONTINUED) 1998 and 1997, the Company has recognized cumulative compensation expense of $3,011,459 and $2,848,044, respectively, related to the issuance of stock options below fair market value and the issuance of stock options to consultants. Each option and all other rights expire on the date set out in the option agreements. Since 1996 options issued by the Company expire within five years from the date of grant. Activity for the Plan is as follows:
WEIGHTED - NUMBER OF AVERAGE SHARES EXERCISE PRICE ------------------------------------- Outstanding at December 31, 1996 5,251,750 CN$0.17 Granted 793,000 0.20 Exercised (50,000) 0.17 Canceled (85,000) 0.18 ------------------------------------- Outstanding at December 31, 1997 5,909,750 0.17 Granted 5,972,000 0.22 Exercised (4,308,780) 0.16 Canceled (97,000) 0.19 ------------------------------------- Outstanding at December 31, 1998 7,475,970 CN$0.21 ------------------------------------- -------------------------------------
Following is a further breakdown of the options outstanding as of December 31, 1998:
WEIGHTED- WEIGHTED- AVERAGE AVERAGE WEIGHTED- EXERCISE PRICE OPTIONS REMAINING LIFE AVERAGE OPTIONS OF OPTIONS EXERCISE PRICES OUTSTANDING IN YEARS EXERCISE PRICE EXERCISABLE EXERCISABLE - -------------------------------------------------------------------------------------------------------------- CN$0.23 233,750 1 CN $0.23 233,750 CN$0.23 0.19 16,920 1 0.19 16,920 0.19 0.17 602,300 1 0.17 602,300 0.17 0.20 656,000 4 0.20 656,000 0.20 0.22 5,567,000 4 0.22 5,567,000 0.22 0.21 400,000 5 0.21 - - ------------------- ------------------- 7,475,970 7,075,970 ------------------- ------------------- ------------------- -------------------
F-17 Tomahawk Corporation Notes to Consolidated Financial Statements (continued) 5. STOCKHOLDERS' EQUITY (CONTINUED) Pro forma information regarding net income (loss) and earnings (loss) per share is required by SFAS 123, and has been determined as if the Company has accounted for its employee stock options using the fair value method. The fair value of these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for 1998 and 1997: risk-free interest rate of 6.50%; dividend yield of 0%; volatility factor of 79% and a weighted-average life of five years. The Black-Scholes valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period. The Company's pro forma net loss is as follows:
DECEMBER 31, 1998 1997 ---------------------------------------- Pro forma net loss $(2,344,072) $(756,609) ---------------------------------------- ---------------------------------------- Pro forma net loss per share $(.03) $(.01) ---------------------------------------- ----------------------------------------
Future pro forma results of operations under SFAS 123 may be materially different from actual amounts reported. The weighted-average fair value of options granted during the year was $0.13. The weighted-average remaining contractual life of options outstanding at December 31, 1998 is 4 years. NOTES RECEIVABLE During 1996 through 1998, the Company issued non-interest bearing full-recourse notes receivable (the "Notes") to various management personnel, directors and significant shareholders for the purchase of stock and the exercise of options and warrants. Several of these Notes came due in 1998 and the Company extended their respective maturities F-18 Tomahawk Corporation Notes to Consolidated Financial Statements (continued) 5. STOCKHOLDERS' EQUITY (CONTINUED) and ultimately concluded to revise all the Notes relating to management personnel and directors in 1999 such that they are non-recourse notes receivable. In accordance with generally accepted accounting principles, upon extending the maturities, the Company began accounting for Notes relating to management personnel and directors as variable instruments and accordingly, recorded expense of $679,230. 6. NET LOSS PER SHARE The following table sets for the computation of basic and diluted net loss per share:
DECEMBER 31, 1998 1997 ------------------------------------ Numerator: Net loss $(1,564,645) $(413,318) ------------------------------------ ------------------------------------ Denominator: Weighted average shares 75,399,286 59,758,748 ------------------------------------ ------------------------------------ Basic and diluted net loss per share $(.02) $(.01) ------------------------------------ ------------------------------------
All potential common shares have been excluded from the diluted net loss per share calculations as they are antidilutive. 7. COMMITMENTS AND CONTINGENCIES LEASES The Company leases space under operating leases expiring between 2000 and 2002 in San Diego, Chicago and Seattle. The Company records rent expense on a straight line basis ratably over the lease term. F-19 Tomahawk Corporation Notes to Consolidated Financial Statements (continued) 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) The Company leases machinery, computer hardware, computer software, and office furniture and fixtures under capital leases. Capitalized lease obligations of $1,309,243 and $768,407 were incurred in 1998 and 1997, respectively, as a result of the Company entering into various equipment capital leases. Aggregate future minimum lease commitments for all leases at December 31, 1998 are as follows:
OPERATING CAPITAL LEASES LEASES ------------------------------------ 1999 $ 691,933 $ 560,299 2000 603,069 490,414 2001 397,665 323,704 2002 401,320 289,785 2003 309,502 90,803 Thereafter - 39,143 ------------------------------------ $ 2,403,489 1,794,148 ------------------- ------------------- Less amount representing interest 401,927 ------------------ Present value of net minimum lease payments 1,392,221 Less current portion 415,041 ------------------ Long-term portion of capital lease obligations $ 977,180 ------------------ ------------------
Rent expense was $431,976 and $229,872 for the years ended December 31, 1998 and 1997, respectively. LITIGATION On February 21, 1997, a competitor commenced legal action against the Company regarding certain former employees of the plaintiff now employed by the Company. In March of 1998, the matter was settled and the case was dismissed. According to the Settlement Agreement, the Company agreed to pay $125,000 payable in cash and stock in fiscal years 1998 and 1999. As of December 31, 1997, the Company accrued the total settlement of $125,000 in the financial statements. In fiscal year 1998, the Company issued $25,000 in common stock and paid $50,000 in cash in accordance with the terms of the settlement. As of December 31, 1998, the Company accrued $37,500 relating to a breach of contract claim filed against the Company in 1997 and settled in 1998. The $37,500 amount of the settlement is expected to be paid in 1999. F-20 Tomahawk Corporation Notes to Consolidated Financial Statements (continued) 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) During 1998, the Company received approximately $250,000 in cash net of attorney fees relating to legal settlements. 8. INCOME TAXES At December 31, 1998, the Company had federal and California tax operating loss carryforwards of approximately $4,785,000 and $994,000, respectively. The federal and California tax loss carryforward will begin expiring in 2008 and 2001, respectively, unless previously utilized. The Company also has foreign net operating loss carryforwards of approximately $989,000, which will begin expiring in 1999 unless previously utilized. Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the Company's net operating loss and credit carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within any three-year period. Significant components of the Company's deferred tax assets and liabilities are shown below. A valuation allowance of $2,290,000, of which $132,000 is related to 1998, has been recognized to offset the deferred tax assets as realization of such assets is uncertain.
DECEMBER 31, 1998 1997 ---------------------------------- Deferred tax assets: Net operating losses $ 2,170,000 $ 2,057,000 Other, net 120,000 101,000 ---------------------------------- Total deferred tax assets 2,290,000 2,158,000 Valuation allowance for deferred tax assets (2,290,000) (2,158,000) ---------------------------------- Net deferred tax assets $ - $ - ---------------------------------- ----------------------------------
9. SUBSEQUENT EVENTS In February 1999, Tomahawk Corporation and Tomahawk Imaging & Financial, Inc. were combined into one corporate entity in order to simplify the Company's corporate structure. Additionally, Tomahawk Corporation is proposing to change its jurisdiction of incorporation from the Province of Alberta, Canada to the State of Delaware, USA ("domestication"), subject to an affirmative vote of the holders of 66 2/3% of the common shares of Tomahawk Corporation. After the completion of the domestication, the Company intends to merge Tomahawk II with the Delaware Company. F-21 Tomahawk Corporation Consolidated Balance Sheets
MARCH 31, DECEMBER 31, 1999 1998 ----------------------------------- (UNAUDITED) ASSETS Current assets: Cash $ 74,578 $ 169,129 Account receivable, net 1,724,484 2,178,353 Other current assets 206,973 89,724 ----------------------------------- Total current assets 2,006,035 2,437,206 Property and equipment, net 2,258,497 2,292,410 Goodwill, net 1,471,468 1,507,737 Other assets 227,232 216,517 ----------------------------------- Total assets $ 5,963,232 $ 6,453,870 ----------------------------------- ----------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,208,913 $ 969,634 Accrued expenses 900,144 967,867 Bank debt 1,463,081 1,383,081 Current maturities of long-term debt 220,000 165,000 Convertible debenture to a shareholder, net - 250,000 Current maturities of capital lease obligations 417,745 415,041 ----------------------------------- Total current liabilities 4,209,883 4,150,623 Long-term debt 880,000 935,000 Capital lease obligations 1,002,614 977,180 Convertible debenture to a shareholder, net 250,000 - Commitments and contingencies Stockholders' equity: Preferred stock, no par value; 750,000 shares authorized and 547 547 outstanding both at March 31, 1999 and December 31, 1998 Common stock, no par value; 84,759,565 and 83,269,600 shares authorized and outstanding at March 31, 1999 and December 31, 1998, respectively 9,585,025 9,358,973 Additional paid-in capital 3,965,782 3,895,837 Deferred compensation (10,572) (26,430) Notes receivable for purchase of common stock, net (2,603,029) (2,379,690) Accumulated deficit (11,317,018) (10,458,170) ----------------------------------- Total stockholders' equity (379,265) 391,067 ----------------------------------- Total liabilities and stockholders' equity $ 5,963,232 $ 6,453,870 ----------------------------------- -----------------------------------
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS F-22 Tomahawk Corporation Consolidated Statements of Operations
THREE MONTHS ENDED MARCH 31, 1999 1998 ----------------------------------- (UNAUDITED) Net sales $ 2,481,621 $ 3,441,425 Cost of sales 1,947,097 2,406,262 ----------------------------------- Gross margin 534,524 1,035,163 Operating expenses: General and administrative 835,184 495,708 Marketing and sales 446,264 363,892 ----------------------------------- Total operating expenses 1,281,448 859,600 ----------------------------------- Income (loss) from operations (746,924) 175,563 Other expenses: Interest expense (111,924) (65,391) ----------------------------------- Net income (loss) $ (858,848) $ 110,172 ----------------------------------- ----------------------------------- Net income (loss) per share - basic $ (.01) $ .002 ----------------------------------- Net income (loss) per share - diluted $ (.01) $ .001 ----------------------------------- Weighted average shares used in computing net income (loss) per share - basic 84,629,467 69,190,232 ----------------------------------- ----------------------------------- Weighted average shares used in computing net income (loss) per share - diluted 84,629,467 81,836,182 ----------------------------------- -----------------------------------
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS F-23 Tomahawk Corporation Consolidated Statements of Cash Flows
THREE MONTHS ENDED MARCH 31, 1999 1998 ----------------------------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(858,848) $ 110,172 Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 208,924 111,316 Amortization of debt discount - 22,338 Foreign currency loss - 6,410 Legal settlement for stock - 25,000 Compensation expense related to options 15,858 - Compensation expense related to notes receivable from management personnel and directors 69,945 26,355 Changes in operating assets and liabilities: Accounts receivable 587,777 (692,170) Other assets (261,872) (67,759) Accounts payable and accrued expenses 171,556 160,493 ----------------------------- Net cash used in operating activities (66,660) (297,845) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (138,241) (347,400) ----------------------------- Net cash used for investing activities (138,241) (347,400) CASH FLOWS FROM FINANCING ACTIVITIES: Private placement warrants exercised - 32,253 Exercise of stock options 2,212 174,286 Issuance of shares related to acquisitions - 39,631 Increase in bank indebtedness 80,000 103,906 Repayment of notes receivable - 100,000 Advance under capital lease line 116,000 209,411 Principal payments under capital lease obligations (87,862) (283,259) ----------------------------- Net cash provided by financing activities 110,350 376,228 ----------------------------- Decrease in cash (94,551) (269,017) Cash at beginning of period 169,129 271,576 ----------------------------- Cash at end of period $ 74,578 $ 2,559 ----------------------------- ----------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 102,152 $ 59,219 ----------------------------- ----------------------------- SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: Purchase of equipment under capital leases $ 116,000 $ 209,411 ----------------------------- -----------------------------
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS F-24 Tomahawk Corporation Notes to Unaudited Consolidated Financial Statements March 31, 1999 (UNLESS OTHERWISE NOTED, AMOUNTS EXPRESSED IN U.S. DOLLARS) 1. CONSOLIDATION AND BASIS OF PRESENTATION The unaudited interim financial statements presented herein represent the consolidation of accounts of TomaHawk Corporation, TomaHawk II, Inc and TomaHawk Software, Inc. TomaHawk Corporation is incorporated in Alberta, Canada, and is a registrant on the Alberta Stock Exchange. TomaHawk II, Inc. is incorporated in the state of Illinois, USA and is the sole operating entity of TomaHawk Corporation. TomaHawk Software Inc. is incorporated in India is a majority-owned subsidiary of TomaHawk II. All significant intercompany accounts have been eliminated in consolidation. These interim unaudited statements have been prepared by the Company pursuant to rules and regulations of the United States Securities and Exchange commission and in accordance with generally accepted accounting principles in the United States. Accordingly, certain information and footnote disclosures normally included in annual financial statements have been omitted or condensed. These statements should be read in conjunction with the Company's audited financial statements and notes thereto for the fiscal year ended December 31, 1998. In the opinion of management, all necessary adjustments have been made to provide a fair presentation. The operating results for the three months ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. 2. EARNINGS PER SHARE Earnings per share are computed in accordance with Financial Accounting Standards Board Statement No. 128, EARNINGS PER SHARE. Basic earnings per share are computed using the weighted average number of common shares outstanding during each period. Diluted earnings per share include the dilutive effect of common shares potentially issuable upon the exercise of stock options and warrants and the conversion of convertible debt or preferred stock. For the purposes of computing diluted earnings per share, weighted average common share equivalents do not include stock options or warrants with an exercise price that exceeds the average fair market value of the Company's common stock for that period. Furthermore, when a loss is reported for the period, weighted average common share equivalents do not include shares issuable upon the exercise of stock options and warrants and the conversion of convertible debt and preferred shares on the basis that such further issuance of shares would have an anti-dilutive effect on the loss per share for that period. Accordingly, for the three months ended March 31, 1999, options and warrants to purchase 7,533,072 shares of common stock, and convertible debt and preferred stock convertible into 8,974,565 shares of common stock were excluded from the computation of diluted loss per share. For the three months ended March 31, 1998, warrants to purchase 4,216,816 were excluded from the computation of diluted earnings per share. F-25 Tomahawk Corporation Notes to Consolidated Financial Statements (continued) 2. EARNINGS PER SHARE (CONTINUED) The following table reconciles the denominators used in computing basic and diluted earnings per share:
Three months ended March 31, 1999 1998 ------------------------------ Weighted average common shares outstanding 84,629,467 69,190,232 Effect of dilutive securities - 12,645,950 ------------------------------ 84,629,467 81,836,182 ------------------------------ ------------------------------
3. SEGMENT AND RELATED INFORMATION (UNAUDITED) Unaudited industry segment and related information for the three months ended March 31, 1999 is as follows:
THREE MONTHS ENDED MARCH 31, 1999 1998 --------------------------------- Net sales: Document imaging and conversion services $ 1,843,954 $ 2,507,572 Engineering services, and precision machining services 637,667 933,853 --------------------------------- $ 2,481,621 $ 3,441,425 --------------------------------- --------------------------------- Segment profit (loss) : Document imaging and conversion services $ (361,325) $ 347,305 Engineering services, and precision machining services (315,654) (145,387) --------------------------------- $ 676,979 $ 201,918 --------------------------------- --------------------------------- Segment assets Document imaging and conversion services $ 2,090,467 $ 2,772,444 Engineering services, and precision machining services 3,781,266 1,402,689 Unallocated amounts 91,499 298,379 --------------------------------- $ 5,963,232 $ 4,473,512 --------------------------------- --------------------------------- Reconciliation of segment profit (loss) to total consolidated profit (loss): Total profit (loss) for reportable segments $ (676,979) $ 201,918 Unallocated amounts: Compensation expense related to notes receivable from management personnel and directors 69,945 26,355 Interest expense 111,924 65,391 --------------------------------- Total consolidated profit (loss) $ (858,848) $ 110,172 --------------------------------- ---------------------------------
F-26 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF TOMAHAWK CORPORATION Annual and Special Meeting of Shareholders _____________, 1999 The undersigned shareholder of TomaHawk Corporation, an Alberta corporation, hereby acknowledges receipt of the Notice of Annual and Special Meeting of Shareholders and Proxy Statement and Information Circular, each dated ___________, 1999, and hereby appoints Steven M. Caira, President of TomaHawk Corporation, or failing this person, and Michael H. Lorber, an officer of TomaHawk Corporation, or in place of the foregoing __________________________ (please print name), proxies and attorneys-in-fact, with full power to each of substitution, on behalf and in the name of the undersigned, to represent the undersigned at the Annual and Special Meeting of Shareholders, ____________, 1999 at 10:00 a.m., San Diego time, to be held at 8315 Century Park Court, Suite 200, San Diego, California, and at any adjournment(s) thereof and vote all common shares and Series III Class A Preferred Shares which the undersigned would be entitled to vote if then and there personally present, on the matters set forth below: Resolutions (for full detail of each item, please see the enclosed Proxy Statement and Information Circular) 1. APPROVAL OF AN ORDINARY RESOLUTION FIXING THE NUMBER OF DIRECTORS AT FOUR [ ] FOR [ ] AGAINST [ ] ABSTAIN 2. ELECTION OF STEVEN M. CAIRA, THOMAS M. DUSMET, DOUGLAS W. LOUGHRAN AND JONATHAN F. TURPIN AS DIRECTORS [ ] FOR each of [ ] FOR each of the nominees [ ] Withhold authority the nominees (except as indicated below) to vote for all nominees To withhold authority to vote for any nominee, write that nominee's name on the line provided below ------------------------------------------- 3. APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS [ ] FOR [ ] AGAINST [ ] ABSTAIN 4. AUTHORIZATION TO CONDUCT PRIVATE PLACEMENTS [ ] FOR [ ] AGAINST [ ] ABSTAIN 5. DOMESTICATION INTO THE STATE OF DELAWARE [ ] FOR [ ] AGAINST [ ] ABSTAIN 6. AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS TO REQUIRE ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND PROPOSALS [ ] FOR [ ] AGAINST [ ] ABSTAIN 7. AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS TO PROHIBIT STOCKHOLDERS FROM CALLING SPECIAL MEETINGS OF THE STOCKHOLDERS [ ] FOR [ ] AGAINST [ ] ABSTAIN 8. AMENDMENT OF THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION TO ELIMINATE ACTIONS OF THE STOCKHOLDERS BY WRITTEN CONSENT WITHOUT A MEETING [ ] FOR [ ] AGAINST [ ] ABSTAIN 9. AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS TO REQUIRE A SUPERMAJORITY VOTE TO AMEND CERTAIN PROVISIONS OF THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS [ ] FOR [ ] AGAINST [ ] ABSTAIN 10. APPROVAL OF FORM INDEMNIFICATION AGREEMENT [ ] FOR [ ] AGAINST [ ] ABSTAIN This proxy will be voted as directed or, if no contrary direction is indicated, will be voted for approval of each of the proposals set forth above, and as said proxies deem advisable on such other matters as may come before the meeting and any adjournment(s) thereof. Affix Label Here The undersigned shareholder hereby revokes any proxy previously given to attend and vote at said meeting. Name of Shareholder Please sign here: --------------------------------------- Address of Shareholder Date: --------------------------------------- Number of Securities Represented by This proxy form is not valid unless it Proxy is signed and dated. If someone other than the shareholder of the Company signs this proxy form on behalf of the named shareholder of the Company, documentation acceptable to the Chairman of the Meeting must be deposited with this proxy form authorizing the signing person to do such. To be represented at the meeting, this proxy form must be received at the place shown on the enclosed envelope and its fax number is _______________. The Chairman of the Meeting has the discretion to accept proxies deposited less than forty-eight hours prior to the time of the Meeting. 1. This Proxy is solicited by our management and our board of directors. 2. If you cannot attend the meeting but wish to vote on the resolutions and to appoint one of our management appointees named, then please leave the wording appointing a nominee as shown, sign and date the proxy form and return the proxy form. If you do not specify a choice on a resolution shown on the proxy form, then a nominee of management acting as proxy holder will vote the securities as if you had specified an affirmative vote. 3. If you wish to attend the meeting to vote on the resolutions in person, please register your attendance with our scrutineers at the annual and special meeting, obtain a ballot and vote at the annual and special meeting. 4. If you cannot attend the meeting but wish to vote on the resolutions, then you can appoint another person, who need not be a shareholder of TomaHawk Corporation, to vote according to your instructions. To appoint someone other than the person named, please cross off the management appointee name or names and insert your appointed proxy holder's name in the space provided, sign and date the proxy form and return the proxy form. If you do not specify a choice on a resolution shown on the proxy form, this proxy form confers discretionary authority upon your appointed proxy holder. 5. The securities represented by this proxy form will be voted or withheld from voting in accordance with the your instructions on any ballot of a resolution that may be called for and, if you specify a choice with respect to any matter to be acted upon, the securities will be voted accordingly. With respect to any amendments or variations in any of the resolutions shown on the proxy form, or matters which may properly come before the Meeting, the securities will be voted by the nominee appointed as the nominee in its sole discretion sees fit. 6. If the shareholder votes on the resolutions and returns the proxy form, the shareholder may still attend the meeting and vote in person should the shareholder later decide to do so. To vote in person at the meeting, the shareholder must revoke the proxy form and obtain a ballot at the Meeting. - 2 - APPENDIX I Shareholders have the right to dissent to the Delaware domestication. Such right of dissent is described in the Proxy Statement and Information Circular. See "Proposal Five--Domestication into the State of Delaware--Right of Dissent" for full details of the right to dissent. The full text of Section 184 of BUSINESS CORPORATIONS ACT (Alberta) is provided below. SHAREHOLDER'S RIGHT TO DISSENT (l) Subject to sections 185 and 234, a holder of shares of any class of a corporation may dissent if the corporation resolves to (a) amend its articles under section 167 or 168 to add, change or remove any provisions restricting or constraining the issue or transfer of shares of that class, (b) amend its articles under section 167 to add, change or remove any restrictions on the business or businesses that the corporation may carry on, (c) amalgamate with another corporation, otherwise than under section 178 or 180.1, (d) be continued under the laws of another jurisdiction under section 182, or (e) sell, lease or exchange of all or substantially all its property under section 183. (2) A holder of shares of any class or series of shares entitled to vote under section 170, other than section 170(l)(a), may dissent if the corporation resolves to amend its articles in a manner described in that section. (3) In addition to any other right he may have, but subject to subsection (20), a shareholder entitled to dissent under this section and who complies with this section is entitled to be paid by the corporation the fair value of the shares held by him in respect of which he dissents, determined as of the close of business on the last business day before the day on which the resolution from which he dissents was adopted. (4) A dissenting shareholder may only claim under this section with respect to all the shares of a class held by him or on behalf of any one beneficial owner and registered in the name of the dissenting shareholder. (5) A dissenting shareholder shall send to the corporation a written objection to a resolution referred to in subsection (1) or (2) (a) at or before any meeting of shareholders at which the resolution is to be voted on, or (b) if the corporation did not send notice to the shareholder of the purpose of the meeting or of his right to dissent, within a reasonable time after he learns that the resolution was adopted and of his right to dissent. (6) An application may be made to the Court by originating notice after the adoption of a resolution referred to in subsection (1) or (2), (a) by the corporation, or (b) by a shareholder if he has sent an objection to the corporation under subsection (5), to fix the fair value in accordance with subsection (3) of the shares of a shareholder who dissents under this section. A-1 (7) If an application is made under subsection (6), the corporation shall, unless the Court otherwise orders, send to each dissenting shareholder a written offer to pay him an amount considered by the directors to be the fair value of the shares. (8) Unless the Court otherwise orders, an offer referred to in subsection (7) shall be sent to each dissenting shareholder (a) at least 10 days before the date on which the application is returnable, if the corporation is the applicant, or (b) within 10 days after the corporation is served with a copy of originating notice, if a shareholder is the applicant. (9) Every offer made under subsection (7) shall (a) be made on the same terms, and (b) contain or be accompanied by a statement showing how the fair value was determined. (10) A dissenting shareholder may make an agreement with the corporation for the purchase of his shares by the corporation, in the amount of the corporation's offer under subsection (7) or otherwise, at any time before the Court pronounces an order fixing the fair value of the shares. (11) A dissenting shareholder (a) is not required to give security for costs in respect of an application under subsection (6), and (b) except in special circumstances shall not be required to pay the costs of the application or appraisal. (12) In connection with an application under subsection (6), the Court may give directions for (a) joining as parties all dissenting shareholders whose shares have not been purchased by the corporation and for the representation of dissenting shareholders who, in the opinion of the Court, are in need of representation, (b) the trial of issues and interlocutory matters, including pleadings and examinations for discovery, (c) the payment to the shareholder of all or part of the sum offered by the corporation for the shares, (d) the deposit of the share certificates with the Court or with the corporation or the transfer agent, (e) the appointment and payment of independent appraisers, and the procedures to be followed by them, (f) the service of documents, and (g) the burden of proof on the parties. (13) On an application under subsection (6), the Court shall make an order (a) finding the fair value of the shares in accordance with subsection (3) of all dissenting shareholders who are parties to the application, (b) giving judgment in that amount against the corporation and in favor of each of those dissenting shareholders, and A-2 (c) fixing the time within which the corporation must pay that amount to a shareholder. (14) On (a) the action approved by the resolution from which the shareholder dissents becoming effective, (b) the making of an agreement under subsection (10) between the corporation and the dissenting shareholder as to the payment to be made by the corporation for his shares, whether by the acceptance of the corporation's offer under subsection (7) or otherwise, or (c) the pronouncement of an order under subsection (13), whichever first occurs, the shareholder ceases to have any rights as a shareholder other than the right to be paid the fair value of his shares in the amount agreed to between the corporation and the shareholder or in the amount of the judgment, as the case may be. (15) Subsection (14)(a) does not apply to a shareholder referred to in subsection (5)(b). (16) Until one of the events mentioned in subsection (14) occurs, (a) the shareholder may withdraw his dissent or (b) the corporation may rescind the resolution, and in either event proceedings under this section shall be discontinued. (17) The Court may in its discretion allow a reasonable rate of interest on the amount payable to each dissenting shareholder, from the date on which the shareholder ceases to have any rights as a shareholder by reason of subsection (14) until the date of payment. (18) If subsection (20) applies, the corporation shall, within 10 days after (a) the pronouncement of an order under subsection (13), or (b) the making of an agreement between the shareholder and the corporation as to the payment to be made for his shares, notify each dissenting shareholder that it is unable lawfully to pay dissenting shareholders for their shares. (19) Notwithstanding that a judgment has been given in favor of a dissenting shareholder under subsection (13)(b), if subsection (20) apples, the dissenting shareholder, by written notice delivered to the corporation within 30 days after receiving the notice under subsection (18), may withdraw his notice of objection, in which case the corporation is deemed to consent to the withdrawal and the shareholder is reinstated to his full rights as a shareholder, failing which he retains a status as a claimant against the corporation, to be paid as soon as the corporation is lawfully able to do so or, in a liquidation, to be ranked subordinate to the rights of creditors of the corporation but in priority to its shareholders. (20) A corporation shall not make a payment to a dissenting shareholder under this section if there are reasonable grounds for believing that (a) the corporation is or would after the payment be unable to pay its liabilities as they become due, or (b) the realizable value of the corporation's assets would thereby be less than the aggregate of its liabilities. A-3 APPENDIX II CERTIFICATE OF INCORPORATION OF TOMAHAWK ENGINEERING, INC. FIRST: The name of the Corporation is TOMAHAWK ENGINEERING, INC. (the "Corporation"). SECOND: The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware, 19801. The name of its registered agent at that address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. FOURTH: (a) AUTHORIZED CAPITAL STOCK. The total number of shares of stock which the Corporation shall have authority to issue is 21,500,000, consisting of 20,000,000 shares of Common Stock, par value $0.001 per share ("Common Stock"), 750,000 shares of Class A Preferred Stock, par value $0.001 per share ("Class A Preferred Stock"), and 750,000 shares of Preferred Stock, par value $0.001 per share ("Preferred Stock"). (b) PREFERRED STOCK. Shares of Preferred Stock may be issued in one or more series, from time to time, with each such series to consist of such number of shares and to have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, as shall be stated in the resolution or resolutions providing for the issuance of such series adopted by the Board of Directors of the Corporation (the "Board of Directors"), and the Board of Directors is hereby expressly vested with authority, to the full extent now or hereafter provided by law, to adopt any such resolution or resolutions. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: (i) The number of shares constituting that series and the distinctive designation of that series; (ii) The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (iii) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (iv) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (v) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (vi) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; B-1 (vii) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and (viii) Any other relative rights, preferences and limitations of that series. (c) CLASS A PREFERRED STOCK. (i) DIVIDENDS Subject to the prior rights of the holders of any other class or series of Preferred Stock of the Corporation with respect to priority in the payment of dividends, the holders of Class A Preferred Stock shall be entitled to receive dividends, if as and when declared by the Board of Directors out of assets of the Corporation legally available for the payment of dividends, in such amount and in such form as the Board of Directors may from time to time determine. (ii) PRIORITY ON LIQUIDATION In the event of a dissolution or liquidation of the Corporation, whether voluntary or involuntary, a sale of all or substantially all of the assets of the Corporation, in the event of the insolvency of the Corporation, or upon any distribution of its capital (other than a distribution of capital stock in the nature of a dividend), there shall be paid to the holders of Class A Preferred Stock $0.001 per share plus any accrued but unpaid dividends thereon without interest (the "Redemption Amount") before any sum shall be paid to or any assets distributed among the holders of the Common Stock. After the payment of the Redemption Amount to the holders of the Class A Preferred Stock, the remaining assets and funds of the Corporation shall be distributed ratably to the holders of the Common Stock in proportion to their holdings of such shares. (iii) CONVERSION RIGHT (A) In the event that the Corporation earns Cumulative Cash Flow (as defined below) equal to or greater than $2.50 per outstanding share of Class A Preferred Stock prior to the cancellation of the Class A Preferred Stock, each outstanding share of Class A Preferred Stock will be convertible into 2/3 of one share of Common Stock of the Corporation at the option of the holder. In the event of a consolidation, subdivision or reclassification of the Corporation's Common Stock, the conversion calculation must be adjusted so that the proportion of the outstanding shares of Class A Preferred Stock available for conversation is adjusted to reflect such consolidation, subdivision or reclassification. The Class A Preferred Stock may be converted only once during the Corporation's financial year. The conversion calculation must be based on the Corporation's annual audited consolidated financial statements for the year or years during which the conversion requirements were met in respect of the Class A Preferred Stock to be converted. For the purposes of the above-referenced conversion formula, "Cash Flow" means net income or loss after tax, generated from the business of the Corporation or any of its subsidiaries as shown on the consolidated audited financial statements or verified by the Corporation's auditors, adjusted to add back the following expenses: (i) Depreciation; (ii) Depletion; (iii) Deferred taxes; (iv) Amortization of goodwill; and B-2 (v) Deferred research and development costs. "Cumulative Cash Flow" means, at any time, the aggregate Cash Flow of the Corporation up to that time from a date no earlier than June 1, 1993, net of any negative Cash Flow. (B) A holder of Class A Preferred Stock who wishes to avail himself of this right of conversion shall submit to the head office of the Corporation a written notice indicating the number of shares of Class A Preferred Stock that he wishes to convert. Certificates representing the shares of Class A Preferred Stock to be converted shall be attached to the notice duly endorsed. Upon receipt of any such notice and the Certificates, the Corporation shall consult its auditors to confirm the number of shares of Class A Preferred Stock which are at that time convertible, and without charge issue ten (10) shares of Common Stock for each share of Class A Preferred Stock which is then requested to be converted or which then is convertible as determined by the Cumulative Cash Flow of the Corporation, whichever is less, and if only some of the Class A Preferred Stock evidenced on the certificates are converted, the Corporation shall, without charge, issue a new certificate representing the remaining shares of Class A Preferred Stock. (iv) TRANSFERABILITY Class A Preferred Stock may not be transferred except with the prior approval of the Board of Directors, that may in its absolute discretion, refuse to register the transfer of any said shares, such approval to be evidenced by a resolution of the Board of Directors. (v) CANCELLATION In the event that any of the shares of Class A Preferred Stock are not eligible for conversion into Common Stock at the conclusion of the Corporation's fiscal year beginning 1999, the Class A Preferred Stock shall be cancelled. (vi) OTHER PROVISIONS In the event that the Corporation or any of its subsidiaries becomes insolvent, voluntarily or involuntarily files for bankruptcy, takes legislative protection from its creditors or ceases, then any shares of Class A Preferred Stock which remain outstanding must be surrendered to the Corporation for cancellation and the Corporation and holders of such shares covenant to attend to their cancellation immediately. (vii) VOTING RIGHTS Except as otherwise required by law, the Class A Preferred Stock shall not be entitled to vote on any matters brought before the stockholders of the Corporation. FIFTH: The name and address of the Incorporator is as follows:
NAME ADDRESS ---- ------- Janine M. Salomone Richards, Layton & Finger One Rodney Square P.O. Box 551 Wilmington, Delaware 19801
SIXTH: The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: (1) The number of directors of the Corporation shall be such as from time to time shall be fixed by, or in the manner provided in, the bylaws. B-3 (2) In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the bylaws of the Corporation subject to the powers of the stockholders of the Corporation to alter or repeal any bylaw whether adopted by them or otherwise. (3) Unless and except to the extent that the bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot. (4) Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. (5) Any newly created directorship or any vacancy occurring in the Board of Directors for any cause may be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum, and each director so elected shall hold office until the expiration of the term of office of the director whom he has replaced or until his successor is elected and qualified. SEVENTH: A director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except (i) for any breach of a director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which a director derived an improper personal benefit. No amendment to or repeal of these provisions shall apply to or have any effect on the liability or alleged liability of any person for or with respect to any acts or omissions of such person occurring prior to such amendment. EIGHTH: (1) Appraisal rights shall be available to the holders of shares of any class or series of stock of the Corporation in the event that the Corporation: (a) amends its Certificate of Incorporation to add, change or remove any provisions restricting or constraining the issue or transfer of shares of that class; (b) amends it Certificate of Incorporation to add, change or remove any restrictions on the business or businesses that the Corporation may carry on; (c) merges with another corporation, except where the other corporation (i) is a wholly-owned subsidiary of the Corporation or (ii) owns all of the outstanding capital stock of the Corporation; (d) continues its corporate existence under the laws of another jurisdiction; or (e) sells, leases or exchanges all or substantially all of its property under Section 271 of the General Corporation Law of the State of Delaware. (2) The procedures set forth in Section 262 of the General Corporation Law of the State of Delaware except for subsection (b) shall apply MUTATIS MUTANDIS to the exercise by a shareholder of appraisal rights contained in this Certificate of Incorporation. NINTH: (1) Subject to subsection (2) of this Article, a holder of shares of any class or series of stock of the Corporation may apply to any court of equitable jurisdiction within the State of Delaware ("Court") for leave to: (a) bring an action in the name and on behalf of the Corporation or any of its subsidiaries; or (b) intervene in an action to which the Corporation or any of its subsidiaries is a party, for the purpose of prosecuting, defending or discontinuing the action on behalf of the Corporation or its subsidiary. (2) For the purposes of this Article, a Court shall not grant leave unless it is satisfied that: B-4 (a) the stockholder has given reasonable notice to the directors of the Corporation or its subsidiary of his or her intention to apply to the Court under subsection (1) of this Article if the directors of the Corporation or its subsidiary do not bring, diligently prosecute, defend or discontinue the action; (b) the stockholder is acting in good faith; and (c) it appears to be in the interests of the Corporation or its subsidiary that the action be brought, prosecuted, defended or discontinued. TENTH: (1) A holder of shares of any class or series of stock of the Corporation may apply to any Court for an order under this Article. (2) If on an application under subsection (1) of this Article, the Court is satisfied that in respect of the Corporation or any corporation which controls, or is controlled by, or is under common control with, the Corporation (collectively, its "affiliates"): (a) any act or omission of the Corporation or any of its affiliates effects a result, (b) the business or affairs of the Corporation or any of its affiliates are, or have been carried on or conducted in a manner, or (c) the powers of the directors of the Corporation or any of its affiliates are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any such stockholder, the Court may make an order to rectify the matters complained of. (3) In connection with an application under this Article, the Court may make any interim or final order that it thinks fit. (4) For purposes of this Article, "control" means the ownership of securities to which attach more than fifty percent (50%) of the votes that may be cast to elect directors, so long as such number of votes, if cast, would be sufficient to elect a majority of the directors. ELEVENTH: The Corporation shall, to the fullest extent permitted by the provisions of Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. TWELFTH: The powers of the Incorporator shall terminate upon the filing of this Certificate of Incorporation with the Secretary of State of the State of Delaware. The names, mailing addresses and classes of the persons who are to serve as the initial directors of the Corporation until their successors are duly elected and qualified, are: Steven M. Caira TomaHawk II, Inc. 8315 Century Park Court, #200 San Diego, California 92123 Thomas M. Dusmet Nesbitt Burns 90 Burnhamthorpe Road West, Suite 210 Mississagua, Ontario B-5 L5B 3C3 Canada Douglas W. Loughran 85 North Bend Street Coquitlam, British Columbia V3K 6N1 Canada Jonathan F. Turpin 2605 Fromme Road North Vancouver, British Columbia V7J 2R4 Canada THIRTEENTH. The Corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this Article. The undersigned Incorporation hereby acknowledges that the foregoing Certificate of Incorporation is her act and deed on _____________, 1999. By: -------------------------------------- Janine M. Salomone Incorporator B-6 APPENDIX III BYLAWS OF TOMAHAWK ENGINEERING, INC. ------------------------------------------------------------ ARTICLE I MEETINGS OF STOCKHOLDERS Section 1.1. ANNUAL MEETINGS. An annual meeting of stockholders shall be held for the election of directors at such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting. Section 1.2. SPECIAL MEETINGS. Special meetings of stockholders for any purpose or purposes may be called at any time by the Board of Directors or by holders of shares of Common Stock of the Corporation representing 5% of the outstanding shares. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 1.3. NOTICE OF MEETINGS. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given that shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the Corporation's certificate of incorporation (the "Certificate of Incorporation") or these bylaws, the written notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Section 1.4. ADJOURNMENTS. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 1.5. QUORUM. Except as otherwise provided by law, the Certificate of Incorporation or these bylaws, at each meeting of stockholders the presence in person or by proxy of the holders of a majority in voting power of the outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. In the absence of a quorum, the stockholders so present may, by a majority in voting power thereof, adjourn the meeting from time to time in the manner provided in Section 1.4 of these bylaws until a quorum shall attend. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation or any subsidiary of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. C-1 Section 1.6. ORGANIZATION. Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 1.7. VOTING; PROXIES. Except as otherwise provided by or pursuant to the provisions of the Certificate of Incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot. At all meetings of stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by the Certificate of Incorporation, these bylaws, the rules or regulations of any stock exchange applicable to the Corporation, as otherwise provided by law or pursuant to any regulation applicable to the Corporation, be decided by the affirmative vote of the holders of a majority in voting power of the shares of stock of the Corporation which are present in person or by proxy and entitled to vote thereon. Section 1.8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting; (2) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten (10) days from the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (3) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action of the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with applicable law, or, if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 1.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the C-2 meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. Upon the willful neglect or refusal of the directors to produce such a list at any meeting for the election of directors, they shall be ineligible for election to any office at such meeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 1.10. ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which minutes of proceedings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall, to the extent required by law, be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Corporation. Section 1.11. INSPECTORS OF ELECTION. The Corporation may, and shall if required by law, in advance of any meeting of stockholders, appoint one or more inspectors of election, who may be employees of the Corporation, to act at the meeting or any adjournment thereof and to make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. In the event that no inspector so appointed or designated is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed or designated shall (i) ascertain the number of shares of capital stock of the Corporation outstanding and the voting power of each such share, (ii) determine the shares of capital stock of the Corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of capital stock of the Corporation represented at the meeting and such inspectors' count of all votes and ballots. Such certification and report shall specify such other information as may be required by law. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the Corporation, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for an office at an election may serve as an inspector at such election. Section 1.12. CONDUCT OF MEETINGS. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do C-3 all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. ARTICLE II BOARD OF DIRECTORS Section 2.1. NUMBER; QUALIFICATIONS. The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by resolution of the Board of Directors. Directors need not be stockholders. Section 2.2. ELECTION; RESIGNATION; VACANCIES. The Board of Directors shall initially consist of the persons named as directors in the Certificate of Incorporation, and each director so elected shall hold office until the first annual meeting of stockholders or until his successor is duly elected and qualified. At the first annual meeting of stockholders and at each annual meeting thereafter, the stockholders shall elect directors each of whom shall hold office for a term of one year or until his successor is duly elected and qualified, subject to such director's earlier death, resignation, disqualification or removal. Any director may resign at any time upon written notice to the Corporation. Unless otherwise provided by law or the Certificate of Incorporation, any newly created directorship or any vacancy occurring in the Board of Directors for any cause may be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum, or by a plurality of the votes cast at a meeting of stockholders, and each director so elected shall hold office until the expiration of the term of office of the director whom he has replaced or until his successor is elected and qualified. Section 2.3. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine. Section 2.4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the President, any Vice President, the Secretary, or by any member of the Board of Directors. Notice of a special meeting of the Board of Directors shall be given by the person or persons calling the meeting at least twenty-four hours before the special meeting. Section 2.5. TELEPHONIC MEETINGS PERMITTED. Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting thereof by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this bylaw shall constitute presence in person at such meeting. Section 2.6. QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the Board of Directors a majority of the whole Board of Directors shall constitute a quorum for the transaction of business. Except in cases in which the Certificate of Incorporation, these bylaws or applicable law otherwise provides, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. C-4 Section 2.7. ORGANIZATION. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in their absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.8. ACTION BY WRITTEN CONSENT OF DIRECTORS. Unless otherwise restricted by the Certificate of Incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or such committee. ARTICLE III COMMITTEES Section 3.1. COMMITTEES. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Section 3.2. COMMITTEE RULES. Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these bylaws. ARTICLE IV OFFICERS Section 4.1. EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES. The Board of Directors shall elect a President and Secretary, and it may, if it so determines, choose a Chairman of the Board and a Vice Chairman of the Board from among its members. The Board of Directors may also choose one or more Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers. Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his election, and until his successor is elected and qualified or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. Any number of offices may be held by the same person. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting. Section 4.2. POWERS AND DUTIES OF EXECUTIVE OFFICERS. The officers of the Corporation shall have such powers and duties in the management of the Corporation as may be prescribed in a resolution by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors. The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his duties. C-5 ARTICLE V STOCK Section 5.1. CERTIFICATES. Every holder of stock shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation certifying the number of shares owned by him in the Corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 5.2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW CERTIFICATES. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. ARTICLE VI INDEMNIFICATION Section 6.1. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (an "Indemnitee") who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the written request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such Indemnitee. Notwithstanding the preceding sentence, except as otherwise provided in Section 6.3, the Corporation shall be required to indemnify an Indemnitee in connection with a proceeding (or part thereof) commenced by such Indemnitee only if the commencement of such proceeding (or part thereof) by the Indemnitee was authorized by the Board of Directors. Section 6.2. PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses (including attorneys' fees) incurred by an Indemnitee in defending any proceeding in advance of its final disposition, PROVIDED, HOWEVER, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Indemnitee to repay all amounts advanced if it should be ultimately determined that the Indemnitee is not entitled to be indemnified under this Article VI or otherwise. Section 6.3. CLAIMS. If a claim for indemnification or advancement of expenses under this Article VI is not paid in full within sixty (60) days after a written claim therefor by the Indemnitee has been received by the Corporation, the Indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the Indemnitee is not entitled to the requested indemnification or advancement of expenses under applicable law. Section 6.4. NONEXCLUSIVITY OF RIGHTS. The rights conferred on any Indemnitee by this Article VI shall not be exclusive of any other rights which such Indemnitee may have or hereafter acquire under any statute, C-6 provision of the Certificate of Incorporation, these bylaws, agreement, vote of stockholders or disinterested directors or otherwise. Section 6.5. OTHER SOURCES. The Corporation's obligation, if any, to indemnify or to advance expenses to any Indemnitee who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Indemnitee may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise. Section 6.6. AMENDMENT OR REPEAL. Any repeal or modification of the foregoing provisions of this Article VI shall not adversely affect any right or protection hereunder of any Indemnitee in respect of any act or omission occurring prior to the time of such repeal or modification. Section 6.7. OTHER INDEMNIFICATION AND PREPAYMENT OF EXPENSES. This Article VI shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Indemnitees when and as authorized by appropriate corporate action. ARTICLE VII MISCELLANEOUS Section 7.1. FISCAL YEAR. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors. Section 7.2. SEAL. The corporate seal shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. Section 7.3. MANNER OF NOTICE. Except as otherwise provided herein, notices to directors and stockholders shall be in writing and delivered personally or mailed to the directors or stockholders at their addresses appearing on the books of the Corporation. Notice to directors may be given by telegram, telecopier, telephone or other means of electronic transmission. Section 7.4. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND COMMITTEES. Any written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. Section 7.5. FORM OF RECORDS. Any records maintained by the corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. Section 7.6. AMENDMENT OF BYLAWS. These bylaws may be altered, amended or repealed, and new bylaws made, by the Board of Directors, but the stockholders may make additional bylaws and may alter and repeal any bylaws whether adopted by them or otherwise. C-7 APPENDIX IV [FORM OF INDEMNIFICATION AGREEMENT] AGREEMENT This Agreement, made and entered into this ____ day of _____________, 199__ ("Agreement"), by and between TomaHawk Engineering, Inc., a Delaware corporation ("Company"), and _____________________ ("Indemnitee"): WHEREAS, highly competent persons have become more reluctant to serve publicly-held corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation; and WHEREAS, the Board of Directors of the Company (the "Board") has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself; and WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons; and WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company's stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future; and WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified; and WHEREAS, this Agreement is a supplement to and in furtherance of the bylaws of the Company (the "Bylaws") and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefore, nor to diminish or abrogate any rights of Indemnitee thereunder; and WHEREAS, each of Section 145 of the General Corporation Law of the State of Delaware and the Bylaws is nonexclusive, and therefore contemplates that contracts may be entered into with respect to indemnification of directors, officers and employees; and WHEREAS, Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified; NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows: D-1 Section 1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve [as a [director] [executive officer] of the Company] [,at the request of the Company, as a [director] [executive officer] of [another corporation, partnership, joint venture, trust employee benefit plan or other enterprise]. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee. Indemnitee specifically acknowledges that Indemnitee's employment with the Company (or any of its subsidiaries or any Enterprise), if any, is at will, and the Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between Indemnitee and the Company (or any of its subsidiaries or any Enterprise), other applicable formal severance policies duly adopted by the Board, or, with respect to service as a director or executive officer of the Company, by the Company's Certificate of Incorporation, the Company's Bylaws, and the General Corporation Law of the State of Delaware. The foregoing notwithstanding, this Agreement shall continue in force after Indemnitee has ceased to serve as an [executive officer] [director] of the Company. Section 2. INDEMNIFICATION - GENERAL. The Company shall indemnify, and advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this Agreement and (b) (subject to the provisions of this Agreement) to the fullest extent permitted by applicable law in effect on the date hereof and as such law may be amended from time to time. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of this Agreement. Section 3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. Subject to the provisions of this Agreement, Indemnitee shall be entitled to the rights of indemnification provided in this Section 3 if, by reason of his Corporate Status (as hereinafter defined), he is, or is threatened to be made, a party to or a participant in any Proceeding (as hereinafter defined), other than a Proceeding by or in the right of the Company. Pursuant to this Section 3 but subject to the provisions of this Agreement, Indemnitee shall be indemnified against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful. Section 4. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 but subject to the provisions of this Agreement if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or a participant in any Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section but subject to the provisions of this Agreement, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company; PROVIDED, HOWEVER, that, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware, or the court in which such Proceeding shall have been brought or is pending, shall determine that such indemnification may be made. Section 5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY SUCCESSFUL. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. D-2 Section 6. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. Section 7. ADVANCEMENT OF EXPENSES. Notwithstanding any provision of this Agreement to the contrary, the Company shall advance all reasonable Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding in which Indemnitee is involved with by reason of Indemnitee's Corporate Status within ten days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 7 shall be unsecured and interest free. Section 8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION. (a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. (b) Upon written request by Indemnitee for indemnification pursuant to Section 8(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in the specific case: (i) if a Change in Control (as hereinafter defined) shall have occurred, by Independent Counsel (as hereinafter defined) in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors (as hereinafter defined), even though less than a quorum of the Board, or (B) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (C) if so directed by the Board, by the stockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys' fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. (c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) hereof, the Independent Counsel shall be selected as provided in this Section 8(c). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Disinterested Directors or, if there are no such Disinterested Directors, by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within 10 days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; PROVIDED, HOWEVER, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 17 of this Agreement, and the objection shall set forth with particularity the factual basis of such D-3 assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Court of Chancery of the State of Delaware or other court of competent jurisdiction has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 8(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other's selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 8(b) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 10(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). (d) The Company shall not be required to obtain the consent of the Indemnitee to the settlement of any Proceeding which the Company has undertaken to defend if the Company assumes full and sole responsibility for such settlement and the settlement grants the Indemnitee a complete and unqualified release in respect of the potential liability. The Company shall not be liable for any amount paid by the Indemnitee in settlement of any Proceeding that is not defended by the Company, unless the Company has consented to such settlement, which consent shall not be unreasonably withheld. Section 9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. (a) In making a determination with respect to entitlement to indemnification under this Agreement, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 8(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. (b) If the person, persons or entity empowered or selected under Section 8 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; PROVIDED, HOWEVER, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 9(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 8(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board of Directors has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such D-4 determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) of this Agreement. (c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not (except as otherwise expressly provided in this Agreement or as otherwise required by law) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. (d) RELIANCE AS SAFE HARBOR. For purposes of any determination of Good Faith, Indemnitee shall be deemed to have acted in Good Faith if Indemnitee's action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with the reasonable care by the Enterprise. The provisions of this Section 9(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement. (e) ACTIONS OF OTHERS. The knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Section 10. REMEDIES OF INDEMNITEE. (a) In the event that (i) a determination is made pursuant to Section 8 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 8(b) of this Agreement within 90 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification required under Section 5, 6, the last sentence of Section 8(b) or the last sentence of Section 17(h) of this Agreement is not made within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Court of Chancery of the State of Delaware of his entitlement to such indemnification or advancement of Expenses. Alternatively, in accordance with this Section 10, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 10(a); PROVIDED, HOWEVER, that the foregoing clause shall not apply in respect of a proceeding brought by Indemnitee to enforce his rights under Section 5 of this Agreement. The Company shall not oppose Indemnitee's right to seek any such adjudication or award in arbitration. (b) In the event that a determination shall have been made pursuant to Section 8(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 10 shall be conducted in all respects as a DE NOVO trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. (c) If a determination shall have been made pursuant to Section 8(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 10, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law. D-5 (d) In the event that Indemnitee, pursuant to this Section 10, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expenses in Section 17 of this Agreement) actually and reasonably incurred by him in such judicial adjudication or arbitration, but only if (and only to the extent) he prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. (e) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 10 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. Section 11. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION. (a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Company's Certificate of Incorporation, the Company's Bylaws, any other agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the General Corporation Law of the State of Delaware, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Company's Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy. (b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. (c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, and Indemnitee shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights. (d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for which advancement is provided hereunder) hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise; PROVIDED, HOWEVER, that the Company shall be liable to make payment of any amounts indemnifiable to the extent Indemnitee is entitled to indemnification in excess of the amount of any payments received by Indemnitee under such insurance policy, contract or agreement. (e) The Company's obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director or executive officer of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any D-6 amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. Section 12. DURATION OF AGREEMENT. This Agreement shall continue until and terminate upon the later of: (a) 10 years after the date that Indemnitee shall have ceased to serve as a director or executive officer of the Company or of any Enterprise which Indemnitee served at the request of the Company; or (b) the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 10 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his heirs, executors and administrators. Section 13. SEVERABILITY. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. Section 14. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF EXPENSES. Notwithstanding any other provision of this Agreement, but subject to Section 10(d) hereof, Indemnitee shall not be entitled to indemnification or advancement of Expenses under this Agreement with respect to any Proceeding brought by Indemnitee, or any claim therein, unless the bringing of such Proceeding or making of such claim shall have been approved by the Board of Directors. Section 15. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. Section 16. HEADINGS. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. Section 17. DEFINITIONS. For purposes of this Agreement: (a) "Change in Control" means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is then subject to such reporting requirement; PROVIDED, HOWEVER, that, without limitation, such a Change in Control shall be deemed to have occurred if after the Effective Date (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board in office immediately prior to such person attaining such percentage interest; (ii) there occurs a proxy contest, or the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board then in office, as a consequence of which members of the Board in office immediately prior to such transaction or event constitute less than a majority of the Board thereafter; or (iii) during any period of two consecutive years, other than as a result of an event D-7 described in clause (a)(ii) of this Section 17, individuals who at the beginning of such period constituted the Board (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board. (b) "Corporate Status" describes the status of a person who is or was a director or executive officer of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company in accordance with this Agreement. (c) "Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. (d) "Effective Date" means ______________, 199__. (e) "Enterprise" shall mean (i) the Company and/or any entity in which the Company has an equity interest, and/or (ii) any other corporation, partnership, joint venture, trust, employee welfare or benefit plan of the Company and/or of any entity in which the Company has an equity interest or other enterprise of which Indemnitee is or was serving at the express written request of the Company as a director or executive officer. (f) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. (g) "Good Faith" shall mean Indemnitee having acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding, having had no reasonable cause to believe Indemnitee's conduct was unlawful. (h) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. (i) "Proceeding" includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise, including any counterclaims therein, and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was a director or executive officer of the Company, by reason of any action taken by him or of any inaction on his part while acting as director or executive officer of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification or advancement of expenses can be provided under this Agreement; except one initiated by a Indemnitee pursuant to Section 10 of this Agreement to enforce his rights under this Agreement. D-8 (j) References to "other enterprise" shall include employee welfare or benefit plans; references to "fines" shall include any excise tax assessed with respect to any employee welfare or benefit plan; references to "serving at the request of the Company" shall include any service as a director or executive officer of the Company which imposes duties on, or involves services by, such director or executive officer with respect to an employee welfare or benefit plan, as participants or beneficiaries; and a person who acted in good faith and in the manner he reasonably believed to be in the interests of the participants and beneficiaries of an employee welfare or benefit plan shall be deemed to have acted in manner "not opposed to the best interests of the Company" as referred to in this Agreement. Section 18. ENFORCEMENT. (a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a [director] [and executive officer] of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a [director] [and executive officer] of the Company. (b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof. Section 19. MODIFICATION AND WAIVER. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. Section 20. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise, except to the extent the Company is materially prejudiced by such failure. Section 21. NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (a) If to Indemnitee, to: (b) If to the Company, to: OR TO SUCH OTHER ADDRESS AS MAY HAVE BEEN FURNISHED TO INDEMNITEE BY THE COMPANY OR TO THE COMPANY BY INDEMNITEE, AS THE CASE MAY BE. Section 22. CONTRIBUTION. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, D-9 penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s). Section 23. GOVERNING LAW; SUBMISSION TO JURISDICTION: APPOINTMENT OF AGENT FOR SERVICE OF PROCESS. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 10(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the "Delaware Court"), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not a resident of the State of Delaware, irrevocably the Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801 as its agent in the State of Delaware as such party's agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or otherwise inconvenient forum. Section 24. MISCELLANEOUS. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. TOMAHAWK ENGINEERING, INC. By: ---------------------------------- Name: Title: ----------------------------------------- Indemnitee Address: ------------------------------- ------------------------------- D-10 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Business Company Act (Alberta) (the "Alberta Act") provides that a corporation may indemnify a director or former director of a corporation against all costs, charges and expenses in any action to which he or she is made a party by reason of being or having been a director so long as (a) he or she acted honestly and in good faith with a view to the best interests of the corporation; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he or she had reasonable grounds for believing that his or her conduct was lawful. In addition, a director or former director who satisfies these criteria is entitled to indemnity from the corporation for all costs incurred in defending himself or herself from in any civil, criminal or administrative action or proceeding to which he or she is made a party by reason of being or having been a director or officer of the corporation or body corporate, if he or she was substantially successful on the merits in his or her defense of the action or proceeding. Sections 7.01 to 7.03 of the existing Alberta corporation's bylaws provide that: 7.01 LIMITATION OF LIABILITY. Every director and officer of the Corporation in exercising his powers and discharging his duties shall act honestly and in good faith with a view to the best interests of the Corporation and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Subject to the foregoing, no director or officer shall be liable for the acts, receipts, neglects or defaults of any other director or officer or employee, or for joining in any receipt or other act for conformity, or for any loss, damage or expense happening to the Corporation through the insufficiency or deficiency of title to any property acquired for or on behalf of the Corporation, or for the insufficiency or deficiency of any security in or upon which any of the monies of the Corporation shall be invested, or for any loss or damage arising from the bankruptcy, insolvency or tortious acts of any person with whom any of the monies, securities or effects of the Corporation shall be deposited, or for any loss occasioned by any error of judgment or oversight on his part, or for any other loss, damage or misfortune whatsoever which shall happen in the execution of the duties of his office or in relation thereto, unless the same are occasioned by his own willful neglect or default; provided that nothing herein shall relieve any director or officer from the duty to act in accordance with the Act and the regulations thereunder or from liability for any breach thereof. No act or proceeding of any director or officer or the board shall be deemed invalid or ineffective by reason of the subsequent ascertainment of any irregularity in regard to the act or proceeding or the qualification of such director or officer or board. Directors may rely upon the accuracy of any statement or report prepared by the Corporation's auditors, internal accountants or other responsible officials and shall not be responsible or held liable for any loss or damage resulting from the paying of any dividends or otherwise acting upon the statement or report. 7.02 INDEMNITY. Subject to the limitations contained in the Act, the Corporation shall indemnify a director or officer, a former director or officer, or a person who acts or acted at the Corporation's request as a director or officer of a body corporate of which the Corporation is or was a shareholder or creditor (or a person who undertakes or has undertaken any liability on behalf of the Corporation or any such body corporate) and his heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of the Corporation or the body corporate, if: II-1 (a) he acted honestly and in good faith with a view to the best interests of the Corporation; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. 7.03 INSURANCE. Subject to the limitations contained in the Act, the Corporation may purchase and maintain insurance for the benefit of its directors and officers as such, as the board may from time to time determine. Article ELEVENTH of the new Delaware corporation's certificate of incorporation provides that: The corporation shall, to the fullest extent permitted by the provisions of Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any Bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Our company may obtain insurance for the protection of its directors and officers against any liability asserted against them in their official capacities. The rights of indemnification described above are not exclusive of any other rights of indemnification to which the persons indemnified may be entitled under any bylaw, agreement, vote of shareholders or directors or otherwise. In addition to the foregoing indemnification rights, the new Delaware corporation's certificate of incorporation eliminates liability of each director to the our company and our shareholders for monetary damages to the fullest extent permitted under Delaware corporate law. Insofar as indemnification of our company for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons, pursuant to the foregoing provisions or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by a director, officer or controlling person of our company in the successful defense of any action suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of their respective counsel the matter has been settled by a controlling precedent and subject to possible conflict of laws questions involving Canadian corporation law, submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following exhibits are filed with or incorporated by reference in this Registration Statement.
EXHIBIT NUMBER DESCRIPTION - ------- ----------------------------------------------------------------------- 2.1 Articles of Amalgamation of the Registrant and TomaHawk Imaging & Financial Inc. II-2 2.2 Asset Purchase Agreement, dated as of August 1, 1998, between the Registrant and Robin Hartley 3.1 Alberta Certificate of Incorporation of the Registrant, and amendments thereto 3.2 Alberta By-laws of the Registrant, and amendments thereto 4.1 Specimen Stock Certificate for the Registrant's Common Shares 5.1* Opinion of Baker & McKenzie regarding the legality of securities being registered 8.1 Opinion of Ernst & Young LLP regarding certain tax matters 10.1 Stock Option Plan of the Registrant 10.2 Document Imaging Subcontract, dated as of March 12, 1997, between the Registrant and Intergraph Corporation 10.3 Equipment Lease Agreement, dated as of November 19, 1998, between the Registrant and Finova Group Inc. 10.4 Equipment Lease Agreement, dated as of June 10, 1997, between the Registrant and Boston Financial Equity Corporation. 10.5 Promissory Note, dated as of February 25, 1999, payable by the Registrant to Norman F. Siegel 10.6 Promissory Note, dated as of August 20, 1998, payable by the Registrant to Robin Hartley 10.7 Consolidated Promissory Note, dated as of November 1, 1998, payable by Norman F. Siegel to the Registrant 10.8 Security and Stock Pledge Agreement, dated as of November 1, 1998, between the Registrant and Norm Siegel 10.9 Consolidated Promissory Note, dated as of November 1, 1998, payable by Steven M. Caira to the Registrant 10.10 Security and Stock Pledge Agreement, dated as of November 1, 1998, between the Registrant and Steven M. Caira 10.11 Consolidated Promissory Note, dated as of November 1, 1998, payable by Michael H. Lorber to the Registrant 10.12 Security and Stock Pledge Agreement, dated as of November 1, 1998, between the Registrant and Michael H. Lorber 10.13 Consolidated Promissory Note, dated as of November 1, 1998, payable by Philip W. Card to the Registrant 10.14 Security and Stock Pledge Agreement, dated as of November 1, 1998, between the Registrant and Philip W. Card 10.15 Consolidated Promissory Note, dated as of November 1, 1998, payable by John F. Peace to the Registrant II-3 10.16 Security and Stock Pledge Agreement, dated as of November 1, 1998, between the Registrant and John F. Peace 10.17 Consolidated Promissory Note, dated as of November 1, 1998, payable by Elliott Broidy to the Registrant 10.18 Security and Stock Pledge Agreement, dated as of November 1, 1998, between the Registrant and Elliott Broidy 10.19 Consolidated Promissory Note, dated as of November 1, 1998, payable by Douglas W. Loughran to the Registrant 10.20 Security and Stock Pledge Agreement, dated as of November 1, 1998, between the Registrant and Douglas W. Loughran 10.21 Subordination Agreement, dated as of January 25, 1999, between the Registrant and Bank of America, N.A. 10.22 Sublease, dated as of March 4, 1997, between the Registrant and Medaphis Physician Services Corporation, for premises located at 8315 Century Park Court, Suite 200, San Diego, California 92123 10.23 Lease Agreement, dated as of June 5, 1998 between the Registrant and Hamann/Martin/Whitaker for premises located at 7140 Opportunity Road, San Diego, California 92123 23.1 Consent of Baker & McKenzie (contained in Exhibit 5.1) 23.2 Consent of Ernst & Young LLP, Independent Auditors 23.3 Consent of Ernst & Young LLP, Tax Advisor 24.1 Power of Attorney (included on the signature page of this Registration Statement) 27.1 Financial Data Schedule (As of December 31, 1998) 27.2 Financial Data Schedule (As of March 31, 1999)
* To be filed by amendment. (b) Schedules. No supporting schedules have been included because they are not required. ITEM 22. UNDERTAKINGS. "The undersigned registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or II-4 high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the SEC by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, that are incorporated by reference in the registration statement. (b) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. The registrant undertakes that every prospectus: (i) that is filed pursuant to the immediately preceding paragraph or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415 of the Securities Act, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by a controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed after the effective date of the registration statement through the date of responding to the request. II-5 The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective." II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized in the City of San Diego, California on July 8, 1999. TOMAHAWK CORPORATION By: /s/ Steven M. Caira --------------------------------------------------- Steven M. Caira, Chairman of the Board, President, Chief Executive Officer and Acting Chief Financial Officer POWER OF ATTORNEY KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears below on this Registration Statement hereby constitutes and appoints Steven M. Caira and Michael H. Lorber, and each and either of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities (until revoked in writing) to sign any and all amendments (including, without limitation, post-effective amendments and amendments thereto) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ Steven M. Caira Chairman of the Board, President, July 8, 1999 - --------------------------- Chief Executive Officer and Acting Steven M. Caira Chief Financial Officer /s/ Thomas M. Dusmet Secretary and Director July 8, 1999 - --------------------------- Thomas M. Dusmet /s/ Douglas W. Loughran Director July 8, 1999 - --------------------------- Douglas W. Loughran /s/ Jonathan F. Turpin Director July 8, 1999 - --------------------------- Jonathan F. Turpin
II-7 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------------------------------------------------------------------- 2.1 Articles of Amalgamation of the Registrant and TomaHawk Imaging & Financial Inc. 2.2 Asset Purchase Agreement, dated as of August 1, 1998, between the Registrant and Robin Hartley 3.1 Alberta Certificate of Incorporation of the Registrant, and amendments thereto 3.2 Alberta By-laws of the Registrant, and amendments thereto 4.1 Specimen Stock Certificate for the Registrant's Common Shares 5.1* Opinion of Baker & McKenzie regarding the legality of securities being registered 8.1 Opinion of Ernst & Young LLP regarding certain tax matters 10.1 Stock Option Plan of the Registrant 10.2 Document Imaging Subcontract, dated as of March 12, 1997, between the Registrant and Intergraph Corporation 10.3 Equipment Lease Agreement, dated as of November 19, 1998, between the Registrant and Finova Group Inc. 10.4 Equipment Lease Agreement, dated as of June 10, 1997, between the Registrant and Boston Financial Equity Corporation. 10.5 Promissory Note, dated as of February 25, 1999, payable by the Registrant to Norman F. Siegel 10.6 Promissory Note, dated as of August 20, 1998, payable by the Registrant to Robin Hartley 10.7 Consolidated Promissory Note, dated as of November 1, 1998, payable by Norman F. Siegel to the Registrant 10.8 Security and Stock Pledge Agreement, dated as of November 1, 1998, between the Registrant and Norman F. Siegel 10.9 Consolidated Promissory Note, dated as of November 1, 1998, payable by Steven M. Caira to the Registrant 10.10 Security and Stock Pledge Agreement, dated as of November 1, 1998, between the Registrant and Steven M. Caira 10.11 Consolidated Promissory Note, dated as of November 1, 1998, payable by Michael H. Lorber to the Registrant 10.12 Security and Stock Pledge Agreement, dated as of November 1, 1998, between the Registrant and Michael H. Lorber 10.13 Consolidated Promissory Note, dated as of November 1, 1998, payable by Philip W. Card to the Registrant 10.14 Security and Stock Pledge Agreement, dated as of November 1, 1998, between the Registrant and Philip W. Card 10.15 Consolidated Promissory Note, dated as of November 1, 1998, payable by John F. Peace to the Registrant 10.16 Security and Stock Pledge Agreement, dated as of November 1, 1998, between the Registrant and John F. Peace 10.17 Consolidated Promissory Note, dated as of November 1, 1998, payable by Elliott Broidy to the Registrant 10.18 Security and Stock Pledge Agreement, dated as of November 1, 1998, between the Registrant and Elliott Broidy 10.19 Consolidated Promissory Note, dated as of November 1, 1998, payable by Douglas W. Loughran to the Registrant 10.20 Security and Stock Pledge Agreement, dated as of November 1, 1998, between the Registrant and Douglas W. Loughran 10.21 Subordination Agreement, dated as of January 25, 1999, between the Registrant and Bank of America, N.A. 10.22 Sublease, dated as of March 4, 1997, between the Registrant and Medaphis Physician Services Corporation, for premises located at 8315 Century Park Court, Suite 200, San Diego, California 92123 10.23 Lease Agreement, dated as of June 5, 1998 between the Registrant and Hamann/Martin/Whitaker for premises located at 7140 Opportunity Road, San Diego, California 92123 23.1 Consent of Baker & McKenzie (contained in Exhibit 5.1) 23.2 Consent of Ernst & Young LLP, Independent Auditors 23.3 Consent of Ernst & Young LLP, Tax Advisor 24.1 Power of Attorney (included on the signature page of this Registration Statement) 27.1 Financial Data Schedule (As of December 31, 1998) 27.2 Financial Data Schedule (As of March 31, 1999)
* To be filed by amendment. EX-2.1 2 EXHIBIT 2.1 EXHIBIT 2.1 BUSINESS CORPORATIONS ACT FORM 9 (SECTION 179) Alberta Consumer and Corporate Affairs ARTICLES OF AMALGAMATION - -------------------------------------------------------------------------------- 1. NAME OF AMALGAMATED CORPORATION 2. CORPORATE ACCESS NO. TomaHawk Corporation - -------------------------------------------------------------------------------- 3. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS AUTHORIZED TO ISSUE. Unlimited number of Common voting shares without nominal par value; Unlimited number of Class "B" Common non-voting shares without nominal or par value; Unlimited number of Preferred shares without nominal or par value; all subject to the rights, privileges, restrictions and conditions as set forth in Schedule "A" attached hereto. The designation of a series of Preferred Shares as 6% Non-Cumulative Redeemable Convertible Retractable First Preferred Shares, Series A having the rights, privileges, restrictions and conditions as set forth in Schedule "B" attached hereto. The designation of the three series of Preferred Shares as "Class A", "Series II" and" Series III" Preferred Shares having the rights, privileges, restrictions and conditions as set forth in Schedule "C" attached hereto. - -------------------------------------------------------------------------------- 4. RESTRICTIONS IF ANY ON SHARE TRANSFERS. None. - -------------------------------------------------------------------------------- 5. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS. Minimum three (3) - Maximum fifteen (15). - -------------------------------------------------------------------------------- 6. RESTRICTIONS IF ANY ON BUSINESS THE CORPORATION MAY CARRY ON. None. - -------------------------------------------------------------------------------- 7. OTHER PROVISIONS IF ANY. None. - -------------------------------------------------------------------------------- 8. NAME OF AMALGAMATING CORPORATIONS. CORPORATE ACCESS NO. TomaHawk Corporation 20353521 TomaHawk Imaging & Financial Inc. 20546749 - -------------------------------------------------------------------------------- 9. DATE: SIGNATURE TITLE /s/ Steven M. Caira ------------------- February 17, 1999 Steven M. Caira President and Chief Executive Officer - -------------------------------------------------------------------------------- For Departmental Use Only Filed STATUTORY DECLARATION SAN DIEGO ) IN THE MATTER OF the Business ) Corporations Act (Alberta) AND IN THE STATE OF CALIFORNIA ) MATTER OF the Amalgamation of TOMAHAWK ) CORPORATION And TOMAHAWK IMAGING & WIT: ) FINANCIAL INC. I, Steven M. Caira, of the City of San Diego, in the State of California, do solemnly declare that: 1. I am a proposed director of Tomahawk Corporation, the amalgamated corporation resulting from the amalgamation of Tomahawk Corporation and Tomahawk Imaging & Financial Inc. (hereinafter referred to as the "Amalgamated Corporation"), and as such have personal knowledge of the matters herein declared to. 2. I have conducted such examinations of the books and records of the Amalgamated Corporation and have made such inquiries and investigations as are necessary to enable me to make this declaration. 3. There are reasonable grounds for believing that: a. the Amalgamated Corporation will be able to pay its liabilities as they become due; and b. the realizable value of the Amalgamated Corporation's assets will not be less than the aggregate of its liabilities and stated capital of all classes. 4. There are reasonable grounds for believing that no creditor will be prejudiced by the amalgamation. AND I MAKE THIS SOLEMN DECLARATION conscientiously believing the same to be true. DECLARED before me at the City of ) San Diego, in the State of California, ) This 17th day of February, 1999. ) ) ) /s/ Steven M. Caira - -------------------------------------- ) ----------------------------- A Notary Public in and for the State ) Steven M. Caira Of California ) CALIFORNIA ALL-PURPOSE ACKNOWLEDGEMENT ================================================================================ State of California ---------------------- County of San Diego --------------------- On 17 February 1999 before me, Nyla Marson, Notary Public ---------------- ------------------------------------------- NAME, TITLE OF OFFICER - E.G., "JANE DOE, NOTARY PUBLIC" personally appeared Steven M. Caira ------------------------------------------------------------ NAME(S) OF SIGNER(S) |x| personally known to me - OR - |_| proved to me on the basis of satisfactory evidence to be the person whose names is subscribed to the within instrument and acknowledged to me that he executed ================================== the same in his authorized capacity, [SEAL] NYLA MARSON and that by his signature(s) on Commission # 1132170 the instrument the person, or the Notary Public -- California entity upon behalf of which the person San Diego County acted, executed the instrument. My Comm. Expires Apr. 1, 2001 ================================== WITNESS my hand and official seal. /s/ Nyla Marson ------------------------------------------ SIGNATURE OF NOTARY ================================ OPTIONAL ====================================== Though the data below is not required by law, it may prove valuable to persons relying on the document and could prevent fraudulent reattachment of this form. CAPACITY CLAIMED BY SIGNER DESCRIPTION OF ATTACHED DOCUMENT |_| INDIVIDUAL |X| CORPORATE OFFICER PROPOSED DIRECTOR STATUTORY DECLARATION - ------------------------------------- ---------------------------------------- TITLE(S) TITLE TYPE OF DOCUMENT |_| PARTNER(S) |_| LIMITED ONE |_| GENERAL ---------------------------------------- NUMBER OF PAGES |_| ATTORNEY-IN-FACT |_| TRUSTEE(S) |_| GUARDIAN/CONSERVATOR |_| OTHER: __________________________ 02/17/99 _________________________________ ----------------------------------------- _________________________________ DATE OF DOCUMENT SIGNER IS REPRESENTING: NAME OF PERSON(S) OR ENTITY(IES) TOMAHAWK CORPORATION_________________ N/A _____________________________________ ---------------------------------------- _____________________________________ SIGNER(S) OTHER THAN NAME ABOVE ================================================================================ - -------------------------------------------------------------------------------- BUSINESS CORPORATIONS ACT FORM 3 (SECTION 27 OR 171) CONSUMER AND NOTICE OF ADDRESS OR Alberta CORPORATE AFFAIRS NOTICE OF CHANGE OF ADDRESS - -------------------------------------------------------------------------------- 1. NAME OF CORPORATION: 2. CORPORATE ACCESS NUMBER TomaHawk Corporation - -------------------------------------------------------------------------------- 3. ADDRESS OF REGISTERED OFFICE (STREET ADDRESS, INCLUDING POSTAL CODE, OR LEGAL LAND DESCRIPTION). 1400, 350 - 7th Avenue S.W. Calgary, Alberta T2P 3N9 - -------------------------------------------------------------------------------- 4. RECORDS ADDRESS (STREET ADDRESS, INCLUDING POSTAL CODE, OR LEGAL LAND DESCRIPTION). 1400, 350 - 7th Avenue, S.W. Calgary, Alberta T2P 3N9 - -------------------------------------------------------------------------------- 5. ADDRESS FOR SERVICE BY MAIL, IF DIFFERENT FROM ITEM 3 (POST OFFICE BOX, INCLUDING POSTAL CODE). Not applicable - -------------------------------------------------------------------------------- DATE SIGNATURE TITLE /s/ Steven M. Caira --------------------- February 17, 1999 Steven M. Caira President and Chief Executive Officer - -------------------------------------------------------------------------------- BUSINESS CORPORATIONS ACT (Sections 101, 108 and 276) Form 6 NOTICE OF DIRECTORS OR NOTICE OF CHANGE OF DIRECTORS - -------------------------------------------------------------------------------- 1. NAME OF CORPORATION 2. CORPORATE ACCESS NO. TomaHawk Corporation - -------------------------------------------------------------------------------- 3. ON THE 17TH DAY OF FEBRUARY, 1999, THE FOLLOWING PERSONS WERE APPOINTED DIRECTORS: - -------------------------------------------------------------------------------- Name Mailing Address (including Postal Code) Resident Canadian? - -------------------------------------------------------------------------------- STEVEN M. CAIRA 4444 Adams Street, Carlsbad, California 92008 NO - -------------------------------------------------------------------------------- THOMAS M. DUSMET 6712 Highway 25 RR1, Milton, Ontario L9T 2X5 YES - -------------------------------------------------------------------------------- DOUGLAS W. LOUGHRAN 13459 Cedar Way, Maple Ridge, B.C. V2X 7E7 YES - -------------------------------------------------------------------------------- JONATHAN F. TURPIN 2805 Fromme Road N., Vancouver, B.C. V7J 2R4 YES 4. ON THE ____ DAY OF ________, 1998, THE FOLLOWING PERSON(S) CEASED TO HOLD OFFICE AS DIRECTOR(S): - -------------------------------------------------------------------------------- Name Mailing Address (including Postal Code) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 5. AS OF THIS DATE, THE DIRECTOR(S) OF THE CORPORATION ARE: - -------------------------------------------------------------------------------- Name Mailing Address (including Postal Code) Resident Canadian? - -------------------------------------------------------------------------------- STEVEN M. CAIRA 4444 Adams Street, Carlsbad, California 92008 NO - -------------------------------------------------------------------------------- THOMAS M. DUSMET 6712 Highway 25 RR1, Milton, Ontario L9T 2X5 YES - -------------------------------------------------------------------------------- DOUGLAS W. LOUGHRAN 13459 Cedar Way, Maple Ridge, B.C. V2X 7E7 YES - -------------------------------------------------------------------------------- JONATHAN F. TURPIN 2805 Fromme Road N., Vancouver, B.C. V7J 2R4 YES 6. TO BE COMPLETED ONLY BY ALBERTA CORPORATIONS: ARE AT LEAST HALF OF THE MEMBERS OF THE BOARD OF DIRECTORS RESIDENT CANADIANS? YES |X| NO |_| - -------------------------------------------------------------------------------- 7. DATE: Signature Title 99 02 17 /s/ Steven M. Caira President and Chief Executive Officer Year Month Day -------------------- Steven M. Caira - -------------------------------------------------------------------------------- For Departmental Use Only Telephone Number ------------------------------------- Filed SCHEDULE "A" TO THE ARTICLES OF AMALGAMATION OF TOMAHAWK CORPORATION The classes and any maximum number of shares that the Corporation is authorized to issue are: Unlimited number of Common voting shares without nominal or par value; Unlimited number of Class "B" Common non-voting shares without nominal or par value; Unlimited number of Preferred shares without nominal or par value; all subject to the rights, privileges, restrictions and conditions as hereinafter set forth: 1. The Common and Class "B" Common shares shall respectively carry and be subject to the following rights, privileges, restrictions and conditions, namely: a. The holders of the Common shares shall be entitled to one (1) vote in respect of each such Common share held at all meetings of the shareholders of the Corporation; b. Subject to the right to vote at a meeting of the holders of Class "B" Common shares, the holders of the Class "B" Common shares shall not be entitled as such to receive notice of or to attend any meeting of the shareholders of the Corporation, and shall not be entitled to vote at any such meeting; c. In the event of the liquidation, dissolution or winding up of the Corporation or other distribution of assets of the Corporation (except payment of dividends) among shareholders for the purpose of winding up its affairs, the holders of the Common and Class "B" Common shares shall rank equally in the distribution of all or any part of the property and assets of the Corporation, which property and assets shall be distributed to the holders of common shares pro rata to the number of common shares issued and outstanding on the date of such distribution; d. The holders of Common and Class "B" Common shares need not rank equally or be treated equally in the declaration or payment of dividends and the Directors shall have full and absolute discretion to declare and pay dividends: i. to the holders of Common shares only; or ii. to the holders of Class "B" Common shares only; or iii. of differing amounts per share to the holders of Common shares and the holders of Class "B" Common shares; provided that within each class of shares, all dividends shall be paid to the shareholders in proportion to the number of shares held by them. 2 2. The Preferred shares shall have attached thereto, as a class, the following rights, privileges, restrictions and conditions, namely: a. Directors' Right to Issue in One or More Series The Preferred shares may at any time, or from time to time, be issued in one or more series, each series to consist of such number of shares as may, before the issue thereof, be determined by resolution of the Board of Directors of the Corporation; b. Directors' Right to Fix Terms of Each Series The Directors of the Corporation shall, by ordinary resolution, fix from time to time before the issue thereof the designation, price, restrictions, conditions and limitations attaching to the Preferred shares of each series including, without limiting the generality of the foregoing, the rate or amount of dividends or the method of calculating dividends, the dates of payment thereof, the redemption or purchase prices and terms and conditions of redemption or purchase, any voting rights, any conversion rights and any sinking fund or other provisions; c. Ranking of Preferred Shares The Preferred shares of each series shall rank, both as regards dividends and return of capital, in priority to all other shares of the Corporation. The Preferred shares of any series may also be given such other preferences over the Common shares and over any other shares of the Corporation ranking junior to the Preferred shares, as may be fixed in accordance with paragraph 2(b) hereof; provided, however, that no rights, privileges, restrictions or conditions attached to a series of shares shall confer on a series a priority in respect of voting, dividends or return of capital over any other series of shares of the same class that are then outstanding. SCHEDULE "B" TO THE ARTICLES OF AMALGAMATION OF TOMAHAWK CORPORATION Provisions attaching to the 6% Non-Cumulative Redeemable Convertible Retractable First Preferred Shares, Series A The first series of Preferred Shares of TomaHawk Corporation (the "Corporation") shall consist of 100,000 shares without nominal or par value, shall be designated as 6% Non-Cumulative Redeemable Convertible Retractable First Preferred Shares, Series A (the "Series A Shares") and, in addition to the rights, conditions, restrictions and limitations attached to the Preferred Shares as a class, shall have attached thereto rights, conditions, restrictions and limitations substantially as hereinafter set forth, that is to say: 1. Issue Price 1.1 The stated value of the Series A Shares shall be $10.00 per share. 2. Dividends 2.1 The holders of the Series A Shares shall be entitled to receive fixed, non-cumulative, preferential cash dividends, out of monies properly applicable to the payment of dividends, at the lesser of the following rates: a. a rate of 6% of the stated value per Series A Share ($0.60 per Series A Share) per annum, as and when declared by the board of directors of the Corporation; or b. a rate of 20% of the Corporation's net income before depreciation, before depletion and after current income taxes as computed in accordance with generally accepted accounting principles. 2.2 The Corporation shall, promptly after the preparation of its annual financial statements, provide notice to the Transfer Agent as to the amount set forth in paragraph 2.1(b). 2.3 Cheques of the Corporation, dated the dividend payment date and payable at par at any branch of the Corporation's bankers for the time being in Canada, shall be issued in respect of each such dividend and the mailing thereof to any holder shall satisfy the dividend represented thereby unless the cheque be not paid upon presentation. No shareholder shall be entitled to recover by action or other legal process against the Corporation respecting any dividend that is represented by a cheque that has not been duly presented to the Corporation's bankers for payment and that otherwise remains unclaimed for a period of six years from the date on which it was payable. If, on any dividend payment date, the dividend payable on such date is not paid in full on all the Series A Shares then issued and outstanding, such dividend or the unpaid part thereof shall not be required to be paid on a subsequent date. 2.4. The holders of the Series A Shares shall not be entitled to any dividends other than or in excess of the dividends for which provision is expressly made herein. 2 3. Liquidation 3.1 In the event of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation or other distribution of assets of the Corporation among its shareholders for the purpose of winding up its affairs, the holders of Series A Shares shall be entitled to receive $10.00 for each Series A Share held. 3.2 In all cases the holders of the Series A Shares shall be entitled to be paid all moneys payable pursuant to paragraph 3.1 before any amount shall be paid or any distribution of the assets of the Corporation shall be made to the holders of the common shares or any other shares of the Corporation ranking junior to the Series A Shares with respect to distributions upon liquidation. 3.3 After payment to the holders of the Series A Shares of the amounts so payable to them they shall not be entitled to share in any further distribution of the property or assets of the Corporation. 4. Retraction Privilege 4.1 Holders of the Series A Shares shall have the option or privilege (the "Retraction Privilege") of requiring the Corporation in any calendar year, to redeem, subject to applicable law, up to 25% of the holder's Series A Shares (the "Retraction Limit") which have not previously been converted to common shares of the Corporation (the "Common Shares") pursuant to the provisions of Section 7 hereof, in the event that the net earnings of the Corporation have exceeded $250,000 for that calendar year (the "Retraction Event"), which Retraction Privilege shall be effected at a price (the "Retraction Price") equal to $10.00 per share. 4.2 The Corporation shall promptly provide notice of the Retraction Event to the Transfer Agent and during the 10 day period following the Retraction Event, mail to each person who at the date of mailing is a registered holder of Series A Shares a written notice (the "Retraction Notice") giving details of the Retraction Privilege and specifying a place or places in the Province of Alberta for the deposit by the holder of the certificate or certificates representing the Series A Shares and the date on or prior to which such deposit shall be made by such holder in order to exercise such Retraction Privilege, which date shall be 35 days following the Retraction Event (the "Retraction Payment Date"). Subject to the provisions of Clause 4.1, the Corporation shall pay the Retraction Price on the Retraction Payment Date to the Transfer Agent on behalf of the holders of Series A Shares who have exercised their Retraction Privilege. The Retraction Notice will also contain, if the Corporation determines under the provisions of Clause 4.5 that it will not be permitted to retract the Series A Shares in accordance with the provisions of Clause 4.1, the statement required under the provisions of Clause 4.5. 4.3 At least 7 days prior to the applicable Retraction Payment Date, a holder of Series A Shares desiring to exercise the Retraction Privilege shall deposit the certificate or certificates representing the Series A Shares to be purchased together with a written notice signed by the holder requesting purchase of the Series A Shares represented by such certificate up to the Retraction Limit or certificates or such lesser number thereof as may be specified in such notice. If a part only of the Series A Shares represented by any certificate shall be purchased a new certificate for the balance shall be issued at the expense of the Corporation. Such deposit shall, subject to Clause 4.5, be irrevocable. Payment of the Retraction Price, subject to the Corporation's obligations set out in this Section 4, shall be made by depositing with the Transfer Agent the Retraction Price of the Series A 3 Shares which are represented by certificates which have been delivered to the Custodian in accordance herewith. Series A Shares purchased pursuant to the provisions hereof shall be and be deemed to be cancelled and shall not be reissued. No shareholder shall be entitled to recover by action or other legal process against the Corporation any portion of the Retraction Price that is represented by a cheque that has not been duly presented to the Corporation's bankers for payment and that otherwise remains unclaimed for a period of six years from the date on which it was payable. Upon such deposit being made or upon the date specified for purchase of Series A Shares, whichever is the later, the Series A Shares in respect of which such deposit shall have been made shall be deemed to have been purchased and the rights of the holders thereof shall be limited to receiving without interest their proportionate part of the amount so deposited on presentation and surrender of the certificates representing their Series A Shares being purchased. Any interest allowed on any such deposit shall belong to the Corporation. 4.4 Upon payment by the Corporation of the Retraction Price for the Series A Shares purchased pursuant to the provisions of this Section 4, the Series A Shares so purchased shall cease to be entitled to dividends or any other participation in the assets of the Corporation and the holders of such shares shall not be entitled to exercise any of the rights of shareholders in respect of them. In the event that the Corporation fails to pay the full Retraction Price, the Series A Shares deposited for purchase shall be entitled to dividends in proportion to that portion of the Retraction Price unpaid. 4.5 Subject to the provisions of Clause 4.1 and subject to the provisions of Clause 4.6, the Corporation shall on the Retraction Payment Date purchase all Series A Shares up to the Retraction Limit in respect of which holders shall have exercised the Retraction Privilege. If prior to the mailing or publication of the Retraction Notice for the Retraction Payment Date, the Corporation determines that it will not be permitted under the provisions of any applicable law to purchase the number of Series A Shares pursuant to its obligations hereunder, the Corporation shall include in such Retraction Notice a statement of the maximum amount (in multiples of $10) which it then believes it will be permitted to pay on the Retraction Payment Date and, in reasonable detail, the basis of the calculation thereof. Insofar as the Corporation has acted in good faith in making such determination, the Corporation shall have no liability in the event that such determination proves inaccurate. Notwithstanding the provisions of Clause 4.3 if the aggregate amount that the Corporation is able to pay on the Retraction Payment Date is less than the aggregate amount determined by the Corporation for the Retraction Notice, the holder of Series A Shares deposited for retraction shall have the right to withdraw such shares from such deposit on or before 10 days following the Retraction Payment Date and Clause 4.1 shall otherwise apply mutatis mutandis to the retraction of the Series A Shares so withdrawn from deposit. 4.6 If the Corporation fails to pay the full Retraction Price, because of the provisions of any applicable law, for any of the Series A Shares deposited for purchase on the Retraction Payment Date in respect of which the holders thereof have exercised their rights up to the Retraction Limit under the Retraction Privilege, the remainder of the Retraction Price of such Series A Shares shall be paid on a pro rata basis as soon as reasonably feasible to the extent the Corporation is able to do so under the provisions of any applicable law, on each succeeding date for the payment of dividends on the Series A Shares until the full amount of the Retraction Price of the Series A Shares so deposited has been paid. In the event that the Corporation shall as aforesaid pay only a portion of the full amount of the Retraction Price of the Series A Shares deposited for retraction, the certificates representing such Series A Shares shall be cancelled and new share certificates shall be issued to the depositing shareholders representing the Series A Shares not retracted. The 4 provisions of this Section 4 shall, to the extent reasonably possible, apply to such further Retraction Privilege mutatis mutandis, except that the Retraction Notice to be mailed by the Corporation shall be mailed during the 30 day period ended 30 days prior to the applicable dividend payment date and the date on or prior to which deposit of certificate(s) shall be made by a holder of Series A Shares in order to exercise such Retraction Privilege shall be 7 days prior to such applicable dividend payment date. 5. Redemption 5.1 The Series A Shares are not redeemable on or prior to July 31, 1989 without the prior consent of the holders of such shares. 5.2 After July 31, 1989, the Corporation may at its option redeem at any time all of the outstanding Series A Shares or, subject to the provisions of Section 8, from time to time any part thereof selected by lot in such manner as the board of directors shall decide, or, if the board of directors so decide, pro rata, on payment of $10.00 for each such share to be redeemed (the "Redemption Price"). 5.3 On any redemption of Series A Shares under this Section 5, the Corporation shall give in the manner provided in Section 9 at least 30 days prior notice to each person who, at the date of giving such notice, is the registered holder of Series A Shares to be redeemed, of the intention of the Corporation to redeem such shares. Such notice shall set out the Redemption Price and the date on which the redemption is to take place and, unless all the Series A Shares held by the holder to whom it is addressed are to be redeemed, shall also set out the number of such shares so held which are to be redeemed. On or after the date so specified for redemption, the Corporation shall pay or cause to be paid to the holders of such Series A Shares to be redeemed the Redemption Price on presentation and surrender at the head office of the Corporation or at any other place or places within Canada designated by such notice, of the certificate or certificates for such Series A Shares so called for redemption. Such payment shall be made by cheque payable at par at any branch in Canada of the Corporation's bankers. If a part only of the Series A Shares represented by any certificate shall be redeemed, a new certificate for the balance shall be issued at the expense of the Corporation. From and after the redemption date specified in any such notice, the Series A Shares called for redemption shall cease to be entitled to dividends and the holders thereof shall not be entitled to exercise any of the rights of shareholders in respect thereof unless payment of the Redemption Price shall not be duly made by the Corporation. At any time after the notice of redemption is given the Corporation shall have the right to deposit the Redemption Price of any or all Series A Shares called for redemption with any chartered bank or banks or with any trust corporation or trust companies in Canada named for such purpose in the notice of redemption to the credit of a special account or accounts in trust for the respective holders of such shares, to be paid to them respectively upon surrender to such bank or banks or trust company or trust companies of the certificate or certificates representing the same. Upon such deposit or deposits being made, such shares shall be deemed to be redeemed and the rights of the holders of such shares shall be limited to receiving the proportion of the amounts so deposited applicable to their respective shares without interest. Any interest allowed on such deposit or deposits shall belong to the Corporation. 5.4 Series A Shares which are redeemed or deemed to be redeemed in accordance with this Section 5 shall be and be deemed to be cancelled and shall not be reissued. 5 6. Purchase for Cancellation 6.1 Subject to the provisions of Section 8 and in addition to its right to redeem the Series A Shares as provided in Section 5, the Corporation may at any time and from time to time purchase for cancellation the whole or any part of the outstanding Series A Shares by invitations for tender addressed to all holders of record of the outstanding Series A Shares. In the event that, upon any request for tenders, the Corporation shall receive two or more tenders of Series A Shares at the same price and which shares, when added to any shares tendered at a lower price or prices, aggregate more than the amount for which the Corporation is prepared to accept tenders, if any of the Series A Shares so tendered at the same price are purchased by the Corporation they shall be purchased pro rata from such holders tendering at the same price, disregarding fractions. 6.2 Series A Shares which are purchased in accordance with this Section 6 shall be and be deemed to be cancelled and shall not be reissued. 7. Conversion Privilege 7.1 For the purposes of these share provisions: a. "Certificate of the Corporation" means a certificate under the corporate seal of the Corporation signed by any two of the Chairman, the President, or any Vice president or any one of them together with the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer of the Corporation and may consist of one or more instruments so executed; b. "Close of business" means with respect to the conversion of any Series A Share the normal closing time of the office of the Transfer Agent at which the holder of such share elects to have such share converted; c. "Common Shares" shall mean common shares without nominal or par value in the capital of the Corporation as such shares were constituted on July 25, 1998, and any other shares resulting from reclassification or change of such Common Shares or amalgamation, consolidation, merger or sale, all as referred to in Clause 7.10; d. "Current Conversion Price" shall mean the Current Market Price for each Common Share to be issued upon conversion of any Series A Shares, subject to adjustment as hereinafter provided; e. "Current Conversion Basis" means at any particular time 20 Common Shares into which at such time one (1) Series A Share shall be convertible at the Current Conversion Price in accordance with the provisions of this Section 7; f. "Current Market Price", as at any date when the Current Market Price is to be determined, shall mean the weighted average price at which Common Shares have traded on the Alberta Stock Exchange for any fifteen (15) consecutive trading days ending on a date not earlier than the fifth trading day preceding such date. In the event the Common Shares are not so traded on the Alberta Stock Exchange but are listed on another stock exchange, or stock exchanges in Canada, the foregoing references to the Alberta Stock Exchange shall be deemed to be references to such 6 other stock exchange, or, if more than one, to such one as shall be designated by the board of directors of the Corporation. In the event the Common Shares are not so traded on any stock exchange in Canada, the Current Market Price thereof shall be determined by the board of directors of the Corporation, acting reasonably, which determination shall be conclusive; g. "dividends paid in the ordinary course" means dividends, whether in cash or in shares of the capital stock of the Corporation, paid in any fiscal year of the Corporation to the extent that the aggregate of such cash and the paid up capital of such shares does not in such fiscal year exceed the greatest of: i. 150% of the aggregate amount of dividends paid by the Corporation on the Common Shares in the period of 12 consecutive months ended immediately prior to the first day of such fiscal year; ii. 80% of the aggregate amount of dividends paid by the Corporation on the Common Shares in the period of 36 consecutive months ended immediately prior to the first day of such fiscal year; and iii. 100% of the consolidated net earnings of the Corporation, before extraordinary items, for the period of 12 consecutive months ended immediately prior to the first day of such fiscal year (such consolidated net earnings to be as shown in the audited financial statements of the Corporation for such period of 12 consecutive months or, if there are no audited financial statements in respect of such period, computed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the most recent audited consolidated financial statements of the Corporation) and for such purpose the amount of any dividend paid in shares shall be the aggregate paid up capital of such shares. h. "trading day" means a day on which the relevant stock exchange referred to in subclause 7.1(f) is open for business; i. "Transfer Agent" means the person appointed as registrar and transfer agent for the Common Shares; j. "weighted average price" means at any specific date, the weighted average price per Common Share of all trades in board lot quantities of the Common Shares for the specified period in trading days immediately prior to such date on the relevant stock exchange referred to in subclause 7.1(f) above. 7.2 A holder of any Series A Shares has the right at his option at any time, or, in the case of shares called for redemption, up to the close of business on the third business day preceding the date fixed for redemption, whichever is earlier, to conversion, subject to the terms and provisions hereof, such Series A Shares into fully paid and non-assessable Common Shares at the Current Conversion Basis. Should payment of the Redemption Price of Series A Shares which have been 7 called for redemption not be paid upon surrender of the certificate for such Series A Shares the right of conversion shall revive and continue from the time of the failure to pay as if such Series A Shares had not been called for redemption. The conversion of Series A Shares in accordance with this clause may be effected by the surrender of the certificate or certificates representing the same at any time during usual business hours at the option of the holder at any office of the Transfer Agent at which the Common Shares are transferable, accompanied by: (1) payment or evidence of payment of the tax (if any) payable as provided in Clause 7.9, and (2) a written instrument of surrender in form satisfactory to the Corporation duly executed by the registered holder, or his attorney duly authorized in writing, in which instrument such holder may also elect to convert part only of: a. the Series A Shares represented by such certificate or certificates not theretofore called for redemption, in which event such holder shall be entitled to receive, at the expense of the Corporation, a new certificate representing the Series A Shares represented by such certificate or certificates which have not been converted; or b. the Series A Shares, represented by such certificate or certificates, theretofore called for redemption, in which event on the date specified for the redemption of such Series A Shares such holder shall be entitled to payment of the Redemption Price of the Series A Shares represented by such certificate or certificates which have been called for redemption and which have not been converted, and to receive, at the expense of the Corporation, a certificate representing Series A Shares represented by such certificate or certificates which have been neither converted nor redeemed. As promptly as practicable after the surrender of any Series A Shares for conversion, the Corporation shall cause to be delivered to or upon the written order of the holder of the Series A Shares so surrendered, a certificate or certificates issued in the name of, or in such name or names as may be directed by, such holder representing the number of Common Shares to which such holder is entitled together with a payment by cheque or the issue of scrip certificates in respect of any fraction of a Common Share issuable on such conversion as provided in Clause 7.8. Such conversion shall be deemed to have been made at the close of business on the date such Series A Shares shall have been surrendered for conversion, so that the rights of the holder of such Series A Shares as the holder thereof shall cease at such time and the person or persons entitled to receive Common Shares upon such conversion shall be treated for all purposes as having become the holder or holders of record of such Common Shares at such time and such conversion shall be on the Current Conversion Basis as at such time. The date of surrender of any Series A Shares for conversion shall be deemed to be the date when the certificate representing such Series A Shares is received by the Transfer Agent. 7.3 The registered holder of any Series A Shares on the record date for any dividend payable on such share shall be entitled to such dividend notwithstanding that such share is converted after such record date and before the payment date of such dividend and the registered holder of any Common Share resulting from any conversion shall be entitled to rank equally with the registered holders of all other Common Shares in respect of all dividends declared payable to holders of Common Shares of record on any date after the date of conversion. Subject as aforesaid and subject to the provisions hereof, upon the conversion of any Series A Shares, the Corporation shall not make payment or adjustment on account of any dividends on the Series A Shares so converted nor on account of any dividends on the Common Shares issuable upon such conversion. 