<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 14, 1999.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
Form F-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
Pivotal Corporation
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
BRITISH COLUMBIA, CANADA 7372 NOT APPLICABLE
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
NORMAN B. FRANCIS
VINCENT D. MIFSUD
300 - 224 WEST ESPLANADE, NORTH VANCOUVER, BRITISH COLUMBIA, CANADA V7M 3M6
(604) 988-9982
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
CT CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NEW YORK 10019
(212) 664-1666
(Name, address, including zip code, and telephone number, including area code of
agent for service)
------------------------------------
COPIES TO:
<TABLE>
<S> <C> <C> <C>
CHRISTOPHER J. BARRY ALBERT J. HUDEC GAVIN B. GROVER CHRISTOPHER A. HEWAT
BRIGID CONYBEARE BRITTON ROBERT B. SWIFT PETER E. WILLIAMS III GEOFFREY S. BELSHER
DORSEY & WHITNEY LLP DAVIS & COMPANY MORRISON & FOERSTER LLP BLAKE, CASSELS & GRAYDON
U.S. BANK BUILDING CENTRE, 2800-666 BURRARD STREET 425 MARKET STREET BOX 25, COMMERCE COURT WEST
SUITE 4200 VANCOUVER, BRITISH COLUMBIA SAN FRANCISCO, CALIFORNIA TORONTO, ONTARIO
1420 FIFTH AVENUE CANADA V6C 2Z7 94105-2482 CANADA M5L 1A9
SEATTLE, WASHINGTON 98101 (604) 687-9444 (415) 268-7000 (416) 863-2400
(206) 903-8800
</TABLE>
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE OFFERING PRICE (1)(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares, without par
value.............. 4,025,000 shares $14.00 $56,350,000 $15,665
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 525,000 common shares to be sold upon exercise of the underwriters'
over-allotment option, as well as all common shares initially offered and
sold outside the United States that may be resold from time to time in the
United States. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 14, 1999
PROSPECTUS
3,500,000 SHARES
LOGO
COMMON SHARES
------------------------
This is Pivotal's initial public offering of common shares. The
underwriters will offer 3,500,000 common shares in the United States and British
Columbia, Canada. This is a firm commitment underwriting.
We expect the public offering price to be between $12.00 and $14.00 per
common share. Currently, no public market exists for the shares. After pricing
of the offering, we expect that the common shares will trade on the Nasdaq
National Market under the symbol "PVTL."
INVESTING IN THE COMMON SHARES INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price...................................... $ $
Underwriting discount...................................... $ $
Proceeds, before expenses, to Pivotal...................... $ $
</TABLE>
The underwriters may also purchase up to an additional 525,000 common
shares at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER
INCORPORATED
------------------------
The date of this prospectus is , 1999.
<PAGE> 3
[INSIDE FRONT COVER]
[PIVOTAL LOGO]
Pivotal enables business to increase revenues, by better managing
relationships with customers and partners in the selling process.
Ten pictured in the visual encircling text.
Text
Making customers everybody's business.
[INSIDE PULL-OUT]
[ARTWORK - INTERACTIVE SELLING NETWORK]
DESCRIPTION
Conceptual overview of the Pivotal 360 degree customer relationship management
solution. Includes visual representation of Pivotal Relationship 99, depicting
the automation and unification of sales, marketing and customer service
employees via a shared database and of sales, and customer service. Pivotal
eRelationship PartnerHub and Pivotal eRelationship CustomerHub, depicting the
collaboration and sharing of information between employees and partners and
employees and customers via the Internet. Three groups of figures: (i) Partners
in the selling process; (ii) sales, marketing and customer service; and (iii)
mobile sales, online prospects and online self-serve customers. All will include
accompanying text to explain a relevant component of the solution.
TEXT
Will include the following:
- HEADING - Pivotal 360(Degree) Customer Relationship Management
- COPY - Four blocks:
PIVOTAL'S GLOBAL SOLUTION
- Our 360 degree Customer Relationship Management(TM) solution
includes Pivotal Relationship(TM), a software product that
automates and unifies the internal marketing, sales, and
customer service functions within a business, and Pivotal
eRelationship(TM), our Internet application that simplifies
collaboration and sharing of information with customers and
partners in the selling process.
PIVOTAL eRELATIONSHIP(TM) PARTNERHUB(TM)
- Enables sharing of information and collaboration over the
Internet among employees and partners to address customer needs
and concerns.
PIVOTAL RELATIONSHIP(TM) 99
- Employees can collaborate and share information to allow better
management of customer relationships.
PIVOTAL eRELATIONSHIP(TM) CUSTOMERHUB(TM)
- Enables businesses to transform their Web site into a
collaborative tool used to service and sell to customers.
[INSIDE BACK COVER]
Pivotal's Industry Recognition
Pivotal has been widely recognized as a leader and innovator
in the Customer Relationship Management industry.
Product Awards with logos of sponsors:
<TABLE>
<S> <C> <C>
Information Systems Marketing February 1999 Top 15 CRM Software Award
December 1997 Top 15 CRM Software Award
December 1996 Top 15 CRM Software Award
Information Week February 1999 IT Innovators for 1999
Microsoft December 1998 Industry Solutions Award for 1998 -- Best Overall
Customer Relationship Management Solution
December 1997 Industry Solution Awards -- Best Mobile Sales
Solution
May 1997 Solutions Provider Awards -- Best Solution by a
Solution Provider
Open Systems Advisors January 1999 Crossroads 99 A-List Award
Technology Industry Association June 1998 Excellence in Product Innovation
- --------------------------------------------------------------------------------------------------------
</TABLE>
[PIVOTAL LOGO]
Making Customers Everybody's Business
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Forward-Looking Statements.................................. 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 31
Management.................................................. 44
Transactions Between Pivotal and its Officers, Directors or
Significant Shareholders.................................. 51
Principal Shareholders...................................... 52
Description of Share Capital................................ 54
Shares Eligible for Future Sale............................. 56
Income Tax Consequences..................................... 58
Underwriting................................................ 62
Legal Matters............................................... 65
Experts..................................................... 65
Where You Can Find More Information......................... 65
Index to Financial Statements............................... F-1
</TABLE>
------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
------------------------
"Pivotal Relationship," "Pivotal Place," "Pivotal (design format),"
"LetterExpress" and "Pivotal Development Solutions" are registered trademarks of
Pivotal in the United States. Some of these marks are also registered trademarks
of Pivotal in Canada and the United Kingdom. We have applied for registration of
the trademarks "Pivotal," "Pivotal eRelationship (design format)," "Pivotal
eRelationship," "CustomerHub," "PartnerHub," "IntraHub," "SyncStream" and
"Planet CRM" in the United States. The "Pivotal" trademark application has been
published, a statement of use filed and we expect to receive the registration
certificate shortly. We have also applied for registration of the "Pivotal" and
"Pivotal Relationship" trademarks in Japan and the European Community. All other
trademarks or service marks appearing in this prospectus are trademarks or
service marks of the companies that use them.
------------------------
Unless otherwise indicated, all references to "$" or dollars in this
prospectus refer to United States dollars and all references to "Cdn.$" refer to
Canadian dollars. As of July 13, 1999, the noon buying rate in New York City for
cable transfers in Canadian dollars was U.S.$1.00 = Cdn.$.6744.
<PAGE> 5
The following table sets forth, for each period presented, the high and low
exchange rates, the average of the exchange rates on the last day of each month
during the period indicated, and the exchange rates at the end of the period
indicated for one Canadian dollar, expressed in United States dollars, based on
the noon buying rate in New York City for cable transfers payable in Canadian
dollars as certified for customs purposes by the Federal Reserve Bank of New
York.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
End of period...................................... .6787 .6798 .7241 .7322 .7279
Average for the period............................. .6612 .7028 .7308 .7349 .7258
High for the period................................ .6891 .7292 .7513 .7527 .7457
Low for the period................................. .6341 .6784 .7145 .7235 .7023
</TABLE>
<PAGE> 6
PROSPECTUS SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire prospectus, including the financial data and
related notes, before making an investment decision.
PIVOTAL
We are a leading provider of customer relationship management solutions
that enable businesses to increase revenues by more effectively managing their
interactions with customers and partners in the selling process. Our "360
degrees Customer Relationship Management" solution includes corporate network-
and Internet-based applications supported by an array of professional services
and our global network of partners which we call the Pivotal Alliance. This
solution includes our Pivotal Relationship software product, that automates and
unifies the internal sales, marketing and customer service functions within a
business, and our recently introduced Internet application, Pivotal
eRelationship, that simplifies the collaboration and sharing of information with
customers and partners that are external to the business. Our products have won
numerous awards including Microsoft's Industry Solutions Award for Best Overall
Customer Management Solution in December 1998.
The businesses we serve have recognized the value of improving their
customer focus in order to increase revenues. Until recently, most customer
relationship management software applications were designed primarily to address
the needs of employees in large enterprises and were often considered too costly
for most other businesses. To compete against larger organizations and to
maintain the same or higher levels of customer service as their larger
competitors, many mid-size businesses and divisions of large businesses have
adopted business models that require close integration and collaboration with
their customers and partners. As a result, many of these businesses are now
seeking customer relationship management solutions that integrate software
applications used to automate internal functions with Internet applications used
to collaborate and share information with their customers and partners, and that
can be implemented rapidly and cost effectively. AMR Research estimates that
worldwide customer relationship management license revenues will grow at a
compound rate of 58% for the five year period from 1997 to 2002 to approximately
$7.5 billion by 2002.
We offer a comprehensive customer relationship management solution that
includes our award-winning Pivotal Relationship and Pivotal eRelationship
products. These products are fully integrated with one another and rely on a
shared database that contains all information about interactions with customers.
Our Pivotal Relationship product enables businesses to improve customer
relationships by capturing information regarding customer interactions and by
helping sales, marketing and customer service employees share this information
and collaborate to meet customer needs. Our Internet-based product family,
Pivotal eRelationship is comprised of two separate products:
- Pivotal eRelationship CustomerHub aids in the conversion of an existing
Web site from an information site to a collaborative tool for customer
self-service and for interacting and communicating with existing and
prospective customers.
- Pivotal eRelationship PartnerHub improves selling processes and
efficiency by enabling businesses and their partners to share information
related to sales opportunities, co-marketing projects, sales order status
and customer service inquiries.
We have designed and optimized our solution exclusively for the Internet,
Microsoft Windows NT and Microsoft BackOffice platforms to take advantage of
their lower cost and widespread adoption by many businesses. Our solution also
enables mobile professionals to increase their efficiency by remotely accessing
the shared database using portable and palm computers.
1
<PAGE> 7
Our goal is to become a leading global provider of electronic business
solutions which combine customer relationship management and electronic commerce
solutions. To achieve this goal we intend to:
- extend the scope of our applications with a focus on our Internet-based
applications, including additional electronic commerce features,
- expand our worldwide distribution capacity,
- broaden our network of strategic relationships,
- continue focusing on our customers' success, and
- offer an alternative licensing arrangement through third parties, called
application service providers, that will enable customers to pay a usage
fee to access our software on servers operated and maintained by the
application service providers.
We sell our software products and services through a direct sales force and
a global network of resellers. We provide support for our customers through our
professional services organization and our Pivotal Alliance of over 95
independent companies that sell, install and service our products and offer
specialized software for use with them. In 1998, we co-founded the Enterprise
360 consortium with KPMG, Microsoft and Hewlett-Packard, to provide
comprehensive customer relationship management solutions. We have licensed our
applications on a global basis to over 540 customers across a wide range of
industries, including technology, manufacturing, health care, consulting,
financial services and telecommunications.
Pivotal Corporation was incorporated in British Columbia in 1990 under the
name Pen Magic Software Corporation. We changed our name to PenMagic Software
Inc. in 1991. In 1995, we changed our name to Pivotal Software Inc. and in June
1999 we changed our name to Pivotal Corporation. The terms "Pivotal," "our
company" and "we" in this prospectus refer to Pivotal Corporation, Pivotal
Software USA, Inc., its wholly owned subsidiary incorporated in Washington, and
Pivotal Software Limited, its wholly owned subsidiary incorporated in the United
Kingdom, collectively.
Our head office address is 300 - 224 West Esplanade, North Vancouver,
British Columbia and our telephone number is (604) 988-9982. We maintain a World
Wide Web site address at www.pivotal.com. Information on our Web site is not
part of this prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common shares offered.............................. 3,500,000 shares
Common shares to be outstanding after this 19,483,123 shares
offering.........................................
Use of proceeds.................................... We intend to use the offering proceeds for
working capital and general corporate
purposes.
Proposed Nasdaq National Market symbol............. PVTL
</TABLE>
- ---------------
Unless otherwise indicated, the information in this prospectus assumes:
- the underwriters have not exercised their over-allotment option;
- the conversion of all of our outstanding redeemable convertible preferred
shares and all of our outstanding Class A convertible preferred shares
into common shares; and
- the exchange of all our outstanding Class B common shares for common
shares.
2
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues................................ $ 80 $ 399 $ 3,506 $14,209 $25,327
Gross profit............................ 73 397 2,998 12,527 21,713
Loss from operations.................... (811) (1,346) (1,536) (122) (2,541)
Net income (loss)....................... $ (792) $(1,261) $(1,394) $ 4 $(2,808)
Basic and diluted earnings (loss) per
share................................. $(0.24) $ (0.37) $ (0.41) $ -- $ (0.72)
Pro forma basic and diluted loss per
share(1).............................. $ (0.18)
Shares used to calculate earnings (loss)
per share:
Basic................................. 3,348 3,372 3,393 3,720 3,888
Diluted............................... 3,348 3,372 3,393 14,927 3,888
Pro forma basic and diluted........... 15,940
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-------------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(1) ADJUSTED(1)(2)
------- -------- --------------
CONSOLIDATED BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 9,338 $ 9,338 $50,873
Working capital........................................... 7,257 7,257 48,792
Total assets.............................................. 21,722 21,722 63,257
Long-term obligations..................................... -- -- --
Redeemable convertible preferred shares................... 17,500 -- --
Total shareholders' equity (deficit)...................... (7,192) 10,308 51,843
</TABLE>
- ---------------
(1) Pro forma to give effect to the (a) exchange of all our outstanding Class B
common shares for common shares and (b) conversion of all of our redeemable
convertible preferred shares and all of our Class A convertible preferred
shares into common shares.
(2) As adjusted to reflect the estimated net proceeds from the sale of common
shares we are offering in this prospectus at an assumed initial public
offering price of $13.00 per share, after deducting underwriting discounts
and commissions and estimated offering expenses. See "Use of Proceeds,"
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
3
<PAGE> 9
RISK FACTORS
Investing in our common shares will provide you with an equity ownership
interest in Pivotal. As a Pivotal shareholder, you will be subject to risks
inherent in our business. You should carefully consider the following factors as
well as other information contained in this prospectus before deciding to invest
in our common shares. If any of the risks described below occurs, our business,
results of operation and financial condition could be adversely affected. In
such cases, the price of our common shares could decline, and you may lose part
or all of your investment.
FACTORS RELATING TO OUR BUSINESS AND THE MARKET FOR CUSTOMER RELATIONSHIP
MANAGEMENT SOLUTIONS MAKE OUR FUTURE OPERATING RESULTS UNCERTAIN, AND MAY CAUSE
THEM TO FLUCTUATE FROM PERIOD TO PERIOD.
Our operating results have varied in the past, and we expect that they may
continue to fluctuate in the future. In addition, our operating results may not
follow any past trends. Some of the factors that could affect the amount and
timing of our revenues from software licenses and related expenses and cause our
operating results to fluctuate include:
- market acceptance of our products, particularly our new Pivotal
eRelationship product;
- the length and variability of the sales cycle for our products, which
typically ranges between two and six months from our initial contact
with a potential customer to the signing of a license agreement;
- the timing of customer orders, which can be affected by customer order
deferrals in anticipation of new product introductions, product
enhancements, concerns about Year 2000 issues, and customer budgeting
and purchasing cycles;
- our ability to successfully expand our sales force and marketing
programs;
- our ability to successfully expand our international operations;
- the introduction or enhancement of our products or our competitors'
products;
- changes in our or our competitors' pricing policies;
- our ability to develop, introduce and market new products on a timely
basis; and
- general economic conditions, which may affect our customers' capital
investment levels in management information systems.
Our product revenues are not predictable with any significant degree of
certainty and future product revenues may differ from historical patterns.
Historically, we have recognized a substantial portion of our revenues in the
last month of a quarter. If customers cancel or delay orders, it can have a
material adverse impact on our revenues and results of operations from quarter
to quarter. Because our results of operations may fluctuate from quarter to
quarter, you should not assume that you can predict results of operations in
future periods based on results of operations in past periods.
Even though our revenues are difficult to predict, we base our expense
levels in part on future revenue projections. Many of our expenses are fixed,
and we cannot quickly reduce spending if revenues are lower than expected. This
could result in significantly lower income or greater loss than we anticipate
for any given period.
WE EXPECT SEASONAL TRENDS TO CAUSE OUR QUARTERLY REVENUES TO FLUCTUATE, AND IN
RECENT YEARS OUR REVENUES FOR THE FOURTH QUARTER OF OUR FISCAL YEAR HAVE
EXCEEDED THE REVENUES FOR THE FOLLOWING QUARTER.
We have experienced, and expect to continue to experience, seasonality with
respect to product license revenues. In recent years, we have experienced
relatively greater revenues from licenses in the fourth quarter of our fiscal
year, which ends June 30th, than in each of the first three quarters,
particularly the first quarter. We have historically recognized more license
revenues in the fourth quarter of our fiscal year and recognized less license
revenues in the subsequent first quarter. We believe that these fluctuations
4
<PAGE> 10
are caused in part by customer buying patterns and the efforts of our direct
sales force to meet or exceed fiscal year-end quotas. In addition, our sales in
Europe are generally lower during the summer months than during other periods.
We expect that these seasonal trends are likely to continue in the future.
In particular, these factors could cause revenues for our quarter ending
September 30, 1999 to be less than revenues for the quarter ended June 30, 1999.
If revenues for a quarter ending September 30 are lower than the revenues for
the prior quarter, it may be hard to determine whether the reason for the
reduction in revenues involves seasonal trends or other factors adversely
affecting our business.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT HOW OUR BUSINESS
WILL DEVELOP AND OUR FUTURE OPERATING RESULTS.
We commenced operations in January 1991. We initially focused on the
development of application software for pen computers. In September 1994, we
changed our focus to research and development of customer relationship
management software. We commercially released the initial version of our
principal product, Pivotal Relationship, in April 1996. We commercially released
the initial version of Pivotal eRelationship in February 1999. We have a limited
operating history, and we face many of the risks and uncertainties encountered
by early-stage companies in rapidly evolving markets.
These risks and uncertainties include:
- no history of profitable operations;
- uncertain market acceptance of our products;
- our reliance on a limited number of products;
- the risks that competition, technological change or evolving customer
preferences could adversely affect sales of our products;
- the need to expand our sales and support capabilities;
- our reliance on third parties to market, install, and support our
products;
- our dependence on a limited number of key personnel, including our
co-founders; and
- the risk that our management will not be able to effectively manage
growth or any acquisition we may undertake.
The new and evolving nature of the customer relationship management market
increases these risks and uncertainties. Our limited operating history makes it
difficult to predict how our business will develop and our future operating
results.
WE HAVE A HISTORY OF LOSSES, WE MAY INCUR LOSSES IN THE FUTURE AND OUR LOSSES
MAY INCREASE BECAUSE OF OUR PLAN TO INCREASE OPERATING EXPENSES.
We have incurred net losses in each fiscal year since inception, except for
the year ended June 30, 1998, in which we had net income of approximately
$4,000. In the year ended June 30, 1999, we had a net loss of approximately $2.8
million, and at June 30, 1999, we had an accumulated deficit of approximately
$7.4 million. We have increased our operating expenses in recent periods and
plan further increases in the future. Our planned increases in operating
expenses may result in larger losses in future periods. As a result, we will
need to generate significantly greater revenues than we have to date to achieve
and maintain profitability. We cannot assure you that our revenues will
increase. Our business strategies may not be successful, and we may not be
profitable in any future period.
THE MARKET FOR OUR PRODUCTS IS HIGHLY COMPETITIVE.
The market for our software is intensely competitive, fragmented and
rapidly changing. We face competition from companies in two distinct markets,
the customer relationship management software market and the electronic commerce
software market. See "Business -- Competition."
5
<PAGE> 11
It is also possible that Microsoft Corporation may decide to introduce
products that compete with ours.
In addition, as we develop new products, particularly applications focused
on electronic commerce or specific industries, we may begin competing with
companies with whom we have not previously competed. It is also possible that
new competitors will enter the market or that our competitors will form
alliances that may enable them to rapidly increase their market share.
Some of our actual and potential competitors are larger, better established
companies and have greater technical, financial and marketing resources.
Increased competition may result in price reductions, lower gross margins or
loss of our market share, any of which could materially adversely affect our
business, financial condition and operating results.
WE DEPEND ON MICROSOFT AND THE CONTINUED ADOPTION AND PERFORMANCE OF THE
MICROSOFT WINDOWS NT AND MICROSOFT BACKOFFICE PLATFORMS.
We have designed our products to operate on the Microsoft Windows NT and
Microsoft BackOffice platforms. As a result, we market our products exclusively
to customers who have developed their computing systems around these platforms.
Our future financial performance will depend on continued growth in the number
of businesses that successfully adopt the Microsoft Windows NT and Microsoft
BackOffice computing platforms. The market for customer relationship management
systems is highly competitive. The Microsoft Windows NT and Microsoft BackOffice
computing platforms face increasing competition, particularly from platforms
such as Unix and Linux, databases from companies such as Oracle and Internet
server software from companies such as Netscape. Acceptance of the Microsoft
Windows NT and Microsoft BackOffice platforms may not continue to increase in
the future. The market for software applications that run on these platforms has
in the past been significantly affected by the timing of new product releases,
competitive operating systems and enhancements to competing computing platforms.
If the number of businesses that adopt Microsoft Windows NT and Microsoft
BackOffice fails to grow or grows more slowly than we currently expect, or if
Microsoft delays the release of new or enhanced products, our revenues from
Pivotal Relationship and Pivotal eRelationship could be adversely affected.
The performance of our products depends, to some extent, on the technical
capabilities of the Microsoft Windows NT and Microsoft BackOffice platforms. If
these platforms do not meet the technical demands of our products, the
performance or scalability of our products could be limited and, as a result,
our revenues from Pivotal Relationship and Pivotal eRelationship could be
adversely affected.
Federal and state regulatory authorities have recently initiated broad
antitrust actions against Microsoft. Any outcome to these actions that weakens
the competitive position of Microsoft Windows NT or Microsoft BackOffice would
adversely affect the market for our products.
THE MARKET FOR OUR SOLUTIONS IS NEW AND HIGHLY UNCERTAIN, AND OUR PLAN TO FOCUS
ON INTERNET-BASED APPLICATIONS AND INTEGRATE ELECTRONIC COMMERCE FEATURES ADDS
TO THIS UNCERTAINTY.
The market for customer relationship management software is still emerging
and continued growth in demand for and acceptance of customer relationship
management products remains uncertain. Even if the market for customer
relationship management software grows, businesses may purchase our competitors'
products or develop their own. We believe that many of our potential customers
are not fully aware of the benefits of customer relationship management
solutions, and as a result, these solutions may never achieve full market
acceptance.
The development of our Internet-based Pivotal eRelationship applications
for customer relationship management and our plan to integrate additional
electronic commerce features with Pivotal eRelationship present additional
challenges and uncertainties. We are uncertain how businesses will use the
Internet as a means of communication and commerce and whether a significant
market will develop for Internet-based customer relationship management
applications such as Pivotal eRelationship. The use of the Internet is
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<PAGE> 12
evolving rapidly, and many companies are developing new products and services
that use the Internet. We do not know what forms of products and services may
emerge as alternatives to our existing products or to any future Internet-based
or electronic commerce features and services we may introduce. We have spent,
and will continue to spend, considerable resources educating potential customers
about our products and customer relationship management software solutions in
general. However, even with these educational efforts, market acceptance of our
products may not increase. If the markets for our products do not grow or grow
more slowly than we currently anticipate, our business, financial condition and
operating results could be materially adversely affected.
OUR SUCCESS WILL DEPEND ON THE SUCCESS OF OUR TWO RELATED PRODUCTS, PIVOTAL
RELATIONSHIP AND PIVOTAL ERELATIONSHIP.
We anticipate that virtually all of our revenues and growth in the
foreseeable future will come from sales of Pivotal Relationship and Pivotal
eRelationship product licenses and related services. Accordingly, failure of
either of these products to gain increased market acceptance and compete
successfully would adversely affect our business, results of operations and
financial condition. Pivotal Relationship accounted for 97% of our revenues from
licences for the year ended June 30, 1999. Our future financial performance will
depend on our ability to succeed in the continued sale of licenses of Pivotal
Relationship and related services as well as the development of new versions and
enhancements of the product.
In February 1999, we introduced Pivotal eRelationship, and sold licenses
for Pivotal eRelationship to 22 customers in the year ended June 30, 1999. We
intend to continue to invest heavily in research and development and sales and
marketing activities related to Pivotal eRelationship. It is uncertain whether
we will recognize significant revenues from Pivotal eRelationship. See
"Business -- Products and Services."
THE SUCCESS OF PIVOTAL ERELATIONSHIP WILL DEPEND ON THE CONTINUED USE AND
EXPANSION OF THE INTERNET.
Increased sales of Pivotal eRelationship, and any future Internet-based
applications and electronic commerce features we integrate with it, will depend
upon the expansion of the Internet as a leading platform for commerce and
communication. If the Internet does not continue to become a widespread
communications medium and commercial marketplace, the demand for Pivotal
eRelationship could be significantly reduced, and Pivotal eRelationship and any
future Internet-based and electronic commerce features may not be commercially
successful. The Internet infrastructure may not be able to support the demands
placed on it by continued growth. The Internet could lose its viability due to
delays in the development or adoption of new equipment, standards and protocols
to handle increased levels of Internet activity, security, reliability, cost,
ease of use, accessibility and quality of service.
Other concerns that could inhibit the growth of the Internet and its use by
business as a medium for communication and commerce include:
- concerns about security of transactions conducted over the Internet;
- concerns about privacy and the use of data collected and stored recording
interactions over the Internet;
- the possibility that federal, state, local or foreign governments will
adopt laws or regulations limiting the use of the Internet or the use of
information collected from communications or transactions over the
Internet; and
- the possibility that governments will seek to tax Internet commerce.
OUR FUTURE REVENUE GROWTH COULD BE IMPAIRED IF WE ARE UNABLE TO EXPAND OUR
DIRECT SALES AND SUPPORT INFRASTRUCTURE.
Our future revenue growth will depend in large part on our ability to
successfully expand our direct sales force and our customer support capability.
We may not be able to successfully manage the expansion of these functions or to
recruit and train additional direct sales, consulting and customer support
personnel.
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<PAGE> 13
There is presently a shortage of qualified personnel to fill these positions. If
we are unable to hire and retain additional highly skilled direct sales
personnel, we may not be able to increase our license revenue to the extent
necessary to achieve profitability. If we are unable to hire highly trained
consulting and customer support personnel we may be unable to meet customer
demands. We are not likely to be able to increase our revenues as we plan if we
fail to expand our direct sales force or our consulting and customer support
staff. Even if we are successful in expanding our direct sales force and
customer support capability, the expansion may not result in revenue growth.
WE RELY ON OUR PIVOTAL ALLIANCE NETWORK OF INDEPENDENT COMPANIES TO SELL,
INSTALL AND SERVICE OUR PRODUCTS AND TO PROVIDE SPECIALIZED SOFTWARE FOR USE
WITH THEM.
We do not have the internal implementation and customization capability to
support our current level of sales of licenses. Accordingly, we have established
and relied on our international network of independent companies we call the
Pivotal Alliance. Members of the Pivotal Alliance market and sell our products,
provide implementation and customization services, provide technical support and
maintenance on a continuing basis and provide us with software applications that
we can bundle with our solutions to address specific industry and customer
requirements. Approximately 28% of our revenues for the year ended June 30, 1999
were from sales made through third-party resellers. Almost all of our customers
retain members of the Pivotal Alliance to install and customize our products. If
we fail to maintain our existing Pivotal Alliance relationships, or to establish
new relationships, or if existing or new members of the Pivotal Alliance do not
perform to our expectations, our ability to sell, install and service our
products may suffer.
There is an industry trend toward consolidation of systems integrators that
implement, customize and maintain software solutions. Some of the systems
integrators in the Pivotal Alliance have engaged in discussions concerning
business consolidations. We are uncertain as to the effect that any
consolidation may have on our relationships with members of the Pivotal
Alliance.
Enterprise 360 is a consortium founded in 1998 to integrate and promote our
products as part of a turnkey customer relationship management solution. The
terms of our relationship with the members of the consortium have not been
formalized and are subject to change, and any of the members may withdraw at any
time. We have not generated a significant amount of revenues through this
relationship and do not know whether it will be successful. See "Business --
Strategic Relationships."
THE LOSS OF OUR CO-FOUNDERS OR OTHER KEY PERSONNEL OR OUR FAILURE TO ATTRACT AND
RETAIN ADDITIONAL PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS.
Our success depends largely upon the continued service of our executive
officers and other key management, sales and marketing and technical personnel.
The loss of the services of one or more of our executive officers or other key
employees could have a material adverse effect on our business, results of
operations and financial condition. In particular, we rely on our co-founders,
Norman Francis, President, Chief Executive Officer and director, and Keith
Wales, our Chief Technical Officer, Vice-President, Research and Development and
director. Messrs. Francis and Wales do not have employment agreements and,
therefore, could terminate their employment with us at any time without penalty.
We have key man insurance on the lives of Messrs. Francis and Wales in the
amount of Cdn.$1,000,000 each. However, this insurance would not sufficiently
compensate us for the loss of services of either Mr. Francis or Mr. Wales.
Our future success also depends on our ability to attract and retain highly
qualified personnel. The competition for qualified personnel in the computer
software and Internet markets is intense, and we may be unable to attract or
retain highly qualified personnel in the future. In addition, due to intense
competition for qualified employees, it may be necessary for us to increase the
level of compensation paid to existing and new employees to the degree that our
operating expenses could be materially increased. See "Management."
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<PAGE> 14
WE FACE RISKS FROM THE EXPANSION OF OUR INTERNATIONAL OPERATIONS.
We intend to substantially expand our operations outside the United States
and Canada. International operations are subject to numerous inherent potential
risks, including:
- unexpected changes in regulatory requirements;
- export restrictions, tariffs and other trade barriers;
- changes in local tax rates or rulings by local tax authorities;
- challenges in staffing and managing foreign operations, differing
technology standards, employment laws and practices in foreign countries;
- less favorable intellectual property laws;
- longer accounts receivable payment cycles and difficulties in collecting
payments;
- political and economic instability; and
- fluctuations in currency exchange rates and the imposition of currency
exchange controls.
Any of these factors could have a material adverse effect on our business,
financial condition or results of operations.
Our international expansion will require significant management attention
and financial resources. We will have to significantly enhance our direct and
indirect international sales channels and our support and services capabilities.
We may not be able to maintain or increase international market demand for our
products. We may not be able to sustain or increase international revenues from
licenses or from consulting and customer support.
In some foreign countries we rely on selected solution providers to
translate our software into local languages, adapt it to local business
practices and complete installations in local markets. We are highly dependent
on the ability and integrity of these solution providers, and if any of them
should fail to properly translate, adapt or install our software, our reputation
could be damaged and we could be subjected to liability. If any of these
solution providers should fail to adequately secure our software against
unauthorized copying, our proprietary software could be compromised.
FLUCTUATIONS IN EXCHANGE RATES BETWEEN THE UNITED STATES DOLLAR AND THE CANADIAN
DOLLAR MAY AFFECT OUR OPERATING RESULTS.
Substantially all of our revenues and corresponding receivables are in
United States dollars. However, a majority of our research and development
expenses, customer support costs and administrative expenses are in Canadian
dollars. We are exposed to fluctuations in the exchange rates between the U.S.
dollar and the Canadian dollar through our operations in Canada. In the quarter
ended March 31, 1999, we adopted a hedging policy intended to reduce the effects
of these fluctuations on our results of operations. As part of our hedging
policy, we identify our future Canadian currency requirements related to payroll
costs, capital expenditures and operating lease commitments, and purchase
forward exchange contracts at the beginning of an operational period to cover
these currency needs. The operational period for our contracts is generally
limited to one quarter. If our actual currency requirements differ materially
from our hedged position during periods of currency volatility, or if we do not
continue to hedge our Canadian currency commitments, we could experience
unanticipated currency gains or losses, as we did in the quarter ended June 30,
1999. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Foreign Currency Translation and Hedging."
Our hedging policy subjects us to risks relating to the creditworthiness of
the commercial banks that we contract with in our hedging transactions. If one
of these banks cannot honor its obligations, we may suffer a loss.
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<PAGE> 15
The purpose of our hedging policy is to reduce the effect of exchange rate
fluctuations on our results of operations. Therefore, while our hedging policy
reduces our exposure to losses resulting from unfavorable changes in currency
exchange rates, it also reduces or eliminates our ability to profit from
favorable changes in currency exchange rates.
WE HAVE EXPERIENCED RAPID GROWTH WHICH HAS PLACED A STRAIN ON OUR RESOURCES, AND
ANY FAILURE TO MANAGE OUR GROWTH EFFECTIVELY COULD CAUSE OUR BUSINESS TO SUFFER.
