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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
commission file number: 0-27772
METROWERKS INC.
(exact name of registrant as specified in its charter)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the voting stock by non-affiliates of
the registrant as of September 15, 1997 was $54,679,485.
Number of shares of common stock outstanding as of September 15, 1997:
11,555,366
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TABLE OF
CONTENTS
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Part I
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Item 1. Business 3
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 18
Item 6. Selected Consolidated Financial Data 19
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 20
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 24
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 24
Part III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners
and Management 30
Item 13. Certain Relationships and Related Transactions 30
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 31
Signatures 33
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PART I.
Except for the historical information contained herein, the discussion in this
Form 10-K contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below, as well as under the
captions "Additional Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ITEM 1. Business
Metrowerks Inc. ("Metrowerks" or "the Company") was amalgamated on January 1,
1990 under the Canada Business Corporations Act and the information contained
herein includes that of the Company and its two wholly-owned subsidiaries,
Metrowerks Corporation, a Texas corporation, which was formed in June 1994, and
Metrowerks Co. Ltd., a Japanese corporation, which was formed in October 1996.
Metrowerks is a computer software development company that designs, develops,
markets and supports software programming tools. The Company's products are used
primarily by professional software programmers and by programmers in the
academic community to create software applications. The Company's principal
product line, Metrowerks(R) CodeWarrior(R), consists of a suite of programming
tools used to develop software in the C, C++, Pascal, Java(TM) and Assembly
programming languages.
CodeWarrior is hosted on the Windows(R) 95 and Windows NT(R)-based and
Macintosh(R) computers and is used to develop software for platforms using a
variety of operating systems ("OS") including desktop operating systems Windows
95 and Windows NT and Mac(R) OS, Real-Time embedded Operating Systems ("RTOS")
such as Nucleus OS(TM), OS-9(TM), Precise/MQX OS(TM) and Tacit OS(TM) and
proprietary embedded operating systems such as PlayStation(TM) OS and Palm
OS(TM).
The Company's principal line of products, known as CodeWarrior, includes an
Integrated Development Environment ("IDE") which includes: native and two-
machine debuggers, which use a common user interface and which provide source-
level debugging capabilities for a variety of operating systems, including those
listed above; a text editor for editing source code; class browsers used for
developing and editing programs in object-oriented languages such as C++ and
Java; a state-of-the-art project manager which obsoletes "make"files; computer
language compilers for compiling source code written in C, C++, Pascal, Java,
and assembly programming languages into machine code for a variety of
microprocessors, including the 68K, PowerPC(R), x86, and MIPS(R) families of
microprocessors; and linkers, which permit compiled object code to be linked to
create "executable object code," or what is known as software programs.
The Company believes that CodeWarrior has become the industry standard for
developing Macintosh programs, and that its CodeWarrior products have been used
to program over 75% of all software applications that run native on the Power
Macintosh(TM) computer. Since the introduction of the CodeWarrior in
January 1994, the number of registered users of CodeWarrior has grown to over
100,000 users in 75 countries.
BACKGROUND
PROGRAMMING LANGUAGES AND COMPILERS
Microprocessors operate based on electrical impulses, with each character or
"bit" consisting of "on" (current or "1") and "off" (no current or "0"). Each
keystroke on the computer keyboard is represented by one "byte," which is
composed of a unique sequence of eight bits. This programming language is known
as machine language or object code. Because it is difficult and cumbersome to
program in object code, programming languages that use the standard 26-letter
alphabet have been devised. Programming languages are divided into two basic
types: low-level and high-level. Low-level languages, known as assembly
languages, map the logic of the instructions that a microprocessor processes on
a one-for-one basis. Programs written in assembly language are very efficient in
their use of microprocessor memory. However, because of this one-to-one mapping
to a particular microprocessor's instruction set, there is not "one" assembly
language but rather one for every kind of microprocessor. In order for a program
written in assembly language for a particular kind of microprocessor to
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operate on a different kind of microprocessor, the program must be rewritten for
the other platform. Therefore, programming in assembly languages takes longer,
is expensive and requires a great deal of technical training and skill.
The problems inherent in low-level languages led to the development of high-
level languages. From the perspective of the programmer, these high-level
languages are easier to use and understand. Currently, the dominant high-level
programming languages are:
COBOL - used for programming mainframe-based applications;
BASIC - used for database application front-end development and in education;
Pascal - used for education purposes;
C and C++ - the dominant programming languages used for developing "shrink-
wrapped" Windows and Macintosh applications software, and used increasingly to
develop software for 32-bit embedded systems; and
Java - used for networking-based applications where Java-optimized bytecodes can
run on a variety of hardware, and do not need to be rewritten in native mode to
run on each specified platform.
Because high-level languages use their own logic to solve problems and do not
match the microprocessor's instruction set on a one-for-one basis, their "source
code" must be translated, or compiled, into object code. This task is performed
by software programs, known as compilers, which convert a software application
written in source code into object code that a particular microprocessor can
understand. Development of all software applications requires that source code
be compiled into object code, and thus one of the most important tools a
programmer uses is a compiler.
TECHNOLOGICAL TRENDS
The continuing evolution of computer technology has dramatically impacted the
environment in which computer programmers must operate. The development of
new programming languages and new operating systems, as well as the emergence
of new types of microprocessors, have all created new demands on programmers.
One of the most significant changes has been the increased number of 32-bit
microprocessors used in desktop and embedded systems. This shift resulted in
the development of new operating systems for the desktop and embedded systems
markets, the creation of major new microprocessors, such as Intel's Pentium(R)
family of processors, the increased use of object-oriented programming
languages, most notably C++ and Java, and the importance of networking and
communications technology. Prior to the invention in the 1980's of relatively
low-cost Dynamic Random Access Memory ("DRAM"), programmers went to great
lengths to "optimize" their software to use as little memory as possible,
resulting in relatively longer product development times. Today's competitive
environment for desktop and embedded applications software requires that
reliable software applications be developed with a wide variety of features and
brought to market quickly and in a cost-effective manner. Today's programmer
must balance optimization and use of memory and systems resources with time-to-
market considerations.
The introduction and increasing use of Reduced Instruction Set Computing
("RISC") technology such as the PowerPC microprocessors now used in the Power
Macintosh computer and the modified RISC architectures of the Pentium, Pentium
Pro and Pentium II microprocessors, has also affected the applications software
market. RISC-based microprocessors utilize different instruction sets than the
traditional complex instruction set utilized in other common microprocessors
such as Intel's X86 or Motorola's 68K family of microprocessors. Because of
their relatively low cost, 32-bit RISC-based microprocessors are being utilized
in embedded systems applications in consumer electronics products, hand-held
computers, set-top boxes, game machines, telecommunications products, automotive
products and other electronic systems. These 32-bit microprocessors permit more
features and functionality than can be programmed into 4-, 8- or 16-bit
microprocessors, which have lower computing power and memory capability.
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NEEDS OF PROGRAMMERS
The Company believes that software companies and their programmers regard the
following as critical attributes of programming tools:
* BUILD TIME. The company believes that today, programmers are somewhat less
concerned with optimizing a software product to the maximum extent possible and
are more concerned with developing a reliable product with a wide variety of
features and bringing it to the market quickly and in a cost-effective manner.
Therefore, "build time," the time it takes to convert a set of source code
instructions into a finished application, has become critically important to
programmers. Shorter build times allow programmers more time to add features to
an application and to test and debug the software.
* SPEED, SIZE AND QUALITY OF OBJECT CODE. The speed at which a microprocessor
runs object code or instructions can affect the product development process and
marketability of the finished software applications. As software applications
become more complex, the object code to be run by the microprocessor becomes
increasingly longer. As a result, microprocessors run software applications at
slower speeds and more memory is required to run the software. Therefore, while
compilers must produce object code that is reliable and that can accurately run
all of the features of the software, the object code must be compact enough so
that the software applications runs quickly and does not require excessive
memory.
* EASE OF USE. Because of the sophisticated nature of software development and
the large number and geographic dispersion of programmers, customer on-site
visits are not always practical. Therefore, programming tools should be
contained in a development environment that permits the use of tools in an
integrated and user-friendly manner.
* FREQUENCY OF UPDATES. Due to the increased pace of microprocessor innovation,
changes in operating systems and evolving standards for programming languages,
programming tools must be updated frequently. Programmers must keep current
with these changes so that the development process is not delayed by requiring
programmers to spend time modifying the software applications to reflect such
changes.
* SOPHISTICATED DEBUGGING. Because of the increasing complexity of software,
programming tools must provide debugging capabilities sophisticated enough to
permit programmers to test software quickly and thoroughly to identify and
correct "bugs" in the software being developed. This need is particularly
critical for developers of embedded applications, which are usually burned into
read-only memory ("ROM").
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STRATEGY
The Company's vision is to be the leading high-volume provider of cost-effective
standardized programming tools for software developers in the desktop and
embedded systems markets. The Company has focused on providing developers with a
single IDE that allows programmers to write software applications in a variety
of programming languages targeted at a variety of microprocessors and operating
systems used in the desktop and embedded systems markets. The key elements of
the Company's strategy are as follows:
BROADEN PRODUCT OFFERINGS. The Company believes that its future success is
highly dependent on its ability to market CodeWarrior products that have a
variety of front-ends and back-ends in order to reach as large a group of
potential customers as possible. In furtherance of this element of its strategy,
the Company intends to:
Expand By Developing Back-Ends for Embedded Platforms. The Company's
initial products had back-ends for Motorola 68K and PowerPC microprocessors
used by the Macintosh computer. The Company has since developed back ends
for the x86 and MIPSfamilies of microprocessors. The Company is in the
process of developing back ends for the NECVR/V8xx , ARMand Hitachi SuperH
families of microprocessors which are popular in the embedded systems
market.
Increase Support for a Variety of Operating Systems. The Company currently
supports development for desktop operating systems such as Windows 95 and
Windows NT; and Mac OS; RTOS such as Nucleus OS, OS-9, Precise/MQX OS; and
Tacit OS and proprietary embedded operating systems such as PlayStation OS
and Palm OS. The Company anticipates supporting additional multi-purpose,
RTOS and proprietary operating systems in the future. The Company's
intention is to provide developers with the ability to target a variety of
operating systems and the related microprocessors from the CodeWarrior IDE.
Partnering Agreements. The Company has entered into product development
agreements with various companies. The details of these arrangements vary,
but generally they provide that Metrowerks will develop programming tools
and receive payments for both its development efforts and either ownership
of, or a license to market, the developed programming tools. The other
party to these agreements is generally permitted to utilize the developed
tools for its own internal use, or in certain instances, to bundle the
tools with hardware developed by such party. These partnering agreements
have provided the Company with a significant amount of revenue,
constituting approximately 26% of its revenue for fiscal 1997. As a result,
the Company is able to devote more of its financial resources to research
and development than it would otherwise be able to do. There can be no
assurance that the Company will be able to continue to enter into these
arrangements in the future.
CONTINUED ENHANCEMENTS TO THE COMPANY'S WINDOWS 95 AND WINDOWS NT-HOSTED
PRODUCTS. In fiscal 1997, the Company completed the port of its programming
tools to be hosted on the Windows 95 and Windows NT operating systems which
allows the Company's products to be used by programmers who are PC-hosted. The
Company plans to add several functions to these tools in the near future,
including a resource editor and rapid application development tools. These
additions to the Company's Windows-95 and Windows-NT hosted tools will make the
product more competitive with existing tools in this market. The Company
believes that the majority of software applications for the embedded systems
market is, and will continue to be, programmed on the Window 95 and Windows NT-
based desktop computers or UNIX-based workstations. By improving the quality of
its tools in this market, the Company hopes to expand its base of potential
embedded systems programmers as well s increase its penetration into the market
of Windows-hosted programmers developing applications for the Window 95 and the
Windows NT operating systems.
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TARGET THE EDUCATIONAL MARKET. The Company currently markets its CodeWarrior
Academic product to universities, colleges and high schools and many have
standardized on CodeWarrior for computer programming classes. Use of CodeWarrior
as a standardized programming tool in the teaching of programming eliminates the
need for professors to teach students one development environment on Windows and
a different one on Macintosh. The Company believes that if computer programming
students become familiar with the Company's programming tools while they are in
school they may be more likely to utilize its products when they enter the job
market.
DISTRIBUTION. Because of the relatively low retail price of the Company's
products, it is not economically feasible for the Company to emphasize direct
sales as a method of distribution. Accordingly, the Company relies and intends
to continue to rely on indirect methods of distribution, such as distributors
and mail order catalogs, for its products. The embedded systems market has
historically been a direct sales market and there can be no assurance that the
Company will be able to locate these distributors for its embedded systems
products.
MAINTAIN LEADERSHIP IN THE MACINTOSH COMPUTER MARKET. The Company believes that
its CodeWarrior product have become the industry standard for Macintosh
computer-hosted programming tools and that its CodeWarrior products have been
used to program over 75% of all commercially available software applications for
the Power Macintosh computer. The Company's intention is to maintain this
position through continued enhancements to its Macintosh tools.
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PRODUCTS
The following is a listing of the Company's products which represent over 90
percent of the Company's total product revenues:
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DESKTOP PRODUCTS
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PRODUCT NAME DESCRIPTION RETAIL PRICE $US(1)(2)
CODEWARRIOR PROFESSIONAL Our flagship product which includes: the $599
CodeWarrior IDE hosted on Windows 95 and
Windows NT, and MacOS operating systems;
C, C++, Pascal, Java and Assembly front
ends; back ends for developing software
applications to run on Windows 95 and
Windows NT on x86 microprocessors or Mac
OS running on 68K or PowerPC micro-
processors.
CODEWARRIOR PROFESSIONAL ACADEMIC(3) This product is identical to CodeWarrior $119
Professional and is marketed to the
academic community. This product is
limited to noncommercial use.
CODEWARRIOR DISCOVER PROGRAMMING(TM) Entry-level product designed to enable $79
EDITION FOR MACINTOSH(3) people to teach themselves programming.
This edition contains the CodeWarrior
IDE hosted on Mac OS; C, C++, Java and
Pascal front-ends.
CODEWARRIOR DISCOVER PROGRAMMING EDITION Entry level product designed to enable $79
FOR WINDOWS 95 AND WINDOWS NT(3) people to teach themselves programming.
This edition contains the CodeWarrior
IDE hosted on Windows 95 and Windows NT
operating systems; C, C++, Java and
Pascal front-ends.
METROWERKS VISUAL SOURCESAFE This product is a cross-platform version $499
FOR MACINTOSH(TM) control solution for Mac OS. It is
specifically designed for large software
development teams to increase productivity.
CODEWARRIOR FOR BEOS(TM) This product includes the CodeWarrior IDE $299
which runs native on the BeOS; C, C++, and
Java front-ends; back-end for developing
applications to run on the BeOS.
CODEWARRIOR LATITUDE(TM) A porting tool designed to assist developers $399
in moving applications running on the Mac OS
to Apple's next generation operating system,
Rhapsody.
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(1) Represents current retail price. Future prices are subject to change.
(2) Each CodeWarrior product entitles the registered user to receive one additional update during the year. In subsequent years, the
registered user may re-register for a year and receive two updates that year for an annual fee which currently ranges from US$75
to US$299.
(3) Users of CodeWarrior Academic are only permitted to utilize CodeWarrior Academic for academic purposes and not for commercial
programming. Updates are not available for the Company's Discover Programming product and a new product must be purchased if an
updated version is released. This product is sold primarily in retail outlets.
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EMBEDDED SYSTEMS PRODUCTS
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PRODUCT NAME DESCRIPTION RETAIL PRICE $US(1)(2)
CODEWARRIOR FOR PALMPILOT(TM) The product includes the CodeWarrior IDE $369
hosted on Windows 95 and Windows NT and
Mac OS operating systems; contains a C
front-end; back-end for developing soft-
ware applications to run on the Palm OS
used in the 3COM(R) Mark PalmPilot.
CODEWARRIOR FOR SONY PLAYSTATION This product includes the CodeWarrior IDE $899
hosted on Windows 95 and Windows NT and
Mac OS operating systems; C, C++ and
Assembly front-ends; back-end for developing
applications to run on the Sony PlayStation
Development System.
CODEWARRIOR FOR POWERPC EMBEDDED SYSTEMS This product includes the CodeWarrior IDE $899
hosted on Windows 95 and Windows NT operating
systems; C, C++ and Assembly front-ends;
back-ends for developing applications software
to run on Motorola(R) MPC 821/860
microprocessors.
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(1) Represents current retail price. Future prices are subject to change.
(2) Each CodeWarrior product entitles the registered user to receive one additional update during the year. In subsequent years, the
registered user may re-register for a year and receive two updates that year for an annual fee which currently ranges from
US$75 to US$899.
The Company is currently developing additional back-ends and front-ends to its CodeWarrior products and has announced that future
versions of CodeWarrior will provide programming tools for the following platforms:
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CODEWARRIOR PRODUCTS UNDER DEVELOPMENT
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PRODUCT NAME DESCRIPTION
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CODEWARRIOR FOR OS-9 This product will include the CodeWarrior IDE coupled with
Microware's Ultra C/C++ compiler; hosted on Windows 95 and
Windows NT; back-end for developing software applications
to run on Microware's OS-9 on PowerPC and Motorola's 68K
microprocessors.
CODEWARRIOR FOR MIPS EMBEDDED SYSTEMS This product will include the CodeWarrior IDE hosted on
Windows 95 and Windows NT; C, C++ and Assembly front-ends;
back-ends for developing software applications to run on
MIPS RISC microprocessors.
CODEWARRIOR FOR NEC EMBEDDED SYSTEMS This product will include the CodeWarrior IDE hosted on
Windows 95 and Windows NT; C, C++ and Assembly front-ends;
back-ends for developing software applications to run on
NEC VR/V8xx microprocessors.
CODEWARRIOR FOR ARM EMBEDDED SYSTEMS This product will include the CodeWarrior IDE hosted on
Windows 95 and Windows NT; C, C++ and Assembly front-ends;
back-ends for developing software applications to run on
ARM microprocessors.
CODEWARRIOR FOR SUPERH EMBEDDED SYSTEMS This product will include the CodeWarrior IDE hosted on
Windows 95 and Windows NT; C, C++ and Assembly front-ends;
back-ends for developing software applications to run on
Hitachi SuperH microprocessors.
CODEWARRIOR FOR WINDOWS CE EMBEDDED SYSTEMS This product will include the CodeWarrior IDE hosted on
Windows 95 and Windows NT; C, C++ and Assembly front-ends;
back-ends for developing software applications to run on
various microprocessors.
CODEWARRIOR FOR JAVA ON SOLARIS This product will include the CodeWarrior IDE and
CodeWarrior Java tools to be hosted on Sun's Solaris(TM)
based workstations.
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There can be no assurance that any of these new platforms, operating systems or
programming languages or that any of the Company's proposed programming tools
will achieve commercial success. Failure of a particular platform for which the
Company has developed a back end or a programming language for which the Company
has developed a front end would result in reduced demand for software
applications that run on the platform or in the programming language, which in
turn could adversely affect the Company's business, financial condition and
results of operations. See "Additional Risk Factors-Importance of New Products
and Technological Change."
RESEARCH AND DEVELOPMENT
The Company continues to make substantial investments in research and
development. While the Company believes that its future performance will depend
upon the success of its research and development efforts, it believes that the
modular design of its CodeWarrior products provides it with the ability to
incrementally add a new back end (for a new platform or operating system) or a
new front-end (for a new programming language), thereby significantly reducing
both the cost and the time-to-market required to release new tools for such new
platform, operating system or programming language, than it would otherwise face
if it had to develop an entirely new set of programming tools.
The Company has a program, "Metrowerks Permanent Testing Partners," which helps
supplement the Company's product testing efforts. The Company has a testing
group of over 1,000 customers. This testing group is provided with product
updates or new releases in advance of their release to the public. The members
of this group utilize the product and notify the Company of any errors in the
product, which are then subsequently corrected by the Company's research and
development department prior to the general release of the product. The Company
believes that its Metrowerks Permanent Testing Partners program provides it with
additional product testing and quality control capabilities at very little
additional cost.
The Company has also supplemented its internal product development efforts
through external product development agreements. Such funding is generally
pursuant to agreements with third parties which provide for the Company to
develop programming tools for a specific platform designed by the third party.
The Company receives product development fees, generally to be paid subject to
the Company meeting performance standards and development milestones, which are
usually sufficient to cover all or a substantial portion of the Company's
research and development costs. The Company either owns, or is generally granted
a license to market, these programming tools with its products. The Company
recorded revenues of approximately US$613,000, US$2.3 million and US$4.7 million
pursuant to these product development agreements for fiscal 1995, 1996 and 1997,
respectively. While the Company believes that such development funding will
continue to be available in varying amounts in the future, there can be no
assurance that the Company will continue to be able to enter into such software
development arrangements.
Because of the need to develop new products, the Company has invested, and
continues to invest, substantial resources in its product development efforts.
At July 31, 1997, the Company's research and development staff constituted
approximately 54% of the Company's employees, having grown from 65 employees at
July 31, 1996 to 90 employees at July 31, 1997. The Company also relies on
independent contractors for some of its research and development projects. The
Company incurred costs of approximately US$1.6 million, US$3.3 million and
US$6.5 million on research and development activities for fiscal 1995, 1996 and
1997. Such expenditures constituted 31%, 31% and 35% of revenue, respectively,
for such periods.
The Company has historically released new versions of, or updates for, its
CodeWarrior products at least three times a year. Beginning with the release
of CodeWarrior Professional in May 1997, the Company changed its policy of
releasing, or updating, new versions of its CodeWarrior products to twice a
year. The success of new product introductions and updates depends upon
several factors, including recognition of market requirements, product cost,
timely completion and introduction of new products and the targeted platform,
operating system or programming languages, and quality of new products and
such platforms, operating systems or programming languages. There can be no
assurance that the Company will not encounter delays in the development and
introduction of future products. Software products as complex as those
offered by the Company may also contain undetected errors when first
introduced or as updates are released. Although the Company has
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not experienced any material errors in its products, there can be no assurance
that, despite testing by the Company, errors will not be found in new products
after commencement of commercial shipments, resulting in a loss of or delay in
market acceptance. There can also be no assurance that the Company will
successfully identify new product opportunities and develop and bring new
products to market in a timely manner, that the Company's products will be
accepted by its targeted customers or utilized in connection with its targeted
applications or that products or technologies developed by other companies will
not render the Company's products or technologies obsolete or noncompetitive.
Further, the success of certain of the Company's new tools will depend in part
on the amount of software applications developed for a new platform, operating
system or programming language, which in turn will depend upon the commercial
success of such platform, operating system or programming language introduced by
other companies. The failure of the Company's new product development efforts or
the lack of market acceptance for the Company's new tools would have a material
adverse effect on the Company's business, financial condition and results of
operations. The failure of any new platform, operating system or programming
language for which the Company may have devoted substantial resources in
developing new tools would also have a material adverse effect on the Company's
business, financial condition and results of operations. See "Additional Risk
Factors-Importance of New Products and Technological Change" and "Risk Factors-
Software Defects."
SALES AND MARKETING
SALES. Because of the relatively low retail price of the Company's products, it
is not economical for the Company to, and the Company does not, emphasize direct
sales for its product distribution. The Company sells its products through major
distributors such as Ingram Micro, Inc., and Merisel Americas, Inc., which sell
to retail stores and mail-order catalogs in the United States and Canada and
through distributors that sell to academic institutions. CodeWarrior is listed
in a variety of mail-order catalogs, including MacWarehouse and
PC/MacConnection, two of the largest mail-order software distribution catalogs
specializing in the North American computer market. The Company believes that
software programmers, which are its primary target customers, frequently utilize
mail-order channels rather than retail stores because of the lower prices
offered through such mail order companies. Accordingly, the Company continues to
emphasize mail-order distribution as a significant method of marketing.
Outside of the United States and Canada, the Company sells through distributors
in 22 countries. In fiscals 1995, 1996 and 1997, sales outside of North America
were US$856,000, US$1.9 million and US$4.4 million, respectively. Approximately
24% of the Company's registered users are located outside the United States. The
Company relies primarily on distributors to generate international sales. The
Company generally enters into distribution agreements with these distributors
for a one or two year term, with provisions for annual renewals thereafter.
Product localization (such as translation of user interface prompts and
packaging) is performed for the Company by third parties and by the Company's
Japanese subsidiary.
The Company also maintains a direct sales force of 11 persons at its Austin,
Texas facilities. For the fiscal year ended July 31, 1997, direct sales,
including subscription renewals, accounted for approximately 18% of the
Company's product sales. The Company's direct sales force is primarily
responsible for negotiating site licenses with larger U.S. customers and
fulfilling subscription renewals.
The Company also offers a toll free telephone number for orders which are
processed and filled by the Company's operations center in Austin, Texas. In the
event of the emergence of new distribution channels such as on-line services and
other electronic distribution, the Company may, if cost effective, explore
additional methods of distribution.
MARKETING. The Company markets its products through trade show exhibits and
conferences, presentations to large groups of end-users and advertisements in
various software catalogs and magazines. All marketing, advertising and
public relations activities are performed by the Company's marketing group.
11
<PAGE>
CUSTOMERS
As of July 31, 1997, the Company had over 100,000 registered users of its
CodeWarrior products. Most of the Company's customers are small independent
software vendors who generally purchase one copy of the Company's products. A
large number of students, researchers in academia and university computer
science labs use the Company's academic product line. During fiscal 1997, no one
end user accounted for more than 1% of the Company's product sales.
CUSTOMER AND TECHNICAL SUPPORT SERVICES
The Company believes in providing timely, high quality technical support, which
it believes is critical to maintaining customer satisfaction and is an important
element of the value it provides to customers. The Company provides telephone,
electronic mail and fax-based customer support from 8:00 a.m. to 7:00 p.m.,
C.S.T., five days per week and has a nine member technical support staff.
Members of the Company's technical support staff typically have several years of
experience in areas such as software engineering, software testing or tools
development. Most customer support services for the Company's customers outside
North America are provided through its international distributors; however, the
Company provides the distributors with any needed technical assistance.
COMPETITION
The marketplace for professional programming tools is intensely competitive.
Given the variety of platforms and operating systems on or for which the
Company's products operate, the Company faces competition from many companies.
While many of the Company's competitors are software vendors or other technology
companies who offer products for sale to the public, the Company also faces
competition, particularly in the embedded systems market, from platform
manufacturers who develop software applications and programming tools
internally, and who are therefore less inclined to purchase programming tools
from a third party. See "Additional Risk Factors - Competition." The Company
believes that it must continue to develop new products and introduce
enhancements to its existing products in a timely manner to remain competitive.
Even if the Company introduces new and enhanced products, it may not be able to
compete effectively because of the significantly larger resources available to
many of its competitors. The Company's ability to compete successfully also
depends on a number of other factors both within and outside of its control,
including: product pricing; product quality and performance; its ability to
attract and retain key employees; effectiveness of its sales and marketing;
timing of new product introductions by the Company, its competitors and creators
of new hardware platforms; general market and economic conditions; and
government actions throughout the world. There can be no assurance that the
Company will be able to compete successfully or that competition will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
EMBEDDED SYSTEMS. The market for programming tools for the embedded systems
market is fragmented, highly competitive and characterized by rapid
technology advances. The Company's success will depend on the continued
enhancement of its current products. The Company's products compete with
tools developed internally by companies and tools offered by third parties.
Many platform manufacturers, telecommunications companies and automotive
manufacturers, to name a few, develop software applications and programming
tools internally (proprietary systems), and accordingly, the Company
believes they are less inclined to purchase tools from a third party. In
addition, the Company faces competition from third-party embedded software
providers of operating systems and tools such as Wind River Systems, Inc.,
Integrated Systems, Inc., Microsoft Corporation, GreenHills Software, Inc.
and Cygnus Solutions. Many of the Company's existing and potential
competitors have substantially greater financial, technical, marketing and
sales resources than the Company.
12
<PAGE>
WINDOWS 95 AND WINDOWS NT PROGRAMMING TOOLS. The Company's PC-hosted tools
are new to the market and will need to add additional features to compete
with other PC-hosted programming tools. The Company faces significant and
intense competition from Microsoft, Borland and Watcom in this market. All
of these companies are well established, have strong brand name
recognition, and have substantially greater financial, technical and
marketing re-sources than the Company. There can be no assurance that the
Company will be able to compete successfully with these companies.
MACINTOSH PROGRAMMING TOOLS. With respect to its programming tools for the
MacOS, the Company faces competition from Symantec's Java-based tools. For
Rhapsody, Apple Computer's next generation operating system, the Company
faces significant potential competition from Apple Computer. Symantec and
Apple Computer have substantially greater financial, technical and
marketing resources than the Company. The Company estimates that over 75%
of the Power Macintosh applications available today were built with
CodeWarrior. As Apple Computer ("Apple") is expected to move to Rhapsody in
the second half of 1998, the Company has announced that it will release
development tools for the new operating system. Apple has also announced
their intentions of developing tools for the new operating system, and
there can be no assurance that the Company will be able to maintain its
current market share.
INTELLECTUAL PROPERTY
The Company regards its software as proprietary and attempts to protect it with
copyrights, trademarks, trade secret laws, restrictions on disclosure and
transferring title and other methods, rather than patents. Despite these
precautions, it may be possible for unauthorized third parties to copy certain
portions of the Company's products and obtain and use information the Company
regards as proprietary. While the Company's competitive position may be affected
by its ability to protect its proprietary information, the Company believes that
copyright protections are less significant to the Company's success than other
factors, such as trade secret protection, the knowledge, ability and experience
of the Company's personnel, name recognition and ongoing product development and
support.
The Company licenses its products primarily under "shrink wrap" licenses (that
is, licenses included as part of the product packaging). Shrink wrap licenses
are not negotiated with or signed by individual licensees and purport to take
effect upon the opening of the product package. Certain provisions of such
licenses, including provisions protecting against unauthorized use, copying,
transfer and disclosure of the licensed program, may be unenforceable under the
laws of certain jurisdictions. In keeping with industry standards, the Company
does not copy protect its software. Accordingly, it may be possible for
unauthorized parties to copy or reverse engineer the Company's products or
otherwise obtain and use information that the Company regards as proprietary.
Furthermore, there can be no assurance that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's products. Policing unauthorized use of the Company's products
is difficult, and while the Company is unable to determine the extent of
software piracy of its products, software piracy can be expected to be a
persistent problem. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to the same extent as do the laws of
the United States and Canada.
As the number of software products in the industry increases and the
functionality of these products further overlaps, the Company believes that
software programs will increasingly become subject to infringement claims.
There can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products.
Any such assertion could require the Company to enter into license or royalty
arrangements or result in costly litigation. There can be no assurance that such
license or royalty agreements will be available on reasonable terms or at all.
Although the Company believes that it currently owns or has adequate rights to
utilize all material technologies relating to its existing products, as it
develops new back ends and front ends for its CodeWarrior products, it
anticipates that it may find it desirable or necessary to obtain other licenses
from third parties entitling it to use certain technologies. There can be no
assurance that such licenses would be available to the Company on acceptable
terms, if at all. The Company currently
13
<PAGE>
has non-exclusive licenses to certain software programs from Microsoft, a
competitor of the Company. The licensed technologies are incorporated in the
Company's Windows 95 and Windows NT hosted products. These licenses will expire
upon the next major release of Windows 95 and Windows NT. The Company licenses
operating system software from Apple pursuant to a non-exclusive license. The
Company pays a license fee to Apple for this licensed technology. The agreement
has a term of one year and is automatically renewable for successive one-year
terms, subject to earlier termination by Apple upon nine month's written notice.
In connection with the development of its programming tools for the Java
programming language, the Company has a non-exclusive license with Sun Microsy
stems ("Sun") to use or modify the Java programming language for the purpose of
developing a Java-based CodeWarrior product. This license is for an initial
five-year term and is renewable by the Company for up to five successive one-
year terms. The Company pays Sun a royalty based upon the number of CodeWarrior
products sold that incorporate the Java technology. Termination by Microsoft,
Apple or Sun or the lapse of these agreements would require product redesign and
could significantly increase research and development costs or would require the
Company to obtain licenses from third parties, which may not be available to the
Company on acceptable terms, if at all. The Company's loss or inability to
obtain necessary or desirable licenses from third parties could have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Additional Risk Factors-Proprietary Technology."
PRODUCTION AND BACKLOG
The Company's manufacturing operations consist of assembling, packaging and
shipping the software products and documentation needed to fulfill each order.
All fulfillment and shipping is currently performed in Austin, Texas. The
Company's products are CD-ROM based. The Company produces its own CD-ROM master
disks, with disk duplication performed by third parties. Other than software
user documentation, the Company does not ship documentation such as user manuals
with its product, although a copy of such documentation is available on the CD-
ROM disk and a printed version is available to users for an additional fee.
The Company does not believe that backlog is a meaningful indicator of sales
that can be expected in future periods, particularly in view of the fast pace of
technological change in the software industry. The Company generally ships its
products within a few days after acceptance of a customer purchase order and,
therefore, has insignificant product backlog. Product development agreement
revenue backlog was approximately US$780,000 as of July 31, 1997.
EMPLOYEES
As of July 31, 1997, the Company employed 167 full-time personnel, including 90
in research and development; 9 in technical support; 37 in sales and marketing;
and 31 in management and administration. The Company's employees are not
represented by any collective bargaining organization, and the Company has never
experienced a work stoppage. The Company believes its success will depend in
part on its continued ability to attract and retain highly qualified personnel
in a competitive market for experienced and talented software engineers and
sales and marketing personnel. See "Additional Risk Factors - Dependence on Key
Personnel."
ADDITIONAL RISK FACTORS
FLUCTUATIONS IN QUARTERLY RESULTS. The Company has experienced significant
period-to-period fluctuations in revenues and operating results and anticipates
that such fluctuations will continue. These fluctuations may be attributable to
a number of factors, including the volume and timing of orders received during
the quarter, the timing and acceptance of new products and product enhancements
by the Company or its competitors, stages of product life cycles, purchasing
patterns of customers and distributors, market acceptance of products sold by
the Company's customers, competitive conditions in the industry, business cycles
affecting the markets in which the Company's products are sold, extraordinary
events, such as acquisitions, including related charges, and economic conditions
generally or in specific geographic areas. The future operating results of the
Company may fluctuate as a result of these and other factors, including the
Company's ability to continue
14
<PAGE>
to develop innovative and competitive products. In addition, the Company
has not entered into long-term product development agreements with its
customers, and the timing of product development agreement fees is difficult to
predict. The procurement process of the Company's customers is often several
months or longer from initial inquiry to order and may involve competing
considerations. Further, as licensing of the Company's products increasingly
becomes a more strategic decision made at higher management levels, there can be
no assurance that sales cycles for the Company's product will not lengthen.
Product revenue in any quarter depends on the volume and timing of orders
received in that quarter. Because the Company's staffing and operating expenses
are based on anticipated total revenue levels and a high percentage of the
Company's costs are fixed in the short term, small variations between
anticipated orders and actual orders, as well as non-recurring or large orders,
could cause disproportionate variations in the Company's operating results from
quarter to quarter.
A number of additional factors may cause the Company's revenues and operating
results to vary significantly from period to period. These factors include:
software "bugs" or other product quality problems, changes in operating
expenses, changes in Company strategy, personnel changes, foreign currency
exchange rates, and mix of products sold. Although the Company has seen
significant revenue growth for the last several years, there can be no assurance
that the Company will be able to continue its growth in revenue or profits on a
quarterly or annual basis. Due to all of the foregoing factors, the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as an indication of future
performance. It is possible that, in some future quarters, the Company's
operating results could be below the expectations of stock market analysts and
investors. In such event, the price of the common stock could be materially and
adversely affected.
IMPORTANCE OF NEW PRODUCTS AND TECHNOLOGICAL CHANGE. The market for embedded
programming tools is fragmented and the market for desktop and embedded
programming tools is characterized by ongoing technological developments,
evolving industry standards and rapid changes in customer requirements. The
Company's success depends upon its ability to continue to develop and introduce
in a timely manner new products that take advantage of technical advantages, to
continue to enhance its existing product lines, to offer its products across a
spectrum of microprocessor families and operating systems used in the embedded
systems market and to respond promptly to customers' requirements. The Company
must continuously update its existing products to keep them current with
changing technology and must develop new products to take advantage of new
technologies that could render the Company's existing products obsolete. The
Company has historically experienced minor delays in the development of new
products. Such delays are common in the software industry and are likely to be
experienced by the Company in the future. The Company's future prospects depend
upon the Company's ability to increase the functionality of existing products in
a timely manner and to develop new products that address new technologies and
achieve market acceptance. New products and enhancements must keep pace with
competitive offerings, adapt to evolving industry standards and provide
additional functionality. There can be no assurance that the Company will be
successful in developing and marketing, on a timely basis or at all, competitive
products, product enhancements and new products that respond to technological
change, changes in customer requirements and emerging industry standards, or
that the Company's new or enhanced products will adequately address the changing
needs of the marketplace. The inability of the Company, due to resource
constraints or technological or other reasons, to develop and introduce new
products or product enhancements in a timely manner could have a material
adverse effect on the Company's business, financial condition or results of
operations. From time to time, the Company or its competitors may announce new
products, capabilities or technologies that have the potential to replace or
shorten the life cycles of the Company's existing products. There can be no
assurance that announcements of currently planned or other new products will not
cause customers to defer purchasing existing Company products. Any failure by
the Company to anticipate or respond adequately to changing market conditions ,
or any significant delays in product development or introduction, would have a
material adverse effect on the Company's business, financial condition and
results of operations. If the results of product development efforts are
inadequate or delayed, the Company's business, financial condition and results
of operations would be materially adversely affected.
15
<PAGE>
DEPENDENCE ON KEY PERSONNEL The Company has experienced, and expects to continue
to experience, significant growth in the number of employees, the scope and
complexity of its operating and financial systems and the geographic dispersion
of its operations. The Company's continued success will depend significantly on
its ability to integrate new operations and new personnel. There can be no
assurance that the Company will be successful in achieving such integration
efficiently. In addition, the Company anticipates the need to relocate its
management, engineering, marketing, sales and customer support and distribution
and fulfillment operations to a new facility in the near future. There can be no
assurance that any such relocation will be accomplished efficiently, or that the
Company's operations will not be materially and adversely affected by such
relocation. The Company's future performance depends to a significant degree
upon the continued contributions of its key management, product development,
marketing, sales, customer support and operations personnel, several of whom
have joined the Company only recently. In addition, the Company believes its
future success will depend in large part upon its ability to attract and retain
highly-skilled managerial, product development, marketing, sales, customer
support and operations personnel, many of whom are in great demand. Competition
for such personnel is intense and there can be no assurance that the Company
will be successful in attracting and retaining such personnel. The failure of
the Company to attract, integrate and retain the necessary personnel could have
a material adverse effect on the Company's business, financial condition and
results of operations.
PROPRIETARY TECHNOLOGY. The Company's success is heavily dependent upon its
proprietary technology. To protect its proprietary rights, the Company relies on
a combination of copyright, trade secret, trademark laws, nondisclosure and
other contractual restrictions on copying, distribution and technical measures.
The Company seeks to protect its software, documentation and other written
materials through trade secret and copyright laws, which provide only limited
protection. As a part of its confidentiality procedures, the Company generally
enters into nondisclosure agreements with its employees, consultants,
distributors and corporate partners and limits access to and distribution of its
software, documentation and other proprietary information.
SOFTWARE DEFECTS. As a result of their complexity, software products may contain
undetected errors or compatibility issues, particularly when first introduced or
as new versions are released. There can be no assurance that, despite testing by
the Company and testing and use by current and potential customers, errors will
not be found in new products after commencement of commercial shipments. The
occurrence of such errors could result in loss of or delay in market acceptance
of the Company's products, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
INTERNATIONAL SALES. In the fiscal years ended July 31, 1995, 1996 and 1997, the
Company derived approximately 17%, 18%, and 24%, respectively, of its total
revenue from sales outside of North America. The Company expects that
international sales will continue to generate a significant percentage of its
total revenue in the foreseeable future. International operations are subject to
certain risks, including foreign government regulation; more prevalent software
piracy; longer payment cycles; unexpected changes in, or imposition of,
regulatory requirements, tariffs, import and export restrictions and other
barriers and restrictions; greater difficulty in accounts receivable collection;
potentially adverse tax consequences; the burdens of complying with a variety of
foreign laws; staffing and managing foreign operations; political and economic
instability; changes in diplomatic and trade relationships; possible
recessionary environments in economies outside the United States; and other
factors beyond the control of the Company. Sales by the Company's Japanese
subsidiary are denominated in the local currency, and an increase in the
relative value of the dollar against such currencies would reduce the Company's
revenues in dollar terms or make the Company's products more expensive and,
therefore, potentially less competitive in foreign markets. There can be no
assurance that the Company's future results of operations will not be adversely
affected by currency fluctuations. The Company relies on distributors for sales
of its products in certain foreign countries and, accordingly, is dependent on
their ability to promote and support the Company's products. The Company's
international distributors generally offer products of several different
companies, including in some cases products that are competitive with the
Company's products, and such distributors are not subject to any minimum
purchase or resale requirements. There can be no assurance that the Company's
international l distributors will continue to purchase the Company's products or
provide them with adequate levels of support.
16
<PAGE>
FLUCTUATION IN STOCK PRICE. The market price of the Company's common stock has
fluctuated in the past, and is likely to fluctuate in the future. The Company
believes that various factors, including quarterly fluctuations in results of
operations, announcements of new products by the Company or by its competitors,
and changes in the software industry in general cause, and may continue to
cause, the market price of the common stock to fluctuate, perhaps substantially.
In addition, in recent years the stock market in general, and the shares of
technology companies in particular, have experienced extreme price fluctuations.