8 7.4 The Current Conversion Price shall be subject to adjustment from time to time as follows: a. if the Corporation shall at any time, or from time to time, hereafter (i) subdivide its outstanding Common Shares into a greater number of shares, (ii) combine, consolidate or reclassify its outstanding Common Shares into a smaller number of shares, or (iii) issue Common Shares to the holders of any of its outstanding Common Shares by way of a stock dividend (other than an issue of Common Shares to holders of Common Shares who exercise an option to receive dividends in the form of Common Shares in lieu of receiving cash dividends paid in the ordinary course), the Current Conversion Price in effect on the effective date of such subdivision or combination, consolidation or reclassification or on the record date for such issue of Common Shares by way of a stock dividend, as the case may be, shall be adjusted immediately after such effective date or record date, as the case may be, so that it shall thereafter equal the price determined by multiplying the Current Conversion Price in effect on such date by a fraction of which the numerator shall be the total number of Common Shares outstanding immediately prior to such date and the denominator shall be the total number of Common Shares outstanding immediately after such date; such adjustment shall be made successively whenever any event referred to in this subclause 7.4(a) shall occur; any such issue of Common Shares by way of a stock dividend shall be deemed to have been made on the record date for the stock dividend for the purpose of calculating the number of outstanding Common Shares under this Clause 7.4; b. in case the Corporation shall fix a record date for the issuance of rights, options or warrants to all or substantially all the holders of its outstanding Common Shares entitling them for a period expiring not more than forty-five (45) days after such record date, to subscribe for or purchase Common Shares (or securities convertible into Common Shares) at a subscription or purchase price per share (or having a conversion price per share) less than 90% of the Current Market Price on such record date, then the Current Conversion Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Current Conversion Price in effect on such record date by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date plus a number of Common Shares equal to the number arrived at by dividing the aggregate price of the total number of additional Common Shares offered for subscription or purchase (or the aggregate conversion price of the convertible securities so offered) by the Current Market Price of a Common Share, and of which the denominator shall be the total number of Common Shares outstanding on such record date plus the total number of additional Common Shares offered for subscription or purchase (or into which the convertible securities so offered are/convertible). Any Common Shares owned by or held for the account of the Corporation shall be deemed not to be outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed. To the extent that any such rights, options or warrants are not so issued or any such rights, options or warrants are not exercised prior to the expiration thereof, the Current Conversion Price shall be readjusted to the Current Conversion Price which would then be in effect based upon the number of rights, options or warrants actually issued or the number of Common Shares (or securities 9 convertible into Common Shares) actually issued upon the exercise of such rights, options or warrants, as the case may be; and c. in case the Corporation shall fix a record date for the making of a distribution to all or substantially all the holders of its outstanding Common Shares of (i) shares of any class other than Common Shares, or (ii) rights, options or warrants (excluding those referred to in subclause 7.4(b) and excluding rights, options or warrants entitling the holders for a period expiring not more than forty-five (45) days after such record date to subscribe for or purchase Common Shares (or securities convertible into Common Shares) at a subscription or purchase price per share (or having a conversion price per share) greater than or equal to 90% of the Current Market Price on such record date), or (iii) evidences of its indebtedness, or (iv) any assets (excluding cash dividends paid in the ordinary course and shares or other property or assets distributed in lieu of such cash dividends at the option of shareholders), then in each such case the Current Conversion Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Current Conversion Price in effect on such record date by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date multiplied by the Current Market Price per Common Share on such record date, less the fair market value (as determined by the board of directors of the Corporation acting reasonably, whose determination shall be conclusive) of such shares or rights, options or warrants or evidences of indebtedness or assets so distributed, and of which the denominator shall be the total number of Common Shares outstanding on such record date multiplied by such Current Market Price per Common Share. Any Common Shares owned by or held for the account of the Corporation shall be deemed not to be outstanding for the purposes of any such computation. Such adjustment shall be made successively whenever such a record date is fixed. To the extent that such distribution of shares, evidences of indebtedness or assets is not so made or to the extent that any rights, options or warrants so distributed are not exercised, the Current Conversion Price shall be readjusted to the Current Conversion Price which would then be in effect based upon such shares, evidences of indebtedness or assets actually distributed or based upon the number of Common Shares (or securities convertible into Common Shares) actually delivered upon the exercise of such rights, options or warrants, as the case may be. 7.5 No adjustments of the Current Conversion Price shall be made pursuant to subclause 7.4(b) or 7.4(c) if the holders of the Series A Shares are permitted to participate in the issue of such rights, options or warrants or such distribution, as the case may be, as though and to the same effect as if they had converted their Series A Shares into Common Shares prior to the issue of such rights, options or warrants or such distribution, as the case may be. 7.6 No adjustment of the Current Conversion Price shall be made in any case in which the cumulative effect of the resulting increase or decrease in the Current Conversion Price would be less than 1% of the then Current Conversion Price, but in such case any adjustment that would otherwise have been required then to be made shall be carried forward and made at the time of, and together with, the next subsequent adjustment to the Current Conversion Price which, together with any and all such adjustments so carried forward, shall result in an increase or decrease in the Current Conversion Price by not less than 1%. 10 7.7 When any action is taken which requires an increase or decrease of the Current Conversion Price under Clause 7.4, the Corporation shall forthwith file with the Transfer Agent a Certificate of the Corporation setting forth the details of the action taken and, as the case may be, the increased or decreased Current Conversion Price, the details of the computation of the adjusted Current Conversion Price and the resulting adjusted Current Conversion Basis. The Transfer Agent shall be under no duty to make any investigation or inquiry as to the statements contained in any such Certificate of the Corporation or the manner in which any computation was made, but the Transfer Agent may accept such Certificate as conclusive evidence of the statements therein contained and shall be fully protected with respect to any and all acts done or action taken or suffered by it in reliance thereon. The Corporation shall exhibit a copy of such Certificate of the Corporation from time to time to any holder of Series A Shares desiring to inspect the same, and shall give notice of any such adjustment of the Current Conversion Price and the resulting adjustment of the Current Conversion Basis to the holders of the Series A Shares in the manner provided in Section 9. The Corporation may retain a firm of independent chartered accountants (who may be the auditors of the Corporation) to make any computation required under Clause 7.4, and any computation so made shall be final and binding on the Corporation and the holders of the Series A Shares. Such firm of independent chartered accountants may, as to questions of law, request and rely upon an opinion of counsel (who may be counsel for the Corporation). 7.8 Upon the surrender of any Series A Shares for conversion, the number of full Common Shares issuable upon conversion thereof shall be equal to the aggregate number of such Series A Shares to be converted multiplied by the Current Conversion Basis. Fractional shares will not be issued on any conversion but in lieu thereof the Corporation shall make cash payments. Payment shall be by cheque of an amount equal to the then value of such fractional interest computed on the basis of the Current Market Price. 7.9 The issuance of certificates for Common Shares upon the conversion of Series A Shares shall be made without charge to the holders of the Series A Shares so converted, of any fee or tax imposed on the Corporation in respect of the issuance of such certificates or the Common Shares represented thereby; provided that the Corporation shall not be required to pay any tax which may be imposed upon the person or persons to whom such Common Shares are issued in respect of the issuance of such Common Shares or the certificate therefor or which may be payable in respect of any transfer involved in the issuance and delivery of any such certificate in a name or names other than that of the holder of the Series A Shares converted, and the Corporation shall not be required to issue or deliver such certificate unless the person or persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid, or that the Corporation shall have no liability in respect thereof. 7.10 In case of any reclassification or change (other than a change resulting only from consolidation or subdivision) of the Common Shares, or in case of any amalgamation, consolidation or merger of the Corporation with or into any other corporation, or in the case of any sale of the properties and assets of the Corporation as, or substantially as, an entirety to any other corporations each Series A Share shall, after such reclassification, change, amalgamation, consolidation, merger, or sale be convertible into the number of shares or other securities or property of the Corporation or such continuing, successor, purchasing corporation, as the case may be, to which a holder of the number of Common Shares as would have been issued if such Series A Shares had been converted immediately prior to such reclassification, 11 change, amalgamation, consolidation, merger or sale would have been entitled upon such reclassification, change, amalgamation, consolidation, merger or sale. The board of directors of the Corporation may accept the certificate of any firm of independent chartered accountants (who may be the auditors of the Corporation) as to the foregoing calculation, and the board of directors may determine such entitlement on the basis of such certificate. Any such determination shall be conclusive and binding on the Corporation and the holders of the Series A Shares. No such reclassification, change, amalgamation, consolidation, merger or sale shall be carried into effect unless, in the opinion of the board of directors of the Corporation, all necessary steps shall have been taken to ensure that the holders of the Series A Shares shall thereafter be entitled to receive such number of shares or other securities or property of the Corporation or such continuing, successor or purchasing corporation, as the case may be, subject to adjustment thereafter in accordance with provisions similar, as nearly as may be, to those contained in this Section 7. 7.11 The Corporation shall give to the holders of Series A Shares at least fourteen (14) days' prior notice of the record date for any of the events set forth in Clause 7.4 other than a subdivision, combination, consolidation or reclassification of the Common Shares and for the payment of any cash dividend paid in the ordinary course or the distribution of shares or other property or assets in lieu thereof and of the issue to any of the Corporation's shareholders of rights to subscribe for Common Shares or other securities and shall give at least thirty (30) days' prior notice of any repayment of capital on the Common Shares. The accidental failure or omission to give the notice required by this Clause 7.11 or any defect therein shall not affect the legality or validity of any such payment, distribution or issue. 7.12 If in the opinion of the board of directors of the Corporation the provisions of this Section 7 are not strictly applicable, or if strictly applicable would not fairly protect the rights of the holders of the Series A Shares in accordance with the intent and purposes hereof, the board of directors shall make any adjustment in such provisions as the board of directors deems appropriate. 8. Restrictions on Dividends and Retirement of Shares 8.1 So long as any of the Series A Shares are outstanding, the Corporation will not, without the approval of the holders of the Series A Shares given in the manner set forth in Section 12, a. declare any dividend, other than stock dividend, on any shares of the Corporation ranking junior to the Series A Shares with respect to the payment of dividends; b. redeem or purchase or make any capital distribution in respect of any shares of the Corporation ranking junior to the Series A Shares with respect to the payment of dividends or repayment of capital (except out of the proceeds of a new issue of shares ranking junior to the Series A Shares in both such respects); c. except in connection with the Retraction Privilege and pursuant to the Retraction Limit attaching to the Series A Shares, redeem or purchase less than all the Series A Shares; or d. except in connection with any retraction privilege attaching thereto and provided a similar retraction privilege is extended or available to the holders of the Series A Shares, redeem or purchase any shares ranking on a parity with the Series A Shares. 12 9. Notices 9.1 Any notice, required to be given under the provisions attaching to the Series A Shares to the registered holders thereof shall be given by ordinary unregistered mail, postage prepaid, addressed to each holder at the last address of such holder as it appears on the books of the Corporation or, in the event of the address of any such holder not so appearing, then to the address of such holder last known to the Corporation; provided that accidental failure or omission to give any notice as aforesaid to one or more of such holders shall not invalidate any action or proceeding founded thereon. Any such notice shall be deemed to have been given on the second business day after mailing. 10. Interpretation 10.1 In the event that any date on which any dividend on the Series A Shares is payable by the Corporation, or on or by which any other action is required to be taken by the Corporation hereunder, is not a business day (as hereinafter defined), then such dividend shall be payable, or such other action shall be required to be taken, on or by the next succeeding date that is a business day. A "business day" shall be a day other than a Saturday, a Sunday or any other day that is treated as a holiday in the Province in which the Corporation has its principal office in Canada. 11. Amendments 11.1 The rights, restrictions, conditions and limitations attached to the Series A Shares may be amended, modified, suspended, altered or repealed but only if consented to, or approved by, the holders of the Series A Shares in the manner hereinafter specified and in accordance with any requirements of the applicable legislation and any amendments thereto from time to time. 12. Approval by Holders of Series A Shares 12.1. For the purposes of Sections 8 and 11, any consent or approval given by the holders of Series A Shares shall be deemed to have been sufficiently given if it shall have been given in writing by the holders of at least 66-2/3% of the outstanding Series A Shares or by a resolution passed at a meeting of holders of Series A Shares duly called and held upon not less than twenty-one (21) days notice to the holders and carried by the affirmative vote of not less than 66-2/3% of the votes cast at such meeting. A quorum for the purposes of a meeting of the holders of Series A Shares shall be the holders of twenty (20%) percent of the outstanding Series A Shares being present in person or represented by proxy. If at any such meeting of the holders of Series A Shares called by the Corporation a quorum is not present within one-half hour after the time appointed for such meeting then the meeting shall be adjourned to such date not less than twenty-one (21) nor more than twenty-eight (28) days thereafter and to such time and place as may be designated by the chairman, and not less than ten (10) days' written notice shall be given of such adjourned meeting. At such adjourned meeting the holders of Series A Shares present or represented by proxy may transact the business for which the meeting was originally convened and a resolution passed thereat by the affirmative vote of not less than 66-2/3% of the votes cast at such meeting shall constitute the consent or approval of the holders of Series A Shares. On every poll taken at every meeting every holder of Series A Shares shall be entitled to one vote in respect of each Series A Share held. 13 13. Voting Rights 13.1 Except as required by law, the holders of the Series A Shares shall not be entitled as such to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting. 13.2 When the holders of Series A Shares vote separately as holders of Preferred Shares in accordance with Clause 12, each holder shall be entitled to one (1) vote in respect of each Series A Share held by such holder. 14. Taxable Preferred Shares Election 14.1 The Corporation shall elect pursuant to proposed subsection 191.2(1) of the Income Tax Act (Canada) (the "Tax Act"), or pursuant to any similar provision enacted in substitution for that subsection (provided such substitution is not detrimental to the Corporation compared to the proposed subsection) by filing the form prescribed pursuant to proposed subsection 191.2(1) of the Tax Act (and within the time period referred to in proposed subsection 191.2(1)) with the Minister of National Revenue with respect to the Series A Shares. SCHEDULE "C" TO THE ARTICLES OF AMALGAMATION OF TOMAHAWK CORPORATION Designation of Series Three series of Preferred Shares are designated by the Corporation as Class "A", Series "I", Series "II", and Series "III" Preferred Shares, respectively, the said Series of Preferred Shares being so designated pursuant to subsection 27(5) of the Business Corporations Act and consisting of such number, and having the rights, privileges, restrictions and conditions attaching thereto as follows: 1. Number Each of the Class "A" Preferred Shares shall consist of an unlimited number of such shares. 2. Dividends Subject to the prior rights of the holders of any other Series of Preferred Shares of the Corporation with respect to priority in the payment of dividends, the holders of Class "A" Preferred Shares shall be entitled to receive dividends, as and when declared by the Directors of the Corporation out of assets properly applicable to the payment of dividends, in such amount and in such form as the board of directors may from time to time determine. 3. Priority on Liquidation In the event of the dissolution or liquidation of the Corporation or a sale of all of its assets, whether voluntary or involuntary, or in the event of its insolvency, or upon any distribution of its capital, there shall be paid to the holders of Class "A" Preferred Shares the amount paid up thereon plus the amount of all unpaid dividends accrued thereon without interest (in these Articles collectively called "the Redemption Amount") before any sum shall be paid to or any assets distributed among the holders of the Common shares. After such payment to the holders of the Series "A" Preferred Shares, the remaining assets and funds of the Corporation shall be divided among and paid to the holders of the Common Shares in proportion to their holdings of such shares. 4. Conversion Right a. For each $1.50 of Cumulative Cash Flow (as that term is hereinafter defined) a share of Series I Preferred Shares is convertible into 10 common shares of the Corporation. Following the right of conversion for all Series I preferred Shares, for each $2.00 of Cumulative Cash Flow a share of the Series II preferred Shares is convertible into 10 common shares of the Corporation. Following the right of conversion for all Series I and Series II Preferred Shares, for each $2.50 of Cumulative Cash Flow a share of the Series III Preferred Shares is convertible into 10 common shares of the Corporation. 2 On a consolidation, subdivision, algamation or reclassification of the Corporation's shares, the conversion calculation must be adjusted so that the proportion of the outstanding Class "A" Preferred Shares available for conversion is unaffected by the consolidation, subdivision, amalgamation or reclassification. The Class "A" Preferred Shares may be converted only once during the Corporation's financial year. The conversion calculation must be based on the Corporation's annual audited consolidated financial statements for the year or years during which the conversion requirements were met in respect of the Class "A" Preferred Shares to be converted. For the purposes of the above-referenced conversion formula, "Cash Flow" means net income or loss after tax, generated from the business of TomaHawk Imaging & Financial Inc. or any of its subsidiaries as shown on the consolidated audited financial statements or verified by the Corporation's auditors, adjusted to add back the following expenses: i. Depreciation, ii. Depletion, iii. Deferred taxes, iv. Amortization of goodwill, and v. Deferred research and development costs. "Cumulative Cash Flow" means, at any time the aggregate Cash Flow of the Corporation up to that time from a date no earlier than June 1, 1993, net of any negative Cash Flow. b. A holder of Class "A" Preferred Shares who wishes to avail himself of this right of conversion shall submit to the head office of the Corporation a written notice indicating the number of each Class "A" Preferred shares he wishes to convert. Certificates representing the Class "A" Preferred Shares to be converted shall be attached to the notice. Upon receipt of any such notice and the Certificates, the Corporation shall consult its auditors to confirm the number of Class "A" Preferred Shares which are at that time convertible, and without charge issue ten (10) Common Shares for each Class "A" Preferred Shares which is then requested to be converted or which then is convertible having regard to the Cumulative Cash Flow of the Corporation, whichever is less, and if only some of the Class "A" Preferred Shares evidenced on the certificates are converted, the Corporation shall without charge, issue a new certificate representing the remaining Class "A" Preferred Shares. c. Notwithstanding paragraph a., the Corporation may apply to The Alberta Stock Exchange for earlier conversion of the Class "A" Preferred Shares or amendment to the terms of conversion herein stated. 3 5. Transferability Class "A" Preferred Shares may not be transferred except with the prior approval of the directors, who may in their absolute discretion, refuse to register the transfer of any said shares, such approval to be evidenced by a resolution of the directors. 6. Cancellation In the event that any of the Class "A" Series I Preferred Shares are not eligible for conversion to Common Shares at the conclusion of the Corporation's fiscal year beginning 1995, subject to the discretion of The Alberta Stock Exchange, the ineligible Class "A" Series I Preferred Shares shall be cancelled. In the event that any of the Class "A" Series II Preferred Shares are not eligible for conversion to Common Shares at the conclusion of the Corporation's fiscal year beginning 1997, subject to the discretion of The Alberta Stock Exchange, the Class "A" Series II Preferred Shares shall be cancelled. In the event that any of the Class "A" Series III Preferred Shares are not eligible for conversion to Common Shares at the conclusion of the Corporation's fiscal year beginning 1999, subject to the discretion of The Alberta Stock Exchange, the Class "A" Series III Preferred Shares shall be cancelled. 7. Other Provisions In the event that TomaHawk Imaging & Financial Inc. or any of its subsidiaries either becomes insolvent, is petitioned into bankruptcy, takes legislative protection from its creditors or ceases to carry on its business, then any Class "A" Preferred Shares which remain outstanding must be surrendered to the Corporation for cancellation and the Corporation and holders of such shares covenant to attend to their cancellation immediately. EX-2.2 3 EXHIBIT 2.2 EXHIBIT 2.2 ASSET PURCHASE AGREEMENT dated as of August 1, 1998 by and between TomaHawk II, Inc. ("Buyer") and Robin Hartley ("Seller") ARTICLE I PURCHASE AND SALE OF BUSINESS.................................6 SECTION 1.1 Purchase and Sale of Assets....................6 SECTION 1.2 Excluded Assets................................6 SECTION 1.3 Assumed and Excluded Liabilities and Obligations .................................6 SECTION 1.4 Delivery of Purchased Assets...................7 SECTION 1.5 Payment of Certain Taxes.......................7 SECTION 1.6 [[Reserved]]...................................7 SECTION 1.7 Additional Agreements..........................7 ARTICLE II PURCHASE PRICE; PHYSICAL INVENTORY AND METHOD OF PAYMENT......7 SECTION 2.1 Aggregate Purchase Price.......................7 SECTION 2.2 Post-Closing Payment...........................8 SECTION 2.3 Allocation of Purchase Price...................8 ARTICLE III THE CLOSING AND TRANSFER OF BUSINESS..........................8 SECTION 3.1 Closing........................................8 SECTION 3.2 Manner of Conveyance...........................9 ARTICLE IV REPRESENTATIONS AND WARRANTIES................................9 ARTICLE V ADDITIONAL COVENANTS AND AGREEMENTS...........................9 SECTION 5.1 Interim Conduct of the Business................9 SECTION 5.2 Regulatory Consents, Authorizations, etc......11 SECTION 5.3 Access........................................11 SECTION 5.4 Records and Documents.........................11 SECTION 5.5 Notice of Default.............................11 SECTION 5.6 No Inconsistent Action........................12 SECTION 5.7 Publicity.....................................12 SECTION 5.8 Additional Agreements.........................12 SECTION 5.9 Confidential Information......................12 SECTION 5.10 Non-competition and Non-interference..........13 SECTION 5.11 Relocation of the Business....................14 ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.................14 SECTION 6.1 Accuracy of Warranties; Performance of Covenants ..................................14 SECTION 6.2 Regulatory Consents, Authorizations, etc......15 SECTION 6.3 No Pending Action.............................15 SECTION 6.4 No Material Adverse Change....................15 SECTION 6.5 No Adverse Laws...............................15 SECTION 6.6 Force Majeure.................................15 SECTION 6.7 Third Party Consents..........................16 SECTION 6.8 [[Reserved]]..................................16 SECTION 6.9 Further Actions...............................16 SECTION 6.10 Certificates..................................16 i SECTION 6.11 Investigation.................................16 SECTION 6.12 Additional Agreements.........................16 ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER................16 SECTION 7.1 Accuracy of Warranties; Performance of Covenants ..................................17 SECTION 7.2 Regulatory Consents, Authorizations, etc......17 SECTION 7.3 No Pending Action.............................17 SECTION 7.4 No Material Adverse Change....................17 SECTION 7.5 No Adverse Laws...............................17 SECTION 7.6 Force Majeure.................................18 SECTION 7.7 Further Actions...............................18 SECTION 7.8 Certificate...................................18 SECTION 7.9 Additional Agreements.........................18 ARTICLE VIII EMPLOYEES....................................................18 ARTICLE IX SURVIVAL AND INDEMNIFICATION.................................18 SECTION 9.1 Survival......................................18 SECTION 9.2 Indemnification by Seller.....................19 SECTION 9.3 Indemnification by Buyer......................19 SECTION 9.4 Event of Breach and Adverse Consequences......19 SECTION 9.5 Certain Other Agreements......................19 SECTION 9.6 Notice and Demand, etc........................20 SECTION 9.7 Determination of Loss.........................21 ARTICLE X MISCELLANEOUS PROVISIONS.....................................21 SECTION 10.1 Brokers.......................................21 SECTION 10.2 Entire Understanding..........................21 SECTION 10.3 Waiver and Amendment..........................21 SECTION 10.4 Headings......................................21 SECTION 10.5 Counterparts..................................22 SECTION 10.6 Interpretation................................22 SECTION 10.7 Notices.......................................22 SECTION 10.8 Successors and Assigns........................23 SECTION 10.9 Attorneys' Fees...............................23 SECTION 10.10 Governing Law.................................23 SECTION 10.11 Construction..................................23 SECTION 10.12 Cooperation...................................23 SECTION 10.13 Expenses......................................24 SECTION 10.14 Representation by Counsel.....................24 SECTION 10.15 Binding Arbitration...........................24 ii EXHIBITS EXHIBIT SUBJECT 1.1 Purchased Assets 1.2 Excluded Assets 1.7(i) Form of Consulting Agreement 1.7(ii) Form of Promissory Note 1.7(iii) Form of Security Agreement 1.7(iv) Form of Escrow Agreement 4 A Representations and Warranties of Seller B. Representations and Warranties of Buyer iii SCHEDULES SCHEDULE SUBJECT 1.1 Purchased Assets 1.1(d) Fixed Assets, Physical Assets and Other Tangible Property 1.1(g) Assumed Equipment Leases 9 Financial Statements 11 Condition and Sufficiency of the Purchased Assets 13 Excluded Accounts Payable 14 Excluded Accounts Receivable 15 Undisclosed Liabilities 20(a) Assumed Contracts 20(b) Restrictions on Agents of the Company 20(c) Unenforceable Assumed Contracts 20(d) Lack of Compliance with Assumed Contracts 21(b) Insurance Arrangements 21(c) Insurance Policy History 22 Employees 24(a) Intellectual Property Assets 24(b) Assumed Contracts Related to Intellectual Property Assets 27 Related Party Agreements 32 Personal and Real Property Leases iv THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as of August 1, 1998 (the "Effective Date") by and between TOMAHAWK II, INC., an Illinois corporation ("Buyer"), and ROBIN HARTLEY, an individual resident of the State of California ("Seller"). The parties hereto agree as follows: ARTICLE I PURCHASE AND SALE OF BUSINESS SECTION 1.1 Purchase and Sale of Assets. On the basis of the representations and warranties herein, and subject to the terms, conditions and other provisions contained herein, Seller shall sell, transfer, assign and deliver to Buyer, and Buyer shall purchase and accept from Seller on the Closing Date (as defined herein) all right, title and interest in and to all of the properties and the assets of Aerated Engineering Co., a sole proprietorship (the "Company"), of every kind, nature and description, used in or relating to the Business (as defined herein) wherever situated, and all the goodwill related thereto, including, without limitation, the assets described as Purchased Assets in Exhibit 1.1 as they relate to the Business (collectively, the "Purchased Assets"); provided, however, that the Purchased Assets shall not include any items defined as Excluded Assets in Section 1.2 hereof. The term "Business" shall mean the manufacture, marketing and selling of precision machining, as well as products, materials and supplies related to aerospace parts/component design and manufacturing. SECTION 1.2 Excluded Assets. The assets described as Excluded Assets in Exhibit 1.2 shall not be sold, transferred, assigned or delivered to Buyer. SECTION 1.3 Assumed and Excluded Liabilities and Obligations. 1.3.1 Buyer assumes and agrees to perform the Company's obligations relating to the Business, to the extent arising on or after the Effective Date, including, but not limited to (i) the Assumed Equipment Leases (as defined herein), and (ii) the Assumed Contracts (as defined herein), all of which shall be assumed and performed by Buyer as and to the extent set forth in Exhibit 1.1. 1.3.2 Except as provided in Section 1.3.1 above, it is expressly understood and agreed that Buyer shall in no event be liable for, and is not assuming or agreeing to pay or discharge, any debts, claims, damages, obligations, liabilities or responsibilities of any kind or nature whatsoever of the Company, Seller, the Business or any affiliated or related person or entity, or for any claim against any of the foregoing, whether known or unknown, contingent or absolute, direct or indirect, or otherwise, including, without limiting the generality of the foregoing: (a) any liabilities or obligations which are or should have been reflected on the Financial Statements (as defined herein) delivered to Buyer; (b) any obligations relating to the revolving credit line with Bank of America in the approximate, aggregate amount of One Hundred Thousand Dollars ($100,000); or (c) any liabilities or obligations arising from or relating to any employee benefit or pension plan (collectively, the "Excluded Liabilities and 1 Obligations"), all of which shall be retained by Seller. Seller agrees to pay and discharge all of the Excluded Liabilities and Obligations in full as they become due. Notwithstanding anything herein to the contrary, Buyer hereby agrees that it shall be liable for, and obligated to perform and fulfill, the obligations of the Business arising out of or resulting from Buyer's operations of the Business from and after the Effective Date in accordance with Section 2.2 of this Agreement. SECTION 1.4 Delivery of Purchased Assets. On the Closing Date, Seller shall deliver the Purchased Assets to Buyer at the Facility (as defined herein). SECTION 1.5 Payment of Certain Taxes. Any sales tax arising from or relating to the Purchased Assets to be transferred hereunder shall be paid by Seller; provided, however, that Buyer shall reimburse Seller, within ten (10) days of Seller's delivery to Buyer of related evidence of payment reasonably satisfactory to Buyer, for any such sales tax paid by Seller in excess of Fifteen Thousand Dollars ($15,000). SECTION 1.6 [[Reserved]]. SECTION 1.7 Additional Agreements. Concurrently herewith: (i) Buyer and Seller shall execute and deliver the consulting agreement, substantially in the form attached hereto as Exhibit 1.7(i) (the "Consulting Agreement"), which agreement shall provide for, among other things, Buyer's engagement of Seller as a consultant for the one-year period following the Closing Date for total compensation of One Hundred Thousand Dollars ($100,000) to be paid monthly in arrears; (ii) Buyer shall execute and deliver to Seller the promissory note substantially in the form attached hereto as Exhibit 1.7(ii) (the "Promissory Note"); and (iii) Buyer and Seller shall execute and deliver the security agreement substantially in the form attached hereto as Exhibit 1.7(iii) (the "Security Agreement"). In the event that the payment of the unpaid balance of the principal under the Promissory Note is accelerated before the first anniversary of the Closing Date pursuant to Section 7 of the Promissory Note, as a condition to such acceleration, Buyer, Seller and Mission Valley Escrow, as escrow agent, shall execute and deliver the escrow agreement substantially in the form attached hereto as Exhibit 1.7(iv) (the "Escrow Agreement"), and Buyer shall withhold an amount equal to One Hundred Twenty Thousand Dollars ($120,000) from the unpaid principal balance of the Promissory Note and place such amount in escrow pursuant to the terms and conditions of the Escrow Agreement. ARTICLE II PURCHASE PRICE; PHYSICAL INVENTORY AND METHOD OF PAYMENT SECTION 2.1 Aggregate Purchase Price. The aggregate purchase price for all of the Purchased Assets (the "Aggregate Purchase Price") shall be One Million Five Hundred Thousand Dollars ($1,500,000). At the Closing (as defined herein), Buyer shall: (a) pay to Seller an amount equal to Four Hundred Thousand Dollars ($400,000) in cash or by certified check or wire transfer; and (b) deliver to Seller the Promissory Note in the aggregate principal amount of One Million One Hundred Thousand Dollars ($1,100,000). 2 SECTION 2.2 Post-Closing Payment. On or before the thirtieth (30th) day following the Closing Date (the "Post-Closing Date"), the parties hereto shall calculate the following post-closing adjustment (the "Post-Closing Payment"), in the amount equal to: (a) the aggregate amount of cash and/or other consideration paid by Seller, from the Effective Date through and including the Closing Date, for reasonable operating expenses incurred in the ordinary course of the Business consistent with past practice, less (b) the aggregate amount of cash and/or other consideration received and retained by Seller, from the Effective Date through and including the Closing Date, for sales made, services performed and/or invoices billed by the Company from the Effective Date through and including the Closing Date; provided, however, that the Post-Closing Payment shall not include any collections relating to the Excluded Accounts Receivable (as defined herein). In the event that the Post-Closing Payment is greater than zero, Buyer shall pay to Seller the Post-Closing Payment within ten (10) days of the Post-Closing Date. In the event that the Post-Closing Payment is less than zero, Seller shall pay to Buyer the amount equal to the absolute value of the Post-Closing Payment within ten (10) days of the Post-Closing Date. On the Post-Closing Date, Seller shall deliver to Buyer an itemized list, in form and substance reasonably satisfactory to Buyer, of the cash and/or other consideration paid and/or collected by Seller pursuant to this Section 2.2 (the "Pre-Closing Activity List"). SECTION 2.3 Allocation of Purchase Price. The Aggregate Purchase Price reflects payment for the Purchased Assets. The total consideration to be paid by Buyer for the Purchased Assets shall be mutually determined by the parties hereto, which determination shall be made prior to September 15, 1998. Except as provided in Section 9.7 hereof, Buyer and Seller agree that each shall be bound by such determination and shall reflect such allocation in any filing pursuant to Section 1060 of the Internal Revenue Code and the regulations thereunder. ARTICLE III THE CLOSING AND TRANSFER OF BUSINESS SECTION 3.1 Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place on August 20, 1998, or as soon as practicable thereafter as all of the conditions to the Closing set forth in Articles VI and VII hereof shall have been satisfied or waived (the "Closing Date"); provided, however, that the Closing may be changed to (a) the latest date which may from time to time be designated in writing by Buyer if, on the Closing Date, there is any claim, action, suit or proceeding, at law or in equity, or by or before any government or governmental instrumentality or agency, threatened or pending against Seller, the Company or Buyer for the purpose of enjoining or preventing the consummation of the transactions contemplated by this Agreement, or otherwise claiming that this Agreement or the consummation thereof, is improper, or which might materially affect the right of Buyer to purchase the Purchased Assets or to operate the Business; or (b) any other date mutually agreed upon in writing by Buyer and Seller. The Closing shall take place at the offices of Baker & 3 McKenzie, 101 West Broadway, Twelfth Floor, San Diego, California 92101. If for any reason the Closing does not occur by October 31, 1998, either Seller or Buyer may terminate this Agreement and all further obligations of the parties hereunder shall terminate, except that if this Agreement is so terminated by one party because one or more of the conditions to such party's obligations hereunder is not satisfied as a result of such party's failure to comply with its obligations under this Agreement, and no condition precedent hereunder excuses such performance, it is expressly agreed and understood that the non-breaching party's right to pursue all legal rights and remedies for breach of contract or otherwise, including, without limitation, damages relating thereto, shall survive such termination unimpaired. SECTION 3.2 Manner of Conveyance. The sale and purchase of the Purchased Assets shall be consummated at the Closing by good and sufficient bills of sale and by individual assignments, as necessary, in form and substance satisfactory to Buyer, in each case, with such other appropriate instruments of title, consents of third parties, estoppel certificates and other instruments and documents as Buyer shall reasonably request. At the Closing, Seller shall transfer to Buyer good and marketable title to each of the Purchased Assets, free and clear of all liens, claims, mortgages, charges, commission arrangements, title retention agreements, covenants, restrictions, options, purchase agreements, security agreements, security interests, encumbrances and adverse interests of any kind or nature whatsoever, other than those contained in the schedules hereto or disclosed to Buyer in writing and approved by Buyer in writing (each, an "Adverse Interest"). At any time and from time to time after the Closing Date, the parties shall duly execute, acknowledge and deliver all such further assignments, conveyances, instruments and documents, and will take such other action consistent with the terms of this Agreement, in each case, as may be reasonably necessary to assign, transfer and convey to Buyer good and marketable title to any and all of the Purchased Assets, free and clear of all Adverse Interests, to carry out the transactions contemplated by this Agreement, and to comply with the terms hereof. ARTICLE IV REPRESENTATIONS AND WARRANTIES Seller represents and warrants to, and agrees with, Buyer, its successors and assigns, as of the Effective Date and as of the Closing Date, as set forth in Section A of Exhibit 4. Buyer represents and warrants to, and agrees with Seller, its successors and assigns, as of the Effective Date and as of the Closing Date, as set forth in Section B of Exhibit 4. ARTICLE V ADDITIONAL COVENANTS AND AGREEMENTS SECTION 5.1 Interim Conduct of the Business. At all times during the period from the Effective Date through the Closing Date: 5.1.1 Operations in the Ordinary Course of Business. Except for actions required by this Agreement, Seller agrees that he has caused and will cause the Business and the 4 operations of the Company to be conducted only in the lawful, ordinary and usual course of business and neither Seller nor the Company shall take any action inconsistent therewith or engage in any transaction other than in the ordinary and usual course of business as heretofore conducted; and, subject to the foregoing, Seller covenants and agrees to preserve, protect and maintain the Purchased Assets and the Business and to preserve intact the Company's business organization and to keep available the services of its officers and employees. Seller further covenants and agrees to maintain in full force and effect until the Closing Date a policy or policies of insurance on the Purchased Assets that provide a scope and amount of coverage that are usual and customary and consistent with past practices in the Company's Business. Seller shall confer with representatives of Buyer to keep it informed with respect to operational matters of a material nature. Matters which are material in nature are those described in Section 5.1.2 below. Further, Seller shall report the general status of the ongoing operations of the Business of the Company upon Buyer's reasonable request. 5.1.2 Forbearances by Seller. Notwithstanding Section 5.1.1 hereof, and without limiting the generality of Section 5.1.1, Seller represents and warrants that neither Seller nor the Company has, and covenants and agrees that neither Seller nor the Company will, in connection with or in respect of the Business or any of the Purchased Assets without the prior written consent of Buyer: (a) directly or indirectly, solicit or initiate discussions or engage in negotiations with, or provide any information to, or authorize any financial advisor or other person to solicit or initiate discussions or engage in negotiations with, or provide any such information to, any corporation, partnership, person or other entity or group (other than Buyer) concerning any possible proposal regarding a merger, consolidation, sale of assets or other similar transaction involving the Company, or any division or asset of the Company; (b) mortgage, pledge or otherwise encumber any of the Purchased Assets; (c) sell, lease, transfer or dispose of or enter into any agreement to dispose of any of the Purchased Assets except in the ordinary course of business consistent with past practice; (d) waive or release any rights of material value, or cancel, compromise, release or assign any indebtedness owed to the Company or any claims held by the Company; (e) enter into any contract, agreement, commitment, obligation or transaction of or for the Business in an amount exceeding, individually or in the aggregate, Fifty Thousand Dollars ($50,000), without the express prior written consent of Buyer; (f) amend, modify, terminate or cancel any contract, agreement, commitment, obligation or transaction of or for the Business other than in the ordinary and lawful course of business as heretofore conducted; 5 (g) enter into any collective bargaining agreements; (h) increase in any manner the salary and bonus compensation or fringe benefits payable to any of its officers or employees, except for merit raises in the ordinary course of business consistent with past practice; or pay or agree to pay any pension or retirement allowance not required by any existing employment agreement or employment plan to any such officers or employees; or commit itself to any employment agreement or employment plan with or for the benefit of any officer or employee; or alter, amend or terminate, in whole or in part, any employee pension or other benefit plan; (i) release or waive any claim or right without receiving fair consideration; (j) enter into any employment agreement or arrangement with officers or employees, except in the ordinary course of business consistent with past practice, in which annual compensation (including base salary, cash bonuses and commissions) exceeds in the aggregate Thirty Thousand Dollars ($30,000); or (k) agree or commit to do any of the things described in clauses (a) through (j) of this Section 5.1.2. SECTION 5.2 Regulatory Consents, Authorizations, etc. Each of the parties hereto will use its best efforts to obtain all consents, authorizations, orders and approvals of, and make all filings and registrations with, any governmental commission, board or other regulatory body or any other person required for or in connection with the consummation by it of the transactions contemplated on its part hereby and will cooperate fully with the other party in assisting it to obtain such consents, authorizations, orders and approvals and to make such filings and registrations. No party hereto will take or omit to take any action for the purpose of delaying, impairing or impeding the receipt of any required consent, authorization, order or approval or the making of any required filing or registration. SECTION 5.3 Access. Prior to the Closing, Buyer may make or cause to be made, at Buyer's sole cost and expense, such reasonable investigation of the Business, properties and assets of the Company and its financial and legal condition as Buyer deems necessary or advisable to familiarize itself therewith. From the date hereof through the Closing Date, Seller and the Company shall give to Buyer and its authorized representatives, or cause them to be permitted, during normal business hours and upon reasonable notice, full access to all officers, employees, properties, customer lists, books, contracts, leases, commitments and records of the Company and the Business; and during this period, Seller shall furnish Buyer and its authorized representatives with all financial and operating data and other information as to the Business, properties and assets of the Company as Buyer may from time to time reasonably request; provided, however, that such investigation shall not interfere with the conduct of the Business and shall not limit any of the representations and warranties of Seller hereunder. SECTION 5.4 Records and Documents. For three (3) years, except with respect to tax matters which rights granted pursuant to this section shall continue until the applicable 6 statute of limitation expires, following the Closing Date, Seller shall grant to Buyer and its representatives, at their reasonable request, access to and the right to make copies, at Buyer's expense, of all records of the Company that relate to the Business as may be necessary, useful, desirable or appropriate in connection with Buyer's operation of the Business after the Closing. SECTION 5.5 Notice of Default. Seller shall give prompt notice to Buyer of any notice of default received prior to the Closing Date under any instrument to which Seller or the Company is a party or by which Seller or the Company is or may be bound, and of the assertion of any claim which, if upheld, would render wrong, incomplete or inaccurate any representation of Seller contained herein. SECTION 5.6 No Inconsistent Action. Each of the parties hereto will use its best efforts to consummate the transactions contemplated by this Agreement and shall not take any action inconsistent with its obligations hereunder or which could hinder or delay the consummation of the transactions contemplated hereby. SECTION 5.7 Publicity. Each party hereto agrees not to issue any press release or otherwise make any public statement in any general circulation medium with respect to the transactions contemplated by this Agreement, without the prior consent, which shall not be unreasonably withheld, of the other party. SECTION 5.8 Additional Agreements. Subject to the terms and conditions herein provided, each of the parties hereto shall use its best efforts to effect the transactions contemplated by this Agreement, as soon as practicable, including the execution and delivery of all instruments and other documents, and shall take or cause to be taken such further actions necessary, proper or desirable to carry out the intent and purposes of, and consummate the transactions contemplated by, this Agreement. No party will take or knowingly permit to be taken any action or do or knowingly permit to be done anything in the conduct of its business, or otherwise, which would be contrary to or in breach of any of the terms or provisions of this Agreement, or which would cause any of the representations or warranties contained herein to become untrue or incomplete. SECTION 5.9 Confidential Information. Buyer acknowledges and agrees that Seller is hereby agreeing to make available to Buyer, in the course of its investigation of the Business, certain information, some of which may constitute trade secrets of the Company. Such trade secret information includes, without limitation, information related to customers, including customer lists, the identities of existing, past or prospective customers, prices charged or proposed to be charged to customers, the quantity and quality of customer mail, customer contacts, special customer requirements and all related information, marketing techniques, compilations of information, copyrightable material and technical information relating to the Business (collectively the "Confidential Information"). The Confidential Information does not include information which (i) was already in Buyer's possession prior to July 2, 1998 (the date on which negotiations between the parties commenced with respect to this transaction (the "Start Date")), provided that such information is not known by Buyer to be subject to another confidentiality agreement with or other obligation of secrecy to Seller, the Company or another 7 party, or (ii) becomes, or since the Start Date has become, generally available to the public other than as a result of a disclosure by Buyer or its agents or (iii) becomes, or since the Start Date has become, available to Buyer on a non-confidential basis from a source other than Seller, the Company or its advisors, provided that such source is not known by Buyer to be bound by a confidentiality agreement with or other obligation of secrecy to Seller, the Company or another party. As a condition to providing Buyer with any such information, Buyer represents, warrants, and covenants to Seller, on behalf of Buyer and its authorized representatives that: 5.9.1 Any and all Confidential Information, including, without limitation, Confidential Information with respect to the Company's financial affairs, the Company's willingness to consider a business or asset sale, and any and all other Confidential Information relating to the Company, is given to Buyer and/or Buyer's authorized representatives in strictest confidence and includes confidential business information and trade secrets of the Company. Buyer acknowledges that the disclosure of any of such information to anyone but Buyer or Buyer's authorized representatives (as needed only) could be harmful to and could cause damage to the Company. 5.9.2 All Confidential Information relating to the Company provided to Buyer or Buyer's authorized representatives, by any source whatsoever, will be kept in strict confidence, will not be disclosed to any persons or entities except Buyer and/or Buyer's authorized representatives, and all necessary precautions will be taken to preclude the disclosure of such information to any persons or entities except Buyer and/or Buyer's authorized representatives. 5.9.3 Any Confidential Information concerning the Company provided to Buyer and or Buyer's authorized representatives, from any source whatsoever, will not be used to compete, directly or indirectly with the Company or to engage in the same business as the Company whether or not in direct or indirect competition with the Company. Such information will be used solely for the purpose of determining whether to acquire the Purchased Assets and for no other purpose. 5.9.4 If the transactions contemplated by this Agreement are not consummated, Buyer will return to Seller, upon Seller's request, all documents or other materials, of any kind whatsoever, obtained by Buyer or Buyer's agents concerning the Company, as well as all summaries, reports, financial statements, documents, recordings, and any reproductions thereof. SECTION 5.10 Non-competition and Non-interference. 5.10.1 Seller acknowledges that: (a) Buyer's business is national in scope and its products are marketed throughout the United States of America, including the State of California; (b) Buyer competes with other businesses that are or could be located in any part of the United States of America, including the State of California; and (c) the provisions of this Section 5.10 are reasonable and necessary to protect Buyer's business. 8 5.10.2 As an inducement for Buyer to enter into this Agreement, Seller agrees that for a period of two (2) years from the Closing Date (the "Noncompetition Period"), Seller shall not, directly or indirectly: (a) during the Noncompetition Period, engage or invest in, own, manage, operate, finance, control, or participate in the ownership, management, operation, financing or control of, be employed by, associated with, or in any manner connected with, lend Seller's or the Company's name or any similar name to, lend Seller's or the Company's credit to, or render services or advice to, any business whose products or activities compete in whole or in part with the products or activities (a) sold or engaged in, respectively, by Buyer, anywhere within the State of California where the Company is doing business or marketing its services in the areas of precision machining and aerospace part/component design and manufacturing. (b) either for himself or any other person, at any time during the Noncompetition Period: (i) induce or attempt to induce any employee of Buyer to leave the employ of Buyer; (ii) in any way interfere with the relationship between Buyer and any of its employees; (iii) employ, or otherwise engage as an employee, independent contractor, or otherwise, any employee of Buyer; or (iv) induce or attempt to induce any customer, supplier, licensee, or business relation of Buyer to cease doing business with Buyer, or in any way interfere with the relationship between any customer, supplier, licensee or business relation of Buyer; (c) either for himself or any other Person, at any time during the Noncompetition Period, solicit the business of any Person known to Seller to be a customer of Buyer, whether or not Seller had personal contact with such Person, with respect to products or activities which compete in whole or in part with the products or activities of Buyer; 5.10.3 If any covenant in this Section 5.10 is held to be unreasonable, arbitrary or against public policy, such covenant will be considered to be divisible with respect to scope, time and geographic area, and such lesser scope, time or geographic area, or all of them, as a court of competent jurisdiction may determine to be reasonable, not arbitrary and not against public policy, will be effective, binding and enforceable against Seller. 5.10.4 The period of time applicable to any covenant in this Section 5.10 will be extended by the duration of any violation by Seller of such covenant. SECTION 5.11 Relocation of the Business. Buyer shall: (a) reserve the right, in its sole discretion, to relocate the Business and the Purchased Assets situated at the Facility (as defined herein) at Buyer's sole cost and expense (the "Relocation"); and (b) have no obligation to continue any lease or other obligation relating to the Facility upon the Relocation. ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER 9 Unless, at the Closing Date, each of the following conditions is either satisfied or waived by Buyer in writing, Buyer shall not be obligated to purchase the Purchased Assets and shall not otherwise be obligated to consummate or effect this Agreement, or any of the other transactions contemplated by this Agreement. Buyer shall have the right to waive in writing any or all of the foregoing conditions precedent to the obligations of Buyer; provided, however, that no waiver by Buyer of any conditions precedent to the obligations of Buyer shall constitute a waiver by Buyer of any other condition precedent. SECTION 6.1 Accuracy of Warranties; Performance of Covenants. The representations and warranties of Seller contained or incorporated herein shall be true, accurate and correct on the date hereof and shall also be true, accurate and correct in all material respects on and as of the Closing Date with the same effect as if such representations and warranties had been made on and as of the Closing Date, and Seller and the Company shall have performed each and every obligation and complied with each and every agreement and covenant required by this Agreement to be performed or complied with on his, its or their part on or prior to the date hereof and the Closing Date, as the case may be. Each of the documents required to be delivered by Seller and the Company to Buyer hereunder shall be in form and substance reasonably satisfactory to Buyer. SECTION 6.2 Regulatory Consents, Authorizations, etc. All consents, authorizations, orders and approvals of, and filings and registrations with, any governmental commission, board or other regulatory body which are required in connection with the execution and delivery of this Agreement and the consummation by each party hereto of the transactions contemplated on its part hereby, shall have been obtained or made, other than consents, authorizations, orders, approvals, filings and registrations as to which the failure to obtain or make will not, after the Closing Date, (a) materially and adversely affect the Business, assets, properties, operations, prospects or the condition, financial or otherwise, or the results of operations of the Company, (b) limit the right of Buyer to own each of the Purchased Assets or conduct any material aspect of the Business, or (c) subject Buyer, any of its subsidiaries or any of its or their respective directors, officers or employees to liability on the ground that he, it or they have breached any law or regulation or have otherwise acted improperly in relation to the transactions contemplated by this Agreement. SECTION 6.3 No Pending Action. No (a) claim, investigation, action, suit, proceeding or litigation, either administrative or judicial, at law or in equity, by any governmental or regulatory commission, agency or other body or authority or by any other person, firm, corporation or other entity shall have been instituted, or to Seller's knowledge, threatened or pending on the Closing Date (i) for the purposes of challenging, prohibiting, operating, enjoining, restricting or delaying the consummation of this Agreement or any of the transactions contemplated by this Agreement, or any of the conditions to the consummation of the transactions contemplated by this Agreement, (ii) which claims damages against Buyer or Seller or the Company as a result of the consummation of the transactions contemplated hereby or otherwise claims that this Agreement or the consummation thereof is improper, or (iii) which in the reasonable opinion of Buyer, could adversely affect the right of Buyer to retain the Purchased Assets or to conduct any material aspect of the Business of the Company after the 10 Closing Date, or the ability of Seller and the Company to consummate the transactions contemplated hereby, and (b) injunction or restraining order shall be in effect prohibiting the transactions contemplated by this Agreement. SECTION 6.4 No Material Adverse Change. There shall have been no material and adverse change in the Company, the Business or the Purchased Assets. SECTION 6.5 No Adverse Laws. There shall not have been enacted by any foreign, federal, state or local governmental agency, body or entity, any statute, ordinance or regulation which has a material and adverse effect upon the Company, the Business or the Purchased Assets. SECTION 6.6 Force Majeure. All or any material part of the Purchased Assets shall not have been materially and adversely affected in any way by any act of God, fire, flood, war, legislation (proposed or enacted) or other event or occurrence, whether or not covered by insurance. SECTION 6.7 Third Party Consents. 6.7.1 All consents of third parties, including, without limitation, lenders and lessors of each of the parties hereto, which are required for the consummation of the transactions contemplated hereby, shall have been obtained in writing on terms and conditions and in form and substance reasonably satisfactory to Buyer. 6.7.2 Buyer shall also be reasonably satisfied that no material adverse change in the relationship with trade vendors to the Business will arise after the Closing Date as a result of the transactions contemplated by this Agreement and related agreements. This condition shall cease to be a condition precedent to Buyer's performance sixty (60) calendar days after the Effective Date. SECTION 6.8 [[Reserved]]. SECTION 6.9 Further Actions. All proceedings to be taken in connection with the consummation of the transactions contemplated by this Agreement, and all certificates, documents and instruments incidental thereto, shall be satisfactory in form and substance to Buyer, and Buyer shall have received copies of such documents and instruments as Buyer and its counsel may reasonably request in connection with such transactions. SECTION 6.10 Certificates. Prior to the Closing Date, Buyer shall have received from Seller a certificate dated the Closing Date and signed by Seller certifying that nothing has come to the attention of Seller which has led him to believe that the conditions set forth in Sections 6.1 through 6.8 hereof have not been satisfied. SECTION 6.11 Investigation. The Business, properties, assets, financial and legal condition, balance sheets, statements of operations and earnings, books, contracts, agreements, leases, commitments, financial and operating data, records, documents and files of the Company, 11 and other information and documents furnished to or obtained by Buyer pursuant to Section 5.3 hereof or otherwise, shall be reasonably satisfactory to Buyer. This condition shall cease to be a condition precedent to Buyer's performance thirty (30) days after the Effective Date. SECTION 6.12 Additional Agreements. Seller shall have delivered to Buyer executed copies of the Consulting Agreement and the Security Agreement. ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER Unless, at the Closing, each of the following conditions is either satisfied, or waived by Seller in writing, Seller shall not be obligated to sell the Purchased Assets and shall not be otherwise obligated to effect the transactions contemplated by this Agreement. Seller shall have the right to waive in writing any or all of the foregoing conditions precedent to the obligations of Seller; provided, however, that no waiver by Seller of any conditions precedent to the obligations of Seller shall constitute a waiver by seller of any other condition precedent. SECTION 7.1 Accuracy of Warranties; Performance of Covenants. The representations and warranties of Buyer contained or incorporated herein shall be true, accurate and correct in all material respects, on and as of the Closing Date with the same force and effect as if such representations and warranties had been made on and as of the Closing Date, and Buyer shall have performed each and every obligation and complied with each and every covenant required by this Agreement to be performed or complied with on its part on or prior to the Closing Date. Each of the documents required to be delivered by Buyer to Seller hereunder shall be in form and substance reasonably satisfactory to Seller. SECTION 7.2 Regulatory Consents, Authorizations, etc. All consents, authorizations, orders and approvals of, and filings and registrations with, any governmental commission, board or other regulatory body which are required in connection with the execution and delivery of this Agreement and the consummation by each party hereto of the transactions contemplated on its part hereby, shall have been obtained or made, other than consents, authorizations, orders, approvals, filings and registrations as to which the failure to obtain or make will not, after the Closing Date, (a) materially and adversely affect the Business, assets, properties, operations, prospects or the condition, financial or otherwise, or the results of operations of the Company, (b) limit the right of Buyer to own each of the Purchased Assets or conduct any material aspect of the Business, or (c) subject Buyer, any of its subsidiaries or any of its or their respective directors or officers to liability on the ground that he, it or they have breached any law or regulation or have otherwise acted improperly in relation to the transactions contemplated by this Agreement. SECTION 7.3 No Pending Action. No (a) claim, investigation, action, suit, proceeding or litigation, either administrative or judicial, at law or in equity, by any governmental or regulatory commission, agency or other body or authority or by any other person, firm, corporation or other entity shall have been instituted, or to the best knowledge of Buyer, threatened or pending on the Closing Date (i) for the purposes of challenging, prohibiting, 12 operating, enjoining, restricting or delaying the consummation of this Agreement or any of the transactions contemplated by this Agreement, or any of the conditions to the consummation of the transactions contemplated by this Agreement, (ii) which claims damages against Buyer or Seller or the Company as a result of the consummation of the transactions contemplated hereby or otherwise claims that this Agreement or the consummation thereof is improper, or (iii) which, in Seller's reasonable opinion, could materially and adversely affect the ability of Buyer to make the payments under the Promissory Note, and (b) injunction or restraining order shall be in effect prohibiting the transactions contemplated by this Agreement. SECTION 7.4 No Material Adverse Change. There shall have been no material and adverse change in Buyer's business. SECTION 7.5 No Adverse Laws. There shall not have been enacted by any foreign, federal, state or local governmental agency, body or entity, any statute, ordinance or regulation which has had a material and adverse effect upon Buyer's business. SECTION 7.6 Force Majeure. All or any material part of Buyer's business shall not have been materially and adversely affected in any way by any act of God, fire, flood, war, legislation (proposed or enacted) or other event or occurrence, whether or not covered by insurance. SECTION 7.7 Further Actions. All proceedings to be taken by Buyer in connection with the consummation of the transactions contemplated by this Agreement, and all certificates, documents and instruments incidental thereto, shall be reasonably satisfactory in form and substance to Seller, and Seller shall have received copies of such documents and instruments as Seller and its counsel may reasonably request in connection with such transactions. SECTION 7.8 Certificate. Prior to the Closing Date, Seller shall have received from Buyer a certificate dated the Closing Date and signed by Buyer certifying that the conditions set forth in Sections 7.1 to 7.7 have been fulfilled. SECTION 7.9 Additional Agreements. Buyer shall have delivered to Seller executed copies of the Consulting Agreement, the Promissory Note and the Security Agreement. ARTICLE VIII EMPLOYEES Except pursuant to the Assumed Contracts set forth in Exhibit 1.1, Buyer shall not be obligated in any way to offer employment to any employee of the Company and Buyer will not be responsible or liable in connection with any employment arrangements (whether written or oral) with employees of the Company, or for any salaries, severance pay, vacation accruals or other benefits owed or payable to any employees of the Company; provided, however, that Buyer shall be responsible for any salaries, severance pay, vacation accruals or other benefits owed or 13 payable to former employees of the Company employed by Buyer after the Closing Date, to the extent such payments relate to periods as of and after the Closing Date. ARTICLE IX SURVIVAL AND INDEMNIFICATION SECTION 9.1 Survival. Each of the representations, warranties, covenants and agreements of Seller contained in this Agreement (including those made in the exhibits and schedules hereto) shall be deemed renewed by Seller at the Closing Date as if made at such time and shall survive the Closing and shall be fully effective and enforceable until the first anniversary of the Closing Date, except with respect to: (i) the representations and warranties contained in the first sentence of Section A(8) of Exhibit 4, which shall survive the Closing in perpetuity; and (ii) the representations and warranties contained in Section A(17) of Exhibit 4, which shall survive the Closing until the expiration of the applicable statute of limitations period; provided, however, that none of such representations, warranties, covenants and agreements shall be limited with respect to time in the event that Seller has acted fraudulently in connection with, or intentionally breached, any of such representations, warranties, covenants and agreements. SECTION 9.2 Indemnification by Seller. Seller hereby agrees to indemnify and hold harmless Buyer and every subsidiary, affiliate, officer, director, shareholder, employee or agent of Buyer and the successors and assigns of each of them (collectively, "Buyer's Representatives"), from any and all Adverse Consequences (as defined herein) arising out of or relating to an Event of Breach (as defined herein) or any of the Excluded Liabilities and Obligations. Seller shall not be obligated to indemnify or hold Buyer or Buyer's Representatives harmless against any Adverse Consequences which it or they may suffer as a result of its or their gross negligence or willful misconduct on or after the discovery of any such Event of Breach. SECTION 9.3 Indemnification by Buyer. Buyer hereby agrees to indemnify and hold harmless Seller and its affiliates or agents and the successors and assigns of each of them (collectively, "Seller's Representatives"), from any and all Adverse Consequences arising out of or relating to an Event of Breach or from the Assumed Equipment Leases, the Assumed Contracts, or the Assumed Payables. Buyer shall not be obligated to indemnify or hold Seller or Seller's Representatives harmless against any Adverse Consequences which it or they may suffer as a result of its or their gross negligence or willful misconduct on or after the discovery of any such Event of Breach. SECTION 9.4 Event of Breach and Adverse Consequences. 9.4.1 As used herein, an "Event of Breach" shall mean any one or more of the following: (i) any material untruth, inaccuracy or misrepresentation in or material breach of any of the representations, warranties, covenants or agreements made by the party making such representation, warranty, covenant or agreement; (ii) any material failure of a party to perform or observe any term, provision, covenant, obligation, agreement or condition on the part of that party to be performed or observed under this Agreement; and (iii) any misrepresentation of a party in, or omission from, any statement, certificate, schedule, exhibit or other document 14 prepared or furnished by that party pursuant to this Agreement. In addition, "Event of Breach" shall also mean as to Seller or the Company, (a) any failure by Seller or the Company to fully perform and discharge the obligations, including, without limitation, the Excluded Liabilities and Obligations, of the Business arising prior to the Closing Date, and (b) claims or liabilities of any kind or nature which arise out of, result from or are related to the operations, ownership, conduct, activities or failure to act of Seller, the Company or their respective affiliates, or the Business or the Purchased Assets, including, without limitation, liabilities related to actual, potential or inchoate security interests, liens, claims or encumbrances involving any of the Purchased Assets, prior to, on or after the Closing Date which, individually or in the aggregate, have had or could have a material adverse effect on the Company, the Business or the Purchased Assets. 9.4.2 "Adverse Consequences" are all charges, complaints, actions, suits, proceedings, hearings, investigations, claims, demands, judgments, orders, decrees, stipulations, injunctions, damages, dues, penalties, fines, costs, amounts paid in settlement, liabilities, obligations, taxes, liens, losses, expenses, and fees, including all attorneys' fees and court costs. SECTION 9.5 Certain Other Agreements. Notwithstanding anything herein to the contrary, the party who has suffered losses due to Adverse Consequences shall not enforce the indemnification obligations contained herein until the aggregate amount for which it has suffered losses due to Adverse Consequences hereunder exceeds Forty-Five Thousand Dollars ($45,000) (the "Threshold Amount"); provided, however, that such party shall be indemnified for the full amount of its loss thereafter without giving effect to the Threshold Amount. To the extent, and only to the extent, required by law, each indemnified party hereunder will use commercially reasonable efforts to mitigate Adverse Consequences resulting from, arising out of, or caused by an Event of Breach; provided, however, that nothing herein shall impose, create, supplement, reduce, change or affect in any way any burden of proof, burden of persuasion or any other procedural or substantive requirement or law in the prosecution of its rights hereunder. Notwithstanding the foregoing, unless and to the extent that any losses due to Adverse Consequences result from or arise out of fraud, a violation of any representation or warranty contained in the first sentence of Section A(8) of Exhibit 4, or any intentional breach of any representation or warranty or agreement contained herein, the indemnity obligations of Seller will not exceed Five Hundred Thousand Dollars ($500,000). In the event and to the extent that the indemnity obligations of Seller or Buyer result from or arise out of fraud or any intentional breach of any representation or warranty or agreement contained in this Agreement, no such limitation on indemnity obligations shall apply. SECTION 9.6 Notice and Demand, etc. 9.6.1 Each indemnified party hereunder agrees that, upon its obtaining actual knowledge of facts indicating that there may be an Event of Breach giving rise to a colorable claim for indemnity by an unidentified party under the provisions hereof, it will give prompt notice thereof in writing to the indemnifying party. If an Event of Breach occurs, the 15 indemnifying party shall indemnify the indemnified party from and against the Adverse Consequences the indemnified party suffers, subject to the limitations set forth in this Article IX. 9.6.2 If any third party shall notify any party (the "Indemnified Party") with respect to any Event of Breach which may give rise to a colorable claim for indemnification against the other party (the "Indemnifying Party"), then the Indemnified Party shall notify the Indemnifying Party within 60 days after receiving any written notice from a third party. Once the Indemnified Party has given notice of the matter to the Indemnifying Party, the Indemnified Party may defend against the matter in any reasonable manner it may deem appropriate at the Indemnifying Party's sole cost and expense. However, in the event the Indemnifying Party notifies the Indemnified Party, at any time after the Indemnified Party has given notice of the matter, that the Indemnifying Party is assuming the defense thereof, (i) the Indemnifying Party will defend the Indemnified Party against the matter with counsel of its choice reasonably satisfactory to the Indemnified Party, (ii) the Indemnified Party may retain separate co-counsel at its sole cost and expense, (iii) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the matter without the written consent of the Indemnifying Party (not to be withheld unreasonably) and (iv) the Indemnifying Party will not consent to the entry of any judgment with respect to the matter, or enter into any settlement which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all liability with respect thereto, without the written consent of the Indemnified Party not to be withheld unreasonably. 9.6.3 Disputed issues regarding (i) whether or not an Event of Breach has occurred, (ii) the scope or amount of Adverse Consequences, or (iii) whether a party has performed duties reasonably, shall be resolved by arbitration hereunder as provided in Section 10.15 hereof. In addition, the parties hereto acknowledge and agree that any claim or dispute under this Article IX existing or pending as of August 20, 1999 shall be submitted to arbitration pursuant to Section 10.15 of this Agreement on or before September 4, 1999, otherwise such Claim or dispute shall be terminated. SECTION 9.7 Determination of Loss. The parties hereto shall make appropriate adjustments for tax benefits and insurance proceeds (reasonably certain of receipt and utility in each case) and for the time cost of money (using the applicable federal rate as the discount rate) in determining the amount of Adverse Consequences for purposes of this Article. All indemnification payments under this Article shall be deemed adjustments to the Aggregate Purchase Price. ARTICLE X MISCELLANEOUS PROVISIONS SECTION 10.1 Brokers. Buyer, on the one hand, and Seller, on the other, represent and warrant to each other that no broker, investment banker or finder is entitled to any financial advisory fee brokerage fee or finder's fee or other similar payment with respect to (i) this Agreement or (ii) the transactions contemplated hereby. Buyer, on the one hand, and Seller, 16 on the other, each agrees to indemnify, defend and hold each other harmless against and in respect of all claims, losses, liabilities and expenses which may be asserted against one of the parties hereto by any broker or other person who claims to be entitled to a broker's, finder's or similar fee or commission in respect of the execution of this Agreement, or the consummation of the transactions contemplated hereby, by reason of his acting at the request of the other. SECTION 10.2 Entire Understanding. This Agreement (including the exhibits and schedules hereto, each of which is incorporated herein and made a part of this Agreement) and the other agreements and instruments, the execution and delivery of which are provided for herein, constitutes the entire agreement and understanding of the parties hereto and terminates and supersedes any and all prior agreements, arrangements and understandings, both oral and written, between the parties hereto concerning the subject matter of this Agreement. SECTION 10.3 Waiver and Amendment. No waiver, amendment, modification or change of any provision of this Agreement shall be effective unless and until made in writing and signed by all of the parties hereto. No waiver, forbearance or failure by any party of its right to enforce any provision of this Agreement shall constitute a waiver or estoppel of such party's right to enforce any other provision of this Agreement or a continuing waiver by such party of compliance with any provision. SECTION 10.4 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement, and shall not be deemed to limit or affect any of the provisions hereof. SECTION 10.5 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be original, but all of which together shall constitute one and the same instrument. SECTION 10.6 Interpretation. The provisions of this Agreement are intended to be interpreted and construed in a manner so as to make such provisions valid, binding and enforceable. In the event that any provision of this Agreement is determined to be partially or wholly invalid, illegal or unenforceable, then such provision shall be deemed to be modified or restricted to the extent necessary to make such provision valid, binding and enforceable, or, if such provision cannot be modified or restricted in a manner so as to make such provision valid, binding and enforceable, then such provision shall be deemed to be excised from this Agreement and the validity, binding effect and enforceability of the remaining provisions of this Agreement shall not be affected or impaired in any manner. Nothing in this Agreement shall be interpreted or construed as creating, expressly or by implication, a partnership, joint venture, agency relationship or employment relationship between the parties hereto or any of their respective officers, directors, agents, employees or representatives. SECTION 10.7 Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been delivered: three (3) business days after having been mailed in a general or branch post office and enclosed in a registered or certified post-paid envelope; one (1) business day after having been sent by overnight courier; when delivered to a telegraph company or when telecopied or scanned 17 graphically or otherwise by communications equipment of the sending party on a business day, or otherwise on the next succeeding business day thereafter; and, in each case, addressed to the respective parties at the addresses stated below or to such other changed addresses the parties may have fixed by notice as provided herein: If to Seller: Aerated Engineering Co. 330 10th Avenue San Diego, California 92101 Attn: Mr. Robin Hartley Facsimile: (619) 235-0946 With a copy to: Goode, Peterson & Weintraub 4225 Executive Square, Suite 200 La Jolla, California 92037-1483 Attn: Richard A. Weintraub, Esq. Facsimile: (619) 550-3035 If to Buyer: TomaHawk II, Inc. 8315 Century Park Court, Suite 200 San Diego, California 92123 Attn: Michael H. Lorber Vice President-Finance and Chief Financial Officer Telephone: (619) 874-7692 Facsimile: (619) 874-2371 With a copy to: Baker & McKenzie 101 West Broadway; 12th Floor San Diego, California 92101 Attn: John J. Hentrich, Esq. Telephone: (619) 236-1441 Facsimile: (619) 236-0429 SECTION 10.8 Successors and Assigns. This Agreement shall not be assigned or delegated by any party without the prior written consent of the other party, except that Buyer may assign this Agreement and the right to receive the Purchased Assets or the Business of the Company (i) to one or more subsidiaries or affiliates of Buyer or (ii) to lending institutions for security purposes. Subject to the preceding sentence, each term and provision of this Agreement shall be binding upon and enforceable against and inure to the benefit of any successors or assigns of Buyer and any successors or assigns of Seller. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties and their respective successors and assigns any rights or remedies under or by reason of this Agreement. SECTION 10.9 Attorneys' Fees. Subject to Section 10.15 of this Agreement, if any action at law or in equity is brought to enforce or interpret the provisions of this Agreement or any other agreement or instrument provided for herein, the prevailing party in such action shall be entitled to recover as an element of such party's costs of suit, and not as damages, 18 reasonable attorneys' fees to be fixed by the court or arbitrator. The prevailing party shall be the party who is entitled to recover its costs of suit as ordered by the court, the arbitrator or by applicable law or court rules. A party not entitled to recover its costs shall not recover attorneys' fees. No sum for attorneys' fees shall be counted in calculating the amount of judgment for purposes of determining whether a party is entitled to recover its costs or attorneys' fees. SECTION 10.10 Governing Law. Subject to Section 10.15 of this Agreement, any action or proceeding seeking to enforce any provision of, or based on any right or duty arising out of, this Agreement or for damages for breach of this Agreement shall be brought in San Diego, California and each of the parties hereto consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California, without regard to principles of conflict of laws. SECTION 10.11 Construction. Whenever in this Agreement the context so requires, references to the masculine shall be deemed to include feminine and the neuter, reference to the neuter shall be deemed to include the masculine and feminine, and references to the plural shall be deemed to include the singular and the singular to include the plural. SECTION 10.12 Cooperation. Each party hereto shall cooperate with the other party and shall take such further action and shall execute and deliver such further documents as may be necessary or desirable in order to carry out the provisions and purposes of this Agreement. SECTION 10.13 Expenses. Whether or not the transactions contemplated by this Agreement and the related agreements are consummated, each party to this Agreement shall pay its own costs and expenses in connection with the negotiation, preparation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, including but not limited to, attorneys' fees, accountants' fees and other professional fees and expenses; provided, however, that Buyer shall pay all costs in connection with the audit of the Company's Financial Statements (as defined herein) or other financial review of the Business. SECTION 10.14 Representation by Counsel. Each party hereto represents and agrees with the other that it has been represented by, or had the opportunity to be represented by, independent counsel of its own choosing, and that it has had the full right and opportunity to consult with its respective attorneys, that to the extent, if any, that it desired, it availed itself of this right and opportunity, that its authorized officers have carefully read and fully understand this Agreement in its entirety and have had it fully explained to them by such party's respective counsel, that each party is fully aware of the contents thereof and its meaning, intent and legal effect, and that its authorized officer is competent to execute this Agreement and has executed this Agreement free from coercion, duress or undue influence. SECTION 10.15 Binding Arbitration. The parties hereto agree that all disputes arising out of or related to the terms and conditions of this Agreement or to the performance, breach of termination thereof, shall be submitted to binding arbitration pursuant to the Expedited Procedures of the Commercial Arbitration Rules (the "Rules") of the American Arbitration 19 Association (the "AAA"). The arbitration will take place in San Diego, California at the offices of the AAA. The dispute will be resolved by a single arbitrator appointed by the AAA in accordance with the list procedure described in Paragraph 13 of the Rules, except that the AAA will transmit the list within ten (10) business days of the filing of the demand for arbitration, and the parties thereto will have five (5) business days to return the list to the AAA with their objections and preferences. Discovery will be limited to no more than five (5) depositions by each side and written document requests, requesting the production of specific documents. The parties to the dispute will voluntarily produce any and all documents that they intend to use at the hearing before the close of discovery, subject to supplementation for purposes of rebuttal or good cause shown. The period for taking discovery will be sixty (60) business days, commencing upon the day that the answer is due under the Rules. The arbitrator will hold a pre-hearing conference within thirty (30) business days of the close of discovery and will schedule the hearing within thirty (30) business days of the close of discovery. After the arbitrator is selected, the arbitrator will have sole jurisdiction to hear such applications, except that any measure ordered by the arbitrator may be immediately and specifically enforced by a court otherwise having jurisdiction over the parties. All fees and costs will be allocated to the parties to the arbitration as determined by the arbitrator. Each party will pay its own fees and costs associated with the arbitration and each party will pay one-half of the estimated arbitrator's fees up front; and if either party fails to do so, a default will be entered against such party solely with respect to such fees. Any determination of the arbitrator shall be final and binding on the parties hereto, without right of appeal. Nothing in this Agreement will prevent a party hereto from applying to a court that would otherwise have jurisdiction for provisional or interim injunctive or other equitable measures. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 20 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on August 20, 1998, effective as of the day and year first above written. "SELLER" -------------------------------------------- Robin Hartley "BUYER" TOMAHAWK II, INC., an Illinois corporation By: ----------------------------------------- Steven M. Caira President and Chief Executive Officer [SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT] 21 Exhibit 1.1 PURCHASED ASSETS The "Purchased Assets" shall be and mean the following at the Effective Date: a. All accounts receivable arising from sales made, services performed and/or invoices billed by the Company on or after the Effective Date (and, subject to Section 2.2 of this Agreement, all collections thereof through and including the Closing Date), trade notes receivable and employee notes receivable (collectively, the "Accounts Receivable"); b. Subject to Section 2.2 of this Agreement, all cash accounts related to the Business of the Company received or collected from the Effective Date through and including the Closing Date; c. All salable inventory (including finished goods, supplies, service parts and purchased parts, raw materials, work-in-progress, inventory in transit, and other goods and materials) of the Company, except for inventory determined in good faith by Buyer to be obsolete, damaged or otherwise not salable by Buyer in its business; d. All fixed assets, physical assets and other tangible property, including, without limitation, all machinery, fixtures, equipment and computer hardware and software located at the Facility (as defined herein) or used in or related to the Business as set forth on Schedule 1.1(d) attached hereto and made a part hereof; e. All vehicles, including, but not limited to, automobiles, trucks and trailers, except for those described as Excluded Assets below; f. All office furnishings, furniture, telephone equipment, telephone numbers, fixtures and supplies located at the Facility (as defined herein) or used in or related to the Business, except for those described as Excluded Assets below; g. All leasehold interests and all rights to and under equipment leases related to the Business as set forth on Schedule 1.1(g) attached hereto and made a part hereof (collectively, the "Assumed Equipment Leases"); h. All rights and claims to and under sales contracts, dealer contracts and purchase orders and all rights to and under licenses, franchises and all other such agreements and contracts relating to the Business or the Purchased Assets (collectively, the "Assumed Contracts"); i. Subject to Section 2.2 of this Agreement, all rights, claims and obligations to and under reasonable operating expenses incurred in the ordinary course of the Business consistent with past practice on or after the Effective Date (collectively, the "Assumed Payables"); j. All deposit accounts reflected on the Interim Balance Sheet relating to the Business; 1 k. All confidential and proprietary information, including, but not limited to, information relating to marketing, purchasing, sales, pricing, customers, suppliers and employees (with consents of employees) and all customer deposits and credit balances, to the extent such items are used in or related to the Business; l. All lists of customers, customer files, lists of suppliers and supplier files, to the extent such items are used in or related to the Business; m. All technical or marketing information relating to the Business, including new developments, inventions, know-how, ideas and trade secrets and documentation thereof; n. The name "Aerated Engineering Co.," "A.E.C.," and/or any variation thereof and any names similar thereto and all fictitious businesses names used by the Company relating thereto, all trademarks, trade names, service marks, patents, copyrights and all other rights and all applications and registrations therefor and licenses thereof relating to the Business; o. Any proceeds from insurance claims (whether pending or otherwise) which relate to any of the Purchased Assets; and p. Goodwill. 2 EXHIBIT 1.2 EXCLUDED ASSETS The "Excluded Assets" shall be and mean the following at the Effective Date: (aa) Tax refunds; (bb) The 1995 Jeep Cherokee, License No. 3KKU445, V.I.N. 1J4FJ785X5L55197; (cc) The building situated on the Facility; (dd) Any fee interest in real property owned by Seller; (ee) Trade and non-trade receivables, including, without limitation, workers' compensation or insurance refunds or rebates; (ff) Cash, cash equivalents and marketable securities held by the Company at July 31, 1998; (gg) All rights, claims and obligations to and under the accounts receivable of the Business as reflected on the books and records of the Company at July 31, 1998 and the specific accounts receivable listed on the attached Schedule 14, as mutually agreed to by Buyer and Seller (collectively, the "Excluded Accounts Receivable"); (hh) All rights, claims and obligations to and under the accounts payable of the Business as reflected on the books and records of the Company at July 31, 1998 and as set forth on the attached Schedule 13 (the "Excluded Accounts Payable"); and With respect to item (gg) above, after the Closing Date, Buyer agrees to remit to Seller any amounts received in connection with the Excluded Accounts Receivable within ten (10) business days of their receipt by Buyer. 1 EXHIBIT 4 A. Representations and Warranties of Seller. Seller hereby represents and warrants to Buyer, as of the Effective Date and as of the Closing Date, the following: 1. Ownership. Seller is the owner of the Purchased Assets, free and clear of any and all liens, charges, pledges, security interests, equities, encumbrances or restrictions of any kind. 2. Due Qualification. The Company is a sole proprietorship, and Seller and the Company have full power and authority to own and/or lease all of the Purchased Assets and to carry on the Business as now being conducted and as and where the Purchased Assets are now owned or leased and the Business is located. 3. Authority. Seller now has, and on the Closing Date will have, the full right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby. Seller now has and on the Closing Date will have the full right, power and authority, without the consent of any other person, to execute and deliver this Agreement and to carry out this Agreement and the transactions contemplated hereby. 4. Validity. This Agreement constitutes the valid and legally binding obligation of Seller, enforceable against him in accordance with its respective terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by general equitable principles. 5. Non-Contravention. Neither the execution and delivery of this Agreement by Seller, nor the consummation of the transactions contemplated hereby, do or would after the giving of notice or the lapse of time or both, (a) conflict with, result in a breach of, or constitute a default under, to Seller's knowledge, any federal, state or local court or administrative order or process, or any agreement, contract, commitment or other instrument, including any express or implied warranty, to which Seller or the Company is a party or by which Seller or the Company (or any of its rights, properties or assets) is subject or bound; (b) to Seller's knowledge, conflict with, result in a breach of, or constitute a default under, any federal, state or local law, statute, rule or regulation; (c) result in the creation of, or give any party the right to create, any lien, charge, encumbrance, security agreement or other rights or adverse interests upon any of the Purchased Assets; (d) terminate or give any party the right to terminate, amend, abandon or refuse to perform any agreement, contract or commitment to which Seller or the Company is a party or by which Seller or the Company (or any of its rights, properties or assets) is subject or bound; or (e) accelerate or modify, or give to any party thereto the right to accelerate or modify, the time within which, or the terms under which, either Seller, the Company or any third party is to perform any duties or obligations or receive any rights or benefits under any agreement, contract or commitment. 6. Force Majeure. The Purchased Assets have not been materially and adversely affected in any way as a result of any fire, explosion, earthquake, flood, windstorm, 1 accident or any other casualty, labor trouble, condemnation, requisition or taking of property by any government or any agency of any government, embargo, riot, act of God or public enemy, or other similar or dissimilar casualty or event. 7. Facility. The Business is operated exclusively at 330 10th Avenue, San Diego, California 92101 (the "Facility"). 8. Title to Assets. Except for the equipment leased under the Assumed Equipment Leases, Seller is the sole and exclusive legal and equitable owner of all right, title and interest in and has good and marketable title to the Purchased Assets, free and clear of any and all mortgages, liens, claims, charges, options, purchase agreements, security agreements and interests, commission arrangements, title retention agreements, encumbrances, covenants, restrictions and adverse interests of any kind or nature whatsoever. Each of the Purchased Assets, including the fixtures, vehicles, equipment, machinery, furniture and other tangible assets transferred hereunder, is in good repair and in good, marketable and operating condition and is suitable for the purposes for which it presently is being used. 9. Financial Statements. Seller has delivered to Buyer the balance sheets of the Company as of December 31, 1996 and December 31, 1997 (collectively, the "Balance Sheets"), and the related statements of operations for the years then ended (collectively, the "Financial Statements"), which are attached hereto as Schedule 9. In addition, Schedule 9 contains: (i) the unaudited balance sheet of the Company for the seven-month period ended on July 31, 1998 (the "Interim Balance Sheet"); (ii) the related unaudited statement of operations for the seven-month period ended on July 31, 1998 (collectively, the "Interim Financial Statements"); and (iii) the 1998 fiscal forecast of the Company. To Seller's knowledge, all such financial statements and information, together with any notes thereto, are correct and present fairly the financial position of the Company as of the respective dates indicated and its results of operations for the periods then ended (subject to normal year-end adjustments). 10. Books and Records. The books of account and other records of the Company, all of which have been made available to Buyer, are complete and correct and have been maintained in accordance with sound business practices. At the Closing, to Seller's knowledge, all of those books and records relating to the Business and the Purchased Assets will be in the possession of the Company. 11. Condition and Sufficiency of the Purchased Assets. Except as set forth in Schedule 11, the Purchased Assets are structurally sound, are in good operating condition and repair, and are adequate for the uses to which they are being put, and to Seller's knowledge none of the Purchased Assets is in need of maintenance or repair. 12. Inventory. All inventory of the Company, whether or not reflected in the Balance Sheet or the Interim Balance Sheet, consists of a quality and quantity usable and salable in the ordinary course of business, except for obsolete items and items of below-standard quality, all of which have been written off or written down to net realizable value in the Interim Balance Sheet or on the accounting records of the Company as of the Closing Date, as the case may be. All inventories not written off have been priced at the lower of cost or market on a first in, first 2 out basis. The quantities of each item of inventory (whether raw materials, work-in-process, or finished goods) are not excessive, but are reasonable in the present circumstances of the Company. 13. Accounts Payable. Schedule 13 contains a complete and accurate list of all rights, claims and obligations to and under the Excluded Accounts Payable of the Business at July 31, 1998. Seller shall be solely responsible for the payment of and/or obligations under the Excluded Accounts Payable. 14. Accounts Receivable. Schedule 14 contains a complete and accurate list of the Excluded Accounts Receivable of the Company. 15. No Undisclosed Liabilities. Except as set forth in Schedule 15, the Company has no liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) except for liabilities or obligations reflected or reserved against the Interim Balance Sheet and current liabilities incurred in the ordinary course of business since the respective dates thereof. 16. Litigation. There is no suit, action, claim or litigation, or legal, administrative, arbitration or other proceeding or governmental investigation or inquiry pending or, to Seller's knowledge, threatened against or affecting the Company, the Business or any of its property or assets, including the Purchased Assets, and there is no basis for any such action, nor is there any judgment, decree, injunction, ruling, award, order or writ of any court, governmental department, commission, agency, instrumentality, arbitration or other person outstanding against, binding upon or involving the Company, the Business, or any of its properties or assets. Neither Seller nor the Company, nor any of its officers or, to Seller's knowledge, its employees is currently charged with, or is currently under investigation with respect to, any violation of any provision of any foreign, federal, state or local law or administrative regulation in respect of the Business and the Purchased Assets. The Company is not in default with respect to any judgment, decree, injunction, ruling, award, order or writ of any foreign, federal, state, municipal agency or other governmental department, board, commission, bureau, agency or instrumentality. 17. Taxes. All federal, state, county, local, foreign and other tax returns, reports and declarations (including income, excise, property, franchise, sales and use taxes) required to be filed with respect to the Company or by or on behalf of the Business by the Company have been duly filed (or extensions for filing have been filed) and such returns are complete and accurate and disclose all taxes required to be paid for the periods covered thereby. All taxes shown on such returns and any deficiency assessments, penalties and interest have been paid. There are no tax liens on any of the Purchased Assets and no basis exists for the imposition of any such liens. All federal, state, local and foreign taxes, assessments, fees and charges (including interest and penalties, if any) required to be paid or claimed to be due from or with respect to Seller for any period prior to the Closing Date have been fully paid, as of the date hereof or will be paid by Seller together with any interest and penalties thereon. All returns required to be filed for any period prior to the Closing Date which are not filed as of the Closing will be duly filed. Notwithstanding any other provision set forth in this Agreement, Seller is 3 satisfied as to, and has relied solely upon his tax advisors with respect to, the incidents of taxation which will or may result from the transactions contemplated by this Agreement. 18. No Material Adverse Change. Since the date of the Interim Balance Sheet, there has not been any material adverse change in the Business, operations, properties, prospects, assets, or condition of the Company and/or the Purchased Assets, and no event has occurred or circumstance exists that may result in such a material adverse change. 19. Legal Compliance. (a) To Seller's knowledge, Seller has complied with all laws, statutes, ordinances, rules, regulations and orders of all governmental entities applicable to the Business or the Purchased Assets, except where noncompliance individually or in the aggregate would not materially and adversely affect the Business or the Purchased Assets. Seller and the Company have all permits, certificates, licenses, approvals and other authorizations required in connection with the operation of the Business, all of which are valid and effective. (b) To Seller's knowledge, the operations, practices, policies and procedures of the Company and its employees have been conducted and, through and including the Closing Date, will be conducted in compliance with, and have not and will not give rise to any loss, liability, damage, costs or expenses under, all applicable federal, state and local laws, orders, regulations, directives and restrictions concerning protection of the environment, the disposal of hazardous, toxic or industrial chemicals, substances or wastes and health and safety. (c) There are no claims or correspondence with respect to, investigations, litigation, administrative proceedings, judgments or orders, whether pending or threatened relating to any hazardous substances, hazardous wastes, discharges, emissions or other forms of pollution (collectively "EPA Matters") relating in any way to the Facility. Neither Seller nor the Company has liability for clean-up, compliance or required capital expenditures in connection with any EPA Matter arising prior to the date hereof which affect or may affect, materially or adversely, the Business or the Purchased Assets. (d) No hazardous or toxic substances, within the meaning of any applicable statute or regulation, are presently stored or otherwise located at the Facility which affects or may affect materially and adversely the Business and/or the Purchased Assets; and, further within the definition of such statutes, no part of the Facility or adjacent parcels of real estate, including the groundwater located thereon or thereunder, is presently contaminated by any such substance which affects or may affect, materially and adversely, the Business or the Purchased Assets. (e) No notice has been issued and no investigation or review is pending or, to Seller's knowledge, threatened by any governmental entity with respect to (i) any alleged violation by Seller or the Company of any law, ordinance, rule, regulation, order, policy or guideline of any governmental entity, or (ii) any alleged failure to have all permits, certificates, licenses, approvals and other authorizations required in connection with the operation of the Business or the Purchased Assets. Seller has furnished Buyer with copies of all 4 reports or other documents concerning the Company or its employees made by Seller or the Company during the past five years pursuant to any law, ordinance, rule, regulation, order, policy or guideline of any governmental entity and workers' compensation statutes. Neither Seller nor the Company has filed a notice or report of any release of any hazardous or toxic substances, within the meaning of any applicable statute or regulation, that affects or may affect, materially and adversely, the Business or the Purchased Assets. 20. Assumed Contracts; No Defaults. (a) Schedule 20(a) sets forth: (i) a complete and accurate list, and Seller has made available to Buyer for inspection true and complete copies, of each Assumed Contract and (ii) a complete description of all material oral agreements and contracts relating to the Business or the Purchased Assets; Schedule 20(a) sets forth reasonably complete details concerning each Assumed Contract, including the parties to such Assumed Contract and the amount of the remaining commitment of the Company under such Assumed Contract. (b) Except as set forth in Schedule 20(b): (i) neither Seller, nor the Company nor any family member or affiliate ("Related Person") of Seller or the Company has or may acquire any rights under, and neither Seller nor the Company has or may become subject to any obligation or liability under, any contract or agreement that relates to the Business or any of the Purchased Assets; and (ii) no officer, agent, employee, consultant, or contractor of the Company is bound by any contract or agreement that purports to limit the ability of such officer, agent, employee, consultant, or contractor to (A) engage in or continue any conduct, activity, or practice relating to the Business of the Company, or (B) assign to the Company or to any other individual, corporation, partnership or other entity (a "Person") any rights to any invention, improvement, or discovery. (c) Except as set forth in Schedule 20(c), each Assumed Contract is in full force and effect and is valid and enforceable in accordance with its terms. (d) Except as set forth in Schedule 20(d): (i) each of Seller and the Company is, and at all times has been, in full compliance with all applicable terms and requirements of each Assumed Contract under which Seller or the Company has or had any obligation or liability or by which Seller or the Company or any of the Purchased Assets is or was bound; (ii) each other Person that has or had any obligation or liability under any Assumed Contract under which Seller or the Company has or 5 had any rights is, and at all times has been, in full compliance with all applicable terms and requirements of such Assumed Contract; (iii) no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with, or result in a violation or breach of, or give Seller, the Company or any other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Assumed Contract; and (iv) neither Seller nor the Company has given to or received from any other Person, any notice or other communication (whether oral or written) regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Assumed Contract. (e) There are no renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any material amounts paid or payable to the Company under any Assumed Contract with any Person and no such Person has made written demand for such renegotiation. (f) Each of the Assumed Contracts has been entered into in the ordinary course of business and has been entered into without the commission of any act alone or in concert with any other Person, or any consideration having been paid or promised, that is or would be in violation of any applicable federal, state or local law, order, regulation or directive. 21. Insurance. (a) Seller has delivered to Buyer: (i) true and complete copies of all policies of insurance to which Seller or the Company is a party or under which Seller or the Company or the Business is or has been covered at any time within the two years preceding the date of this Agreement; (ii) true and complete copies of all pending applications for policies of insurance; and (b) Schedule 21(b) describes: (i) any self-insurance arrangement by or affecting the Company, including any reserves established thereunder; (ii) any contract or arrangement, other than a policy of insurance, for the transfer or sharing of any risk by the Company; and 6 (iii) all obligations of the Company to third parties with respect to insurance (including such obligations under leases and service agreements) and identifies the policy under which such coverage is provided. (c) Schedule 21(c) sets forth, by year, for the current policy year and each of the two preceding policy years: (i) a summary of the loss experience under each policy; (ii) a statement describing each claim under an insurance policy for an amount in excess of $10,000, which sets forth: (A) the name of the claimant; (B) a description of the policy by insurer, type of insurance, and period of coverage; and (C) the amount and a brief description of the claim. (iii) a statement describing the loss experience for all claims that were self-insured, including the number and aggregate cost of such claims. 22. Employees. Schedule 22 sets forth a complete list of all employees of the Company, their respective positions, locations, salaries or hourly wages and severance arrangements, if any, each as of the date hereof. To Seller's knowledge, no key employee or group of employees, with the exception of Seller, has any plans to terminate employment with the Company. Each employee of the Company is employed on an "at will" basis and has no right to any material compensation following termination of employment. The Company is not a party to or bound by any collective bargaining agreement, nor has it experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes. The Company has not committed any unfair labor practice and there is no organizational effort presently being made or, to Seller's knowledge, threatened by or on behalf of any labor union with respect to employees of the Company. 23. Labor Matters. There are no controversies pending nor, to Seller's knowledge, is there any basis for any such controversies, between the Company and any of its employees, which controversies have affected or may affect materially and adversely the Business or the results of operations of the Company and/or the Purchased Assets. 24. Intellectual Property. (a) Intellectual Property Assets. Schedule 24(a) sets forth each of the Purchased Assets described in Section (m) of Exhibit 1.1 (the "Intellectual Property Assets"). The Company is the owner of all right, title, and interest in and to each of the Intellectual 7 Property Assets, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims. There are no outstanding, and to Seller's knowledge, no threatened disputes or disagreements with respect to any of the Intellectual Property Assets. (b) Agreements. Schedule 24(b) contains a complete and accurate list and summary description of all Assumed Contracts relating to the Intellectual Property Assets. There are no outstanding and, to Seller's knowledge, no threatened disputes or disagreements with respect to any such Assumed Contract. (c) Know-How Necessary for the Business. The Intellectual Property Assets are all those used in the operation of the Company's Business as currently conducted. Seller or the Company is the owner of all right, title, and interest in and to each of the Intellectual Property Assets, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims, and has the right to use without payment to a third party all of the Intellectual Property Assets. 25. Certain Payments. Since January 1, 1998, neither the Company, nor any of its officers, agents, or employees, nor any other Person, in each case, associated with or acting for or on behalf of the Company, has directly or indirectly: (a) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, (iii) to obtain special concessions or for special concessions already obtained, for or in respect of the Company or any affiliate of the Company, or (iv) in violation of any legal requirement; or (b) established or maintained any fund or asset that has not been recorded in the books and records of the Company. 26. Disclosure. (a) No representation or warranty of Seller in this Agreement and no statement in the schedules hereto omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading. (b) There is no fact known to Seller that has specific application to either Seller or the Company or the Purchased Assets (other than general economic or industry conditions) and that materially adversely affects the assets, business, prospects, financial condition, or results of operations of the Company that has not been set forth in this Agreement (including the exhibits and schedules hereto). 27. Relationships with Related Persons. Neither Seller nor the Company nor any Related Person of Seller or of the Company owns, or has owned (of record or as a beneficial owner) an equity interest or any other financial or profit interest in, a Person that has (i) had business dealings or a material financial interest in any transaction with the Company, or (ii) engaged in competition with the Company with respect to any line of the products or services of the Company (a "Competing Business") in any market presently served by the Company. 8 Except as set forth in Schedule 27, neither Seller nor any Related Person of Seller or of the Company is a party to any Contract with, or has any claim or right against, the Company. 28. No Consents. Except for the consents to assignment of the Assumed Lease and compliance with Article 6 of the UCC, no permit, consent, approval, novation, authorization or other order of or filing with any governmental authority, board or other regulatory body or any other person is required in connection with the execution, delivery and consummation of this Agreement by Seller and the consummation of the transactions contemplated hereby. 29. Information. Seller has furnished and will continue to furnish to Buyer detailed information with respect to the Facility, the Purchased Assets, the liabilities and earnings of the Company, and Seller acknowledges that Buyer has relied and will rely thereon in entering into this Agreement and consummating the transaction contemplated by this Agreement. All information contained in the exhibits and schedules attached to this Agreement and in the documents furnished to Buyer by Seller pursuant to this Agreement or otherwise is, and shall be at the Closing, true, correct and complete. All underlying documents incorporated or referred to in such exhibits and schedules, or in documents otherwise furnished to Buyer by Seller or by the Company are true, correct and complete copies thereof, as the same have been or shall be amended or modified. 30. Invoices. The invoices made available to Buyer are true, complete and correct. 31. Location of Purchased Assets. Except certain machinery and equipment located at its respective location set forth opposite its description on Schedule 20(a) attached hereto, all of the Purchased Assets are located at the Facility. 32. Leases. Set forth on Schedule 32 hereto is an accurate and complete list of all leases pursuant to which the Company leases real or personal property and which provide for annual payments on the part of the Company in excess of $10,000. A true and complete copy of each such lease has been delivered to Buyer, and no changes have been made therein since the date of such delivery. Each such lease is valid, binding and enforceable in accordance with its terms, there are no existing material defaults by the Company thereunder and no event has occurred which (with or without notice, lapse of time or both) would constitute a material default thereunder by any party. 33. Pre-Closing Activity List. As of the Closing Date, the Accounts Receivable listed on the Pre-Closing Activity List represent or will represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business. Unless paid prior to the Closing Date, each of the Accounts Receivable are or will be as of the Closing Date current and collectible in full, without any set-off, within ninety (90) days after the day on which it first becomes due and payable. There is no contest, claim, or right of set-off, other than returns in the ordinary course of business, under any Assumed Contract with any obligor of an Accounts Receivable relating to the amount or validity of such Accounts Receivable. 9 B. Representations and Warranties of Buyer. Buyer hereby represents and warrants to Seller and to the Company as of the date hereof and as of the Closing Date as follows: 1. Due Organization; Qualification. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois, and has full corporate power and authority to consummate the transactions hereunder. 2. Authority. Buyer now has, and on the Closing Date will have, the full corporate right, power and authority, without the consent of any other person, to execute and deliver this Agreement and to carry out the transactions contemplated hereby. All corporate and other actions required to be taken by Buyer to authorize the execution, delivery and performance of this Agreement and all transactions contemplated hereby will have been duly and properly taken as of the Closing Date. 3. Validity. This Agreement constitutes the valid and legally binding obligation of Buyer, enforceable against it in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally or by general equitable principles. 4. Non-Contravention. Assuming that all requisite consents of governmental agencies and third parties have been obtained as provided in Section B(5) below, neither the execution and delivery of this Agreement by Buyer nor the consummation of the transactions contemplated hereby, do, or would after the giving of notice or the lapse of time or both, (a) conflict with, result in a breach of, or constitute a default under, the Articles of Incorporation or the Bylaws of Buyer, or any federal, state or local court or administrative order or process, or any other material agreement, contract, commitment or other instrument, including any express or implied warranty, to which Buyer is a party or by which Buyer is subject or bound; (b) conflict with, result in a breach of, or constitute a default under, any federal, state, or local law, statute, rule or regulation, or (c) violate or conflict with any other material restriction of any kind or character whatsoever to which Buyer is subject. 5. Approvals. No approval, consent, waiver, notice to or filing with any governmental entity or any party to any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument to which Buyer is a party or to which any of its properties are subject is required, and has not been obtained or will not have been obtained on or prior to the Closing, for the execution and delivery by Buyer of this Agreement and the other agreements and instruments referred to herein to be executed and delivered by Buyer in connection herewith or the consummation by Buyer of the transactions contemplated hereby and thereby. 10 EX-3.1 4 EXHIBIT 3.1 Exhibit 3.1(AA) ================================================================================ 20353521 -------------------- Corporate Access No. Alberta BUSINESS CORPORATIONS ACT Form 2 CERTIFICATE OF INCORPORATION - 353521 ALBERTA INC. - - -------------------------------------------------------------------------------- Name of Corporation I HEREBY CERTIFY THAT THE ABOVE-MENTIONED CORPORATION, THE ARTICLES OF INCORPORATION OF WHICH ARE ATTACHED, WAS INCORPORATED UNDER THE BUSINESS CORPORATIONS ACT OF THE PROVINCE OF ALBERTA. /s/ [ILLEGIBLE] ----------------------------------- Registrar of Corporations [SEAL] September 10, 1986 ------------------------------ Date of Incorporation ================================================================================ BUSINESS CORPORATIONS ACT (SECTION 6) ---------------------- CORPORATE REGISTRAR FILED RECEIVED SEP 10 1986 SEP 10 1986 Registrar of Corporations ------------------------- CALGARY CONSUMER AND CORPORATE AFFAIRS Alberta ARTICLES OF INCORPORATION - -------------------------------------------------------------------------------- 1. NAME OF CORPORATION. 353521 ALBERTA INC. - -------------------------------------------------------------------------------- 2. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS AUTHORIZED TO ISSUE. Unlimited number of Class "A" common voting shares without nominal or par value; Unlimited number of Class "B" common non-voting shares without nominal or par value; all subject to the rights, privileges, restrictions and conditions as contained in Schedule "A" attached hereto. - -------------------------------------------------------------------------------- 3. RESTRICTIONS IF ANY ON SHARE TRANSFERS. No shares in the capital of the Corporation shall be transferred to any person without the approval of the Board of Directors, subject to the restrictions imposed by Schedule "B" attached hereto. - -------------------------------------------------------------------------------- 4. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS. Minimum - One (1) Maximum - Fifteen (15) - -------------------------------------------------------------------------------- 5. IF THE CORPORATION IS RESTRICTED FROM CARRYING ON A CERTAIN BUSINESS. SPECIFY THESE RESTRICTIONS No restrictions. - -------------------------------------------------------------------------------- 6. OTHER PROVISIONS IF ANY. See Schedule "B" attached hereto. - -------------------------------------------------------------------------------- 7. DATE. September 10, 1986 - -------------------------------------------------------------------------------- INCORPORATORS NAMES: ADDRESS (INCLUDE POSTAL CODE) SIGNATURE - -------------------------------------------------------------------------------- 1900, 736 - 6th Avenue S.W. Mark N. Woolstencroft Calgary, Alberta T2P 3W1 /s/ Mark N. Woolstencroft - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE "A" TO THE ARTICLES OF INCORPORATION 1. The Class "A" and Class "B" common shares shall respectively carry and be subject to the following rights, privileges, restrictions and conditions, namely: (a) The holders of the Class "A" common shares shall be entitled to one (1) vote in respect of each such Class "A" common share held at all meetings of the shareholders of the Corporation; (b) Subject to the right to vote at a meeting of the holders of Class "B" common shares, the holders of the Class "B" common shares shall not be entitled as such to receive notice of or to attend any meeting of the shareholders of the Corporation, and shall not be entitled to vote at any such meeting; (c) In the event of the liquidation, dissolution or winding up of the Corporation or other distribution of assets of the Corporation (except payment of dividends) among shareholders for the purpose of winding up its affairs, the holders of the Class "A" and Class "B" common shares shall rank equally in the distribution of all or any part of the property and assets of the Corporation, which property and assets shall be distributed to the holders of common shares pro rata to the number of common shares issued and outstanding on the date of such distribution; (d) The holders of Class "A" and Class "B" common shares need not rank equally or be treated equally in the declaration or payment of dividends and the Directors shall have full and absolute discretion to declare and pay dividends: (i) to the holders of Class "A" common shares only; or -2- (ii) to the holders of Class "B" common shares only; or (iii) of differing amounts per share to the holders of Class "A" common shares and the holders of Class "B" common shares; provided that within each class of shares, all dividends shall be paid to the shareholders in proportion to the number of shares held by them. SCHEDULE "B" TO THE ARTICLES OF INCORPORATION 1. The right to transfer the Corporation's shares is. restricted. 2. The number of the Corporation's shareholders, exclusive of (i) persons who are in its employment or that of an affiliate, and (ii) persons who, having been formerly in the employment of the Corporation or that of an affiliate, were, while in that employment, shareholders of the Corporation and have continued to be shareholders of that Corporation after the termination of that employment, is limited to not more than fifty (50) persons, two (2) or more persons who are the joint registered owners of one (1) or more shares being counted as one (1) shareholder. 