We have been expanding our operations rapidly and intend to continue this
expansion for the foreseeable future. The number of our employees increased from
59 on June 30, 1997 to 150 on June 30, 1998. As of June 30, 1999, we had 270
employees. This expansion has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources as we
integrate and manage new employees, more locations and more customer, supplier
and other business relationships. In the past we have decided to, and in the
future we may need to, improve or replace our existing operational and customer
service systems, procedures and controls. We are currently replacing our
financial accounting system. Any failure by us to properly manage these systems
and procedural transitions could impair our ability to efficiently manage our
business and attract and service customers, and could cause us to incur higher
operating costs and delays in the execution of our business plan or in the
reporting or tracking of our financial results. If we cannot manage growth
effectively, our business, financial condition and operating results could
suffer.
WE MAY SEEK TO GROW BY MAKING ACQUISITIONS, BUT WE HAVE NEVER ACQUIRED
ANOTHER BUSINESS AND WE MAY NOT BE ABLE TO SUCCESSFULLY COMPLETE ANY
ACQUISITIONS WE UNDERTAKE OR INTEGRATE ANY ACQUIRED BUSINESSES OR PRODUCTS WITH
OUR OWN.
As a part of our business strategy we may seek to grow by acquiring
businesses, products or technologies or establishing joint ventures that we
believe will complement our current or future business. We have never acquired
another business. We may not effectively select acquisition candidates or
negotiate or finance acquisitions or integrate the acquired businesses and their
personnel or acquired products or technologies into our business. We cannot
assure you that we can complete any acquisition we pursue on favorable terms, or
that any acquisition we complete will ultimately benefit our business.
OUR SALES CYCLE IS LONG AND SALES DELAYS COULD CAUSE OUR OPERATING RESULTS TO
VARY WIDELY.
We believe that an enterprise's decision to purchase a customer
relationship management system is discretionary, involves a significant
commitment of its resources and is influenced by its budget cycles. To
successfully sell licenses for our products, we typically must educate our
potential customers regarding the use and benefits of customer relationship
management software in general and our solutions in particular, which can
require significant time and resources. Consequently, the period between initial
contact and the purchase of licenses for our products is often long and subject
to delays associated with the lengthy budgeting, approval and competitive
evaluation processes that typically accompany significant capital expenditures.
We frequently must invest substantial resources to develop a relationship with a
potential customer and educate its personnel about our products and services
with no guarantee that our efforts will be rewarded with a sale. Our sales
cycles are lengthy and variable, typically ranging between two and six months
from our initial contact with a potential customer to the signing of a license
agreement, although sales sometimes require substantially more time. Sales
delays could cause our operating results to vary widely. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
OUR PLAN TO EXPAND OUR SERVICE CAPABILITY COULD ADVERSELY AFFECT GROSS PROFIT
MARGINS AND OPERATING RESULTS.
Revenues from services and maintenance have lower gross margins than
revenues from licenses, therefore an increase in the percentage of revenues
generated from services and maintenance as compared to revenues from licenses
will lower our overall gross margins. In addition, an increase in the cost of
revenues from services and maintenance as a percentage of revenues from services
and maintenance could have a negative impact on overall gross margins.
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<PAGE> 16
Although margins related to revenues from services and maintenance are
lower than margins related to revenues from licenses, our services organization
currently generates gross profits, and we are seeking to expand our service
capability and our revenues from services and maintenance.
Revenues from services and maintenance depend in part on renewals of
technical support contracts by our customers, some of which may not renew their
technical support contracts. Our ability to increase revenues from services and
maintenance will depend in large part on our ability to increase the scale of
our services organization, including our ability to successfully recruit and
train a sufficient number of qualified services personnel. We may not be able to
do so.
To meet our expansion goals, we expect to hire additional services
personnel. If demand for our services organization does not increase in
proportion to the number of additional personnel we hire, gross profits could
fall, or we may incur losses from our services activities . In addition, the
costs of delivering services could increase, and any material increase in these
costs could reduce or eliminate the profitability of our services activities.
WE RELY ON SOFTWARE LICENSED TO US BY THIRD PARTIES FOR FEATURES WE INCLUDE IN
OUR PRODUCTS.
We incorporate into our products software that is licensed to us by
third-party software developers including Microsoft's SQL Server 7.0, Sheridan
Calendar Control, InstallShield 3 and Seagate Crystal Reports. We are seeking to
further increase the capabilities of our products by licensing additional
applications from third parties. A significant interruption in the availability
of any of this licensed software could adversely affect our sales, unless and
until we can replace this software with other software that performs similar
functions. Because our products incorporate software developed and maintained by
third parties, we depend on these third parties' abilities to deliver and
support reliable products, enhance their current products, develop new products
on a timely and cost-effective basis, and respond to emerging industry standards
and other technological changes. If third-party software offered now or in the
future in conjunction with our products becomes obsolete or incompatible with
future versions of our products, we may not be able to continue to offer some of
the features we presently include in our products unless we can license
alternative software or develop the features ourselves.
WE MUST CONTINUE TO DEVELOP ENHANCEMENTS TO OUR PRODUCTS AND NEW APPLICATIONS
AND FEATURES THAT RESPOND TO THE EVOLVING NEEDS OF OUR CUSTOMERS, RAPID
TECHNOLOGICAL CHANGE, AND ADVANCES INTRODUCED BY OUR COMPETITORS.
The software market in which we compete is characterized by rapid change
due to changing customer needs, rapid technological changes and advances
introduced by competitors. Existing products become obsolete and unmarketable
when products using new technologies are introduced and new industry standards
emerge. New technologies could change the way customer relationship management
products are sold or delivered. As a result, the life cycles of our products are
difficult to estimate. We also may need to modify our products when third
parties change software we integrate into our products.
To be successful we must continue to enhance our current product line and
develop new applications and features. For example, we currently plan to
integrate electronic commerce features with Pivotal eRelationship and to offer
customers the ability to pay a service fee to access our software or servers
operated and maintained by third parties. See "Business -- Growth Strategy."
We may not be able to successfully develop or license the applications
necessary to offer these or other features, or to integrate these applications
with our existing products. We have delayed enhancements and new product release
dates several times in the past and may not be able to introduce new products,
product enhancements, new applications or features successfully or in a timely
manner in the future. If we delay release of our new products or product
enhancements or new applications or features or if they fail to achieve market
acceptance when released, we may not be able to keep up with the latest
developments in the market and our revenues may fall. We may not be able to
respond effectively to customer needs, technological changes or advances
introduced by our competitors, and our products could become obsolete.
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<PAGE> 17
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS.
Our success depends in part on our ability to protect our proprietary
software and our other proprietary rights from copying, infringement or use by
unauthorized parties. To protect our proprietary rights we rely primarily on a
combination of copyright, trade secret and trademark laws, confidentiality
agreements with employees and third parties, and protective contractual
provisions such as those contained in license agreements with consultants,
vendors and customers, although we have not signed these types of agreements in
every case. Despite our efforts to protect our proprietary rights, unauthorized
parties may copy aspects of our products and obtain and use information that we
regard as proprietary. Other parties may breach confidentiality agreements and
other protective contracts we have entered into. We may not become aware of, or
have adequate remedies in the event of, these types of breaches or unauthorized
activities.
CLAIMS BY OTHER COMPANIES THAT OUR PRODUCTS INFRINGE THEIR COPYRIGHTS OR PATENTS
COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS AND INCREASE OUR COSTS.
If any of our products violates third-party proprietary rights, including
copyrights and patents, we may be required to reengineer our products or obtain
licenses from third parties to continue offering our products without
substantial reengineering. Although some of our current and potential
competitors have sought patent protection for similar customer relationship
management systems, we have not sought patent protection for our solutions. If a
patent has been issued or is issued in the future to a third party that prevents
us from using technology included in our products, we would need to obtain a
license or re-engineer our product to function without infringing the patent.
Any efforts to re-engineer our products or obtain licenses from third parties
may not be successful and, in any case, could substantially increase our costs,
or force us to interrupt product sales or delay product releases. See "Business
- -- Intellectual Property and Other Proprietary Rights."
OUR PRODUCTS AND PRODUCTS WE RELY ON MAY SUFFER FROM DEFECTS OR ERRORS.
Software products as complex as ours may contain errors or defects,
especially when first introduced or when new versions are released. We have had
to delay commercial release of some versions of our products until software
problems were corrected, and in some cases have provided product enhancements to
correct errors in released products. Our new products and product enhancements
or new applications or features may not be free from errors after commercial
shipments have begun. Any errors that are discovered after commercial release
could result in loss of revenues or delay in market acceptance, diversion of
development resources, damage to our reputation, increased service and warranty
costs and liability claims.
Our end-user licenses contain provisions that limit our exposure to product
liability claims, but these provisions may not be enforceable in all
jurisdictions. In some cases, we have been required to waive these contractual
limitations. Further, we may be exposed to product liability claims in
international jurisdictions where our solution provider has supplied our
products and negotiated the license without our involvement. A successful
product liability claim could result in material liability and damage to our
reputation.
In addition, products we rely on, such as Microsoft platform products, may
contain defects or errors. Our products rely on these products to operate
properly. Therefore, any defects in these products could adversely affect the
operation of and market for our products, reduce our revenues, increase our
costs and damage our reputation.
IF OUR CUSTOMERS' SYSTEM SECURITY IS BREACHED, OUR BUSINESS AND REPUTATION COULD
SUFFER.
A fundamental requirement for online communications is the secure
transmission of confidential information over the Internet. Users of our
products transmit their and their customers' confidential information over the
Internet. In our license agreements with our customers, we disclaim
responsibility for the security of confidential data and have contractual
indemnities for any damages claimed against us. However, if unauthorized third
parties are successful in obtaining confidential information from users of
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<PAGE> 18
our products, our reputation and business may be damaged and, if our contractual
disclaimers and indemnities are not enforceable, we may be subjected to
liability.
CHANGES IN ACCOUNTING STANDARDS AND IN THE WAY WE CHARGE FOR LICENSES COULD
AFFECT OUR FUTURE OPERATING RESULTS.
We recognize revenues from the sale of software product licenses on
delivery of our products if:
- persuasive evidence of an arrangement exists,
- the fee is fixed and determinable,
- we can objectively allocate the total fee among all elements of the
arrangement, and
- collection of the license fee is probable.
In July 1999, we began to offer licensing arrangements in which our
customer purchases a license for a fixed or indefinite term and agrees to pay
for the license with periodic payments rather than in a lump sum. We plan to
recognize revenues from these arrangements as the periodic payments become due
provided the other conditions for revenue recognition are met. If these
arrangements become popular with our customers, we may have lower revenues in
the short term than we otherwise would, because revenues for licenses sold under
these arrangements will be recognized over time rather than upon delivery of our
product.
We recognize maintenance revenues ratably over the contract term, typically
one year, and recognize revenues for consulting, education and implementation
and customization services as the services are performed.
Statement of Position 97-2, "Software Revenue Recognition," was issued in
October 1997 by the American Institute of Certified Public Accountants and
amended by Statement of Position 98-4. We adopted Statement of Position 97-2
effective January 1, 1998. The American Institute of Certified Public
Accountants has also issued Statement of Position 98-9, which is effective for
us for transactions entered into beginning January 1, 2000. However, full
implementation guidelines for this standard have not yet been issued. Once
available, these implementation guidelines could lead to unanticipated changes
in our current revenue accounting practices.
Accounting standard setters, including the Securities and Exchange
Commission and the Financial Accounting Standards Board, are also reviewing the
accounting standards related to business combinations and stock-based
compensation.
Any changes to these accounting standards or any other accounting standards
or the way these standards are interpreted or applied could require us to change
the manner in which we recognize revenue or the way we account for stock
compensation or for any acquisition we may pursue or other aspects of our
business, in a manner that could adversely affect our reported financial
results.
AFTER THIS OFFERING, OUR PRESENT OFFICERS, DIRECTORS AND 5% SHAREHOLDERS WILL
OWN MORE THAN 77.6% OF OUR COMMON SHARES, AND WILL BE ABLE TO CONTROL ALL
MATTERS SUBMITTED TO SHAREHOLDERS FOR APPROVAL.
After this offering, our present officers, directors and 5% shareholders
together will control approximately 77.6% of our outstanding common shares if
the underwriters do not exercise their overallotment option and 75.6% if the
underwriters exercise their over-allotment option in full. As a result, these
shareholders, if they act together, will be able to control all matters
requiring shareholders' approval including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may delay, deter or prevent actions that would result in a change of control and
might affect the market price of our common shares. See "Principal
Shareholders."
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<PAGE> 19
THE MARKET PRICE OF OUR COMMON SHARES MAY FLUCTUATE SUBSTANTIALLY.
Prior to this offering, there has been no public market for our common
shares. An active public trading market may not develop following completion of
this offering or, if an active public market develops, it may not be sustained.
The initial public offering price of the common shares will be determined by
negotiation between us and representatives of the underwriters. This price will
not necessarily reflect the market price of the common shares following this
offering. See "Underwriting."
A number of factors may affect the market price for the common shares
following this offering, including the following:
- the announcement of new products or product enhancements by us or our
competitors;
- quarterly and annual variations in our or our competitors' results of
operations;
- developments in our industry;
- our ability to timely announce our quarterly or fiscal year-end
operating results; and
- general market conditions and other factors, including factors unrelated
to our operating performance or the operating performance of our
competitors.
Our results of operations are difficult to predict and may fluctuate from
quarter to quarter. If our results of operations in any particular quarter fail
to meet the expectations of securities analysts or the market generally, the
price of our shares could decline significantly.
Share prices for many companies in the technology industry have experienced
wide fluctuations that have often been unrelated to the operating performance of
the companies themselves. The above factors and share price fluctuations, as
well as general economic, political and market conditions, may materially
adversely affect the market price of our common shares.
WE EXPECT ABOUT 16,000,000 COMMON SHARES TO BECOME AVAILABLE FOR SALE 180 DAYS
FROM THE DATE OF THIS PROSPECTUS, AND SALES OF THESE SHARES MAY DEPRESS OUR
SHARE PRICE.
After this offering we will have outstanding 19,483,123 common shares.
Sales of a substantial number of our common shares in the public market
following this offering could cause the market price of our common shares to
drop. All the shares sold in this offering will be freely tradable. The
remaining common shares outstanding after this offering will be available for
sale in the public market as follows:
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES
----------------------------- ----------------
<S> <C>
, the date of this prospectus................... 320
, 1999 (90 days after the date of this
prospectus)............................................... 1,812
, 2000 (180 days after the date of this
prospectus)............................................... 15,921,483
At various times thereafter upon the expiration of one-year
holding periods........................................... 59,508
</TABLE>
See "Shares Eligible for Future Sale" and "Underwriting."
WE FACE YEAR 2000 RISKS.
If past or present versions of our products prove to have significant Year
2000 defects, we could suffer material liabilities and damage to our business
and reputation. We provide a warranty covering Year 2000 problems in the current
versions of our software products, including products licensed from third
parties that we supply with our products. We may face claims based on Year 2000
issues if our past or present products contain significant Year 2000 defects, or
claims arising from problems with third-party software embedded in or delivered
with our products or with the integration of multiple products within an overall
system. Year 2000 claims could result in costly and distracting litigation and
in material liability. If our products have significant Year 2000 defects,
correcting them could be costly and time consuming, and we could be forced to
delay sales while we make corrections.
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<PAGE> 20
Year 2000 problems with our own internal systems could cause disruption of
our business. Any disruption in the business of any of our key suppliers or
selling partners as a result of Year 2000 issues, or any general disruption or
failure of the financial, telecommunications, power, transportation or other
infrastructure also could disrupt our business.
We may also experience reduced sales as existing and potential customers
reduce their budgets for relationship management solutions due to increased
expenditures on their own Year 2000 compliance efforts. In addition, during the
remainder of 1999, our existing or potential customers may choose to delay new
software product purchases and deployments until after January 1, 2000 to avoid
distractions from Year 2000 compliance efforts and to preclude the possibility
of introducing any new Year 2000 issues. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000 Issues."
OUR BOARD OF DIRECTORS MAY ISSUE, WITHOUT SHAREHOLDER APPROVAL, PREFERRED SHARES
THAT HAVE RIGHTS AND PREFERENCES SUPERIOR TO THOSE OF COMMON SHARES AND THAT MAY
DELAY OR PREVENT A CHANGE OF CONTROL.
Our memorandum and articles allow the issuance of up to 20,000,000
preferred shares. After the offering, there will be no preferred shares
outstanding. However, our board of directors may set the rights and preferences
of any class of preferred shares in its sole discretion without the approval of
the holders of common shares. The rights and preferences of these preferred
shares may be superior to those of the common shares. Accordingly, the issuance
of preferred shares may adversely affect the rights of holders of common shares.
The issuance of preferred shares also could have the effect of delaying or
preventing a change of control of our company. See "Description of Share
Capital."
YOU MAY NOT BE ABLE TO OBTAIN ENFORCEMENT OF CIVIL LIABILITIES AGAINST US
OUTSIDE THE UNITED STATES.
We are formed under the laws of the Province of British Columbia, Canada.
Many of our assets are located outside the United States. In addition, a
majority of the members of our board of directors and our officers and the
experts named in this prospectus are residents of countries other than the
United States. As a result, it may be impossible for you to effect service of
process within the United States upon us or these persons or to enforce against
us or these persons any judgments in civil and commercial matters, including
judgments under United States federal securities laws. In addition, a Canadian
court may not permit you to bring an original action in Canada or to enforce in
Canada a judgment of a U.S. court based upon civil liability provisions of U.S.
federal securities laws. No treaty exists between the United States and Canada
for the reciprocal enforcement of foreign court judgments.
15
<PAGE> 21
FORWARD-LOOKING STATEMENTS
Statements under "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus about our future results, levels of
activity, performance, goals or achievements or other future events constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in our forward-looking statements.
These factors include, among others, those listed under "Risk Factors" or
described elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by our use of
words such as "may," "will," "should," "could," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative or other variations of these words, or other comparable words or
phrases.
Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements or other future events. Moreover, neither
we nor anyone else assumes responsibility for the accuracy and completeness of
forward-looking statements. We are under no duty to update any of our
forward-looking statements after the date of this prospectus. You should not
place undue reliance on forward-looking statements.
16
<PAGE> 22
USE OF PROCEEDS
We expect to receive approximately $41,535,000 in net proceeds from the
sale of 3,500,000 common shares in this offering, assuming an initial public
offering price of $13.00 per common share. We estimate the net proceeds will be
approximately $47,882,000 if the underwriters' over-allotment option is
exercised in full. The principal purposes of this offering are to obtain
additional capital, create a public market for our common shares and facilitate
our future access to the public capital markets.
We intend to use the net proceeds of this offering primarily for additional
working capital and other general corporate purposes, including increased
domestic and international sales and marketing expenditures, increased research
and development expenditures and capital expenditures made in the ordinary
course of our business. The amounts that we actually expend for working capital
purposes will vary significantly depending on a number of factors, including
future revenue growth, if any, the amount of cash we generate from operations
and the progress of our product development efforts. We may also use a portion
of the net proceeds to acquire additional businesses, products or technologies
or to establish joint ventures that we believe will complement our current or
future business. However, we have no specific plans, agreements or commitments
to do so, and are not currently negotiating any such acquisition or joint
venture. We will retain broad discretion in allocating the net proceeds of this
offering. Pending the uses described above, we will invest the net proceeds in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our share capital. We
currently intend to retain any future earnings to fund the development and
growth of our business and we do not anticipate paying any cash dividends in the
foreseeable future.
17
<PAGE> 23
CAPITALIZATION
The table below describes our capitalization as of June 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect the exchange of all of our outstanding
Class B common shares for common shares and the conversion of all of our
redeemable convertible preferred shares and Class A convertible preferred
shares into common shares; and
- on a pro forma as adjusted basis to reflect the estimated net proceeds
from the sale of common shares we are offering in this prospectus at an
assumed offering price of $13.00 per share.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Redeemable convertible preferred shares, 9,946,474
authorized, issued and outstanding, actual; no shares
authorized, issued or outstanding, pro forma and pro
forma as adjusted(1)..................................... $17,500 $ -- $ --
Shareholders' equity (deficit):
Preferred shares, undesignated, no par value; 20,000,000
shares authorized, no shares issued or outstanding,
actual, pro forma and pro forma as adjusted........... -- -- --
Class A convertible preferred shares, no par value;
2,000,000 shares authorized, issued and outstanding,
actual; no shares authorized, issued or outstanding,
pro forma and pro forma as adjusted................... 83 -- --
Common shares, no par value; 200,000,000 shares
authorized, 3,454,600 shares issued or outstanding,
actual; 15,983,123 shares issued and outstanding pro
forma; and 19,483,123 shares issued and outstanding,
pro forma as adjusted(2).............................. 563 18,150 59,685
Class B common shares, par value Cdn.$0.03; 600,000
shares authorized, 476,786 shares issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted(2)... 4 -- --
Deferred share-based compensation........................ (416) (416) (416)
Accumulated deficit...................................... (7,426) (7,426) (7,426)
------- ------- -------
Total shareholders' equity (deficit).................. (7,192) 10,308 51,843
------- ------- -------
Total capitalization............................. $10,308 $10,308 $51,843
======= ======= =======
</TABLE>
- ---------------
(1) At June 30, 1999, we had the following classes of redeemable convertible
preferred shares authorized, issued and outstanding: (a) 2,000,000 shares of
Class B, Cdn.$1.17 par value, redeemable at $1.00 each; (b) 2,658,228 shares
of Class D, no par value, redeemable at $0.79 each; (c) 4,000,000 shares of
Class E, no par value, redeemable at $1.35 each; and (d) 1,288,246 shares of
Class F, no par value, redeemable at $6.21 each.
(2) Includes 12,051,737 common shares issuable upon conversion of outstanding
redeemable convertible preferred shares and Class A convertible preferred
shares and exchange of 476,786 Class B common shares for common shares.
Excludes (a) 1,454,687 common shares issuable upon the exercise of options
outstanding as of June 30, 1999 with a weighted average exercise price of
Cdn.$6.07 per share; (b) 2,543,313 shares reserved for issuance in
connection with future stock options under our incentive stock option plan;
and (c) 1,000,000 shares reserved for issuance under our employee share
purchase plan which will become effective upon consummation of this
offering. See "Management -- Employee Benefit Plans" and note 8 of notes to
consolidated financial statements.
18
<PAGE> 24
DILUTION
If you invest in our common shares, your interest will be diluted by the
amount of the difference between the public offering price per common share and
the pro forma as adjusted net tangible book value per common share after this
offering. Dilution per share represents the difference between the amount per
share paid by purchasers of common shares in this offering and the pro forma net
tangible book value per common share immediately after completion of this
offering.
Our pro forma net tangible book value as of June 30, 1999 was $10,308,000,
or $0.64 per common share, after giving effect to:
- the exchange of all our outstanding Class B common shares for common
shares; and
- the conversion of all our outstanding preferred shares into common
shares.
Pro forma net tangible book value per share is equal to our total tangible
assets less total liabilities, divided by the number of outstanding common
shares after giving effect to the exchange of all our outstanding Class B common
shares for common shares and the conversion of all our outstanding preferred
shares into common shares.
After giving effect to our sale of 3,500,000 common shares in this offering
at an assumed initial public offering price of $13.00 per common share, and
after deducting the commissions and estimated offering expenses, our as adjusted
pro forma net tangible book value as of June 30, 1999 would have been
$51,843,000 or $2.66 per common share. This figure represents an immediate
increase in net tangible book value of $2.02 per common share to existing
shareholders and an immediate dilution of $10.34 per common share to new
investors. Dilution is determined by subtracting the net tangible book value per
common share after the offering from the amount of cash a new investor pays for
a common share. The following table illustrates this per common share dilution
to new investors:
<TABLE>
<S> <C> <C>
Initial public offering price per common share.............. $13.00
Pro forma net tangible book value per common share as of
June 30, 1999.......................................... $0.64
Increase per common share attributable to this offering... 2.02
Pro forma net tangible book value per common share after
this offering............................................. 2.66
------
Dilution per common share to new investors in this
offering.................................................. $10.34
======
</TABLE>
The table below shows on a pro forma basis as of June 30, 1999, after
giving effect to the exchange of our Class B common shares for common shares and
the conversion of all our outstanding preferred shares into common shares, the
difference between our existing shareholders and our new investors with respect
to the number of common shares purchased, the total consideration paid and the
average price per share paid, before deducting discounts and commissions and
estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............... 15,983,123 82.0% $17,677,000 28.0% $1.11
New investors....................... 3,500,000 18.0 45,500,000 72.0 13.00
---------- ----- ----------- -----
Total.......................... 19,483,123 100.0% $63,177,000 100.0%
========== ===== =========== =====
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of common shares held by new investors will increase to 4,025,000, or 20.1%, of
the total common shares outstanding after this offering.
As of June 30, 1999, we had 1,454,687 outstanding options to purchase
common shares under our incentive stock option plan at a weighted average
exercise price of Cdn.$6.07. In addition, there are 2,543,313 options available
for future grant under our incentive stock option plan and 1,000,000 common
shares will be available for issuance under our employee share purchase plan. If
the option holders exercise these outstanding options, or any options we grant
in the future, there will be further dilution to new investors.
19
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto, with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial data included elsewhere in this prospectus. The
consolidated statement of operations data for each of the three years ended June
30, 1997, 1998 and 1999 and the consolidated balance sheet data as of June 30,
1998 and 1999 are derived from audited financial statements included elsewhere
in this prospectus. The consolidated statement of operations data for the years
ended June 30, 1995 and 1996 and the consolidated balance sheet data as of June
30, 1995, 1996 and 1997 are derived from audited consolidated financial
statements not included in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- ------- -------
CONSOLIDATED STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses........................................ $ 80 $ 368 $ 2,916 $11,311 $18,819
Services and maintenance........................ -- 31 590 2,898 6,508
------ ------- ------- ------- -------
Total revenues................................ 80 399 3,506 14,209 25,327
------ ------- ------- ------- -------
Cost of revenues:
Licenses........................................ 7 2 121 401 536
Services and maintenance........................ -- -- 387 1,281 3,078
------ ------- ------- ------- -------
Total cost of revenues........................ 7 2 508 1,682 3,614
------ ------- ------- ------- -------
Gross profit...................................... 73 397 2,998 12,527 21,713
------ ------- ------- ------- -------
Operating expenses:
Sales and marketing............................. 261 604 2,646 9,226 16,830
Research and development........................ 399 742 1,163 1,910 4,958
General and administrative...................... 224 397 725 1,513 2,466
------ ------- ------- ------- -------
Total operating expenses...................... 884 1,743 4,534 12,649 24,254
------ ------- ------- ------- -------
Loss from operations.............................. (811) (1,346) (1,536) (122) (2,541)
Interest and other income......................... 19 85 142 136 (24)
------ ------- ------- ------- -------
Income (loss) before income taxes................. (792) (1,261) (1,394) 14 (2,565)
Income taxes...................................... -- -- -- 10 243
------ ------- ------- ------- -------
Net income (loss) for the period.................. $ (792) $(1,261) $(1,394) $ 4 (2,808)
====== ======= ======= ======= =======
Basic and diluted earnings (loss) per share....... $(0.24) $ (0.37) $ (0.41) $ -- $ (0.72)
Pro forma basic and diluted loss per share(1):.... $ (0.18)
Shares used to calculate earnings (loss) per share
Basic........................................... 3,348 3,372 3,393 3,720 3,888
Diluted......................................... 3,348 3,372 3,393 14,927 3,888
Pro forma basic and diluted loss per
share(1):..................................... 15,940
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
AS OF JUNE 30, -------------------------
---------------------------------------- PRO FORMA
1995 1996 1997 1998 1999 AS ADJUSTED(2)
------- ------- ------- ------- ------- --------------
CONSOLIDATED BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 2,222 $ 706 $ 3,898 $ 1,202 $ 9,338 $50,873
Working capital.................... 2,091 731 4,417 3,317 7,257 48,792
Total assets....................... 2,361 1,114 6,729 10,752 21,722 63,257
Long-term obligations.............. -- -- -- -- -- --
Redeemable convertible preferred
shares........................... 4,100 4,100 9,500 9,500 17,500 --
Total shareholders' equity
(deficit)........................ (1,969) (3,229) (4,533) (4,455) (7,192) 51,843
</TABLE>
- ---------------
(1) See note 1 of notes to consolidated financial statements for calculation of
pro forma earnings (loss) per share.
(2) Reflects (a) the exchange of Class B common shares for common shares, (b)
the conversion of all preferred shares into common shares, and (c) the sale
of common shares we are offering in this prospectus at an assumed initial
public offering price of $13.00 per share, after deducting underwriting
discounts and commissions and estimated offering expenses. See "Use of
Proceeds," and "Capitalization."
20
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the notes thereto included elsewhere in this prospectus.
OVERVIEW
We began developing our customer relationship management software in early
September 1994. In April 1996, we released the initial version of our principal
product, Pivotal Relationship. Initially, we sold the product on a limited basis
through resellers. During the year ended June 30, 1997, we began direct sales of
Pivotal Relationship. In fiscal 1998, we began expanding internationally by
opening our office in London, England. We also invested in the development of
our brand, continued research and development to improve the functionality of
Pivotal Relationship, and began development of Pivotal eRelationship. In fiscal
1999, we invested in all areas of our business with a particular emphasis on
sales, marketing and research and development. In February 1999, we released and
shipped our Internet-based product Pivotal eRelationship. Our revenues increased
78% to $25.3 million from $14.2 million for the years ended June 30, 1999 and
1998, respectively.
We market and sell our products on a global basis primarily through our
direct sales force and resellers that are members of our Pivotal Alliance.
During the year ended June 30, 1999, 72% of our license revenues were generated
from our direct sales force and 28% from resellers. We have sold licenses to
over 540 customers worldwide. No single customer accounted for 10% of our
revenues for the years ended June 30, 1997, 1998 or 1999. Customers in North
America accounted for 96%, 90% and 80% of our revenues in the years ended June
30, 1997, 1998 and 1999, respectively. Customers in Canada accounted for 14%, 6%
and 6%, respectively, of our revenues for these years.
We have incurred significant losses since inception, and at June 30, 1999,
we had an accumulated deficit of $7.4 million. We have recently increased our
sales and marketing and general and administrative expenses as we sought to
expand our capabilities in these areas and increase our corporate infrastructure
to support the growth of our business. We have also increased research and
development expenses as we have focused on Pivotal eRelationship and other
Internet-based applications. We plan to continue to increase our operating
expenses to expand our sales operations, fund greater levels of research and
development, particularly in the Internet-based product lines, broaden our
professional services, improve operational and financial systems and expand our
international operations. As a result, we are likely to continue to incur
losses, and if our revenues do not continue to grow significantly, we may not
ever be able to achieve profitable operations.
We derive our revenues from the sale of software product licenses and
services. We recognize product license revenues on delivery of our products if:
- persuasive evidence of an arrangement exists,
- the fee is fixed and determinable,
- we can objectively allocate the total fee among all elements of the
arrangement, and
- the collection of the license fee is probable.
In July 1999, we began to offer licensing arrangements in which our
customer purchases a license and for a fixed or indefinite term agrees to pay
for the license with periodic payments rather than in a lump sum. We plan to
recognize revenues from these arrangements as the periodic payments become due,
provided all other conditions for revenue recognition are met.
We enter into reseller and sub-licensing arrangements that provide a fee
payable to us based on a percentage of list price. We recognize as revenue only
the fees payable to us, net of any amount payable to the reseller.
21
<PAGE> 27
Revenues from services and maintenance include fees for consulting,
education, implementation, customization and technical support services. We
recognize revenues from consulting, education and implementation and
customization services as these services are performed. These services are
charged primarily on a time-and-materials basis under a separate service
arrangement with the customer. Over 95% of the implementation and customization
services in connection with installations of our software products are provided
by independent companies that are members of the Pivotal Alliance but which
contract directly with the customer. We do not recognize revenue from services
provided by members of the Pivotal Alliance. We recognize revenues from
technical support and maintenance services ratably over the term of our contract
with the customer, typically one year.
RESULTS OF OPERATIONS
The following table sets forth certain items from our statements of
operations as a percentage of total revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues:
Licenses.................................................. 83% 80% 74%
Services and maintenance.................................. 17 20 26
--- --- ---
Total revenues......................................... 100 100 100
--- --- ---
Cost of revenues:
Licenses.................................................. 3 3 2
Services and maintenance.................................. 11 9 12
--- --- ---
Total cost of revenues................................. 14 12 14
--- --- ---
Gross profit................................................ 86 88 86
--- --- ---
Operating expenses:
Sales and marketing....................................... 76 65 66
Research and development.................................. 33 13 20
General and administrative................................ 21 11 10
--- --- ---
Total operating expenses............................... 130 89 96
--- --- ---
Loss from operations........................................ (44) (1) (10)
Interest and other income................................... 4 1 --
--- --- ---
Income (loss) before income taxes........................... (40) -- (10)
Income taxes................................................ -- -- 1
--- --- ---
Net income (loss) for the period............................ (40)% --% (11)%
=== === ===
</TABLE>
YEARS ENDED JUNE 30, 1999 AND 1998
Revenues
Total revenues increased 78% to $25.3 million from $14.2 million for the
years ended June 30, 1999 and 1998, respectively.
Revenues from licenses increased 66% to $18.8 million from $11.3 million
for the years ended June 30, 1999 and 1998, respectively. Increased sales of
licenses for Pivotal Relationship and related products contributed $6.9 million
of this increase and sales of the new Pivotal eRelationship products contributed
approximately $600,000.