This volatility has had a substantial effect on the market prices of securities
issued by the Company and other high technology companies, often for reasons
unrelated to the operating performance of the specific companies. There can be
no assurance that the market price of the common stock will remain at or near
its current level. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has often
been instituted against that company. Such litigation, if instituted against the
Company, could result in substantial costs and a diversion of management
attention and resources, which could have a material adverse effect on the
Company's business, financial condition and results of operations, even if the
Company is successful in such suits. These market fluctuations, as well as
general economic, political and market conditions such as recessions, may
adversely affect the market price of the common stock.
ITEM 2. Properties
The Company's headquarters are located in a leased facility in Austin, Texas,
consisting of approximately 23,000 square feet of office space. This lease
expires in February 1998. The Company leases an additional 14,000 square feet in
Austin, Texas for fulfillment, distribution and administrative operations. This
lease expires in 2001. The Company also leases offices in Cupertino, California;
Boston, Massachussettes; Saint Laurent, Quebec, Canada; and Tokyo, Japan for
sales, marketing and engineering operations. The Company anticipates the need to
relocate both of its Austin operations to a new facility in the near future.
There can be no assurance that any such relocation n will be accomplished
efficiently, or that the Company's operations will not be materially and
adversely affected by such relocation.
ITEM 3. Legal Proceedings
There are no material pending legal proceedings to which the Company is a party
or to which any of the Company's properties are subject.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
17
<PAGE>
PART II.
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Metrowerks' common stock is traded on the Nasdaq National Market under the
symbol MTWKF and The Toronto Stock Exchange and the Montreal Exchange under the
symbol MWK.
The closing price of the Company's common stock as reported by the Nasdaq
National Market as of July 31, 1997 was US$6.38 per share. The price per share
in the following table sets forth the low and high prices in the Nasdaq National
Market for the quarter indicated (all amounts in US $):
<TABLE>
<CAPTION>
LOW HIGH
--- -----
<S> <C> <C>
FISCAL 1996
First quarter ended October 31, 1995 $ - $ -
Second quarter ended January 31, 1996 - -
Third quarter ended April 30, 1996 - -
Fourth quarter ended July 31, 1996 10.72 13.61
FISCAL 1997
First quarter ended October 31, 1996 $ 9.25 $12.00
Second quarter ended January 31, 1997 7.00 11.25
Third quarter ended April 30, 1997 4.88 9.75
Fourth quarter ended July 31, 1997 4.00 7.75
</TABLE>
The closing price of the Company's common stock as reported by The Toronto
Stock Exchange as of July 31, 1997 was Canadian $9.35 per share. The price
per share in the following table sets forth the low and high prices in The
Toronto Stock Exchange for the quarter indicated (all amounts in Canadian $):
<TABLE>
<CAPTION>
LOW HIGH
--- -----
<S> <C> <C>
FISCAL 1996
First quarter ended October 31, 1995 $ 4.75 $ 6.12
Second quarter ended January 31, 1996 6.37 21.50
Third quarter ended April 30, 1996 12.00 18.25
Fourth quarter ended July 31, 1996 12.50 18.55
FISCAL 1997
First quarter ended October 31, 1996 $12.75 $16.15
Second quarter ended January 31, 1997 9.50 14.30
Third quarter ended April 30, 1997 7.00 12.75
Fourth quarter ended July 31, 1997 5.50 10.50
</TABLE>
The Company has not paid dividends and does not plan to pay dividends on its
common stock in the foreseeable future. The Company presently intends to
reinvest earnings to fund future growth. At July 31, 1997, there were
approximately 59 stockholders of record of the Company. Certain record holders
are represented by brokers and other institutions on behalf of stockholders. The
Company believes the total number of beneficial owners of its common stock to be
1,000.
18
<PAGE>
ITEM 6. Selected Consolidated Financial Data
The following selected consolidated financial data should be read in conjunction
with the Consolidated Financial Statements, including the Notes to Consolidated
Financial Statements included elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1993 1994 1995 1996 1997
-----------------------------------------------------------------
(in thousands of U.S. dollars, except share and per share amounts)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenue, net $ 184 $ 2,040 $ 5,143 $ 10,619 $ 18,293
Cost of sales 33 207 910 2,664 4,563
Gross margin 151 1,833 4,233 7,955 13,730
Operating expenses:
Research and development 514 1,080 1,574 3,250 6,486
Selling, administrative and technical support 218 1,053 2,348 4,622 8,109
Depreciation of property and equipment 13 66 155 355 1,154
Non-recurring charge - - - - 4,297
Total operating expenses 745 2,199 4,077 8,227 20,046
Operating income (loss) from operations (594) (366) 156 (272) (6,316)
Other income:
Interest income and other 5 34 98 377 341
Net earnings (loss) $ (589) $ (332) $ 254 $ 105 $ (5,975)
Net earnings (loss) per share(1) $ (0.09) $ (0.05) $ 0.03 $ 0.01 $ (0.52)
Weighted average number of common and
common equivalent shares outstanding (1) 6,336 6,904 7,956 10,620 11,523
YEAR ENDED JULY 31,
1993 1994 1995 1996 1997
-----------------------------------------------------------------
(in thousands of U.S. dollars)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 377 $ 767 $ 4,746 $ 11,498 $ 5,042
Total assets 691 1677 6,634 18,305 14,168
Long-term debt, less current portion 329 201 - - -
Total stockholders' equity (691) 473 5,571 16,437 10,562
</TABLE>
- ----------------------------
(1) For an explanation of the determination of the number of shares used in
computing per share amounts and the weighted average number of common stock
outstanding, see Note 1 to the Financial Statements.
19
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
ALL DOLLAR AMOUNTS REFERRED TO IN THIS SECTION ARE IN THOUSANDS OF U.S. DOLLARS.
FORWARD-LOOKING INFORMATION
Statements in this report concerning expectations for the future constitute
forward-looking statements which are subject to a number of known and unknown
risks, uncertainties and other factors which may cause actual results,
performance or achievements of the Company or industry trends to differ
materially from those expressed or implied by such forward-looking statements.
Relevant risks and uncertainties include, among others, those discussed in Item
1 of Part I under the heading "Additional Risk Factors" and elsewhere in this
report and those described from time to time in the Company's other filings with
the Securities and Exchange Commission, press releases and other communications.
OVERVIEW
Metrowerks designs, develops, markets and supports professional software
programming tools. The Company's products are used primarily by professional
software programmers, and by programmers in the academic community, to develop
software application for a variety of platforms, including Windows 95 and
Windows NT operating systems used by PCs; the Mac OS operating system used by
the Macintosh and Power Macintosh computers; and for proprietary and multi-
purpose real-time embedded operating systems. The Company derives substantially
all of its revenue from a limited number of products. The Company's future
revenue is substantially dependent upon the continued acceptance of its
CodeWarrior products. The Company is also in the process of developing a number
of new products and new versions of existing products and believes that its
future revenue will depend upon the commercial success of these new products.
There can be no assurance that the Company's new products will achieve market
acceptance.
The Company also derives a significant portion of its revenue from product
development agreements pursuant to which the Company receives payments from a
third party for developing programming tools for a particular platform,
operating system or programming language. The amount of revenue the Company
receives from this particular source will depend upon the number of such
agreements to which the Company is a party during such quarter and the timing of
deliverables under such agreements. Further, there can be no assurance that the
Company will be able to continue to enter into such development agreements in
the future. The Company's product development efforts have also entailed
significant research and development expenditures. In addition, to enhance its
competitive position in the future, it will be necessary for the Company to
broaden its product offerings. This objective may require expansion of the
Company's internal product development efforts or acquisitions of or investments
in complementary businesses, products or technologies. Furthermore, if the
Company were unable to enter into new software development agreements in the
future, the Company would, at a minimum, have to increase its internal research
and development expenditures. These higher expense levels combined with
fluctuations in revenue could affect the Company's quarterly and annual results
and result in fluctuations in its operating results. The Company intends to
continue to invest significant amounts in expanding its product line, and,
accordingly, may continue to experience losses and volatility of revenue and
operating results in future periods. The Company believes that the recent
revenue growth rates should not be relied upon as an indication of revenue
growth rates for future periods.
The Company has and will continue to make certain investments in its software
systems and applications to ensure the Company is year 2000 compliant. The
financial impact to the Company has not been and is not anticipated to be
material to its financial position or results of operations in any given year.
On August 1, 1995, the Company adopted the United States dollar as its reporting
currency, and the historical consolidated financial statements have been
restated to present amounts in United States dollars.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
statement of income as a percentage of revenue for the periods indicated.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUE
YEARS ENDED JULY 31,
----------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Revenue, net 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 17.9 10.2 17.7 25.1 24.9
Product margins(1) 82.1 85.9 77.5 63.2 62.8
Operating expenses:
Research and development 279.3 52.9 30.6 30.6 35.5
Selling, administrative and technical support 118.5 51.6 45.7 43.5 44.3
Depreciation of property and equipment 7.1 3.2 3.0 3.3 6.3
Non-recurring charge - - - - 23.5
Total operating expenses 404.9 107.7 79.3 77.4 109.6
Operating income (loss) from operations (322.8) (17.9) 3.0 (2.5) (34.5)
Other income:
Interest income and other 2.7 1.7 1.9 3.5 1.8
Net earnings (loss) (320.1)% (16.2)% 4.9% 1.0% (32.7%)
(1) Product margins are based on product revenues and costs of product sales only.
</TABLE>
REVENUE
The Company recognizes revenue from the sale of its products upon the later of
shipment or the satisfaction of all significant Company obligations. All revenue
is derived from unaffiliated customers. Product returns are estimated and
provided for at the time of sale. Such return allowances as a percentage of
revenue have varied significantly over recent years and periods, reflecting the
Company's experience in product returns as it has significantly expanded the
proportion of its sales through third-party distribution channels and increased
its product portfolio. The Company expects return allowances will continue to
vary in the future. The Company's agreements with its distributors generally
provide the distributors with limited rights to return unsold inventories under
a stock balancing program. The Company monitors activities of its distributors
in an effort to minimize excessive returns and establishes its return allowances
based on its estimates of expected returns. While historically the Company's
returns have been within expectations, the establishment of return allowances
requires judgments regarding such factors as future competitive conditions and
product acceptance, which can be difficult to predict.
The Company also derives revenue from product development agreement fees.
Product development agreement fees related to software development are
recognized on a percentage of completion over the term of the contract, and are
included in revenue in the income statement.
Total revenue, a substantial portion of which has been derived from sales of the
Company's CodeWarrior professional programming tools, increased from $5,143 in
fiscal 1995 to $10,619 in fiscal 1996 and increased 72% in fiscal 1997 to
21
<PAGE>
$18,293. The increase in total revenue in fiscal 1996 was due primarily to
increased product sales of CodeWarrior for Mac OS as our subscriber base
increased from approximately 20,000 registered users at July 31, 1995 to 50,000
users at July 31, 1996. In fiscal 1997, product revenues increased $5,222 from
$8,356 in fiscal 1996 to $13,578 in fiscal 1997. The increase in product
revenues in fiscal 1997 is due primarily to the introduction of new products in
the embedded systems market. In fiscal 1997, the Company launched CodeWarrior
for PalmPilot, CodeWarrior for Sony PlayStation and CodeWarrior for PowerPC
Embedded Systems. All three products contributed significantly to the increase
in product revenue for fiscal 1997. In addition, the Company saw an increase in
sales of desktop products as we added CodeWarrior hosted on Windows 95 and
Windows NT to our product list. In particular, academic sales increased from
fiscal 1996 to fiscal 1997 as universities adopted CodeWarrior for its multi-
language, cross-platform development capabilities. The Company's subscriber base
increased to over 100,000 registered users at July 31, 1997.
In 1996, alliances with new partners such as Microsoft, Sony and Motorola
resulted in an increase in product development agreement revenues of $1,650 from
$613 in fiscal 1995 to $2,263 in fiscal 1996. Product development agreement
revenues increased to $4,715 in fiscal 1997, an increase of 108%. The increase
was the result of new product development agreements in fiscal 1997, including
partnerships with NEC, Motorola, Microsoft and Microware.
COST OF SALES AND PRODUCT MARGIN
Cost of sales consists primarily of the cost of product media and duplication,
the cost of packaging materials, amortization of capitalized research and
development costs, royalties and shipping expenses. Costs associated with
product development agreement revenues are included in research and development
expenses and are not separately identified and approximate revenue. Cost of
sales increased from $910 in fiscal 1995 to $2,664 in fiscal 1996 and increased
71% to $4,563 in fiscal 1997, representing 22%, 37% and 37% of product revenue,
respectively. The increase in cost of sales as a percentage of product revenue
from fiscal 1995 to fiscal 1996 resulted from royalty payments paid by the
Company in 1996 which did not exist in 1995. Margins were also adversely
affected by increased sales of hardware, such as General Magic Inc.'s Magic Cap
Communicator and the 3Com PalmPilot, which have lower margins than software
products. Cost of sales as a percentage of product sales remained flat from
fiscal 1996 to fiscal 1997. The Company changed its production and fulfillment
operations in fiscal 1997 by bringing in-house all packaging, fulfillment and
shipping operations. The effects of this adjustment were not felt until the
fourth quarter of fiscal 1997 when cost of sales, as a percentage of product
sales, decreased to 21%.
OPERATING EXPENSES
Selling, administrative and technical support costs increased from $2,348 in
fiscal 1995 to $4,622 in fiscal 1996 and increased 75% to $8,109 in fiscal 1997,
representing 46%, 44% and 44% of total revenue, respectively. The increases in
1996 and 1997 resulted from the Company's focus on developing the infrastructure
necessary to provide support for the Company's growth and expansion into new
markets. These costs are primarily personnel related, as the Company's selling,
administrative and technical support headcount has increased from 21 at July 31,
1995 to 60 at July 31, 1996 and to 77 at July 31, 1997, with the majority of the
increase in headcount between 1995 and 1996 having occurred in the later part of
1996.
Depreciation costs increased from $155 in fiscal 1995 to $355 in fiscal 1996 and
increased 225% to $1,154 in fiscal 1997, representing 3%, 3%, and 6% of total
revenue, respectively. The increase in 1997 resulted from significant
investments in property and equipment necessary to provide support for the
Company's personnel growth during these periods.
Research and development costs increased from $1,574 in fiscal 1995 to $3,250 in
fiscal 1996 and increased 100% to $6,486 in fiscal 1997, representing 31%, 31%
and 35% of total revenue, respectively. Research and development expenditures
consisted primarily of personnel-related costs. Increases in expenses were due
primarily to the growth of the Company's research and development team required
to expand and enhance the Company's product line. The Company's research and
development headcount increased from 36 at July 31, 1995 to 65 at July 31, 1996
and to 90 at July 31, 1997.
22
<PAGE>
NON-RECURRING CHARGE
The Company recorded a non-recurring charge of $4,297 in the quarter ended April
30, 1997 related to the write-off of certain assets associated with the Mac OS.
The decision to record this charge was based on the significant decline in sales
of Mac OS-related products. In 1997, the Company accelerated its diversification
efforts to focus on the Windows and embedded systems markets and believed that
the Mac OS-related assets were significantly impaired.
PROVISION FOR INCOME TAXES
As a result of accumulated operating losses, the Company did not record any
provisions for income taxes in 1995, 1996 or 1997. As of July 31, 1997, the
Company had net operating loss carryforwards of approximately $4,670, which
begin to expire in 2000. If the Company records profits in future periods, such
losses may reduce the amount of taxes payable.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its cash requirements from cash
generated from operations, the sale of equity securities, bank lines of credit
and long-term and short-term debt. At July 31, 1997 the Company has cash and
cash equivalents of $5,042 and no long-term debt. Metrowerks has working capital
of approximately $7,516 at July 31, 1997 compared to $13,519 at July 31, 1996.
In fiscal 1996 and 1997, the Company's operating activities consumed cash of
approximately $1,405 and $2,867, respectively. In both fiscal 1996 and 1997, the
primary cause of the use in cash from operations was the increase in receivables
resulting from increased sales and increased use of third party distributors. In
fiscal 1997, the Company's net loss of $5,975 included a non-cash charge of
$4,297 related to the write-off of certain assets as described above.
The Company has made significant investments in technology in both fiscal 1996
and 1997 and had cash expenditures of $1,599 and $2,385, respectively, for
property and equipment. Total cash used for investment activities was $2,604 and
$3,689, in fiscal 1996 and 1997, respectively.
In March 1996, the Company completed an offering of 1,000,000 common shares for
net proceeds of $10,341 to obtain the financial resources needed for execution
of its expansion into the embedded systems, Windows and Java markets. Total cash
provided by financing activities was $10,761 and $100 in fiscal 1996 and 1997,
respectively.
The Company currently anticipates that existing funds together with anticipated
cash flow from operations, will be sufficient to meet its working capital and
capital expenditure requirements for at least the next twelve months. To the
extent that these sources of funds are insufficient to meet these requirements,
the Company will be required to raise additional funds. Possible sources of
financing include the sale of equity securities or borrowings from banks. The
sale of additional equity or convertible debt securities could be dilutive.
There can be no assurance that the Company will be able to obtain financing on
commercially reasonable terms, if at all, in the future.
23
<PAGE>
ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
ITEM 8. Financial Statements and Supplementary Data
See "Index to Consolidated Financial Statements" on F-1 for a listing of the
consolidated financial statements filed with this report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
24
<PAGE>
PART III.
ITEM 10. Directors and Executive Officers of the Registrant
The directors of the Company, and certain information about them as of July 31,
1997, are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND OFFICE DIRECTOR SINCE FOR PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JEAN BELANGER January 1, 1990 Chairman and Chief Executive Officer of the
Director, Chairman of the Board & CEO Company; prior to July 1996, Chairman of the
Board of the Company
GREG GALANOS(2)(3) January 1, 1990 President and Chief Technology Officer of the
Director, President & Chief Technology Officer Company; prior to July 1996, President and
Chief Executive Officer of the Company
DAVID PERKINS June 29, 1995 Senior Vice President, Sales and Business
Director, Senior VP Sales & Business Development of the Company; from May 1995
to July 1996, Vice President, Finance and
Chief Financial Officer of the Company; from
October 1991 to April 1995, Partner, Coopers &
Lybrand
STEPHEN LOCKYER(1)(2)(3)(4) May 4, 1992 President of Cornwallis Financial Corporation,
Director a financial services company
TOM WOODS(1)(4) January 30, 1996 Managing Director, CIBC Wood Gundy Securities
Director Inc., a securities dealer
GEOFF BEATTIE(1)(4) October 28, 1996 Partner, Tory Tory DesLauriers & Binnington,
Director and Secretary a law firm
PETER TOLNAI(1)(2)(4) August 21, 1997 President of Orchard Capital Group, Inc., a
Director private equity investment fund; from January
1995 to March 1997, Vice President of Citibank
Canada; prior to January 1995, Managing
Director, Clairvest Group Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Member of the Company's Audit Committee.
(2) Member of the Company's Stock Option Committee.
(3) Member of the Company's Compensation Committee.
(4) Member of the Company's Corporate Governance and Nominating Committee.
</TABLE>
25
<PAGE>
The executive officers of the Company, and certain information about them as
of July 31, 1997, are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AGE POSITION WITH THE COMPANY
<S> <C> <C>
Jean Belanger 43 Chairman, Chief Executive Officer & Director
Greg Galanos 39 President, Chief Technology Officer & Director
David Perkins 35 Senior Vice President, Sales & Business Development & Director
Berardino Baratta 27 Vice President, Research and Development
John Cheuck 29 President, Metrowerks Co., Ltd., Japanese Subsidiary
Dave Mark 39 Vice President, Discover/Academic Products
James Walker 28 Vice President, Operations
Jim Welch 31 Vice President, Finance & Chief Financial Officer
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Jean Belanger became Chairman of Metrowerks in 1989 and joined the Company full-
time in that capacity in 1991. Mr. Belanger earned an M.Sc. (Finance) from the
London School of Economics and a B.Comm. from the University of Ottawa, and is a
Chartered Accountant. Mr. Belanger is located in Austin, Texas.
Greg Galanos founded Metrowerks in 1985. Mr. Galanos is President and Chief
Technology Officer of the Company. Mr. Galanos oversees the Company's research
and development efforts. Mr. Galanos earned an M.Sc. (Computer Science) from the
University of Quebec at Montreal. Mr. Galanos is located in Cupertino,
California.
David Perkins joined Metrowerks in May 1995, as Vice President, Finance and
Chief Financial Officer. Mr. Perkins was appointed Senior Vice President, Sales
and Business Development in 1997. Prior to joining Metrowerks, Mr. Perkins was
an audit partner with Coopers & Lybrand. Mr. Perkins earned a B.Comm. from
McGill University and is a Chartered Accountant. Mr. Perkins is located in
Austin, Texas.
Berardino Baratta is Vice President, Research and Development. Mr. Baratta
joined Metrowerks in 1992 and played an essential role in the early stages of
development of CodeWarrior development tools, the Company's flagship product
line. Mr. Baratta earned a B.Eng. from McGill University. Mr. Baratta is located
in Austin, Texas.
John H.M. Cheuck is President, Metrowerks Co., Ltd. (Tokyo) and leads the
companies efforts in the Asian region with a focus on the Japanese market. Mr.
Cheuck holds a B.A.Sc. (Systems Design Engineering) from the University of
Waterloo and an M.B.A. from the Japan America Institute of Management
Science/University of Hawaii. Mr. Cheuck is located in Tokyo, Japan.
26
<PAGE>
Dave Mark is Vice President, Discover/Academic Products. Mr. Mark joined
Metrowerks in 1995. Mr. Mark has written more than a dozen books on programming
and programming-related topics. He has a BS (Math) from Carnegie-Mellon
University and an M.Sc. in Computer Science and Computer Engineering from
Stanford University. Mr. Mark is located in Washington, DC.
James Walker is Vice President, Operations. Prior to joining Metrowerks in
January 1997, Mr. Walker was a Manager with Price Waterhouse in Dallas. He is a
CPA and earned his B.S. from Kansas State University. Mr. Walker is located in
Austin, Texas.
Jim Welch is Vice President, Finance and Chief Financial Officer. Before joining
Metrowerks in June 1996, Mr. Welch was a Senior Manager at Coopers & Lybrand in
Austin. He is a CPA and earned his B.B.A. from The University of Texas at
Austin. Mr. Welch is located in Austin, Texas.
ITEM 11. Executive Compensation
The following table sets forth certain summary information concerning the
compensation awarded to, earned by, or paid for services rendered to the Company
in all capacities during the fiscal years ended July 31, 1997, 1996, and 1995 by
the Company's Chief Executive Officer and the four most highly compensated
executive officers other than the Chief Executive Officer, collectively the
"Named Executive Officers."
<TABLE>
<CAPTION>
OTHER ANNUAL SECURITIES UNDER
NAME YEAR SALARY (US$) BONUS (US$) COMPENSATION OPTIONS
GRANTED SHARE UNITS (US$)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jean Belanger, 1997 118,615 0 0 15,000
Chairman of the Board 1996 106,498 0 0 0
& CEO 1995 100,868 0 0 0
Greg Galanos, 1997 118,615 0 0 15,000
President & 1996 106,498 0 0 15,000
Chief Technology Officer 1995 100,868 0 0 15,000
David Perkins, 1997 118,615 0 0 20,500(4)
Senior VP, Sales & 1996 106,498 0 0 15,000
Business Development 1995(1) 25,000 0 0 50,000
John Cheuck,President, 1997(2) 146,667 0 27,500 30,000(5)
Metrowerks Co., Ltd.
Dave Mark,Vice President, 1997 80,000 40,000 0 8,500(6)
Discover/Academic Products 1996(3) 63,333 25,000 0 32,500
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Three month period
(2) Eleven month period.
(3) Eleven month period.
(4) 7,500 of these options were originally granted in the financial year ended
July 31, 1996 at an exercise price of US$12.20 (C$17.00) and were repriced
during the financial year ended July 31, 1997 by reducing the exercise price
to US$7.00 (C$9.75). The remainder of these options were granted at an
exercise price of US$10.70 (C$14.90) (as to 5,500) and at an exercise price
of US$8.50 (C$11.85) (as to 7,500) and were repriced by reducing the
exercise price to US$7.00 (C$9.75) during the financial year ended July 31,
1997.
(5) These options were granted at an exercise price of US$10.70 (C$14.90) and
were repriced by reducing the exercise price to US$7.00 (C$9.75) in both
cases during the financial year ended July 31, 1997. (6) 3,500 of these
options were granted at an exercise price of US$10.70 (C$14.90) and were
repriced by reducing the exercise price to US$7.00 (C$9.75) in both cases
during the financial year ended July 31, 1997.
(6) 3,500 of these options were granted at an exercise price of US$10.70
(C$14.90) and were repriced by reducing the exercise price to US$7.00
(C$9.75) in both cases during the financial year ended July 31, 1997.
27
<PAGE>
OPTIONS GRANTED DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
For the purposes herein, a change in the exercise price of an outstanding option
is considered to be a grant of a new option. Accordingly, the following table
sets forth the individual grant of stock options as well as grants resulting
from the repricing of certain stock options which occurred during the fiscal
year ending July 31, 1997 to the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
% OF TOTAL OPTIONS STOCK PRICE
SECURITIES UNDER GRANTED TO EMPLOYEES EXERCISE OR BASE APPRECIATION FOR
NAME OPTIONS GRANTED (#)(1) IN FINANCIAL YEAR(2) PRICE (US$/SECURITY) EXPIRATION DATE OPTION TERMS(5)
$US $US
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jean Belanger 7,500 0.9 11.75 Sept. 16/01 24,347 53,801
7,500 0.9 9.35 Feb. 14/02 19,374 42,812
Greg Galanos 7,500 0.9 11.75 Sept. 16/01 24,347 53,801
7,500 0.9 9.35 Feb. 14/02 19,374 42,812
David Perkins 7,500(3) 0.9 7.00 June 6/01 14,505 32,052
5,500(4) 0.7 7.00 Sept. 16/01 10,637 23,505
7,500(3) 0.9 7.00 Feb. 14/02 14,505 32,052
John Cheuck 30,000(4) 3.6 7.00 Sept. 16/01 58,019 128,207
Dave Mark 3,500(4) 0.4 7.00 Sept. 16/01 6,769 14,957
5,000 0.6 5.06 April 24/02 6,990 15,446
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Options granted are for common stock of the Company. These Options vest at
the rate of one-third per year after each of the three years following the
grant. The Options have a maximum term of 5 years. No financial assistance
is provided by the Company for the purchase of common stock on the exercise
of options.
(2) Based on total option grants/repricings of 837,050.
(3) Granted in fiscal 1996 and repriced in fiscal 1997.
(4) Granted and repriced in fiscal 1997.
(5) Potential realizable value is based on the assumption that common stock of
the Company appreciated the annual rate shown (compounded annually) from the
date of grant until the expiration of the five-year term. These numbers are
calculated based on Securities and Exchange Commission requirements and do
not reflect the Company's estimate of future price growth.
AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
AND FINANCIAL YEAR-END OPTION VALUES
The following table sets forth the total number of securities underlying
unexercised options of the Named Executive Officers and their dollar value
during the financial year ended July 31, 1997 to the Named Executive Officers
exercised stock options during the fiscal year ended July 31, 1997.
<TABLE>
<CAPTION>
SECURITIES UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
NAME ACQUIRED ON AGGREGATE VALUE AT FY-END (#) OPTIONS AT FY-END (1)
EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jean Belanger 0 N/A 0 15,000 0 0
Greg Galanos 0 N/A 0 15,000 0 0
David Perkins 0 N/A 55,000 23,000 US$239,080 US$14,600
(C$332,750) (C$20,500)
John Cheuck 0 N/A 0 30,000 0 0
Dave Mark 0 N/A 10,833 30,167 US$31,912 US$72,450
(C$44,415) (C$100,835)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on a closing stock price of US$6.70 (C$9.35) per common stock on July
31, 1997, the last day the common stock were traded prior to the Company's
1997 financial year end.
28
<PAGE>
STOCK OPTION PLAN
The current stock option plan of the Company (the "Plan") was adopted by the
Board of Directors on June 21, 1995, was approved by the shareholders of the
Company at the annual general meeting of shareholders held on October 26, 1995
and was amended by resolution of the shareholders of the Company at the annual
and special meeting of shareholders held on October 28, 1996 to increase the
number of Shares reserved for issuance under the Plan by 1,000,000 Shares to
2,600,000 Shares. The Plan will terminate in June, 2005. As of July 31, 1997,
there were currently outstanding under the Plan options to purchase a total of
1,166,267 Shares, representing approximately 9% of the issued and outstanding
Shares on a fully-diluted basis.
The Plan provides that options may be granted to the Company's employees,
officers, directors, or consultants, based on the eligibility criteria set out
in the Plan. Under the Plan, the Company may grant either ISOs or Non-ISOs. An
ISO is defined in the Plan as an "incentive stock option", as such term is
defined in section 422 of the United States Internal Revenue Code of 1986, as
amended from time to time (the "Code") and is therefore subject to favorable tax
treatment under the Code. A Non-ISO is defined in the Plan as a stock option
that is not an ISO and is therefore not subject to favorable tax treatment under
the Code.
The options issued pursuant to the Plan will be exercisable at a price which is
equal to the fair market value of the shares at the time the option is granted.
So long as the Company is listed on a stock exchange or over the counter market
and the optionee does not own more than 10% of the total voting power of all
classes of shares of the Company or an affiliate of the Company, fair market
value will be determined as the closing market price for the Shares of the
Company on the Canadian stock exchange which is the principal trading market for
the Shares, as determined by the Committee, on the day immediately preceding the
date of grant.
Options under the Plan are granted for a term not to exceed ten years, but
generally have five year terms from the date of their grant and subject to
certain exceptions in the Plan relating to the death or disability of the
Optionee, the options are non-assignable and non-transferable. The Committee has
full discretion to impose a vesting schedule on the options issued pursuant to
the Plan.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company currently has no employment contracts with any Named Executive
Officers. The Company also has no compensatory plans or arrangements with such
Named Executive Officers where the amounts to be paid exceed $100,000 and which
are activated upon resignation, termination, retirement or upon a change in
control of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Galanos serves on the Compensation Committee for the Board and is President
and Chief Technology Officer of the Company. Mr. Galanos does not participate in
any decisions regarding his compensation.
COMPENSATION OF DIRECTORS
Directors of the Company are able to participate in the Company's Stock Option
Plan. To date, outside directors have been granted 5,000 options each. The
directors are also reimbursed for their reasonable expenses in attending the
meetings of the Board.
29
<PAGE>
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of July 31, 1997 as to (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company (iii) each
of the Named Executive Officers (as defined above) and (iv) all directors and
officers as a group.
Percentage
Name of Shareholder Number of Shares Ownership(1)(2)
- --------------------------------------------------------------------------------
Jean Belanger(3) 1,980,239 17.2 %
Greg Galanos(4) 1,980,239 17.2 %
Stephen Lockyer(5) 506,517 4.4 %
Geoff Beattie(6) 5,667 *
Tom Woods(7) 3,667 *
David Perkins(8) 91,833 *
Dave Mark(9) 12,000 *
John Cheuck(10) 10,000 *
All executive officers as a group (10 persons)(11) 4,607,528 39.4 %
- --------------------------------------------------------------------------------
*Less than 1% of the Company's outstanding common stock
(1) Applicable percentage ownership is based on 11,537,500 shares of common
stock outstanding as of July 31, 1997 together with applicable options for
such stock-holder. Beneficial ownership is determined in accordance with
rules of the Securities and Exchange Commission (the "SEC") and includes
voting and investment power with respect to shares. Shares of common stock
subject to options currently exercisable or exercisable within 60 days
after July 31, 1997 are deemed outstanding for computing the percentage
ownership of the person holding such options, but are not deemed
outstanding for computing the percentage of any other person.
(2) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13G filed with the SEC. Unless
otherwise indicated in the footnotes to this table and subject to community
property laws where applicable, the Company believes that each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned.
(3) Includes 2,500 shares subject to options exercisable within 60 days of July
31, 1997. Mr. Belanger is Chairman and Chief Executive Officer of the
Company. Mr. Belanger's address is c/o Metrowerks Inc., 2201 Donley Dr.,
Suite 310, Austin, TX 78758.
(4) Includes 2,500 shares subject to options exercisable within 60 days of July
31, 1997. Mr. Galanos is President and Chief Technology Officer of the
Company. Mr. Galanos' address is c/o Metrowerks Inc., 2201 Donley Dr.,
Suite 310, Austin, TX 78758.
(5) Includes 1,667 shares subject to options exercisable within 60 days of July
31, 1997. Mr. Lockyer is a director of the Company.
(6) Includes 1,667 shares subject to options exercisable within 60 days of July
31, 1997. Mr. Beattie is a director of the Company.
(7) Includes 1,667 shares subject to options exercisable within 60 days of July
31, 1997. Mr. Woods is a director of the Company.
(8) Includes 61,833 shares subject to options exercisable within 60 days of
July 31, 1997. Mr. Perkins is the Company's Vice President, Sales and
Business Development.
(9) All shares are subject to options exercisable within 60 days of July 31,
1997. Mr. Mark is the Company's Vice President, Discover and Academic
Products.
(10) All shares are subject to options exercisable within 60 days of July 31,
1997. Mr. Cheuck is President, Metrowerks Co. Ltd.
(11) Includes an additional 17,366 shares subject to options exercisable within
60 days of July 31, 1997, held by executive officers not otherwise listed
in this table.
ITEM 13. Certain Relationships and Related Transactions
Mr. Geoff Beattie, a director of the Company, is a partner in the law firm of
Tory Tory DesLauriers & Binnington of Toronto, which was retained by the Company
during its last fiscal year. Total fees paid by the Company to the firm did not
exceed five percent of such law firm's gross revenues for such law firm's last
full fiscal year.
30
<PAGE>
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules and Reports on 8-K
(a) The following documents are filed as part of this report
(1) Consolidated Financial Statements - See "Index to Consolidated
Financial Statements" on F-1
(2) Consolidated Financial Statement Schedule - See"Index to Consolidated
Financial Statements" on F-1
(3) Exhibits
The following exhibits are filed herewith:
Exhibit Number Exhibit Title
3.1 Amended Articles of Incorporation of the Company
3.2 By-Laws of Metrowerks
10.1 Incentive Stock Option Plan and related
agreements
10.2 1995 Stock Option Plan and related agreements
10.3 Lease agreement between the Company and Modular
Power Facilities Limited Partnership
10.4 401(K) Plan of the Company
11 Statement Regarding Computation of Per Share
Earnings
21 List of Subsidiaries
27 Financial Data Schedule
(b) Reports on Form 8-K -
None
31
<PAGE>
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
The financial statements and other information contained in this Annual Report
are the responsibility of Management. They have been prepared in accordance with
generally accepted accounting principles and present fairly the consolidated
financial position, results of operations and changes in financial position of
the Company. Where necessary, Management has made informed judgements and
estimates of the outcome of events and transactions, with due consideration
given to materiality.
As a means of fulfilling its responsibility for the integrity of financial
information included in this Annual Report, Management relies on the Company's
system of internal control. This system has been established to ensure, within
reasonable limits, that the assets are safeguarded, that transactions are
properly recorded and executed in accordance with Management's authorization and
that the accounting records provide a solid foundation from which to prepare the
financial statements.
The Company's independent public accountants are responsible for auditing the
financial statements and giving an opinion on them. As part of that
responsibility, they review and assess the effectiveness of internal accounting
controls to establish a basis for reliance thereon in determining the nature,
timing and extent of audit tests to be applied. Management emphasizes the need
for constructive recommendations as part of the audit process.
The Board of Directors carries out its responsibility for the consolidated
financial statements principally through its Audit Committee, consisting solely
of outside directors, which reviews the financial statements and reports thereon
to the Board. The Committee meets periodically with the independent public
accountants and Management to review their respective activities and the
discharge of their responsibilities. The independent public accountants have
free access to the Committee, with or without Management, to discuss the scope
of their audit, the adequacy of the system of internal control and the adequacy
of financial reporting.
Management recognizes its responsibility for fostering a strong ethical climate
so that the Company's affairs are carried out according to the highest standards
of personal and corporate conduct. This responsibility is characterized in the
code of business conduct which is publicized throughout the Company.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Section 13 or 15(d)
of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
Metrowerks Inc.
By: /s/ Jean Belanger
-------------------------------
(Jean Belanger)
Chairman & Chief Executive Officer
Dated: September 29, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on September 29, 1997.
NAME TITLE DATE
/s/ Jean Belanger Chairman & Chief Executive Officer September 29, 1997
- --------------------
(Jean Belanger)
/s/ Greg Galanos President & Chief Technology Officer September 29, 1997
- --------------------
(Greg Galanos)
/s/ David Perkins Senior VP, Sales & Business Development September 29, 1997
- --------------------
(David Perkins)
/s/ Geoff Beattie Director September 29, 1997
- --------------------
(Geoff Beattie)
/s/ Stephen Lockyer Director September 29, 1997
- --------------------
(Stephen Lockyer)
/s/ Peter Tolnai Director September 29, 1997
- --------------------
(Peter Tolnai)
/s/ Tom Woods Director September 29, 1997
- --------------------
(Tom Woods)
/s/ Jim Welch VP of Finance & Chief Financial Officer September 29, 1997
- --------------------
(Jim Welch) (Principal Financial and Accounting Officer)
33
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of July 31, 1995, 1996
and 1997 F-3
Consolidated Statements of Operations for the years
ended July 31, 1995, 1996 and 1997 F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended July 31, 1995, 1996 and 1997 F-5
Consolidated Statements of Cash Flows for the years
ended July 31, 1995, 1996 and 1997 F-6
Notes to Consolidated Financial Statements F-7
Financial Statements Schedule:
Report of Independent Accountants S-1
Schedule II - Valuation and Qualifying Accounts S-2
All other schedules are omitted as the required information is not applicable or
the information is presented in the consolidated financial statements, related
notes, or other schedules.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Metrowerks Inc.
We have audited the accompanying consolidated balance sheets of Metrowerks
Inc. and Subsidiaries (the "Company") as of July 31, 1995, 1996 and 1997, and
the related consolidated statements of operations, changes in 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 in the United States. 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 the Company as
of July 31, 1995, 1996 and 1997, and the consolidated results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States and Canada.
/s/ COOPERS AND LYBRAND L.L.P.
COOPERS AND LYBRAND L.L.P.
Austin, Texas
August 25, 1997
F-2
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1995, 1996 AND 1997
(U.S. THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS 1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 4,746 $11,498 $ 5,042
Accounts receivable, net 560 2,838 5,027
Inventories 64 254 302
Income and other taxes recoverable 237 224 295
Prepaid expenses and other current assets 198 573 456
------- ------- -------
Total current assets 5,805 15,387 11,122
Property and equipment, net (Note 3) 357 1,716 3,046
Software development costs, net of accumulated
amortization of $83, $358 and $-0-, respectively 472 1,202 -
------- ------- -------
Total assets $ 6,634 $18,305 $14,168
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 493 $ 1,129 $ 1,913
Accrued liabilities (Note 4) 487 550 1,498
Deferred revenue 83 189 195
------- ------- -------
Total current liabilities 1,063 1,868 3,606
Commitments (Note 7) - - -
Stockholders' equity:
Capital stock (Note 5)
Preferred stock, Class A and B, no par
value, unlimited as to number; none
outstanding
Common Stock, no par value, unlimited as to
number; 11,537,500 shares issued and
outstanding (1996-11,496,983;
1995-8,177,233) 2,221 17,446 17,596
Special Warrants, none issued (1995-2,000,000;
1996-0) 4,464 - -
Accumulated deficit (1,114) (1,009) (6,984)
Cumulative translation adjustment - - (50)
------- ------- -------
Total stockholders' equity 5,571 16,437 10,562
------- ------- -------
Total liabilities and stockholders'
equity $6,634 $18,305 $14,168
</TABLE>
Signed on behalf of the Board of Directors
/s/ Jean Belanger /s/ Jim Welch
Jean Belanger Jim Welch
Director Vice President,
Finance & Chief
Financial Officer
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
(U.S. THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Revenue, net (Note 10) $5,143 $10,619 $18,293
Cost of sales (Note 1) 910 2,664 4,563
Operating expenses
Research and development 1,574 3,250 6,486
Selling, administrative and technical support 2,348 4,622 8,109
Depreciation of property and equipment 155 355 1,154
Non-recurring charge (Note 2) - - 4,297
------- ------- -------
Total operating expenses 4,077 8,227 20,046
Earnings (loss) from operations 156 (272) (6,316)
Other income:
Interest income and other 98 377 341
------- ------- -------
Net earnings (loss) $ 254 $ 105 $(5,975)
Net earnings (loss) per common and common equivalent share $0.03 $ 0.01 $(0.52)
Weighted average number of common shares and common
equivalent shares outstanding 7,956 10,620 11,523
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
(U.S. THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock Special Warrants Cumulative Total
---------------------- ------------------------- Accumulated Translation Stockholders'
Shares Amount Shares Amount Deficit Adjustment Equity
--------- -------- ----------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 1, 1994 7,823,433 $ 1,855 - $ _ $(1,368) $ - $ 487
Issuance of common stock 353,800 366 - - - _ 366
Issuance of special warrants - - 2,000,000 4,464 - - 4,464
Net earnings - - - - 254 - 254
---------- ------ ---------- ------- ------- ----- ------
Balance at July 31, 1995 8,177,233 2,221 2,000,000 4,464 (1,114) - 5,571
Conversion of special warrants 2,000,000 4,464 (2,000,000) (4,464) - - -
Issuance of common stock 1,319,750 10,761 - - - - 10,761
Net earnings - - - - 105 - 105
---------- ------ ---------- ------- ------- ----- ------
Balance at July 31, 1996 11,496,983 17,446 - - (1,009) - 16,437
Issuance of common stock 40,517 150 - - - - 150
Foreign currency translation
adjustment - - - - - (50) (50)
Net loss - - - - (5,975) - (5,975)
---------- ------ ---------- ------- ------- ----- ------
Balance at July 31, 1997 11,537,500 $ 17,596 - $ - $(6,984) $ (50) $10,562
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
(U.S. THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 254 $ 105 $(5,975)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation of property and equipment 155 355 1,154
Amortization of software development costs 83 275 289
Loss on sale of property and equipment 4 - -
Non-recurring charge (Note 2) - - 4,297
Changes in assets and liabilities:
Accounts receivable (246) (2,278) (3,911)
Inventories (54) (190) (406)
Income and other taxes receivable (142) 13 (71)
Prepaid expenses and other assets (116) (375) 117
Accounts payable 323 521 685
Accrued liabilities 420 63 948
------ ------- -------
Deferred revenue 83 106 6
Net cash provided by (used in) operating activities 764 (1,405) (2,867)
Cash flows from investing activities:
Additions to property and equipment (296) (1,599) (2,385)
Software development costs capitalized (422) (1,005) (833)
Proceeds on sale of property and equipment 90 - -
Acquired in-process research and development - - (471)
------ ------- -------
Net cash used in investing activities (628) (2,604) (3,689)
Cash flows from financing activities:
Net proceeds from issue of common stock net of issuance costs
of $1,504 in 1996 - 10,341 -
Net proceeds from issue of special warrants 4,464 - -
Proceeds from exercise of stock options 366 420 150
Repayment of long-term debt (987) - -
Foreign currency translation adjustment - - (50)
------ ------- -------
Net cash provided by financing activities 3,843 10,761 100
Increase (decrease) in cash and cash equivalents 3,979 6,752 (6,456)
Cash and cash equivalents at beginning of year 767 4,746 11,498
------ ------- -------
Cash and cash equivalents at end of year (Note 1) $4,746 $11,498 $ 5,042
Non-cash investing and financing activities:
Accrued property and equipment $ 19 $ 115 $ 99
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1995, 1996 AND 1997
(U.S. THOUSANDS OF DOLLARS)
1. Summary of Significant Accounting Policies:
Basis of Presentation
These financial statements have been prepared by the Company in accordance
with accounting principles generally accepted in the United States ("USGAAP")
and in Canada ("Canadian GAAP").