3. Any invitation to the public to subscribe for the Corporation's securities is prohibited. Exhibit 3.1(BB) ================================================================================ 20353521 ------------------- Corporate Access No Alberta BUSINESS CORPORATIONS ACT Form 5 CERTIFICATE OF AMENDMENT VENTURES GAINED INC. - -------------------------------------------------------------------------------- Name of Corporation I HEREBY CERTIFY THAT THE ARTICLES OF THE ABOVE-MENTIONED CORPORATION WERE AMENDED. |_| UNDER SECTION 13 OF THE BUSINESS CORPORATIONS ACT IN ACCORDANCE WITH THE ATTACHED NOTICE; |_| UNDER SECTION 27 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE ATTACHED ARTICLES OF AMENDMENT DESIGNATING A SERIES OF SHARES; |X| UNDER SECTION 171 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE ATTACHED ARTICLES OF AMENDMENT; |_| UNDER SECTION 185 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE ATTACHED ARTICLES OF REORGANIZATION; |_| UNDER SECTION 186 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE ATTACHED ARTICLES OF ARRANGEMENT. [SEAL] /s/ [ILLEGIBLE] ----------------------------------- Registrar of Corporations January 28, 1987 ------------------------------ Date of Amendment ================================================================================ BUSINESS CORPORATIONS ACT (SECTION 27 OR 171) - -------------------- ----------------------- RECEIVED FILED JAN 28 1987 JAN 27 1987 CORPORATE REGISTRY Registrar Corporations Province of Alberta Province of Alberta ---------------------- CORPORATE AFFAIRS - -------------------- Alberta ARTICLES OF AMENDMENT - -------------------------------------------------------------------------------- 1. NAME OF CORPORATION. 2. CORPORATE ACCESS NO. 353521 ALBERTA INC. 20353521 - -------------------------------------------------------------------------------- 3. THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS: 1. Pursuant to Section 167 (1) (a) of the Business Corporations Act (Alberta), Article 1 of the Articles of the Corporation is hereby amended by changing the name of the Corporation from 353521 Alberta Inc. to: VENTURES GAINED INC. 2. Pursuant to Section 167 (1) (d) and (e) of the Business Corporations Act (Alberta), Article 2 of the Articles of t he Corporation is hereby amended by the deletion of the present wording contained in Article 2 and the Schedule "A" referred thereto, and by the substitution of the wording as set forth in Schedule "I" attached hereto. 3. Pursuant to Section 167 (1) (1) of the Business Corporations Act (Alberta), Article 3 of the Articles of the Corporation is hereby amended by the deletion of the present wording contained in Article 3 and by the substitution of the word "None". 4. Pursuant to Section 167 (1) (k) of the Business Corporations Act (Alberta), Article 4 of the Articles of the Corporation is hereby amended by increasing the minimum number of directors of the Corporation from One to Three (3). 5. Pursuant to Section 167 (1) (m) of the Business Corporations Act (Alberta), Article 6 of the Articles of the Corporation is hereby amended by the deletion of the present wording contained in Article 6 and the Schedule "B" referred thereto and by the substitution of the word "None". - -------------------------------------------------------------------------------- DATE SIGNATURE TITLE JAN 23/87 /s/ JEFFREY P. GOGUEN TREASURER - -------------------------------------------------------------------------------- FOR DEPARTMENTAL USE ONLY FILED SCHEDULE "I" TO THE ARTICLES OF AMENDMENT OF 353521 ALBERTA INC. The classes and any maximum number of shares that the Corporation is authorized to issue are: Unlimited number of Common voting shares without nominal or par value; Unlimited number of Class "B" Common non-voting shares without nominal or par value; Unlimited number of Preferred shares without nominal or par value; all subject to the rights, privileges, restrictions and conditions as hereinafter set forth: 1. The Common and Class "B" Common shares shall respectively carry and be subject to the following rights, privileges, restrictions and conditions, namely: (a) The holders of the Common shares shall be entitled to one (1) vote in respect of each such Common share held at all meetings of the shareholders of the Corporation; (b) Subject to the right to vote at a meeting of the holders of Class "B" Common shares, the holders of the Class "B" Common shares shall not be entitled as such to receive notice of or to attend any meeting of the shareholders of the Corporation, and shall not be entitled to vote at any such meeting; (c) In the event of the liquidation, dissolution or winding up of the Corporation or other distribution of assets of the Corporation (except payment of dividends) among shareholders for the purpose of winding up its affairs, the holders of the Common and Class "B" Common shares shall rank equally in the distribution of all or any part -2- of the property and assets of the Corporation, which property and assets shall be distributed to the holders of common shares pro rata to the number of common shares issued and outstanding on the date of such distribution; (d) The holders of Common and Class "B" Common shares need not rank equally or be treated equally in the declaration or payment of dividends and the Directors shall have full and absolute discretion to declare and pay dividends: (i) to the holders of Common shares only; or (ii) to the holders of Class "B" Common shares only; or (iii) of differing amounts per share to the holders of Common shares and the holders of Class "B" Common shares; provided that within each class of shares, all dividends shall be paid to the shareholders in proportion to the number of shares held by them. 2. The Preferred shares shall have attached thereto, as a class, the following rights, privileges, restrictions and conditions, namely: (a) DIRECTORS' RIGHT TO ISSUE IN ONE OR MORE SERIES The Preferred shares may at any time, or from time to time, be issued in one or more series, each series to consist of such number of shares as may, before the issue thereof, be determined by resolution of the Board of Directors of the Corporation; -3- (b) DIRECTORS' RIGHT TO FIX TERMS OF EACH SERIES The Directors of the Corporation shall, by ordinary resolution, fix from time to time before the issue thereof the designation, price, restrictions, conditions and limitations attaching to the Preferred shares of each series including, without limiting the generality of the foregoing, the rate or amount of dividends or the method of calculating dividends, the dates of payment thereof, the redemption or purchase prices and terms and conditions of redemption or purchase, any voting rights, any conversion rights and any sinking fund or other provisions; (c) RANKING OF PREFERRED SHARES The Preferred shares of each series shall rank, both as regards dividends and return of capital, in priority to all other shares of the Corporation. The Preferred shares of any series may also be given such other preferences over the Common shares and over any other shares of the Corporation ranking junior to the Preferred shares, as may be fixed in accordance with paragraph 2(b) hereof; provided, however, that no rights, privileges, restrictions or conditions attached to a series of shares shall confer on a series a priority in respect of voting, dividends or return of capital over any other series of shares of the same class that are then outstanding. Exhibit 3.1(CC) ================================================================================ 20353521 -------------------- Corporate Access No. Alberta BUSINESS CORPORATIONS ACT Form 5 CERTIFICATE OF AMENDMENT VENTURES GAINED INC. - -------------------------------------------------------------------------------- Name of Corporation I HEREBY CERTIFY THAT THE ARTICLES OF THE ABOVE-MENTIONED CORPORATION WERE AMENDED. |_| UNDER SECTION 13 OF THE BUSINESS CORPORATIONS ACT IN ACCORDANCE WITH THE ATTACHED NOTICE; |X| UNDER SECTION 27 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE ATTACHED ARTICLES OF AMENDMENT DESIGNATING A SERIES OF SHARES; |_| UNDER SECTION 171 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE ATTACHED ARTICLES OF AMENDMENT; |_| UNDER SECTION 185 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE ATTACHED ARTICLES OF REORGANIZATION; |_| UNDER SECTION 186 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE ATTACHED ARTICLES OF ARRANGEMENT. /s/ [ILLEGIBLE] ----------------------------------- Registrar of Corporations [SEAL] August 2, 1988 ------------------------------ Date of Incorporation ================================================================================ BUSINESS CORPORATIONS ACT FORM 4 (SECTION 27 OR 171) ----------------------------- CORPORATE REGISTRY FILED RECEIVED AUG 2 1988 AUG 2 1988 The Registrar of Corporations PROVINCE OF ALBERTA CALGARY ----------------------------- PROVINCE OF ALBERTA Alberta ARTICLES OF AMENDMENT - -------------------------------------------------------------------------------- 1. NAME OF CORPORATION: 2. CORPORATE ACCESS NUMBER: VENTURES GAINED INC. 20353521 - -------------------------------------------------------------------------------- 3.THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS: 1. Pursuant to Section 27 of the Business Corporations Act (Alberta) Article 2 of the Articles of the Corporation is hereby amended by the designation of a series of Preferred Shares as set out in Schedule "A" - attached hereto. - -------------------------------------------------------------------------------- DATE SIGNATURE TITLE - -------------------------------------------------------------------------------- July 25/88 /s/ JEFFREY P. GOGUEN President - -------------------------------------------------------------------------------- FOR DEPARTMENTAL USE ONLY FILED SCHEDULE "A" VENTURES GAINED INC. Provisions attaching to the 6% Non-Cumulative Redeemable Convertible Retractable First Preferred Shares, Series A The first series of Preferred Shares of Ventures Gained Inc. (the "Corporation") shall consist of 100,000 shares without nominal or par value, shall be designated as 6% Non-Cumulative Redeemable Convertible Retractable First Preferred Shares, Series A (the "Series A Shares") and, in addition to the rights, conditions, restrictions and limitations attached to the Preferred Shares as a class, shall have attached thereto rights, conditions, restrictions and limitations substantially as hereinafter set forth, that is to say: 1. ISSUE PRICE 1.1 The stated value of the Series A Shares shall be $10.00 per share. 2. DIVIDENDS 2.1 The holders of the Series A Shares shall be entitled to receive fixed, non-cumulative, preferential cash dividends, out of monies properly applicable to the payment of dividends, at the lesser of the following rates: (a) a rate of 6% of the stated value per Series A Share ($0.60 per Series A Share) per annum, as and when declared by the board of directors of the Corporation; or (b) a rate of 20% of the Corporation's net income before taxes, as set forth in the Corporation's income tax return filed annually pursuant to the Income Tax Act (Canada) (the "Tax Act"). - 2 - 2.2 The Corporation shall, promptly after filing its income tax return pursuant to the Tax Act, provide notice to the Transfer Agent as to the amount of the Corporation's net income before taxes as set forth in its income tax return and whether the payment of dividends on the Series A Shares shall be based on this net income calculation. 2.3 Cheques of the Corporation, dated the dividend payment date and payable at par at any branch of the Corporation's bankers for the time being in Canada, shall be issued in respect of each such dividend and the mailing thereof to any holder shall satisfy the dividend represented thereby unless the cheque be not paid upon presentation. No shareholder shall be entitled to recover by action or other legal process against the Corporation respecting any dividend that is represented by a cheque that has not been duly presented to the Corporation's bankers for payment and that otherwise remains unclaimed for a period of six years from the date on which it was payable. If, on any dividend payment date, the dividend payable on such date is not paid in full on all the Series A Shares then issued and outstanding, such dividend or the unpaid part thereof shall not be required to be paid on a subsequent date. 2.4 The holders of the Series A Shares shall not be entitled to any dividends other than or in excess of the dividends for which provision is expressly made herein. 3. LIQUIDATION 3.1 In the event of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation or other distribution of assets of the Corporation among its shareholders for the purpose of winding up its affairs, the holders of Series A Shares shall be entitled to receive $10.00 for each Series A Share held. - 3 - 3.2 In all cases the holders of the Series A Shares shall be entitled to be paid all moneys payable pursuant to paragraph 3.1 before any amount shall be paid or any distribution of the assets of the Corporation shall be made to the holders of the common shares or any other shares of the Corporation ranking junior to the Series A Shares with respect to distributions upon liquidation. 3.3 After payment to the holders of the Series A Shares of the amounts so payable to them they shall not be entitled to share in any further distribution of the property or assets of the Corporation. 4. RETRACTION PRIVILEGE 4.1 Holders of the Series A Shares shall have the option or privilege (the "Retraction Privilege") of requiring the Corporation in any calendar year, to redeem, subject to applicable law, up to 25% of the holder's Series A Shares (the "Retraction Limit") which have not previously been converted to common shares of the Corporation (the "Common Shares") pursuant to the provisions of Section 7 hereof, in the event that the net earnings of the Corporation have exceeded $250,000 for that calendar year (the "Retraction Event"), which Retraction Privilege shall be effected at a price (the "Retraction Price") equal to $10.00 per share. 4.2 The Corporation shall promptly provide notice of the Retraction Event to the Transfer Agent and during the 10 day period following the Retraction Event, mail to each person who at the date of mailing is a registered holder of Series A Shares a written notice (the "Retraction Notice") giving details of the Retraction Privilege and specifying a place or places in the Province of Alberta for the deposit by the holder of the certificate or certificates representing the Series A Shares and - 4 - the date on or prior to which such deposit shall be made by such holder in order to exercise such Retraction Privilege, which date shall be 35 days following the Retraction Event (the "Retraction Payment Date"). Subject to the provisions of Clause 4.1, the Corporation shall pay the Retraction Price on the Retraction Payment Date to the Transfer Agent on behalf of the holders of Series A Shares who have exercised their Retraction Privilege. The Retraction Notice will also contain, if the Corporation determines under the provisions of Clause 4.5 that it will not be permitted to retract the Series A Shares in accordance with the provisions of Clause 4.1, the statement required under the provisions of Clause 4.5. 4.3 At least 7 days prior to the applicable Retraction Payment Date, a holder of Series A Shares desiring to exercise the Retraction Privilege shall deposit the certificate or certificates representing the Series A Shares to be purchased together with a written notice signed by the holder requesting purchase of the Series A Shares represented by such certificate up to the Retraction Limit or certificates or such lesser number thereof as may be specified in such notice. If a part only of the Series A Shares represented by any certificate shall be purchased a new certificate for the balance shall be issued at the expense of the Corporation. Such deposit shall, subject to Clause 4.5, be irrevocable. Payment of the Retraction Price, subject to the Corporation's obligations set out in this Section 4, shall be made by depositing with the Transfer Agent the Retraction Price of the Series A Shares which are represented by certificates which have been delivered to the Custodian in accordance herewith. Series A Shares purchased pursuant to the provisions hereof shall be and be deemed to be cancelled and shall not be reissued. No shareholder shall be entitled to recover by action or other legal process against the Corporation any portion of the Retraction Price that is represented by a cheque that has not been duly presented to the Corporation's bankers for payment and that otherwise remains unclaimed for a - 5 - period of six years from the date on which it was payable. Upon such deposit being made or upon the date specified for purchase of Series A Shares, whichever is the later, the Series A Shares in respect of which such deposit shall have been made shall be deemed to have been purchased and the rights of the holders thereof shall be limited to receiving without interest their proportionate part of the amount so deposited on presentation and surrender of the certificates representing their Series A Shares being purchased. Any interest allowed on any such deposit shall belong to the Corporation. 4.4 Upon payment by the Corporation of the Retraction Price for the Series A Shares purchased pursuant to the provisions of this Section 4, the Series A Shares so purchased shall cease to be entitled to dividends or any other participation in the assets of the Corporation and the holders of such shares shall not be entitled to exercise any of the rights of shareholders in respect of them. In the event that the Corporation fails to pay the full Retraction Price, the Series A Shares deposited for purchase shall be entitled to dividends in proportion to that portion of the Retraction Price unpaid. 4.5 Subject to the provisions of Clause 4.1 and subject to the provisions of Clause 4.6, the Corporation shall on the Retraction Payment Date purchase all Series A Shares up to the Retraction Limit in respect of which holders shall have exercised the Retraction Privilege. If prior to the mailing or publication of the Retraction Notice for the Retraction Payment Date, the Corporation determines that it will not be permitted under the provisions of any applicable law to purchase the number of Series A Shares pursuant to its obligations hereunder, the Corporation shall include in such Retraction Notice a statement of the maximum amount (in multiples of $10) which it then believes it will be permitted to pay on the Retraction Payment Date and, in reasonable detail, the basis of the calculation thereof. Insofar as the Corporation has acted in good faith in making such - 6 - determination, the Corporation shall have no liability in the event that such determination proves inaccurate. Notwithstanding the provisions of Clause 4.3 if the aggregate amount that the Corporation is able to pay on the Retraction Payment Date is less than the aggregate amount determined by the Corporation for the Retraction Notice, the holder of Series A Shares deposited for retraction shall have the right to withdraw such shares from such deposit on or before 10 days following the Retraction Payment Date and Clause 4.1 shall otherwise apply mutatis mutandis to the retraction of the Series A Shares so withdrawn from deposit. 4.6 If the Corporation fails to pay the full Retraction Price, because of the provisions of any applicable law, for any of the Series A Shares deposited for purchase on the Retraction Payment Date in respect of which the holders thereof have exercised their rights up to the Retraction Limit under the Retraction Privilege, the remainder of the Retraction Price of such Series A Shares shall be paid on a pro rata basis as soon as reasonably feasible to the extent the Corporation is able to do so under the provisions of any applicable law, on each succeeding date for the payment of dividends on the Series A Shares until the full amount of the Retraction Price of the Series A Shares so deposited has been paid. In the event that the Corporation shall as aforesaid pay only a portion of the full amount of the Retraction Price of the Series A Shares deposited for retraction, the certificates representing such Series A Shares shall be cancelled and new share certificates shall be issued to the depositing shareholders representing the Series A Shares not retracted. The provisions of this Section 4 shall, to the extent reasonably possible, apply to such further Retraction Privilege mutatis mutandis, except that the Retraction Notice to be mailed by the Corporation shall be mailed during the 30 day period ended 30 days prior to the applicable dividend payment date and the date on or prior to which deposit of certificate(s) shall be made by a holder of Series A Shares in order to exercise such Retraction Privilege shall be 7 days prior to such applicable dividend payment date. - 7 - 5. REDEMPTION 5.1 The Series A Shares are not redeemable on or prior to July 31, 1989 without the prior consent of the holders of such shares. 5.2 After July 31, 1989, the Corporation may at its option redeem at any time all of the outstanding Series A Shares or, subject to the provisions of Section 8, from time to time any part thereof selected by lot in such manner as the board of directors shall decide, or, if the board of directors so decide, pro rata, on payment of $10.00 for each such share to be redeemed (the "Redemption Price"). 5.3 On any redemption of Series A Shares under this Section 5, the Corporation shall give in the manner provided in Section 9 at least 30 days prior notice to each person who, at the date of giving such notice, is the registered holder of Series A Shares to be redeemed, of the intention of the Corporation to redeem such shares. Such notice shall set out the Redemption Price and the date on which the redemption is to take place and, unless all the Series A Shares held by the holder to whom it is addressed are to be redeemed, shall also set out the number of such shares so held which are to be redeemed. On or after the date so specified for redemption, the Corporation shall pay or cause to be paid to the holders of such Series A Shares to be redeemed the Redemption Price on presentation and surrender at the head office of the Corporation or at any other place or places within Canada designated by such notice, of the certificate or certificates for such Series A Shares so called for redemption. Such payment shall be made by cheque payable at par at any branch in Canada of the Corporation's bankers. If a part only of the Series A Shares represented by any certificate shall be redeemed, a new certificate for the balance shall be issued at the expense of the Corporation. From and after the redemption date specified in any - 8 - such notice, the Series A Shares called for redemption shall cease to be entitled to dividends and the holders thereof shall not be entitled to exercise any of the rights of shareholders in respect thereof unless payment of the Redemption Price shall not be duly made by the Corporation. At any time after the notice of redemption is given the Corporation shall have the right to deposit the Redemption Price of any or all Series A Shares called for redemption with any chartered bank or banks or with any trust corporation or trust companies in Canada named for such purpose in the notice of redemption to the credit of a special account or accounts in trust for the respective holders of such shares, to be paid to them respectively upon surrender to such bank or banks or trust company or trust companies of the certificate or certificates representing the same. Upon such deposit or deposits being made, such shares shall be deemed to be redeemed and the rights of the holders of such shares shall be limited to receiving the proportion of the amounts so deposited applicable to their respective shares without interest. Any interest allowed on such deposit or deposits shall belong to the Corporation. 5.4 Series A Shares which are redeemed or deemed to be redeemed in accordance with this Section 5 shall be and be deemed to be cancelled and shall not be reissued. 6. PURCHASE FOR CANCELLATION 6.1 Subject to the provisions of Section 8 and in addition to its right to redeem the Series A Shares as provided in Section 5, the Corporation may at any time and from time to time purchase for cancellation the whole or any part of the outstanding Series A Shares by invitations for tender addressed to all holders of record of the outstanding Series A Shares. In the event that, upon any request for tenders, the Corporation shall receive two or more tenders of Series A Shares at the same price and which shares, when added to any shares tendered at a lower price or - 9 - prices, aggregate more than the amount for which the Corporation is prepared to accept tenders, if any of the Series A Shares so tendered at the same price are purchased by the Corporation they shall be purchased pro rata from such holders tendering at the same price, disregarding fractions. 6.2 Series A Shares which are purchased in accordance with this Section 6 shall be and be deemed to be cancelled and shall not be reissued. 7. CONVERSION PRIVILEGE 7.1 For the purposes of these share provisions: (a) "Certificate of the Corporation" means a certificate under the corporate seal of the Corporation signed by any two of the Chairman, the President, or any Vice President or any one of them together with the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer of the Corporation and may consist of one or more instruments so executed; (b) "Close of business" means with respect to the conversion of any Series A Share the normal closing time of the office of the Transfer Agent at which the holder of such share elects to have such share converted; (c) "Common Shares" shall mean common shares without nominal or par value in the capital of the Corporation as such shares were constituted on *, and any other shares resulting from reclassification or change of such Common Shares or amalgamation, consolidation, merger or sale, all as referred to in Clause 7.10; (d) "Current Conversion Price" shall mean the Current Market Price for each Common Share to be issued upon conversion - 10 - of any Series A Shares, subject to adjustment as hereinafter provided; (e) "Current Conversion Basis" means at any particular time 20 Common Shares into which at such time one (1) Series A Share shall be convertible at the Current Conversion Price in accordance with the provisions of this Section 7; (f) "Current Market Price", as at any date when the Current Market Price is to be determined, shall mean the weighted average price at which Common Shares have traded on the Alberta Stock Exchange for any fifteen (15) consecutive trading days ending on a date not earlier than the fifth trading day preceding such date. In the event the Common Shares are not so traded on the Alberta Stock Exchange but are listed on another stock exchange, or stock exchanges in Canada, the foregoing references to the Alberta Stock Exchange shall be deemed to be references to such other stock exchange, or, if more than one, to such one as shall be designated by the board of directors of the Corporation. In the event the Common Shares are not so traded on any stock exchange in Canada, the Current Market Price thereof shall be determined by the board of directors of the Corporation, acting reasonably, which determination shall be conclusive; (g) "dividends paid in the ordinary course" means dividends, whether in cash or in shares of the capital stock of the Corporation, paid in any fiscal year of the Corporation to the extent that the aggregate of such cash and the paid up capital of such shares does not in such fiscal year exceed the greatest of: - 11 - (i) 150% of the aggregate amount of dividends paid by the Corporation on the Common Shares in the period of 12 consecutive months ended immediately prior to the first day of such fiscal year; (ii) 80% of the aggregate amount of dividends paid by the Corporation on the Common Shares in the period of 36 consecutive months ended immediately prior to the first day of such fiscal year; and (iii) 100% of the consolidated net earnings of the Corporation, before extraordinary items, for the period of 12 consecutive months ended immediately prior to the first day of such fiscal year (such consolidated net earnings to be as shown in the audited financial statements of the Corporation for such period of 12 consecutive months or, if there are no audited financial statements in respect of such period, computed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the most recent audited consolidated financial statements of the Corporation); and for such purpose the amount of any dividend paid in shares shall be the aggregate paid up capital of such shares. (h) "trading day" means a day on which the relevant stock exchange referred to in subclause 7.1(f) is open for business; (i) "Transfer Agent" means the person appointed as registrar and transfer agent for the Common Shares; - 12 - (j) "weighted average price" means at any specific date, the weighted average price per Common Share of all trades in board lot quantities of the Common Shares for the specified period in trading days immediately prior to such date on the relevant stock exchange referred to in subclause 7.1(f) above. 7.2 A holder of any Series A Shares has the right at his option at any time, or, in the case of shares called for redemption, up to the close of business on the third business day preceding the date fixed for redemption, whichever is earlier, to conversion, subject to the terms and provisions hereof, such Series A Shares into fully paid and non-assessable Common Shares at the Current Conversion Basis. Should payment of the Redemption Price of Series A Shares which have been called for redemption not be paid upon surrender of the certificate for such Series A Shares the right of conversion shall revive and continue from the time of the failure to pay as if such Series A Shares had not been called for redemption. The conversion of Series A Shares in accordance with this clause may be effected by the surrender of the certificate or certificates representing the same at any time during usual business hours at the option of the holder at any office of the Transfer Agent at which the Common Shares are transferable, accompanied by: (1) payment or evidence of payment of the tax (if any) payable as provided in Clause 7.9, and (2) a written instrument of surrender in form satisfactory to the Corporation duly executed by the registered holder, or his attorney duly authorized in writing, in which instrument such holder may also elect to convert part only of: (a) the Series A Shares represented by such certificate or certificates not theretofore called for redemption, in which event such holder shall be entitled to receive, at the expense of the Corporation, a new certificate representing the Series A Shares represented by such certificate or certificates which have not been converted; or - 13 - (b) the Series A Shares, represented by such certificate or certificates, theretofore called for redemption, in which event on the date specified for the redemption of such Series A Shares such holder shall be entitled to payment of the Redemption Price of the Series A Shares represented by such certificate or certificates which have been called for redemption and which have not been converted, and to receive, at the expense of the Corporation, a certificate representing Series A Shares represented by such certificate or certificates which have been neither converted nor redeemed. As promptly as practicable after the surrender of any Series A Shares for conversion, the Corporation shall cause to be delivered to or upon the written order of the holder of the Series A Shares so surrendered, a certificate or certificates issued in the name of, or in such name or names as may be directed by, such holder representing the number of Common Shares to which such holder is entitled together with a payment by cheque or the issue of scrip certificates in respect of any fraction of a Common Share issuable on such conversion as provided in Clause 7.8. Such conversion shall be deemed to have been made at the close of business on the date such Series A Shares shall have been surrendered for conversion, so that the rights of the holder of such Series A Shares as the holder thereof shall cease at such time and the person or persons entitled to receive Common Shares upon such conversion shall be treated for all purposes as having become the holder or holders of record of such Common Shares at such time and such conversion shall be on the Current Conversion Basis as at such time. The date of surrender of any Series A Shares for conversion shall be deemed to be the date when the certificate representing such Series A Shares is received by the Transfer Agent. - 14 - 7.3 The registered holder of any Series A Shares on the record date for any dividend payable on such share shall be entitled to such dividend notwithstanding that such share is converted after such record date and before the payment date of such dividend and the registered holder of any Common Share resulting from any conversion shall be entitled to rank equally with the registered holders of all other Common Shares in respect of all dividends declared payable to holders of Common Shares of record on any date after the date of conversion. Subject as aforesaid and subject to the provisions hereof, upon the conversion of any Series A Shares, the Corporation shall not make payment or adjustment on account of any dividends on the Series A Shares so converted nor on account of any dividends on the Common Shares issuable upon such conversion. 7.4 The Current Conversion Price shall be subject to adjustment from time to time as follows: (a) if the Corporation shall at any time, or from time to time, hereafter (i) subdivide its outstanding Common Shares into a greater number of shares, (ii) combine, consolidate or reclassify its outstanding Common Shares into a smaller number of shares, or (iii) issue Common Shares to the holders of any of its outstanding Common Shares by way of a stock dividend (other than an issue of Common Shares to holders of Common Shares who exercise an option to receive dividends in the form of Common Shares in lieu of receiving cash dividends paid in the ordinary course), the Current Conversion Price in effect on the effective date of such subdivision or combination, consolidation or reclassification or on the record date for such issue of Common Shares by way of a stock dividend, as the case may be, shall be adjusted immediately after such effective date or record date, as the case may be, so that it shall thereafter equal the price determined by multiplying the Current Conversion - 15 - Price in effect on such date by a fraction of which the numerator shall be the total number of Common Shares outstanding immediately prior to such date and the denominator shall be the total number of Common Shares outstanding immediately after such date; such adjustment shall be made successively whenever any event referred to in this subclause 7.4(a) shall occur; any such issue of Common Shares by way of a stock dividend shall be deemed to have been made on the record date for the stock dividend for the purpose of calculating the number of outstanding Common Shares under this Clause 7.4; (b) in case the Corporation shall fix a record date for the issuance of rights, options or warrants to all or substantially all the holders of its outstanding Common Shares entitling them for a period expiring not more than forty-five (45) days after such record date, to subscribe for or purchase Common Shares (or securities convertible into Common Shares) at a subscription or purchase price per share (or having a conversion price per share) less than 90% of the Current Market Price on such record date, then the Current Conversion Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Current Conversion Price in effect on such record date by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date plus a number of Common Shares equal to the number arrived at by dividing the aggregate price of the total number of additional Common Shares offered for subscription or purchase (or the aggregate conversion price of the convertible securities so offered) by the Current Market Price of a Common Share, and of which the denominator shall be the total number of Common Shares outstanding on such record date plus the total number of additional Common Shares offered for subscription or - 16 - purchase (or into which the convertible securities so offered are/convertible). Any Common Shares owned by or held for the account of the Corporation shall be deemed not to be outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed. To the extent that any such rights, options or warrants are not so issued or any such rights, options or warrants are not exercised prior to the expiration thereof, the Current Conversion Price shall be readjusted to the Current Conversion Price which would then be in effect based upon the number of rights, options or warrants actually issued or the number of Common Shares (or securities convertible into Common Shares) actually issued upon the exercise of such rights, options or warrants, as the case may be; and (c) in case the Corporation shall fix a record date for the making of a distribution to all or substantially all the holders of its outstanding Common Shares of (i) shares of any class other than Common Shares, or (ii) rights, options or warrants (excluding those referred to in subclause 7.4(b) and excluding rights, options or warrants entitling the holders for a period expiring not more than forty-five (45) days after such record date to subscribe for or purchase Common Shares (or securities convertible into Common Shares) at a subscription or purchase price per share (or having a conversion price per share) greater than or equal to 90% of the Current Market Price on such record date), or (iii) evidences of its indebtedness, or (iv) any assets (excluding cash dividends paid in the ordinary course and shares or other property or assets distributed in lieu of such cash dividends at the option of shareholders), then in each such case the Current Conversion Price shall be adjusted immediately after such record date so that it - 17 - shall equal the price determined by multiplying the Current Conversion Price in effect on such record date by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date multiplied by the Current Market Price per Common Share on such record date, less the fair market value (as determined by the board of directors of the Corporation acting reasonably, whose determination shall be conclusive) of such shares or rights, options or warrants or evidences of indebtedness or assets so distributed, and of which the denominator shall be the total number of Common Shares outstanding on such record date multiplied by such Current Market Price per Common Share. Any Common Shares owned by or held for the account of the Corporation shall be deemed not to be outstanding for the purposes of any such computation. Such adjustment shall be made successively whenever such a record date is fixed. To the extent that such distribution of shares, evidences of indebtedness or assets is not so made or to the extent that any rights, options or warrants so distributed are not exercised, the Current Conversion Price shall be readjusted to the Current Conversion Price which would then be in effect based upon such shares, evidences of indebtedness or assets actually distributed or based upon the number of Common Shares (or securities convertible into Common Shares) actually delivered upon the exercise of such rights, options or warrants, as the case may be. 7.5 No adjustments of the Current Conversion Price shall be made pursuant to subclause 7.4(b) or 7.4(c) if the holders of the Series A Shares are permitted to participate in the issue of such rights, options or warrants or such distribution, as the case may be, as though and to the same effect as if they had converted their Series A Shares into Common Shares prior to the issue of such rights, options or warrants or such distribution, as the case may be. - 18 - 7.6 No adjustment of the Current Conversion Price shall be made in any case in which the cumulative effect of the resulting increase or decrease in the Current Conversion Price would be less than 1% of the then Current Conversion Price, but in such case any adjustment that would otherwise have been required then to be made shall be carried forward and made at the time of, and together with, the next subsequent adjustment to the Current Conversion Price which, together with any and all such adjustments so carried forward, shall result in an increase or decrease in the Current Conversion Price by not less than 1%. 7.7 When any action is taken which requires an increase or decrease of the Current Conversion Price under Clause 7.4, the Corporation shall forthwith file with the Transfer Agent a Certificate of the Corporation setting forth the details of the action taken and, as the case may be, the increased or decreased Current Conversion Price, the details of the computation of the adjusted Current Conversion Price and the resulting adjusted Current Conversion Basis. The Transfer Agent shall be under no duty to make any investigation or inquiry as to the statements contained in any such Certificate of the Corporation or the manner in which any computation was made, but the Transfer Agent may accept such Certificate as conclusive evidence of the statements therein contained and shall be fully protected with respect to any and all acts done or action taken or suffered by it in reliance thereon. The Corporation shall exhibit a copy of such Certificate of the Corporation from time to time to any holder of Series A Shares desiring to inspect the same, and shall give notice of any such adjustment of the Current Conversion Price and the resulting adjustment of the Current Conversion Basis to the holders of the Series A Shares in the manner provided in Section 9. The Corporation may retain a firm of independent chartered accountants (who may be the auditors of the Corporation) to make any computation required under Clause 7.4, and any computation so made shall be final and binding on the Corporation and the - 19 - holders of the Series A Shares. Such firm of independent chartered accountants may, as to questions of law, request and rely upon an opinion of counsel (who may be counsel for the Corporation). 7.8 Upon the surrender of any Series A Shares for conversion, the number of full Common Shares issuable upon conversion thereof shall be equal to the aggregate number of such Series A Shares to be converted multiplied by the Current Conversion Basis. Fractional shares will not be issued on any conversion but in lieu thereof the Corporation shall make cash payments. Payment shall be by cheque of an amount equal to the then value of such fractional interest computed on the basis of the Current Market Price. 7.9 The issuance of certificates for Common Shares upon the conversion of Series A Shares shall be made without charge to the holders of the Series A Shares so converted, of any fee or tax imposed on the Corporation in respect of the issuance of such certificates or the Common Shares represented thereby; provided that the Corporation shall not be required to pay any tax which may be imposed upon the person or persons to whom such Common Shares are issued in respect of the issuance of such Common Shares or the certificate therefor or which may be payable in respect of any transfer involved in the issuance and delivery of any such certificate in a name or names other than that of the holder of the Series A Shares converted, and the Corporation shall not be required to issue or deliver such certificate unless the person or persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid, or that the Corporation shall have no liability in respect thereof. 7.10 In case of any reclassification or change (other than a change resulting only from consolidation or subdivision) of the - 20 - Common Shares, or in case of any amalgamation, consolidation or merger of the Corporation with or into any other corporation, or in the case of any sale of the properties and assets of the Corporation as, or substantially as, an entirety to any other corporation, each Series A Share shall, after such reclassification, change, amalgamation, consolidation, merger, or sale be convertible into the number of shares or other securities or property of the Corporation or such continuing, successor, purchasing corporation, as the case may be, to which a holder of the number of Common Shares as would have been issued if such Series A Shares had been converted immediately prior to such reclassification, change, amalgamation, consolidation, merger or sale would have been entitled upon such reclassification, change, amalgamation, consolidation, merger or sale. The board of directors of the Corporation may accept the certificate of any firm of independent chartered accountants (who may be the auditors of the Corporation) as to the foregoing calculation, and the board of directors may determine such entitlement on the basis of such certificate. Any such determination shall be conclusive and binding on the Corporation and the holders of the Series A Shares. No such reclassification, change, amalgamation, consolidation, merger or sale shall be carried into effect unless, in the opinion of the board of directors of the Corporation, all necessary steps shall have been taken to ensure that the holders of the Series A Shares shall thereafter be entitled to receive such number of shares or other securities or property of the Corporation or such continuing, successor or purchasing corporation, as the case may be, subject to adjustment thereafter in accordance with provisions similar, as nearly as may be, to those contained in this Section 7. 7.11 The Corporation shall give to the holders of Series A Shares at least fourteen (14) days' prior notice of the record date for any of the events set forth in Clause 7.4 other than a subdivision, combination, consolidation or reclassification of the Common Shares and for the payment of any cash dividend paid - 21 - in the ordinary course or the distribution of shares or other property or assets in lieu thereof and of the issue to any of the Corporation's shareholders of rights to subscribe for Common Shares or other securities and shall give at least thirty (30) days' prior notice of any repayment of capital on the Common Shares. The accidental failure or omission to give the notice required by this Clause 7.11 or any defect therein shall not affect the legality or validity of any such payment, distribution or issue. 7.12 If in the opinion of the board of directors of the Corporation the provisions of this Section 7 are not strictly applicable, or if strictly applicable would not fairly protect the rights of the holders of the Series A Shares in accordance with the intent and purposes hereof, the board of directors shall make any adjustment in such provisions as the board of directors deems appropriate. 8. RESTRICTIONS ON DIVIDENDS AND RETIREMENT OF SHARES 8.1 So long as any of the Series A Shares are outstanding, the Corporation will not, without the approval of the holders of the Series A Shares given in the manner set forth in Section 12, (a) declare any dividend, other than stock dividend, on any shares of the Corporation ranking junior to the Series A Shares with respect to the payment of dividends; (b) redeem or purchase or make any capital distribution in respect of any shares of the Corporation ranking junior to the Series A Shares with respect to the payment of dividends or repayment of capital (except out of the proceeds of a new issue of shares ranking junior to the Series A Shares in both such respects); - 22 - (c) except in connection with the Retraction Privilege and pursuant to the Retraction Limit attaching to the Series A Shares, redeem or purchase less than all the Series A Shares; or (d) except in connection with any retraction privilege attaching thereto and provided a similar retraction privilege is extended or available to the holders of the Series A Shares, redeem or purchase any shares ranking on a parity with the Series A Shares. 9. NOTICES 9.1 Any notice, required to be given under the provisions attaching to the Series A Shares to the registered holders thereof shall be given by ordinary unregistered mail, postage prepaid, addressed to each holder at the last address of such holder as it appears on the books of the Corporation or, in the event of the address of any such holder not so appearing, then to the address of such holder last known to the Corporation; provided that accidental failure or omission to give any notice as aforesaid to one or more of such holders shall not invalidate any action or proceeding founded thereon. Any such notice shall be deemed to have been given on the second business day after mailing. 10. INTERPRETATION 10.1 In the event that any date on which any dividend on the Series A Shares is payable by the Corporation, or on or by which any other action is required to be taken by the Corporation hereunder, is not a business day (as hereinafter defined), then such dividend shall be payable, or such other action shall be required to be taken, on or by the next succeeding date that is a business day. A "business day" shall be a day other than a Saturday, a Sunday or any other day that is treated as a holiday in the - 23 - Province in which the Corporation has its principal office in Canada. 11. AMENDMENTS 11.1 The rights, restrictions, conditions and limitations attached to the Series A Shares may be amended, modified, suspended, altered or repealed but only if consented to, or approved by, the holders of the Series A Shares in the manner hereinafter specified and in accordance with any requirements of the applicable legislation and any amendments thereto from time to time. 12. APPROVAL BY HOLDERS OF SERIES A SHARES 12.1 For the purposes of Sections 8 and 11, any consent or approval given by the holders of Series A Shares shall be deemed to have been sufficiently given if it shall have been given in writing by the holders of at least 66-2/3% of the outstanding Series A Shares or by a resolution passed at a meeting of holders of Series A Shares duly called and held upon not less than twenty-one (21) days notice to the holders and carried by the affirmative vote of not less than 66-2/3% of the votes cast at such meeting. A quorum for the purposes of a meeting of the holders of Series A Shares shall be the holders of twenty (20%) percent of the outstanding Series A Shares being present in person or represented by proxy. If at any such meeting of the holders of Series A Shares called by the Corporation a quorum is not present within one-half hour after the time appointed for such meeting then the meeting shall be adjourned to such date not less than twenty-one (21) nor more than twenty-eight (28) days thereafter and to such time and place as may be designated by the chairman, and not less than ten (10) days' written notice shall be given of such adjourned meeting. At such adjourned meeting the holders of Series A Shares present or represented by proxy may transact the business for which the meeting was originally - 24 - convened and a resolution passed thereat by the affirmative vote of not less than 66-2/3% of the votes cast at such meeting shall constitute the consent or approval of the holders of Series A Shares. On every poll taken at every meeting every holder of Series A Shares shall be entitled to one vote in respect of each Series A Share held. 13. VOTING RIGHTS 13.1 Except as required by law, the holders of the Series A Shares shall not be entitled as such to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting. 13.2 When the holders of Series A Shares vote separately as holders of Preferred Shares in accordance with Clause 12, each holder shall be entitled to one (1) vote in respect of each Series A Share held by such holder. 14. TAXABLE PREFERRED SHARES ELECTION 14.1 The Corporation shall elect pursuant to proposed subsection 191.2(1) of the Income Tax Act (Canada)(the "Tax Act"), or pursuant to any similar provision enacted in substitution for that subsection (provided such substitution is not detrimental to the Corporation compared to the proposed subsection) by filing the form prescribed pursuant to proposed subsection 191.2(1) of the Tax Act (and within the time period referred to in proposed subsection 191.2(1)) with the Minister of National Revenue with respect to the Series A Shares. Exhibit 3.1(DD) ================================================================================ 20353521 -------------------- Corporate Access No. Alberta BUSINESS CORPORATIONS ACT Form 5 CERTIFICATE OF AMENDMENT - VENTURES GAINED INC. - - -------------------------------------------------------------------------------- Name of Corporation I HEREBY CERTIFY THAT THE ARTICLES OF THE ABOVE-MENTIONED CORPORATION WERE AMENDED. |_| UNDER SECTION 13 OF THE BUSINESS CORPORATIONS ACT IN ACCORDANCE WITH THE ATTACHED NOTICE; |_| UNDER SECTION 27 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE ATTACHED ARTICLES OF AMENDMENT DESIGNATING A SERIES OF SHARES; |X| UNDER SECTION 171 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE ATTACHED ARTICLES OF AMENDMENT; |_| UNDER SECTION 185 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE ATTACHED ARTICLES OF REORGANIZATION; |_| UNDER SECTION 186 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE ATTACHED ARTICLES OF ARRANGEMENT. /s/ [ILLEGIBLE] ----------------------------------- Registrar of Corporations [SEAL] June 27, 1988 ------------------------------ Date of Incorporation ================================================================================ BUSINESS CORPORATIONS ACT FORM 4 (SECTION 27 OR 171) CORPORATE REGISTRAR RECEIVED AUG 2 1988 CALGARY PROVINCE OF ALBERTA Alberta ARTICLES OF AMENDMENT - -------------------------------------------------------------------------------- 1. NAME OF CORPORATION: 2. CORPORATE ACCESS NUMBER: VENTURES GAINED INC. 20353521 - -------------------------------------------------------------------------------- 3.THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS: 1. Pursuant to Section 167 (1) (e) of the Business Corporations Act (Alberta), Item 2 of the Articles of the Corporation be amended by changing the rights, privileges, restrictions and conditions attaching to the 6% Non-Cumulative Redeemable Convertible Retractable First Preferred Shares, Series A as follows: (a) by deleting paragraph 2.1 (b) of Schedule "A" attached to the Articles of Amendment dated August 2, 1988 and substituting the following: "2.1 (b) a rate of 20% of the Corporation's net income before depreciation, before depletion and after current income taxes as computed in accordance with generally accepted accounting principles." (b) by deleting paragraph 2.2 of Schedule "A" attached to the Articles of Amendment dated August 2, 1988 and substituting the following: "2.2 The Corporation shall, promptly after the preparation of its annual financial statements, provide notice to the Transfer Agent as to the amount set forth in paragraph 2.1 (b)." (c) by inserting the date "July 25, 1988" after the words "were constituted on" in the third sentence of paragraph 7.1 (c) of Schedule "A" attached to the Articles of Amendment dated August 2, 1988. (d) by deleting the words "Tax Act" in the second sentence of paragraph 14.1 of Schedule "A" attached to the Articles of Amendment dated August 2, 1988, and substituting the words "Income Tax Act (Canada) (the "Tax Act")" FILED JUN 27 1989 THE REGISTRAR OF CORPORATIONS PROVINCE OF ALBERTA - -------------------------------------------------------------------------------- DATE SIGNATURE TITLE - -------------------------------------------------------------------------------- June 16, 1989 /s/ Jeffrey P. Goguen President --------------------- JEFFREY P. GOGUEN - -------------------------------------------------------------------------------- FOR DEPARTMENTAL USE ONLY FILED Exhibit 3.1(EE) ================================================================================ 20353521 -------------------- Corporate Access No. Alberta BUSINESS CORPORATIONS ACT Form 5 CERTIFICATE OF AMENDMENT TOMAHAWK CORPORATION - -------------------------------------------------------------------------------- Name of Corporation I HEREBY CERTIFY that the Articles of the above mentioned Corporation were amended under: Section 27 of the Business Corporations Act as set out in the attached Articles of Amendment designating a series of shares. Section 171 of the Business Corporations Act as set out in the attached Articles of Amendment. /s/ [ILLEGIBLE] ----------------------------------- Registrar of Corporations [SEAL] June 11, 1993 ------------------------------ Date of Amendment ================================================================================ ----------------------------- FILED JUN 11, 1993 Registrar of Corporations Province of Alberta ----------------------------- BUSINESS CORPORATIONS ACT (Sections 27 and 167) ARTICLES OF AMENDMENT 1. NAME OF CORPORATION: VENTURES GAINED INC. 2. CORPORATE ACCESS NO. 20353521 3. THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS: (a) Pursuant to subsection 167(1)(a) of the Business Corporations Act (the "Act"), Item 1 of the Articles of Incorporation (the "Articles") be amended by deleting the existing Item 1 of the Articles and substituting the following: "1. NAME OF CORPORATION: TOMAHAWK CORPORATION" (b) Pursuant to subsection 167(1)(f) of the Act, Item 6 of the Articles be amended by the addition of the following provision: "6. OTHER PROVISIONS IF ANY: Change the issued Common Shares of the Corporation as at May 5, 1993 by consolidating into one Common Share each two issued Common Shares." (c) Pursuant to section 27(5) of the Act, the directors of the Corporation do hereby designate pursuant to Item 2, paragraph 2(b)(i) a series of the Convertible Preferred shares authorized to be issued pursuant to paragraph 2(b) of the Articles, and accordingly the Articles are hereby amended by the addition thereto of paragraph 2(c) as set forth on Schedule "A" hereto. DATE: June 11, 1993. SIGNATURE: TITLE: /s/ Mani Chopra SOLICITOR - -------------------- Mani Chopra 2 SCHEDULE "A" 2(c) DESIGNATION OF SERIES Three series of Preferred Shares are designated by the Corporation as Class "A", Series "I", Series "II", and Series "III" Preferred Shares, respectively, the said Series of Preferred Shares being so designated pursuant to subsection 27(5) of the Business Corporations Act and consisting of such number, and having the rights, privileges, restrictions and conditions attaching thereto as follows: (I) Number Each of the Class "A" Preferred Shares shall consist of an unlimited number of such shares. (II) Dividends Subject to the prior rights of the holders of any other Series of Preferred shares of the Corporation with respect to priority in the payment of dividends, the holders of Class "A" Preferred shares shall be entitled to receive dividends, as and when declared by the Directors of the Corporation out of assets properly applicable to the payment of dividends, in such amount and in such form as the board of directors may from time to time determine. (III) Priority on Liquidation In the event of the dissolution of liquidation of the Corporation or a sale of all its assets, whether voluntary or involuntary, or in the event of its insolvency, or upon any distribution of its capital, there shall be paid to the holders of Class "A" Preferred shares the amount paid up thereon plus the amount of all unpaid dividends accrued thereon without interest (in these Articles collectively called "the Redemption Amount") before any sum shall be paid to or any assets distributed among the holders of the Common shares. After such payment to the holders of the Class "A" Preferred shares, the remaining assets and funds of the Corporation shall be divided among and paid to the holders of the Common shares in proportion to their holdings of such shares. 3 (IV) Conversion Right (A) For each $1.50 of Cumulative Cash Flow (as that term is hereinafter defined) a share of Series I Preferred Shares is convertible into 10 common shares of the Corporation. Following the right of conversion for all Series I Preferred Shares, for each $2.00 of Cumulative Cash Flow a share of the Series II Preferred Share is convertible into 10 common shares of the Corporation. Following the right of conversion for all Series I and Series II Preferred Shares, for each $2.50 of Cumulative Cash Flow a share of the Series III Preferred Shares is convertible into 10 common shares of the Corporation. On a consolidation, subdivision, amalgamation or reclassification of the Corporation's shares, the conversion calculation must be adjusted so that the proportion of the outstanding Class "A" Preferred Shares available for conversion is unaffected by the consolidation, subdivision, amalgamation or reclassification. The Class "A" Preferred Shares may be converted only once during the Corporation's financial year. The conversion calculation must be based on the Corporation's annual audited consolidated financial statements for the year or years during which the conversion requirements were met in respect of the Class "A" Preferred Shares to be converted. For the purposes of the above-referenced conversion formula, "Cash Flow" means net income or loss after tax, generated from the business of TomaHawk Imaging & Financial Inc. or any of its subsidiaries as shown on the consolidated audited financial statements or verified by the Corporation's auditors, adjusted to add back the following expenses: (i) Depreciation, (ii) Depletion, (iii) Deferred taxes, (iv) Amortization of goodwill, and (v) Deferred research and development costs. "Cumulative Cash Flow" means, at any time the aggregate Cash Flow of the Corporation up to that time from a date no earlier than June 1, 1993, net of any negative Cash Flow. (B) A holder of Class "A" Preferred Shares who wishes to avail himself of this right of conversion shall 4 submit to the head office of the Corporation a written notice indicating the number of each Series Class "A" Preferred shares he wishes to convert. Certificates representing the Class "A" Preferred Shares to be converted shall be attached to the notice. Upon receipt of any such notice and the Certificates, the Corporation shall consult its auditors to confirm the number of Class "A" Preferred shares which are at that time convertible, and without charge issue ten (10) Common Shares for each Class "A" Preferred Share which is then requested to be converted or which is then convertible having regard to the Cumulative Cash Flow of the Corporation, whichever is less, and, if only some of the Class "A" Preferred Shares evidenced on the certificates are converted, the Corporation shall, without charge, issue a new certificate representing the remaining number of Class "A" Preferred Shares. (C) Notwithstanding paragraph (A), the Corporation may apply to The Alberta Stock Exchange for earlier conversion of the Class "A" Preferred Shares or amendment to the terms of conversion herein stated. (V) TRANSFERABILITY Class "A" Preferred Shares may not be transferred except with the prior approval of the directors, who may in their absolute discretion, refuse to register the transfer of any said shares, such approval to be evidenced by a resolution of the directors. (VI) CANCELLATION In the event that any of the Class "A" Series I Preferred Shares are not eligible for conversion to Common Shares at the conclusion of the Corporation's fiscal year beginning 1995 , subject to the discretion of The Alberta Stock Exchange, the ineligible Class "A" Series I Preferred Shares shall be cancelled. In the event that any of the Class "A" Series II Preferred Shares are not eligible for conversion to Common Shares at the conclusion of the Corporation's fiscal year beginning 1997, subject to the discretion of The Alberta Stock Exchange, the Class "A" Series II Preferred Shares shall be cancelled. 5 In the event that any of the Class "A" Series III Preferred Shares are not eligible for conversion to Common Shares at the conclusion of the Corporation's fiscal year beginning 1999, subject to the discretion of The Alberta Stock Exchange, the Class "A" Series III Preferred Shares shall be cancelled. (VII) OTHER PROVISIONS In the event that TomaHawk Imaging & Financial Inc. or any of its subsidiaries either becomes insolvent, is petitioned into bankruptcy, takes legislative protection from its creditors or ceases, then any Class "A" Preferred Shares which remain outstanding must be surrendered to the Corporation for cancellation and the Corporation and holders of such shares covenant to attend to their cancellation immediately. Exhibit 3.1(FF) ================================================================================ CORPORATE ACCESS NUMBER 20353521 Alberta GOVERNMENT OF ALBERTA BUSINESS CORPORATIONS ACT CERTIFICATE OF AMENDMENT TOMAHAWK CORPORATION AMENDED ITS ARTICLES TO CREATE SHARES IN SERIES ON MAY 7, 1996. /s/ [ILLEGIBLE] -------------------------------- [SEAL] Registrar of Corporations ================================================================================ BUSINESS CORPORATIONS ACT (Section 27 or 167) ARTICLES OF AMENDMENT 1. NAME OF CORPORATION: TOMAHAWK CORPORATION 2. CORPORATE ACCESS NO. 20353521 3. THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS: Pursuant to subsection 27(5) of the Business Corporations Act, the directors of the Corporation do hereby designate three series of the Preferred shares authorized to be issued pursuant to paragraph 2(a) of Schedule I of the Articles of Amendment, the series to have the designation, price, restrictions, conditions and limitations as set forth on Schedule "A" hereto. This amendment is deemed to be remedial and effective as of June 11, 1993 to clarify the Articles of Amendment dated June 11, 1993. DATE: May 7, 1996 SIGNATURE: TITLE: /s/ Mani Chopra - ------------------------------- Mani Chopra Solicitor SCHEDULE "A" DESIGNATION OF SERIES Three series of Preferred Shares are designated by the Corporation as Class "A", Series "I", Series "II", and Series "III" Preferred Shares, respectively, the said Series of Preferred Shares being so designated pursuant to subsection 27(5) of the Business Corporations Act and consisting of such number, and having the rights, privileges, restrictions and conditions attaching thereto as follows: (I) Number Each of the Class "A" Preferred Shares shall consist of an unlimited number of such shares. (II) Dividends Subject to the prior rights of the holders of any other Series of Preferred shares of the Corporation with respect to priority in the payment of dividends, the holders of Class "A" Preferred Shares shall be entitled to receive dividends, as and when declared by the Directors of the Corporation out of assets properly applicable to the payment of dividends, in such amount and in such form as the board of directors may from time to time determine. (III) Priority on Liquidation In the event of the dissolution or liquidation of the Corporation or a sale of all of its assets, whether voluntary or involuntary, or in the event of its insolvency, or upon any distribution of its capital, there shall be paid to the holders of Class "A" Preferred shares the amount paid up thereon plus the amount of all unpaid dividends accrued thereon without interest (in these Articles collectively called "the Redemption Amount") before any sum shall be paid to or any assets distributed among the holders of the Common shares. After such payment to the holders of the Series "A" Preferred Shares, the remaining assets and funds of the Corporation shall be divided among and paid to the holders of the Common shares in proportion to their holdings of such shares. 2 (IV) Conversion Right (A) For each $1.50 of Cumulative Cash Flow (as that term is hereinafter defined) a share of Series I Preferred Shares is convertible into 10 common shares of the Corporation. Following the right of conversion for all Series I Preferred Shares, for each $2.00 of Cumulative Cash Flow a share of the Series II Preferred Shares is convertible into 10 common shares of the Corporation. Following the right of conversion for all Series I and Series II Preferred Shares, for each $2.50 of Cumulative Cash Flow a share of the Series III Preferred Shares is convertible into 10 common shares of the Corporation. On a consolidation, subdivision, amalgamation or reclassification of the Corporation's shares, the conversion calculation must be adjusted so that the proportion of the outstanding Class "A" Preferred Shares available for conversion is unaffected by the consolidation, subdivision, amalgamation or reclassification. The Class "A" Preferred Shares may be converted only once during the Corporation's financial year. The conversion calculation must be based on the Corporation's annual audited consolidated financial statements for the year or years during which the conversion requirements were met in respect of the Class "A" Preferred Shares to be converted. For the purposes of the above-referenced conversion formula, "Cash Flow" means net income or loss after tax, generated from the business of TomaHawk Imaging & Financial Inc. or any of its subsidiaries as shown on the consolidated audited financial statements or verified by the Corporation's auditors, adjusted to add back the following expenses: (i) Depreciation, (ii) Depletion, (iii) Deferred taxes, (iv) Amortization of goodwill, and (v) Deferred research and development costs. "Cumulative Cash Flow" means, at any time the aggregate Cash Flow of the Corporation up to that time from a date no earlier than June 1, 1993, net of any negative Cash Flow. (B) A holder of Class "A" Preferred Shares who wishes to avail himself of this right of conversion shall 3 submit to the head office of the Corporation a written notice indicating the number of each Class "A" Preferred shares he wishes to convert. Certificates representing the Class "A" Preferred Shares to be converted shall be attached to the notice. Upon receipt of any such notice and the Certificates, the Corporation shall consult its auditors to confirm the number of Class "A" preferred shares which are at that time convertible, and without charge issue ten (10) Common Shares for each Class "A" Preferred Shares which is then requested to be converted or which then is convertible having regard to the Cumulative Cash Flow of the Corporation, whichever is less, and if only some of the Class "A" Preferred Shares evidenced on the certificates are converted, the Corporation shall without charge, issue a new certificate representing the remaining Class "A" Preferred Shares. (C) Notwithstanding paragraph (A), the Corporation may apply to The Alberta Stock Exchange for earlier conversion of the Class "A" Preferred Shares or amendment to the terms of conversion herein stated. (V) TRANSFERABILITY Class "A" Preferred Shares may not be transferred except with the prior approval of the directors, who may in their absolute discretion, refuse to register the transfer of any said shares, such approval to be evidenced by a resolution of the directors. (VI) CANCELLATION In the event that any of the Class "A" Series I Preferred Shares are not eligible for conversion to Common Shares at the conclusion of the Corporation's fiscal year beginning 1995, subject to the discretion of The Alberta Stock Exchange, the ineligible Class "A" Series I Preferred Shares shall be cancelled. In the event that any of the Class "A" Series II Preferred Shares are not eligible for conversion to Common Shares at the conclusion of the Corporation's fiscal year beginning 1997, subject to the discretion of The Alberta Stock Exchange, the Class "A" Series II Preferred Shares shall be cancelled. 4 In the event that any of the Class "A" Series III Preferred Shares are not eligible for conversion to Common Shares at the conclusion of the Corporation's fiscal year beginning 1999, subject to the discretion of The Alberta Stock Exchange, the Class "A" Series III Preferred Shares shall be cancelled. (VII) OTHER PROVISIONS In the event that TomaHawk Imaging & Financial Inc. or any of its subsidiaries either becomes insolvent, is petitioned into bankruptcy, takes legislative protection from its creditors or ceases to carry on its business, then any Class "A" Preferred Shares which remain outstanding must be surrendered to the Corporation for cancellation and the Corporation and holders of such shares covenant to attend to their cancellation immediately. EX-3.2 5 EXHIBIT 3.2 Exhibit 3.2 BY-LAW NUMBER 1 A by-law relating generally to the transaction of the business and affairs of the Corporation. BE IT ENACTED as a by-law of 353521 ALBERTA INC. (hereinafter called the "Corporation") as follows: SECTION ONE INTERPRETATION 1.01 DEFINITIONS. In the by-laws and all resolutions of the Corporation, unless the context otherwise requires: (a) "Act" means the Business Corporations Act of Alberta, and any statute that may be substituted therefor, as from time to time amended; (b) "appoint" includes "elect" and vice versa; (c) "articles" means the original or restated articles of incorporation, articles of amendment, articles of amalgamation, articles of continuance, articles of reorganization, articles of arrangement, articles of dissolution, articles of revival, and includes an amendment to any of them; (d) "board" means the board of directors of the Corporation; (e) "by-laws" means this by-law and all other by-laws of the Corporation from time to time in force and effect; (f) "corporation" means a body corporate incorporated or continued under the Act and not discontinued under the Act; (g) "meeting of shareholders" means an annual meeting of shareholders and a special meeting of shareholders; (h) "non-business day" means Saturday, Sunday and any other day that is a holiday as defined in the Interpretation Act (Alberta); (i) "ordinary resolution" means a resolution: (i) passed by a majority of the votes cast by the shareholders who voted in respect of that resolution, or (ii) signed by all the shareholders entitled to vote on that resolution; -2- (j) "recorded address" means in the case of a shareholder his address as recorded in the Securities Register of the Corpora- tion; and in the case of joint shareholders the address appearing in the Securities Register of the Corporation in respect of such joint holding or the first address so appearing if there are more than one; and in the case of a director, officer, auditor or member of a committee of the board, his latest address as recorded in the records of the Corporation; (k) "resident Albertan" means an individual who is ordinarily resident in Alberta or, if not ordinarily resident in Alberta, is a member of a prescribed class of persons and, in any case, (i) is a Canadian citizen, or (ii) has been lawfully admitted to Canada for permanent residence; (1) "signing officer" means, in relation to any instrument, any person authorized to sign the same on behalf of the Corporation by section 2.04 or by a resolution passed pursuant thereto; (m) "special business" means all business transacted at a special meeting of shareholders and all business transacted at an annual meeting of shareholders, except consideration of the financial statements, auditor's report, election of directors and reappointment of the incumbent auditor; (n) "special meeting of shareholders" means a special meeting of all shareholders entitled to vote at an annual meeting of shareholders; (o) "special resolution" means a resolution passed by a majority of not less than 2/3 of the votes cast by the shareholders who voted in respect of that resolution or signed by all the shareholders entitled to vote on that resolution; (p) "unanimous shareholder agreement" means: (i) a written agreement to which all the shareholders of a corporation are or are deemed to be parties, whether or not any other person is also a party, or (ii) a written declaration by a person who is the beneficial owner of all the issued shares of a corporation, that provides for any of the matters enumerated in section 140(1) of the Act. -3- Save as aforesaid, words and expressions defined in the Act have the same meanings when used herein; and words importing the singular number include the plural and vice versa; words importing gender include the masculine, feminine and neuter genders; and words importing persons include individuals, bodies corporate, partnerships, trusts and unincorporated organizations. SECTION TWO ADMINISTRATION 2.01 REGISTERED OFFICE and SEPARATE RECORDS OFFICE. Until changed in accordance with the Act, the registered office of the Corporation shall be in the place within Alberta specified in the articles and at such location therein as the board may from time to time determine. The records office will be at such location, if any, as the board may from time to time determine. 2.02 CORPORATE SEAL. Until changed by the board, the Corporation shall adopt a corporate seal which shall be composed of two concentric circles between the circumference of which the name of the Corporation is to be inscribed and the centre of the inner circle contains the words "Corporate Seal". 2.03 FINANCIAL YEAR. The financial year end of the Corporation shall be as from time to time determined by the Board. 2.04 EXECUTION OF INSTRUMENTS. The Secretary or any other officer or any director may sign certificates and similar instruments (other than share certificates) on the Corporation's behalf with respect to any factual matters relating to the Corporation's business and affairs, including certificates certifying copies of the articles, by-laws, resolutions and minutes of meetings of the Corporation. Subject to the foregoing, deeds, transfers, assignments, contracts, obligations, certificates and other instruments shall be signed on behalf of the Corporation by two persons, one of whom holds the office of chairman of the board, president, managing director, vice-president or director and the other of whom holds one of the said offices or the office of secretary, treasurer, assistant secretary or assistant treasurer or any other office created by by-law or by resolution of the board; provided, however, that if the Corporation has only one director, that director alone may sign any such documents on behalf of the Corporation. In addition, the board may from time to time direct the manner in which and the person or persons by whom any particular instrument or class of instruments may or shall be signed. 2.05 BANKING ARRANGEMENTS. The banking business of the Corporation including, without limitation, the borrowing of money and the giving of security therefor, shall be transacted with such banks, trust companies or other bodies corporate or organizations as may from time to time be designated by or under the authority of the board. Such banking business or any part thereof shall be transacted under such agreements, instruc- -4- tions and delegations of powers as the board may from time to time prescribe or authorize. 2.06 VOTING RIGHTS IN OTHER BODIES CORPORATE. The signing officers of the Corporation may execute and deliver instruments of proxy and arrange for the issuance of voting certificates or other evidence of the right to exercise the voting rights attaching to any securities held by the Corporation. Such instruments, certificates or other evidence shall be in favour of such person or persons as may be determined by the persons signing or arranging for them. In addition, the board may direct the manner in which and the person or persons by whom any particular voting rights or class of voting rights may or shall be exercised. 2.07 DIVISIONS. The board may cause the business and operations of the Corporation or any part thereof to be divided into one or more divisions upon such basis, including without limitation types of business or operations, geographical territories, product lines, or goods or services, as may be considered appropriate in each case. In connection with any such division the board or, subject to any direction by the board, the chief executive officer may authorize from time to time, upon such basis as may be considered appropriate in each case: (a) Subdivision and Consolidation - the further division of the business and operations of any such division into sub-units and the consolidation of the business and operations of any such divisions and sub-units; (b) Name - the designation of any such division or sub-unit by, and the carrying on of the business and operations of any such division or sub-unit under, a name other than the name of the Corporation, provided that the Corporation shall set out its name in legible characters in all places required by law; and (c) Officers - the appointment of officers for any such division or sub-unit, the determination of their powers and duties, and the removal of any of such officers so appointed, provided that any such officers shall not, as such, be officers of the Corporation. 2.08 FINANCIAL ASSISTANCE TO SHAREHOLDERS, EMPLOYEES AND OTHERS. (1) The Corporation may give financial assistance by means of a loan, guarantee or otherwise: (a) to any person in the ordinary course of business if the lending of money is part of the ordinary business of the Corporation; (b) to any person on account of expenditures incurred or to be incurred on behalf of the Corporation; (c) to a holding body corporate if the Corporation is a wholly-owned subsidiary of the holding body corporate; -5- (d) to a subsidiary body corporate of the Corporation; or (e) to employees of the Corporation or any of its affiliates: (i) to enable or assist them to purchase or erect living accommodation for their own occupation, or (ii) in accordance with a plan for the purchase of shares of the Corporation or any of its affiliates to be held by a trustee. (2) Except as permitted under subsection (1) above, a Corporation shall not, directly or indirectly, give financial assistance by means of a loan, guarantee or otherwise: (a) to a shareholder or director of the Corporation or of an affi- liated Corporation; (b) to an associate of a shareholder or director of the Corporation or of an affiliated Corporation; or (c) to any person for the purpose of or in connection with a purchase of a share issued or to be issued by the Corporation or an affiliated Corporation; if there are reasonable grounds for believing that: (d) the Corporation is, or after giving the financial assistance would be, unable to pay its liabilities as they become due; or (e) the realizable value of the Corporation's assets, excluding the amount of any financial assistance in the form of a loan or in the form of assets pledged or encumbered to secure a guarantee, after giving the financial assistance, would be less than the aggregate of the Corporation's liabilities and stated capital of all classes. SECTION THREE BORROWING AND SECURITIES 3.01 BORROWING POWERS. Without limiting the borrowing powers of the Corporation as set forth in the Act, the board may from time to time without the authorization of the shareholders: (a) borrow money upon the credit of the Corporation; (b) issue, reissue, sell or pledge bonds, debentures, notes or other evidence of indebtedness or guarantee of the Corporation, whether secured or unsecured; -6- (c) charge, mortgage, hypothecate, pledge or otherwise create, issue, execute and deliver a security interest in all or any currently owned or subsequently acquired real or personal, movable or immovable property of the Corporation, including book debts, rights, powers, franchises and undertaking to secure any such bonds, debentures, notes or other evidences of indebtedness or guarantee or any other present or future indebtedness or liability of the Corporation; and (d) give a guarantee on behalf of the Corporation to secure the obligation of any person. Nothing in this section limits or restricts the borrowing of money by the Corporation on bills of exchange or promissory notes made, drawn, accepted or endorsed by or on behalf of the Corporation. 3.02 DELEGATION. The board may from time to time delegate to such one or more of the directors and officers of the Corporation as may be designated by the board all or any of the powers conferred on the board by section 3.01 or by the Act to such extent and in such manner as the board shall determine at the time of each such delegation. SECTION FOUR DIRECTORS 4.01 NUMBER OF DIRECTORS AND QUORUM. Until changed in accordance with the Act, the board of directors shall consist of such number of directors being not less than the minimum nor more than the maximum number of directors provided in the articles of incorporation as shall be fixed from time to time by resolution of the shareholders. A majority of directors shall constitute a quorum for the transaction of business. 4.02 QUALIFICATION. The following persons are disqualified from being a director of the Corporation: (a) anyone who is less than 18 years of age; (b) anyone who: (i) is a dependent adult as defined in The Dependent Adults Act or is the subject of a certificate of incapacity under that Act, (ii) is a formal patient as defined in The Mental Health Act, 1972, (iii) is the subject of an order under The Mentally Incapacitated Persons Act appointing a committee of his person or estate or both, or -7- (iv) has been found to be a person of unsound mind by a court elsewhere than in Alberta; (c) a person who is not an individual; (d) a person who has the status of bankrupt. Subject to the Act, at least half of the directors shall be resident Albertans. 4.03 ELECTION AND TERM. The election of directors shall take place at the-first meeting of shareholders and at each annual meeting of shareholders and all the directors then in office shall retire, but, if qualified, shall be eligible for re-election. The number of directors to be elected at any such meeting shall be the number of directors then in office unless the directors or the shareholders otherwise by resolution determine. The election shall be by ordinary resolution. If an election of directors is not held at the proper time, the incumbent directors shall continue in office until their successors are elected. 4.04 REMOVAL OF DIRECTORS. Subject to the Act, the shareholders may by ordinary resolution passed at a special meeting remove any director from office and the vacancy created by such removal may be filled at the meeting of the shareholders at which the director was removed or if not so filled may be filled by the directors. 4.05 CEASING TO HOLD OFFICE. A director ceases to hold office when he dies, when he is removed from office by the shareholders, when he ceases to be qualified for election as a director, or when his written resignation is sent or delivered to the Corporation, or if a time is specified in such resignation, at the time so specified, whichever is later. Provided always that, subject to the Act, the shareholders of the Corporation may by ordinary resolution at a special meeting remove any director or directors from office. 4.06 VACANCIES. Subject to the Act, a quorum of the board may fill a vacancy in the board, except a vacancy resulting from an increase in the minimum number of directors or from a failure of the shareholders to elect the minimum number of directors. In the absence of a quorum of the board, or if the vacancy has arisen from a failure of the shareholders to elect the minimum number of directors, the board shall forthwith call a special meeting of the shareholders to fill the vacancy. If the board fails to call such meeting or if there are no such directors then in office, any shareholder may call the meeting. 4.07 ACTION BY THE BOARD. Subject to any unanimous shareholder agreement, the board shall manage the business and affairs of the Corporation. Subject to the provisions of these by-laws relating to Albertan majority and participation by telephone, the powers of the board may be exercised by a meeting at which the quorum is present or by resolution in writing signed by all the directors entitled to vote on that resolution at a meeting of the board. Where there is a vacancy in the board, the -8- remaining directors may exercise all the powers of the board so long as a quorum remains in office. Where the Corporation has only one director, that director may constitute a meeting. 4.08 MAJORITY ALBERTA RESIDENCE. Subject to the Act, the board shall not transact business at a meeting, other than filling a vacancy in the board, unless a majority of the directors present are residents of Alberta, except where: (a) a resident Albertan director who is unable to be present approves in writing or by telephone or other communications facilities the business transacted at the meeting; and (b) the number of resident Albertan directors present at the meeting, together with any resident Albertan director who gives his approval under clause (a), totals at least half of the directors present at the meeting. 4.09 PARTICIPATION BY TELEPHONE. A director may participate in a meeting of the board or of a committee of the board by means of such telephone or other communications facilities as permit all persons participating in the meeting to hear each other, and a director participating in such a meeting by such means is deemed to be present at the meeting. 4.10 PLACE OF MEETINGS. Meetings of the board may be held at any place in or outside Canada. 4.11 CALLING OF MEETINGS. Meetings of the board shall be held from time to time at such time and at such place as the board, the chairman of the board, the managing director, the president or any two directors may determine. Provided always that should more than one of the above named call a meeting at or for substantially the same time there shall be held only one meeting and such meeting shall occur at the time and place determined by, in order of priority, the board, the chairman or the president. 4.12 NOTICE OF MEETING. Notice of the time and place of each meeting of the board shall be given to each director not less than 2 clear business days, excluding any part of a non-business day, before the time when the meeting is to be held. Notice shall be effected when it is personally delivered or when it is delivered to the latest address of the director as shown in the records of the Corporation or in the last notice filed pursuant to section 101 or 108 of the Act. Provided always that should personal delivery be attempted and be unsuccessful, notice by delivery to an address of record shall nevertheless be effective. A notice of a meeting of directors need not specify the purpose of or the business to be transacted at the meeting except where the Act requires such purpose or business to be specified, including any proposal to: (a) submit to the shareholders any question or matter requiring approval of the shareholders; -9- (b) fill a vacancy among the directors or in the office of auditor; (c) issue securities; (d) declare dividends; (e) purchase, redeem, or otherwise acquire shares of the Corporation; (f) pay a commission for the sale of shares; (g) approve a management proxy circular; (h) approve any annual financial statements; (i) adopt, amend or repeal by-laws; (j) demand or accept the resignation of or make the appointment of any officer or officers; or (k) call a meeting or a special meeting of shareholders. A director may in any manner waive notice of a meeting of directors, and attendance of a director at a meeting of directors is a waiver of notice of the meeting, except when a director attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called. 4.13 FIRST MEETING OF NEW BOARD. Provided a quorum of directors is present, each newly elected board may without notice hold its first meeting immediately following the meeting of shareholders at which such board is elected. 4.14 ADJOURNED MEETING. Notice of an adjourned meeting of the board is not required if the time and place of the adjourned meeting is announced at the original meeting. 4.15 REGULAR MEETINGS. The board may appoint a day or days in any month or months for regular meetings of the board at a place and hour to be named. A copy of any resolution of the board fixing the place and time of such regular meetings shall be sent to each director forthwith after being passed, but no other notice shall be required for any such regular meeting except where the Act requires the purpose thereof or the business to be transacted thereat to be specified. 4.16 CHAIRMAN AND SECRETARY. The chairman of the board, or, in his absence, the president, or in his absence, a vice-president shall be chairman of any meeting of the board. If none of the said officers are present, the directors present shall choose one of their number to be chairman. The secretary of the Corporation shall act as secretary at any meeting of the board, and if the secretary of the Corporation be absent, the chairman of the meeting shall appoint a person, who need not be a director, to act as secretary of the meeting. -10- 4.17 VOTES TO GOVERN. At all meetings of the board every question shall be decided by a majority of the votes cast on the question, the chairman shall be entitled to vote and in case of an equality of votes the chairman of the meeting shall not be entitled to a second or casting vote. 4.18 CONFLICT OF INTEREST. A director or officer who is a party to, or who is a director or officer of or has a material interest in any person who is a party to, a material contract or proposed material con- tract with the Corporation shall disclose the nature and extent of his interest to the board at the time and in the manner provided by the Act. Any such contract or proposed contract shall be referred to the board for approval even if such contract is one that in the ordinary course of the Corporation's business would not require approval by the board, and a director interested in a contract so referred to the board shall not vote on any resolution to approve the same except as provided by the Act. 4.19 REMUNERATION AND EXPENSES. Subject to any unanimous share- holder agreements, the directors shall be paid such remuneration for their services as the board may from time to time determine. SECTION FIVE COMMITTEES 5.01 COMMITTEE OF DIRECTORS. The board may appoint a committee of directors, however designated, or a managing director, who must be a resident Albertan, and delegate to such committee or managing director any of the powers of the board except those which, under the Act, a committee of directors or managing director has no authority to exercise. At least half of the members of such committee shall be residents of Alberta. A committee may be comprised of one director. 5.02 TRANSACTION OF BUSINESS. Subject to the provisions of these by-laws relating to participation by telephone, the powers of a committee of directors may be exercised by a meeting at which a quorum is present or by resolution in writing signed by all the members of such committee who would have been entitled to vote on that resolution at a meeting of the committee. Meetings of such committee may be held at any place in or outside Canada and may be called by any one member of the committee giving notice in accordance with the by-laws governing the calling of directors meetings. 5.03 PROCEDURE. Unless otherwise determined herein or by the board, each committee shall have the power to fix its quorum at not less than a majority of its members, to elect its chairman and to regulate its procedure. -11- SECTION SIX OFFICERS 6.01 APPOINTMENT OF OFFICERS. Subject to any unanimous shareholder agreement, the board may from time to time appoint a chairman of the board, a managing director (who shall be a resident Albertan), a president, one or more vice-presidents, a secretary, a treasurer and such other officers as the board may determine, including one or more assistants to any of the officers so appointed. The board may specify the duties of and, in accordance with this by-law and subject to the provisions of the Act, delegate to such officers powers to manage the business and affairs of the Corporation. Except for a managing director and a chairman of the board, an officer may but need not be a director and one person may hold more than one office. The president or such other officer as the board may designate, shall be the chief executive officer of the Corporation. 6.02 CHAIRMAN OF THE BOARD. The board may from time to time appoint a chairman of the board who shall be a director. If appointed, the board may assign to him any of the powers and duties that are by any provisions of this by-law assigned to the managing director or to the president; and he shall, subject to the provisions of the Act, have such other powers and duties as the board may specify. He shall preside at all meetings of the shareholders at which he is present. During the absence or disability of the chairman of the board, his duties shall be performed and his powers exercised by the managing director, if any, or by the president if there is no managing director. 6.03 MANAGING DIRECTOR. The board may from time to time appoint a managing director who shall be a resident Albertan and a director. If appointed, he shall have, subject to the authority of the board, general supervision of the business and affairs of the Corporation; and he shall, subject to the provisions of the Act, have such other powers and duties as the board may specify. During the absence or disability of the president, or if no president has been appointed, the managing director shall also have the powers and duties of that office. 6.04 PRESIDENT. If appointed, the president shall be the chief executive officer, and, subject to the authority of the board, shall have general supervision of the business of the Corporation; and he shall have such other powers and duties as the board may specify. During the absence or disability of the managing director, or if no managing director has been appointed, the president shall also have the powers and duties of that office. 6.05 VICE-PRESIDENT. A vice-president shall have such powers and duties as the board or the chief executive officer may specify. 6.06 SECRETARY. The secretary shall attend and be the secretary of all meetings of the board, shareholders and committees of the board and -12- shall enter or cause to be entered in records kept for that purpose minutes of all proceedings thereat; he shall give or cause to be given, as and when instructed, all notices to shareholders, directors, officers, auditors and members of committees of the board; he shall be the custodian of the stamp or mechanical device generally used for affixing the corporate seal of the Corporation and of all books, papers, records, documents and instruments belonging to the Corporation, except when some other officer or agent has been appointed for that purpose; and he shall have such other powers and duties as the board or the chief executive officer may specify. 6.07 TREASURER. The treasurer shall keep proper accounting records in compliance with the Act and shall be responsible for the deposit of money, the safekeeping of securities and the disbursement of the funds of the Corporation; he shall render to the board whenever required an account of all his transactions as treasurer and of the financial position of the Corporation; and he shall have such other powers and duties as the board or the chief executive officer may specify. 6.08 POWERS AND DUTIES OF OTHER OFFICERS. The powers and duties of all other officers shall be such as the terms of their engagement call for or as the board or the chief executive officer may specify. Any of the powers and duties of an officer to whom an assistant has been appointed may be exercised and performed by such assistant, unless the board or the chief executive officer otherwise directs. 6.09 VARIATION OF POWERS AND DUTIES. The board may from time to time subject to the provisions of the Act, vary, add to or limit the powers and duties of any officer. 6.10 TERM OF OFFICE. The board, in its discretion, may remove any officer of the Corporation, without prejudice to such officer's rights under any employment contract. Otherwise each officer appointed by the board shall hold office until his successor is appointed. 6.11 TERMS OF EMPLOYMENT AND REMUNERATION. The terms of employment and the remuneration of officers appointed by the board shall be settled by it from time to time. The fact that any officer is a director or shareholder of the Corporation shall not disqualify him from receiving such remuneration as an officer as may be determined. 6.12 CONFLICT OF INTEREST. An officer shall disclose his interest in any material contract or proposed material contract with the Corporation in accordance with section 4.18. 6.13 AGENTS AND ATTORNEYS. The board shall have power from time to time to appoint agents or attorneys for the Corporation in or outside Canada with such powers of management or otherwise (including the power to sub-delegate) as may be thought fit. 6.14 FIDELITY BONDS. The board may require such officers, employees and agents of the Corporation as the board deems advisable to -13- furnish bonds for the faithful discharge of their powers and duties, in such forms and with such surety as the board may from time to time determine. SECTION SEVEN PROTECTION OF DIRECTORS, OFFICERS AND OTHERS 7.01 LIMITATION OF LIABILITY. Every director and officer of the Corporation in exercising his powers and discharging his duties shall act honestly and in good faith with a view to the best interests of the Corporation and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Subject to the foregoing, no director or officer shall be liable for the acts, receipts, neglects or defaults of any other director or officer or employee, or for joining in any receipt or other act for conformity, or for any loss, damage or expense happening to the Corporation through the insufficiency or deficiency of title to any property acquired for or on behalf of the Corporation, or for the insufficiency or deficiency of any security in or upon which any of the monies of the Corporation shall be invested, or for any loss or damage arising from the bankruptcy, insolvency or tortious acts of any person with whom any of the monies, securities or effects of the Corporation shall be deposited, or for any loss occasioned by any error of judgment or oversight on his part, or for any other loss, damage or misfortune whatsoever which shall happen in the execution of the duties of his office or in relation thereto, unless the same are occasioned by his own willful neglect or default; provided that nothing herein shall relieve any director or officer from the duty to act in accordance with the Act and the regulations thereunder or from liability for any breach thereof. No act or proceeding of any director or officer or the board shall be deemed invalid or ineffective by reason of the subsequent ascer- tainment of any irregularity in regard to such act or proceeding or the qualification of such director or officer or board. Directors may rely upon the accuracy of any statement or report prepared by the Corporation's auditors, internal accountants or other responsible officials and shall not be responsible or held liable for any loss or damage resulting from the paying of any dividends or otherwise acting upon such statement or report. 7.02 INDEMNITY. Subject to the limitations contained in the Act, the Corporation shall indemnify a director or officer, a former director or officer, or a person who acts or acted at the Corporation's request as a director or officer of a body corporate of which the Corporation is or was a shareholder or creditor (or a person who undertakes or has undertaken any liability on behalf of the Corporation or any such body corporate) and his heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a -14- judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of the Corporation or such body corporate, if: (a) he acted honestly and in good faith with a view to the best interests of the Corporation; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. 7.03 INSURANCE. Subject to the limitations contained in the Act, the Corporation may purchase and maintain such insurance for the benefit of its directors and officers as such, as the board may from time to time determine. SECTION EIGHT SHARES 8.01 ALLOTMENT. The board may from time to time allot shares of the Corporation or grant options to purchase the whole or any part of the authorized and unissued shares of the Corporation at such times and to such persons and for such consideration as the board shall determine, provided that no share shall be issued until it is fully paid as prescribed by the Act. 8.02 COMMISSIONS. The board may from time to time authorize the Corporation to pay a commission to any person in consideration of his purchasing or agreeing to purchase shares of the Corporation, whether from the Corporation or from any other person, or procuring or agreeing to procure purchasers for any such shares. 8.03 REGISTRATION OF TRANSFER. Subject to the Act, no transfer of shares shall be registered in a securities register except upon presentation of the certificate representing such shares with a transfer endorsed thereon or delivered therewith duly executed by the registered holder or by his attorney or successor duly appointed, together with such reasonable assurance or evidence of signature, identification and authority to transfer as the board may from time to time prescribe, upon payment of all applicable taxes and any fees prescribed by the board, upon compliance with such restrictions on transfer as are authorized by the articles and upon satisfaction of any lien referred to in section 8.04. 8.04 LIEN FOR INDEBTEDNESS. If the articles provide that the Corporation shall have a lien on shares registered in the name of a shareholder indebted to the Corporation, such lien may be enforced, subject to any other provision of the articles and to any unanimous shareholder agreement, by the sale of the shares thereby affected or by any other -15- action, suit, remedy or proceeding authorized or permitted by law or by equity and, pending such enforcement, may refuse to register a transfer of the whole or any part of such shares. 8.05 NON-RECOGNITION OF TRUSTS. Subject to the provisions of the Act, the Corporation shall treat as absolute owner of any share the person in whose name the share is registered in the securities register as if that person had full legal capacity and authority to exercise all rights of ownership irrespective of any indication to the contrary through knowledge or notice or description in the Corporation's records or on the share certificate. 8.06 SHARE CERTIFICATES. Every holder of one or more shares of the Corporation shall be entitled, at his option, to a share certificate, or to a non-transferable written acknowledgement of his right to obtain a share certificate, stating the number and class or series of shares held by him as shown on the securities register. Share certificates and acknowledgements of a shareholder's right to a share certificate, respectively, shall be in such form as the board shall from time to time approve. Any share certificate shall be signed in accordance with section 2.04 and need not be under the corporate seal. The signatures of the signing officers may be printed or mechanically reproduced in facsimile upon share certificates and every such facsimile signature shall for all purposes be deemed to be the signatures of the officer whose signature it reproduces and shall be binding upon the Corporation. A share certificate executed as aforesaid shall be valid notwithstanding that one or both of the officers whose facsimile signature appears thereon no longer holds office at the date of issue of the certificate. 8.07 REPLACEMENT OF SHARE CERTIFICATES. The board or any officer or agent designated by the board may in its or his discretion direct the issue of a new share certificate in lieu of and upon cancellation of a share certificate that has been mutilated or in substitution for a share certificate claimed to have been lost, destroyed or wrongfully taken on payment of such fee, not exceeding $3, and on such terms as to indemnity, reimbursement of expenses and evidence of loss and of title as the board may from time to time prescribe, whether generally or in any particular case. 8.08 JOINT SHAREHOLDERS. If two or more persons are registered as joint holders of any share, the Corporation shall not be bound to issue more than one certificate in respect thereof, and delivery of such certificate to one of such persons shall be sufficient delivery to all of them. Any one of such persons may give effectual receipts for the certificates issued in respect thereof or for any dividend, bonus, return of capital or other money payable or warrant issuable in respect of such shares. 8.09 DECEASED SHAREHOLDERS. In the event of the death of a holder, or one of the joint holders, of any share, the Corporation shall not be required to make any entry in the register of shareholders in respect thereof except on production of all such documents as may be required by -16- law and upon compliance with the reasonable requirements of the Corporation and its transfer agents. 8.10 SECURITIES RECORDS. The Corporation shall maintain, at its registered office or any other place designated by the board, a register of shares and other securities in which it records the shares and other securities issued by it in registered form, showing with respect to each class or series of shares and other securities: (a) the names, alphabetically arranged, and the latest known address of each person who is or has been a holder; (b) the number of shares or other securities held by each holder; and (c) the date and particulars of the issue and transfer of each share or other security. SECTION NINE DIVIDENDS AND RIGHTS 9.01 DIVIDENDS. Subject to the provisions of the Act, the board may from time to time declare dividends payable to the shareholders according to their respective rights and interest in the Corporation. Dividends may be paid in money or property or by issuing fully paid shares of the Corporation. 9.02 DIVIDEND CHEQUES. A dividend payable in cash shall be paid by cheque drawn on the Corporation's bankers or one of them to the order of each registered holder of shares of the class or series in respect of which it has been declared and mailed by prepaid ordinary mail to such registered holder at his recorded address, unless such holder otherwise directs. In the case of joint holders the cheque shall, unless such joint holders otherwise direct, be made payable to the order of all such joint holders and mailed to them at their recorded address. The mailing of such cheque as aforesaid, unless the same is not paid on due presentation, shall satisfy and discharge the liability for the dividend to the extent of the sum represented thereby plus the amount of any tax which the Corporation is required to and does withhold. 9.03 NON-RECEIPT OF CHEQUES. In the event of non-receipt of any dividend cheque by the person to whom it is sent as aforesaid, the Corporation shall issue to such person a replacement cheque for a like amount on such terms as to indemnity, reimbursement of expenses and evidence of non-receipt and of title as the board may from time to time prescribe, whether generally or in any particular case. 9.04 RECORD DATE FOR DIVIDENDS AND RIGHTS. The board may fix in advance a date, preceding by not more than 50 days the date for the -17- payment of any dividend as a record date for the determination of the persons entitled to receive payment of such dividend, provided that notice of any such record date is given, not less than 7 days before such record date, by newspaper advertisement in the manner provided in the Act. Where no record date is fixed in advance as aforesaid the record date for the determination of the persons entitled to receive payment of any dividends shall be at the close of business on the day on which the resolution relating to such dividend is passed by the board. 9.05 UNCLAIMED DIVIDENDS. Any dividend unclaimed after a period of six years from the date on which the same has been declared to be payable shall be forfeited and shall revert to the Corporation. SECTION TEN MEETINGS OF SHAREHOLDERS 10.01 ANNUAL MEETINGS. The annual meeting of shareholders shall be held in accordance with the Act, at such time in each year and, subject to section 10.03, at such place as the board may from time to time determine, for the purpose of hearing and receiving the financial statements and reports required by the Act to be read at and placed before the annual meeting, electing directors, appointing auditors and for the transaction of such other business as may properly be brought before the meeting. 10.02 SPECIAL MEETINGS. The board shall have the power to call a special meeting of shareholders at any time. 10.03 PARTICIPATION BY TELEPHONE. A shareholder or any other person entitled to attend a meeting of shareholders may participate in the meeting by means of telephone or other communication facilities that permit all persons participating in the meeting to hear each other and a person participating in such a meeting by those means is deemed to be present at the meeting. 10.04 PLACE OF MEETINGS. Meetings of shareholders shall be held at the registered office of the Corporation or elsewhere in the municipality in which the registered office is situate or, if the board shall so determine, at some other place in Alberta or, if all the shareholders entitled to vote at the meeting so agree, at some place outside Alberta, and a shareholder who attends a meeting outside Alberta is deemed to have so agreed except when he attends such meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully held. 10.05 NOTICE OF MEETINGS. Notice of the time and place of each meeting of shareholders shall be sent not less than 21 days and no more than 50 days before the meeting to each shareholder entitled to vote at the meeting, each director and the auditor of the Corporation. Such notice may be sent by mail addressed to, or may be delivered personally -18- to, the shareholder, at his latest address as shown in the records of the Corporation or its transfer agent, to the director, at his latest address as shown in the records of the Corporation or in the last notice filed pursuant to section 101 or 108 of the Act, or to the auditor at his most recent address as shown in the records of the Corporation. A notice of meeting of shareholders sent by mail to a shareholder, director or auditor in accordance with the above is deemed to be sent on the day on which it was deposited in the mail. Failure to receive a notice does not deprive a shareholder of the right to vote at a meeting. A notice of a meeting is not required to be sent to shareholders who were not register- ed on the records of the Corporation or its transfer agent on the record date as determined according to paragraph 10.07 herein. Notice of a meeting of shareholders at which special business is to be transacted shall state the nature of such business in sufficient detail to permit the shareholder to form a reasoned judgment thereon and shall state the text of any special resolution to be submitted to the meeting. 10.06 LIST OF SHAREHOLDERS ENTITLED TO NOTICE. In the event the Corporation has greater than 15 shareholders entitled to vote at a meeting, for every meeting of shareholders, the Corporation shall prepare a list of shareholders entitled to receive notice of the meeting, arranged in alphabetical order and showing the number of shares held by each shareholder. If a record date for the meeting is fixed pursuant to section 10.07 by the board, the shareholders listed shall be those registered at the close of business on the record date. If no record date is fixed by the board, the shareholders listed shall be those listed at the close of business on the last business day immediately preceding the day on which notice of the meeting is given, or where no such notice is given, the day on which the meeting is held. The list shall be available for examination by any shareholder during usual business hours at the registered office of the Corporation or at the place where the securities register is kept and at the place where the meeting is held. 10.07 RECORD DATE FOR NOTICE. The board may fix in advance a record date, preceding the date of any meeting of shareholders by not more than 50 days and not less than 21 days, for the determination of the shareholders entitled to notice of the meeting, provided that notice of any such record date is given not less than 7 days before such record date, by newspaper advertisement in the manner provided in the Act. If no record date is so fixed, the record date for the determination of the shareholders entitled to notice of the meeting shall be the close of business on the last business day immediately preceding the day on which the notice is given or if no notice was given, the day on which the meeting is held. 10.08 MEETINGS WITHOUT NOTICE. A meeting of shareholders may be held without notice at any time and place permitted by the Act: (a) if all the shareholders entitled to vote thereat are present in person or represented by proxy or if those not present or represented by proxy waive notice of or otherwise consent to such meeting being held, and -19- (b) if the auditors and the directors are present or waive notice of or otherwise consent to such meeting being held. At such meeting any business may be transacted which the Corporation at a meeting of shareholders may transact. If the meeting is held at a place outside Canada, shareholders not present or represented by proxy, but who have waived notice of or otherwise consented to such meeting, shall also be deemed to have consented to the meeting being held at such place. 10.09 CHAIRMAN, SECRETARY AND SCRUTINEERS. The chairman of any meeting of shareholders shall be the first mentioned of such of the following officers as have been appointed and who is present at the meeting: chairman of the board, president, managing director, or a vice-president who is a shareholder. If no such officer is present within 15 minutes from the time fixed for holding the meeting, the persons present and entitled to vote shall choose one of their number to be chairman. If the secretary of the Corporation is absent, the chairman shall appoint some person, who need not be a shareholder, to act as secretary of the meeting. If desired, one or more scrutineers, who need not be shareholders, may be appointed by a resolution or by the chairman with the consent of the meeting. 10.10 PERSONS ENTITLED TO BE PRESENT. The only persons entitled to be present at a meeting of shareholders shall be those persons entitled to vote thereat, the directors and auditor of the Corporation and others who, although not entitled to vote, are entitled or required under any provision of the Act or the articles or by-laws to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting. 10.11 QUORUM. A quorum for the transaction of business at any meeting of shareholders shall be two persons present in person, each being a shareholder entitled to vote thereat or a duly appointed proxy- holder for an absent shareholder so entitled, and together holding or representing by proxy not less than 20% of the outstanding shares of the Corporation entitled to vote at the meeting. If a quorum is present at the opening of any meeting of shareholders, the shareholders present or represented by proxy may proceed with the business of the meeting. If a quorum is not present at the opening of any meeting of shareholders, the shareholders present or represented by proxy may adjourn the meeting to a fixed time and place but may not transact any other business. 10.12 RIGHT TO VOTE. Subject to the provisions of the Act as to authorized representatives of any other body corporate, at any meeting of shareholders in respect of which the Corporation has prepared the list referred to in section 10.06, every person who is named in such list shall be entitled to vote the shares shown thereon opposite his name except to the extent that such person has transferred any of his shares after the record date set pursuant to section 10.07 and the transferee, upon producing properly endorsed certificates evidencing such shares or otherwise establishing that he owns such shares, demands at any time before the meeting that his name be included to vote the transferred -20- shares at the meeting. In the absence of a list prepared as aforesaid in respect of a meeting of shareholders every person shall be entitled to vote at the meeting who at the time is entered in the securities register as the holder of one or more shares carrying the right to vote at such meeting. Each share of the Corporation entitles the holder of it to one vote at a meeting of shareholders. 10.13 PROXIES. Every shareholder entitled to vote at a meeting of shareholders may appoint a proxyholder, or one or more alternate proxy- holders, who need not be shareholders, to attend and act at the meeting in the manner and to the extent authorized and with the authority conferred by the proxy. A proxy shall be in writing executed by the shareholder or his attorney and shall conform with the requirements of the Act. 10.14 TIME FOR DEPOSIT OF PROXIES. The board may specify in a notice calling a meeting of shareholders a time, preceding the time of such meeting by not more than 48 hours exclusive of non-business days, before which time proxies to be used at such meeting must be deposited with the Corporation or its agent. A proxy shall be acted upon only if, prior to the time so specified, it shall have been deposited with the Corporation or an agent thereof specified in such notice or, if no such time is specified in such notice, unless it has been received by the secretary of the Corporation or by the chairman of the meeting or any adjournment thereof prior to the time of voting. 10.15 JOINT SHAREHOLDERS. Where two or more persons hold the same shares jointly, any one of such persons present or represented by proxy at a meeting of shareholders has the right in the absence of the other or others to vote in respect of such shares, but if more than one of such persons are present or represented by proxy, they shall vote as one on the shares held jointly by them. 10.16 VOTES TO GOVERN. Except as otherwise required by the Act, all questions proposed for the consideration of shareholders at a meeting of shareholders shall be determined by the majority of the votes cast and in the event of an equality of votes at any meeting of shareholders either upon a show of hands or upon a ballot there shall be no second or casting vote. 10.17 SHOW OF HANDS. Subject to the provisions of the Act, any question at a meeting of shareholders shall be decided by a show of hands unless a ballot thereon is required or demanded as hereinafter provided. Upon a show of hands every person who is present and entitled to vote shall have one vote. Whenever a vote by a show of hands shall have been taken upon a question, unless a ballot thereon is so required or demanded, a declaration by the chairman of the meeting that the vote upon the question has been carried or carried by a particular majority or not carried and an entry to that effect in the minutes of the meeting shall be prima facie evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against any resolution or other proceeding in respect of the said question, and the result of the -21- vote so taken shall be the decision of the shareholders upon the said question. 10.18 BALLOTS. On any question proposed for consideration at a meeting of shareholders, and whether or not a show of hands has been taken thereon, any shareholder or proxyholder entitled to vote at the meeting may require or demand a ballot. A ballot so required or demanded shall be taken in such manner as the chairman shall direct. A require- ment or demand for a ballot may be withdrawn at any time prior to the taking of the ballot. If a ballot is taken each person present shall be entitled, in respect of the shares which he is entitled to vote at the meeting upon the question, to that number of votes provided by the Act or the articles, and the result of the ballot so taken shall be the decision of the shareholders upon the said question. 10.19 ADJOURNMENT. The chairman at a meeting of the shareholders may, with the consent of the meeting and subject to such conditions as the meeting may decide, adjourn the meeting from time to time and from place to place. If a meeting of shareholders is adjourned for less than 30 days, it shall not be necessary to give notice of the adjourned meeting, other than by announcement at the earliest meeting that is adjourned. If a meeting of shareholders is adjourned by one or more adjournments for an aggregate of 30 days or more, notice of the adjourned meeting shall be given as for an original meeting. Unless the meeting is adjourned by one or more adjournments for an aggregate of more than 90 days the management of the Corporation need not concurrently with giving notice of a meeting of shareholders send a form of proxy in prescribed form to each shareholder who is entitled to receive notice of the meeting. 10.20 RESOLUTION IN LIEU OF MEETING. A resolution in writing signed by all the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if it had been passed at a meeting of the shareholders; and a resolution in writing dealing with all matters required to be dealt with at a meeting of shareholders, and signed by all the shareholders entitled to vote at such meetings, satisfies all the requirements of the Act relating to meetings of shareholders. A copy of every such resolution in writing shall be kept with the minutes of the meetings of shareholders. Any such resolution in writing is effective for all purposes at such time as the resolution states regardless of when the resolution is signed. 10.21 ONLY ONE SHAREHOLDER. Where the Corporation has only one shareholder or only one holder of any class or series of shares, the shareholder present in person or by proxy constitutes a meeting. SECTION ELEVEN NOTICES 11.01 METHOD OF GIVING NOTICES. Notice of the time and place of each meeting of the board shall be made pursuant to section 4.12. Notice -22- of the time and place of each meeting of shareholders shall be made pursuant to section 10.05. Any other notice, communication or document to be given, sent, delivered or served pursuant to the Act, the regulations thereunder, the articles, the by-laws or otherwise to a shareholder, director, officer, auditor or member of a committee of the board shall be sufficiently given if delivered personally to the person to whom it is to be given or if delivered to his recorded address or if mailed to him at his recorded address by prepaid ordinary or air mail or if sent to him at his recorded address by any means of prepaid transmitted or recorded communication. A notice so delivered shall be deemed to have been given when it is delivered personally or to the recorded address as aforesaid; a notice so mailed shall be deemed to have been given at the time it would be delivered in the ordinary course of mail unless there are reasonable grounds for believing that the person did not receive the notice or document at the time or at all; and a notice so sent by any means of transmitted or recorded communication shall be deemed to have been given when dispatched or delivered to the appropriate communication company or agency or its representative for dispatch. The secretary may change or cause to be changed the recorded address of any shareholder, director, officer, auditor or member of a committee of the board in accordance with any information believed by him to be reliable. 11.02 NOTICE TO JOINT SHAREHOLDERS. If two or more persons are registered as joint holders of any share, any notice shall be addressed to all of such joint holders but notice to one of such persons shall be sufficient notice to all of them. 11.03 COMPUTATION OF TIME. In computing the date when notice must be given under any provision requiring a specified number of days' notice of any meeting or other event, the date of giving of the notice shall be excluded and the date of the meeting or other event shall be included. 11.04 UNDELIVERED NOTICES. If any notice given to a shareholder pursuant to section 11.01 is returned on three consecutive occasions because he cannot be found, the Corporation shall not be required to give any further notices to such shareholder until he informs the Corporation in writing of his new address. 11.05 OMISSIONS AND ERRORS. The accidental omission to give any notice to any shareholder, director, officer, auditor or member of a committee of the board or the non-receipt of any notice by any such person or any error in any notice not affecting the substance thereof shall not invalidate any action taken at any meeting held pursuant to such notice or otherwise founded thereon. 