Revenues from licenses represented 74% and 80% of total revenues for the
years ended June 30, 1999 and 1998, respectively. Revenues from licenses have
decreased as a percentage of total revenues due to a significant increase in our
revenues from services and maintenance.
Revenues from services and maintenance increased 125% to $6.5 million from
$2.9 million for the years ended June 30, 1999 and 1998, respectively. This
resulted from an increase of $2.8 million in revenues from technical support and
maintenance contracts, which entitle the customer to new versions of
22
<PAGE> 28
the product and to technical support and maintenance services, and an increase
of $800,000 in revenues from implementation, consulting and education service
engagements. As we have increased our customer base, revenues relating to
technical support and maintenance also have increased because almost all of our
customers have purchased these services from us and renewed their technical
support and maintenance contracts as they expired.
Revenues from services and maintenance represented 26% and 20% of total
revenues for the years ended June 30, 1999 and 1998, respectively. We believe
that revenues from services and maintenance may continue to increase as a
percentage of total revenues, due to the increase in the number of technical
support and maintenance contracts as our customer base grows. We intend to
expand consulting services targeted at helping customers understand more about
matters such as effective one-to-one marketing and using the Internet to
increase revenues and improve customer service. We plan to continue to rely on
members of the Pivotal Alliance to provide the great majority of implementation
and customization services to our customers, rather than providing those
services directly.
Cost of Revenues
Total cost of revenues increased 115% to $3.6 million from $1.7 million for
the years ended June 30, 1999 and 1998, respectively.
Cost of revenues from licenses consists of costs relating to the
manufacturing, packaging and distribution of products and related documentation,
and fees paid for incorporation of third-party software products.
Cost of revenues from services and maintenance consists of personnel and
direct expenses relating to the cost of providing customer support, education
and professional services. Cost of revenues from services and maintenance will
vary depending on the mix of services we provide between support and
maintenance, education, implementation and consulting services. Gross profit
margins are higher for support and maintenance services than they are for
education, implementation and consulting services because support and
maintenance services principally involve the delivery of software upgrades which
the customers download and install themselves, while education, implementation
and customization services generally require more involvement by our employees,
resulting in higher compensation, travel and similar expenses.
Cost of revenues from licenses increased 34% to $536,000 from $401,000 for
the years ended June 30, 1999 and 1998, respectively. Cost of revenues from
licenses as a percentage of revenues from licenses was 3% and 4% for the years
ended June 30, 1999 and 1998, respectively. We expect that cost of licenses as a
percentage of revenue from licenses will increase because we expect to integrate
into our products additional software applications licensed from third parties.
Cost of revenues from services and maintenance increased 140% to $3.1
million from $1.3 million for the years ended June 30, 1999 and 1998,
respectively. Cost of revenues from services and maintenance as a percentage of
revenues from services and maintenance was 47% and 44% for the years ended June
30, 1999 and 1998, respectively. We expect that cost of revenues from services
and maintenance may increase as a percent of revenues from services and
maintenance as we expand our service capabilities in international markets to
support planned expansion of our international business and as we seek to expand
our consulting services. This may occur because we will be incurring expenses to
hire and train employees before we will be earning revenue for their services,
and because we may not generate enough demand for our services to use all the
capacity we add.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, bonuses and benefits earned by sales and marketing
personnel, direct expenditures such as travel, communication, occupancy and
marketing expenditures related to direct mail, online marketing, trade shows,
advertising and promotion.
23
<PAGE> 29
Sales and marketing expenses increased 82% to $16.8 million from $9.2
million for the years ended June 30, 1999 and 1998, respectively. Sales and
marketing expenses also increased as a percentage of total revenues to 66% from
65% for the same periods. This increase resulted from the significant
investments made in expanding our North American and international sales and
marketing organizations and increased expenditures required to launch Pivotal
eRelationship in early calendar 1999. We expect that sales and marketing
expenses will continue to increase as we continue to expand our North American
and international sales and marketing efforts.
Research and Development. Research and development expenses consist
primarily of salaries, benefits and equipment for software engineers, quality
assurance personnel, program managers, technical writers and outside contractors
used to augment the research and development efforts. To date we have not
capitalized any development costs, nor do we expect to capitalize such costs in
the future.
Research and development expenses increased 160% to $5.0 million from $1.9
million for the years ended June 30, 1999 and 1998, respectively. Research and
development expenses also increased as a percentage of total revenues to 20%
from 13% for the same periods. This increase was due to the development of
Pivotal eRelationship but we also increased our ongoing research and development
projects relating to our other products. We expect to continue to significantly
increase research and development expenditures with a particular emphasis on
Internet-related development projects.
General and Administrative. General and administrative expenses consist
primarily of salaries, benefits and related costs for executive, finance,
administrative, human resources and information services personnel. General and
administrative expenses also include legal and other professional fees.
General and administrative expenses increased 63% to $2.5 million from $1.5
million for the years ended June 30, 1999 and 1998, respectively. General and
administrative expenses decreased as a percentage of total revenues to 10% from
11% for the same periods. About half of the increase in general and
administrative expenses was due to hiring additional personnel, $243,000 was due
to an increase in our allowance for doubtful accounts and $150,000 was due to
the implementation of internal financial and administrative systems. We expect
general and administrative expenses will increase as we continue to expand the
business and begin to increase our administrative capability in international
markets.
Share Compensation. We recorded deferred compensation expenses of $473,000
during the year ended June 30, 1999 in connection with grants of employee share
purchase options with exercise prices lower than the deemed fair market value of
our common shares. We are amortizing this amount over the four year period in
which the options vest, and we will allocate the expense among operating expense
categories based on the primary activity of the employee that holds the option.
We recognized $57,000 in compensation expense in the year ended June 30, 1999
and currently expect to recognize $216,000, $113,000, $59,000 and $28,000 in the
years ending June 30, 2000, 2001, 2002 and 2003, respectively.
Interest and Other Income (Loss)
Interest and other income consists of earnings on cash and cash equivalents
net of interest expense, foreign exchange gains and losses, and gains and losses
on sale of property and equipment. Interest and other income (loss) declined to
a loss of $24,000 from income of $136,000 for the years ended June 30, 1999 and
1998, respectively. This decline occurred because our interest income was offset
by $191,000 in foreign exchange losses and a $52,000 loss on disposal of
property and equipment. We have not had significant interest expense, as we have
not borrowed.
Income Taxes
Income taxes increased to $243,000 from $10,000 for the years ended June
30, 1999 and 1998, respectively. As a result of net operating losses and the
availability of loss carry forwards in Canada, we have not incurred significant
Canadian income taxes. Income taxes related to the United States and the United
Kingdom were $290,000 and $120,000 for the years ended June 30, 1999 and 1998,
respectively.
24
<PAGE> 30
The total income tax provision for the years ended June 30, 1999 and 1998
included recoveries of $47,000 and $132,000, respectively, related to research
and development tax incentives in Canada.
YEARS ENDED JUNE 30, 1998 AND 1997
Revenues
Total revenues increased 305% to $14.2 million from $3.5 million for the
years ended June 30, 1998 and 1997, respectively.
Revenues from licenses increased 288% to $11.3 million from $2.9 million
for the years ended June 30, 1998 and 1997, respectively. This increase was due
to the increase in sales of licenses for the Pivotal Relationship product.
Revenues from licenses represented 80% and 83% of total revenues for the years
ended June 30, 1998 and 1997, respectively.
Revenues from services and maintenance increased 391% to $2.9 million from
$590,000 for the years ended June 30, 1998 and 1997, respectively. This resulted
from an increase of $1.3 million in revenues from technical support and
maintenance contracts and an increase of $1.0 million in revenues from
implementation, consulting and education service engagements. Revenues from
services and maintenance represent 20% and 17% of total revenues for the years
ended June 30, 1998 and 1997, respectively.
Cost of Revenues
Total cost of revenues increased 231% to $1.7 million from $508,000 for the
years ended June 30, 1998 and 1997, respectively.
Cost of revenues from licenses increased 231% to $401,000 from $121,000 for
the years ended June 30, 1998 and 1997, respectively. Cost of revenues from
licenses as a percentage of revenues from licenses was 4% for each of the years
ended June 30, 1998 and 1997.
Cost of revenues from services and maintenance increased 231% to $1.3
million from $387,000 for the years ended June 30, 1998 and 1997, respectively.
This increase was due to the personnel and other resources devoted to providing
services for our expanding customer base. Cost of revenues from services and
maintenance as a percentage of revenues from services and maintenance was 44%
and 66% for the years ended June 30, 1998 and 1997, respectively. This increase
in the cost of revenues from services and maintenance was due to the low level
of services and maintenance activity in 1997.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased 249% to $9.2
million from $2.6 million for the years ended June 30, 1998 and 1997,
respectively. Sales and marketing expenses decreased as a percentage of total
revenues to 65% from 75% for the same periods. The increase in sales and
marketing expenses related to higher personnel-related expenses for sales and
marketing employees, which includes compensation, recruiting fees, travel
expenses and related facility and equipment costs. During the year ended June
30, 1998, we tripled the number of sales and marketing personnel in the United
States and Europe. The decrease in sales and marketing expenses as a percentage
of revenues resulted from higher productivity.
Research and Development. Research and development expenses increased 64%
to $1.9 million from $1.2 million for the years ended June 30, 1998 and 1997,
respectively. Research and development expenses decreased as a percentage of
total revenues to 13% from 33% for the same periods. The increase in research
and development expenses was due to personnel costs related to development
efforts focused on Pivotal Relationship and Pivotal eRelationship.
General and Administrative. General and administrative expenses increased
109% to $1.5 million from $725,000 for the years ended June 30, 1998 and 1997,
respectively. General and administrative expenses decreased as a percentage of
total revenues to 11% from 21% for the same periods. The increase in general and
administrative expenses primarily related to the establishment of administrative
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<PAGE> 31
infrastructure necessary to enable us to continue to grow. Most of this increase
related to additional salaries and facility expenses and, to a lesser extent,
increases in information systems capacity.
Interest and other income
Interest and other income decreased to $136,000 from $142,000 for the years
ended June 30, 1998 and 1997, respectively. Foreign exchange gains and losses
were insignificant for both years.
Income Taxes
We recorded an income tax provision of $10,000 in fiscal 1998, which
principally reflected income taxes payable in United States and United Kingdom,
offset by $132,000 related to Canadian research and development tax incentives
received. In 1997, we had no income tax provision due to losses incurred.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited quarterly results of operations
both in absolute dollars and on a percentage of revenue basis for each of our
last eight quarters. This data has been derived from unaudited consolidated
financial statements that have been prepared on the same basis as the annual
audited consolidated financial statements and, in our opinion, include all
normal recurring adjustments necessary for the fair presentation of such
information. These unaudited quarterly results should be read in conjunction
with our consolidated financial statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------
SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Licenses......................... $1,258 $2,917 $3,033 $4,103 $3,276 $4,323 $5,006 $6,214
Services and maintenance......... 444 532 897 1,025 1,292 1,390 1,717 2,109
------ ------ ------ ------ ------ ------ ------ ------
Total revenues................. 1,702 3,449 3,930 5,128 4,568 5,713 6,723 8,323
------ ------ ------ ------ ------ ------ ------ ------
Cost of revenues:
Licenses......................... 45 119 109 128 73 97 268 98
Services and maintenance......... 204 274 361 442 562 589 822 1,105
------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenues......... 249 393 470 570 635 686 1,090 1,203
------ ------ ------ ------ ------ ------ ------ ------
Gross profit....................... 1,453 3,056 3,460 4,558 3,933 5,027 5,633 7,120
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Sales and marketing.............. 1,323 2,353 2,428 3,122 3,488 3,933 4,404 5,005
Research and development......... 329 429 517 635 808 1,166 1,184 1,800
General and administrative....... 222 414 432 445 543 512 566 845
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses....... 1,874 3,196 3,377 4,202 4,839 5,611 6,154 7,650
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from operations...... (421) (140) 83 356 (906) (584) (521) (530)
Interest and other income (loss)... 44 35 40 17 107 1 (63) (69)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before taxes......... (377) (105) 123 373 (799) (583) (584) (599)
Income taxes....................... 1 7 1 1 60 60 63 60
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss).................. $ (378) $ (112) $ 122 $ 372 $ (859) $ (643) $ (647) $ (659)
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
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<PAGE> 32
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Licenses........................ 74% 85% 77% 80% 72% 76% 74% 75%
Services and maintenance........ 26 15 23 20 28 24 26 25
--- --- --- --- --- --- --- ---
Total revenues................ 100 100 100 100 100 100 100 100
--- --- --- --- --- --- --- ---
Cost of revenues:
Licenses........................ 3 3 3 2 2 2 4 1
Services and maintenance........ 12 8 9 9 12 10 12 13
--- --- --- --- --- --- --- ---
Total cost of revenues........ 15 11 12 11 14 12 16 14
--- --- --- --- --- --- --- ---
Gross profit...................... 85 89 88 89 86 88 84 86
--- --- --- --- --- --- --- ---
Operating expenses:
Sales and marketing............. 78 68 62 61 76 69 66 60
Research and development........ 19 13 13 12 18 20 17 22
General and administrative...... 13 12 11 9 12 9 8 10
--- --- --- --- --- --- --- ---
Total operating expenses...... 110 93 86 82 106 98 91 92
--- --- --- --- --- --- --- ---
Income (loss) from operations..... (25) (4) 2 7 (20) (10) (7) (6)
Interest and other income
(loss).......................... 3 1 1 -- 2 -- (1) (1)
--- --- --- --- --- --- --- ---
Income (loss) before taxes........ (22) (3) 3 7 (18) (10) (8) (7)
Income taxes...................... -- -- -- -- 1 1 1 1
--- --- --- --- --- --- --- ---
Net income (loss)................. (22)% (3)% 3% 7% (19)% (11)% (9)% (8)%
=== === === === === === === ===
</TABLE>
We have typically experienced an increase in revenues during our fourth
fiscal quarter ended June 30, which we believe is primarily related to sales
compensation policies and annual objectives. In addition, a pattern of reduced
buying by European customers during July and August has resulted in lower
European revenues in the quarter ending September 30, and our revenues for the
quarters ended September 30 have been lower than revenues for the previous
quarter ended June 30.
Over the past four quarters, we have incurred operating losses as we
increased the level of investment in all facets of our business. In particular,
expenses related to development of Pivotal eRelationship resulted in an increase
in research and development expenses to 20% of revenues for the year ended June
30, 1999 compared with 13% of revenues for the year ended June 30, 1998.
Our quarterly operating results have fluctuated significantly in the past,
and will continue to fluctuate in the future, as a result of a number of
factors, many of which are outside our control. As a result of our limited
operating history, we cannot forecast operating expenses based on historical
results. Accordingly, we base our anticipated level of expense in part on future
revenue projections. Most of our expenses are fixed and in the short term we may
not be able to quickly reduce spending if revenues are lower than we have
projected. Our ability to forecast our quarterly revenues accurately is limited
given our limited operating history, length of the sales cycle of our solutions
and other uncertainties in our business. If revenues in a particular quarter do
not meet projections, our net losses in a given quarter would be greater than
expected. As a result, we believe that quarter to quarter comparisons of our
operating results are not necessarily meaningful. Investors should not rely on
the results of one quarter as an indication of future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations and met our capital
expenditure requirements primarily through private sales of equity securities,
which have resulted in net proceeds of $17.7 million through June 30, 1999. At
June 30, 1999, we had $9.3 million in cash and cash equivalents and $7.3 million
in working capital.
We generated positive cash from operating activities for the year ended
June 30, 1999 of $2.5 million, as a result of obtaining improved payment terms
from our principal suppliers and of improving the collection of accounts
receivable. Cash used in operating activities was $1.1 million and $1.8 million
for the years ended June 30, 1998 and 1997, respectively. Although we generated
cash from operating
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<PAGE> 33
activities for the year ended June 30, 1999, we do not expect to generate cash
from operations for the year ending June 30, 2000.
To date, our investing activities have consisted of capital expenditures
totaling $2.4 million, $1.7 million and $450,000, for the years ended June 30,
1999, 1998 and 1997, respectively. The capital expenditures related primarily to
the acquisition of computer software and equipment as well as furniture and
fixtures used to support our growing employee base.
Net cash provided by financing activities for the years ended June 30,
1999, 1998 and 1997 were $8.0 million $74,000, and $5.4 million, respectively.
Net cash provided by financing activities resulted from sales of equity
securities.
We have credit facilities with a Canadian chartered bank, which include an
operating facility of Cdn.$3.0 million bearing interest at the bank's prime rate
plus 1%, and a term loan facility of Cdn.$2.0 million bearing interest at the
bank's prime rate plus 4% to be used for various capital expenditures. At June
30, 1999, no amounts were outstanding under the operating facility or the term
loan facility.
We believe that the net proceeds of this offering, together with cash and
cash equivalents and commercial credit facilities, will be sufficient to meet
our anticipated cash needs for working capital and capital expenditure
requirements at least through the year ending June 30, 2000. Thereafter,
depending on the development of our business, we may need to raise additional
cash for working capital or other expenses. We also may encounter opportunities
for acquisitions or other business initiatives that require significant cash
commitments or unanticipated problems or expenses that could result in a
requirement for additional cash before that time. If we need to raise additional
cash, financing may not be available to us on favorable terms or at all.
FOREIGN CURRENCY TRANSLATION AND HEDGING
We are exposed to foreign currency fluctuations through our operations in
Canada. Substantially all of our revenues and corresponding receivables are in
United States dollars. However, a majority of our research and development
expenses, customer support costs and administrative expenses are in Canadian
dollars. As part of our hedging policy implemented during the quarter ended
March 31, 1999, we identify our future Canadian currency requirements related to
payroll costs, capital expenditures and operating lease commitments, and
purchase forward exchange contracts to cover our currency needs at the beginning
of an operational period, generally one quarter. We do not enter into forward
exchange contracts or any derivative financial instruments for trading purposes.
Prior to the year ended June 30, 1999, we did not engage in hedging
transactions and our gains and losses on foreign currency transactions were not
significant.
Under our current hedging policy, we identify our forward contracts related
to operating lease commitments and commitments for capital expenditures as
hedges of firm, identifiable Canadian currency commitments. We recognize the
gains and losses on these contracts when the related lease commitment is paid or
the capital expenditure is made. We recognize gains and losses on other forward
contracts in earnings in the current period. As of June 30, 1999, we had no
outstanding currency forward exchange contracts because forward contracts
generally mature at the end of a quarterly period.
During the quarter ended June 30, 1999, we recorded a foreign exchange loss
of $122,000 from the unhedged portion of our foreign currency exposure as the
Canadian dollar strengthened substantially during the quarter.
While we expect to continue to use our current method of hedging our
foreign currency risk in the future, we may change our hedging methodology. If
our currency requirements differ materially from our hedged position during
periods of currency volatility, or if we do not continue to hedge our Canadian
currency commitments, we could experience unanticipated currency gains or
losses.
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<PAGE> 34
We assume the risk relating to the creditworthiness of our counterparties
when we engage in hedging transactions. We mitigate this risk by dealing only
with substantial commercial banks we believe to be creditworthy. We do not
believe that the credit risk associated with these transactions is material.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the AcSEC issued SOP 98-5, Reporting on the Costs of
Start-up Activities. SOP 98-5 provides that the cost of start-up activities must
be expensed as incurred. We do not expect that the adoption of SOP 98-5 will
have a material impact on our financial position or results of operations. We
will adopt SOP 98-5 in fiscal 2000.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133
requires us to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. We
will adopt SFAS No. 133 as required in our financial statements for fiscal year
2000, which we expect will not have a material effect on our financial position
or results of operations.
In December 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-9, or SOP 98-9, modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions. SOP 98-9 amends SOP
97-2 to require that an entity recognize revenue for multiple element
arrangements by means of the "residual method". Under the "residual method," the
total fair value of the undelivered elements is deferred and substantially
recognized in accordance with SOP 97-2. We do not expect SOP 98-9 to have a
material effect on its financial position or results of operations.
YEAR 2000 ISSUES
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with these Year 2000
requirements. The use of software and computer systems that are not Year 2000
ready could result in system failures or miscalculations causing disruptions of
operations including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
Year 2000 complications may disrupt the operations, viability or commercial
acceptance of the Internet, which could adversely affect the market acceptance
of our new Pivotal eRelationship product.
Our State of Readiness
We have conducted a review of our products, including the third-party
products embedded into or delivered with our products, and believe that they are
substantially Year 2000 ready as they relate to our product applications.
Despite being generally classified as Year 2000 compliant, some of the older
versions of our products had some display and leap year issues for the Year
2000. We believe these issues are fully addressed in various service packs that
we have made available to our customers as upgrades. Nevertheless, it is
possible that we will experience Year 2000 problems with our products. With
respect to third-party products embedded or delivered with our products, we have
relied on disclosure statements provided by such third parties which reveal no
Year 2000 issues specifically relating to the use of such products with our
product. We have no assurance of the accuracy of these third-party disclosure
statements.
We currently believe that our internal software systems are Year 2000
ready. We make it our regular practice to obtain Year 2000 warranties and our
MIS department has been meeting with hardware and other suppliers in order to
obtain reassurances regarding the impact of the Year 2000 on our internal
systems. Nevertheless, failure of the internal hardware or software systems to
operate properly with regard to the Year 2000 and thereafter could disrupt our
business and require us to incur significant unanticipated expenses to remedy
any problems or replace products of affected vendors, and could have a material
adverse effect on our business, operating results and financial condition.
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<PAGE> 35
Our Year 2000 Risk
We cannot assure you that other Internet applications, database software or
computer hardware of our customers, which interface with our products and which
may be necessary in order to use our products, are Year 2000 ready. Therefore,
we cannot assure you that implementations of our products on our customers'
systems are, or will be, Year 2000 ready.
We provide a warranty covering Year 2000 problems in the current versions
of our software products, including products licensed from third parties that we
supply with our products. We may face claims based on Year 2000 issues if our
products do not prove to be Year 2000 compliant, or claims arising from problems
with third-party software embedded in or delivered with our products or with the
integration of multiple products within an overall system. Year 2000 claims
could result in costly and distracting litigation and in material liability to
us. If our products have significant Year 2000 defects, we could suffer damage
to our business and reputation. Correcting any defects could be costly, and we
might have to delay sales of our products while we make corrections. Any Year
2000 problems that occur in our internal systems could cause disruption of our
business. Any disruption in the business of our key suppliers or selling
partners as a result of Year 2000 issues, or any general disruption or failure
of the financial, telecommunications, power, transportation or other
infrastructure also could disrupt our business.
The Year 2000 issue may also cause us to experience reduced sales during
the remainder of 1999, as existing and potential customers reduce their budgets
for discretionary expenditures, such as customer relationship management
solutions, due to increased expenditures on the Year 2000 issue generally.
Potential customers may also defer new software purchases and deployments to
avoid distracting from Year 2000 compliance efforts and to preclude the
possibility of introducing new Year 2000 issues.
Cost to Complete and Contingency Plan
To date, we have not incurred significant incremental costs in order to
comply with Year 2000 requirements for our products or internal systems, and we
do not believe that we will incur significant incremental costs in the
foreseeable future. We have not currently developed a contingency plan for
unanticipated Year 2000 issues relating to our products. We have identified the
mission critical functions for our internal systems and have completed a
contingency plan for unanticipated Year 2000 problems that arise with respect to
those functions, including the identification of replacement products for
third-party products that may fail. We cannot assure you that Year 2000 issues
will not be discovered in our products or internal software systems and, if such
issues are discovered, we cannot assure you that the costs of making the
products and systems Year 2000 ready will not have a material adverse effect on
our business, operating results and financial condition.
30
<PAGE> 36
BUSINESS
OVERVIEW
We are a leading provider of customer relationship management solutions
that enable businesses to increase revenues by more effectively managing their
interactions with their customers and partners in the selling process. Our "360
degreesCustomer Relationship Management" solution includes award-winning
corporate network- and Internet-based software applications supported by an
array of professional services and the Pivotal Alliance, our global network of
partners. This solution includes our Pivotal Relationship software product that
automates and unifies the internal sales, marketing and customer service
functions within a business, and our recently introduced Pivotal eRelationship
Internet application, that simplifies the collaboration and sharing of
information with customers and partners that are external to the business. Our
solution is designed and optimized exclusively for the Internet, Microsoft
Windows NT and Microsoft BackOffice platforms. We have licensed our applications
on a global basis to over 540 customers across a wide range of industries.
INDUSTRY BACKGROUND
The Customer Relationship Management Market
Businesses have recognized the value of improving their customer focus in
order to increase revenues. In the early 1990s, businesses used various software
applications to automate customer relationship functions such as sales,
marketing and customer service. These software applications typically provided a
separate program for each of these internal business functions, suffered from
limited functionality and were difficult to integrate with one another. Large
organizations were able to overcome some of these limitations by developing
highly customized applications, which were costly to develop and maintain. In
recent years, cost-effective customer relationship management software
applications have become available that enable information to be shared across
different business functions. AMR Research estimates that worldwide customer
relationship management license revenues will grow at a compound annual rate of
58% for the five-year period from 1997 to 2002 to approximately $7.5 billion by
2002.
Although many businesses have benefited from these customer relationship
management applications, businesses are increasingly seeking solutions that
accomplish more than the automation of internal business functions. To be more
responsive to customers, many businesses are now seeking solutions that enable
online collaboration and sharing of information with customers and partners,
improve one-to-one relationships with each customer and partner and facilitate
electronic commerce.
The Impact of Changing Technologies
Recent technological advances are dramatically affecting the marketplace
for customer relationship management solutions. These advances include:
The Internet. The Internet is emerging as a dominant platform for
worldwide interactive communication and commerce, and therefore businesses are
seeking better ways to use the Internet as an application platform. As a result,
businesses have begun to invest heavily in technologies that support and exploit
the capabilities of the Internet. International Data Corporation estimates that
the Internet commerce software applications market will grow at a compound
annual rate of 97% for the five-year period from 1998 to 2003 to approximately
$13.2 billion by 2003. Businesses that implement customer relationship
management solutions may gain further competitive advantage by exploiting the
capabilities of the Internet to allow online collaboration, electronic commerce
and sharing of information with customers and partners.
Widespread Adoption of Microsoft Technologies. Microsoft Windows NT and
Microsoft BackOffice platforms offer businesses the opportunity to easily
develop, deploy and maintain information technology systems with increased
flexibility at a lower cost than was previously possible. These platforms are
also widely used and well understood by technical personnel. International Data
Corporation estimates that the
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<PAGE> 37
Microsoft Windows NT installed base will grow at a compound annual rate of 29%
for the five-year period from 1997 to 2002 to approximately 5.8 million users by
2002. Customer relationship management solutions that are compatible with these
platforms are likely to benefit from this growth.
Growth of Mobile Computing. Businesses, customers and partners expect
their employees to be able to share information regardless of their location.
The proliferation of portable computing devices, such as laptops and palm
computers, and improved remote computing has empowered the mobile professional.
As a result, customer relationship management solutions should enable users to
access information from any location, to synchronize information with the
business's shared customer knowledge database and to use their preferred
portable computing device.
The Opportunity
The businesses we serve are typically mid-size businesses and divisions of
large businesses with annual revenues of between $25 million and $2 billion. To
compete against larger organizations, these businesses need to maintain the same
or higher levels of customer service as their larger competitors and must be
able to respond quickly to changes in their competitive environment. As a
result, many of these businesses often adopt business models that require close
integration and collaboration with their customers and partners. Until recently,
most customer relationship management software applications were designed
primarily to address the needs of the large enterprise, were often considered
too costly to purchase, install and maintain and were not designed for the
Internet, Microsoft Windows NT or Microsoft BackOffice platforms.
We believe that a significant market opportunity exists for a customer
relationship management solution that is designed with the needs of our target
customers in mind. Many of these businesses have adopted the Internet, Microsoft
Windows NT and Microsoft BackOffice platforms. As a result, a new opportunity
also has emerged for a customer relationship management solution that is
optimized for these platforms. Such a solution must incorporate many of the
benefits of customer relationship management solutions for larger enterprises,
yet enable businesses to respond quickly to changes to their competitive
environment and to operate more cost-effectively than their larger competitors.
We believe that such a solution must:
- support Internet-based collaboration and the sharing of information with
customers and partners,
- support integration and collaboration among sales, marketing and
customer service employees,
- support mobile professionals and their portable computing devices,
- be usable by a business without significant customization, to enable
rapid deployment at low total cost of ownership, and
- provide tools for easy customization to meet specific needs.
THE PIVOTAL SOLUTION
We are a leading provider of customer relationship management solutions
that enable businesses to increase revenues by more effectively managing their
interactions with customers and partners. Our 360 degrees Customer Relationship
Management solution includes award-winning, corporate network- and Internet-
based applications supported by an array of professional services and our global
Pivotal Alliance network. Our solution is designed and optimized exclusively for
the Internet, Microsoft Windows NT and Microsoft BackOffice platforms. In
December 1998, Pivotal Relationship won Microsoft's Industry Solutions Award for
Best Overall Customer Management Solution. We believe our solution delivers the
following benefits:
Increases Revenues by Enabling Businesses to Improve Customer Focus. Our
solution unifies sales, marketing and customer service employees and partners
around customer processes and interactions. By maintaining all customer
information in a shared database, our applications make it easy for different
users to maximize their contribution to customer relationship management.
Furthermore, our applications enable
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<PAGE> 38
businesses to better capture customer profiles and build one-to-one customer
relationships. We believe this improvement in customer focus results in
increased revenues through better customer loyalty and retention.
Improves the Collaboration and Interaction Between Businesses and Their
Customers. Using Pivotal eRelationship CustomerHub, businesses can transform
their static Web site into a collaborative tool used to service and sell to
customers. Prospective customers can obtain information regarding businesses'
products and services over the Internet. Customers can place online orders,
retrieve information on products and services and directly interact online with
sales, marketing and customer service departments. This direct interaction can
result in improved customer service and lead generation, as well as lower
customer service costs.
Improves the Collaboration and Interaction Between Businesses and Their
Partners. Pivotal eRelationship PartnerHub enables businesses to improve their
efficiency and selling processes by facilitating interaction and collaboration
with their partners over the Internet. Our application maintains a shared
database consisting of information related to products, services, customer
contacts and sales opportunities. By enabling partners to access and update the
shared database, our solution simplifies the sharing of information between
businesses and their partners so they can jointly service their customers' needs
and concerns.
Increases the Efficiency of Mobile Professionals. Mobile professionals can
access our solution remotely across local-area networks, wide-area networks or
over the Internet by using a number of portable computing devices including
laptops and palm computers. Mobile professionals also can work offline and
transmit and receive information to automatically update their own files and the
shared corporate database. These capabilities increase the efficiency of mobile
professionals.
Enables Rapid Implementation and Simple Customization. Businesses can use
our solutions without significant customization, which expedites the
implementation process. If they desire, businesses can also easily customize our
solution to reflect their own internal processes without programming by using
our graphical, point-and-click tools.
Yields a Low Total Cost of Ownership. Our solution can be cost-effectively
deployed and customized and thus requires few resources for ongoing support,
system maintenance and end-user training. Our solution is also easy for
end-users to learn, which results in lower ongoing training costs. In addition,
our software applications permit modifications and upgrades to be transmitted to
all users, including mobile users, thereby reducing the cost of modifying the
solution.
Scales With the Growing Needs of Our Customers. Many of our customers
require that our solution support their growing number of employees, online
customers and partners. Our solution's architecture enables our customers to
expand our solution as their businesses grow by adding servers in a number of
locations. This capability improves performance and enables our solution to
support larger numbers of concurrent users.
GROWTH STRATEGY
Our goal is to become a leading global provider of electronic business
solutions which combine customer relationship management and electronic commerce
solutions. The key elements of our growth strategy are as follows:
Extend the Scope of Our Applications. We intend to continue the aggressive
development of our applications to add new functionality, with a particular
emphasis on our Internet-based application, Pivotal eRelationship. We intend to
integrate additional electronic commerce features with Pivotal eRelationship. We
also intend to provide our customers with business modules designed for specific
industries that will further simplify the deployment and use of applications. In
addition, we plan to offer new versions of our applications that support a wider
variety of international customers and their respective business practices and
languages.
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<PAGE> 39
Expand Our Worldwide Distribution Capacity. We currently have a
distribution strategy that includes our direct sales personnel and resellers
which enables us to target a wide variety of customers in different industries
and geographical regions. We plan to continue to invest in our worldwide
distribution capacity to increase market share and penetration. This investment
will include expanding our direct sales force, continuing to expand
relationships with existing and new resellers in the Pivotal Alliance network
and entering into bundling arrangements with technology providers to provide
complementary niche products to our customers.
Broaden Our Network of Strategic Relationships. We plan to continue
broadening our network of strategic relationships, including our Pivotal
Alliance network. The Pivotal Alliance network includes over 95 independent
companies that distribute our products, install the software purchased by
Pivotal customers and provide other software to address specific customer needs.
This network has allowed us to focus on our core competencies while leveraging
the strengths of Pivotal Alliance members to provide our customers with a
complete customer relationship management solution. We have also recently
co-founded Enterprise 360, a consortium that includes KPMG, Microsoft and
Hewlett-Packard. Enterprise 360 offers a complete customer relationship
management solution, which includes hardware, software and services.
Continue Focusing on Our Customers' Success. We will continue to focus on
providing customer solutions that help our customers achieve business success.
In particular, we plan to maintain a customer-focused culture to invite repeat
business from existing customers as we make new features available and as their
businesses grow, and to gain new customers as our existing customers become
independent references for our solution. We believe that the benefits of our
solution have helped us develop a loyal base of customers. We intend to continue
to focus significant resources on customer success programs, including a
systematic customer surveying process, to improve our customer-driven product
development initiatives and ultimately improve our solution.