Basis of Consolidation
The consolidated financial statements include the accounts of the
Company and its two wholly-owned subsidiaries, Metrowerks Corporation, a
Texas corporation, which was formed in June 1994, and Metrowerks Co. Ltd.,
a Japanese corporation, which was formed in October 1996. All significant
intercompany transactions and balances have been eliminated.
Revenue Recognition
Product revenue, which consists of sales to distributors and from
corporate license programs, is recognized when the related products are
shipped, when no significant vendor obligations remain, and collection of
the receivable, net of provisions for estimated future returns, is
probable. The allowance for estimated future returns was $248, $275 and
$1,192 at July 31, 1995, 1996 and 1997, respectively. Allowances for
estimated future software updates are provided for in the same period as
the related revenue. The allowance at July 31, 1997 includes approximately
$917 from the provision for promotional and inventory related costs taken
in the quarter ended April 30, 1997 (see Note 2).
Product development agreement revenue is recognized on a percentage
of completion basis.
Cost of Sales
Cost of sales consists primarily of the cost of product media and
duplication, the cost of packaging materials, amortization of capitalized
research and development costs, royalties and shipping expenses. Cost
associated with product development agreement revenues are included in
research and development expenses and are not separately identified and
approximate revenue.
Cash and Cash Equivalents
The Company considers investments in highly liquid instruments
purchased with original maturities of 90 days or
less to be cash equivalents. All of the Company's cash equivalents consist
principally of government guaranteed instruments and are reported at cost
which approximates fair market value.
Credit Risk
The Company performs ongoing credit reviews of all its customers
and records an allowance for doubtful accounts receivable when accounts
are determined to be uncollectible. The allowance for doubtful accounts at
July 31, 1995, 1996 and 1997 was $9, $9 and $75, respectively.
F-7
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995, 1996 AND 1997
(U.S. THOUSANDS OF DOLLARS)
1. Summary of Significant Accounting Policies, continued:
Inventories
Inventories, consisting of product documentation, magnetic media
and hardware are stated at the lower of cost or net realizable value. Cost
is determined using the average cost method.
Software Development Costs
Research and development expenditures are charged to operations as
incurred. The Company capitalizes certain software development costs
subsequent to the establishment of technological feasibility, if material.
In addition, the Company periodically reviews its software development
costs to access net realizable value. Any impairments are recognized in
operating results when a permanent diminution in value occurs. Based on
the Company's product development process, technological feasibility is
established upon completion of a working model. In fiscal 1997, costs
incurred by the Company between completion of the working model and the
point at which the product is ready for general release have been
insignificant.
For the years ended July 31, 1995, 1996 and 1997, amortization
expense amounted to $83, $275 and $289, respectively.
Research and software development costs are reduced by investment
tax credits.
Property and Equipment
Purchased property and equipment is recorded at cost. Depreciation
is provided using the straight-line method over the estimated useful lives
of the respective assets as follows:
Office equipment 5 years
Computer equipment 2-5 years
Software 3 years
The Company provides for depreciation of leasehold improvements over the
term of the related lease. Expenditures for maintenance and repairs are expensed
as incurred. Upon retirement or other disposotion of assets, the cost and
related accumulated depreciation are eliminated from the accounts and the
resulting gain or loss is reflected in operations.
Deferred Revenue
Deferred revenue consists of amounts received in advance for
product, documentation, magnetic media and development services to be
delivered in future periods.
F-8
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995, 1996 AND 1997
(U.S. THOUSANDS OF DOLLARS)
1. Summary of Significant Accounting Policies, continued:
Foreign Currency Translation
The financial statements of the parent company and its non-U.S.
subsidiaries have been translated into U.S. dollars in accordance with the
FASB Statement No. 52, "Foreign Currency Translation." Monetary asset and
liability amounts have been translated using the exchange rates in effect
at the applicable year end. Inventories, property, and non-monetary asset
and liability amounts have been translated at historical exchange rates.
Income statement amounts have been translated using the weighted average ex
change rate for the applicable year. The gains and losses resulting from the
changes in exchange rates from year to year have been reported as a
separate component of Stockholders' Equity. Currency transaction gains or
losses are immaterial for all periods presented.
Effective August 1, 1995, the Company changed its reporting
currency from Canadian dollars to U.S. dollars. The consolidated financial
statements at July 31, 1995 have been restated as if the U.S. dollar had
always been the currency of measurement.
Federal Income Taxes
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
This method requires that deferred taxes be computed annually utilizing
the liability method and adjusted when new tax laws or rates are enacted.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. The Company recorded no
income tax expense in 1995, 1996 or 1997, and has provided a full valuation
allowance to reduce the net deferred tax asset to $-0- because the
realization of tax benefits associated with net operating loss
carryforwards is not assured (see Note 9).
Advertising Costs
Advertising costs are expensed as incurred. For the years ended
July 31, 1995, 1996 and 1997, advertising expense amounted to $498, $1,179
and $1,865, respectively. Advertising expense consists of costs from
catalog advertising, trade journal advertising, mass mailings and various
other promotional items.
Net Earnings (Loss) Per Common Share
The net earnings (loss) per common share is calculated by using the
weighted average number of common shares and common share equivalents
outstanding during the year.
Fair Value of Financial Instruments
The Company's financial instruments as defined by SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," include cash and
cash equivalents, accounts receivable, accounts payable and accrued
liabilities, and are accounted for on a historical cost basis, which, due
to the nature of these financial instruments approx-imates fair value at
July 31, 1995, 1996 and 1997.
F-9
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995, 1996 AND 1997
(U.S. THOUSANDS OF DOLLARS)
1. Summary of Significant Accounting Policies, continued:
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 periods. Actual results could differ from
those estimates.
Reclassifications
Certain prior year financial statement items have been reclassified
to conform to the current year presentation.
2. Non-Recurring Charge:
The Company recorded a non-recurring charge of $4,297 for the
quarter ended April 30, 1997 related to the write-off of certain assets
associated with Apple Computer's Macintosh Operating System ("Mac OS").
The decision to record this charge was based on the significant decline in
sales of Mac OS related products. The Company had accelerated its
diversification efforts to focus on the Windows and embedded systems
markets and believed that the Mac OS related assets were significantly
impaired.
The components of the write-off were as follows:
Software development costs $1,746
Provision for promotional and
inventory related costs 1,722
Write-off of inventories 358
Acquired in-process research and
development 471
------
Total $4,297
The $1,746 write-off of software development costs relates to
previously capitalized Mac OS IDE development costs. The provision for
accounts receivable primarily relates to promotional costs in assisting
distributors and retail outlets in selling Mac OS related products already
existing in the distribution channel. The write-off of inventories relates
to Mac OSinventory on-hand as of quarter ended April 30, 1997. The
write-off of acquired in-process research and development relates to the
purchase of substantially all of the assets of a software company. The
assets of the software company acquired will be developed to assist in
porting Mac OS applications to Apple's next generation operating system,
Rhapsody. At the time of acquisition, technological feasibility had not
been reached.
F-10
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995, 1996 AND 1997
(U.S. THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
3. Property and Equipment:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
July 31, 1995
-----------------------------
Accumulated
Cost Amortization Net
------ ------------ ------
<S> <C> <C> <C>
Office equipment $ 63 $ 20 $ 43
Computer equipment 440 170 270
Software 60 18 42
Leasehold improvements 7 5 2
------ ------ ------
$ 570 $ 213 $ 357
July 31, 1996
-----------------------------
Accumulated
Cost Amortization Net
------ ------------ ------
Office equipment $ 464 $ 62 $ 402
Computer equipment 1,288 403 885
Software 505 91 414
Leasehold improvements 17 2 15
------ ------ ------
$2,274 $ 558 $1,716
July 31, 1997
-----------------------------
Accumulated
Cost Amortization Net
------ ------------ ------
Office equipment $1,336 $ 265 $1,071
Computer equipment 2,372 1,077 1,295
Software 798 306 492
Leasehold improvements 275 87 188
------ ------ ------
$4,781 $1,735 $3,046
</TABLE>
4. Accrued Liabilities:
1995 1996 1997
------ ------ ------
Accrued compensation and related costs $ 93 $ 241 $ 550
Professional fees 302 115 250
Provision for costs of software updates 67 59 169
Royalties - 47 113
Other 25 88 416
------ ------ ------
$ 487 $ 550 $1,498
F-11
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995, 1996 AND 1997
(U.S. THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
5. Capital Stock:
Preferred Stock
The Class A preferred shares are non-voting, non-cumulative
preferred shares, redeemable at the option of the Company or the holder at
their stated amount. Dividends on Class A shares, having priority over all
other classes of shares may be paid at the discretion of the Board of
Directors up to a maximum of 10% of the stated capital.
The terms of the Class B preferred shares will be determined by the
Board of Directors at the time of issuance of the shares.
As of July 31, 1997, there were no issued Class A or Class B
preferred shares.
Stock Option Plan
The Company maintains an incentive stock option plan ("Plan") for the
benefit of directors, officers and employees. The exercise price of the
incentive stock option is the fair market value of the shares as at the date of
the grant. Stock options generally become vested ratably over a three-year
period.
Stock options outstanding were as follows:
<TABLE>
<CAPTION>
Weighted-average
Weighted-average Fair Value Granted
Options Exercise Price During the Period
-------- ---------------- --------------------
<S> <C> <C> <C>
Outstanding and exercisable balance at August 1, 1994 497,000 $ 1.53
Granted 348,750 2.66 $ -
Exercised (153,800) 2.15
Canceled (79,000) 1.61
Outstanding and exercisable balance at July 31, 1995 612,950 2.15
Granted 443,050 9.64 3.00
Exercised (317,250) 1.83
Canceled (124,600) 5.65
Outstanding and exercisable balance at July 31, 1996 614,150 7.01
Granted 758,500 9.49 1.80
Exercised (40,517) 3.70
Canceled (165,866) 8.50
Outstanding and exercisable balance at July 31, 1997 1,166,267
</TABLE>
F-12
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995, 1996 AND 1997
(U.S. THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
5. Capital Stock, continued:
Stock Option Plan, continued
The Company has applied Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for the Plan. Accordingly, no compensation expense has been
recognized for the Plan. Had compensation cost for the Plan been determined
based upon the fair value at the grant date for awards under the Plan
consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," and
the Company's net earnings (loss) would have changed to the pro forma amounts,
indicated below:
July 31, 1996 July 31, 1997
------------- -------------
Net earnings (loss) - as reported $ 105 $(5,975)
Net earnings (loss) - pro forma (189) (6,435)
Net earnings (loss) per share - as reported 0.01 (0.52)
Net earnings (loss) per share - pro forma (0.02) (0.56)
The fair value of each option grant is estimated on the date of
grant using an option-pricing model, the Black-Scholes model, with the
following weighted average assumptions: dividend yield of 0.0%, risk-free
interest rate of 6.06%, expected life of three years and volatility of
53.00%.
The following table summarizes information about fixed stock
options outstanding at July, 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
---------------------------------------
Number Outstanding Weighted-Average
and Exercisable Remaining
Range of Excessive Prices at July 31, 1997 Contractual Life
- ------------------------- ------------------- ------------------
<S> <C> <C>
$3.78 - $13.14 408,267 4.3 years
$5.06 - $10.70 758,000 4.7 years
---------
1,166,267
</TABLE>
On July 17, 1997, the Company repriced 618,500 options to a price
equal to 110% of the then market value. These options were repriced from a
range of between $8.50 and $13.14 to $7.00.
6. Employee Benefits:
In January 1996, the Company established a 401(k) retirement
savings plan (the "Plan") for all employees. All employees meeting minimum
age requirements are eligible to enroll in the Plan after 250 hours of
employment. The Company did not provide matching contributions to employee
accounts for the years ended July 31, 1995, 1996 and 1997.
F-13
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995, 1996 AND 1997
(U.S. THOUSANDS OF DOLLARS)
7. Commitments:
The Company leases various facilities under noncancelable operating
leases. Future minimum lease payments required under operating leases that
have initial or remaining noncancelable lease terms in excess of one year
as of July 31, 1997 are as follows:
1998 $465
1999 237
2000 101
2001 7
----
$810
Total rent expense for noncancelable operating leases was $69, $139
and $422 for the years ended July 31, 1995, 1996 and 1997, respectively.
The Company engages the services of individual contractors to
assist in research and development related to the Company's software
products.
8. Risks and Uncertainties:
The Company has accounts receivable in excess of 10% of its total accounts
receivable with one unrelated party, Ingram Micro Inc. (a major distributor),
for the year ended July 31, 1997, aggregating approximately $2,146 (34% of
total accounts receivable). Historically, the Company has not incurred any bad
debt expense in connection with any transactions with Ingram Micro Inc.
Additionally, the Company had sales in excess of 10% of its net sales to Ingram
Micro Inc. for the year ended July 31, 1997, aggreg ating approximately $3,050
(15.6% of total sales).
9. Income Taxes:
The components of the deferred tax assets are as follows at July 31:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 273 $ 272 $ 2,043
Property and equipment 12 30 178
Reserves 10 120 546
Investment tax credit 160 98 270
Other (33) (119) 46
Net deferred tax asset before valuation allowance 422 401 3,083
Valuation allowance (422) (401) (3,083)
----- ----- -------
Net deferred tax asset $ - $ - $ -
</TABLE>
Net operating loss carryforwards of $4,670 expire 2000 through 2002.
F-14
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995, 1996 AND 1997
(U.S. THOUSANDS OF DOLLARS)
9. Income Taxes, continued:
The difference between the actual income tax provision computed by
applying the statutory income tax rate to earnings (loss) before taxes is
attributed to the following:
<TABLE>
<CAPTION>
1995 1996 1997
% % %
------- ------- -------
<S> <C> <C> <C>
Statutory tax rate 37.86 38.01 38.00
Future benefit of timing differences
not recognized (30.04) (43.12) (39.40)
Permanent differences (7.82) 5.11 1.40
</TABLE>
10. Revenue:
Revenue is comprised of the following:
Revenue 1995 1996 1997
------- ------- -------
Product $4,044 $ 7,246 $12,254
Product development agreement 613 2,263 4,715
Hardware and other 486 1,110 1,324
------ ------- -------
$5,143 $10,619 $18,293
11. Geographic Data:
The Company's revenues by geographic location are as follows:
Revenue 1995 1996 1997
------- ------- -------
United States $4,029 $ 8,583 $13,685
Canada 258 156 243
Japan 512 851 2,596
European Union 235 723 1,452
Other 109 306 317
------ ------- -------
$5,143 $10,619 $18,293
F-15
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995, 1996 AND 1997
(U.S. THOUSANDS OF DOLLARS)
11. Geographic Data, continued:
The Company's assets by geographic location are as follows:
1995 1996 1997
------ ------- --------
United States $ 270 $ 4,466 $ 8,183
Canada 6,376 17,990 17,366
Japan - - 1,024
Intercompany eliminations (12) (4,151) (12,405)
------ ------- --------
$6,634 $18,305 $ 14,168
12. Recent Pronouncements:
In February 1997, the the Financial Accounting Standards Board
("FASB") issued SFAS No. 128, "Earnings Per Share" which establishes
standards for computing and presenting earnings per share. SFAS No. 128 is
effective for fiscal years ending after December 15, 1997. Management does
not believe the implementation of SFAS No. 128 will have a material effect
on its consolidated financial statements.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information About Capital Structure" which establish-es disclosure
requirements for an entity's capital structure. SFAS No. 129 is effective
for fiscal years periods ending December 15, 1997. Management does not
believe the implementation of SFAS No. 129 will have a material effect on
its consolidated financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Restated Information," and the Canadian
Institute of Chartered Accountants (CICA)issued Section 1701, which
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997.
Management does not believe the implementation of SFAS No. 130 and
No. 131 will have a material effect on its financial statements.
F-16
<PAGE>
Report of Independent Accountants
To the Stockholders of
Metrowerks Inc. and Subsidiaries
Our report on the consolidated financial statements of Metrrowerks Inc. and
subsidiaries is included on page F-2 of this Form 10-K. In connection with
our audits of such financial statements, we have also audited the
consolidated financial statement schedule listed in the index on page F-1 of
this Form 10-K herein.
In our opinion, the financial statements referred to above, when considered
in relation to the basic financial statements taken as a whole, present
fairly, in all material respects, the information required to be included
therein.
/s/COOPERS AND LYBRAND L.L.P.
- -----------------------------
COOPERS AND LYBRAND L.L.P.
Austin, Texas
August 25, 1997
S-1
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
SCHEDULE II.
VALUATION AND QUALIFYING ACCOUNTS
(U.S. THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Balance at Charged to Costs Balance at End
Description Beginning of Period and Expenses Deductions of Period
------------------- ---------------- ---------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and returns
1995 $146 $ 458 $ 347 $ 257
1996 257 901 874 284
1997 284 2,623 1,640 1,267
</TABLE>
S-2
<PAGE>
EXHIBIT 3.1
Metrowerks Inc. and Subsidiaries
Amended Articles of Incorporation
as of July 31, 1997
~ -. ~ Consumer ar~l
8~8 Corporate Affairs Canada
~ .da Business
Corporations Act
Consommation et
Affaires commerciales Canada
FORM 4
ARTICLES OF AMENDMENT
Loi regissant les societes (SECTION 27 OR 177)
par actions de regime federal
- --Name of
corporation--Denomination de la societe
METROWERKS INC.
FORMULE 4
CLAUSES MODIFICATRICES
(ARTICLES 27 OR 177)
1 2--Corporation No.--N. de la societe
1 255924-2
1
3--The articles of the above-named corporation are amended as follows: Les
statute de la societe mentionnee ci-dessus vent modifies de la
Section 2 of the Articles of Amalgamation be and is hereby deleted and
replaced by the following:
The place in Canada where the office is to be situated:
Vancouver, British
Columbia
Date Signature Title--Titre
APRIL 7, 1994 /S/ JEAN BELANGER CHAIRMAN
7530-21-936-1387 (01-93)46
FOR DEPARTMENTAL USE ONLY - A L'USAGE DU MIMSTERE SEULEMEt Filed - Deposee
APRIL 14 1994
1
<PAGE>
CANADA BUSINESS
CORPORATIONS ACT
FORM 4
ARTICLES OF AMENDMENT
(SECTION 27 OR 171)
1 - Name of Corporation - Denomination de la societe
LOI SUR LES SOCIETES
COMMERCIALES CANADIENNES
FORMULE 4
CLAUSES MODIFICATRICES
(ARTICLES 27 OU 171)
2 - Corporation No.: 255924-2
METROWERKS INC.
3 - The articles of the above-named corporation are amended as follows.
Les slatuts de la societe Cl haut menDonnee sonl moalfies de hgon suivante.
1. By deleting Article 4. and substituting the following therefor:
"4. Restrictions if any on share transfers
As long as none of the securities of the Corporation is part of a "distribution
to the public" (as defined under the Canada Business Corporations Act), no
shares in the share capital of the Corporation shall be transferred nor assigned
without the approval of the directors certified by a resolution of the board of
directors. Approval of such transfer or assignment of shares may be given as
above, after the said transfer or assignment has been recorded in the books of
the Corporation, in which case, unless the said resolution otherwise provides,
the said transfer or assignment shall be valid and shall have effect as at the
date it has been recorded in the books of the Corporation."
2. By deleting Article 7.(1) and substituting the following therefor:
"7.(1) As long as none of the securities of the Corporation is part of a
"distribution to the public" (as defined under the Canada Business
Corporations Act), the number of the shareholders of the Corporation is
limited to fifty (50) exclusive of present or former employees of the
Corporation or of a subsidiary of the Corporation, two or more persons
holding one or more shares jointly being counted as a single
shareholder;"
3. By deleting Article 7.(2).
<TABLE>
<CAPTION>
<S> <C> <C>
Date June 14, 1993 Signature /s/ Greg Galanos Desc. Of Office President and CEO
</TABLE>
2
<PAGE>
CANADA BUSINESS
CORPORATIONS ACT
FORM 4
ARTICLES OF AMENDMENT
(SECTION 27 OR 171)
- Name of Corporation--Denomination de la societe
METROWERKS INC.
3--The articles of the above-named corporation are amended as follows:
LOI SUR LES SOCIETES
COMMERCIALES CANADIENNES
FORMULE 4
CLAUSES MODIFICATRICES
(ARTICLES 27 OU 171)
2 -- Corporation No. - N. de la societe
255924-2
Les statute de ii ~ societe ci-haut mennonnee vent modifies de la tagon sluvante
1. Section 2 of the Articles of Amalgamation be and is hereby deleted and
replaced by the following:
The place in Canada where the registered office is to be situated:
Montreal, Province of Quebec
2. Section 2 of the Articles of Amalgamation be and is hereby amended by adding
the following paragraph:
The 1,245,000 Common Shares issued and outstanding at this date are changed into
5,104,500 Common Shares of the Corporation in the following manner:
Gregory P. Galanos: from 550,000 Common Shares to 2,255,000 Common Shares of the
Corporation.
Jean J. Belanger: from 550,000 Common Shares to 2,255,000 Common Shares of the
Corporation.
Cornwallis Financial Corporation: from 124,500 Common Shares to 510,450 Common
Shares of the Corporation.
144458 Canada Inc.: from 10,250 Common Shares to 42,025 Common Shares of the
Corporation.
2830892 Canada Inc.: from 10,250 Common Shares to 42.025 Common Shares of the
Corporation.
The issued capital is being so modified while the stated capital remains the
same.
<TABLE>
<CAPTION>
<S> <C> <C>
[ ] Signature l oescnDlon of onice - DescnDhon dU Dos~e
[ ] MAY 28, 1993 /s/ GREGORY P. GALANOS PRESIDENT
FOR DEPARTMENTAL USE ONLY , A L.USAGE DU MINISTERE
SEULEMENT
</TABLE>
3
<PAGE>
CCA-1 387 (9-82)
1
Fiea - Deposee
Jun 17, 1993 .-,gi Consumer and Consommation
- - 15, Corporate Affairs Canada el Corporations Canada
Certificate of Amalgamation
Canada Business
Corporations Act
Metrowerks Inc.
Name of Corporation - Denomination de la societe
I hereby certify that the above-mentioned Corporation resulted from the
amalgamation of the following Corporations under Section 185 of the Canada
Business Corporations Act, as set out in the attached articles of Amalgamation.
Le directeur
/s/ January 1, 1990
Director Date of Amalgamation
CANADA
4
<PAGE>
CANADA BUSINESS
CORPORATIONS ACT
FORM 9
ARTICLES OF AMALGAMATION
1. Name of Amalgamated Corporation
Metrowerks Inc.
2. The place in Canada where the registered office is to be situated
Montreal Urban Community, Province of Quebec
3. The classes and any maximum number of shares that the Corporation is
authorized to issue
Unlimited number of common shares; Unlimited number of Class A preferred shares;
and Unlimited number of Class B preferred shares, issuable in series.
I. The common shares shall have attached thereto the following rights,
privileges, restrictions and conditions:
(a) Each common share shall entitle the holder thereof to one (1) vote at all
meetings of the shareholders of the Corporation.
(b) The holders of the common shares shall be entitled to receive during each
year, as and when declared by the board of directors, dividends payable in
money, property or by the issue of fully paid shares of the capital of the
Corporation.
(c) In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or other distribution of assets
of the Corporation among shareholders for the purpose of winding-up its affairs,
subject to the rights, privileges, restrictions and conditions attaching to the
Class A preferred shares and to any
5
<PAGE>
other class of shares ranking prior to the common shares, the holders of the
common shares shall be entitled to receive the remaining property of the
Corporation.
II. The Class A preferred shares shall have attached thereto the following
rights, privileges, restrictions and conditions:
(a) Subject to the provisions of the Canada Business Corporations Act (the
"Act") or as otherwise expressly provided herein, the holders of the Class A
preferred shares shall not be entitled to receive notice of, nor to attend or
vote at meetings of the shareholders of the Corporation.
(b) The holders of the Class A preferred shares shall be entitled to receive
during each year, as and when declared by the board of directors, but always in
preference and priority to any payment of dividends on the other shares of the
Corporation, non-cumulative dividends at a rate of up to 10% payable annually
calculated on the Class A Preferred Redemption Price (as hereinafter in
paragraph II.(h) defined) of each such share, payable in money, property or by
fully paid shares of any class of the Corporation. The holders of the Class A
preferred shares shall not be entitled to any dividend in excess of the dividend
hereinbefore provided for.
(c) The Corporation may, in the manner hereinafter provided, redeem at any time,
all, or from time to time any part, of the outstanding Class A preferred shares
on payment for each preferred share to be redeemed of the Class A Preferred
Redemption Price plus all declared and unpaid dividends thereon (in paragraphs
II. (d), (e) and (f) called the "redemption price".)
(d) Before redeeming any Class A preferred shares, the Corporation shall mail or
deliver to each person who, at the date of such mailing or delivery,
6
<PAGE>
shall be a registered holder of Class A preferred shares to be redeemed, notice
of the intention of the Corporation to redeem such shares held by such
registered holder; such notice shall be delivered to, or mailed by ordinary
prepaid post addressed to, the last address of such holder as it appears on the
records of the Corporation, or in the event of the address of any such holder
not appearing on the records of the Corporation, then to the last address of
such holder known to the Corporation, at least thirty (30) days before the date
specified for redemption; such notice shall set out the redemption price, the
date on which the redemption is to take place and, if part only of the Class A
preferred shares held by the person to whom it is addressed is to be redeemed,
the number thereof so to be redeemed; on or after the date so specified for
redemption, the Corporation shall pay or cause to be paid the redemption price
to the registered holders of the preferred shares to be redeemed on presentation
and surrender of the certificates for the Class A preferred shares so called for
redemption at the registered office of the Corporation or at such other place or
places as may be specified in such notice, and the certificates for such
preferred shares shall thereupon be cancelled, and the Class A preferred shares
presented thereby shall thereupon be redeemed; from and after the date specified
for redemption in such notice, the holders of the Class A preferred shares
called for redemption shall cease to be entitled to dividends in respect of such
shares and shall not be entitled to exercise any of the rights of the holders
thereof except the right to receive the redemption price, unless payment of the
redemption price shall not be made by the Corporation in accordance with
foregoing provisions, in which case the rights of the holders of such shares
shall remain
7
<PAGE>
unaffected; on or before the date specified for redemption, the Corporation
shall have the right to deposit the redemption price of the Class A preferred
shares called for redemption in a special account with any chartered bank or
trust company in Canada named in the notice of redemption, to be paid, without
interest, to or to the order of the respective holders of such Class A preferred
shares called for redemption, upon presentation and surrender of the
certificates representing the same and, upon such deposit being made or upon the
date specified for redemption, whichever is later, the Class A preferred shares
in respect whereof such deposit shall have been made, shall be deemed to be
redeemed and the rights of the respective holders thereof, after such deposit or
after such redemption date, as the case may be, shall be limited to receiving,
out of the moneys so deposited, without interest, the redemption price
applicable to their respective Class A preferred shares against presentation and
surrender of the certificates representing such preferred shares. If less than
all the Class A preferred shares are to be redeemed, the shares to be redeemed
shall be redeemed pro rata, disregarding fractions, unless the holders of the
Class A preferred shares unanimously agree to the adoption of another method of
selection of the preferred shares to be redeemed. If less than all the Class A
preferred shares represented by any certificate be redeemed, a new certificate
for the balance shall be issued.
(e) A holder of Class A preferred shares shall be entitled to require the
Corporation to redeem at any time all, or from time to time any part, of the
Class A preferred shares registered in the name of such holder by tendering to
the Corporation at its registered office the shares certificate(s) representing
the Class A preferred shares which the registered holder desires to have the
8
<PAGE>
Corporation redeem together with a request in writing specifying (i) the number
of Class A preferred shares which the registered holder desires to have redeemed
by the Corporation and (ii) the business day (in this paragraph referred to as
the "redemption date") on which the holder desires to have the Corporation
redeem such Class A preferred shares, which redemption date shall not be less
than (5) days after the day on which the request in writing is given to the
Corporation. Upon receipt of the shares certificate(s) representing the Class A
preferred shares which the registered holder desires to have the Corporation
redeem together with such request, the Corporation shall on, or at its option,
before, the redemption date redeem such shares by paying to the registered
holder thereof, for each shares to be redeemed, an amount equal to the
redemption price in respect thereof; such payment shall be made by cheque
payable at any branch of the Corporation's bankers for the time being in Canada.
The said Class A preferred shares shall be deemed to be redeemed on the date of
payment of the redemption price and from and after such date such Class A
preferred shares shall cease to be entitled to dividends and the holders thereof
shall not be entitled to exercise any of the rights of the holders of preferred
shares in respect thereof. Notwithstanding the foregoing, the Corporation shall
only be obliged to redeem Class A preferred shares so tenders for redemption to
the extent that such redemption would not be contrary to any applicable law, and
if such redemption of any such preferred shares would be contrary to any
applicable law, the Corporation shall only be obliged to redeem such Class A
preferred shares to the extent that the moneys applied thereto shall be such
amount (rounded to the next lower multiple of one hundred dollars
($100.00)) as would not be contrary to such law, in which case the Corporation
shall pay to each holder his
9
<PAGE>
pro rata shares of the purchase moneys allocable. If less than all the Class A
preferred shares represented by any certificate be redeemed, a new certificate
for the balance shall be issued.
(f) The Corporation may purchase for cancellation at any time all, or from time
to time any part, of the Class A preferred shares outstanding, by private
contract at any price, with the unanimous consent of the holders, of the Class A
preferred shares then outstanding, or by invitation for tenders addressed to all
the holders of the Class A preferred shares at the lowest price at which, in the
option of the directors, such shares are obtainable but not exceeding the
redemption price thereof. If less than all the Class A preferred shares
represented by any certificate be purchased for cancellation, a new certificate
for the balance shall be issued.
(g) Upon redemption of Class A preferred shares as set out in paragraphs II.
(d), (e) and (f) hereof, the Corporation shall deduct from the stated capital
account maintained for the Class A preferred shares an amount equal to the
result obtained by multiplying the amount contained in the stated capital
account maintained for the Class A preferred shares by the number of such shares
which are redeemed, divided by the number of Class A preferred shares issued and
outstanding immediately before such redemption.
(h) For the purposes of paragraphs II. (b), (c) and (i), the "Class A Preferred
Redemption Price" of each Class A preferred shares shall be an amount equal to
(i) the monetary consideration received by the Corporation upon the issuance of
such share (denominated in the currency in which such consideration was paid to
the Corporation), if such shares has been issued for money; or (ii) the fair
market value of the
10
<PAGE>
consideration received by the Corporation (including, without limitation, shares
of another class of the Corporation) upon the issuance of such share, if such
share has been issued for a consideration other than money.
The fair market value determined as hereinabove provided for shall be subject to
revision in accordance with any binding agreement with, or decision by, the
appropriate taxation authorities, or any judgment of a court of competent
jurisdiction. In the event that any such agreement, decision or judgment shall
result in a final determination under the provisions of the appropriate taxation
legislation and the amount thereby determined is an amount other than the amount
for which such shares was originally issued as determined by the directors in
accordance with the preceding sub-paragraph, such finally determined amount for
the purpose of the appropriate taxation legislation shall then be deemed to be
the fair market value of the consideration received by the Corporation upon the
issuance of such Class A preferred shares.
(i) In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or other distribution of assets
of the Corporation among shareholders for the purpose of winding-up its affairs,
the holders of the Class A preferred shares shall be entitled to receive for
each Class A preferred share, in preference and priority to any distribution of
the property or assets of the Corporation to the holders of the common shares or
any other shares ranking junior to the Class A preferred shares, an amount equal
to the Class A Preferred Redemption Price, but shall not be entitled to share
any further in the distribution of the property or assets of the Corporation.
11
<PAGE>
(j) No change to any of the provisions of paragraphs II. (a) to (i) or of this
paragraph (j) shall have any force or effect until it has been approved by a
majority of not less than two-thirds (2/3) of the votes cast by the holders of
the Class A preferred shares, voting separately as a class at a meeting of such
holders specially called for that purposes, or by a resolution in writing signed
by all the holders of the preferred shares, in addition to any other approval
required by the Act.
III. The Class B preferred shares shall have attached thereto the following
rights, privileges, restrictions and conditions:
The Class B preferred shares may be issued from time to time in one (1) or more
series with such preferred, deferred or other special rights, privileges,
restrictions, conditions and designations attached thereto and in particular
such rate or rates or cumulative or noncumulative preferential annual dividends,
redemption price or prices and amount or amounts to be paid thereon upon
distribution of assets in the event of liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, as shall be fixed from time
to time before issuance by any resolution or resolutions providing for the issue
of the shares of any series which may be passed by the board of directors of the
Corporation and confirmed and declared by articles of amendment.
4. Restrictions if any on shares transfers
No shares in the share capital of the Corporation shall be transferred nor
assigned without the approval of the directors certified by a resolution of the
board of directors. Approval of such transfer or assignment of shares may be
given as above, after the said transfer or assignment has been recorded in the
books of the Corporation, in which case, unless the said resolution otherwise
provides, the said transfer or assignment shall be
12
<PAGE>
valid and shall have effect as at the date it has been recorded in the books of
the Corporation.
5. Number (or minimum and maximum number) of directors
A minimum of one (1) and a maximum of ten (10).
6. Restrictions if any on business the Corporation may carry on
None.
7. Other provisions if any:
(1) the number of the shareholders of the Corporation is limited to fifty (50)
exclusive of present or former employees of the Corporation or of a subsidiary
of the Corporation, two or more persons holding one or more shares jointly being
counted as a single shareholder;
(2) any distribution of securities to the public or invitation for the
subscription or the distribution of an instrument or security issued by the
Corporation is prohibited; and
(3) the directors of the Corporation may, when deemed expedient:
(a) borrow money upon the credit of the Corporation;
(b) issue debentures or other securities of the Corporation, and pledge or sell
the same for such sums and at such prices as may be deemed expedient;
(c) notwithstanding the provisions of the Civil Code, hypothecate, mortgage or
pledge the moveable or immoveable property, present or future, of the
Corporation, to secure any such debentures, or other securities, or give
part only of such guarantee for such purposes; and constitute the hypothee,
mortgage or pledge above mentioned,
13
<PAGE>
by trust deed, in accordance with sections 28 and 29 of the Special Corporate
Powers Act (chapter P-16), or in any other manner; and
(d) mortgage, hypothecate, pledge or otherwise create a security interest in all
or any moveable or personal, immoveable or real or other property of the
Corporation, owned or subsequently acquired, to secure any obligation of the
Corporation.
The directors may, by resolution or by-law, provide for the delegation of such
powers by the directors to such officers or directors of the Corporation to the
extent and in such manner as may be set out in the resolution or by-law, as the
case may be.
8. The amalgamation agreement has been approved by special resolutions of the
shareholders of each of the amalgamating corporations listed in Item 10 below
in accordance with Section 183 of the Canada Business Act.
The amalgamation has been approved by a resolution of the directors of each of
the amalgamating corporations listed in Item 10 below in accordance with Section
1B4 of the Canada Business Corporations Act. These articles of amalgamation are
the same as the articles of Incorporation of (name the designed amalgamating
corporation).
|X| La convention de fusion a ete approuvee par resolutions speciales des
actionnaires de chacune des societes fusionnaires enumerees a la rubrique 10
ci-dessous, en conformite de l'article IB3 de la Loi regissant les societes
par actions de regime federal.
La fusion a ete approuvee par resolution des administrateurs de chacune des
societes fusionnairs enumerees a la rubrique 10 ci-dossous en conformite de
l'article 184 de la Loi regissant les societes par actions de regime federal.
Les presents statuts de fusion sont les memes que les statuts constitutifs de
nommer la societe fusionnantes designee
Name of the amalgamating corporation the by-laws of which are to be by-laws of
the amalgamated corporation
Metrowerks Inc.
Denomination de la societe fusionnaire dont les reglements adminstratifs seront
ceux de la societe Issue de la fusion
14
<PAGE>
10. Name of the Amalgamating Corporations Denomination des Societes fusionnantos
~ Corporation No. Signature Date
249881-2 1 - - /1 128_12_89
A: - -'- -
187871-9 _ /. 28-12-89
For Departmental use only - a t 'usage du minist' ro seulement Corporatlon No. -
N. de la societe
~ ~ s 92~- ~
Metrowerks Inc. 249881-2 /s/ Jean Beanger 12/28/89 Director
Metropolis Computer
Network Inc. 187871-9 /s/ Greg Galanos 12/28/89 Director
, Filed - Deposee
JAN 10, 1990
15
<PAGE>
- -ii -L - Consumer and
CANADA BUSINESS
CORPORATIONS ACT
FORM 4
ARTICLES OF AMENDMENT
(SECTION 27 OR 177)
1 - Name of Corporation
METROWERKS INC.
2 - Corporation No.
255924-2
3 - The articles of the above-named Corporation are amended as follows:
Section 2 of the articles of amalgamation be and is hereby deleted and replaced
by the following:
2. The place in Canada where the registered office is to be situated
Hudson Heights, Province of Quebec.
Date
August 31, 1990
/s/ Gregory P. Galanos
Description of Office
President
S E P - 4
1990
16
<PAGE>
Consumer and Corpoarate Affairs Canada
Certificate of Incorporation:
Canada Business
Corporations Act
Metrowerks Inc 249881-2
Name of Corporation Number
I, hereby, certify that the above-mentioned Corporation, the Articles of
Incorporation of which are attached, was incorporated under the Canada Business
Corporations Act.
Le Directeur
/s/
Director
July 24, 1989
17
<PAGE>
CANADA BUSINESS
CORPORATIONS ACT
FORM 1
ARTICLES OF INCORPORATION
1 - NAME OF CORPORATION
METROWERKS INC.
2 - THE PLACE IN CANADA WHERE THE REGISTERED OFFICE IS TO BE SITUATED
Montreal Urban Community, Province of Quebec.
3 - THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS
AUTHORIZED TO ISSUE
Unlimited number of common shares; Unlimited number of Class A preferred shares;
and Unlimited number of Class B preferred shares, issuable in series.
I. The common shares shall have attached thereto the following rights,
privileges, restrictions and conditions:
(a) Each common share shall entitle the holder thereof to one (1) vote at all
meetings of the shareholders of the Corporation.
(b) The holders of the common shares shall be entitled to receive during each
year, as and when declared by the board of directors, dividends payable in
money, property or by the issue of fully paid shares of the capital of the
Corporation.
(c) In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or other distribution of
assets of the Corporation among shareholders for the purpose of winding-up
its affairs, subject to the rights, privileges, restrictions and conditions
attaching to the Class A preferred shares and to any other class of shares
ranking prior to the common shares, the holders of the common shares shall
be entitled to receive the remaining property of the Corporation.
18
<PAGE>
II. The Class A preferred shares shall have attached thereto the following
rights, privileges, restrictions and conditions:
(a) Subject to the provisions of the Canada Business Corporations Act (the
"Act") or as otherwise expressly provided herein, the holders of the Class A
preferred shares shall not be entitled to receive notice of, nor to attend
or vote at meetings of the shareholders of the Corporation.
(b) The holders of the Class A preferred shares shall be entitled to receive
during each year, as and when declared by the board of directors, but always
in preference and priority to any payment of dividends on the other shares
of the Corporation, noncumulative dividends at a rate of up to 10% payable
annually calculated on the Class A Preferred Redemption Price (as
hereinafter in paragraph II. (h) defined) of each such share, payable in
money, property or by the issue of fully paid shares of any class of the
Corporation. The holders of the Class A preferred shares shall not be
entitled to any dividend in excess of the dividend hereinbefore provided
for.
(c) The Corporation may, in the manner hereinafter provided, redeem at any time
all, or from time to time any part, of the outstanding Class A preferred
shares on payment for each preferred share to be redeemed of the Class A
Preferred Redemption Price plus all declared and unpaid dividends thereon
(in paragraphs II. (d), (e) and (f) called the "redemption price".)