11.06 PERSONS ENTITLED BY DEATH OR OPERATION OF LAW. Every person who, by operation of law, transfer, death of a shareholder or any other means whatsoever, shall become entitled to any share, shall be bound by every notice in respect of such share which shall have been duly given to the shareholder from whom he derives his title to such share prior to his name and address being entered on the securities register (whether such -23- notice was given before or after the happening of the event upon which he became so entitled) and prior to his furnishing to the Corporation the proof of authority or evidence of his entitlement prescribed by the Act. 11.07 WAIVER OF NOTICE. Any shareholder (or his duly appointed proxyholder), director, officer, auditor or member of a committee of the board may at any time waive any notice, or waive or abridge the time for any notice, required to be given to him under any provision of the Act, the regulations thereunder, the articles, by-laws or otherwise and such waiver or abridgement shall cure any default in the giving or in the time of such notice, as the case may be. Any such waiver or abridgement shall be in writing except a waiver of notice of a meeting of shareholders or of the board which may be given in any manner. Attendance of a director at a meeting of directors or of a shareholder or any other person entitled to attend a meeting of shareholders is a waiver of notice of the meeting except where such director, shareholder or other person, as the case may be, attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called. MADE by the board the 20th day of January, 1987 /s/ [ILLEGIBLE] ----------------------------------------- President /s/ [ILLEGIBLE] ----------------------------------------- Treasurer CONFIRMED by the shareholders in accordance with the Act the 20th day of January, 1987. /s/ [ILLEGIBLE] ----------------------------------------- President VENTURES GAINED INC. (the "Corporation") RESOLUTIONS IN WRITING, SIGNED BY THE DIRECTORS OF THE CORPORATION, PURSUANT TO SUBSECTION 112(1) OF THE BUSINESS CORPORATIONS ACT OF ALBERTA. BE IT RESOLVED THAT: (a) By-Law Number 1 be amended such that all references to "resident Albertan" be amended to be references to "resident Canadian". (b) By-Law Number 1 be amended by the deletion of clause 1.01(k) and the insertion of a new clause 1.01(k) as follows: "resident Canadian" means an individual who is i) a Canadian citizen ordinarily resident in Canada, ii) a Canadian citizen not ordinarily resident in Canada who is a member of a prescribed Class of persons, or iii) a permanent resident within the meaning of the Immigration Act, 1976 (Canada) and ordinarily resident in Canada, except a permanent resident who has been ordinarily resident in Canada for more than 1 year after the time at which he first became eligible to apply for Canadian citizenship; (c) Any one director or officer of the Corporation is hereby authorized and directed to do and perform all such acts and things to execute and deliver and to file or cause to be. executed, delivered or filed in the name and on behalf of the Corporation, under the corporate seal of the Corporation, or otherwise all such documents as may be required to give effect to the foregoing. BE IT FURTHER RESOLVED THAT: (d) The foregoing resolutions may be signed in counterparts, each of which so executed shall be deemed to be an original including each such copy signed and sent by facsimile transmission, and all such executed counterparts together shall constitute but one and the same instrument and notwithstanding the date of execution shall be deemed to bear date as at the 16th day of April, 1993. DATED this 16th day of April, 1993. /s/ Frank Roberts ---------------------------------------- FRANK ROBERTS ---------------------------------------- SUZANNE WOOD /s/ Mani Chopra ---------------------------------------- MANI CHOPRA VENTURES GAINED INC. (the "Corporation") RESOLUTIONS IN WRITING, SIGNED BY THE DIRECTORS OF THE CORPORATION, PURSUANT TO SUBSECTION 112(1) OF THE BUSINESS CORPORATIONS ACT OF ALBERTA. BE IT RESOLVED THAT: (a) By-Law Number 1 be amended such that all references to "resident Albertan" be amended to be references to "resident Canadian". (b) By-Law Number 1 be amended by the deletion of clause 1.01(k) and the insertion of a new clause 1.01(k) as follows: "resident Canadian" means an individual who is i) a Canadian citizen ordinarily resident in Canada, ii) a Canadian citizen not ordinarily resident in Canada who is a member of a prescribed Class of persons, or iii) a permanent resident within the meaning of the Immigration Act, 1976 (Canada) and ordinarily resident in Canada, except a permanent resident who has been ordinarily resident in Canada for more than 1 year after the time at which he first became eligible to apply for Canadian citizenship; (c) Any one director or officer of the Corporation is hereby authorized and directed to do and perform all such acts and things to execute and deliver and to file or cause to be executed, delivered or filed in the name and on behalf of the Corporation, under the corporate seal of the Corporation, or otherwise all such documents as may be required to give effect to the foregoing. BE IT FURTHER RESOLVED THAT: (d) The foregoing resolutions may be signed in counterparts, each of which so executed shall be deemed to be an original including each such copy signed and sent by facsimile transmission, and all such executed counterparts together shall constitute but one and the same instrument and notwithstanding the date of execution shall be deemed to bear date as at the 16th day of April, 1993. DATED this 16th day of April, 1993. /s/ Frank Roberts ---------------------------------------- FRANK ROBERTS /s/ Suzanne Wood ---------------------------------------- SUZANNE WOOD ---------------------------------------- MANI CHOPRA EX-4.1 6 EXHIBIT 4.1 SPECIMEN STOCK CERTIFICATE TOMAHAWK CORPORATION INCORPORATED UNDER THE BUSINESS CORPORATIONS ACT (ALBERTA) NUMBER SHARES C 01209 CUSIP 88978C 10 6 THIS CERTIFIES THAT is the registered holder of fully paid and non-assessable common shares without nominal or par value in the capital of TOMAHAWK CORPORATION Transferable on the books of the Corporation by the registered holder in person or by Attorney duly authorized in writing upon surrender of this certificate properly endorsed. This Certificate is not valid until countersigned and registered by the Registrar and Transfer Agent of the Corporation. IN WITNESS WHEREOF the Corporation has caused this certificate to be signed by the facsimile signatures of its duly authorized officers. Dated [ILLEGIBLE] Chief Executive Officer COUNTERSIGNED AND REGISTERED CIBC MELLON TRUST COMPANY CALGARY REGISTRAR AND TRANSFER AGENT [ILLEGIBLE] By_________________________ Secretary AUTHORIZED OFFICER THE SHARES REPRESENTED BY THIS CERTIFICATE ARE TRANSFERABLE AT THE OFFICE OF CIBC MELLON TRUST COMPANY IN CALGARY, ALBERTA EX-8.1 7 EXHIBIT 81 [LETTERHEAD OF ERNST & YOUNG LLP] June 4, 1999 Mickey Lorber TomaHawk Corporation 8315 Century Park Court Suite 200 San Diego, CA 92123 Dear Mr. Lorber: You have requested our opinion as to certain U.S. and Canadian federal income tax consequences relating to the proposed domestication (the "Domestication") of TomaHawk Corporation ("Old TomaHawk," the "Alberta Company," or the "Company"), a Canadian corporation, into a Delaware corporation ("New TomaHawk" or the "Delaware Company") as described in the Registration Statement on Form S-4 (the "Registration Statement") filed on or about July 8, 1999. You have also requested our opinion as to certain U.S. and Canadian federal income tax consequences relating to the one-for-fifteen share consolidation of the Common Stock of the Company, along with a change in the authorized capital of the Company (together referred to as the "Share Consolidation"), as described in the TomaHawk Corporation Notice of an Annual and Special Meeting of Common Shareholders dated August 21, 1998 (the "Meeting Notice"). To the extent any opinions contained herein relate to Canadian federal income tax consequences, those opinions are presented based upon the views and in reliance upon the Ernst & Young International member firm in Canada ("E&Y Canada"). In rendering these opinions, Ernst & Young LLP ("E&Y US") and E&Y Canada have relied upon the following documents (together referred to as the "Documents"): 1. The Statement of Facts and Representations, dated May 7, 1999 provided by the management of the Company to E&Y US; 2. The Statement of Facts and Representations dated May 6, 1999 provided by the management of the Company to E&Y Canada; 3. The Registration Statement; and 4. The Meeting Notice. You have advised E&Y US and E&Y Canada that the Documents provide a complete and accurate description of all relevant facts and circumstances surrounding the Domestication and the Share Consolidation. Neither E&Y US nor E&Y Canada has made any independent verification with respect to any of the facts and representations set forth in the Documents and, therefore, have relied upon the completeness, truth and accuracy of the Documents for purposes of rendering these opinions. Any omissions from or modifications to the Documents may affect the conclusions stated herein, perhaps in an adverse manner. SUMMARY OF FACTS PROVIDED BY THE COMPANY I. CORPORATE AND CAPITAL STRUCTURE The Company is incorporated under the laws of Alberta, Canada. On November 17, 1992, the Company formed TomaHawk Imaging and Financial Inc. ("TIFI"), a Canadian corporation. In 1993, TIFI acquired 100 percent of the outstanding stock of TomaHawk II, Inc. ("TII"), an Illinois corporation. Since its acquisition, the stock of TII was the only significant asset of TIFI. Effective February 19, 1999, TIFI was amalgamated with and into the Company (the "Amalgamation"), leaving the Company as the sole shareholder of TII. Currently, the Company is a holding company and its only asset is the stock of TII. TII is an engineering and manufacturing services firm providing document imaging, engineering, and manufacturing solutions to commercial and government customers. TII's current services include: - scanning and conversion of technical documents in large and small formats to computer intelligent or computer-aided-design ("CAD") formats; - reverse engineering of parts and components that do not have plans, drawings or models to allow for creation of CAD format document; - three dimensional design and analysis; - tool design; - numerical control programming for the automated manufacture of parts and components; and - precision machining and inspection of parts and components. These services address significant needs of both large and small organizations in various industries, including defense, aerospace, automotive, engineering, architecture, telecommunications, and utilities. As of the date of this letter, the authorized stock of the Company consists of the following: an unlimited number of shares of Common Stock (the "Common Stock") without par value; an unlimited number of shares of nonvoting Class B Common Stock (the "Class B Common Stock") without par value; an unlimited number of shares of Preferred Stock (the "Preferred Stock") without par value; 100,000 shares of 6% non-cumulative, redeemable, retractable, nominal par value Series A Preferred Stock (the 2 "Series A Preferred Stock"); an unlimited number of shares of Class A Series I Preferred Stock (the "Class A Series I Preferred Stock"); an unlimited number of shares of Class A Series II Preferred Stock (the "Class A Series II Preferred Stock"); and an unlimited number of shares of Class A Series III Preferred Stock (the "Class A Series III Preferred Stock"). Currently, the Company has approximately 84,744,165 shares of Common Stock issued and outstanding. The Common Stock is quoted on the Alberta Stock Exchange under the trading symbol "TKC." The holders of the Common Stock are entitled to, among other things: - one vote per share on all matters submitted to a shareholder vote; - receive a pro rata share of any dividends declared by the Board of Directors out of funds legally available therefor (subject to preferences that may be applicable to outstanding preferred shares, if any); and - if the Company is liquidated, dissolved or wound-up, receive a pro rata share of all assets remaining after the Company pays its liabilities and the liquidation preference, if any, of any outstanding preferred shares. The holders of Common Stock have no preemptive rights and no rights to convert their Common Stock into any other securities. Moreover, there are no redemption or sinking fund provisions with respect to such shares. All of the outstanding Common Stock are fully paid and non-assessable. The rights, preferences and privileges of holders of Common Stock are subject to, and may be affected adversely by, the rights of the holders of shares of the Class A Series III Preferred Stock and any series of preferred stock which the Company may designate and issue in the future. Currently, the Company has 750,000 shares of Class A Series III Preferred Stock issued and outstanding. The Class A Series III Preferred Stock is not publicly traded. Holders of the Class A Series III Preferred Stock are entitled to a pro rata share of any dividend declared by the Board of Directors, so long as such dividend is paid out of funds legally available for paying dividends. If the Company liquidates, dissolves, sells all of its assets, or distributes any of its capital, before anything is distributed to the holders of the Common Stock, holders of the Class A Series III Preferred Stock are entitled to receive $0.001 for each share of Class A Series III Preferred Stock held, and a pro rata portion of any unpaid dividends that have accrued with respect to each share. For each Cdn. $2.50 of cumulative cash flow, a share of Class A Series III Preferred Stock is convertible into ten shares of Common Stock. The Company's articles of incorporation also permit it to apply to the Alberta Stock Exchange to amend the terms of the conversion rights, and to cancel the Class A Series III Preferred Stock if they are not eligible for conversion by December 31, 1999. If TII becomes insolvent or files, or has filed against it, a petition in bankruptcy, or ceases to carry on its business, the Class A Series III Preferred Stock must be surrendered for cancellation. 3 As of April 30, 1999, warrants to purchase a total of 167,502 shares of Common Stock at an exercise price of $0.32 per share were outstanding. These warrants expired on May 5, 1999. In addition, as of December 31, 1998, options to purchase a total of 7,475,970 shares of Common Stock were issued and outstanding. Options owned by Management are as follows: Steven M. Caira owns options to acquire 2,500,000 shares; Michael Lorber owns options to acquire 500,000 shares; Phillip Card owns options to acquire 700,000 shares; and John Peace owns options to acquire 710,250 shares. These options were granted under the Company's stock option plan. All of the above options are exercisable at prices ranging from Cdn $0.17 to Cdn $0.23 per share and expire on various dates through November 17, 2003. As of December 31, 1998, the following individuals/entities owned 5% or more of Company's outstanding Common Stock: Norman F. Siegel owned 21.5%(1); Steven M. Caira owned 11.7%(2); Sprint Enterprise Limited owned 8.2%(3); and Elliott Broidy owned 5.3%(4). The remainder of the outstanding Common Stock is publicly-held. The Company has no other classes of common stock currently outstanding. As of December 31, 1998, the 5% shareholders of the Class A Series III Preferred Stock were as follows: David Smoot owned 45%; 434556 B.C. Ltd owned 45%; Audisc foundation owned 5%; and 436949 B.C. Ltd owned 5% The Company has no other classes of preferred stock currently outstanding. In addition to the Domestication (discussed below), the shareholders of the Company are being asked to approve a change in the capital structure of the Company. If approved, the authorized capital structure of the Company would change from the structure described above to: - 20,000,000 shares of Common Stock, U.S.$.001 par value per share ("New Common Stock"); - 750,000 shares of Class A Preferred Stock, U.S.$.001 par value per share ("Class A Preferred Stock"); and - 750,000 shares of Preferred Stock, U.S.$.001 par value per share ("Preferred Stock"). The change in capital structure would occur in conjunction with a one-for-fifteen share consolidation of the Common Stock of the Company described below under "The Share Consolidation." The only difference between the Common Stock and Class A Series III - ----------- (1) Includes 1,474,565 shares issuable under stock options exercisable within 60 days of April 30, 1999. (2) Includes 2,525,000 shares issuable under stock options exercisable within 60 days of April 30, 1999, including 25,000 shares issuable under stock otpions owned by Renee Caira, Mr. Caira's spouse. (3) Includes 912,328 shares issuable under stock options exercisable within 60 days of April 30, 1999. (4) Includes 225,000 shares issuable under stock options exercisable within 60 days of April 30, 1999. 4 referred stock that is currently outstanding and the New Common Stock and Class A Preferred Stock that will be issued pursuant to the Share Consolidation, will be that the New Common Stock and Class A Preferred Stock will have a stated par value. II. THE AMALGAMATION TIFI was incorporated in Alberta, Canada on November 17, 1992. Effective March 8, 1993, TIFI acquired all of the issued and outstanding shares of TII, an Illinois company incorporated on February 3, 1993. Effective February 19, 1999, the Company and TIFI combined into one corporation through an amalgamation pursuant to the Alberta Act (the "Amalgamation"). The combined entity retained the name TomaHawk Corporation. The Company does not carry on any business other than holding the shares of TII. III. THE SHARE CONSOLIDATION In order to simplify the capital structure of the Company through a reduction of the number of outstanding shares, as well as enhance the per share value of the Common Stock, the Company proposes to consummate a Share Consolidation. If the shareholders approve the Domestication (discussed below), then, prior to completing the Domestication, the Company will effect a one-for-fifteen share consolidation of the Common Stock of the Company along with the change in authorized capital described above (together referred to as the "Share Consolidation"). This Share Consolidation was authorized by the shareholders on September 22, 1998. In the Share Consolidation, the holders of the Common Stock will exchange 15 shares of Common Stock for 1 share of New Common Stock. Additionally, the conversion ratio of the Class A Series III Preferred Stock will change from 10 shares of Common Stock for each share of Preferred Stock to 0.667 shares of Common Stock for each share of Preferred Stock. No fractional shares will be issued in the Share Consolidation. Instead, any fractional shares remaining after aggregating all fractional shares held by a shareholder will be rounded up to the nearest whole share. Accordingly, upon consummation of the Share Consolidation, the Company will have 5,649,611 shares of New Common Stock, and 750,000 shares of Class A Preferred Stock outstanding. The rights of the holders of the New Common Stock after the Share Consolidation will be the same, in all material respects, to the rights of the holders of the Common Stock prior to the Share Consolidation. Similarly, the rights of the holders of the Class A Preferred Stock after the Share Consolidation will be the same, in all material respects, to the rights of the holders of the Class A Series III Preferred Stock prior to the Share Consolidation. Following the Share Consolidation, the only class of preferred stock that will be outstanding will be the Class A Preferred Stock. 5 In addition to the share exchanges described above, the terms of the outstanding warrants or options will be modified to reflect the one-for-fifteen Share Consolidation. No other modifications will be made to the options or warrants. In conjunction with the Share Consolidation, the Company will change its name to TomaHawk International Inc. IV. THE DOMESTICATION The Board of Directors of the Company believes that the reincorporation of the Company in the State of Delaware is in the best interests of the Company as the focus of its operations and business is in the United States. There is no business reason for its incorporation in Canada. The Company has no facilities or operations in Canada, and most of its shareholders and customers are in the United States. Furthermore, reincorporation will simplify the corporate structure of the Company and reduce its Canadian corporate tax and reporting obligations. In order to effectuate the Domestication, the Company will: 1. Hold an Extraordinary General Meeting of its shareholders to vote on the Domestication. Approval of the Domestication requires the affirmative vote of the holders of 66 2/3% of the Common Stock of the Company represented and voting at the meeting; and 2. File Articles of Domestication with the Secretary of the State of Delaware. The Domestication will be completed upon the approval of the Secretary of the State of Delaware. V. THE MERGER The Board of Directors of the Company believes that it is in the best interests of the Company and its shareholders to merge New TomaHawk with TII. Accordingly, following the Domestication, the Company intends to merge with and into TII, with TII surviving (the "Merger"). STEPS OF PROPOSED TRANSACTION For the reasons discussed above, the Company proposes the following transaction: 1. As a preliminary step to the proposed Domestication of the Company, the Company will consummate a one-for-fifteen Share Consolidation. Each shareholder owning Common Stock will exchange 15 shares of Common Stock for one share of New 6 Common Stock. Additionally, the conversion ratio of the Class A Series III Preferred Stock will change from 10 shares of Common Stock for each share of Preferred Stock to 0.667 shares of Common Stock for each share of Preferred Stock. In connection with the Share Consolidation, the Company will amend its articles of incorporation to amend its authorized shares as described above. 2. The Company will consummate the Domestication by filing Articles of Domestication with the Secretary of State of Delaware. Pursuant to Alberta law, Dissenters will receive cash in exchange for their stock in the Company. 3. The Company will reincorporate TII from Illinois to Delaware (the "TII Reincorporation"). 4. Following the Domestication and the reincorporation of TII to Delaware, the Company will merge with and into TII, with TII surviving. SUMMARY OF REPRESENTATIONS MADE BY THE COMPANY I. THE SHARE CONSOLIDATION A. U.S. FEDERAL INCOME TAX REPRESENTATIONS The following summarizes the representations that have been made by the Company to E&Y US in connection with the Share Consolidation as stated in the "Statement of Facts and Representations" dated May 7, 1999 attached hereto: 1. The fair market value of the New Common Stock or Class A Preferred Stock to be received by each exchanging shareholder will be approximately equal to the fair market value of the Common Stock or Class A Series III Preferred Stock surrendered in exchange therefor. 2. The Company will pay its expenses incurred in connection with the Share Consolidation and each shareholder will pay his or her expenses incurred in connection with the Share Consolidation. 3. The Company has no plan or intention to redeem or otherwise acquire any of the stock to be issued in the Share Consolidation. 4. Following the Share Consolidation, the Company will continue to conduct the same business that it conducted prior to the Share Consolidation. 5. The Share Consolidation is a single, isolated transaction and is not part of a plan to periodically increase the proportionate interest of any shareholder in the assets or earnings and profits of the Company. 7 6. The Company is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of I.R.C. Section 368(a)(3)(A). B. CANADIAN FEDERAL INCOME TAX REPRESENTATIONS The following summarizes the representations that have been made by the Company to E&Y Canada in connection with the Share Consolidation as stated in the "Statement of Facts and Representations" dated May 6, 1999 attached hereto: 1. The Old TomaHawk shares will be consolidated ("Consolidation") before the Domestication at a ratio of between 1:10 and 1:15. All shares of Old TomaHawk will be replaced by the reduced number of shares of the same class of stock of Old TomaHawk in the same proportions for all shareholders. No other consideration will be received by the shareholders on the Consolidation. There will be no changes in the total capital represented by the issue or in the interest, rights or privileges of the shareholders and there will not be any concurrent changes in the capital structure of New TomaHawk or the rights and privileges of other shareholders. II. THE DOMESTICATION A. U.S. FEDERAL INCOME TAX REPRESENTATIONS The following summarizes the representations that have been made by the Company to E&Y US in connection with the Domestication as stated in the "Statement of Facts and Representations" dated May 7, 1999 attached hereto: 1. The fair market value of the New TomaHawk Common Stock or Class A Preferred Stock received by each shareholder will be approximately equal to the fair market value of the Old TomaHawk New Common Stock or Class A Preferred Stock surrendered in exchange therefor. 2. Immediately following consummation of the transaction, the shareholders of the Company will own all of the outstanding shares of New TomaHawk Common Stock and Class A Preferred Stock and will own such stock solely by reason of their ownership of Old TomaHawk stock immediately prior to the transaction. 3. Immediately following consummation of the transaction, the Company will possess the same assets and liabilities, except for dividends paid in the normal course of business, assets used to pay dissenters to the transaction, and assets used to pay expenses incurred in connection with the transaction, as those possessed by the Company immediately prior to the transaction. 4. New TomaHawk has no plan or intention to reacquire any of its stock issued in the transaction. 8 5. New TomaHawk has no plan or intention to sell or otherwise dispose of any of the assets of Old TomaHawk acquired in the transaction, except for dispositions made in the ordinary course of business. 6. The liabilities of Old TomaHawk assumed by New TomaHawk plus the liabilities, if any, to which the transferred assets are subject were incurred by Old TomaHawk in the ordinary course of its business and are associated with the assets transferred. 7. Following the transaction, New TomaHawk will continue the historic business of Old TomaHawk or use a significant portion of historic business assets of Old TomaHawk in a business. 8. The shareholders will pay their respective expenses, if any, incurred in connection with the transaction. 9. Prior to and in connection with the Domestication, neither Old TomaHawk nor a related person (as defined in Treas. Reg. Section 1.368-1(e)(3) determined without regard to Treas. Reg. Section 1.368-1(e)(3)(i)(A)) redeemed or otherwise acquired any Old TomaHawk stock, or made an extraordinary distribution with respect to the stock of Old TomaHawk. 10. Neither New TomaHawk nor a related person (as defined in Treas. Reg. Section 1. 368-1(e)(3)) has any plan or intention, in connection with the Domestication, to redeem or otherwise acquire stock of New TomaHawk deemed issued in the Domestication. 11. No two parties to the Domestication are investment companies as defined in I.R.C. Section 368(a)(2)(F)(iii) and (iv). B. CANADIAN FEDERAL INCOME TAX REPRESENTATIONS The following summarizes the representations that have been made by the Company to E&Y Canada in connection with the Domestication as stated in the "Statement of Facts and Representations" dated May 6, 1999 attached hereto: 1. Old TomaHawk is a Canadian corporation incorporated in Canada and listed on the Alberta Stock Exchange. 2. TomaHawk Imaging and Financial Inc. ("TIFI") has been amalgamated with and into Old TomaHawk. 3. Old TomaHawk's assets consist of its investment in TII, other than an immaterial cash balance. 4. All cash and non-cash transfers from Old TomaHawk directly to TII or indirectly to TIFI, prior to TIFI's amalgamation into Old TomaHawk, and from TIFI to TII are, and 9 have been, additional paid-in capital contributions, which directly or indirectly increase Old TomaHawk's investment basis in TII. 5. As of March 28, 1999, Old TomaHawk's and TIFI's total additional paid in capital to TII, since TII's inception, is approximately $9,064,000. 6. Since TII's inception, it has not paid any dividends to Old TomaHawk or TIFI, nor has TII advanced any material cash and non-cash property to, nor has TII received any advances of cash or non-cash property from Old TomaHawk or TIFI. 7. Old TomaHawk's management and control is in the United States and will continue to be in the United States after the Domestication. 8. TII is a U.S. Corporation, incorporated under the laws of Illinois. 9. Old TomaHawk will be continued or domesticated into Delaware by Articles of Continuance. 10. Old TomaHawk's shareholders will continue to hold shares of Old TomaHawk after the continuance unless they dissent until such shares are converted to shares of New TomaHawk. Dissenting shareholders will be entitled to have their shares purchased by Old TomaHawk prior to continuance. 11. The current fair market value of the stock of TII is estimated between $8,000,000 and $10,000,000 as of February 28, 1999. 12. New TomaHawk and TII (the "Predecessor Corporations") will be resident corporations in the Unites States prior to the proposed merger. 13. The merged corporations ("Amalco") will be resident in the United States after the proposed merger. 14. Substantially all or all the assets and liabilities of the Predecessor Corporations immediately before the merger becomes assets and liabilities of Amalco by virtue of the merger. 15. Substantially all or all of the shares of the capital stock of the Predecessor Corporations (except any shares or options owned by any Predecessor Corporation) are exchanged for or become by virtue of the merger (i) shares of the capital stock of Amalco, or (ii) if, immediately after the merger, Amalco is controlled by another foreign corporation resident in the U.S., shares of the capital stock of that foreign parent corporation. 10 DISCUSSION OF AUTHORITIES I. U.S. FEDERAL INCOME TAX CONSEQUENCES A. THE SHARE CONSOLIDATION 1. REQUIREMENTS OF I.R.C. Section 368(a)(1)(E) Generally, a transaction that affects the capital structure of a single corporation pursuant to a plan of reorganization is a recapitalization within the meaning of I.R.C. Section 368(a)(1)(E). As illustrated in Treas. Reg. Section 1.368-2(e), a recapitalization includes the issuance by a corporation of preferred stock in satisfaction of outstanding bonds; or the issuance by a corporation of common stock in exchange for all or part of the corporation's outstanding preferred stock. Moreover, because a recapitalization involves only a single corporation, neither the continuity of business enterprise nor the continuity of shareholder interest requirements of Treas. Reg. Section 1.368 -1(b) and Treas. Reg. Section 1.368-1T apply(5). 2. SECTION 1032 Generally, a corporation will recognize no gain or loss upon the receipt of money or other property in exchange for stock (including treasury stock) of such corporation. I.R.C. Section 1032. Moreover, Treas. Reg. Section 1.1032-1(b) provides that I.R.C. Section 1032(a) applies to the acquisition by a corporation of shares of its own stock where the corporation acquires such shares in exchange for shares of its own stock. 3. SECTIONS 354 AND 351(G) Generally, a shareholder will recognize no gain or loss upon an exchange of stock or securities in a corporation for a different class of stock or securities of the same corporation, if such exchange occurs in connection with a recapitalization. I.R.C. Section 354(a)(1). An exception to this general rule applies when a shareholder receives "nonqualified preferred stock" (as defined in I.R.C. Section 351(g)(2)) in exchange for stock other than nonqualified preferred stock. I.R.C. Section 354(a)(2)(C). In such case, the nonqualified preferred stock is taxable to the recipient shareholder. "Nonqualified preferred stock" is defined as stock that is limited and preferred as to dividends and that does not participate in corporate growth to any significant extent, and is either (i) puttable by the holder, (ii) mandatorily redeemable by the issuer or a related person; (iii) callable by the issuer or a related person, and, as of the issue date, it is more - -------------- (5) Rev. Rul. 77-415, 1977-2 CB 311 (continuity of interest requirement not applicable for qualification as a Type E reorganization); Rev. Rul. 82-34, 1982-1 CB 59 (continuity of business enterprise requirement not applicable for qualification as a Type E reorganization). 11 likely than not that such right will be exercised; or (iv) has a dividend rate that varies in whole or in part (directly or indirectly) by reference to interest rates, commodity prices, or other similar indices. I.R.C. Sections 351(g)(3)(A) and 351(g)(2)(A). Generally, stock that is subject to a call or put right or obligation is nonqualified preferred only if the right or obligation may be exercised within the 20 year period beginning on the issue date of such stock and such right or obligation is not subject to a contingency which, as of the issue date, makes remote the likelihood of the redemption or purchase. I.R.C. Section 351(g)(2)(B). 4. SECTION 305 Section 305(a) provides generally that gross income does not include the amount of any distribution of the stock of a corporation made by such corporation to its shareholders with respect to its stock. I.R.C. Sections 305(b) and (c) provide exceptions to the general rule of I.R.C. Section 305(a). In particular, I.R.C. Section 305(c) provides that certain transactions, including a recapitalization, will be treated as a taxable distribution with respect to any shareholder whose proportionate interest in the earnings and profits or the assets of the corporation is increased by such transaction. Treas. Reg. Section 1.305-7(c) provides that a recapitalization (whether or not an isolated transaction) will be deemed to result in a distribution to which I.R.C. Section 305(c) applies if (i) it is pursuant to a plan to periodically increase a shareholder's proportionate interest in the assets or the earnings and profits of the corporation, or (ii) a shareholder owning preferred stock with dividends in arrears exchanges his stock for other stock and, as a result, increases his proportionate interest in the assets or the earnings and profits of the corporation. An increase in a preferred shareholder's proportionate interest occurs in any case where the fair market value or the liquidation preference, whichever is greater, of the stock received in the exchange (determined immediately following the recapitalization), exceeds the issue price of the preferred stock surrendered. In addition, it is possible that a transaction structured as a recapitalization exchange may be recharacterized as a distribution subject to I.R.C. Section 305. SEE BAZLEY V. COMMISSIONER, 331 U.S. 737 (1947), 1947-2 C.B. 79 (holding that an exchange of old stock for new stock and debentures lacked a bona fide business purpose, and, instead, constituted a distribution of debentures taxable as a dividend).(6) However, where a transaction that effects a reshuffling of a corporation's capital structure has a bona fide business purpose, is an isolated transaction and is not pursuant to a plan to increase periodically the proportionate interest of any shareholder in the earnings and profits of the corporation, it will be respected as a recapitalization exchange. SEE Rev. Rul. 86-25, 1986-1 C.B. 202 (distinguishing BAZLEY and concluding that an exchange of outstanding common stock for either (i) shares of new voting common and new nonvoting common, or (ii) shares of new voting common and new nonvoting preferred constitutes a Type E recapitalization, if the exchange is pursuant to a bona fide business purpose, is an isolated transaction, and is not pursuant to a plan to increase periodically the proportionate interest of any shareholder). - ------------- (6) The taxpayer had argued that the share exchange constituted a Type E recapitalization, and that the receipt of the debentures was a tax-free receipt of securities in connection with the recapitalization. The court disregarded the share exchange, reasoning that it had no economic substance. 12 5. SECTION 306 I.R.C. Section 306 generally provides that if a shareholder disposes of "section 306 stock," the amount realized on such disposition shall be ordinary income. I.R.C. Section 306(c)(1)(B) defines "section 306 stock" as stock (other than common stock) which: (i) was received, by the shareholder selling or otherwise disposing of such stock, in pursuance of a plan of reorganization (within the meaning of I.R.C. Section 368(a)), or in a distribution or exchange to which I.R.C. Section 355 (or so much of I.R.C. Section 356 as relates to I.R.C. Section 355) applied, and (ii) with respect to the receipt of which gain or loss to the shareholder was to any extent not recognized by reason of part III, but only to the extent that either the effect of the transaction was substantially the same as the receipt of a stock dividend, or the stock was received in exchange for "section 306 stock." Treas. Reg. Section 1.306-3(d) provides that for purposes of I.R.C. Section 306(c)(1)(B), stock will be "section 306 stock" if cash received in lieu of such stock would have been treated as a dividend under I.R.C Section 356(a)(2) or would have been treated as a distribution to which I.R.C. Section 301 applies by virtue of I.R.C. Section 356(b) or I.R.C. Section 302(d).(7) As described above, the shareholders of the Company will exchange 15 shares of outstanding Common Stock for 1 share of New Common Stock, and one share of Class A Series III Preferred Stock for one share of Class A Preferred Stock in accordance with the corporate business purposes described above. The terms of the New Common Stock and the Class A Preferred Stock will not be substantially different from the terms of the Common Stock and the Class A Series III Preferred Stock exchanged, respectively. As described above, the Class A Preferred Stock will not be subject to a call or put right or obligation. In addition, the Class A Series III Preferred Stock does not have any dividends in arrears. Therefore, the Class A Series III Preferred Stock and the Class A Preferred Stock should not be considered "nonqualified preferred stock" under I.R.C. Section 351(g). Alternatively, if the Class A Series III Preferred Stock and the Class A Preferred Stock are considered "nonqualified preferred stock" under I.R.C. Section 351(g), the exchange of "nonqualified preferred stock" for "nonqualified preferred stock" will be tax-free under I.R.C. Section 354(a)(2)(C)(i). As a result, the exchange will constitute a recapitalization within the meaning of I.R.C. Section 368(a)(1)(E), and will be tax-free to the Company and the exchanging shareholders under I.R.C. Section 1032 and I.R.C. Section 354(a)(1), respectively. - ------------ (7) Treas. Reg. Section 1.306-3(d) EXAMPLE (2) illustrates the application of Section 306 to a recapitalization transaction. Shareholders X and Y each own one-half of the outstanding common and preferred stock of Corporation C. Pursuant to a recapitalization transaction, each shareholder exchanges his preferred stock for preferred stock of a new issue which is not substantially different from the preferred stock previously held. The example concludes that unless the preferred stock exchanged was itself Section 306 stock, the preferred stock received is not Section 306 stock. 13 B. THE DOMESTICATION 1. REQUIREMENTS OF I.R.C. Section 368(a)(1)(F) A transaction that constitutes a mere change in identity, form, or place of organization of one corporation, however effected, generally constitutes a reorganization within the meaning of I.R.C. Section 368(a)(1)(F).(8) For a transaction to qualify as a Type F reorganization, there can be no change in the existing shareholders or assets of the corporation.(9) In addition, the transaction must satisfy the continuity of business enterprise requirement and be accomplished pursuant to a plan of reorganization. When a transaction qualifies as a Type F reorganization, the part of the taxable year before the reorganization and the part of the taxable year following the reorganization constitute a single taxable year of the corporation, notwithstanding that the reorganization may qualify under another provision of I.R.C. Section 368(a)(1).(10) The Internal Revenue Service (the Service) has determined that the domestication of a foreign corporation can constitute a Type F reorganization. In Rev. Rul. 88-25, 1988-1 C.B. 116, corporation X was incorporated in Country Y. For valid business reasons, the shareholders of X decided that it would be advantageous for X to become a State A corporation. Accordingly, pursuant to State A corporate law, X filed a certificate of domestication and a certificate of incorporation in State A. Upon filing the certificate of domestication and the certificate of incorporation, X was considered by State A to be incorporated in State A and became subject to State A law. The ruling states that for federal income tax purposes, the conversion of X from a Country Y to a State A corporation under the State A domestication statute is treated as a transfer by X of all of its assets and liabilities to a new domestic corporation, DX in exchange for DX stock; and a liquidating distribution by X to its shareholders of the DX stock received in exchange for X's assets and liabilities. Because there was no alteration in shareholder or asset - -------------------------- (8) The requirement that only one corporation may undergo a Type F reorganization was added to the Code in 1982. However, notwithstanding its literal parameters, more than one corporate entity can be involved in a Type F reorganization provided that only one of the corporations is an operating company. SEE H.R. Rep. No. 760, 97th Cong., 2d Sess. 541 (1982), 1982-2 CB 600, 634-635. (9) HELVERING V. SOUTHWEST CONSOLIDATED CORPORATION, 315 U.S. 194 (1942) (a "transaction which shifts the ownership of the proprietary interest in a corporation is hardly `a mere change in identity, form, or place of organization . . .'"); Rev. Rul. 57-276, 1957-1 CB 126; Rev. Rul. 58-422, 1958-2 CB 145; Rev. Rul. 66-284, 1966-2 CB 115 (receipt of cash by dissenting shareholders does not disqualify transaction as a Type F reorganization where dissenting shareholders own less than 1 percent of the outstanding stock of the corporation. This is considered a DE MINIMIS change in the corporation's shareholders.); Rev. Rul. 96-29, 1996-1 CB 50 (redemption of shareholders and a public offering both occurred pursuant to the same plan as a change in the state of incorporation; although the IRS did not expressly rule that complete identity of shareholders was no longer a requirement, complete identity of shareholders was lacking, and the redemption, if treated as part of the Type F reorganization, would not have been of such a significant amount that continuity of interest would have been lacking). (10) Rev. Rul. 57-276; Section 381(b). 14 continuity, or business enterprise, the effect of the conversion was a mere change in the place of organization of X within the meaning of I.R.C. Section 368(a)(1)(F).(11) In connection with the Domestication, shareholders of Old TomaHawk who dissent to the transaction will be entitled to receive cash in exchange for their Old TomaHawk stock. In the event that there are dissenters, their redemption will not prevent the identity of shareholder and asset requirements of a Type F reorganization from being satisfied. Courts have characterized transactions as Type F reorganizations, even when accompanied by a redemption, reasoning that the redemption was functionally unrelated to the reorganization.(12) 2. REQUIREMENTS OF I.R.C. Section 367(b) The Service has held that a domestication of a foreign corporation pursuant to a domestication state statute will qualify as an I.R.C. Section 368(a)(1)(F) reorganization. Rev. Rul. 87-27, 1987-1 CB 134; Rev. Rul. 88-25, 1988-1 CB 116. Generally in a reorganization under I.R.C. Section 368(a)(1)(F), I.R.C. Section 354 provides the shareholders of the transferor corporation with tax-free treatment. However, I.R.C. Section 367(b) overrides this tax-free treatment in certain cases when a U.S. shareholder exchanges shares of a foreign corporation in an exchange described in I.R.C. Section 354 and pursuant to an I.R.C. Section 368(a)(1)(F) reorganization. Treas. Regs. Section 1.367(b)-7(a)(1)(i) & (ii). For purposes of I.R.C. Section 367(b), an I.R.C. Section 368(a)(1)(F) reorganization is treated as: (1) a transfer of assets by the foreign transferor corporation to the acquiring corporation in exchange for stock of the acquiring corporation and the assumption by the acquiring corporation of the transferor's liabilities, followed by (2) a distribution of the stock of the acquiring corporation by the transferor corporation to the shareholders of the transferor corporation, and concluding with - ---------------- (11) SEE ALSO Rev. Rul. 87-27, 1987-1 CB 134 (reincorporation of U.S. corporation as a U.K. corporation constitutes a Type F reorganization); Rev. Rul. 87-66, 1987-2 CB 168 (reincorporation of foreign corporation as U.S. corporation constituted both a Type D and a Type F reorganization). (12) SEE REEF CORPORATION V. COMMISSIONER, 368 F.2d 125 (5th Cir. 1966), CERT. DENIED, 386 U.S. 1018 (1967) (holding that a transaction qualified as a Type F reorganization even though the stock of a 48% shareholder group was redeemed as part of the transaction. The court reasoned that the redemption was functionally unrelated to the reorganization transaction and, as a result, there was an identity of shareholders in the reorganized corporation.); AETNA CASUALTY AND SURETY CO. V. UNITED STATES, 568 F.2d 811 (2d Cir. 1976) (holding that a transaction involving a squeeze out of a 38.9% minority interest in a triangular merger resulted in a Type F reorganization. The court viewed the transaction as two separate steps: a Type F reorganization and a redemption). SEE ALSO CASCO PRODUCTS CORP. V. COMMISSIONER, 49 T.C. 32 (1967) (involving the merger of a corporation with a newco, incorporated in the same state and a squeeze out of a 9% minority interest. Allowing a net operating loss carryback, the court specifically refused to determine whether the transaction qualified as a Type F reorganization, and instead held that the transaction was simply a redemption of the 9% minority interest). 15 (3) an exchange by the transferor corporation's shareholders of the stock of the transferor corporation for stock of the acquiring corporation under I.R.C. Section 354. Treas. Reg. Section 1.367(b)-1(f). It is irrelevant that the applicable domestic or foreign law treats the acquiring corporation as a continuance of the transferor corporation. Thus, an I.R.C. Section 368(a)(1)(F) reorganization will be considered a transfer subject to I.R.C. Section 367(b). I.R.C. Section 367(b) recharacterizes an I.R.C. Section 368(a)(1)(F) reorganization as a taxable transaction for certain U.S. shareholders of foreign corporations in otherwise tax-free transfers between domestic and foreign corporations. Under Temp. Reg. Section 7.367(b)-7(c)(2)(i), an exchanging U.S. shareholder must include in gross income the "all earnings and profits amount" of the acquired foreign corporation if: (1) the assets of the acquired foreign corporation are acquired by a domestic corporation pursuant to a reorganization described in I.R.C. Section 368(a)(1)(F); (2) the exchanging U.S. shareholder is a domestic corporation; and (3) such domestic corporation receives stock of a domestic corporation in exchange for its stock in the acquired foreign corporation.. If the shareholder fails to include this amount in income, the shareholder must recognize gain on the transaction. Temp. Reg. Section 7.367(b)-7(c)(2)(ii). The "all earnings and profits amount" is the net positive earnings and profits for all taxable years which are attributable to periods in which the U.S. shareholder held such stock under the principles of I.R.C. Section 1248. Treas. Reg. Section 1.367(b)-2(f). Temp. Reg. Section 7.367(b)-7(c)(1) provides that if an exchanging U.S. Shareholder, other than a domestic corporation, receives stock of a domestic corporation, the exchanging U.S. Shareholder must include in gross income the "Section 1248 amount" attributable to the stock exchanged, to the extent that the fair market value of the stock exchanged exceeds its adjusted basis. For this purpose, a U.S. Shareholder is any U.S. person who owns at least 10 percent, directly or indirectly, of the vote of a controlled foreign corporation at any time during the 5 year period ending on the date of the sale or exchange. (In this opinion, we refer to those U.S. shareholders that meet the 10 percent ownership definition by capitalizing the word "shareholders," viz. "U.S. Shareholders.") A controlled foreign corporation is any foreign corporation, if more than 50 percent of its total combined voting power of all classes of stock of such corporation entitled to vote, or the total value of the stock of such corporation, are owned by U.S. shareholders on any day during the taxable year. I.R.C Section 957(a). Only U.S. shareholders owning 10 percent or more of the combined voting power of such corporation are counted for this determination. I.R.C Section 951(b). The "Section 1248 amount" is the foreign corporation's net positive earnings and profits accumulated after December 31, 1962 which are attributable to the period during which the U.S. Shareholder held such stock and while such corporation was a controlled foreign corporation. Treas. Reg. Section 1.367(b)-2(d). 16 Therefore, Temp. Reg. Section 7.367(b)-7(c) will only apply if the acquired foreign corporation was a controlled foreign corporation at any time during the five year period ending on the date of exchange. If Proposed Regulation Section 1.367(b)-3(b) is finalized at least 30 days before the reorganization, the treatment in the preceding paragraph may be revised to require U.S. Shareholders to include the "all earnings and profits amount" (as defined above) of the foreign corporation as a deemed dividend. This may be required even though the foreign corporation was not a controlled foreign corporation at any time. As an alternative, the U.S. Shareholder may elect to recognize gain realized on the exchange of its acquired foreign corporation stock as if it sold the stock for fair market value. Prop. Reg. Section 1.367-3(b)(2)(iii). Lastly, the Proposed Regulations, once finalized and effective, would require a U.S person owning less than 10 percent of acquired foreign corporation to recognize gain realized on the exchange. Prop. Reg. Section 1.367(b)-3(c). In any case, because I.R.C. Section 367(b) applies to the reorganization, all U.S. shareholders who realize gain or other income from the exchange, whether or not recognized for U.S. tax purposes, must comply with notice requirements under Treas. Reg. Section 1.367(b)-1(c). Failure to comply with the notice requirements can result in the Service imposing a gain on an otherwise non-taxable transaction. Generally, if a foreign corporation is the transferor corporation in an I.R.C. Section 368(a)(1)(F) reorganization in which the acquiring corporation is a domestic corporation, then the taxable year of the transferor corporation ends with the close of the date of the transfer, and the taxable year of the acquiring corporation ends with the close of the date on which the transferor's taxable year would have ended but for the I.R.C. Section 368(a)(1)(F) reorganization. Treas. Reg. Section 7.367(b)-1(e). 3. DISSENTERS According to the Registration Statement, a registered shareholder is entitled under Alberta law, in addition to any other right he may have, to dissent (a "Dissenting Shareholder") and to be paid by the Company the fair value of the shares of Common Stock hold by him in respect of which he dissents, determined as of the close of business on the last business day before the day on which the resolution from which he dissents was adopted. A "redemption" occurs when a corporation acquires its stock from a shareholder in exchange for property, whether or not the stock so acquired is canceled, retired, or held as treasury stock. I.R.C. Section 317(b). For this purpose, "property" means money, securities, and any other property, except stock in the corporation making the distribution. I.R.C. Section 317(a). 17 If a corporation redeems its stock, such redemption may be treated either as a sale or exchange in part or full payment in exchange for the stock, or as a distribution under I.R.C. Section 301. I.R.C. Sections 302(a) & (d). When a redemption is accorded sale or exchange treatment, the shareholder recognizes gain or loss on the transaction equal to the fair market value of the property received in the redemption less the shareholder's tax basis in the stock redeemed. I.R.C. Section 1001. If the redemption fails to qualify for sale or exchange treatment under I.R.C. Section 302, the distribution will be treated as an I.R.C. Section 301 distribution. I.R.C. Section 302(d). An I.R.C. Section 301 distribution will be treated as follows: 1. a dividend to the extent of the Company's current and accumulated earnings and profits; 2. a return of basis to the extent the distribution exceeds the Company's current and accumulated earnings and profits; 3. capital gain to the extent the distribution exceeds the Company's current and accumulated earnings and profits and the shareholder's basis in his Company stock. I.R.C. Sections 301(c) & 316(a). Consistent with Rev. Rul. 88-25, the Domestication of the Company as a Delaware corporation will constitute a reorganization within the meaning of I.R.C. Section 368(a)(1)(F). According to the Documents, New TomaHawk will continue to hold and use Old TomaHawk's historic assets. In addition, except for dissenters, there should be an identity of shareholders from Old TomaHawk to New TomaHawk. The fact that the Share Consolidation will occur as a preliminary step to the Domestication will not prevent the Domestication from qualifying under Section 368(a)(1)(F). C. STEP TRANSACTION DOCTRINE The step transaction doctrine is a judicially created concept with pervasive applicability in the tax law. Generally, the step transaction doctrine permits a series of formally separate steps to be combined and treated as a single transaction if the facts and circumstances indicate that the steps are "integrated, interdependent, and focused toward a particular result." SEE GENERALLY PENROD V. COMMISSIONER, 88 T.C. 1415 (1987). For most purposes of the Code, a reorganization of a corporation under I.R.C. Section 368(a)(1)(F) is treated as if there had been no change in the corporation and, thus, as if the reorganized corporation is the same entity as the corporation that was in existence prior to the reorganization. Consistent with this, the Service has taken the position in several revenue rulings that for purposes of determining whether a transaction qualifies as 18 a Type F reorganization, it is analyzed and treated as a separate transaction, even if it is part of a larger transaction.(13) For example, in Rev. Rul. 69-516, 1969-2 C.B. 56, the Service treated as two separate transactions, a reorganization under I.R.C. Section 368(a)(1)(F) and a reorganization under I.R.C. Section 368(a)(1)(C) undertaken as part of the same plan. In that ruling, a corporation changed its place of organization by merging into a corporation formed under the laws of another state and, immediately thereafter, it transferred substantially all of its assets in exchange for stock of an unrelated corporation. The ruling holds that the change in place of organization qualified as a reorganization under I.R.C. Section 368(a)(1)(F). The Service took a similar approach in Rev. Rul. 96-29, SUPRA, in analyzing two situations. In Situation 1, the Service determined that the reincorporation of a corporation in another state qualified as a Type F reorganization, even though it was a step in a transaction in which the corporation issued common stock in a public offering and then redeemed stock having a value of 40 percent of the aggregate value of its outstanding stock prior to the offering. In Situation 2, a corporation acquired the assets of another corporation by way of merger. The acquiring corporation then reincorporated in another state. The Service concluded that the reincorporation qualified as a Type F reorganization, even though it was a step in a larger acquisitive transaction.(14) As illustrated above, the Service has taken the position that if a Type F reorganization is part of a larger transaction, it will be analyzed separately from the other steps to determine whether it meets the statutory requirements. Accordingly, the fact that the Company will merge with and into TII following the Domestication transaction will not preclude the Domestication transaction from qualifying as a Type F reorganization. The Merger transaction will be analyzed as a separate and independent step from the Domestication. II. CANADIAN FEDERAL INCOME TAX CONSEQUENCES All Statutory references to the Canadian Federal INCOME TAX ACT ("Tax Act"). A. SHARE CONSOLIDATION Where, in the course of a reorganization of the capital of a corporation, a shareholder disposes of capital property that was all the shares of any particular class of the capital stock of the corporation ("Old Shares") owned by the shareholder at the time of disposition, and the consideration received from the corporation consists solely of one other class of shares of the capital stock of the corporation ("New Shares"), the tax consequences to the shareholder are as follows: - ------------- (13) SEE ALSO REEF CORPORATION V. COMMISSIONER, AETNA CASUALTY AND SURETY COMPANY V. COMMISSIONER, and CASCO PRODUCTS CORPORATION V. COMMISSIONER, SUPRA. (14) SEE ALSO Rev. Rul. 79-250, 1979-2 CB 156 (modified by Rev. Rul. 96-29). 19 1. The adjusted cost base to the shareholder of the New Shares is deemed to be equal to the adjusted cost base of the Old Shares; 2. The shareholder is deemed to dispose of the Old Shares for proceeds of disposition equal to the adjusted cost base to the shareholder of the of New Shares; and 3. The paid up capital of the New Shares will equal the paid up capital of the Old Shares. Therefore, there should be no immediate tax consequences as a result of the share exchange (section 86). B. THE DOMESTICATION 1. RESIDENTS OF CANADA This discussion generally addresses certain Canadian federal income tax consequences of a continuance ("Continuance") of a Canadian resident corporation into the United States for shareholders resident in Canada, who hold shares of a company as "capital property," and who deal at arm's length with the company all within the meaning of section 251 of the Tax Act. Generally, shares will be considered "capital property" unless the holder is a trader or dealer in securities (subsections 39(4) and (5) of the Tax Act), has acquired the shares as an adventure in the nature of trade (definition of "business" in subsection 248(1) of the Tax Act), or holds the shares otherwise than for investment purposes. A. NON-DISSENTING SHAREHOLDERS There is no specific provision in the Tax Act which deems a shareholder of a Canadian corporation to have disposed of his/her shares as a result of the Canadian corporation being granted Articles of Continuance under the laws of a foreign jurisdiction. Generally, a continuance will not result in adverse consequences to the shareholders.(15) On a Continuance, the shares will constitute "foreign property" for purposes of deferred income plans such as registered retirement savings plans (definition of "foreign property" in subsection 206(1) of the Tax Act and definition of "Canadian corporation" in subsection 89(1) of the Tax Act). A deferred income plan may not hold more than 20% of its investments (based on original cost provided this is the method followed by the plan) in foreign property without incurring tax penalties (sections 205 to 207 of the Tax Act). Shareholders resident in Canada who receive dividends after a Continuance will be subject to U.S. withholding tax. Pursuant to Article X 2(b) of the Canada -United States Tax Convention, 1980 (the "Treaty") the applicable withholding tax rate would be 15% of the amount of the dividend for dividends paid to individuals or corporate shareholders owning less than 10% of the company's outstanding voting shares. For corporate - ------------------ (15) Income Tax Rulings TR-1, June 24, 1974 and TR-49, March 7, 1977 provide support for the proposition that a continuance from one jurisdiction to another does not result in a disposition of the shares of the continuing corporation by its shareholders. 20 shareholders owning more than 10% of the company's outstanding voting shares, the dividend withholding rate under Article X 2(a) of the Treaty is 5%. A Canadian shareholder must include in income for Canadian tax purposes 100% of the Canadian dollar equivalent of the amount of the dividend (paragraph 12(1)(k) and section 90 of the Tax Act). Such dividend would not be eligible for the dividend tax credit (section 121 of the Tax Act). Depending on the shareholder's particular circumstances, such withholding tax may or may not qualify for a credit against Canadian federal income tax or a deduction against taxable income (section 126 and subsections 20(11) and 20(12)of the Tax Act). Subsection 95(1) defines the term "foreign affiliate" of a taxpayer resident in Canada for the purposes of the rules in the Tax Act which deals with the taxation of shareholders of non-resident corporations. A corporation not resident in Canada will be considered to be a foreign affiliate of a shareholder where the shareholder has an equity percentage in that corporation that is not less than 1% and the total of the equity percentages of the taxpayer and persons related to the taxpayer in that corporation is not less than 10%. For purposes of the10% equity test, the equity percentages are to be determined without reference to the equity percentages of any person related to the shareholder. A corporation resident in Canada, owning shares of a non-resident corporation that is a foreign affiliate is entitled to certain rollover privileges on a merger, reorganization or dissolution of the affiliate and to certain deductions in respect of dividends received from it. The deduction for dividends is provided in section 113 and the regulations thereunder and is dependent on the source from which the dividends are paid. A corporation may also elect under section 93 of the Tax Act following the disposition of shares of a foreign affiliate, to treat a portion of the proceeds as a dividend and not proceeds of disposition in certain circumstances. b. DISSENTING SHAREHOLDERS In circumstances where dissenting shareholders are entitled to require a company to purchase for cash ("Cash Proceeds") all of their shares at fair market value if such company proceeds with a Continuance, the following generally describes certain Canadian federal income tax consequences thereof. The shareholders will be deemed to have received a dividend equal to the excess, if any, of the Cash Proceeds over the paid up capital of their shares (subsection 84(3) of the Tax Act). An individual shareholder must include in income 125% of the actual amount of the dividend (paragraph 12(1)(k) and subsection 82(1) of the Tax Act) and is entitled to claim a dividend tax credit equal to 13.33% of the grossed up amount in calculating his/her Canadian federal income tax liability (section 121 of the Tax Act). A shareholder that is a private corporation resident in Canada and which owns not more than 10% of the shares of a corporation, which shares represent not more than 10% of the voting shares and not more than 10% of the fair market value of all shares will be subject to a refundable tax of 33-1/2% under Part IV of the Tax Act. The Part IV tax is refundable to the corporation at the rate of $1 for every $3 of dividends paid. 21 Any other corporation will not be subject to tax on the dividend unless the dividend is re-characterized as proceeds of disposition. Specifically the Tax Act contains an anti-avoidance provision which would treat the dividend as proceeds of disposition for purposes of calculating any capital gain, where one of the results of the dividend was to effect a significant reduction in the capital gain that would have been realized had the shares been disposed of at fair market value (subsection 55(2) of the Tax Act). In addition to the dividend, all shareholders will be considered to have disposed of their shares for an amount ("Proceeds") equal to the paid-up capital of his/her shares (definition of "disposition" and definition of "proceeds of disposition" in section 54 of the Tax Act). To the extent that the Proceeds exceed the shareholder's adjusted cost base of his/her shares, a capital gain will arise (sections 39 and 40 of the Tax Act), three-quarters of which (paragraph 38(a) of the Tax Act) will be included in income for Canadian federal income tax purposes in the year of the dissent. To the extent that the Proceeds are less than a shareholder's adjusted cost base of his/her shares, a capital loss will arise (sections 39 and 40 of the Tax Act), three-quarters of which can be used to reduce current year capital gains to nil (paragraph 3(b) of the Tax Act). If the capital loss exceeds current year capital gains, any excess can be carried back three years or forward indefinitely to offset capital gains in those periods (paragraph 111(1)(b) of the Tax Act). If the adjusted cost base of the shareholder's shares is equal to the paid up capital of his/her shares, no capital gain or loss will arise. 2. SHAREHOLDERS NOT RESIDENT IN CANADA The following summary is generally applicable on a Continuance to shareholders who are not resident in Canada, who do not use or hold or are not deemed to use or hold their shares in carrying on a business in Canada, including a life insurance business, who deal at arm's length with the Company and who hold their shares as "capital property" (as defined above). a. NON-DISSENTING SHAREHOLDERS A non-dissenting non-resident shareholder will continue to hold his/her shares upon a Continuance. Since a Continuance is not considered to be a disposition of shares (as discussed above), no capital gain or loss should arise as a result of a Continuance. Following a Continuance, a shareholder will continue to have an adjusted cost base of his/her shares equal to the adjusted cost base immediately prior to a Continuance. Dividends received by a shareholder after a Continuance will not be subject to tax in Canada. b. DISSENTING SHAREHOLDERS In circumstances where a dissenting shareholder is entitled to require a company to purchase all of his/her shares at fair market value if the company proceeds with a Continuance, the following generally describes certain Canadian income tax consequences thereof. The shareholder, individual or corporation, will generally be 22 considered to have received a dividend equal to the excess of the Cash Proceeds (defined above) over the paid up capital of his/her shares (subsection 84(3) of the Tax Act). The dividend will be subject to Canadian withholding tax of 25% of the amount of the dividend (subsection 212(1) of the Tax Act) or such lower rate as provided under the terms of an applicable double taxation treaty. Pursuant to Article X:2(b) of the Treaty, the withholding tax rate is 15% of the amount of the dividend for dividends paid to individuals or corporate shareholders owning less than 10% of the company's outstanding voting shares. For corporate shareholders owning more than 10% of the company's outstanding voting shares, the dividend withholding rate under Article X:2(a) of the Treaty is 5% of the amount of the dividend. Shareholders also will be considered to have disposed of their shares for proceeds equal to the paid-up capital of the shares (definition of "disposition" and "proceeds of disposition" in section 54 of the Tax Act). Such shareholders will be subject to Canadian taxation in respect of capital gains on shares only if such shares constitute "taxable Canadian property" to them. The shares generally will not constitute "taxable Canadian property" of a shareholder unless at any time within the five years preceding the disposition of the shares, the shareholder, together with persons not dealing at arm's length with the shareholder, or any combination thereof, owned and/or had options to acquire: (a) 25% or more of the issued shares of any class of series of capital stock of the company, (b) the shareholder, upon ceasing to be a resident of Canada, elected under the Tax Act to have the shares treated as "taxable Canadian property", or (c) the shares were acquired in circumstances in which they were deemed to be taxable Canadian property (definition of "taxable Canadian property" in subsection 115(1) of the Tax Act). 3. CANADIAN FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY A company will be deemed to have a year end immediately prior to a Continuance and will be deemed to have disposed of each of its assets for proceeds equal to fair market value and to have immediately reacquired such assets at a cost equal to fair market value (subsections 250(5.1) and 128.1(4) of the Tax Act and Article IV:3 of the Treaty). The deemed disposition may give rise to income or loss, or capital gains or capital losses to the extent that the fair market value of the assets differs from their cost or adjusted cost base. Such income or loss, capital gain or capital loss will be included in computing such company's taxable income for the fiscal period ending immediately prior to a Continuance. To the extent that such amounts exceed available deductions, such amounts will be subject to Canadian federal income tax at an effective rate of 39%. In addition, a 25% Exit Tax will apply to the amount by which the aggregate fair market value of a company's assets immediately prior to a Continuance exceeds the aggregate of its liabilities (including liability for Canadian federal income tax for the final taxation year) and its paid-up capital of all of its issued and outstanding shares excluding the paid-up capital in respect of all dissenting shareholders whose shares have been redeemed. The general rate of tax of 25% will be reduced to 5% pursuant to section 219.3 of the Tax Act and Article X:2 of the Treaty. The Exit Tax is payable by such company. 23 Upon a Continuance a company is deemed for Canadian federal income tax purposes to have been incorporated in the jurisdiction it is continued into and not to have been incorporated elsewhere (Article IX:3 of the Treaty) and should generally only be subject to tax in Canada in respect of business income attributable to a permanent establishment in Canada, gains realized on disposition of taxable Canadian property and withholding tax in respect of Canadian source passive income such as dividends and interest (subsection 2(3) and Part XIII of the Tax Act). OPINIONS I. THE SHARE CONSOLIDATION A. U.S. FEDERAL INCOME TAX CONSEQUENCES Based on the Documents, the applicable law, and any caveats or qualifications as stated herein, for U.S. federal income tax purposes: 1. The Share Consolidation, as described above, will constitute a recapitalization and, therefore, a reorganization within the meaning of I.R.C. Section 368(a)(1)(E). The Company will be `a party to a reorganization' within the meaning of I.R.C. Section 368(b). 2. No gain or loss will be recognized by the Company on the receipt of the Common Stock and Class A Series III Preferred Stock solely in exchange for the New Common Stock and Class A Preferred Stock as described above. I.R.C. Section 1032(a). 3. No gain or loss will be recognized to the exchanging shareholders upon the exchange of their Common Stock for New Common Stock or Class A Series III Preferred Stock for Class A Preferred Stock, as described above. I.R.C. Section 354(a)(1). 4. The basis of the New Common Stock or Class A Preferred Stock received by the exchanging shareholders will be equal to the basis of the shares surrendered in exchange therefor. I.R.C. Section 358(a)(1). Such basis must be allocated pro rata among the shares of New Common Stock or Class A Preferred Stock received in the Share Consolidation. 5. The holding period of the New Common Stock or Class A Preferred Stock received by the exchanging shareholders will include the period during which the Common Stock or Class A Series III Preferred Stock surrendered in exchange therefor was held, provided that the Common Stock or Class A Series III Preferred Stock is held as a capital asset on the date of the exchange. I.R.C. Section 1223(1). Such holding period must be allocated pro rata among each share of New Common Stock or Class A Preferred Stock received in the Share Consolidation. B. CANADIAN FEDERAL INCOME TAX CONSEQUENCES 24 Based on the Documents, the facts summarized above, and the applicable law, as well as any caveats or qualifications as stated herein, for Canadian federal income tax purposes: 1. The Share Consolidation will result in a disposition of the Common Stock for proceeds equal to their adjusted cost base for Canadian federal income tax purposes, consequently no capital gain or loss will arise as a result of the Share Consolidation. 2. The adjusted cost base and paid-up capital of the New Common Stock received by the shareholder on the Share Consolidation will be the adjusted cost base and paid-up capital of the pre-consolidated Common Stock divided by the new number of new Common Stock held by a shareholder. II. THE DOMESTICATION A. U.S. FEDERAL INCOME TAX CONSEQUENCES Based on the Documents, the facts summarized above, and the applicable law, as well as any caveats or qualifications as stated herein, for U.S. Federal income tax purposes: 1. The Domestication, as described above, will be treated for U.S. federal income tax purposes as a transfer by the Alberta Company of all of its assets and liabilities to the Delaware Company in exchange for stock of the Delaware Company, followed by a liquidating distribution by the Alberta Company to its shareholders of the Delaware Company stock received in exchange for the Alberta Company's assets and liabilities. Rev. Rul. 88-25, 1988-1 C.B. 116. 2. The Domestication, as described in (1) above, will constitute a reorganization under I.R.C. Section 368(a)(1)(F). The Company will be `a party to a reorganization' within the meaning of I.R.C. Section 368(b). 3. No gain or loss will be recognized by the Alberta Company on the deemed transfer of its assets to the Delaware Company solely in exchange for stock of the Delaware Company and the assumption by the Delaware Company of the liabilities of the Alberta Company. I.R.C. Sections 361(a) and 357(a). 4. No gain or loss will be recognized by the Delaware Company upon the deemed receipt of assets of the Alberta Company in exchange for stock of the Delaware Company. I.R.C. Section 1032(a). 5. The basis of the assets of the Alberta Company in the hands of the Delaware Company will be the same as the basis of such assets in the hands of the Alberta Company immediately prior to the exchange. I.R.C. Section 362(b). 25 6. The holding period of the assets of the Alberta Company acquired by the Delaware Company will include the period during which those assets were held by the Alberta Company immediately prior to the exchange. I.R.C. Section 1223(2). 7. No gain or loss will be recognized by the non-U.S. shareholders of the Alberta Company who do not exercise dissenters' rights upon the deemed receipt of stock of the Delaware Company solely in exchange for their Alberta Company stock. I.R.C. Section 354(a)(1). No gain or loss will be recognized by U.S. shareholders of the Alberta Company who do not exercise dissenters' rights upon the deemed receipt of stock of the Delaware Company solely in exchange for their Alberta Company stock assuming: (1) the Alberta Company has not been a controlled foreign corporation (as described above) at any time during the five years ending on the date of the exchange; and (2) Proposed Regulation Section 1.367(b)-3(b) is not effective as of the date of the Domestication. E&Y US has not made, and will not make, any determination as to whether the Alberta Company is, or has ever been, a controlled foreign corporation. In addition, in order to protect the presumed non-taxable nature of the transaction, U.S. shareholders are required to comply with notice requirements under Treas. Reg. Section 1.367(b)-1(c). The form of notice is prescribed at Treas. Reg. Section 7.367(b)-1(c)(2). 8. A non U.S. shareholder who does not exercise dissenters' rights will have a basis in the Delaware Company Common Stock and Class A Preferred Stock after the Domestication equal to such shareholder's basis in his/her Alberta Company New Common Stock and Class A Preferred Stock prior to the Domestication. I.R.C. Section 358(a)(1). A U.S. shareholder who does not exercise dissenters' rights will have a basis in the Delaware Company Common Stock and Class A Preferred Stock after the Domestication equal to such U.S. shareholder's basis in his/her Alberta Company New Common Stock and Class A Preferred Stock prior to the Domestication, increased by any income (deemed dividends) or gain recognized by the U.S. shareholder on the exchange. I.R.C. Section 358(a)(1)(B). 9. A shareholder who does not exercise dissenters' rights will have a holding period for the Delaware Company Common Stock and Class A Preferred Stock after the Domestication equal to such shareholder's holding period of the Alberta Company New Common Stock and Class A Preferred Stock prior to the Domestication. I.R.C. Section 1223(1). 10. Cash received as a result of the exercise of dissenters' rights by a shareholder who dissents from the Domestication ("Dissenting Holder") and who is subject to U.S. federal income tax will be treated as cash received in redemption of the Dissenting Holder's shares of the Company's stock. As a result, such Dissenting Holder may have to recognize capital gain/loss or ordinary income as a result of the Domestication. Each Dissenting Holder should consult with his/her own tax advisor as to the specific tax consequences of the Domestication to him/her. 26 11. The taxable year of the Alberta Company will end on the date of the Domestication. The Delaware Company's first taxable year will begin on the day after the Domestication, and will end on December 31, 1999. Treas. Reg. Section 7.367(b)-1(e). The opinion set forth above does not address certain U.S. federal income tax consequences applicable to U.S. shareholders of the Company who own or owned (directly or indirectly) 10% or more of the voting power of the Company at any time during the five year period ending on the date of the Domestication. B. CANADIAN FEDERAL INCOME TAX CONSEQUENCES Based on the Documents, the facts summarized above, and the applicable law, as well as any caveats or qualifications as stated herein, for Canadian federal income tax purposes: 1. Generally non-dissenting shareholders will not be considered to have disposed of their shares of the Alberta Company upon the Domestication. 2. Non-dissenting shareholders will continue to have an adjusted cost base of their Delaware Company shares equal to the adjusted cost base of their Alberta Company shares immediately prior to the Domestication. 3. On the Domestication, the Delaware Company shares will constitute "foreign property" for purposes of deferred income plans. A deferred income plan may not hold more than 20% of its investments (based on original cost) if that is the method adopted by the plan in foreign property without incurring tax penalties. Those non-dissenting Canadian resident shareholders holding their Alberta Company shares in a deferred income plan are advised to carefully review their foreign property limits. 4. Non-dissenting Canadian resident shareholders must include in income for Canadian tax purposes 100% of the Canadian dollar equivalent of the amount of dividends received from the Delaware Company after the Domestication. Such dividend would be subject to U.S. withholding tax. Depending on the shareholder's particular circumstances, such withholding tax may or may not qualify for a credit against Canadian federal income tax or a deduction against Canadian income tax or a deduction against Canadian taxable income. 5. Dividends received by a Non-dissenting Non-resident shareholder after the Domestication will not be subject to Canadian federal income tax. 6. Dissenting shareholders generally will be considered to have received a dividend ("Dividend") on the purchase of their shares by the Alberta Company equal to the excess, if any, of the Cash Proceeds over the paid up capital of their shares. 7. Dissenting Canadian resident individual shareholders are required to include in income 125% of the actual amount of the Dividend and are entitled to claim a 27 dividend tax credit equal to 13.33% of the grossed up amount in calculating Canadian federal income tax payable. 8. Dissenting Canadian resident corporate shareholders would not be subject to tax on the Dividend (unless the Dividend is re-characterized as proceeds of disposition) under Part I of the Tax Act. A private company holding not more than 10% of the voting shares will be subject to a refundable tax of 33-1/3% under Part IV of the Tax Act. The Part IV tax is refundable at the rate of $1 for every $3 of dividends paid. 9. Dissenting shareholders also will be considered to have disposed of their Alberta Company shares for Proceeds equal to the paid-up capital of their Alberta Company shares on the purchase of their shares by the Alberta Company. 10. To the extent that the Proceeds exceed a dissenting Canadian resident shareholder's adjusted cost base of his/her shares, a capital gain will arise, three-quarters of which will be included in income for Canadian federal income tax purposes in the year of the dissent. To the extent that the Proceeds are less than a shareholder's adjusted cost base of his/her shares, a capital loss will arise, three-quarters of which can be used to reduce current year capital gains to nil. If the capital loss exceeds current year capital gains, any excess can be carried back three years or forward indefinitely to offset capital gains in those periods. If the adjusted cost base of the shareholder's shares is equal to the paid up capital of his/her shares, no capital gain or loss will arise. 11. Dissenting Non-resident shareholders generally will be subject to Canadian withholding tax of 25% of the amount of the Dividend or such lower rate as provided under the terms of an applicable double taxation treaty. Depending on a Dissenting Non-resident shareholder's particular circumstances, such withholding tax may or may not qualify for a credit against income tax or a deduction against taxable income in his/her jurisdiction of taxation. 12. Dissenting non-resident shareholders will be subject to Canadian taxation in respect of capital gains on their Alberta Company shares only if such shares constitute "taxable Canadian property" to them. The Common Shares generally will not constitute "taxable Canadian property" of a shareholder unless at any time within the five years preceding the disposition of the shares, the shareholder, together with persons not dealing at arm's length with the shareholder, or any combination thereof, owned and/or had options to acquire: (a) 25% or more of the issued shares of any class of series of capital stock of the company, (b) the shareholder, upon ceasing to be a resident of Canada, elected under the Tax Act to have the shares treated as "taxable Canadian property," or (c) the Common Shares were acquired in circumstances in which they were deemed to be taxable Canadian property (definition of "taxable Canadian property" in subsection 115(1) of the Tax Act). 13. The Alberta Company will be deemed to have a year end immediately prior to the Domestication and will be deemed to have disposed of all of its assets for proceeds 28 equal to fair market value and to have immediately reacquired such assets at a cost equal to fair market value on the effective date of the Domestication. To the extent that the deemed proceeds exceed the cost or adjusted cost base of the Alberta Company's assets on that date, the Alberta Company may be subject to tax in Canada for the fiscal period ending immediately prior to the Domestication. To the extent that such amounts exceed available deductions, such amounts will be subject to Canadian federal income tax at an effective rate of 39%. 14. A 25% Exit Tax will apply to the amount by which the aggregate fair market value of the Alberta Company's assets immediately prior to the Domestication exceeds the aggregate of its liabilities (including liability for Canadian federal income tax under Part I of the Tax Act for the final taxation year) and its paid-up capital of all of its issued and outstanding shares excluding the paid-up capital in respect of all dissenting shareholders whose shares have been redeemed. The general rate of tax of 25% will be reduced to 5% pursuant to the U.S. Treaty. The Exit Tax is payable by the Company. 15. Upon the Domestication, the Company is deemed for Canadian federal income tax purposes to have been incorporated in Delaware and not to have been incorporated elsewhere and should generally only be subject to tax in Canada in respect of business income attributable to a permanent establishment in Canada, gains realized on disposition of taxable Canadian property and withholding tax in respect of Canadian source passive income such as dividends and interest. SCOPE OF OPINIONS I. U.S. FEDERAL INCOME TAX OPINIONS The scope of the U.S. federal income tax opinions is expressly limited solely to the U.S. federal income tax consequences set forth in the section above entitled "Opinions." No opinion has been requested, and no determination has been made, nor has any opinion been expressed on any other issues including, but not limited to, any state, foreign, consolidated return, employee benefit, alternative minimum tax, or I.R.C. Section 306 or Section 382 consequences to the parties to this transaction. In addition, no opinion has been expressed regarding (i) the valuation of any assets or stock of the Company; (ii) the status of the Company as a controlled foreign corporation; (iii) the status of the Company as a Passive Foreign Investment Corporation ("PFIC"); (iv) the U.S. federal income tax consequences of the Amalgamation; (v) the U.S. federal income tax consequences of the TII Reincorporation; (vi) the U.S. federal income tax consequences of the Merger, except to the extent the Merger could affect the Domestication by reason of the step-transaction doctrine; or (vii) the U.S. federal income tax consequences of the exchange or conversion of any options, warrants or similar interests. The opinions, as stated above, are based upon an analysis of the Internal Revenue Code, Treasury Regulations, current case law, and published IRS authorities. The foregoing are 29 subject to change, and such change may be retroactively effective. If so, the opinions, as set forth above, may be affected and may not be relied upon. In addition, the above opinions are based on the information contained in the Documents. Any variation or differences in the Documents may affect the opinions, perhaps in an adverse manner. No obligation has been undertaken to update these opinions for changes in facts or law occurring subsequent to the date hereof. This letter sets forth opinions as to the interpretation of existing U.S. federal income tax law, and is not binding on the IRS or any court of law. II. CANADIAN FEDERAL INCOME TAX OPINIONS The scope of the Canadian federal income tax opinions is expressly limited solely to the Canadian federal income tax consequences set forth in the section above entitled "Opinions." No opinion has been requested, and no determination has been made, nor has any opinion been expressed, on any other issues including, but not limited to, any provincial, foreign, consolidated return, employee benefit, or alternative minimum tax consequences to the parties to this transaction. In addition, no opinion has been expressed regarding (i) the valuation of any assets or stock of the Company; (ii) the Canadian federal income tax consequences of the Amalgamation; (iii) the Canadian federal income tax consequences of the TII Reincorporation; (iv) the Canadian federal income tax consequences of the Merger; or (v) the Canadian federal income tax consequences of the exchange or conversion of any options, warrants or similar interests. The opinions, as stated above, are based upon an analysis of the Income Tax Act (Canada), as amended to date, the Income Tax Regulations, draft legislation released prior to the date hereof amending the Act and Regulations, case law, the Canada - U.S. Tax Convention as amended to date, and E&Y Canada's understanding of the current administrative practices and policies of the Department of National Revenue, Customs, Excise and Taxation. The foregoing are subject to change, and such change may be retroactively effective. If so, the opinions, as set forth above, may be affected and may not be relied upon. In addition, the opinions are based on the information contained in the Documents. Any variation or differences in the Documents may affect the opinions, perhaps in an adverse manner. No obligation has been undertaken to update these opinions for changes in facts or law occurring subsequent to the date hereof. This letter sets forth, opinions as to the interpretation of existing Canadian federal income tax law, and is not binding on Revenue Canada or any court of law. Very truly yours, /s/ Ernst & Young LLP cc: Michael E. Bertolino, Ernst & Young LLP Senior Tax Manager, San Diego Brian B. Gibney, Ernst & Young LLP Tax Partner, Washington National 30 Kirsten Simpson, Ernst & Young LLP Senior Tax Manager, Washington National Amy F. Eisenberg, Ernst & Young LLP Tax Manager, Century City David H. Hemmerling, Ernst & Young LLP Tax Partner (International), Irvine Deanne Parker, Ernst & Young LLP Tax Manager (International), Irvine David Van Dyke, E&Y Canada Tax Partner, Calgary Ron Sirkis, E&Y Canada Tax Partner, Calgary, Cindy Rajan, E&Y Canada Tax Manager, Calgary 31 EX-10.1 8 EXHIBIT 10.1 Exhibit 10.1 TOMAHAWK CORPORATION STOCK OPTION PLAN 1. PURPOSE The purpose of the Stock Option Plan (the "Plan") of TomaHawk Corporation, a body corporate incorporated under the BUSINESS CORPORATIONS ACT (Alberta) (the "Corporation"), is to advance the interests of the Corporation or any of its subsidiaries or affiliates by encouraging the directors, officers, employees (all references herein to employees shall mean both full-time and part-time employees) and consultants of the Corporation or any of its subsidiaries or affiliates to acquire shares in the Corporation, thereby increasing their proprietary interest in the Corporation, encouraging them to remain associated with the Corporation or any of its subsidiaries or affiliates and furnishing them with additional incentive in their efforts on behalf of the Corporation or any of its subsidiaries or affiliates in the conduct of their affairs. 2. ADMINISTRATION AND GRANTING OF OPTIONS The Plan shall be administered by the Board of Directors of the Corporation, or if appointed, by a special committee of directors appointed from time to time by the Board of Directors of the Corporation (such committee, or if no such committee is appointed, the Board of Directors of the Corporation is hereinafter referred to as the "Committee") pursuant to rules of procedure fixed by the Board of Directors. The Committee may from time to time designate directors, officers, employees and consultants of the Corporation or any of its subsidiaries or affiliates (the "Participants") to whom options to purchase common shares of the Corporation may be granted and the number of common shares to be optioned to each, provided that the total number of common shares to be optioned shall not exceed the number provided in clauses 3 and 4 hereof. 3. SHARES SUBJECT TO PLAN Subject to adjustment as provided in Section 15 hereof, the shares to be offered under the Plan shall consist of shares of the Corporation's authorized but unissued common shares. The aggregate number of shares to be delivered upon the exercise of all options granted under the Plan (the "Options") shall not exceed the maximum number of shares permitted under the rules of any stock exchange on which the common shares are then listed or other regulatory body having jurisdiction (such limit, as of the date of adoption of such plan being acknowledged to be 10% of that number of common shares as shall be outstanding from time to time). If any Option granted hereunder shall expire or terminate for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for the purpose of this Plan. 4. NUMBER OF OPTIONED SHARES The number of shares subject to an Option to a Participant shall be determined by the Committee, but no Participant, upon the Corporation becoming listed on any stock exchange, shall be granted an Option which exceeds the maximum number of shares permitted by any stock exchange on which the common shares are then listed or other regulatory body having jurisdiction ( such limit, as of the date of adoption of this Plan, being acknowledged to be 5% in respect of insiders and employees and 1% in respect of persons who are neither insiders nor employees). 5. VESTING The Committee may, in its sole discretion, determine the time during which Options shall vest and the method of vesting, or that no vesting restriction shall exist. 6. MAINTENANCE OF SUFFICIENT CAPITAL The Corporation shall at all times during the term of the Plan reserve and keep available such numbers of shares as will be sufficient to satisfy the requirements of the Plan. 7. PARTICIPATION The Committee shall determine to whom Options shall be granted, the terms and provisions of the respective Option agreements, the time or times at which such Options shall be granted, and the number of shares to be subject to each Option. An individual who has been granted an Option may, if he is otherwise eligible, and if permitted by any stock exchange on which the common shares are then listed or other regulatory body having jurisdiction, be granted an additional Option or Options if the Committee shall so determine. 8. EXERCISE PRICE The exercise price of the shares covered by each Option shall be determined by the Committee. The exercise price shall be not less than the price permitted by any stock exchange on which the common shares are then listed or other regulatory body having jurisdiction. 9. DURATION OF OPTION Each Option and all rights thereunder shall be expressed to expire on the date set out in the Option agreements and shall be subject to earlier termination as provided in paragraphs 11 and 12. 10. OPTION PERIOD, CONSIDERATION AND PAYMENT (a) The Option period shall be a period of time fixed by the Committee, not to exceed the maximum period permitted by any stock exchange on which the common shares are then listed or other regulatory body having jurisdiction, provided that the Option period shall be reduced with respect to any Option as provided in Sections 11 and 12 covering cessation as a director, officer, employee or consultant of the Corporation or any of its subsidiaries or affiliates or death of the Participant. (b) Except as set forth in Sections 10(c), 11 and 12, no Option may be exercised unless the Participant is at the time of such exercise a director, officer, employee or consultant of the Corporation or any of its subsidiaries or affiliates. (c) Notwithstanding any other provision to the contrary, an Option granted to a consultant in connection with specific services provided or to be provided by that consultant shall be exercised only after the date of completion of such service and prior to 30 days following the date of completion of such service. (d) The exercise of any Option will be contingent upon receipt by the Corporation at its head office of a written notice of exercise, specifying the number of shares with respect to which the Option is being exercised, accompanied by cash payment, certified cheque or bank draft for the full purchase price of such shares with respect to which the Option is exercised. No Participant or his legal representatives, legatees or distributees will be, or will be deemed to be, a holder of any shares subject to an Option under this Plan, unless and until the certificates for such shares are issued to such persons under the terms of the Plan. 11. CEASING TO BE A DIRECTOR, OFFICER, EMPLOYEE OR CONSULTANT If a Participant shall cease to be a director, officer or employee of the Corporation or any of its subsidiaries or affiliates for any reason (other than death), the Participant may, but only within 90 days next succeeding the Participant's ceasing to be a director, officer, employee or consultant, exercise the Participant's Option to the extent that the Participant was entitled to exercise it at the date of such cessation. Nothing contained in the Plan nor in any Option granted pursuant to the Plan shall confer upon any Participant any right with respect to continuance as a director, officer, employee or consultant of the Corporation or any of its subsidiaries or affiliates. 12. DEATH OF PARTICIPANT In the event of the death of a Participant, the Option previously granted to him shall be exercisable only within the twelve months next succeeding such death and then only: (a) by the person or persons to whom the Participant's rights under the Option shall pass by the Participant's will or the laws of descent and distribution; and (b) if and to the extent that the Participant was entitled to exercise the Option at the date of the Participant's death. 13. RIGHTS OF OPTIONEE No person entitled to exercise an Option shall have any of the rights or privileges of a shareholder of the Corporation in respect of any shares issuable upon exercise of such Option until certificates representing such shares shall have been issued and delivered. 14. PROCEEDS FROM SALE OF SHARES The proceeds from sale of shares issued upon the exercise of Options shall be added to the general funds of the Corporation and shall thereafter be used from time to time for such corporate purposes as the Committee may determine and direct. 15. ADJUSTMENTS Appropriate adjustments in the number of common shares optioned and in the option price per share, as regards Options granted or to be granted, may be made by the Committee in its discretion to give effect to adjustments in the number of common shares of the Corporation resulting subsequent to the approval of the Plan by the Committee from subdivisions, consolidations or reclassification of the common shares of the Corporation, the payment of stock dividends by the Corporation or other relevant changes in the capital of the Corporation. 16. TRANSFERABILITY All benefits, rights and Options accruing to any Participant in accordance with the terms and conditions of the Plan shall not be transferable or assignable unless specifically provided herein. During the lifetime of a Participant any benefits, rights and Options may only be exercised by the Participant. 17. AMENDMENT AND TERMINATION OF PLAN The Committee may, at any time, suspend or terminate the Plan. The board may also at any time amend or revise the terms of the Plan, PROVIDED that subject to section 15 hereof, no such amendment or revision shall alter the terms of any Options theretofore granted under the Plan. 18. NECESSARY APPROVALS The ability of the Options to be exercised and the obligation of the Corporation to issue and deliver shares in accordance with the Plan is subject to any approvals which may be required from the shareholders of the Corporation, any regulatory authority or stock exchange having jurisdiction over the securities of the Corporation. If any shares cannot be issued to any Participant for whatever reason, the obligation of the Corporation to issue such shares shall terminate and any Option exercise price paid to the Corporation will be returned to the Participant. 19. PRIOR PLANS The Plan shall entirely replace and supersede prior share options plans, if any, enacted by the Board of Directors of the Corporation or its predecessor corporations. 20. EFFECTIVE DATE OF PLAN The Plan has been adopted by the Committee subject to the approval of any stock exchange on which the shares of the Corporation are to be listed or other regulatory body having jurisdiction and, if so approved, the Plan shall become effective upon such approvals being obtained. IN WITNESS WHEREOF the Corporation has caused its corporate seal to be affixed hereto in the presence of its officers duly authorized in that behalf as of the 21st day of August, 1996. TOMAHAWK CORPORATION By: "SIGNED" /s/ [ILLEGIBLE] ---------------------------------------- EX-10.2 9 EXHIBIT 10.2 EXHIBIT 10.2 SUBCONTRACT FSN0292 CAD-2 SUBCONTRACT AGREEMENT TERMS AND CONDITIONS BETWEEN TOMAHAWK II, INC. 9591 WAPLES STREET SAN DIEGO, CALIFORNIA 92121 AND INTERGRAPH CORPORATION HUNTSVILLE, ALABAMA 35894-0009 TABLE OF CONTENTS
SECTION TITLE PAGE - ------- ----- ---- A Contract Form ...........................................3 B Supplies/Services/Costs .................................5 C Statement of Work .......................................6 D Packaging and Marking ...................................6 E Inspection and Acceptance ...............................7 F Deliveries or Performance ...............................8 G Contract Administration Data ............................8 H Special Contract Requirements ...........................9 I Contract Clauses .......................................17 J List of Attachments ....................................19
2 THE SCHEDULE SECTION A - CONTRACT FORM This Contract is entered into between INTERGRAPH CORPORATION, Huntsville, Alabama, and TOMAHAWK II, INC. San Diego, California, hereinafter referred to as "Subcontractor." For the purposes of this Subcontract, the following terms are defined as follows: 1. "Contract" means this Subcontract. 2. "Prime Contract" means the contract between Intergraph Corporation and the U.S. Government which is supported by this Subcontract. 3. "Subcontractor" and "Seller" means Tomahawk II, Inc. 4. "Prime Contractor" and "Buyer" means Intergraph Corporation. 5. "Contracting Officer" means Intergraph Corporation, and its duly authorized representatives, except as applicable in the Section I contract clauses when referring to audit and examination of records functions where it means the duly authorized representative of the U.S. Government. 6. "Government" means Intergraph Corporation, and its duly authorized representatives, except as applicable in the Section I contract clauses when referring to audit and examination of records function, where it means the duly authorized representative of the U.S. Government. 7. "Audit Authority" means the cognizant branch of the Defense Contract Audit Agency. 8. "FAR" means the Federal Acquisition Regulation. The parties hereto agree that the Subcontractor, for the specified consideration, shall perform all services and deliver all supplies as set forth herein. This Contract document constitutes the entire agreement between the parties. This Contract may only be amended by execution of a written bilateral modification, or in accordance with the "Changes" clause of this Contract. 3 In witness whereof, the parties hereto have executed this Contract as of the date so indicated. TOMAHAWK II, INC. INTERGRAPH CORPORATION By: /s/ Michael H. Lorber By: -------------------------------- -------------------------------- Name: Michael H. Lorber Name: Rod W Thompson Title: Vice. Pres. - Finance & CFO Title: Senior Manager Date: 3/12/97 Date: 4 SECTION B - SUPPLIES/SERVICES/COSTS B-1. TYPE OF CONTRACT This is a Time-and-Materials type Contract as identified at Federal Acquisition Regulation (FAR) 16.601. In accordance with Clause H-14, this Contract may be a Firm-Fixed Price Requirements Contract as identified at Federal Acquisition Regulation (FAR) 16.202. B-2. CONSIDERATION (a) The Subcontractor shall be reimbursed for satisfactory performance of assigned tasks in accordance with each Purchase Order's tasking and the direct labor category rate schedule (ATTACHMENT A): (1) DIRECT LABOR The labor category hourly rates are set out in ATTACHMENT A, "Direct Labor Schedule," dated February 5, 1997. The hourly rate specified is inclusive of direct hourly wages, overhead, general and administrative expense, and profit, with the exception of the NAVSEA "On-Site" rate which is also inclusive of all travel expenses except for airline tickets. Fractional parts of an hour shall be payable on a prorated basis. Personnel qualifications for each of the above listed labor categories are contained in ATTACHMENT B, Statement of Work, dated February 5, 1997. The hourly rate is applicable for both straight time (40 hour week) and any required overtime. (2) TRAVEL AND PER DIEM All travel must be authorized in advance by the Intergraph Technical Representative (ITR). Except for NAVSEA "On-Site" travel, which is set out separately below, Intergraph will reimburse the Subcontractor for actual travel expenses in accordance with Department of Defense Civilian Personnel Joint Travel Regulations (JTR). Auto rental will be reimbursed at actual cost. The travel reimbursable herein includes only that travel which is authorized in writing by Intergraph. Travel at U.S. Military Installations, where Government transportation is available to and from work, will not be reimbursed hereunder. Travel costs incurred in the replacement of personnel will not be reimbursed by Intergraph when such replacement is accomplished at the Subcontractor's or employee's convenience. 5 Supporting documentation sufficient to verify amounts invoiced for travel, such as copies of travel receipts and employee travel reimbursement forms, shall be submitted with invoices containing travel charges. For NAVSEA "On-Site" travel, only airline ticket expense will be reimbursed. Relocation costs and travel costs incident to relocation are not allowable and will not be reimbursed hereunder. With the exception of NAVSEA "On-Site", the Subcontractor will be reimbursed for the expense of meals, lodging, and transportation between places of lodging or business and places where meals are taken and any other miscellaneous travel and living expenses incurred in the performance of this contract. Per diem rate shall be payable only when the Subcontractor employee is in an authorized travel status. The per diem shall be established in accordance with the Department of Defense Civilian Personnel Joint Travel Regulations (JTR). SECTION C - STATEMENT OF WORK Subcontractor performance of this Contract shall be in accordance with ATTACHMENT B, Statement of Work, dated February 5, 1997, and with individual task statements of work issued with each Purchase Order against this Subcontract. SECTION D - PACKAGING AND MARKING D-1. STANDARD PACKING Except as otherwise specified in the Purchase Order, the packaging and packing of all items shall comply with ASTM-D-3951-88, "Standard Practice for Commercial Packaging." In addition, software that is distributed by a non-rigid physical media (e.g., a floppy disk) shall be packaged in a rigid package designed for shipping or mailing. Flexible envelopes shall not be used. D-2. CONTAINER MARKING Container markings shall comply with MIL-STD-129K, "Marking for Shipment and Storage." In addition, the Subcontractor shall mark each container with "Computer Equipment-Not for Outside Storage." 6 D-3. PROHIBITED PACKING MATERIALS The use of asbestos, excelsior, newspaper, or shredded paper (all types including waxed paper, computer paper, and similar hygroscopic or non-neutral material) is prohibited. D-4. UNPACKING INSTRUCTIONS Unpacking instructions shall accompany each shipment of complex or delicate equipment. Shipping containers shall be marked: CAUTION--THIS EQUIPMENT MAY BE SERIOUSLY DAMAGED UNLESS UNPACKING INSTRUCTIONS ARE CAREFULLY FOLLOWED. UNPACKING INSTRUCTIONS ARE LOCATED (state where located). The unpacking instructions shall be located such that no unpacking is required by the Government to locate the instructions. SECTION E - INSPECTION AND ACCEPTANCE E-1. CLAUSE INCORPORATED BY REFERENCE This Contract incorporates the following FAR clauses by reference, with the same force and effect as if they were given in full text. 52.246-2 Inspection of Supplies-Fixed Price (JUL 1985) 52.246-4 Inspection of Services-Fixed Price (FEB 1992) 52.246-6 Inspection - Time-and-Material and Labor-Hour (JAN 1986) 52.246-16 Responsibility for Supplies (APR 1984) 252.246-7000 Material Inspection and Receiving Report (DEC 1969) 252.246-7001 Warranty of Data (NOV 1974) 252.270-7002 Contractor Representation (APR 1984)
E-2. INSPECTION/ACCEPTANCE AUTHORITY Responsibility for inspecting, approving and accepting equipment, software, and/or services rendered by the Subcontractor in the performance of this contract shall rest with Intergraph's Technical Representative (ITR). The ITR will be specified on each individual Purchase Order. Technical support services will be inspected for conformance with the Requirements contained in each Purchase Order and the Statement of Work, prior to acceptance. Resumes of support personnel will be reviewed by the Government as required and overall performance of tasking will also be reviewed. 7 SECTION F - DELIVERIES OR PERFORMANCE F-1. CLAUSES INCORPORATED BY REFERENCE This Contract incorporates the following FAR clauses by reference, with the same force and effect as if they were set out in full text. 52.212-13 Stop Work Order (AUG 1989) 52.212-15 Government Delay of Work (APR 1984) 52.247-34 F.O.B. Destination (APR 1984) 52.247-35 F.O.B. Destination, Within Consignee's Premises (APR 1984)
F-2. PLACE OF DELIVERY AND PERFORMANCE The place of performance and/or delivery for all services acquired hereunder will be specified in individual Purchase Orders issued under this Subcontract. F-3. PERIOD OF PERFORMANCE The period of performance for all services required hereunder shall be specified in individual Purchase Orders issued under this Subcontract. SECTION G - CONTRACT ADMINISTRATION DATA G-1. INVOICES An original and one copy of accurate and complete invoices, in accordance with the FAR 52.232-7, PAYMENTS UNDER TIME-AND-MATERIALS AND LABOR-HOUR CONTRACTS (APR 1984), may be submitted MONTHLY to the following address: Intergraph Corporation Huntsville, AL 35894-0009 Attn: Lisa Hall Mail Stop IW1506 In no case shall charges for more than one Purchase Order appear on the same invoice. AN AUTHORIZED REPRESENTATIVE OF THE SUBCONTRACTOR MUST SIGN AND CERTIFY ALL INVOICES TO ATTEST TO THEIR ACCURACY. Invoices shall contain Purchase Order Number and Work Authorization Number(s). Invoices shall also include total hours and dollars by Contract Line Item Number (CLIN) and labor category for the current invoice period and cumulative hours and dollars by CLIN and labor category from Purchase Order inception. Travel charges must be itemized on the invoice under the categories of "Travel - Air Fare" 8 and "Travel - Other". Supporting documentation sufficient to verify amounts invoiced for travel, such as copies of travel receipts and employee travel reimbursement forms, the approved weekly status reports (or other approved documentation) required under Clause H-1 of this Subcontract, and other substantiation approved by Intergraph, shall be submitted with invoices for reimbursement. Work shall be invoiced on a MONTHLY basis. The format of the invoice must be approved by Intergraph. All work must be invoiced and the invoice received by Intergraph not later than two weeks after the last day of the period being invoiced. SUBMITTAL OF ACCURATE AND TIMELY INVOICES, WITH PROPER SUBSTANTIATION, IS CONSIDERED A MATERIAL PART OF THIS CONTRACT. FAILURE TO COMPLY WITH THIS REQUIREMENT MAY RESULT IN TERMINATION OF THIS SUBCONTRACT. Invoices will be paid within thirty (30) days after receipt from the Subcontractor of a correct, formal invoice with appropriate documentation and Intergraph Technical Representative's approval and acceptance. SECTION H - SPECIAL CONTRACT REQUIREMENTS H-1. STATUS REPORTS A separate status report shall be prepared for each Purchase Order issued under this Subcontract. Information to be included in the status reports shall include the Purchase Order Number and the Work Authorization Number(s). Also included shall be the period of performance, the name of the Intergraph Technical Representative, the CLIN, the employee's name, the employee's labor category, the number of hours worked, the specific location where work was performed, the labor rate, and the total charges against Purchase Order for the report period. Travel shall also be shown on the report separated as "Travel - Airfare" and "Travel - Other", and summing to "Travel - Subtotal". In addition, a summary shall detail the cumulative activity by CLIN and travel charges for the Purchase Order. Variations from this format shall have the approval of the Intergraph Technical Representative. FAILURE TO SUBMIT THESE REPORTS WILL RESULT IN DELAYED PAYMENT OF INVOICES. (A sample format is shown in ATTACHMENT C.) Status reports of all work performed shall be submitted weekly by the Tuesday following the period covered by the report to the appropriate Intergraph Technical Representative (ITR). The ITR will verify the information reported. If approved, the ITR will sign and date the status report and return it to the Subcontractor. The Subcontractor shall submit with each invoice the signed status reports corresponding to the applicable work period(s). 9 Other documentation, such as weekly employee time sheets, may be accepted in lieu of the status reports, if approved by the ITR. If the ITR accepts time sheets in lieu of the weekly status reports, the time sheets shall be signed by the ITR. The Subcontractor shall submit as supporting documentation with each invoice the signed time sheets corresponding to the applicable work period(s). H-2. NOTIFICATION OF EXPENDITURE OF HOURS Subcontractor shall notify the Intergraph Subcontract Administrator in writing when eighty-five percent (85%) of the hours for any CLIN for a given Purchase Order are anticipated to be expended within the ensuing thirty (30) day period. H-3. NON-PUBLICITY It is a specific condition of this Agreement that the Subcontractor shall not use or allow to be used any aspect of this Subcontract for publicity or advertisement purposes. H-4. OVERTIME The Subcontractor shall not invoice any amount for overtime worked, unless such overtime has the express prior written approval of the cognizant Intergraph Technical Representative (ITR). Any overtime worked shall be unallowable unless approved in advance by the cognizant ITR, and unless shown as a separate category of cost (with associated hours worked) on the Subcontractor's invoice. No premium shall be payable for overtime worked. Approved overtime shall only be compensated at the appropriate straight time labor rate. H-5. CERTIFICATION OF SUBCONTRACTOR EMPLOYEES Prior to performance under this Subcontract, Subcontractor shall supply to the Intergraph Subcontract Administrator the credentials (in the resume format specified by the Intergraph Subcontract Administrator) for the Subcontractor's employee(s) anticipated to be utilized in the performance of this Subcontract. Upon verification that the proposed employee's credentials meet the minimum requirements as stated in ATTACHMENT B, Statement of Work, for the labor category for which he/she is proposed, Intergraph will incorporate a listing of those approved employee(s) into this Subcontract (ATTACHMENT D). Subcontractor shall not propose or allow unapproved employees to perform work under this Agreement without the prior written approval of the Intergraph Subcontract Administrator. Intergraph reserves the right to accept or reject the proposed individuals and shall have the right to request a no cost change of the Subcontractor's personnel under this Contract, should such personnel be found not to meet the requirements as stated in the ATTACHMENT B, Statement of Work, to this Contract. 10 H-6. SUBSTITUTION OF PERSONNEL The Subcontractor shall provide the appropriate personnel as specified in individual Purchase Orders. Prior to diverting any of the specified individuals to other programs, the Subcontractor shall provide notice of at least thirty (30) calendar days to the Intergraph Subcontract Administrator and shall submit written justification (including proposed substitutes) in sufficient detail to permit evaluation of the impact on the program. Intergraph reserves the right to accept or reject individuals proposed as replacements. H-7. FUNDING This Subcontract will be incrementally funded by CLIN, by specific Purchase Orders. Intergraph shall not be obligated to pay the Subcontractor any amount in excess of the funded Purchase Order, unless and until Intergraph has notified the Subcontractor in writing that the allotted amount of incremental funding has been increased. The Subcontractor shall not be obligated to continue performance if to do so would exceed the currently allotted funded Purchase Order. H-8. INTERGRAPH'S TECHNICAL REPRESENTATIVE (ITR) The Intergraph Technical Representative (ITR) provides technical direction and discussion as necessary with respect to the specifications or Statement of Work, issues task orders when so authorized, and monitors the progress and quality of Subcontractor performance. The ITR IS NOT a Subcontract Administrator and DOES NOT have the authority to take any action, either directly or indirectly, that would change the pricing, quantity, quality, place of performance, delivery schedule, or any other terms and conditions of the basic contract, or to direct the accomplishment of effort which goes beyond the scope of the basic contractual Statement of Work. When, in the opinion of the Subcontractor, the ITR requests effort outside the existing scope of the Subcontract, the Subcontractor shall promptly notify the Intergraph Subcontract Administrator in writing. No action shall be taken by the Subcontractor under such direction until the Intergraph Subcontract Administrator has issued a contractual change or otherwise resolved the issue. The name of the ITR will be specified in individual Purchase Order(s) issued against this Subcontract. H-9. SECURITY CLEARANCES If required, Subcontractor facility and personnel clearance requirements for the performance of this Contract will be specified with each Purchase Order on a DD Form 254. Subcontractor personnel shall obtain from the Defense Investigative 11 Service (DIS), at a minimum, an interim CONFIDENTIAL clearance subject to final clearance approval within 40 days of the clearance request. There may be instances where a higher clearance level is required (i.e., SECRET and/or TOP SECRET). Unless security clearance levels are specified on an individual Purchase Order this requirement does not apply. Personnel substituted under the Subcontract shall conform to the above requirements as applicable and have a minimum, interim facility and personnel security clearances before commencing services under the Purchase Order. H-10. PRIORITY RATING This Contract is a rated order under DPAS (15 CFR 350). The rating for NAVAIR and NAVFAC is A-7. The rating for NAVSEA is A-3. The applicable DPAS rating will be specified in each individual purchase order issued under this subcontract. H-11. NON-DISCLOSURE AGREEMENT During the performance of work under individual Purchase Order(s) issued pursuant to this Contract, it may be necessary to share and/or exchange information and data which may be considered confidential, proprietary and/or competition sensitive. Further, during performance of work under this Contract, the parties recognize that the presence of Subcontractor personnel in Intergraph's and/or Customer's facilities may subject Subcontractor personnel to information and/or data that is considered by Intergraph and/or Customer to be confidential, proprietary and/or competition sensitive. Therefore, the Subcontractor agrees to the following: a. Any confidential, proprietary and/or competition sensitive information exchanged by the parties and entitled to protection hereunder shall be identified by the furnishing party as confidential, proprietary and/or competition sensitive by (i) appropriate stamp or marking on the documents exchanged, or (ii) written notice of any disclosures made under assertion of confidentiality, sent to the receiving party no later than two (2) weeks after disclosure, with listings of all proprietary material and appropriately stamped or marked summaries of such other disclosures. b. Verbal communications which are considered confidential, proprietary and/or competition sensitive may also be conducted as part of the normal discussion activities. Prior to these verbal communications, an announcement will be made that the conversation to follow is to be considered confidential, proprietary and/or competition sensitive, and at the conclusion of that part of the conversation that is considered confidential, proprietary and/or competition sensitive, an ending comment will be made so as to bracket the information which is considered to be confidential. Both 12 parties agree to hold such verbal information in confidence in accordance with this Agreement. c. The receiving party will hold such confidential, proprietary and/or competition sensitive information in confidence for a period of three (3) years from the date of receipt under this Agreement, and during such period will use such information only for evaluation purposes and will make such information available only to its employees having a "need to know" in order to carry out their functions in connection with the purpose of this Agreement. Unless authorized in writing by the party originally transmitting such confidential, proprietary and/or competition sensitive information hereunder, the receiving party will not otherwise use or disclose such confidential, proprietary and/or competition sensitive information during the above-mentioned three (3) year period. Information shall not be afforded the protection of this Agreement if, on the effective date hereof, such information has been or from the time thereafter such information is: (1) lawfully developed by the receiving party independently of the information received from furnishing party; (2) rightfully obtained without restriction by the receiving party from a third party; (3) publicly available other than through the fault or negligence of the receiving party; (4) released without restriction by the furnishing party to any third party, d. Should the receiving party be faced with legal action regarding disclosure of information under this Agreement, the receiving party shall forthwith notify the furnishing party, and, upon the request and at the expense of the latter, shall cooperate with the furnishing party in contesting such a disclosure. Except in connection with failure to discharge responsibilities set forth in the preceding sentence, neither party shall be liable in damages for any disclosures pursuant to judicial actions or for inadvertent disclosure where the proper degree of care has been exercised; provided, that upon discovery of such inadvertent disclosure, it shall have endeavored to prevent any further inadvertent disclosure and to correct the effects of any such inadvertent disclosure. e. All proprietary information furnished hereunder shall remain the property of the furnishing party and shall be returned to it or destroyed promptly at its request together with all copies made thereof by the receiving party hereunder. The parties shall employ the same standard of care it uses to 13 protect its own proprietary information, but in any event, no less than reasonable care. f. No license under any patents or any other proprietary right is granted or conveyed by one party's transmitting proprietary information or other information to the other party hereunder, nor shall such a transmission constitute any representation, warranty, assurance, guaranty of inducement by the transmitting party to the other party with respect to infringement of patent or any other proprietary right of others. g. The receiving party shall not disclose or deliver, directly or indirectly, any technical data or any product utilizing any such data to any person to whom such disclosure or delivery is prohibited by the U.S. Government, nor export, directly or indirectly, any technical data acquired pursuant to this Agreement or any product utilizing any such data to any country for which the U.S. Government or any agency thereof at the time of export requires an export license or other Government approval without first obtaining such license or approval. AS A MATERIAL PART OF THIS CONTRACT, THE SUBCONTRACTOR AGREES TO MAKE KNOWN THE PROVISIONS OF THIS CLAUSE TO EACH OF THE PERSONNEL THE SUBCONTRACTOR ASSIGNS TO PERFORM WORK UNDER THIS CONTRACT AND HAVE THE PERSONNEL SIGN A STATEMENT AGREEING TO ABIDE BY THE PROVISIONS CONTAINED IN THIS CLAUSE. H-12. INCORPORATION OF SECTION K - "REPRESENTATIONS, CERTIFICATIONS, AND OTHER STATEMENTS OF OFFERORS" "Section K - Representations, Certifications, and Other Statements of Offers", executed by Tomahawk II, Inc., February 19, 1997, is incorporated herein by reference and made a part of this contract. H-13. INSURANCE - WORK ON A GOVERNMENT INSTALLATION (a) In accordance with FAR 28.307-2, the Subcontractor shall at its own expense, procure and maintain during the entire performance period of this Subcontract, insurance of at least the kinds and minimum amounts set forth below: Worker's Compensation and Employer's Liability Insurance $100,000 General Liability Insurance For Bodily Injury Liability - Minimum Per Occurrence $500,000 Automobile Liability Insurance Minimum Per Person $200,000 Minimum Per Occurrence for Bodily Injury $500,000 Minimum Per Occurrence for Property Damage $ 20,000
14 (b) Prior to the commencement of work hereunder, the Subcontractor shall furnish to the Subcontract Administrator a certificate or written statement of the above required insurance., The policies evidencing required insurance shall contain an endorsement to the effect that cancellation or any material change in the policies adversely affecting the interest of Intergraph Corporation in such insurance shall not be effective for such period as may be prescribed by the laws of the State in which this Subcontract is to be performed and in no event less than thirty (30) days after written notice thereof to the Subcontract Administrator. (c) The Subcontractor shall insert the substance of this clause, including this paragraph (c), in all lower tier subcontracts hereunder. The Subcontractor shall furnish (or ensure that there has been furnished to the Subcontract Administrator a current Certificate of Insurance, meeting the requirements of (b) above, for each such lower tier subcontractor, at least five (5) days prior to entry of each lower tier subcontractor's personnel on the Government Installation. H-14. FIRM-FIXED PRICE-REQUIREMENTS SUPPORT SERVICES (a) STATEMENT OF WORK (SOW) Upon the Customer determining and defining project requirements, the Customer and the Intergraph Technical Representative (ITR) will then develop a Statement of Work (SOW) and forward it to the Intergraph Subcontract Administrator for certification approvals. The SOW will describe the technical requirement, description of work, acceptance criteria, benchmarks, labor categories required, and will provide an estimated number of staff-hours per labor category, an estimate of computer time required to perform the effort for the request, and a performance schedule. The SOW shall also include a price percentage breakdown by deliverable of the total purchase order price (e.g., item/deliverable #1 = 70%, item/deliverable #2 = 30% of the total purchase order price). The Intergraph Subcontract Administrator will forward the SOW to the Subcontractor omitting any reference to staff-hours or labor categories. This request shall provide a detailed analysis of tasks and subtasks to be performed, sufficient to permit the Subcontractor to develop a technical proposal to estimate, by the task and subtask, the type of labor categories anticipated to fulfill the requirements, the number of staff-hours per labor category, a task completion date and total proposed price. (b) ORDERING PROCESS A SOW will be issued to the Subcontractor for review and preparation of a proposal. The Intergraph Subcontract Administrator and the Subcontractor will then negotiate a finalized firm-fixed price completion purchase order, which requires the Subcontractor to complete and deliver the specified end product at the established price. Finalized purchase orders will identify labor categories and the 15 hours negotiated for each purchase order. The process and special terms and conditions are as follows: (i) The Subcontractor shall pick up the SOW from the Intergraph Subcontract Administrator within ten (10) working days of notification. The SOW will specify the time within which the Subcontractor's responding proposal is due. The proposal will include the number of staff-hours by skill category, task and subtask, computer time, other resources required, beginning date, milestone dates, completion date, proposed purchase order total price, pricing arrangement and a technical approach to indicate the Subcontractor's understanding of the requirement. The labor rates utilized by the Subcontractor in preparing the proposal will be those set forth in this Subcontract, which shall include all direct labor, facilities, incidental supplies, supervision, indirect charges, profit and local travel. The Subcontractor is responsible for certifying that resumes of the proposed personnel have been verified, and are true and accurate presentations of experience and performance. Resumes shall indicate the skill level under the Subcontract within which the individual is included, and shall be in the detail and format required by Intergraph. (ii) Negotiations will take place at a time and place arranged by the Intergraph Subcontract Administrator. Following negotiations, a finalized firm-fixed price completion purchase order will be executed by the Subcontractor and the Intergraph Subcontract Administrator. No work will be performed and no payment will be allowed for any work performed except as authorized by a purchase order signed by the Intergraph Subcontract Administrator. The purchase order shall be the authority for the Subcontractor to proceed based upon the agreed terms and conditions of the purchase order. The Subcontractor shall acknowledge receipt of each purchase order issued under this Subcontract by signing and returning one (1) copy to the Intergraph Subcontract Administrator within ten (10) calendar days. H-15. ADMINISTRATION For the duration of this subcontract, the parties mutually agree to the following terms and conditions: - For each proposal with a dollar value greater than $500,000 that is submitted to the Government for work to be performed under this subcontract, it is mutually agreed that Intergraph shall include a minimum of five (5) hours per month for administration. The exact number of hours to be included in each proposal greater than $500,000 shall be mutually determined by Tomahawk II and Intergraph. 16 - The applicable labor rate to be paid Tomahawk II per hour, as set out in Attachment A, shall be based on the cumulative value of Government Delivery Orders from NAVAIR, NAVFAC and NAVSEA to Intergraph for support services (labor and travel) resulting from Tomahawk II's efforts. Software, hardware and training amounts contained in Delivery Orders are not to be included in the cumulative total. - The initial period of performance shall run from February 13, 1997 through October 3, 1997. Subsequent time periods are specified in Attachment A. - The hourly rate sliding scale is based on a percentage of the CAD-2 prime billable rates for each specific contract. The initial rates are 84% of the applicable prime rate for cumulative delivery order value of $0 to $750,000; 87% of the applicable prime rate for cumulative delivery order value of $750,001 to $1,500,000; and 92% of the applicable prime rate for cumulative delivery order value of greater than $1,500,000. The cumulative delivery order value will be reset to zero dollars ($0) at the beginning each subsequent time period. Each applicable date is denoted in Attachment A. SECTION I - CONTRACT CLAUSES This Contract incorporates the following FAR clauses by reference, with the same force and effect as if they were given in full text.