Partner with Application Service Providers to Offer Our Solutions on a
Usage Fee Basis. We are developing a new product and seeking to enter into
relationships to provide an alternative licensing arrangement through third
party application service providers that will enable customers to pay a usage
fee to access our software on servers operated by the application service
providers. This will enable businesses to outsource their customer relationship
management applications and related information technology infrastructure
through an alternative pricing model, such as a monthly fee.
PRODUCTS AND PROFESSIONAL SERVICES
Products
Our solution includes four major products: Pivotal Relationship, Pivotal
eRelationship (including PartnerHub and CustomerHub), Pivotal Toolkit and
Pivotal eToolkit. Our products serve the needs of every stakeholder in the
customer life cycle, including employees, customers and partners and improve
collaboration and sharing of information among these stakeholders. Users can
access our solution with convenient portable computing devices. Our solution
provides many access options, including local-area network-based, mobile and Web
browser users, including a special option that extends customer relationship
management capabilities to all Microsoft Outlook users. Our products are fully
integrated with one another and share a common database.
Pivotal Relationship. Pivotal Relationship enables marketing, inside
sales, field and mobile sales, order administration, telemarketing and customer
service employees to interact and share information. This enables businesses to
better manage the people, processes and programs involved in the customer life
cycle. Businesses can improve their employee interaction, become more organized
and improve information flow, resulting in more effective customer relationship
management. Pivotal Relationship 99 represents the most recent version of this
application suite. Pivotal Relationship 99 now has Microsoft SQL 7.0 database
embedded and pre-installed, which results in significant performance
improvements, and has reduced the time required to install the product.
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<PAGE> 40
An important part of Pivotal Relationship is Pivotal Relationship Web
Client, which enables sales, marketing and customer service employees to access
Pivotal Relationship applications from a Web browser. Using the Pivotal
Relationship Web Client, mobile users can benefit by sharing and exchanging
critical customer information with 24-hour, worldwide access.
Pivotal Relationship supports the following functional groups and processes
within an organization:
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------
FUNCTIONAL GROUPS PROCESSES
- -----------------------------------------------------------------------------------------------
Marketing Marketing employees can build and manage complex marketing
campaigns, tailor communications and track market,
competitor and customer trends.
- -----------------------------------------------------------------------------------------------
Telemarketing Telemarketing employees can qualify leads, manage
opportunities and process orders.
- -----------------------------------------------------------------------------------------------
Inside Sales Inside sales employees can efficiently capture and track
prospects, customize sales processes, manage sales
opportunities, forecast sales and report on performance.
- -----------------------------------------------------------------------------------------------
Field and Mobile Sales Field and mobile sales employees have the same functionality
available to them as inside sales employees and in addition
can work both connected to and disconnected from their
corporate network.
- -----------------------------------------------------------------------------------------------
Order Administration Order administration employees can capture and track orders
in multiple currencies, track order status and product
movement and report on order history and trends.
- -----------------------------------------------------------------------------------------------
Customer Service Customer service employees can efficiently capture, track
and resolve customer problems and notify, alert, and
coordinate activities with customer relationship team
members.
- -----------------------------------------------------------------------------------------------
Management By providing access to valuable information such as
forecasts and product sales statistics, management can
better measure and predict business performance and more
efficiently manage their operations.
- -----------------------------------------------------------------------------------------------
</TABLE>
Pivotal eRelationship. Our Internet-based product family, Pivotal
eRelationship, enables businesses to manage their customer and partner
relationships over the Internet. Introduced in February 1999, Pivotal
eRelationship is comprised of two separate products, Pivotal eRelationship
CustomerHub for online current and prospective customers and Pivotal
eRelationship PartnerHub for partners that assist in the selling process. Both
of these products can be completely integrated with the Pivotal Relationship
product.
Pivotal eRelationship CustomerHub. Pivotal eRelationship CustomerHub
enables a business to transform a static information Web site into a
dynamic collaborative tool used to service and sell to both existing and
prospective customers. Customers can access information about products and
services, place orders and access a shared database of solutions to
previous customer requests without interacting with customer service
employees. Customers also can choose to interact with customer service
employees in real-time using online meeting options. Prospective customers
can register on a Web site to request information, sign-up for marketing
programs, submit information regarding demographic data and specific needs
and request an immediate call back from an online salesperson. Businesses
can use this information to prepare a customized response for each
prospect.
Pivotal eRelationship PartnerHub. Pivotal eRelationship PartnerHub
enables businesses to establish Web sites that allow sales, marketing and
customer service employees to coordinate their
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<PAGE> 41
activities with partners that assist in the selling process. Pivotal
eRelationship PartnerHub allows a partner to share information regarding
sales opportunities, co-marketing projects and sales order status, and to
order marketing material online. Pivotal eRelationship PartnerHub also
allows partners to share information about customer service requests and
their status.
Pivotal Toolkit and Pivotal eToolkit. Pivotal Toolkit and Pivotal eToolkit
help businesses to easily customize, administer and adapt their Pivotal products
without programming to meet business specific needs. Both toolkits reduce
implementation and customization costs, ongoing administrative burden and the
need for employees with advanced technical skills. Using the toolkits' simple
graphical, point-and-click user interface, businesses can modify any aspect of
their Pivotal system without altering source code.
Our Pivotal Toolkit also includes visual scripting tools, called Pivotal
agents, which allow users to create work flow processes that do not require
programming. By simply connecting arrows between objects on the screen, users
can automate and model business processes, create sales scripts and create
online tutorials to guide other users through complex tasks.
Product Pricing. Pivotal Relationship and Pivotal eRelationship licenses
are priced on a "per user" basis. Pivotal Relationship licenses include
solutions for telemarketing, inside sales, field and mobile sales, marketing,
order administration, customer service and management. Pivotal eRelationship
CustomerHub and PartnerHub are sold separately with pricing based on the number
of Internet users. The Pivotal Toolkit and Pivotal eToolkit are licensed on a
per-site basis.
Product Awards
The following table lists some of the awards our products have won:
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
SPONSOR DATE AWARD
- ---------------------------------------------------------------------------------------------
Microsoft December 1998 Industry Solution Awards for 1998 -- Best
Overall Customer Relationship Management
Solution
December 1997 Industry Solution Awards -- Best Mobile
Sales Solution
May 1997 Solutions Provider Awards -- Best Solution
by a Solution Developer
- ---------------------------------------------------------------------------------------------
Information Systems Marketing February 1999 Top 15 CRM Software Award
December 1997 Top 15 CRM Software Award
December 1996 Top 15 CRM Software Award
- ---------------------------------------------------------------------------------------------
Open Systems Advisors January 1999 Crossroads 99 A-List Award
- ---------------------------------------------------------------------------------------------
Technology Industry June 1998 Excellence in Product Innovation
Association
- ---------------------------------------------------------------------------------------------
</TABLE>
Professional Services
We provide customers with access to a combination of services to
successfully implement and effectively maintain a customer relationship
management solution. These services include:
Technical Support and Maintenance. We maintain a technical support center
that provides telephone-, Internet- and email-based problem identification,
analysis and resolution to our customers. Various levels of support are
available depending on the needs of the customer. Our technical support and
maintenance services include upgrades of our software applications.
Education. Our education services are designed to educate our customers
and Pivotal Alliance members about the customization, use and administration of
our solution. We offer a pre-packaged certification program that helps our
customers and selling partners to improve their ability to implement our
solution. We also offer customized and on-site training classes to customers
with specific needs.
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<PAGE> 42
Implementation and Customization. We offer implementation and
customization services that include project management and systems engineering.
We provide a standardized implementation methodology, which we call the rapid
productivity methodology, that enables the efficient implementation of our
solution. Customers can work with us directly or retain one of our Pivotal
Alliance members to implement and customize their Pivotal customer relationship
management solution. Members of the Pivotal Alliance currently provide more than
95% of the implementation and customization services for our products. See
"-- Strategic Relationships."
Business Consulting. We offer business consulting services that are
focused on key customer relationship management trends such as the impact of the
Internet on customer relationships and implementing one-to-one marketing and
business practices. We also assist our customers in measuring and maximizing
return on customer relationship management investments.
Our technical support and maintenance services are sold on a per user basis
and renewed annually. Our education fees are standardized on a per day rate. Our
business consulting services and implementation and customization services are
priced on a time and materials basis. As of June 30, 1999, we had 70 employees
in our Professional Services department.
CUSTOMERS AND MARKETS
We have licensed our applications on a worldwide basis to over 540
customers across a wide range of industries. Customers in North America
accounted for 96%, 90% and 80% of our revenues in the years ended June 30, 1997,
1998 and 1999, respectively. Customers in Canada accounted for 14%, 6% and 6%,
respectively, of our revenues for these fiscal years.
Some of our customers, who have purchased a minimum of $100,000 of software
licenses from us in the past, are set forth in the table below:
<TABLE>
<S> <C> <C>
CONSULTING INTERNET TECHNOLOGY
- ----------- -------- ------------
Deloitte & Touche broadcast.com Bottomline Technologies
Diamond Technology Partners BroadVision Cadence Design Systems
KPMG E.piphany Hewlett-Packard
Malcom Pirnie Icarian Lernout & Hauspie
Peppers and Rogers Group INTERSHOP Communications Lucent Technologies
Roy F. Weston Active Touch MacOla
Micrografx
FINANCIAL SERVICES MANUFACTURING Net Wireless
- ------------------- --------------- Olicom A/S
Allied Capital Holophane Peregrine Systems
Dain Rauscher Wessels Kimberly-Clark Seagate Software
Principal Financial Group M.A. Hanna Siemens Electric
Savills US Gypsum Solectron
USAA Sterling Software
OTHER SERVICES ZD Market Intelligence
HEALTH CARE ---------------
- ------------- Addison-Wesley Longman OTHERS
Australian Red Cross Miller Freeman -------
Blue Cross Blue Shield of Vance Publishing Australian New Zealand
Michigan Waggener Edstrom Direct Line
Novamed Eyecare Management U.S. Naval Reserve Recruiting
Novartis Protezione Piante UTILITIES Command
Pfizer Animal Health --------------------- The Conference Board
Sun Healthcare Group CSW Energy Services Virginia Economic
Syncor International Southern Company Services Development Partnership
</TABLE>
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<PAGE> 43
The following case studies provide illustrations of how selected customers
have used our products and services to address their customer relationship
management requirements.
Holophane Corporation. Holophane Corporation is a leading international
manufacturer and marketer of premium quality, custom lighting fixtures and
systems for a wide range of commercial and outdoor applications with 1997
revenues of approximately $200 million. Holophane realized that in order to
continue to expand its business and reduce manufacturing costs it needed to
improve the selling process by better coordinating its sales, engineering,
customer service and its manufacturing system. Pivotal Relationship was bundled
with software provided by one of the members of our Pivotal Alliance to enable
320 sales employees in North America and Europe to integrate their systems from
preorder to order entry with manufacturing. Holophane reports that through
process improvements structured around these new technologies it has cut the
number of changes occurring in orders by 18%, reduced order clarification delays
by 44% and saved money by reducing the total number of "rush orders" by 6% over
the last 18 months.
Addison-Wesley Longman. Addison Wesley Longman is one of the largest
global educational publishers of books, multimedia and learning programs in all
major academic disciplines with 1997 revenues of approximately $1 billion.
Addison needed a system that had the flexibility required to manage multiple
sales processes and the ability to automate and improve its process for ordering
book samples. Addison selected Pivotal Relationship to better manage its
multiple sales processes and to integrate with its mainframe-based inventory
management system. Addison reports that it has improved the accuracy of book
sample shipments to educators by up to 25%, reduced the time each sales
representative spends on administration by up to 30 minutes per day, decreased
the number of duplicate books sent in error and provided sales staff and senior
management with a real-time history of book samples sent to customers.
Savills PLC. Savills PLC is a British residential and commercial property
services group with 1998 revenues of approximately $125 million. Savills
identified the opportunity to increase revenues by providing customers financial
services subsequent to a real estate transaction. Savills needed a customer
tracking system to identify cross-selling opportunities with existing customers.
In addition, Savills wanted a solution to actively manage the lead to client
process in order to adapt to the United Kingdom's changing regulatory provisions
for the financial services sector. Savills chose Pivotal Relationship as its
customer relationship management solution to fulfill these requirements. Since
implementing Pivotal Relationship, it has reported significant improvements in
its ability to track sales leads, increase revenues, and develop long-term
customer relationships. Based on the success achieved, Savills is now increasing
the use of Pivotal Relationship from 350 to 800 seats nationally.
Cambridge Energy Research Associates. Cambridge Energy Research Associates
(CERA) is a leading international independent energy research and advisory firm
with 1998 revenues of approximately $40 million. CERA identified an opportunity
to tailor its sales and marketing activities to its individual customers by
monitoring their activities on its Web site. CERA chose Pivotal Relationship to
track these activities and other communications with customers. CERA has advised
us that it has been able to more than double the number of major products and
services that it can now offer to its client base, and that CERA views our
solution as strategic to its growth and as a method of effectively empowering
its employees to sell and service the unique needs of its clients.
Seagate Software Inc. Seagate Software Inc., a subsidiary of Seagate
Technologies Inc., develops business intelligence tools and applications that
help organizations make better business decisions by accessing, analyzing,
reporting and sharing their vital data, which they have stored in systems such
as data warehouses. Seagate Software had 1998 revenues of approximately $118
million. It has been an important goal of Seagate Software to rapidly integrate
acquired companies' sales and marketing organizations. To accomplish this goal
and create a cohesive view of its customers, Seagate Software selected Pivotal
Relationship. Pivotal Relationship facilitated the replication of best practices
in technical support processes across five offices in four countries. As a
result, Seagate Software now offers a unified sales and marketing approach and
common customer data across every service center. Pivotal Relationship permitted
Seagate Software to offer two new revenue-generating customer support services.
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<PAGE> 44
SALES AND MARKETING
We sell our products through a direct sales force and over 50 independent
members of the Pivotal Alliance which resell our products. Our direct sales
force is located in the United States, Canada and the United Kingdom, and our
Pivotal Alliance solution providers are located in North and South America,
Europe and Asia Pacific. We have also recently established a telebusiness group
whose primary objective is to generate and qualify sales opportunities for both
our direct sales organization and solution provider channels.
Our marketing efforts are directed at promoting our products and services,
creating market awareness and generating leads. Our marketing activities include
online business seminars, print and online advertising campaigns and attendance
at industry trade show events and trade conferences. We use the Internet
extensively to increase awareness of Pivotal and communicate with potential
customers, existing customers, partners and others. We also conduct
comprehensive public relations programs that establish and maintain
relationships with key trade press, business press and industry analysts. We
have a customer communications team targeted at working directly with our
customers to obtain feedback and to track ongoing customer success stories. This
team also performs a series of surveys on each customer to assess the customer's
satisfaction with our solution and to anticipate any further needs of the
customer.
As of June 30, 1999, we employed a total of 105 people on our sales and
marketing team.
STRATEGIC RELATIONSHIPS
Pivotal Alliance
Our Pivotal Alliance members help us market, sell, implement, support and
enhance our solutions. Members of our Pivotal Alliance include:
Solution Providers. We have arrangements with over 50 third parties that
grant them the right to market and re-sell our products and to provide
education, implementation and customization for the solutions they sell as well
as for most of the sales made through our direct sales team. We refer to these
third parties as solution providers. Solution providers usually address the
market needs of a specific region, permitting us to sell our solutions in
markets that might otherwise be difficult for us to address directly. Over 20 of
our solution providers are outside the United States and Canada. In some foreign
markets, we rely on selected solution providers to customize our solution and
translate our software applications into local languages.
Systems Integrators. We have arrangements with over 20 third parties that
grant them the right to provide implementation, customization and training
services to customers who have purchased solutions through our direct sales
team. We refer to these third parties as systems integrators. Our systems
integrators include worldwide partners such as KPMG as well as partners focused
on specific regional markets.
Technology Providers. We have arrangements with over 25 third parties that
supply software applications that can be integrated with our solutions to
address specific industry or customer requirements. We refer to these third
parties as technology providers. We are developing relationships with technology
providers in a number of product categories including Internet applications,
client/server applications, business productivity, reporting, finance, mobile
office products, communications, sales configurators, data mining, business
information suppliers and vertical market solutions. The purpose of these
relationships is to expand the breadth of technology and services available to
our customers.
We provide education and training services to members of our Pivotal
Alliance to increase their understanding of our solutions. We are implementing a
certification program that will require members of our Pivotal Alliance that
perform implementation and customization services to meet our certification
standards in the areas of business analysis, systems design, installation,
customization, training and support. We intend to expand the Pivotal Alliance
and to upgrade the capabilities of its members.
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<PAGE> 45
Microsoft
We participate with Microsoft in numerous industry tradeshows, partner
focused events, public relations activities, seminars and presentations. We have
chosen to align our product development, sales and marketing strategies with
Microsoft. Our strong relationship with Microsoft has enabled us to participate
in early product development initiatives with them. As a result, our products
are optimized for Microsoft platforms. We have won several Microsoft awards
based on our solution in specific customer applications and our ability to
demonstrate success on the Microsoft platform.
Enterprise 360
Enterprise 360 is a consortium founded in 1998 by Pivotal, KPMG, Microsoft
and Hewlett-Packard. Members of this consortium combine hardware, software and
services to provide comprehensive customer relationship management solutions.
Members of this consortium participate in joint sales and marketing activities,
including trade shows, marketing materials and a common World Wide Web site at
www.enterprise360.com, which should not be considered part of this prospectus.
Peppers and Rogers Group
We have formed a strategic alliance with internationally acclaimed authors
Don Peppers and Martha Rogers and Marketing 1to1, Inc. that is exclusive to us
in the customer relationship management marketplace. Marketing 1to1, Inc. has
pioneered many of the principles of one-to-one marketing and we have joined
forces with them to produce industry seminars, keynote presentations and
business consulting services. Marketing 1to1, Inc. has also chosen to deploy our
solution internally to manage and improve its own customer relationships.
TECHNOLOGY
Our Pivotal software architecture provides a foundation for the development
of new and innovative products and allows our applications to be easily
adaptable, to operate with other applications and to address the needs of users
on multiple computing devices. This software architecture also allows our
applications to be used over the Internet. We have invested in the following
technologies which serve as a basis for our customer relationship management
solution:
Microsoft Technology. Our applications are optimized for the Microsoft
Windows NT and Microsoft BackOffice platforms. Our focused development efforts
have enabled us to create solutions that exploit the capabilities of Microsoft's
products, including SQL Server, that are bundled and licensed with our
solutions. We also created a direct link between our products' databases and
Microsoft Outlook, that allows our customers to use the familiar interface of
Microsoft Outlook to update their calendar, tasks and contact information. In
addition, our Pivotal eRelationship software application uses Microsoft Internet
technologies to publish information across the Internet.
Metadata Repository. Our software contains a database, called a metadata
repository, that is the blueprint for each application's data structure, forms,
lists, business rules, work flow, queries and reports. This allows for rapid
adaptability and deployment by enabling customization to occur without source
code modification. A business can distribute custom application changes
throughout its organization in the normal data synchronization process. We
believe these benefits differentiate our solution from those of our competitors.
Pivotal SyncStream. Pivotal SyncStream captures any additions,
modifications or deletions to our application and the shared corporate database
and transmits only the net changes to the appropriate users. This technology
eases the deployment of new applications, minimizes the connection costs
associated with the synchronization of data, transmits changes securely and
enables mobile users to receive the correct data when synchronizing.
Distributed Database Design. Pivotal Relationship and Pivotal
eRelationship are designed to support databases that reside on multiple servers.
This design allows data from the central database to be
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replicated to servers in different locations and mobile users, and to be updated
by Pivotal SyncStream. This allows for scalability and configuration flexibility
as customers can upgrade network hardware and software in a modular fashion
without loss of performance and downtime.
Pivotal Transporter. The Pivotal Transporter is a module of the Pivotal
Toolkit that allows our customers to easily import new application functionality
without losing or being forced to re-implement their existing application
customizations.
Pivotal Enterprise Manager. The Pivotal Enterprise Manager provides
centralized configuration management through a graphical user interface. The
Enterprise Manager enables system administrators to audit and apply
configuration changes to the application, manage and test customization changes
off-line and replicate custom data sets for mobile users. From a single
interface, customers can distribute an updated system online across the entire
enterprise without downtime for users.
RESEARCH AND DEVELOPMENT
Our research and development department is divided into six teams: Advanced
Technology, Software Development, Documentation, Quality Assurance, Program
Management and Product Management. To expand the capacity of our research and
development department, where appropriate, we contract with third-party
developers.
Our software development approach consists of a well defined methodology
that provides guidelines for planning, controlling and implementing projects.
Our Advanced Technology team focuses on tracking and evaluating new technologies
with a view to incorporating the best technologies available into our solution.
Our Product Management team gathers and documents market requirements and trends
in a requirements analysis. After the requirements analysis has been reviewed
for feasibility and the proposed project approved by management, a
cross-functional team is established to implement the project. Our Program
Management team takes responsibility for documenting a detailed product
specification. The Program Management team designs prototypes to assess the
risks and business requirements of a project at this stage. This enables
programmers in the Software Development team to concentrate solely on research
and development activities. Through the later stages of development we perform
final testing and quality assurance. Our Product Management team is involved at
all stages of development so that market requirements continue to be addressed.
The Product Management team also assists with the introduction of the product by
training our direct sales force and internal professional services staff.
We place particular emphasis on quality assurance and testing throughout
the development process. We use version control software as well as standard
test tools, scripts and agents developed by us in order to automate our testing
processes and increase the quality of code we develop.
As of June 30, 1999, there were 56 employees in our research and
development department.
COMPETITION
The market for our software is intensely competitive, fragmented and
rapidly changing. We face competition from companies in two distinct markets,
the customer relationship management software market and the electronic commerce
software market. Competitors in the customer relationship management software
market include:
- vendors such as Siebel Systems, Inc., Onyx Software Corporation,
Clarify, Inc. and The Vantive Corporation;
- large enterprise software vendors such as Baan Company N.V. and Oracle
Corporation; and
- internal information technology departments may develop proprietary
customer relationship management applications.
Competitors in the electronic commerce software market include Internet
relationship management and other electronic commerce software companies such as
Vignette Corporation and Silknet Software,
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Inc. We expect competition from companies like these to increase as we focus
more on our Pivotal eRelationship application and Internet-based applications
involving electronic commerce.
It is also possible that Microsoft Corporation may decide to introduce
products that compete with ours.
In addition, as we develop new products, particularly applications focused
on electronic commerce or on specific industries, we may begin competing with
companies with whom we have not previously competed. It is also possible that
new competitors will enter the market or that our competitors will form
alliances that may enable them to rapidly increase their market share. Some of
our actual and potential competitors are larger, better established companies
and have greater technical, financial and marketing resources. Increased
competition may result in price reductions, lower gross margins or loss of our
market share, any of which could materially adversely affect our business,
financial condition and operating results.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
We rely on a combination of copyright, trade secret and trademark laws,
confidentiality procedures, contractual provisions and other similar measures to
protect our proprietary information and technology. We do not currently hold any
patents nor do we have any patent applications pending. There can be no
assurance that any copyrights or trademarks held by us will not be challenged or
invalidated.
As part of our confidentiality procedures, we have a policy of entering
into non-disclosure and confidentiality agreements with our employees,
consultants, corporate alliance members, customers and prospective customers. We
also enter into license agreements with respect to our technology, documentation
and other proprietary information. These licenses are perpetual and are
generally transferable subject to obtaining our prior consent. Despite the
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy or otherwise obtain the use of our products or technology that we consider
proprietary and third parties may attempt to develop similar technology
independently. We pursue registration and protection of our trademarks primarily
in the United States, although we do seek protection elsewhere in selected key
markets. Effective protection of intellectual property rights may be unavailable
or limited in some countries. The laws of some countries do not protect our
proprietary rights to the same extent as in the United States and Canada. There
can be no assurance that protection of our proprietary rights will be adequate
or that our competitors will not independently develop similar technology.
We anticipate that companies that develop software applications will be
subject to infringement claims as the number of products and competitors in our
industry segment grows and the functionality of products in different industry
segments overlaps. As a result, we may become involved in these claims. Any of
these claims, with or without merit, could result in costly litigation, divert
our management's time, attention and resources, delay our product shipments or
require us to enter into royalty or license agreements. If a claim of product
infringement against us is successful, our business and operating results could
be seriously harmed. See "Risk Factors -- We may be unable to adequately protect
our proprietary rights."
EMPLOYEES
As of June 30, 1999, we had a total of 270 employees, excluding independent
contractors and temporary employees. Of this number, 56 people were engaged in
research and development, 105 people were engaged in sales and marketing, 70
people were engaged in professional services and 39 people were engaged in
general administration. No employees are known by us to be represented by a
collective bargaining agreement and we have never experienced a strike or work
stoppage. We consider our employee relations to be good. Our ability to achieve
our financial and operational objectives depends in large part upon our ability
to attract, retain and motivate highly qualified sales, technical and managerial
personnel. There can be no assurance that we will be able to attract and retain
such employees in the future.
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FACILITIES
Our principal administrative, professional services and research and
development facilities are located in North Vancouver, British Columbia, Canada,
and consists of approximately 43,000 square feet of office space in three
separate buildings. Each of the leases for these buildings expire in September
2002. Our principal sales and marketing facility is located in Kirkland,
Washington and consists of approximately 13,600 square feet of office space held
under a lease that expires in December 2003. We also have a significant sales
and training center in Chicago which consists of approximately 8,309 square feet
of space under a lease which expires in August, 2003. As of June 30, 1999, we
also leased offices in San Francisco, Irvine, Dallas, New York, Washington DC,
Boston, Toronto and London.
LEGAL PROCEEDINGS
We are not currently party to any material pending legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL
The table below provides the names, ages, and positions with Pivotal of our
executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Norman B. Francis................... 49 President, Chief Executive Officer and Director
Keith R. Wales...................... 53 Chief Technical Officer, Vice President, Research
and
Development and Director
Vincent D. Mifsud................... 31 Chief Financial Officer and Vice President,
Operations
Glenn S. Hasen...................... 38 Vice President, Worldwide Sales
Christine E. Rogers................. 43 Vice President, Professional Services, North America
Robert A. Runge..................... 44 Vice President, Worldwide Marketing
Jeremy A. Jaech(1).................. 44 Director
Robert J. Louis (1)(2).............. 54 Director
Douglas J. Mackenzie(1)(2).......... 39 Director
Donald A. Mattrick.................. 35 Director
Roger S. Siboni(2).................. 44 Director
</TABLE>
- ---------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
DIRECTORS AND EXECUTIVE OFFICERS
NORMAN B. FRANCIS co-founded Pivotal in 1990 and has served as President,
Chief Executive Officer and a director since December 1990. Mr. Francis'
experience prior to co-founding Pivotal includes co-founding Basic Software
Group Inc., an accounting software company, in 1979. Mr. Francis served as Basic
Software Group's Vice President, Operations until the company was acquired by
Computer Associates International, Inc., a software company, in 1985. Mr.
Francis served as Vice President, Micro Products Division of Computer Associates
International Inc. from 1985 to 1990. Mr. Francis holds a bachelor of science
degree in Computer Science from the University of British Columbia, Canada and
is a Chartered Accountant.
KEITH R. WALES co-founded Pivotal in 1990 and has served as Vice President,
Research and Development and a director since December 1990. Mr. Wales was also
recently appointed as Chief Technical Officer. Mr. Wales' experience prior to
co-founding Pivotal includes co-founding Basic Software Group Inc., an
accounting software company, in 1979. Mr. Wales served as Basic Software Group's
Vice President, Research and Development until the company was acquired by
Computer Associates International, Inc. in 1985. Mr. Wales served as Divisional
Vice President, Research and Development of Computer Associates International,
Inc. from 1985 to 1986. Mr. Wales holds a bachelor of science degree in
Mathematics and a master's of science degree in Computer Science from the
University of British Columbia, Canada.
VINCENT D. MIFSUD has served as Chief Financial Officer and Vice President,
Operations since December 1998. Prior to joining Pivotal, Mr. Mifsud served as
Controller, Vice President, Finance and Chief Financial Officer of Rand A
Technology, Inc., a software developer and value added reseller of mechanical
design automation tools and services, from May 1993 to December 1998. Prior to
this, Mr. Mifsud worked for three years with Arthur Andersen LLC in their
Enterprise Division. Mr. Mifsud holds a bachelor's degree in Commerce and
Economics from the University of Toronto, Canada and is a Chartered Accountant.
GLENN S. HASEN has served as Vice President, Worldwide Sales since October
1996. Prior to joining Pivotal, Mr. Hasen served as Director of International
Sales of Information Builders Inc., a global software tools and middleware
company, from February 1994 to October 1996. In addition, he served as General
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<PAGE> 50
Manager of Information Builders Inc., from January 1990 to February 1994. Mr.
Hasen also served as Director of Sales of Computer Associates International,
Inc. from 1985 to 1990. Mr. Hasen holds a bachelor's degree from the University
of Waterloo, Ontario, Canada and a Certificate in Finance from the Wharton
School, University of Pennsylvania.
CHRISTINE E. ROGERS has served as Vice President, Professional Services,
North America since April 1999. Ms. Rogers served as Associate Partner of
Andersen Consulting's Customer Relationship Management practice from September
1998 to April 1999. Ms. Rogers served as Director of Andersen Consulting's
Customer Relationship Management practice from October 1996 to September 1998.
Ms. Rogers served as the Director of Database Marketing of AT&T Wireless
Services from January 1995 to September 1996. Ms. Rogers served as the Director,
Channel Sales of the Tracker Corporation from July 1994 to December 1994. Ms.
Rogers served as Director, National Retail Sales of Rogers Cantel Mobile
Communications Inc., a cable and telecommunications service provider from
November 1987 to June 1994.
ROBERT A. RUNGE has served as Vice President, Worldwide Marketing since
September 1997. Before joining Pivotal, Mr. Runge served as Vice President,
Marketing of BroadVision, Inc., an Internet marketing software company, from
September 1995 to September 1997. Mr. Runge served as Director of Product
Marketing of Sybase, a software company, from September 1990 to September 1995.
Prior to that, Mr. Runge served as Director of Education Services of Oracle
Corporation, a software company, from July 1988 to September 1990. Mr. Runge
holds two bachelors' degrees from the University of Illinois, Champagne-Urbana
and a master's degree in Business Administration (Marketing) from the University
of Illinois, Chicago.
JEREMY A. JAECH has served as a director since July 1996. Mr. Jaech
co-founded and currently serves as President, Chief Executive Officer and
director of Visio Corporation, a supplier of enterprise-wide business
diagramming and technical drawing software for Microsoft Windows. Prior to
co-founding Visio Corporation in September 1990, Mr. Jaech co-founded Aldus
Corporation in 1984 and served as Vice President, Engineering. Aldus Corporation
was purchased by Adobe Systems Incorporated in 1989. Mr. Jaech holds a
bachelor's degree in Mathematics and a master's degree in Computer Science from
the University of Washington.
ROBERT J. LOUIS has served as a director since June 1995. Since March 1999,
Mr. Louis has served as President of Ventures West Management Ltd., a venture
capital firm which he joined as an Executive Vice President in January 1991. Mr.
Louis earned a bachelor of science degree and a master's degree in Science from
the University of Victoria, British Columbia, Canada and a Ph.D. in Physics from
the University of British Columbia, Canada.
DOUGLAS J. MACKENZIE has served as a director since July 1992. Mr.
Mackenzie has served as General Partner of Kleiner, Perkins Caufield & Byers, a
venture capital firm specializing in high-tech companies, since April 1994. Mr.
Mackenzie also serves as a director of Marimba, Inc. and Visio Corporation. Mr.
Mackenzie holds a bachelor's degree in Economics and a master's degree in
Industrial Engineering from Stanford University, and a master's degree in
Business Administration from Harvard University.
DONALD A. MATTRICK has served as a director since May 1999. Mr. Mattrick
has served as the President of Electronic Arts Worldwide Studios, a manufacturer
of gaming software, since September 1997. Mr. Mattrick served as Executive Vice
President, North American Studios of Electronic Arts Worldwide Studios from
October 1995 to September 1997 and as Executive Vice President and General
Manager of Electronic Arts Worldwide Studios from 1991 to October 1995.
ROGER S. SIBONI has served as a director since June 1998. Mr. Siboni has
served as the President and Chief Executive Officer of E.piphany Inc., a
packaged enterprise relationship management systems company, since August 1998.
Mr. Siboni served as Deputy Chairman and Chief Operating Officer of KPMG LLP in
the United States from October 1996 to July 1998. Prior to that, Mr. Siboni
served as National Managing Partner of KPMG LLP in the United States from 1993
to September 1996. Mr. Siboni also serves as a director of Macromedia Inc.,
FileNet Corporation, Cadence Design Systems, Inc. and Active Software, Inc.
45
<PAGE> 51
BOARD COMMITTEES
Our board of directors has established an audit committee and a
compensation committee.
Audit Committee. The audit committee of the board of directors reviews our
internal accounting procedures and consults with and reviews the services
provided by our independent auditors. Messrs. Siboni, Mackenzie and Louis are
members of this committee.
Compensation Committee. The compensation committee of the board of
directors reviews and recommends to the board of directors the compensation and
benefits of all our executive officers and establishes and reviews general
policies relating to compensation and benefits of our employees. Messrs. Jaech,
Mackenzie and Louis are members of this committee. Except as described in
"Transactions between Pivotal and its Officers, Directors or Significant
Shareholders," no interlocking relationships exist between our board of
directors or compensation committee and the board of directors or compensation
committee of any other company, nor has any interlocking relationship existed in
the past.