(d) Before redeeming any Class A preferred shares, the Corporation shall mail or
deliver to each person who, at the date of such mailing or delivery, shall
be a registered holder of Class A preferred shares to be redeemed, notice of
the intention of the Corporation to redeem such shares held by such
registered holder; such notice shall be delivered to, or mailed by ordinary
prepaid post addressed to, the last address of such holder as it appears on
the records of the Corporation, or in the event of the address of any such
holder not appearing on the
19
<PAGE>
records of the Corporation, then to the last address of such holder known to the
Corporation, at least thirty (30) days before the date specified for redemption;
such notice shall set out the redemption price, the date on which the redemption
is to take place and, if part only of the Class A preferred shares held by the
person to whom it is addressed is to be redeemed the number thereof so to be
redeemed; on or after the date so specified for redemption, the Corporation
shall pay or cause to be paid the redemption price to the registered holders of
the preferred shares to be redeemed on presentation and surrender of the
certificates for the Class A preferred shares so called for redemption at the
registered office of the Corporation or at such other place or places as may be
specified in such notice, and the certificates for such preferred shares shall
thereupon be cancelled, and the Class A preferred shares represented thereby
shall thereupon be redeemed; from and after the date specified for redemption in
such notice, the holders of the Class A preferred shares called for redemption
shall cease to be entitled to dividends in respect of such shares and shall not
be entitled to exercise any of the rights of the holders thereof, except the
right to receive the redemption price, unless payment of the redemption price
shall not be made by the Corporation in accordance with the foregoing
provisions, in which case the rights of the holders of such shares shall remain
unaffected; on or before the date specified for redemption, the Corporation
shall have the right to deposit the redemption price of the Class A preferred
shares called for redemption in a special account with any chartered bank or
trust company in Canada named in the notice of redemption, to be paid, without
interest, to or to the order of the respective holders of such Class A preferred
shares called for redemption, upon presentation and surrender of the
certificates representing the same and, upon such deposit being made or upon the
date specified for redemption, whichever is later, the Class A preferred shares
in respect whereof such deposit shall have been made, shall be deemed to be
redeemed and the rights of the respective holders thereof, after such deposit or
after such redemption date, as the case may be, shall be limited to
.../4
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<PAGE>
receiving, out of the moneys so deposited, without interest, the redemption
price applicable to their respective Class A preferred shares against
presentation and surrender of the certificates representing such preferred
shares. If less than all the Class A preferred shares are to be redeemed, the
shares to be redeemed shall be redeemed pro rata, disregarding fractions, unless
the holders of the Class A preferred shares unanimously agree to the adoption of
another method of selection of the preferred shares to be redeemed. If less than
all the Class A preferred shares represented by any certificate be redeemed, a
new certificate for the balance shall be issued.
(e) A holder of Class A preferred shares shall be entitled to require the
Corporation to redeem at any time all, or from time to time any part, of the
Class A preferred shares registered in the name of such holder by tendering
to the Corporation at its registered office the share certificate(s)
representing the Class A preferred shares which the registered holder
desires to have the Corporation redeem together with a request in writing
specifying (i) the number of Class A preferred shares which the registered
holder desires to have redeemed by the Corporation and (ii) the business day
(in this paragraph referred to as the "redemption date") on which the holder
desires to have the Corporation redeem such Class A preferred shares, which
redemption date shall not be less than five (5) days after the day on which
the request in writing is given to the Corporation. Upon receipt of the
share certificate(s) representing the Class A preferred shares which the
registered holder desires to have the Corporation redeem together with such
a request, the Corporation shall on, or at its option, before, the
redemption date redeem such shares by paying to the registered holder
thereof, for each share to be redeemed, an amount equal to the redemption
price in respect thereof; such payment shall be made by cheque payable at
any branch of the Corporation's bankers for the time being in Canada. The
said Class A preferred shares shall be deemed to be redeemed on the date of
payment of the redemption price and from and after such date such Class A
preferred shares shall cease
- -
. . ./5
21
<PAGE>
to be entitled to dividends and the holders thereof shall not be entitled to
exercise any of the rights of the holders of preferred shares in respect
thereof. Notwithstanding the foregoing, the Corporation shall only be
obliged to redeem Class A preferred shares so tendered for redemption to the
extent that such redemption would not be contrary to any applicable law, and
if such redemption of any such preferred shares would be contrary to any
applicable law, the Corporation shall only be obliged to redeem such Class A
preferred shares to the extent that the moneys applied thereto shall be such
amount (rounded to the next lower multiple of one hundred dollars ($100.00))
as would not be contrary to such law, in which case the Corporation shall
pay to each holder his pro rata share of the purchase moneys allocable. If
less than all the Class A preferred shares represented by any certificate be
redeemed, a new certificate for the balance shall be issued.
(f) The Corporation may purchase for cancellation at any time all, or from time
to time any part, of the Class A preferred shares outstanding, by private
contract at any price, with the unanimous consent of the holders of the
Class A preferred shares then outstanding, or by invitation for tenders
addressed to all the holders of the Class A preferred shares at the lowest
price at which, in the opinion of the directors, such shares are obtainable
but not exceeding the redemption price thereof. If less than all the Class A
preferred shares represented by any certificate be purchased for
cancellation, a new certificate for the balance shall be issued.
(g) Upon a redemption of Class A preferred shares as set out in paragraphs II.
(d), (e) and (f) hereof, the Corporation shall deduct from the stated
capital account maintained for the Class A preferred shares an amount equal
to the result obtained by multiplying the amount contained in the stated
capital account maintained for the Class A preferred shares by the number of
such shares which are redeemed, divided by the number of Class A preferred
shares issued and outstanding immediately before such redemption.
- -
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<PAGE>
(h) For the purposes of paragraphs II. (b), (c) and (i), the "Class A Preferred
Redemption Price" of each Class A preferred share shall be an amount equal
to (i) the monetary consideration received by the Corporation upon the
issuance of such share (denominated in the currency in which such
consideration was paid to the Corporation), if such share has been issued
for money; or (ii) the fair market value of the consideration received by
the Corporation (including, without limitation, shares of another class of
the Corporation) upon the issuance of such share, if such share has been
issued for a consideration other than money.
The fair market value determined as hereinabove provided for shall be subject to
revision in accordance with any binding agreement with, or decision by, the
appropriate taxation authorities, or any judgment of a court of competent
jurisdiction. In the event that any such agreement, decision or judgment shall
result in a final determination under the provisions of the appropriate taxation
legislation and the amount thereby determined is an amount other than the amount
for which such share was originally issued as determined by the directors in
accordance with the preceding sub-paragraph, such finally determined amount for
the purpose of the appropriate taxation legislation shall then be deemed to be
the fair market value of the consideration received by the Corporation upon the
issuance of such Class A preferred share.
(i) In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or other distribution of
assets of the Corporation among shareholders for the purpose of winding-up
its affairs, the holders of the Class A preferred shares shall be entitled
to receive for each Class A preferred share, in preference and priority to
any distribution of the property or assets of the Corporation to the holders
of the common shares or any other shares ranking junior to the Class A
preferred shares, an amount equal to the Class A Preferred Redemption Price,
but shall not be entitled to share any further in the distribution of the
property or assets of the Corporation.
.../7
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<PAGE>
(j) No change to any of the provisions of paragraphs II. (a) to (i) or of this
paragraph (j) shall have any force or effect until it has been approved by a
majority of not less than two-thirds (2/3) of the votes cast by the holders
of the Class A preferred shares, voting separately as a class at a meeting
of such holders specially called for that purpose, or by a resolution in
writing signed by all the holders of the preferred shares, in addition to
any other approval required by the Act.
III. The Class B preferred shares shall have attached thereto the following
rights, privileges, restrictions and conditions:
(a) The Class B preferred shares may be issued from time to time in one (1) or
more series with such preferred, deferred or other special rights, privileges,
restrictions, conditions and designations attached thereto and in particular
such rate or rates of cumulative or non-cumulative preferential annual
dividends, redemption price or prices and amount or amounts to be paid thereon
upon distribution of assets in the event of liquidation dissolution or winding
up of the Corporation, whether voluntary or involuntary, as shall be fixed from
time to time before issuance by any resolution or resolutions providing for the
issue of the shares of any series which may be passed by the board of directors
of the Corporation and confirmed and declared by articles of amendment.
4 - RESTRICTIONS IF ANY ON SHARE TRANSFERS
No share in the share capital of the Corporation shall be transferred nor
assigned without the approval of the directors certified by a resolution of the
board of directors. Approval of such transfer or assignment of shares may be
given as above, after the said transfer or assignment has been recorded in the
books of the Corporation, in which case, unless the said resolution otherwise
provides, the said transfer or assignment shall be valid and shall have effect
as at the date it has been recorded in the books of the Corporation.
.../8
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<PAGE>
5 - NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS
A minimum of one (1) and a maximum of ten (10).
6 - RESTRICTIONS IF ANY ON BUSINESS THE CORPORATION MAY CARRY ON
None.
7 - OTHER PROVISION. IF ANY
the number of the shareholders of the Corporation is limited to fifty (50)
exclusive of present or former employees of the Corporation or of a subsidiary
of the Corporation, two or more persons holding one or more shares jointly being
counted as a single shareholder;
(2) any distribution of securities to the public or invitation for the
subscription or the distribution of an instrument or security issued by the
Corporation is prohibited; and
(3) the directors of the Corporation may, when deemed expedient:
(a) borrow money upon the credit of the Corporation;
(b) issue debentures or other securities of the Corporation, and pledge or sell
the same for such sums and at such prices as may be deemed expedient;
(c) mortgage, hypothecate, pledge or otherwise create a security interest in all
or any moveable or personal, immoveable or real or other property of the
Corporation, owned or subsequently acquired, to secure any obligation of the
Corporation.
The directors may, by resolution or by-law, provide for the delegation of such
powers by the directors to such officers or directors of the Corporation to such
extentand in such manner as may be set out in the resolution or by-law, as the
case may be.
25
<PAGE>
8 - INCORPORATORS
Name Address
- ---- -------
Wayne Burrows 1155 Rene-levesque Blvd West
Suite 3900
Montreal,Quebec
H3B 3V2
SIGNATURE
/s/ Wayne Burrows
Wayne Burrows
FOR DEPARTMENTAL USE ONLY
Corporation No.
249881-2
Filed
7/24/89
26
<PAGE>
EXHIBIT 3.2
Metrowerks Inc. and Subsidiaries
By-Laws to Metrowerks
RESOLUTION OF THE BOARD OF
DIRECTORS
of
METROWERKS INC.
WHEREAS a certificate of amalgamation dated January 1, 1990,
amalgamating METROWERKS INC. and METROPOLIS COMPUTER NETWORKS INC. under the
provisions of the Canada Business Corporations Act and continuing their
existence as one corporation under the name of METROWERKS INC., has been issued
by the Director of Corporations Branch; and
WHEREAS pursuant to article 182(1)(f) of the Canada Business
Corporations Act and article 2.10 of the amalgamation agreement entered into by
the two amalgamating Corporations dated December 31, 1989, the general by-laws
of the amalgamated Corporation are to be the by-laws of METROWERKS INC.,
subject, however, to the necessary amendments to have them comply with the
provisions of the Act;
NOW THEREFORE, BE IT RESOLVED:
THAT the following by-law be and is adopted:
BY-LAW NO.
ONE
being a by-law relating generally to the transaction of the business and affairs
of the Corporation.
hereby
DEFINITIONS
1. In this by-law and all other by-laws of the Corporation, unless the context
otherwise specifies or requires:
(a) "Act" means the Canada Business Corporations Act, and any statute that may
be substituted therefor, as from time to time amended;
(b) "articles" means the articles of the Corporation, as from time to time
amended or restated;
<PAGE>
(c) "by-law" means this by-law and all other by-laws of the Corporation from
time to time in force and effect;
(d) "unanimous shareholders agreement" means an agreement as described in
subsection 146(2) of the Act made by the shareholders of the Corporation;
(e) words importing the singular number only shall include the plural and vice
versa; words importing the masculine gender shall include the feminine and
neuter genders and vice-versa; words importing persons shall include bodies
corporate, corporations, companies, partnerships, syndicates, trusts and any
number or aggregate of individuals;
(f) the headings used in the by-laws are inserted for reference purposes only
and are not to be considered or taken into account in construing the terms
or provisions thereof or to be deemed in any way to clarify, modify or
explain the effect of any such terms or provisions; and
(g) all terms contained in the by-laws and which are defined in the Act shall
have the meanings given to such terms in the Act.
REGISTERED OFFICE
2. The Corporation may from time to time (i) by resolution of the board of
directors change the location of the address of the registered office of the
Corporation within the place specified in the articles and (ii) by articles of
amendment change the place in which its registered office is situated to another
place within Canada.
CORPORATE SEAL
3. The Corporation may have one or more corporate seals which shall be such as
the board of directors may by resolution from time to time adopt and change.
DIRECTORS
4. Number and Powers. There shall be a board of directors consisting of such
fixed number, or minimum and maximum number of directors as may be set out in
the articles, but a corporation, any of the issued securities of which are or
were part of a distribution to the public and remain outstanding and are held by
more than one person, shall not have fewer than three (3) directors, at least
two (2) of whom are not officers or employees of the Corporation or its
affiliates. A majority of the board of directors must be resident Canadians
unless the Corporation is a holding corporation referred to in subsection 105(4)
of the Act.
<PAGE>
5. Vacancies. If the number of directors is increased, the resulting vacancies
shall be filled at a meeting of shareholders duly called for that purpose.
Notwithstanding the provisions of this by-law and subject to the provisions of
the Act, if a vacancy should otherwise occur in the board, the remaining
directors, if constituting a quorum, may appoint a qualified person to fill the
vacancy for the remainder of the term. In the absence of a quorum, the remaining
directors shall forthwith call a meeting of shareholders to fill the vacancy
pursuant to subsection 111(2) of the Act. Where a vacancy or vacancies exist in
the board, the remaining directors may exercise all of the powers of the board
so long as a quorum remains in office.
6. Term of Office. A director's term of office shall be from the meeting at
which he is elected or appointed until the annual meeting next following or
until his successor is elected or appointed, or until, if earlier, he dies or
resigns, or is removed or disqualified pursuant to the provisions of the Act.
7. Vacation of Office. The office of a director shall ipso facto be vacated if:
(a) he dies;
(b) by notice in writing to the Corporation he resigns his office and such
resignation, if not effective immediately, becomes effective in accordance
with its terms;
(c) he is removed from office in accordance with section 109 of the Act; or
(d) he ceases to be qualified to be a director.
8. Election. Directors shall be elected by the shareholders by ordinary
resolution in a general meeting on show of hands unless a poll is demanded and
if a poll is demanded such election shall be by ballot.
A retiring director shall retain office until the adjournment or
termination of the meeting at which his successor is elected unless such meeting
was called for the purpose of removing him from office as a director in which
case the director so removed shall vacate office forthwith upon the passing of
the resolution for his removal.
MEETINGS OF DIRECTORS
9. Place of Meeting. Subject to the articles, meetings of directors may be held
at any place within or outside Canada as the directors may from time to time
determine or the person convening the meeting may give notice. A meeting of the
board of directors may be convened by the chairman of the board, if any, the
president if any, or any director at
<PAGE>
any time. The secretary, if any, shall upon direction of any of the foregoing
convene a meeting of the board of directors.
Notice. Notice of the time and place for the holding of any such
meeting shall be delivered, mailed, telegraphed, cabled or telexed to each
director at his latest address as shown on the records of the Corporation not
less than two (2) days (exclusive of the day on which the notice is delivered,
mailed, telegraphed, cabled or telexed but inclusive of the day for which notice
is given) before the date of the meeting; provided that meetings of the board of
directors may be held at any time without notice if all the directors have
waived notice.
For the first meeting of the board of directors to be held immediately
following the election of directors at an annual or special meeting of the
shareholders, no notice of such meeting need be given to the newly elected or
appointed director or directors in order for the meeting to be duly constituted,
provided a quorum of the directors is present.
A notice of a meeting of directors shall specify any matter referred
to in subsection 115(3) of the Act that is to be dealt with at the meeting.
Waiver of Notice. Notice of any meeting of the board of directors or
any irregularity in any meeting or in the notice thereof may be waived by any
director in writing or by telegram, cable or telex addressed to the Corporation
or in any other manner, and such waiver may be validly given either before or
after the meeting to which such waiver relates. The attendance of a director at
a meeting of directors is a waiver of notice of the meeting except where 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.
Telephone Participation. A director may, if all the directors of the
Corporation consent thereto (either before, during or after the meeting),
participate in a meeting of directors 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
shall be deemed to be present at that meeting.
10. Adjournment. Any meeting of the board of directors may be adjourned from
time to time by the chairman of the meeting, with the consent of the meeting, to
a fixed time and place and no notice of the time and place for the continuance
of the adjourned meeting need be given to any director. Any adjourned meeting
shall be duly constituted if held in accordance with the terms of the
adjournment and a quorum present thereat. The directors who formed a quorum at
the original meeting are not required to form the quorum at the adjourned
meeting. If there is no quorum present at the adjourned meeting, the original
meeting shall be deemed to have terminated forthwith after its adjournment.
<PAGE>
11. Quorum and Voting. Subject to the articles, a majority of the number of
directors in office at the time shall constitute a quorum for the transaction of
business. Subject to subsection 117(1) of the Act, no business shall be
transacted by the directors except at a meeting of directors at which a quorum
of the board is present. Questions arising at any meeting of the board of
directors shall be decided by a majority of votes cast. In case of an equality
of votes, the chairman of the meeting, in addition to his original vote shall
not have a second or casting vote. Where the Corporation has only one director,
that director may constitute the meeting.
12. Resolution in lieu of meetinq. A resolution in writing, signed by all the
directors entitled to vote on that resolution at a meeting of directors, is as
valid as if it had been passed at a meeting of directors or committee of
directors.
A copy of every such resolution shall be kept with the minutes of the
proceedings of the directors or committee of directors.
REMUNERATION OF DIRECTORS
13. Subject to the articles or any unanimous shareholders agreement, the
remuneration to be paid to the directors shall be such as the board of directors
shall from time to time determine and such remuneration shall be in addition to
the salary paid to any officer of the Corporation who is also a member of the
board of directors. The directors may also by resolution award special
remuneration to any director undertaking any special services on the
Corporation's behalf other than the routine work ordinarily required of a
director by the Corporation. The confirmation of any such resolution
or resolutions by the shareholders shall not be required. The directors shall
also be entitled to be paid their travelling and other expenses properly
incurred by them in connection with the affairs of the Corporation.
SUBMISSION OF CONTRACTS OR TRANSACTIONS
TO SHAREHOLDERS FOR APPROVAL
14. The board of directors in their discretion may submit any contract, act or
transaction for approval, ratification or confirmation at any annual meeting of
the shareholders or at any special meeting of the shareholders called for the
purpose of considering the same and any contract, act or transaction that shall
be approved, ratified or confirmed by resolution passed by a majority of the
votes cast at any such meeting (unless any different or additional requirement
is imposed by the Act or by the Corporation's articles or any other by-law)
shall be as valid and as binding upon the Corporation and upon all the
shareholders as though it had been approved, ratified or confirmed by every
shareholder of the Corporation.
<PAGE>
INDEMNITIES TO DIRECTORS AND OTHERS
15. Except in respect of an action by or on behalf of the Corporation or another
body corporate (as hereinafter defined), the Corporation shall indemnify each
director and officer of the Corporation and each former director and officer of
the Corporation and each person who acts or acted at the Corporation's request
as a director or officer of another body corporate, and his heirs and legal
representatives, against all costs, charges and expenses, including any 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 another body corporate, as the case may be, 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.
"another body corporate" as used herein means a body corporate of which the
Corporation is or was a shareholder or creditor.
OFFICERS
16. Appointment of Officers. Subject to the articles or any unanimous
shareholders agreement, the board of directors, annually or as often as may be
required, may appoint from among themselves a chairman of the board and may
appoint a president and a secretary and, if deemed advisable, may also appoint
one or more vice-presidents, a treasurer and one or more assistant secretaries
and/or one or more assistant treasurers. None of such officers, except the
chairman of the board, need be a director of the Corporation. Any two (2) or
more of such offices may be held by the same person. In case and whenever the
same person holds the offices of secretary and treasurer he may, but need not,
be known as the secretary-treasurer. The board of directors may from time to
time designate such other offices and appoint such other officers, employees and
agents as it shall deem necessary who shall have such authority and shall
perform such functions and duties, as may from time to time be prescribed by
resolution of the board of directors.
17. Remuneration and Removal of Officers. Subject to the articles or any
unanimous shareholders agreement, the remuneration of all officers, employees
and agents elected or appointed by the board of directors may be determined from
time to time by resolution of the board
<PAGE>
of directors. The fact that any officer, employee or agent is a director or
shareholder of the Corporation shall not disqualify him from receiving such
remuneration as may be so determined. The board of directors may by resolution
remove any officer, employee or agent at any time, with or without cause.
18. Duties of Officers may be Delegated. In case of the absence or inability or
refusal to act of any officer of the Corporation or for any other reason that
the board of directors may deem sufficient, the board may delegate all or any of
the powers of such officer to any other officer or to any director for the time
being.
19. Chairman of the Board. The chairman of the board, if any, shall, if present,
preside at all meetings of the board of directors and of shareholders. He shall
sign such contracts, documents or instruments in writing as require his
signature and shall have such other powers and duties as may from time to time
be assigned to him by resolution of the board of directors.
20. President. The president, if any, shall be the chief executive officer of
the Corporation and shall exercise general supervision over the business and
affairs of the Corporation. In the absence of the chairman of the board, if any,
the president shall, when present, preside at all meetings of the board of
directors and shareholders; he ~I~' ~lyl~ ~u~rl concraccs, aocuments or
instruments in writing as require his signature and shall have such other powers
and shall perform such other duties as may from time to time be assigned to him
by resolution of the board of directors or as are incident to his office.
21. Vice-President. The vice-president or, if more than one, the vice-presidents
in order of seniority, shall be vested with all the powers and shall perform all
the duties of the president in the absence or inability or refusal to act of the
president, provided, however, that a vicepresident who is not a director shall
not preside as chairman at any meeting of shareholders. The vice-president or,
if more than one, the vice-presidents in order of seniority, shall sign such
contracts, documents or instruments in writing as require his or their
signatures and shall also have such other powers and duties as may from time to
time be assigned to him or them by resolution of the board of directors.
22. Secretary. The secretary, if any, shall give or cause to be given notices
for all meetings of the board of directors, of committees thereof, if any, and
of shareholders when
<PAGE>
directed to do so and shall have charge, subject to the provisions of this by-
law, of the records referred to in section 20 of the Act (except the accounting
records) and of the corporate seal or seals, if any. He shall sign such
contracts, documents or instruments in writing as require his signature and
shall have such other powers and duties as may from time to time be assigned to
him by resolution of the board of directors or as are incident to his office.
23. Treasurer. Subject to the provisions of any resolution of the board of
directors, the treasurer, if any, shall have the care and custody of all the
funds and securities of the Corporation and shall deposit the same in the name
of the Corporation in such bank or banks or with such other depositary or
depositaries as the board of directors may by resolution direct. He shall
prepare, maintain and keep or cause to be kept adequate books of accounts and
accounting records. He shall sign such contracts, documents or instruments in
writing as require his signature and shall have such other powers and duties as
may from time to time be assigned to him by resolution of the board of directors
or as are incident to his office. He may be required to give such bond for the
faithful performance of his duties as the board of directors in their
uncontrolled discretion may require and no director shall be liable for failure
to require any such bond or for the insufficiency of any such bond or for any
loss by reason of the failure of the Corporation to receive any indemnity
thereby provided.
24. Assistant Secretary and Assistant Treasurer. The assistant secretary or, if
more than one, the assistant Secretaries in order of seniority, and the
assistant treasurer or, if more than one, the assistant treasurers in order of
seniority, shall respectively perform all the duties of the secretary and
treasurer, respectively, in the absence or inability to act of the secretary or
treasurer as the case may be. The assistant secretary or assistant secretaries,
if more than one, and the assistant treasurer or assistant treasurers, if more
than one, shall sign such contracts, documents or instruments in writing as
require his or their signatures respectively and shall have such other powers
and duties as may from time to time be assigned to them by resolution of the
board of directors.
MANAGING DIRECTOR
25. The board of directors may from time to time appoint from their number a
managing director who is a resident Canadian and may delegate to him any of the
powers of the board of directors except as provided in subsection 115(3) of the
Act. The managing director shall conform to all lawful orders given to him by
the board of directors of the Corporation and shall at all reasonable times give
to the directors or any of them all
<PAGE>
information they may require regarding the affairs of the Corporation. Any agent
or employee appointed by the managing director shall be subject to discharge by
the board of directors.
COMMITTEES
26. The board of directors may from time to time appoint from their number one
or more committees consisting of one or more individuals and delegate to such
committee or committees any of the powers of the directors except as provided in
subsection 115(3) of the Act. Except in the case of a holding corporation
referred to in subsection 105(4) of the Act, a majority of the members of any
such committee must be resident Canadians. Unless otherwise ordered by the
board, a committee of directors shall have power to fix its quorum, to elect its
chairman and to regulate its proceedings.
SHAREHOLDERS'
MEETINGS
27. Annual Meeting. Subject to compliance with section 133 of the Act, the
annual meeting of the shareholders shall be convened on such day in each year
and at such time as the board of directors may by resolution determine.
28. Special Meetings. Other meetings of the shareholders may be convened by
order of the chairman of the board, the president or a vice-president who is a
director or by the board of directors, to be held at such time and place as may
be specified in such order.
Special meetings of shareholders may also be called by written
requisition to the board of directors signed by shareholders holding between
them not less than five percent (5%) of the outstanding shares of the capital of
the Corporation entitled to vote thereat. Such requisition shall state the
business to be transacted at the meeting and shall be sent to the registered
office of the Corporation.
Except as otherwise provided in subsection 143(3) of the Act, it shall
be the duty of the board of directors on receipt of such requisition, to cause
the meeting to be called by the secretary of the Corporation.
<PAGE>
If the board of directors does not, within twentyone (21) days after
receiving such requisition call a meeting, any shareholder who signed the
requisition may call the meeting.
29. Place of Meetings. Meetings of shareholders of the Corporation shall be held
at the registered office of the Corporation or at such other place in Canada as
may be specified in the notice convening such meeting. Notwithstanding the
foregoing, a meeting of shareholders may be held outside Canada if all the
shareholders entitled to vote at that meeting so agree, and a shareholder who
attends a meeting of shareholders held outside Canada is deemed to have so
agreed except when he attends the meeting for the express purpose of objecting
to the transaction of any business on the grounds that the meeting is not
lawfully held.
30. Notice. A printed, written or typewritten notice stating the day, hour and
place of meeting and, subject to subsection 135(6) of the Act, the general
nature of the business to be transacted shall be served to each person who is
entitled to vote at such meeting, each director of the Corporation and the
auditor of the Corporation, either personally or by sending such notice by
prepaid mail not less than twenty-one (21) days or more than fifty (50) days
before the meeting. If such notice is served by mail it shall be directed to the
latest address as shown in the records of the Corporation, of the intended
recipient. Notice of any meeting of shareholders or any irregularity in any such
meeting or in the notice thereof may be waived by any shareholder, the duly
appointed proxy of any shareholder, any directors or the auditor of the
Corporation in writing, by telegram, cable or telex addressed to the Corporation
or by any other manner, and any such waiver may be validly given either before
or after the meeting to which such waiver relates.
31. Voting. Voting at a meeting of shareholders shall be by show of hands except
where a ballot is demanded by a shareholder entitled to vote at the meeting. A
shareholder may demand a ballot either before or after any vote by show of
hands.
32. Omission of Notice. The accidental omission to give notice of any meeting to
or the non-receipt of any notice by any person shall not invalidate any
resolution passed or any proceeding taken at any meeting of shareholders.
33. Record Date. The board of directors may by resolution fix in advance a date
and time as the record
<PAGE>
date for the determination of the shareholders entitled to receive notice of a
meeting of the shareholders, but such record date shall not precede by more than
fifty (50) days or by less than twenty-one (21) days the date on which the
meeting is to be held.
If the directors fail to fix in advance a date and time as the record
date in respect of all or any of the matters described above for any meeting of
the shareholders of the Corporation, the following provisions shall apply, as
the case may be:
(a) the record date for the determination of the shareholders entitled to
receive notice of a meeting of shareholders shall be at the close of
business on the day immediately preceding the day on which notice is given
or sent;
the record date for the determination of the shareholders entitled to vote at a
meeting of share holders shall be the day on which the meeting is held; and
(c) the record date for the determination of the shareholders entitled to
receive the financial statements of the Corporation shall be the close of
business on the day on which the directors pass the resolution relating
thereto.
34. Votes. Every question submitted to any meeting of shareholders shall be
decided in the first instance, unless a ballot is demanded, on a show of hands
and in case of an equality of votes the chairman of the meeting shall not, both
on a show of hands and on a ballot, have a second or casting vote in addition to
the vote or votes to which he may be entitled as a shareholder.
At any meeting, unless a ballot is demanded, a declaration by the
chairman of the meeting that a resolution has been carried or carried
unanimously or by a particular majority or lost or not carried by a particular
majority shall be conclusive evidence of the fact without proof of the number or
proportion of votes recorded in favour of or against the motion.
In the absence of the chairman of the board, the president and every
vice-president who is a director, the shareholders present entitled to vote
shall choose another director as chairman of the meeting and if no director is
present or if all the directors present decline to take the chair then the
shareholders present shall choose one of their number to be chairman.
If at any meeting a ballot is demanded on the election of a chairman
or on the question of adjournment or termination it shall be taken forthwith
without adjournment. If a ballot is demanded on any other question or as to the
election of directors it shall be taken in such manner and
<PAGE>
either at once or later at the meeting or after adjournment as the chairman of
the meeting directs. The result of a ballot shall be deemed to be the resolution
of the meeting at which the ballot was demanded. A demand for a ballot may be
withdrawn.
Where a person holds shares as a personal representative, such person
or his proxy is the person entitled to vote at all meetings of shareholders in
respect of the shares so held by him.
Where a person mortgages or hypothecates his shares, such person or his
proxy is the person entitled to vote at all meetings of shareholders in respect
of such shares unless, in the instrument creating the mortgage or hypothec, he
has expressly empowered the person holding the mortgage or hypothec to vote in
respect of such shares, in which case, subject to the Corporation's articles,
such holder or his proxy is the person entitled to vote in respect of the
shares.
Where two (2) or more persons hold the same share or shares jointly,
any one of such persons present at a meeting of shareholders has the right, in
the absence of the other or others, to vote in respect of such share or shares,
but if more than one of such persons are present or represented by proxy and
vote, they shall vote together as one on the share or shares jointly held by
them.
35. Proxies. A shareholder, including a shareholder that is a body corporate,
entitled to vote at a meeting of shareholders may by means of a proxy appoint a
proxyholder or one or more alternate proxyholders, who are not required to be
shareholders, to attend and act at the meeting in the manner and to the extent
authorized by the proxy and with the authority conferred by the proxy.
An instrument appointing a proxyholder shall be in writing and shall
be executed by the shareholder or his attorney authorized in writing or, if the
shareholder is a body corporate, either under its seal or by an officer or
attorney thereof, duly authorized. A proxy is valid only at the meeting in
respect of which it is given or any adjournment thereof.
Unless the Act requires another form, an instrument appointing a
proxyholder may be in the following form:
"The undersigned shareholder of hereby appoints of or failing him, of
as the nominee of the undersigned to attend and act for and on behalf of the
undersigned at the meeting of the shareholders of the said Corporation to be
held on the day of , 19 , and at any adjournment thereof to the same extent and
with the same power as if the undersigned were personally present at the said
meeting or such adjournment thereof.
Dated the day of
Signature of Shareholder
<PAGE>
NOTE:
This form of proxy must be signed by a shareholder or his attorney authorized in
writing or, if the shareholder is a body corporate, either under its seal or by
an officer or attorney thereof duly authorized."
The directors may from time to time pass regulations regarding the
deposit of instruments appointing a proxyholder at some place or places other
than the place at which a meeting or adjourned meeting of shareholders is to be
held and for particulars of such instruments to be telegraphed, cabled, telexed
or sent in writing before the meeting or adjourned meeting to the Corporation or
any agent of the Corporation for the purpose of receiving such particulars and
providing that instruments appointing a proxyholder so lodged may be voted upon
as though the instruments themselves were produced at the meeting or adjourned
meeting and votes given in accordance with such regulations shall be valid and
shall be counted. The chairman of any meeting of shareholders may, subject to
any regulations made as aforesaid, in his discretion accept telegraphic, telex,
cable or written communication as to the authority of anyone claiming to vote on
behalf of and to represent a shareholder notwithstanding that no instrument of
proxy conferring such authority has been lodged with the Corporation, and any
votes given in accordance with such telegraphic, telex, cable or written
communication accepted by the chairman of the meeting shall be valid and shall
be counted.
36. Adjournment. The chairman of the meeting may with the consent of the meeting
adjourn any meeting of shareholders from time to time to a fixed time and place.
If a meeting of shareholders is adjourned less than thirty (30) days, it is not
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 thirty (30) days or
more, notice of the adjourned meeting shall be given as for an original meeting
but, unless the meeting is adjourned by one or more adjournments for an
aggregate of more than ninety (90) days, the requirements of subsection 149(1)
of the Act relating to mandatory solicitation of proxies do not apply.
Any adjourned meeting shall be duly constituted if held in accordance
with the terms of the adjournment
<PAGE>
and a quorum is present thereat. The persons who formed a quorum at the original
meeting are not required to form a quorum at the adjourned meeting. If there is
no quorum present at the adjourned meeting, the original meeting shall be deemed
to have terminated forthwith after its adjournment. Any business may be brought
before or dealt with at any adjourned meeting which might have been brought
before or dealt with at the original meeting in accordance with the notice
calling same.
37. Quorum. One (1) person present and holding or representing by proxy at least
one (1) issued share of the Corporation shall be a quorum of any meeting of
shareholders for the choice of a chairman of the meeting and for the adjournment
of the meeting; for all other purposes a quorum for any meeting (unless a
different number of shareholders and/or a different number of shares are
required to be represented by the Act or by the articles or by any other by-law)
shall be persons present being not less than two (2) in number and holding or
representing by proxy a majority of the shares entitled to vote at such meeting.
If a quorum is present at the opening of a meeting of the shareholders, the
shareholders present may proceed with the business of the meeting,
notwithstanding that a quorum is not present throughout the meeting. 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.
38. Resolution in lieu of meeting. Except where a written statement is submitted
by a director under subsection 110(2) of the Act or by an auditor under
subsection 168(5) of the Act, 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.
A copy of every such resolution shall be kept with the minutes of the
meetings of shareholders.
39. Certificates. Share certificates (and the form of stock transfer power on
the reverse side thereof) shall (subject to compliance with section 49 of the
Act) be in such form and be signed by such director(s) or officer(s) as the
board of directors may from time to time by resolution determine.
40. Registrar and Transfer Agent. The board of directors may from time to time
by resolution appoint or remove one or more registrars and/or branch registrars
(which may but need not be the same person) to keep the register of security
holders and/or one or more transfer agents and/or branch transfer agents (which
may but need not be the same person) to keep the register of transfer, and
(subject to section 50 of the Act) may provide for the registration of issues
and the registration of transfers
<PAGE>
of the securities of the Corporation in one or more places and such registrars
and/or branch registrars and/or transfer agents and/or branch transfer agents
shall keep all necessary books and registers of the Corporation for the
registration of the issuance and the registration of transfers of the securities
of the Corporation for which they are so appointed. All certificates issued
after any such appointment representing securities issued by the Corporation
shall be countersigned by or on behalf of one of the said registrars and/or
branch registrars and/or transfer agents and/or branch transfer agents, as the
case may be.
41. Surrender of Share Certificates. No transfer of a share issued by the
Corporation shall be recorded or registered unless or until the certificate
representing the share to be transferred has been surrendered and cancelled or,
if no certificate has been issued by the Corporation in respect of such share,
unless or until a duly executed share transfer power in respect thereof has been
presented for registration.
42. Defaced, Destroyed, Stolen or Lost Certificates. If the defacement,
destruction or apparent destruction, theft, or other wrongful taking or loss of
a share certificate is reported by the owner to the Corporation or to a
registrar, branch registrar, transfer agent or branch transfer agent of the
Corporation (hereinafter, in this paragraph, called the "Corporation's transfer
agent") and such owner gives to the Corporation or the Corporation's transfer
agent a written statement verified by oath or statutory declaration as to the
defacement, destruction or apparent destruction, theft, or other wrongful taking
or loss and the circumstances concerning the same, a request for the issuance of
a new certificate to replace the one so defaced, destroyed, wrongfully taken or
lost and a bond of a surety company (or other security approved by the board of
directors) in such form as is approved by the board of directors or by the
chairman of the board, the president, a vice-president, the secretary or the
treasurer of the Corporation, indemnifying the Corporation (and the
Corporation's transfer agent, if any), against all loss, damage or expense,
which the Corporation and/or the Corporation's transfer agent may suffer or be
liable for by reason of the issuance of a new certificate to such shareholder, a
new certificate may be issued in replacement of the one defaced, destroyed or
apparently destroyed, stolen or otherwise wrongfully taken or lost, if such
issuance is ordered and authorized by any one of the chairman of the board, the
president, a vice-president, the secretary or the treasurer of the Corporation
or by resolution of the board of directors.
<PAGE>
DIVIDENDS
43. Subject to the relevant provisions of the Act, the board of directors may
from time to time by resolution declare and the Corporation may pay dividends on
its issued shares, subject to the relevant provisions, if any, of the articles.
NOTICE
44. Shares registered in more than one name. All notices or other documents
required to be sent to a shareholder by the Act, the regulations under the Act,
the articles or the by-laws of the Corporation shall, with respect to any shares
in the capital of the Corporation registered in more than one name, be given to
whichever of such persons is named first in the records of the Corporation and
any notice or other document so given shall be sufficient notice or delivery of
such document to all the holders of such shares.
45. Persons becoming entitled by operation of law. Every person who by operation
of law, transfer or by any other means whatsoever shall become entitled to any
shares in the capital of the Corporation shall be bound by every notice or other
document in respect of such shares which prior to his name and address being
entered on the records of the Corporation shall have been duly given to the
person or persons from who he derives his title to such shares.
46. Deceased Shareholder. Any notice or other document delivered or sent by post
or left at the address of any shareholder as the same appears in the records of
the Corporation shall, notwithstanding that such shareholder be then deceased
and whether or not the Corporation has notice of his decease, be deemed to have
been duly served in respect of the shares held by such shareholder (whether held
solely or with other persons) until some other person be entered in his stead in
the records of the Corporation as the holder or one of the holders thereof and
such service shall for all purposes be deemed a sufficient service of such
notice or other document on his heirs, executors or administrators and all
persons, if any, interested with him in such shares.
47. Signatures to Notices. The signature of any director or officer of the
Corporation to any notice may be written, stamped, typewritten or printed or
partly written, stamped, typewritten or printed.
48. Computation of Time.
Where a given number of days' notice or notice extending over any period is
required to be given under any provisions of the articles or by-laws of the
Corporation, the day of service or posting of the notice shall, unless it is
otherwise provided, be counted in such number of days or
<PAGE>
other period and such notice shall be deemed to have been given or sent on the
day of service or posting.
49. Proof of Service. A certificate of any officer of the Corporation in office
at the time of the making of the certificate or of a transfer officer of any
transfer agent or branch transfer agent of shares of any class of the
Corporation as to facts in relation to the mailing or delivery or service of any
notice or other documents to any shareholder, director, officer or auditor or
publication of any notice or other document shall be conclusive evidence thereof
and shall be binding on every shareholder, director, officer or auditor of the
Corporation, as the case may be.
CHEQUES, DRAFTS, NOTES, ETC.
50. All cheques, drafts or orders for the payment of money and all notes,
acceptances and bills of exchange shall be signed by such officer or officers or
other person or persons, whether or not officers of the Corporation, and in such
manner as the board of directors may from time to time designate by resolution.
CUSTODY OF
SECURITIES
51. All securities, including warrants, owned by the Corporation shall be
lodged, in the name of the Corporation, with a chartered bank or a trust company
or in a safety deposit box or, if so authorized by resolution of the board of
directors, with such other depositaries or in such other manner as may be
determined from time to time by the board of directors.
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 are hereby authorized to sell, assign, transfer, exchange, convert or
convey all shares, bonds, debentures, rights, warrants or other securities owned
by or registered in the name of the Corporation and to sign and execute, under
the seal of the Corporation or otherwise, all assignments, transfers,
conveyances, powers of attorney and other instruments that may be necessary for
the purpose of selling, assigning, transferring, exchanging, converting or
conveying or enforcing or exercising any voting rights in respect of any such
shares, bonds, debentures, rights, warrants or other securities. Where the
Corporation has only one director and officer, being the same person, that
person may perform the functions and exercise the powers herein contemplated.
<PAGE>
The signature or signatures of any officer or director of the
Corporation and/or of any other officer or officers, person or persons appointed
as aforesaid by resolution of the board of directors may, if specifically
authorized by resolution of the directors, be printed, engraved, lithographed or
otherwise mechanically reproduced upon all contracts, documents or instruments
in writing or, subject to subsections 49(4) and 49(5) of the Act, bonds,
debentures or other securities of the Corporation executed or issued by or on
behalf of the Corporation and all contracts, documents or instruments in writing
or bonds, debentures or other securities of the Corporation on which the
signatures of any of the foregoing officers, directors or persons shall be so
reproduced, by authorization by resolution of the board of directors, shall,
subject to subsections 49(4) and 49(5) of the Act, be deemed to have been duly
signed by such officers, shall be as valid to all intents and purposes as if
they had been signed manually and notwithstanding that the officers, directors
or persons whose signature or signatures is or are so reproduced may have ceased
to hold office at the date of the delivery or issue of such contracts, documents
or instruments in writing or bonds, debentures or other securities of the
Corporation.