Clause Number Clause Title And Date ------------- --------------------- 52.202-1 Definitions (Sep 1991) 52.203-1 Officials Not To Benefit (Apr 1984) 52.203-3 Gratuities (Apr 1984) 52.203-5 Covenant Against Contingent Fees (Apr 1984) 52.203-6 Restrictions On Subcontractors Sales To The Government (Jul 1985) 52.203-7 Anti-Kickback Procedures (Oct 1988) 52.203-9 Requirement For Certificate Of Procurement Integrity - Modification (Sep 1990) 52.203-10 Price Or Fee Adjustment For Illegal Or Improper Activity (Sep 1990) 52.203-11 Certification And Disclosure Regarding Payments To Influence Certain Federal Transactions (Jan 1990) 52.203-12 Limitation On Payments To Influence Certain Federal Transactions (Jan 1990) 52.204-2 Security Requirements (Apr 1984) 52.208-1 Required Sources For Jewel Bearings And Related Items (Apr 1984) 52.209-6 Protecting The Government's Interest When Subcontracting With Contractors Debarred, Suspended, Or Proposed For Debarment (Jun 1991) 52.210-5 New Material (Apr 1984) 52.212-8 Defense Priority And Allocation Requirements (Sep 1990) 52.212-13 Stop-Work Order (Aug 1989) 52.215-1 Examination Of Records By Comptroller General (Feb 1993) 52.215-2 Audit - Negotiation (Feb 1993) 52.215-23 Price Reduction For Defective Cost Or Pricing Data-Modifications (Dec 1991) 17 52.215-25 Subcontractor Cost Or Pricing Data Modifications (Dec 1991) 52.215-26 Integrity Of Unit Prices (Apr 1991) 52.215-33 Order Of Precedence (Jan 1986) 52.216-21 ' Requirements (Apr 1984) 52.219-8 Utilization Of Small Business Concerns And Small Disadvantaged Business Concerns (Feb 1990) 52.219-9 Small Business And Small Disadvantaged Business Subcontracting Plan (Jan 1991) 52.219-13 Utilization Of Women-Owned Small Businesses (Aug 1986) 52.219-16 Liquidated Damages-Small Business Subcontracting Plan (Aug 1989) 52.220-1 Preference For Labor Surplus Area Concerns (Apr 1984) 52.220-3 Utilization Of Labor Surplus Area Concerns (Apr 1984) 52.220-4 Labor Surplus Area Subcontracting Program (Apr 1984) 52.222-1 Notice To The Government Of Labor Disputes (Apr 1984) 52.222-3 Convict Labor (Apr 1984) 52.222-20 Walsh-Healey Public Contracts Act (Apr 1984) 52.222-26 Equal Opportunity (Apr 1984) 52.222-28 Equal Opportunity Preaward Clearance Of Subcontracts (Apr 1984) 52.222-29 Notification Of Visa Denial (Apr 1984) 52.222-35 Affirmative Action For Special Disabled And Vietnam Era Veterans (Apr 1984) 52.222-36 Affirmative Action For Handicapped Workers (Apr 1984) 52.222-37 Employment Reports On Special Disabled Veterans And Veterans Of The Vietnam Era (Jan 1988) 52.223-2 Clean Air And Water (Apr 1984) 52.223-6 Drug-Free Workplace (Jul 1990) 52.224-2 Privacy Act (Apr 1984) 52.225-10 Duty Free Entry (Apr 1984) 52.225-11 Restrictions On Certain Foreign Purchases (May 1992) 52.225-13 Restrictions On Contracting With Sanctioned Persons (May 1989 52.227-2 Notice And Assistance Regarding Patent And Copyright Infringement (Apr 1984) 52.227-3 Patent Indemnity (Apr 1984) 52.228-5 Insurance-Work On A Government Installation (Sep 1989) 52.229-3 Federal, State, And Local Taxes (Jan 1991) 52.230-3 Cost Accounting Standards (Sep 1987) 52.230-4 Administration Of Cost Accounting Standards (Sep 1987) 52.230-5 Disclosure And Consistency Of Cost Accounting Practices (Sep 1987) 52.230-6 Consistency In Cost Accounting Practices (Sep 1987) 52.232-1 Payments (Apr 1984) 52.232-7 Payments Under Time-And-Materials And Labor Hour Contracts (Apr 1984) 52.232-11 Extras (Apr 1984) 52.232-17 Interest (Jan 1991) 52.232-23 Assignment Of Claims (Jan 1986) 52.233-1 Disputes (Dec 1991) 52.237-2 Protection Of Government Building, Equipment, And Vegetation (Apr 1984) 52.237-3 Continuity Of Services (Jan 1991) 52.242-13 Bankruptcy (Apr 1991) 52.243-1 Changes - Fixed Price (Aug 1987) 52.243-1 Changes - Fixed Price (Alternate li) (Apr 1984) 52.243-3 Changes - Time-And-Materials Or Labor-Hours (Aug 1987) 52.243-6 Change Order Accounting (Apr 1984) 52.244-1 Subcontracts (Fixed Price Contracts) (Apr 1991) 52.244-3 Subcontracts (Time-And-Materials And Labor-Hour Contracts) (Apr 1985) 52.246-6 Inspection -Time-And-Material And Labor-Hour (Jan 1986) 52.247-63 Preference For U.S.- Flag Air Carriers (Apr 1984) 52.249-2 Termination For Convenience Of The Government (Fixed Price) (Apr 1984) 52.249-8 Default (Fixed Price Supply And Service) (Apr 1984) 52.249-14 Excusable Delays (Apr 1984) 252.203-7000 Statutory Prohibition On Compensation To Former Department Of Defense Employees (Dec 1991) 252.203-7001 Special Prohibition On Employment (Apr 1993) 252.203-7002 Display Of DOD Hotline Poster (Dec 1991) 252.204-7000 Disclosure Of Information (Dec 1991) 18 252.215-7000 Pricing Adjustment (Dec 1991) 252.219-7003 Small Business And Small Disadvantaged Business Subcontracting Plan (DOD Contracts) (Apr 1993) 252.223-7500 Drug-Free Work Force (Dec 1991) 252.225-7001 Buy American Act And Balance Of Payments Program (Dec 1991) 252.225-7002 Qualifying Country Sources As Subcontractors (Dec 1991) 252.225-7007 Trade Agreements Act (Dec 1991) 252.227-7013 Rights In Technical Data And Computer Software (Oct 1988) 252.227-7018 Restrictive Markings On Technical Data (Oct 1988) 252.227-7019 Identification Of Restricted Rights Computer Software (Apr 1988) 252.227-7026 Deferred Delivery Of Technical Data Or Computer Software (Apr 1988) 252.227-7027 Deferred Ordering Of Technical Data Or Computer Software (Apr 1988) 252.227-7028 Requirement For Technical Data Representation (Oct 1988) 252.227-7029 Identification Of Technical Data (Apr 1988) 252.227-7030 Technical Data - Withholding Of Payment (Oct 1988) 252.227-7031 Data Requirements (Oct 1988) 252.227-7036 Certification Of Technical Data Conformity (May 1987) 252.227-7037 Validation Of Restrictive Markings On Technical Data (Apr 1988) 252.233-7000 Certification Of Requests For Adjustment Or Relief Exceeding $100,000 (Apr 1993) 252.243-7001 Pricing Of Adjustments (Dec 1991) 252.270-7000 Recovery Of Non-Recurring Costs And Royalty Fees On Commercial Sales (Dec 1991) 252.270-7001 Warranty Exclusion And Limitation Of Damages (Feb 1983) 252.270-7008 Rights In Privacy Safeguards (Apr 1984) 252.271-7001 Recovery Of Non-Recurring Costs On Commercial Sales Of Defense Products And Technology And Of Royalty Fees For Use Of DOD Technical Data (Feb 1989)
SECTION J - LIST OF ATTACHMENTS The following attachments constitute a part of this Contract: ATTACHMENT A - Direct Labor Schedule, dated February 5, 1997 ATTACHMENT B - Statement of Work, dated February 5, 1997 ATTACHMENT C - Status Report Format (Section H, Clause H-l) ATTACHMENT D - List of Approved Employees, dated February 5, 1997
19 Page 1 of 9 ATTACHMENT A DIRECT LABOR SCHEDULE SECTION B-2(a)(1) FEBRUARY 5, 1997 CY* $750 OVER NAVAIR CATEGORY 97 PRIME $0 TO $750K TO $1.5M $1.5M 29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 97.00 $ 81.48 $ 84.39 $ 89.24 29AB01 Senior Computer Engineer (SCE) $ 75.00 $ 63.00 $ 65.25 $ 69.00 29AC01 Computer Technician (CT) $ 36.00 $ 30.24 $ 31.32 $ 33.12 29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 61.00 $ 51.24 $ 53.07 $ 56.12 29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 75.00 $ 63.00 $ 65.25 $ 69.00 CY* $750K OVER NAVFAC CATEGORY 97 PRIME $0 TO $750K TO $1.5M $1.5M 0033AA Senior Computer Scientist (SCS) $ 92.00 $ 77.28 $ 80.04 $ 84.64 0033AB Computer Scientist (CS) $ 66.00 $ 55.44 $ 57.42 $ 60.72 0033AJ Associate Computer Scientist (ACS) $ 51.00 $ 42.84 $ 44.37 $ 46.92 0033AC Computer Science Technician (CST) $ 35.00 $ 29.40 $ 30.45 $ 32.20 0033AD Senior Engineer (SE) $ 71.00 $ 59.64 $ 61.77 $ 65.32 3033AE Engineer (E) $ 55.00 $ 46.20 $ 47.85 $ 50.60 0033AF Engineering Technician (ET) $ 35.00 $ 29.40 $ 30.45 $ 32.20 0033AG Senior Clerical Assistant (SCA) $ 31.00 $ 26.04 $ 26.97 $ 28.52 0033AH Clerical Assistant (CA) $ 24.00 $ 20.16 $ 20.88 $ 22.08 CY* $750K OVER NAVSEA CATEGORY 97 PRIME $0 TO $750K TO $1.5M $1.5M OFF-SITE SS08AA Computer Engineer, Level 1 (CE1) $ 53.40 $ 44.86 $ 46.46 $ 49.13 SS08AB Computer Engineer, Level 2 (CE2) $ 64.39 $ 54.09 $ 56.02 $ 59.24 SS08AC Computer Engineer, Level 3 (CE3) $ 77.75 $ 65.31 $ 67.64 $ 71.53 SS08AD Computer Engineer, Level 4 (CE4) $ 100.86 $ 84.72 $ 87.75 $ 92.79 SS08AE Computer Technician, Level 1 (CT1) $ 31.91 $ 26.80 $ 27.76 $ 29.36 SS08AF Computer Technician, Level 2 (CT2) $ 38.49 $ 32.33 $ 33.49 $ 35.41 SS08AG Computer Technician, Level 3 (CT3) $ 49.23 $ 41.35 $ 42.83 $ 45.29 SS08AH Computer Technician, Level 4 (CT4) $ 53.40 $ 44.86 $ 46.46 $ 49.13 ON-SITE SS08AJ Computer Engineer, Level 1 (CE1) $ 82.92 $ 69.65 $ 72.14 $ 76.29 SS08AK Computer Engineer, Level 2 (CE2) $ 93.91 $ 78.88 $ 81.70 $ 86.40 SS08AL Computer Engineer, Level 3 (CE3) $ 107.27 $ 90.11 $ 93.32 $ 98.69 SS08AM Computer Engineer, Level 4 (CE4) $ 130.38 $ 109.52 $ 113.43 $ 119.95 SS08AN Computer Technician, Level 1 (CT1) $ 61.43 $ 51.60 $ 53.44 $ 56.52 SS08AP Computer Technician, Level 2 (CT2) $ 68.01 $ 57.13 $ 59.17 $ 62.57 SS08AQ Computer Technician, Level 3 (CT3) $ 78.75 $ 66.15 $ 68.51 $ 72.45 SS08AR Computer Technician, Level 4 (CT4) $ 82.92 $ 69.65 $ 72.14 $ 76.29 CRYSTAL CITY SS08AS Computer Engineer, Level 1 (CE1) $ 58.47 $ 49.11 $ 50.87 $ 53.79 SS08AT Computer Engineer, Level 2 (CE2) $ 70.51 $ 59.23 $ 61.34 $ 64.87 SS08AU Computer Engineer, Level 3 (CE3) $ 85.14 $ 71.52 $ 74.07 $ 78.33 SS08AV Computer Engineer, Level 4 (CE4) $ 110.44 $ 92.77 $ 96.08 $ 101.60 SS08AW Computer Technician, Level 1 (CT1) $ 34.94 $ 29.35 $ 30.40 $ 32.14 SS08AX Computer Technician, Level 2 (CT2) $ 42.15 $ 35.41 $ 36.67 $ 38.78 SS08AY Computer Technician, Level 3 (CT3) $ 53.91 $ 45.28 $ 46.90 $ 49.60 SS08AZ Computer Technician, Level 4 (CT4) $ 58.47 $ 49.11 $ 50.87 $ 53.79
*GFY1997 Rate is valid from February 13, 1997 through October 3, 1997. CY* $750K OVER NAVAIR CATEGORY 98 PRIME $0 TO $750K TO $1.5M $1.5M 29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 105.00 $ 88.20 $ 91.35 $ 96.60 29AB01 Computer Scientist/Engineer (CS/E) $ 81.00 $ 68.04 $ 70.47 $ 74.52 29AC01 Computer Technician (CT) $ 40.00 $ 33.60 $ 34.80 $ 36.80 29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 67.00 $ 56.28 $ 58.29 $ 61.64 29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 81.00 $ 68.04 $ 70.47 $ 74.52 CY* $750K OVER NAVFAC CATEGORY 98 PRIME $0 TO $750K TO $1.5M $1.5M 0033AA Senior Computer Scientist (SCS) $ 98.00 $ 82.32 $ 85.26 $ 90.16 0033AB Computer Scientist (CS) $ 70.00 $ 58.80 $ 60.90 $ 64.40 0033AJ Associate Computer Scientist (ACS) $ 53.00 $ 44.52 $ 46.11 $ 48.76 0033AC Computer Science Technician (CST) $ 37.00 $ 31.08 $ 32.19 $ 34.04 0033AD Senior Engineer (SE) $ 76.00 $ 63.84 $ 66.12 $ 69.92 0033AE Engineer (E) $ 59.00 $ 49.56 $ 51.33 $ 54.28 0033AF Engineering Technician (ET) $ 37.00 $ 31.08 $ 32.19 $ 34.04 0033AG Senior Clerical Assistant (SCA) $ 32.00 $ 26.88 $ 27.84 $ 29.44 0033AH Clerical Assistant (CA) $ 26.00 $ 21.84 $ 22.62 $ 23.92 CY* $750K OVER NAVSEA CATEGORY 98 PRIME $0 TO $750K TO $1.5M $1.5M OFF-SITE SS08AA Computer Engineer, Level 1 (CE1) $ 57.67 $ 48.44 $ 50.17 $ 53.06 SS08AB Computer Engineer, Level 2 (CE2) $ 69.54 $ 58.41 $ 60.50 $ 63.98 SS08AC Computer Engineer, Level 3 (CE3) $ 83.96 $ 70.53 $ 73.05 $ 77.24 SS08AD Computer Engineer, Level 4 (CE4) $ 108.93 $ 91.50 $ 94.77 $ 100.22 SS08AE Computer Technician, Level 1 (CT1) $ 34.46 $ 28.95 $ 29.98 $ 31.70 SS08AF Computer Technician, Level 2 (CT2) $ 41.57 $ 34.92 $ 36.17 $ 38.24 SS08AG Computer Technician, Level 3 (CT3) $ 53.17 $ 44.66 $ 46.26 $ 48.92 SSO8AH Computer Technician, Level 4 (CT4) $ 57.67 $ 48.44 $ 50.17 $ 53.06 ON-SITE SSO8AJ Computer Engineer, Level 1 (CE1) $ 88.88 $ 74.66 $ 77.33 $ 81.77 SSO8AK Computer Engineer, Level 2 (CE2) $ 100.75 $ 84.63 $ 87.65 $ 92.69 SS08AL Computer Engineer, Level 3 (CE3) $ 115.17 $ 96.74 $ 100.20 $ 105.96 SS08AM Computer Engineer, Level 4 (CE4) $ 140.14 $ 117.72 $ 121.92 $ 128.93 SS08AN Computer Technician, Level 1 (CT1) $ 65.67 $ 55.16 $ 57.13 $ 60.42 SSO8AP Computer Technician, Level 2 (CT2) $ 72.78 $ 61.14 $ 63.32 $ 66.96 SS08AQ Computer Technician, Level 3 (CT3) $ 84.38 $ 70.88 $ 73.41 $ 77.63 SS08AR Computer Technician, Level 4 (CT4) $ 88.88 $ 74.66 $ 77.33 $ 81.77 CRYSTAL CITY SS08AS Computer Engineer, Level 1 (CE1) $ 63.15 $ 53.05 $ 54.94 $ 58.10 SS08AT Computer Engineer, Level 2 (CE2) $ 76.15 $ 63.97 $ 66.25 $ 70.06 SS08AU Computer Engineer, Level 3 (CE3) $ 91.94 $ 77.23 $ 79.99 $ 84.58 SS08AV Computer Engineer, Level 4 (CE4) $ 119.28 $ 100.20 $ 103.77 $ 109.74 SS08AW Computer Technician, Level 1 (CT1) $ 37.73 $ 31.69 $ 32.83 $ 34.71 SSO8AX Computer Technician, Level 2 (CT2) $ 45.52 $ 38.24 $ 39.60 $ 41.88 SS08AY Computer Technician, Level 3 (CT3) $ 58.22 $ 48.90 $ 50.65 $ 53.56 SS08AZ Computer Technician, Level 4 (CT4) $ 63.15 $ 53.05 $ 54.94 $ 58.10
*GFY 1998 Rates are valid from October 4, 1997 through October 2, 1998 CY* $750K OVER NAVAIR CATEGORY 99 PRIME $0 TO $750K TO $1.5M $1.5M 29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 113.00 $ 94.92 $ 98.31 $ 103.96 29AB01 Senior Computer Engineer (SCE) $ 87.00 $ 73.08 $ 75.69 $ 80.04 29AC01 Computer Technician (CT) $ 43.00 $ 36.12 $ 37.41 $ 39.56 29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 72.00 $ 60.48 $ 62.64 $ 66.24 29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 87.00 $ 73.08 $ 75.69 $ 80.04 CY* $750K OVER NAVFAC CATEGORY 99 PRIME $0 TO $750K TO $1.5M $1.5M 0033AA Senior Computer Scientist (SCS) $ 104.00 $ 87.36 $ 90.48 $ 95.68 0033AB Computer Scientist (CS) $ 74.00 $ 62.16 $ 64.38 $ 68.08 0033AJ Associate Computer Scientist (ACS) $ 55.00 $ 46.20 $ 47.85 $ 50.60 0033AC Computer Science Technician (CST) $ 40.00 $ 33.60 $ 34.80 $ 36.80 0033AD Senior Engineer (SE) $ 80.00 $ 67.20 $ 69.60 $ 73.60 0033AE Engineer (E) $ 62.00 $ 52.08 $ 53.94 $ 57.04 0033AF Engineering Technician (ET) $ 40.00 $ 33.60 $ 34.80 $ 36.80 0033AG Senior Clerical Assistant (SCA) $ 34.00 $ 28.56 $ 29.58 $ 31.28 0033AH Clerical Assistant (CA) $ 27.00 $ 22.68 $ 23.49 $ 24.84 CY* $750K OVER NAVSEA CATEGORY 99 PRIME $0 TO $750K TO $1.5M $1.5M OFF-SITE SS08AA Computer Engineer, Level 1 (CE1) $ 62.28 $ 52.32 $ 54.18 $ 57.30 SS08AB Computer Engineer, Level 2 (CE2) $ 75.10 $ 63.08 $ 65.34 $ 69.09 SS08AC Computer Engineer, Level 3 (CE3) $ 90.69 $ 76.18 $ 78.90 $ 83.43 SS08AD Computer Engineer, Level 4 (CE4) $ 117.63 $ 98.81 $ 102.34 $ 108.22 SS08AE Computer Technician, Level 1 (CT1) $ 37.22 $ 31.26 $ 32.38 $ 34.24 SS08AF Computer Technician, Level 2 (CT2) $ 44.89 $ 37.71 $ 39.05 $ 41.30 SS08AG Computer Technician, Level 3 (CT3) $ 57.43 $ 48.24 $ 49.96 $ 52.84 SS08AH Computer Technician, Level 4 (CT4) $ 62.28 $ 52.32 $ 54.18 $ 57.30 ON-SITE SS08AJ Computer Engineer, Level 1 (CE1) $ 95.31 $ 80.06 $ 82.92 $ 87.69 SS08AK Computer Engineer, Level 2 (CE2) $ 108.13 $ 90.83 $ 94.07 $ 99.48 SS08AL Computer Engineer, Level 3 (CE3) $ 123.72 $ 103.92 $ 107.64 $ 113.82 SS08AM Computer Engineer, Level 4 (CE4) $ 150.66 $ 126.55 $ 131.07 $ 138.61 SS08AN Computer Technician, Level 1 (CT1) $ 70.25 $ 59.01 $ 61.12 $ 64.63 SS08AP Computer Technician, Level 2 (CT2) $ 77.92 $ 65.45 $ 67.79 $ 71.69 SS08AQ Computer Technician, Level 3 (CT3) $ 90.46 $ 75.99 $ 78.70 $ 83.22 SS08AR Computer Technician, Level 4 (CT4) $ 95.31 $ 80.06 $ 82.92 $ 87.69 CRYSTAL CITY SS08AS Computer Engineer, Level 1 (CE1) $ 68.20 $ 57.29 $ 59.33 $ 62.74 SS08AT Computer Engineer, Level 2 (CE2) $ 82.23 $ 69.07 $ 71.54 $ 75.65 SS08AU Computer Engineer, Level 3 (CE3) $ 99.31 $ 83.42 $ 86.40 $ 91.37 SS08AV Computer Engineer, Level 4 (CE4) $ 128.80 $ 108.19 $ 112.06 $ 118.50 SS08AW Computer Technician, Level 1 (CT1) $ 40.76 $ 34.24 $ 35.46 $ 37.50 SS08AX Computer Technician, Level 2 (CT2) $ 49.15 $ 41.29 $ 42.76 $ 45.22 SS08AY Computer Technician, Level 3 (CT3) $ 62.89 $ 52.83 $ 54.71 $ 57.86 SS08AZ Computer Technician, Level 4 (CT4) $ 68.20 $ 57.29 $ 59.33 $ 62.74
*GFY 1999 Rates valid from October 3, 1998 through October 1, 1999 CY* $750K OVER NAVAIR CATEGORY 00 PRIME $0 TO $750K TO $1.5M $1.5M 29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 122.00 $ 102.48 $ 106.14 $ 112.24 29AB01 Senior Computer Engineer (SCE) $ 94.00 $ 78.96 $ 81.78 $ 86.48 29AC01 Computer Technician (CT) $ 46.00 $ 38.64 $ 40.02 $ 42.32 29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 78.00 $ 65.52 $ 67.86 $ 71.76 29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 94.00 $ 78.96 $ 81.78 $ 86.48 CY* $750K OVER NAVFAC CATEGORY 00 PRIME $0 TO $750K TO $1.5M $1.5M 0033AA Senior Computer Scientist (SCS) $ 110.00 $ 92.40 $ 95.70 $ 101.20 0033AB Computer Scientist (CS) $ 78.00 $ 65.52 $ 67.86 $ 71.76 0033AJ Associate Computer Scientist (ACS) $ 57.00 $ 47.88 $ 49.59 $ 52.44 0033AC Computer Science Technician (CST) $ 42.00 $ 35.28 $ 36.54 $ 38.64 0033AD Senior Engineer (SE) $ 85.00 $ 71.40 $ 73.95 $ 78.20 0033AE Engineer (E) $ 66.00 $ 55.44 $ 57.42 $ 60.72 0033AF Engineering Technician (ET) $ 42.00 $ 35.28 $ 36.54 $ 38.64 3033AG Senior Clerical Assistant (SCA) $ 36.00 $ 30.24 $ 31.32 $ 33.12 3033AH Clerical Assistant (CA) $ 29.00 $ 24.36 $ 25.23 $ 26.68 CY* $750K OVER NAVSEA CATEGORY 00 PRIME $0 TO $750K TO $1.5M $1.5M OFF-SITE SS08AA Computer Engineer, Level 1 (CE1) $ 67.27 $ 56.51 $ 58.52 $ 61.89 SS08AB Computer Engineer, Level 2 (CE2) $ 81.11 $ 68.13 $ 70.57 $ 74.62 SS08AC Computer Engineer, Level 3 (CE3) $ 97.94 $ 82.27 $ 85.21 $ 90.10 SS08AD Computer Engineer, Level4 (CE4) $ 127.04 $ 106.71 $ 110.52 $ 116.88 SS08AE Computer Technician, Level 1 (CT1) $ 40.18 $ 33.75 $ 34.96 $ 36.97 SS08AF Computer Technician, Level 2 (CT2) $ 48.48 $ 40.72 $ 42.18 $ 44.60 SS08AG Computer Technician, Level 3 (CT3) $ 62.03 $ 52.11 $ 53.97 $ 57.07 SS08AH Computer Technician, Level 4 (CT4) $ 67.27 $ 56.51 $ 58.52 $ 61.89 ON-SITE SS08AJ Computer Engineer, Level 1 (CE1) $ 102.24 $ 85.88 $ 88.95 $ 94.06 SSO8AK Computer Engineer, Level 2 (CE2) $ 116.08 $ 97.51 $ 100.99 $ 106.79 SS08AL Computer Engineer, Level 3 (CE3) $ 132.91 $ 111.64 $ 115.63 $ 122.28 SS08AM Computer Engineer, Level 4 (CE4) $ 162.01 $ 136.09 $ 140.95 $ 149.05 SS08AN Computer Technician, Level 1 (CT1) $ 75.15 $ 63.13 $ 65.38 $ 69.14 SS08AP Computer Technician, Level 2 (CT2) $ 83.45 $ 70.10 $ 72.60 $ 76.77 SS08AQ Computer Technician, Level 3 (CT3) $ 97.00 $ 81.48 $ 84.39 $ 89.24 SS08AR Computer Technician, Level 4 (CT4) $ 102.24 $ 85.88 $ 88.95 $ 94.06 CRYSTAL CITY SS08AS Computer Engineer, Level 1 (CE1) $ 73.66 $ 61.87 $ 64.08 $ 67.77 SS08AT Computer Engineer, Level 2 (CE2) $ 88.82 $ 74.61 $ 77.27 $ 81.71 SSO8AU Computer Engineer, Level 3 (CE3) $ 107.24 $ 90.08 $ 93.30 $ 98.66 SS08AV Computer Engineer, Level 4 (CE4) $ 139.11 $ 116.85 $ 121.03 $ 127.98 SSO8AW Computer Technician, Level 1 (CT1) $ 44.00 $ 36.96 $ 38.28 $ 40.48 SS08AX Computer Technician, Level 2 (CT2) $ 53.09 $ 44.60 $ 46.19 $ 48.84 SS08AY Computer Technician, Level 3 (CT3) $ 67.92 $ 57.05 $ 59.09 $ 62.49 SS08AZ Computer Technician, Level 4 (CT4) $ 73.66 $ 61.87 $ 64.08 $ 67.77
*GFY 2000 Rates valid from October 2, 1999 through September 29, 2000 CY* $750K OVER NAVAIR CATEGORY 01 PRIME $0 TO $750K TO $1.5M $1.5M 29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 132.00 $ 110.88 $ 114.84 $ 121.44 29AB01 Senior Computer Engineer (SCE) $ 102.00 $ 85.68 $ 88.74 $ 93.84 29AC01 Computer Technician (CT) $ 50.00 $ 42.00 $ 43.50 $ 46.00 29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 84.00 $ 70.56 $ 73.08 $ 77.28 29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 102.00 $ 85.68 $ 88.74 $ 93.84 CY* $750K OVER NAVFAC CATEGORY 01 PRIME $0 TO $750K TO $1.5M $1.5M 0033AA Senior Computer Scientist (SCS) $ 117.00 $ 98.28 $ 101.79 $ 107.64 0033AB Computer Scientist (CS) $ 83.00 $ 69.72 $ 72.21 $ 76.36 0033AJ Associate Computer Scientist (ACS) $ 60.00 $ 50.40 $ 52.20 $ 55.20 0033AC Computer Science Technician (CST) $ 45.00 $ 37.80 $ 39.15 $ 41.40 0033AD Senior Engineer (SE) $ 90.00 $ 75.60 $ 78.30 $ 82.80 0033AE Engineer (E) $ 70.00 $ 58.80 $ 60.90 $ 64.40 0033AF Engineering Technician (ET) $ 45.00 $ 37.80 $ 39.15 $ 41.40 0033AG Senior Clerical Assistant (SCA) $ 39.00 $ 32.76 $ 33.93 $ 35.88 0033AH ClericalAssistant (CA) $ 30.00 $ 25.20 $ 26.10 $ 27.60 CY* $750K OVER NAVSEA CATEGORY 01 PRIME $0 TO $750K TO $1.5M $1.5M OFF-SITE SS08AA Computer Engineer, Level 1 (CE1) $ 72.65 $ 61.03 $ 63.21 $ 66.84 SS08AB Computer Engineer, Level 2 (CE2) $ 87.60 $ 73.58 $ 76.21 $ 80.59 SS08AC Computer Engineer, Level 3 (CE3) $ 105.78 $ 88.86 $ 92.03 $ 97.32 SS08AD Computer Engineer, Level 4 (CE4) $ 137.22 $ 115.26 $ 119.38 $ 126.24 SS08AE Computer Technician, Level 1 (CT1) $ 43.41 $ 36.46 $ 37.77 $ 39.94 SS08AF Computer Technician, Level 2 (CT2) $ 52.36 $ 43.98 $ 45.55 $ 48.17 SS08AG Computer Technician, Level 3 (CT3) $ 66.99 $ 56.27 $ 58.28 $ 61.63 SS08AH Computer Technician, Level 4 (CT4) $ 72.65 $ 61.03 $ 63.21 $ 66.84 ON-SITE SS08AJ Computer Engineer, Level 1 (CE1) $ 109.70 $ 92.15 $ 95.44 $ 100.92 SS08AK Computer Engineer, Level 2 (CE2) $ 124.65 $ 104.71 $ 108.45 $ 114.68 SS08AL Computer Engineer, Level 3 (CE3) $ 142.83 $ 119.98 $ 124.26 $ 131.40 SS08AM Computer Engineer, Level 4 (CE4) $ 174.27 $ 146.39 $ 151.61 $ 160.33 SS08AN Computer Technician, Level 1 (CT1) $ 80.46 $ 67.59 $ 70.00 $ 74.02 SS08AP Computer Technician, Level 2 (CT2) $ 89.41 $ 75.10 $ 77.79 $ 82.26 SS08AQ Computer Technician, Level 3 (CT3) $ 104.04 $ 87.39 $ 90.51 $ 95.72 SS08AR Computer Technician, Level 4 (CT4) $ 109.70 $ 92.15 $ 95.44 $ 100.92 CRYSTAL CITY SS08AS Computer Engineer, Level 1 (CE1) $ 79.55 $ 66.82 $ 69.21 $ 73.19 SS08AT Computer Engineer, Level 2 (CE2) $ 95.92 $ 80.57 $ 83.45 $ 88.25 SS08AU Computer Engineer, Level 3 (CE3) $ 115.83 $ 97.30 $ 100.77 $ 106.56 SS08AV Computer Engineer, Level 4 (CE4) $ 150.26 $ 126.22 $ 130.73 $ 138.24 SS08AW Computer Technician, Level 1 (CT1) $ 47.53 $ 39.93 $ 41.35 $ 43.73 SS08AX Computer Technician, Level 2 (CT2) $ 57.33 $ 48.16 $ 49.88 $ 52.74 SS08AY Computer Technician, Level 3 (CT3) $ 73.35 $ 61.61 $ 63.81 $ 67.48 SS08AZ Computer Technician, Level 4 (CT4) $ 79.55 $ 66.82 $ 69.21 $ 73.19
*GFY 2001 Rates valid from September 30, 2000 through October 5, 2001 Page 7 of 9 CY* $750K OVER NAVAIR CATEGORY 02 PRIME $0 TO $750K TO $1.5M $1.5M 29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 142.00 $ 119.28 $ 123.54 $ 130.64 29AB01 Senior Computer Engineer (SCE) $ 109.00 $ 91.56 $ 94.83 $ 100.28 29AC01 Computer Technician (CT) $ 55.00 $ 46.20 $ 47.85 $ 50.60 29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 91.00 $ 76.44 $ 79.17 $ 83.72 29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 109.00 $ 91.56 $ 94.83 $ 100.28 CY* $750K OVER NAVFAC CATEGORY 02 PRIME $0 TO $750K TO $1.5M $1.5M 0033AA Senior Computer Scientist (SCS) $ 124.00 $ 104.16 $ 107.88 $ 114.08 0033AB Computer Scientist (CS) $ 88.00 $ 73.92 $ 76.56 $ 80.96 0033AJ Associate Computer Scientist (ACS) $ 62.00 $ 52.08 $ 53.94 $ 57.04 0033AC Computer Science Technician (CST) $ 47.00 $ 39.48 $ 40.89 $ 43.24 0033AD Senior Engineer (SE) $ 96.00 $ 80.64 $ 83.52 $ 88.32 0033AE Engineer (E) $ 74.00 $ 62.16 $ 64.38 $ 68.08 0033AF Engineering Technician (ET) $ 47.00 $ 39.48 $ 40.89 $ 43.24 0033AG Senior Clerical Assistant (SCA) $ 41.00 $ 34.44 $ 35.67 $ 37.72 0033AH Clerical Assistant (CA) $ 32.00 $ 26.88 $ 27.84 $ 29.44 CY* $750K OVER NAVSEA CATEGORY 02 PRIME $0 TO $750K TO $1.5M $1.5M OFF-SITE SS08AA Computer Engineer, Level 1 (CE1) $ 78.44 $ 65.89 $ 68.24 $ 72.16 SS08AB Computer Engineer, Level 2 (CE2) $ 94.60 $ 79.46 $ 82.30 $ 87.03 SS08AC Computer Engineer, Level 3 (CE3) $ 114.24 $ 95.96 $ 99.39 $ 105.10 SS08AD Computer Engineer, Level 4 (CE4) $ 148.19 $ 124.48 $ 128.93 $ 136.33 SS08AE Computer Technician, Level 1 (CT1) $ 46.88 $ 39.38 $ 40.79 $ 43.13 SS08AF Computer Technician, Level 2 (CT2) $ 56.55 $ 47.50 $ 49.20 $ 52.03 SS08AG Computer Technician, Level 3 (CT3) $ 72.34 $ 60.77 $ 62.94 $ 66.55 SS08AH Computer Technician, Level 4 (CT4) $ 78.44 $ 65.89 $ 68.24 $ 72.16 ON-SITE SS08AJ Computer Engineer, Level 1 (CE1) $ 117.72 $ 98.88 $ 102.42 $ 108.30 SS08AK Computer Engineer, Level 2 (CE2) $ 133.88 $ 112.46 $ 116.48 $ 123.17 SS08AL Computer Engineer, Level 3 (CE3) $ 153.52 $ 128.96 $ 133.56 $ 141.24 SS08AM Computer Engineer, Level 4 (CE4) $ 187.47 $ 157.47 $ 163.10 $ 172.47 SS08AN Computer Technician, Level 1 (CT1) $ 86.16 $ 72.37 $ 74.96 $ 79.27 SS08AP Computer Technician, Level 2 (CT2) $ 95.83 $ 80.50 $ 83.37 $ 88.16 SS08AQ Computer Technician, Level 3 (CT3) $ 111.62 $ 93.76 $ 97.11 $ 102.69 SS08AR Computer Technician, Level 4 (CT4) $ 117.72 $ 98.88 $ 102.42 $ 108.30 CRYSTAL CITY SS08AS Computer Engineer, Level 1 (CE1) $ 85.89 $ 72.15 $ 74.72 $ 79.02 SS08AT Computer Engineer, Level 2 (CE2) $ 103.59 $ 87.02 $ 90.12 $ 95.30 SS08AU Computer Engineer, Level 3 (CE3) $ 125.09 $ 105.08 $ 108.83 $ 115.08 SS08AV Computer Engineer, Level 4 (CE4) $ 162.27 $ 136.31 $ 141.17 $ 149.29 SS08AW Computer Technician, Level 1 (CT1) $ 51.33 $ 43.12 $ 44.66 $ 47.22 SS08AX Computer Technician, Level 2 (CT2) $ 61.92 $ 52.01 $ 53.87 $ 56.97 SS08AY Computer Technician, Level 3 (CT3) $ 79.21 $ 66.54 $ 68.91 $ 72.87 SS08AZ Computer Technician, Level 4 (CT4) $ 58.89 $ 49.47 $ 51.23 $ 54.18
*GFY 2002 Rates valid from October 5, 2001 through October 4, 2002 Page 8 of 9 CY* $750K OVER NAVAIR CATEGORY 03 PRIME $0 TO $750K TO $1.5M $1.5M 29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 153.00 $ 128.52 $ 133.11 $ 140.76 29A301 Senior Computer Engineer (SCE) $ 117.00 $ 98.28 $ 101.79 $ 107.64 29AC01 Computer Technician (CT) $ 60.00 $ 50.40 $ 52.20 $ 55.20 29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 98.00 $ 82.32 $ 85.26 $ 90.16 29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 117.00 $ 98.28 $ 101.79 $ 107.64 CY* $750K OVER NAVFAC CATEGORY 03 PRIME $0 TO $750K TO $1.5M $1.5M 0033AA Senior Computer Scientist (SCS) $ 131.00 $ 110.04 $ 113.97 $ 120.52 0033AB Computer Scientist (CS) $ 93.00 $ 78.12 $ 80.91 $ 85.56 0033AJ Associate Computer Scientist (ACS) $ 65.00 $ 54.60 $ 56.55 $ 59.80 0033AC Computer Science Technician (CST) $ 50.00 $ 42.00 $ 43.50 $ 46.00 0033AD Senior Engineer (SE) $ 101.00 $ 84.84 $ 87.87 $ 92.92 0033AE Engineer (E) $ 78.00 $ 65.52 $ 67.86 $ 71.76 0033AF Engineering Technician (ET) $ 50.00 $ 42.00 $ 43.50 $ 46.00 0033AG Senior Clerical Assistant (SCA) $ 43.00 $ 36.12 $ 37.41 $ 39.56 0033AH Clerical Assistant (CA) $ 34.00 $ 28.56 $ 29.58 $ 31.28 *GFY 2003 Rates valid from October 5, 2002 through October 3, 2003 CY* $750K OVER NAVAIR CATEGORY 04 PRIME $0 TO $750K TO $1.5M $1.5M 29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 162.00 $ 136.08 $ 140.94 $ 149.04 29AB01 Senior Computer Engineer (SCE) $ 126.00 $ 105.84 $ 109.62 $ 115.92 29AC01 Computer Technician (CT) $ 64.00 $ 53.76 $ 55.68 $ 58.88 29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 105.00 $ 88.20 $ 91.35 $ 96.60 29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 126.00 $ 105.84 $ 109.62 $ 115.92 CY* $750K OVER NAVFAC CATEGORY 04 PRIME $0 TO $750K TO $1.5M $1.5M 0033AA Senior Computer Scientist (SCS) $ 139.00 $ 116.76 $ 120.93 $ 127.88 0033AB Computer Scientist (CS) $ 99.00 $ 83.16 $ 86.13 $ 91.08 0033AJ Associate Computer Scientist (ACS) $ 67.00 $ 56.28 $ 58.29 $ 61.64 0033AC Computer Science Technician (CST) $ 53.00 $ 44.52 $ 46.11 $ 48.76 0033AD Senior Engineer (SE) $ 108.00 $ 90.72 $ 93.96 $ 99.36 0033AE Engineer (E) $ 83.00 $ 69.72 $ 72.21 $ 76.36 0033AF Engineering Technician (ET) $ 53.00 $ 44.52 $ 46.11 $ 48.76 0033AG Senior Clerical Assistant (SCA) $ 46.00 $ 38.64 $ 40.02 $ 42.32 0033AH Clerical Assistant (CA) $ 36.00 $ 30.24 $ 31.32 $ 33.12
*GFY 2004 Rates valid from October 4, 2003 through October 1, 2004 Page 9 of 9 CY* $750K OVER NAVAIR CATEGORY 05 PRIME $0 TO $750K TO $1.5M $1.5M 29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 172.00 $ 144.48 $ 149.64 $ 158.24 29AB01 Senior Computer Engineer (SCE) $ 133.00 $ 111.72 $ 115.71 $ 122.36 29AC01 Computer Technician (CT) $ 69.00 $ 57.96 $ 60.03 $ 63.48 29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 110.00 $ 92.40 $ 95.70 $ 101.20 29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 133.00 $ 111.72 $ 115.71 $ 122.36 CY* $750K OVER NAVFAC CATEGORY 05 PRIME $0 TO $750K TO $1.5M $1.5M 0033AA Senior Computer Scientist (SCS) $ 139.00 $ 116.76 $ 120.93 $ 127.88 0033AB Computer Scientist (CS) $ 99.00 $ 83.16 $ 86.13 $ 91.08 0033AJ Associate Computer Scientist (ACS) $ 70.00 $ 58.80 $ 60.90 $ 64.40 0033AC Computer Science Technician (CST) $ 53.00 $ 44.52 $ 46.11 $ 48.76 0033AD Senior Engineer (SE) $ 108.00 $ 90.72 $ 93.96 $ 99.36 0033AE Engineer (E) $ 83.00 $ 69.72 $ 72.21 $ 76.36 0033AF Engineering Technician (ET) $ 53.00 $ 44.52 $ 46.11 $ 48.76 0033AG Senior Clerical Assistant (SCA) $ 46.00 $ 38.64 $ 40.02 $ 42.32 0033AH Clerical Assistant (CA) $ 36.00 $ 30.24 $ 31.32 $ 33.12 *GFY2005 Rates valid from October 2, 2004 through September 30, 2005 CY* $750K OVER NAVAIR CATEGORY 06 PRIME $0 TO $750K TO $1.5M $1.5M 29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 182.00 $ 152.88 $ 158.34 $ 167.44 29AB01 Senior Computer Engineer (SCE) $ 143.00 $ 120.12 $ 124.41 $ 131.56 29AC01 Computer Technician (CT) $ 74.00 $ 62.16 $ 64.38 $ 68.08 29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 117.00 $ 98.28 $ 101.79 $ 107.64 29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 143.00 $ 120.12 $ 124.41 $ 131.56
*GFY 2006 Rates valid from October 1, 2005 through September 29, 2006 ATTACHMENT B STATEMENT OF WORK February 5, 1997 B-1: NAVAIR - STATEMENT OF WORK- OCTOBER 16, 1995 C14.2. PERSONNEL QUALIFICATIONS The Contractor shall employ, in the performance of the work specified herein, only personnel who are fully qualified and competent to perform their assigned work and who possess the minimum qualifications for each labor category shown herein. The experience shall be compatible with the engineering discipline associated with each task ordered. Given the requirement for a fully qualified and competent work force as defined above, the Contractor shall provide the necessary apprentice/trainee program which reflects the needs of the Government for entry level positions. C14.2.1. SUPPORT PERSONNEL CATEGORIES C14.2.1.1. COMPUTER SCIENTIST / ENGINEER C14.2.1.1.1. SENIOR COMPUTER SCIENTIST (SCS)/SENIOR ENGINEER (SE) a. Academic: A Bachelor's degree in physics, mathematics, electrical or electronic engineering or computer sciences from an accredited college or university. Personnel without a bachelor's degree or with a degree in an unrelated field will have two (2) years' relevant professional experience for every year of academic deficiency. The same experience may not be counted toward an academic substitution and the experience requirements below. b. Experience: A minimum of 3 years as a task team leader plus an additional 6 years experience in system or software engineering, including responsibility for performing, without supervision, such tasks as system and software analysis, design studies (including trade-off studies), configuration and data management, quality assurance, planning, costing and specification definition for automated systems projects. 1 C14.2.1.1.2. COMPUTER SCIENTIST (CS) / ENGINEER (E) a. Academic: A Bachelor's degree in physics, mathematics, electrical or electronic engineering or computer sciences from an accredited college or university. Personnel without a bachelor's degree or with a degree in an unrelated field will have two (2) years' relevant professional experience for every year of academic deficiency. The same experience may not be counted toward an academic substitution and the experience requirements below. b. Experience: A minimum of one year as a task team leader plus an additional six years experience in system or software engineering, including responsibility for performing, with minimum supervision, such tasks as system and software analysis, design studies (including trade off studies), configuration and data management, quality assurance, planning, costing and specification definition tasks for automated system projects. C14.2.1.1.3. COMPUTER TECHNICIAN (CT) a. Academic: A high school diploma. b. Experience: A minimum of 3 years experience in system or software engineering, including performing such tasks as system programming, graphics programming, data base programming, applications programming, equipment testing, system operation, system and network installation and system monitoring. C14.2.1.1.4. COMPUTER SPECIALIST (CS) / SOFTWARE SPECIALIST (SS) a. Academic: A Bachelor's degree in computer science, mathematics, physics, engineering or a related discipline from an accredited college or university. Personnel without a bachelor's degree or with a degree in an unrelated field will have two (2) years' relevant professional experience for every year of academic deficiency. The same experience may not be counted toward an academic substitution and the experience requirements below. 2 b. Experience: 1. Level 1: Three years of relevant professional experience in the use of similar application software including at least one year specific experience with the offered application software package. Must exercise responsibility for technical accuracy and be able to function with nominal supervision. 2. Level 2: Six years of relevant professional experience in the use of similar application software including at least one year specific experience with the offered applications software package. - ------------------------------------------------------------------------------- B-2: NAVFAC - STATEMENT OF WORK - September 1996 For the purpose of this Statement of Work, the term contract shall mean subcontractor or seller. C13.2. PERSONNEL QUALIFICATIONS The Contractor shall provide, in the performance of the work specified in individual Purchase Orders, only personnel who are fully qualified and competent to perform their assigned work and who possess the minimum qualifications for each labor category shown herein. The experience shall be compatible with the engineering discipline associated with each task ordered. C13.2.1. COMPUTER SCIENTIST C13.2.1.1. SENIOR COMPUTER SCIENTIST (SCS) a. Academic - A Bachelor's degree in physics, mathematics, electrical engineering or computer sciences from an accredited college or university.(1) b. Experience - A minimum of 3 years as a task team leader plus an additional 5 years of experience in software engineering, including responsibility for performing, without supervision such tasks as system and network communications, hardware, and software analysis; design studies (including trade-off studies); performance analysis; configuration and data management; quality assurance; planning; costing; and specification definition for automated systems projects. - ------------------- (1) The requirements for a Bachelor's degree in computer sciences for a Computer Scientist as shown in Section C 13.2.1.2.a will be modified to allow for a Bachelor's degree in the disciplines of either physics, mathematics, electrical engineering or computer sciences. 3 C13.2.1.2. COMPUTER SCIENTIST (CS) a. Academic - A Bachelor's degree in computer sciences from an accredited college or university. b. Experience - A minimum of 4 years experience in system or software engineering, including responsibility for performing, with minimum supervision, such tasks as system and network communications, hardware, and software analysis; design studies (including trade-off studies); performance analysis; configuration and data management; quality assurance; planning; costing; and specification definition tasks for automated system projects. C13.2.1.3. ASSOCIATE COMPUTER SCIENTIST (ACS) a. Academic - a Bachelor's degree in computer sciences, physics, mathematics or electrical engineering from an accredited college or university. b. Experience - A minimum of six (6) months experience in system or software engineering. This is an entry level position for recent college graduates. Performs such tasks as various types of programming; database creation; and system/network operations. All efforts are performed under close supervision with detailed instructions as to required tasks and results expected. C13.2.1.4. COMPUTER SCIENCE TECHNICIAN (CST) a. Academic - A high school diploma. b. Experience - A minimum of 3 years experience in system or software engineering, including performing such tasks as system programming, graphics programming, data base programming, applications programming, equipment testing, system operation, system and network installation and system monitoring. C13.2.2. ENGINEERING The following three qualification levels apply to the disciplines of: architecture, cartography, civil engineering, electrical engineering, mechanical engineering, and structural engineering.(2) - ------------------- (2) The requirement for Professional registration in the field commensurate with the application discipline category is hereby deleted for the cartography discipline under Section C13.2.2. Reference Intergraph letter AHW-FAC-003 dated 20 Nov 1993. 4 C13.2.2.1. SENIOR ENGINEER (SE) a. Academic - A Bachelor's degree from an accredited college or university in the field commensurate with the application discipline category. b. Registration - Professional registration in the field commensurate with the application discipline category. c. Experience - A minimum of 3 years as a task team leader plus an additional 3 years of experience in application software engineering, including responsibility for performing, without supervision, such tasks as system and software analysis, design studies (including trade-off studies), configuration and data management, quality assurance, planning, costing, and specification definition for application software projects. A minimum of 6 years experience with common facilities projects. C13.2.2.2. ENGINEER (E) a. Academic - A Bachelor's degree from an accredited college or university in the field commensurate with the application discipline category. b. Registration - Professional or Engineer-in-Training registration in the field commensurate with the application discipline category. c. Experience - A minimum of 2 years experience in application software engineering, including responsibility for performing, without supervision, such tasks as system and software analysis, design studies (including trade-off studies), configuration and data management, quality assurance, planning, costing, and specification definition for application software projects. A minimum of 2 years experience with common facilities projects. C13.2.2.3. ENGINEERING TECHNICIAN (ET) a. Academic - A high school diploma. b. Experience - A minimum of 5 years experience in application software use commensurate with the respective application discipline. At least one year analytic geometry and drafting. C13.2.3. CLERICAL SUPPORT C13.2.3.1. SENIOR CLERICAL ASSISTANT (SCA) a. Academic - A high school diploma. b. Experience - A minimum of 4 years experience typing, word-processing, data entry, filing, and library maintenance. C13.2.3.2. CLERICAL ASSISTANT (CA) a. Academic - a high school diploma. 5 b. Experience - A minimum of 2 years experience typing, word-processing, data entry, filing, and library maintenance. C13.3. REVIEW OF CONTRACTOR EMPLOYEE QUALIFICATIONS The Contractor shall, within 60 days of contract award, provide resumes to the COTR verifying education, professional background, experience, and other information for all personnel included in each labor category except clerical. Substitution of personnel shall be in accordance with Section H17. C13.4. TRAVEL FOR TECHNICAL SUPPORT SERVICES As ordered and described by individual Delivery Orders issued under the terms of this contract, Contractor personnel travel and per diem expenses shall be reimbursed in accordance with the DOD Joint Travel Regulation (JTR). The cost for travel shall be on a not to exceed (NTE) price, to be negotiated for the individual Delivery Order. (Refer to Section H21.) The Contractor shall be reimbursed for the actual hours worked plus his actual travel time from point of departure to the Government site and his return to his home office. C13.5. MATERIAL FOR TECHNICAL SUPPORT SERVICES As ordered and described by Delivery Orders issued under this contract, payments for material required for technical support services shall be made in accordance with FAR 52.216-07 "Allowable Cost and Payments Clause." B-3: NAVSEA - STATEMENT OF WORK - April 15, 1994 - ------------------------------------------------------------------------------- GENERAL Subcontractor may from time to time, as ordered under a Purchase Order issued pursuant to this Contract, be required to supply the following services as annotated below. In performance of these various support services, the Subcontractor is responsible for coordinating his efforts such that any problem discovered in performing any specific task or function is identified and corrected. When problems relate to Intergraph or Government controlled documentation, or has a cost, schedule, or other impact, the Subcontractor shall notify the Intergraph Subcontract Administrator of the problem immediately in writing following identification of the problem, and request authorization to implement the necessary corrective action. Unless stipulated in the Purchase Order(s), orders placed under this Subcontract for support services will be on a level-of-effort basis using the labor categories and rates defined in Section B-2, CONSIDERATION. 6 1. SOFTWARE SUPPORT SERVICES The Subcontractor may be required under Purchase Orders, to provide the following services: a. Development of Government-specific software. b. Development of Government-specific training courses. c. Development of Government-specific documentation. d. Software application support. e. Porting of software to the Navy CAD-2 platform. f. Other software engineering services as appropriate. 2. PERSONNEL QUALIFICATIONS The Subcontractor shall employ only personnel who are fully qualified and competent to perform their assigned work and who possess the minimum qualifications for each labor category shown herein. The experience shall be compatible with the discipline associated with each Purchase Order issued under the Subcontract. The resume of these employees is subject to review by Intergraph for purposes of determining acceptance of these employees for work contracted for by Intergraph. The following defines the qualifications of the types of personnel expected to be ordered under a Purchase Order pursuant to this Contract. 2.1 COMPUTER ENGINEERS Professional Computer Engineers (CE) shall have the following qualifications and applicable experience levels: a. Academic: A Bachelor degree in computer science, mathematics, physics, engineering, or a related discipline from an accredited college or university; or a Bachelor degree in an unrelated discipline with units and grades in one of the above fields equivalent to the requirements for a major at an accredited university. Personnel without a Bachelor's degree will have four years of relevant professional experience in addition to the experience needed to fulfill the CE Levels 1-4 requirements described in the following paragraphs. 7 b. Experience: 1. CE LEVEL 1 - At least one year of relevant professional experience. 2. CE LEVEL 2 - At least three years of relevant professional experience including at least one year at the CE Level 1 or equivalent level. Must exercise responsibility for technical accuracy and be able to function with nominal supervision. 3. CE LEVEL 3 - At least six years of relevant professional experience including at least two years at the CE Level 2 or equivalent level. Must function without supervision except for general policy and guidelines. 4. CE LEVEL 4 - Nine years of relevant professional experience including at least two years recent experience at the CE Level 3 or equivalent level and must have demonstrated the ability to establish and utilize sound engineering and management principles to accomplish the research and/or development goals of an ADP related program, and to perform overall management of major ADP development and systems implementation efforts. 2.2 COMPUTER TECHNICIAN Computer Technicians (CT) shall have the following qualifications and applicable experience levels: a. Academic: A high school diploma. b. Experience: 1. CT LEVEL 1 - At least twelve months of relevant experience 2. CT LEVEL 2 - At least three years of relevant experience including at least six months at the CT Level 1 or equivalent. 3. CT LEVEL 3 - At least six years of relevant experience including at least two years at the CT Level 2 or equivalent level. Must function at a professional level of competence and require little or no supervision except for policy and general guidelines. 4. CT LEVEL 4 - At least 9 years of relevant experience including at least five years recent experience at the CT Level 3. Must function at a professional level of competence and must have demonstrated the ability to provide "task team" or "project" leadership, if required. 8 ATTACHMENT C STATUS REPORT FORMAT (SECTION H, CLAUSE H-1) - ------------------------------------------------------------------------------- WEEKLY STATUS REPORT (PO XXXXXX) SUBCONTRACTOR NAME
LABOR WA NAME CATEGORY CLIN RATE HOURS $ TOTAL PERIOD OF PERFORMANCE TASK ITR - ------------------------------------------------------------------------------------------------------------------------------------ 2100-1000 Doe, John SCS / SE 29AA01 $40.00 10.00 $400.00 1/1/98 - 1/15/98 JTIDS SCHACHT Roe, Jana SC / E 29AB01 $30.00 20.00 $600.00 1/1/98 - 1/15/98 JTIDS SCHACHT Smith, Mary CT 29AC01 $20.00 40.00 $800.00 1/1/98 - 1/15/98 JTIDS SCHACHT LABOR - TOTAL $1,800.00 TRAVEL - AIRFARE $200.00 TRAVEL - OTHER $100.00 TRAVEL - TOTAL $300.00 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL 2100-1000 $2,100.00 - ------------------------------------------------------------------------------------------------------------------------------------ 2100-1001 Jones, Tom CS / SS1 29AD01 $30.00 40.00 $1,200.00 1/1/98 - 1/15/98 JTIDS SCHACHT Ward, Burt CS / SS2 29AE01 $40.00 30.00 $1,200.00 1/1/98 - 1/15/98 JTIDS SCHACHT LABOR - TOTAL $2,400.00 TRAVEL - AIRFARE $0.00 TRAVEL - OTHER $250.00 TRAVEL - TOTAL $250.00 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL 2100-1001 $2,650.00 - ------------------------------------------------------------------------------------------------------------------------------------ 2100-1002 Doe, John SCS / SE 29AA01 $40.00 30.00 $1,200.00 1/1/98 - 1/15/98 JTIDS SCHACHT Roe, Jane SC / E 29AB01 $30.00 20.00 $600.00 1/1/98 - 1/15/98 JTIDS SCHACHT Ward, Burt CS / SS2 29AE01 $40.00 10.00 $400.00 1/1/98 - 1/15/98 JTIDS SCHACHT LABOR - TOTAL $2,200.00 TRAVEL - AIRFARE $ 0.00 TRAVEL - OTHER $ 0.00 TRAVEL - TOTAL $0.00 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL 2100-1002 $2,200.00 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL WEEKLY AMOUNT TO BE INVOICED THIS P.O. $6,950.00 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ P.O. XXXXXX SUMMARY TOTAL EXPANDED LABOR HOURS THRU HOURS CATEGORY CLIN AUTHORIZED THIS P.O. BALANCE - ------------------------------------------------------------------------------------------------------------------------------------ SCS 29AA01 1000 40 960 Intergraph Technical Representative SC 29AB01 1000 40 960 APPROVAL: CT 29AC01 2000 40 1960 CS / SS1 29AD01 1000 40 960 CS / SS2 29AE01 1000 40 960 --------------------- ------------ Travel $10,000.00 $550.00 $9,450.00 (Signature) (Date)
ATTACHMENT D LIST OF APPROVED EMPLOYEES (Section H, Clause H-5) February 5, 1997 - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- NAVAIR LABOR CATEGORY EMPLOYEE NAME - -------------- ------------- Senior Computer Scientist/Senior Engineer (SCS/SE) Computer Scientist/Engineer (CS/E) Computer Technician (CT) Computer Specialist/Software Specialist, Level 1 (SS/CS-1) Computer Specialist/Software Specialist, Level 2 (SS/CS-2) - ------------------------------------------------------------------------------- NAVFAC LABOR CATEGORY EMPLOYEE NAME - -------------- ------------- Senior Computer Scientist (SCS) Computer Scientist (CS) Associate Computer Scientist (ACS) Computer Science Technician (CST) Ingrid Gardelin Nathan P. Stewart Senior Engineer (SE) James K. Finnegan Frederick W. Holderman Raymond J. Kusmer Jeffrey R. Loitfellner Engineer (E) Francisco Bordon Carlos A. Degarate Ralph E. Dilts M. J. Funke Michael Hansen 1 LABOR CATEGORY EMPLOYEE NAME - -------- ------------- Computer Technician, Level 4 (CT4) Anthony J. Bernardo Francis M. Briggs Ralph E. Dilts James K. Finnegan Gary Flemming M. J. Funke Errol Ivy Kenneth Larsen Ronald J. Moore Rich Orvin Sergio Palacio Evelyn T. Picozzi David Rose Joseph M. Sheer Jim Thayer Craig L. Thompson Bradley J. Wahl Ronald P. Wilson 2 - ------------------------------------------------------------------------------- NAVSEA LABOR CATEGORY EMPLOYEE NAME - -------------- ------------- Computer Engineer, Level 1 (CE1) Computer Engineer, Level 2 (CE2) Michael Hansen Elisa A. Hoyt Computer Engineer, Level 3 (CE3) Francisco Bordon Computer Engineer, Level 4 (CE4) Frederick W. Holderman Computer Technician, Level 1 (CT1) Computer Technician, Level 2 (CT2) Perry P. Breauz William M. Daniels Carlos A. Degarate Mary Gan Lynn A. Halwix Deneta B. Jones Roger Mifsud Gilberto Moreno Michael J. Nunez Augustine Roddy Nathan P. Stewart Brian Wood Computer Technician, Level 3 (CT3) James D. Deitrick Craig J. Doscher Christine L. Fox Ingrid Gardelin Paul M. Giovannoni David W. Hausmann Rachel M. Hubbard Michael D. Morales Marie Nadel Jill Parkey Fernando Velasco Richard A. Watts Renard Wynn 3 LABOR CATEGORY EMPLOYEE NAME - -------------- ------------- Engineer (E) (Cont'd) Elisa A. Hoyt Mario J. Lataillade Sergio Palacio Renard Wynn Engineering Technician (ET) Anthony M. Bernardo Perry P. Breauz Francis M. Briggs William Daniels James D. Deitrick Craig J. Doscher Gary Flemming Christine L. Fox Mary Gan Paul M. Giovannoni Lynn A. Halwix David W. Hausmann Rachel M. Hubbard Errol Ivy Deneta B. Jones Kenneth Larsen Roger Mifsud Ronald J. Moore Michael D. Morales Gilberto Moreno Marie Nadel Michael J. Nunez Rich Orvin Jill Parkey Evelyn T. Picozzi Augustine Roddy David Rose Joseph M. Sheer Jim Thayer Craig L. Thompson Fernando Velasco Bradley j. Wahl Richard A. Watts Ronald P. Wilson Brian Wood Senior Clerical Assistant (SCA) Clerical Assistant (CA) April Stenger
4 ATTACHMENT B SECTION K - REPRESENTATIONS, CERTIFICATIONS, AND OTHER STATEMENTS OF OFFERORS K-1. CERTIFICATE OF INDEPENDENT PRICE DETERMINATION (APR 1985) (FAR 52.203-2) a. The offeror certifies that -- (1) The prices in this offer have been arrived at independently, without, for the purpose of restricting competition, any consultation, communication, or agreement with any other offeror or competitor relating to (i) those prices, (ii) the intention to submit an offer, or (iii) the methods or factors used to calculate the prices offered; (2) The prices in this offer have not been and will not be knowingly disclosed by the offeror, directly or indirectly, to any other offeror or competitor before bid opening (in the case of a sealed bid solicitation) or contract award (in the case of a negotiated solicitation) unless otherwise required by law; and (3) No attempt has been made or will be made by the offeror to induce any other concern to submit or not to submit an offer for the purpose of restricting competition. b. Each signature on the offer is considered to be a certification by the signatory that the signatory -- (1) Is the person in the offeror's organization responsible for determining the prices being offered in this bid or proposal, and that the signatory has not participated and will not participate in any action contrary to subparagraphs (a)(1) through (a)(3) above; or (2) (i) Has been authorized, in writing, to act as agent for the following principals in certifying that those principals have not participated, and will not participate in any action contrary to subparagraphs (a)(1) through (a)(3) above Michael H. Lorber, Vice President-Finance & CFO ----------------------------------------------- Phillip W. Card, Vice President Operations ----------------------------------------------- (insert full name of person(s) in the offeror's organization responsible for determining the prices offered in this bid or proposal, and the title of his 1 or her position in the offeror's organization); (ii) As an authorized agent, does certify that the principals named in subdivision (b)(2)(i) above have not participated, and will not participate, in any action contrary to subparagraphs (a)(1) through (a)(3) above; and (iii) As an agent, has not personally participated, and will not participate, in any action contrary to subparagraphs (a)(1) though (a)(3) above. c. If the offeror deletes or modifies subparagraph (a)(2) above, the offeror must furnish with its offer a signed statement setting forth in detail the circumstances of the disclosure. K-2. CONTINGENT FEE REPRESENTATION AND AGREEMENT (APR 1984) (FAR 52.203-4) (a) REPRESENTATION. The offeror represents that, except for full-time bona fide employees working solely for the offeror, the offeror -- (Note: The offeror must check the appropriate boxes. For interpretation of the representation, including the term "bona fide employee," see Subpart 3.4 of the Federal Acquisition Regulation.) (1) [ ] has, [X] has not employed or retained any person or company to solicit or obtain this contract; and (2) [ ] has, [X] has not paid or agreed to pay to any person or company employed or retained to solicit or obtain this contract any commission, percentage, brokerage, or other fee contingent upon or resulting from the award of this contract. (b) AGREEMENT. The offeror agrees to provide information relating to the above Representation as requested by the Contracting Officer and, when subparagraph (a)(1) or (a)(2) is answered affirmatively, to promptly submit to the Contracting Officer -- (1) A completed Standard Form 119, Statement of Contingent or Other Fees, (SF 119); or (2) A signed statement indicating that the SF 119 was previously submitted to the same contracting office, including the date and applicable solicitation or contract number, and representing that the prior SF 119 applies to this offer or quotation. 2 K-3. ANTI-KICKBACK PROCEDURES (OCT 1988) (FAR 52.203-7) (a) Definitions. "Kickback," as used in this clause, means any money, fee commission, credit, gift, gratuity, thing of value, or compensation of any kind which is provided, directly or indirectly, to any prime Contractor, prime Contractor employee, subcontractor, or subcontractor employee for the purpose of improperly obtaining or rewarding favorable treatment in connection with a prime contract or in connection with a subcontract relating to a prime contract. "Person," as used in this clause, means a corporation, partnership, business association of any kind, trust, joint-stock company, or individual. "Prime contract," as used in this clause, means a contract or contractual action entered into by the United States for the purpose of obtaining supplies, materials, equipment, or services of any kind. "Prime Contractor," as used in this clause, means a person who has entered into a prime contract with the United States. "Prime Contractor employee," as used in this clause, means any officer, partner, employee, or agent of a prime Contractor. "Subcontract," as used in this clause, means a contract or contractual action entered into by a prime Contractor or subcontractor for the purpose of obtaining supplies, materials, equipment, or services of any kind under a prime contract. "Subcontractor," as used in this clause, (1) means any person, other than the prime Contractor, who offers to furnish or furnishes any supplies, materials, equipment, or services of any kind under a prime contract or a subcontract entered into in connection with such prime contract, and (2) includes any person who offers to furnish or furnishes general supplies to the prime Contractor or a higher tier subcontractor. "Subcontractor employee," as used in this clause, means any officer, partner, employee, or agent of a subcontractor. (b) The Anti-Kickback Act of 1986 (41 U.S.C. 51-58) (the Act), prohibits any person from -- (1) Providing or attempting to provide or offering to provide any kickback; (2) Soliciting, accepting, or attempting to accept any 3 kickback; or (3) Including, directly or indirectly, the amount of any kickback in the contract price charged by a prime Contractor to the United States or in the contract price charged by a subcontractor to a prime Contractor or higher tier subcontractor. (c) (1) The Contractor shall have in place and follow reasonable procedures designed to prevent and detect possible violations described in paragraph (b) of this clause in its own operations and direct business relationships. (2) When the Contractor has reasonable grounds to believe that a violation described in paragraph (b) of this clause may have occurred, the Contractor shall promptly report in writing the possible violation. Such reports shall be made to the inspector general of the contracting agency, the head of the contracting agency if the agency does not have an inspector general, or the Department of Justice. (3) The Contractor shall cooperate fully with any Federal agency investigating a possible violation described in paragraph (b) of this clause. (4) The Contracting Officer may (i) offset the amount of the kickback against any monies owed by the United States under the prime contract and/or (ii) direct that the Prime Contractor withhold, from sums owed a subcontractor under the prime contract, the amount of any kickback. The Contracting Officer may order that monies withheld under subdivision (c)(4)(ii) of this clause be paid over to the Government unless the Government has already offset those monies under subdivision (c)(4)(i) of this clause. In either case, the Prime Contractor shall notify the Contracting Officer when the monies are withheld. (5) The Contractor agrees to incorporate the substance of this clause, including this subparagraph (c)(5) but excepting subparagraph (c)(1), in all subcontracts under this contract. K-4. REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY (MAY 1989) (FAR 52.203-8) (a) DEFINITIONS. The definitions at FAR 3.104-4 are hereby incorporated in this provision. (b) CERTIFICATIONS. As required in paragraph (c) of this provision, the officer or employee responsible for this offer shall execute the following certification: 4 CERTIFICATE OF PROCUREMENT INTEGRITY (1) I, Michael H. Lorber (Name of certifier), am the officer or employee responsible for the preparation of this offer or bid and hereby certify that, to the best of my knowledge and belief, with the exception of any information described in this certificate, I have no information concerning a violation or possible violation of subsection 27(a), (b), (d), or (e) of the Office of Federal Procurement Policy Act* (41 U.S.C. 423), (hereinafter referred to as "the Act"), as implemented in the FAR, occurring during the conduct of this procurement ________________________________________ (solicitation number). (2) As required by subsection 27(d)(1)(B) of the Act, I further certify that each officer, employee, agent, representative, and consultant of TomaHawk II, Inc. (Name of Offeror) who has participated personally and substantially in the preparation or submission of this offer has certified that he or she is familiar with, and will comply with, the requirements of subsection 27(a) of the Act, as implemented in the FAR, and will report immediately to me any information concerning a violation or possible violation of the Act, as implemented in the FAR, pertaining to this procurement. (3) Violation or possible violations: (Continue on plain bond paper if necessary and label Certificate of Procurement Integrity (Continuation Sheet). ENTER NONE IF NONE EXIST) None - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- /s/ Michael H. Lorber --------------------------------------------------------------------------- (Signature of the officer or employee responsible for the offer and date) Michael H. Lorber --------------------------------------------------------------------------- (Typed name of the officer or employee responsible for the offer) * Section 27 became effective on July 16, 1989. THIS CERTIFICATION CONCERNS A MATTER WITHIN THE JURISDICTION OF AN AGENCY OF THE UNITED STATES AND THE MAKING OF A FALSE, FICTITIOUS, OR FRAUDULENT CERTIFICATION MAY RENDER THE MAKER SUBJECT TO PROSECUTION UNDER TITLE 18, UNITED STATES CODE, SECTION 1001. 5 (c) The signed certification in paragraph (b) of this provision shall be executed and submitted as follows: (1) If this is an invitation for bids (IFB), with bid submissions exceeding $100,000. (2) If this is a procurement using the two-step sealed bidding procedure (see FAR Subpart 14.5), with bids exceeding $100,000, with submission to the Government of step-two sealed bids. (3) If this is a request for proposal (RFP) or quotation (RFQ), by the successful offeror as close as practicable to, but in no event later than, the date of award of a contract exceeding $100,000. (4) If this is an invitation for bids for an indefinite delivery-type contract, and if the estimated value of orders to be placed under the contract is expected to exceed $100,000, with the bid submission. (5) If this is an RFQ or RFP for an indefinite delivery-type contract, and if the estimated value or orders to be placed under the contract is expected to exceed $100,000, by the successful offeror as close as practicable to, but in no event later than, the date of contract award. (6) For letter contracts, prior to award of the letter contract and prior to definitization of the letter contracts. (7) For other procurement actions in excess of $100,000, prior to award or execution as specified by the Contracting Officer. (8) The certificate required by subparagraphs (c)(3) and (c)(5) through (c)(7) of this provision shall be submitted to the Contracting Officer within the time period specified by the Contracting Officer when requesting the certificate. (d) Pursuant to FAR 3.104-9(d), the Offeror may be requested to execute additional certifications at the request of the Government. (e) Failure of an Offeror to submit the certification required by FAR 3.104-9(b) or any additional certification pursuant to FAR 3.104-9(d) will render the offeror ineligible for contract award (see FAR 9.104-1(g)). (f) A certification containing a disclosure of a violation or possible violation will not necessarily result in the withholding of an award under this solicitation. However, the 6 Government, after evaluation of the disclosure, may cancel this procurement or take any other appropriate actions in the interests of the Government, such as disqualification of the Offeror. (g) In making the certification in subparagraph (b)(2) of this provision, the offeror may rely upon the certification by an officer, employee, agent, representative, or consultant that such person is in compliance with the requirements of subsections 27(a), (b), (c), or (e) of the Office of Federal Procurement Policy Act (41 U.S.C. 423), as implemented in the FAR, unless the offeror knows, or should have known, of reasons to the contrary. The offeror may rely upon periodic certifications that must be obtained at least annually, supplemented with periodic training programs. These certifications shall be maintained by the Contractor for 6 years from the date of execution. (h) The certifications in paragraph (b) and (d) of this provision are a material representation of fact upon which reliance will be placed in awarding a contract. K-5. TAXPAYER IDENTIFICATION (NOV 1988) (FAR 52.204-3) (a) DEFINITIONS. "Common parent," as used in this solicitation provision, means an offeror that is a member of an affiliated group of corporations that files its Federal income tax returns on a consolidated basis. "Corporate status," as used in this solicitation provision, means a designation as to whether the offeror is a corporate entity, an unincorporated entity (e.g., sole proprietorship or partnership), or a corporation providing medical and health care services. "Taxpayer Identification Number (TIN)," as used in this solicitation provision, means the number required by the IRS to be used by the offeror in reporting income tax and other returns. (b) The offeror is required to submit the information required in paragraphs (c) through (e) of this solicitation provision in order to comply with reporting requirements of 26 U.S.C. 6041, 6041A, and 6050M and implementing regulations issued by the Internal Revenue Service (IRS). If the resulting contract is subject to reporting requirements described in FAR 4.902(a), the failure or refusal by the offeror to furnish the information may result in a 20 percent reduction of payments otherwise due under the contract. 7 (c) TAXPAYER IDENTIFICATION NUMBER (TIN). (X) TIN: 36-3873499 --------------------------------- ( ) TIN has been applied for. ( ) TIN is not required because: ( ) Offeror is a nonresident alien, foreign corporation, or foreign partnership that does not have income effectively connected with the conduct of a trade or business in the U.S. and does not have an office or place of business or a fiscal paying agent in the U.S.; ( ) Offeror is an agency or instrumentality of a foreign government; ( ) Offeror is an agency or instrumentality of a state, or local government; ( ) Other. State basis. ___________________________________ (d) CORPORATE STATUS. ( ) Corporation providing medical and health care services, or engaged in the billing and collecting of payments for such services; (X) Other corporate entity; ( ) Not a corporate entity; ( ) Sole proprietorship; ( ) Partnership; Hospital or extended care facility described in 26 CFR 501(c)(3) that is exempt from taxation under 26 CFR 501(a). (e) COMMON PARENT. (X) Offeror is not owned or controlled by a common parent as defined in paragraph (a) of this clause. ( ) Name and TIN of common parent: Name ________________________________________________________________ TIN ________________________________________________________________ 8 K-6. JEWEL BEARINGS AND RELATED ITEMS CERTIFICATE (APR 1984) (FAR 52.208-2) (a) This is to certify that -- (1) Jewel bearings and/or related items, as defined in the Required Sources for Jewel Bearings and Related Items clause, will not be incorporated into any item covered by this offer; (2) Any jewel bearing required (or equal quantity of the same type, size, and tolerances) will be ordered from the William Langer Plant, Rolla, North Dakota 58367, as provided in the Required Sources for Jewel Bearings and Related Items clause, and (3) Any related items required (or an equal quantity of the same type, size, and tolerance) will be required from domestic manufacturers, including the Plant, if the items can be obtained (b) Attached to this certificate are estimates of the quantity, type, and size (including tolerance) of the jewel bearings and related items required, and identification of the components, subassemblies, or parts that require jewel bearings or related items. Date of Execution ____________________________________________________________ Solicitation Number __________________________________________________________ Name _________________________________________________________________________ Time _________________________________________________________________________ Firm _________________________________________________________________________ Address ______________________________________________________________________ K-7. CERTIFICATION REGARDING DEBARMENT, SUSPENSION, PROPOSED DEBARMENT, AND OTHER RESPONSIBILITY MATTERS (MAY 1989) (FAR 52.209-5) (a)(1) The Offeror certifies, to the best of its knowledge and belief, that -- (i) The Offeror and/or any of its Principals -- (A) Are ( ) are not (X) presently debarred, suspended, proposed for debarment, or declared ineligible for the award of contracts by any Federal agency; (B) Have ( ) have not (X), within a three-year period preceding this offer, been convicted of or had a civil judgment rendered against them for: commission of fraud or a criminal 9 offense in connection with obtaining, attempting to obtain, or performing a public (Federal, state, or local) contract or subcontract; violation of Federal or state antitrust statutes relating to the submission of offers; or commission of embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, or receiving stolen property; and (C) Are ( ) are not (X) presently indicted for, or otherwise criminally or civilly charged by a governmental entity with, commission of any of the offenses enumerated in subdivision (a)(1)(i)(B) of this provision. (ii) The Offeror has ( ) has not (X), within a three-year period preceding this offer, had one or more contracts terminated for default by any Federal agency. (2) "Principals," for the purposes of this certification, means officer; director; owners; partners; and, persons having primary management or supervisory responsibilities within a business entity (e.g., general manager; plant manager; head of a subsidiary, division, or business segment, and similar positions). This certification concerns a matter within the jurisdiction of an agency of the United States and the making of a false, fictitious, or fraudulent certification may render the maker subject to prosecution under section 1001, title 18, United States Code. (b) The Offeror shall provide immediate written notice to the Contracting Officer if, at any time prior to contract award, the Offeror learns that its certification was erroneous when submitted or has become erroneous by reason of changed circumstances. (c) A certification that any of the items in paragraph (a) of this provision exists will not necessarily result in withholding of an award under this solicitation. However, the certification will be considered in connection with a determination of the Offeror's responsibility. Failure of the Offeror to furnish a certification or provide such additional information as requested by the Contracting Officer may render the Offeror nonresponsible. (d) Nothing contained in the forgoing shall be construed to require establishment of a system of records in order to render, in good faith, the certification required by paragraph (a) of this provision. The knowledge and information of an Offeror is not required to exceed that which is normally possessed by a prudent person in the ordinary course of business dealings. 10 (e) The certification in paragraph (a) of this provision is a material representation of fact upon which reliance was placed when making award. If it is later determined that the Offeror knowingly rendered an erroneous certification, in addition to the other remedies available to the Government, the Contracting Officer may terminate the contract resulting from this solicitation for default. K-8. TYPE OF BUSINESS ORGANIZATION (JUL 1987) (FAR 52.215-6) The offeror or quoter, by checking the applicable box, represents that -- (a) It operates as [X] a corporation incorporated under the laws of the State of Illinois, [ ] an individual, [ ] a partnership, [ ] a nonprofit organization, or [ ] a joint venture. (b) If the offeror or quoter is a foreign entity, it operates as [ ] an individual, [ ] a partnership, [ ] a nonprofit organization, [ ] a joint venture, or [ ] a corporation, registered for business in _________ (country). K-9. AUTHORIZED NEGOTIATORS (APR 1984) (FAR 52.215-11) The offeror or quoter represents that the following persons are authorized to negotiate on its behalf with the Government in connection with this request for proposals or quotations: (list names, titles, and telephone numbers of the authorized negotiators). Name Michael H. Lorber, Phillip W. Card, Steven M. Caira --------------------------------------------------------------------------- Title VP-Finance & CEO VP Operations President & CEO -------------------------------------------------------------------------- Telephone Number (619) 623-0920 --------------------------------------------------------------- K-10. PLACE OF PERFORMANCE (APR 1984) (FAR 52.215-20) (a) The offeror or quoter, in the performance of any contract resulting from this solicitation, [X] intends, [ ] does not intend (check applicable block) to use one or more plants or facilities located at a different address from the address of the offeror or quoter as indicated in this proposal or quotation. (b) If the offeror or quoter checks "intends" in paragraph (a) above, it shall insert in the spaces provided below the required information: 11 Place of Performance (Street Name and Address of Owner Address, City, County, and Operator of the Plant State, Zip Code) or Facility if Other than Offeror or Quoter TomaHawk II, Inc. - ----------------------------- ------------------------- 400 Lake Cook Rd. #203 - ----------------------------- ------------------------- Deerfield, IL 60015 - ----------------------------- ------------------------- K-11. SMALL BUSINESS CONCERN REPRESENTATION (MAY 1986) (FAR 52.219-1) The offeror represents and certifies as part of its offer that it [x] is, [ ]is not a small business concern and that [ ] all, [ ] not all end items to be furnished will be manufactured or produced by a small business concern in the United States, its territories or possessions, or Puerto Rico, or the Trust Territory of the Pacific Islands. "Small business concern," as used in this provision, means a concern, including its affiliates, that is independently owned and operated, not dominant in the field of operation in which it is bidding on Government contracts, and qualified as a small business under the size standards in this solicitation. K-12. SMALL DISADVANTAGED BUSINESS CONCERN REPRESENTATION (DOD FAR SUPPLEMENT DEVIATION) (DEC 1991) (DFARS 252.219-7000) (a) DEFINITION. "Small disadvantaged business concern", as used in this provision, means a small business concern, including mass media, owned and controlled by individuals who are both socially and economically disadvantaged, as defined by the Small Business Administration at 13 CFR part 124, the majority of earnings of which directly accrue to such individuals. (13 CFR part 124 generally provides that a small disadvantaged business concern is a small business concern (1) which is at least fifty-one percent (51%) owned by one or more socially and economically disadvantaged individuals; or in the case of any publicly owned business, at least fifty-one percent (51%) of the voting stock of which is owned by one or more socially and economically disadvantaged individuals, and (2) whose management and daily business operations are controlled by one or more such individuals.) (See 13 CFR 124.101 through 124.110) (b) REPRESENTATION. The Offeror represents that its qualifying ownership falls within at least one of the following categories (check the applicable categories): 12 Subcontinent Asian (Asian-Indian) American (U.S. citizen with origins - ----- from India, Pakistan, Bangladesh, or Sri Lanka) Asian-Pacific American (U.S. citizen with origins from Japan, China, - ----- the Philippines, Vietnam, Korea, Samoa, Guam, U.S. Trust Territory of the Pacific Islands, Northern Mariana Islands, Laos, Cambodia, or Taiwan) Black American (U.S. citizen) - ----- Hispanic American (U.S. citizen with origins from South America, - ----- Central America, Mexico, Cuba, the Dominican Republic, Puerto Rico, Spain, or Portugal) Native American (American Indians, Eskimos, Aleuts, or Native - ----- Hawaiians) Individual/concern certified for participation in the Minority Small - ----- Business and Capital Ownership Development Program under section 8(a) of the Small Business Act (15 U.S.C. 637(a)) Other (In addition to (c)(1), Offeror must complete (c)(2) below) - ----- (c) Certification. (1) The offeror represents and certifies, as part of its offer, that it is , is not X a small disadvantaged business concern. - ----- ----- (2) (Complete only if item (b) above is checked "Other") The offeror represents and certifies, as part of its offer, that the Small Business Administration (SBA) has _____, has not _____ made a determination concerning the offeror's status as a small disadvantaged business concern. If the SBA has made a determination, the date of the determination was ____________ and the offeror certifies that it was _____, was not _____ found by the SBA to be socially and economically disadvantaged as a result of that determination and that no circumstances have changed to vary that determination. (d) NOTIFICATION. The offeror agrees to notify the Contracting Officer before award of any change in its status as a small disadvantaged business concern occurring between the submission of its offer and contract award. (e) PENALTY. The offeror represents and certifies that the above information is true and understands that whoever for the purpose of securing a contract or subcontract under subsection 13 (a) of Section 1207 of Public Law 99-661 misrepresents the status of any concern or person as a small disadvantaged concern owned and controlled by a minority (as described in subsection (a)) shall be punished by imposition of a fine of not less than $10,000 or by imprisonment for not more than one year, or both. K-13. WOMEN-OWNED SMALL BUSINESS REPRESENTATION (APR 1984) (FAR 52.219-3) (a) REPRESENTATION. The offeror represents that it [ ] is, [X] is not a women-owned small business concern. (b) DEFINITIONS. "Small business concern," as used in this provision, means a concern, including its affiliates, that is independently owned and operated, not dominant in the field of operation in which it is bidding on government contracts, and qualified as a small business under the criteria and size standards in 13 CFR 121. "Women-owned, " as used in this provision, means a small business that is at least 51 percent owned by a woman or women who are U.S. citizens and who also control and operate the business. K-14. PREFERENCE FOR LABOR SURPLUS AREA CONCERNS (APR 1984) (FAR 52.220-1) (a) This acquisition is not a set-aside for labor surplus area (LSA) concerns. However, the offeror's status as such a concern may affect (1) entitlement to award in case of tie offers or (2) offer evaluation in accordance with the Buy American Act clause of this solicitation. In order to determine whether the offeror is entitled to a preference under (1) or (2) above, the offeror must identify, below, the LSA in which the costs to be incurred on account of manufacturing or production (by the offeror or the first-tier subcontractors) amount to more than 50 percent of the contract price. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (b) Failure to identify the locations as specified above will preclude consideration of the offeror as an LSA concern. If the offeror is awarded a contract as an LSA concern and would not have otherwise qualified for award, the offeror shall perform the contract or cause the contract to be performed in accordance with the obligations of an LSA concern. 14 K-15. WALSH-HEALEY PUBLIC CONTRACT ACT REPRESENTATION (APR 1984) (FAR 52.222-19) The offeror represents as a part of this offer that the offeror is [X] or is not [ ] a regular dealer in, or is [ ] or is not [ ] manufacturer of the supplies offered. K-16. CERTIFICATION OF NONSEGREGATED FACILITIES (APR 1984) (FAR 52.222-21) (a) "Segregated facilities," as used in this provision, means any waiting rooms, work areas, rest rooms and wash rooms, restaurants and other eating areas, time clocks, locker rooms and other storage or dressing areas, parking lots, drinking fountains, recreation or entertainment areas, transportation, and housing facilities provided for employees, that are segregated by explicit directive or are in fact segregated on the basis of race, color, religion, or national origin because of habit, local custom, or otherwise. (b) By the submission of this offer, the offeror certifies that it does not and will not maintain or provide for its employees any segregated facilities at any of its establishments, and that it does not and will not permit its employees to perform their services at any location under its control where segregated facilities are maintained. The offeror agrees that a breach of this certification is a violation of the Equal Opportunity clause in the contract. (c) The offeror further agrees that (except where it has obtained identical certifications from proposed subcontractors for specific time periods) it will -- (1) Obtain identical certifications from proposed subcontractors before the award of subcontracts under which the subcontractor will be subject to the Equal Opportunity clause; (2) Retain the certifications in the files; and (3) Forward the following notice to the proposed subcontractors (except if the proposed subcontractors have submitted identical certifications for specific time periods): NOTICE TO PROSPECTIVE SUBCONTRACTORS OF REQUIREMENT FOR CERTIFICATIONS OF NONSEGREGATED FACILITIES. A Certification of Nonsegregated Facilities must be submitted before the award of a subcontract under which the subcontractor will be subject to the Equal Opportunity clause. The certification may be submitted either for each subcontract or 15 for all subcontracts during a period (i.e., quarterly, semiannually, or annually). NOTE: The penalty for making false statements in offers is prescribed in 18 U.S.C. 1001. K-17. PREVIOUS CONTRACTS AND COMPLIANCE REPORTS (APR 1984) (FAR 52.222-22) The offeror represents that -- (a) It [X] has, [ ] has not, participated in a previous contract or subcontract subject either to the Equal Opportunity clause of this solicitation, the clause originally contained in Section 310 of Executive Order No. 10925, or the clause contained in Section 201 of Executive Order No. 11114; (b) It [ ] has, [X] has not, filed all required compliance reports; and (c) Representations indicating submission of required compliance reports, signed by proposed subcontractor, will be obtained before subcontract awards. K-18. AFFIRMATIVE ACTION COMPLIANCE (APR 1984) (FAR 52.222-25) The offeror represents that (a) it [ ] has developed and has on file, [X] has not developed and does not have on file, at each establishment, affirmative action programs required by the rules and regulations of the Secretary of Labor (41 CFR 60-1 and 60-2), or (b) it [ ] has not previously had contracts subject to the written affirmative action programs requirement of the rules and regulations of the Secretary of Labor. K-19. EQUAL OPPORTUNITY (APR 1984) (FAR 52.222-26) (a) If, during any 12-month period (including the 12 months preceding the award of this contract), the Contractor has been or is awarded nonexempt Federal contracts and/or subcontracts that have an aggregate value in excess of $10,000, the Contractor shall comply with subparagraphs (b)(1) through (11) below. Upon request, the Contractor shall provide information necessary to determine the applicability of this clause. (b) During performing this contract, the Contractor agrees as follows: 16 (1) The Contractor shall not discriminate against any employee or applicant for employment because of race, color, religion, sex, or national origin. (2) The Contractor shall take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to their race, color, religion, sex, or national origin. This shall include, but not be limited to, (i) employment, (ii) upgrading, (iii) demotion, (iv) transfer, (v) recruitment or recruitment advertising, (vi) layoff or termination, (vii) rates of pay or other forms of compensation, and (viii) selection for training, including apprenticeship. (3) The Contractor shall post in conspicuous places available to employees and applicants for employment the notices to be provided by the Contracting Officer that explain this clause. (4) The Contractor shall, in all solicitations or advertisement for employees placed by or on behalf of the Contractor, state that all qualified applicants will receive consideration for employment without regard to race, color, religion, sex, or national origin. (5) The Contractor shall send, to each labor union or representative of workers with which it has a collective bargaining agreement or other contract or understanding, the notice to be provided by the Contracting Officer advising the labor union or workers' representative of the Contractor's commitments under this clause, and post copies of the notice in conspicuous places available to the employees and applicants for employment. (6) The Contractor shall comply with Executive Order 11246, as amended, and the rules, regulations, and orders of the Secretary of Labor. (7) The Contractor shall furnish to the contracting agency all information required by Executive Order 11246, as amended, and by the rules, regulations, and orders of the Secretary of Labor. Standard Form 100 (EEO-1), or any successor form, is the prescribed form to be filed within 30 days following the award, unless filed within 12 months preceding the date of the award. (8) The Contractor shall permit access to its books, records, and accounts by the contracting agency or the Office of Federal Contract Compliance Programs (OFCCP) for the purposes of investigation to ascertain the Contractor's compliance with the applicable rules, regulations, and 17 orders. (9) If the OFCCP determines that the Contractor is not in compliance with this clause or any rule, regulation, or order of the Secretary of Labor, this contract may be canceled, terminated or suspended in whole or in part and the Contractor may be declared ineligible for further Government contracts, under the procedures authorized in Executive Order 11246, as amended. In addition, sanctions may be imposed and remedies invoked against the Contractor as provided in Executive Order 11246, as amended, the rules, regulations, and orders of the Secretary of Labor, or as otherwise provided by law. (10) The Contractor shall include the terms and conditions of subparagraph (b)(1) through (11) of this clause in every subcontract or purchase order that is not exempted by the rules, regulations, or orders of the Secretary of Labor issued under Executive Order 11246, as amended, so that these terms and conditions will be binding upon each subcontractor or vendor. (11) The Contractor shall take such action with respect to any subcontract or purchase order as the contracting agency may direct as a means of endorsing these terms and conditions, including sanctions for noncompliance; provided, that if the Contractor becomes involved in, or is threatened with, litigation with a subcontractor or vendor as a result of any direction, the Contractor may request the United States to enter into the litigation to protect the interests of the United States. (c) Notwithstanding any other clause in this contract, disputes relative to this clause will be governed by the procedures in 41 CFR 60-1.1. K-20. CLEAN AIR AND WATER CERTIFICATION (APR 1984) (FAR 52.223-1) The Offeror certifies that -- (a) Any facility to be used in the performance of this proposed contract is [ ], is not [ ] listed on the Environmental Protection Agency (EPA) List of Violating Facilities; (b) The Offeror will immediately notify the Contracting Officer, before award, of the receipt of any communication from the Administrator, or a designee, of the EPA, indicating that any facility that the Offeror proposes to use for the performance of the contract is under consideration to be listed on the EPA List of Violating Facilities; and 18 (c) The Offeror will include a certification substantially the same as this certification, including this paragraph (c), in every nonexempt subcontract. K-21. RECOVERED MATERIAL CERTIFICATION (APR 1984) (FAR 52.223-4) The offeror certifies, by signing this offer, that recovered materials, as defined in section 23.402 of the Federal Acquisition Regulation, will be used as required by the applicable specifications. K-22. CERTIFICATION REGARDING A DRUG-FREE WORKPLACE (JUL 1990) (FAR 52.223-5) (a) Definitions. As used in this provision, "Controlled substance" means a controlled substance in schedules I through V of section 202 of the Controlled Substances Act (21 U.S.C. 812) and as further defined in regulation at 21 CFR 1308.11-1308.15. "Conviction" means a finding of guilt (including a plea of nolo contendere) or imposition of sentence, or both, by any judicial body charged with the responsibility to determine violations of the Federal or State criminal drug statutes. "Criminal drug statute" means a Federal or non-Federal criminal statute involving the manufacture, distribution, dispensing, possession or use of any controlled substance. "Drug-free workplace" means the site(s) for the performance of work done by the contractor in connection with a specific contract at which employees of the Contractor are prohibited from engaging in the unlawful manufacture, distribution, dispensing, possession, or use of a controlled substance. "Employee" means an employee of a Contractor directly engaged in the performance of work under a Government contract. "Directly engaged" is defined to include all direct cost employees and any other Contractor employee who has other than a minimal impact or involvement in contract performance. "Individual" means an offeror/contractor that has no more than one employee including the offeror/contractor. (b) By submission of its offer, the offeror, if other than an individual, who is making an offer that equals or exceeds $25,000, certifies and agrees, that with respect to all employees 19 of the offeror to be employed under a contract resulting from this solicitation, it will -- no later than 30 calendar days after contract award (unless a longer period is agreed to in writing), for contracts of 30 calendar days or more performance duration: or as soon as possible for contracts of less than 30 calendar days performance duration, but in any case, by a date prior to when performance is expected to be completed -- (1) Publish a statement notifying such employees that the unlawful manufacture, distribution, dispensing, possession or use of a controlled substance is prohibited in the Contractor's workplace and specifying the actions that will be taken against employees for violations of such prohibition; (2) Establish an ongoing drug-free awareness program to inform such employees about -- (i) The dangers of drug abuse in the workplace; (ii) The Contractor's policy of maintaining a drug-free workplace; (iii) Any available drug counseling, rehabilitation, and employee assistance programs; and (iv) The penalties that may be imposed upon employees for drug abuse violations occurring in the workplace; (3) Provide all employees engaged in performance of the contract with a copy of the statement required by subparagraph (b)(1) of this provision; (4) Notify such employees in writing in the statement required by subparagraph (b)(1) of this provision that, as a condition of continued employment on the contract resulting from this solicitation, the employee will - -- (i) Abide by the terms of the statement; and (ii) Notify the employer in writing of the employee's conviction under a criminal drug statute for a violation occurring in the workplace no later than 5 calendar days after such conviction; (5) Notify the Contracting Officer in writing within 10 calendar days after receiving notice under subdivision (b)(4)(ii) of this provision, from an employee or otherwise receiving actual notice of such conviction. The notice shall include the position title of the employee; and 20 (6) Within 30 calendar days after receiving notice under subdivision (b)(4)(ii) of this provision of a conviction, take one of the following actions with respect to any employee who is convicted of a drug abuse violation occurring in the workplace: (i) Take appropriate personnel action against such employee, up to and including termination; or (ii) Require such employee to satisfactorily participate in a drug abuse assistance or rehabilitation program approved for such purposes by a Federal, State, or local health, law enforcement, or other appropriate agency. (7) Make a good faith effort to maintain a drug-free workplace through implementation of subparagraphs (b)(1) through (b)(6) of this provision. (c) By submission of its offer, the offeror, if an individual who is making an offer of any dollar value, certifies and agrees that the offeror will not engage in the unlawful manufacture, distribution, dispensing, possession, or use of a controlled substance in the performance of the contract resulting from this solicitation. (d) Failure of the offeror to provide the certification required by paragraphs (b) or (c) of this provision, renders the offeror unqualified and ineligible for award. (See FAR 9.104-1(g) and 19.602-1(a)(2)(i).) (e) In addition to other remedies available to the Government, the certification in paragraphs (b) or (c) of this provision concerns a matter within the jurisdiction of an agency of the United States and the making of a false, fictitious, or fraudulent certification may render the maker subject to prosecution under Title 18, United States Code. Section 1001. K-23. NOTICE OF RESTRICTIONS ON CONTRACTING WITH SANCTIONED PERSONS (MAY 1989) (FAR 52.225-12) (a) Statutory prohibitions have been imposed on contracting with sanctioned persons, as specified in Federal Acquisition Regulation (FAR) 52.225-13, Restrictions on Contracting with Sanctioned Persons. (b) By submission of this offer, the Offeror represents that no products or services, except those listed in this paragraph (b), delivered to the government under any contract resulting from this solicitation will be products or services of a sanctioned person, as defined in the clause referenced in paragraph (a) of this provision, unless one of the exceptions in 21 paragraph (d) of the clause at FAR 52.225-13 applies. N/A - None PRODUCT OR SERVICE SANCTIONED PERSON - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (List as necessary) K-24. BUY AMERICAN -- TRADE AGREEMENTS -- BALANCE OF PAYMENTS PROGRAM CERTIFICATE (MAY 1986) (DFARS 252.225-7006) (a) The Offeror hereby certifies that each end product, except the end products listed below, is a domestic end product (as defined in the clause entitled "Buy American Act, Trade Agreements Act, and Balance of Payments Program") and that components of unknown origin have been considered to have been mined, produced, or manufactured outside the United States or a qualifying country. EXCLUDED END PRODUCTS Note: (An entry for all "fill-ins" is required. Offeror must either list line item numbers or enter "None). LINE ITEM NO. COUNTRY OF ORIGIN None - ------------------------ ------------------------------------------- - ------------------------ ------------------------------------------- (List as necessary) (b) Offers will be evaluated by giving certain preferences to domestic end products, qualifying country end products, and Caribbean Basin country end products over other end products. In order to obtain such preferences in the evaluation of each excluded end product listed in (a) above, it is necessary that offerors identify and certify, below, those excluded end products identified above that are qualifying country end products, designated country end products, or Caribbean Basin end products. Offerors must certify by inserting the applicable line item numbers in the appropriate brackets: (i) The offeror certifies that the following supplies qualify as "participating country end products" as that term is defined in the clause entitled "Buy American Act, Trade Agreement Act, Balance of Payments Program." ------------------------------------------------------------------- 22 (insert line item number) (ii) The Offeror certifies that the following supplies qualify as "FMS/Offset arrangement country end products" as that term is defined in the clause entitles "Buy American Act, Trade Agreement Act, and Balance of Payments Program," if the Government makes the necessary waivers. ------------------------------------------------------------------- (insert line item number) (iii) The Offeror certifies that the following supplies qualify as "defense cooperation country end products" as that term is defined in the clause entitled "Buy American Act, Trade Agreements Act, and Balance of Payments Program." ------------------------------------------------------------------- (insert line item number) (iv) The Offeror certifies that the following supplies qualify as "designated country end products" as that term is defined in the clause entitled "Buy American Act, Trade Agreements Act, and Balance of Payments Program". ------------------------------------------------------------------- (insert line item number) (v) The Offeror certifies that the following supplies qualify as "Caribbean Basin country end products" as the term is defined in the clause entitled "Buy American Act, Trade Agreements Act, and Balance of Payments Program". ------------------------------------------------------------------- (insert line item number) (c) Offers will be evaluated in accordance with the policies and procedures of FAR Part 25 and DOD FAR Supplement Part 25. K-25. CERTIFICATION OR DISCLOSURE OF OWNERSHIP OR CONTROL BY A FOREIGN GOVERNMENT THAT SUPPORTS TERRORISM (NOV 1987) (DFARS 252.209-7000) (a) "Significant interest," as used in this provision, means -- (1) Ownership of or beneficial interest in five percent (5%) or more of the firm's or subsidiary's securities. Beneficial interest includes holding five percent (5%) or more of any class of the firm's securities in "nominee shares," "street shares," or some other method of holding securities that does not 23 disclose the beneficial owner; (2) Holding a management position in the firm, such as a director or officer; (3) Ability to control or influence the election, appointment, or tenure of directors or officers of the firm; (4) Ownership of ten percent (10%) or more of the assets of a firm such as equipment, buildings, real estate, or other tangible assets of the firm; or (5) Holding 50 percent (50%) or more of the indebtedness of a firm. (b) Unless paragraph (c) below has been completed, the Offeror, by submission of its offer, certifies, to the best of its knowledge and belief, that no government of a foreign country, or agent, or instrumentality of a foreign country, listed below, has, directly or indirectly, a significant interest in the Offeror or, if the Offeror is a subsidiary, in the firm that owns or controls, directly or indirectly, the Offeror. Such countries currently include: (1) Cuba; (2) Iran; (3) Libya; (4) Syria; and (5) South Yemen. (c) If the Offeror is unable to certify in accordance with (b) above, the Offeror represents that the following country or countries (listed in (b) above) or an agent or instrumentality of such country or countries, have a significant interest in the Offeror's firm: Country ------------------------------------------------------------------- Significant Interest ------------------------------------------------------ K-26. REQUIREMENT FOR TECHNICAL DATA CERTIFICATION (APR 1988) (DFAR 252.227-7028) The Offeror shall submit with his offer a certification as to whether the Offeror has delivered or is obligated to deliver to the Government under any contract or subcontract the same or substantially the same technical data with other than unlimited rights included in its offer; if so, the Offeror shall identify: (a) one existing contract or subcontract under which the technical data was delivered or will be delivered, and the place of such delivery; and 24 (b) The limitation on the Government's right to use the data, including identification of the earliest date the limitation expires. K-27. COST ACCOUNTING STANDARDS NOTICES AND CERTIFICATION (NATIONAL DEFENSE) (SEP 1987) (FAR 52.230-1) Note: This notice does not apply to small businesses or foreign governments. This notice is in four parts, identified by roman numerals I through IV. Offerors shall examine each part and provide the requested information in order to determine Cost Accounting Standards (CAS) requirements applicable to any resultant contract. I. DISCLOSURE STATEMENT -- COST ACCOUNTING PRACTICES AND CERTIFICATION (a) Any contract in excess of $100,000 resulting from this solicitation, except contracts in which the price negotiated is based on (1) established catalog or market prices of commercial items sold in substantial quantities to the general public, or (2) prices set by law or regulation, will be subject to the requirements of the Federal Acquisition Regulation (FAR) Subparts 30.3 and 30.4, except for those contracts which are exempt as specified in FAR 30.201-1. (b) Any offeror submitting a proposal which, if accepted, will result in a contract subject to the requirements of the FAR Subparts 30.3 and 30.4 must, as a condition of contracting, submit a Disclosure Statement as required by FAR 30.202. The Disclosure Statement must be submitted as a part of the offeror's proposal under this solicitation unless the offeror has already submitted a Disclosure Statement disclosing the practices used in connection with the pricing of this proposal. If an applicable Disclosure Statement has already been submitted, the offeror may satisfy the requirement for submission by providing the information requested in paragraph (c) below. CAUTION: A practice disclosed in a Disclosure Statement shall not, by virtue of such disclosure, be deemed to be a proper, approved, or agreed-to practice for pricing proposals or accumulating and reporting contract performance cost data. (c) Check the appropriate box below: [ ] (1) Certificate of Concurrent Submission of Disclosure Statement. 25 The offeror hereby certifies that, as a part of the offer, copies of the Disclosure Statement have been submitted as follows: (i) original and one copy to the cognizant Administrative Contracting Officer (ACO), and (ii) one copy to the cognizant contract auditor. (Disclosure must be on form No. CASB DS-1. Forms may be-obtained from the cognizant ACO.) Date of Disclosure Statement: ---------------------------------- Name and Address of Cognizant ACO where filed: --------------------------------------------------------------- --------------------------------------------------------------- The offeror further certifies that practices used in estimating costs in pricing this proposal are consistent with the cost accounting practices disclosed in the Disclosure Statement. [ ] (2) Certificate of Previously Submitted Disclosure Statement. The offeror hereby certifies that Disclosure Statement was filed as follows: Date of Disclosure Statement: ---------------------------------- Name and Address of Cognizant ACO where filed: --------------------------------------------------------------- --------------------------------------------------------------- The offeror further certifies that the practices used in estimating costs in pricing this proposal are consistent with the cost accounting practices disclosed in the applicable disclosure statement. [ ] (3) Certificate of Monetary Exemption. The offeror, hereby certifies that the offeror, together with all divisions, subsidiaries, and affiliates under common control, did not receive net awards of negotiated national defense prime contracts and subcontracts subject to CAS totaling more than $10 million in the cost accounting period immediately preceding the period in which 26 this proposal was submitted. The offeror further certifies that if such status changes before an award resulting from this proposal, the offeror will advise the Contracting Officer immediately. [ ] (4) Certificate of Interim Exemption. The offeror hereby certifies that (i) the offeror first exceeded the monetary exemption for disclosure, as defined in (3) of this subsection, in the cost accounting period immediately preceding the period in which this offer was submitted and (ii) in accordance with FAR 30.202- 1, the offeror is not yet required to submit a Disclosure Statement. The offeror further certifies that if an award resulting from this proposal has not been made within 90 days after the end of that period, the offeror will immediately submit a revised certificate to the Contracting Officer, in the form specified under subparagraphs (c) (1) or (c) (2) above, as appropriate, to verify submission of a completed Disclosure Statement. CAUTION: Offerors currently required to disclose because they were awarded a CAS-covered national defense prime contract or subcontract of $10 million or more in the current cost accounting period may not claim this exemption (4). Further, the exemption applies only in connection with proposals submitted before expiration of the 90-day period following the cost accounting period in which the monetary exemption was exceeded. II. COST ACCOUNTING STANDARDS -- EXEMPTION FOR CONTRACTS OF $500,000 OR LESS If this proposal is expected to result in the award of a contract of $500,000 or less, the offeror shall indicate whether the exemption below is claimed. Failure to check the box below shall mean that the resultant contract is subject to requirements or that the offeror elects to comply with such requirements. [ ] The offeror claims an exemption from the CAS requirements under the provisions of FAR 30.201-1(b)(7) and certifies that notification of final acceptance of all deliverable items has been received on all prime contracts or subcontracts containing the Cost Accounting Standards clause or the Disclosure and Consistency of Cost Accounting Practices clause. The offeror further certifies that the Contracting Officer will be immediately notified in writing when an award of any other contract or subcontract containing Cost Accounting Standards clauses is received by the offeror 27 subsequent to this certificate but before the date of any award resulting from this proposal. III. COST ACCOUNTING STANDARDS -- ELIGIBILITY FOR MODIFIED CONTRACT COVERAGE If the offeror is eligible to use the modified provisions of FAR 30.201-2(b) and elects to do so, the offeror shall indicate by checking the box below. Checking the box below shall mean that the resultant contract is subject to the Disclosure and Consistency of Cost Accounting Practices clause in lieu of the Cost Accounting Standards clause. [ ] The offeror hereby claims an exemption from the Cost Accounting Standards clause under the provisions of FAR 30.201-2(b) and certifies that the offeror is eligible for use of the Disclosure and Consistency of Cost Accounting Practices clause because (i) during the cost accounting period immediately preceding the period in which this proposal was submitted, the offeror received less than $10 million in awards of CAS-covered prime contracts and subcontracts, and (ii) the sum of such awards equaled less than 10 percent of total sales during that cost accounting period. The offeror further certifies that if such status changes before an award resulting from this proposal, the offeror will advise the Contracting Officer immediately. CAUTION: An offeror may not claim the above eligibility for modified contract coverage if this proposal is expected to result in the award of a national defense contract of $10 million or more or if, during its current cost accounting period, the offeror has been awarded a single CAS-covered national defense prime contract or subcontract of $10 million or more. IV. ADDITIONAL COST ACCOUNTING STANDARDS APPLICABLE TO EXISTING CONTRACTS The offeror shall indicate below whether award of the contemplated contract would, in accordance with subparagraph (a) (3) of the Cost Accounting Standards clause, require a change in established cost accounting practices affecting existing contracts and subcontracts. [ ] YES [ ] NO 28 K-28. REPRESENTATION OF EXTENT OF TRANSPORTATION OF SUPPLIES BY SEA (MAR 1989) (DFAR 252.247-7202) The clause at 252.247-7203, Transportation of Supplies by Sea, will be included in any contract resulting from this solicitation. The Offeror is required to indicate whether transportation by sea is anticipated under the resultant contract by checking the appropriate blank as follows: The Offeror represents that it [] does [] does not anticipate that any of the supplies, as defined in the above-referenced clause, will be transported by sea in the performance of any contract or subcontract resulting from this solicitation. Notwithstanding this representation, the Offeror recognizes and will comply with the requirements of the above-referenced clause. K-29. SIC CODE AND SMALL BUSINESS SIZE STANDARD (JAN 1991) (FAR 52.219-22) (a) The standard industrial classification (SIC) code for this acquisition is 7363. (b) (1) The small business size standard is _______. (2) The small business size standard for a concern which submits an offer in its own name, other than on a construction or service contract, but which proposes to furnish a product which it did not itself manufacture, is 500 employees. 29 INTERGRAPH - ------------------------------------------------------------------------------ October 8, 1998 TomaHawk II, Inc. 8315 Century Park Court Suite 200 San Diego, CA 92123 Attention: Mr. Michael H. Lorber, Vice President & Chief Financial Officer Subject: FSN0292, Amendment #5 Dear Mr. Lorber: This document constitutes Amendment #5 to CAD-2 Subcontract FSN0292. The purpose of this Amendment is to modify Attachment A, Direct Labor Schedule to add reates for GFY 1999. Accordingly, Subcontract FSN0292 is modified as follows: 1. Attachment A, "Direct Labor Schedule, dated January 21, 1998" is deleted in its entirety and replaced by the attached Attachment A, "Direct Labor Schedule, dated October 8, 1998," which adds Exhibit 4 that contains rates for GFY 1999. Except as modified herein, all other terms and conditions of Subcontract FSN0292 remain unchanged. Indicate your acceptance of this Amendment by fully executing both copies. Please return one (1) fully executed copy to Jan Lasater, Mail Stop IW1506, at your earliest convenience. If you have any questions, please call Mrs. Lasater at 256-730-7843. Sincerely, ACKNOWLEDGED AND ACCEPTED: INTERGRAPH CORPORATION TOMAHAWK II, INC. BY /s/ Michael H. Lorber ------------------------------ NAME: Michael H. Lorber /s/ Jan Lasater --------------------------- - -------------------------------- TITLE: VP-Finance & CFO Jan Lasater -------------------------- Subcontracts Administrator DATE: 10/27/98 FEDERAL SUBCONTRACTS --------------------------- Intergraph Corporation - ------------------------------------------------------------------------------ Huntsville, Alabama 35894-0009 Phone: 256-730-7843 Fax: 256-730-6248 ATTACHMENT A DIRECT LABOR SCHEDULE SECTION B-2(a)(1) OCTOBER 8, 1998 EXHIBIT 1 THIS EXHIBIT CONTAINS RATES VALID FOR THE FOLLOWING PURCHASE ORDERS ONLY: P.O. 370715 P.O. 368327 THE PERIOD OF PERFORMANCE ON EACH OF THESE PURCHASE ORDERS ENDS SEPTEMBER 30, 1998 CY* $750 OVER NAVAIR CATEGORY 97 PRIME $0 TO $750K TO $1.5M $1.5M 29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 97.00 $ 81.48 $ 84.39 $ 89.24 29AB01 Senior Computer Engineer (SCE) $ 75.00 $ 63.00 $ 65.25 $ 69.00 29AC01 Computer Technician, Level 1 (CT1) $ 36.00 $ 30.24 $ 31.32 $ 33.12 29AF01 Computer Technician, Level 2 (CT2) $ 47.00 $ 39.48 $ 40.89 $ 43.24 29AG01 Computer Technician, Level 3 (CT3) $ 51.00 $ 42.84 $ 44.37 $ 46.92 29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 61.00 $ 51.24 $ 53.07 $ 56.12 29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 75.00 $ 63.00 $ 65.25 $ 69.00 CY* $750 OVER NAVFAC CATEGORY 97 PRIME $0 TO $750K TO $1.5M $1.5M 0033AA Senior Computer Scientist (SCS) $ 92.00 $ 77.28 $ 80.04 $ 84.64 0033AB Computer Scientist (CS) $ 66.00 $ 55.44 $ 57.42 $ 60.72 0033AJ Associate Computer Scientist (ACS) $ 51.00 $ 42.84 $ 44.37 $ 46.92 0033AC Computer Science Technician (CST) $ 35.00 $ 29.40 $ 30.45 $ 32.20 0033AD Senior Engineer (SE) $ 71.00 $ 59.64 $ 61.77 $ 65.32 0033AE Engineer (E) $ 55.00 $ 46.20 $ 47.85 $ 50.60 0033AF Engineering Technician (ET) $ 35.00 $ 29.40 $ 30.45 $ 32.20 0033AG Senior Clerical Assistant (SCA) $ 31.00 $ 26.04 $ 26.97 $ 28.52 0033AH Clerical Assistant (CA) $ 24.00 $ 20.16 $ 20.88 $ 22.08 CY* $750 OVER NAVSEA CATEGORY 97 PRIME $0 TO $750K TO $1.5M $1.5M OFF-SITE SS08AA Computer Engineer, Level 1 (CE1) $ 53.40 $ 44.86 $ 46.46 $ 49.13 SS08AB Computer Engineer, Level 2 (CE2) $ 64.39 $ 54.09 $ 56.02 $ 59.24 SS08AC Computer Engineer, Level 3 (CE3) $ 77.75 $ 65.31 $ 67.64 $ 71.53 SS08AD Computer Engineer, Level 4 (CE4) $ 100.86 $ 84.72 $ 87.75 $ 92.79 SS08AE Computer Technician, Level 1 (CT1) $ 31.91 $ 26.80 $ 27.76 $ 29.36 SS08AF Computer Technician, Level 2 (CT2) $ 38.49 $ 32.33 $ 33.49 $ 35.41 SS08AG Computer Technician, Level 3 (CT3) $ 49.23 $ 41.35 $ 42.83 $ 45.29 SS08AH Computer Technician, Level 4 (CT4) $ 53.40 $ 44.86 $ 46.46 $ 49.13 ON-SITE SS08AJ Computer Engineer, Level 1 (CE1) $ 82.92 $ 69.65 $ 72.14 $ 76.29 SS08AK Computer Engineer, Level 2 (CE2) $ 93.91 $ 78.88 $ 81.70 $ 86.40 SS08AL Computer Engineer, Level 3 (CE3) $ 107.27 $ 90.11 $ 93.32 $ 98.69 SS08AM Computer Engineer, Level 4 (CE4) $ 130.38 $ 109.52 $ 113.43 $ 119.95 SS08AN Computer Technician, Level 1 (CT1) $ 61.43 $ 51.60 $ 53.44 $ 56.52 SS08AP Computer Technician, Level 2 (CT2) $ 68.01 $ 57.13 $ 59.17 $ 62.57 SS08AQ Computer Technician, Level 3 (CT3) $ 78.75 $ 66.15 $ 68.51 $ 72.45 SS08AR Computer Technician, Level 4 (CT4) $ 82.92 $ 69.65 $ 72.14 $ 76.29 CRYSTAL CITY SS08AS Computer Engineer, Level 1 (CE1) $ 53.40 $ 44.86 $ 46.46 $ 49.13 SS08AT Computer Engineer, Level 2 (CE2) $ 64.39 $ 54.09 $ 56.02 $ 59.24 SS08AU Computer Engineer, Level 3 (CE3) $ 77.75 $ 65.31 $ 67.64 $ 71.53 SS08AV Computer Engineer, Level 4 (CE4) $ 100.86 $ 84.72 $ 87.75 $ 92.79 SS08AW Computer Technician, Level 1 (CT1) $ 31.91 $ 26.80 $ 27.76 $ 29.36 SS08AX Computer Technician, Level 2 (CT2) $ 38.49 $ 32.33 $ 33.49 $ 35.41 SS08AY Computer Technician, Level 3 (CT3) $ 49.23 $ 41.35 $ 42.83 $ 45.29 SS08AZ Computer Technician, Level 4 (CT4) $ 53.40 $ 44.86 $ 46.46 $ 49.13