DIRECTOR COMPENSATION
We do not currently pay any cash compensation to directors for serving on
our board, but we do reimburse directors for out-of-pocket expenses for
attending board and committee meetings. We do not provide additional
compensation for committee participation or special assignments of the board of
directors. Of our directors, only Messrs. Siboni, Jaech and Mattrick received
stock options for their participation on our board. Mr. Siboni received options
to purchase 60,000 common shares at a price of Cdn.$2.50 per share, Mr. Jaech
received options to purchase 60,000 common shares at a price of Cdn.$0.12 per
share and Mr. Mattrick received options to purchase 15,000 common shares at a
price of Cdn.$19.00 per share.
DIRECTOR AND OFFICER INDEMNIFICATION
Under the British Columbia Company Act we may, if we obtain court approval,
indemnify our directors and officers and former directors and officers and
current and former directors and officers of our subsidiaries against costs and
expenses, including amounts paid to settle an action or satisfy a judgment in a
civil, criminal or administrative action or proceeding to which they are made
parties because they have been directors or officers, including an action
brought by us. Indemnification of a director or officer under the British
Columbia Company Act is possible only if it is shown that the director or
officer acted honestly and in good faith with a view to our best interests, and
in the case of a criminal or administrative action or proceeding the director or
officer had reasonable grounds for believing that his conduct was lawful.
Our articles require us, if we obtain court approval, to indemnify our
current and former directors. Under our articles we may, if we obtain court
approval, indemnify our subsidiaries' current and former directors and our and
our subsidiaries' current and former officers, employees and agents. Our
articles also provide that, to the fullest extent permitted by the British
Columbia Company Act:
- the rights conferred in the articles are not exclusive; and
- we are authorized to purchase and maintain insurance on behalf of our
and our subsidiaries' current and past directors, officers, employees
and agents against any liability incurred by them in their duties.
Our board of directors has authorized us to enter into indemnity agreements
with each of our directors and officers and the directors and officers of our
subsidiaries. We are currently in the process of entering into indemnity
agreements with each of our directors and officers and the directors and
officers of our subsidiaries. The indemnity agreements call for us to indemnify
the director or officer against all liabilities in connection with any claim
arising out of the individual's status or service as a director or officer of
Pivotal, or our subsidiaries, other than liabilities arising from gross
negligence or willful misconduct. These agreements also call for us to advance
expenses incurred by the individual in
46
<PAGE> 52
connection with any action with respect to which the individual may be entitled
to indemnification by Pivotal.
The British Columbia Company Act currently requires us to obtain the
approval of a court before we indemnify directors or officers. Under proposed
legislation now before the British Columbia legislature, this requirement will
be removed.
Currently, there is no pending litigation or proceeding where a current or
past director, officer or employee is seeking indemnification, nor are we aware
of any threatened litigation that may result in claims for indemnification.
We maintain directors and officers liability insurance with an annual
aggregate coverage limit of Cdn.$5 million.
EXECUTIVE COMPENSATION
The following table describes the compensation we paid to, or was earned
by, our chief executive officer and our executive officers who earned more than
$100,000 during the fiscal year ended June 30, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-------------------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
- --------------------------- ------------ ---------------
<S> <C> <C>
Norman B. Francis
President and Chief Executive Officer................... Cdn.$120,000 --
Keith R. Wales
Chief Technical Officer and Vice
President, Research and Development..................... Cdn.$120,000 Cdn.$ 37,064
Vincent D. Mifsud(1)
Chief Financial Officer and Vice President,
Operations.............................................. Cdn.$ 85,192 Cdn.$ 47,068
Glenn S. Hasen
Vice President, Worldwide Sales......................... $118,750 $ 87,425
Robert A. Runge
Vice President, Marketing............................... $141,282 $ 39,651
</TABLE>
- ---------------
(1) We hired Mr. Mifsud in December 1998. Mr. Mifsud's annual salary is
Cdn.$150,000 of which Cdn.$85,192 was paid to Mr. Mifsud during the fiscal
year ended June 30, 1999. Mr. Mifsud's guaranteed annual bonus is
Cdn.$57,750 of which Cdn.$32,799 was paid to Mr. Mifsud during the fiscal
year ended June 30, 1999. We also have accrued a performance-based bonus of
Cdn.$14,269 to Mr. Mifsud for the year ended June 30, 1999.
On October 21, 1997, Pivotal granted to Glenn Hasen, and Mr. Hasen
immediately exercised, an option to purchase 136,000 common shares at an
exercise price of Cdn.$0.25 per share. The option vested immediately subject to
a right to repurchase the common shares at the exercise price of Cdn.$0.25 by
Pivotal. The common shares are released from the repurchase right over a period
of three years beginning with 34,000 common shares on November 1, 1997 and
17,000 common shares every 6 months thereafter. Currently, 51,000 common shares
remain subject to the repurchase right.
On October 21, 1997, Pivotal granted to Robert Runge, and Mr. Runge
immediately exercised, an option to purchase 250,000 common shares at an
exercise price of Cdn.$0.25 per share. The option vested immediately subject to
a right to repurchase the common shares at the exercise price of Cdn.$0.25 by
Pivotal. The common shares are released from the repurchase right over a period
of four years beginning with 62,500 common shares on October 21, 1998 and 31,250
every six months thereafter. Currently, 156,250 common shares remain subject to
the repurchase right.
47
<PAGE> 53
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding stock option grants to
our chief executive officer and our executive officers who earned more than
$100,000 during the fiscal year ended June 30, 1999. The potential realizable
value of the options is calculated based on the assumption that the common
shares appreciate at the annual rate shown, compounded annually, from the date
of grant until the expiration of their term. These numbers are calculated based
on Securities and Exchange Commission requirements and do not reflect our
projection or estimate of future share price growth. Potential realizable values
are computed by:
- converting the Canadian dollar exercise price per share to U.S. dollars
using the exchange rate at June 30, 1999, which was Cdn.$1.00 =
U.S.$.6787;
- multiplying the number of common shares subject to a given option by the
exercise price;
- assuming that the aggregate share value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the entire
term of the option; and
- subtracting from that result the aggregate option exercise price.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF SHARE
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- ---- ---------- ------------ --------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Norman B. Francis...... -- -- -- -- -- --
Keith R. Wales......... -- -- -- -- -- --
Vincent D. Mifsud...... 160,000 18.48% Cdn.$8.00 12/01/03 $1,545,832.10 $1,950,649.60
Glenn S. Hasen......... 90,000 10.39% Cdn.$7.50 07/01/03 $ 908,584.83 $1,146,521.90
Robert A. Runge........ 60,000 6.93% Cdn.$7.50 10/01/03 $ 605,723.22 $ 764,348.04
</TABLE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information regarding the exercise of options
to purchase common shares by our chief executive officer and our executive
officers who earned more than $100,000 during fiscal 1999. The value of
unexercised in-the-money options is based on an assumed initial public offering
price of $13.00 per share, the assumed initial public offering price per common
share, minus the exercise price per share.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FISCAL MONEY OPTIONS AT
YEAR-END FISCAL YEAR-END
SHARES --------------------------- -----------------------------
ACQUIRED ON VALUE
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Norman B. Francis.............. -- -- 16,142 31,708 $ 204,672 $ 398,042
Keith R. Wales................. -- -- -- -- -- --
Vincent D. Mifsud.............. -- -- -- 160,000 -- $ 1,211,264
Glenn S. Hasen................. -- -- 35,250 78,750 $ 399,030 $ 622,893
Robert A. Runge................ -- -- 7,500 52,500 $ 59,323 $ 415,263
</TABLE>
48
<PAGE> 54
EMPLOYMENT AGREEMENTS
We have not entered into written employment agreements with any of our
executive officers.
EMPLOYEE BENEFIT PLANS
Incentive Stock Option Plan
Our board of directors and shareholders approved our Incentive Stock Option
Plan in July 1992. Initially, 1,096,800 common shares were reserved for issuance
under the plan. This reserve has been increased several times. Initially, the
eligible persons under the plan were our directors, officers and employees and
the directors, officers and employees of our subsidiaries. The plan was
subsequently amended to extend eligibility to include our independent
contractors and consultants, independent contractors and consultants of our
subsidiaries and any partnership, joint venture, or other entity in which we
hold a 50% voting interest, and directors of any such partnership, joint
venture, or other entity. The exercise price for options granted under the plan
is determined by the board of directors, and must not be less than the fair
market value of the common shares on the date of grant as determined by the
board of directors, less any discount permitted by law and by regulatory bodies
having jurisdiction over us. In the case of U.S. residents and citizens, the
plan provides for the grant of both incentive stock options that may qualify
under section 422 of the U.S. Internal Revenue Code and non-qualified stock
options on terms determined by the board of directors, subject to statutory and
other limitations in the plan, including limitations on the exercise price,
which for incentive options to comply with section 422 of the Code may not be
less than 100% of the fair market value of the common shares on the date of
grant. Incentive options may be granted to our employees and those of our
subsidiaries, while non-qualified options may be issued to non-employee
directors, and independent contractors, as well as to employees.
The plan is administered by the board of directors, which determines the
individuals who shall receive options, the time period during which the options
may be partially or fully exercised, the number of shares issuable upon the
exercise of each option and the option exercise price.
No option may be transferred by an optionee other than by the laws of
succession, descent and distribution, and, during the lifetime of an optionee,
the option is exercisable only by the optionee. We have a right of first refusal
exercisable in connection with any proposed sale of shares acquired by an
optionee under the plan, but this right will lapse upon the occurrence of
several conditions, including a firm commitment underwritten public offering of
our common shares.
If an optionee's employment or engagement is terminated other than by death
or disability, no further installments of options that have not vested as of the
date of termination will become exercisable, and the optionee will be entitled
to exercise vested options for a period of 30 days following termination. If an
optionee is terminated for cause, any option or unexpired portion granted to the
optionee terminates immediately. Upon termination of employment or engagement of
an optionee by reason of death or permanent and total disability, the optionee's
options remain exercisable for 12 months to the extent that the options had
vested and were exercisable on the date of termination.
Each option vests and becomes exercisable at such times determined by the
board of directors at the time of grant. Holders of options granted before June
1999 under the plan cannot exercise these options more than five years from the
date of grant, or an earlier date as may be fixed by the board of directors. In
June 1999, our shareholders approved amendments to the plan which will be
effective upon closing of this offering. These amendments, among other things:
- permit the grant of options with a duration of up to ten years;
- extend the expiry date for the plan from July 31, 2002 to July 31, 2006;
- delete the requirements for shareholder approval for future amendments to
the plan, other than as required by law;
- allow administration of the plan by a committee of the board of
directors; and
49
<PAGE> 55
- permit the plan administrator to authorize two of our officers acting
together to make option grants to eligible individuals other than
executive officers or directors within limits set by the plan
administrator.
The amendments also increase the number of shares reserved for issuance pursuant
to the plan by
- 1,076,186 common shares; plus
- an automatic increase on the first day of each fiscal year beginning in
2001, equal to the lesser of 800,000 shares or 4% of the average common
shares outstanding as used to calculate fully diluted earnings per share
as reported in our annual report to shareholders for the preceding year.
The usual period over which options become vested under the plan is four
years, with vesting as to 25% on the first anniversary of the date of grant and
12.5% at the end of each six month period thereafter, but the plan administrator
may provide for different vesting schedules in particular cases. The exercise
price payable for shares purchased under the plan must be paid in cash or by
certified check, or other consideration with equivalent value at the time of
purchase as the plan administrator may determine.
Any unexercised options that expire or that terminate upon an employee
ceasing to be employed by us become available again for issuance under the plan.
The plan as amended will terminate on July 31, 2006. As of June 30, 1999,
1,078,186 common shares had been issued pursuant to the exercise of options
granted under the plan, options to purchase 1,454,687 common shares were
outstanding under the plan, and 2,543,313 shares were available for future
option grants.
Employee Share Purchase Plan
We are instituting an employee share purchase plan that becomes effective
upon the effectiveness of the offering. We intend that the plan will qualify
under section 423 of the Internal Revenue Code for employees in the United
States and will afford tax benefits to employees in Canada. The share purchase
plan will permit our eligible employees to purchase common shares through
payroll deductions of up to 10% of their cash compensation or, in the case of
eligible British Columbia resident employees, the greater of 10% of the cash
compensation or Cdn.$10,000. The plan provides for six month offering periods,
beginning on each January 1 and July 1, except for the first offering period,
which begins on the date of this prospectus and ends on December 31, 1999. No
employee may purchase more than $12,500 in common shares in any offering period.
We are authorizing the issuance of up to a total of 1,000,000 common shares
pursuant to the plan.
The price of common shares issued under the employee share purchase plan
will be the lesser of 85% of the fair market value on the first day of the
offering period and 85% of the fair market value on the last day of the offering
period, except that the purchase price for common shares in the first offering
period will be the lesser of the initial public offering price for the common
shares and 85% of the fair market value on December 31, 1999.
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<PAGE> 56
TRANSACTIONS BETWEEN PIVOTAL AND ITS OFFICERS, DIRECTORS
OR SIGNIFICANT SHAREHOLDERS
Since May 31, 1994, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we or any of our
subsidiaries was or is to be a party in which the amount involved exceeded or
will exceed $60,000 and in which any director, executive officer, holder of more
than 5% of our common shares or any member of the immediate family of any of the
foregoing persons had or will have a direct or indirect material interest other
than compensation agreements and other arrangements, which are described below
or in the "Management" section of this prospectus.
COMMON SHARE EXCHANGE AGREEMENTS. On December 29, 1998 we changed the
designation of our common shares to Class A common shares and we increased our
authorized capital by creating 600,000 Class B common shares, which are
subordinate on liquidation but otherwise have the same rights and restrictions
as the Class A common shares. In transactions effective on December 31, 1998 and
January 5, 1999, we issued an aggregate of 476,786 Class B common shares to 22
of our shareholders in exchange for Class A common shares on a one for one
basis. The 22 shareholders included Norman B. Francis, The Francis Family Trust,
Keith R. Wales and Patricia Wales. These exchanges were made to permit the 22
shareholders to realize a capital gains deduction on the disposition of their
Class A common shares for Canadian income tax purposes. We received no
consideration from these shareholders other than the Class A common shares that
were exchanged for Class B common shares. In June 1999, the Class A common
shares were redesignated as common shares. All of the outstanding Class B common
shares will be exchanged for common shares on a one for one basis. See
"Description of Share Capital."
PREFERRED SHARE FINANCINGS. Since May 31, 1994, we have sold the following
preferred shares in a series of private placements:
<TABLE>
<CAPTION>
SHARES PRICE PER SHARE DATE
------ --------------- -------------
<S> <C> <C>
2,658,228 Class D preferred shares.......... $0.79 June 1995
4,000,000 Class E preferred shares.......... $1.35 November 1996
1,288,246 Class F preferred shares.......... $6.21 January 1999
</TABLE>
Upon the completion of this offering, each of these preferred shares will
convert into one common share.
We sold these shares under preferred share purchase agreements and
investors' rights agreements on substantially similar terms, except for terms
relating to date and price. All these classes of preferred shares are
convertible to common shares and all classes are redeemable. Under these
agreements, we made standard representations, warranties and covenants, and we
granted the purchasers registration rights, information rights, a right of first
offer, co-sale rights and rights of first refusal. All of these rights other
than registration rights terminate upon consummation of the offering. See
"Description of Share Capital -- Registration Rights."
The purchasers of these preferred shares included the following beneficial
owners of 5% or more of our common shares, directors and entities associated
with directors:
<TABLE>
<CAPTION>
PREFERRED SHARES
---------------------------------
INVESTOR CLASS D CLASS E CLASS F
- -------- --------- --------- -------
<S> <C> <C> <C>
Bank of Montreal Capital Corporation..................... 40,259 370,370 204,848
Integral Capital Partners II, L.P........................ 126,582 548,148 383,802
Integral Capital Partners International II, C.V.......... -- 192,593 99,290
Kleiner Perkins Caufield & Byers VI...................... 820,318 951,852 309,557
Oak Investment Partners VI, LLP.......................... 24,918 1,476,658 129,718
Oak VI Affiliates Fund, L.P.............................. 581 34,453 --
VW B.C. Technology Investment Fund Limited Partnership... 1,645,570 370,370 --
Jeremy A. Jaech.......................................... -- 55,556 --
</TABLE>
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<PAGE> 57
E.PIPHANY TRANSACTIONS. In March 1996, we purchased products and services
for internal use from E.piphany for $277,000. At the same time, E.piphany
purchased products and services for internal use from us for $277,000. In
addition, we have entered into a letter of understanding to enter into an
agreement pursuant to which we would agree to resell E.piphany products that we
would purchase at a discount, and to pay a fee to E.piphany for making sales
referrals to us. Douglas Mackenzie and Roger Siboni, directors of Pivotal, serve
as directors of E.piphany.
PRINCIPAL SHAREHOLDERS
The following table provides information concerning the beneficial
ownership of our common shares, including our preferred shares on an
as-converted basis for common shares, as of June 30, 1999 and as adjusted to
reflect the sale of the common shares in this offering for:
- our chief executive officer;
- all officers whose annual compensation was more than $100,000 during
fiscal 1999;
- each of our directors;
- each shareholder that we know owns more than 5% of our outstanding
common shares; and
- all our directors and executive officers as a group.
The principal address of each of the shareholders below is 224 West
Esplanade, Suite 300, North Vancouver, BC, Canada V7M 3M6, except where another
address is listed. The information provided in the table below assumes no
exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
PERCENT OF COMMON
SHARES OWNED
-----------------------
NUMBER OF SHARES BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------------------ ------------------ ---------- ---------
<S> <C> <C> <C>
Norman B. Francis(1)................................... 2,445,973 15.3% 12.6%
Keith R. Wales(2)...................................... 1,225,800 7.7 6.3
Vincent D. Mifsud...................................... -- -- --
Patricia Wales(3)...................................... 1,200,800 7.5 6.2
420 Westholme Rd.
West Vancouver, British Columbia
Canada V7V 2N1
Roger S. Siboni(4)..................................... 15,000 * *
Jeremy A. Jaech(5)..................................... 90,356 * *
Robert J. Louis(6)..................................... 2,631,417 16.5 13.5
Douglas J. Mackenzie(7)................................ 3,976,464 24.9 20.4
Donald A. Mattrick(4).................................. 15,000 * *
Glenn S. Hasen(8)...................................... 182,500 1.1 1.0
Robert A. Runge(9)..................................... 257,500 1.6 1.3
Ventures West Capital Ltd.(10)......................... 2,631,417 16.5 13.5
280 -- 1285 West Pender Street
Vancouver, BC V6E 4B1
Kleiner Perkins Caufield & Byers VI.................... 3,976,464 24.9 20.4
2750 Sand Hill Road
Menlo Park, CA 94025
Oak Investment Partners VI, L.P.(11)................... 1,666,328 10.4 8.5
525 University Avenue, Suite 1300
Palo Alto, CA 94301
Integral Capital Partners I, L.P.(12).................. 1,560,941 9.8 8.0
2750 Sand Hill Road
Menlo Park, CA 94025
All directors and executive officers as a group (11
persons)(13)......................................... 10,840,010 67.8 55.6
</TABLE>
- ---------------
* Less than 1%
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<PAGE> 58
(1) Includes (a) 700,800 shares held of record by The Francis Family Trust, a
family trust for the benefit of Mr. Francis and his three children; (b)
857,143 shares held of record by Boardwalk Ventures Inc., a holding company
owned 50% by Mr. Francis and 50% by his spouse; and (c) 19,373 shares
subject to options exercisable by Mr. Francis within 60 days of June 30,
1999.
(2) Includes 428,572 shares held of record by Daybreak Software Inc., a holding
company owned solely by Mr. Wales, of which Mr. Wales has sole voting
power. Mr. Wales disclaims beneficial ownership of any shares held by his
former spouse, Patricia Wales.
(3) Includes 428,571 shares held of record by Fireweed Investments Inc., a
holding company owned solely by Ms. Wales, of which Ms. Wales has sole
voting power. Ms. Wales disclaims beneficial ownership of any shares held
by her former spouse Keith Wales.
(4) Includes 15,000 shares subject to an option exercisable within 60 days of
June 30, 1999.
(5) Includes 34,800 shares subject to an option exercisable within 60 days of
June 30, 1999.
(6) Includes (a) 615,477 shares held of record by Bank of Montreal Capital
Corporation which is managed by Ventures West Management TIP Inc., an
entity affiliated with Ventures West Capital Ltd.; and (b) 2,015,940 shares
held of record by VW B.C. Technology Investment Fund Limited Partnership,
of which Ventures West Management B.C. Ltd. is the general partner.
Ventures West Management B.C. Ltd. is affiliated with Ventures West Capital
Ltd. Mr. Louis, as President of Ventures West Capital Ltd., a venture
capital firm with controlled subsidiaries which include Ventures West
Management TIP Inc. and Ventures West Management B.C. Ltd. disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest.
(7) Includes 3,976,464 shares held by Kleiner Perkins Caufield & Byers VI, an
entity affiliated with Kleiner Perkins Caufield & Byers of which Mr.
Mackenzie is the general partner. Mr. Mackenzie disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest.
(8) Includes 46,500 shares subject to an option exercisable within 60 days of
June 30, 1999. Of the shares held by Mr. Hasen, up to 51,000 shares are
currently subject to repurchase by Pivotal at the option exercise price
paid by Mr. Hasen if Mr. Hasen's employment is terminated. See
"Management."
(9) Includes 7,500 shares subject to an option exercisable within 60 days of
June 30, 1999. Of the shares held by Mr. Runge, up to 156,250 shares are
subject to repurchase by Pivotal at the option exercise price paid by Mr.
Runge if Mr. Runge's employment is terminated. See "Management."
(10) Includes (a) 615,477 shares held of record by Bank of Montreal Capital
Corporation, which is managed by Ventures West Management TIP Inc., an
entity affiliated with VW B.C. Technology Investment Fund Limited
Partnership, and (b) 2,015,940 shares held of record by VW B.C. Technology
Investment Fund Limited Partnership, of which Ventures West Management B.C.
Ltd. is the general partner. Ventures West Management B.C. Ltd. is
affiliated with Ventures West Capital Ltd.
(11) Includes 35,034 shares held of record by Oak VI Affiliates Fund, L.P., an
entity affiliated with Oak Investment Partners VI, L.P.
(12) Includes (a) 1,058,532 shares held of record by Integral Capital Partners
II, L.P., and (b) 291,833 shares held of record by Integral Capital
Partners International II, C.V., entities affiliated with Integral Capital
Partners I, L.P.
(13) Includes 138,173 shares subject to options exercisable within 60 days of
June 30, 1999.
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<PAGE> 59
DESCRIPTION OF SHARE CAPITAL
Effective upon completion of this offering, we will be authorized to issue
up to 200,000,000 common shares without par value and up to 20,000,000 preferred
shares without par value. The following is only a summary of provisions of the
common shares and the preferred shares. It is not complete and may not contain
all the information you should consider before investing in the common shares.
You should carefully read our memorandum and articles, which are included as an
exhibit to the registration statement containing this prospectus.
COMMON SHARES
As of June 30, 1999, we were authorized to issue 200,000,000 common shares,
of which 3,454,600 shares were issued and outstanding, and we were authorized to
issue 600,000 Class B common shares, of which 476,786 were issued and
outstanding. Prior to completion of this offering as part of a recapitalization,
all of the issued and outstanding Class B common shares will be exchanged for
common shares on a one-for-one basis. The balance of the authorized Class B
common shares will be cancelled. As of June 30, 1999, giving effect to the
exchange of outstanding Class B common shares for common shares and conversion
of all currently outstanding preferred shares to common shares, but prior to
giving effect to this offering and assuming no exercise of currently outstanding
options, there will be 15,983,123 common shares outstanding held of record by 82
shareholders. After giving effect to the offering, but assuming no exercise of
the underwriters' over-allotment option and no exercise of outstanding options,
there will be 19,483,123 common shares outstanding.
Holders of common shares are entitled to one vote per share on all matters
to be voted on by the shareholders. Subject to preferences of any outstanding
preferred shares, the holders of common shares are entitled to receive any
dividends the board of directors declares out of funds legally available for the
payment of dividends. Upon the liquidation, dissolution or winding up of
Pivotal, the holders of common shares are entitled to share all of our assets
remaining after payment of liabilities and after giving effect to the
liquidation preferences of any outstanding preferred shares. All outstanding
common shares are fully paid and nonassessable, and the common shares to be
issued following this offering will be fully paid and nonassessable.
PREFERRED SHARES
Effective upon completion of this offering, all of our outstanding Class A
convertible preferred shares and Class B, D, E and F redeemable convertible
preferred shares will be converted into common shares and these classes of
preferred shares will be cancelled. Our memorandum and articles provide that the
board of directors will have the authority, without further action by the
shareholders, to issue up to 20,000,000 preferred shares in one or more series.
The preferred shares are entitled to dividend and liquidation preferences over
the common shares. The board may also fix the designations, powers, preferences,
privileges and relative, participating, optional or special rights of any
preferred shares issued, including any qualifications, limitations or
restrictions. Special rights which may be granted to a series of preferred
shares may include dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any of which may be superior to the
rights of the common shares. Preferred share issuances could decrease the market
price of the common shares and may adversely affect the voting and other rights
of the holders of common shares. The issuance of preferred shares also could
have the effect of delaying or preventing a change of control of our company.
REGISTRATION RIGHTS
After this offering, the holders of 12,051,737 common shares will be
entitled to require us to register their shares under the Securities Act as
provided in an investors' rights agreement. If we propose to register any of our
securities under the Securities Act, either for our account or for the account
of other security holders exercising registration rights, the holders are
entitled to notice of the registration and to include their common shares in the
registration. These holders are also entitled to demand registration, which
would require us to register their shares under the Securities Act. We are
responsible for paying the expenses of
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<PAGE> 60
any such registration. These registration rights are subject to conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares and our right to decline to effect a registration before
October 31, 1999. All of these shareholders have agreed not to exercise this
right prior to six months from the date of the effectiveness of the registration
statement. See "Underwriting."
ANTI-TAKEOVER PROVISIONS
There are provisions of our memorandum and articles and of British Columbia
law which may hinder or impede take-over bids. For example, as described above,
our board of directors may, without shareholder approval, issue preferred shares
with rights superior to the rights of the holders of common shares. As a result,
preferred shares could be issued quickly and easily, adversely affecting the
rights of holders of common shares and could be issued with terms calculated to
delay or prevent a change in control of Pivotal or make removal of management
more difficult. In addition, under the British Columbia Company Act, certain
business combinations, including a merger or reorganization or the sale, lease,
or other disposition of all or a substantial part of our assets, must be
approved by at least 75% of the votes cast by shareholders or, in certain cases,
holders of each class of shares. In some cases, a business combination must be
approved by a British Columbia court. Shareholders may also have a right to
dissent from the transaction, in which case, we would be required to pay
dissenting shareholders the fair value of their shares provided they have
followed the required procedures. The British Columbia Company Act also provides
that a transaction such as a share exchange must be approved by a majority of
minority shareholders.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING HOLDERS OF COMMON SHARES
There is no law, governmental decree or regulation in Canada that restricts
the export or import of capital, or which would affect the remittance of
dividends or other payments by us to non-resident holders of our common shares,
other than withholding tax requirements. See "Income Tax Consequences --
Canadian Federal Income Tax Considerations."
There are no limitations imposed by Canadian law or our memorandum and
articles on the right of non-residents of Canada to hold or vote our common
shares, other than those imposed by the Investment Canada Act (Canada). This
legislation subjects an acquisition of control of Pivotal by a non-Canadian to
government review if the value of our assets at the time exceeds a threshold
amount which is adjusted annually to reflect inflation and the Canadian real
growth rate. Currently, the threshold amount is Cdn.$184 million where the
acquiror is a national or permanent resident of the United States or another
country which is a member of the World Trade Organization. The review threshold
is currently Cdn.$5 million for acquisitions of control by other non-Canadians.
A reviewable acquisition may not proceed unless the government review concludes
there is likely to be net benefit to Canada from the transaction.
The acquisition of a majority of our voting shares is deemed to be an
acquisition of control. The acquisition of less than a majority but one-third or
more of our voting shares is presumed to be an acquisition of control unless the
acquiror can establish that there is no control in fact by the acquiror through
the ownership of voting shares. The acquisition of less than one-third of our
voting shares is deemed not to be an acquisition of control. Share acquisitions
in the ordinary course of an acquiror's business as a trader or dealer in
securities are exempt from review under this legislation.
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent for our common shares will be the American
Stock Transfer Corporation. Its address is 40 Wall Street, 46th Floor, New York,
New York, 10005, and its telephone number at this location is (800) 937-5449.
LISTING
We expect our common shares to be approved for listing on the Nasdaq
National Market, subject to official notice of issuance, under the symbol
"PVTL."
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<PAGE> 61
SHARES ELIGIBLE FOR FUTURE SALE
We cannot provide any assurance that a significant public market for our
common shares will develop or be sustained after this offering has been
completed. The sale of substantial numbers of common shares in the public
market, or the possibility of such a sale, could adversely affect prevailing
market prices for our common shares.
Upon completion of the offering, a total of 19,483,123 of our common shares
will be outstanding, assuming no exercise of the underwriters' over-allotment
option or of any outstanding options.
All of the common shares sold in the offering in the United States and
Canada will be freely tradable without restriction under the U.S. Securities
Act, except by "affiliates" as defined in Rule 144 under the U.S. Securities
Act, or applicable Canadian securities laws, except by "control persons" as
defined under those laws.
For the reasons set forth below, we believe that the following presently
outstanding common shares will be eligible for resale in the public market in
the United States at the following times and by the following persons:
<TABLE>
<CAPTION>
BRITISH COLUMBIA
RESIDENTS U.S. RESIDENTS OTHER TOTAL
---------------- -------------- ------- ----------
<S> <C> <C> <C> <C>
On the date of this prospectus................. -- 320 -- 320
90 days after the date of this prospectus...... -- 1,812 -- 1,812
180 days after the date of this prospectus..... 7,476,282 7,831,371 613,830 15,921,483
Later than 180 days after the date of this
prospectus................................... 59,133 375 -- 59,508
</TABLE>
Holders of 15,919,483 common shares have entered lock-up agreements
pursuant to which they have agreed not to dispose of or hedge any of their
common shares for 180 days following the date of the prospectus without the
consent of Merrill Lynch on behalf of the underwriters. See "Underwriting --
Lock-up Agreements."
Upon completion of this offering, options to purchase 1,454,687 common
shares will be held by existing optionees. Holders of all of these options have
signed lock-up agreements.
We intend to file with the U.S. Securities and Exchange Commission a
registration statement on Form S-8 after the date of this prospectus. The S-8
registration statement will allow holders of common shares that are issued under
equity incentive arrangements, in connection with option exercises or under our
share purchase plan to resell those shares in the public market, subject to the
lock-up agreements and any restrictions imposed by British Columbia law.
As a result of the lock-up agreements, the S-8 registration statement and
the provisions of Rule 144 and Rule 701 under the U.S. Securities Act, and the
continued vesting of outstanding options, shares subject to presently
outstanding options will be available for sale in the public market in the
United States as follows, subject in some cases to Rule 144 limitations:
<TABLE>
<CAPTION>
BRITISH COLUMBIA
RESIDENTS U.S. RESIDENTS OTHER TOTAL
---------------- -------------- ------ -------
<S> <C> <C> <C> <C>
At the date of this prospectus................... -- -- -- --
90 days after the date of this prospectus........ -- -- -- --
180 days after the date of this prospectus....... 249,291 248,614 10,354 508,259
Later than 180 days after the date of this
prospectus..................................... 574,698 351,886 19,146 945,730
</TABLE>
BRITISH COLUMBIA RESALE RESTRICTIONS
Upon completion of this offering, British Columbia residents will hold
7,535,415 of our common shares and options to purchase 823,989 common shares
excluding any common shares bought in this offering. Of these common shares,
7,499,250 common shares issued (a) upon conversion of our redeemable convertible
preferred shares or our Class A convertible preferred shares and (b) in exchange
56
<PAGE> 62
for our Class B common shares will be eligible for resale under British Columbia
securities laws, subject to limitations on control persons, this lock-up
agreement and any limitations imposed by United States law. The British Columbia
Securities Commission has issued a discretionary exemption order which permits
the holders of the remaining 36,165 common shares held by British Columbian
residents, and all common shares issued upon exercise of options held by British
Columbian residents, to sell their shares beginning 180 days after the date we
file a final Canadian prospectus in British Columbia, which we intend to file on
the date of the final prospectus for the offering.
U.S. RESALE RESTRICTIONS
Upon completion of this offering, 15,983,123 common shares will be held by
U.S. residents or others (including residents of British Columbia who acquired
common shares prior to this offering and whose shares were "restricted
securities" when issued). As a result of the lock-up agreements and the
provisions of Rule 144 and Rule 701 under the U.S. Securities Act, such shares
will be available for sale in the public market in the United States as set
forth in the table above, subject in some cases to Rule 144 limitations.
In general, under Rule 144, as in effect on the date of this prospectus,
any person, including an affiliate of Pivotal, who has beneficially owned common
shares for at least one year will be entitled to sell, in any three-month
period, a number of shares that, together with sales of any common shares with
which such person's sales must be aggregated, does not exceed the greater of:
- 1% of the then outstanding common shares; and
- the average weekly trading volume of the common shares on the Nasdaq
National Market during the four calendar weeks immediately preceding the
date on which such sale is made.