DECLARATIONS
53. The chairman of the board, if appointed, the president, the vice-presidents,
secretary and/or treasurer, the assistant secretaries and/or assistant
treasurers, comptroller, accountant, chief clerk, or any one of them, is
authorized and empowered to appear and make answer for the Corporation to all
writs, orders and interrogatories upon articulated facts issued out Of any court
and to declare for and on behalf Of the Corporation any answer to writs Of
attachment by way Of garnishment in which the Corporation is garnishee, and to
make all affidavits and sworn declarations in connection therewith or in
connection with any or all judicial proceedings to which the Corporation is a
party and to make demands Of abandonment or petitions for winding up or
bankruptcy orders upon any debtor Of the Corporation and to attend and vote at
all meetings Of creditors Of any Of the Corporation's debtors and grant Proxies
in connection therewith.
FISCAL
YEAR
54. The fiscal period Of the Corporation shall terminate on such day in each
year as the board Of directors may from time to time by resolution determine.
<PAGE>
The foregoing resolution is hereby consented to by the signatures Of all the
directors Of METROWERKS INC.' pursuant to subsection 117(1) Of the Canada
Business Corporations Act, this 1st day Of January, 1990.
/s/ Jean J. Belanger
Jean J. Belanger
/s/ Gregory P. Galanos
Gregory P. Galanos
<PAGE>
METROWERKS INC.
INDEX TO BY-LAWS
BY-LAW NO.
ONE
DESCRIPTION
Relating generally to the transaction of the business and affairs of the
Corporation
ADOPTED ON
January 1, 1990
<PAGE>
BY-LAWS II AND III
RE: OMISSION OF BY-LAWS II AND III
Refer to Resolutions of the Board of Directors and the Shareholders of the
Corporation dated May 28th, 1993.
<PAGE>
BORROWING BY-LAW
d)
BY-LAW NO. IV
"A By-Law respecting the borrowing of issuing of money and the securities by:
METROWERKS INC.
(hereinafter called the "Company")
BE IT ENACTED as a By-Law of the Company as follows:
1. The Directors of the Company may, from time to to time, without the
authorization of the Shareholders:
a) borrow money upon the credit of the Company;
b) issue, re-issue, sell or pledge debt obligations of the Company, including
without limitation, bonds, debentures, notes or other similar obligations of
the Company whether secured or unsecured;
c) subject to the provisions of the Act, give a guarantee on behalf of the
Company to secure performance of any present of future indebtedness,
liability or obligation of any person; and
charge, mortgage, hypothecate, pledge or otherwise create a security interest in
all or any currently owned or subsequently acquired, present or future, real or
personal, moveable or immoveable, property of the Company, including without
limitation, book debts, rights, powers, franchises and undertakings, to secure
any present or future indebtedness, liabilities of other obligations of the
Company.
2. The Directors may, from time to time, by resolution delegate any or all of
the powers referred to in paragraph I of this by-law to any one or more of the
directors or officers of the Company."
<PAGE>
RESOLUTION OF SHAREHOLDERS OF
METROWERKS INC.
held at the Corporation's Head office on 28th day of May 1993
The following Resolutions signed by all the Shareholders of METROWERKS INC. (the
"Corporation"), under the provisions of Section 142 of the Canada Business
Corporations Act, whereby a resolution in writing signed by all the Shareholders
entitled to vote thereon shall be as valid as if it had been adopted at a
meeting, are hereby adopted and the present resolutions shall be deemed to have
been adopted on May 28th, 1993.
WHEREAS upon review of the Corporation's Book of Minutes, it was brought to the
attention of the Shareholders of the Corporation that By-laws II and III of the
Corporation were omitted at the date of amalgamation but were subsequently duly
approved and adopted as By-laws IV titled the By-law Respecting the Borrowing of
Money and the Issuing of Securities by METROWERKS INC. and as By-law V titled
By-Law Authorizing Borrowing and Pledging in meetings of the Directors and
Shareholders of the Corporation held on May 4th, 1992.
WHEREAS no Resolutions or acts of the Corporation demonstrate any reference to
Bylaws II and III of the Corporation;
IT IS UNANIMOUSLY RESOLVED:
THAT the Shareholders of the Corporation acknowledge the omission of By-laws II
and III in the Book of Minutes of the Corporation and recognize in their stead
as duly approved and adopted By-laws IV and V dated May 4th, 1992;
THAT the Shareholders direct the proper officers of the Corporation to insert
By-laws IV and V immediately after the approved and adopted By-law I in the Book
of Minutes of the Corporation;
VALIDITY
We, the undersigned, being all the Shareholders of the Corporation entitled to
vote, hereby sign these resolutions so that they shall be as valid as if they
had been passed at a meeting of the Shareholders of the Corporation, in
accordance with section 142(1) of the Canada Business Corporations Act.
<PAGE>
2
INSERTION
It is resolved to keep a copy of the above-mentioned resolutions in the Minute
Book of the Corporation, in conformity with section 142(2) of the Canada
Business Corporations
/s/ Gregory P. Galanos /s/ Jean Belanger
_____________________________ _____________________________
GREGORY P. GALANOS JEAN J. BELANGER
/s/ Jean Belanger /s/ Gregory P. Galanos
_____________________________ _____________________________
144458 Canada Inc duly 2380892 Canada Inc., duly
represented by Jean J. Belanger represented by Gregoy P. Galanos
/s/ Stephen Lockyer
_____________________________
CORNWALLIS FINANCIAL CORPORATION,
duly represented by Stephen Lockyer
<PAGE>
13626 (7-84) (Borrowing Authority) Dominion, Alta., Man., N.B., Ontario, PE.I,
Que or Sask. Company
BY-LAW AUTHORIZING BORROWING AND PLEDGING
Metrowerks Inc.
. . . . . . . . . . . . . . .
(Name of Company)
Incorporated under
Canada Business Corporations Act
. . . . . . . . . . . . . . .
(Name of Act)
BE IT AND IT IS HEREBY ENACTED as a By-law of the Company as follows:
BY-LAW NO. V
1. That the Directors of the Company may from time to time:
(a) borrow money upon the credit of the Company by obtaining loans or
advances or by way of overdraft or otherwise;
(b) issue, sell or pledge securities of the Company including bonds,
debentures, debenture stock, for such sums on such terms and at such prices as
they may deem expedient;
(c) assign, transfer, convey, hypothecate, mortgage, pledge, charge or give
security in any manner upon all or any of the real or personal, moveable or
immoveable property, rights, powers, choses in action, or other assets, present
or future, of the Company to secure any such securities or other securities of
the Company or any money borrowed or to be borrowed or any obligations or
liabilities as aforesaid or otherwise of the Company heretofore, now or
hereafter made or incurred directly or indirectly or otherwise; and
(d) without in any way limiting the powers herein conferred upon the
Directors, give security or promises to give security, agreements, documents and
instruments in any manner or form under the Bank Act or otherwise to secure any
money borrowed or to be borrowed or any obligations or liabilities as aforesaid
or otherwise of the Company heretofore, now or hereafter made or incurred
directly or indirectly or otherwise.
2. That any or all of the foregoing powers may from time to time be delegated by
the Directors to any one or more of the directors or officers of the Company.
That this By-law shall remain in force and be binding upon the Company as
regarding any person acting on the faith thereof until such person has received
written notification from the Company that this By-law has been repealed or
replaced.
ENACTED this 4th day of May 1992.
/s/ Gregory P. Galanos
/s/ Jean Belanger
CERTIFICATE
I hereby certify that the foregoing is a true copy of a By-law of
. . , ,Metrowerks, Inc.
(Name of Company)
(hereinafter called the "Company") duly enacted by the Directors of the Company;
that the said By-law was duly confirmed and sanctioned by the Shareholders in
the manner required by law; and that the said By-law is now in full force and
effect.
WITNESS my hand and seal of the Company this . . 4th day of May..... ,1992
<PAGE>
/s/ Jean Belanger
Secretary
Jean J. Belanger Corporate Seal
<PAGE>
SCHEDULE 2.05
ATTRIBUTES OF SHARES
The classes and any maximum number of shares that the Corporation is authorized
to issue
Unlimited number of common shares; Unlimited number of Class A preferred shares;
and Unlimlted number of Class B preferred shares, issuable in series.
I. The common shares shall have attached thereto the following rights,
privileges, restrictions and conditions:
(a) Each common share shall entitle the holder thereof to one (1) vote at all
meetings of the shareholders of the Corporatlon.
(b) The holders of the common shares shall be entitled to receive during each
year, as and when declared by the board of directors, dividends payable in
money, property or by the issue of fully paid sharea of the capital of the
Corporation.
(c) In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or other distribution of assets
of the Corporation among shareholders for the purpose of winding-up its affairs,
subject to the rights, privileges, restrictions and conditions attaching to the
Class A preferred shares and to any
<PAGE>
- - 2 -
other class of shares ranking prior to the common shares, the holders of the
common shares shall be entitled to receive the remaining property of the
Corporation.
II. The Class A preferred shares shall have attached thereto the following
rights, privileges, restrictions and conditions:
(a) Subject to the provisions of the Canada Business Corporations Act (the
"Act") or as otherwise expressly provided herein, the holders of the Class A
preferred shares shall not be entitled to receive notice of, nor to attend or
vote at meetings of the shareholders of the Corporation.
(b) The holders of the Class A preferred shares shall be entitled to receive
during each year, as and when declared by the board of directors, but always in
preference and priority to any payment of dividends on the other shares of the
Corporation, non-cumulative dividends at a rate of up to 10% payable annually
calculated on the Class A Preferred Redemption Price (as hereinafter in
paragraph II.(h) defined) of each such share, payable in money, property or by
the issue of fully paid shares of any class of the Corporation. The holders of
the Class A preferred shares shall not be entitled to any dividend in excess of
the dividend hereinbefore provided for.
(c) The Corporation may, in the manner hereinafter provided, redeem at any time,
all, or from time to time any part, of the outstanding Class A preferred shares
on payment for each preferred share to be redeemed of the Class A Preferred
Redemption Price plus all declared and unpaid dividends thereon (in paragraphs
II. (d), (e) and {f) called the "redemption price..)
(d) Before redeeming any Class A preferred shares, the Corporation shall mail or
<PAGE>
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deliver to each person who, at the date of such mailing or delivery, shall be a
registered holder of Class A preferred shares to be redeemed, notice of the
intention of the Corporation to redeem such shares held by such registered
holder; such notice shall be delivered to, or mailed by ordinary prepaid post
addressed to, the last address of such holder as it appears on the records of
the Corporation, or in the event of the address of any such holder not appearing
on the records of the Corporation, then to the last address of such holder known
to the Corporation, at least thirty (30) days before the date specified for
redemption; such notice shall set out the redemption price, the date on which
the redemption is to take place and, if part only of the Class A preferred
shares held by the person to whom it is addressed is to be redeemed, the number
thereof so to be redeemed; on or after the date so specified for redemption, the
Corporatlon shall pay or cause to be paid the redemption price to the registered
holders of the preferred shares to be redeemed on presentation and surrender of
the certificates for the Class A preferred shares so called for redemption at
the registered office of the Corporatlon or at such other place or places as may
be specified ln such notice, and the certificates for such preferred shares
shall thereupon be cancelled, and the Class A preferred shares presented thereby
shall thereupon be redeemed; from and after the date speclfled for redemption in
such notice, the holders of the Class A preferred shares called for redemption
shall cease to be entitled to dividends in respect of such shares and shall not
be entitled to exercise any of the rights of the holders thereof except the
right to receive the redemption price, unless payment of the redemption price
shall not be made by the Corporation in accordance with foregoing provisions, in
which case the rights of the holders of such shares shall remain
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unaffected; on or before the date specified for redemption, the Corporation
shall have the right to deposit the redemption price of the Class A preferred
shares called for redemption in a special account with any chartered bank or
trust company in Canada named in the notice of redemption, to be paid, without
interest, to or to the order of the respective holders of such Class A preferred
shares called for redemption, upon presentation and surrender of the
certificates representing the same and, upon such deposit being made or upon the
date specified for redemption, whichever is later, the Class A preferred shares
in respect whereof such deposit shall have been made, shall be deemed to be
redeemed and the rights of the respective holders thereof, after such deposit or
after such redemption date, as the case may be, shall be limited to receiving,
out of the moneys so deposited, without interest, the redemption price
applicable to their respective Class A preferred shares against presentation and
surrender of the certificates representing such preferred shares. If less than
all the Class A preferred shares are to be redeemed, the shares to be redeemed
shall be redeemed pro rata, disregarding fractions, unless the holders of the
Class A preferred shares unanimously agree to the adoption of another method of
selection of the preferred shares to be redeemed. If less than all the Class A
preferred shares represented by any certificate be redeemed, a new certificate
for the balance shall be issued.
(e) A holder of Class A preferred shares shall be entitled to require the
Corporatlon to redeem at any time all, or from time to time any part, of the
Class A preferred shares registered in the name of such holder by tendering to
the Corporation at its registered office the shares certificate(s)
representing the Class A preferred shares which the registered holder desires to
have the
<PAGE>
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Corporation redeem together with a request in writing specifying (i)
the number of Class A preferred shares which the registered holder de~ires to
have redeemed by the Corporation and (ii) the business day (in this paragraph
referred to as the "redemption date") on which the holder desires to have the
Corporation redeem such Class A preferred shares, which redemption date shall
not be less than (5) days after the day on which the request in writing is given
to the Corporation. Upon receipt of the shares certificate(s) representing the
Class A preferred shares which the registered holder desires to have the
Corporation redeem together with such request, the Corporation shall on, or at
its option, before, the redemption date redeem such shares by paying to the
registered holder thereof, for each shares to be redeemed, an amount equal to
the redemption price in respect thereof; such payment shall be made by cheque
payable at any branch of the Corporation's bankers for the time being in Canada.
The said Class A preferred shares shall be deemed to be redeemed on the date of
payment of the redemption price and from and after such date such Class A
preferred shares shall cease to be entitled to dividenda and the holders thereof
shall not be entitled to exercise any of the rights of the holders of preferred
shares in respect thereof. Notwithstanding the foregoing, the Corporation shall
only be obliged to redeem Class A preferred shares so tenders for redemption to
the extent that such redemption would not be contrary to any applicable law, and
if such redemption of any such preferred shares would be contrary to any
applicable law, the Corporation shall only be obliged to redeem such Class A
preferred shares to the extent that the money applied thereto shall be such
amount (rounded to the next lower multiple of one hundred dollars ($100.00)) as
would not be contrary to such law, in which case the Corporation shall pay to
each holder his
<PAGE>
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pro rata shares of the purchase moneys allocable. If less than all the Class A
preferred shares represented by any certificate be redeemed, a new certificate
for the balance shall be issued.
(f) The Corporation may purchase for cancellation at any time all, or from time
to time any part, of the Class A preferred shares outstanding, by private
contract at any price, with the unanimous consent of the holders, of the
Class A preferred shares then outstandinq, or by invitation for tenders
addressed to all the holders of the Class A preferred shares at the lowest
price at which, in the option of the directors, such shares are obtainable
but not exceeding the redemption price thereof. If less than all the Class
A preferred shares represented by any certificate be purchased for
cancellation, a new certificate for the balance shall be issued.
(g) Upon redemption of Class A preferred shares as set out in paragraphs II.
(d), (e) and (f) hereof, the Corporation shall deduct from the stated
capital account maintained for the Class A preferred shares an amount equal
to the result obtained by multiplying the amount contained in the stated
capital account maintained for the Class A preferred shares by the number of
such shares which are redeemed, divided by the number of Class A preferred
shares issued and outstanding immediately before such redemption.
(h) For the purposes of paragraphs II. (b), {c) and (i), the "Class A Preferred
Redemption Price" of each Class A preferred shares shall be an amount equal
to (i) the monetary consideration received by the Corporation upon the
issuance of such share (denominated in the currency in which such
consideration was paid to the Corporation), if such shares has been issued
for money, or (ii) the fair market value of the
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consideration received by the Corporation (including, without limitation,
sharen of another class of the Corporation) upon the issuance of such share,
if such share has been issued for a consideration other than money.
The fair market value determined as hereinabove provided for shall be subject to
revision in accordance with any binding agreement with, or decision by, the
appropriate taxation authorities, or any judgment of a court of competent
jurisdiction. In the event that any such agreement, decision or judgment shall
result in a final determination under the provisions of the appropriate taxation
legislation and the amount thereby determined is an amount other than the amount
for which such shares was originally issued as determined by the director. In
accordance with the preceding sub-paragraph, such finally determined amount for
the purpose of the appropriate taxation legislation shall then be deemed to be
the fair market value of the consideration received by the Corporation upon the
issuance of such Class A preferred share.
(i) In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or other distribution of
assets of the Corporation among shareholders for the purpose of winding-up
its affairs, the holders of the Class A preferred shares shall be entitled
to receive for each Class A preferred share, in preference and priority to
any distribution of the property or assets of the Corporation to the holders
of the common shares or any other shares ranking Junior to the Class A
preferred shares, an amount equal to the Class A Preferred Redemption Price,
but shall not be entitled to share any further in the distribution of the
property or asset of the Corporation.
<PAGE>
(j) No change to any of the provisions of paragraphs II. (a) to (i) or of this
paragraph (j) shall have any force or effect until it has been approved by a
majority of not less than two-thirds (2/3) of the votes cast by the holders
of the Class A preferred shares, voting separately as a class at a meeting
of such holders specially called for that purposes, or by a resolution in
writing signed by all the holders of the preferred shares, in addition to
any other approval required by the Act.
The Class B preferred shares shall have attached thereto the following rights,
privileges, restrictions and conditions:
The Class B preferred shares may be issued from time to time in one (1) or more
series with such preferred, deferred or other special rights, privileges,
restrictions, conditions and designations attached thereto and in particular
such rate or rates or cumulative or noncumulative preferential annual dividends,
redemption price or prices and amount or amounts to be paid thereon upon
distribution of assets in the event of liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, as shall be fixed from time
to time before issuance by any resolution or resolutions providing for the issue
of the shares of any series which may be passed by the board of directors of the
Corporation and confirmed and declared by articles of amendment.
<PAGE>
EXHIBIT 10.1
Metrowerks Inc. and Subsidiaries
Incentive Stock Option Plan and related agreements
SCHEDULE "A"
METROWERKS INC.
Incentive Stock Option Plan
ESTABLISHMENT OF PLAN
An incentive stock option plan (the "Plan") for the directors, officers,
employees, consultants or contractors of Metrowerks Inc. (the "Company") and its
associated, affiliated, controlled and subsidiary companies, to purchase
authorized but unissued common shares ("Shares") without par value of the
Company, be and is hereby established on the terms and conditions hereinafter
set out. For the purposes of the Plan, associated companies, affiliated
companies, controlled companies and subsidiary companies will have the meanings
set forth in Subsections 1(1) and 1(2) of the Securities Act (British Columbia).
2. PURPOSE OF THE PLAN
The purpose of the Plan is to foster the interest of and provide incentive to
the directors, officers, employees, consultants and contractors of the Company
and its associated, affiliated, controlled and subsidiary companies in
furthering the growth and development of the Company by providing them with the
opportunity, through incentive common purchaser share options ("Options"), to
acquire an increased financial interest in the Company.
3. GRANT OF OPTIONS
The Board of Directors of the Company or any committee established by them for
such purpose (the "Board") may from time to time grant to such of the directors,
officers, full and part time employees, consultants or contractors of the
Company or of its associated, affiliated, controlled or subsidiary companies, as
the Board shall designate, options to purchase from the Company such number of
its Shares as the Board may designate, subject to such terms, conditions,
limitations, prohibitions and restrictions as: (i) are contained in the Plan,
(ii) the Board stipulates at the time of grant, and (iii) may be imposed by
competent regulatory authorities.
4. SHARES SUBJECT TO THE PLAN
Options may be granted hereunder on authorized but unissued Shares reserved from
time to time by the Board for issuance hereunder, provided that the aggregate
number of Shares reserved for issuance under the Plan, options for services and
employee share purchase plans, may not at any time exceed 10% of the number of
outstanding
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Shares (on a non-diluted basis) and the aggregate number of Shares so reserved
for issuance to any one optionee may not exceed 5% of the number of outstanding
Shares (on a non-diluted basis) at the time of grant.
In the event that Options granted under the Plan are surrendered, terminate or
expire without being exercised in whole or in part, new Options may be granted
covering the Shares not purchased under such lapsed Options.
The Board shall reserve at any time and from time to time for issuance under the
Plan such number of Shares as may be issuable upon the exercise of all Options
outstanding at any time, and may reserve at any time and from time to time for
issuance under the Plan, subject to the provisions of this Article 4, the
maximum number of Shares allowed for such purpose by any stock exchange or
regulatory authority having jurisdiction over the securities of the Company.
5. OPTION PRICE
The purchase price per Share in any Option granted under the Plan shall be such
price as may be fixed by the Board at the time of grant, such price to be not
less than that permitted:
(a) under the policies of any regulatory body having jurisdiction over the
securities of the Company, if the Company's shares are not listed on an
exchange; or,
(b) in accordance with the policies of the applicable stock exchange, if the
Company's shares are listed on an exchange.
6. OPTION AGREEMENT
All options granted under the Plan shall be granted pursuant to an option
agreement ("Option Agreement") in one or more forms to be prepared at the
discretion of the Board, subject to:
(a) the guidelines of any regulatory body having jurisdiction over the
securities of the Company, if the Company's shares are not listed on an
exchange; or,
(b) the policies of the applicable stock exchange,if the Company's shares are
listed on an exchange at the time of grant.
<PAGE>
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7. OPTION PERIOD
Each Option Agreement shall specify the period for which the Option granted
thereunder is exercisable and shall provide that the Option will expire at the
end of such period.
8. TERMINATION OF OPTION
Each Option Agreement shall specify the termination provisions of the Option
granted, such termination provisions to be at the discretion of the Board and in
compliance with any regulatory requirements to which the Company may be subject
at the time of grant.
9. OTHER SHARES
Subject to Article 4, nothing contained in this Plan shall restrict or limit or
be deemed to restrict or limit the rights or powers of the Board in connection
with any allotment and issuance of options or of Shares which are not granted,
allotted and issued under the Plan.
10. VESTING OF OPTIONS
Without restricting the generality of the authority of the Board in respect of
the terms of Options to be granted hereunder, the Board may, in respect of any
Option, provide that the right to exercise the Option will vest in instalments
over the life of the Option with the Option being fully-exercisable only when
the required time period or periods have elapsed.
11. NECESSARY APPROVALS
The Plan shall be effective upon the approval of the shareholders of the Company
given by a resolution in writing signed by all the shareholders entitled to
vote. The obligation of the Company to issue and deliver any Shares in
accordance with the Plan shall be subject to any necessary approval of any stock
exchange or regulatory authority having jurisdiction over the securities of the
Company. If any Shares cannot be issued to any person for whatever reason, the
obligation of the Company to issue such Shares shall terminate and any Option
exercise price paid to the Company shall be returned to the said person.
12. ALL OPTIONS MAY BECOME EXERCISABLE
The Board at its sole discretion may, by resolution, permit all Options
outstanding to become immediately fully exercisable notwithstanding any partial
vesting provisions contained in an Option Agreement.
<PAGE>
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13. OPTIONS NOT ASSIGNABLE
The benefits, rights and options accruing to any person in accordance with the
terms and conditions of the Plan shall not be transferable or assignable by such
person other than by will or by the laws of descent and distribution. During the
lifetime of an optionee, an Option shall be exercisable only by him/her.
14. EMPLOYMENT
Nothing contained in the Plan shall confer upon any person any right with
respect to employment or continuance of employment with the Company or any of
its associated, affiliated, controlled or subsidiary companies, or interfere in
any way with the right of the Company or any of its associated, affiliated,
controlled or subsidiary companies to terminate the employment of such person at
any time. Participation in the Plan by a person shall be voluntary.
15. ADMINISTRATION AND AMENDMENT OF THE PLAN
The Plan shall be administered by the Board. The Board shall be authorized to
interpret the Plan and may, from time to time, establish, amend or rescind rules
and regulations required for carrying out the Plan. Any such interpretation of
the Plan shall be final and conclusive. All administrative costs of the Plan
shall be paid by the Company. The proper officers of the Company are authorized
and directed to do all things and execute and deliver all instruments,
undertakings and applications and writings as they, in their absolute
discretion, consider necessary FOR THE implementation of the Plan and of the
rules and regulations established for administering the Plan.
Subject as hereinafter provided, the Board reserves the right to amend, modify
or terminate the Plan at any time if and when it is advisable in the absolute
discretion of the Board. Any amendment of the Plan which would:
(a) materially increase the benefits under the Plan;
(b) materially increase the number of Shares which may be issued under the
Plan; or
(c) materially modify the requirements as to the eligibility for participation
in the Plan,
shall be effective only upon the approval of the shareholders of the Company.
Any amendment to any provision of the Plan shall be subject to any necessary
approvals of any stock exchange or regulatory body having jurisdiction over
the securities of the Company.
<PAGE>
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16. OPTIONS TO UNITED STATES PERSONS
If Options are granted to any resident or citizen of the United States, the
Board and the Company will use their best efforts to ensure that all matters
pertaining to such Options shall be conducted in compliance with applicable
United States securities laws.
<PAGE>
EXHIBIT 10.2
Metrowerks, Inc. and Subsidiaries
1995 Stock Option Plan and Related Agreements
METROWERKS INC.
1995 STOCK OPTION PLAN
1. INTERPRETATION
1 Defined Terms - For the purposes of this Plan, the following terms shall
have the following meanings:
(a) "Affiliate" means a Parent Corporation or a Subsidiary Corporation of
a corporation;
(b) "Associate" means, where used to indicate a relationship with any
Person,
(i) any relative of that Person,
(ii) any person of the opposite sex to whom that Person is married
or with whom that Person is living in a conjugal relationship outside marriage,
(iii) any relative of a Person mentioned in clause (ii) who has the
same home as that Person,
(iv) any partner of that Person,
(v) any trust or estate in which such Person has a substantial
beneficial interest or as to which such Person serves as trustee or in
a similar capacity, or
(vi) any corporation of which such Person beneficially owns,
directly or indirectly, voting securities carrying more than 10 percent of the
voting rights attached to all outstanding voting securities of the corporation;
(c) "Beneficial Owner" of a security includes any Person who, directly or
indirectly, through any contract, arrangement, understanding, relationship or
otherwise has voting power over the security or the power to dispose or direct
the disposition of the security, and any Person who uses a trust or other
arrangement with the purpose or effect of divesting such Person of beneficial
ownership as part of a plan to evade the reporting requirements of section 13 of
the Exchange Act shall be deemed to be the Beneficial Owner of the security;
(d) "Board" means the Board of Directors of Metrowerks Inc.;
<PAGE>
(e) "Change in Control" means the acquisition, directly or indirectly,
through one transaction or a number of transactions, by any Person, of an
aggregate of more than fifty percent of the outstanding Shares;
(f) "Code" means the United States Internal Revenue Code of 1986, as
amended from time to time;
(g) "Committee" means a committee of the Board appointed in accordance
with this Plan, or if no such committee is appointed, the Board itself;
(h) "Company" means Metrowerks Inc.;
(i) "Date of Grant" means the date on which a grant of an Option is
effective;
(j) "Direct or Indirect Ownership" of securities by a Person is calculated
in accordance with the following rules:
(i) the Person shall be deemed to own stock owned, directly or
indirectly, by or for his brothers and sisters (including half-brothers and
half-sisters), spouse, ancestors and lineal descendants, and
(ii) stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust, shall be deemed to be owned proportionately by or
for its shareholders, partners or beneficiaries;
(k) "Disability" means a medically determinable physical or mental
impairment expected to result in death or to last for a continuous period of not
less than 12 months which causes an individual to be unable to engage in any
substantial gainful activity;
(l) "Disinterested Person" means a director who qualifies as a
"Disinterested Person" as defined in subclause 240.16b-3(c)(2)(i) of Title 17 of
the Code of Federal Regulations of the United States; meaning a director who has
not been granted or awarded equity securities pursuant to the Plan or any other
plan of the Company or its Affiliates for one year prior to the initiation of
his service as an administrator of the Plan, other than securities received
pursuant to an annual retainer fee;
(m) "Disposition" includes a sale, exchange, gift, or transfer of legal
title, but does not include a pledge, hypothecation, transfer from a decedent to
an estate, transfer by bequest or inheritance, or the other excepted
circumstances referred to in section 424(c) of the Code;
(n) "Domestic Relations Successor" means a person entitled to receive
transfer of ownership of an Option pursuant to a Qualified Domestic Relations
Order;
(o) "Effective Date" means the effective date of this Plan, which is
June 21, 1995;
<PAGE>
(p) "Exchange Act" means the Securities Exchange Act of 1934, as amended ;
(q) "Fair Market Value" means:
(i) where the Shares are listed for trading on a stock exchange or
over the counter market, the closing price of the Shares on the stock exchange
or over the counter market which is the principal trading market for the
Company's Shares, as may be determined for such purpose by the Committee, or
(ii) where the Shares are not listed for trading on a stock exchange
or over the counter market, the value which is determined by the Committee to be
the fair value of the Shares, taking into consideration all factors that the
Committee deems appropriate, including, without limitation, recent sale and
offer prices of the Shares in private transactions negotiated at arm's length;
(r) "Guardian" means the guardian, if any, appointed for an Optionee;
(s) "ISO" means an Option granted to an employee of the Company or an
Affiliate of the Company that qualifies as an "incentive stock option" for
purposes of section 422 of the Code and is therefore subject to favourable tax
treatment under the Code;
(t) "ISO Optionee" means an Optionee to whom an ISO has been granted;
(u) "Modification" means any change in the terms of an Option which gives
the Optionee additional benefits under the Option, but such change shall not
include a change in the terms of an Option:
(i) to make the Option not transferable other than by will or the
laws of descent and distribution,
(ii) to make the Option exercisable only by the Optionee during his
lifetime,
(iii) in the case of an Option not immediately exercisable in full, to
accelerate the time within which the Option may be exercised, or
(iv) attributable to the issuance or assumption of an Option by
reason of a corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation if the new Option or assumption of the
old Option does not give the Optionee additional benefits which he did not have
under the old Option;
(v) "Non-ISO" means an Option that is not an "incentive stock option" for
purposes of section 422 of the Code, and is therefore not subject to favourable
tax treatment under the Code;
(w) "Non-ISO Optionee" means an Optionee to whom a Non-ISO has been
granted;
<PAGE>
(x) "Option" means an option to purchase Shares granted pursuant to the
terms of this Plan;
(y) "Option Agreement" means a written agreement between the Company and
an Optionee, specifying the terms of the Option being granted to the Optionee
under the Plan;
(z) "Option Price" means the price at which an Option is exercisable to
purchase Shares;
(aa) "Optionee" means a person to whom an Option has been granted;
(bb) "Parent Corporation" means any corporation in an unbroken chain of
corporations ending with the Company if, at the Date of Grant, each corporation
other than the Company owns stock possessing 50 percent or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain;
(cc) "Person" means a natural person, company, government, or political
subdivision or agency of a government; and where two or more Persons act as a
partnership, limited partnership, syndicate or other group for the purpose of
acquiring, holding or disposing of securities of an issuer, such syndicate or
group shall be deemed to be a Person;
(dd) "Plan" means this Stock Option Plan of the Company;
(ee) "Qualified Domestic Relations Order" means a judgment or order which
relates to the provision of child support, alimony payments or marital property
rights to a spouse, former spouse, child or other dependent of an Optionee, made
pursuant to domestic relations law of a state of the United States, and which
meets all the requirements of section 414(p) of the Code;
(ff) "Qualified Successor" means a person who is:
(i) entitled to ownership of an Option upon the death of an ISO
Optionee, pursuant to a will or the applicable laws of descent and distribution
upon death, or
(ii) a Domestic Relations Successor of an Optionee;
(gg) "Shares" means the common shares without par value in the capital of
the Company;
(hh) "Subsidiary Corporation" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the Date of Grant, each of the
corporations other than the last corporation owns stock possessing 50 percent or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain;
(ii) "Term" means the period of time during which an Option is exercisable;
and
<PAGE>
(jj) "Terminating Event" means:
(i) the dissolution or liquidation of the Company,
(ii) a merger or consolidation of the Company with one or more
corporations as a result of which, immediately following such merger or
consolidation, the shareholders of the Company as a group will hold less than a
majority of the outstanding capital stock of the surviving corporation,
(iii) the sale or other disposition of all or substantially all of the
assets of the Company, or
(iv) a material change in the capital structure of the Company that
is deemed to be a Terminating Event by virtue of the last sentence of Section
11.1 of this Plan or by virtue of Section 11.4 of this Plan.
2. STATEMENT OF PURPOSE
1 Principal Purposes - The principal purposes of the Plan are to provide the
Company with the advantages of the incentive inherent in stock ownership on the
part of employees, officers, directors, and consultants responsible for the
continued success of the Company; to create in such individuals a proprietary
interest in, and a greater concern for, the welfare and success of the Company;
to encourage such individuals to remain with the Company; and to attract new
employees, officers, directors and consultants to the Company.
2 ISOs and Non-ISOs - Under this Plan, the Company may grant either ISOs or
Non-ISOs. Each ISO granted hereunder is intended to constitute an "incentive
stock option," for the purposes of section 422 of the Code, and this Plan and
each such ISO is intended to comply with all of the requirements of Section 422
of the Code and of all other provisions of the Code applicable to incentive
stock options and to plans issuing the same. Each Non-ISO granted hereunder is
intended to constitute an Option that is not an "incentive stock option" for the
purposes of section 422 of the Code, and that does not comply with the
requirements of Section 422 of the Code.
3 Benefit to Shareholders - The Plan is expected to benefit shareholders by
enabling the Company to attract and retain personnel of the highest caliber by
offering them an opportunity to share in any increase in value of the Shares
resulting from their efforts.
3. ADMINISTRATION
1 Board or Committee - The Plan shall be administered by the Board or by a
committee of the Board appointed in accordance with Section 3.2 or 3.4(b)
below.
2 Appointment of Committee - The Board may at any time appoint a
<PAGE>
Committee, consisting of not less than two of its members, to administer the
Plan on behalf of the Board in accordance with such terms and conditions as the
Board may prescribe, consistent with this Plan. Once appointed, the Committee
shall continue to serve until otherwise directed by the Board. From time to
time, the Board may increase the size of the Committee and appoint additional
members, remove members (with or without cause) and appoint new members in their
place, fill vacancies however caused, or remove all members of the Committee and
thereafter directly administer the Plan.
3 Quorum and Voting - A majority of the members of the Committee shall
constitute a quorum, and, subject to the limitations in this Section 3, all
actions of the Committee shall require the affirmative vote of members who
constitute a majority of such quorum. Members of the Committee who are not
Disinterested Persons may vote on any matters affecting the administration of
the Plan or the grant of Options pursuant to the Plan, except that no such
member shall act upon the granting of an Option to himself (but any such member
may be counted in determining the existence of a quorum at any meeting of the
Committee during which action is taken with respect to the granting of Options
to him).
4 Administration of Plan upon Registration of Equity Securities -
Notwithstanding the foregoing provisions of this Section 3, if the Company
registers any class of any equity security pursuant to section 12 of the
Exchange Act the Plan shall, from the effective date of such registration until
six months after the termination of such registration, be administered as
follows:
(a) the Plan shall be administered by the Board so long as each member of
the Board is a Disinterested Person; and,
(b) if at any time not all members of the Board are Disinterested Persons,
then the Board shall appoint a Committee consisting of two or more of its
members, all of whom are Disinterested Persons, to administer the Plan on behalf
of the Board in accordance with such terms and conditions as the Board may
prescribe, consistent with this Plan (provided, however, with respect to
selection of officers and directors for participation, and decisions concerning
the timing, pricing and amount of a grant or award, decisions shall be made in
the sole discretion of the Committee). Once appointed, the Committee shall
continue to serve until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint additional members (all
of whom shall be Disinterested Persons), remove members (with or without cause)
and appoint new members in their place, fill vacancies however caused, or remove
all members of the Committee and thereafter directly administer the Plan so long
as all members of the Board are Disinterested Persons. At no time shall a person
who is not a Disinterested Person serve on the Committee appointed under this
Section 3.4(b), nor shall such Committee at any time consist of less than two
members of the Board.
5 Powers of Committee - Any Committee appointed under Section 3.2 or 3.4(b)
above shall have the authority to do the following:
<PAGE>
(a) administer the Plan in accordance with its express terms;
(b) determine all questions arising in connection with the administration,
interpretation, and application of the Plan, including all questions relating to
the value of the Shares;
(c) correct any defect, supply any information, or reconcile any
inconsistency in the Plan in such manner and to such extent as shall be deemed
necessary or advisable to carry out the purposes of the Plan;
(d) prescribe, amend, and rescind rules and regulations relating to the
administration of the Plan;
(e) determine the duration and purposes of leaves of absence from
employment which may be granted to Optionees without constituting a termination
of employment for purposes of the Plan;
(f) do the following with respect to the granting of Options:
(i) determine the employees, officers, directors, or consultants to
whom Options shall be granted, based on the eligibility criteria set out in this
Plan,
(ii) determine whether such Options shall be ISOs or Non-ISOs,
(iii) determine the terms and provisions of the Option Agreement to be
entered into with any Optionee (which need not be identical with the terms of
any other Option Agreement),
(iv) amend the terms and provisions of Option Agreements, provided
the Committee obtains:
A. the consent of the Optionee; and
B. the approval of any stock exchange on which the Company is
listed,
(v) determine when Options shall be granted,
(vi) determine the number of Shares subject to each Option, and
(g) make all other determinations necessary or advisable for
administration of the Plan.
6 Obtain Regulatory Approvals - In administering this Plan the Committee will
obtain any regulatory approvals which may be required pursuant to applicable
securities laws or the rules of any stock exchange or over the counter market on
which the Shares are listed.
7 Administration by Committee - The Committee's exercise of the authority set
out in Section 3.5 shall be consistent with the intent that ISOs issued under
the Plan be qualified under the terms of
<PAGE>
Section 422 of the Code, and that Non-ISOs shall not be so qualified. All
determinations made by the Committee in good faith on matters referred to in
Section 3.5 shall be final, conclusive, and binding upon all Persons. The
Committee shall have all powers necessary or appropriate to accomplish its
duties under this Plan. In addition, the Committee's administration of the Plan
shall in all respects be consistent with the policies and rules of any stock
exchange or over the counter market on which the Shares are listed.
4. ELIGIBILITY
1 Eligibility for ISOs - ISOs may be granted to any employee of the Company
or an Affiliate of the Company, including directors or officers who are
employees of the Company or an Affiliate of the Company. An Optionee who is not
an employee of the Company or an Affiliate of the Company is not eligible to
receive an ISO under the Plan.
2 Eligibility for Non-ISOs - Non-ISOs may be granted to any employee,
officer, director or consultant of the Company or an Affiliate of the Company.
3 No Violation of Securities Laws - No Option shall be granted to any
Optionee unless the Committee has determined that the grant of such Option and
the exercise thereof by the Optionee will not violate the securities law of the
jurisdiction where the Optionee resides.
4 Limit on Maximum Grant to any Optionee - Notwithstanding anything in this
Plan to the contrary, no officer or employee of the Company or an Affiliate of
the Company shall receive Options exercisable for more than 800,000 Shares over
any three year period.
5. SHARES SUBJECT TO THE PLAN
1 Number of Shares - The Committee, from time to time, may grant Options to
purchase an aggregate of up to 1,600,000 Shares subject to regulatory approval,
to be made available from authorized, but unissued or reacquired, Shares. In
calculating the foregoing 1,600,000 Shares, the Committee shall include all
Shares subject to options outstanding prior to the Effective Date of the Plan,
which as at June 19, 1995, comprises 722,650 Shares. The maximum number of
1,600,000 Shares shall be adjusted, where necessary, to take account of the
events referred to in Section 11 hereof.
2 Decrease in Number of Shares Subject to Plan - Upon exercise of an Option,
the number of Shares thereafter available under the Plan and under the Option
shall decrease by the number of Shares as to which the Option was exercised.
3 Expiry of Option - If an Option expires or terminates for any reason
without having been exercised in full, the unpurchased Shares subject thereto
shall again be available for the purposes of the Plan.
<PAGE>
4 Reservation of Shares - The Company will at all times reserve and keep
available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
6. OPTION TERMS
1 Option Agreement - With respect to each Option to be granted to an
Optionee, the Committee shall specify the following terms in the Option
Agreement between the Company and the Optionee:
(a) whether such Option is an ISO or a Non-ISO;
(b) the number of Shares subject to purchase pursuant to such Option,
provided that the number of Shares reserved for issuance to any one person
pursuant to Options does not exceed 5% of the outstanding Shares;
(c) the Date of Grant;
(d) the Term, provided that:
(i) the Term shall in no event be more than ten years following the
Date of Grant; and
(ii) if an ISO Option is granted to an Optionee who on the Date of
Grant has Direct or Indirect Ownership of more than 10% of the total combined
voting power of all classes of stock of the Company, the Term of the Option
shall not exceed five years;
(e) the Option Price, provided that:
(i) the Option Price shall not be less than the Fair Market Value of
the Shares on the trading day preceding the Date of Grant; and
(ii) if an ISO Option is granted to an Optionee who on the Date of
Grant has Direct or Indirect Ownership of more than 10% of the total combined
voting power of all classes of stock of the Company or an Affiliate of the
Company, then the Option Price shall be at least 110% of the Fair Market Value
of the Shares on the Date of Grant;
(f) any vesting schedule upon which the exercise of an Option is
contingent; provided that the Committee shall have complete discretion with
respect to the terms of any such vesting schedule, including, without
limitation, discretion to:
(i) allow full and immediate vesting upon the grant of such Option,
(ii) to permit partial vesting in stated percentage amounts based on
the length of the Term of such Option, and
(iii) to permit full vesting after a stated period of time has passed
from the Date of Grant; and
<PAGE>
(g) such other terms and conditions as the Committee deems advisable and
are consistent with the purposes of this Plan.