*GFY1997 Rate is valid from February 13, 1997 through October 3, 1997 CY* $750K OVER NAVAIR CATEGORY 98 PRIME $0 TO $750K TO $1.5M $1.5M 29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 105.00 $ 88.20 $ 91.35 $ 96.60 29AB01 Computer Scientist/Engineer (CS/E) $ 81.00 $ 68.04 $ 70.47 $ 74.52 29AC01 Computer Technician, Level 1 (CT1) $ 40.00 $ 33.60 $ 34.80 $ 36.80 29AF01 Computer Technician, Level 2 (CT2) $ 51.00 $ 42.84 $ 44.37 $ 46.92 29AG01 Computer Technician, Level 3, (CT3) $ 55.00 $ 46.20 $ 47.85 $ 50.60 29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 67.00 $ 56.28 $ 58.29 $ 61.64 29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 81.00 $ 68.04 $ 70.47 $ 74.52 CY* $750K OVER NAVFAC CATEGORY 98 PRIME $0 TO $750K TO $1.5M $1.5M 0033AA Senior Computer Scientist (SCS) $ 98.00 $ 82.32 $ 85.26 $ 90.16 0033AB Computer Scientist (CS) $ 70.00 $ 58.80 $ 60.90 $ 64.40 0033AJ Associate Computer Scientist (ACS) $ 53.00 $ 44.52 $ 46.11 $ 48.76 0033AC Computer Science Technician (CST) $ 37.00 $ 31.08 $ 32.19 $ 34.04 0033AD Senior Engineer (SE) $ 76.00 $ 63.84 $ 66.12 $ 69.92 0033AE Engineer (E) $ 59.00 $ 49.56 $ 51.33 $ 54.28 0033AF Engineering Technician (ET) $ 37.00 $ 31.08 $ 32.19 $ 34.04 0033AG Senior Clerical Assistant (SCA) $ 32.00 $ 26.88 $ 27.84 $ 29.44 0033AH Clerical Assistant (CA) $ 26.00 $ 21.84 $ 22.62 $ 23.92 CY* $750K OVER NAVSEA CATEGORY 98 PRIME $0 TO $750K TO $1.5M $1.5M OFF-SITE SS08AA Computer Engineer, Level 1 (CE1) $ 57.67 $ 48.44 $ 50.17 $ 53.06 SS08AB Computer Engineer, Level 2 (CE2) $ 69.54 $ 58.41 $ 60.50 $ 63.98 SS08AC Computer Engineer, Level 3 (CE3) $ 83.96 $ 70.53 $ 73.05 $ 77.24 SS08AD Computer Engineer, Level 4 (CE4) $ 108.93 $ 91.50 $ 94.77 $ 100.22 SS08AE Computer Technician, Level 1 (CT1) $ 34.46 $ 28.95 $ 29.98 $ 31.70 SS08AF Computer Technician, Level 2 (CT2) $ 41.57 $ 34.92 $ 36.17 $ 38.24 SS08AG Computer Technician, Level 3 (CT3) $ 53.17 $ 44.66 $ 46.26 $ 48.92 SS08AH Computer Technician, Level 4 (CT4) $ 57.67 $ 48.44 $ 50.17 $ 53.06 ON-SITE SS08AJ Computer Engineer, Level 1 (CE1) $ 88.88 $ 74.66 $ 77.33 $ 81.77 SS08AK Computer Engineer, Level 2 (CE2) $ 100.75 $ 84.63 $ 87.65 $ 92.69 SS08AL Computer Engineer, Level 3 (CE3) $ 115.17 $ 96.74 $ 100.20 $ 105.96 SS08AM Computer Engineer, Level 4 (CE4) $ 140.14 $ 117.72 $ 121.92 $ 128.93 SS08AN Computer Technician, Level 1 (CT1) $ 65.67 $ 55.16 $ 57.13 $ 60.42 SS08AP Computer Technician, Level2 (CT2) $ 72.78 $ 61.14 $ 63.32 $ 66.96 SS08AQ Computer Technician, Level 3 (CT3) $ 84.38 $ 70.88 $ 73.41 $ 77.63 SS08AR Computer Technician, Level 4 (CT4) $ 88.88 $ 74.66 $ 77.33 $ 81.77 CRYSTAL CITY SS08AS Computer Engineer, Level 1 (CE1) $ 57.67 $ 48.44 $ 50.17 $ 53.06 SS08AT Computer Engineer, Level 2 (CE2) $ 69.54 $ 58.41 $ 60.50 $ 63.98 SS08AU Computer Engineer, Level 3 (CE3) $ 83.96 $ 70.53 $ 73.05 $ 77.24 SS08AV Computer Engineer, Level 4 (CE4) $ 108.93 $ 91.50 $ 94.77 $ 100.22 SS08AW Computer Technician, Level 1 (CT1) $ 34.46 $ 28.95 $ 29.98 $ 31.70 SS08AX Computer Technician, Level 2 (CT2) $ 41.57 $ 34.92 $ 36.17 $ 38.24 SS08AY Computer Technician, Level 3 (CT3) $ 53.17 $ 44.66 $ 46.26 $ 48.92 SS08AZ Computer Technician, Level 4 (CT4) $ 57.67 $ 48.44 $ 50.17 $ 53.06
*GFY 1998 Rates are valid from October 4, 1997 through October 2, 1998 EXHIBIT 2 THIS EXHIBIT CONTAINS RATES VALID FOR THE FOLLOWING PURCHASE ORDERS ONLY: P.O. 370710 P.O. 370792 P.O. 373915 P.O. 373998 P.O. 373914 THE PERIOD OF PERFORMANCE FOR P.O. 370710 ENDS JUNE 1, 1998 AND ON EACH OF THE REMAINING PURCHASE ORDERS ENDS SEPTEMBER 30, 1998 GFY* GFY** NAVAIR CATEGORY 1997 1998 29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 81.48 $ 84.74 29AB01 Senior Computer Engineer (SCE) $ 63.00 $ 65.52 29AC01 Computer Technician,Level 1 (CT1) $ 30.24 $ 31.45 29AF01 Computer Technician, Level 2 (CT2) $ 39.48 $ 41.06 29AG01 Computer Technician, Level 3 (CT3) $ 42.84 $ 44.55 29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 51.24 $ 53.29 29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 63.00 $ 65.52 GFY* GFY** NAVFAC CATEGORY 1997 1998 0033AA Senior Computer Scientist (SCS) $ 77.28 $ 80.37 0033AB Computer Scientist (CS) $ 55.44 $ 57.66 0033AJ Associate Computer Scientist (ACS) $ 42.84 $ 44.55 0033AC Computer Science Technician (CST) $ 29.40 $ 30.58 0033AD Senior Engineer (SE) $ 59.64 $ 62.03 0033AE Engineer (E) $ 46.20 $ 48.05 0033AF Engineering Technician (ET) $ 29.40 $ 30.58 0033AG Senior Clerical Assistant (SCA) $ 26.04 $ 27.08 0033AH Clerical Assistant (CA) $ 20.16 $ 20.97 GFY* GFY** NAVSEA CATEGORY 1997 1998 OFF-SITE SS08AA Computer Engineer, Level 1 (CE1) $ 44.86 $ 46.65 SS08AB Computer Engineer, Level 2 (CE2) $ 54.09 $ 56.25 SS08AC Computer Engineer, Level 3 (CE3) $ 65.31 $ 67.92 SS08AD Computer Engineer, Level 4 (CE4) $ 84.72 $ 88.11 SS08AE Computer Technician, Level 1 (CT1) $ 26.80 $ 27.87 SS08AF Computer Technician, Level 2 (CT2) $ 32.33 $ 33.62 SS08AG Computer Technician, Level 3 (CT3) $ 41.35 $ 43.00 SS08AH Computer Technician, Level 4 (CT4) $ 44.86 $ 46.65 ON-SITE SS08AJ Computer Engineer, Level 1 (CE1) $ 69.65 $ 72.44 SS08AK Computer Engineer, Level 2 (CE2) $ 78.88 $ 82.04 SS08AL Computer Engineer, Level 3 (CE3) $ 90.11 $ 93.71 SS08AM Computer Engineer, Level 4 (CE4) $ 109.52 $ 113.90 SS08AN Computer Technician, Level 1 (CT1) $ 51.60 $ 53.66 SS08AP Computer Technician, Level 2 (CT2) $ 57.13 $ 59.42 SS08AQ Computer Technician, Level 3 (CT3) $ 66.15 $ 68.80 SS08AR Computer Technician, Level 4 (CT4) $ 69.65 $ 72.44
CRYSTAL CITY SS08AS Computer Engineer, Level 1 (CE1) $ 44.86 $ 46.65 SS08AT Computer Engineer, Level 2 (CE2) $ 54.09 $ 56.25 SS08AU Computer Engineer, Level 3 (CE3) $ 65.31 $ 67.92 S08AV Computer Engineer, Level 4 (CE4) $ 84.72 $ 88.11 SS08AW Computer Technician, Level 1 (CT1) $ 26.80 $ 27.87 SS08AX Computer Technician, Level 2 (CT2) $ 32.33 $ 33.62 SS08AY Computer Technician, Level 3 (CT3) $ 41.35 $ 43.00 SS08AZ Computer Technician, Level 4 (CT4) $ 44.86 $ 46.65
*GFY1997 Rate is valid from June 16, 1997 through October 3, 1997 **GFY1998 Rate is valid from October 4, 1997 through October 2, 1998 EXHIBIT 3 CONTAINS RATES VALID FOR PURCHASE ORDERS ISSUED ON OR AFTER JANUARY 21, 1998 GFY* NAVAIR CATEGORY 1998 29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 85.05 29AB01 Senior Computer Engineer (SCE) $ 65.61 29AC01 Computer Technician, Level 1 (CT1) $ 32.40 29AF01 Computer Technician, Level 2 (CT2) $ 41.31 29AG01 Computer Technician, Level 3 (CT3) $ 44.55 29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 54.27 29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 65.61 GFY* NAVFAC CATEGORY 1998 0033AA Senior Computer Scientist (SCS) $ 82.32 0033AB Computer Scientist (CS) $ 58.80 0033AJ Associate Computer Scientist (ACS) $ 44.52 0033AC Computer Science Technician (CST) $ 31.08 0033AD Senior Engineer (SE) $ 63.84 0033AE Engineer (E) $ 49.56 0033AF Engineering Technician (ET) $ 31.08 0033AG Senior Clerical Assistant (SCA) $ 26.88 0033AH Clerical Assistant (CA) $ 21.84 GFY* NAVSEA CATEGORY 1998 OFF-SITE SS08AA Computer Engineer, Level 1 (CE1) $ 46.71 SS08AB Computer Engineer, Level 2 (CE2) $ 56.33 SS08AC Computer Engineer, Level 3 (CE3) $ 68.01 SS08AD Computer Engineer, Level 4 (CE4) $ 88.23 SS08AE Computer Technician, Level 1 (CT1) $ 27.91 SS08AF Computer Technician, Level 2 (CT2) $ 33.67 SS08AG Computer Technician, Level 3 (CT3) $ 43.07 SS08AH Computer Technician, Level 4 (CT4) $ 46.71 ON-SITE SS08AJ Computer Engineer, Level 1 (CE1) $ 71.99 SS08AK Computer Engineer, Level 2 (CE2) $ 81.61 SS08AL Computer Engineer, Level 3 (CE3) $ 93.29 SS08AM Computer Engineer, Level 4 (CE4) $ 113.51 SS08AN Computer Technician, Level 1 (CT1) $ 53.19 SS08AP Computer Technician, Level 2 (CT2) $ 58.95 SS08AQ Computer Technician, Level 3 (CT3) $ 68.35 SS08AR Computer Technician, Level 4 (CT4) $ 71.99
CRYSTAL CITY SS08AS Computer Engineer, Level 1 (CE1) $ 51.15 SS08AT Computer Engineer, Level 2 (CE2) $ 61.68 SS08AU Computer Engineer, Level 3 (CE3) $ 74.47 SS08AV Computer Engineer, Level 4 (CE4) $ 96.62 SS08AW Computer Technician, Level 1 (CT1) $ 30.56 SS08AX Computer Technician, Level 2 (CT2) $ 36.87 SS08AY Computer Technician, Level 3 (CT3) $ 47.16 SS08AZ Computer Technician, Level 4 (CT4) $ 51.15
*GFY 1998 rates valid from January 21, 1998 through October 2, 1998 EXHIBIT 4 CONTAINS RATES VALID FOR PURCHASE ORDERS ISSUED ON OCTOBER 1, 1998 THROUGH SEPTEMBER 30, 1999 TOMAHAWK 1999 RATES GFY* NAVAIR CATEGORY 1999 29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 91.53 29AB01 Senior Computer Engineer (SC/E) $ 70.47 29AC01 Computer Technician, Level 1 (CT1) $ 34.83 29AF01 Computer Technician, Level 2 (CT2) $ 44.55 29AG01 Computer Technician, Level 3 (CT3) $ 46.98 29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 58.32 29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 70.47 GFY* NAVFAC CATEGORY 1999 0033AA Senior Computer Scientist (SCS) $ 87.36 0033AB Computer Scientist (CS) $ 62.16 0033AJ Associate Computer Scientist (ACS) $ 46.20 0033AC Computer Science Technician (CST) $ 33.60 0033AD Senior Engineer (SE) $ 67.20 0033AE Engineer (E) $ 52.08 0033AF Engineering Technician (ET) $ 33.60 0033AG Senior Clerical Assistant (SCA) $ 28.56 0033AH Clerical Assistant (CA) $ 22.68 GFY* NAVSEA CATEGORY 1999 OFF-SITE SS08AA Computer Engineer, Level 1 (CE1) $ 50.45 SS08AB Computer Engineer, Level 2 (CE2) $ 60.83 SS08AC Computer Engineer, Level 3 (CE3) $ 73.46 SS08AD Computer Engineer, Level 4 (CE4) $ 95.28 SS08AE Computer Technician, Level 1 (CT1) $ 30.15 SS08AF Computer Technician, Level 2 (CT2) $ 36.36 SS08AG Computer Technician, Level 3 (CT3) $ 46.52 SS08AH Computer Technician, Level 4 (CT4) $ 50.45 ON-SITE SS08AJ Computer Engineer, Level 1 (CE1) $ 77.20 SS08AK Computer Engineer, Level 2 (CE2) $ 87.59 SS08AL Computer Engineer, Level 3 (CE3) $ 100.21 SS08AM Computer Engineer, Level 4 (CE4) $ 122.03 SS08AN Computer Technician, Level 1 (CT1) $ 56.90 SS08AP Computer Technician, Level 2 (CT2) $ 63.12 SS08AQ Computer Technician, Level 3 (CT3) $ 73.27 SS08AR Computer Technician, Level 4 (CT4) $ 77.20 CRYSTAL CITY SS08AS Computer Engineer, Level 1 (CE1) $ 55.24 SS08AT Computer Engineer, Level 2 (CE2) $ 66.61 SS08AU Computer Engineer, Level 3 (CE3) $ 80.44 SS08AV Computer Engineer, Level 4 (CE4) $ 104.33 SS08AW Computer Technician, Level 1 (CT1) $ 33.02 SS08AX Computer Technician, Level 2 (CT2) $ 39.81 SS08AY Computer Technician, Level 3 (CT3) $ 50.94 SS08AZ Computer Technician, Level 4 (CT4) $ 55.24
EX-10.3 10 EXHIBIT 10.3 EXHIBIT 10.3 [LOGO] FINOVA Capital Corporation 115 West Century Road P.O. Box 907 Paramus, New Jersey 07653 Telephone (201) 634-3300 EQUIPMENT LEASE No. C0856001 FINOVA Capital Corporation, (herein called "Lessor"), with its principal place of business at Dial Tower, Dial Corporate Center, Phoenix, Arizona, hereby agrees to lease to the Lessee named on the signature page hereof (herein called "Lessee") and Lessee hereby agrees to lease and rent from Lessor, the equipment described on any attached schedule(s), (herein with all replacement parts, repairs, additions, and accessories called "Equipment"), on the terms and conditions hereof and as set forth on any schedule (herein called "Schedule"). Lessee agrees that, at the option of Lessor, any Schedule shall be a separately enforceable Lease which incorporates all of the terms and conditions set forth herein. 1. ORDERING AND INSTALLATION OF EQUIPMENT. Lessee hereby requests Lessor to order the Equipment from a supplier (herein called "Supplier"), and to arrange for delivery thereof to Lessee at Lessee's expense. Lessee agrees to install or cause the Equipment to be installed at the location set forth on the Schedule thereof (the "Location") at Lessee's cost. 2. DISCLAIMER OF WARRANTIES AND WAIVER OF DEFENSES. LESSOR, NEITHER BEING THE MANUFACTURER, NOR A SUPPLIER, NOR A DEALER IN THE EQUIPMENT, MAKES NO WARRANTY, EXPRESS OR IMPLIED, TO ANYONE, AS TO DESIGN, CONDITION, CAPACITY, PERFORMANCE OR ANY OTHER ASPECT OF THE EQUIPMENT OR ITS MATERIAL OR WORKMANSHIP. LESSOR ALSO DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE OR PURPOSE WHETHER ARISING BY OPERATION OF LAW OR OTHERWISE. LESSOR FURTHER DISCLAIMS ANY LIABILITY FOR LOSS, DAMAGE OR INJURY TO LESSEE OR THIRD PARTIES AS A RESULT OF ANY DEFECTS, LATENT OR OTHERWISE, IN THE EQUIPMENT WHETHER ARISING FROM THE APPLICATION OF THE LAWS OF STRICT LIABILITY OR OTHERWISE. AS TO THE LESSOR, LESSEE LEASES THE EQUIPMENT "AS IS". LESSEE ACKNOWLEDGES THAT LESSEE HAS SELECTED THE SUPPLIER OF THE EQUIPMENT AND THAT LESSOR HAS NOT RECOMMENDED SUPPLIER. LESSOR SHALL HAVE NO OBLIGATION TO INSTALL, MAINTAIN, ERECT, TEST, ADJUST OR SERVICE THE EQUIPMENT. REGARDLESS OF CAUSE, LESSEE AGREES NOT TO ASSERT ANY CLAIM WHATSOEVER AGAINST LESSOR FOR LOSS OF ANTICIPATORY PROFITS OR ANY OTHER INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, NOR SHALL LESSOR BE RESPONSIBLE FOR ANY DAMAGES OR COSTS WHICH MAY BE ASSESSED AGAINST LESSEE IN ANY ACTION FOR INFRINGEMENT OF ANY UNITED STATES LETTERS PATENT. LESSOR MAKES NO WARRANTY AS TO THE TREATMENT OF THIS LEASE FOR TAX OR ACCOUNTING PURPOSES. If the Equipment is unsatisfactory for any reason, Lessee shall make claim on account thereof solely against the manufacturer, the Supplier or any dealer and shall nevertheless pay Lessor all rent and other charges payable under the Lease. Lessor hereby assigns to Lessee, any rights which Lessor may have against the Supplier, the manufacturer or any dealer for breach of warranty or other representations respecting the Equipment. Lessee understands and agrees that neither the Manufacturer, the Supplier, any dealer nor any agent of the foregoing is an agent of Lessor or is authorized to waive or alter any term or condition of this Lease. 3. TERM AND RENT. The Lease term of each Schedule shall commence as of the date that any of the Equipment under such Schedule is delivered to Lessee or Lessee's Agent, or such later date as Lessor designates in writing (the "Commencement Date") and shall continue until the obligations of Lessee under this Lease shall have been fully performed. Advance rentals shall not be refundable if the Lease term for any reason does not commence or if this Lease or any Schedule is duly terminated by Lessor. The sum of all periodic installments of rent indicated on any Schedule shall constitute the aggregate rent reserved. The aggregate rent reserved shall be payable periodically in advance, in the installments indicated on any Schedule, the first such payment being due on the Commencement Date, or such later date as Lessor designates in writing (the "First Payment Date"), and subsequent payments shall be due on the same day of each successive rent period thereafter until the balance of the rent and any charges or expenses payable by Lessee under this Lease shall have been paid in full. If the First Payment Date is later than the Commencement Date, Lessee shall, on the First Payment Date, in addition to the periodic rent, pay Lessor interim rent from the Commencement Date to the First Payment Date at a daily rate equal to the periodic installment of rent divided by the number of days of the period. Lessee's obligation to pay all rent shall be absolute and unconditional and not subject to any abatement, set-off, defense or counterclaim for any reason whatsoever. 4. NON-CANCELABLE LEASE. NEITHER THE LEASE NOR ANY SCHEDULE CAN BE CANCELED BY LESSEE DURING THE TERM HEREOF OR THEREOF. 5. LESSOR TERMINATION BEFORE EQUIPMENT ACCEPTANCE. If within ninety (90) days from the date Lessor orders the Equipment, the same has not been delivered, installed and accepted by Lessee (in form satisfactory to Lessor) for all purposes of this Lease, Lessor may, on ten (10) days' written notice to Lessee, terminate this Lease and the related Schedule and its obligations to Lessee. 6. TITLE, RECORDING, DOCUMENTATION, ADMINISTRATIVE FEES AND PERSONAL PROPERTY. The Equipment is, and shall at all times remain, the property of Lessor, and except as herein set forth, Lessee shall have no right, title or interest therein. If Lessor supplies Lessee with labels indicating that the Equipment is owned by Lessor, Lessee shall affix such labels to and keep them in a prominent place on the Equipment. Lessee hereby authorizes Lessor to insert in this Lease or any Schedule the serial numbers, and other identification data, of Equipment when determined by Lessor. In order to perfect Lessor's security interest in the Equipment in the event this Lease is determined to be a security agreement, Lessee hereby grants Lessor a security interest in the Equipment and authorizes Lessor, at Lessee's expense, to cause this Lease, or any statement or other instrument in respect of this Lease showing the interest of Lessor in the Equipment, including Uniform Commercial Code Financing Statements, to be filed or recorded, and grants Lessor, where permitted, the right to execute Lessee's name thereto. Lessee agrees to pay or reimburse Lessor for its costs and out of pocket expenses relating to any searches undertaken by Lessor, or any filing, recording, stamp fees or taxes arising from the filing or recording of any such instrument or statement and any other costs, expenses or charges incurred by Lessor in documenting, administering and terminating this Lease. Lessee shall, at its expense, protect and defend Lessor's title to the Equipment against all persons claiming against or through Lessee, at all times keeping the Equipment free from any legal process or encumbrance whatsoever including but not limited to liens, attachments, levies and executions, and shall give Lessor immediate written notice thereof and shall indemnify Lessor from any loss caused thereby. Upon Lessor's request, Lessee shall execute or obtain from third parties and deliver to Lessor such further instruments and assurances as Lessor deems necessary or advisable for the confirmation or perfection of Lessor's rights hereunder. The Equipment is, and shall at all times be and remain, personal property notwithstanding that the Equipment or any part thereof may now be, or hereafter become, in any manner affixed or attached to real property or any improvements thereon. 2 7. CARE, USE, LOCATION AND ALTERATION. Lessee shall, at its sole cost and expense, service, repair, overhaul and maintain each item of Equipment in good operating order and in the condition when delivered to Lessee, ordinary wear and tear excepted. All such maintenance shall be consistent with prudent industry practice and all maintenance practices recommended by the Supplier or manufacturer and meet all legal and regulatory requirements. Upon request, Lessee shall provide Lessor with evidence of such compliance. Lessee shall maintain logs of the maintenance and service of the Equipment and permit Lessor, on reasonable prior notice to inspect the Equipment and the right to make copies of the logs and service reports. Lessee shall forthwith correct any deficiencies disclosed by such inspection. Lessee shall use the Equipment solely for business purposes, in compliance with all applicable laws, ordinances, regulations, and the conditions of all insurance policies required to be maintained by Lessee pursuant to the Lease. Lessee shall make all additions, modifications and improvements to the Equipment required by applicable law and except for such required changes, shall not alter the Equipment without Lessor's prior written consent. Lessee shall replace all worn, lost, stolen or destroyed parts of the Equipment with replacement parts at least meeting the standards required herein, all of which shall become the property of Lessor, except for such additions, modifications and improvements that can be readily removed without causing damage to, or impairing the commercial value or utility of, such Equipment, which shall remain Lessee's property and may be removed by Lessee at its expense before the Equipment is surrendered to Lessor. Lessee shall repair all damage to any item resulting from such installation or removal. If Lessee has not purchased an item of Equipment pursuant to any option to purchase granted to Lessee at the end of the Lease term for such item, Lessor shall be entitled to purchase any such addition, modifications and improvements from Lessee for its then fair market value. The Equipment shall not be removed from the Location without Lessor's prior written consent. 8. NOTICE AND CONDITIONS OF REDELIVERY. Lessee shall provide Lessor not less than One Hundred Twenty (120) days prior written notice of its intention to exercise its option to purchase the Equipment if granted on the related Schedule or return the Equipment to Lessor (the "Required Notice"). If Lessee shall have timely provided such Required Notice and has elected to return the Equipment to Lessor upon the expiration of the Term of the Schedule, Lessee shall, at its sole expense, return the Equipment covered thereby, freight prepaid, to Lessor in a manner and to a location within the continental United States designated by Lessor in the condition and repair required by the terms of this Lease, free of all liens and advertising insignia. If Lessee shall fail to return any item of Equipment as provided herein, Lessee shall be responsible for all cost and expense incurred by Lessor in returning the Equipment to such required condition or any reduction in value as a result thereof. If the Equipment or its component parts were packed or crated for shipping when new, Lessee shall pack or crate the same carefully and in accordance with any recommendations of the Supplier or manufacturer before redelivering the item to Lessor. Lessee shall also deliver to Lessor the plans, specifications, operating manuals, software documentation, discs, warranties and other documents furnished by the manufacturer or Supplier of the Equipment and such other documents in Lessee's possession relating to the maintenance and method of operation of such Equipment. At Lessor's written request, Lessee shall provide free storage for any item of Equipment for a period not to exceed sixty (60) days after the expiration of the Schedule term before returning such item to Lessor and permit Lessor access to the Equipment for inspection and/or resale. If Lessee fails to timely provide such Required Notice the Equipment shall continue to be held and leased hereunder, and this Lease and the related Schedule term shall thereupon be extended for a period ending one hundred twenty (120) days following receipt by Lessor of Lessee's notice of intent to return the Equipment, for the fair market rental value of the Equipment as determined by Lessor not to exceed the periodic installment of rent with respect to such Equipment for such period. If Lessee has timely provided the Required Notice but upon expiration Lessee does not immediately return the Equipment to Lessor, (unless otherwise requested by Lessor) the Equipment shall continue to be held and leased hereunder, and this Lease and the related Schedule term shall thereupon be extended for successive thirty (30) day periods at the fair market rental value of the Equipment as determined by Lessor not to exceed the periodic installment of rent with respect to such Equipment for such period. 9. RISK OF LOSS. Lessee shall bear all risks of loss of and damage to the Equipment from any cause and the occurrence of such loss or damage shall not relieve Lessee of any obligation hereunder. In the event of loss or damage, Lessee, at its option, provided it is not in default hereunder, otherwise at 3 Lessor's option, shall: (a) place the damaged Equipment in good repair, condition and working order; or (b) replace lost or damaged Equipment with like equipment in good repair, condition and working order with documentation creating clear title thereto in Lessor; or (c) pay to Lessor the then present value computed at five (5%) percent per annum of both the unpaid balance of the aggregate rent reserved under the Lease and related Schedule and the value of Lessor's residual interest in the Equipment. Upon Lessor's receipt of such payment, Lessee and/or Lessee's insurer shall be entitled to Lessor's interest in said item for salvage purposes, in its then condition and location, as is, without warranty, express or implied. 10. INSURANCE. Until redelivered to Lessor, Lessee shall maintain and deliver evidence to Lessor of such insurance required by, written by insurers, and in amounts satisfactory to Lessor. Should Lessee fail to provide such insurance coverage, Lessor may obtain coverage for part or all of the term of this Lease or any Schedule or such period beyond the term as is required by the insurance company issuing such coverage protecting interests of Lessor and Lessee or the interest of Lessor only. The proceeds of such insurance, at the option of Lessee, provided it is not in default hereunder, otherwise at Lessor's option, shall be applied toward (i) the replacement, restoration or repair of the Equipment or (ii) payment of the obligations of Lessee hereunder. Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make claims for, receive payment of, and execute and endorse all documents, checks, or drafts for loss or damage under any said insurance policies. 11. NET LEASE; TAXES. Lessee intends the rental payments hereunder to be net to Lessor, and Lessee shall pay all sales, use, excise, stamp, documentary and ad valorem taxes, license and registration fees, assessments, fines, penalties and similar charges imposed on the ownership, possession or use of the Equipment during the term of this Lease or any Schedule; shall pay all taxes (except Lessor's Federal or State net income taxes) imposed on Lessor or Lessee with respect to the rental payments hereunder, and shall reimburse Lessor upon demand for any taxes paid by or advanced by Lessor. Unless Lessee is otherwise directed by Lessor, in writing, Lessor shall file for and pay all personal property taxes assessed with respect to the Equipment during the term of this Lease and Lessee shall, upon Lessor's demand, forthwith reimburse Lessor for the full amount of such taxes without regard to any discounts obtained by Lessor due to early payment or otherwise. Lessor may, if it elects, estimate such personal property taxes and bill Lessee periodically in advance therefor. 12. INDEMNITY. Lessee shall hold Lessor harmless from, indemnify and defend Lessor against, any and all claims, actions, suits, proceedings, costs, expenses, damages and liabilities, including attorney's fees arising out of, connected with or resulting from the Equipment or this Lease or any Schedule, including, without limitation, the manufacture, selection, delivery, possession, use, operation or return of the Equipment. These indemnities shall survive the termination or expiration of this Lease or any Schedule. 13. DEFAULT AND REMEDIES. If (i) Lessee defaults in any payment required under this Lease or any Schedules or under any other lease or agreement between Lessor and Lessee, or (ii) Lessee breaches any of the representations or warranties contained herein or fails to perform any of the terms, covenants or conditions of this Lease or any Schedule or (iii) a petition in bankruptcy, arrangement, insolvency or reorganization is filed by or against Lessee or any guarantor of Lessee's obligations hereunder, or (iv) Lessee or any guarantor of Lessee's obligations makes an assignment for the benefit of creditors, or (v) without Lessor's written consent, Lessee sells all or a substantial part of Lessee's assets or a majority of Lessee's voting stock is transferred, or (vi) during the term of the Lease or any Schedule there is a material adverse change in the financial condition of Lessee or any guarantor of Lessee's obligations, or (vii) an "Event of Default", [as defined in the Secured Business Loan Agreement dated as of March 4, 1998, as may be amended from time to time, (the "Credit Agreement"), between Lessee and Bank of America National Trust and Savings Association (the "Lender")], (after all applicable cure periods have run), shall be a default under the Lease. Lessee will promptly deliver to Lessor copies of all notices received by Lessee from the Lender or delivered by Lessee (or officer of Lessee) to the Lender to the effect that an Event of Default has occurred under the Credit Agreement, Lessee will also promptly deliver to Lessor written notice of the occurrence of any such Event of Default, if Lessee has not otherwise notified Lessor in accordance with the immediately preceding sentence, then Lessor may, to the extent permitted by law, exercise any one or more of the 4 following remedies: (a) to declare the entire balance of rent for the full term of any or all Schedules covered hereby immediately due and payable and to similarly accelerate the balances under any other leases or agreements between Lessor and Lessee without notice or demand, (b) to sue for and recover all rents, and other monies due and to become due under any or all Schedules hereunder and the residual value of the Equipment covered thereby discounted to the date of default at five (5%) percent per annum; (c) to require Lessee at Lessee's expense, to assemble all the Equipment at a place reasonably designated by Lessor, (d) to remove any physical obstructions for removal of the Equipment from the place where the Equipment is located and take possession of any or all items of Equipment, without demand or notice, wherever same may be located, disconnecting and separating all such Equipment from any other property, with or without any court order or pre-taking hearing or other process of law, it being understood that facility of repossession in the event of default is a basis for the financial accommodation reflected by this Lease. Lessee hereby waives any and all damages occasioned by such retaking. Lessor may, at its option, use, ship, store, repair or lease all Equipment so removed and sell or otherwise dispose of any such Equipment at a private or public sale. Lessor may expose and resell the Equipment at Lessee's premises at reasonable business hours without being required to remove the Equipment. In the event Lessor takes possession of the Equipment, Lessor shall give Lessee credit for any sums received by Lessor from the sale, or present value of the rental, of the Equipment computed at the implicit rate of the Schedule after deduction of the expenses of sale or rental. Lessee shall also be liable for and shall pay to Lessor on demand (a) all expenses incurred by Lessor in connection with the enforcement of any of Lessor's remedies, including all expenses of repossession, storing, shipping, repairing and selling the Equipment, (b) Lessor's reasonable attorney's fees and (c) interest on all sums due Lessor from the date of default until paid at the rate of one and one-half (1.5%) percent per month, but only to the extent permitted by law. Lessor and Lessee acknowledge the difficulty in establishing a value for the unexpired Lease term and owing to such difficulty agree that the provisions of this paragraph represent an agreed measure of damages and are not to be deemed a forfeiture or penalty. Whenever any payment hereunder is not made by Lessee within ten (10) days when due, Lessee agrees to pay to Lessor, not later than one month thereafter, an amount calculated at the rate of ten cents per one dollar of each such delayed payment, as an administrative fee to offset Lessor's collection costs, but only to the extent allowed by law. Such amount shall be payable in addition to all amounts payable by Lessee as a result of exercise of any of the remedies herein provided. All remedies of Lessor hereunder are cumulative, are in addition to any other remedies provided for by law, and may, to the extent permitted by law, be exercised concurrently or separately. The exercise of any one remedy shall not be deemed to be an election of such remedy or to preclude the exercise of any other remedy. No failure on the part of the Lessor to exercise and no delay in exercising any right or remedy shall operate as a waiver thereof or modify the terms of this Lease. A waiver of default by Lessor on any one occasion shall not be deemed a waiver of any other or subsequent default. In the event this Lease is determined to be a security agreement, Lessor's recovery shall in no event exceed the maximum permitted by law. 14. PERFORMANCE BY LESSOR OF LESSEE'S OBLIGATIONS. In the event Lessee fails to comply with any provision of this Lease, Lessor shall have the right, but shall not be obligated, to effect such compliance on behalf of Lessee upon ten (10) days prior written notice to Lessee. In such event, all monies advanced or expended by Lessor, and all expenses of Lessor in effecting such compliance, shall be deemed to be additional rent, and shall be paid by Lessee to Lessor at the time of the next periodic payment of rent. 15. ASSIGNMENT; QUIET ENJOYMENT. LESSOR MAY, WITHOUT LESSEE'S CONSENT, ASSIGN THIS LEASE OR ANY SCHEDULE AND/OR THE RENTALS DUE THEREUNDER OR SELL OR GRANT A SECURITY INTEREST IN THE EQUIPMENT AND LESSEE AGREES THAT NO ASSIGNEE OF LESSOR SHALL BE BOUND TO PERFORM ANY DUTY, COVENANT OR CONDITION OR WARRANTY (EXPRESS OR IMPLIED) ATTRIBUTABLE TO LESSOR AND LESSEE FURTHER AGREES NOT TO RAISE ANY CLAIM OR DEFENSE ARISING OUT OF THIS LEASE OR OTHERWISE AGAINST LESSOR AS A DEFENSE, COUNTERCLAIM OR OFFSET TO ANY ACTION BY ANY ASSIGNEE 5 HEREUNDER. NOTWITHSTANDING ANY ASSIGNMENT BY LESSOR, PROVIDING LESSEE IS NOT IN DEFAULT HEREUNDER, LESSEE SHALL QUIETLY ENJOY USE OF THE EQUIPMENT, SUBJECT TO THE TERMS AND CONDITIONS OF THE LEASE. WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, LESSEE SHALL NOT ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THE EQUIPMENT OR ANY INTEREST THEREIN, OR SUBLET OR LEND EQUIPMENT OR PERMIT IT TO BE USED BY ANYONE OTHER THAN LESSEE OR LESSEE'S EMPLOYEES. 16. NOTICES. Service of all notices under this Lease shall be sufficient if given personally or mailed to the intended party at its respective address set forth herein, or at such other address as said party may provide in writing from time to time. Any such notice mailed to said address shall be effective three (3) days following the date when deposited in the United States mail, duly addressed and with postage prepaid. 17. REPRESENTATIONS AND COVENANTS OF LESSEE. Lessee represents that all financial and other information furnished to Lessor was, at the time of delivery, true and correct. As soon as practicable, and in any event within ninety (90) days after the close of each fiscal year of Lessee, Lessee shall furnish to Lessor Tomahawk Corporation's consolidated annual audited reports for such year, including statements of income, retained earnings and changes in financial position of Lessee for such fiscal year and balance sheets as of the close of such fiscal year, reviewed without qualification by independent certified public accountants of recognized standing selected by Lessee and reasonably satisfactory to Lessor, together with (or included in such review) a written statement of such accountants substantially to the effect that (i) such accountants reviewed such financial statements in accordance with generally accepted auditing standards and accordingly made such tests of accounting records and such other auditing procedures as they considered necessary in the circumstances and (ii) in the opinion of such accountants such financial statements present fairly the financial position of Lessee as of the end of such fiscal year and the results of its operations and the changes in its financial position for the fiscal year then ended, in conformity with GAAP applied on a basis consistent with that of the preceding fiscal year (except for changes in application in which such accountants concur). Within sixty (60) days after the end of each of the first three fiscal quarters of each fiscal year, Lessee shall furnish to Lessor a copy of Tomahawk Corporation's interim financial statements, certified by an Executive Officer of Tomahawk Corporation or if Tomahawk Corporation chooses, audited as set forth above and certified by an Executive Officer of Tomahawk Corporation, in conformity with GAAP. During the term of the Lease, Lessee shall provide Lessor with such additional financial statements as Lessor requests. Lessee has taken all action necessary to assure that there will be no material adverse change to Lessee's business by reason of the advent of the year 2000, including without limitation that all computer-based systems, embedded microchips and other processing capabilities effectively recognize and process dates after April 1, 1999. At Lessor's request, Lessee shall provide to Lessor assurance reasonably acceptable to Lessor that Lessee's computer-based systems, embedded microchips and other processing capabilities are year 2000 compatible. 18. GOVERNING LAW; JURISDICTION; VENUE; SERVICE OF PROCESS; WAIVER OF TRIAL BY JURY. THIS LEASE SHALL BE BINDING WHEN ACCEPTED IN WRITING BY THE LESSOR AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ARIZONA, PROVIDED, HOWEVER, IN THE EVENT THIS LEASE OR ANY PROVISION HEREOF IS NOT ENFORCEABLE UNDER THE LAWS OF THE STATE OF ARIZONA THEN THE LAWS OF THE STATE WHERE THE EQUIPMENT IS LOCATED SHALL GOVERN. ANY DISPUTE UNDER THIS LEASE SHALL BE LITIGATED BY LESSEE ONLY IN FEDERAL OR STATE COURTS 6 LOCATED IN MARICOPA COUNTY, ARIZONA, AND LESSEE IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS AND WAIVES ANY OBJECTION THAT MAY EXIST AS TO VENUE OR CONVENIENCE OF SUCH FORUMS. NOTHING CONTAINED HEREIN SHALL PRECLUDE LESSOR FROM COMMENCING ANY ACTION IN ANY COURT HAVING JURISDICTION THEREOF. SERVICE OF PROCESS IN ANY SUCH ACTION SHALL BE SUFFICIENT IF SERVED BY CERTIFIED MAIL RETURN RECEIPT REQUESTED TO THE ADDRESS OF THE PARTY SET FORTH FOLLOWING THE SIGNATURES AT THE END OF THIS LEASE. TO THE EXTENT PERMITTED BY LAW, LESSEE WAIVES TRIAL BY JURY IN ANY ACTION BY OR AGAINST LESSOR HEREUNDER. 19. GENERAL. This Lease inures to the benefit of and is binding upon the heirs, legatees, personal representatives, successors and assigns of the parties hereto. Time is of the essence of this Lease. This Lease and all Schedules attached hereto contain the entire agreement between Lessor and Lessee, and no modification of this Lease or any Schedule shall be effective unless in writing and executed by an executive officer of Lessor. If more than one Lessee is named in this Lease, the liability of each shall be joint and several. In the event any provision of this Lease should be unenforceable, then such provision shall be deemed deleted, however, no other provision hereof shall be affected thereby. 20. FINANCE LEASE STATUS. Lessor and Lessee agree that if Article 2A - Leases of the Uniform Commercial Code ("Code") governs the terms of this Lease, then this Lease will be deemed a "finance lease". By executing this Lease, Lessee acknowledges that (a) Lessor has advised Lessee of (i) the identity of the Supplier; (ii) that Lessee may have rights under the "supply contract" as defined in the Code, pursuant to which Lessor is purchasing the Equipment, and (iii) that Lessee may contact the Supplier for a description of any such rights. TO THE EXTENT PERMITTED BY APPLICABLE LAW, LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON A LESSEE BY THE CODE, INCLUDING SECTIONS 2A - 508 THROUGH 522 THEREOF. 21. PUBLICITY. Lessor is hereby authorized to issue appropriate press releases and to cause a tombstone to be published announcing the consummation of this transaction and the aggregate amount thereof. LESSOR: LESSEE: FINOVA CAPITAL CORPORATION TOMAHAWK II, INC. BY: BY: /s/ Michael H. Lorber ----------------------------- ------------------------------- PRINTED NAME: PRINTED NAME: Michael H. Lorber -------------------- --------------------- TITLE: TITLE: VP Finance & CFO -------------------------- ---------------------------- Taxpayer Identification No.: 36-3873499 ---------- ADDRESS: ADDRESS: 115 WEST CENTURY ROAD, P.O. BOX 907 8315 CENTURY PARK, COURT #200 PARAMUS, NEW JERSEY 07653 SAN DIEGO, CALIFORNIA 92123 DATE ACCEPTED: DATED: 11/19/98 ------------------- -------------------------------- 7 Exhibit A FINOVA Capital Corporation 115 West Century Road P.O. Box 907 Paramus, New Jersey 07653 Telephone (201) 634 3300 MASTER LEASE SCHEDULE NO. C0856001 TO EQUIPMENT LEASE NO. C0856001 (THE "LEASE") EQUIPMENT LEASED SUPPLIER: See Schedule "A" attached hereto CNC Associates, Inc. 2800 Sturgis Road Oxnard, CA 93030 LOCATION OF EQUIPMENT 8315 Century Park Court #200 San Diego, CA 92123 TERM OF SCHEDULE: FORTY-EIGHT (48) MONTHS SIX (6) SUCCESSIVE MONTHLY RENTAL PAYMENTS EACH IN THE AMOUNT OF $6,435.43 FOLLOWED BY FORTY-TWO (42) SUCCESSIVE MONTHLY RENTAL PAYMENTS EACH IN THE AMOUNT OF $11,329.53, SUBJECT TO THE INDEXING PROVISION CONTAINED HEREIN, PAYABLE IN ARREARS. ADDITIONAL TERMS AND CONDITIONS 1. LEASE OF EQUIPMENT. Lessor hereby agrees to lease to Lessee, and Lessee hereby agrees to lease and rent from Lessor the Equipment listed above, or on any Schedule attached hereto, for the term and the rental payments provided herein, all subject to the terms and conditions of the Lease. 2. OPTION TO PURCHASE. Provided Lessee is not in default under the Lease or this Schedule or under any other Lease or agreement with Lessor, Lessee shall have the right, at the expiration of the Term of this Schedule or any extended term thereof, upon not less than 120 days' prior written notice to Lessor, to purchase the Equipment leased hereunder, in whole but not in part, on an as-is, where-is basis for the fair market value thereof which the parties agree is $1.00. 3. ADDITIONAL TERMS WITH RESPECT TO THE CARE AND USE OF THE EQUIPMENT. In addition to Lessee's obligations under Paragraph 7 of the Lease, Lessee shall (i) lubricate the Equipment on a basis that conforms to the maintenance manual and/or lubrication schedule recommended by the manufacturer of the Equipment, and (ii) purchase replacement parts only from sources approved by the manufacturer. Copies of all purchase orders for such replacement parts are to be retained in Lessee's file relating to the Equipment. 4. ADDITIONAL TERMS WITH RESPECT TO THE CONDITIONS OF REDELIVERY. In addition to Lessee's obligations under Paragraph 8 of the Lease, Lessee shall (i) dismantle and handle the Equipment in accordance with the manufacturer's specifications or normal industry accepted practices for new equipment. Any special transportation devices, such as metal skids, lifting slings, brackets, etc., which were with the Equipment when it was delivered or equivalent devices must be used; (ii) block all sliding members, secure all swinging doors, pendants and other swinging components, wrap, box, band and label all components and documents in an appropriate manner to facilitate the efficient reinstallation of the components; (iii) remove all process fluids from the Equipment and dispose of the same in accordance with prevailing waste disposal laws and regulations; (iv) clean and dry sumps and tanks; (v) not ship any "Hazardous Waste" materials with the equipment; (vi) fill all internal fluids such as lube oil and hydraulic oil to operating levels, secure filler caps and seal disconnected hoses; (vii) wire together all lock keys and secure the same to a major external component of the equipment; (viii) cause the Equipment to be complete, fully functional with no missing components or attachments, rust free with all boots, guards and seals clean and with all batteries for control memories fully charged. Lessor shall have the right to attempt to resell the Equipment at the Location for a period of 120 days from the expiration of the Term of the Schedule or any extensions thereof. During this period the Equipment must remain operational and Lessee must provide adequate electrical power, lighting, heat, water and compressed air, necessary to permit Lessor to demonstrate the Equipment to any potential buyer. If an auction is necessary to dispose of the Equipment, Lessor shall be permitted to auction the Equipment at the Location. 5. INDEXING. If on the Commencement Date, the highest yield on four (4) year Treasury Notes, as published in THE WALL STREET JOURNAL, with a maturity date on or closest to the maturity date of this Schedule (the "Index"), exceeds 4.33% (the "Yield"), the Monthly Rental Payment provided herein shall automatically be increased for the full term to reflect such increase in the Yield. As soon as practicable thereafter, Lessor shall provide Lessee with written notice of any increase in the Monthly Rental Payment. Lessor's calculations shall be conclusive absent manifest error. LESSOR: LESSEE: FINOVA CAPITAL CORPORATION TOMAHAWK II, INC. BY: BY: Michael H. Lorber ------------------------------- ---------------------------- PRINTED NAME: PRINTED NAME: Michael H. Lorber --------------------- ------------------ TITLE: TITLE: VP Finance & CFO ---------------------------- ------------------------- ADDRESS: ADDRESS: 115 WEST CENTURY ROAD, P.O. BOX 907 8315 CENTURY PARK, COURT #200 PARAMUS, NEW JERSEY 07653 SAN DIEGO, CALIFORNIA 92123 DATE ACCEPTED: DATED: 11/19/98 --------------------- -------------------------- 3. ADDITIONAL TERMS WITH RESPECT TO THE CARE AND USE OF THE EQUIPMENT. In addition to Lessee's obligations under Paragraph 7 of the Lease, Lessee shall (i) lubricate the Equipment on a basis that conforms to the maintenance manual and/or lubrication schedule recommended by the manufacturer of the Equipment, and (ii) purchase replacement parts only from sources approved by the manufacturer. Copies of all purchase orders for such replacement parts are to be retained in Lessee's file relating to the Equipment. 4. ADDITIONAL TERMS WITH RESPECT TO THE CONDITIONS OF REDELIVERY. In addition to Lessee's obligations under Paragraph 8 of the Lease, Lessee shall (i) dismantle and handle the Equipment in accordance with the manufacturer's specifications or normal industry accepted practices for new equipment. Any special transportation devices, such as metal skids, lifting slings, brackets, etc., which were with the Equipment when it was delivered or equivalent devices must be used; (ii) block all sliding members, secure all swinging doors, pendants and other swinging components, wrap, box, band and label all components and documents in an appropriate manner to facilitate the efficient reinstallation of the components; (iii) remove all process fluids from the Equipment and dispose of the same in accordance with prevailing waste disposal laws and regulations; (iv) clean and dry sumps and tanks; (v) not ship any "Hazardous Waste" materials with the equipment; (vi) fill all Internal fluids such as lube oil and hydraulic oil to operating levels, secure filler caps and seal disconnected hoses; (vii) wire together all lock keys and secure the same to a major external component of the equipment; (viii) cause the Equipment to be complete, fully functional with no missing components or attachments, rust free with all boots, guards and seals clean and with all batteries for control memories fully charged. Lessor shall have the right to attempt to resell the Equipment at the Location for a period of 120 days from the expiration of the Term of the Schedule or any extensions thereof. During this period the Equipment must remain operational and Lessee must provide adequate electrical power, lighting, heat, water and compressed air, necessary to permit Lessor to demonstrate the Equipment to any potential buyer. If an auction is necessary to dispose of the Equipment, Lessor shall be permitted to auction the Equipment at the Location. 5. INDEXING. If on the Commencement Date, the highest yield on four (4) year Treasury Notes, as published in The Wall Street Journal, with a maturity date on or closest to the maturity date of this Schedule (the "Index"), exceeds 4.33% (the "Yield"), the Monthly Rental Payment provided herein shall automatically be increased for the full term to reflect such increase in the Yield. As soon as practicable thereafter, Lessor shall provide Lessee with written notice of any increase in the Monthly Rental Payment. Lessor's calculations shall be conclusive absent manifest error. LESSOR: LESSEE: FINOVA CAPITAL CORPORATION TOMAHAWK II, INC. BY: /s/ A. Holland BY: /s/ Michael H. Lorber -------------------------------- ---------------------------- PRINTED NAME: A. Holland PRINTED NAME: Michael H. Lorber TITLE: Director, Contr Admin TITLE: VP Finance & CFO ------------------------- ADDRESS: ADDRESS: 115 WEST CENTURY ROAD, P.O. BOX 907 8315 CENTURY PARK, COURT #200 PARAMUS, NEW JERSEY 07653 SAN DIEGO, CALIFORNIA 92123 DATE ACCEPTED: 12-2-98 DATED: 12/19/98 FINOVA FINANCIAL INNOVATORS VIA FACSIMILE 115 WEST CENTURY ROAD P.O. BOX 907 PARAMUS, NEW JERSEY 07653 December 1, 1998 TEL (201) 634-3300 Mr. Michael H. Lorber Tomahawk II, Inc. 8315 Century Park Court #200 San Diego, CA 92123 Re: Master Lease Schedule No. C0856001 to Equipment Lease No. C0856001 between Tomahawk II, Inc. as Lessee and FINOVA Capital Corporation as Lessor (the "Lease Agreement"). Dear Mr. Lorber: Please be advised that the monthly rental payments as currently stated on the Master Lease Agreement, being six months at $6,435.43 followed by forty-two months at $11,329.53 were calculated based upon CNC Associates. Inc. payoff (the "CNC Payoff") amount of $397,248.60. It has been determined that the CNC Payoff has been increased to $398,158.86 and therefore the monthly rental payments will increase to six months at $6,450.17 followed by forty-two months at $11,355.49. All other terms and conditions of the Lease Agreement remain unchanged. Your signature below will acknowledge the foregoing. Very truly yours, FINOVA Capital Corporation Anthony M. Holland Director, Contract Administration ACKNOWLEDGED AND AGREED: BY: TOMAHAWK II, INC. By: /s/ Michael H. Lorber Dated: 12/1/98 Exhibit B FINOVA Capital Corporation 115 West Century Road P.O. Box 907 Paramus, New Jersey 07653 Telephone (201) 634-3300 CORPORATE RESOLUTION AUTHORIZING LEASE I, Michael Lorber the duly elected Secretary of Tomahawk II, Inc., a California corporation do hereby certify that at a Special Meeting of the Board of Directors of said Corporation held on the 23rd day of October, 1998, the following resolution was adopted and remains in full force and effect: "RESOLVED, that any President, Vice President, Treasurer or Secretary or if not such officer then the authorized signatory listed below, be and are authorized and directed to enter into, execute and deliver on behalf of this Corporation a Lease Agreement with FINOVA Capital Corporation whereby this Corporation will lease certain equipment on such terms and conditions as set forth in said lease, a copy of which lease was exhibited to the Board of Directors or such other terms as such officers deem advisable." Fill in name of authorized signatory if an officer does not execute Lease ______________________________ IN WITNESS WHEREOF, I have affixed my name as Secretary of said Corporation and have caused the corporate seal of said Corporation to be hereunto affixed this 19th day of November, 1998. /s/ Michael H. Lorber ------------------------- (Secretary) Exhibit C ________________, 1998 FINOVA Capital Corporation 115 West Century Road Paramus, NJ 07652 BILL OF SALE For good and valuable consideration, the receipt of which is hereby acknowledged, Tomahawk II, Inc. ("Tomahawk") hereby sells to FINOVA Capital Corporation ("FINOVA") all it's rights, title and interest in and to the equipment ("Equipment") which is the subject of and is described on that certain Master Lease Schedule No. C0856001 to Equipment Lease No. C0856001 between FINOVA as Lessor and Tomahawk as Lessee on an "AS IS' "WHERE IS" basis and conveys onto FINOVA good and marketable title to the Equipment, free and clear of all liens, security interests, pledges, claims, charges, encumbrances, agreements, rights or interests of third parties or other imperfections of title. Tomahawk II, Inc. By: /s/ Michael H. Lorber --------------------------- Printed Name: Michael H. Lorber ----------------- Title: VP - Finance & CFO ------------------------ FINOVA Capital Corporation 113 West Century Road P.O. Box 951 Paramus, New Jersey 07653 (201) 631-3300 [STAMP] Exhibit D GUARANTY 1. RECITALS (a) This Guaranty is made by the undersigned (hereinafter each called a "Guarantor"), in favor of FINOVA Capital Corporation ("FINOVA") (b) FINOVA intends to enter into one or more financial transactions (collectively "Transactions") with Tomahawk II, Inc. ("Debtor") evidenced by certain equipment leases, notes, security agreements, mortgages, deeds of trust or other instruments ("Agreements"). (c) Guarantor has a financial or other interest in Debtor and/or the Transactions, and expects to obtain a financial or other benefit if FINOVA enters into the Transactions. 2. GUARANTY In order to induce FINOVA to enter into one or more Transactions and Agreements with Debtor, and in consideration thereof. (a) Guarantor unconditionally guarantees to FINOVA the prompt payment, when due, of all now existing or hereafter arising indebtedness and obligations of Debtor to FINOVA of every kind or nature, however arising ("Indebtedness"). (b) Guarantor unconditionally guarantees to FINOVA the prompt, full and faithful performance and discharge by Debtor of each and every term, condition, agreement representation, warranty and provision of the part of Debtor made in connection with the Transactions and the Agreements or any modification, amendment or substitution thereof. (c) Guarantor shall, on demand, reimburse FINOVA for all expenses, collection charges, court costs and reasonable attorneys' fees incurred by FINOVA in endeavoring to collect or enforce any of FINOVA's rights and remedies against Debtor and/or Guarantor or any other person or concern liable thereto. (d) Guarantor shall pay all of the foregoing amounts and perform all of the foregoing terms, covenants and conditions notwithstanding that any part or all of the Transactions or the Agreements shall be void or voidable as against Debtor or any of Debtor's creditors, including a trustee in bankruptcy of Debtor, by reason of any fact or circumstances including, without limitation, failure by any person to file any document or to take any other action to make any of the Transactions or Agreements enforceable in accordance with their respective terms. 3. PRIMARY NATURE OF GUARANTY The liability of Guarantor hereunder is primary, absolute, unconditional, direct and independent of the obligations of Debtor. Nothing shall discharge or satisfy Guarantor's liability hereunder except the full performance and payment of all of Debtor's obligations to FINOVA, with interest. Guarantor also agrees that the obligations of Guarantor hereunder shall not be relieved in the event FINOVA fails to protect or otherwise impairs any collateral. 4. WAIVERS BY GUARANTOR (a) Guarantor waives notice of acceptance hereof and of all notices and demands of any kind to which Guarantor may be entitled including without limitation, all demands of payment and notice of nonpayment, protest and dishonor to Guarantor, or Debtor, or the makers or endorsers of any notes or other instruments for which Guarantor is or may be liable hereunder. Guarantor further waives notice of and hereby consents to any agreement or arrangement for subordination, composition, arrangement, discharge or release of any part of Debtor's obligations under any of the Transactions or Agreements or release of other guarantors, or for compromise of any sums due in any way whatsoever; and the same shall in no way impair Guarantor's liability hereunder. (b) Guarantor waives any right to require FINOVA to: (i) proceed against Debtor; (ii) proceed against or exhaust any security held by FINOVA of Debtor or others; or (iii) pursue any other remedy which FINOVA may have, including against any other guarantor of Debtor's obligations to FINOVA. (c) Guarantor expressly waives any and all rights of subrogation, reimbursement, indemnity, exoneration, contribution or any other claim which it may now or hereafter have against the Debtor or any person directly or contingently liable for the obligations guaranteed hereunder, or against or with respect to the Debtor's property (including, without limitation property collateralizing the obligations guaranteed hereunder), arising from the existence or performance of this Guaranty. 5. GUARANTOR'S PROPERTY AS SECURITY FOR GUARANTY All sums at any time to Guarantor's credit and any of Guarantor's property at any time in FINOVA's possession shall be deemed held by FINOVA as security for any and all of Guarantor's obligations to FINOVA hereunder. 1 6. SUBORDINATION - WAIVER OR RIGHT OF SUBROGATION Any and all present and future indebtedness and obligations of Debtor to Guarantor are hereby postponed in favor or and subordinated to the full payment and performance of all present and future obligations of Debtor to FINOVA. To the extent FINOVA receives payment on account of the indebtedness guaranteed hereby, which payment is thereafter set aside or required to be repaid by FINOVA in whole or in part, then, to the extent of any sum not finally retained by FINOVA (regardless of whether such sum is recovered from FINOVA by Debtor, its trustee or any other party acting for, on behalf of or through Debtor), Guarantor's obligations to FINOVA under this Guaranty, as amended, modified or supplemented, shall remain in full force and effect (or be reinstated) until Guarantor has made payment to FINOVA for such repaid payments. Guarantor hereby irrevocably waives and relinquishes all statutory, contractual, common law, equitable and all other claims against Debtor, any collateral for the indebtedness guaranteed hereby or other assets of Debtor or any other obligor, for subrogation, reimbursement, exoneration, contribution, indemnification, setoff or other recourse in respect of sums paid or payable to FINOVA by Guarantor hereunder and Guarantor hereby further irrevocably and unconditionally waives and relinquishes any and all other benefits which Guarantor might otherwise directly or indirectly receive or be entitled to receive by reason of any amounts paid by or collected or due from Guarantor Debtor or any other obligor with respect to the indebtedness guaranteed hereby or realized from their property. 7. EVENTS OF DEFAULT If Guarantor or Debtor should at any time become insolvent, or make a general assignment for the benefit of creditors, or if a proceeding shall be commenced by, against or in respect of Guarantor or Debtor under the Federal Bankruptcy Code or any state insolvency law, or if any individual Guarantor dies, any and all of Guarantors obligations under this Guaranty shall, at FINOVA's option, forthwith become due and payable without notice. 8. CONTINUING NATURE OF GUARANTY This is a continuing guaranty. This instrument shall continue in full force and effect until terminated by the actual receipt by FINOVA of written notice of termination from a Guarantor. Such termination shall be applicable only to the Agreements or Transactions having their inception thereafter, and rights and obligations arising out of the Agreements or Transactions having their inception prior to such termination shall not be affected. 9. NO WAIVER BY FINOVA No failure, omission or delay on the part of FINOVA in exercising any rights hereunder or in taking any action, to collect or enforce payment or performance of any of the Agreements or any of the Transactions, either against Debtor or any other person liable therefore, shall operate as a waiver of any such right or shall, in any manner, prejudice the rights of FINOVA against Guarantor. 10. CUMULATIVE REMEDIES All of FINOVA's rights, remedies and recourse under the Agreements or Transactions or this Guaranty, are separate and cumulative and may be pursued separately, successively or concurrently, are non-exclusive and the exercise of any one or more of them, shall in no way limit or prejudice any other legal or equitable right, remedy or recourse to which FINOVA may be entitled. 11. MODIFICATIONS No provision hereof shall be modified or limited, except by a written agreement expressly referring hereto and to the provision so modified or limited, and signed by Guarantor and FINOVA. 12. COVENANTS OF GUARANTOR Guarantor represents that all financial and other information furnished to FINOVA was, at the time of delivery, true and correct. Guarantor agrees to provide FINOVA with such financial information as set forth in the Loan and Security Agreement between Debtor and FINOVA dated , 1998 and such other financial or credit information as FINOVA reasonably requests until all obligations of Debtor to FINOVA are paid in full. 13. MERGER This writing is intended by the parties as a final expression of this agreement of guaranty and is intended also as a complete and exclusive statement of the terms of this agreement of guaranty. No course of prior dealings between the parties, no usage of the trade, and no parole or extrinsic evidence of any nature shall be used or be relevant to supplement or explain or modify any term used in this agreement of guaranty. 14. SEVERABILITY In case any one or more of the provisions contained in this Guaranty shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 2 15. NOTICES Guarantor agrees that any notice or demand upon Guarantor shall be deemed to be sufficiently given or served if it is in writing and is personally served, or in lieu of personal service is mailed by first class certified mail, postage prepaid, or by private courier such as Federal Express, addressed to Guarantor at the addresses set forth below. Any notice or demand so mailed shall be deemed received on the date of actual receipt or the first business day following mailing, whichever first occurs. 16. GOVERNING LAW THIS INSTRUMENT SHALL FOR ALL PURPOSES BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA. GUARANTOR CONSENTS TO THE PERSONAL JURISDICTION OF ANY FEDERAL COURT IN THE STATE OF ARIZONA OR ANY STATE COURT LOCATED IN MARICOPA COUNTY, ARIZONA WITH RESPECT TO ANY LEGAL ACTION COMMENCED HEREUNDER AND TO THE FULLEST EXTENT ALLOWED BY LAW. GUARANTOR HEREBY WAIVES ANY OBJECTION GUARANTOR MAY HAVE TO THE VENUE OF SUCH COURTS OR THE CONVENIENCE OF THIS FORUM. NOTHING CONTAINED HEREIN IS INTENDED TO PRECLUDE FINOVA FROM COMMENCING ANY ACTION HEREUNDER IN ANY COURT HAVING JURISDICTION THEREOF. GUARANTOR WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED HEREON. GUARANTOR ALSO WAIVES THE BENEFIT OF ANY STATUTE OF LIMITATIONS AFFECTING GUARANTOR'S LIABILITY HEREUNDER OR THE ENFORCEMENT THEREOF. 17. SUCCESSORS AND ASSIGNS This Guaranty shall inure to the benefit of FINOVA, its successors and assigns and shall be binding on Guarantor and its successors and assigns, and/or heirs, administrators or personal representatives. IN WITNESS WHEREOF, the undersigned Guarantor has duly executed this Guaranty this 1st day of December, 1998. CORPORATE GUARANTOR TOMAHAWK CORPORATION By: /s/ S. M. CAIRA President ------------------------------------- (Title) 8315 Century Park Court, Ste 200 ------------------------------------- (Street Address) San Diego, CA 92123 ------------------------------------- (City, State, Zip Code) CORPORATE RATIFICATION I TOM DUSMET, duly authorized Corporate Secretary declare and ratify on behalf of the TOMAHAWK CORPORATION the following: I am the duly elected Corporate Secretary of the TOMAHAWK CORPORATION, pursuant to the bylaws of the corporation, and I am authorized by the corporation to make this ratification. STEVEN M. CAIRA, President of the TOMAHAWK CORPORATION, is lawfully and duly authorized to enter into the above-executed Guaranty Agreement with FINOVA FINANCIAL CORPORATION INC. The above signature is that of STEVEN M. CAIRA, President of the TOMAHAWK CORPORATION. The TOMAHAWK CORPORATION hereby ratifies the GUARANTY AGREEMENT between TOMAHAWK CORPORATION and FINOVA FINANCIAL CORPORATION as executed by TOMAHAWK CORPORATION President STEVEN M. CAIRA. Executed this First day of December 1998. /s/ Tom Dusmet Corporate Secretary - ---------------- IN WITNESS WHEROF, I have affixed my name as Secretary of the Corporation and have caused the corporate seal of the Corporation to be affixed this First day of December 1998 /s/ Tom Dusmet Corporate Secretary - ---------------- TOM DUSMET FINOVA Capital Corporation 115 West Century Road P.O. Box 907 Paramus, New Jersey 07653 Telephone (201) 634-3300 Exhibit E MASTER LEASE SCHEDULE NO. C0856002 TO EQUIPMENT LEASE NO. C0856001 (THE "LEASE") EQUIPMENT LEASED: SUPPLIER: See Schedule "A" attached hereto CMM Products 3185 Airway Avenue Costa Mesa, CA 92626 LOCATION OF EQUIPMENT: 8315 Century Park Court #200 San Diego, CA 92123 TERM OF SCHEDULE: FORTY-EIGHT (48) MONTHS SIX (6) SUCCESSIVE MONTHLY RENTAL PAYMENTS EACH IN THE AMOUNT OF $1,782.00 FOLLOWED BY FORTY-TWO (42) SUCCESSIVE MONTHLY RENTAL PAYMENTS EACH IN THE AMOUNT OF $3,137.20, SUBJECT TO THE INDEXING PROVISION CONTAINED HEREIN, PAYABLE IN ARREARS. ADDITIONAL TERMS AND CONDITIONS 1. LEASE OF EQUIPMENT. Lessor hereby agrees to lease to Lessee, and Lessee hereby agrees to lease and rent from Lessor the Equipment listed above, or on any Schedule attached hereto, for the term and the rental payments provided herein, all subject to the terms and conditions of the Lease. 2. OPTION TO PURCHASE. Provided Lessee is not in default under the Lease or this Schedule or under any other Lease or agreement with Lessor, Lessee shall have the right, at the expiration of the Term of this Schedule or any extended term thereof, upon not less than 120 days' prior written notice to Lessor, to purchase the Equipment leased hereunder, in whole but not in part, on an as-is, where-is basis for the fair market value thereof which the parties agree is $1.00. 3. ADDITIONAL TERMS WITH RESPECT TO THE CARE AND USE OF THE EQUIPMENT. In addition to Lessee's obligations under Paragraph 7 of the Lease, Lessee shall (i) lubricate the Equipment on a basis that conforms to the maintenance manual and/or lubrication schedule recommended by the manufacturer of the Equipment, and (ii) purchase replacement parts only from sources approved by the manufacturer. Copies of all purchase orders for such replacement parts are to be retained in Lessee's file relating to the Equipment. 4. ADDITIONAL TERMS WITH RESPECT TO THE CONDITIONS OF REDELIVERY. In addition to Lessee's obligations under Paragraph 8 of the Lease, Lessee shall (i) dismantle and handle the Equipment in accordance with the manufacturer's specifications or normal industry accepted practices for new equipment. Any special transportation devices, such as metal skids, lifting slings, brackets, etc., which were with the Equipment when it was delivered or equivalent devices must be used; (ii) block all sliding members, secure all swinging doors, pendants and other swinging components, wrap, box, band and label all components and documents in an appropriate manner to facilitate the efficient reinstallation of the components; (iii) remove all process fluids from the Equipment and dispose of the same in accordance with prevailing waste disposal laws and regulations; (iv) clean and dry sumps and tanks; (v) not ship any "Hazardous Waste" materials with the equipment; (vi) fill all internal fluids such as lube oil and hydraulic oil to operating levels, secure filler caps and seal disconnected hoses; (vii) wire together all lock keys and secure the same to a major external component of the equipment; (viii) cause the Equipment to be complete, fully functional with no missing components or attachments, rust free with all boots, guards and seals clean and with all batteries for control memories fully charged. Lessor shall have the right to attempt to resell the Equipment at the Location for a period of 120 days from the expiration of the Term of the Schedule or any extensions thereof. During this period the Equipment must remain operational and Lessee must provide adequate electrical power, lighting, heat, water and compressed air, necessary to permit Lessor to demonstrate the Equipment to any potential buyer. If an auction is necessary to dispose of the Equipment, Lessor shall be permitted to auction the Equipment at the Location. 5. INDEXING. If on the Commencement Date, the highest yield on four (4) year Treasury Notes, as published in THE WALL STREET JOURNAL, with a maturity date on or closest to the maturity date of this Schedule (the "Index"), exceeds 4.33% (the "Yield"), the Monthly Rental Payment provided herein shall automatically be increased for the full term to reflect such increase in the Yield. As soon as practicable thereafter, Lessor shall provide Lessee with written notice of any increase in the Monthly Rental Payment. Lessor's calculations shall be conclusive absent manifest error. LESSOR: LESSEE: FINOVA CAPITAL CORPORATION TOMAHAWK II INC. BY: BY: /s/ Michael H. Lorber ------------------------- ---------------------------- PRINTED NAME: PRINTED NAME: Michael H. Lorber --------------- ------------------- TITLE: TITLE: VP-Finance & CFO ---------------------- -------------------------- ADDRESS: ADDRESS: 115 WEST CENTURY ROAD, P.O. BOX 907 8315 CENTURY PARK, COURT #200 PARAMUS, NEW JERSEY 07653 SAN DIEGO, CALIFORNIA 92123 DATE ACCEPTED: DATED: 1/18/99 ------------------ --------------- Schedule "A" to Master Lease Schedule No. C0856002 to Equipment Lease No. C0856001 between Tomahawk II, Inc. as Lessee and FINOVA Capital Corporation as Lessor. Qty Description 1 DEA Gamma 1204 CNC CMM Measuring Range: 80" x40" x27" Accuracy: .0008 (Volumetric - Over entire envelope) Repeatability: +/- .0002" Virtual-Dimis Measuring Software: Direct Joystick Measurement Self Teach Part Programming CNC Part Program Execution Graphical On & Off-Line Part Program Creation 3D Direct CAD Link Solid Model Graphical Representation Multi-Tasking Capabilities Comprehensive Multi-Media Help Software Algorithms Approved to EUR 13417 Test Report Networking Capabilities New Computer Hardware Specifications: IMS 450 Mhz Pentium II w/MMX Processor 128 MB SDRAM 4.0 GB Hard Drive 32 X Max Variable CD-ROM Drive 3.5" Diskette Drive 4 MB PCI Graphics Accelerator 16-Bit Stereo Sound System Universal Serial Bus Connections 56K External Modem Network Card Microsoft Windows '98 Pre-Installed 17" Color Monitor HP 722C Ink Jet Printer Measuring Software Upgrade System: M9 Based Electronic System, 32-Bit Transputer-Based Continuous Motion Serve Control Card Assembled into the PC Portable Joystick Teach Box Unit w/ Interface System Desk for Computer & Peripherals On-Line System Diagnostic Software Probing System: Renishaw Motorized PH-9 Probe Head Renishaw TP-2 Touch Probe Renishaw Probe Kit Surface Module Included Miscellaneous Accessories: Wilkerson Air Dryer Norgren H20 & Particle Seperators Reference Sphere Clamping Kit Training Applications Support & Software Maintenance: Virtual-Dimis Training Course, 4 Days for 2 Persons in Brea, CA Six Months Software Up-Dates at No Charge Installation & Standard Calibration Included FINOVA Capital Corporation 115 West Century Road P.O. Box 907 Paramus, New Jersey 07653 Telephone (201) 634-3300 Exhibit F MASTER LEASE SCHEDULE NO. C0856002 TO EQUIPMENT LEASE NO. C0856001 (THE "LEASE") EQUIPMENT LEASED: SUPPLIER: See Schedule "A" attached hereto CMM Products 3185 Airway Avenue Costa Mesa, CA 92626 LOCATION OF EQUIPMENT: 8315 Century Park Court #200 San Diego, CA 92123 TERM OF SCHEDULE: FORTY-EIGHT (48) MONTHS SIX (6) SUCCESSIVE MONTHLY RENTAL PAYMENTS EACH IN THE AMOUNT OF $1,879.20 FOLLOWED BY FORTY-TWO (42) SUCCESSIVE MONTHLY RENTAL PAYMENTS EACH IN THE AMOUNT OF $3,308.32, SUBJECT TO THE INDEXING PROVISION CONTAINED HEREIN, PAYABLE IN ARREARS. ADDITIONAL TERMS AND CONDITIONS 1. LEASE OF EQUIPMENT. Lessor hereby agrees to lease to Lessee, and Lessee hereby agrees to lease and rent from Lessor the Equipment listed above, or on any Schedule attached hereto, for the term and the rental payments provided herein, all subject to the terms and conditions of the Lease. 2. OPTION TO PURCHASE. Provided Lessee is not in default under the Lease or this Schedule or under any other Lease or agreement with Lessor, Lessee shall have the right, at the expiration of the Term of this Schedule or any extended term thereof, upon not less than 120 days' prior written notice to Lessor, to purchase the Equipment leased hereunder, in whole but not in part, on an as-is, where-is basis for the fair market value thereof which the parties agree is $1.00. 3. ADDITIONAL TERMS WITH RESPECT TO THE CARE AND USE OF THE EQUIPMENT. In addition to Lessee's obligations under Paragraph 7 of the Lease, Lessee shall (i) lubricate the Equipment on a basis that conforms to the maintenance manual and/or lubrication schedule recommended by the manufacturer of the Equipment, and (ii) purchase replacement parts only from sources approved by the manufacturer.. Copies of all purchase orders for such replacement parts are to be retained in Lessee's file relating to the Equipment. 4. ADDITIONAL TERMS WITH RESPECT TO THE CONDITIONS OF REDELIVERY. In addition to Lessee's obligations under Paragraph 8 of the Lease, Lessee shall (i) dismantle and handle the Equipment in accordance with the manufacturer's specifications or normal industry accepted practices for new equipment. Any special transportation devices, such as metal skids, lifting slings, brackets, etc., which were with the Equipment when it was delivered or equivalent devices must be used; (ii) block all sliding members, secure all swinging doors, pendants and other swinging components, wrap, box, band and label all components and documents in an appropriate manner to facilitate the efficient reinstallation of the components; (iii) remove all process fluids from the Equipment and dispose of the same in accordance with prevailing waste disposal laws and regulations; (iv) clean and dry sumps and tanks; (v) not ship any "Hazardous Waste" materials with the equipment; (vi) fill all internal fluids such as lube oil and hydraulic oil to operating levels, secure filler caps and seal disconnected hoses; (vii) wire together all lock keys and secure the same to a major external component of the equipment; (viii) cause the Equipment to be complete, fully functional with no missing components or attachments, rust free with all boots, guards and seals clean and with all batteries for control memories fully charged. Lessor shall have the right to attempt to resell the Equipment at the Location for a period of 120 days from the expiration of the Term of the Schedule or any extensions thereof. During this period the Equipment must remain operational and Lessee must provide adequate electrical power, lighting, heat, water and compressed air, necessary to permit Lessor to demonstrate the Equipment to any potential buyer. If an auction is necessary to dispose of the Equipment, Lessor shall be permitted to auction the Equipment at the Location. 5. INDEXING. If on the Commencement Date, the highest yield on four (4) year Treasury Notes, as published in THE WALL STREET JOURNAL, with a maturity date on or closest to the maturity date of this Schedule (the "Index"), exceeds 4.33% (the "Yield"), the Monthly Rental Payment provided herein shall automatically be increased for the full term to reflect such increase in the Yield. As soon as practicable thereafter, Lessor shall provide Lessee with written notice of any increase in the Monthly Rental Payment. Lessor's calculations shall be conclusive absent manifest error. This Master Lease Schedule cancels and supercedes previous dated January 18, 1999 by Lessee. LESSOR: LESSEE: FINOVA CAPITAL CORPORATION TOMAHAWK II, INC. BY: /s/ A. Holland BY: /s/ Michael H. Lorber ---------------------- ----------------------------- PRINTED NAME: A. Holland PRINTED NAME: Michael H. Lorber ------------------- -------------------- TITLE: Director, Cont. Admn. TITLE: VP-Finance & CFO ------------------------ --------------------------- ADDRESS: ADDRESS: 115 WEST CENTURY ROAD, P.O. BOX 907 8315 CENTURY PARK, COURT #200 PARAMUS, NEW JERSEY 07653 SAN DIEGO, CALIFORNIA 92123 DATE ACCEPTED: 2/24/99 DATED: 2/22/99 -------------------- ------------------------- EX-10.4 11 EXHIBIT 10.4 EXHIBIT 10.4 MASTER EQUIPMENT LEASE THIS LEASE, made this 10th day of June 1997 between BOSTON FINANCIAL & EQUITY CORPORATION (herein called "Lessor"), a Massachusetts corporation with its principal place of business at 20 Overland St., Boston, Massachusetts, and TOMAHAWK II, INC. (herein called "Lessee"), an Illinois corporation, with its principal place of business at 8315 Century Park Court, Suite 200, San Diego, CA 92123. WITNESSETH In consideration of the premises, the parties covenant and agree as follows: 1. Definitions. As herein used: 1.1 "Equipment" means the equipment manufactured or sold by the Manufacturers or Distributors described in the Schedule of Leased Equipment ("Schedule") annexed hereto and made a part hereof, together with any replacements or substitution of parts, improvements or additions thereto, and such other equipment which, by agreement, may from time to time be hereafter described on any supplemental schedule of leased equipment ("Schedule") which may be annexed hereto and made a part hereof (the equipment on all such schedules being collectively herein referred to as "Equipment"). The term "Equipment" also includes all software and other intellectual property described on the Schedule as well as operating software and application software used or usable in connection with any item set forth on any Schedule whether or not such software or other intellectual property is specifically identified on the Schedule, and also includes all tangible representations of all such software. 1.2 "Commencement Date" means the first day of the calendar quarter following the delivery of all the Equipment. 1.3 "Monthly Rent" means the amount of rent payable by Lessee each month pursuant to Paragraph 3 of the Schedule as well as all maintenance charges payable, if any, if, according to the Schedule, Lessor is furnishing maintenance as indicated on the Schedule. 1.4 "Net Proceeds of Sale" means the net amount received by Lessor after deducting from the gross proceeds of sale of the Equipment or in the event of a subsequent lease by the Lessor, the net present value of rent due under such subsequent lease, all expenses incurred in the termination of this lease and any amounts for which, if not paid, Lessor would be liable or which, if not paid, would constitute a lien on the Equipment. 1.5 "Lessor's Depreciated Book Value" means the original cost of the equipment less the straight line depreciation for five year property, all as reflected on Lessor's books of account. 1.6 "Lease Term" means the period specified in Section 2 of the applicable Schedule thereof. 1.7 "Addendum" means any amendment to this Master Equipment Lease which is specifically identified as such, and when so identified shall be a part hereof. 2. Lessor does hereby lease to the Lessee, and Lessee hereby leases and hires from the Lessor the Equipment subject to the terms, provisions, conditions and agreements in this lease set forth. 3. Delivery. Lessee hereby acknowledges: (a) the Equipment is of the manufacture, design and capacity selected by Lessee; (b) the Equipment is suitable for Lessee's purposes, and (c) Lessor has made no representation or warranty, expressed or implied, with respect to the Equipment or any of the foregoing matters. Lessor will assign or otherwise make available to Lessee all of Lessor's rights (if any and if assignable) under the manufacturer's warranty on the Equipment and maintenance agreement relating thereto, all costs and charges thereof and therefore to be borne by Lessee. At the termination of the applicable Schedule, Lessee shall, at its expense, return the Equipment subject thereto to Lessor at the location designated by Lessor within the continental United States by surface transportation, only if not shipped directly to a successor Lessee. The Equipment returned to Lessor shall, at the time it is disconnected from its then location in Lessee's premises, be in the same condition and working order as when delivered to Lessee, reasonable wear and tear and casualty loss excepted, and shall be at the then current engineering change level recommended by the Equipment Manufacturer (if required in the Schedule). 4. In addition to the Monthly Rent, Lessee shall pay, promptly when due, all costs, expenses, fees, charges and taxes incurred in connection with the use and operation of the Equipment. Such items shall include, but not be limited to: 4.1.1 all costs of operating the Equipment. 4.1.2 all federal, state, county, municipal or other taxes whatsoever, without proration, and any penalties and interest thereon ("Taxes") (including any Taxes with an assessment date which occurred during the Lease Term or any extension thereof). If the payment due date or reimbursement date for a Tax should occur after the expiration or termination of the Lease Term or any extension thereof, Lessee's liability for such Tax shall survive such expiration or termination. 4.1.3 all shipping, installation, and transportation charges from the manufacturer or vendor to the installation site. 4.1.4 all de-installation, shipping and transportation charges from the installation site to a location designated by the Lessor at the conclusion of the Lease or any extension thereof. 4.2 If Lessee should fail to pay any of the costs, expenses, fees, charges and taxes (including attorney's fees) for which Lessee is liable hereunder, Lessor may, but shall not be required to, pay the same for the account of Lessee. Lessee shall reimburse, upon demand, for the full amount of any such costs, expenses, fees, charges and taxes paid by Lessor. 4.3 If, at the termination of the applicable Schedule, Lessee fails to return to Lessor the Equipment subject thereto in accordance with the provisions of the second paragraph of Section 3, Lessee shall, until such Equipment is so returned: pay to Lessor on account of damages a monthly amount equal to the amount shown in Section 5 of such Schedule, and perform or observe all other of its agreements and covenants under this Lease; but such payment, performance, and observance shall not limit or impair Lessor's right to recover the Equipment or any other of Lessor's rights under this Lease, nor shall it represent an extension of the term provided in the applicable schedule, nor shall it represent a consent by the Lessor to such failure by Lessee to return, and, in all events notwithstanding such payment, performance and observance, Lessee's obligation so to return shall remain in full force and effect. 5. Use of Equipment. Lessee shall use the Equipment only for lawful purposes in the regular course of its business or the business of any subsidiary or affiliate of Lessee within the United States or its possessions. Lessee shall, concurrently with the execution of this Lease, notify Lessor in writing where all Equipment is principally located, and upon any change in such principal location of any Equipment, notify Lessor in writing within ten (10) days thereafter of the new principal location of such Equipment. Lessee shall use every reasonable precaution to prevent loss or damage to Equipment from fire and other hazards. Lessee's servants and agents shall cooperate fully with Lessor in the investigation of any claims and suits relating to the Equipment. Lessee shall keep the Equipment free from all liens and encumbrances. This Lease and the interest of Lessee hereunder shall not be assigned, alienated, pledged or hypothecated voluntarily by Lessee or by operation of law, nor shall Lessee permit the Equipment to come into the possession of any third person except a subsidiary or affiliate of Lessee, provided, however, that Lessee shall remain obligated to Lessor hereunder with respect to any such Equipment. 6. Lessee will enter into a Master Maintenance Agreement with Lessor. Except to the extent of the Lessor's obligation to provide maintenance (as provided in the aforesaid Master Maintenance Agreement) Lessee shall, at its own expense, keep the Equipment in first-class condition and repair and in good and efficient working order (including the replacement or substitution of parts, improvements or additions to the Equipment). Lessee shall not, without Lessor's prior written consent, make any substitution of any part(s) of the Equipment, whether or not such part(s) are specifically identified by manufacturer or serial number. Without the prior written consent of Lessor, Lessee will not, through the installation of accessory devices or any other method, impair the originally intended function of any Equipment. Any replacement or substitution of parts, improvements or additions to the Equipment made by Lessee shall become and remain the property of the Lessor. 7. Insurance. Lessee shall, at its expense, procure and maintain, at all times, in a responsible insurance company acceptable to Lessor, insurance in an amount not less than the estimated market value of all of the Equipment protecting Lessor and Lessee, as their interest may appear, against loss and/or damage to the Equipment arising out of any risk covered by fire and extended coverage and by employee theft and dishonesty. All such insurance shall cover the period from delivery of the Equipment to Lessee to the date of termination of the Lease with respect thereto, and shall provide for ten (10) days prior written notice to Lessor of any cancellation or reduction in coverage. Lessee shall deliver to Lessor within ten (10) days after the Commencement Date, the insurance policy, and a Certificate of Insurance satisfactory to Lessor. Lessor shall have no duty to examine such policies or certificates, or to advise Lessee of any noncompliance of such insurance with this Lease. If Lessee fails to provide the aforesaid insurance, Lessor may, at its own option, provide such insurance and add the amount of the premiums to the next rental installment together with interest thereon at the rate of Twenty Four Per Cent (24%) per annum, or the rate permitted by law (whichever is less), from the date of payment thereon until paid in full. The proceeds of such insurance whether resulting from loss, damage, return premium or otherwise, shall be payable to Lessor and Lessee, as the interests may appear. If Lessee should be in default under Section 10 hereof, Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make claim for, receive payment of and execute or endorse all documents, checks or drafts for loss, damage, return premium otherwise under any insurance policy issued on Equipment. 8. Indemnity. Lessee shall indemnify and hold Lessor harmless against any and all claims, demands, liabilities, losses, damages and injuries of whatsoever kind and nature, direct or consequential, and all fees, costs and expenses relating to or in any way arising out of the possession, maintenance, use, operation, control, loss, damage, destruction, return, surrender, sale or other disposition of the Equipment. The foregoing indemnity shall not be affected by any termination of the Lease. 9. Termination of Lease Equipment Through Loss or Destruction. Lessee shall bear all risks of loss, damage, or destruction of the Equipment during the Lease Term in the event the Equipment is damaged beyond repair, the Lessee shall be liable to the Lessor for an amount equal to the cost of purchasing similar Equipment less the amount of any insurance or other recoveries received by the Lessor in connection therewith. 10. Events of Default. The following events of default by Lessee shall give rise to rights on the part of Lessor described in Section 11: 10.1 (a) Default in the payment of Monthly Rent hereunder, and such default not having been remedied in three (3) days from due date. (b) Default in the payment or performance of any other liability, obligation or covenant of Lessee under this Lease and the continuance of such default for fifteen (15) days after written notice thereof to Lessee sent by certified mail or via fax; or 10.2 Breach of any representation or warranty, or default in the performance of any agreement, of Lessee contained in this Lease; or 10.3 The Making of a general assignment for the benefit of creditors by Lessee, the suspension of business or the commission by Lessee of any act amounting to a business failure, any change in, or termination of, Lessee's corporate existence (except a merger, consolidation or reorganization in which the obligations of Lessee are assumed by the surviving corporation), or the levy of an attachment or filing of a tax lien (other than a Federal tax lien) against Lessee affecting Equipment, and the failure of Lessee to cause such attachment or tax lien to be discharged within thirty (30) days thereafter, or the filing of a Federal Tax lien against Lessee, the Equipment or any of Lessee's property; or 10.4 The institution of bankruptcy, reorganization, liquidation or receivership proceedings by or against Lessee and, if instituted against Lessee, its consent thereto or the failure to cause such proceedings to be discharged within thirty (30) days thereafter. 11. Rights of Lessor Upon Default of Lessee. Upon occurrence of any of the Events of Default described in Section 10, Lessor may, at its discretion, do one or more of the following: 11.1 Terminate this Lease upon five (5) days' written notice to Lessee sent by certified mail or via fax; 11.2 Whether or not this Lease be terminated, take immediate possession of any or all of the Equipment, including substituted parts, accessories or equipment, wherever situated, and for such purpose, enter upon any premises without liability for so doing. Lessor shall hold the Equipment so repossessed free and clear of this Lease and of any of the rights of Lessee hereunder; 11.3 Whether or not any action has been taken under Section 11.1 or 11.2 above, sell, dispose of, hold, use or lease any Equipment as Lessor at its sole discretion, may decide, without any duty to account to Lessee with respect to such action or any proceeds thereof, and free of any interest of Lessee therein. If, after default, Lessee should deliver the Equipment to Lessor, or if Lessor should repossess the Equipment or if Lessor should terminate this Lease, and in addition to all rights of Lessor set forth above, Lessee shall be liable for, and Lessor may recover from Lessee, as liquidated damages for the breach of this Lease: (i) all unpaid rent to the date of such delivery, repossession or termination, (ii) all rent due to Lessor between the date of such delivery, repossession or termination and the end of the present Lease Term, (iii) in the event of a sale pursuant to Section 11.3, the amount of any deficiency existing between the Net Proceeds of Sale of the Equipment and the Lessor's Depreciated Book Value of the Equipment at the time of such repossession, (iv) all such sums payable by Lessee pursuant to the provisions hereof, (v) all other losses and damages sustained by reason of the default, and (vi) all costs and expenses, including but not limited to costs associated with repossession, deinstallation, transportation charges and necessary repair expenses, incurred by Lessor by reason of the default. If, for any reason, Lessor should be unable to effect repossession of the Equipment, Lessor may recover, as liquidated damages, the amounts aforesaid, except that instead of item (iii), Lessee shall be liable to Lessor in an amount equal to the replacement cost of the Equipment as determined by the Lessor. 12. In addition to all other sums payable by Lessee hereunder, Lessee shall pay to Lessor all expenses incurred by Lessor, including, without limitation, reasonable attorneys' fees and court expenses of enforcing any rights of Lessor hereunder, whether against Lessee or any other party primarily or secondarily liable with respect to the Lessee's obligations or against the Equipment. 13. Equipment to Be and Remain Personal Property. It is the intention and understanding of both Lessor and Lessee that all Equipment shall be and at all times remain personal property. 14. Rentals to be Paid Directly to Lessor. Lessee shall make payment of all rent and other payments due hereunder directly to Lessor at the following mailing address: BOSTON FINANCIAL & EQUITY CORPORATION, Post Office Box 15071, Boston, Massachusetts 02215, or to such other address as Lessor shall instruct. 15. Miscellaneous 15.1 Time is of the essence hereof. 15.2 This agreement is and is intended to be a True Lease. Lessee does not acquire hereby any right, title or interest in or to the Equipment, except the right to use the same under the terms hereof. Lessor and Lessee agree that for tax purposes this lease will be treated as a finance lease by the Lessee. 15.3 The relationship between Lessor and Lessee shall always and only be that of Lessor and Lessee. Lessee shall never at any time during the term of this Lease for any purpose whatsoever be or become the agent of the Lessor, and Lessor shall not be responsible for the acts or omissions of Lessee, or its agents. 15.4 Lessor shall have the right to inspect any Equipment at any reasonable time; provided however, that such right shall be limited to the extent required by any applicable United States Government security regulations. 15.5 Should the Lessee not pay the monthly rental payment when due and owing under the provisions of this Lease, the Lessee agrees to pay to the Lessor five per cent (5%) of the monthly payment as a delinquency charge, or the maximum permitted by law, (whichever is less). 15.6 Lessor's rights and remedies with respect to any of the terms and conditions of this Lease shall be cumulative and not exclusive, and shall be in addition to all other rights and remedies in its favor. 2 15.7 No party hereto shall, by act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder, or under any other instrument executed in connection herewith, unless such waiver is in writing. A waiver on any one occasion shall not be construed as a waiver on any future occasion. 15.8 The invalidity of any portion of this Lease shall not affect the force and effect of the remaining valid portions thereof. 15.9 All notices shall be binding upon the parties hereto if sent to the address set forth herein (unless a subsequent address has been furnished) by certified mail, by one party to the other. 15.10 Lessee will provide Lessor with copies of Annual Financial Reports prepared by Lessee's independent accounting firm within fourteen (14) days of the issuance of said Report. In addition, Lessee will provide Lessor with copies of interim, year-to-date or monthly financial reports which reports shall be prepared at least every three (3) months. Lessee will make every effort to prepare and deliver to Lessor all financial reports in a timely fashion upon request by the Lessor. Lessee also agrees to make available financial books and records for review by Lessor during regular business hours, as well as other contracts, agreements, or materials the Lessor may deem appropriate. 15.11 No representations, warranties, promises, guaranties or agreements, oral or written, expressed or implied, have been made by either party hereto with respect to this Lease or the Equipment, except as expressly provided herein. 15.12 This Lease shall be construed in accordance with the laws of the Commonwealth of Massachusetts without regard to the choice of law rules thereof. Lessee hereby irrevocably submits to the jurisdiction of the courts of said Commonwealth or any federal court sitting within said Commonwealth, over any suit, action, or proceeding arising out of or relating to this Lease or the Equipment and agrees that any suit, action, or proceeding brought by the Lessee against or involving the Lessor shall be brought only in said courts. Lessee further consents to process being served in the manner described for notices under Section 15.9 above. This Lease constitutes the entire agreement between the parties hereto with respect to the leasing of the Equipment. Any change or modification of this Lease must be in writing and signed by the parties hereto. 15.13 Lessor and Lessee, each having had opportunity of review by counsel, each irrevocably waive all right to trial by jury in any proceeding hereinafter instituted by or against either of them in respect of this Lease or arising out of any document executed in connection herewith or in connection with the Equipment. 16. Lessor may assign its rights under this Lease and if (1) Lessor does assign this Lease, the assignee shall be entitled, upon notifying the Lessee, to performance of all of Lessee's obligations and agreements under this Lease and to all of the rights and remedies of the Lessor, and (2) Lessee will assert no claim or defenses it may have against the Lessor against the assignee. 17. Lease is conditional upon approval of Lessor, and is neither consummated nor binding on Lessor until accepted by an authorized officer of Lessor. Such acceptance will be rendered only after submission of all necessary information to the Lessor and an evaluation by the Lessor of the acceptability of the Lessee for the Equipment Lease herein described. Signature of this Lease by the Lessor shall constitute acceptance and all aforementioned terms and conditions shall be effective upon endorsement by the Lessor. 18. Supplemental Equipment Schedules may from time to time be included under this Master Equipment Lease. The addition of supplemental Schedules is conditional upon approval by Lessor and is neither consummated nor binding on Lessor until accepted by an authorized officer of Lessor. Such acceptance will be rendered only after submission of all necessary information to the Lessor and an evaluation by the Lessor. 19. The terms and conditions of the Master Equipment Lease and any other documents associated herewith are confidential and proprietary. Lessee agrees not to disclose the same to any other party without prior written consent of Lessor. IN WITNESS WHEREOF, Lessor and Lessee have duly executed this Lease as of the day and year first above written. LESSEE: TOMAHAWK II, INC. ------------------------ Signature: Michael H. Lorber -------------------- Name: Michael H. Lorber -------------------------- Title: VP-Finance and CFO ------------------------- Date: 6/16/97 -------------------------- ATTEST: Steven M. Caira ------------------------ LESSOR: BOSTON FINANCIAL & EQUITY CORPORATION Signature: Adolf F. Monosson --------------------- Name: Adolf F. Monosson -------------------------- Title: President ------------------------- Date: July 7, 1997 -------------------------- ATTEST: [ILLEGIBLE] ------------------------ EXHIBIT A MASTER MAINTENANCE AGREEMENT BOSTON FINANCIAL & EQUITY CORPORATION 20 Overland Street Boston, Massachusetts 02215 Contract # 1286 ------------------------------------------------------------------- Lessee ("Customer"): TOMAHAWK II, INC. - ------------------------------------------------------------------------------ Michael Lorber - ------------------------------------------------------------------------------ Contact - ------------------------------------------------------------------------------ Telephone 619-874-7692 X101 - ------------------------------------------------------------------------------ TERM OF AGREEMENT: Subject to the Terms and Conditions below, Boston Financial & Equity Corporation (hereinafter referred to as BFEC) agrees to maintain equipment it accepts for coverage, for a period of three (3) years from the Commencement Date or during any subsequent renewal period as indicated in Section 1 below. 1. TERM/CANCELLATION (a) Maintenance coverage begins as of the Commencement Date shown on the written acceptance from BFEC and shall remain in effect for an Initial Term of 36 months. After the Initial Term, coverage shall continue in effect until termination, discontinuance or cancellation of all Service pursuant to the provisions herein. (b) Upon ninety days prior written notice, Customer may terminate coverage in its entirety at the end of the Initial Term. (c) Without prejudice to any other rights or remedies, BFEC may elect to cancel coverage and with or without cancellation repossess any BFEC property furnished hereunder pursuant to Section 10 of the Master Equipment Lease. 2. PRODUCT SERVICE (a) BFEC shall provide Service (as defined in this section) to restore the Equipment to good working order. Payment of the Unit Base Service Charges shall entitle the Customer to such Service, which will be performed during the Principal Period of Maintenance (PPM). The PPM consists of the hours of 8:30 a.m. to 5 p.m., five days per week, Monday through Friday, excluding holidays. (b) "Service" shall be deemed to include field repairs, equipment replacement, or any other means that, in the opinion and discretion of BFEC, produces prompt response to a Customer's equipment failure. (c) The Customer is responsible for the use, care and cleaning of the Equipment in accordance with equipment manufacturers' instructions. When the need arises for Service, the customer shall notify BFEC and allow BFEC full and free access to the equipment if necessary. (d) Service will include inspection, adjustment and replacement of parts as deemed necessary by BFEC. Parts, which will be either new or reconditioned to perform as new, will be furnished on an exchange basis and the exchanged parts will become the property of BFEC. The replacement of parts, such as cathode ray tubes (CRT's) is limited to failure of the parts; but BFEC shall not replace parts due to occurrences such as burnt phosphor of the CRT screen. (e) If the Commencement Date for an item is later than the Contract Date, BFEC may require an inspection of the Equipment prior to the Commencement Date. Where such inspection reveals failure of or damage to the Equipment, the failure and/or damage shall be repaired at Customer expense prior to the assumption of normal Service on that Equipment by BFEC. (f) BFEC shall not be obligated to provide Service to Equipment at any location other than the Equipment location originally submitted by the customer. If the Customer wishes to relocate Equipment, it shall give timely prior notice to BFEC pursuant to the terms of the Master Equipment Lease and relocation and the resumption of Service, if any, of such Equipment shall be subject to agreement between authorized representatives of the parties. (g) IT IS EXPRESSLY UNDERSTOOD BY THE CUSTOMER THAT BFEC WILL NOT BE LIABLE FOR ANY CHARGES INCURRED BY THE CUSTOMER UNLESS THESE CHARGES HAVE BEEN PRE-AUTHORIZED IN WRITING BY BFEC. 3. CHARGES (a) The Customer is liable for charges starting on the Commencement Date. (b) The Charges do not include: (1) accessories and consumable supplies; (2) repair of damage, replacement parts or increased service time due to any cause external to the Equipment, including, but not limited to, electrical work, unsuitable environment, neglect, improper use or misuse; (3) repainting or refinishing; (4) installation, deinstallation or moving of equipment; (5) furnishing or installing cables; (6) alterations to the Equipment made after the Service Start Date; or (7) any service required by changes in or to the Equipment or their connectivity to other machines or devices. (c) Additional charges covering travel and related expenses in accordance with BFEC policies shall apply when the Equipment Location address is located outside the perimeter of BFEC's then normal service area. (d) Maintenance charges assume normal equipment usage of not more than sixty (60) hours per week. BFEC has the right to adjust charges in the event usage exceeds this amount. 4. USE OF COMPUTER, SOFTWARE, AND DOCUMENTATION (a) When BFEC performs Services which require the use of the computer, software or documentation, the Customer shall make it available at reasonable times and for reasonable time increments, and will not charge BFEC for such use. (b) The Customer represents and warrants that it has the legal right and authority to permit BFEC to use without restriction, all maintenance documentation and/or diagnostics supplied to BFEC by the Customer. 5. ALTERATIONS AND ATTACHMENTS BFEC reserves the right to cancel Services or to adjust the specified charges, if any new equipment specifications, attachments, features or changes are made or added to the Equipment after the Commencement Date. 6. ADDITION/DELETION OF ITEMS Equipment may be added subject to this Agreement at any time. Such Equipment will be added by means of an amendment executed by duly authorized representatives of the parties and such amendment shall include Equipment location address, model numbers, serial numbers, and billing instructions. 7. LIMITATIONS OF LIABILITY AND REMEDY (a) BFEC's OBLIGATIONS UNDER THIS AGREEMENT ARE IN LIEU OF ALL WARRANTIES, EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE. BFEC DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE FOR THE SERVICES RENDERED HEREUNDER. (b) If BFEC fails after repeated attempts to perform any of its obligations set forth in this Agreement, BFEC's entire liability and the Customer's sole and exclusive remedy for claims related to or arising out of this Agreement for any cause and regardless of the form of action, whether in contract or in tort, including negligence and strict liability, shall be the Customer's actual, direct damages such as would be provable in a court of law, but not to exceed the charges paid to BFEC for the specific item that caused the damages. (c) IN NO EVENT SHALL BFEC BE LIABLE FOR: (1) ANY INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OF USE, REVENUE OR PROFIT, EVEN IF BFEC HAS BEEN ADVISED, KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGES; OR (2) DAMAGES CAUSED BY THE CUSTOMER'S FAILURE TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT; OR (3) CLAIMS, DEMANDS OR ACTIONS AGAINST THE CUSTOMER BY ANY OTHER PARTY. (d) BFEC shall not be responsible for technical services of any sort related to system design or operation, programming or software. Services provided under this Agreement do not assure uninterrupted operation of the equipment. (e) It is the responsibility of the Customer to ensure that all of its files are adequately duplicated and documented. BFEC will not be responsible for Customer's failure to do so, nor for the cost of reconstructing data stored on disk files, tapes, memories, etc. lost during the course of performance of Service. 8. GENERAL PROVISIONS (a) The Customer represents that it is the owner or lessee of the Equipment subject to this Agreement. (b) All property of BFEC except for the replacement parts incorporated into the Equipment or purchased by the Customer or consumed in Service, shall be returned to BFEC upon termination of coverage for the Equipment. (c) BFEC is not responsible for failure to fulfill its obligations hereunder due to labor disputes, shortages of parts or materials or any other causes similar or dissimilar, beyond its reasonable control. (d) The Customer shall not assign or transfer its rights or obligations under this Agreement, except with BFEC's written consent and any prohibited assignment or transfer shall be void. BFEC shall have the right to sub-contract and/or assign any or all of its rights and obligations under this Agreement. (e) This Agreement shall be interpreted in accordance with laws, but not the rules relating to the choice of law, of the Commonwealth of Massachusetts. (f) This Agreement and the Master Equipment Lease together constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous proposals, both oral and written, negotiations, representations, commitments, writings, agreements, and all other communications between the parties. The terms of this Agreement shall prevail notwithstanding any variance with the terms and conditions of any order submitted by the Customer. (g) This Agreement may not be changed, released or discharged except by a subsequent written agreement entered into by duly authorized representatives of the parties. (h) No action, regardless of form, related to or arising out of this Agreement may be brought by either party more than two years after the cause of action has accrued. YOU ACKNOWLEDGE THAT YOU HAVE READ THIS AGREEMENT, UNDERSTAND IT, AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS, FURTHER, YOU AGREE THAT IT IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN YOU AND BFEC WHICH SUPERSEDES ALL PROPOSALS OR PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN YOU AND BFEC RELATING TO THE SUBJECT MATTER. ACCEPTED AND AGREED TO BY: TOMAHAWK II, INC. - -------------------- Company Michael H. Lorber - -------------------- Signature Michael H. Lorber - -------------------- Name VP-Finance & CFO - -------------------- Title 6/16/97 - -------------------- Date ACCEPTED BY: BOSTON FINANCIAL & EQUITY CORPORATION Adolf F. Monosson - -------------------- Signature Adolf F. Monosson - -------------------- Name President - -------------------- Title July 7, 1997 - -------------------- Date Exhibit B LEASE SCHEDULE NO. 01 to Master Equipment Lease between BOSTON FINANCIAL & EQUITY CORPORATION, Lessor, and TOMAHAWK II, INC., Lessee (Lease No. 1286) dated as of June 17, 1997. 1. Description of Equipment: DELTA TECHNOLOGY HARDWARE:
Qty Description - --- ----------- (7) IBM 7043-43P 166MHz RISC System/6000 - 1MB L2 cache - 128MB RAM - 2.1GB Hard Drive - Internal CD ROM - 20" Color Monitor - GXT800P 24 Bit Color with Z-Buffer 1280 x 1024 graphics - Keyboard - 3 Button Mouse - 3.5" Disk Drive - 2003 Spaceball Includes 3 yr. Maintenance on Hardware SOFTWARE: Qty Description - --- ----------- (7) CATIA 5626-ADD Advanced Part Design & Detailing Config. - Object Manager - Library - Dynamic Sketcher - 3D Wireframe - 3D Parametric Variational Modeler - Exact Solids - Feature-Based Design - Drafting Product - Draw-space(2D/3D) integration Product - 2D Wireframe & Annotation - Surface Design - Advanced Surface Design (6) CATIA 5626-NCB Mfg. Interface Product (4) CATIA 5626-NC5 Multi Axis Milling product (7) 5765-393 AIX V4.1.5 Operating System (7) 5696-907 PEX and PHIGS (7) 5696-939 Open GL Includes 1 Yr Maintenance on Software
2. Lease Term. This Lease Schedule shall be effective as of the date hereof, and unless terminated as provided herein, shall continue in full force and effect for a period of thirty-six (36) months from Commencement Date. - 1 - 3. Payment of Rent. Lessee shall pay to Lessor as Monthly Rent for the above Equipment the sum of Twenty-Seven Thousand Seven Hundred Fifty-Eight Dollars ($27,758) each month for the first twelve (12) months; Seven Thousand Eight Hundred Eighty-Nine Dollars ($7,889) each month for the subsequent twelve (12) months; and Six Thousand Two Hundred Sixty-Nine Dollars ($6,269) each month for the final twelve (12) months. Payment will be made in advance on or before the first day of each month of Lease Term, or any extensions thereof. Rental payments for Months One (1) and Thirty-Six (36) are due upon signing of this agreement with the Rental payment for the first month being applied to the month beginning with the Commencement Date. If delivery of the Equipment takes place on other than the first day of a month, the rent for such partial first month shall be the amount obtained by multiplying the following: Fraction of Monthly Rent as set forth above times the number of days remaining in such partial first month: provided, however, that if less than all of the Equipment is delivered prior to the Commencement Date then Lessee shall pay rent to the Lessor for the period between such date of delivery and Commencement Date, which rent for each full month of such period shall be determined by multiplying by a fraction whose numerator shall be the cost of the Equipment so delivered and whose denominator shall be the total cost of all of the Equipment. 3a. Maintenance of the Equipment is being furnished by the Lessor pursuant to a Master Maintenance Agreement dated June 17, 1997 with the Lessee. Any charges with respect to such maintenance are included in the stated rent. Lessor, however, may, on thirty (30) days prior written notice, increase the charges for maintenance and thereupon the rent to be paid with respect to the Equipment shall be increased by the amount of such increase in the maintenance charges. 4. Extension of Lease. Lessee shall have the option to extend this Lease Schedule at the end of the present term for a twenty-four (24) month period at a monthly rental charge of Two Thousand Five Hundred Ninety Dollars ($2,590) each month, plus the then current monthly maintenance charges, and a subsequent option to extend this Lease Schedule for sixty (60) months at a monthly rental charge of One Thousand Three Hundred Sixty-Eight Dollars ($1,368) each month, plus the then current monthly maintenance charges. 4a. Security Deposit. In addition to all other payments required of Lessee hereunder, upon execution of this Lease Schedule, Lessee will pay to Lessor the sum of Fifty-Six Thousand Four Hundred Eighty-Seven Dollars ($56,487) as a Security Deposit. Such deposit may be applied by Lessor in whole or partial satisfaction of any liability of Lessee hereunder which is not paid when due. Lessor agrees to return $34,403 of the Security Deposit at month thirteen (13) and $22,084 of the Security Deposit at the completion of Month Thirty-Six (36) provided that none of the Events of Default have occurred (whether or not the same is continuing). 5. Should Lessee wish to exercise the extension option under Section 4, Lessor must be notified in writing by Lessee, via certified mail, of Lessee's intention to exercise this option. Said notification must be received at least ninety (90) days prior to termination of this Lease Schedule. Should said notice not be delivered to Lessor, Lessee shall forfeit the option - 2 - contained in Section 4 and all Equipment shall be delivered to the Lessor at the conclusion of the Lease Term. Should Lessee forfeit the option contained in Section 4 and all Equipment is not received by the Lessor at the conclusion of the Lease Term, Lessee shall, until such Equipment is so returned, pay to Lessor on account of damages a monthly amount equal to Six Thousand Two Hundred Sixty-Nine Dollars ($6,269), plus the then current monthly maintenance charges. 6. Termination of Lease. Should Lessee not wish to exercise the extension option under Section 4, Lessor must be notified in writing, via certified mail, of Lessee's intention to terminate this Lease Schedule. Said notification must be received at least ninety (90) days prior to the end of the term of this Lease Schedule. All Equipment shall be delivered to Lessor at the conclusion of the Lease Term pursuant to Section 3 of the Master Equipment Lease. Should said notice not be delivered to Lessor and all Equipment is not received at the conclusion of the Lease Term, Lessee shall, until such Equipment is so returned, pay to Lessor on account of damages a monthly amount equal to Six Thousand Two Hundred Sixty-Nine Dollars ($6,269), plus the then current monthly maintenance charges. 7. Equipment Location (complete address): TOMAHAWK II, INC. 8315 CENTURY PARK COURT, SUITE 200 SAN DIEGO, CA 92123 8. Lessee's Billing Address: TOMAHAWK II, INC. 8315 CENTURY PARK COURT, SUITE 200 SAN DIEGO, CA 92123 9. All of the provisions of the above-mentioned Master Equipment Lease are incorporated by reference herein as if set forth fully herein. 10. This Lease Schedule is conditional upon approval of Lessor, and is neither consummated nor binding on Lessor until accepted by an authorized officer of Lessor. Such acceptance will be rendered only after submission of all necessary information to the Lessor and an evaluation by the Lessor of the acceptability of the Lessee for the Lease Schedule herein described. Signature of this Lease Schedule by the Lessor shall constitute acceptance and all aforementioned terms and conditions and shall be effective upon endorsement by the Lessor. LESSEE LESSOR TOMAHAWK II, INC. BOSTON FINANCIAL & EQUITY CORPORATION /s/ Michael H. Lorber /s/ Adolf F. Monosson - ------------------------------- ------------------------------------- (Signature) (Signature) Michael H. Lorber Adolf F. Monosson - ------------------------------- ------------------------------------- (Name) (Name) VP-Finance & CFO President - ------------------------------- ------------------------------------- (Title) (Title) 7/1/97 July 7, 1997 - ------------------------------- ------------------------------------- (Date) (Date) - 3 - EXHIBIT C CERTIFICATE OF ACCEPTANCE AND SATISFACTION BOSTON FINANCIAL & EQUITY CORPORATION P.O. Box 15071 Boston, Massachusetts 02215 The undersigned, the Lessee, hereby acknowledges receipt of the equipment itemized herein. SCHEDULE NO. 1 Page 1 of 2
Serial Delivery Installation Qty Equipment Description Number Date Date - --- --------------------- ------ -------- ------------ DELTA TECHNOLOGY EQUIPMENT HARDWARE: (7) IBM 7043-43P 166 MHz RISC System/6000 26-03543 2/15/97 2/15/97 (3) - 1MB L2 cache 26-03542 - 128MB RAM - 2.1GB Hard Drive 26-03536 2/31/97 2/31/97 (3) - Internal CD ROM 26-03537 3/5/97 3/5/97 (1) - 20" Color Monitor 26-03541 - GXT800P 24 Bit Color with Z-Buffer 1280 x 1024 graphics 26-03550 - Keyboard 26-03860 - 3 Button Mouse - 3.5" Disk Drive - 2003 Spaceball SOFTWARE (7) CATIA 5626-ADD Advanced Part Design & Detailing Config. - Object Manager 2/15/97 2/15/97 (3) - Library - Dynamic Sketcher 2/31/97 2/31/97 (3) - 3D Wireframe - 3D Parametric Variational Modeler 3/5/97 3/5/97 (1) - Exact Solids - Feature-Based Design - Drafting Product - Draw-space (2D/3D) integration Product - 2D Wireframe & Annotation NCB NC5 --- --- - Surface Design 2/15/97 2/15/97 (1) (1) - Advanced Surface Design 2/31/97 2/31/97 (1) (1) (6) CATIA 5626-NCB Mfg. Interface Product 3/5/97 3/5/97 (1) (1) (4) CATIA 5626-NC5 Multi Axis Milling Product 5/27/97 5/27/97 (3) (1) (7) 5765-393 AIX V4.1.5 Operating System 2/15/97 2/15/97 (3) (7) 5696-907 PEX and PHIGS 2/31/97 2/31/97 (3) (7) 5696-939 Open GL 3/5/97 3/5/97 ( )
User further acknowledges the following: (A) That the Lessee selected the equipment and that neither the supplier from whom the Lessor purchased the equipment nor any salesman or other agent of the supplier is an agent or representative of the Lessor; and CERTIFICATE OF ACCEPTANCE AND SATISFACTION BOSTON FINANCIAL & EQUITY CORPORATION P.O. Box 15071 Boston, Massachusetts 02215 The undersigned, the Lessee, hereby acknowledges receipt of the equipment itemized herein. SCHEDULE NO. 1 Page 2 of 2 (B) That, having examined the equipment, its parts and accessories, the Lessee is completely satisfied with its delivery and installation and that it meets all the tests of suitability, merchantability and fitness for the particular purpose for which it was leased; and Lessee hereby authorizes and requests Lessor to make payment for the Equipment to the supplier thereof; and (C) That the Lessee understands and agrees that the Lessor makes no warranty expressed or implied as to any matter whatsoever concerning the condition of the equipment and that neither Lessor nor its assignees shall be liable to Lessee for any loss, damage, or expense of any kind or nature caused directly or indirectly by the equipment or the use or maintenance thereof, or the failure of operation thereof; Lessor will not be liable to Lessee for any consequential or incidental damages to Lessee; and (D) That if the equipment is not properly installed, does not operate as represented by supplier, or is unsatisfactory for any reason, Lessee shall make claim on account thereof solely against supplier and shall nevertheless pay Lessor all rent payable under this lease; Lessee hereby waiving any and all rights, claims and set-offs against the Lessor that might have otherwise arisen under the purchase agreement. (E) That the date hereunder is the actual date of Equipment Acceptance and Satisfaction. The Lessee further acknowledges receiving a copy of this certificate for retention in Lessee's files. Lessee: TOMAHAWK II, INC. By: /s/ Michael H. Lorber ------------------------------------ Title: VP Finance & CFO --------------------------------- Date Accepted: 7/1/97 Date Signed: 7/1/97 ---------------- --------------------------- Exhibit D LEASE SCHEDULE NO. 2 to Master Equipment Lease between BOSTON FINANCIAL & EQUITY CORPORATION, Lessor, and TOMAHAWK II, INC., Lessee (Lease No. 1286) dated as of July 7, 1997. 1. Description of Equipment: SOFTWARE
QTY. DESCRIPTION ---- ----------- (2) CATIA 5626 NC5 MULTI AXIS MILLING PRODUCT INCLUDES 1 YR MAINTENANCE AND 1 YR LICENSE CHARGE
2. Lease Term. This Lease Schedule shall be effective as of the date hereof, and unless terminated as provided herein, shall continue in full force and effect for a period of thirty-six (36) months from Commencement Date. 3. Payment of Rent. Lessee shall pay to Lessor as Monthly Rent for the above Equipment the sum of One Thousand Seven Hundred Thirteen Dollars ($1713) each month for the first twelve (12) months and One Hundred Eighty-Seven Dollars ($187) each month for the final twenty-four (24) months. Payment will be made in advance on or before the first day of each month of Lease Term, or any extensions thereof. Rental payments for Months One (1) and Thirty-Six (36) are due upon signing of this agreement with the Rental payment for the first month being applied to the month beginning with the Commencement Date. If delivery of the Equipment takes place on other than the first day of a month, the rent for such partial first month shall be the amount obtained by multiplying the following: Fraction of Monthly Rent as set forth above times the number of days remaining in such partial first month: provided, however, that if less than all of the Equipment is delivered prior to the Commencement Date then Lessee shall pay rent to the Lessor for the period between such date of delivery and Commencement Date, which rent for each full month of such period shall be determined by multiplying by a fraction whose numerator shall be the cost of the Equipment so delivered and whose denominator shall be the total cost of all of the Equipment. 4. Extension of Lease. Lessee shall have the option to extend this Lease Schedule at the end of the present term for a twenty-four (24) month period at a monthly rental charge of Ninety-Four Dollars ($94) each month, and a subsequent option to extend this Lease Schedule for sixty (60) months at a monthly rental charge of Forty-Seven Dollars ($47) each month. - 1 - 4a. Security Deposit. In addition to all other payments required of Lessee hereunder, upon execution of this Lease Schedule, Lessee will pay to Lessor the sum of Two Thousand Eight Hundred Eight Dollars ($2808) as a Security Deposit. Such deposit may be applied by Lessor in whole or partial satisfaction of any liability of Lessee hereunder which is not paid when due. Lessor agrees to return One Hundred Percent (100%) of the Security Deposit at the completion of Month twelve (12) provided that none of the Events of Default have occurred (whether or not the same is continuing). 5. Should Lessee wish to exercise the extension option under Section 4, Lessor must be notified in writing by Lessee, via certified mail, of Lessee's intention to exercise this option. Said notification must be received at least ninety (90) days prior to termination of this Lease Schedule. Should said notice not be delivered to Lessor, Lessee shall forfeit the option contained in Section 4 and all Equipment shall be delivered to the Lessor at the conclusion of the Lease Term. Should Lessee forfeit the option contained in Section 4 and all Equipment is not received by the Lessor at the conclusion of the Lease Term, Lessee shall, until such Equipment is so returned, pay to Lessor on account of damages a monthly amount equal to One Hundred Eighty-Seven Dollars ($187). 6. Termination of Lease. Should Lessee not wish to exercise the extension option under Section 4, Lessor must be notified in writing, via certified mail, of Lessee's intention to terminate this Lease Schedule. Said notification must be received at least ninety (90) days prior to the end of the term of this Lease Schedule. All Equipment shall be delivered to Lessor at the conclusion of the Lease Term pursuant to Section 3 of the Master Equipment Lease. Should said notice not be delivered to Lessor and all Equipment is not received at the conclusion of the Lease Term, Lessee shall, until such Equipment is so returned, pay to Lessor on account of damages a monthly amount equal to One Hundred Eighty-Seven Dollars ($187). 7. Equipment Location (complete address): TOMAHAWK II, INC. Suite 200 8315 Century Park Court San Diego, CA 92123 8. Lessee's Billing Address: TOMAHAWK II, INC. Suite 200 8315 Century Park Court San Diego, CA 92123 9. All of the provisions of the above-mentioned Master Equipment Lease are incorporated by reference herein as if set forth fully herein. -2- 10. This Lease Schedule is conditional upon approval of Lessor, and is neither consummated nor binding on Lessor until accepted by an authorized officer of Lessor. Such acceptance will be rendered only after submission of all necessary information to the Lessor and an evaluation by the Lessor of the acceptability of the Lessee for the Lease Schedule herein described. Signature of this Lease Schedule by the Lessor shall constitute acceptance and all aforementioned terms and conditions and shall be effective upon endorsement by the Lessor. LESSEE LESSOR TOMAHAWK II, INC. BOSTON FINANCIAL & EQUITY CORPORATION /s/ Michael H. Lorber /s/ Adolf F. Monosson - ----------------------------------- ------------------------------------- (Signature) (Signature) Michael H. Lorber Adolf F. Monosson - ----------------------------------- ------------------------------------- (Name) (Name) VP Finance & CFO President - ----------------------------------- ------------------------------------- (Title) (Title) 9/24/97 10/3/97 - ----------------------------------- ------------------------------------- (Date) (Date) - 3 - Exhibit E PURCHASE AGREEMENT ASSIGNMENT AND CONSENT THIS AGREEMENT dated as of June 19, 1997, is entered into by Boston Financial & Equity Corporation ("Lessor"), TomaHawk II, Inc. ("Lessee"), and Delta Technology ("Vendor"), in connection with the equipment lease ("Lease") between Lessor and Lessee dated June 17, 1997, for the Equipment identified on the attached Exhibit I. RECITALS (A) Lessee desires to lease the equipment ("Equipment") described in the attached Exhibit I which was shipped under Lessee Purchase Order Nos. 196284, 196270 and 196293, collectively the ("Purchase Agreement") in the amount of Three Hundred Seventy-Six Thousand Five Hundred Seventy-Nine Dollars ($376,579) issued to Vendor and Lessor is willing to accept assignment of certain of Lessee's rights and interest under the Purchase Agreement. (B) Lessor and Lessee wish Vendor, and Vendor is willing, to consent to such assignment, and all three parties wish to define their respective rights and obligations in connection with the sale of Equipment to Lessor pursuant thereto. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: (1) Lessee hereby assigns and sets over to Lessor all of Lessee's right and interest in and to the Equipment, and in and to the Purchase Agreement as the same relates to the Equipment, including without limitation in such assignment (i) the right to purchase the Equipment pursuant to the Purchase Agreement and (ii) all claims for damages in respect of the Equipment arising as a result of any default by Vendor under the Purchase Agreement, including without limitation all warranty and indemnity provisions contained therein and all claims arising thereunder. On and subject to the remaining provisions of this Agreement, Lessor hereby accepts, and Vendor hereby consents to, such assignment. (2) The parties agree that except as otherwise expressly provided in the remainder of this Agreement, (a) Lessee shall at all times remain liable to Vendor to perform all of the duties and obligations of the purchaser under the Purchase Agreement to the same extent as if this Agreement had not been executed; (b) the execution of this Agreement shall not modify any contractual rights or obligations of Vendor under the Purchase Agreement, and Lessor shall have no greater rights against Vendor than would Lessee if this Agreement had not been executed; (c) the exercise by Lessor of any of the rights assigned hereunder shall not release Lessee from any of its duties or obligations to Vendor under the Purchase Agreement, and (d) Lessor shall not have any obligation or liability under the Purchase Agreement by reason of, or arising out of, this Agreement. (3) Lessor agrees that upon timely satisfaction of all conditions precedent specified with respect to the Equipment in the Lease and/or in any commitment letter between Lessor and Lessee relating to the Equipment, Lessor will become unconditionally obligated to purchase and pay the price of the Equipment to Vendor, such price to be payable not later than 30 days following the date on which Lessor receives Certificate of Acceptance and Satisfaction from Lessee. Vendor agrees to submit an invoice acceptable to the Lessor for the Equipment. Vendor agrees, any provision of the Purchase Agreement to the contrary notwithstanding, that if Lessor shall become obligated to purchase the Equipment as provided above, and shall pay for the Equipment in full, Lessee shall be relieved of its payment obligations thereunder; otherwise, Lessee shall be obligated to purchase and pay for the Equipment to the same extent as if this Agreement had not been executed. Lessor will promptly notify Vendor when all such conditions precedent have been met. (4) The parties agree, any provision of the Purchase Agreement to the contrary notwithstanding, that subject to satisfaction, at or prior to such time, of the conditions precedent referred to in Section 3 hereof to Lessor's obligation to purchase the Equipment, title to the Equipment shall pass to Lessor. 1 (5) Vendor agrees, any provision of the Purchase Agreement to the contrary notwithstanding, that it will not retain any security interest, lien or other encumbrance on the Equipment after the time at which title thereto shall pass to Lessor in accordance with Section 4 hereof and payment has been received by Vendor. Vendor shall execute such documents as Lessor may reasonably request evidencing the release of such security interest, lien or encumbrance. (6) Vendor agrees, any term of the Purchase Agreement to the contrary notwithstanding, that if Lessor acquires title to the Equipment as provided above, Lessor and its successors and assigns shall be entitled to the full benefit of all warranties applicable to such Equipment which Lessee would be entitled to enforce if this Agreement had not been executed. Vendor agrees to extend full warranty period for the Equipment to the Lessor upon execution of this Agreement. (7) Lessor agrees that so long as no default (or event which, with notice and the lapse of time or both, would constitute a default) under the Lease has occurred and is continuing, Lessee shall be and hereby is authorized on behalf of Lessor, but in the name of Lessee, to exercise all rights and powers of the purchaser under the Purchase Agreement with respect to the Equipment and to retain any recovery or benefit resulting from the enforcement of any warranty, indemnity or right to damages under the Purchase Agreement or otherwise existing against Vendor with respect to the Equipment. Vendor consents to such authorization. All parties hereto agree that upon written notice from Lessor to Lessee and Vendor at their respective addresses set forth below (or at such other address as either party may hereafter designate in writing) that a default by Lessee (or an event which, with notice or lapse of time or both, would constitute a default) under the Lease has occurred and is continuing, Lessee's authorization set forth in this section shall terminate, and Vendor's obligations under the Purchase Agreement (and all other rights against Vendor with respect to the Equipment) shall thereafter be enforceable only by Lessor. (8) This Agreement and the Purchase Agreement together constitute the sole agreement of the parties concerning the purchase of the Equipment by Lessee or, if the conditions precedent referred to in Section 3 hereof are satisfied, by Lessor, and supersede all other prior and contemporaneous agreements, whether written or oral, with respect thereto. (9) This Agreement and the terms and conditions contained herein is confidential and proprietary. Lessee and Vendor agree not to disclose the same to any other party without the prior written consent of Lessor. This Agreement may be amended only by a written instrument executed by all parties. IN WITNESS WHEREOF, the parties have executed this Agreement on the date set forth below their respective signatures. VENDOR: DELTA TECHNOLOGY LESSEE: TOMAHAWK II, INC. By: /s/ [Illegible] By: /s/ Michael H. Lorber --------------------------- ---------------------------- Title: LLC MEMBER, SECRETARY Title: VP Finance & CFO --------------------------- ---------------------------- Address: 373 Van Ness Ave, Suite 100 Address: 8315 Century Park Ct, #200 Torrance, CA 90501 San Diego, CA 92133 --------------------------- ---------------------------- LESSOR BOSTON FINANCIAL & EQUITY CORPORATION By: /s/ [Illegible] ----------------------------------- Title: Exec VP ----------------------------------- Date: 7/9/97 ----------------------------------- Address: 20 Overland Street, Boston, Massachusetts 02215 2 E X H I B I T I TO PURCHASE AGREEMENT ASSIGNMENT AND CONSENT LESSEE: TOMAHAWK II, INC. LESSOR: BOSTON FINANCIAL & EQUITY CORPORATION DELTA TECHNOLOGY EQUIPMENT - -------------------------- HARDWARE:
Qty Description Unit UNIT EXT - --- ----------- ------- -------- (7) IBM 7043-43P 166MHz RISC System/6000 $21,032 $147,225 - 1MB L2 cache - 128MB RAM - 2.1GB Hard Drive - Internal CD ROM - 20" Color Monitor - GXT800P 24 Bit Color with Z-Buffer 1280 x 1024 graphics - Keyboard - 3 Button Mouse - 3.5" Disk Drive - 2003 Spaceball HARDWARE TOTAL includes 3 yrs Maintenance $147,225 -------- --------
SOFTWARE:
Qty Description PLC ALC - --- ----------- --- --- (7) CATIA 5626-ADD Advanced Part Design $138,600 $21,560 & Detailing Config. - Object Manager - Library - Dynamic Sketcher - 3D Wireframe - 3D Parametric Variational Modeler - Exact Solids - Feature-Based Design - Drafting Product - Draw-space(2D/3D) integration Product - 2D Wireframe & Annotation - Surface Design - Advanced Surface Design (6) CATIA 5626-NCB Mfg. Interface Product $ 16,200 $ 2,520 (4) CATIA 5626-NC5 Multi Axis Milling product $ 32,400 $ 5,040 (7) 5765-393 AIX V4.1.5 Operating System $ 4,760 (7) 5696-907 PEX and PHIGS $ 4,137 (7) 5696-939 Open GL $ 4,137 -------- SOFTWARE TOTAL includes 1 yr Maintenance on Software. $229,354 -------- --------
Notes: 1. New ALC charges of $29,120 will be billed direct to Tomahawk II 12 Mo. from installation date. 2. Above Hardware system comes with extended 2yr Maintenance to run 3yrs from date of installation. 3. Above systems have been ordered and installed on Tomahawk's P.O. #196284, 196270, & 196293. Exhibit F [BOSTON FINANCIAL & EQUITY CORPORATION LETTERHEAD] VIA: FEDERAL EXPRESS --------------------- June 20, 1997 Mr. Michael Lorber Chief Financial Officer TOMAHAWK II, INC. 8315 Century Park Court, Suite 200 San Diego, CA 92123 RE: LEASE LINE AGREEMENT Dear Mr. Lorber: Boston Financial & Equity Corporation ("BF&EC") is pleased to make the following Lease Line Agreement ("Agreement") with TomaHawk II, Inc. ("TomaHawk") to provide equipment leasing to TomaHawk in the amount hereinafter specified and for the period ("Availability Period") and on the terms and conditions hereinafter specified: 1. During the Availability Period, we would propose to lease equipment to TomaHawk, which equipment, in the aggregate, would have a cost of not more than up to $230,000 for Software and up to $130,000 for Hardware. All costs relating to the installation, freight, training, insurance and any other cost related to the acquisition, installation or operation of the leased equipment would be paid directly by TomaHawk and would not be included as part of the Agreement. 2. The Availability Period commences on June 5, 1997 and expires on June 4, 1998. To the extent leases have not been executed and the purchase orders submitted by BF&EC to the supplier of the proposed leased equipment, and accepted by the supplier during the Availability Period, this Agreement will be of no further effect. 3. For each item of equipment leased during the Availability Period, the lease will have an initial term of thirty-six (36) months with a monthly rental factor of .0460 for Hardware and .0915 for Software for months one (1) through twelve (12); .0380 for Hardware and .0100 for Software for months thirteen (13) through twenty-four (24); and .0270 for Hardware and .0100 for Software for the final twelve (12) months. The actual monthly rental will be determined by multiplying the cost of the equipment by the applicable monthly rental factor, plus any monthly maintenance charges. Advance rental payments for Months One (1) and Thirty-Six (36) are due upon execution of each lease schedule. Continued ... [BOSTON FINANCIAL & EQUITY CORPORATION LETTERHEAD] Page Two Mr. Michael Lorber TOMAHAWK II, INC. June 20, 1997 4. The proposed lease transaction is intended to be a true lease and TomaHawk will have no option of any kind to acquire title to the leased equipment. However, at the end of the initial term, TomaHawk will have the right, assuming no default and upon no less than ninety (90) days written notice, to extend the lease term for an additional twenty-four (24) months at a monthly rental factor of .0098 for Hardware and .0050 for Software per month, plus any monthly maintenance charges, and a subsequent right, assuming no default and upon no less than ninety (90) days written notice, to extend the lease term for an additional sixty (60) months at a monthly rental factor of .0054 for Hardware and .0025 for Software per month, plus any monthly maintenance charges. 5. All of TomaHawk's obligations under the lease are guaranteed, jointly and severally, by each of TomaHawk Corporation of Alberta, Canada and TomaHawk Imaging & Financial, Inc. of Alberta, Canada. 6. We reserve the right to require a security deposit equal in amount to Fifteen Percent (15%) of the aggregate equipment cost under each lease or lease schedule. 7. TomaHawk extends to BF&EC the right of first refusal on subsequent equipment needs. 8. The documentation to be utilized in connection with each lease transaction pursuant to this Agreement will be BF&EC's Standard Master Equipment Lease, with appropriate lease schedules, as well as a filing of appropriate financing statements to give public notice of the lease transaction, and the delivery by TomaHawk of such other instruments, documents and certificates as BF&EC or its counsel may require. 9. TomaHawk must furnish to BF&EC, on a regular basis, pursuant to the terms of the Master Equipment Lease, financial statements and at any time as Tomahawk's financial condition shall not be satisfactory to BF&EC, BF&EC may forthwith terminate this Agreement. 10. In all events, BF&EC reserves the right to reject TomaHawk's request to lease any particular item of equipment. BF&EC's obligation to lease the same to TomaHawk, assuming that BF&EC does not reject TomaHawk's request, is based upon the availability of the equipment at a price satisfactory to BF&EC. Continued ... [BOSTON FINANCIAL & EQUITY CORPORATION LETTERHEAD] Page Three Mr. Michael Lorber TOMAHAWK II, INC. June 20, 1997 11. This Agreement and the terms and conditions contained herein is confidential and proprietary. TomaHawk agrees not to disclose the same to any other party without the prior written consent of BF&EC. 12. This Agreement and the respective obligations herein shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 13. As part of this Lease Line Agreement, TomaHawk Corporation will issue to BF&EC 115,000 shares of its Common Stock in accordance with the rules and regulations of the Alberta Stock Exchange, to be delivered at time of execution of this Lease Line Agreement in a form acceptible to BF&EC. - 14. TomaHawk agrees that it shall not transfer funds to its parent company, TomaHawk Imaging & Financial, Inc., or to TomaHawk Imaging & Financial, Inc.'s parent company, TomaHawk Corporation, other than those funds necessary to satisfy the requirements of the Alberta Stock Exchange, and reasonable legal and accounting and other corporate expenses. If this Agreement is satisfactory to TomaHawk, please accept the same by signing and returning the enclosed counterpart with 115,000 shares of TomaHawk Corporation Common Stock issued to BF&EC. Unless such counterpart is accepted by TomaHawk and received by BF&EC with such Common Stock (allowing for reasonable delay for receipt by BF&EC of such Common Stock) on or before June 25, 1997, this Agreement shall be of no further force and effect. The non-refundable fee of $7,000 has already been received by BF&EC. Sincerely, BOSTON FINANCIAL & EQUITY CORPORATION Ida Bratsis Contract Manager AGREED AND ACCEPTED: TOMAHAWK II, INC. /s/ Michael H. Lorber - -------------------------- (Signature) Michael H. Lorber - -------------------------- (Name) VP-Finance & CFO - -------------------------- (Title) 7/1/97 - -------------------------- (Date) EX-10.5 12 EXHIBIT 10.5 Exhibit 10.5 The convertible note represented hereby is not transferable. The common shares issuable upon conversion of the convertible note are not transferable in the Province of Alberta prior to January 8, 1998 except pursuant to a prospectus exemption pursuant to applicable securities legislation or an order of the applicable securities commission. The securities represented hereby may be subject to additional restrictions or resale and in Canadian jurisdictions other than Alberta, the securities represented hereby may be subject to hold periods of indefinite duration. Investors must consult their own legal advisers prior to resale. This convertible note and the common shares to be issued upon the conversion thereof have not been registered under the United States Securities Act of 1933, as amended (the "1933 Act"), or the securities laws of any state or jurisdiction of the United States. The securities represented hereby have not been qualified pursuant to a prospectus in any Canadian jurisdiction. The convertible note may not be exercised by or on behalf of a person in the United States or by a U.S. Person unless registered under the 1933 Act and the applicable securities laws of any state or an exemption from such registration is available. "United States" and "U.S. Person" are as defined by Regulation S under the 1933 Act. TOMAHAWK CORPORATION (Incorporated under the laws of the Province of Alberta) U.S. $250,000 AMENDED CONVERTIBLE NOTE DUE JANUARY 8, 2001 TOMAHAWK CORPORATION, (the "Corporation"), for value received hereby promises to pay to NORMAN SIEGEL, 1836 N. SEDGWICK, CHICAGO, ILLINOIS, USA, 60614 (the "Holder") or to his heir, successor or assign who becomes the registered Holder hereof, on (or, at the option of the Corporation, before) January 8, 2001, on presentation and surrender of this Note at the head office of the Corporation at 9591 Waples Street, San Diego, California, USA (or such other office as the Corporation shall subsequently advise the Holder of in writing), the sum of TWO HUNDRED FIFTY THOUSAND DOLLARS in lawful money of the United States of America (U.S. $250,000). PAYMENT OF INTEREST The Corporation hereby promises to pay to the Holder, interest on the principal ("Principal") being, U.S. $250,000 or such lesser amount of principal balance hereof which shall from time to time be outstanding and unpaid pursuant to this Note after giving effect to one or more partial repayments, redemptions or conversions as permitted and contemplated herein. Interest shall be calculated at the rate of 1% above the index rate as established and announced from time to time by the Bank of America, Chicago, Illinois, (which rate may not be the lowest rate of interest charged by Bank of America to its customers) such interest to be calculated from December 31, 1996 to January 8, 2001. Changes in the index rate shall take effect on the date set forth in each such announcement by the Bank of America of such change. Interest shall be payable and required to be paid monthly on the first day of each and every month and shall be calculated on the basis of the actual number of days elapsed over a year of 360 days but shall not exceed the maximum rate of interest allowable under applicable law for loans of this type. Principal due hereunder shall bear interest after maturity, whether pursuant to acceleration, expiration of the term of this Note or otherwise at 3% per annum over the prematurity rate. As interest on this Note becomes due, the Corporation (except in case of payment at maturity or on conversion at which time payment of interest will be made upon surrender of this Note) shall forward or cause to be forwarded by ordinary post to the office of the Holder at 1836 N. Sedgwick, Chicago, Illinois, USA, 60614 (or such other office as the Holder shall advise the Corporation in writing), a cheque or bank draft drawn on the Corporation's bankers for such interest, less any tax required by law to be paid. Notwithstanding anything herein to the contrary, the Holder shall never be entitled to charge, take or receive as interest any amount in excess of the maximum rate of interest permitted by law. If the Holder shall receive documents in excess of such maximum permitted rate, such excess shall be applied to unpaid principal hereunder, or if no principal remains unpaid, refunded to the Corporation. Unless otherwise agreed to by the parties and consented to by any applicable securities regulatory bodies, including The Alberta Stock Exchange, all interest on principal, interest on unpaid interest or any other interest or other payments due or payable pursuant to this Note, other than payment of the Principal shall be payable in cash money and shall not be payable in Common Shares of the Corporation. CONVERSION OF NOTE Subject to the section entitled "Adjustments" herein, this Note is convertible, at the option of the Holder, in whole or in part, in one or more parts, at any time and from time to time on or before JANUARY 8, 2001, in such amounts as the Holder may elect, into fully paid and non-assessable common shares ("Common Shares") in the capital of the Corporation as presently constituted (without adjustment for dividends on shares issuable upon conversion) at a conversion rate of U.S. $0.1695 PER SHARE (being Cdn. $0.23 per share as at the date August 26, 1996, being the date such price was fixed with The Alberta Stock Exchange, based on a U.S./Cdn. dollar exchange rate of 1.3566) up to an aggregate maximum of 1,474,565 Common Shares. In order to exercise the conversion privilege, the Holder shall surrender this Note to the Corporation at its head office, accompanied by written notice (which shall be irrevocable) signed by the Holder stating that he elects to convert all or a portion of this Note into common shares, and such notice shall clearly state the number of Common Shares to be subscribed for. Such notice shall also state the name or names in which the certificates form Common Shares shall be issuable upon such conversion and shall include the addresses of such person(s) so named. If any of the Common Shares into which this Note is to be converted are to be issued to a person or persons other than the Holder of this Note, such notice shall be accompanied by payment to the Corporation of any transfer or other tax which may be payable by reason thereof. The surrender of this Note accompanied by such written notice shall be deemed to constitute a contract between the Holder and the Corporation whereby: (i) the Holder subscribes for the number of Common Shares which he shall be entitled to receive on such conversion; (ii) the Holder releases the Corporation from any and all liability thereon or the portion thereof which is converted, as the case may be, and agrees to execute such discharge and/or such other documents as the Corporation may reasonably request or require; (iii) the Corporation agrees that the surrender of this Note for conversion constitutes full payment of the subscription price for the Common Shares issuable upon such conversion; and (iv) the Corporation agrees upon each conversion in whole or in part of the Note to forthwith issue and cause to be delivered both a new note representing the balance of the indebtedness not converted and certificates representing that number of fully paid and non-assessable Common Shares as have been converted and subscribed. ENFORCEABILITY The whole of the Principal herein referred to shall become forthwith due and payable, upon the happening of any one or more of the following events: (i) if the Corporation makes default in payment of the Principal of this Note when the same becomes due; (ii) if the Corporation makes default in payment in money of any interest due on any interest payment date and such failure shall have continued for a period of 90 days after the default of such payment; (iii) if the Corporation makes a declaration of bankruptcy, a receiver or receiver-manager is appointed, or if any steps are taken for the winding up or liquidation of the Corporation or if the Corporation makes a general assignment for the benefit of its creditors; (iv) if the Corporation neglects to observe or perform any covenant or condition of this Note and the Corporation fails to remedy such neglect within 90 days after receipt of a written notice from the Holder requiring the Corporation to remedy such neglect; or (v) in the event of default under the Security Agreement referred to under the heading "Other Agreements and Security" herein. 2 REPAYMENT AND REDEMPTION The Corporation may, without penalty or premium, at any time and from time to time on or before January 8, 2001, repay the total or any part of the Principal upon payment of accrued interest to the date of such repayment. The Corporation agrees upon each redemption in whole or in part of the Note to forthwith issue and cause to be delivered a new Note representing the balance of the indebtedness not repaid. If this Note is actually redeemed in full by the Corporation it shall be cancelled and shall not be reissued. TRANSFERABILITY This Note is non-transferable. The transfer of any Common Shares resulting from the conversion of this Note shall be subject to and restricted by the provisions of applicable securities legislation. THE COMMON SHARES ISSUABLE UPON CONVERSION OF THE NOTE ARE NOT TRANSFERABLE IN THE PROVINCE OF ALBERTA UNTIL JANUARY 8, 1998 AND IN OTHER CANADIAN JURISDICTIONS MAY BE SUBJECT TO AN INDEFINITE HOLD PERIOD. THE CERTIFICATES REPRESENTING THE SECURITIES REFERRED TO HEREIN WILL BE LEGENDED WITH APPLICABLE HOLD PERIODS. HOLDERS ARE ADVISED TO CONSULT THEIR OWN LEGAL COUNSEL IN THIS REGARD. THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF APPLICABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR (D) WITH THE PRIOR WRITTEN CONSENT OF THE CORPORATION, PURSUANT TO ANOTHER APPLICABLE EXEMPTION UNDER THE U.S. SECURITIES ACT OR THE REGULATIONS OR POLICIES PROMULGATED THERETO AND ANY APPLICABLE STATE SECURITIES LAWS. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE GOOD DELIVERY IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. DELIVERY OF WHICH WILL CONSTITUTE GOOD DELIVERY, MAY BE OBTAINED FROM THE REGISTRAR AND TRANSFER AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE REGISTRAR AND TRANSFER AGENT AND THE CORPORATION, TO THE EFFECT THAT THE SALE OF THE SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT. THE HOLDER BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE CORPORATION THAT THE CORPORATION HAS NO MADE NO REPRESENTATION AS TO THE AVAILABILITY OF AN APPLICABLE EXEMPTION. OTHER AGREEMENTS AND SECURITY Each of the parties indicated on the last page hereof, acknowledge and agree that this Convertible Note is intended to and does revoke, replace and supersede the Secured Promissory Note dated November 19, 1996 between TomaHawk II, Inc., the Corporation's wholly owned subsidiary and the Holder. Notwithstanding the foregoing, and in limitation thereof, the parties acknowledge and agree that that certain Security Agreement dated November 19, 1996 between TomaHawk II, Inc. and the Holder hereof shall continue in full force and effect and the terms and conditions of which are incorporated by reference herein and the amounts owing hereunder continue to be secured as set forth in such Security Agreement. Without limiting the generality of the foregoing and for greater certainty, any choice of laws or conflict of laws provisions in said Security Agreement shall continue to govern the interpretation and enforcement of such Security Agreement. NO RIGHTS OF SHAREHOLDER UNTIL CONVERSION The Holder shall have no rights whatsoever as a shareholder (including any right to receive dividends or other distribution to shareholders or to vote or attend at a general or other meeting of the shareholders of the Corporation), other than in respect of Common Shares which the Holder shall have exercised his right to convert hereunder and which the Holder shall have actually converted pursuant to the terms hereof and paid for or in respect of such other securities of the Corporation which the Holder may own. Holders shall be bound by any resolution passed at a meeting of the shareholders of the Corporation held in accordance with the provisions of the BUSINESS CORPORATIONS ACT (Alberta). 3 NO FRACTIONAL COMMON SHARES No fractional Common Shares will be issued upon conversion of the Note, nor shall any compensation be made for such fractional Common Shares, if any. To the extent that the Holder would otherwise be entitled to purchase a fraction of a Common Share, such right may be exercised in combination with other rights which, in the aggregate, entitles the Holder hereof to purchase a whole number of Common Shares. Any fractional Common Shares shall be rounded downwards to the next whole number. ADJUSTMENT If prior to January 8, 2001 or conversion or repayment or redemption in full of the Note evidenced herein, the Corporation shall at any time arrange or merge into another corporation, or if there is a subdivision, consolidation or other reclassification of the shares of the Corporation, the Holder will thereafter receive, upon the conversion of the Note evidenced herein, the securities or properties to which a holder of the number of shares then deliverable upon the exercise of the Note would have otherwise been entitled to receive immediately prior to such arrangement, merger, subdivision, consolidation or other reclassification. The Corporation shall take steps as may be necessary to assure that the provisions hereof shall thereafter be applicable, in relation to any securities or property thereafter deliverable upon the conversion of the Note evidenced herein. A sale of all or substantially all of the assets of the Corporation for consideration (apart from the assumption of obligations), constituting securities shall be deemed to be an arrangement or merger for the foregoing purposes. MISCELLANEOUS If this Note or any replacement or additional Note certificate is lost, mutilated, destroyed or stolen, the Corporation may, on such reasonable terms as to cost and indemnity or otherwise as they may impose, respectively issue a replacement Note certificate similar as to denomination, tenor and date as the Note certificate so lost, mutilated, destroyed or stolen. THE NOTE AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THE NOTE ARE NOT QUALIFIED FOR SALE OR REGISTERED UNDER THE LAWS OF ANY PROVINCE, TERRITORY, STATE OR PURSUANT TO THE LAWS OF THE UNITED STATES. COMPLIANCE WITH THE APPLICABLE SECURITIES LEGISLATION IS THE RESPONSIBILITY OF THE HOLDER AND THE HOLDER OF COMMON SHARES. The Note represented hereby shall be governed by the laws in force in the Province of Alberta. If any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Note. TIME SHALL BE OF THE ESSENCE. No delay on the part of the Holder hereof in the exercise of any right or remedy shall operate as a waiver thereof; no single or partial exercise by the Holder of any right or remedy shall preclude any other future exercise thereof of the exercise of any other right or remedy; no waiver or indulgence by the Holder of any default shall be effective unless in writing and signed by the Holder hereof and no waiver or one occasion shall be construed as or be a bar to or a waiver of the enforcement of such right or the exercise of a remedy on a future occasion. The Corporation and TomaHawk II, Inc. hereby consent to any extension or postponement of the time for payment hereunder and the release of any security interest securing this Note; or the addition of any party hereto; or the release or discharge of, or suspension of any rights or remedies against the Corporation or TomaHawk II, Inc., or any person who may be liable for the payment of the indebtedness evidenced hereby. 4 IN WITNESS WHEREOF the Corporation has authorized its duly authorized officer to execute and deliver this certificate effective the ___ day of ________, 1999. TOMAHAWK CORPORATION By: /s/ S. M. Caira --------------------------------- Steven M. Caira, President, CEO and director Acknowledged and agreed to this __day Acknowledged and agreed to by NORMAN of _______, 1999 by TOMAHAWK SIEGEL this 25 day of February, 1999. II, INC. in the presence of: -- -------- /s/ S. M. Caira /s/ Norman Siegel - ------------------------------------ ------------------------------------- Steven M. Caira, President and director [signature of Norman Siegel] as evidenced by affixing of the corporate seal of TomaHawk II, Inc. ------------------------------------- [witness to signature of Mr. Siegel] - --------------------------- c/s - --------------------------- 5 EX-10.6 13 EXHIBIT 10.6 EXHIBIT 10.6 NON-NEGOTIABLE PROMISSORY NOTE SUBJECT TO RIGHT OF SET-OFF U.S. $1,100,000 Dated: August 20, 1998 San Diego, California 1. Principal. FOR VALUE RECEIVED, the undersigned, TOMAHAWK II, INC., an Illinois corporation ("Maker"), HEREBY PROMISES TO PAY to ROBIN HARTLEY, an individual resident of the State of California ("Holder"), the principal sum of One Million One Hundred Thousand United States Dollars (US$1,100,000) (subject to set-off as set forth below, the "Principal"), in accordance with the terms and conditions of this Promissory Note. This Promissory Note is executed and delivered in accordance with Section 1.7 of the Asset Purchase Agreement, dated as of August 1, 1998, by and between Maker and Holder (which agreement is incorporated herein by this reference and made a part hereof, the "Purchase Agreement"). THIS PROMISSORY NOTE IS SECURED AND NON-NEGOTIABLE. ANY ATTEMPTED TRANSFER OF THIS PROMISSORY NOTE WITHOUT THE PRIOR WRITTEN CONSENT OF MAKER SHALL BE VOID AND MAKER MAY TREAT THE ABOVE MENTIONED HOLDER AS THE SOLE PAYEE FOR ALL PURPOSES HEREUNDER. THIS NOTE IS SUBORDINATED TO CERTAIN INDEBTEDNESS AS SET FORTH BELOW. 2. Interest. No interest shall accrue on the Principal during the period commencing on the date of this Promissory Note and concluding on December 18, 1998. Thereafter, during the period (the "Second Period") commencing on December 19, 1998 and concluding on March 18, 1999, the unpaid balance of the Principal shall accrue interest at the rate equal to the U.S. prime rate as published in the Wall Street Journal (the "Prime Rate"), plus one percent (1%) per annum. Thereafter, during the period (the "Third Period") commencing on March 19, 1999 and concluding on March 19, 2004 (the "Final Payment Date"), the unpaid balance of the Principal shall accrue interest at the Prime Rate plus two percent (2%) per annum. The Prime Rate shall be determined initially on December 19, 1998 and then shall be adjusted on January 1 (or the first Business Day thereafter) of each year through the Final Payment Date. All interest due hereunder shall be computed on the basis of a year of 365 days for the actual number of days elapsed. Interest not paid when due shall be added to the unpaid principal balance and shall thereafter bear interest at the same rate as the Principal. 3. Payment of Principal and Interest. (a) Unless previously accelerated or prepaid pursuant to the terms hereof, the unpaid balance of the Principal and the accrued and unpaid interest hereunder shall be paid as follows: (i) within five days of the end of each calendar month during the Second Period, Maker shall pay to Holder an amount equal to the interest accrued during each such month (or portion thereof) on the unpaid balance of the Principal; (ii) within five days of the end of each calendar month during the Third Period, Maker shall pay to Holder an amount equal to the sum of (x) the portion of the unpaid balance of the Principal equal to Eighteen Thousand Three Hundred Thirty-Three Dollars and Thirty-Three Cents ($18,333.33), or such lesser amount of the unpaid balance of the Principal, as applicable, and (y) an amount equal to the interest accrued during each such month (or portion thereof) on the unpaid balance of the Principal; and (iii) on the Final Payment Date, Maker shall pay to Holder in full the unpaid balance of the Principal, if any, on the Final Payment Date, together with any and all accrued and unpaid interest hereunder. (b) Each such payment of a portion of the unpaid balance of the Principal pursuant to Section 3(a)(ii)(x) above shall constitute a reduction of the unpaid balance of the Principal then outstanding. In the event that Maker fails to pay any amount when due hereunder, Maker shall pay to Holder a one-time late payment fee equal to five percent (5%) of such amount. (c) Notwithstanding the foregoing, in the event that (i) Maker and Holder are resolving a claim or dispute pursuant to the arbitration provisions of Section 10.15 of the Purchase Agreement and (ii) the aggregate dollar value at issue in any and all such claims and disputes is greater than or equal to Forty-Five Thousand Dollars ($45,000) (as reasonably determined by Maker in a written notice to Holder and the escrow agent), Maker shall deliver any and all payments hereunder into the escrow account referred to in Section 5 of this Promissory Note until the conclusion of the corresponding arbitration proceedings and the issuance of the final arbitration order. In no event shall the aggregate amount of such payments delivered by Maker into such escrow account cause the value of such escrow account to exceed Five Hundred Thousand Dollars ($500,000). (d) Maker shall have the right at any time to prepay all or any portion of the amounts owing hereunder without penalty or premium. (e) The payment of this Promissory Note is and shall be subordinate, to the extent and the manner hereinafter set forth, in right of payment to the payment in full of all Senior Debt. "Senior Debt" shall mean and refer to all indebtedness and obligations of Maker now or hereinafter existing in respect of indebtedness for money borrowed from Bank of America NT & SA ("Bank"). -2- Maker may make payments on this Promissory Note at the times and in the amounts pursuant to the terms and conditions set forth herein, but without giving effect to any acceleration or prepayment of this Promissory Note if, at the time of making any such payment and immediately after giving effect thereto, an event of default shall have occurred and be continuing under the Senior Debt (a "Subordination Event"). Once a Subordination Event has occurred and is continuing, Maker shall not make payment, directly or indirectly, in cash or other property, of all or any part of the indebtedness evidenced by this Promissory Note until Maker is no longer in default under the Senior Debt. Maker shall not prepay this Promissory Note without the prior written consent of Bank if Bank's consent is required pursuant to the terms and conditions of the instruments or documents creating the Senior Debt. This Promissory Note shall not be accelerated or declared in default until Bank, upon its request of notice in writing, shall have received at least ten (10) days' advance written notice of the intention to accelerate or declare this Promissory Note in default. No such acceleration or declaration of default of this Promissory Note shall be effective until such written notice shall have been given to Bank, if such notice was requested in writing by Bank. 4. Manner of Payment. All amounts payable hereunder shall be paid to Holder in lawful currency of the United States of America at such account or address as Holder may from time to time notify Maker in writing. If payment of any amount hereunder is due on a day other than a Business Day, the payment of such amount shall be due on the next succeeding Business Day. As used herein, "Business Day" means a day other than a Saturday, Sunday or a day on which banks are authorized to close in San Diego, California. 5. Escrow Amount. In the event that the payment of the unpaid balance of the Principal is accelerated before the first anniversary of the date of this Promissory Note, Maker first shall place One Hundred Twenty Thousand Dollars ($120,000) of the Principal into an escrow account in accordance with Section 1.7 of the Purchase Agreement, as partial security for Holder's indemnity obligations under the Purchase Agreement. 6. Set-Off. Maker is hereby authorized at any time and from time to time, to set-off and apply any and all amounts owing by Maker to Holder under this Promissory Note against any and all of the obligations (whether matured or unmatured) of Holder to Maker (or an affiliate of Maker) now or hereafter existing under the Purchase Agreement (subject to the conditions set forth in Section 3(c) hereunder) and/or any other agreement between them (other than the Consulting Agreement, dated as of the date hereof, by and between Maker and Holder). Maker shall provide Holder with ten (10) days' written notice of: (a) its intention to exercise its set-off rights hereunder; and (b) a description of the underlying basis giving rise to such exercise of its set-off rights. In the event that Maker exercises its set-off rights and all or a portion of such set-off is later found to be due and owing (the -3- "Improper Set-Off Amount") by a final determination in an arbitration proceeding pursuant to Section 10.15 of the Purchase Agreement, then the Improper Set-Off Amount shall be due and payable within thirty (30) Business Days after the date of such determination. The rights of Maker under this section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which Maker may have. 7. Acceleration. Subject to Sections 5 and 6 of this Promissory Note, Holder shall have the right to accelerate payment of the unpaid balance of the Principal, together with any and all accrued and unpaid interest hereunder, in the event that Maker obtains debt or equity financing in the aggregate amount greater than or equal to Ten Million Dollars ($10,000,000) prior to the Final Payment Date. 8. Security Agreement. This Promissory Note is secured by, and entitled to the benefits of, that certain Security Agreement, dated as of the date hereof, by and between Maker and Holder. 9. Headings. Headings used in this Promissory Note are inserted for convenience only and shall not be deemed to constitute a part hereof. 10. Attorneys' Fees. Maker agrees to pay all reasonable attorneys' fees incurred by Holder in connection with the enforcement of any obligation of Maker under this Promissory Note. 11. Amendment. No provisions of this Promissory Note may be changed, modified, amended or terminated except by a written instrument signed by Maker and Holder. 12. Governing Law. This Promissory Note is and shall be governed by and construed and enforced in accordance with the laws of the State of California. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -4- IN WITNESS WHEREOF, Maker has caused this Promissory Note to be executed and delivered by its duly authorized officer, as of the date first above written. TOMAHAWK II, INC., an Illinois corporation /s/ Michael H. Lorber ----------------------------------------------- By: Michael H. Lorber, Vice President - Finance and Chief Financial Officer [SIGNATURE PAGE TO PROMISSORY NOTE] -5- EX-10.7 14 EXHIBIT 10.7 Exhibit 10.7 CONSOLIDATED PROMISSORY NOTE--FIXED PAYMENT NON-INTEREST BEARING $854,832 NON-INTEREST BEARING This note, effective as of November 1, 1998, memorializes the terms of an agreement between Norm Siegel hereinafter "Borrower" and TomaHawk II, Inc. hereinafter "Lender". For value received, in the amount of Eight Hundred Fifty Four Thousand Eight Hundred and Thirty Two Dollars and no cents ($854,832), which the undersigned Borrower acknowledges receipt of, Borrower promises to pay to TomaHawk II, Inc. an Illinois Corporation the sum of ($854,832); which is due and payable without interest on November 1, 2004. This note consolidates and replaces three notes previously entered into by Borrower and Lender for the respective sums of $407,028, $223,965, and $223,839, which are secured by the respective Tomahawk Corporation stock certificates as follows: C01096 for 3,196,000 shares, C00882 for 3,400,250 shares, C01103 for 1,474,565 shares. A waiver of payment or noncompliance with the due date shall not be construed as a waiver of a subsequent nonpayment or subsequent non-compliance with the terms of this note. Borrower shall also enter into a Stock Pledge and Security Agreement contemporaneously with the execution of this note. The foregoing notwithstanding, the parties agree to cooperate reasonably and in good faith to arrange a sale of that portion of the shares Secured and Pledged as is reasonably appropriate to raise funds necessary to satisfy Borrower's obligations hereunder. It is expressly understood that to the extent that Borrower is unable to satisfy this note, Borrower's recourse is against the stock pledged under the Stock Security and Pledge Agreement and that there shall be no deficiency obligation of Borrower. All payments shall be payable in lawful currency of the Unites States of America. By:________________________ Norm Siegel, Borrower EX-10.8 15 EXHIBIT 10.8 Exhibit 10.8 SECURITY AND STOCK PLEDGE AGREEMENT This Security and Stock Pledge Agreement effective as of November 1, 1998 by and between Norm Siegel ("Borrower") and TomaHawk II Inc. ("Lender"). In consideration of the mutual terms, conditions and covenants herein under set forth, Borrower and Lender agree as follows: (1) In exchange of consideration stated in three Promissory Notes aggregating the sum of Eight Hundred Fifty Four Thousand Eight Hundred and Thirty two Dollars ($854,832) all of which were consolidated in a Consolidated Promissory Note, Borrower agrees to provide as security shares of stock of the Tomahawk Corporation, which are evidenced and represented by the following Stock Certificates for the number of shares identified and for the following sums of money as herein identified. (a) Certificate C01096, No. of Shares 3,196,000, Amount $407,028 (b) Certificate C00882, No. of Shares 3,400,250, Amount $223,965 (c) Certificate C01103, No. of Shares 1,474,565, Amount $223,839 (2) As security for the loan, evidenced in the accompanying Consolidated Promissory Note, Borrower hereby pledges, assigns, transfers and grants to Lender a security interest in the number of shares as listed in the preceding paragraph. (3) In furtherance of the pledge, assignment, transfer and grant of the security interest, Borrower shall, and has, delivered to Lender the number of shares as listed in paragraph (1) of this agreement as evidenced and represented by Stock Certificate Nos. C01096, C00882, C01103. (4) Borrower shall not pledge, borrow against, collaterize against, hypothecate, assign, transfer, sell or in any other manner diminish or impair the value of the stock pledged or the security interest without the express written authorization of the Lender. (5) During the term of this agreement, which shall run contemporaneously with the accompanying promissory note, the Borrower shall own the pledged shares. The pledged stock shall be held in trust by Lender for Borrower in a safe place and Lender shall not alienate, transfer, assign, hypothecate, sell, SECURITY AND STOCK PLEDGE AGREEMENT PAGE 2 (NORM SIEGEL) pledge, or in any other manner dispose of, or impair the value of the pledged stock until such time as the Borrower is in default of the accompanying Consolidated Promissory Note. Lender shall return the security pledged in this agreement to Borrower upon the compliance within the terms contained in the accompanying Consolidated Promissory Note. Upon default and after exhausting efforts to sell the stock as referenced in paragraph 6 of this agreement, the Lender and/or Borrower, depending upon which party is in possession, shall return any unsold shares to the Tomahawk Corporation. (6) If in default under the terms of this agreement or the accompanying Consolidated Promissory Note is not paid when due, Lender shall be deemed the owner of the stock described above and Borrower hereby consents to the transfer to the stock to Lender without further notice The foregoing notwithstanding, at any time Borrower seeks to sell the stock pledged under this agreement, the parties agree to cooperate reasonably and in good faith to arrange a sale of that portion of the shares of stock pledged under this agreement as is reasonably appropriate to raise funds necessary to satisfy Borrower's obligation. Borrower agrees that all proceeds from the sale of pledged stock shall first be applied to satisfy Borrowers obligation under the Consolidated Promissory Note. It is expressly understood that to the extent that the stock secured and pledged by this agreement upon sale does not satisfy the debt, the Borrower is not liable for any deficiency. To the extent that any balance of the shares remains after satisfaction of the debt, such shares shall be returned to Borrower. (7) Borrower shall have the right to exercise all voting rights to the stock pledged. (8) The parties may amend or modify this agreement in writing. INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Security and Pledge Agreement to be executed as of the date first above written. ___________________________ ________________________ NORM SIEGEL, Borrower TOMAHAWK II, INC. Lender BY: EX-10.9 16 EXHIBIT 10.9 Exhibit 10.9 CONSOLIDATED PROMISSORY NOTE--FIXED PAYMENT NON-INTEREST BEARING $735,295 NON-INTEREST BEARING This note, effective as of November 1, 1998, memorializes the terms of an agreement between Steve Caira hereinafter "Borrower" and TomaHawk II, Inc. hereinafter "Lender". For value received, in the amount of Seven Hundred Thirty Five Thousand Two Hundred and Ninety Five Dollars and no cents ($735,295), which the undersigned Borrower acknowledges receipt of, Borrower promises to pay to TomaHawk II, Inc. an Illinois Corporation the sum of ($735,295); which is due and payable without interest on November 1, 2004. This note consolidates and replaces four notes previously entered into by Borrower and Lender for the respective sums of $33,154, $109,765, $50,000, $13,049, $53,751.59, $293,250 and $182,325, which are secured by the respective Tomahawk Corporation stock certificates as follows: C00722 for 137,700 shares, C00724 for 653,750 shares, C00679 for 1,275,000 shares, C00767 for 105,146 shares, C00879 for 544,040 shares, C00891 for 2,500,000 shares, C01091 for 1,275,000 shares. A waiver of payment or noncompliance with the due date shall not be construed as a waiver of a subsequent nonpayment or subsequent non-compliance with the terms of this note. Notwithstanding the due date of November 1, 2004, Borrower agrees to an acceleration of payments, with all sums due and payable one hundred twenty (120) days following termination of Borrower's employment with Lender. Borrower shall also enter into a Stock Pledge and Security Agreement contemporaneously with the execution of this note. The foregoing notwithstanding, the parties agree to cooperate reasonably and in good faith to arrange a sale of that portion of the shares secured and pledged as is reasonably appropriate to raise funds necessary to satisfy Borrower's obligations hereunder. It is expressly understood that to the extent that Borrower is unable to satisfy this note, Borrower's recourse is against the stock pledged under the Stock Security and Pledge Agreement and that there shall be no deficiency obligation of Borrower. All payments shall be payable in lawful currency of the Unites States of America. By: -------------------- Steve Caira, Borrower EX-10.10 17 EXHIBIT 10.10 Exhibit 10.10 SECURITY AND STOCK PLEDGE AGREEMENT This Security and Stock Pledge Agreement effective as of November 1, 1998 by and between Steve Caira ("Borrower") and TomaHawk II Inc. ("Lender"). In consideration of the mutual terms, conditions and covenants herein under set forth, Borrower and Lender agree as follows: (1) In exchange of consideration stated in seven Promissory Notes aggregating the sum of Seven Hundred Thirty Five Thousand Two Hundred and Ninety Five Dollars ($735,295) all of which were consolidated in a Consolidated Promissory Note, Borrower agrees to provide as security shares of stock of the Tomahawk Corporation, which are evidenced and represented by the following Stock Certificates for the number of shares identified and for the following sums of money as herein identified. (a) Certificate C00722, No. of Shares 137,700, Amount $33,154 (b) Certificate C00724, No. of Shares 653,750, Amount $109,765 (c) Certificate C00679, No. of Shares 1,275,000, Amount $50,000 (d) Certificate C00767, No. of Shares 105,146, Amount $13,049 (e) Certificate C00879, No. of Shares 544,040, Amount $53,751 (f) Certificate C00891, No. of Shares 2,500,000, Amount $293,250 (g) Certificate C01091, No. of Shares 1,275,000, Amount $182,325 (2) As security for the loan, evidenced in the accompanying Consolidated Promissory Note, Borrower hereby pledges, assigns, transfers and grants to Lender a security interest in the number of shares as listed in the preceding paragraph. (3) In furtherance of the pledge, assignment, transfer and grant of the security interest, Borrower shall, and has, delivered to Lender the number of shares as listed in paragraph (1) of this agreement as evidenced and represented by Stock Certificate Nos. C00722, C00724, C00679, C00767, C00879, C00891, C01091. (4) Borrower shall not pledge, borrow against, collaterize against, hypothecate, assign, transfer, sell or in any other manner diminish or impair the value of the stock pledged or the security interest without the express written authorization of the Lender. (5) During the term of this agreement, which shall run contemporaneously with the accompanying Consolidated Promissory Note, the Borrower shall own the pledged shares. The pledged stock shall be held in trust by Lender for SECURITY AND STOCK PLEDGE AGREEMENT PAGE 2 (STEVE CAIRA) Borrower in a safe place and Lender shall not alienate, transfer, assign, hypothecate, sell, pledge, or in any other manner dispose of, or impair the value of the pledged stock until such time as the Borrower is in default of the accompanying Consolidated Promissory Note. Lender shall return the security pledged in this agreement to Borrower upon the compliance within the terms contained in the accompanying Consolidated Promissory Note. Upon default and after exhausting efforts to sell the stock as referenced in paragraph 6 of this agreement, the Lender and/or Borrower, depending upon which party is in possession, shall return any unsold shares to the Tomahawk Corporation. (6) If in default under the terms of this agreement or the accompanying Consolidated Promissory note is not paid when due, Lender shall be deemed the owner of the stock described above and Borrower hereby consents to the transfer to he stock to Lender without further notice. The foregoing notwithstanding, at any time Borrower seeks to sell the stock pledged under this agreement, the parties agree to cooperate reasonably and in good faith to arrange a sale of that portion of the shares of stock pledged under this agreement as is reasonably appropriate to raise funds necessary to satisfy Borrower's obligation. Borrower agrees that all proceeds from the sale of pledged stock shall first be applied to satisfy Borrowers obligation under the Consolidated Promissory Note. It is expressly understood that to the extent that the stock secured and pledged by this agreement upon sale does not satisfy the debt, the Borrower is not liable for any deficiency. To the extent that any balance of the shares remains after satisfaction of the debt, such shares shall be returned to Borrower. (7) Borrower shall have the right to exercise all voting rights to the stock pledged. (8) The parties may amend or modify this agreement in writing. INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Security and Pledge Agreement to be executed as of the date first above written. - --------------------------- ----------------------- STEVE CAIRA, Borrower TOMAHAWK II, INC. Lender BY: EX-10.11 18 EXHIBIT 10.11 Exhibit 10.11 CONSOLIDATED PROMISSORY NOTE--FIXED PAYMENT NON-INTEREST BEARING $188,974 NON-INTEREST BEARING This note, effective as of November 1, 1998, memorializes the terms of an agreement between Michael Lorber hereinafter "Borrower" and TomaHawk II, Inc. hereinafter "Lender". For value received, in the amount of One Hundred Eighty Eight Thousand Nine Hundred and Seventy Four Dollars and no cents ($188,974), which the undersigned Borrower acknowledges receipt of, Borrower promises to pay to TomaHawk II, Inc. an Illinois Corporation the sum of ($188,974); which is due and payable without interest on November 1, 2004. This note consolidates and replaces three notes previously entered into by Borrower and Lender for the respective sums of $71,500, $58,824, $58,650, which are secured by the respective Tomahawk Corporation stock certificates as follows: C01092 for 500,000 shares, C00678 for 500,000 shares, C00893 for 500,000 shares. A waiver of payment or noncompliance with the due date shall not be construed as a waiver of a subsequent nonpayment or subsequent non-compliance with the terms of this note. Notwithstanding the due date of November 1, 2004, Borrower agrees to an acceleration of payments, with all sums due and payable one hundred and twenty days (120) days following termination of Borrower's employment with Lender. Borrower shall also enter into a Stock Pledge and Security Agreement contemporaneously with the execution of this note. The foregoing notwithstanding, the parties agree to cooperate reasonably and in good faith to arrange a sale of that portion of the shares Secured and Pledged as is reasonably appropriate to raise funds necessary to satisfy Borrower's obligations hereunder. It is expressly understood that to the extent that Borrower is unable to satisfy this note, Lender's recourse is against the stock pledged under the Stock Security and Pledge Agreement and that there shall be no deficiency obligation of Borrower. All payments shall be payable in lawful currency of the Unites States of America. By: ----------------------------- Michael Lorber, Borrower EX-10.12 19 EXHIBIT 10.12 Exhibit 10.12 SECURITY AND STOCK PLEDGE AGREEMENT This Security and Stock Pledge Agreement effective as of November 1, 1998 by and between Michael Lorber ("Borrower") and TomaHawk II Inc. ("Lender"). In consideration of the mutual terms, conditions and covenants herein under set forth, Borrower and Lender agree as follows: (1) In exchange of consideration stated in three Promissory Notes aggregating the sum of One Hundred Eighty Eight Thousand Nine Hundred and Seventy Four Dollars ($188,174) all of which were consolidated in a Consolidated Promissory Note, Borrower agrees to provide as security shares of stock of the Tomahawk Corporation, which are evidenced and represented by the following Stock Certificates for the number of shares identified and for the following sums of money as herein identified. (a) Certificate C01092, No. of Shares 500,000, Amount $71,500 (b) Certificate C00678, No. of Shares 500,000, Amount $58,824 (c) Certificate C00893, No. of Shares 500,000, Amount $58,650 (2) As security for the loan, evidenced in the accompanying Consolidated Promissory Note, Borrower hereby pledges, assigns, transfers and grants to Lender a security interest in the number of shares as listed in the preceding paragraph. (3) In furtherance of the pledge, assignment, transfer and grant of the security interest, Borrower shall, and has, delivered to Lender the number of shares as listed in paragraph (1) of this agreement as evidenced and represented by Stock Certificate Nos. C01092, C00678, C00893. (4) Borrower shall not pledge, borrow against, collaterize against, hypothecate, assign, transfer, sell or in any other manner diminish or impair the value of the stock pledged or the security interest without the express written authorization of the Lender. (5) During the term of this agreement, which shall run contemporaneously with the accompanying Consolidated Promissory Note, the Borrower shall own the pledged shares. The pledged stock shall be held in trust by Lender for Borrower in a safe place and Lender shall not alienate, transfer, assign, hypothecate, sell, pledge, or in any other manner dispose of, or impair the value of the pledged stock until such time as the Borrower is in default of SECURITY AND STOCK PLEDGE AGREEMENT PAGE 2 (MICHAEL LORBER) the accompanying Consolidated Promissory Note. Lender shall return the security pledged in this agreement to Borrower upon the compliance within the terms contained in the accompanying Consolidated Promissory Note. Upon default and after exhausting efforts to sell the stock as referenced in paragraph 6 of this agreement, the Lender and/or Borrower, depending upon which party is in possession, shall return any unsold shares to the Tomahawk Corporation. (6) If in default under the terms of this agreement or the accompanying Consolidated Promissory note is not paid when due, Lender shall be deemed the owner of the stock described above and Borrower hereby consents to the transfer to the stock to Lender without further notice. The foregoing notwithstanding, any time Borrower seeks to sell the stock pledged under this agreement, the parties agree to cooperate reasonably and in good faith to arrange a sale of that portion of the shares of stock pledged under this agreement as is reasonably appropriate to raise funds necessary to satisfy Borrower's obligation. Borrower agrees that all proceeds from the sale of pledged stock shall first be applied to satisfy Borrowers obligation under the Consolidated Promissory Note. It is expressly understood that to the extent that the stock secured and pledged by this agreement upon sale does not satisfy the debt, the Borrower is not liable for any deficiency. To the extent that any balance of the shares remains after satisfaction of the debt, such shares shall be returned to Borrower. (7) Borrower shall have the right to exercise all voting rights to the stock pledged. (8) The parties may amend or modify this agreement in writing. INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Security and Pledge Agreement to be executed as of the date first above written. - --------------------------- ----------------------- MICHAEL LORBER, Borrower TOMAHAWK II, INC. Lender BY: EX-10.13 20 EXHIBIT 10.13 Exhibit 10.13 CONSOLIDATED PROMISSORY NOTE--FIXED PAYMENT NON-INTEREST BEARING $176,636 NON-INTEREST BEARING This note, effective as of November 1, 1998, memorializes the terms of an agreement between Phil Card hereinafter "Borrower" and TomaHawk II, Inc. hereinafter "Lender". For value received, in the amount of One Hundred Seventy Six Thousand Six Hundred and Thirty Six Dollars and no cents ($176,636), which the undersigned Borrower acknowledges receipt of, Borrower promises to pay to TomaHawk II, Inc. an Illinois Corporation the sum of ($176,636); which is due and payable without interest on November 1, 2004. This note consolidates and replaces four notes previously entered into by Borrower and Lender for the respective sums of $60,775, $38,985, $50,000, and $26,876, which are secured by the respective Tomahawk Corporation stock certificates as follows: C01094 for 425,000 shares, C00892 for 425,000 shares, C00681 for 425,000 shares, C00881 for 272,020 shares. A waiver of payment or noncompliance with the due date shall not be construed as a waiver of a subsequent nonpayment or subsequent non-compliance with the terms of this note. Notwithstanding the due date of November 1, 2004, Borrower agrees to an acceleration of payments, with all sums due and payable one hundred and twenty (120) days following termination of Borrower's employment with Lender. Borrower shall also enter into a Stock Pledge and Security Agreement contemporaneously with the execution of this note. The foregoing notwithstanding, the parties agree to cooperate reasonably and in good faith to arrange a sale of that portion of the shares Secured and Pledged as is reasonably appropriate to raise funds necessary to satisfy Borrower's obligations hereunder. It is expressly understood that to the extent that Borrower is unable to satisfy this note, Lender's recourse is against the stock pledged under the Stock Security and Pledge Agreement and that there shall be no deficiency obligation of Borrower. All payments shall be payable in lawful currency of the Unites States of America. By:________________________ Phil Card, Borrower EX-10.14 21 EXHIBIT 10.14 Exhibit 10.14 SECURITY AND STOCK PLEDGE AGREEMENT This Security and Stock Pledge Agreement effective as of November 1, 1998 by and between Phil Card ("Borrower") and TomaHawk II Inc. ("Lender"). In consideration of the mutual terms, conditions and covenants herein under set forth, Borrower and Lender agree as follows: (1) In exchange of consideration stated in four Promissory Notes aggregating the sum of One Hundred Seventy Six Thousand Six Hundred and Thirty Six Dollars ($176,636) all of which were consolidated in a Consolidated Promissory Note, Borrower agrees to provide as security shares of stock of the Tomahawk Corporation, which are evidenced and represented by the following Stock Certificates for the number of shares identified and for the following sums of money as herein identified. (a) Certificate C01094, No. of Shares 425,000, Amount $60,775 (b) Certificate C00892, No. of Shares 425,000, Amount $38,985 (c) Certificate C00681, No. of Shares 425,000, Amount $50,000 (d) Certificate C00881, No. of Shares 272,020, Amount $26,876 (2) As security for the loan, evidenced in the accompanying Consolidated Promissory Note, Borrower hereby pledges, assigns, transfers and grants to Lender a security interest in the number of shares as listed in the preceding paragraph. (3) In furtherance of the pledge, assignment, transfer and grant of the security interest, Borrower shall, and has, delivered to Lender the number of shares as listed in paragraph (1) of this agreement as evidenced and represented by Stock Certificate Nos. C01094, C00892, C00681, C00881. (4) Borrower shall not pledge, borrow against, collaterize against, hypothecate, assign, transfer, sell or in any other manner diminish or impair the value of the stock pledged or the security interest without the express written authorization of the Lender. (5) During the term of this agreement, which shall run contemporaneously with the accompanying Consolidated Promissory Note, the Borrower shall own the pledged shares. The pledged stock shall be held in trust by Lender for Borrower in a safe place and Lender shall not alienate, transfer, assign, hypothecate, sell, pledge, or in any other manner dispose of, or impair the value of the pledged stock until such time as the Borrower is in default of the SECURITY AND STOCK PLEDGE AGREEMENT PAGE 2 (PHIL CARD) Accompanying Consolidated Promissory Note. Lender shall return the security pledged in this agreement to Borrower upon the compliance within the terms contained in the accompanying Consolidated Promissory Note. Upon default and after exhausting efforts to sell the stock as referenced in paragraph 6 of this agreement, the Lender and/or Borrower, depending upon which party is in possession, shall return any unsold shares to the Tomahawk Corporation. (6) If in default under the terms of this agreement or the accompanying Consolidated Promissory Note is not paid when due, Lender shall be deemed the owner of the stock described above and Borrower hereby consents to the transfer to the stock to Lender without further notice. The foregoing notwithstanding, at any time Borrower seeks to sell the stock pledged under this agreement, the parties agree to cooperate reasonably and in good faith to arrange a sale of that portion of the shares of stock pledged under this agreement as is reasonably appropriate to raise funds necessary to satisfy Borrower's obligation. Borrower agrees that all proceeds from the sale of pledged stock shall first be applied to satisfy Borrowers obligation under the Consolidated Promissory Note. It is expressly understood that to the extent that the stock secured and pledged by this agreement upon sale does not satisfy the debt, the Borrower is not liable for any deficiency. To the extent that any balance of the shares remains after satisfaction of the debt, such shares shall be returned to Borrower. (7) Borrower shall have the right to exercise all voting rights to the stock pledged. (8) The parties may amend or modify this agreement in writing. INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Security and Pledge Agreement to be executed as of the date first above written. - --------------------------- ----------------------- PHIL CARD, Borrower TOMAHAWK II, INC. Lender BY: EX-10.15 22 EXHIBIT 10.15 Exhibit 10.15 CONSOLIDATED PROMISSORY NOTE--FIXED PAYMENT NON-INTEREST BEARING $110,775 NON-INTEREST BEARING This note, effective as of November 1, 1998, memorializes the terms of an agreement between John Peace hereinafter "Borrower" and TomaHawk II, Inc. hereinafter "Lender". For value received, in the amount of One Hundred Ten Thousand Seven Hundred and Seventy Five Dollars and no cents ($110,775), which the undersigned Borrower acknowledges receipt of, Borrower promises to pay to TomaHawk II, Inc. an Illinois Corporation the sum of ($110,775); which is due and payable without interest on November 1, 2004. This note consolidates and replaces two notes previously entered into by Borrower and Lender for the respective sums of $50,000, $60,000, which are secured by the respective Tomahawk Corporation stock certificates as follows: C00680 for 425,000 shares, C01102 for 425,000 shares. A waiver of payment or noncompliance with the due date shall not be construed as a waiver of a subsequent nonpayment or subsequent non-compliance with the terms of this note. Notwithstanding the due date of November 1, 2004, Borrower agrees to an acceleration of payments, with all sums due and payable one hundred and twenty days (120) days following termination of Borrower's employment with Lender. Borrower shall also enter into a Stock Pledge and Security Agreement contemporaneously with the execution of this note. The foregoing notwithstanding, the parties agree to cooperate reasonably and in good faith to arrange a sale of that portion of the shares Secured and Pledged as is reasonably appropriate to raise funds necessary to satisfy Borrower's obligations hereunder. It is expressly understood that to the extent that Borrower is unable to satisfy this note, Lender's recourse is against the stock pledged under the Stock Security and Pledge Agreement and that there shall be no deficiency obligation of Borrower. All payments shall be payable in lawful currency of the Unites States of America. By:________________________ JOHN PEACE, Borrower EX-10.16 23 EXHIBIT 10.16 Exhibit 10.16 SECURITY AND STOCK PLEDGE AGREEMENT This Security and Stock Pledge Agreement effective as of November 1, 1998 by and between John Peace ("Borrower") and TomaHawk II Inc. ("Lender"). In consideration of the mutual terms, conditions and covenants herein under set forth, Borrower and Lender agree as follows: (1) In exchange of consideration stated in two Promissory Notes aggregating the sum of One Hundred Ten Thousand Seven Hundred and Seventy Five Dollars ($110,775) all of which were consolidated in a Consolidated Promissory Note, Borrower agrees to provide as security shares of stock of the Tomahawk Corporation, which are evidenced and represented by the following Stock Certificates for the number of shares identified and for the following sums of money as herein identified. (a) Certificate C00680, No. of Shares 425,000, Amount $50,000 (b) Certificate C01102, No. of Shares 425,000, Amount $60,000 (2) As security for the loan, evidenced in the accompanying Consolidated Promissory Note, Borrower hereby pledges, assigns, transfers and grants to Lender a security interest in the number of shares as listed in the preceding paragraph. (3) In furtherance of the pledge, assignment, transfer and grant of the security interest, Borrower shall, and has, delivered to Lender the number of shares as listed in paragraph (1) of this agreement as evidenced and represented by Stock Certificate Nos. C00680, C01102. (4) Borrower shall not pledge, borrow against, collaterize against, hypothecate, assign, transfer, sell or in any other manner diminish or impair the value of the stock pledged or the security interest without the express written authorization of the Lender. (5) During the term of this agreement, which shall run contemporaneously with the accompanying Consolidated Promissory Note, the Borrower shall own the pledged shares. The pledged stock shall be held in trust by Lender for Borrower in a safe place and Lender shall not alienate, transfer, assign, hypothecate, sell, pledge, or in any other manner dispose of, or impair the value of the pledged stock until such time as the Borrower is in default of the SECURITY AND STOCK PLEDGE AGREEMENT PAGE 2 (JOHN PEACE) accompanying Consolidated Promissory Note. Lender shall return the security pledged in this agreement to Borrower upon the compliance within the terms contained in the accompanying Consolidated Promissory Note. Upon default and after exhausting efforts to sell the stock as referenced in paragraph 6 of this agreement, the Lender and/or Borrower, depending upon which party is in possession, shall return any unsold shares to the Tomahawk Corporation. (6) If in default in the terms of this agreement or the accompanying Consolidated Promissory note is not paid when due, Lender shall be deemed the owner of the stock described above and Borrower hereby consents to the transfer to the stock to Lender without further notice The foregoing notwithstanding, at any time Borrower seeks to sell the stock pledged under this agreement, the parties agree to cooperate reasonably and in good faith to arrange a sale of that portion of the shares of stock pledged under this agreement as is reasonably appropriate to raise funds necessary to satisfy Borrower's obligation. Borrower agrees that all proceeds from the sale of pledged stock shall first be applied to satisfy Borrowers obligation under the Consolidated Promissory Note. It is expressly understood that to the extent that the stock secured and pledged by this agreement upon sale does not satisfy the debt, the Borrower is not liable for any deficiency. To the extent that any balance of the shares remains after satisfaction of the debt, such shares shall be returned to Borrower. (7) Borrower shall have the right to exercise all voting rights to the stock pledged. (8) The parties may amend or modify this agreement in writing. INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Security and Pledge Agreement to be executed as of the date first above written. - --------------------------- ------------------------ JOHN PEACE, Borrower TOMAHAWK II, INC. Lender BY: EX-10.17 24 EXHIBIT 10.17 Exhibit 10.17 CONSOLIDATED PROMISSORY NOTE--FIXED PAYMENT NON-INTEREST BEARING $89,586 NON-INTEREST BEARING This note, effective as of November 1, 1998, memorializes the terms of an agreement between Elliott Broidy hereinafter "Borrower" and TomaHawk II, Inc. hereinafter "Lender". For value received, in the amount of Eighty Nine Thousand Five Hundred and Eighty Six Dollars and no cents ($89,586), which the undersigned Borrower acknowledges receipt of, Borrower promises to pay to TomaHawk II, Inc. an Illinois Corporation the sum of ($89,586); which is due and payable without interest on November 1, 2004. This note consolidates and replaces a note previously entered into by Borrower and Lender for the sum of $89,586, which is secured by Tomahawk Corporation stock certificates C01884 for 1,360,000 shares. A waiver of payment or noncompliance with the due date shall not be construed as a waiver of a subsequent nonpayment or subsequent non-compliance with the terms of this note. Borrower shall also enter into a Stock Pledge and Security Agreement contemporaneously with the execution of this note. The foregoing notwithstanding, the parties agree to cooperate reasonably and in good faith to arrange a sale of that portion of the shares Secured and Pledged as is reasonably appropriate to raise funds necessary to satisfy Borrower's obligations hereunder. It is expressly understood that to the extent that Borrower is unable to satisfy this note, Lender's recourse is against the stock pledged under the Stock Security and Pledge Agreement and that there shall be no deficiency obligation of Borrower. All payments shall be payable in lawful currency of the Unites States of America. By: ----------------------------- Elliott Broidy, Borrower EX-10.18 25 EXHIBIT 10.18 Exhibit 10.18 SECURITY AND STOCK PLEDGE AGREEMENT This Security and Stock Pledge Agreement effective as of November 1, 1998 by and between Elliott Broidy ("Borrower") and TomaHawk II Inc. ("Lender"). In consideration of the mutual terms, conditions and covenants herein under set forth, Borrower and Lender agree as follows: (1) In exchange of consideration stated in a Promissory Note for the sum of Eighty Nine Thousand Five Hundred and Eighty Six Dollars ($89,586) which was consolidated in a Consolidated Promissory Note, Borrower agrees to provide as security shares of stock of the Tomahawk Corporation, which are evidenced and represented by the following Stock Certificate, amount of shares and amount secured. (a) Certificate C00884, No. of Shares 1,360,100 Amount $89,586.00 (2) As security for the loan, evidenced in the accompanying Consolidated Promissory Note, Borrower hereby pledges, assigns, transfers and grants to Lender a security interest in the number of shares as listed in the preceding paragraph. (3) In furtherance of the pledge, assignment, transfer and grant of the security interest, Borrower shall, and has, delivered to Lender the number of shares as listed in paragraph (1) of this agreement as evidenced and represented by Stock Certificate No. C00884. (4) Borrower shall not pledge, borrow against, collaterize against, hypothecate, assign, transfer, sell or in any other manner diminish or impair the value of the stock pledged or the security interest without the express written authorization of the Lender. (5) During the term of this agreement, which shall run contemporaneously with the accompanying promissory note, the Borrower shall own the pledged shares. The pledged stock shall be held in trust by Lender for Borrower in a safe place and Lender shall not alienate, transfer, assign, hypothecate, sell, pledge, or in any other manner dispose of, or impair the value of the pledged stock until such time as the Borrower is in default of the accompanying SECURITY AND STOCK PLEDGE AGREEMENT PAGE 2 (ELLIOTT BROIDY) Consolidated Promissory Note. Lender shall return the security pledged in this agreement to Borrower upon the compliance within the terms contained in the accompanying Consolidated Promissory Note. Upon default and after exhausting efforts to sell the stock as referenced in paragraph 6 of this agreement, the Lender and/or Borrower, depending upon which party is in possession, shall return any unsold shares to the Tomahawk Corporation. (6) If in default under the terms of this agreement or the accompanying Consolidated Promissory note is not paid when due, Lender shall be deemed the owner of the stock described above and Borrower hereby consents to the transfer to the stock to Lender without further notice The foregoing notwithstanding, at any time Borrower seeks to sell the stock pledged under this agreement, the parties agree to cooperate reasonably and in good faith to arrange a sale of that portion of the shares of stock pledged under this agreement as is reasonably appropriate to raise funds necessary to satisfy Borrower's obligation. Borrower agrees that all proceeds from the sale of pledged stock shall first be applied to satisfy Borrowers obligation under the Consolidated Promissory Note. It is expressly understood that to the extent that the stock secured and pledged by this agreement upon sale does not satisfy the debt, the Borrower is not liable for any deficiency. To the extent that any balance of the shares remains after satisfaction of the debt, such shares shall be returned to Borrower. (7) Borrower shall have the right to exercise all voting rights to the stock Pledged. (8) The parties may amend or modify this agreement in writing. INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Security and Pledge Agreement to be executed as of the date first above written. - --------------------------- ------------------------ ELLIOTT BROIDY, Borrower TOMAHAWK II, INC. Lender BY: EX-10.19 26 EXHIBIT 10.19 Exhibit 10.19 CONSOLIDATED PROMISSORY NOTE--FIXED PAYMENT NON-INTEREST BEARING $60,775 NON-INTEREST BEARING This note, effective as of November 1, 1998, memorializes the terms of an agreement between Doug Loughran hereinafter "Borrower" and TomaHawk II, Inc. hereinafter "Lender". For value received, in the amount of Sixty Thousand Seven Hundred and Seventy Five Dollars and no cents ($60,775), which the undersigned Borrower acknowledges receipt of, Borrower promises to pay to TomaHawk II, Inc. an Illinois Corporation the sum of ($60,775); which is due and payable without interest on November 1, 2004. This note consolidates and replaces a note previously entered into by Borrower and Lender for the sum of $60,775, which is secured by Tomahawk Corporation stock certificate C01095 for 425,000 shares. A waiver of payment or noncompliance with the due date shall not be construed as a waiver of a subsequent nonpayment or subsequent non-compliance with the terms of this note. Notwithstanding the due date of November 1, 2004, Borrower agrees to an acceleration of payments, with all sums due and payable one hundred and twenty days (120) days following termination of Borrower's Membership on Lender's Board of Directors. Borrower shall also enter into a Stock Pledge and Security Agreement contemporaneously with the execution of this note. The foregoing notwithstanding, the parties agree to cooperate reasonably and in good faith to arrange a sale of that portion of the shares Secured and Pledged as is reasonably appropriate to raise funds necessary to satisfy Borrower's obligations hereunder. It is expressly understood that to the extent that Borrower is unable to satisfy this note, Lender's recourse is against the stock pledged under the Stock Security and Pledge Agreement and that there shall be no deficiency obligation of Borrower. All payments shall be payable in lawful currency of the Unites States of America. By:________________________ Doug Loughran, Borrower EX-10.20 27 EXHIBIT 10.20 Exhibit 10.20 SECURITY AND STOCK PLEDGE AGREEMENT This Security and Stock Pledge Agreement effective as of November 1, 1998 by and between Doug Loughran ("Borrower") and TomaHawk II Inc. ("Lender"). In consideration of the mutual terms, conditions and covenants herein under set forth, Borrower and Lender agree as follows: (1) In exchange of consideration stated in a Promissory Note for the sum of Sixty Thousand Seven Hundred and Seventy Five Dollars ($60,775) which was consolidated in a Consolidated Promissory Note, Borrower agrees to provide as security shares of stock of the Tomahawk Corporation, which are evidenced and represented by the following Stock Certificate, amount of shares and amount secured. (a) Certificate C01095, No. of Shares 425,000 Amount $60,775.00 (2) As security for the loan, evidenced in the accompanying Consolidated Promissory Note, Borrower hereby pledges, assigns, transfers and grants to Lender a security interest in the number of shares as listed in the preceding paragraph. (3) In furtherance of the pledge, assignment, transfer and grant of the security interest, Borrower shall, and has, delivered to Lender the number of shares as listed in paragraph (1) of this agreement as evidenced and represented by Stock Certificate No. C01095. (4) Borrower shall not pledge, borrow against, collaterize against, hypothecate, assign, transfer, sell or in any other manner diminish or impair the value of the stock pledged or the security interest without the express written authorization of the Lender. (5) During the term of this agreement, which shall run contemporaneously with the accompanying Consolidated Promissory Note, the Borrower shall own the pledged shares. The pledged stock shall be held in trust by Lender for Borrower in a safe place and Lender shall not alienate, transfer, assign, hypothecate, sell, pledge, or in any other manner dispose of, or impair the value of the pledged stock until such time as the Borrower is in default of the SECURITY AND STOCK PLEDGE AGREEMENT PAGE 2 (DOUG LOUGHRAN) accompanying Consolidated Promissory Note. Lender shall return the security pledged in this agreement to Borrower upon the compliance within the terms contained in the accompanying Consolidated Promissory Note. Upon default and after exhausting efforts to sell the stock as referenced in paragraph 6 of this agreement, the Lender and/or Borrower, depending upon which party is in possession, shall return any unsold shares to the Tomahawk Corporation. (6) If in default under the terms of this agreement or the accompanying Consolidated Promissory Note is not paid when due, Lender shall be deemed the owner of the stock described above and Borrower hereby consents to the transfer to the stock to Lender without further notice The foregoing notwithstanding, at any time Borrower seeks to sell the stock pledged under this agreement, the parties agree to cooperate reasonably and in good faith to arrange a sale of that portion of the shares of stock pledged under this agreement as is reasonably appropriate to raise funds necessary to satisfy Borrower's obligation. Borrower agrees that all proceeds from the sale of pledged stock shall first be applied to satisfy Borrowers obligation under the Consolidated Promissory Note. It is expressly understood that to the extent that the stock secured and pledged by this agreement upon sale does not satisfy the debt, the Borrower is not liable for any deficiency. To the extent that any balance of the shares remains after satisfaction of the debt, such shares shall be returned to Borrower. (7) Borrower shall have the right to exercise all voting rights to the stock Pledged. (8) The parties may amend or modify this agreement in writing. INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Security and Pledge Agreement to be executed as of the date first above written. - --------------------------- ----------------------- DOUG LOUGHRAN, Borrower TOMAHAWK II, INC. Lender BY: EX-10.21 28 EXHIBIT 10.21 Exhibit 10.21 SUBORDINATION AGREEMENT WHEREAS, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, having its principal place of business at ___________ ("BOA") holds a lien on and security interest in, among other things, all whether now owned or hereafter acquired equipment of TOMAHAWK II, INC., having its principal place of business at 8315 Century Park, Court #200, San Diego, California 92123 ("Borrower"), which lien and security interest secures obligations of Borrower to BOA arising under certain loan and security documents with BOA; WHEREAS, Borrower has requested that FINOVA Capital Corporation, having a place of business at 115 West Century Road, Paramus, New Jersey 07652 ("FINOVA") provide financing (the "FINOVA Lease Transaction") to Borrower pursuant to a certain Lease Agreement; WHEREAS, in order to secure the due payment and performance of all now existing or hereafter arising indebtedness, liabilities and obligations of Borrower to FINOVA (the "FINOVA Obligations"), Borrower will enter into that certain Lease Agreement with FINOVA and FINOVA will provide the financing for the equipment described on the Schedule A annexed hereto (the "FINOVA Equipment"); and WHEREAS, FINOVA is unwilling to enter into the FINOVA Lease Transaction with Borrower unless, among other things, BOA enters into this Agreement with FINOVA; NOW THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, it is hereby agreed that: 1. BOA hereby consents to the FINOVA Lease Transaction and to the exercise of FINOVA's rights under the agreements, instruments and documents executed in connection therewith. 2. Notwithstanding the provisions of applicable law with respect to the priority of security interests and irrespective of the order of filing or perfection, BOA hereby subordinates, to the fullest extent possible, all of the liens, security interests and other interests held by BOA in and to the FINOVA Equipment, to the interest of FINOVA (the "FINOVA Interest") in and to the FINOVA Equipment, which FINOVA Interest shall be senior and superior to those held by BOA in and to the FINOVA Equipment. 3. Any proceeds of the FINOVA Equipment which may inadvertently be paid to or received by BOA shall be held in trust by BOA for the benefit of FINOVA and shall be promptly paid and delivered by BOA to FINOVA in the same form received. 4. All notices and correspondence between the parties herein shall be addressed to the parties at their respective addresses set forth above, if to BOA, to the attention of _________________________, and if to FINOVA, to the attention of Pamela Marchant, Vice President. 5. The respective rights of the parties hereunder shall in no way be altered or affected by virtue of any action being taken by or against Borrower under any state or federal bankruptcy or insolvency law. 6. This Agreement is intended solely to establish the respective rights as between FINOVA and BOA; shall not in any way affect or impair the validity or enforceability of their respective security interests as against any other person or entity; and no such other person or entity (whether a trustee in bankruptcy or otherwise) shall have any rights or benefits hereunder. 7. BOA acknowledges that Borrower is not in default or breach of any provision contained in any agreement and the consummation and execution of the FINOVA Lease Transaction will not be a breach or default under any such agreement. 8. THIS AGREEMENT SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF THE PARTIES HERETO AND SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA. IN WITNESS WHEREOF, this Agreement has been executed on this _____ day of ___________, 1999. FINOVA CAPITAL CORPORATION By: ------------------------------------------ Title: --------------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: ------------------------------------------ Title: --------------------------------------- AGREED TO: TOMAHAWK II, INC. By: /s/ Michael H. Lorber ------------------------ Title: VP - Finance & CFO --------------------- -2- Schedule "A" to Master Lease Schedule No. C0856002 to Equipment Lease No. C0856001 between Tomahawk II, Inc. as Lessee and FINOVA Capital Corporation as Lessor.