Sales of restricted securities pursuant to Rule 144 are subject to
requirements relating to manner of sale, notice and availability of current
public information about Pivotal. Persons who are affiliates of Pivotal must
also comply with the restrictions and requirements of Rule 144, other than the
one-year holding period requirement, in order to sell common shares in the
public market which are not restricted securities.
Our employees, directors, officers, consultants or advisers may rely on
Rule 701 to resell common shares issued to them, pursuant to written
compensatory benefit plans or written contracts relating to their compensation.
Rule 701 also will apply to shares acquired upon exercise of options granted
before the date of this prospectus, including exercises after the date of this
prospectus. Common shares issued in reliance on Rule 701 are restricted
securities and, subject to the 180-day lock-up agreements described above, may
be sold beginning 90 days after the date of this prospectus:
- by persons other than affiliates of Pivotal, subject only to the manner
of sale provisions of Rule 144; and
- by persons deemed to be affiliates of Pivotal under Rule 144 without
compliance with its one-year minimum holding period requirements.
Holders of 12,051,737 common shares will be entitled to require us to
register their common share under the U.S. Securities Act, subject to the
lock-up agreements. See "Description of Share Capital -- Registration Rights."
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<PAGE> 63
INCOME TAX CONSEQUENCES
In this section we summarize the material anticipated United States and
Canadian federal income tax considerations relevant to a purchase of shares in
this offering by individuals and corporations which:
- for purposes of the United States Internal Revenue Code, the Income Tax
Act (Canada) and the Canada-United States Income Tax Convention, are
resident in the United States and not in Canada;
- hold shares as capital assets for purposes of the Internal Revenue Code
and capital property for purposes of the Income Tax Act;
- deal at arm's length with us; and
- do not use or hold the shares in carrying on a business through a
permanent establishment or in connection with a fixed base in Canada
and, in the case of individual holders, are also U.S. citizens.
We will refer to persons who satisfy the above conditions as "Unconnected U.S.
Shareholders."
We will assume, for purposes of this discussion, that you are an
Unconnected U.S. Shareholder. The tax consequences of a purchase of common
shares by persons who are not Unconnected U.S. Shareholders may differ
substantially from the tax consequences discussed in this section. The Income
Tax Act contains rules relating to securities held by some financial
institutions. We do not discuss these rules and holders that are financial
institutions should consult their own tax advisors.
This discussion is based upon the current provisions of:
- the Income Tax Act and regulations under the Income Tax Act;
- the Internal Revenue Code and regulations under the Internal Revenue
Code;
- the Canada-United States Income Tax Convention;
- our understanding of the current administrative policies and practices
published by Revenue Canada;
- all specific proposals to amend the Income Tax Act and the regulations
under the Income Tax Act that have been publicly announced by the
Minister of Finance (Canada) prior to the date of this prospectus;
- the administrative policies published by the U.S. Internal Revenue
Service; and
- judicial decisions,
all of which are subject to change either prospectively or retroactively. We do
not discuss the potential effects of any recently proposed legislation in the
United States and do not take into account the tax laws of the various provinces
or territories of Canada or the tax laws of the various state and local
jurisdictions of the United States or foreign jurisdictions.
WE INTEND THIS DISCUSSION TO BE A GENERAL DESCRIPTION OF THE U.S. FEDERAL
AND CANADIAN FEDERAL INCOME TAX CONSIDERATIONS MATERIAL TO A PURCHASE OF COMMON
SHARES. THIS DISCUSSION DOES NOT DEAL WITH ALL POSSIBLE TAX CONSEQUENCES
RELATING TO AN INVESTMENT IN OUR COMMON SHARES. WE HAVE NOT TAKEN INTO ACCOUNT
YOUR PARTICULAR CIRCUMSTANCES AND DO NOT ADDRESS CONSEQUENCES PECULIAR TO YOU IF
YOU ARE SUBJECT TO SPECIAL PROVISIONS OF U.S. OR CANADIAN INCOME TAX LAW.
THEREFORE, YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING YOUR INDIVIDUAL TAX
CONSEQUENCES OF PURCHASING COMMON SHARES IN THIS OFFERING.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
As an Unconnected U.S. Shareholder, you generally will include in income
dividend distributions paid by us to the extent of our current or accumulated
earnings and profits. You must include in income an amount equal to the U.S.
dollar value of such dividends on the date of receipt based on the exchange rate
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<PAGE> 64
on such date, without reduction for the Canadian withholding tax. You will
generally be entitled to a foreign tax credit, or deduction for U.S. federal
income tax purposes, in an amount equal to the Canadian tax withheld. To the
extent dividend distributions paid by us exceed our current or accumulated
earnings and profits, they will be treated first as a return of capital up to
your adjusted tax basis in the shares, and then as a gain from the sale or
exchange of the shares.
Dividends paid by us generally will constitute "passive income" for
purposes of the foreign tax credit, which could reduce the amount of foreign tax
credit available to you. The Internal Revenue Code applies various limitations
on the amount of foreign tax credit that may be available to a U.S. taxpayer.
Because of the complexity of those limitations, you should consult your own tax
advisor with respect to the potential consequences of those limitations.
Dividends paid by us on the shares will not generally be eligible for the
"dividends received" deductions. An Unconnected U.S. Shareholder which is a
corporation may, under some circumstances, be entitled to a 70% deduction of the
U.S. source portion of dividends received from us if such Unconnected U.S.
Shareholder owns shares representing at least 10% of our voting power and value.
If you sell the shares, you generally will recognize gain or loss in an
amount equal to the difference, if any, between the amount realized on the sale
and your adjusted tax basis in the shares. Any gain or loss you recognize upon
the sale of shares held as capital assets will be long-term or short-term
capital gain or loss, depending on whether the shares have been held by you for
more than one year.
Under current U.S. tax regulations, dividends paid by us on the shares
generally will not be subject to U.S. information reporting or the 31% backup
withholding tax unless they are paid in the United States through a U.S. or
U.S.-related paying agent, including a broker. If you furnish the paying agent
with a duly completed and signed Form W-9 such dividends will not be subject to
the backup withholding tax. You will be allowed a refund or a credit equal to
any amounts withheld under the U.S. backup withholding tax rules against your
U.S. federal income tax liability, provided you furnish the required information
to the Internal Revenue Service.
PERSONAL HOLDING COMPANIES
We could be classified as a personal holding company for U.S. federal
income tax purposes if both of the following tests are satisfied:
- if at any time during the last half of our taxable year, five or fewer
individuals own or are deemed to own more than 50% of the total value of
our shares; and
- we receive 60% or more of our U.S. related gross income from specified
passive sources, such as royalty payments.
A personal holding company is taxed on a portion of its undistributed U.S.
source income, including specific types of foreign source income which are
connected with the conduct of a U.S. trade or business, to the extent this
income is not distributed to shareholders. We do not believe we are a personal
holding company presently, and we do not expect to become one. However, we can
not assure you that we will not qualify as a personal holding company in the
future.
FOREIGN PERSONAL HOLDING COMPANIES
We could be classified as a foreign personal holding company if in any
taxable year both of the following tests are satisfied:
- five or fewer individuals who are United States citizens or residents
own or are deemed to own more than 50% of the total voting power of all
classes of our shares entitled to vote or the total value of our shares;
and
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<PAGE> 65
- at least 60%, 50% in some cases, of our gross income consists of
"foreign personal holding company income," which generally includes
passive income such as dividends, interest, gains from the sale or
exchange of shares or securities, rent and royalties.
If we are classified as a foreign personal holding company and if you hold
shares on the last day of our taxable year, you must include in your gross
income as a dividend your pro rata portion of our undistributed foreign personal
holding company income. If you dispose of your shares prior to such date, you
will not be subject to tax under these rules. We do not believe we are a foreign
personal holding company presently, and we do not expect to become one. However,
we can not assure you that we will not qualify as a foreign personal holding
company in the future.
PASSIVE FOREIGN INVESTMENT COMPANIES
The rules governing "passive foreign investment companies" can have
significant tax effects on Unconnected U.S. Shareholders. We could be classified
as a passive foreign investment company if, for any taxable year, either:
- 75% or more of our gross income is "passive income," which includes
interest, dividends and some types of rents and royalties, or
- the average percentage, by fair market value, or, in some cases, by
adjusted tax basis, of our assets that produce or are held for the
production of "passive income" is 50% or more.
Distributions which constitute "excess distributions," as defined in
Section 1291 of the Internal Revenue Code, from a passive foreign investment
company and dispositions of shares of a passive foreign investment company are
subject to the highest rate of tax on ordinary income in effect and to an
interest charge based on the value of the tax deferred during the period during
which the shares are owned. However, if an Unconnected U.S. Shareholder makes a
timely election to treat us as a qualified electing fund under section 1295, the
above-described rules generally will not apply. Instead, the Unconnected U.S.
Shareholder would include annually in his gross income his pro rata share of our
ordinary earnings and net capital gain, regardless of whether such income or
gain was actually distributed. Tax on this income, however, may be deferred.
In addition, subject to specific limitations, Unconnected U.S. Shareholders
owning actually or constructively marketable shares in a passive foreign
investment company may make an election under section 1296 of the Internal
Revenue Code to mark that stock to market annually, rather than being subject to
the above-described rules. Amounts included in or deducted from income under
this mark to market election and actual gains and losses realized upon
disposition, subject to specific limitations, will be treated as ordinary gains
or losses.
In addition, special rules apply if we qualify as both a passive foreign
investment company and a "controlled foreign corporation," as defined below, and
an Unconnected U.S. Shareholder owns, actually or constructively, 10% or more of
the total combined voting power of all classes of our shares entitled to vote.
We believe that we will not be a passive foreign investment company for the
current fiscal year and we do not expect to become a passive foreign investment
company in future years. You should be aware, however, that if we are or become
a passive foreign investment company we may not be able to satisfy
record-keeping requirements that would permit you to make a qualified electing
fund election. You should consult your tax advisor with respect to how the
passive foreign investment company rules affect your tax situation, including
the advisability of making an election to treat us as a qualified electing fund
or making a mark to market election.
CONTROLLED FOREIGN CORPORATION
If more than 50% of the voting power of all classes of our shares or the
total value of our shares is owned, directly or indirectly, by citizens of the
United States, U.S. domestic partnerships and corporations or estates or trusts
other than foreign estates or trusts, each of which owns 10% or more of the
total combined voting power of all classes of our shares, we could be treated as
a "controlled foreign
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<PAGE> 66
corporation" under Subpart F of the Internal Revenue Code. This classification
would effect many complex results, including requiring such shareholders to
include in income their pro rata shares of our "Subpart F Income," as defined by
the Internal Revenue Code. In addition, under Section 1248 of the Internal
Revenue Code, gain from the sale or exchange of shares by an Unconnected U.S.
Shareholder who is or was a 10% or greater shareholder at any time during the
five-year period ending with the sale or exchange will be ordinary dividend
income to the extent of our earnings and profits attributable to the shares sold
or exchanged.
We do not believe that we are a controlled foreign corporation and we do
not anticipate that we will become a controlled foreign corporation as a result
of the offering. We are not a controlled foreign corporation presently, and we
do not expect to become one. However, we can not assure you that we will not
qualify as a controlled foreign corporation in the future.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In this section, we summarize the material anticipated Canadian federal
income tax considerations relevant to your purchase of shares.
Under the Income Tax Act, as modified by the Canada-United States Income
Tax Convention, assuming you are an Unconnected U.S. Shareholder you will
generally be exempt from Canadian tax on a capital gain realized on an actual or
deemed disposition of the shares unless:
- the shares formed part of the business property of a permanent
establishment in Canada that you have or had within the twelve-month
period preceding the disposition; or
- you and persons with whom you did not deal at arm's length owned or had
rights to acquire 25% or more of our issued shares of any class at any
time during the five year period before the actual or deemed
disposition.
Dividends paid, credited or deemed to have been paid or credited on the
shares to Unconnected U.S. Shareholders will be subject to a Canadian
withholding tax at a rate of 25% under the Income Tax Act. Under the
Canada-United States Income Tax Convention, the rate of withholding tax
generally applicable to Unconnected U.S. Shareholders who beneficially own the
dividends is reduced to 15%. In the case of Unconnected U.S. Shareholders that
are companies that beneficially own at least 10% of our voting shares, the rate
of withholding tax on dividends is reduced to 5%.
Canada does not currently impose any estate taxes or succession duties,
however, if you die, there is generally a deemed disposition of the shares held
at that time for proceeds of disposition equal to the fair market value of the
shares immediately before the death. Capital gains realized on the deemed
disposition, if any, will have the income tax consequences described above.
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<PAGE> 67
UNDERWRITING
GENERAL
Subject to the terms and conditions set forth in a purchase agreement
between us and each of the underwriters named below, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co. Inc. and Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, are acting as
representatives, we have agreed to sell to the underwriters, and each of the
underwriters severally and not jointly has agreed to purchase from us, the
number of common shares set forth opposite its name below at a price that was
determined by negotiations between the underwriters and us:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Bear, Stearns & Co. Inc. ...................................
Dain Rauscher Wessels.......................................
--------
Total.......................................... 3,500,000
========
</TABLE>
In the purchase agreement, the several underwriters have agreed, subject to
the terms and conditions set forth in that agreement, to purchase all of our
common shares being sold under the terms of the agreement if any of the common
shares are purchased. The obligations of the underwriters under the purchase
agreement may be terminated at their discretion on the basis of their assessment
of the state of the financial markets and also upon the occurrence of certain
stated events. Under the purchase agreement, the commitments of non-defaulting
underwriters may be increased.
This offering is being made concurrently in the United States and in the
Province of British Columbia. The common shares will be offered in the United
States through the underwriters and through certain registered broker-dealers.
The common shares will be offered in British Columbia by Merrill Lynch Canada
Inc., the Canadian affiliate of Merrill Lynch, Pierce, Fenner & Smith
Incorporated and, subject to applicable law, will not be offered or sold in any
other province of Canada except pursuant to an exemption from the prospectus
requirements under the securities legislation of any such province.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act and British Columbia securities legislation, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.
The expenses of this offering, exclusive of the underwriting discount, are
estimated at $780,000 and are payable by us.
The common shares are being offered by the several underwriters, subject to
prior sale, when, as and if issued to and accepted by them, subject to approval
of legal matters by counsel for the underwriters and other conditions. The
underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part.
The common shares will be ready for delivery in New York, New York on or
about , 1999.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer our common shares to the public at the initial public offering price
set forth on the cover page of this prospectus, and to dealers at such price
less a concession not in excess of $ per common share. The underwriters
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<PAGE> 68
may allow, and such dealers may reallow, a discount of not more than $
per common share to other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. This information is presented assuming either no exercise
or full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- ------- ------
<S> <C> <C> <C>
Public offering price................................. $ $ $
Underwriting discount................................. $ $ $
Proceeds, before expenses, to Pivotal................. $ $ $
</TABLE>
OVER-ALLOTMENT OPTION
We have granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of an
additional 525,000 common shares at the initial public offering price set forth
on the cover of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common shares offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated to
purchase a number of additional common shares proportionate to such
underwriter's initial amount reflected in the foregoing table.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 10% of the shares offered hereby to be sold to some
of our directors and other persons, such as Pivotal Alliance members, with
relationships with Pivotal. Certain of these reserved shares will be offered
directly by us to directors or other persons residing in provinces of Canada
other than British Columbia. The number of our common shares available for sale
to the general public will be reduced to the extent that those persons purchase
the reserved shares. Any reserved shares which are not orally confirmed for
purchase within one day of the pricing of the offering will be offered by the
underwriters to the general public on the same terms as the other shares offered
by this prospectus.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors and holders of 15,921,483
common shares have agreed not to directly or indirectly
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any of our common shares or securities convertible into or
exchangeable or exercisable for or repayable with our common shares,
whether now owned or later acquired by the person executing the
agreement or with respect to which the person executing the agreement
later acquires the power of disposition, or file a registration
statement under the Securities Act relating to any of our common shares
or
- enter into any swap or other agreement or any other agreement that
transfers, in whole or in part, the economic consequence of ownership of
our common shares whether any such swap or transaction is to be settled
by delivery of our common shares or other securities, in cash or
otherwise,
without the prior written consent of Merrill Lynch on behalf of the underwriters
for a period of 180 days after the date of this prospectus. See "Shares Eligible
for Future Sale."
63
<PAGE> 69
NASDAQ NATIONAL MARKET LISTING AND FACTORS CONSIDERED IN DETERMINING THE INITIAL
PUBLIC OFFERING PRICE
Before this offering, there has been no public market for our common
shares. The initial public offering price will be determined through
negotiations between us and the representatives of the underwriters. The factors
to be considered in determining the initial public offering price, in addition
to prevailing market conditions, include:
- the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us;
- some of our financial information;
- the history of, and the prospects for, us and the industry in which we
compete;
- an assessment of our management;
- our past and present operations;
- the prospects for and anticipated timing of future revenues;
- the present state of our development;
- the percentage interest being sold as compared to the valuation for
Pivotal; and
- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
There can be no assurance that an active trading market will develop for
our common shares or that our common shares will trade in the public market
subsequent to the offering at or above the initial public offering price.
We expect our common shares to be approved for listing on the Nasdaq
National Market, subject to official notice of issuance, under the symbol
"PVTL."
The underwriters do not expect sales of our common shares to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered under this prospectus.
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of our common shares is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase our common shares. As an exception
to these rules, the underwriters are permitted to engage in transactions that
stabilize the price of our common shares. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of our
common shares.
If the underwriters create a short position in our common shares in
connection with the offering, i.e., if they sell more of our common shares than
are set forth on the cover page of this prospectus, the underwriters may reduce
that short position by purchasing our common shares in the open market. The
underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.
PENALTY BIDS
The underwriters may also impose a penalty bid on other underwriters and
selling group members. This means that if the underwriters purchase our common
shares in the open market to reduce their short position or to stabilize the
price of our common shares, they may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those shares
as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The
64
<PAGE> 70
imposition of a penalty bid might also have an effect on the price of our common
shares to the extent that it discourages resales of our common shares.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or the magnitude of any effect that the
transactions described above may have on the price of our common shares. In
addition, neither we nor any of the underwriters makes any representation that
the representatives will engage in any of these transactions or that any of
these transactions, once commenced, will not be discontinued without notice.
LEGAL MATTERS
Davis & Company, Vancouver, British Columbia, Canada will pass upon the
legality of the common shares offered by this prospectus. Dorsey & Whitney LLP,
Seattle, Washington, is acting as our United States legal counsel with respect
to the offering. Morrison & Foerster LLP, San Francisco, California and Blake,
Cassels & Graydon, Toronto, Ontario, Canada are acting as United States and
Canadian counsel respectively to the Underwriters.
EXPERTS
The financial statements as of June 30, 1998 and 1999 and for each of the
two years ended June 30, 1999 included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein, and have been so included in reliance upon the reports of that
firm given upon their authority as experts in accounting and auditing. We have
included our financial statements as of June 30, 1997 and for the year then
ended in this prospectus in reliance upon the report of KPMG LLP, independent
Chartered Public Accountants, that appears elsewhere in this prospectus and upon
the authority of KPMG LLP as experts in accounting and auditing.
In July 1998, KPMG LLP in Canada resigned as our independent auditors
because we were considering a strategic alliance with their affiliated firm in
the United States. KPMG LLP has not been associated with any of our financial
statements subsequent to June 30, 1997. The change in independent chartered
accountants was effective for fiscal 1998, was approved by our board of
directors and was not due to any disagreement between us and KPMG LLP. During
the period preceding the change in independent auditors, there were no
disagreements with KPMG LLP on any matter of accounting principles or practices,
financial statement disclosures or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of KPMG LLP would have caused
them to make reference thereto in their report on our financial statements for
the period. The audit reports of KPMG LLP as of and for the years ended June 30,
1997 and 1996 did not contain an adverse opinion or a disclaimer of opinion, and
were not qualified or modified as to uncertainty, audit scope or accounting
principles.
KPMG LLP's affiliated firm in the United States is a member of Enterprise
360, provides implementation and customization services to some of our customers
as a member of the Pivotal Alliance, and holds 161,031 Class F convertible
preferred shares that it purchased for $6.21 per share in January 1999. These
shares will convert into 161,031 common shares upon completion of the offering
and will represent less than 1% of the outstanding common shares.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission 450 Fifth Street
N.W., Washington, D.C. 20549, a registration statement on Form F-1 covering the
common shares being sold in this offering. We have not included in this
prospectus all the information contained in the registration statement, and you
should refer to the registration statement and its exhibits for further
information.
Any statement in this prospectus about any of our contracts or other
documents is not necessarily complete. If the contract or document is filed as
an exhibit to the registration statement, the contract or
65
<PAGE> 71
document is deemed to modify the description contained in this prospectus. You
must review the exhibits themselves for a complete description of the contract
or document.
You may review a copy of the registration statement, including exhibits and
schedules filed with it, at the Commission's public reference facilities in Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., 20549, and at
the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You may also obtain copies
of such materials from the Public Reference Section of the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., 20549, at
prescribed rates. You may call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as Pivotal, that file
electronically with the Commission.
You may read and copy any reports, statements or other information that we
file with the Commission at the addresses indicated above, and you may also
access them electronically at the web site set forth above. These Commission
filings are also available to the public from commercial document retrieval
services.
Prior to this offering, we have not been required to file reports with the
Commission. Following consummation of the offering, we will be required to file
reports and other information with the Commission under the U.S. Securities
Exchange Act and with the British Columbia Securities Commission. You are
invited to read and copy any reports, statements or other information, other
than confidential filings, that we file with the British Columbia Securities
Commission at its public reference room. These filings are also electronically
available from the Canadian System for Electronic Document Analysis and
Retrieval (SEDAR) (http://www.sedar.com), the Canadian equivalent of the
Commission's electronic document gathering and retrieval system.
We have agreed to file with the Commission reports in Form 10-K and Form
10-Q. We also intend to furnish our shareholders with proxy statements that
substantially comply with the Commission's proxy rules and annual reports
containing consolidated financial statements prepared in accordance with U.S.
GAAP and examined by our independent auditors. We also intend to make available
quarterly reports containing condensed unaudited financial information for each
of the first three quarters of each fiscal year, prepared in accordance with
U.S. GAAP.
66
<PAGE> 72
PIVOTAL CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Deloitte & Touche LLP, Independent Auditors....... F-2
Report of KPMG LLP, Independent Auditors.................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statement of Operations........................ F-5
Consolidated Statement of Cash Flows........................ F-6
Consolidated Statement of Shareholders' Deficit............. F-7
Notes to the Consolidated Financial Statements.............. F-8
</TABLE>
F-1
<PAGE> 73
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pivotal Corporation (formerly Pivotal Software Inc.)
We have audited the accompanying consolidated balance sheet of Pivotal
Corporation (formerly Pivotal Software Inc.) as of June 30, 1998 and 1999 and
the related consolidated statements of operations, shareholders' deficit and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of June 30, 1998 and 1999 and the results of its operations and
its cash flows for the years ended June 30, 1998 and 1999 in conformity with
accounting principles generally accepted in the United States.
/s/ Deloitte & Touche LLP
Chartered Accountants
Vancouver, Canada
July 9, 1999
F-2
<PAGE> 74
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pivotal Corporation (formerly Pivotal Software Inc.)
We have audited the accompanying consolidated statements of operations,
shareholders' deficit and cash flows of Pivotal Corporation (formerly Pivotal
Software Inc.) for the year ended June 30, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows for the year ended June 30, 1997 in conformity with accounting
principles generally accepted in the United States.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
September 17, 1997
F-3
<PAGE> 75
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
JUNE 30, EQUITY AT
------------------ JUNE 30,
1998 1999 1999
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,202 $ 9,338
Accounts receivable....................................... 7,116 8,304
Prepaid expenses.......................................... 706 1,029
------- -------
Total current assets................................. 9,024 18,671
Property and Equipment, net................................. 1,728 3,051
------- -------
Total assets................................................ $10,752 $21,722
======= =======
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 1,959 $ 6,329
Deferred revenue.......................................... 3,748 5,085
------- -------
Total current liabilities............................ 5,707 11,414
------- -------
Commitments (Note 6)
Redeemable convertible preferred shares, authorized, issued
and outstanding shares -- 8,658 and 9,946 in 1998 and
1999, respectively (none pro forma)....................... 9,500 17,500
------- -------
Shareholders' (deficit) equity
Preferred shares, undesignated, no par value, authorized
shares -- none and 20,000 in 1998 and 1999,
respectively, no shares issued and outstanding (none
pro forma)............................................. -- -- $ --
Class A convertible preferred shares, no par value,
authorized, issued and outstanding shares -- 2,000 in
1998 and 1999 (none pro forma)......................... 83 83 --
Common shares, no par value, authorized shares -- 50,000
and 200,000 in 1998 and 1999, respectively, issued and
outstanding shares -- 3,853 and 3,454 in 1998 and 1999,
respectively (15,983 pro forma)........................ 80 563 18,150
Class B common shares, Cdn.$0.03 par value, authorized
shares -- none and 600 in 1998 and 1999, respectively,
issued and outstanding shares -- none, and 477 in 1998
and 1999, respectively (none pro forma)................ -- 4 --
Deferred share-based compensation......................... -- (416) (416)
Accumulated deficit....................................... (4,618) (7,426) (7,426)
------- ------- -------
Total shareholders' (deficit) equity........................ (4,455) (7,192) $10,308
------- ------- =======
Total liabilities and shareholders' deficit................. $10,752 $21,722
======= =======
</TABLE>
See accompanying notes
F-4
<PAGE> 76
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Revenues:
Licenses.................................................. $ 2,916 $11,311 $18,819
Services and maintenance.................................. 590 2,898 6,508
------- ------- -------
Total revenues......................................... 3,506 14,209 25,327
------- ------- -------
Cost of revenues:
Licenses.................................................. 121 401 536
Services and maintenance.................................. 387 1,281 3,078
------- ------- -------
Total cost of revenues................................. 508 1,682 3,614
------- ------- -------
Gross profit................................................ 2,998 12,527 21,713
------- ------- -------
Operating expenses:
Sales and marketing....................................... 2,646 9,226 16,830
Research and development.................................. 1,163 1,910 4,958
General and administrative................................ 725 1,513 2,466
------- ------- -------
Total operating expenses............................... 4,534 12,649 24,254
------- ------- -------
Loss from operations........................................ (1,536) (122) (2,541)
Interest and other income (loss)............................ 142 136 (24)
------- ------- -------
Income (loss) before income taxes........................... (1,394) 14 (2,565)
Income taxes................................................ -- 10 243
------- ------- -------
Net income (loss) for the year.............................. $(1,394) $ 4 $(2,808)
======= ======= =======
Earnings (loss) per share:
Basic..................................................... $ (0.41) $ -- $ (0.72)
Diluted................................................... $ (0.41) $ -- $ (0.72)
Pro forma basic and diluted............................... $ (0.18)
Weighted average number of shares used to calculate earnings
(loss) per share:
Basic..................................................... 3,393 3,720 3,888
Diluted................................................... 3,393 14,927 3,888
Pro forma basic and diluted............................... 15,940
</TABLE>
See accompanying notes
F-5
<PAGE> 77
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) for the year............................ $(1,394) $ 4 $(2,808)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation........................................... 120 410 1,017
Loss on disposal of property and equipment............. 4 55 52
Non-cash share-based compensation expense.............. -- -- 57
Change in operating assets and liabilities................ (492) (1,596) 4,196
------- ------- -------
Net cash (used in) provided by operating activities....... (1,762) (1,127) 2,514
Cash flows from investing activities:
Purchase of property and equipment........................ (450) (1,666) (2,392)
Proceeds on disposal of property and equipment............ 2 23 --
------- ------- -------
Net cash used in investing activities..................... (448) (1,643) (2,392)
Cash flows from financing activities:
Proceeds from issuance of redeemable convertible preferred
shares................................................. 5,400 -- 8,000
Proceeds from issuance of common shares................... 2 74 14
------- ------- -------
Net cash provided by financing activities................. 5,402 74 8,014
Net increase (decrease) in cash and cash equivalents........ 3,192 (2,696) 8,136
Cash and cash equivalents, beginning of year................ 706 3,898 1,202
------- ------- -------
Cash and cash equivalents, end of year...................... $ 3,898 $ 1,202 $ 9,338
======= ======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURE
Income taxes recovered (paid)............................. $ -- $ 12 $ (137)
======= ======= =======
</TABLE>
See accompanying notes
F-6
<PAGE> 78
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A
CONVERTIBLE CLASS B
PREFERRED SHARES COMMON SHARES COMMON SHARES DEFERRED TOTAL
----------------- --------------- --------------- SHARE-BASED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT COMPENSATION (DEFICIT) DEFICIT
------- ------- ------ ------ ------ ------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996......... 2,000 $83 3,374 $ 4 -- $ -- $ -- $(3,228) $(3,141)
Issuance of common shares on
exercise of stock options.... -- -- 56 2 -- -- -- -- 2
Net loss....................... -- -- -- -- -- -- -- (1,394) (1,394)
----- --- ----- ---- ---- ---- ----- ------- -------
Balance, June 30, 1997......... 2,000 83 3,430 6 -- -- -- (4,622) (4,533)
Issuance of common shares on
exercise of stock options.... -- -- 423 74 -- -- -- -- 74
Net income..................... -- -- -- -- -- -- -- 4 4
----- --- ----- ---- ---- ---- ----- ------- -------
Balance, June 30, 1998......... 2,000 83 3,853 80 -- -- -- (4,618) (4,455)
Issuance of common shares on
exercise of stock options.... -- -- 78 14 -- -- -- -- 14
Conversion of common shares to
Class B common shares........ -- -- (477) (4) 477 4 -- -- --
Deferred share-based
compensation................. -- -- -- 473 -- -- (473) -- --
Amortization of share-based
compensation................. -- -- -- -- -- -- 57 -- 57
Net loss....................... -- -- -- -- -- -- -- (2,808) (2,808)
----- --- ----- ---- ---- ---- ----- ------- -------
Balance, June 30, 1999......... 2,000 $83 3,454 $563 477 $ 4 $(416) $(7,426) $(7,192)
===== === ===== ==== ==== ==== ===== ======= =======
</TABLE>
See accompanying notes
F-7
<PAGE> 79
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Pivotal Corporation (the "Company") provides customer relationship
management software applications that enable businesses to more effectively
manage their interactions with customers and selling partners. The
Company's software applications include Pivotal Relationship, developed to
automate and unify the sales, marketing and customer service functions
within a business, and the recently developed Pivotal eRelationship, which
simplifies the collaboration and sharing of information over the Internet
between businesses and their customers and selling partners.
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in the United
States ("U.S. GAAP") and include the accounts of Pivotal Corporation, a
British Columbia, Canada incorporated company, and its fully integrated
wholly-owned subsidiaries, Pivotal Software USA Inc. and Pivotal Software
Limited. All significant intercompany accounts and transactions have been
eliminated.
USE OF ESTIMATES
The preparation of consolidated 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 consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting periods. Estimates are used for,
but not limited to, the accounting for doubtful accounts, amortization,
taxes and contingencies. Actual results may differ from those estimates.
REVENUE RECOGNITION
Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), was
issued in October 1997 by the American Institute of Certified Public
Accountants and was amended by Statement of Position 98-4 (SOP 98-4). The
Company adopted SOP 97-2 effective for the Company's year ended June 30,
1998. Based upon their interpretation of SOP 97-2 and SOP 98-4, the Company
believes its current revenue recognition polices and practices are
consistent with SOP 97-2 and SOP 98-4. However, full implementation
guidelines for this standard have not yet been issued. Once available, such
implementation guidance could lead to unanticipated changes in current
revenue accounting practices, and such changes could materially affect the
timing of the Company's future revenues and earnings. Additionally, the
AICPA recently issued SOP 98-9, which provides certain amendments to SOP
97-2, which is effective for transactions entered into beginning July 1,
1999. This pronouncement is not expected to materially impact the Company's
revenue recognition practices.
The Company generates revenues through two sources: (1) software license
revenues and (2) services and maintenance revenues. Software license
revenues are normally generated from licensing the perpetual right to use
the Company's products directly to end-users and indirectly through
resellers and, to a lesser extent, through third-party products the Company
distributes. The Company recognizes as revenue only the fee payable from
the reseller, net of any discount. Service revenues are generated from
consulting services, including implementation and customization of licenced
software, education and maintenance.
F-8
<PAGE> 80
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenues from software license agreements are recognized upon delivery of
software if persuasive evidence of an arrangement exists, collection is
probable, the fee is fixed or determinable, and vendor-specific objective
evidence exists to allocate the total fee to elements of the arrangement.
Vendor-specific objective evidence is typically based on the price charged
when an element is sold separately, or, in the case of an element not yet
sold separately, the price established by authorized management, if it is
probable that the price, once established, will not change before market
introduction. Elements included in multiple element arrangements could
consist of software products, upgrades, enhancements, customer support
services, or consulting services. If an acceptance period is required,
revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period. The Company's agreements with its
customers and resellers do not contain product return rights.
Maintenance revenues are recognized ratably over the term of the contract,
typically one year. Revenues from consulting and education services are
recognized as services are performed. If a transaction includes both
license and service elements, license fee revenues are recognized on
shipment of the software, provided services do not include significant
customization or modification of the base product, and the payment terms
for licenses are not subject to acceptance criteria.
Revenues that have been prepaid or invoiced but do not yet qualify for
recognition under the Company's policies are reflected as deferred
revenues.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid short-term investments with
original maturities at the date of acquisition of 90 days or less and are
recorded at cost.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 1998 and 1999, the Company has the following financial
instruments: cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities and redeemable convertible preferred
shares. The carrying value of cash and cash equivalents, accounts
receivable and accounts payable and accrued liabilities approximates their
fair value based on their liquidity or based on their short-term nature.