2 No Grant After Ten Years From Effective Date - No Option shall be granted
under the Plan later than ten years from the Effective Date of the Plan. Except
as expressly provided herein, nothing contained in this Plan shall require that
the terms and conditions of Options granted under the Plan be uniform.
3 No Disposition for Six Months - An Optionee who is subject to section 16 of
the Exchange Act shall not make a Disposition of any Shares issued upon exercise
of an Option unless at least six months has elapsed between the Date of Grant of
the Option and the date of Disposition of the Shares issued upon exercise of
such Option.
7. LIMITATION ON GRANTS OF OPTIONS
1 Non-ISO if Exceed $100,000 (U.S.) - If the aggregate Fair Market Value of:
(a) Shares underlying ISOs which have been granted to an Optionee under
this Plan and which are exercisable for the first time during a calendar year,
and
(b) Shares underlying incentive stock options which have been granted to
such Optionee under any other plan of the Company or its Affiliates and which
are exercisable for the first time during that calendar year, exceeds $100,000
(U.S.), as such amount may be adjusted from time to time under Section 422(d) of
the Code, then to the extent of such excess such Options shall be treated as
Non-ISOs.
2 ISO Optionee Owning Greater Than 10% of Voting Securities - The Committee
may grant an ISO to an employee of the Company or an Affiliate of the Company
who, at the Date of Grant, owns securities of the Company or its Affiliates
representing more than 10% of the total combined voting power of all classes of
stock of the Company or an Affiliate of the Company, only if:
(a) the Option Price is at least 110% of the Fair Market Value of the
Shares at the Date of Grant; and
(b) the Term is five years or less.
8. EXERCISE OF OPTION
1 Method of Exercise - Subject to any limitations or conditions imposed upon
an Optionee pursuant to the Option Agreement or Section 6 above, an Optionee may
exercise an Option by giving written notice thereof to the Company at its
principal place of business.
2 Payment of Option Price - The notice described in Section 8.1 shall be
accompanied by full payment of the aggregate Option Price to the extent the
Option is so exercised, and full payment of any amounts the Company determines
must be withheld for tax purposes from the Optionee pursuant to the Option
Agreement. Such payment shall be:
<PAGE>
(a) in lawful money (Canadian funds) by cheque;
(b) at the discretion of the Committee and if such form of payment is
permitted under the corporate laws then governing the Company, by delivery of
the Optionee's personal recourse note bearing interest at a rate deemed
appropriate by the Committee;
(c) at the discretion of the Committee, and subject to all applicable
securities laws, through delivery by the Optionee and/or withholding by the
Company, of Shares having a market value as of the date of exercise equal to the
cash exercise price of the Option plus any amounts that the Company determines
must be withheld from the Optionee for U.S. or Canadian tax purposes. The market
value of each of the Shares on the date of delivery shall be determined in good
faith by the Committee, which determination shall be binding for all purposes
hereunder; or
(d) at the discretion of the Committee, by any combination of
Sections 8.2(a) to 8.2(c) above.
3 Issuance of Stock Certificate - As soon as practicable after exercise of an
Option in accordance with Sections 8.1 and 8.2 above, the Company shall issue a
stock certificate evidencing the Shares with respect to which the Option has
been exercised. Until the issuance of such stock certificate, no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to such Shares, notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 below.
9. TRANSFERABILITY OF OPTIONS
1 Non-Transferable - Except as provided otherwise in this Section 9, Options
are non-assignable and non-transferable.
2 Death of Optionee - If the employment of an Optionee as an employee or
consultant of the Company or an Affiliate of the Company, or the position of an
Optionee as a director of the Company or an Affiliate of the Company, terminates
as a result of his or her death, any Options held by such Optionee shall pass to
the Qualified Successor of the Optionee, and
(a) in the case of an ISO, shall be exercisable by the Qualified Successor
for a period of six months following such death, and
(b) in the case of a Non-ISO, shall be exercisable by the Qualified
Successor for a period of 12 months following such death.
<PAGE>
3 Disability of Optionee - If the employment of an Optionee as an employee or
consultant of the Company or an Affiliate of the Company, or the position of an
Optionee as a director of the Company or an Affiliate of the Company, is
terminated by the Company or its Affiliate by reason of such Optionee's
Disability, any Option held by such Optionee that could have been exercised
immediately prior to such termination of service shall be exercisable by such
Optionee, or by his Guardian, for a period of one year following the termination
of service of such Optionee.
4 Disability and Death of Optionee - If an Optionee who has ceased to be
employed by the Company or an Affiliate of the Company by reason of such
Optionee's Disability dies within six months after the termination of such
employment, any Option held by such Optionee that could have been exercised
immediately prior to his or her death shall pass to the Qualified Successor of
such Optionee, and shall be exercisable by the Qualified Successor:
(a) in the case of an ISO, for a period of six months following the death
of such Optionee, and
(b) in the case of a Non-ISO, for a period of 12 months following the
death of such Optionee.
5 Qualified Domestic Relations Order - In the event that a Qualified Domestic
Relations Order mandates the transfer of any Option that could have been
exercised immediately prior to the issuance of such order, such Option shall
pass to the Domestic Relations Successor, and shall be exercisable by such
person or persons in accordance with the terms of the applicable Option
Agreement.
6 Vesting - Options held by a Qualified Successor or exercisable by a
Guardian shall, during the period prior to their termination, continue to vest
in accordance with any vesting schedule to which such Options are subject.
7 Unanimous Agreement - If two or more persons constitute the Qualified
Successor or the Guardian of an Optionee, the rights of such Qualified Successor
or such Guardian shall be exercisable only upon the unanimous agreement of such
persons.
8 Deemed Non-Interruption of Employment - Employment shall be deemed to
continue intact during any military or sick leave or other bona fide leave of
absence if the period of such leave does not exceed 90 days or, if longer, for
so long as the Optionee's right to reemployment with the Company or an Affiliate
of the Company is guaranteed either by statute or by contract. If the period of
such leave exceeds 90 days and the Optionee's reemployment is not so guaranteed,
then his or her employment shall be deemed to have terminated on the ninety-
first day of such leave.
10. TERMINATION OF OPTIONS
1 Termination of Options - To the extent not earlier exercised or
terminated in accordance with section 9 above, an Option shall
terminate at the earliest of the following dates:
<PAGE>
(a) the termination date specified for such Option in the Option
Agreement;
(b) where the Optionee's position as an employee, consultant or director
of the Company or an Affiliate of the Company is terminated for just cause, the
date of such termination for just cause;
(c) where the Optionee's position as an employee, consultant or director
of the Company or an Affiliate of the Company terminates for a reason other than
the Optionee's Disability, death, or termination for just cause, 30 days after
such date of termination, or upon the Optionee making written application to the
Committee and receiving the written consent of the Committee, which consent may
be given at the discretion of the Committee, up to 90 days after such date of
termination;
(d) the date of any sale, transfer, assignment or hypothecation, or any
attempted sale, transfer, assignment or hypothecation, of such Option in
violation of Section 9.1 above; and
(e) the date specified in Section 11.2 below for such termination in the
event of a Terminating Event.
11. ADJUSTMENTS TO OPTIONS
1 Alteration in Capital Structure - If there is a material alteration in the
capital structure of the Company resulting from a recapitalization, stock split,
reverse stock split, stock dividend, or otherwise, the Committee shall make such
adjustments to this Plan and to the Options then outstanding under this Plan as
the Committee determines to be appropriate and equitable under the
circumstances, so that the proportionate interest of each holder of any such
Option shall, to the extent practicable, be maintained as before the occurrence
of such event. Such adjustments may include, without limitation (a) a change in
the number or kind of shares of stock of the Company covered by such Options,
and (b) a change in the Option Price payable per share; provided, however, that
the aggregate Option Price applicable to the unexercised portion of existing
Options shall not be altered, it being intended that any adjustments made with
respect to such Options shall apply only to the price per share and the number
of shares subject thereto. For purposes of this Section 11.1, neither (i) the
issuance of additional shares of stock of the Company in exchange for adequate
consideration (including services), nor (ii) the conversion of outstanding
preferred shares of the Company into Shares shall be deemed to be material
alterations of the capital structure of the Company. If the Committee determines
that the nature of a material alteration in the capital structure of the Company
is such that it is not practical or feasible to make appropriate adjustments to
this Plan or to the Options granted hereunder, such event shall be deemed a
Terminating Event for the purposes of this Plan.
<PAGE>
2 Terminating Events - Subject to Section 11.3, all Options granted under the
Plan shall terminate upon the occurrence of a Terminating Event.
3 Notice of Terminating Event - The Committee shall give notice to Optionees
not less than thirty days prior to the consummation of a Terminating Event. Upon
the giving of such notice, all Options granted under the Plan shall become
immediately exercisable, notwithstanding any contingent vesting provision to
which such Options may have otherwise been subject.
4 Corporate Reorganization - In the event of a reorganization as defined in
this Section 11.4 in which the Company is not the surviving or acquiring
corporation, or in which the Company is or becomes a wholly-owned subsidiary of
another corporation after the effective date of the reorganization, then unless
provision is made by the acquiring corporation for the assumption of each Option
granted under this Plan, or the substitution of an option therefor, such that no
Modification of any such Option occurs, all Options granted under this Plan
shall terminate and such event shall be deemed a Terminating Event. For purposes
of this Section 11.4, reorganization shall mean any statutory merger, statutory
consolidation, sale of all or substantially all of the assets of the Company, or
sale, pursuant to an agreement with the Company, of securities of the Company
pursuant to which the Company is or becomes a wholly-owned subsidiary of another
corporation after the effective date of the reorganization.
5 Acceleration on Change of Control - Upon a Change in Control, all Options
shall become immediately exercisable, notwithstanding any contingent vesting
provisions to which such Options may have otherwise been subject.
6 Acceleration of Date of Exercise - The Committee shall have the right to
accelerate the date of exercise of any installment of any Option; provided that,
without the consent of the Optionee with respect to any Option, the Committee
shall not accelerate the date of any installment of any Option granted to an
employee as an ISO (and not previously converted into a Non-ISO pursuant to
Section 13 below) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in Section 7.1
above.
7 Determinations to be Made By Committee - Adjustments and determinations
under this Section 11 shall be made by the Committee,
whose decisions as to what adjustments or determination shall be made,
and the extent thereof, shall be final, binding, and conclusive.
12. TERMINATION AND AMENDMENT OF PLAN
1 Termination of Plan - Unless earlier terminated as provided in Section 11
above or in Section 12.2 below, the Plan shall terminate on, and no Option shall
be granted under the Plan, after ten years has passed from the Effective Date of
the Plan.
<PAGE>
2 Power of Committee to Terminate or Amend Plan - Subject to the approval of
any stock exchange on which the Company is listed, the Committee may terminate,
suspend or amend the terms of the Plan; provided, however, that, except as
provided in Section 11 above, the Committee may not do any of the following
without obtaining, within 12 months either before or after the Committee's
adoption of a resolution authorizing such action, approval by the affirmative
votes of the holders of a majority of the voting securities of the Company
present, or represented, and entitled to vote at a meeting duly held in
accordance with the applicable corporate laws, or by the written consent of the
holders of a majority of the securities of the Company entitled to vote:
(a) increase the aggregate number of Shares which may be issued under the
Plan;
(b) materially modify the requirements as to eligibility for participation
in the Plan, or change the designation of the employees or class of employees
eligible to receive ISOs under the Plan;
(c) materially increase the benefits accruing to participants
under the Plan; or
(d) make any change in the terms of the Plan that would cause the ISOs
granted hereunder to lose their qualification as "incentive stock options" under
Section 422 of the Code;
however, the Committee may amend the terms of the Plan to comply with the
requirements of any applicable regulatory authority, without obtaining the
approval of its shareholders.
3 No Grant During Suspension of Plan - No Option may be granted during any
suspension, or after termination, of the Plan. Amendment, suspension, or
termination of the Plan shall not, without the consent of the Optionee, alter or
impair any rights or obligations under any Option previously granted.
13. CONVERSION OF ISOS INTO NON-ISOS
1 Conversion of ISOs into Non-ISOs - At the written request of any ISO
Optionee, the Committee may in its discretion take such actions as may be
necessary to convert such Optionee's ISOs (or any installments
or portions of installments thereof) that have not been exercised on the date of
conversion into Non-ISOs at any time prior to the expiration of such ISOs,
regardless of whether the Optionee is an employee of the Company or an Affiliate
of the Company at the time of such conversion. Such actions include, but shall
not be limited to, extending the exercise period of such ISOs. At the time of
such conversion, the Committee, with the consent of the Optionee, may impose
such conditions on the exercise of the resulting Non-ISOs as the Committee in
its discretion may determine, provided that such conditions are consistent with
this Plan. Nothing in the Plan shall be deemed to give any Optionee the right to
have such Optionee's ISOs converted into Non-ISOs, and no such conversion shall
occur until and
<PAGE>
unless the Committee takes appropriate action. The Committee, with the consent
of the Optionee, may also terminate any portion of any ISO that has not been
exercised at the time of such conversion.
14. CONDITIONS PRECEDENT TO ISSUANCE OF SHARES
1 Compliance with Laws - Shares shall not be issued pursuant to the exercise
of any Option unless the Shares are fully paid and non-assessable and the
exercise of such Option and the issuance and delivery of such Shares comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, any applicable state or provincial
securities or corporate laws, the rules and regulations promulgated thereunder,
and the requirements of any stock exchange upon which the Shares may then be
listed or otherwise traded.
2 Representations by Optionee - As a condition precedent to the exercise of
any Option, the Company may require the Optionee to represent and warrant, at
the time of exercise, that the Shares are being purchased only for investment
and without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such representations and warranties are
required by any applicable law.
3 Regulatory Approval to Issuance of Shares - The Company's inability to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability with
respect to the failure to issue or sell such Shares.
15. USE OF PROCEEDS
1 Use of Proceeds - Proceeds from the sale of Shares pursuant to the Options
granted and exercised under the Plan shall constitute general funds of the
Company and shall be used for general corporate purposes.
16. NOTICES
1 Notices - All notices, requests, demands and other communications required
or permitted to be given under this Plan and the Options granted under this Plan
shall be in writing and shall be either served personally on the party to whom
notice is to be given, in which case notice shall be deemed to have been duly
given on the date of such service; telefaxed, in which case notice shall be
deemed to have been duly given on the date the telefax is sent; or mailed to the
party to whom notice is to be given, by first class mail, registered or
certified, return receipt requested, postage prepaid, and addressed to the party
at his or its most recent known address, in which case such notice shall be
deemed to have been duly given on the tenth postal delivery day following.
<PAGE>
17. MISCELLANEOUS PROVISIONS
1 No Obligation to Exercise - Optionees shall be under no obligation to
exercise Options granted under this Plan.
2 No Obligation to Retain Optionee - Nothing contained in this Plan shall
obligate the Company or an Affiliate of the Company to retain an Optionee as an
employee, officer, director, or consultant for any period, nor shall this Plan
interfere in any way with the right of the Company or Affiliates of the Company
to reduce such Optionee's compensation.
3 Binding Agreement - The provisions of this Plan and each Option Agreement
with an Optionee shall be binding upon such Optionee and the Qualified Successor
or Guardian of such Optionee.
4 Use of Terms - Where the context so requires, references herein to the
singular shall include the plural, and vice versa, and references to a
particular gender shall include either or both genders.
5 Headings - The headings used in this Plan are for convenience of reference
only and shall not in any way affect or be used in interpreting any of the
provisions of this Plan.
18. SHAREHOLDER APPROVAL TO PLAN
1 Shareholder Approval to Plan - This Plan must be approved by a majority of
the votes cast at a meeting of the shareholders of the Company , other than
votes attaching to securities beneficially owned by:
(a) insiders of the Company, meaning directors, officers and greater than
10 percent shareholders; and
(b) Associates of persons referred to in (a).
19. EFFECTIVE DATE OF PLAN
1 Effective Date of Plan - This Plan was approved and adopted by the Board of
Directors on June 21, 1995 and will be submitted to the shareholders of the
Company for approval at the Company's next annual general meeting. The Effective
Date of the Plan is June 21, 1995, provided that any Options granted pursuant to
the Plan prior to the date on which shareholder approval to the Plan is given
may not be exercised until the Plan and any such Options receive shareholder
approval.
<PAGE>
EXHIBIT 10.3
Metrowerks, Inc. and Subsidiaries
Lease agreement between the Company and Modular Power Facilities Limited
Partnership
BASIC LEASE PROVISIONS
LEASE AGREEMENT
I.I-M 1: Date this Lease Agreement ("lease") made and entered into:
22 day of August, 1996 between
ITEM 2: "Lessor" Name: Modular Power Facilities Limited Partnership
Address: c/o John H. Crutchfield, General Partner
1705 Capital of Texas Highway South, Suite 300
Austin, Texas 78746
"Lessee" Name: Metrowerks Corporation
Address: 2201 Donley Drive
Austin, Texas 78758
ITEM 3: Building Name: One Technology Center
Building Address: 2201 Donley Drive
Austin, Texas 78758
ITEM 4: Leased Premises: Third Floor, Suite 310
Net Rentable Area: 22,614 sq. ft.
ITEM 5: (a) Total Net Rentable Area ("NRA") of Building (See Article 5. 1 for
definition):
66,767 sq ft
(b) Lessee's Building Expense Percentage (See Article 6):
66,767 sq ft
ITEM 6: (a) Base Monthly Rental: $28,738.63
(c) First Month's rent (for Sept 15, 1996 to
October 14, 1996) payable on execution of this Lease:
$28,738.63
(d) Next Monthly Rent Due: November 15, 1996
(e) Building Operating Expense Stop: 1996 Base Year
ITEM 7: Commencement Date: October 15, 1996
Term: 12. 5 Months
Expiration Date: October 31, 1997
ITEM 8: Security Deposit: $28,738.63,
payable upon execution of
this lease
ITEM 9: Broker(s):
$28,738.63, payable on execution of this lease.
ITEM 10: Leasehold Improvements: To be made at expense of Tenant
Initials: Initials:
/s/ JHC /s/ DP/J
_______________ _______________
LESSOR LESSEE
<PAGE>
LEASE AGREEMENT
ARTICLE 1.
Leased Premises
1.1 In consideration of the covenant of Lessee to pay rent as herein
provided, and in consideration of the observance and performance by Lessee of
other terms, provisions and covenants hereof, Lessor hereby leases, demises and
lets to Lessee, and Lessee does hereby lease and take from Lessor that certain
space described in Item 4 of the Basic Lease Provisions, located in the building
described in Item 3 of the Basic Lease Provisions (hereinafter called the
"Building"). The space hereby leased in the Building is hereinafter called the
"Leased Premises", is outlined on the floor plan marked Exhibit "A" attached
hereto and made a part hereof for all purposes, and is subject to all liens,
covenants, easements, agreements and restrictions and other matters of record.
ARTICLE 2.
Term
2.1 This Lease shall be for a term as set forth in Item 7 of the Basic
Lease Provisions. This Lease shall commence on the commencement date set forth
in Item 7 of the Basic Lease Provisions, and shall terminate on the expiration
date set forth in Item 7 of the Basic Lease Provisions, at midnight, unless
sooner terminated as provided herein. Lessor expects to have the Leased Premises
substantially completed and ready for occupancy by the commencement date
specified in Item 7 of the Basic Lease Provisions. In the event, however, the
Leased Premises are not substantially completed and ready for occupancy by said
specified date, for any reason or cause, Lessor shall not be liable or
responsible for any claims, damages or liabilities in connection therewith or by
reason thereof, nor shall this Lease become void or voidable, but rather the
date of commencement of this Lease shall be extended to the date that the Leased
Premises have been substantially completed and are ready for occupancy by
Lessee. In such event, rental under this Lease shall not commence until such
revised commencement date, and the expiration date hereof shall be extended so
as to give effect to the full stated term. When the Leased Premises are
substantially completed and ready for occupancy and are occupied by Lessee, the
parties shall at the request of either, execute a declaration specifying the
revised commencement date and term
<PAGE>
hereof. There shall be no delay in the commencement of the term of this Lease
and/or the payment of rental under this Lease by reason of Lessee's failure to
occupy the Leased Premises when the same are substantially completed and ready
for occupancy or where Lessee causes a delay by failure to promptly approve
plans, make material or color selections, or make other necessary decisions for
the preparation of the Leased Premises for occupancy.
ARTICLE 3.
Base Rental
3.1 Lessee agrees to pay Lessor without any offset or deduction whatsoever,
in lawful (legal tender for public or private debts) money of the United States
of America at Lessor's address as set forth in Item 2 of the Basic Lease
Provisions or elsewhere as designated from time to time by Lessor's notice in
writing to Lessee, the monthly sum set forth in Item 6(a) of the Basic Lease
Provisions (hereinafter called "Base Rental") on the first day of each calendar
month, monthly in advance without demand, for each and every calendar month of
the term of this Lease. Lessee also agrees to pay monthly the sum set forth in
Item 6(b) of the Basic Lease Provisions for each reserved covered parking space.
Lessee shall pay to Lessor, upon execution of this Lease, the sum set forth in
Item 6(c) of the Basic Lease Provisions, representing payment of Base Rental for
the first calendar month of the Lease term. The next monthly rental due under
the terms of this Lease is payable on the date set forth in Item 6(d) of the
Basic Lease Provisions. If the term of this Lease commences on a day other than
the first day of a calendar month, Lessee shall pay rental as provided herein
for such commencement month on a pro rata basis, and the first month's rent paid
by Lessee upon execution hereof shall apply and be credited to the next full
month's rent due hereunder. If the term of this Lease expires on a day other
than the first day of a calendar month, Lessee shall pay rental as provided
herein for such expiration month on a pro rata basis. This covenant to pay rent
shall be independent of any other covenant set forth in this Lease. Lessee shall
be required to pay Lessor (as a late charge to compensate Lessor for the added
administrative expense caused by such late payment) a sum equal to y % of any
monthly rental (or other amounts) required to be paid under the terms hereof
should Lessee fail to pay such rental (or other amounts) within ten (10) days of
the due date thereof provided in this Lease. Lessee shall also pay to Lessor as
additional rental under this Lease any excise, sales, privilege or gross
receipts tax levied on rents or charges paid hereunder.
ARTICLE 4
Security Deposit
4.1 Lessee Shall pay to Lessor, upon execution of this Lease the sum set
forth in Item 8 of the Basic Lease Provisions as a security deposit
(hereinafter called the "Security Deposit"). Such sum shall be held by Lessor as
security for the faithful performance of Lessee's obligations hereunder. The
Security Deposit shall not be assigned, transferred or encumbered by Lessee and
any attempt to do so shall be void and shall not be binding upon Lessor.
4.2 If Lessee defaults with respect to any provision of this Lease or if
Lessor makes any payment on behalf of Lessee which Lessee is required to make
under the terms of this Lease, Lessor may (but shall not be required to) use,
apply or retain all or any part of the Security Deposit for the payment of any
amount which Lessor may spend or become obligated to spend by reason of
Lessee's acts or default, or to compensate Lessor for any loss or damage which
Lessor has suffered or may suffer by reason of Lessee's acts or default. If any
portion of the Security Deposit is so used, applied or retained, Lessee shall,
within ten (10) days of Lessor's demand
<PAGE>
therefor, deposit cash with Lessor in an amount sufficient to restore the
Security Deposit to its original amount. Lessee's failure to so restore the
Security Deposit shall entitle Lessor to exercise all remedies hereunder which
Lessor would have for Lessee's FAILURE TO PAY rent which extended beyond the
applicable notice period.
4.3 If this Lease is terminated prior to the expiration date specified in
Item 7 of the Basic Lease Provisions, Lessor may retain all of the Security
Deposit as partial liquidated damages for such early termination.
4.4 If Lessee shall have fully and faithfully performed all of its
obligations under this Lease, the Security Deposit (or the then remaining
halance thereof) shall be refunded to Lessee promptly upon the expiration of
the Lease term. In the event Lessor's interest in this Lease is sold,
transferred or otherwise terminated, Lessor shall transfer the Security Deposit
(or the remaining balance thereof) to its successor in interest and thereupon
Lessor shall be discharged from any further liability with respect thereto. The
provisions of this Article 4.4 shall also apply to any suhsequent transferor.
ARTICLE 5
Definitions
5.1 For purposes of this Lease, the term "Net Rentable Area" (hereinafter
called "NRA") shall mean and refer to (a) in the case of a single tenancy
floor, all floor area measured from the inside surface of the outer glass or
finished column or exterior wall of the Building to the inside surface of the
opposite exterior wall, excluding only the areas ("service areas") within the
outside walls used for elevator mechanical rooms, building stairs, fire towers,
elevator shafts, flues, vents, stacks, vertical pipe shafts and vertical ducts,
but including any such areas which are for the specific use of the particular
tenant such as special stairs or elevators, plus an allocation of the square
footage of the Building's elevator and main mechanical rooms and ground and
basement lobbies, and (b) in the case of a partial floor, all floor areas within
the inside surface of the outer glass or finished column or exterior wall
enclosing the portion of the Leased Premises on such floor and measured to the
mid-point of the walls separating areas leased by or held for lease to other
tenants or from areas devoted to corridors, elevator foyers, rest rooms,
mechanical rooms, janitor closets, vending areas and other similar facilities
for the use of all tenants on the particular floor (hereinafter sometimes called
"Common Areas"), but including a proportionate part of the Common Areas located
on such floor based upon the ratio which Lessee's NRA on such floor bears to the
aggregate NRA on such floor plus an allocation of the square footage of the
Building's elevator and main mechanical rooms and ground and basement lobbies.
No deductions from NRA are made for columns or projections necessary to the
Building. The NRA in the Leased Premises has been calculated on the basis of the
foregoing definition and is hereby stipulated to be as set forth in Item 4 of
the Basic Lease Provisions, WHETHER THE same should be more or less as a result
of minor variations resulting from actual construction and completion of the
LeaseLI Premises for occupancy so long as such work is in accordance with the
terms and provisions hereof. The NRA in the Building has been calculated on the
basis of the foregoing definition and is hereby stipulated for all purposes
hereof to be as set forth in Item S(a) of the Basic Lease Provisions, whether
the same should be more or less as a result of minor variations resulting from
actual construction and completion of the Building.
5.2 For purposes of this Lease, the term "Building Operating Expenses"
shall mean all expenses, costs and disbursements (but not replacement of capital
investment items except as provided in Article 5.2(g), depreciation, debt
service, income taxes, franchise taxes or
<PAGE>
specific costs especially billed to and paid by specific tenants) of every kind
and nature which Lessor shall pay or become obligated to pay because of or in
connection with the ownership and operation of the land, the Building and all
other improvements (hereinafter called the "Complex"), including, but not
limited to, the following:
(a) Wages and salaries of all employees engaged in operating and
maintenance, or security, of the Complex and personnel who may provide traffic
control relating to ingress and egress to and from the Complex's parking area to
the adjacent public streets. All taxes, insurance and benefits relating to
employees providing these services shall be included.
Complex.
(b) All supplies and materials used in operation and maintenance of the
(c) Cost of all utilities for the Complex.
(d) Cost of all maintenance, management and service agreements for the
Complex and the equipment therein, including, but not limited to, alarm
service, window cleaning and elevator maintenance.
(e) Cost of all insurance relating to the Complex, including, but not
limited to, the cost of casualty and liability insurance applicable to the
Complex and Lessor's personal property used in connection therewith, worker's
compensation and rental insurance.
(f) Costs of repairs and general maintenance (excluding repairs and general
maintenance paid by proceeds of insurance or by Lessee or other third parties,
and alterations paid for solely by tenants of the Building other than Lessee).
(g) Amortization of the cost of installation of capital investment items
which are primarily for the purpose of reducing operating costs or which may be
required by any governmental authority. All such costs shall be amortized over
the reasonable life of the capital investment items with the reasonable life and
amortization schedule being determined in accordance with generally accepted
accounting principles and in no event to extend beyond the reasonable life of
the Building. In the case of installations for the purpose of reducing operating
cost, Lessor shall prepare in written form a costs justification for its
practicality at the time of installation and provide a copy of such written
costs justification to Lessee upon request therefor.
(h) Lessor's central accounting costs applicable to the Complex.
(i) The total ad valorem taxes for the Complex, including all taxes
and assessments and governmental charges, whether state, federal, county or
municipal, and whether levied by a taxing district or authorities presently
taxing the Building or the Complex or by other subsequently created, adjusted to
reflect a valuation of the Complex at full appraised value, it being understood
and agreed that such ad valorem taxes shall he computed on the accrual basis,
notwithstanding the fact that the total Building Operating Expenses shall be
computed on the cash basis.
All Building Operating Expenses shall be computed in accordance with generally
accepted accounting principles which shall be consistently applied.
Notwithstanding any other provision
<PAGE>
herein to the contrary, it is agreed that in the event the Building is not fully
occupied during any year of the term of this Lease at Lessor's option, an
adjustment shall be made in computing the Building Operating Expenses for such
year so that the Building Operating Expenses shall be computed for such year as
though the Building had been fully occupied during such year.
5.3 For purposes of this Lease, the term "Normal Building Operating Hours"
shall be defined as from 7:00 A.M. to 6:0() P.M. Monday through Friday, and 8:00
A.M. to 12:00 P.M. Saturday, but not on Sundays, New Year's Day, Memorial Day,
July 4th, Labor Day, Thanksgiving, Christmas or other bank or legal holidays.
ARTICLE 6
Additional Monthly Rent
6.1 If for the calendar year in which this Lease commences (hereinafter
called the "Commencement Year"), or for any subsequent calendar year, the
Building Operating Expenses adjusted by computing the Building Operating
Expenses as though the Building has been fully occupied during such year exceed
the amount provided in Item 6(e) of the Basic Lease Provisions, Lessee agrees to
pay Lessor as additional rent, in the manner described in Article 6.2, an amount
equal to Lessee's pro rata share of such increase as determined by Lessee's
Building Expense Percentage as set forth in Item 5(b) of the Basic Lease
Provisions (hereinafter called "Lessee's Building Expense Percentage"), taking
into account the actual expenses incurred during the months during the calendar
year that Lessee occupied the Leased Premises or this Lease was in effect,
whichever occurs first.
6.2 Lessor shall make a good faith estimate prior to the close of each
calendar year whether the actual amounts to be expended for Building Operating
Expenses for the next successive calendar year will exceed the amount set forth
in Item 6(e) of the Basic Lease Provisions. If Lessor estimates that such an
increase will occur, the following provisions shall apply:
(a) If Lessor estimates that such an increase in Building Operating
Expenses will occur with respect to the Commencement Year, Lessor shall deliver
to Lessee a written statement setting forth Lessor's good faith estimate of
Lessee's pro rata share (determined by Lessee's Building Expense Percentage) of
the amount by which the expenditures for Building Operating Expenses for the
Commencement Year will exceed the amount for Building Operating Expenses set
forth in Item 6(e) of the Basic Lease Provisions, calculated as of the date of
Lessee's occupancy of the Leased Premises or the date of commencement of this
Lease as set forth in Item 7 of the Basic Lease Provisions, whichever occurs
first. For purposes of this Article 6 "Excess Costs" shall mean the amount
described in this Article 6.2(a). Beginning with the first calendar month
commencing at least thirty (30) days following Lessee's receipt of Lessor's
statement, Lessee shall pay as additional monthly rent (herein called
"Additional Monthly Rent") on the first day of each calendar month, in advance
without demand, a monthly amount equal to one-twelfth (1/12) of Lessee's pro
rata share of the estimated Excess Cost for the Commencement Year. Lessee shall
pay the Additional Monthly Rent for each succeeding month until Lessee receives
a statement from Lessor in accordance with Article 6.2(b) specifying a different
amount of Additional Monthly Rent. As soon as practicable following the end of
the Commencement Year, Lessor shall submit to Lessee a statement setting forth
the exact amount of Lessee's pro rata share of the Excess Cost for the
Commencement Year, and the difference, if any, between the amount of Additional
Monthly Rent paid by Lessee for estimated Excess Costs for the Commencement Year
<PAGE>
and the actual amount of Lessee's pro rata share of the Excess Costs for the
Commencement Year. To the extent that such amount of Additional Monthly Rent
paid by Lessee exceeds the actual amount of Lessee's pro rata share of the
Excess Costs for the Commencement Year, Lessor shall credit such excess against
the Additional Monthly Rent to be due in the calendar year following the
Commencement Yeai. To the extent that the actual amount of Lessee's pro rata
share of the Excess Costs for the Commencement Year exceeds such amount of
Additional Monthly Rent paid by Lessee, Lessee shall pay such excess in cash
within thirty (30) days after receipt of such statemenl from Lessor.
(b) If Lessor estimates that such an increase in building Operating
Expenses will occur with respect to any calendar year subsequent to the
Commencement Year (hereinafter called "Subsequent Year"), Lessor shall, prior to
January l of such Subsequent Year, or as soon as practicable, deliver to Lessee
a written statement setting forth Lessor's good faith estimate of Lessee's pro
rata share (determined by Lessee's Building Expense Percentage) of the Excess
Costs for such Subsequent Year. Beginning January 1 of such Subsequent Year,
Lessee shall pay as Additional Monthly Rent, on the first day of each calendar
month, in advance without demand, a monthly amount equal to one-twelfth (1/12)
of Lessee's pro rata share of the estimated Excess Costs for such Subsequent
Year. Lessee shall pay the Additional Monthly Rent for each succeeding month
until Lessee receives a new statement from Lessor in accordance with this
Section 6.2(b) specifying a dlifferent amount of Additional Monthly Rent. As
soon as practicable following the end of each Subsequent Year, Lessor shall
submit to Lessee a statement setting forth the exact amount of Lessee's pro rata
share of the Excess Costs for such Subsequent Year, and the difference, if any,
between the amount of Additional Monthly Rent paid by Lessee for estimated
Excess Costs for such Subsequent Year and the actual amount of Lessee's pro rata
share of the Excess Costs for such Subsequent Year. To the extent that such
amount of Additional Monthly Rent paid by Lessee exceeds the actual amount of
Lessee's pro rata share of the Excess Costs for such Subsequent Year, Lessor
shall er~l* such cxecss-a~mst the Additional Monthly Elent-t~-~ the calendar
year following such Subsequent l Year. To the extent that the actual amount of
Lessee's pro rata share of the Excess Costs for such Subsequent Year exceeds
such amount of Additional Monthly rent paid by Lessee, Lessee shall pay such
excess in cash within thirty (30) days after receipt of such statement from
Lessor.
(c) Lessee's covenant to pay its pro rata share of the Excess Costs under
this Article 6.2 shall survive the expiration or early termination of this Lease
and Lessor shall have the right to retain the Security Deposit, or so much
thereof as Lessor deems necessary, to secure payment of Lessee's pro rata share
of the Excess Costs for the portion of the final year of this Lease during which
Lessee was obligated to pay such Excess Costs. If the final year of this Lease
is less than a full calendar year, Lessee's pro rata share of the Excess Costs
for such partial year shall be calculated by proportionately reducing the amount
of Building Operating Expenses set forth in Item 6(e) of the Basic Lease
Provisions, to reflect the number of months in the final calendar year of the
term of this Lease, which reduced amount shall then be compared with the actual
Building Operation Expenses for said partial year, whether paid or accrued, to
determine the amount, if any, of any increases in the actual Building Operating
Expenses for such partial year over the proportionately reduced amount of the
Building Operating Expenses set forth in Item 6(e) of the Basic Lease
Provisions. Tenant shall pay its pro rata share of any such increases within
thirty (30) days following receipt of notice thereof.
Lessor shall endeavor to prepare and deliver all statements required under this
Article 6.2 on or before April 1 of the year following the calendar year for
which payment of Additional Monthly Rent is required.
<PAGE>
6.3 Lessee at its expense shall have the right at all reasonable times to
audit Lessor's books and records relating to the Additional Monthly Rent for the
year with respect to which amounts are then due; or, at Lessor's option and in
lieu of Tenant's audit rights, Lessor will provide such audit prepared by a
certified public accountant.
6.4 In addition to any Additional Monthly Rent owed or to be owed by
Lessee under the provisions of Article 6.1 through Article 6.3, the Base Rental
(as defined in Article 3.1) shall he adjusted upward or downward as provided
below in this Article 6.4, provided that in no event shall the Base Rental be
reduced below the initial Base Rental specified in Article 3.1. Effective as of
each anniversary date of the commencement of this Lease, the Base Rental shall
be adjusted for the next succeeding twelve (12)-month period in an amount equal
to the percentage change in the Revised Consumer Price Index for Urban Wage
Earners and Clerical Workers (1967 = 100) (hereinafter called the "Index")
published by the Bureau of Labor Statistics of the United States Department of
Labor, for Austin, Texas (or Texas if Austin is unavailable) from the closest
date of publication of the Index prior to the effective date of such adjustment.
Lessor shall furnish Lessee a written statement at least fifteen ( 15) days
prior to the effectiveness of such adjustment, wherein the adjusted Base Rental
and the calculations used to determine the amount of adjustment shall be set
forth. As adjusted, the Base Rental shall be the Base Rental for purposes of
Article 3.1, until the effective date of the next such annual adjustment, anti
as used in this Lease, the term "Base Rental" shall mean and refer to the Base
Rental specified in Article 3.1, as adjusted by the provisions of this Article
6.4. If publication of the Index shall be discontinued on that portion thereof
relating to Austin, Texas (or Texas if Austin is unavailable), the parties
hereto shall thereafter accept comparable statistics on the cost of living for
the United States, as they shall be computed and published by an agency of the
United States government, or by a responsible financial periodical or recognized
authority tnen to be selected by Lessor.
ARTICLE 7.
Use of the Leased Premises
7.1 Lessee will use and occupy the Leased Premises only for General Office
use and for no other purpose without the prior written consent of Lessor.
7.2 Lessee shall not use or permit the Leased Premises to be used for any
purpose other than that stated in Article 7.1, or make or allow to be made any
alterations or physical additions in or to the Leased Premises without the prior
written consent of Lessor, which consent may be given subject to such reasonable
conditions as Lessor may require or impose. No structural changes to the Leased
Premises shall be made or permittecl to be made by Lessee without Lessor's prior
written consent, which consent may be withheld by Lessor for any reason. Any and
all such alterations, physical additions or improvements shall be made by
Lessor and, when made to the Leased Premises, shall at once become the property
of Lessor and shall be surrendered to Lessor upon the termination of this Lease
by lapse of time or otherwise; provided, however, this Article 7.2 shall not
apply to movable equipment or furniture owned by Lessee.
7.3 Lessee will not use, occupy or permit the use or occupancy of the
Leased Premises for any purpose which is, directly or indirectly, forbidden by
law, ordinance or governmental or municipal regulation or order, or which may be
dangerous to life, limb or property; or permit the maintenance of any public or
private nuisance; or do or permit any act or thing which may disturb the quiet
enjoyment of any other tenant of the building; or keep any substance or carry on
or permit any operation which might emit offensive odors or conditions into
other portions of the Building; or
<PAGE>
use any apparatus which might make undue noise or set up vibrations in the
Building; or permit anything to be alone which would increase the fire and
extended coverage insurance rate on the Building or contents, and if there is
any increase in such rates by reason of the acts of Lessee, then Lessee agrees
to pay such increase promptly upon demand therefore by Lessor.
ARTICLE 8.
Services Provided by Lessor
8. I Lessor covenants and agrees with Lessee to use its best efforts to
furnish Lessee, at Lessor's expense except as otherwise provided in Article 6
and below in this Article 8, and subject to the Rules and Regulations described
in Article 24.1, the following services during the Lease term while Lessee is
occupying the Leased Premises:
(a) Central heating and air conditioning service in season, as reasonably
required for comfortable use in occupancy during Normal Building Operating Hours
(as defined in Article 5.3). Lessor shall furnish additional central heating and
air conditioning service in season required by Lessee for comfortable use in
occupancy during other than Normal Building Operating Hours provided that Lessee
agrees in advance of the request of such service to reimburse Lessor on demand
for all costs of operations attributable to such additional air conditioning and
heating service. Whenever machines or equipment which generate heat are used in
the Leased Premises and affect temperature otherwise maintained by the Building
air conditioning system, Lessor reserves the right to install supplementary air
conditioning units in the Leased Premises and the cost of such units as well as
the costs of installation, operation and maintenance thereof shall be paid by
Lessee to Lessor.
(b) Electricity as required for building standard fluorescent light
fixtures installed by Lessor and electricity as required for incidental office
use such as typewriters, voice writers, calculating machines, personal computers
and other machines of similar low electrical consumption. Lessee shall bear the
utility cost, including, but not limited to, any increased air conditioning
costs, occasioned by the use of special lighting in excess of building standard.
(c) Cold water for drinking, lavatory and toilet purposes drawn through
fixtures installed by Lessor in public or common areas and hot water for
lavatory purposes from regular Building supply at prevailing temperature.
(d) Janitor service and supplies in and about the Leased Premises, five (5)
nights per week, including such window washing as may be reasonably required,
provided, however, that Lessee shall pay, as additional rent, any additional
costs attributable to the cleaning of improvements within the Leased Premises
other than building standard improvements.
(e) Automatic passenger elevator(s) in common with other tenants for
ingress and egress to and from the Leased Premises, twenty-four (24) hours a
day, seven (7) days per week. Freight services in common with other tenants will
be provided only at times to be agreed upon by Lessor and Lessee.
(f) Draperies or other type coverings of exterior and interior windows as
determined by Lessor. Lessor reserves the right to install, maintain and
operate uniform window coverings in all windows either exterior or interior.
(g) Maintenance of building standard fluorescent lighting fixtures
installed by Lessor and replacement of defective lamps in such fixtures as
needed from time to time for efficient
<PAGE>
operations. Lessee shall be responsible for the cost of maintenance of all non-
building standard light fixtures on Tenant's Leased Premises and for providing
to Lessor's maintenance personnel necessary replacement bulbs or tubes.