QTY DESCRIPTION 1 DEA Gamma 1204 CNC CMM Measuring Range: 80" x40" x27" Accuracy: .0008 (Volumetric - Over entire envelope) Repeatability: +/- .0002" Virtual-Dimis Measuring Software: Direct Joystick Measurement Self Teach Part Programming CNC Part Program Execution Graphical On & Off-Line Part Program Creation 3D Direct CAD Link Solid Model Graphical Representation Multi-Tasking Capabilities Comprehensive Multi-Media Help Software Algorithms Approved to EUR 13417 Test Report Networking Capabilities New Computer Hardware Specifications: IMS 450 Mhz Pentium II w/MMX Processor 128 MB SDRAM 4.0 GB Hard Drive 32 X Max Variable CD-ROM Drive 3.5" Diskette Drive 4 MB PCI Graphics Accelerator 16-Bit Stereo Sound System Universal Serial Bus Connections 56K External Modem Network Card Microsoft Windows '98 Pre-Installed 17" Color Monitor HP 722C Ink Jet Printer Measuring Software Upgrade System: M9 Based Electronic System, 32-Bit Transputer-Based Continuous Motion Serve Control Card Assembled into the PC Portable Joystick Teach Box Unit w/ Interface System Desk for Computer & Peripherals On-Line System Diagnostic Software Probing System: Renishaw Motorized PH-9 Probe Head Renishaw TP-2 Touch Probe Renishaw Probe Kit Surface Module Included Miscellaneous Accessories: Wilkerson Air Dryer Norgren H20 & Particle Seperators Reference Sphere Clamping Kit Training Applications Support & Software Maintenance: Virtual-Dimis Training Course, 4 Days for 2 Persons in Brea, CA Six Months Software Up-Dates at No Charge Installation & Standard Calibration Included
EX-10.22 29 EXHIBIT 10.22 Exhibit 10.22 SUBLEASE THIS SUBLEASE (this "Sublease") is made this 4th day of March, 1997 by and between MEDAPHIS PHYSICIAN SERVICES CORPORATION, a Delaware corporation ("Sublandlord") and TomaHawk II, Inc. an Illinois corporation and TomaHawk Corporation, incorporated in Alberta, Canada ("Subtenant"): WITNESSETH: 1. RECITALS. This Sublease is made with reference to the following facts: 1 Century Park I Joint Venture ("Master Landlord") and Medaphis Physician Services Corporation, as tenant, entered into a written lease dated May 5, 1995, a copy of which is attached hereto as EXHIBIT A ("Master Lease") covering the Premises (the "Master Premises") described in Article 3 of the Master Lease. 2 The Master Lease was amended on July, 1995. Such amendment(s) are included in the reference to Master Lease. 3 Subtenant desires to sublet a portion of the Master Premises described in Article 3 of the Master Lease from Sublandlord on the terms and conditions contained in this Sublease. 2. BASIC SUBLEASE PROVISIONS. 1 Building or Project Name: Century Park Floors: Second Floor Premises Address: 8315 Century Park Court San Diego, CA 92123 The Sublease Premises (the "Premises") are more fully described on EXHIBIT B annexed hereto. 2 Rentable Area of Premises: approximately 23,622 Square Feet. Usuable Area of Premises: approximately 22,300 Square Feet. 3 Subtenant's Percentage Share: 36.4% of Master Premises Operating Expenses Subtenant's Percentage Share: 28.9% of Total Building Operating Expenses Subtenant's Percentage Share: 11.9% of Total Project Operating Expenses 4 Commencement Date: Subtenant may have access to space March 1, 1997 for the purpose of fixturizing the space but under no circumstances shall they be able to conduct regular business until April 1, 1997 or until the substantial completion of the demising of the space by Sublandlord if later than April 1, 1997. Subtenant will not interfere with Sublandlord contractors. Any inconvenience to Subtenant is not a basis for a breach or default of Sublandlord. 5 Expiration Date: July 31, 2000. 6 Basic Monthly Rent: See Below. At the execution of this lease by Subtenant, Subtenant will pay the initial month's rent equal to $18,897.60 to Sublandlord. If the sublandlord is not substantially finished with the demising of the space by April 1, 1997, then the rent Commencement date will be moved back until the space is turned over to the Subtenant. Sublandlord will give notice to Subtenant when the space is substantially completed and ready for occupancy. If the Premises are not ready within 90 days of the suggested Commencement Date then the Subtenant will have the option to terminate this lease. All rent shall be paid monthly without demand, deduction, set-off or counter claim, in advance of the first day of each calendar month during the term of this Sublease, and in the event of a partial rental month, rent shall be prorated on the basis of a thirty (30) day month. 3/1/97 - 3/3/97 $0.00 4/1/97 - 4/31/97 $18,897.60 5/1/97 - 5/31/97 $0.00 6/1/97 - 3/31/98 $18,897.60 4/1/98 - 3/31/99 $22,440.90 4/1/99 - 7/31/00 $23,622.00
7 Permitted Use: General Office. 8 Sublandlord will pay for all costs to demise the premises and provide necessary fire rated corridors and access for the space to meet code and laws to convert the second floor to facilitate Subtenant's lease of the Premises as described herein, and are those plans, Exhibit B pages 2 and 3, but those items bubbled on Exhibit B shall be constructed by Sublandlord at Subtenant's expense, which such expense pertaining to subtenant's portion of the contract shall be limited to amounts contained in Contractors bid as well as reasonable design and Permitting charges, as mutually agreed upon by Sublandlord, Subtenants and if necessary Landlord. Within Fourteen (14) days of Sublandlords written request and following completion of the items bubbled, Subtenant shall reimburse Sublandlord for the Costs of Construction and reasonable, design and permitting fees. Should Subtenant not pay Sublandlord within Fourteen (14) days, Subtenant shall be in default of the Sublease as described in the Sublease and Master Lease. The Sublandlord will pay to make at Sublandlord's expense the ground floor fire rated and will remodel entry, as shown on Page 3 Exhibit B. 9 Late Charges: The parties agree that late payments by Subtenant to Sublandlord of rent will cause Sublandlord to incur costs not contemplated by this Sublease, the amount of which is extremely difficult to ascertain. Therefore, the parties agree that if any installment of rent is not received by Sublandlord within ten (10) days after rent is due, Subtenant will pay to Sublandlord a sum equal to 10% of the monthly rent as a late charge. 10 Electricity: Electricity will be separately submetered and paid by subtenant from the commencement of the lease. Subtenant will pay to Sublandlord $2,362.20 per month which will be an estimate. At the end of each six (6) months of the sublease term, or as soon thereafter as possible, Sublandlord will provide a reconciliation of the utility costs and either owe a credit for the next month to Subtenant or will invoice Subtenant for the shortage. This paragraph will survive the expiration of the lease. If there is a difference of over 15% between the $0.10 per foot per month and the actual usage, the monthly utility amount paid with the basic rent for the next 6 months shall be adjusted to the actual usage. 11 Options to Extend: Subject to (I) Sublandlord not terminating its lease, (ii) approval of financials, (iii) no major default during the term, and (iv) if necessary, Landlord's consent, subtenant may extend the term of the sublease to be co-terminus with sublandlord's lease and option to terminate per article 40 of the main lease at market rents for the space currently subleased by subtenant or any other premises that may be mutually agreed upon. 12 Rent for Option Period: Fair Market Rate is 100% of the then fair annual market rental rate. 2 13 Option Exercise Deadline: Sublandlord will give Subtenant six (6) months notice if it plans on not exercising its option to Terminate and Subtenant must give Sublandlord written notice of the exercise of the option set forth in Paragraph 2.11 above Four (4) months prior to the date the Sublease would terminate if such option were not exercised ("Option Exercise Deadline"). 14 Acceptance of Premises: Subject to the work to be performed by Sublandlord for Subtenant pursuant to Paragraph 2.8, Subtenant agrees to accept the Premises in an "as is" condition. Without limiting the foregoing, Subtenant's rights in the Premises are subject to all local, state and federal laws, regulations and ordinances governing and regulating the use and occupancy of the Premises and subject to all matters now or hereafter of record. Subtenant acknowledges that neither Sublandlord nor Sublandlord's agent has made any representation or warranty as to: (i) the present or future suitability of the Premises for the conduct of Subtenant's business; (ii) the physical condition of the Premises; (iii) the expenses of operation of the Premises; (iv) the safety of the Premises, whether for the use of Subtenant or any other person, including Subtenant's employees, agents, invitees or customers; or (v) any other matter or thing affecting or related to the Premises. 15 Subtenant acknowledges that no rights, easements or licenses are acquired by Subtenant by implication or otherwise except as expressly set forth herein. Subtenant shall, prior to delivery of possession of the Premises, inspect the Premises and become thoroughly acquainted with their condition, and acknowledges that the taking of possession of the Premises by Subtenant shall be conclusive evidence that the Premises were in good and satisfactory condition at the time such possession was so taken. Subtenant specifically agrees that Sublandlord has no duty to make any disclosures concerning the condition of the Building and the Premises and/or the fitness of the Building and the Premises for Subtenant's intended use and Subtenant expressly waives any duty which Sublandlord might have to make any such disclosures. Subtenant further agrees that, in the event Subtenant subleases all or any portion of the Premises, Subtenant will indemnify and defend Sublandlord (in accordance with Paragraph 9 hereof) for, from and against any matters which arise as a result of Subtenant's failure to disclose any relevant information about the Building or the Premises to any subtenant or assignee. Subtenant shall comply with all laws and regulations relating to the use or occupancy of the Premises and to the common areas including, without limitation, making structural alterations or providing auxiliary aids and services to the Premises as required by the Americans with Disabilities Act of 1990, 42 U.S.C. Section 12101 ET SEQ. (the "ADA"). Sublandlord will let Subtenant know of any problems or major defects relating to the Premises or Building before Subtenant moves into the building. 16 Base Year for Operating Expenses and Taxes: 1997. Any subsequent calendar year increases over the 1997 expenses will be per the lease and payable by Subtenant to Sublandlord per the lease based on Subtenant's pro rata share of the Premises, however Subtenant shall pay no operating expenses in excess of the 1997 base year during the first 12 months of the lease term. 17 Parking: Subtenant shall be entitled to 36% of the 252 parking spaces allotted to Sublandlord in the Master Lease, including their pro rata share of covered and reserved spaces. 3 Signage: Subtenant may have exclusive use of the monument under the terms outlined in the Master Lease. All costs associated with changes to the monument shall be the expense of the Subtenant. Any signage will be subject to Landlord's approval. 18 Address for payment of rent and notices: Sublandlord: Medaphis Physician Services Corporation 2700 Cumberland Parkway Suite 300 Atlanta, GA 30339 ATT: Real Estate Department Subtenant: TomaHawk II 8315 Century Park Court San Diego, CA 92123 19 Security Deposit: Subtenant shall deposit with Sublandlord upon Subtenant's execution hereof Eighteen Thousand Eight Hundred Ninety-seven and 60/100 Dollars ($18,897.60) ("Deposit") as security for Subtenant's faithful performance of Subtenant's obligations hereunder. If Subtenant fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Sublease, Sublandlord may use, apply or retain all or any portion of the Deposit for the payment of any rent or other charge in default or for the payment of any other sum which Sublandlord incurs by reason of Subtenant's default, or to compensate Sublandlord for any loss or damage which Sublandlord may suffer thereby. If Sublandlord uses or applies all or any portion of the Deposit, Subtenant shall within ten (10) days after written demand therefor deposit cash with Sublandlord in an amount sufficient to restore the Deposit to its full amount and Subtenant's failure to do so shall be a material breach of this Sublease. Sublandlord shall not be required to keep the Deposit separate from its general accounts. If Subtenant performs all of Subtenant's obligations hereunder, the Deposit, or so much thereof as has not been used or applied by Sublandlord, shall be returned, to Subtenant (or at Sublandlord's option, to the last assignee, if any, of Subtenant's interest hereunder) at the expiration of the term hereof, and after Subtenant has vacated the Premises. No trust relationship is created herein between Sublandlord and Subtenant with respect to the Deposit. Any deposit under the Master Lease which may be returned by the Master Landlord shall be the property of Sublandlord. 19. Broker: John Burnham & Company and Grubb & Ellis. 3. INCORPORATION BY REFERENCE; ASSUMPTION. All of the Sections of the Master Lease are incorporated into this Sublease as if fully set forth in this Sublease except the following: 1.01, 3.01, 38, and 39. 1 If any provisions of this Sublease conflict with any portion of the Master Lease as incorporated herein, the terms of this Sublease shall govern. 2 Subtenant shall assume and perform to Sublandlord the Tenant's obligations under the Master Lease provisions to the extent that the provisions are applicable to the Premises. Subtenant shall pay to Sublandlord all taxes, utilities, common area charges and any other sums payable by Sublandlord, applicable to subtenant's premises under the Master Lease not later than ten (10) days prior to the date any such amounts are due and payable by Sublandlord as per Paragraph 2.15. 3 Sublandlord does not assume the obligations of the Master Landlord under the Master Lease. 4 4 With respect to work, services, repairs, repainting, restoration, the provision of utilities, elevator or HVAC services, or the performance of other obligations required of Master Landlord under the Master Lease, Sublandlord's sole obligation with respect thereto shall be to request the same, on request in writing by Subtenant, and to use reasonable efforts to obtain the same from Master Landlord. Subtenant shall cooperate with Sublandlord as may be required to obtain from Master Landlord any such work, services, repairs, repainting restoration, the provision of utilities, elevator or HVAC services, or the performance of any of Master Landlord's other obligations under the Master Lease. 4. SUBTENANT'S PERFORMANCE UNDER MASTER LEASE. At any time and on reasonable prior notice to Subtenant, Sublandlord can elect to require Subtenant to perform its obligations under this Sublease directly to Master Landlord, in which event Subtenant shall send to Sublandlord from time to time copies of all notices and other communications it shall send to and receive from Master Landlord. 5. COVENANT OF QUIET ENJOYMENT. Sublandlord represents that the Master Lease is in full force and effect and that there are no defaults on Sublandlord's part under it as of the Commencement Date set forth in Paragraph 2.4 above. Sublandlord represents that if Subtenant performs all the provisions in this Sublease to be performed by Subtenant, Subtenant shall have and enjoy throughout the term of this Sublease the quiet and undisturbed possession of the Premises. Sublandlord shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times with reasonable advance notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Subtenant with this Sublease and the Master Lease and to permit Sublandlord to perform its obligations under this Sublease and the Master Lease. 6. Option to Expand: Should Sublandlord elect to market any additional space at 8315 Century Park Court, they will first advise Subtenant of the availability of the space. Providing Subtenant is not and has not been in major default of the Sublease, and subject to review and approval of subtenant's new financials, an amendment to the original Sublease shall be executed by both parties and be subject to the Landlord's approval. Should subtenant elect to Sublease the space it would be per the same terms as this sublease with any rental payable after the period July 31, 2000, to be consistent with the Base rent negotiated between sublandlord and subtenant as per Paragraph 2.11 of this sublease. Should Subtenant not elect to Sublease the additional space within ten (10) days of written notice, Sublandlord may lease the space to any third party. 7. MASTER LEASE. 1 Subtenant shall not do or permit to be done anything which would constitute a violation or breach of any of the terms, conditions or provisions of the Master Lease or which would cause the Master Lease to be terminated or forfeited by virtue of any risks of termination or forfeiture reserved by or vested in Master Landlord. 2 If the Master Lease terminates, this Sublease shall terminate and the parties shall be relieved from all liabilities and obligations under this Sublease: except that if this Sublease terminates as a result of a default of one of the parties under this Sublease or the Master Lease, the defaulting party shall be liable to the non-defaulting party for all damage suffered by the non-defaulting party as a result of the termination. 3 Intentionally Deleted. 8. HAZARDOUS MATERIALS. For the purposes of this Sublease, the following terms have the following meanings: (a) "Hazardous Materials Laws" means any and all laws, statutes, ordinances or regulations pertaining to health, industrial hygiene or the environment including, without limitation, CERCLA 5 (Comprehensive Environmental Response Compensation and Liability Act of 1980) and RCRA (Resources Conservation and Recovery Act of 1976). (b) "Hazardous Materials" means asbestos or any substance, material or waste which is or becomes designated, classified or regulated as being "toxic" or "hazardous" or a "pollutant" or which is or becomes similarly designated, classified or regulated under any federal, state or local law. At its own expense, Subtenant will procure, maintain in effect and comply with all conditions of any and all permits, licenses and other governmental and regulatory approvals required for Subtenant's use of the Premises, including, without limitation, discharge of appropriately treated materials or wastes into or through any sanitary sewer serving the Premises. Except as discharged into the sanitary sewer in strict accordance and conformity with all applicable Hazardous Materials Laws, Subtenant will cause any and all Hazardous Materials removed from the Premises to be removed and transported solely by duly licensed haulers to duly licensed facilities for final disposal. Subtenant will, in all respects, handle, treat, deal with and manage any and all Hazardous Materials in, on, under or about the Premises in total conformity with all applicable Hazardous Materials Laws and prudent industry practices regarding management of such Hazardous Materials. Upon expiration or earlier termination of the term of this Sublease, Subtenant will cause all Hazardous Materials placed on, under or about the Premises by Subtenant or at Subtenant's direction to be removed and transported for use, storage or disposal in accordance and compliance with all applicable Hazardous Materials Laws. Subtenant will not take any remedial action in response to the presence of any Hazardous Materials in or about the Premises or any building, nor enter into any settlement agreement, consent decree or other compromise in respect to any claims relating to any Hazardous Materials in any way connected with the Premises without first notifying Master Landlord and Sublandlord of Subtenant's intention to do so and affording Master Landlord and Sublandlord ample opportunity to appear, intervene or otherwise appropriately assert and protect Master Landlord's and Sublandlord's interests with respect thereto. To the best of Sublandlord's knowledge there are no Hazardous Materials on the Premises. 9. INDEMNITY. Subtenant will indemnify, defend (by counsel reasonably acceptable to Sublandlord), protect and hold Sublandlord harmless from and against any and all claims, demands, losses, damages, costs and expenses (including attorneys' fees) arising out of or relating to (i) the death of or injury to any person, or damage to any property whatsoever, on or about the Premises; or (ii) Subtenant's breach or default under this Sublease (including, without limitation, Subtenant's breach of Paragraph 7 above) or, to the extent incorporated herein, the Master Lease. 10. ATTORNEYS' FEES. If there is any legal or arbitration action or proceeding between Sublandlord and Subtenant to enforce any provision of this Sublease or to protect or establish any right or remedy of either Sublandlord or Subtenant hereunder, the unsuccessful party to such action or proceeding will pay to the prevailing party all costs and expenses, including reasonable attorneys' fees (including allocated costs of Sublandlord's in-house attorneys) incurred by such prevailing party in such action or proceeding and in any appearance in connection therewith, and if such prevailing party recovers a judgment in any such action, proceeding or appeal, such costs, expenses and attorney's fees will be determined by the court or arbitration panel handling the proceeding and will be included in and as a part of such judgment. 11. NO ENCUMBRANCE. Subtenant shall not voluntarily or by operation of law mortgage or otherwise encumber all or any part of Subtenant's interest in the Sublease or the Premises. 6 12. ASSIGNMENT AND SUBLETTING. 11.1 Subtenant shall not voluntarily or by operation of law assign this Sublease or any interest therein and shall not sublet the Premises or any part thereof, or any right or privilege appurtenant thereto, without first obtaining the written consent of Sublandlord, which consent shall not be unreasonably withheld. Determining whether or not to consent to the proposed assignment or subletting, Sublandlord may consider among other factors: (i) whether the proposed sublessee or assignee has a net worth equal to or greater than Subtenant; (ii) whether the proposed use of the Premises by the proposed sublessee or assignee is consistent with Paragraph 2.7; (iii) the experience and business reputation of the proposed sublessee or assignee; and (iv) whether Sublandlord's consent will result in a breach of any other lease or agreement to which Sublandlord is a party affecting the Property or Premises. 11.2 Any attempted assignment or subletting, without Sublandlord's consent shall be null and void and of no effect. No permitted assignment or subletting of Subtenant's interest in this Sublease, shall relieve Subtenant of its obligations to pay the rent and to perform all the other obligations to be performed by Subtenant hereunder. The acceptance of rent by Sublandlord from any other person shall not be deemed to be a waiver by Sublandlord of any provision of this Sublease or to be a consent to any subletting or assignment. Consent to one sublease or assignment shall not be deemed to constitute consent to any subsequent attempted subletting or assignment. 11.3 Within ten (10) days following the date received by Subtenant from any assignee or sublessee, Subtenant shall pay to Sublandlord as additional rent, one hundred percent (100%) of the amount by which the rent payable by such assignee or sublessee to Subtenant exceeds the rent payable by Subtenant to Sublandlord under this Sublease until the rent paid by Subtenant to Sublandlord equals the amount paid by Sublandlord to Master Landlord under the Master Lease and thereafter, fifty percent (50%) of the amount by which the rent payable by such assignee or sublessee to Subtenant throughout the term exceeds the rent paid by Subtenant to Sublandlord under this Sublease. By way of example, if during a year of the term the annual rent under the Master Lease is $12 per square foot, the rent under the Sublease is $10 per square foot, and the rent under such subsublease is $14 per square foot, of the $14 per square foot paid to Subtenant by its subsublessee, $13 per square foot will be paid by Subtenant to Sublandlord hereunder. If Subtenant receives a lump sum payment in connection with an assignment, such amount shall be allocated between Subtenant and Sublandlord, in the same manner taking into account the total rents payable during the remaining terms of the Master Lease and Sublease. The foregoing is a freely negotiated arrangement between Subtenant and Sublandlord respecting the allocation of appreciated rents. This covenant shall survive the expiration of the term of this Sublease. Notwithstanding the foregoing, Subtenant shall not be obligated to pay Sublandlord any portion of such appreciated rentals until Subtenant has recovered any costs it has reasonably incurred in connection with the subletting of the Premises to any third party broker or for improvements to the Premises. Any such costs to be deducted from appreciated rents shall be submitted to Sublandlord and shall be subject to Sublandlord's reasonable approval. 13. ALTERATIONS. 1 ALTERATIONS AND IMPROVEMENTS BY SUBTENANT. As per the Article 8 of the main lease. 7 2 REMOVAL OF PERSONAL PROPERTY. All articles of personal property, and all business and trade fixtures, machinery and equipment, cabinet work, furniture and movable partitions, if any, owned or installed by Subtenant at its expense in the Premises shall be and remain the property of Subtenant and may be removed by Subtenant at any time, provided that Subtenant, at its expense, shall repair any damage to the Premises caused by such removal or by the original installation. Sublandlord may elect to require Subtenant to remove all or any part of such property at the expiration or sooner termination of this Sublease, in which event such removal shall be done at Subtenant's expense, and Subtenant shall at its own expense repair any damage to the Premises caused by such removal prior to the termination of this Sublease. 14. HOLDING OVER. Subtenant will, at the termination of the Sublease by lapse of time or otherwise, yield up immediately possession of the Premises to Sublandlord. If Subtenant retains possession of the Premises or any part thereof after such termination, or if any of Subtenant's property remains, then such holding over shall constitute a tenancy at sufferage, and the monthly rental (or daily rental) shall, in addition to all other sums which are to be paid by Subtenant hereunder, be equal to two hundred percent (200%) of the rental being paid monthly to Subtenant under this Sublease immediately prior to such termination of this sublease. Subtenant shall also pay to Sublandlord all damages sustained by Sublandlord resulting from retention of possession by Subtenant. 15. LIENS. Subtenant will keep the Premises and the Building free from any liens arising out of any work performed, materials furnished, or obligations incurred by Subtenant. Sublandlord has the right to post and keep posted on the Premises any notices that may be provided by law or which Sublandlord may deem to be proper for the protection of Sublandlord, the Premises and the Building from such liens. 16. MAINTENANCE AND REPAIRS. Subtenant acknowledges that the Premises are in good order and repair. At all times during the term of this Sublease, Subtenant, at its sole cost and expense, will maintain the Premises and every part thereof as per the Master Lease. At the end of the term of this Sublease, Subtenant will surrender the Premises in as good condition as received, normal wear and tear excepted. Subtenant shall be responsible for all repairs required to be performed by the Tenant under the Master Lease. 17. INSURANCE. At all times during the term of this Sublease, Subtenant shall, at its sole expense, procure and maintain the following types of insurance coverage: 1 Comprehensive general liability insurance against any and all damages and liability, including attorneys' fees on account or arising out of injuries to or the death of any person or damage to property, however occasioned, in, on or about the Premises with at least a single combined liability and property damage limit of $2,000,000. 2 Insurance on all plate or tempered glass to the extent required as per the Master Lease. 3 Insurance adequate in amount to cover damage to the Premises including, without limitation, leasehold improvements, trade fixtures, furnishings, equipment, goods and inventory. 4 Rent insurance in an amount equal to all rent payable under this Lease for a period of at least twelve (12) months commencing with the date of loss. 5 Employer's liability insurance and worker's compensation insurance as required by applicable law. 6 All such insurance shall be in a form satisfactory to Sublandlord and carried with companies admitted to do business in the state of California. Subtenant shall provide Sublandlord with a certificate of insurance showing Sublandlord as additional insured. The certificate shall provide for a thirty-day written notice to Sublandlord in the event of cancellation or material change of coverage. 8 7 Sublandlord and Subtenant shall each obtain from their respective insurers under all policies of fire, theft, public liability, workers' compensation and other insurance maintained by either of them at any time during the term hereof insuring or covering the Premises, a waiver of all rights of subrogation which the insurer of one party might otherwise have, if at all, against the other party. 18. EVENTS OF DEFAULT. If one or more of the following events ("Event of Default") occurs, such occurrence constitutes a breach of this Sublease by Subtenant: 1 Subtenant fails to pay any monthly Basic Monthly Rent or Operating Expenses and Taxes, if applicable, as and when the same become due and payable, and such failure continues for more than five (5) days after Sublandlord gives written notice thereof to Subtenant; or 2 Subtenant fails to pay any other sum or charge payable by Subtenant hereunder as and when the same becomes due and payable, and such failure continues for more than ten (10) days after Sublandlord gives written notice thereof to Subtenant; or 3 Subtenant fails to perform or observe any other agreement, covenant, condition or provision of this Sublease to be performed or observed by Subtenant as and when performance or observance is due, and such failure continues for more than thirty (30) days after Sublandlord gives written notice thereof to Subtenant, or if the default cannot be cured within said thirty (30) day period and Subtenant fails within said period to commence with due diligence and dispatch the curing of such default or, having so commenced, thereafter fails to prosecute or complete with due diligence and dispatch the curing of such default; or 4 Subtenant (a) files or consents by answer or otherwise to the filing against it of a petition for relief or reorganization or arrangement or any other petition in bankruptcy or liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction; (b) makes an assignment for the benefit of its creditors; (c) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers of itself or of any substantial part of its property; or (d) takes action for the purpose of any of the foregoing; or 5 A court or governmental authority of competent jurisdiction, without consent by Subtenant, enters an order appointing a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial power of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding up or liquidation of Subtenant, or if any such petition is filed against Subtenant and such petition is not dismissed within ninety (90) days; or 6 This Sublease or any estate of Subtenant hereunder is levied upon under any attachment or execution and such attachment or execution is not vacated within ninety (90) days. 19. REMEDIES OF SUBLANDLORD ON DEFAULT. 1 In the event of any breach of this Sublease by Subtenant, Sublandlord may, at its option, terminate the Sublease and recover from Subtenant (a) the worth at the time of award of the unpaid rent which was earned at the time of termination; (b) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of the award exceeds the amount of such rental loss that the Subtenant proves could have been reasonably avoided; (c) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Subtenant proves could be reasonably avoided; and (d) any other amount necessary to compensate Sublandlord for all detriment proximately caused by Subtenant's failure to perform this obligations under the Lease or which in the ordinary course of things would be likely to result therefrom. 9 2 Sublandlord may, in the alternative, continue this Sublease in effect, as long as Sublandlord does not terminate Subtenant's right to possession, and Sublandlord may enforce all his rights and remedies under the Sublease, including the right to recover the rent as it becomes due under the Sublease. If said breach of the Sublease continues, Sublandlord may, at any time thereafter, elect to terminate the Sublease. Nothing contained herein shall be deemed to limit any other rights or remedies which Sublandlord may have. 20. ESTOPPEL CERTIFICATES. 1 Subtenant shall at any time upon not less than ten (10) days' prior written notice from Sublandlord execute, acknowledge and deliver to Sublandlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Sublease, as so modified, is in full force and effect), the amount of any security deposit, and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Subtenant's knowledge, any uncured defaults on the part of Sublandlord hereunder, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer to the Premises. 2 At Sublandlord's option, Subtenant's failure to deliver such statement within such time shall be conclusive upon Subtenant (i) that this Sublease is in full force and effect, without modification except as may be represented by Sublandlord, (ii) that there are no uncured defaults in Sublandlord's performance, and (iii) that not more than one month's rent has been paid in advance, or such failure may be considered by Sublandlord as a material default by Subtenant under this Sublease. 3 If the Master Landlord desires to finance, refinance, or sell the Premises, or any part thereof, Subtenant hereby agrees to deliver to any lender or purchaser designated by Master Landlord such financial statements of Subtenant as may be reasonably required by such lender or purchaser. Such statements shall include the past three years' financial statements of Subtenant. 21. REAL ESTATE BROKERS. Each party warrants to the other that there are no brokerage commissions or fees payable in connection with this Sublease except to the broker set forth in Paragraph 2.19. Each party further agrees to indemnify and hold the other party harmless, from any cost, liability and expense (including attorney's fees) which the other party may incur as the result of any breach of this Paragraph 21. 22. MASTER LANDLORD DEFAULT; CONSENTS The provisions of this Paragraph 22 shall apply to the resolution of disputes between Sublandlord and Subtenant unless the Master Landlord is or may become a party to the dispute, in which event the provisions of this Paragraph 22 shall apply only if the Master Landlord agrees to settle the dispute pursuant to the terms hereof. Notwithstanding any provision of this Sublease to the contrary, (a) Sublandlord shall not be liable or responsible in any way for any loss, damage, cost, expense, obligation or liability suffered by Subtenant by reason or as the result of any breach, default or failure to perform by the Master Landlord under the Master Lease, and (b) whenever the consent or approval of Sublandlord and Master Landlord is required for a particular act, event or transaction (i) any such consent or approval by Sublandlord shall be subject to the consent or approval of Master Landlord, and (ii) should Master Landlord refuse to grant such consent or approval, under all circumstances, Sublandlord shall be released from any obligation to grant its consent or approval. 23. NOTICES. All notices given under this Sublease must be in writing and shall be effectively served upon delivery, or if mailed, upon the first to occur of receipt or the expiration of forty-eight hours after deposit in certified United States mail, postage prepaid, sent to the party at its address set forth in Paragraph 2.17. Those addresses may be changed by either party by notice to the other party. 10 24. MASTER LANDLORD'S CONSENT. This Sublease is expressly conditioned upon receipt of the written consent of Master Landlord. IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Sublease as of the day and year first above written. SUBLANDLORD: MEDAPHIS PHYSICIAN SERVICES CORPORATION /s/ Jon Anderson ---------------------------------- By: Jon Anderson ------------------------------ Title: Vice President --------------------------- SUBTENANT: TOMAHAWK II, INC. AN ILLINOIS CORPORATION /s/ Steven M. Caira ---------------------------------- Steven M. Caira President TOMAHAWK CORPORATION, INCORPORATED IN ALBERTA, CANADA /s/ Steven M. Caira ---------------------------------- Steven M. Caira President 11 Exhibit A CONSENT TO SUBLETTING CENTURY PARK I JOINT VENTURE, a Delaware joint venture, having an office at 411 West Putnam Avenue, Greenwich, Connecticut 06830 ("LANDLORD"), hereby consents to subletting (the "SUBLETTING"), by MEDAPHIS PHYSICIAN SERVICES CORPORATION, a Georgia corporation, having an office at 2700 Cumberland Parkway, Suite 100, Atlanta, Georgia 30339 ("TENANT"), to TOMAHAWK II, INC., an Illinois corporation and TOMAHAWK CORPORATION, incorporated in Alberta, Canada, each having its principal office at 8315 CENTURY PARK COURT, #200, SAN DIEGO * (collectively, "SUBTENANT"), pursuant to a sublease, dated March 4, 1997, (the "SUBLEASE"), of certain space (hereinafter referred to as "SUBLET SPACE"), being a portion of the 2nd floor of the building ("BUILDING") known as Building 2 and located at 8315 Century Park Court, San Diego, California 92123, which Sublet Space is a portion of the premises (the "PREMISES") now leased and demised by Landlord to Tenant by a lease, dated as of May 5, 1995, as amended by an amendment, dated July, 1995 (which lease, as the same has been and may hereafter be modified and amended, is hereinafter called the "LEASE"). The consent contained herein is subject to and upon the following terms and conditions, to each of which Tenant and Subtenant expressly agree: * California, 92123 1. SUBLEASE SUBORDINATE TO LEASE, ETC. (a) The Sublease shall be subject and subordinate at all times to the Lease and to all of the provisions, covenants, agreements, terms and conditions (collectively, "PROVISIONS") of the Lease (including, without limitation, the Rules and Regulations which are a part thereof) and this Consent, and Subtenant shall not do or permit anything to be done in connection with Subtenant's occupancy of the Sublet Space which would violate any of said provisions. Any breach or violation of any provision of the Lease by Subtenant (whether by act or omission) beyond any applicable grace or cure period as provided in the Lease shall be deemed to be and shall constitute a default by Tenant in fulfilling such provision and, in such event, Landlord shall have all of the rights, powers and remedies provided in the Lease or at law or in equity or by statute or otherwise with respect to defaults. (b) Nothing herein contained shall be construed to (i) modify, waive, impair or affect any of the provisions contained in the Lease (except as may be expressly provided herein), (ii) waive any present or future breach of, or default under, the Lease or any rights of Landlord against any person, firm, association or corporation liable or responsible for the performance thereof or (iii) enlarge or increase Landlord's obligations or Tenant's rights under the Lease or otherwise; and all provisions of the Lease are hereby declared by Tenant to be in full force and effect. (c) Nothing herein contained shall be construed as a consent to or approval or ratification by Landlord of any of the particular provisions of the Sublease (except as may be herein expressly provided) or as a representation or warranty by Landlord. Landlord has not, and will not, review or pass upon any of the provisions of the Sublease and shall not be bound or estopped in any way by the provisions of the Sublease. (d) Tenant shall be and remain liable and responsible for the due keeping, and full performance and observance, of all of the provisions of the Lease on the part of Tenant to be kept, performed and observed, including, without limitation, the payment of Fixed Rent and Additional Rent (as such terms are defined in the Lease). (e) In the event of any default by Tenant or Subtenant in the full performance and observance of any of their respective obligations hereunder beyond any applicable grace or cure period as provided in the Lease or in the event any representation of Tenant or Subtenant contained herein should prove to be untrue, such event may, at Landlord's option, be deemed to be a default under the Lease, and Landlord shall have all of the rights, powers and remedies provided for in the Lease or at law or in equity or by statute or otherwise with respect to defaults. (f) In case of any conflict between the provisions of (i) the Lease and the Sublease, then the provisions of the Lease shall prevail, and (ii) this Consent and the Lease, then the provisions of this Consent shall prevail. 2. NO ASSIGNMENT Neither this Consent nor any right created hereunder may be assigned by Tenant or Subtenant. 3. NO FURTHER SUBLET, ETC. This Consent is not, and shall not be construed as, a consent by Landlord to, or as permitting, any other or further subletting by either Tenant or Subtenant. Notwithstanding anything to the contrary contained in the Lease or the Sublease, without the prior written consent of Landlord in each instance: (a) the Sublease shall not be assigned, extended or renewed (provided, however, that the Sublease may be renewed as expressly provided for in the Sublease so long as (i) such renewal term does not extend beyond the term of the Lease, (ii) no default by Tenant under the Lease or by Tenant or Subtenant under this Consent beyond any applicable notice and cure period shall have occurred and be continuing and (iii) thirty (30) days' prior written notice of such renewal shall have been given to Landlord) 2 and (b) neither the Sublet Space nor any part thereof shall be further sublet by Subtenant. Notwithstanding the foregoing, so long as there is no default beyond any applicable notice and cure period under the Lease or this Consent, Subtenant shall be permitted to have one or more individuals occupy portions of the Sublet Space not to exceed 500 square feet in the aggregate if such individuals are performing work related to the business of Subtenant in the Sublet Space; provided, however, that (i) Landlord is given 10 days' prior written notice of the name and amount of space to be occupied by each such individual and (ii) such further information with respect to such occupant or occupancy as Landlord shall reasonably request is delivered to Landlord within 3 days after request therefor. 4. USE. The Sublet Space and each part thereof shall be used by Subtenant solely for general office purposes and for no other purpose. Neither Tenant nor Subtenant shall use or permit the use of the Sublet Space or any part thereof (a) in any way which would violate any of the provisions of the Lease, (b) for any unlawful purpose or (c) in any unlawful manner. 5. TERMINATION OF LEASE, PRIME SUBLEASE. (a) If, during the term of the Sublease, the term of the Lease shall expire or the Lease shall sooner terminate, or Tenant shall surrender the Lease to Landlord, on the tenth (10th) day (the "ATTORNMENT DAY") after receipt of written notice given to Subtenant of such expiration, termination or surrender, and without any additional or further agreement of any kind on the part of Subtenant, subtenant shall attorn to Landlord on the terms and conditions of the Lease and on such Attornment Day, the Sublease shall be deemed to be terminated; provided that (i) Subtenant shall have delivered to Landlord any security deposit which is required by the terms of the Lease and a sum equal to the then Fixed Rent and Additional Rent under the Lease for the month in which the Attornment Day occurs (prorated on a per diem basis if the Attornment Day is not the first day of a calendar month) plus the next succeeding months' Fixed Rent and Additional Rent under the Lease and (ii) Subtenant shall have reimbursed Landlord for any costs that may be incurred by Landlord in connection with such attornment, including, without limitation, reasonable legal costs in connection with such attornment. Subtenant, upon demand of Landlord, shall execute and deliver such instrument or instruments as Landlord may reasonably request to evidence and confirm the foregoing provisions of this Paragraph 5(a). (b) In the event that (i) Subtenant does not elect to attorn to Landlord pursuant to Paragraph 5(a) above, Subtenant shall give written notice (the "NOTICE") thereof to Landlord, before the expiration of the ten (10) day period (the "NOTICE 3 PERIOD") referred to in Paragraph 5(a) hereof, or (ii) Subtenant does not make the payments to Landlord required by Paragraph 5(a) above, then, in either such case, on or before the ninetieth (90th) day after the expiration of the Notice Period, Subtenant shall vacate the Sublet Space. In case of the failure of Subtenant to so vacate the Sublet Space, Landlord shall be entitled to all of the rights and remedies which are available to a Landlord against a tenant holding over after the expiration of a term and to such other rights and remedies as may be provided for in the Lease, at law or in equity, and Tenant and Subtenant, from and after the ninetieth (90th) day after the expiration of the Notice Period, at Landlord's option, shall be deemed to be occupying the Sublet Space as tenants from month to month, at a monthly rental equal to the greater of (i) three times the Fixed Rent and Additional Rent payable under the Lease with respect to the Sublet Space for the calendar month immediately preceding the expiration, termination or surrender of the Lease and (ii) three times the rent (including all additional rent) payable under the Sublease with respect to the Sublet Space for the calendar month immediately preceding the expiration, termination or surrender of the Lease. If the Sublet Space is less than the Premises the Fixed Rent and Additional Rent shall be adjusted on a square foot basis to determine the amount payable under clause (i) above. (c) Notwithstanding anything to the contrary contained in this Paragraph (5) if Subtenant shall be in default under this Consent beyond any applicable notice and cure period, the 10-day notice to be given by Landlord pursuant to Paragraph 5(a) hereof may, at Landlord's option, demand that Subtenant vacate the Sublet Space. In that event, Subtenant shall vacate the Sublet Space on or before the ninetieth (90th) day after the Notice Period and the provisions of Paragraph 5(b) above shall apply. 6. NO ALTERATIONS, ETC. No alterations, additions (electrical or otherwise), or physical changes shall be made in the Sublet Space, or any part thereof, without Landlord's prior written consent in each instance except as may otherwise be provided in the Lease. Landlord consents to the alterations delineated in the TomaHawk II, Century Office Park Plans, Final Approved Floor Plan, date stamped 3/10/97 prepared by Facilities Solutions, subject to all other applicable provisions of the Lease with respect to the performance of such alterations. 7. NO AMENDMENT. Notwithstanding anything to the contrary contained in the Lease or the Sublease, Tenant and Subtenant shall not, without the prior written consent of Landlord in each instance, execute any amendment to or modification or extension of the Sublease, and any amendment or modification or extension entered into without such consent shall be void and of no force or effect; 4 provided, however, that the Sublease term may be renewed as provided in Paragraph 3 hereof in compliance with Paragraph 3 hereof. 8. REPRESENTATION OF PRIME SUBTENANT AND SUBTENANT. Tenant and Subtenant jointly and severally represent to and agree with Landlord that: (a) the term of the Sublease, including any extension or renewal thereof, will expire not later than the date set for the expiration of the term of the Lease; (b) Subtenant is financially responsible, of good reputation and engaged in a business which is in keeping with the standards of Landlord in those respects for the Building and its occupancy and (c) other than those payments provided for in the Sublease, Subtenant has not made, nor is it obligated to make, any payments to Tenant in connection with the Sublease. 9. INDEMNITY. Tenant and Subtenant warrant and represent to Landlord that they have dealt with no broker or finder in connection with the Sublease other than John Burnham & Company and Grubb & Ellis (collectively, the "BROKER"). Tenant hereby indemnifies Landlord against, and agrees to hold Landlord harmless from, any and all liability resulting from any claims that may be made against Landlord by Subtenant or any brokers (including the Broker) or other persons claiming a commission or similar compensation in connection with the Sublease. 10. COLLATERAL ASSIGNMENT OF RENTS BY TENANT. (a) Subject to the license granted in this Paragraph, Tenant hereby unconditionally and irrevocably grants, transfers, assigns and sets over to Landlord all of Tenant's interest in the rents, issues and profits of the Sublease (collectively, the "RENTS") together with full power and authority, in the name of Tenant, or otherwise, to demand, receive, enforce, collect or receipt for any or all of the foregoing, to endorse or execute any checks or other instruments or orders, to file to take any claims and to take any other action which Landlord may deem necessary or advisable in connection therewith; provided, that no exercise of such rights by Landlord shall release Tenant or Subtenant from any of its obligations under the Lease, the Sublease or this Consent. The parties intend that the assignment described in this Paragraph 10 shall be a present, actual, absolute and unconditional assignment; provided, however, that so long as no default by Tenant beyond the expiration of any applicable grace or cure period shall have occurred and be continuing under the Lease, Tenant shall have a license to collect the Rents, but neither prior to accrual nor more than one month in advance (except for security deposits and escalations provided for in the Sublease). Upon the occurrence of any default by Tenant beyond the expiration of any applicable grace 5 and cure period under the terms and conditions of the Lease, this Consent shall constitute a direction to and full authority to Subtenant to pay all Rents to Landlord without proof to the Subtenant of the default relied upon. Tenant hereby irrevocably authorizes Subtenant to rely upon and comply with any notice or demand by Landlord for the payment to Landlord of any Rents due or to become due. Landlord will simultaneously give a copy of such notice and demand to Tenant and Subtenant. Landlord shall be accountable only for the Rents actually collected hereunder and not for the rental value of the Sublet Space. (b) Neither this Consent nor the assignment described in this Paragraph 10 nor any action or inaction on the part of Landlord shall constitute an assumption on the part of Landlord of any duty or obligation under the Lease or the Sublease, nor shall Landlord have any duty or obligation to make any payment to be made by Tenant or Subtenant under the Lease or the Sublease, or to present or file any claim, or to take any other action to collect or enforce the payment of any amounts which have been assigned to Landlord or to which it may be entitled hereunder at any time or times. The collection and application of the Rents or other charges, or any other action taken by Landlord in connection therewith, shall not (i) cure or waive any default under the Lease, the Sublease or this Consent, (ii) waive or modify any notice thereof theretofore given by Landlord, (iii) subject to Landlord's option to require Subtenant to attorn to Landlord as provided in the Lease and in Paragraph 5(a) hereof, create any direct tenancy between Landlord and Subtenant or (iv) otherwise limit in any way the rights of Landlord hereunder or under the Lease. (c) Tenant, at its expense, will execute and deliver all such instruments and take all such action as Landlord, from time to time, may reasonably request in order to obtain the full benefits of the assignment provided for in this Paragraph 10. (d) Rents collected by Landlord (less the reasonable cost of collection) under this Paragraph 10 will be applied against Tenant's obligations under the Lease. 11. AGENT FOR SERVICE OF PROCESS. (a) Subtenant acknowledges and agrees that all disputes arising, directly or indirectly, out of or relating to the Lease, the Sublease or this Consent may be dealt with and adjudicated in the state courts of California or the federal courts sitting in California, and Subtenant hereby expressly and irrevocably submits the person of Subtenant to the jurisdiction of such courts in any suit, action or proceeding arising, directly or indirectly, out of or relating to the Lease, the Sublease or this Consent. So far as is permitted under the applicable law, this Consent to personal jurisdiction shall be self-operative and no further instrument or action, other than service of process in 6 one of the manners specified in this Consent, or as otherwise permitted by law, shall be necessary in order to confer jurisdiction upon the person of Subtenant in any such court. (b) Subtenant hereby irrevocably designates and appoints Tomahawk II, Inc., an Illinois corporation, having an office at the Sublet Space ("AGENT") as its authorized agent to accept and acknowledge on its behalf service of any and all process which may be served in any suit, action or proceeding of the nature referred to in this Consent. Agent, by executing this Consent irrevocably consents to and accepts its designation and appointment as agent for service of process upon Subtenant. Said designation and appointment shall be irrevocable until one year after the date upon which the term of the Sublease, including any extension thereof, expires. Agent covenants and agrees that it shall not cease so to act unless and until Subtenant shall have irrevocably designated and appointed another such agent or agents reasonably satisfactory to Landlord as agent and Subtenant shall have delivered to Landlord or any of its successors or assigns evidence in writing of such other agent's acceptance of such appointment. Any attempt by Agent to cease to so act as agent shall be ineffective and without force or effect unless the foregoing provisions of this sentence shall be complied with. (c) Subtenant hereby consents to process being served in any suit, action or proceeding of the nature referred to in this Consent by the mailing of a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to Agent at the address for Agent set forth in Paragraph 11(b) of this Consent, with a copy to Subtenant at the address set forth on page 1 of this Consent, or to any other address of which Subtenant shall have given written notice to Landlord. Provided that service is made in accordance with this Paragraph 11 or otherwise as permitted by law, Subtenant irrevocably waives, to the fullest extent permitted by law, all claim of error by reason of any such service and agrees that such service (a) shall be deemed in every respect effective service of process upon Subtenant in any such suit, action or proceeding, whether or not Agent gives notice thereof to Subtenant and (b) shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon and personal delivery to Subtenant. (d) Nothing in this Consent shall affect the right of Landlord to serve process in any manner permitted by law or limit the right of Landlord or any of its successors or assigns, to bring proceedings against Subtenant in the courts of any jurisdiction or jurisdictions. 12. MISCELLANEOUS (a) This Consent is conditioned upon (i) Subtenant's delivering to Landlord, within 10 days he commencement of the term of the Sublease, notice of such commencement and a true, 7 correct and complete copy of the Sublease and (ii) Tenant's payment to Landlord of the reasonable costs (including attorneys' fees and disbursements of Landlord's counsel) incurred by Landlord in connection with the Sublease. (b) This Consent may not be altered, amended, modified or changed orally, but only by an agreement in writing signed by the party against whom enforcement of any such alteration, amendment, modification or change is being sought. (c) Captions are inserted for convenience only and will not affect the construction hereof. (d) Any bills, statements, notices, demands, requests, consents or other communications given or required to be given under this Consent shall be effective only if rendered or given in writing and delivered personally or sent by mail (registered or certified, return receipt requested), postage prepaid, addressed to the respective party at the address hereinabove set forth or at such other address as such party may designate as its new address for such purpose by notice in accordance with the provisions hereof, or, if addressed to Subtenant after the date on which Subtenant first occupies the Sublet Space, addressed to the Building; the same shall be deemed to have been rendered or given on the date delivered, if delivered personally, or on the third date after mailing, if mailed. Landlord shall not be required to send any such notice to Tomahawk Corporation. All notices to Subtenant may be sent to Tomahawk II, Inc. at the address set forth in this Paragraph 12(d) and Landlord may rely upon any action, inaction or statement by Tomahawk II, Inc. as binding Subtenant. The foregoing shall not be construed as relieving Tomahawk Corporation of any obligation or liability under the Sublease or this Consent. (e) This Consent constitutes the entire agreement of the parties hereto with respect to the matters stated herein. (f) This Consent will for all purposes be construed in accordance with and governed by the laws of the State of California applicable to agreements made and to be performed wholly therein. (g) This Consent shall not be effective until executed by all the parties hereto and may be executed in several counterparts, each of which will constitute an original instrument and all of which will together constitute one and the same instrument. (h) Each right and remedy of Landlord provided for in this Consent or in the Lease shall be cumulative and shall be in addition to every other right and remedy provided for herein or therein or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the 8 exercise by Landlord of any one or more of the rights or remedies so provided for or existing shall not preclude the simultaneous or later exercise by Landlord of any or all other rights or remedies so provided for or so existing. (i) The terms and provisions of this Consent shall bind and inure to the benefit of the parties hereto and their respective successors and assigns except that no violation of the provisions of Paragraph 2 hereof shall operate to vest any rights in any successor or assignee of Tenant or Subtenant. (j) If any one or more of the provisions contained in this Consent shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have caused these presents to be duly executed as of March 26, 1997. CENTURY PARK I JOINT VENTURE By: Resources Supervising Management Corp, as agent By: /s/ Frederick Simon ------------------------------------ Print Name: Frederick Simon ---------------------------- Print Title: Vice President --------------------------- MEDAPHIS PHYSICIAN SERVICES CORPORATION By: /s/ Jon Anderson ----------------------------------- Print Name: Jon Anderson --------------------------- Print Title: Vice President -------------------------- (signatures continued on following page) 9 TOMAHAWK II, INC. By: /s/ Steve Caira ----------------------------- Print Name: STEVE CAIRA --------------------- Print Title: PRES. & CEO -------------------- TOMAHAWK CORPORATION By: /s/ Steve Caira ----------------------------- Print Name: STEVE CAIRA --------------------- Print Title: PRES. & CEO -------------------- 10 EX-10.23 30 EXHIBIT 10.23 EXHIBIT 10.23 [LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET (DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY) 1. BASIC PROVISIONS ("BASIC PROVISIONS") 1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, June 5, 1998, is made by and between Hamann/Martin/Whitaker ("LESSOR") and TomaHawk II, an Illinois Corporation ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY"). 1.2 PREMISES: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known by the street address of 7140 Opportunity Road, San Diego, CA 92111 located in the County of San Diego State of California and generally described as (describe briefly the nature of the property) a concrete tilt-up industrial building comprising approximately 48,522 square feet (SEE ADDENDUM SECTION 1) ("PREMISES"). (See Paragraph 2 for further provisions.) 1.3 TERM: Five (5) years and 4 months ("ORIGINAL TERM") commencing July 1, 1998 ("COMMENCEMENT DATE") and ending October 31, 2003 ("EXPIRATION DATE"). (See Paragraph 3 for further provisions.) 1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (See Paragraphs 3.2 and 3.3 for further provisions.) 1.5 BASE RENT: $27,172.00 per month ("BASE RENT"), payable on the first day of each month commencing SEE ADDENDUM TO LEASE, SECTION 1 (See Paragraph 4 for further provisions.) [X] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. 1.6 BASE RENT PAID UPON EXECUTION: $13,586.00 as Base Rent for the period August 1, 1998 to August 31, 1998 (SEE ADDENDUM TO LEASE, SECTION 1) 1.7 SECURITY DEPOSIT: $27,172.00 (SEE ADDENDUM SECTION 12) ("SECURITY DEPOSIT"). (See Paragraph 5 for further provisions.) 1.8 PERMITTED USE: Manufacturing & Assembly in conjunction with Lessee's document conversion and engineering services business. (See Paragraph 6 for further provisions.) 1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise stated herein. (See Paragraph 8 for further provisions.) 1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively, the "BROKERS") and brokerage relationships exist in this transaction and are consented to by the Parties (check applicable boxes): N/A represents - --------------------------------------------------------------------- John Burnham & Co. represents - --------------------------------------------------------------------- [X] Lessee exclusively ("LESSEE'S BROKER"); [ ] both Lessee and Lessor. (See Paragraph 15 for further provisions.) 1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by N/A ("GUARANTOR"). (See Paragraph 37 for further provisions.) 1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of Paragraphs 1 through 12 and Exhibits 1 through 5 all of which constitute a part of this Lease. 2. PREMISES. 2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental, is an approximation which Lessor and Lessee agree is reasonable and the rental based thereon is not subject to revision whether or not the actual square footage is more or less. 2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free of debris on the Commencement Date and warrants to Lessee that the existing plumbing, fire sprinkler system, lighting, air conditioning, heating, and loading doors, if any, in the Premises, other than those constructed by Lessee, shall be in good operating condition on the Commencement Date. If a non-compliance with said warranty exists as of the Commencement Date, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within thirty (30) days after the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. 2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor warrants to Lessee that the improvements on the Premises comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances in effect on the Commencement Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee (does not give Lessor written notice of a non-compliance with this warranty within six (6) months following the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. 2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been advised by the Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical and fire sprinkler systems, security, environmental aspects, compliance with Applicable Law, as defined in Paragraph 6.3) and the present and future suitability of the Premises for Lessee's intended use, (b) that Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to Lessee's occupancy of the Premises and/or the term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has made any oral or written representations or warranties with respect to the said matters other than as set forth in this Lease. 2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this Paragraph 2 shall be of no force or effect if immediately prior to the date set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such event, Lessee shall, at Lessee's sole cost and expense, correct any non-compliance of the Premises with said warranties. 3. TERM. 3.1 TERM. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease, however, (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term. Initials [ILLEGIBLE] ----------- [ILLEGIBLE] ----------- PAGE 1 3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession of the Premises to Lessee as agreed herein by the Early Possession Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is specified, by the Commencement Date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease, or the obligations of Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not, except as otherwise provided herein, be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease until Lessor delivers possession of the Premises to Lessee. If possession of the Premises is not delivered to Lessee within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder; provided, however, that if such written notice by Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease shall terminate and be of no further force or effect. Except as may be otherwise provided, and regardless of when the term actually commences, if possession is not tendered to Lessee when required by this Lease and Lessee does not terminate this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts, changes or omissions of Lessee. 4. RENT. 4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or charges, as the same may be adjusted from time to time, to be received by Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of the calendar month involved. Payment of Base Rent and other charges shall be made to Lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lessee. 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefor deposit moneys with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Any time the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor sufficient to maintain the same ratio between the Security Deposit and the Base Rent as those amounts are specified in the Basic Provisions. Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest herein), that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any moneys to be paid by Lessee under this Lease. 6. USE. 6.1 USE. Lessee shall use and occupy the Premises only for the purposes set forth in Paragraph 1.8, or any other use which is comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that creates waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to, neighboring premises or properties. Lessor hereby agrees to not unreasonably withhold or delay its consent to any written request by Lessee, Lessees assignees or subtenants, and by prospective assignees and subtenants of the Lessee, its assignees and subtenants, for a modification of said permitted purpose for which the premises may be used or occupied, so long as the same will not impair the structural integrity of the improvements on the Premises, the mechanical or electrical systems therein, is not significantly more burdensome to the Premises and the improvements thereon, and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within five (5) business days give a written notification of same, which notice shall include an explanation of Lessor's reasonable objections to the change in use. 6.2 HAZARDOUS SUBSTANCES. (a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as used in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in, on or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Lessor and compliance in a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph 6.3) "REPORTABLE USE" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority. Reportable Use shall also include Lessee's being responsible for the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable Law requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but in compliance with all Applicable Law, use any ordinary and customary materials reasonably required to be used by Lessee in the normal course of Lessee's business permitted on the Premises, so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may (but without any obligation to do so) condition its consent to the use or presence of any Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its reasonable discretion, deems necessary to protect itself, the public, the Premises and the environment against damage, contamination or injury and/or liability therefrom or therefor, including, but not limited to, the installation (and removal on or before Lease expiration or earlier termination) of reasonably necessary protective modifications to the Premises (such as concrete encasements) and/or the deposit of an additional Security Deposit under Paragraph 5 hereof. (b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance, or a condition involving or resulting from same, has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action or proceeding given to, or received from, any governmental authority or private party, or persons entering or occupying the Premises, concerning the presence, spill, release, discharge of, or exposure to, any Hazardous Substance or contamination in, on, or about the Premises, including but not limited to all such documents as may be involved in any Reportable Uses involving the Premises. (c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, and the Premises, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, costs, claims, liens, expenses, penalties, permits and attorney's and consultant's fees arising out of or involving any Hazardous Substance or storage tank brought onto the Premises by or for Lessee or under Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation (including consultant's and attorney's fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances or storage tanks, unless specifically so agreed by Lessor in writing at the time of such agreement. 6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and in a timely manner, comply with all "APPLICABLE LAW," which term is used in this Lease to include all laws, rules, regulations, ordinances, directives, covenants, easements and restrictions of record, permits, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants, relating in any manner to the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill or release of any Hazardous Substance or storage tank), now in effect or which may hereafter come into effect, and whether or not reflecting a change in policy from any previously existing policy. Lessee shall, within five (5) days after receipt of Lessor's written request, provide Lessor with copies of all documents and information, including, but not limited to, permits, registrations, manifests, applications, reports and certificates, evidencing Lessee's compliance with any Applicable Law specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Lessee or the Premises to comply with any Applicable Law. 6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to employ experts and/or consultants in connection therewith and/or to advise Lessor with respect to Lessee's activities, including but not limited to the installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance or storage tank on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a Default or Breach of this Lease, violation of Applicable Law, or a contamination, caused or materially contributed to by Lessee is found to exist or be imminent, or unless the inspection is requested or ordered by a governmental authority as the result of any such existing or imminent violation or contamination. In any such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may be, for the costs and expenses of such inspections. 7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS. 7.1 LESSEE'S OBLIGATIONS. (a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc), Initials [ILLEGIBLE] ----------- PAGE 2 7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14 (condemnation), Lessee shall, at Lessee's sole cost and expense and at all times keep the Premises and every part thereof in good order, condition and repair, non-structural (whether or not such portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, without limiting the generality of the foregoing, all equipment or facilities serving the Premises, such as plumbing, heating, air conditioning, ventilating, electrical, lighting facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and hose or other automatic fire extinguishing system, including fire alarm and/or smoke detection systems and equipment, fire hydrants, fixtures, walls (interior), ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, about, or adjacent to the Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises, the elements surrounding same, or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance and/or storage tank brought onto the Premises by or for Lessee or under its control. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. If Lessee occupies the Premises for seven (7) years or more, Lessor may require Lessee to repaint the exterior of the buildings on the Premises as reasonably required, but not more frequently than once every seven (7) years. (b) Lessee shall, at Lessee's sole cost and expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in, the inspection, maintenance and service of the following equipment and improvements, if any, located on the Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and hose or other automatic fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drain maintenance and (vi) asphalt and parking lot maintenance. 7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3 (relating to compliance with covenants, restrictions and building code), 9 (relating to destruction of the Premises) and 14 (relating to condemnation of the Premises), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, the improvements located thereon, or the equipment therein, or non structural, all of which obligations are intended to be that of the Lessee under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises. Lessee and Lessor expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease with respect to, or which affords Lessee the right to make repairs at the expense of Lessor or to terminate this Lease by reason of any needed repairs. 7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS. (a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is used in this Lease to refer to all carpeting, window coverings, air lines, power panels, electrical distribution, security, fire protection systems, communication systems, lighting fixtures, heating, ventilating, and air conditioning equipment, plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "ALTERATIONS" shall mean any modification of the improvements on the Premises from that which are provided by Lessor under the terms of this Lease, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or Utility Installations made by lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations in, on, under or about the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof), as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during the term of this Lease as extended does not exceed $25,000. (b) CONSENT. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with proposed detailed plans. All consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits required by governmental authorities, (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the Alteration or Utility Installation to Lessor prior to commencement of the work thereon, and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the term of this Lease shall be done in a good and workmanlike manner, with good and sufficient materials, and in compliance with all Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor with as-built plans and specifications therefor. Lessor may (but without obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs $10,000 or more upon Lessee's providing Lessor with a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor under Paragraph 36 hereof. (c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one and one-half times the amount of such contested lien claim or demand, indemnifying Lessor against liability for the same, as required by law for the holding of the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. 7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION. (a) OWNERSHIP. Subject to Lessor's right to require their removal or become the owner thereof as hereinafter provided in this Paragraph 7.4, all Alterations and Utility Additions made to the Premises by Lessee shall be the property of and owned by Lessee, but considered a part of the Premises. Lessor may, at any time and at its option, elect in writing to Lessee to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or earlier termination of this Lease, become the property of Lessor and remain upon and be surrendered by Lessee with the Premises. (b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding their installation may have been consented to by Lessor. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent of Lessor. (c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, with all of the improvements, parts and surfaces thereof clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Lessee performing all of its obligations under this Lease. Except as otherwise agreed or specified in writing by Lessor, the Premises, as surrendered, shall include the Utility Installations. The obligation of Lessee shall include the repair of any damage occasioned by the installation, maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility Installations, as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or ground water contaminated by Lessee, all as may then be required by Applicable Law and/or good service practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to its obligation to repair and restore the Premises per this Lease. LESSOR, AT THE TIME LESSEE SUBMITS LESSEE'S TENANT IMPROVEMENT PLANS FOR LESSOR'S APPROVAL, SHALL NOTICE LESSEE IN WRITING WITHIN TEN (10) DAYS OF LESSOR'S RECEIPT OF SAID TENANT IMPROVEMENT PLANS AS TO WHETHER SUCH IMPROVEMENTS MUST BE REMOVED BY LESSEE AT THE EXPIRATION OF THE LEASE OR ANY EXTENSION THERETO. 8. INSURANCE; INDEMNITY. 8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee is the Insuring Party, Lessee shall pay for all insurance required under this Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within ten (10) days following receipt of an invoice for any amount due. 8.2 LIABILITY INSURANCE. (a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of insurance protecting Lessee and Lessor (as an additional insured) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an "Additional Insured-Managers or Lessors of Premises" Endorsement and contain the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance required by this Lease or as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party, Lessor shall also maintain liability insurance described in Paragraph 8.2(a), above, in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. Initials [ILLEGIBLE] ----------- [ILLEGIBLE] ----------- NET PAGE 3 8.3 PROPERTY INSURANCE--BUILDING, IMPROVEMENTS AND RENTAL VALUE. (a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds of trust or ground leases on the Premises ("LENDER(S)"), insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by Lenders, but in no event more than the commercially reasonable and available insurable value thereof if, by reason of the unique nature or age of the improvements involved, such latter amount is less than full replacement cost. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Premises required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered cause of loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss, as defined in Paragraph 9.1 (c). (b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full rental and other charges payable by Lessee to Lessor under this Lease for one (1) year (including all real estate taxes, insurance costs, and any scheduled rental increases). Said insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of rental revenues from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, property taxes, insurance premium costs and other expenses, if any, otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss. (c) ADJACENT PREMISES. If the Premises are part of a larger building, or if the Premises are part of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. (d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. If Lessee is the Insuring Party, the policy carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations and Utility Installations. 8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph 8.5, Lessee at its cost shall either by separate policy or, at Lessor's option, by endorsement to a policy already carried, maintain insurance coverage on all of Lessee's personal property, Lessee Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property or the restoration of Lessee Owned Alterations and Utility Installations. Lessee shall be the Insuring Party with respect to the insurance required by this Paragraph 8.4 and shall provide Lessor with written evidence that such insurance is in force. 8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B +, V, or such other rating as may be required by a Lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in this Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with the insureds and loss payable clauses as required by this Lease. No such policy shall be cancellable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party shall fail to procure and maintain the insurance required to be carried by the Insuring Party under this Paragraph 8, the other Party may, but shall not be required to, procure and maintain the same, but at Lessee's expense. 8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss of or damage to the Waiving Party's property arising out of or incident to the perils required to be insured against under Paragraph 8. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. 8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express warranties, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs, liens, judgments, penalties, permits, attorney's and consultant's fees, expenses and/or liabilities arising out of, involving, or in dealing with, the occupancy of the Premises by Lessee, the conduct of Lessee's business, any act, omission or neglect of Lessee, its agents, contractors, employees or invitees, and out of any Default or Breach by Lessee in the performance in a timely manner of any obligation on Lessee's part to be performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against Lessor) litigated and/or reduced to judgment, and whether well founded or not. In case any action or proceeding be brought against Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified. 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 9. DAMAGE OR DESTRUCTION. 9.1 DEFINITIONS. (a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, the repair cost of which damage or destruction is less than 50% of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations the repair cost of which damage or destruction is 50% or more of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (c) "INSURED LOSS" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved. (d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building codes, ordinances or laws, and without deduction for depreciation. (e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises. 9.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make the insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, the shortage in proceeds was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within said period, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect. If in such case Lessor does not so elect, then this Lease shall terminate sixty (60) days following the occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall in no event have any right to reimbursement from Lessor for Initials [ILLEGIBLE] ----------- [ILLEGIBLE] ----------- NET PAGE 4 any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. 9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage of Lessor's desire to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage totally at Lessee's expense and without reimbursement from Lessor. Lessee shall provide Lessor with the required funds or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. 9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs (including any destruction required by any authorized public authority), this Lease shall terminate sixty (60) days following the date of such Premises Total Destruction, whether or not the damage or destruction is an Insured Loss or was caused by a negligent or willful act of Lessee. In the event, however, that the damage or destruction was caused by Lessee, Lessor shall have the right to recover Lessor's damages from Lessee except as released and waived in Paragraph 8.6. 9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of the term of this Lease there is damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's option, terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within thirty (30) days after the date of occurrence of such damage. Provided, however, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, within twenty (20) days following the occurrence of the damage, or before the expiration of the time provided in such option for its exercise, whichever is earlier ("EXERCISE PERIOD"), (i) exercising such option and (ii) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs. If Lessee duly exercises such option during said Exercise Period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during said Exercise Period, then Lessor may at Lessor's option terminate this Lease as of the expiration of said sixty (60) day period following the occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within ten (10) days after the expiration of the Exercise Period, notwithstanding any term or provision in the grant of option to the contrary. 9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES. (a) In the event of damage described in Paragraph 9.2 (Partial Damage-Insured), whether or not Lessor or Lessee repairs or restores the Premises, the Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, payable by Lessee hereunder for the period during which such damage, its repair or the restoration continues (not to exceed the period for which rental value insurance is required under Paragraph 8.3(b)), shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, as aforesaid, all other obligations of Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim against Lessor for any damage suffered by reason of any such repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence, in a substantial and meaningful way, the repair or restoration of the Premises within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice to Lessor and such Lenders and such repair or restoration is not commenced within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Lessor or a Lender commences the repair or restoration of the Premises within thirty (30) days after receipt of such notice, this Lease shall continue in full force and effect. "COMMENCE" as used in this Paragraph shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. 9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition occurs, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by Applicable Law and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to investigate and remediate such condition exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition of Lessor's desire to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the investigation and remediation of such Hazardous Substance Condition totally at Lessee's expense and without reimbursement from Lessor except to the extent of an amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with the funds required of Lessee or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such investigation and remediation as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. If a Hazardous Substance Condition occurs for which Lessee is not legally responsible, there shall be abatement of Lessee's obligations under this Lease to the same extent as provided in Paragraph 9.6(a) for a period of not to exceed twelve (12) months. 9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease. 9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. 10. REAL PROPERTY TAXES. 10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as defined in Paragraph 10.2, applicable to the Premises during the term of this Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least ten (10) days prior to the delinquency date of the applicable installment. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes to be paid by Lessee shall cover any period of time prior to or after the expiration or earlier termination of the term hereof, Lessee's share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment after such proration. If Lessee shall fail to pay any Real Property Taxes required by this Lease to be paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand. (b) ADVANCE PAYMENT. In order to insure payment when due and before delinquency of any or all Real Property Taxes, Lessor reserves the right, at Lessor's option, to estimate the current Real Property Taxes applicable to the Premises, and to require such current year's Real Property Taxes to be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the installment due, at least twenty (20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be that equal monthly amount which, over the number of months remaining before the month in which the applicable tax installment would become delinquent (and without interest thereon), would provide a fund large enough to fully discharge before delinquency the estimated installment of taxes to be paid. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payment shall be adjusted as required to provide the fund needed to pay the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee under the provisions of this Paragraph are insufficient to discharge the obligations of Lessee to pay such Real Property Taxes as the same become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary to pay such obligations. All moneys paid to Lessor under this Paragraph may be inter- mingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of the obligations of Lessee under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security Deposit under Paragraph 5. 10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL PROPERTY TAXES" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed upon the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, levied against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, Lessor's right to rent or other income therefrom, and/or Lessor's business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in applicable law taking effect, during the term of this Lease, including but not limited to a change in the ownership of the Premises or in the improvements thereon, the execution of this Lease, or any modification, amendment or transfer thereof, and whether or not contemplated by the Parties. 10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations Initials [ILLEGIBLE] ----------- [ILLEGIBLE] ----------- NET PAGE 5 assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause its Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b). 11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered with other premises. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED. (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or otherwise transfer or encumber (collectively. "ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent given under and subject to the terms of Paragraph 36. (b) A change in the control of Lessee shall constitute an assignment requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Lessee shall constitute a change in control for this purpose. (c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an amount equal to or greater than twenty-five percent (25%) of such Net Worth of Lessee as it was represented to Lessor at the time of the execution by Lessor of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, at whichever time said Net Worth of Lessee was or is greater, shall be considered an assignment of this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles consistently applied. (d) An assignment or subletting of Lessee's interest in this Lease without Lessor's specific prior written consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unconsented to assignment or subletting as a noncurable Breach, Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon thirty (30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to fair market rental value or one hundred ten percent (110%) of the Base Rent then in effect, whichever is greater. Pending determination of the new fair market rental value, if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice, with any overpayment credited against the next installment(s) of Base Rent coming due, and any underpayment for the period retroactively to the effective date of the adjustment being due and payable immediately upon the determination thereof. Further, in the event of such Breach and market value adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to the then fair market value (without the Lease being considered an encumbrance or any deduction for depreciation or obsolescence, and considering the Premises at its highest and best use and in good condition), or one hundred ten percent (110%) of the price previously in effect, whichever is greater, (ii) any index-oriented rental or price adjustment formulas contained in this Lease shall be adjusted to require that the base index be determined with reference to the index applicable to the time of such adjustment, and (iii) any fixed rental adjustments scheduled during the remainder of the Lease term shall be increased in the same ratio as the new market rental bears to the Base Rent in effect immediately prior to the market value adjustment. (e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall be limited to compensatory damages and injunctive relief. 12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING. (a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Base Rent and other sums due Lessor hereunder or for the performance of any other obligations to be performed by Lessee under this Lease. (b) Lessor may accept any rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of any rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the Default or Breach by Lessee of any of the terms, covenants or conditions of this Lease. (c) The consent of Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the Lease or sublease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease or sublease. (d) In the event of any Default or Breach of Lessee's obligations under this Lease, Lessor may proceed directly against Lessee, any Guarantors or any one else responsible for the performance of the Lessee's obligations under this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor or Lessee. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a non-refundable deposit of $1,000 or ten percent (10%) of the current monthly Base Rent, whichever is greater, as reasonable consideration for Lessor's considering and processing the request for consent. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested by Lessor. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented in writing. (g) The occurrence of a transaction described in Paragraph 12.1(c) shall give Lessor the right (but not the obligation) to require that the Security Deposit be increased to an amount equal to six (6) times the then monthly Base Rent, and Lessor may make the actual receipt by Lessor of the amount required to establish such Security Deposit a condition to Lessor's consent to such transaction. * 12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach (as defined in Paragraph 13.1) shall occur in the performance of Lessee's obligations under this Lease, Lessee may, except as otherwise provided in this Lease, receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor, nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall rely upon any such statement and request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against said sublessee, or, until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said sublessee to Lessor. (b) In the event of a Breach by Lessee in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any other prior Defaults or Breaches of such sublessor under such sublease. (c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent of Lessor herein. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee 13. DEFAULT; BREACH; REMEDIES. 13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is consulted by Lessor in connection with a Lessee Default or Breach (as hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence for legal services and costs in the preparation and service of a notice of Default, and that Lessor may include the cost of such services and costs in said notice as rent due and payable to cure said Default. A "DEFAULT" is defined as a failure by the Lessee to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "BREACH" * The foregoing notwithstanding, in the event the Lessee sublets the premises and Lessee receives base rent which is greater than the base rent the Lessee is paying the Lessor at the time of the subletting, the Lessee shall pay to Lessor all and any sublet rents which are in excess of the base rent at the time of the sublet; however, Lessee shall have the right to offset any leasing commissions or tenant improvement costs against this excess rent payment to Lessor. Initials [ILLEGIBLE] ----------- [ILLEGIBLE] ----------- NET PAGE 6 is defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by Lessee to cure such Default prior to the expiration of the applicable grace period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3: (a) The vacating of the Premises without the intention to reoccupy same, or the abandonment of the Premises. (b) Except as expressly otherwise provided in this Lease, the failure by Lessee to make any payment of Base Rent or any other monetary payment required to be made by Lessee hereunder, whether to Lessor or to a third party, as and when due, the failure by Lessee to provide Lessor with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Lessee to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) days following written notice thereof by or on behalf of Lessor to Lessee. (c) Except as expressly otherwise provided in this Lease, the failure by Lessee to provide Lessor with reasonable written evidence (in duly executed original form, if applicable) of (i) compliance with Applicable Law per Paragraph 6.3, (ii) the inspection, maintenance and service contracts required under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution of any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (10) days following written notice by or on behalf of Lessor to Lessee. (d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, that are to be observed, complied with or performed by Lessee, other than those described in subparagraphs (a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) The making by lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. (f) The discovery by Lessor that any financial statement given to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was materially false. (g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a guarantor's breach of its guaranty obligation on an anticipatory breach basis, and Lessee's failure, within sixty (60) days following written notice by or on behalf of Lessor to Lessee of any such event, to provide Lessor with written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the guarantors that existed at the time of execution of this Lease. 13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, within ten (10) days after written notice to Lessee (or in case of an emergency, without notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made under this Lease by Lessee to be made only by cashier's check. In the event of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of the leasing commission paid by Lessor applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the prior sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease shall not waive Lessor's right to recover damages under this Paragraph. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding the unpaid rent and damages as are recoverable therein, or Lessor may reserve therein the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit, as the case may be, given to Lessee under any statute authorizing the forfeiture of leases for unlawful detainer shall also constitute the applicable notice for grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute shall run concurrently after the one such statutory notice, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee's right to possession in effect (in California under California Civil Code Section 1951.4) after Lessee's Breach and abandonment and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations. See Paragraphs 12 and 36 for the limitations on assignment and subletting which limitations Lessee and Lessor agree are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under the Lease, shall not constitute a termination of the Lessee's right to possession. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. (d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for free or abated rent or other charges applicable to the Premises, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease to be performed or observed by Lessee during the term hereof as the same may be extended. Upon the occurrence of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, and recoverable by Lessor as additional rent due under this Lease, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this Paragraph shall not be deemed a waiver by Lessor of the provisions of this Paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. 13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by the terms of any ground lease, mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance. 13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and by the holders of any ground lease, mortgage or deed of trust covering the Premises whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days after such notice are reasonably required for its performance, then Lessor shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. 14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called "CONDEMNATION"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes Initials [ILLEGIBLE] ----------- [ILLEGIBLE] ----------- NET PAGE 7 title or possession, whichever first occurs. If more than ten percent (10%) of the floor area of the Premises, or more than twenty-five percent (25%) of the land area not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the building located on the Premises. No reduction of Base Rent shall occur if the only portion of the Premises taken is land on which there is no building. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any compensation separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received, over and above the legal and other expenses incurred by Lessor in the condemnation matter, repair any damage to the Premises caused by such condemnation, except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall be responsible for the payment of any amount in excess of such net severance damages required to complete such repair. 16. TENANCY STATEMENT. 16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after written notice from the other Party (the "REQUESTING PARTY") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "TENANCY STATEMENT" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. 16.2 If Lessor desires to finance, refinance, or sell the Premises, any part thereof, or the building of which the Premises are a part, Lessee and all Guarantors of Lessee's performance hereunder shall deliver to any potential lender or purchaser designated by Lessor such financial statements of Lessee and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time of such transfer or assignment. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. 18. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within thirty (30) days following the date on which it was due, shall bear interest from the thirty-first (31st) day after it was due at the rate of 12% per annum, but not exceeding the maximum rate allowed by law, in addition to the late charge provided for in Paragraph 13.4. 20. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent. 22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. 23. NOTICES. 23.1 All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for the purpose of mailing or delivering notices to Lessee. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by written notice to Lessee. 23.2 Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or courier. If any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Sunday or legal holiday, it shall be deemed received on the next business day. 24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach at the time of accepting rent, the acceptance of rent by Lessor shall not be a waiver of any preceding Default or Breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted. Any payment given Lessor by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto. 26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease, UNLESS LESSOR AND LESSEE HAVE MADE PRIOR AGREEMENT TO THE HOLDOVER. Initials [ILLEGIBLE] ----------- [ILLEGIBLE] ----------- NET PAGE 8 27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. 29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE. 30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "SECURITY DEVICE"), now or hereafter placed by Lessor upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. Lessee agrees that the Lenders holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Lessor under this Lease, but that in the event of Lessor's default with respect to any such obligation, Lessee will give any Lender whose name and address have been furnished Lessee in writing for such purpose notice of Lessor's default and allow such Lender thirty (30) days following receipt of such notice for the cure of said default before invoking any remedies Lessee may have by reason thereof. If any Lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one (1) month's rent. 30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. 30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided for herein. 31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) or Broker in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorney's fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorney's fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorney's fees reasonably incurred. Lessor shall be entitled to attorney's fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. 32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises with 24 hours verbal or written prior notice, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred twenty (120) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatement of rent or liability to Lessee. 33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee may, with Lessor's prior written consent, install (but not on the roof) such signs as are reasonably required to advertise Lessee's own business. The installation of any sign on the Premises by or for Lessee shall be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor reserves all rights to the use of the roof and the right to install, and all revenues from the installation of, such advertising signs on the Premises, including the roof, as do not unreasonably interfere with the conduct of Lessee's business. 35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, Lessor shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Lessor's failure within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest. 36. CONSENTS. (a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' or other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent pertaining to this Lease or the Premises, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefor. Subject to Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a condition to considering any such request by Lessee, require that Lessee deposit with Lessor an amount of money (in addition to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will incur in considering and responding to Lessee's request. Except as otherwise provided, any unused portion of said deposit shall be refunded to Lessee without interest. Lessor's consent to any act, assignment of this Lease or subletting of the Premises by Lessee shall not constitute an acknowledgement that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. (b) All conditions to Lessor's consent authorized by this Lease are acknowledged by Lessee as being reasonable. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. 37. GUARANTOR. 37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor shall be in the form most recently published by the American Industrial Real Estate Association, and each said Guarantor shall have the same obligations as Lessee under this Lease, including but not limited to the obligation to provide the Tenancy Statement and information called for by Paragraph 16. 37.2 It shall constitute a Default of the Lessee under this Lease if any such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a) evidence of the due execution of the guaranty called for by this Lease, including the authority of the Guarantor (and of the party signing on Guarantor's behalf) to obligate such Guarantor on said guaranty, and including in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, together with a certificate of incumbency showing the signature of the persons authorized to sign on its behalf, (b) current financial statements of Guarantor as may from time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty is still in effect. 38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and the observance and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. 39. OPTIONS. 39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (c) the right to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises, or the right to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor, or the right of first offer to purchase other property of Lessor. 39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and cannot be voluntarily or involuntarily assigned or exercised by any person or entity other than said original Lessee while the original Lessee is in full and actual possession of the Premises and without the intention of thereafter assigning or subletting. The Options, if any, herein granted to Lessee are not assignable, either as a part of an assignment of this Lease or separately or apart therefrom, and no Option may be separated from this Lease in any manner, by reservation or otherwise. Initials [ILLEGIBLE] ----------- [ILLEGIBLE] ----------- NET PAGE 9 39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised. 39.4 EFFECT OF DEFAULT ON OPTIONS. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary: (i) during the period commencing with the giving of any notice of Default under Paragraph 13.1 and continuing until the noticed Default is cured, or (ii) during the period of time any monetary obligation due Lessor from Lessee is unpaid (without regard to whether notice thereof is given Lessee), or (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not the Defaults are cured, during the twelve (12) month period immediately preceding the exercise of the Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to Lessee three (3) or more notices of Default under Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of such other buildings and their invitees, and that Lessee will pay its fair share of common expenses incurred in connection therewith. 41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions. 43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. AUTHORITY. If either Party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority. 45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is not intended to be binding until executed by all Parties hereto. 47. AMENDMENTS. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. The parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by an institutional, insurance company, or pension plan Lender in connection with the obtaining of normal financing or refinancing of the property of which the Premises are a part. 48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such Multiple Parties shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES: THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED. The parties hereto have executed this Lease at the place on the dates specified above to their respective signatures. Executed at San Diego, CA Executed at San Diego, CA on on ------------------------------ ------------------------------------- by LESSOR: by LESSEE: Hamann/Martin/Whitaker TomaHawk II, Inc. an Illinois Corporation By /s/ Jeffrey C. Hamann By /s/ Steven M. Caira ------------------------------ ------------------------------------- Name Printed: Jeffrey C. Hamann Name Printed: Steven M. Caira Title: Joint Venture Partner Title: CEO and President By /s/ Daniel M. Whitaker By ------------------------------ ------------------------------------- Name Printed: Daniel M. Whitaker Name Printed: Steve Caira Title: Joint Venture Partner Title: President Address: 475 West Bradley Avenue Address: 8315 Century Park Court, Suite 210 El Cajon, Ca 92020 San Diego, CA 92123 Tel. No. (619) 440-7424 Tel. No. (619) 874-7692 Fax No. (619) 440-8914 Fax No. (619) 874-2371 NET PAGE 10 NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777. Fax. No. (213) 687-8616. ADDENDUM TO LEASE This Addendum to Lease ("Addendum") is made by and between Hamann/Martin/Whitaker, a Joint Venture,("Lessor"), and TomaHawk II, Inc., an Illinois Corporation, ("Lessee"), and is intended to supplement that certain Standard Industrial/Commercial Single-Tenant Lease-Net between Lessor and Lessee dated June 5, 1998 ("Lease") to which this Addendum is annexed. If there is any inconsistency between this Addendum and the Lease, the terms of this Addendum shall supercede and control. Lessor and Lessee agree as follows: 1. PREMISES BASE RENT/RENT SCHEDULE. Pursuant to Paragraph 1.5 of the Lease, the base rent shall be paid by Lessee to Lessor per the following rent schedule: Square Feet ----------- July 1, 1998 - July 31, 1998 24,261 Sq. Ft. Rent Abated ("Fixturization Period") August 1, 1998 - January 31, 1999 24,261 Sq. Ft. $13,586.00/mo. February 1, 1999 - June 30, 1999 48,522 Sq. Ft. $27,172.00 per month July 1, 1999 - June 30, 2000 48,522 Sq. Ft. $27,987.00 per month July 1., 2000 - June 30, 2001 48,522 Sq. Ft. $28,827.00 per month July 1, 2001 - June 30, 2002 48,522 Sq. Ft. $29,692.00 per month July 1, 2002 - June 30, 2003 48,522 Sq. Ft. $30,583.00 per month July 1, 2003 - October 31, 2003 48,522 Sq. Ft. $31,501.00 per month
The foregoing reflects an increase in the base rent commencing July 1, 1999 and at the beginning of each lease year thereafter in an amount equal to three percent (3%) of the amount of the scheduled Base Rent for the immediately preceding lease year. 2. LESSEE'S PAYMENT OF OPERATING EXPENSES. Beginning on August 1, 1998, in addition to payment of the Base Rent, Lessee shall be responsible for the payment of all "Operating Expenses" which is estimated to be approximately $.078 per square foot per month based on the full building size, 48,522 Sq. Ft., (as defined below). The term "Operating Expenses" means the following expenses and costs of the ownership and operation of the Premises: (a) amounts payable for maintenance contracts required to be procured pursuant to Paragraph 7.1 (b) of the Lease (but not the cost of repairs or replacements payable by Lessee), (b) insurance required to be maintained by Lessor or Lessee under the Lease (exclusive of the insurance maintained by Lessee under Paragraph 8.4 of the Lease), (c) Real Property Taxes, (d) a reasonable reserve for replacement of the roof, (e) a fire sprinkler monitoring contract if payable separate from the fire sprinkler maintenance contract described in Paragraph 7. 1(b) of the Lease, (f) a reasonable reserve for exterior painting, (g) a reasonable reserve for paving maintenance and (h) the reasonable amount of other ordinary and necessary expenses and costs of operation of the Premises, which are customarily incurred in the operation of similarly situated real estate projects; provided, however, the term "Operating Expenses" does not include any other items of expense which the terms of the Lease expressly require to be paid or incurred by lessee, including all utility and trash charges payable by Lessee under Paragraph 11 of the Lease. See EXHIBIT "2". 3. TENANT IMPROVEMENTS. Lessor, at Lessor's cost and expense, shall perform the following: a. Inspect, repair where necessary, the roof exterior and shall maintain the roof in a "watertight" condition during the lease term. Page 1 of 3 b. Inspect, repair where necessary, the existing HVAC system which services the existing office area to insure it is in good working condition. This HVAC system shall be warrantied for one (1) year, by the Lessor, from the commencement date. c. Cap all roof venting where specified by Lessee. d. Patch, repair, slurry coat, and re-stripe all existing asphalt areas of the driveways and parking lot on the west and south sides of the Premises. In addition, Lessor, at Lessor's sole option, may install a concrete drive lane between the parking stalls on the south side of the building and between the dock high loading area and Cardin Street on the west side of the building. e. Repaint the exterior of the building with building standard paint with the color(s) to be selected by Lessor. f. Reattach ceiling insulation where necessary. Other than the foregoing, the Lessee accepts the Premises in an "as is, where is" condition as Lessee and Lessee's representatives have previously inspected the Premises. 4. EQUIPMENT OWNED BY PREVIOUS TENANT. Lessor and Lessee acknowledge the previous tenant ("Tenant") was Martin Furniture, Inc. and the Lessee has requested the previous Tenant to leave certain equipment and improvements ("Equipment") in the Premises after the Tenant has vacated the Premises. The Tenant, with the Lessor's concurrence, has agreed to leave the following Equipment in the Premises for the Lessee's use, free of charge. a. One (1) paint fluid distribution system (piping only, does not include pumps) b. One (1) hazardous area mixing room located on the north side of the Premises c. One (1) compressed air distribution system (piping only, no compressors) d. Uninterrupted Power Service (UPS) currently located in Northeast corner of the Premises. e. One (1) working area paint booth (Stain) f. One (1) working area paint booth (Top Coat) g. One (1) working area paint booth (Sealer) Lessor and Lessee agree that all this Equipment listed in this Section shall remain the property of the Lessor, however, the Lessee shall be responsible for the proper operation, maintenance and care of the equipment and shall enter into service contracts for the maintenance of said Equipment. 5. CANCELLATION OF LEASE. Lessee shall have the one (1) time right to cancel and terminate this Lease at the end of the fortieth (40th) month or October 31, 2001 ("Cancellation Date") with Lessee giving Lessor at least six (6) months prior written notice of Lessee's intent to exercise Lessee's right to cancel the Lease. The foregoing notwithstanding, any obligations incurred by the Lessee to the Lessor pursuant to the Lease which occurred prior to the cancellation date shall survive the cancellation date. In the event the Lessee cancels this Lease pursuant to this Section, the Lessee shall pay to Lessor within thirty (30) days after the Cancellation Date (i) the unamortized leasing commissions which shall be equivalent to $36,527.00 and (ii) the unamortized free rent which shall be equivalent to $30,568.00. 6. SIGNAGE. The Lessee, at Lessee's cost and expense and at Lessee's option, shall install signage on the exterior of the Building subject to review and approval of Lessee's sign plan by Lessor and the City of San Diego. All sign work must be permitted through the City of San Diego, if necessary, and the sign work and installation shall be performed by a contractor licensed in the State of California to do such work. The foregoing notwithstanding, the Lessor shall contribute $750.00 towards Lessee sign expense. Lessee shall provide Lessor with an invoice from Lessee's sign contractor which shall detail the costs of Lessee's sign. Page 2 of 3 7. PARKING. Aside from the work described in Section 3(d) of this Addendum, the Lessee shall accept the parking areas as they are currently configured and the Lessor shall not receive any rental for these parking areas. 8. HAZARDOUS MATERIAL QUESTIONNAIRE. Without limiting Lessee's obligations under Subparagraph 6.2 of the Lease regarding compliance with Applicable Laws concerning Hazardous Substances, Lessee shall, within ten (10) days from the execution of this Lease, complete and deliver to Lessor for its filing with applicable government authorities a Hazardous Material Questionnaire in the form as set forth in EXHIBIT "3" annexed to this Addendum. 9. ENVIRONMENTAL SITE ASSESSMENT UPDATE. Lessor's consultant, Marc A. Boogay, has prepared an "Environmental Site Assessment Update" dated June 2, 1998 which is annexed to this Addendum as EXHIBIT "4". 10. CURRENT RULES AND REGULATIONS. Pursuant to Paragraph 6.1 of the Lease, Lessor has adopted the Rules and Regulations as annexed to this Addendum as EXHIBIT "5" governing the use of the Premises and such Rules and Regulations shall remain in effect until changes by Lessor in accordance with the Lease. 11. NO BINDING OFFER. LESSOR'S SUBMISSION OF THIS DOCUMENT FOR EXAMINATION, NEGOTIATION AND/OR SIGNATURE BY LESSEE DOES NOT CONSTITUTE AN OFFER TO LEASE, NOR A RESERVATION OF, NOR AN OPTION FOR THE LEASE OF THE PREMISES. THE DOCUMENT SHALL NOT BE BINDING AND IN EFFECT AGAINST EITHER PARTY UNTIL AT LEAST ONE COUNTERPART OF THIS LEASE IS FULLY EXECUTED AND DELIVERED BY LESSOR AND LESSEE. 12. SECURITY DEPOSIT. Pursuant to Section 5 of the Lease, Lessee shall pay a Security Deposit to Lessor in an amount equal to the first months rent which shall be paid one-half (1/2) upon execution of this Lease and one-half (1/2) on January 4, 1999 "LESSOR" Hamann//Martin/Whitaker, a Joint Venture. By: /s/ Jeffrey C. Hamann Date: 6/22/98 ------------------------------------------ ---------------- Jeffrey C. Hamann, Joint Venture Partner By: /s/ Daniel M. Whitaker Date: 6-19-98 ------------------------------------------ ---------------- Daniel M. Whitaker, Joint Venture Partner "LESSEE" TomaHawk, Inc., an Illinois Corporation By: /s/ Steven M. Caira Date: 6/19/98 ------------------------------------------ ---------------- Steven M. Caira, CEO and President Page 3 of 3 EXHIBIT 1 Blueprint of EXISTING BUILDING [BLUEPRINT] Exhibit 2 ESTIMATED MONTHLY OPERATING EXPENSES Property Taxes $.0359 Insurance $.0040/PSF Utilities Electricity By Tenant Telephone $.0010/PSF Alarm Monitoring $.0027/PSF Landscape Water By Tenant HVAC Maintenance By Tenant Landscape $.0050/PSF Management Fee (2%) $.0112/PSF Painting Reserve $.0019/PSF Paving Maintenance & Reserve $.0063/PSF Roof Maintenance & Reserve $.0100/PSF ---------- $.078 Per Square Foot Per Month
[STAMP] CITY OF SAN DIEGO BUILDING INSPECTION DEPARTMENT HAZARDOUS MATERIALS QUESTIONNAIRE - --------------------------------------------------------------------------------------------------------------------- Business Name Contact Person Telephone - --------------------------------------------------------------------------------------------------------------------- Mailing Address City State Zip Plan File # - --------------------------------------------------------------------------------------------------------------------- Project Address City State Zip Permit # - ---------------------------------------------------------------------------------------------------------------------
PART I: CITY OF SAN DIEGO FIRE DEPARTMENT - HAZARDOUS MATERIALS MANAGEMENT DIVISION: OCCUPANCY CLASSIFICATION - -------------------------------------------------------------------------------- Indicate, by circling the item, whether your business will or did process or store any of the following hazardous materials. If any of the items are checked off, applicant must contact the Fire Department-Hazardous Materials Management Division, 1222 First Ave., San Diego, CA 92101 - 4th Floor - Telephone (619) 236-6883 (except item #15). 1. Explosives or Blasting Agents 6. Oxidizers 11. Highly Toxic or Toxic Materials 2. Compressed Gases 7. Pyrophorics 12. Radioactives 3. Flammable or Combustible Liquids 8. Unstable (reactive) Materials 13. Corrosives 4. Flammable Solids 9. Water-Reactives 14. Other Health Hazards 5. Organic Peroxides 10. Cryogenics 15. None of These Items
PART II: COUNTY OF SAN DIEGO HEALTH DEPARTMENT - HAZARDOUS MATERIALS MANAGEMENT DIVISION: CONTINGENCY PLAN REVIEW - -------------------------------------------------------------------------------- If the answer to any of the questions is yes, applicant must contact the County of San Diego Health Department Hazardous Materials Management Division, 1225 Imperial Avenue, 3rd floor, San Diego, CA 92138, Telephone (619) 338-2222 prior to the Issuance of a building permit.
YES NO (FEE MAY BE REQUIRED) OFFICE USE ONLY 1. / / / / Is your business type listed on the reverse side of this form? 2. / / / / Will your business dispose of Hazardous Substances or Medical Wastes in any amount? / / RMPP Exempt 3. / / / / Will your business store, or handle Hazardous Substances in quantities equal to or greater than 55 gallons, 500 pounds or 200 cubic feet or carcinogens/reproductive toxins in any quantity? --------/--------------- Date Initials 4. / / / / Will your business use an existing, or install an underground storage tank? 5. / / / / Will your business store, use or handle carcinogens, reproductive toxins, or Acutely Hazardous Materials? / / RMPP Required 6. / / / / For Demolition Permits Only: Does the building or structure for --------/--------------- which this demolition permit is requested contain any friable Date Initials asbestos? / / RMPP Completed --------/--------------- Date Initials
PART III: SAN DIEGO AIR POLLUTION CONTROL DISTRICT - -------------------------------------------------------------------------------- If the answer to any of the questions is yes, applicant must contact the Air Pollution Control District, 9150 Chesapeake Drive, San Diego, CA 92113. Telephone (619) 694-3307 prior to the Issuance of a building permit.
YES NO 1. / / / / Will the intended occupant install or use any of the equipment listed on the Listing of Air Pollution Control District Permit Categories, on the reverse side of this form. 2. / / / / (ANSWER ONLY IF THE ANSWER TO QUESTION 1 IS YES.) Will the subject facility be located within 1,000 feet of the outer boundary of a school (K thru 12) as listed in the current Directory of School and Community College Districts, published by the San Diego County Office of Education and the current California Private School Directory, compiled in accordance with provisions of Education Code Section 33190. 3. / / / / For Demolition Permits Only: Does the building or structure for which this demolition permit is requested contain any friable asbestos?
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Briefly Describe Nature of the intended Business Activity: - ------------------------------------------------------------------------------- Name of Owner or Authorized Agent: - ------------------------------------------------------------------------------- Signature of Owner or Authorized Agent: I declare under penalty of perjury that to the best of my knowledge and belief the responses made herein are true and correct. Date: --------------------------------------------- ------------------ DO NOT WRITE BELOW THIS LINE - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- FIRE DEPARTMENT OCCUPANCY CLASSIFICATION: -------------------------------------- BY: Date: ---------------------------------------------------- -----------------
- --------------------------------------------------------------------------------------------------------------------------------- EXEMPT FROM PERMIT REQUIREMENTS APPROVED FOR BUILDING PERMIT, BUT NOT FOR OCCUPANCY APPROVED FOR OCCUPANCY COUNTY HMMD APCD COUNTY HMMD APCD COUNTY HMMD APCD - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
LIST OF BUSINESSES WHICH REQUIRE REVIEW AND APPROVAL FROM COUNTY OF SAN DIEGO HEALTH DEPT.- THE HAZARDOUS MATERIALS MANAGEMENT DIVISION
AUTOMOTIVE CHEMICAL HANDLING OTHERS AND MISCELLANEOUS - ---------- ----------------- ------------------------ Battery Manufacturing/Recycling Agricultural Suppliers/Distributors Asphalt Plant Boat Yard Chemical Suppliers/Distributors Chiropractic Offices Car Wash Chemical Manufacturer Co-Generation Plant Dealership Maintenance and Paint Coatings/Adhesives Dental Clinic/Offices Machine Shop Compressed Gas Supplier/Distributor Dialysis Centers Painting Dry Cleaning Frozen Food Processing Facilities Radiator Shop Fiberglass/Resin Applications Government Agencies Rental Yard Equipment Gas Station Hazardous Waste Haulers Repair, Preventive Maintenance Industrial Laundry Hospitals/Convalescent Homes Repair, Major Overhaul Laboratories Laboratories, Biological Laboratories Transportation Services Laboratory Suppliers/Distributors Medical Clinics/Offices Wrecking and Recycling Oil and Fuel Bulk Supply Public Utilities Pesticide Operator/Distributor Rock Quarry METAL WORKING Photographic Processing Veterinary Clinic/Hospitals - ------------- Pool Supplies/Maintenance Wood/Furniture Manufacturer/Refinishing Anodizing Printing/Blue Printing Ship Repair/Construction Chemical Milling/Etching Road Coatings Finish-Coating, Painting Swimming Pool (Gas Chlorination AEROSPACE Flame Spraying Systems Only) ---------- Foundry Toxic Gas Handler Aerospace Industry Machine Shop-Drilling, Lathes, Mills Toxic Gas Mfg. Aircraft Manufacturing Metal Plating Aircraft Maintenance Metal Prepping/Chemical Coating ELECTRONICS Precious Metal Recovery ----------- SandBlasting, Grinding Electronics Components Mfg. Steel Fabricator Electronics Assembly and Sub Assembly Wrought Iron Manufacturing Printed Circuit Board Mfg.
NOTE: THE ABOVE LIST INCLUDES BUSINESSES WHICH TYPICALLY USE, STORE, HANDLE AND DISPOSE OF HAZARDOUS SUBSTANCES. ANY BUSINESS NOT INCLUDED ON THIS LIST WHICH HANDLES, USES OR DISPOSES OF HAZARDOUS SUBSTANCES MAY STILL REQUIRE HAZARDOUS MATERIALS MANAGEMENT DIVISION (HMMD) REVIEW OF BUSINESS PLANS. FOR MORE INFORMATION CALL (619) 338-2222. LISTING OF AIR POLLUTION CONTROL DISTRICT PERMIT CATEGORIES Businesses which include any of the following operations or equipment will require clearance from the Air Pollution Control District.
CHEMICAL COMBUSTION ROCK AND MINERAL - -------- ----------- ---------------- 47-Organic Gas Sterilizers 34-Piston Internal-Combustion Engines 04-Hot Asphalt Batch Plants 32-Acid Chemical Milling 13-Boilers & Heaters (1 Million 05-Rock Drills 33-Can & Coil Manufacturing Btu/Hr. or Larger) 07-Sand Rock & Aggregate Plants 44-Evaporators, Dryers & Stills 13-Gas Turbines, and Turbine Test 08-Concrete Batch, CTB, Concrete Processing Organic Materials Cells & Stands Mixers, Mixers & Silos 24-Dry Chemical Mixing & 14-Incinerators & Crematories 10-Brick Manufacturing Detergent Spray Towers 15-Burn Out Ovens 35-Bulk Dry Chemical Storage 16-Core Ovens SOLVENT USE ----------- COATINGS & SURFACE PREPARATION ELECTRONICS 28-Vapor & Cold Degreasing - ------------------------------ ----------- 30-Solvent & Extract Driers 01-Abrasive Blasting Equipment 29-Solder Levelers 31-Dry Cleaning 27-Coating & Painting 29-Hydrosqueegees 37-Plasma Arc & Ceramic 42-Electronic Component Manufacturing OTHER Deposition Spray Booths ------ 38-Paint, Stain & Ink Mfg. FOOD 03-Asphalt Roofing Kettles and Tankers ---- 46-Reverse Osmosis Membrane Mfg. METALS 12-Fish Canneries 51-Aqueous Waste Neutralization - ------ 12-Smoke Houses 11-Tire Buffers 18-Metal Melting Devices 50-Coffee Roasters 17-Brake Debonders 19-Oil Quenching & Salt Baths 35-Bulk Flour & Powdered Sugar Storage 23-Bulk Grain & Dry Chemical Transfer & 32-Hot Dip Galvanizing Storage 39-Precious Metals Refining 45-Rubber Mixers 48-Landfill Gas Flare or Recovery Systems ORGANIC COMPOUND MARKETING (GASOLINE, ETC.) 21-Waste Disposal Reclamation Units - ------------------------------------------- 36-Grinding Booths & Rooms 25-Gasoline & Alcohol Bulk Plants & Terminals 40-Asphalt Pavement Heaters 25-Intermediate Refuelers 43-Ceramic Slip Casting 26-Gasoline & Alcohol Fuel Dispensing 41-Perlite Processing 40-Cooling Towers-Registration Only
NOTE: OTHER EQUIPMENT NOT LISTED HERE THAT IS CAPABLE OF EMITTING AIR CONTAMINANTS MAY REQUIRE AN AIR POLLUTION CONTROL DISTRICT PERMIT. IF THERE ARE ANY QUESTIONS, CONTACT THE AIR POLLUTION CONTROL DISTRICT AT (619) 694-3307. EXHIBIT 4 ENVIRONMENTAL SITE ASSESSMENT UPDATE 7140 OPPORTUNITY ROAD in SAN DIEGO, CALIFORNIA CLIENT: Hamann-Martin-Whitaker 475 West Bradley Avenue El Cajon, CA 92020 PREPARED BY: MARC A. BOOGAY CONSULTING ENGINEER 2141 El Camino Real Oceanside, California 92054 (760) 721-1959 DATE: June 2, 1998 PROJECT NUMBER: 98-0507 IMPORTANT NOTICE: This report is confidential. It may be read, and relied upon, only by the client. The Environmental Site Assessment update is too large to be attached to Addendum. Lessee acknowledges receipt of said report. Lessee: TomaHawk II, An Illinois Corporation /s/ Steven M. Caira Date: 6/19/98 - ----------------------------------- ------------- Steven M. Caira, CEO and President EXHIBIT 5 7140 Opportunity Road San Diego, CA 92111 RULES AND REGULATIONS These Rules and Regulations ("Rules") are adopted by the Lessor pursuant to the Lease to which the rules are annexed. The Rules supplement the Lease and in the event of any conflict or inconsistency between the Lease and the Rules, the Lease will control. The Rules may be changed from time to time by Lessor, subject to any restrictions set forth in the Lease, and any such changes shall be effective immediately upon delivery to Lessee. Accordingly, the Lessor adopts the following Rules: GENERAL RULES 1. No sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside, or inside if visible from the exterior, of any building without the prior written consent of Lessor. Lessor shall have the right to remove, at Lessee's expense and without notice, any item installed or displayed in violation of the Rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Lessee and in a configuration and style approved by Lessor, in its sole discretion. 2. If Lessor objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, or placed on any windowsill, which is visible from the exterior of the Premises, Lessee shall immediately discontinue such use. Lessee shall not place anything against or near glass partitions, doors or windows which is visible from outside the Premises without Lessor's consent. 3. Concurrently with Lessee's occupancy of the Premises, Lessee shall furnish Lessor, free of charge, one set of keys to each door lock on the Premises. Lessee shall be entitled to make or have made additional keys as Lessee desires. Lessee shall not alter any lock or install a new additional lock or bolt on any door of its Premises without furnishing Lessor, without charge, a new set of keys. Lessee, upon the termination of its Lease, shall deliver to Lessor the keys to all doors within the Premises. 4. If Lessee requires telegraphic, telephonic, burglar alarm or similar services which require penetrations of the roof or building shell walls, it shall first obtain, and comply with, Lessor's installation instructions for any such equipment. 5. Lessee shall be responsible for all repairs and replacements to the Project required on account of damage or injury caused by deliveries to Lessee's Premises. 6. Lessee shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Lessor shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Project. Heavy objects shall, if considered necessary by Lessor, stand on such platforms as determined by Lessor to be necessary to properly distribute the weight, which platforms 1 shall be provided at Lessee's expense. Business machines and mechanical equipment belonging to Lessee, which cause noise or vibration that may be transmitted to any structure of the Project or to any space therein to such a degree as to be placed and maintained by Lessee, at Lessee's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. Lessor will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Project by maintaining or moving such equipment or other property shall be repaired at the expense of Lessee. 7. Lessee shall not use or keep in the Premises or about the Project any kerosene, gasoline or inflammable or combustible fluid or materials other than those limited quantities necessary for the operation or maintenance of office equipment. Lessee shall not use or permit to be used in the Premises any foul or noxious gas or substance. 8. Lessee shall not use any method of heating or air-conditioning other than that approved by Lessor, in its reasonable discretion. 9. Lessee shall not waste electricity, water or air-conditioning and agrees to cooperate fully with Lessor to assure the most effective operation of the Project's heating and air-conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Lessee has actual notice. 10. Lessee shall close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus, and electricity, gas or air outlets before Lessee and its employees leave the Premises. Lessee shall be responsible for any damage or injuries sustained by other tenants or occupants of the Project or by Lessor arising from Lessee's noncompliance with this Rule. 11. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Lessee who, or whose employees or invitee's, shall have caused it. 12. Lessee shall not install any radio or television antenna, loudspeaker or other devices on the roof or exterior walls of any building, except with Lessor's consent. Lessee shall not interfere with radio or television broadcasting or reception from or in the Project or elsewhere. 13. All Lessee's installations, improvements and alterations shall be carried out in a manner and method designed to minimize any damage to the Premises on account of the installation or removal of such items. Lessee shall repair any damage resulting from Lessee's installations, improvements and alterations and the removal thereof upon termination of the Lease. 14. Lessor reserves the right to exclude or expel from the Project any person who, in Lessor's judgement, is intoxicated or under the influence of liquor or drugs or who is in violations of any of the Rules, provided Lessor shall be under no obligation to do so nor have any liability to Lessee on account of Lessor's failure to exclude any person. 15. Lessee shall store all its trash and garbage within its Premises or in other facilities provided by Lessor. Lessee shall 2 not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Lessor. All trash placed in the trash box or receptacle shall be generated within the Premises. Lessee shall not import any trash or waste generated in the conduct of the Lessee's business into the Premises nor shall Lessee use the trash box or receptacles to dispose of this trash or waste. Lessee will instruct Lessee's employees, agents, clients or invitees to dispose all trash or waste in a clean, orderly manner, to break down all cardboard containers and to place all trash IN the trash box or receptacle and not on or about the trash box or receptacle. 16. Equipment Storage - No material, equipment, supplies, or products shall be stored or permitted to remain on the property outside a permanent structure unless prior approval is obtained from the Lessor and the City of San Diego. Approval of outside storage will be granted only where storage is visually screened from all approaches. 17. Pets or Animals - No pets or animals are allowed on the property or within Lessee's Premises. 18. Without the written consent of Lessor, Lessee shall not use the name of the Project in connection with or in promoting or advertising the business of Lessee except as Lessee's address. 19. Lessee shall comply with all safety, fire protection and evacuation procedures and regulations established by Lessor or any governmental agency. 20. Lessee assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 21. The Rules are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of Lessee's Lease of its Premises. 22. Lessee shall be responsible for the observance of all of the Rules by Lessee's employees, agents, clients, customers, invitee's and guests. PARKING RULES 23. Lessor shall not be responsible for loss, injury or damage to any vehicle arising from the use of parking areas in the Project. In the event the general exclusion of liability set forth in the preceding sentence is determined not to apply to any particular claim, specific limitations on liability set forth below shall apply to any claim against Lessor arising in connection with the use of parking areas in the Project. All claimed damage or loss must be reported and itemized in writing, delivered to the Lessor within two (2) business days after any claimed damage or loss occurs. Any claim not so made is waived. Lessor has the option to make repairs, at its expense, of any claimed damage within two (2) business days after filing of any claim. In all court actions the burden of proof to establish a claim remains with the Lessee. Court actions by Lessee for any claim must be filed within ninety (90) days from date of parking when a claimed loss occurred. Lessor is not responsible for damage by water, fire or defective brakes, or part, or for the act of omissions of others, or for articles left in the car. The total liability of Lessor is limited to $250.00 for all damages or loss to any vehicle. Lessor is not responsible for loss of 3 use. 24. Lessee may leave vehicles in the parking area overnight or park any vehicles in the parking areas including automobiles, motorcycles, motor driven or non-motor driven bicycles. Lessor shall not be responsible for Lessee's vehicles. 25. Vehicles must be parked entirely with the painted stall lines of a single parking stall. All directional signs and arrows must be observed. The speed limit within all parking areas shall be five (5) miles per hour. 26. Parking is prohibited: (a) in areas not striped for parking; (b) in aisles; (c) where "no parking" signs are posted; (d) on ramps; (e) in cross hatched areas and in fire lanes; and (f) in such other areas as may be designated by Lessor. 27. Every vehicle owner is required to park and lock his own vehicle. All responsibility for damage to a vehicle or theft of property from a vehicle is assumed by the vehicle owner. 28. Parking areas are for the temporary parking of vehicles only. No storage of vehicles or other items will be permitted. Washing, waxing, cleaning or servicing of any vehicle is prohibited. 29. Lessee shall acquaint all employees, customers and guests of these rules. 30. Lessor reserves the right to modify and/or adopt such other reasonable and non-discriminatory rules and regulations for the parking facilities as it deems necessary for the operation of the parking facilities. Lessor may refuse to permit any person who violates these rules to park in the parking facilities, and any violation of the rules shall subject the vehicle to removal. 4 EX-23.2 31 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 12, 1999 included in the Proxy Statement and Information Circular of TomaHawk Corporation that is made a part of the Registration Statement (Form S-4) of TomaHawk Corporation for the registration of shares of its common stock. Ernst & Young LLP San Diego, California July 6, 1999 EX-23.3 32 EXHIBIT 23.3 Exhibit 23.3 CONSENT OF ERNST & YOUNG LLP, TAX ADVISOR We consent to the reference to our firm under the caption "Tax Matters" and to the use of our tax opinion dated June 4, 1999 regarding the U.S. and Canadian federal income tax consequences of the Domestication and Share Consolidation of TomaHawk Corporation, included as an Exhibit to the Registration Statement (Form S-4) of TomaHawk Corporation for the registration of shares of its common stock. Ernst & Young LLP San Diego, California July 6, 1999 EX-27.1 33 EXHIBIT 27.1
5 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 169,129 0 2,477,292 298,939 0 2,437,206 3,235,547 943,137 6,453,870 4,150,623 0 0 547 9,358,973 (8,968,453) 6,453,870 13,546,510 13,546,510 9,564,315 9,564,315 316,198 0 321,195 (1,564,645) 0 (1,564,645) 0 0 0 (1,564,645) (.02) (.02)
EX-27.2 34 EXHIBIT 27.2
5 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 74,578 0 2,023,423 298,939 0 2,006,035 3,374,289 1,115,792 5,963,232 4,209,883 0 0 547 9,585,025 (9,964,837) 5,963,232 2,481,621 2,481,621 1,947,097 1,947,097 0 0 111,924 (858,848) 0 (858,848) 0 0 0 (858,848) (.01) (.01)
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