Due to the uncertainty surrounding the actual date that the redeemable
convertible preferred shares may be redeemed, it is not practical to
determine the fair value of this financial instrument.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company's use of derivative financial instruments is limited to
short-term foreign currency forward exchange contracts ("forward
contracts") used to manage exposure related to certain Canadian currency
transactions. The Company does not enter into derivative financial
instruments for trading purposes. The Company identifies future Canadian
currency commitments and enters into forward contracts to hedge exposure to
fluctuations in the Canadian dollar. Gains and losses on forward contracts
that are designated and effective hedges of firm foreign currency
commitments are recognized when the related transaction is recognized.
Gains and losses not meeting the criteria for hedge accounting are
recognized in income in the current period.
As of June 30, 1998 and 1999, the Company had no outstanding forward
contracts.
F-9
<PAGE> 81
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation of property and equipment is provided using the following
rates and methods:
<TABLE>
<S> <C>
Computer software and
equipment 30% declining balance or 3 year straight line
Furniture and fixtures 20% declining balance
</TABLE>
Leasehold improvements are amortized using the straight-line basis over
three years.
The Company makes reviews for the impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Under Statement of Financial Accounting
Standard ("SFAS") No. 121, an impairment loss would be recognized when
estimates of future cash flows expected to result from the use of an asset
and its eventual disposition are less than its carrying amount. No such
impairment losses have been identified by the Company for the years ended
June 30, 1997, 1998 and 1999.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs, which consist primarily of software
development costs, are expensed as incurred. SFAS No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,
provides for the capitalization of certain software development costs after
technological feasibility of the software is established. Under the
Company's current practice of developing new products and enhancements, the
technological feasibility of the underlying software is not established
until substantially all product development is complete, including the
development of a working model. No such costs have been capitalized because
the impact of capitalizing such costs would not be material.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable.
The Company's customer base is dispersed across many different geographic
areas throughout North America, Europe and the Asia Pacific and consists of
companies in a variety of industries. The Company does not require
collateral or other security to support credit sales, but provides an
allowance for bad debts based on historical experience and specifically
identified risks.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company and its subsidiaries is the U.S.
dollar. Assets and liabilities denominated in other than the U.S. dollar
are translated using the exchange rates prevailing at the balance sheet
date. Revenues and expenses are translated using average exchange rates
prevailing during the period. Gains and losses on foreign currency
transactions and translation are recorded in the consolidated statements of
operations.
F-10
<PAGE> 82
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes. This statement provides for a liability
approach under which deferred income taxes are provided based upon enacted
tax laws and rates applicable to the periods in which the taxes become
payable.
SHARE-BASED COMPENSATION
As permitted under SFAS No. 123, Accounting for Stock-Based Compensation,
the Company has accounted for employee stock options in accordance with
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and has made the pro forma disclosures required by
SFAS No. 123 in Note 8.
Deferred compensation charges arise from those situations where options are
granted at an exercise price lower than the deemed fair value of the
underlying common shares. These amounts are amortized as charges to
operations, using the graded method, over the vesting periods of the
individual stock options.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities by including other common share
equivalents, including stock options and redeemable convertible preferred
shares, in the weighted average number of common shares outstanding for a
period, if dilutive.
Pro forma earnings per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding and the weighted
average redeemable convertible preferred shares and Class A convertible
preferred shares outstanding as if such shares were converted into common
shares and had been outstanding since July 1, 1998.
F-11
<PAGE> 83
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the computation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net income (loss) (A)................................. $(1,394) $ 4 $(2,808)
======= ======= =======
Weighted average number of common shares (B).......... 3,393 3,720 3,888
Dilutive effect of:
Stock options....................................... -- 444 --
Convertible preferred shares........................ -- 10,763 --
------- ------- -------
Diluted weighted average shares (C)................. 3,393 14,927 3,888
======= =======
Pro forma adjustment for convertible preferred
shares.............................................. 12,052
-------
Pro forma basic and diluted weighted average shares
(D)................................................. 15,940
=======
Earnings (loss) per share:
Basic (A/B)......................................... $ (0.41) $ -- $ (0.72)
Diluted (A/C)....................................... $ (0.41) $ -- $ (0.72)
Pro forma basic and diluted (A/D)................... $ (0.18)
</TABLE>
COMPREHENSIVE INCOME
SFAS No. 130, Reporting Comprehensive Income, establishes standards for the
reporting and display of comprehensive income and its components (revenue,
expenses, gains, and losses) in a full set of general-purpose financial
statements. The Company adopted SFAS No. 130 in 1999. The Company has no
comprehensive income items, other than the net earnings (loss), in any of
the periods presented.
BUSINESS SEGMENTS
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, establishes standards for reporting information about
operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. Information related to SFAS No. 131 is contained
in Note 11.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the AcSEC issued SOP 98-5, Reporting on the Costs of
Start-up Activities. Under SOP 98-5, the cost of start-up activities should
be expensed as incurred. The Company expects that the adoption of SOP 98-5
will not have a material impact on its financial position, results of
operations. The Company will be required to adopt SOP 98-5 in fiscal 2000.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS
No. 133 requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. The Company will adopt SFAS No. 133 as currently
required in its financial statements for fiscal year 2000, which the
Company expects will not have a material effect on its financial position
or results of operations.
F-12
<PAGE> 84
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
current period presentation.
2. ACCOUNTS RECEIVABLE
Accounts receivable are net of an allowance for doubtful accounts of $91
and $334 at June 30, 1998 and 1999, respectively.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30,
----------------
1998 1999
------ -------
<S> <C> <C>
Computer software and equipment............................. $1,387 $ 2,793
Furniture and fixtures...................................... 539 1,169
Leasehold improvements...................................... 443 626
------ -------
2,369 4,588
Accumulated depreciation.................................... (641) (1,537)
------ -------
Net book value.............................................. $1,728 $ 3,051
------ -------
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The principal components of accounts payable and accrued liabilities were
as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------
1998 1999
------ ------
<S> <C> <C>
Accounts payable............................................ $ 602 $3,054
Accrued compensation........................................ 798 2,368
Other accrued liabilities................................... 559 907
------ ------
$1,959 $6,329
------ ------
</TABLE>
5. LINE OF CREDIT
The Company has negotiated a credit facility with a Canadian chartered bank
which includes: a term operating line of $2,043 (Cdn.$3,000), bearing
interest at bank prime rate (6.5% at June 30, 1999) plus 1% per year,
secured by a charge on all current and future property of the Company, and
a committed term loan of $1,361 (Cdn.$2,000), bearing interest at the bank
prime rate (6.5% at June 30, 1999) plus 4%, secured by a second charge on
all current and future personal property of the Company. As of June 30,
1998 and 1999, no amounts were outstanding under the credit facility.
6. COMMITMENTS
OPERATING LEASES
The Company leases office facilities under operating leases which generally
require the Company to pay a share of operating costs, including property
taxes, insurance and maintenance.
F-13
<PAGE> 85
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
6. COMMITMENTS (CONTINUED)
Future minimum operating lease payments for the years ending June 30
pursuant to leases outstanding as of June 30, 1999 are due as follows:
<TABLE>
<S> <C>
2000........................................................ $1,610
2001........................................................ 1,266
2002........................................................ 1,266
2003........................................................ 778
2004........................................................ 259
------
$5,179
======
</TABLE>
Rent expense totalled approximately $113, $496 and $1,075 in the years
ended June 30, 1997, 1998 and 1999, respectively. Certain of these lease
obligations have been secured by irrevocable letters of credit for $0,
$170, and $50 at June 30, 1997. 1998 and 1999, respectively.
7. REDEEMABLE CONVERTIBLE PREFERRED SHARES
The redeemable convertible preferred shares at June 30, 1998 and 1999 are
as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------
1998 1999
------ -------
<S> <C> <C>
Class B, 2,000 shares with par value of Cdn.$1.17 each,
redeemable at $1.00 each, authorized, issued and
outstanding in 1998 and 1999.............................. $2,000 $ 2,000
Class D, 2,658 shares with no par value, redeemable at $0.79
each, authorized, issued and outstanding in 1998 and
1999...................................................... 2,100 2,100
Class E, 4,000 shares with no par value, redeemable at $1.35
each, authorized, issued and outstanding in 1998 and
1999...................................................... 5,400 5,400
Class F, 1,288 shares with no par value, redeemable at $6.21
each, authorized, issued and outstanding in 1999.......... -- 8,000
------ -------
$9,500 $17,500
====== =======
</TABLE>
During the year ended June 30, 1997, the Company's shareholders approved an
increase in the authorized capital of the Company by authorizing 4,000
Class E preferred shares. During the year ended June 30, 1997, the Company
issued 4,000 Class E preferred shares for total proceeds of $5,400.
During the year ended June 30, 1999, the Company's shareholders approved an
increase in the authorized capital of the Company by authorizing 1,288
Class F preferred shares. During the year ended June 30, 1999, the Company
issued 1,288 Class F preferred shares for total proceeds of $8,000.
The holders of each class of preferred shares have the right to one vote
for each common share into which the preferred shares could be converted.
All of the redeemable preferred shares have the right to receive
non-cumulative dividends at amounts as determined by the directors of the
Company. When dividends are paid on any other outstanding class of shares
of the Company, the holders of the Class B, Class D, Class E and Class F
preferred shares are entitled to an amount per share equal to that paid on
the other class of shares, as determined on a basis as if all of the
outstanding redeemable preferred shares had been converted into common
shares.
F-14
<PAGE> 86
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
7. REDEEMABLE CONVERTIBLE PREFERRED SHARES (CONTINUED)
Each class of redeemable preferred shares is convertible into common shares
at any time at the option of the holder, using the formula provided in the
Articles of the Company, which is currently at a ratio of 0.95 to 1.00 for
the Class B preferred shares and one-for-one for Class D, Class E and Class
F preferred shares. All classes of preferred shares automatically convert
into common shares at the conversion price immediately upon the earlier of:
(a) the acquisition of the assets or the take-over of the Company by a
third party which results in payment to all of the shareholders of the
Company of not less than $7.50 per common share (adjusted to reflect
subsequent stock dividends, stock splits or recapitalizations) calculated
on a basis that all of the preferred shares have been converted into common
shares and without regard to any liquidation preferences for any class of
shares; and, (b) the consummation of the Company's sale of its common
shares in a bona fide, firm commitment underwriting pursuant to a
registration statement under the Securities Act of 1933 of the United
States, as amended, the public offering price of which is not less than
$7.50 per share (adjusted to reflect subsequent stock dividends, stock
splits or recapitalizations) and $15,000 in the aggregate, provided that
the underwriters in such public offering are acceptable to the holders of a
majority of the outstanding Class B, Class D, Class E and Class F preferred
shares, such acceptance not to be unreasonably withheld.
The Class B, Class D, Class E and Class F preferred shares are redeemable
at the Company's option with the approval of the holders of 75% of the
outstanding shares of the applicable class, and are retractable at the
holder's option on or after June 30, 2001 at the issue price plus any
declared and unpaid dividends.
8. SHAREHOLDERS' (DEFICIT) EQUITY
INITIAL PUBLIC OFFERING
On April 22, 1999, the directors authorized management to file a
registration statement with the Securities and Exchange Commission to
permit the Company to offer its common shares to the public. If the
offering is consummated under terms presently anticipated, all outstanding
shares of redeemable convertible preferred shares, all of the Class A
convertible preferred shares and the Class B common shares will convert
into 12,529 common shares. Unaudited pro forma shareholders' equity
reflects the exchange of the Class B common shares, for common shares and
the assumed conversion of the redeemable convertible preferred shares and
the Class A convertible preferred shares outstanding at June 30, 1999 into
common shares.
PREFERRED SHARES, COMMON SHARES AND CLASS B COMMON SHARES
On December 1, 1997, the Company's shareholders approved an increase in the
number of authorized common shares from 20,000 to 50,000 shares.
On December 16, 1998, the Company's shareholders approved the redesignation
of common shares without par value to Class A common shares without par
value. The Company's shareholders also approved the increase in authorized
capital by creating 600 Class B common shares with a par value of Cdn.$0.03
each.
In December 1998 and January 1999, the Company issued an aggregate of 477
Class B common shares in exchange for 477 Class A common shares. Prior to
completion of the initial public offering,
F-15
<PAGE> 87
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
8. SHAREHOLDERS' (DEFICIT) EQUITY (CONTINUED)
all of the issued and outstanding Class B common shares will be exchanged
for common shares on a one-for-one basis.
On June 17, 1999, the Company's shareholders approved an increase in the
number of authorized Class A common shares from 50,000 to 200,000 and an
increase in authorized capital by creating 20,000 unissued preferred shares
without par value. The Company's shareholders also approved the
redesignation of Class A common shares, both issued and unissued, to common
shares without par value.
The holder of each common share has the right to one vote per share. The
preferred shares may at any time and from time to time be issued in one or
more series and the directors may determine the special rights and
restrictions of each series including any dividend, conversion or
redemption rights, subject to the approval of at least 75% of the holders
of Class A, B, D, E and F preferred shares.
The holders of the Class A preferred shares have the right to one vote for
each common share into which the preferred shares could be converted. The
Class A preferred shares have the same rights to receive dividends as the
redeemable preferred shares discussed in Note 7, and are convertible into
common shares on a one-for-one basis, subject to adjustment under certain
circumstances. The Class A preferred shares are not redeemable or
retractable.
On June 17, 1999, the Company's shareholders also approved, subject to the
conversion of the redeemable convertible preferred shares, the Class A
convertible preferred shares and the Class B common shares to common
shares, the cancellation of the authorized Class B common share capital and
the authorized Class A, B, D, E, and F preferred share capital.
EMPLOYEE STOCK OPTION PLAN
Under the terms of the 1992 Pivotal Incentive Stock Option Plan, as
amended, (the "Plan"), the Board of Directors may grant incentive and
non-qualified stock options to employees, officers, directors, independent
consultants and contractors of the Company and subsidiaries, partnerships,
joint ventures including directors thereof. Generally, the Company grants
stock options with exercise prices equal to the fair market value of the
common share on the date of grant, as determined by the Company's Board of
Directors. Options generally vest over a four year period, but the Board of
Directors may provide for different vesting schedules in particular cases.
Options generally expire five years from the date of grant.
On June 17, 1999, the Company's shareholders approved changes to the Plan
that would automatically increase the number of shares reserved for
issuance pursuant to the plan by (a) 1,076 common shares plus (b) an
automatic increase on the first day of each fiscal year beginning on July
1, 2001, equal to the lesser of 800 shares or 4% of the average number of
common shares outstanding as used to calculate fully diluted earnings per
share for the preceding year.
F-16
<PAGE> 88
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
8. SHAREHOLDERS' (DEFICIT) EQUITY (CONTINUED)
A summary of stock option activity and information concerning currently
outstanding and exercisable option is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------
OPTIONS NUMBER OF WEIGHTED
AVAILABLE COMMON AVERAGE
FOR GRANT SHARES EXERCISE PRICE
--------- --------- --------------
(EXPRESSED IN
CANADIAN
DOLLARS)
<S> <C> <C> <C>
Balances, June 30, 1996......................... 453 174 Cdn.$0.10
----- -----
Options authorized............................ 353 -- --
Options granted............................... (269) 269 0.12
Options exercised............................. -- (57) 0.06
Options cancelled............................. 49 (49) 0.12
----- -----
Balances, June 30, 1997......................... 586 337 0.12
----- -----
Options authorized............................ 1,000 -- --
Options granted............................... (877) 877 0.88
Options exercised............................. -- (423) 0.25
Options cancelled............................. 49 (49) 0.26
----- -----
Balances, June 30, 1998......................... 758 742 0.94
----- -----
Options authorized............................ 2,576 -- --
Options granted............................... (866) 866 9.71
Options exercised............................. -- (78) 0.28
Options cancelled............................. 75 (75) 3.74
----- -----
Balances, June 30, 1999......................... 2,543 1,455 Cdn.$6.07
===== ===== =====
</TABLE>
The U.S. dollar equivalents of the weighted average exercise price
calculated using the year end exchange rates were as follows: $0.08, $0.64,
and $4.12 as of June 30, 1997, 1998 and 1999 respectively.
F-17
<PAGE> 89
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
8. SHAREHOLDERS' (DEFICIT) EQUITY (CONTINUED)
The following tables summarize information concerning outstanding and
exercisable options at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
----------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE PRICES NUMBER CONTRACTUAL EXERCISE PRICE NUMBER EXERCISE PRICE
PER SHARE OUTSTANDING LIFE (IN YEARS) PER SHARE EXERCISABLE PER SHARE
--------------- ----------- --------------- -------------- ----------- --------------
(EXPRESSED IN (EXPRESSED IN (EXPRESSED IN
CANADIAN CANADIAN CANADIAN
DOLLARS) DOLLARS) DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Cdn. $ 0.12 239 2.4 Cdn.$ 0.12 121 Cdn.$ 0.12
0.25 30 3.2 0.25 10 0.25
1.00 157 3.6 1.00 39 1.00
2.50 200 3.9 2.50 50 2.50
7.50 234 4.1 7.50 24 7.50
8.00 230 4.4 8.00 2 8.00
9.47 233 4.7 9.47 1 9.47
15.55 45 4.8 15.55 -- 15.55
19.00 86 4.9 19.00 15 19.00
-------------- ----- ---
Cdn. $0.12-$19.00 1,454 Cdn.$ 6.07 262 Cdn.$ 2.56
============== ===== ====== === ======
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN ("ESPP")
On June 17, 1999, the Company's shareholders approved the adoption of an
ESPP and authorized the issuance of up to 1,000 common shares under the
plan with amendments as the directors of the Company may deem desirable.
Under the ESPP, a qualified employee may authorize payroll deductions of up
to 10% of the employee's compensation (as defined) to a maximum of $25 to
purchase common stock at 85% of the lower of fair market value at the
beginning or end of the related subscription period.
COMMON SHARES RESERVED FOR FUTURE ISSUANCE
The Company has reserved common shares as of June 30, 1999 as follows:
<TABLE>
<S> <C>
Exercise of stock options................................... 3,998
Employee Stock Purchase Plan................................ 1,000
Conversion of Class A convertible preferred shares.......... 2,000
Conversion of redeemable convertible preferred shares
Class B................................................... 2,105
Class D................................................... 2,658
Class E................................................... 4,000
Class F................................................... 1,288
------
17,049
======
</TABLE>
F-18
<PAGE> 90
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
8. SHAREHOLDERS' (DEFICIT) EQUITY (CONTINUED)
SHARE-BASED COMPENSATION
Under APB No. 25, because the exercise price of the Company's employee
stock options generally equals the fair value of the underlying stock on
the date of grant, no compensation expense is recognized. Deferred
compensation expense of $473 was recorded during 1999 for those situations
where the exercise price of an option was lower than the deemed fair value
for financial reporting purposes of the underlying common stock. The
deferred compensation is being amortized over the vesting period of the
underlying options. Amortization of the deferred share-based compensation
balance of $416 at June 30, 1999 will approximate $216, $113, $59 and $28
the fiscal years ending June 30, 2000, 2001, 2002 and 2003, respectively.
An alternative method of accounting for stock options is SFAS No. 123,
Accounting for Stock-based Compensation. Under SFAS No. 123, employee stock
options are valued at the grant date using the Black-Scholes valuation
model and the resultant compensation cost is recognized ratably over the
vesting period. Had compensation cost for the Company's share option plan
been determined based on the Black-Scholes value at the grant dates for
awards as prescribed by SFAS No. 123, pro forma net income (loss) and net
earnings (loss) per share would have been as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------
1997 1998 1999
------- ---- -------
<S> <C> <C> <C>
Net income (loss)
As reported............................................... $(1,394) $ 4 $(2,808)
SFAS No. 123 pro forma.................................... $(1,395) $(2) $(2,849)
Basic and diluted earnings (loss) per share
As reported............................................... $ (0.41) $-- $ (0.72)
SFAS No. 123 pro forma.................................... $ (0.41) $-- $ (0.73)
</TABLE>
Compensation expense recognized in providing pro forma disclosures may not
be representative of the effects on pro forma earnings for future years
since SFAS No. 123 applies only to options granted after 1996.
The weighted average Black-Scholes option pricing model value of options
granted under the share option plan during the years ended June 30, 1997,
1998 and 1999 were Cdn.$0.03, Cdn.$0.21 and Cdn.$1.92 per share
respectively. The fair value for these options was estimated at the date of
grant using the following weighted average assumptions:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Assumption
Volatility factor of expected market price of the
Company's shares................................. 0.0% 0.0% 0.0%
Dividend yield..................................... 0.0% 0.0% 0.0%
Weighted average expected life of stock options
(years).......................................... 4.0 years 4.0 years 4.0 years
Risk free interest rate............................ 6.2% 5.5% 5.6%
</TABLE>
F-19
<PAGE> 91
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
9. INCOME TAXES
Details of the income tax provision (recovery) are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------
1997 1998 1999
---- ----- ----
<S> <C> <C> <C>
Current
Canadian.................................................. $-- $(132) $(47)
Foreign................................................... -- 120 290
--- ----- ---
-- (12) 243
Deferred
Canadian.................................................. -- 22 --
Foreign................................................... -- -- --
--- ----- ---
-- 22 --
--- ----- ---
Income tax provision........................................ $-- $ 10 $243
=== ===== ===
</TABLE>
The reported income tax provision (recovery) differs from the amount
computed by applying the Canadian basic statutory rate to the income (loss)
before income taxes. The reasons for this difference and the related tax
effects are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------
1997 1998 1999
----- ----- -------
<S> <C> <C> <C>
Canadian basic statutory tax rate........................... 45% 45% 45%
----- ----- -------
Expected income tax provision (recovery).................... $(627) $ 6 $(1,154)
Foreign tax rate differences................................ -- (20) (144)
Losses producing no current tax benefit..................... 564 -- 1,484
Non-deductible expenses..................................... 63 82 56
Research and development tax credits........................ -- (132) (47)
Benefit of temporary differences not recognized............. -- 74 48
----- ----- -------
$ -- $ 10 $ 243
===== ===== =======
</TABLE>
F-20
<PAGE> 92
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
9. INCOME TAXES (CONTINUED)
Deferred income taxes result principally from temporary differences in the
recognition of certain revenue and expense items for financial and income
tax reporting purposes. Significant components of the Company's deferred
tax assets and liabilities as of June 30, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Deferred income tax assets
Net operating tax loss carry-forwards..................... $ 1,645 $ 3,129
Research and development expenses......................... 87 87
Book and tax base differences on assets................... -- 66
Other..................................................... 92 84
------- -------
Total deferred income tax assets....................... 1,824 3,366
Valuation allowance for deferred income tax assets.......... (1,824) (3,366)
------- -------
Net deferred income tax assets.............................. $ -- $ --
======= =======
Deferred income tax liabilities
Book and tax base differences on assets................... $ 22 $ --
------- -------
Net deferred income tax liabilities included in accounts
payable and accrued liabilities........................... $ 22 $ --
======= =======
</TABLE>
Due to the uncertainty surrounding the realization of the deferred income
tax assets in future income tax returns, the Company has a 100% valuation
allowance against its deferred income tax assets. The net change in the
total valuation allowance for the years ended June 30, 1998 and 1999 was a
provision (recovery) of $(38) and $1,542, respectively.
As of June 30, 1999, the Company has Canadian tax loss carry-forwards of
approximately $6,954 available to reduce future years' income for tax
purposes. These carry-forward losses expire in 2000 to 2006.
10. CHANGE IN OPERATING ASSETS AND LIABILITIES
The change in operating assets and liabilities is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Accounts receivable....................................... $(1,994) $(4,971) $(1,188)
Prepaid expenses.......................................... (104) (570) (323)
Accounts payable and accrued liabilities.................. 688 1,117 4,370
Deferred revenue.......................................... 918 2,828 1,337
------- ------- -------
$ (492) $(1,596) $ 4,196
======= ======= =======
</TABLE>
11. SEGMENTED INFORMATION
The Company operates in one business segment, the development, marketing,
and supporting of Internet and corporate network-based software
applications used for managing customer and selling partner relationships.
F-21
<PAGE> 93
PIVOTAL CORPORATION
(FORMERLY PIVOTAL SOFTWARE INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE
DATA)
11. SEGMENTED INFORMATION (CONTINUED)
The Company licenses and markets its products internationally. The
following table presents a summary of revenues by geographical region.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
United States.............................................. $2,885 $11,931 $18,779
Canada..................................................... 481 903 1,463
International.............................................. 140 1,375 5,085
------ ------- -------
$3,506 $14,209 $25,327
====== ======= =======
</TABLE>
The Company attributes revenue among the geographical areas based on the
location of the customers involved.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------
1998 1999
------- -------
<S> <C> <C>
Property and equipment
United States............................................. $ 267 $ 449
Canada.................................................... 1,433 2,435
International............................................. 28 167
------ ------
$1,728 $3,051
====== ======
</TABLE>
During 1997, 1998 and 1999, no single customer accounted for 10% or more of
total revenue.
F-22
<PAGE> 94
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THROUGH AND INCLUDING , 1999 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3,500,000 SHARES
LOGO
COMMON SHARES
-----------------------
PROSPECTUS
-----------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 95
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The table below lists the fees and expenses, other than underwriting
discounts and commissions, which the registrant will pay in connection with the
offering described in this registration statement. All the expenses are
estimates, except for the Securities and Exchange Commission registration fee,
the Nasdaq National Market listing fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Securities and Exchange Commission registration fee......... $ 14,456
NASD filing fee............................................. 5,733
Nasdaq National Market listing fee.......................... 95,000
Legal fees and expenses..................................... 400,000
Accounting fees and expenses................................ 125,000
Printing and engraving expenses............................. 125,000
Transfer agent and registrar fees........................... 5,000
Miscellaneous expenses...................................... 9,811
--------
Total.................................................. $780,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the British Columbia Company Act we may, if we obtain court approval,
indemnify our directors and officers and former directors and officers and
current and former directors and officers of our subsidiaries against costs and
expenses, including amounts paid to settle an action or satisfy a judgment in a
civil, criminal or administrative action or proceeding to which they are made
parties because they have been directors or officers, including an action
brought by us. Indemnification of a director or officer under the British
Columbia Company Act is possible only if it is shown that the director or
officer acted honestly and in good faith with a view to our best interests, and
in the case of a criminal or administrative action or proceeding the director or
officer had reasonable grounds for believing that his conduct was lawful.
Our articles require us, if we obtain court approval, to indemnify our
current and former directors. Under our articles we may, if we obtain court
approval, indemnify our subsidiaries' current and former directors and our and
our subsidiaries' current and former officers, employees and agents. Our
articles also provide that, to the fullest extent permitted by the British
Columbia Company Act:
- the rights conferred in the articles are not exclusive; and
- we are authorized to purchase and maintain insurance on behalf of our
and our subsidiaries' current and past directors, officers, employees
and agents against any liability incurred by them in their duties.
Our board of directors has authorized us to enter into indemnity agreements
with each of our directors and officers and the directors and officers of our
subsidiaries. We are currently in the process of entering into indemnity
agreements with each of our directors and officers and the directors and
officers of our subsidiaries. The indemnity agreements call for us to indemnify
the director or officer against all liabilities in connection with any claim
arising out of the individual's status or service as a director or officer of
Pivotal, or our subsidiaries, other than liabilities arising from gross
negligence or willful misconduct. These agreements also call for us to advance
expenses incurred by the individual in connection with any action with respect
to which the individual may be entitled to indemnification by Pivotal.
The British Columbia Company Act currently requires us to obtain the
approval of a court before we indemnify directors or officers. Under proposed
legislation now before the British Columbia legislature, this requirement will
be removed.
II-1
<PAGE> 96
Currently, there is no pending litigation or proceeding involving a current
or past director, officer or employee regarding which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.
We maintain directors and officers liability insurance with an annual
aggregate coverage limit of Cdn.$5 million.
Insofar as indemnification for liabilities arising under the U.S.
Securities Act may be permitted for directors, officers or persons controlling
Pivotal pursuant to the foregoing provisions, Pivotal has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since May 31, 1996, the registrant has issued and sold unregistered
securities as follows:
1. Pivotal granted stock options to purchase 1,816,021 common shares at
exercise prices ranging from Cdn.$0.12 to Cdn.$15.55 per share to
employees, directors and consultants pursuant to its incentive stock
option plan. These options and common shares issuable upon their
exercise are not required to be registered by virtue of Rule 903 of
Regulation S with respect to optionees outside the United States and
Rule 701 with respect to optionees in the United States. After the
completion of the offering, Pivotal plans to file a registration
statement on Form S-8 with respect to its stock option plan and stock
purchase plan.
2. Pivotal issued and sold an aggregate of 555,051 common shares to
employees, directors and consultants for aggregate consideration of
Cdn.$129,945 pursuant to exercises of options granted under its
incentive stock option plan. These shares were either exempt from
registration pursuant to Rule 701 under the Securities Act or were
not required to be registered by virtue of Regulation S thereunder.
3. In November 1996 Pivotal issued and sold 4,000,000 Class E preferred
shares for an aggregate purchase price of $5,400,000 to a group of
seven institutional accredited investors and one sophisticated
individual accredited investor pursuant to a share subscription and
purchase agreement. This sale was exempt from registration pursuant
to section 4(2) under the Securities Act.
4. In December 1998 and January 1999 Pivotal issued 476,786 Class B
common shares to 22 of its existing shareholders in exchange for
476,786 Class A common shares. No other consideration was paid by the
holders of the securities and no commission or other remuneration was
paid for soliciting exchanges. These shares were exempt from
registration pursuant to section 3(a)(9) of the Securities Act or
were not required to be registered by virtue of Regulation S
thereunder.
5. In January 1999 Pivotal issued and sold 1,288,246 Class F preferred
shares for an aggregate purchase price of $8,000,000 to a group of
five institutional accredited investors pursuant to a share
subscription and purchase agreement. This sale was exempt from
registration pursuant to section 4(2) under the Securities Act.
6. Prior to the closing Pivotal is effecting a recapitalization pursuant
to which the following will take place:
(i) Class A common shares will be redesignated as common shares in
June 1999,
(ii) Pivotal will authorize 20,000,000 new undesignated preferred
shares in June 1999,
(iii) all holders of Class B common shares will exchange their shares
for common shares prior to the effectiveness of the registration
statement, and
II-2
<PAGE> 97
(iv) immediately prior to the effectiveness of the registration
statement (and after the exchange of the Class B common shares) all
of Pivotal's convertible preferred shares will convert
automatically to common shares.
In the recapitalization no other consideration is being paid by the
holders of the securities and no commission or other remuneration is
being paid to solicit conversions or exchanges. The issuance of the
common shares is exempt from registration pursuant to section 3(a)(9)
under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement+
3.1 Memorandum and Articles
3.2 Form of Memorandum and Articles of the Registrant to be
effective at closing of this offering.
4.1 Specimen of Common Share certificate+
4.2 Registration Rights (included in Exhibit 10.15)
5.1 Opinion of Davis & Company+
10.1 Amended and Restated Incentive Stock Option Plan dated as of
January 28, 1999
10.2 Form of Amended and Restated Incentive Stock Option Plan to
be effective at closing of this offering
10.3 Employee Share Purchase Plan+
10.4 Lease dated as of July 18, 1997 between Sodican (B.C.) Inc.
and the Registrant for premises located in North Vancouver,
B.C.
10.5 Lease dated as of May 26, 1998 between Novo Esplanade Ltd.
and the Registrant for premises located in North Vancouver,
B.C.
10.6 Lease(1) dated as of December 14, 1998 between B.C. Rail
Ltd. and the Registrant for premises located in North
Vancouver, B.C.
10.7 Lease(2) dated as of December 14, 1998, between B.C. Rail
Ltd. and the Registrant with respect to premises located in
North Vancouver, B.C.
10.8 Lease dated as of December 11, 1998 between Yarrow Bay
Office III Limited Partnership and the Registrant with
respect to premises located in Kirkland, Washington
10.9 Lease dated as of March 12, 1999 between Erachange Limited
and the Registrant for premises located in London, England
10.10 Lease dated as of April 19, 1999 between Massachusetts
Mutual Life Insurance Company and the Registrant for
premises located in Des Plaines, Illinois
**10.11 Letter agreement dated November 21, 1997 between the
Registrant and Robert A. Runge granting an option to
purchase 250,000 common shares
**10.12 Letter agreement dated November 2, 1997 between the
Registrant and Glenn S. Hasen granting an option to purchase
136,000 common shares
10.13 Class F Preferred Share Subscription and Purchase Agreement
dated January 15, 1999, with respect to Class F Preferred
Shares
10.14 Shareholders' Agreement dated January 15, 1999
10.15 Investors' Rights Agreement dated January 15, 1999
10.16 Form of Share Purchase Agreement with respect to the
issuance of Class B common shares
10.17 Form of Share Purchase Agreement with respect to the
issuance of common shares in exchange for Class B commons
shares
10.18 Form of Lock-up Agreement
10.19 Canadian Imperial Bank of Commerce $2,000,000 Committed
Installment Loan dated March 18, 1998
10.20 Canadian Imperial Bank of Commerce $3,000,000 Operating Line
of Credit dated March 18, 1998
</TABLE>
II-3
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.21 Security Agreement with Canadian Imperial Bank of Commerce
dated for reference April 15, 1998
10.22 Contract Relative to Special Security under the Bank Act
between Canadian Imperial Bank of Commerce and the
Registrant dated April 30, 1998
10.23 Canadian Imperial Bank of Commerce Schedule -- Standard
Credit Terms dated March 18, 1998
10.24 Canadian Imperial Bank of Commerce Schedule -- Standard
Credit Terms dated March 18, 1998
10.25 Form of Indemnity Agreement between the Registrant and
directors and officers of the Registrant.