8.2 If Lessee fails to pay promptly when due any additional rent provided
for in Article 8.1, Lessor, upon ten (10) days' written notice, may discontinue
furnishing all or any part of the services described in Article 8.1, and no such
discontinuance shall be deemed an eviction or disturbance of Lessee's use of the
Leased Premises or render Lessor liable for damages or relieve Lessee from any
obligation under this Lease.
8.3 Lessor does not warrant that any service will be free from interruption
caused by repairs, renewal, improvements, changes of service, alterations,
strikes, lockouts, labor controversies, accidents, inability to obtain fuel or
power at a reasonable cost or other causes beyond Lessor's reasonable control.
No such interruption shall be deemed an eviction of disturbance of Lessee's use
and possession, or a breach by Lessor of its obligations or render Lessor liable
for damages, by abatement of rent or otherwise, or relieve Lessee from any
obligation under this Lease, provided that Lessor shall exercise due diligence
to restore such interrupted service. Should any equipment or machinery break
down, or for any cause cease to function properly, Lessor shall use reasonable
diligence to repair such equipment or machinery promptly, and so long as Lessor
uses reasonable diligence to restore same, Lessee shall have no claim for rebate
of rent or damages or other relief on account of any interruption of services
resulting therefrom.
8.4 In the event that Lessor furnishes extra or additional services (over
and above those provided for in Article 8.1) in accordance with a prior
agreement with Lessee where Lessee agrees to pay for such services, and Lessee
fails to pay for such services when payment is due, Lessor shall be entitled,
following ten (10) days' written notice to Lessee of such default and in
Lessor's sole discretion, to discontinue all such services and all other
services provided under this Lease. The money due for extra or additional
services shall be deemed additional rent due hereunder, and such additional
rent shall be subject to all of the provisions in this Lease pertaining to the
payment of rental.
8.5 Notwithstanding any other term or provision of this Lease to the
contrary, Lessee shall pay to Lessor, monthly, as billed, such charges as may be
separately metered or as Lessor's engineer may compute for any electric
services utilized by Lessee at times other than Normal Building Operating Hours.
8.6 Lessor shall furnish Lessee, free of charge, two (2) keys for each
corridor door entering the Leased Premises, and additional keys will be
furnished at a charge by Lessor on an order signed by Lessee or Lessee's
authorized representative. All such keys shall at all times remain the property
of Lessor. No additional locks shall be allowed on any door of the Leased
Premises without Lessor's permission, and Lessee shall not make or permit to be
made any duplicate keys? except those furnished by Lessor. Upon termination of
this Lease, Lessee shall surrender to Lessor all keys of the Leased Premises,
and give to Lessor the explanation of the combination of all locks for safes,
safe cabinets and vault doors, if any, in the Leased Premises. Lessor shall not
be liable to Lessee for losses due to theft, burglary, or for damages alone by
unauthorized persons on the Leased Premises.
8.7 Lessor shall provide and install, at Lessor's cost, all letters or
numerals on doors in the Leased Premises; all such letters and numerals shall be
in the building standard graphics, and no,
<PAGE>
others shall be used or permitted on the Leased Premises. Lessor shall provide
and install, at Lessor's expense, a listing on the Building Directory Board.
ARTICLE 9.
Leasehold Improvements
9.2 Lessee agrees to meet with a representative of the office design
consultant designated by Lessor for the purpose of preparing a detailed floor
plan layout, together with detailed working drawings and written instructions
(hereinafter called the "Plans"), reflecting the partitions and improvements
desired by Lessee in the Leased Premises. The Plans shall be prepared by such
office design consultant in confo~mity with the plans and specifications for the
Building and shall be approved by Lessee no later than the date set forth in
Item 10 of the Basic Lease Provisions. The cost of preparation of the plans and
specifications for building standard items listed on Exhibit "B" hereto shall be
borne by Lessor, and the cost of preparation of the plans and specifications for
all items in excess of building standard shall be borne by Lessee.
9.3 Lessor shall partition and prepare the Leased Premises in accordance
with the Plans, provided, however, that Lessor shall not be required to install
any partitions or improvements which are not in conformity with the plans and
specifications for the Building or which arc not in conformity with the plans
and specifications for the Building or which are not approved by Lessor's
architect, and Lessor shall be required to bear the expense of installing the
items listed on Exhibit "B" hereto only to the extent that such items do not
exceed the respective allowances indicated on such Exhibit "B". Lessee shall
receive credit for any building standard items not used in the improvement of
the Leased Premises only if Lessee substitutes upgraded or improved materials
for such unused item or items. All installation in excess of the allowances
liste~f on such Exhibit "B" shall be for Lessee's account, and Lessee shall pay,
as additional rent hereunder, to Lessor an amount equal to Lessor's actual cost
of such excess items plus an additional charge of fifteen percent (15%) to cover
overhead, promptly upon Lessee's receipt of Lessor's invoice for such amount.
Failure by Lessee to pay such sum in full within thirty (30) days after
Lessee's receipt of such invoice shall constitute failure to pay rent when due
and an event of default by Lessee hereunder, giving rise to all remedies
available to Lessor under this Lease and at law for nonpayment of rent.
ARTICLE 10.
Quiet Possession
10.1 Upon payment by Lessee of the rents provided for in this Lease, and
upon the observance and performance of all the covenants, terms and conditions
on Lessee's part to be observed and performed, Lessee shall peaceably and
quietly hold and enjoy the Leased Premises for the term hereby demised, subject,
however, to the terms and conditions of this Lease. Lessor shall under no
circumstances be held responsible for restriction or disruption of access to the
Building from public streets caused by construction work or other actions taken
by or on behalf of governmental authorities, or any other cause reasonably
beyond Lessor's control, and same shall not constitute a constructive eviction
of Lessee or give rise to any right or remedy of Lessee against Lessor of any
nature or kind.
<PAGE>
ARTICLE 11.
Condition of Premises; Repairs
11.1 Taking possession of the Leased Premises by Lessee shall be
conclusive evidence as against Lessee that the Leased Premises were
substantially completed and then in good order and in satisfactory condition
when possession was so taken. No promises of Lessor to alter, remodel, improve,
repair, decorate or clean the Leased Premises or any part thereof have been
made, and no representation respecting the condition of the Leased Premises, the
Building or the Complex, has been made to Lessee by or on behalf of Lessor
except to the extent expressly set forth herein. Except for any damage directly
resulting from the negligence of Lessor, Lessee shall at its own expense keep
the Leased Premises in good repair and tenantable condition and shall promptly
and adequately repair all damage to the Leased Premises, whether or not caused
by Lessee or any of its employees, agents, licensees or invitees, including, but
not limited to, replacing or repairing all damaged or broken glass, fixtures and
appurtenances, under the supervision and with the approval of Lessor and within
any reasonable period of time specified by Lessor. If Lessee does not do so
promptly and adequately, Lessor may, but need not, make such repairs and
replacements and Lessee shall pay Lessor the cost thereof. This Lease does not
grant any right to light or air over or about the Leased Premises.
11.2 Lessor, its officers, agents and representatives, subject to any
security regulations imposed by any govermnental authority, shall have the right
to enter all parts of the Leased Premises at all reasonable hours to inspect,
clean, make repairs, alterations and additions to the Building or the Leased
Premises which Lessor may deem necessary or desirable, or to provide any service
which Lessor is obligated to furnish to Lessee, and Lessee shall not be entitled
to any abatement or reduction of rent by reason thereof. Unless otherwise
stipulated in this Lease, Lessor shall not be required to make any improvements
or repairs of any kind or character on the Leased Premises during the term of
this Lease, except such repairs as may be required for normal maintenance
operations. The obligation of Lessor to maintain and repair the Leased Premises
shall be limited to building standard items. All work by Lessor shall be
diligently performed and conducted so as to minimize any interference with
Lessee's normal business operations.
ARTICLE 12.
Control of Common Areas and
Covered Parking Facilities by Lessor
12.1 All automobile parking areas, driveways, entrances and exits thereto,
and other facilities furnished by Lessor, including, but not limited to, all
parking areas, truck ways, loading areas, pedestrian walkways and ramps,
landscaped areas, lobbies, stairways and other areas and improvements provided
by Lessor for the general use in common of tenants, their officers, agents,
employees, invitees, licensees, visitors and customers, shall be at all times
subject to the exclusive control and management of Lessor, and Lessor shall have
the right from time to time to establish, modify and enforce reasonable rules
and regulations with respect to all facilities and areas described in this
Article 12.1. Without limiting the generality of the following provision, Lessor
shall have, with respect to such areas and facilities, the right to do any of
the following:
facilities;
(a) To construct, maintain and operate lighting facilities on or in such
areas and
(b) To maintain a clean and neat appearance of such areas and facilities;
<PAGE>
(c) From time to time to change the area, level, location and arrangement
of parking areas and other such facilities;
(d) To restrict parking by and enforce parking charges (by operation of
meters or otherwise) to tenants, their officers, agents, invitees, employees,
licensees, visitors and customers;
(e) To close all or any portion of such areas of facilities to such extent
as may, in the opinion of Lessor's counsel, be legally sufficient to prevent a
dedication thereof or the accrual of any rights to any person or the public
therein or to close temporarily all or any portion of the public areas or
facilities;
(f) To discourage non-customer parking;
(g) To charge a fee for visitor and/or customer parking; and
(h) To do and perform such other acts in and to such areas and facilities
as, in the use of good business judgment, Lessor shall determine to be advisable
with a view to the improvement of the convenience and use thereof by tenants,
their officers, agents, employees, invitees, visitors, licensees and customers.
ARTICLE 13.
Lessor's Casualty Insurance
13.1 Lessor shall at all times during the term of this Lease maintain a
policy or policies of insurance issued by and binding upon some solvent
insurance company, insuring the Building and covered parking facilities against
loss or damage from the perils which Lessor deems necessary in such amounts as
Lessor determines. Lessor shall not be obligated to insure any furniture,
equipment, machinery, goods or supplies not covered by this Lease which Lessee
may bring or obtain upon the Leased Premises, or any additional improvements
which Lessee may construct on the Leased Premises. If the annual premiums
charged Lessor for such casualty insurance exceed the standard premium rates
because of the extrahazardous nature of Lessee's operation, Lessee shall, upon
receipt of appropriate premium invoices, reimburse Lessor for such increases in
such premiums. Nothing contained in this Article 13.1, however, shall be
construed as permitting Lessee to operate in such a way as to result in any
extrahazardous exposure.
ARTICLE 14.
Lessor's Liability Insurance
14.1 Lessor shall maintain a policy or policies of comprehensive general
liability insurance issued by and binding upon some solvent insurance company,
such insurance to afford such protection as Lessor shall determine in its sole
discretion.
ARTICLE 15.
Lessee's Liability Insurance
15.1 Lessee shall, at Lessee's expense, obtain and keep in force during the
term of this Lease, a policy of comprellensive general liability insurance in
the minimum amount of $1,000,000 combined annual aggregate limits for bodily
injury and property damage (with no lower per occurrence limits), insuring
Lessee against any liability arising out of the use, occupancy and/or
maintenance of the Leased Premises, and naming Lessor as an additional
<PAGE>
insured. The limit of such insurance shall not, however, limit the liability of
Lessee under this Lease. Insurance required under this Article 15.1 shall be
with companies acceptable to Lessor and licensed to do business in the State of
Texas.
15.2 Within five (5) days of the earlier to occur of the date on which the
Lease commences or the date Lessee takes occupancy of the Leased Premises,
Lcssee shall furnish Lessor with a copy of the policy evidencing the insurance
required by Article 15.1, or, if Lessor so requests, a copy of the policy. The
certificate or the policy, as the case may be, must state that no mod)fication
or cancellation of the coverage may be effected without at least fifteen (l5)
days' prior written notice to Lessor. If Lessee shall fail to procure and
maintain such insurance, Lessor may, but shall not be required to, procure and
maintain such insurance at Lessee's sole expense.
ARTICLE 16.
Waiver of Subrogation Rights
16.1 Notwithstanding anything in this Lease to the contrary, Lessor and
Lessee each hereby waives any and all rights of recovery, claim, action or cause
of action, against the other, its agents, officers or employees, for any loss or
damage that may occur to the Leased Premises, or any improvements thereto, or
the Building, or any improvements thereto, or any personal property of such
party in the Leased Premises or the Building, by reason of fire, the elements,
or any other cause which is insured against under the terms of the insurance
policies referred to in Articles 13.1, 14.1 and 15.1, regardless of cause or
origin, including negligence of the other party hereto, its agents, officers or
employees, and covenants that no insurer shall hold any right of subrogation
against such other party. Such waiver shall be effective only to the extent
that insurance proceeds received pursuant to any such policy fully cover any
damage incurred by the injured party. To the extent of any excess, recovery
against the other is not hereby waived and released; provided, however, that
this Article 16.1 shall be inapplicable only if it would have the effect of
invalidating any insurance coverage of Lessor or Lessee.
ARTICLE 17.
Damage by Fire or Other Casualty
17.1 If the Leased Premises should be totally destroyed by fire or other
casualty, or if the Leased Premises or the Building should be so badly damaged
by such fire or other casualty as to make the Leased Premises untenantable,
then, in any such event, Lessor shall have the option to (a) terminate this
Lease by written notice delivered to Lessee within thirty (30) days following
the event of such damage or destruction, in which event neither party hereto
shall thereafter have any further or future obligations hereunder, or (b)
continue this Lease in force and effect, in which event Lessor shall promptly
and diligently repair and restore the damaged or destroyed improvements to
substantially the same condition existing prior to such damage or destruction.
For the period beginning on the date that the Leased Premises were rendered
untenantable to the date of restoration of the Leased Premises to substantially
the same condition existing prior to such damage or destruction, the rental
payable hereunder shall be proportionately abated. For purposes of this Article
17.2, "untenantable" shall mean that the Leased Premises have been made
unaccessible or unfit, in Lessor's reasonable opinion, for use for the purposes
set forth in Article 7.1 as a result of fire or other casualty, and Lessee does
not occupy the Leased Premises during normal business hours following such
casualty.
17.2 If the Leased Premises should be damaged by fire or other casualty,
but the Leased Premises are not made untenantable, this Lease shall continue in
force and effect, and Lessor
<PAGE>
shall promptly and diligently repair and restore the damaged improvements to
substantially the same condition existing prior to such damage; and for the
period during which Lessee is deprived of any part of the Leased Premises by
reason of such damage and the repair or restoration of the Leased Premises, the
rental payable hereunder shall be proportionately abated.
17.3 If the Building or covered parking structures should be totally or
substantially destroyed by fire or other casualty, of if the Building or covered
parking structures should be so hadly damaged as to become untenantable in
Lessor's reasonable opinion (whether or not the Leased Premises or any portion
thereof shall have been damaged), then Lessor may, at Lessor's option, terminate
this Lease, and such option to terminate shall be exercised by written notice
delivered to Lessee within thirty (30) days following the event of such damage
or destruction. If Lessor elects to exercise such option to terminate this
Lease, neither party hereto shall thereafter have any further or future
obligations hereunder.
17.4 Lessor's obligation to repair and restore the Leased Premises, the
Building or covered parking structures in the event of a fire or other casualty
as provided for in this Article 17 shall not require Lessor to expend funds in
excess of insurance recoveries made by reason of such fire or other casualty. In
the event insurance recoveries are not sufficient to make the repairs and
restoration provided for in this Article 17, Lessor may, at Lessor's option,
terminate this Lease by written notice to Lessee within thirty (30) days after
the casualty. If Lessor elects to exercise such option to terminate this Lease,
neither party hereto shall thereafter have any further or future obligations
hereunder.
17.5 In the event this Lease is so terminated as provided for in Article
17.2, 17.4 or 17.5, the rentals payable hereunder shall be adjusted as of the
date of such termination, and any rental paid for any period beyond the date of
such termination shall be promptly refunded to Lessee.
17.6 In the event abatement of rentals as provided for in Article 17.2 or
17.3 should occur, it is agreed between Lessee and Lessor that the term of this
Lease then in effect shall be extended for an amount of time equal to the period
of such rental abatement.
ARTICLE 18.
Indemnification of Lessor
18.1 Lessor shall not be liable for any injury, including death, or damage
occurring on or about the Leased Premises or other portion of the Complex unless
caused by negligence of Lessor, its agents, representatives, or employees; and
Lessee waives and releases all claims against Lessor, its agents,
representatives and employees for any injury, including death, or damage, either
proximate or remote, occurring on the Leased Premises or other portion of the
Complex, through, caused by, or resulting from, without limiting the generality
of the following, any repairs, alterations, defects or injuries, in or to the
Leased Premises or other portion of the Complex.
18.2 Lessee agrees to indemnify, defend and hold harmless Lessor from any
and all claims and liabilities (including attorney's fees) for injury to persons
(including death) or property, including, but not limited to, motor vehicles,
occasioned by, resulting from or in any way connected to any act or omission of
Lessee, its agents, employees, visitors, patrons, licensees, contractors or
invitees occurring in any way upon the Leased Premises, Complex, the Building,
parking areas and driveways.
<PAGE>
ARTICLE 19.
Limitation of Lessor's Personal Liability
19.1 Lessee specifically agrees to look solely to Lessor's interest in the
Building for the recovery of any judgment from Lessor, it being agreed that
Lessor shall never be personally liable for any such judgment. The provision
contained in the foregoing sentence is not intended to, and shall not, limit any
right that Lessee might otherwise have to obtain injunctive relief against
Lessor or Lessor's successors in interest, or any other action not involving the
personal liability of Lessor to respond in monetary damages from assets other
than Lessor's interest in the Building or any suit or action in connection with
enforcement or collection of amounts which may become owing or payable under or
on account of insurance maintained by Lessor.
ARTICLE 20.
Damage to Lessee's Property
20.1 All property in, on or about the Leased Premises, the Building or the
Complex belonging to Lessee, its agents, representatives, employees, visitors,
contractors, patrons or licensees shall be there at the risk of Lessee, and
Lessor shall not be liable for, and Lessee agrees to indemnify, defend and hold
harmless Lessor from and against any and all claims (including attorney's fees)
for damages to, or liabilities resulting from, theft, misappropriation or loss
of such property.
ARTICLE 21.
Condemnation
21.1 If there shall be taken by exercise of the power of eminent domain
during the term of the Lease any part of the Leased Premises or the Building,
Lessor may elect either to terminate this Lease and all future obligations of
the parties hereunder, or to continue this Lease in effect. If Lessor elects to
continue the Lease, the rental shall be reduced in proportion to the area of the
Leased Premises so taken and Lessor shall repair any damage to the Leased
Premises or the Building resulting from such taking. All sums awarded or agreed
upon between Lessor and the condemning authority for the taking of the interest
of Lessor or Lessee, whether as damages or as compensation, shall be the
property of Lessor. If Lessor elects to terminate this Lease, rental shall be
payable up to the date that possession is taken by the condemning authority, and
Lessor will refund to Lessee any prepaid unaccrued rent less any sum then owing
by Lessee to Lessor.
ARTICLE 22.
Assignment or Sublease
22.1 In the event Lessee should desire to assign this Lease or sublet the
Leased Premises or any part thereof, Lessee shall give Lessor written notice of
such intent, including the name and adclress of the proposed sublessee or
assignee and all information concerning the proposed sublease or assignment, at
least sixty (60) days in advance of the date on which Lessee clesires to make
such sublease or assignment. Lessor shall then have a period of thirty (30) days
following receipt of such notice within which to notify Lessee in writing that
Lessor elects either (a) to terminate this Lease as to the space so affected as
of the date so specified by Lessee in which event Lessee will be relieved of all
further obligation hereunder as to such space, or (b) to permit Lessee to assign
or sublet such space, subject, however, to subsequent written approval of the
proposed assignee or sublessee by Lessor; provided, however, that if the rental
rate agreed upon between Lessee and the sublessee is greater than the rental
rate that Lessee must pay Lessor, then such excess rental shall be deemed
additional rent owed by Lessee to Lessor and shall be paid by
<PAGE>
Lessee to Lessor in the same manner that Lessee pays the Base Rental as
specified in Article 3; or (c) to refuse to consent to Lessee's assignment or
subleasing such space and to continue this Lease in full force and effect as to
the entire Leased Premises. If lessor should fail to notify Lessee in writing
of such election within such thirty (30) day period, Lessor shall be deemed to
have elected option (c) above. If Lessor elects to exercise option (b) above,
Lessee agrees to provide at Lessee's expense, direct access from such sublet
space to a public corridor of the Building. No assignment or subletting by
Lessee shall relieve Lessee of any obligation under this Lease. Any attempted
assignment or sublease by Lessee in violation of the terms and covenants of this
Article 22.1 shall be void. Any and all consideration paid to Lessee in
connection with any sublease or assignment shall be for Lessor's account and
shall be paid over to Lessor by Lessee upon Lessee's receipt thereof.
ARTICLE 23.
Assignment by Lessor
23.1 Lessor shall have the right to transfer and assign, in whole or in
part, all its rights and obligation hereunder and in the Complex and property
referred to in this Lease, and in such event and upon its transferee's assuming
Lessor's obligations hereunder, no further liability or obligation shall
thereafter accrue against Lessor under this Lease.
ARTICLE 24.
Rules and Regulations
24.1 Lessee agrees to comply with all reasonable rules and regulations that
Lessor may adopt from time to time for operation of the Complex, parking areas
and drives and protection and welfare of the Complex and covered parking
structures, its tenants, visitors and occupants. Present rules and regulations
entitled "Rules and Regulations" are attached to this Lease as Exhibit "C" and
are incorporated herein by this reference. Any amendments, mod)fications or
additions to such Rules and Regulations shall become a part of this Lease upon
delivery of a copy thereof to Lessee in accordance with Article 43.1 of this
Lease.
ARTICLE 25.
Governmental Regulations
25.1 Lessee shall, at Lessee's sole cost and expense, comply with all
requirements of all county, municipal, state, federal and other applicable
governmental authorities, now in force or which may hereafter be in force,
pertaining to Lessee's use of the Leased Premises, and shall faithfully observe
in the use of the Leased Premises all municipal and county ordinances and state
and federal statutes now in force or which may hereafter be in force.
ARTICLE 26.
Solicitation of Business
26.1 Lessee and Lessee's employees, officers, agents, licensees and
invitees shall not solicit business in the Building or the Building's parking
facilities or common areas or elsewhere within the Complex, nor shall Lessee
distribute any handbills or other advertising matter on automobiles parked in
the parking facilities or in the common areas.
<PAGE>
ARTICLE 27.
Taxes on Lessee's Personal Property
27.1 Lessee shall be responsible for and shall pay before delinquency all
municipal, county or state taxes assessed during the term of this Lease against
any occupancy interest or personal property of any kind, owned by or placed in,
upon or about the Leased Premises by Lessee.
ARTICLE 28.
Discharge of All Liens
28.1 Lessee shall pay promptly all of Tenant's contractors and materialmen,
so as to eliminate the possibility of a lien attaching to the Leased Premises or
the Complex. Should any such lien notice be made or filed, Lessee shall bond
against (in form, amount and content satisfactory to Lessor) or discharge the
same within fifteen (15) days after written request by Lessor. In the event of
Lessee's failure to do so Lessor may pay the amount thereof and add the cost,
including attorney's fees (plus fifteen percent (15%) charge for Lessor's
overhead and administrative costs) to the next month's rental due hereunder.
ARTICLE 29.
Subordination
29.1 Lessor and Lessee hereby agree that this Lease shall be and is hereby
declared to be subject and subordinate to any first mortgage or first deed of
trust now or at any time hereafter covering the Leased Premises, and Lessee
agrees to execute an appropriate instrument furnished by Lessor to further
effect the subordination of this Lease to any such mortgage. In the event of a
foreclosure of the first mortgage or first deed of trust, Lessee agrees to
attorn to the mortgagee or its successors in interest upon demand. Lessee hereby
appoints Lessor or its successors in interest as its attorney-in-fact to execute
any and all documents necessary to effectuate all the provisions of this Article
29.1.
ARTICLE 30.
Lessee's Covenants
30.1 Lessee hereby covenants and agrees as follows:
(a) To pay all rent or other monies as such become due and payable to
Lessor under this Lease, at all times and in the manner specified, including,
but not limited to, the late charge provided for in Article 3.1, if applicable,
and to pay interest on all past due rental amounts and other past due payments
at the maximum rate of interest permitted by Article 5069-1.04 of the Texas
Revised Civil Statutes, as amended, from due date until paid.
(b) To permit Lessor to install signs on the interior or exterior of the
Building, or change the name of the Building or street address after thirty (30)
days' written notice of Lessor's intention to do so.
(c) To permit Lessor six (6) months prior to the termination of this Lease
to show the Leased Premises during business or nonbusiness hours to prospective
lessees and to advertise the Leased Premises for rent.
(d) To surrender and return the Leased Premises and all keys, equipment
and fixtures of Lessor in as good condition as when Lessee originally took
possession, ordinary wear and tear, fire or other casualty not caused by
Lessee's negligence, and natural deterioration alone excepted, promptly at the
termination of this Lease by lapse of time or otherwise; provided, however, that
<PAGE>
all Lessee's fixtures and personal property shall be removed on or prior to the
date of termination of this Lease and those fixtures and personal property not
removed from the Leased Premises within ten (10) days after date of termination
of this Lease shall be conclusively presumed to have been abandoned by Lessee
and title thereto shall pass to Lessor under this Lease as a bill of sale.
(e) Not to advertise the business, profession or activities of Lessee in
any manner which violates the letter or spirit of any code of ethics adopted by
any recognized association or organization pertaining thereto or use the name of
the Building for any purpose other than that of the business address of Lessee
or use pictures or likenesses of the Building or the Building name in any
letterheads, envelopes, circulars, notices, advertisements, containers or
wrapping material, without Lessor's prior written consent.
(f) To conduct its business and control its agents, employees, invitees,
customers and visitors in such manner as to not create any nuisance, or
interfere with, annoy or disturb any other tenant or Lessor in its operation of
the Building.
(g) Not to permit, erect and/or place drapes, furniture, fixtures,
shelving, display cases or tables, lights, signs or advertising devices in front
of or in the proximity of interior and exterior windows, glass panels or glass
doors providing a view into the interior of the Leased Premises unless same
shall have been first approved in writing by Lessor.
(h) To observe and perform each and all of the terms, provisions and
agreements of this Lease to be observed and performed by Lessee.
ARTICLE 31.
Default by Lessee; Lessor's Remedies
31.1 Each of the following acts or omissions of Lessee or occurrences shall
constitute an event of default (hereinafter called an "Event of Default"):
(a) Failure or refusal by Lessee to make the timely and punctual payment of
any rent or other sums payable under this Lease when and as the same shall
become due and payable, provided that Lessor has given Lessee three (3) days'
written notice that such amount is overdue; provided further, however, that
once Lessor has given Lessee two (2) such notices during the term of this Lease
for any one or more times that any payments are not made when due hereunder,
Lessor shall not be required to give further notice or any notice at all with
respect to subsequent defaults, and the failure or refusal by Lessee to timely
make any payment thereafter due hereunder shall immediately constitute an Event
of Default entitling Lessor to pursue its remedies without notice or demand. For
purposes of this Lease, Lessor's regular monthly statement shall constitute
notice each month that rent or other sums are due and payable hereunder; or
(b) Abandonment or vacating of the Leased Premises or any significant
portion thereof by Lessee, or taking such action as in the reasonable judgment
of Lessor evidences an intent to so abandon; or
(c) The filing or execution or occurrence of a petition in bankruptcy or
other insolvency proceeding by or against Lessee; or petition or answer seeking
relief under any provision of the Bankruptcy Act; or an assignment for the
benefit of creditors or composition; or a petition or other proceeding by or
against Lessee for the appointment of a trustee, receiver or liquidator of
<PAGE>
Lessee or any of Lessee's property; or a proceeding by any governmental
authority for the dissolution or liquidation of Lessee; or
(d) Any attempt by Lessee to assign or otherwise transfer, sublease or
encumber this Lease, or any interest herein, or the occupation or use of the
Leased Premises, or any portion thereof, by persons other than Lessee in
violation of Article 22.1; or
(e) Failure by Lessee in the performance or compliance with any of the
agreements, terms, covenants or conditions provided in this Lease, other than
those referred to in Article 31.1(a) through (ci), for a period of ten (10) days
after notice from Lessor to Lessee specifying the items in default; or
(f) Default by Lessee under any other lease made by Lessee (or any party
related to or affiliated with Lessee) for any other space in the Building.
31.2 This Lease is subject to the limitation that if and whenever any Event
of Default shall occur, Lessor may, at its option and without prior verbal or
written notice to Lessee, in addition to all other rights and remedies given
hereunder or by law or equity, continue this Lease in full force and effect or
do any one or more of the following:
(a) Terminate this Lease, in which event Lessee shall immediately surrender
possession of the Leased Premises to Lessor;
(b) Enter upon and take possession of the Leased Premises and expel or
remove Lessee and any other occupant therefrom with or without having terminated
the Lease; and/or
(c) Alter locks and other security devices at the Leased Premises.
31.3 Exercise by Lessor of any one or more remedies granted under Article
31.2 or otherwise available shall not be deemed to be an acceptance of surrender
of the Leased Premises by Lessee. whether by agreement or by operation of law
it being understood that such surrender can be effected only by the written
agreement of Lessor and Lessee.
31.4 In the event Lessor elects to terminate the Lease by reason of an
Event of Default, then notwithstanding such termination, Lessee shall be liable
for and shall pay to Lessor, at Lessor's address as shown in Item 2 of the Basic
Lease Provisions, the sum of all rent and other indebtedness accrued to the date
of such termination, and all expenses incurred by Lessor as provided in
Article 31.6, plus, as damages, an amount equal to the rental payable hereunder
for the remaining portion of the Lease term (had such term not been terminated
by Lessor prior to the date of expiration stated in Item 7 of the Basic Lease
Provisions), less the fair market rental value of the Leased Premises for the
remaining portion of the Lease term, as determined by Lessor. Lessor and Lessee
hereby agree that such fair market rental value shall in no event be deemed to
exceed fifty percent (50%) of the rental payable hereunder for the remaining
portion of the Lease term; provided, however, that in the event Lessor relets or
lists the Leased Premises for reletting (including any ongoing general listing
with a licensed broker for leasing of space in the Building generally) following
a termination of this Lease as a result of a Tenant default, Lessor and Lessee
hereby stipulate and agree that the fair market value of the Leased Premises for
the period between the date that the Leased Premises are listed as available for
lease and the date of judgment in a suit by Landlord herein shall not exceed the
lesser of (i) fifty percent (50%) of the rental that would have accrued
hereunder for that period, or (ii) the actual amount collected by Lessor as a
<PAGE>
result of such reletting, if any. The foregoing fifty percent (50%) limitation
on the credit for the fair market rental value of the Leased Premises following
default shall be limited to situations where termination by Lessor is the
result, in whole or in part, of (a) defaults by Lessee in the nature specified
in Articles 31.1(a), (b), (c), and (d), above (which are hereby stipulated and
agreed to go to the essence of this Lease and to be material defaults), and (b)
defaults by Lessee under Articles by Lessee under Articles 31.1(e) and (f) only
to the extent that the particular default in question under Article 31.1(e) or
(f) is material in the context of the overall agreement of the parties
represented by this Lease (provided that a violation of any use restriction
contained herein is expressly stipulated to constitute a material default by
Lessee).
31.5 In the event that Lessor elects to repossess the Leased Premises
without terminating the Lease, Lessee shall, at Lessor's election, be liable for
and shall pay to Lessor at Lessor's address as shown in Item 2 of the Basic
Lease Provisions, either of the following: (a) All rent and other indebtedness
accrued to the date of such repossession, plus rent required to be paid by
Lessee to Lessor during the remainder of the Lease term until the date of
expiration of the term as stated in Item 7 of the Basic Lease Provision,
diminished by any net sums thereafter received by Lessor through reletting the
Leased Premises during such period (after deducting expenses incurred by Lessor
as provided in Article 31.6), it being expressly agreed thal re-entry by Lessor
will not affect the obligations of Lessee for the unexpired term of the Lease;
in no event shall Lessee be entitled to any excess of the rent obtained by
reletting over and above the rent herein reserved; and actions to collect
amounts due by Lessee as provided in this Article 31.5 may be brought from
time to time, on one or more occasions, without the necessity of Lessor's
waiting until expiration of the Lease term; or (b) The sum of all rent and other
indebtedness accrued to the date of such termination, and all expenses incurred
by Lessor as provided in Article 31.6, and, without prior notice to Lessee
accelerate and declare immediately due and payable all rentals payable hereunder
for the remaining portion of the Lease term (had such term not been terminated
by Lessor prior to the date of expiration stated in Item 7 of the Basic Lease
Provisions); provided, however, that Lessee shall be entitled to a credit
against such accelerated rentals for the fair market rental value of the Leased
Premises for the remaining portion of the Lease term, as determined by Lessor.
Lessor and Lessee hereby agree that such fair market rental value shall in no
event be deemed to exceed fifty percent (50%) of the rental payable hereunder
for the remaining portion of the Lease term; provided, however, that in the
event Lessor relets or lists the Leased Premises for reletting (including any
ongoing general listing with a licensed broker for leasing of space in the
Building generally following a termination of this Lease as a result of a
Tenant default, Lessor and Lessee hereby stipulate and agree that the fair
market value of the Leased Premises for the period between the date that the
Leased Premises are listed as available for lease and the date of judgment in a
suit by Landlord herein shall not exceed the lesser of (a) fifty percent (50%)
of the rental that would have accrued hereunder for that period, or (b) the
actual amount collected by Lessor as a result of such reletting, if any. The
foregoing fifty percent (50%) limitation on the credit for the fair market
rental value of the Leased Premises following default shall be limited to
situations where termination by Lessor is the result, in whole or in part, of
defaults in the nature of those specified in Article 31.4(a) or (b), above.
31.6 If an Event of Default occurs, Lessee shall, in addition to all
amounts due under Article 31.4 and Article 31.5, he liable for and shall pay to
Lessor (to the extent that any such amount is not deducted under Article 31.4 or
Article 31.5), at Lessor's address as shown in Item 2 of the Basic Lease
Provisions in addition to any sum provided to be paid elsewhere in this Article
31, any and all of the following described amounts:
<PAGE>
(a) Broker's fees payable to Lessor or any affiliates of Lessor or any
outside broker incurred in connection with reletting the whole or any part of
the Leased Premises;
(b) The cost of removing and storing Lessee's or other occupant's property;
(c) The costs of repairing, altering, remodeling or otherwise putting the
Leased Premises into a condition acceptable to a new tenant or tenants; and
(d) All reasonable expenses incurred by Lessor in enforcing Lessor's
remedies, including, but not limited to, reasonable attorney's fees (which shall
in no event be less than fifteen percent (15%0 of the amount due Lessor). Past
due rental amounts, including, but not limited to, Base Rental, Additional
Rent, Additional Monthly Rent, amounts payable in accordance with Article 9.3,
all late charges and other past due payments shall bear interest at the maximum
rate permitted by Article 5069-1.04 of the Texas Revised Civil Statutes, as
amended, from due date until paid.
31.7 In the event that Lessor is entitled to change the locks at the
Leased Premises pursuant to any of the foregoing provisions, Lessee agrees that
entry may be gained for that purpose through use of a duplicate or master key or
any other peaceable means, that same may be conducted out of the presence of
Lessee if Lessor so elects, that no notice shall be required to be posted by the
Lessor on any door to the Leased Premises (or elsewhere) disclosing the reason
for such action or any other information, and that Lessor shall not be obligated
to provide a key to the changed lock to Lessee unless Lessee shall have first:
(1) brought current all payments due to Lessor under this Lease; provided,
however, that if Lessor has theretofore formally and permanently repossessed the
Leased Premises pursuant to Article 31.2(b) hereof, then Lessor shall be under
no obligation to provide a key to the new lock(s) to Lessee regardless of
Lessee's payment of past-due rent or other past-due amounts, damages, or any
other payments or amounts of any nature or kind whatsoever;
(2) fully cured and remedied to Lessee's satisfaction all other defaults of
Lessee under this Lease (but if such defaults are not subject to cure, such as
early abandonment or vacating of the Leased Premises, then Lessor shall not be
obligated to provide the new key to Lessee under any circumstances); and
(3) given Lessor security and assurance reasonably satisfactory to Lessor
that Lessee intends to and is able to meet and comply with its future
obligations under this Lease, both monetary and non-monetary.
Lessor will, upon written request by Lessee, at Lessor's convenience and upon
Lessee's execution and delivery of such waivers and indemnifications as Lessor
may require, at Lessor's option either (i) escort Lessee or its specifically
authorized employees or agents to the Leased Premises to retrieve personal
belongings and effects of Lessee's employees (as opposed to property which is an
asset of Lessee or any Guarantor), and property of Lessee that is not subject to
the landlord's liens and security interests described in Article 33.1, below, or
(ii) obtain from Lessee
a list of such property described in (i), above, and arrange for such items to
be removed from the Leased Premises and made available to Lessee at such place
and at such time in or about the premises of the Building as Lessor may
designate; provided, however, that if Lessor elects option (ii), then Lessee
shall be required to deliver to Lessor such waivers and indemnifications as
Lessor may require in connection therewith, and pay in cash in advance to
Lessor (A) the
<PAGE>
estimated costs that Lessor will incur in removing such property form the Leased
Premises and making same available to Lessee at the stipulated location, and (B)
all moving and/or storage charges theretofore incurred by Lessor with respect to
such property. The provisions of this Article 31.7 are intended to override and
supersede any conflicting provisions of the Texas Property Code (including,
without limitation, Section 92.008 thereof, and any amendments or successor
statutes thereto), and of any other law, to the maximum extent permitted by
applicable law.
31.8 In the event of termination or repossession of the Leased Premises for
an Event of Default, Lessor shall not have any obligation to relet or attempt to
relet the Leased Premises, or any portion thereof, or to collect rental after
reletting; but Lessor shall have the option to relet or attempt to relet; and in
the event of reletting, Lessor may relet the whole or any portion of the Leased
Premises for any period, to any tenant, for any rental, and for any use and
purpose.
31.9 If Lessee should fail to make any payment or cure any default under
this Lease within the time period (if any) provided for in Article 31.1, above,
Lessor, without being under any obligation to do so and without thereby waiving
such default, may make such payment and/or remedy such other default for the
account of Lessee (and enter the Leased Premises for such purpose), and
thereupon Lessee shall be obligated to, and hereby agrees to, pay Lessor, upon
demand, all costs, expenses and disbursements (including, but not limited to,
reasonable attorney's fees) incurred by Lessor in taking such remedial action.
31.10 In the event Lessee makes default in the performance of any of the
terms, covenants, agreements or conditions contained in this Lease and Lessor
places the enforcement of this Lease, or any part thereof, or the collection of
any rent or other amount due, or to become clue hereunder, or recovery of the
possession of the Leased Premises in the hands of an attorney or collection
agency, or files suit upon this Lease, Lessee agrees to pay Lessor's actual
attorney's fees and costs of collection, which shall in no event be less than
fifteen percent (15%) of the amount due to Lessor.
ARTICLE 32.
Default by Lessor; Lessee's Remedies
32.1 In the event of any default by Lessor, Lessee's exclusive remedy shall
be, subject to the limitation provided in Article l9.l, an action for damages
(Lessee hereby waiving the benefit of any laws granting Lessee a lien upon the
property of the Lessor and/or upon rent due Lessor), but prior to any such
action Lessee shall give Lessor written notice specifying such default with
particularity, and Lessor shall thereupon have thirty (30) days (plus such
adelitional reasonable period as may be required in the exercise by Lessor of
due diligence) in which, to cure any such default. Unless and until Lessor
fails to so cure any default after such notice, Lessee shall not have any remedy
or cause of action by reason thereof. All obligations of Lessor hereunder will
be construed as covenants, not conditions; all such obligations will be binding
upon Lessor only during the period of its ownership of the Building and the
Complex and not thereafter. Under no circumstances whatsoever shall Lessor ever
be liable hereunder for consequential damages or special damages.
32.2 If the Building and/or the Leased Premises are at any time subject to
a mortgage and/or mortgage and deed of trust, then in any instance in which
Lessee gives notice to Lessor alleging default by Lessor hereunder, Lessee shall
also simultaneously give a copy of such notice to each Lessor's mortgagee
(provided that such mortgagee shall have furnished written notice to Lessee of
such mortgagee's address), and each Lessor's mortgagee shall have the right (but
not the
<PAGE>
obligation) to cure or remedy such default during the period that it is
permitted to Lessor hereunder, plus an additional period of thirty (30) days,
and Lessee shall accept such curative or remedial action (if any) taken by
Lessor's mortgagee, with the same effect as if such action had been taken by
Lessor.
ARTICLE 33.
Lien for Rent
33.1 In consideration of the mutual benefits arising under this Lease,
Lessee and Guarantor(s) hereby grant to Lessor a lien and security interest on
all property of Lessee and Guarantor(s) now or hereafter placed in or upon the
Leased Premises, and such property shall be and remain subject to such lien and
security interest of Lessor for payment of all rent and other sums agreed to be
paid by Lessee and Guarantor(s) under or with respect to this Lease. The
provisions of this Article 33.1 relating to such lien and security interest
shall constitute a security agreement under the Uniform Commercial Code so that
Lessor shall have and may enforce a security interest on all property of Lessee
and Guarantor(s) now or hereafter placed in or on the Leased Premises,
including, but not limited to, all fixtures, machinery, equipment, furnishings
and other articles of personal property. All exemption laws are hereby waived
by Lessee and Guarantor(s). Lessee and Guarantor(s) shall execute the Uniform
Commercial Code Financing Statement attached hereto as Exhibit "E" and
incorporated herein by this reference and further agree from time to time
hereafter to execute as debtor and deliver to Lessor such additional financing
statements as Lessor may request in order that such security interest or
interests may be protected pursuant to the Uniform Commercial Code. Lessor may
at its election at any time file a copy of this Lease as a financing statement.
Lessor, as secured party, shall he entitled to all of the rights and remedies
afforded a secured party under the Uniform Commercial Code, including, without
limitation, all self-help repossession rights under Section 9.503 of the Texas
Uniform Commercial Code, which rights and remedies shall be in addition to and
cumulative of the Lessor's liens and rights provided by law or by the other
terms and provisions of this Lease.
ARTICLE 34.
Non-Waiver
34.1 Neither acceptance of rent or any other amount due hereunder by Lessor
nor failure to complain of any action, non-action of default of Lessee, whether
singular or repetitive, shall constitute a waiver of any of Lessor's rights
hereunder. Waiver by Lessor of any right for any Event of Default by Lessee
shall not constitute a waiver of any right for either a subsequent default of
the same obligation or any other default. No act or thing done by Lessor or its
agents or representatives shall be deemed to be an acceptance of surrender of
the Leased Premises and no agreement to accept a surrender of the Leased
Premises shall be valid unless it is in writing and signed by a duly authorized
officer or agent of Lessor.
ARTICLE 35.
Prior Occupancy
35.1 lf Lessee with Lessor's prior written consent shall occupy the Leased
Premises prior to the beginning of the Lease term, all provisions of this Lease
shall be in full force and effect commencing upon such occupancy, and rent for
such period shall be paid by Lessee at the Base Rental rate as specified in
Item 6(a) of the Basic Lease Provisions.
<PAGE>
ARTICLE 36.
Holding Over
36.1 If Lessee should remain in possession of the Leased Premises after
the expiration or termination of this Lease, without the execution by Lessor and
Lessee of a new lease, then Lessee shall be deemed to be occupying the Leased
Premises as a tenant-at-sufferance subject to all the covenants and obligations
of this Lease, and shall pay as liquidated damages 125% the amount of the sum of
the Base Rental plus the Additional Monthly Rent then in effect for the entire
holdover Period. No holding over by Lessee after the term of this Lease, either
with or without the consent and acquiescence of Lessor, shal1 operate to extend
the Lease for a longer period than one (1) month, and any holding over with the
consent of Lessor in writing shall thereafter constitute this Lease a lease from
month to month.
ARTICLE 37.
Estoppel Certificate
37.1 Lessee agrees that at any time and from time to time upon not less
than ten (l0) days' prior request by Lessor, Lessee shall prepare, execute and
deliver to Lessor a statement in writing certifying (a) the date upon which the
term of this Lease commences and terminates; (b) the date to which Base Rental
and any Additional Monthly Rent has been paid; (c) the amount of any Security
Deposit; (d) that Lessee has accepted and is occupying the Leased Premises; (e)
that the Lease is in full force and effect and has not been modified or amended;
(f) that all improvements to the Leased Premises have been satisfactorily
completed; (g) that there are no defaults of Lessor under the Lease nor any
existing condition upon which the giving of notice or lapse of time would
constitute a default; (h) that Lessee has not received any concession; (i) that
Lessee has received no notice from any insurance company of any defects or
inadequacies of the Leased Premises; (j) that Lessee has no options or rights
other than as set forth in the Lease; and (k) such other matters which Lessor
may reasonably request. If such statement is to be delivered to a purchaser of
the Complex, it shall further include the agreement of Lessee to recognize such
purchaser as Lessor under the Lease and to thereafter pay rent to such purchaser
or its designee in accordance with the terms of this Lease, and Lessee
acknowledges that any such purchaser will rely on such statement. Lessee's
failure to deliver such statement within such time shall be conclusive upon
Lessee that this Lease is in full force and effect without any modification and
that there are no defaults. Lessee agrees that the failure to deliver such
statement shall be an event of default under this Lease.
ARTICLE 38.
Memorandum of Lease
38.1 Lessee agrees, if so requested by Lessor, at any time to execute a
Memorandum of Lease in recordable form setting forth the names of the parties,
the term of the Lease (stating declaration of commencement of the Lease term
provided for in Article 2.1), and the description of the Leased Premises, which
Lessor may record in order to give record notice to third parties of this Lease.
<PAGE>
ARTICLE 40.
Tender and Delivery of Lease Instrument
40.1 Submission of this instrument for examination does not constitute an
offer, reservation of or option for the Leased Premises. This instrument becomes
effective as a lease only upon execution and delivery by both Lessor and Lessee.
ARTICLE 41.
Time Is of the Essence
41.1 In all instances where Lessee is required under the terms of this
Lease to pay any sum or do any act at a particular indicated time or within an
indicated period, it is understood that time is of the essence.
ARTICLE 42.
Independent Obligations; Waiver of Implied Warranties
42.1 LESSEE HEREBY AGREES AS A MATERIAL PART OF THE CONSIDERATION FOR
LESSOR'S ENTERING INTO THIS LEASE THAT LESSOR HAS MADE NO WARRANTIES TO LESSEE
(OR ANY OF LESSEE'S EMPLOYEES OR AGENTS REGARDING THE CONDITION OF THE LEASED
PREMISES, EITHER EXPRESS OR IMPLIED. AND LESSOR HEREBY EXPRESSLY DISCLAIMS ANY
WARRANTY (INCLUDING ANY IMPLIED WARRANTY THAT THE LEASED PREMISES ARE SUITABLE
FOR LESSEE'S INTENDED USE THEREOF. LESSEE AGREES THAT LESSEE'S OBLIGATION TO PAY
RENT HEREUNDER IS NOT DEPENDENT UPON THE CONDITION OF THE LEASED PREMISES OR THE
PERFORMANCE BY LESSOR OF ITS OBLIGATIONS HEREUNDER, BUT THAT LESSEE WILL
CONTINUE TO PAY RENT WHEN DUE HEREUNDER. WITHOUT ABATEMENT SET-OFF OR DEDUCTION
NOTWITHSTANDING ANY BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF ITS EXPRESS
OBLIGATIONS UNDERTAKEN IN THIS LEASE.
ARTICLE 43.
Notice
43.1 Any notice which may or shall be given under the terms of this Lease
(except for notice of nonpayment of rent under Article 31.1(a) which may be sent
by regular mail) shall be in writing and shall be either delivered by hand or
sent by United States registered or certified mail, postage prepaid, return
receipt requested, for Lessor and Lessee, to the address for notices set forth
in Item 2 of the Basic Lease Provisions. Such addresses may be changed from
time to time by either party by giving notice as provided above in this Article
43.1. Notice shall be deemed given and received when delivered to the premises
of the herein stipulated address of the party (if delivered by hand), or (if
sent by mail) on the earlier of (i) actual receipt, or (ii) the third (3rd)
business day after deposit with the United States Postal Service. Any notice
required of Lessor herein may be given, at Lessor's option, by an attorney
engaged by Lessor.
ARTICLE 44.
Brokers
44.1 Lessee hereby warrants and represents that Lessee has had no dealings
with any real estate broker or agent in connection with the negotiation of this
Lease, excepting only the broker(s) named in Item 9 of the Basic Lease
Provisions, if any, and that Lessee knows of no other
<PAGE>
real estate broker(s) or agent(s) who is(are) or might be entitled to a
commission in connection with this Lease. Lessor agrees to pay all real estate
commissions due in connection with this Lease to only such broker(s). Lessee
hereby agrees to indemnify, defend and hold harmless Lessor from and against any
and all claims and liabilities (including attorney's fees) of any agent, broker,
finder or other similar party claiming through Lessee other than the broker(s)
named in Item 9 of the Basic Lease Provisions, if any.
ARTICLE 45.
Entire Agreement and Binding Effect
45.1 This Lease and any addenda or exhibits signed or initialed by the
parties constitute the entire agreement between Lessor and Lessee and no prior
written or prior or contemporaneous oral promises or representations shall be
binding. Except as relates to changes in the Rules and Regulations provided for
in Article 24.1, this Lease shall not be amended, changed or extended except
by written instrument signed by both parties hereto. The provisions of this
Lease shall be binding upon and inure to the benefit of the heirs, executors,
administrators, successors and assigns of the parties, but this provision shall
in no way alter the restrictions set forth in Article 22.1, in connection with
assignment and subletting by Lessee.
ARTICLE 46.
Authority
46.1 The parties to this Lease warrant and represent to one another that
each has the power and authority to enter into this Lease in the name, title and
capacity herein stated and on behalf of any entity, person, or firm
represented or purported to be represented by such person, and that all formal
requirements necessary or required by any state and/or federal law in order
for each to enter into this Lease have been fully complied with. If Lessee is a
corporation, Lessee shall be required to deliver to Lessor contemporaneously
with the execution of this Lease a certified Board of Directors' resolution
ev~dencing the authority of Lessee and the individual executing this Lease on
behalf of Lessee to enter into this Lease and perform Lessee's obligations
hereunder.
ARTICLE 47.
Law Governing of Texas.
47.1 This Lease shall be governed and construed in accordance with the laws
of the State
ARTICLE 48.
Terminology
48.1 Whenever required by the context, as used in this Lease, the singular
number shall include the plural, and the masculine gender shall include the
feminine and the neuter. Titles of Articles are for convenience only, and shall
neither limit nor amplify the provisions of this Lease. Any reference to an
"Article" in this Lease shall be to provisions of this Lease, unless expressly
provided to the contrary.
<PAGE>
ARTICLE 49.
Severability
49.1 This Lease is intended to be performed in accordance with, and only to
the extent permitted by, all applicable laws, ordinances, rules and regulations
of the State of Texas. If any provision of this Lease, or the application
thereto to any person or circumstance, shall, for any reason and to any extent,
be invalid or unenforceable, the remainder of this Lease and the application of
such provision to other persons or circumstances shall not be affected thereby,
but rather shall be enforced to the greatest extent pennitted by law.
NOTICE: NO PERSON OTHER THAN THE INDIVIDUAL SIGNING BELOW AS THE AUTHORIZED
REPRESENTATIVE OF LESSOR MAY BIND THE LESSOR TO ANY AGREEMENT WHATSOEVER, AND
ANY ORAL OR VERBAL REPRESENTATIONS, STATEMENTS, OR AGREEMENTS OF ANY OTHER
PERSON (REGARDLESS OF WHETHER PURPORTING TO REPRESENT OR APPARENTLY REPRESENTING
THE LESSOR) SHALL NOT BE BINDING ON LESSOR UNLESS EXPRESSLY CONTAINED IN THIS
LEASE.
EXECUTED in multiple counterparts, each of which shall have the force and
effect of an original, as of the date and year first set forth above.
LESSOR :
/s/John H. Crutchfield
Title: Gen Partner
Date: August 22, 1996
LESSEE:
Metrowerks Corporation
/s/ Jim Welch
(Print Name)
Title: CFO -VP Finance
Date: August 22, 1996
EXHIBIT "C"
Rules and Regulation
The following Rules and Regulations, hereby accepted by, LESSEE, are
prescribed by LESSOR in order to provide and maintain, to the best of LESSOR'S
ability, orderly, clean and desirable premises, building and garage facilities
for the tenants therein, to assure security for the protection of LESSEE, so far
as reasonably possible, and to regulate conduct in and use of the Leased
Premises, the Building and garage facilities in such manner as to minimiize
interference by others in the proper use of the Leased Premises by LESSEE:
1. LESSEE, its agents, representatives and employees shall not block or
obstruct any of the entries, passages, doors, elevators, elevator doors,
hallways or stairways of the Building or garage, or place, empty or throw any
rubbish, litter, trash or material of any nature into such areas, or permit such
areas to be used at any time except for ingress or egress of LESSEE, its agents,
representatives, employees, visitors or invitees.
2, The movement of furniture, equipment, merchandise or materials within,
into or out of the Building or garage facilities shall be restricted to time,
method and routing of movement as determined by LESSOR upon request from LESSEE
and LESSEE shall assume
<PAGE>
all liability and risk to property, the Leased Premises and the Building in such
movement. Safes and other heavy equipment shall be moved into the Building and
the Leased Premises only with LESSOR's written consent and placed where directed
by LESSOR.
3. No sign, door plaque, advertisement or notice shall be displayed, painted
or affixed by LESSEE, its agents, representatives or employees in or on any part
of the outside or inside of the building, garage facilities or the Leased
Premises without the prior written consent of LESSOR and then only such color,
size, character, style and material and in such places as shall be approved and
designated in writing by LESSOR. Signs on doors and entrances to the Leased
Premises shall be placed thereon hy a contractor designated by LESSOR.
4. LESSOR shall maintain an alphabetical Directory Board on the ground floor
lobby of the Building containing name of LESSEE and make revisions from time to
time as required.
5. LESSOR shall not be responsible for lost or stolen personal property,
equipment, money or any article taken from the Leased Premises, the Building or
garage facilities regardless of how or when any such loss occurs.
6. LESSEE, its agents, representatives and employees shall not install or
operate any refrigerating, heating or air conditioning apparatus or carry on any
mechanical operation or bring into the Leased Premises, the Building or the
garage facilities any flammable fluids or explosives without the prior written
consent of LESSOR.
7. LESSEE, its agents, representatives or employees shall not use the
Building, the Leased Premises or the garage facilities for housing, lodging or
sleeping purposes, or for the cooking or preparation of food without the prior
written consent of LESSOR.
8. LESSEE, its agents, representatives or employees shall not bring into the
garage facilities, the Building or the Leased Premises or keep on the Leased
Premises any dog, bird or animal. LESSEE, its agents, representatives or
employees shall not bring into the garage facilities or the Building or keep on
the Leased Premises any bicycle or other vehicle without the prior written
consent of LESSOR.
9. No additional locks shall be placed on any door in the Bui]ding without
the prior written consent of LESSOR. LESSOR shall furnish two(2) keys to each
lock on corridor doors in the Leased Premises and LESSOR, upon request of
LESSEE, shall provide additional duplicate keys at LESSEE's expense. LESSOR may
at all times keep a passkey to the Leased Premises. All keys shall be returned
to LESSOR promptly upon termination of this Lease.
10. LESSEE, its agents, representatives or employees shall do no painting or
decorating in the Leased Premises; or mark, paint or cut into, drive nails or
screw into or any way deface any part of the Leased Premises or the Building
without the prior written consent of LESSOR. If LESSEE desires signal,
communication, alarm or other utility or service connection installed or
changed, such work shall be done at expense of LESSEE, with the approval and
under the direction of LESSOR.
11. LESSOR reserves the right to close the Building at 7:00 p.m. subject,
however, to LESSEE's right to admittance under regulations prescribed by LESSOR,
to require all persons entering the Building after 6:00 p.m. to identify
themselves to a watchman and establish their right to enter or leave the
Building; and to have access to all mail chutes according to rules of the United
States Postal Service.
<PAGE>
12. LESSEE, its agents, representatives and employees shall not permit the
operation of any musical or sound producing instrument or any type of instrument
or device which may be heard outside the Leased Premlses, the Building or the
garage facilities, or which may emanate electrical waves which will impair
radio or television broadcasting or reception from or in the Building
13. LESSEE, its agents, representatives and employees shall, before leaving
the Leased Premises unattended, close and lock all doors and shut off all
utilities; damage resulting from failure to do so shall be paid by LESSEE.
14. All plate and other glass now in the Leased Premises which is broken
through cause attributable to LESSEE, its agents, representatives or employees,
shall be replaced by LESSOR at the expense of LESSEE.
15. LESSEE shall give LESSOR prompt notice of all accidents to or defects in
air conditioning equipment, plumbing, electric facilities or any part or
appurtenance of the Leased Premises.
16. In the event LESSEE is expressly granted rights and/or privileges in and
to parking areas or facilities under this Lease, the following shall apply:
LESSEE and LESSEE's employees shall park their cars only in those portions of
the parking garage and areas that are from time to time designated for that
purpose by LESSOR. LESSOR shall have the right from time to time to relocate
parking areas for use by LESSEE, its officers, agents, employees, invitees,
licensees and customers. LESSEE shall furnish LESSOR in writing, the make,
model, color and state automobile license number (automobile license numbers to
be submitted on a yearly basis) assigned to LESSEE's car or cars and cars of
LESSEE's employees, agents and licensees within ten(10) days after taking
possession of the Leased Premises and shall thereafter notify LESSOR in writing
of any changes thereof, including, but not limited to, the dismissal and/or
addition of employees, agents and/or licensees within five(5) days after such
changes occur. In the event LESSEE, its employees, agents and/or licensees fail
to park their cars in the parking areas so designated from time to time by
LESSOR, then LESSOR at its option shall have the right to charge LESSEE $10 per
car per day parked in any area other than that so designated and/or tow such
vehicle away at LESSEE's cost and expense. In the event LESSOR should exercise
such option, the money due LESSOR under the provisions of this Paragraph 16
shall be deemed additional rental due under the Lease and such amount shall be
subject to all of those provisions ln this Lease pertaining to the payment of
rental.
17. The plumbing facilities shall not be used for any other purpose than
that for which they are constructed, and no foreign substance of any kind shall
be thrown therein, and the expense of any breakage, stoppage or damage resulting
from a violation of this provision by LESSEE or its employees, agents or
invitees shall be borne by LESSEE.
C-2 of 3
18. All contractors and/or technicians performing work for LESSEE
within the Building or garage facilities shall be referred to LESSOR for
approval before performing such work. This provision, shall apply to all
work including, but not limited to, installation of telephones, telephone
equipment, electrical devices and attachments and all installations
<PAGE>
affecting floors, walls, windows, doors, ceilings, equipment or any other
physical feature of the Building. None of such work shall be done by
LESSEE without LESSOR's prior written approval.
19. Should LESSEE desire to place in the Building or garage facilities any
unusually heavy equipment, including but not limited to, 1arge files, safes and
electronic data processing equipment, LESSEE: shall first obtain written
approval of LESSOR for the use of the Building elevators and of the proposed
location in which such equipment is to be installed. Maximum live floor loads
(excluding partitioning only) shall not exceed fifty(50) pounds per square foot.
20. No showcases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the halls, corridors or
vestibules without the prior written consent of LESSOR.
21. No space in the Building or garage facilities shall be used for
manufacturing, public sales, for the storage of merchandise, or for the sale of
merchandise, goods or property of any kind or auction.
22. Canvassing, soliciting and peddling in the Building or garage facilities
is prohibited and each LESSEE shall cooperate to prevent the same.
23. There shall not be used in any space, or in the public halls of any
Building, either by any LESSEE or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
24. LESSEE shall not permit any portion of tile Leased Premises to be used
as an office for a public stenographer or typewriter, for the sale of food,
drink, liquor or tobacco, for barber or manicure shop, for retail sales to the
general public, for an employment bureau, or for auctions or sales of personal
property and channels.
25. No person or contractor not employed by LESSOR shall be used to perform
janitor work, window washing, cleaning, decorating, repair or other work in
the Leased Premises. LESSOR's janitors shall not be hindered by LESSEE after
5:30 p.m.
26. In the event LESSEE must dispose of crates, boxes or other articles
which will not fit into office wastepaper baskets, it shall be the
responsibility of LESSEE to dispose of such articles. In no event sha11 LESSEE
SET SUCH ITEMS in the public hallways or other areas of the building OR
GARAGE, EXCEPTING LESSEE'S OWN LEASED PREMISES FOR DISPOSAL.
27. LESSEE is cautioned in purchasing furniture, that the size is LIMITED
to such as can be placed on the elevator and will pass through the DOORS OF
THE OFFICES. Large pieces should be made in parts and set up in THE OFFICES.
LESSOR RESERVES the right to refuse to allow to be placed in the Building any
furniture or fittings of any description which do not comply with the above
conditions.
28. LESSEE shall be responsible for any damage to carpeting and flooring as
a result of rust or corrosion of file cabinets, pot holders, roller chairs and
metal objects.
<PAGE>
Glass panel doors that reflect or adm
29. Glass panel doors that reflect or admit light into the passageways
or into any place in the building shall not be covered or obstructed by
LESSEE.
30, If LESSEE employs laborers or others outside of the building, LESSEE
SHALL NOT have such employees paid in the building, but shall arrange to
pay their payrolls elsew11ere. JAP:lhd:Y5:04: ll90-01
C-3 of 3
<PAGE>
EXHIBIT 10.4
METROWERKS INC. AND SUBSIDIARIES
401(K) PLAN OF THE COMPANY
METROWERKS CORP.
SUMMARY PLAN DESCRIPTION
TABLE OF CONTENTS
ELIGIBILITY
When Can I Become a Participant in the Plan?
What Are the Eligibility Requirements for Our Plan?
When Is My Entry Date?
Are There Any Employees Who Are Not Eligible?
What Must I do to Enroll in the Plan?
II OPERATION
How Does This Plan Operate?
III CONTRIBUTIONS
How Much of My Pay May the Employer Redirect?
How Is My compensation Measured Under Our Plan?
What Happens to Contributions Made to the Plan?
When Must I Decide Which Accounts I Want to Use?
When Is the "Election Period" for Our Plan? .
May I Change My Elections During the Plan Year?
May I Make New Elections During the Plan Year?
IV BENEFITS
What Benefits Are Available?
V BENEFIT PAYMENTS
When Will I Receive Payments From My Accounts?
What Happens If I Don't Spend All Plan Contributions?
What Happens If I Terminate Employment?
Will My Social Security Benefits Be Affected?
VI HIGHLY COMPENSATED AND KEY EMPLOYEES
Do Limitations Apply to Highly Compensated Employees?
VII PLAN ACCOUNTING
Periodic Statements
VIII GENERAL INFORMATION ABOUT OUR PLAN
General Plan Information
Employer Information
Plan Administrator Information
Service of Legal Process
Type of Administration
IX ADDITIONAL PLAN INFORMATION Your Rights Under ERISA
2. Claims Process
X SUMMARY
<PAGE>
METROWERKS CORP.
CAFETERIA PLAN
INTRODUCTION
We are pleased to announce that we have established a "flexible benefit
plan" for you and other eligible employees. Under this program, you will be able
to choose among certain benefits that we make available. The benefits that you
may choose are outlined in this summary plan description. We will also tell you
about other important information concerning the Plan, such as the rules you
must satisfy before you can join and the laws that protect your rights.
One of the most important features of our Plan is that the benefits being
offered are generally ones that you are already paying for, but normally with
money that has first been subject to income and Social Security taxes. Under our
Plan, these same expenses will be paid for with a portion of your pay before
Federal income or Social Security taxes are withheld. This means that you will
pay less tax and have more money to spend and save.
Read the summary plan description carefully so that you understand the
provisions of our Plan and benefits you will receive. You should direct any
questions you have to the Administrator. There is a plan document on file which
you may review if you desire. In the event there is a conflict between an
insurance contract and either the plan document or this summary plan
description, the insurance contract will control.
I
ELIGIBILITY
1. WHEN CAN I BECOME A PARTICIPANT IN THE PLAN?
Before you become a member or a "participant" in the Plan, there are
certain rules you must satisfy. First, you must meet the "eligibility
requirements". After that, the next step is to actually join the Plan on the
"Entry Date" that we have established for all employees. You will also be
required to complete certain application forms before you can enroll.
2. WHAT ARE THE ELIGIBILITY REQUIREMENTS FOR OUR PLAN?
You will be eligible to join the Plan when you become eligible to receive
medical benefits pursuant to a group medical plan sponsored by the Employer.
3. WHEN IS MY ENTRY DATE?
Once you have met the eligibility requirements, your entry date will be the
first day of the month following the day you meet the eligibility requirements.
1
<PAGE>
4. Are There Any Employees Who Are not Eligible?
Yes, there are certain employees who are not eligible to join the Plan.
They are:
- -- Employees who are not eligible to receive medical benefits under our group
medical plan.
- -- Employees who are part-time. A part-time employee is someone who works, or is
expected to work, less than 20 hours a week.
5. WHAT MUST I DO TO ENROLL IN THE PLAN?
Before you can join the Plan, you must complete an application to
participate in the Plan. The application includes your personal choices for each
of the benefits which are being offered under the Plan. You must authorize us to
set some of your earnings aside in order to pay for the benefits you have
elected.
However, if you are already covered under any of the insured benefits, you
will automatically participate in the Plan to the extent of you premiums unless
during the "election period" you elect not participate in this Plan.
II
OPERATION
1. HOW DOES THIS PLAN OPERATE?
Before the start of each Plan Year, you will be able to elect to have some
of your upcoming pay contributed to the Plan. These amounts will be placed in
special funds or accounts which must be set up for you in order to pay for the
benefits you have chosen. The portion of your pay that is paid to the Plan is
not subject to Federal income or Social Security taxes. In other words, this
allows you to use taxfree dollars to pay for certain kinds of benefits and
expenses which you normally pay for with out-of-pocket, taxable dollars.
However, if you receive a reimbursement for an expense under the Plan, you
cannot claim a Federal income tax or deduction on your return.
III
CONTRIBUTIONS
1. HOW MUCH OF MY PAY MAY THE EMPLOYER REDIRECT?
Each year, for the insured benefits provided under this Plan we will
automatically contribute on your behalf enough of your
2
<PAGE>
compensation to pay for the insurance coverage provided. In addition, you may
elect to pay for the benefits that you elect under the Plan. These amounts will
deducted from your pay each pay period on a pro rata basis over the course of
the year.
HOW IS MY COMPENSATION MEASURED UNDER OUR PLAN?
Compensation under our Plan means the total cash amount that is paid to you
each year.
3. WHAT HAPPEN TO CONTRIBUTIONS MADE TO THE PLAN?
Before each Plan Year begins, you will select the non-insured benefits you
want and how much of the contributions should go toward each benefit.
4. WHEN MUST I DECIDE WHICH ACCOUNTS I WANT USE?
You are required by Federal law to decide before the Plan Year begins,
during the "election period". You must decide two things. First, which benefits
you want and, second, how much should go toward each benefit.
If you are already covered by any of the insured benefits offered by this
Plan, you will automatically become a Participant to the extent to the premiums
for such insurance unless you elect, during the "election period", not to
participate in the Plan.
5. WHEN IS THE "ELECTION PERIOD" FOR OUR PLAN?
Your election period will start on the date you first meet the "eligibility
requirements" and end 30 days after your "entry date." (You should review
Section I on Eligibility to better understand the terms "eligibility
requirements" and "entry date.") Then, for each following Plan Year, the
election period will be the 30 day period prior to the beginning of each Plan
Year. (See the Article entitled "General Information About Our Plan" for the
definition of Plan Year.)
6. MAY I CHANGE MY ELECTIONS DURING THE PLAN YEAR?
Generally, no. You cannot change the elections you have made after the
beginning of the Plan Year. However, there ar certain limited situations when
you can change your elections. You are permitted to change if there is a change
in your family status. Currently, Federal law considers the following events to
be example of a change in family status:
You get married or divorced.
You have a child or adopt one.
Your spouse andtor child(ren) die(s).
3
<PAGE>
Your spouse commences or terminates employment.
You or your spouse's employment status changes from fulltime to part-time or
from part-time to full-time.
You or your spouse take an unpaid leave of absence.
Your spouse has a significant change in health coverage directly attributable to
your spouse's employment.
There may be other events which are considered to be a change in family
status. Also, any election change must be consistent with the reason that such
change was permitted.
If you have a change in family status, you should contact the
Administrator, who will provide you with the required forms for changing your
benefit elections.
In addition, for health insurance premiums being contributed to the Plan,
we will adjust the salary redirection election you have made for the remainder
of the Plan Year if there is a change in the premium expense. If the increase in
premium expense is significant, we will let you either change the salary
redirection election or revoke your election entirely and, in lieu thereof,
elect to receive on a prospective basis, coverage under another health plan with
similar coverage.
7. MAY I MAKE NEW ELECTIONS IN FUTURE PLAN YEARS?
Yes, you may. For each new Plan Year, you may change the elections that you
previously made, You may also choose not to participate in the Plan for the
upcoming Plan Year. However, If you do not change the election already in place
form the previous Plan Year, we will assume you want them to remain the same.
New elections must be made during the "election period" prior to the beginning
of each Plan Year.
IV
BENEFITS
I. WHAT BENEFITS ARE AVAILABLE?
Under our Plan, you can choose to receive you entire compensation in cash
or use a portion to pay for the following benefits or expenses during the year:
Premium Expense Account:
A premium Expense Account allows you to use tax-free dollars to pay for
certain premium expenses under various insurance programs that we offer you.
These premium expenses include:
4
<PAGE>
Health Care premiums under our insured group medical plan.
Group term life insurance premiums.
Dental insurance premiums.
Disability insurance premiums.
Disability insurance premiums under privately held Insurance policies.
Cancer insurance premiums.
Vision insurance premiums.
Accidental death and dismemberment insurance premiums.
Under our Plan, we will establish a sub-account for you for each different
type of insurance coverage that is available. Also, certain limits on the amount
of coverage may apply.
The administrator may terminate or modify Plan benefits at any time,
subject to the provisions of any insurance contracts providing benefits
described above. We will not be liable to you if an insurance company fails to
provide any of the benefits described above. Also, your insurance will end when
you leave employment, are no longer eligible under terms of any insurance
policies, or when insurance coverage terminates.
Any benefits to be provided by insurance will be provided only after (1)
you have provided the Administrator the necessary information to apply for
insurance, and (2) the insurance is in effect for you.
V
BENEFIT
PAYMENTS
WHEN WILL I RECEIVE PAYMENTS FROM MY ACCOUNTS?
During the course of the Plan Year, you may submit requests for
reimbursement of expenses you have incurred. Expenses are considered "incurred"
when the service is performed, not necessarily when it is paid for. The
Administrator will provide you with acceptable forms for submitting these
requests for reimbursement. If the request qualifies as a benefit or expense
that the Plan has agreed to pay, you will receive a reimbursement payment soon
thereafter. Remember, those reimbursements which are made from the Plan are
generally not subject to Social Security taxes. Requests for payment of insured
benefits should be made directly to the insurer.
5
<PAGE>
2. WHAT HAPPENS IF I DON'T SPEND ALL PLAN CONTRIBUTIONS?
Any monies left at the end of the Plan Year will be forfeited. Obviously,
qualifying expenses that you incur late in the Plan Year for which you seek
reimbursement after the end of such Plan Year will be paid first before
reimbursement no later that 60 days after the end of the Plan Year. Because it
is possible that you might forfeit amounts in the Plan if you do not fully use
the contributions that have been made, is important that you decide how much to
place in each account carefully and conservatively. Remember, you must decide
which benefits you want to contribute to and how much to place in each account
before the Plan Year begins. You want to be as certain as you can that the
amount you decide to place in each account will be used up entirely.
3. WHAT HAPPENS IF I TERMINATE EMPLOYMENT?
If you terminate employment during the Plan Year, your right to benefits
will be determined in the following manner:
You will remain covered by insurance, but only for the period for which premiums
have been paid prior to your termination of employment.
Under Federal law, you, your spouse, and your dependents may be entitled to
continuation of health care coverage. The Administrator will inform you of these
rights if you terminate employment. Generally, if we (and any related companies)
employed twenty (20) or more employees "on a typical business day" in the
preceding calendar year, health plan contribution must be made available for a
period not to exceed eighteen (18) months if a loss of benefits occurs because
of your termination of employment or reduction of hours, or for a period not to
exceed three (3) years for any of the other reasons given in (b) and (c) below.
Under certain circumstances, persons who are disabled at the time of termination
of employment or reduction in hours may be eligible for continuation of coverage
for a total of 29 months (rather than 18). You should check with the
administrator for more details regarding this extended coverage. However, in
certain circumstances, this continuation coverage may be terminated for reasons
such as failure to pay contribution coverage cost, coverage under another
employer's plan (whether as an employee or otherwise, provided the other
employer's health plan does not contain any exclusion of limitation with respect
to any pre-existing condition of the beneficiary), termination of our health
plan, or you (or the person entitled to continued coverage) become entitled to
Medicare benefits. However, if you become entitled to Medicare benefits, your
dependents may still qualify for continuation coverage. The cost of continuation
coverage must be paid by the individual choosing such coverage; however, the
cost may not exceed 102% of the cost of the same coverage for a "Similarly
situated" employee or family member. When the continuation coverage for disabled
person is extended from 18 months to 29 months, the disabled person may be
charged 150%
6
<PAGE>
(rather than 102%) of the cost of the coverage after expiration of the initial
18-month period.
(a) If your would otherwise lose your health plan coverage under the Plan
because of a termination of employment or reduction in hours, you may
continue the health plan coverage provided under this Plan. However, this
will not be a tax-deductible expense to you, absent unusual circumstances.
(b) Your spouse may choose continuation coverage for himself or herself if he or
she loses group health coverage for any of the following reasons: (1) your
death; (2) termination of your employment (for reason other than gross
misconduct) or a reduction in your hours of employment; (3) your divorce or
legal separation; or (4) you become eligible for Medicare.
(c) Your dependents children may choose continuation coverage for themselves if
they lose group health coverage for any of the following reasons: (1) death
of a parent; (2) termination of your employment (for reasons other than
gross misconduct) or a reduction in your hours of employment; (3) your
divorce or legal separation; (4) you become eligible for Medicare; or (5)
your dependent ceases to be a dependent child under the Plan.
It is your responsibility to notify the Plan Administrator of a divorce,
legal separation or other change in marital status, change in spouse's address,
or a child losing dependent status under the Plan, within sixty (60) days of the
event. It is our responsibility to notify the Plan Administrator of your death,
termination of employment or reduction in hours, or Medicare eligibility.
4. WILL MY SOCIAL SECURITY BENEFITS BE AFFECTED?
Your Social Security benefits may be slightly reduce because when you
receive tax-free benefits under our Plan, it reduces the amount of contributions
that you make to the Federal Social Security System as well as our contribution
to Social Security on your behalf.
VI
HIGHLY COMPENSATED AND KEY EMPLOYEES
Do Limitations Apply to Highly Compensated Employees?
Under the Internal Revenue Code, "highly compensated employees" and "key
employees" generally are Participants who are officers, shareholders or highly
paid. You will be notified by the Administrator each Plan Year whether you are a
"highly compensated employee" or a "key employee".
7
<PAGE>
If you are within these categories, the amount of contributions and
benefits for you may be limited so that the Plan as a whole does no unfairly
favor those who are highly paid, their spouses or their dependents. Federal tax
laws state that a plan will be considered to unfairly favor the key employees if
they as a group receive more than 25% of all of the non-taxable benefits
provided for under our Plan.
Plan experience will dictate whether contribution limitations on "highly
compensated employees" or "key employee" will apply. You will be notified of
these limitations if you are affected.
VII
PLAN ACCOUNTING
1. PERIODIC STATEMENTS
The Administrator will provide you with a statement of your account
periodically during the Plan Year that shows your account balance. It is
important to read these statements carefully so you understand the balance
remaining to pay for a benefit. Remember you want to spend all the money you
have designated for a particular benefit by the end of the Plan Year.
VIII
GENERAL INFORMATION ABOUT OUR PLAN
This Statement contains certain general information which you may need to
know about the Plan.
1. GENERAL PLAN INFORMATION
Metrowerks Corp. Cafeteria Plan is the name of the Plan.
Your Employer has assigned Plan Number 501 to your Plan.
The provisions of the Plan become effective on JANUARY 1, 1996, which is
carried the Effective Date of the Plan.
Your Plan's records are maintained on a twelve-month period of time. This
is known as the Plan Year. The Plan Year begins on JANUARY 1ST and ends on
DECEMBER 31ST.
2. EMPLOYER INFORMATION
Your Employer's name, address, and identification number are:
METROWERKS CORP. 3925 W. BRAKER LANE, SUITE 310 AUSTIN, TEXAS 78759 74-2711165
8
<PAGE>
3. PLAN ADMINISTRATOR INFORMATION
The name, address and business telephone number of your Plan's
Administrator are:
METROWERKS CORP. 3925 W. BRAKER LANE, SUITE 310 AUSTIN, TEXAS 78759 512-305-0460
The Administrator keeps the records for the Plan and is responsible for the
administration of the Plan. The Administrator will also answer any questions you
may have about our Plan. You may contact the Administrator for any further
information about the Plan.
4. SERVICE OF LEGAL PROCESS
The name and address of the Plan's agent for service of legal process are:
METROWERKS CORP. 3925 W. BRAXER LANE, SUITE 310 AUSTIN, TEXAS 78759
5. TYPE OF ADMINISTRATION
The type of Administration is Employer Administration.
IX
ADDITIONAL PLAN INFORMATION
YOUR RIGHTS UNDER ERISA
Plan participants, eligible employees and all other employees of the
Employer may be entitled to certain rights and protections under the Employee
Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code.
These laws provide that participants, eligible employees and all other employees
are entitled to:
(a) examine without charge, at the Administrator's office, all Plan documents,
and copies of all documents filed by the Plan with the U.S. Department of
Labor, such as detailed annual reports and Plan descriptions; and
(b) obtain copies of all Plan documents and other Plan information upon request
to the Administrator. The Administrator may charge a reasonable fee for the
copies.
In addition to creating rights for Plan participants, ERISA imposes duties
upon the people who are responsible for the operation
9
<PAGE>
of an employee benefit plan. The people who operate your Plan, called
"fiduciaries" of the Plan, have a duty to do so prudently and in the best
interest of you and other Plan participants.
No one, including your employer or any other person, may fire you or
otherwise discriminate against you in any way to prevent you from obtaining a
benefit or exercising your rights under ERISA.
If your claim for a benefit is denied in whole or in part, you must receive
a written explanation of the reason for the denial. You have the right to have
your claim reviewed and reconsidered.
Under ERISA there are steps you can take to enforce the above rights. For
instance, if you request materials from the Plan and do not receive them within
thirty (30) days, you may file suit in a Federal court. In such a case, the
court may request the Administrator to provide the materials and pay you up to
$100 a day until you receive the materials, unless the materials were not sent
because of reasons beyond the control of the Administrator. If you have a claim
for benefits which is denied or ignored, in whole or in part, you may file suit
in a state or Federal court.
If it should happen that Plan fiduciaries misuse the Plan's money, or if
your are discriminated against for asserting your rights, you may seek
assistance from the U. S. Department of Labor, or you may file suit in a Federal
court. The court will decide who should pay court costs and legal fees. If you
are successful, the court may order the person you have sued to pay these costs
and fees. If you lose, the court may order you to pay these costs and fees; for
example, if it finds your claim is frivolous.
2. CLAIMS PROCESS
You should submit reimbursement claims during the Plan Year, but in no
event later than 60 days after the end of a Plan Year. Any claims submitted
after that time will not be considered. Claims for benefits that are insured
will be reviewed in accordance with procedures contained in the policies. All
other general claims or requests should be directed to the Administrator of our
Plan. If a non-insured claim under the Plan is denied in whole or in part, you
or your beneficiary will receive written notification. The notification will
include the reasons for the denial, with reference to the specific provisions of
the Plan on which the denial was based, a description of any additional
information needed to process the claim and an explanation of the claims review
procedure. If we fail to respond within 90 days, your claim is treated as
denied. Within 60 days after denial, you or your beneficiary may submit a
written request for reconsideration of the application to the Administrator.
Any such request should be accompanied by documents or records in support
of your appeal. Your or your beneficiary may review pertinent documents and
submit issues and comments in writing.
10
<PAGE>
The Administrator will review the claim and provide, within 60 days, a written
response to the appeal. (This period may be extended an additional 60 days under
certain circumstances.) In this response, the Administrator will explain the
reason for the decision, with specific reference to the provisions of the Plan
on which the decision is based. The Administrator has the exclusive right to
interpret the appropriate plan provisions. Decisions of the Administrator are
conclusive and binding.
X
SUMMARY
The money you earn is important to you and your family. You need it to pay
your bills, enjoy recreational activities and save for the future. Our flexible
benefits plan will help you keep more of the money you earn by lowering the
amount of taxes you pay. The Plan is the result of our continuing efforts to
find ways to help you get the most for your earnings.
If you have any questions, please contact the Administrator.
11
<PAGE>
EXHIBIT 11
Metrowerks Inc. and Subsidiaries
Earnings per share calculation
(U.S. 000's, except per share amounts)
Year ended July 31,
1995 1996 1997
---- ---- ----
Basic earnings per share
- ------------------------
Net income (loss) for the year $ 254 $ 105 $ (5,975)
------ ------- -------
Weighted Average number of Common Shares
issued and outstanding (a) 7,956 10,620 11,523
------ ------- -------
Basic Earnings (loss) per Common and Common
equivalent share $ 0.03 $ 0.01 $ (0.52)
------ ------- -------
(a) Weighted average number of Common Shares is calculated based on the number
of days outstanding during the year.
(b) For the period ended July 31, 1997, fully diluted loss per share is not
presented as the amount equal to basic loss per share since stock options
are excluded as their inclusion would be anti-dilutive.
<PAGE>
EXHIBIT 21
Metrowerks Inc. and Subsidiaries
List of Subsidiaries
<TABLE>
<CAPTION>
Name Type Description
- ---- ---- -----------
<S> <C> <C>
Metrowerks Corporation Wholly-owned Texas Corporation, formed June 1994
Metrowerks Co., Ltd. Wholly-owned Japanese Corporation, formed October 1996
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS ON PAGES
F-3 AND F-4 OF THE COMPANY'S FORM 10-K ANNUAL REPORT FOR THE YEAR ENDING JULY
31, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON ????? AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 1,789
<SECURITIES> 3,253
<RECEIVABLES> 5,102
<ALLOWANCES> (75)
<INVENTORY> 302
<CURRENT-ASSETS> 11,122
<PP&E> 4,781
<DEPRECIATION> (1,735)
<TOTAL-ASSETS> 14,168
<CURRENT-LIABILITIES> 3,606
<BONDS> 0
0
0
<COMMON> 17,596
<OTHER-SE> (7,034)
<TOTAL-LIABILITY-AND-EQUITY> 14,168
<SALES> 13,578
<TOTAL-REVENUES> 18,293
<CGS> 4,563
<TOTAL-COSTS> 4,563
<OTHER-EXPENSES> 6,486
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,975)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,975)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