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Davis & Company (included in Exhibit 5.1)+
24.1 Powers of Attorney (included on signature page)
</TABLE>
- ---------------
** Indicates management contract.
+ To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules are omitted because they are inapplicable
or the requested information is shown in our consolidated financial statements,
and related notes.
ITEM 17. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement, certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(3) The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this registration
statement as of the time it was declared effective; and
(b) For the purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing of Form F-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Vancouver, British Columbia, Canada, on July 14,
1999.
PIVOTAL CORPORATION
By: /s/ NORMAN B. FRANCIS
------------------------------------
Norman B. Francis
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints each of
Norman B. Francis and Vincent D. Mifsud, or either of them, his or her
attorney-in-fact and agent, with the full power of substitution and
resubstitution, for them in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ NORMAN B. FRANCIS President, Chief Executive Officer July 14, 1999
- --------------------------------------------------- and Director
Norman B. Francis
/s/ VINCENT D. MIFSUD Chief Financial Officer and Vice July 14, 1999
- --------------------------------------------------- President, Operations
Vincent D. Mifsud
/s/ KEITH R. WALES Chief Technical Officer, Vice July 14, 1999
- --------------------------------------------------- President, Research and Development
Keith R. Wales and Director
/s/ JEREMY A. JAECH Director July 14, 1999
- ---------------------------------------------------
Jeremy A. Jaech
/s/ ROGER S. SIBONI Director July 14, 1999
- ---------------------------------------------------
Roger S. Siboni
Director
- ---------------------------------------------------
Douglas J. Mackenzie
/s/ ROBERT J. LOUIS Director July 14, 1999
- ---------------------------------------------------
Robert J. Louis
/s/ DONALD A. MATTRICK Director July 14, 1999
- ---------------------------------------------------
Donald A. Mattrick
</TABLE>
II-5
<PAGE> 100
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of Section 6(a) of the Securities Act of 1933,
as amended, the undersigned has signed this Registration Statement solely in the
capacity of the duly authorized representative of Pivotal Corporation in the
United States, on July 14, 1999.
PIVOTAL SOFTWARE USA, INC.
By: /s/ NORMAN B. FRANCIS
---------------------------------------
Norman B. Francis
President, Chief Executive Officer and
Director
II-6
<PAGE> 101
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement+
3.1 Memorandum and Articles
3.2 Form of Memorandum and Articles of the Registrant to be
effective at closing of this offering.
4.1 Specimen of Common Share certificate+
4.2 Registration Rights (included in Exhibit 10.15)
5.1 Opinion of Davis & Company+
10.1 Amended and Restated Incentive Stock Option Plan dated as of
January 28, 1999
10.2 Form of Amended and Restated Incentive Stock Option Plan to
be effective at closing of this offering
10.3 Employee Share Purchase Plan+
10.4 Lease dated as of July 18, 1997 between Sodican (B.C.) Inc.
and the Registrant for premises located in North Vancouver,
B.C.
10.5 Lease dated as of May 26, 1998 between Novo Esplanade Ltd.
and the Registrant for premises located in North Vancouver,
B.C.
10.6 Lease(1) dated as of December 14, 1998 between B.C. Rail
Ltd. and the Registrant for premises located in North
Vancouver, B.C.
10.7 Lease(2) dated as of December 14, 1998, between B.C. Rail
Ltd. and the Registrant with respect to premises located in
North Vancouver, B.C.
10.8 Lease dated as of December 11, 1998 between Yarrow Bay
Office III Limited Partnership and the Registrant with
respect to premises located in Kirkland, Washington
10.9 Lease dated as of March 12, 1999 between Erachange Limited
and the Registrant for premises located in London, England
10.10 Lease dated as of April 19, 1999 between Massachusetts
Mutual Life Insurance Company and the Registrant for
premises located in Des Plaines, Illinois
**10.11 Letter agreement dated November 21, 1997 between the
Registrant and Robert A. Runge granting an option to
purchase 250,000 common shares
**10.12 Letter agreement dated November 2, 1997 between the
Registrant and Glenn S. Hasen granting an option to purchase
136,000 common shares
10.13 Class F Preferred Share Subscription and Purchase Agreement
dated January 15, 1999, with respect to Class F Preferred
Shares
10.14 Shareholders' Agreement dated January 15, 1999
10.15 Investors' Rights Agreement dated January 15, 1999
10.16 Form of Share Purchase Agreement with respect to the
issuance of Class B common shares
10.17 Form of Share Purchase Agreement with respect to the
issuance of common shares in exchange for Class B commons
shares
10.18 Form of Lock-up Agreement
10.19 Canadian Imperial Bank of Commerce $2,000,000 Committed
Installment Loan dated March 18, 1998
10.20 Canadian Imperial Bank of Commerce $3,000,000 Operating Line
of Credit dated March 18, 1998
10.21 Security Agreement with Canadian Imperial Bank of Commerce
dated for reference April 15, 1998
10.22 Contract Relative to Special Security under the Bank Act
between Canadian Imperial Bank of Commerce and the
Registrant dated April 30, 1998
10.23 Canadian Imperial Bank of Commerce Schedule -- Standard
Credit Terms dated March 18, 1998
10.24 Canadian Imperial Bank of Commerce Schedule -- Standard
Credit Terms dated March 18, 1998
</TABLE>
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.25 Form of Indemnity Agreement between the Registrant and
directors and officers of the Registrant.
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Davis & Company (included in Exhibit 5.1)+
24.1 Powers of Attorney (included on signature page)
</TABLE>
- ---------------
** Indicates management contract.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
MEMORANDUM AND ARTICLES OF ASSOCIATION
PIVOTAL CORPORATION
(as amended June 18, 1999)
MEMORANDUM
(ALTERED)
OF
PIVOTAL CORPORATION
1. The name of the Company is PIVOTAL CORPORATION.
2. The authorized capital of the Company consists of 232,546,474 shares
divided into:
(a) 200,000,000 Common shares without par value;
(b) 600,000 Class B Common shares with a par value of $0.03 each;
(c) 2,000,000 Class A Preferred shares without par value;
(d) 2,000,000 Class B Preferred shares with a par value of $1.17 each;
(e) 2,658,228 Class D Preferred shares without par value;
(f) 4,000,000 Class E Preferred shares without par value;
(g) 1,288,246 Class F Preferred shares without par value; and
(h) 20,000,000 Preferred shares without par value.
3. Special rights and restrictions attached to the shares are set out in the
articles.
<PAGE> 2
ARTICLES
(AMENDED)
OF
PIVOTAL CORPORATION
PART 1 - TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART 1 - TABLE OF CONTENTS...................................................................1
PART 2 - INTERPRETATION......................................................................3
PART 3 - SHARES..............................................................................3
PART 4 - BRANCH REGISTERS....................................................................4
PART 5 - TRANSFER AND TRANSMISSION OF SHARES.................................................4
PART 6 - PURCHASE AND REDEMPTION OF SHARES...................................................5
PART 7 - GENERAL MEETINGS....................................................................5
PART 8 - VOTING OF MEMBERS...................................................................7
PART 9 - DIRECTORS...........................................................................9
PART 10 - POWERS AND DUTIES OF DIRECTORS....................................................10
PART 11 - DISCLOSURE OF INTEREST OF DIRECTORS...............................................11
PART 12 - PROCEEDINGS OF DIRECTORS..........................................................11
PART 13 - EXECUTIVE AND OTHER COMMITTEES....................................................12
PART 14 - OFFICERS..........................................................................13
PART 15 - INDEMNITY AND PROTECTION OF DIRECTORS, OFFICERS
AND EMPLOYEES.....................................................................13
PART 16 - DIVIDENDS AND RESERVE.............................................................14
PART 17 - DOCUMENTS, RECORDS AND REPORTS....................................................15
PART 18 - NOTICES...........................................................................15
</TABLE>
<PAGE> 3
- 3 -
<TABLE>
<S> <C> <C>
PART 19 - SEAL..............................................................................16
PART 20 - PROHIBITIONS......................................................................17
PART 21 - RIGHTS AND RESTRICTIONS ATTACHED TO THE CLASS A COMMON SHARES, THE
CLASS B COMMON SHARES, THE CLASS A PREFERRED SHARES, THE CLASS B
PREFERRED SHARES, THE CLASS D PREFERRED SHARES, THE CLASS E PREFERRED
SHARES, AND THE CLASS F PREFERRED SHARES..........................................17
</TABLE>
<PAGE> 4
- 4 -
PART 2 - INTERPRETATION
2.1 These Articles are subject to the provisions of the Company Act.
2.2 In these Articles, unless there is something in the subject or context
inconsistent herewith:
"Board" and "Directors" or "directors" mean the directors or sole
director of the Company for the time being.
"Company Act" means the Company Act of the Province of British Columbia
from time to time in force and includes the regulations made pursuant
thereto.
"registered owner", "registered holder", "owner", or "holder" when used
with respect to a share in the authorized capital of the Company means
the person registered in the register of members in respect of such
share.
"Securities Act" means the Securities Act of the Province of British
Columbia from time to time in force and includes the regulations and
policies made pursuant thereto.
2.3 A reference to writing includes any visible form of representing or
reproducing words.
2.4 Words importing the singular or plural, a person or corporation, or the
masculine, feminine or neuter gender shall include the other or others of them
respectively as the context requires.
2.5 The meaning of any words or phrases defined in the Company Act shall, if not
inconsistent with the subject or context, bear the same meaning in these
Articles.
PART 3 - SHARES
3.1 The shares in the Company shall be under the control of the directors who
may, subject to the rights of the holders of any shares, allot, issue, or
otherwise deal with them, at such times, to such persons (including directors)
in such manner, at such price or consideration, upon such terms and conditions,
as they, in their discretion, may determine.
3.2 The directors on behalf of the Company may pay a commission or allow a
discount to any person in consideration of his subscribing or agreeing to
subscribe, whether absolutely or conditionally, for any shares in the Company or
procuring or agreeing to procure subscriptions, whether absolutely or
conditionally, for any such shares.
<PAGE> 5
- 5 -
3.3 Except as required by law or these Articles, no person shall be recognized
by the Company as having any interest whatsoever in any share except the
registered holder thereof.
3.4 If a share is registered in the names of two or more persons they shall be
joint holders.
3.5 Neither the Company nor any transfer agent shall be liable for any loss
occasioned to the member owing to any share certificate being lost in the mail
or stolen.
3.6 A share certificate or debt obligation bearing the printed or mechanically
reproduced signature of a person shall not be invalid at its date of issue by
reason of the fact that such person shall have ceased to hold the office he is
stated to hold on such certificate or debt obligation.
PART 4 - BRANCH REGISTERS
4.1 Unless prohibited by the Company Act, the Company may keep or cause to be
kept one or more branch registers of members or debenture holders at such place
or places as the directors may from time to time determine.
PART 5 - TRANSFER AND TRANSMISSION OF SHARES
5.1 Subject to the provisions of the Memorandum and of these Articles, a member
may transfer any of his shares by instrument in writing executed by or on behalf
of such member and delivered to the Company or its transfer agent. The
instrument of transfer may be in the form, if any, on the back of the share
certificate representing the shares, or in such other form as the directors may
from time to time approve. Except to the extent that the Company Act may
otherwise provide, the transferor shall be deemed to remain the holder of the
shares until the name of the transferee is entered in the register of members or
a branch register of members in respect thereof.
5.2 The signature of the registered owner of any shares, or of his duly
authorized attorney, upon the instrument of transfer shall constitute a complete
and sufficient authority to the Company, its directors, officers and agents to
register in the name of the transferee as named in the instrument of transfer
or, if no transferee is named in the instrument of transfer, in the name of the
person on whose behalf any certificate for the shares to be transferred is
deposited with the Company for the purpose of having the transfer registered,
the number of shares specified in the instrument of transfer or, if no number is
specified, all the shares represented by all share certificates deposited with
the instrument of transfer.
5.3 Neither the Company nor any director, officer or agent thereof shall be
bound to inquire into the title of the person named in the instrument of
transfer as transferee, or, if no person is so named, of the person on whose
behalf the certificate is deposited for the purpose of having the transfer
registered, or be liable to any person for registering or not registering the
transfer, and the transfer when registered shall confer upon the person in whose
name the shares have been registered a valid title to the shares.
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5.4 Every instrument of transfer shall be executed by the transferor and left
for registration at the registered office of the Company or at the office of its
transfer agent or registrar together with the share certificate for the shares
to be transferred and such other evidence, if any, as the directors or the
transfer agent or registrar may require to prove the title of the transferor to,
or his right to transfer, the shares and the right of the transferee to have the
transfer registered. If the transfer is registered all instruments of transfer
and evidence shall be retained by the Company or its transfer agent or registrar
and, if the transfer is not registered, they together with the share certificate
shall be returned to the person depositing them.
5.5 There shall be paid to the Company in respect of the registration of any
transfer such sum, if any, as the directors may from time to time determine.
5.6 In the case of the death of a member, his legal personal representative, or
if he was a joint holder the surviving joint holder, shall be the only person
recognized by the Company as having any title to his interest in the shares.
Before recognizing a person as a legal personal representative the directors may
require him to obtain from a court of competent jurisdiction a grant of letters
probate or letters of administration.
PART 6 - PURCHASE AND REDEMPTION OF SHARES
6.1 The Company may purchase any of its shares unless the special rights and
restrictions attached thereto otherwise provide.
6.2 If the Company proposes to redeem some but not all of the shares of any
class, the directors may, subject to the special rights and restrictions
attached to such class of shares, decide the manner in which the shares to be
redeemed are to be selected.
PART 7 - GENERAL MEETINGS
7.1 The date, time and place of all general meetings of the Company shall be
fixed by the directors.
7.2 All business that is transacted at a general meeting shall be special except
in the case of an annual general meeting the conduct of and voting at such
meeting, the consideration of the financial statements and the reports of the
directors and the auditor, a resolution to elect two or more directors by a
single resolution, the election of directors, the appointment of the auditor,
the fixing of the remuneration of the auditor, such other business as by these
Articles or the Company Act may be transacted at a general meeting without prior
notice thereof being given to the members, and any business which is brought
under consideration by the report of the directors; and in the case of any other
general meeting, such business as relates to the conduct of or voting at that
meeting.
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7.3 Except as otherwise provided by the Company Act, where any special business
to be considered at a general meeting includes considering, approving,
ratifying, adopting or authorizing any document or the execution thereof or the
giving of effect thereto, the notice convening the meeting shall be sufficient
if, with respect to such document, it states that a copy of the document is or
shall be available for inspection by members at the registered office or records
office of the Company or at such other place designated in the notice during
usual business hours up to the date of such general meeting.
7.4 No business, other than the election of the chairman or the adjournment of
the meeting, shall be transacted at any general meeting unless there is a quorum
at the commencement of the meeting, but the quorum need not continue throughout
the meeting.
7.5 A quorum for a general meeting is two persons entitled to vote.
7.6 If within half an hour from the time appointed for a general meeting there
is no quorum, the meeting, if convened upon the requisition of members, shall
terminate. In any other case it shall be adjourned to the same day in the next
week, at the same time and place, and, if at the adjourned meeting there is no
quorum within half an hour from the time appointed for the meeting, the member
or members entitled to attend and vote at the meeting who are present or
represented by proxy or other proper authority shall be the quorum.
7.7 The Chairman of the Board, if any, or in his absence the President of the
Company or in his absence a Vice-President of the Company, if any, shall be
entitled to preside as chairman at every general meeting of the Company.
7.8 If at any general meeting neither the Chairman of the Board nor the
President nor a Vice-President is present within fifteen minutes after the time
appointed for holding the meeting or if present is not willing to act as
chairman, the directors present shall choose a chairman; but if all the
directors present decline to take the chair or fail so to choose or if no
director is present, the members present shall choose a chairman.
7.9 The chairman may, and shall if so directed by the meeting, adjourn the
meeting from time to time and from place to place, but no business shall be
transacted at any adjourned meeting other than the business left unfinished at
the meeting from which the adjournment took place. It shall not be necessary to
give any notice of an adjourned meeting or of the business to be transacted at
an adjourned meeting.
7.10 The directors and any other person permitted by the chairman of the meeting
shall be entitled to attend any general meeting.
7.11 No motion proposed at a general meeting need be seconded and the chairman
may propose a motion.
7.12 Unless the Company Act otherwise provides, any action to be taken by a
resolution of the members may be taken by an ordinary resolution.
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PART 8 - VOTING OF MEMBERS
8.1 Subject to any special voting rights or restrictions attached to any class
of shares and the restrictions on joint holders of shares, on a show of hands
every member who is present in person and entitled to vote thereat shall have
one vote and on a poll every member present in person or represented by proxy or
other proper authority shall have one vote for each share of which he is the
registered holder.
8.2 A member, being a corporation, may appoint a proxyholder and may also
appoint a representative to act for it by delivering to the Company a copy of a
resolution of its directors or other governing body naming a person as its
representative. Such representative, subject to any restrictions contained in
the resolution, shall be entitled to exercise the same powers on behalf of the
corporation as the corporation could exercise if it were an individual member.
If the corporation is a subsidiary of the Company its shares may not be voted
and its proxyholder or representative or the proxyholder of the representative
may not be counted to make a quorum.
8.3 In the case of joint registered holders of a share the vote of the senior
who exercises a vote, whether in person or by proxyholder, shall be accepted to
the exclusion of the votes of the other joint registered holders; and for this
purpose seniority shall be determined by the order in which the names stand in
the register of members. Two or more legal personal representatives of a
deceased member whose shares are registered in his sole name shall for the
purpose of this Article be deemed joint registered holders.
8.4 A member of unsound mind entitled to attend and vote in respect of whom an
order has been made by any court having jurisdiction may vote, whether on a show
of hands or on a poll, by his committee, curator bonis, or other person in the
nature of a committee or curator bonis appointed by that court, and any such
committee, curator bonis, or other person may appoint a proxyholder.
8.5 A member may by proxy appoint a proxyholder to vote for him on a poll.
8.6 In the case of an equality of votes, whether on a show of hands or on a
poll, the chairman of the meeting at which the show of hands takes place or at
which the poll is demanded shall not be entitled to a second or casting vote.
8.7 If a poll is demanded it shall be taken either at the meeting and of the
members present in person or represented by proxy or other proper authority at
the time the poll is taken, or at such other time and in such manner as the
chairman may direct. Any business other than that upon which the poll has been
demanded may be proceeded with pending the taking of the poll. A demand for a
poll may be withdrawn.
8.8 In any dispute as to the admission or rejection of a vote the decision of
the chairman made in good faith shall be final and conclusive.
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8.9 On a poll a person entitled to cast more than one vote need not, if he
votes, use all his votes or cast all the votes he uses in the same way.
8.10 A member holding more than one share in respect of which he is entitled to
vote shall be entitled to appoint one or more (but not more than two)
proxyholders to attend, act and vote for him on the same occasion. If such a
member should appoint more than one proxyholder for the same occasion he shall
specify the number of shares each proxyholder shall be entitled to vote. A
member may also appoint one or more alternate proxyholders to act in the place
and stead of an absent proxyholder.
8.11 A form of proxy shall be in writing under the hand of the appointor or his
attorney duly authorized in writing, or, if the appointor is a corporation,
either under the seal of the corporation or under the hand of a duly authorized
officer or representative of or attorney for the corporation.
A proxyholder shall be a member of the Company unless
(a) the Company is at the time a reporting company,
(b) the member appointing the proxyholder is a corporation,
(c) the Company shall have at the time only one member, or
(d) all the members present otherwise agree.
8.12 Unless otherwise provided by the directors, a form of proxy and the power
of attorney or other authority, if any, under which it is signed or a notarially
certified copy thereof shall be deposited at the registered office of the
Company or at such other place as is specified for that purpose in the notice
convening the meeting, or in the information circular relating thereto not less
than 48 hours, excluding Saturdays and holidays, before the time of the meeting.
8.13 Except as otherwise provided by law or these Articles, a proxy may be in
any form the directors or the chairman of the meeting approve.
8.14 A vote given in accordance with the terms of a proxy shall be valid
notwithstanding the previous death or incapacity of the member giving the proxy
or the revocation of the proxy or of the authority under which the form of proxy
was executed or the transfer of the share in respect of which the proxy is
given, provided that no notification in writing of such death, incapacity,
revocation or transfer shall have been received at the registered office of the
Company or by the chairman of the meeting or adjourned meeting for which the
proxy was given before the vote is taken.
PART 9 - DIRECTORS
9.1 The members, except as otherwise restricted by the Memorandum or Articles,
shall be entitled to elect directors, but the number to be elected shall be
determined by the directors.
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9.2 The directors may, from time to time, appoint additional directors.
9.3 A casual vacancy occurring in the Board of directors may be filled by the
remaining directors or director.
9.4 A director's term of office shall expire on the date fixed at the time of
his appointment or election and in the absence thereof on the election of
directors either at the annual general meeting next following his appointment or
election or by the consent in writing in lieu of such meeting, as the case may
be.
9.5 A retiring director shall be eligible for re-election.
9.6 Any director may by written notice to the Company appoint any person to be
his alternate to act in his place at meetings of the directors at which he is
not present or by these Articles deemed to be present unless the directors shall
have reasonably disapproved the appointment of such person and given notice to
that effect to the director within a reasonable time. Every alternate shall be
entitled to attend and vote at meetings at which the person who appointed him is
not present or deemed to be present, and, if he is a director, to have a
separate vote on behalf of the director he is representing in addition to his
own vote. A director may at any time by written notice to the Company revoke the
appointment of an alternate appointed by him. The remuneration payable to such
an alternate shall be payable out of the remuneration of the director appointing
him.
9.7 The directors may remove from office a director who is convicted of an
indictable offence.
9.8 The remuneration of the directors as such may from time to time be
determined by the directors. Such remuneration may be in addition to any salary
or other remuneration paid to any officer or employee of the Company who is a
director. The directors shall be repaid such reasonable travelling, hotel and
other expenses as they incur in and about the business of the Company and if any
director shall perform any professional or other services for the Company that
in the opinion of the directors are outside the ordinary duties of a director or
shall otherwise be specially occupied in or about the Company's business, he may
be paid a remuneration to be fixed by the Board, or, at the option of such
director, by resolution of the members and such remuneration may be either in
addition to, or in substitution for, any other remuneration that he may be
entitled to receive. The directors may pay a gratuity or pension or allowance on
retirement to any director who has held any salaried office or place of profit
with the Company or to his spouse or dependents and may make contributions to
any fund and pay premiums for the purchase or provision of any such gratuity,
pension or allowance.
PART 10 - POWERS AND DUTIES OF DIRECTORS
10.1 The powers of the Company shall be exercised only by the directors, except
those which by the Company Act or these Articles are required to be exercised by
a resolution of the members and those referred to the members by the directors.
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10.2 The directors may from time to time
(a) borrow money in such manner and amount, on such security, from
such sources and upon such terms and conditions as they think
fit,
(b) issue bonds, debentures and other debt obligations either
outright or as security for any liability or obligation of the
Company or any other person, and
(c) mortgage or charge, whether by way of specific or floating
charge, or give other security on the undertaking and the whole
or any part of the property and assets (both present and future)
of the Company.
10.3 The directors may from time to time by power of attorney or other
instrument appoint any person to be the attorney of the Company for such
purposes, and with such powers, authorities and discretions (not exceeding those
vested in or exercisable by the directors under these Articles and excepting the
powers of the directors relating to the constitution of the Board and of any of
its committees and the appointment or removal of officers and the power to
declare dividends), for such period, with such remuneration and subject to such
conditions as the directors may think fit, and any such power of attorney may
contain such provisions for the protection or convenience of persons dealing
with such attorney as the directors think fit. Any such attorney may be
authorized by the directors to sub-delegate all or any of the powers,
authorities and discretions for the time being vested in him.
PART 11 - DISCLOSURE OF INTEREST OF DIRECTORS
11.1 A director shall disclose his interest in and not vote in respect of any
proposed contract or transaction with the Company in which he is in any way
directly or indirectly interested, but such director shall be counted in the
quorum at the meeting of the directors at which the proposed contract or
transaction is approved.
11.2 A director may hold any office or place of profit with the Company in
addition to his office of director for such period and on such terms (as to
remuneration or otherwise) as the directors may determine and no director or
intended director shall be disqualified by his office from contracting with the
Company either with regard to his tenure of any such other office or place of
profit or as vendor, purchaser or otherwise, and no contract or transaction
entered into by or on behalf of the Company in which a director is in any way
interested shall be voided by reason thereof.
11.3 A director or his firm may act in a professional capacity for the Company
and he or his firm shall be entitled to remuneration for professional services
as if he were not a director.
11.4 A director may be or become a director, officer or employee of, or
otherwise interested in, any corporation or firm in which the Company may be
interested as a shareholder or
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otherwise, and such director shall not, except as provided by the Company Act or
these Articles, be accountable to the Company for any remuneration or other
benefit received by him as director, officer or employee of, or from his
interest in, such other corporation or firm, unless the directors otherwise
direct.
PART 12 - PROCEEDINGS OF DIRECTORS
12.1 Unless otherwise determined by the directors the President shall be the
Chairman of the Board.
12.2 A director may, and the Secretary shall on the request of a director, call
a meeting of the directors.
12.3 The Chairman of the Board, or in his absence the President, shall preside
as chairman at every meeting of the directors, or if there is no Chairman of the
Board or neither the Chairman of the Board nor the President is present within
fifteen minutes of the time appointed for holding the meeting or is willing to
act as chairman, or if the Chairman of the Board and the President have advised
the Secretary that they shall not be present at the meeting, the directors
present shall choose one of their number to be chairman of the meeting.
12.4 The directors may meet for the dispatch of business, adjourn and otherwise
regulate their meetings as they think fit. Questions arising at any meeting
shall be decided by a majority of votes and in case of an equality of votes the
chairman shall have a second or casting vote.
12.5 A meeting of the Board, or of any committee of the Board, may be held in
any of the following ways:
(a) all of the participants meeting in person;
(b) some of the participants meeting in person and others
communicating with them, by telephone or other means of
communication, so that each participant can hear each of the
others; or
(c) all of the participants communicating with each other, by
telephone or other means of communication, so that each
participant can hear each of the others.
12.6 The quorum necessary for the transaction of business by the directors may
be fixed by the directors and if not so fixed shall be a majority of the Board.
12.7 The directors may if there is a quorum act notwithstanding any vacancy.
12.8 Every act of a director is valid notwithstanding any defect that may
afterwards be discovered in his election or appointment.
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12.9 Any resolution of the directors or of a committee thereof may be passed
with the consent in writing to the resolution of all the directors or the
members of that committee. The consent may be in counterparts.
PART 13 - EXECUTIVE AND OTHER COMMITTEES
13.1 The directors may appoint an Executive Committee to consist of such member
or members of the Board as they think fit. The Executive Committee shall have
all the powers vested in the Board except the power to fill vacancies in the
Board, the power to change the membership of, or fill vacancies in the Executive
Committee or any other committee of the Board and such other powers, if any, as
are specified.
13.2 The directors may appoint one or more committees consisting of such member
or members of the Board as they think fit and may delegate to any such committee
any powers of the Board; except, the power to fill vacancies in the Board, the
power to change the membership of or fill vacancies in any committee of the
Board, and the power to appoint or remove officers appointed by the Board.
13.3 All committees may meet and adjourn as they think fit. Questions arising at
any meeting shall be determined by a majority of votes of the members of the
committee, and in case of an equality of votes the chairman shall have a second
or casting vote.
13.4 All committees shall keep minutes of their actions and shall cause them to
be recorded in books kept for that purpose and shall report the same to the
Board at such times as the Board requires. The directors shall also have power
at any time to revoke or override any authority given to or acts to be done by
any such committees except as to acts done before such revocation or overriding
and to terminate the appointment or change the membership of a committee and to
fill vacancies in it. Committees may make rules for the conduct of their
business and may appoint such assistants as they may deem necessary.
PART 14 - OFFICERS
14.1 The directors may decide what functions and duties each officer shall
perform and may entrust to and confer upon him any of the powers exercisable by
them upon such terms and conditions as they think fit and may from time to time
revoke, withdraw, alter or vary any of such functions, duties and powers.
PART 15 - INDEMNITY AND PROTECTION OF DIRECTORS, OFFICERS
AND EMPLOYEES
15.1 Subject to the provisions of the Company Act, the Company shall indemnify a
director or
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former director of the Company and the Company may indemnify a director or
former director of a corporation of which the Company is or was a shareholder
and the heirs and personal representatives of any such person against all costs,
charges and expenses, including an amount paid to settle an action or satisfy a
judgment, actually and reasonably incurred by him or them in a civil, criminal
or administrative action or proceeding to which he is or they are made a party
by reason of his being or having been a director of the Company or a director of
such corporation, including any action brought by the Company or any such
corporation. Each person who acts or has acted at the Company's request as a
director and each director on being elected or appointed shall be deemed to have
contracted with the Company on the terms of the foregoing indemnity.
15.2 Subject to the provisions of the Company Act, the directors may cause the
Company to indemnify any officer, employee or agent of the Company or of a
corporation of which the Company is or was a shareholder (notwithstanding that
he may also be a director) and his heirs and personal representatives against
all costs, charges and expenses whatsoever incurred by him or them and resulting
from his acting as an officer, employee or agent of the Company or such
corporation. In addition the Company shall indemnify the Secretary and any
Assistant Secretary of the Company if he is not a full time employee of the
Company and notwithstanding that he may also be a director and his respective
heirs and legal representatives against all costs, charges and expenses
whatsoever incurred by him or them and arising out of the functions assigned to
the Secretary by the Company Act or these Articles and the Secretary and
Assistant Secretary shall on being appointed be deemed to have contracted with
the Company on the terms of the foregoing indemnity.
15.3 The failure of a director or officer of the Company to comply with the
provisions of the Company Act, the Memorandum or these Articles shall not
invalidate any indemnity to which he is entitled under this Part.
15.4 The directors may cause the Company to purchase and maintain insurance for
the benefit of any person who is or was serving as a director, officer, employee
or agent of the Company or as a director, officer, employee or agent of any
corporation of which the Company is or was a shareholder and his heirs or
personal representatives against any liability incurred by him as such director,
officer, employee or agent.
PART 16 - DIVIDENDS AND RESERVE
16.1 The directors may from time to time declare and authorize payment of such
dividends, if any, as they deem advisable and need not give notice of such
declaration to any member. No dividend shall be paid otherwise than out of funds
or assets properly available for the payment of dividends and a declaration by
the directors as to the amount of such funds or assets available for dividends
shall be conclusive. Any dividend may be paid wholly or in part by the
distribution of specific assets and in particular by shares, bonds, debentures
or other securities of the Company or any other corporation or in any one or
more such ways as may be authorized by the directors. Where any difficulty
arises with regard to such a distribution the directors may settle the same as
they see fit, and in particular may fix the value for distribution of such
specific assets or any part
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thereof, and may determine that cash payment in substitution for all or any part
of the specific assets to which any member is entitled shall be made to the
member on the basis of the value so fixed in order to adjust the rights of all
parties and may vest any specific assets in trustees for the persons entitled to
the dividend.
16.2 Any dividend declared on shares of any class may be made payable on such
date as is fixed by the directors.
16.3 If persons are registered as joint holders of any share, any one of them
may give an effective receipt for any dividend, bonus or other monies payable in
respect of the share.
16.4 Unless otherwise determined by the directors, no dividend shall be paid on
any share which has been purchased or redeemed by the Company while the share is
held by the Company.
16.5 Any dividend, bonus or other monies payable in cash in respect of shares
may be paid by cheque. The mailing of such cheque shall, to the extent of the
sum represented thereby (plus the amount of any tax required by law to be
deducted), discharge all liability for the dividend unless the cheque is not
paid on presentation or the amount of tax so deducted is not paid to the
appropriate taxing authority.
16.6 Notwithstanding anything contained in these Articles the directors may from
time to time capitalize any undistributed surplus on hand of the Company and may
from time to time issue shares, bonds, debentures or debt obligations of the
Company as a dividend representing such undistributed surplus on hand or any
part thereof.
PART 17 - DOCUMENTS, RECORDS AND REPORTS
17.1 No member of the Company shall be entitled to inspect the accounting
records of the Company unless the directors determine otherwise.
PART 18 - NOTICES
18.1 Any notice required to be given by these Articles or the Company Act unless
the form is otherwise specified may be given orally or in writing.
18.2 A notice in writing, statement, report or other document shall have been
effectively sent or given if posted prepaid, delivered, faxed or e-mailed to the
person entitled thereto at his address recorded on a register maintained by the
Company; and a certificate signed by the Secretary or other officer of the
Company or of any other corporation acting on behalf of the Company that the
notice, statement, report or other document was so sent or given shall be
conclusive evidence thereof.
18.3 A notice, statement, report or other document may be given by the Company
to the joint holders of a share by giving it to any of them.
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18.4 A notice, statement, report or other document may be given by the Company
to the persons entitled to a share in consequence of the death, bankruptcy or
incapacity of a member in the same manner as the same might have been given if
the death, bankruptcy or incapacity had not occurred.
18.5 Notice of each directors' meeting, except a directors' meeting held
immediately following an annual general meeting of which no notice shall be
required, shall be given to every director and alternate director except a
director or alternate director who has waived notice or is absent from the
Province of Alberta.
18.6 The accidental omission to give notice of a meeting to, or the non-receipt
thereof by, any person entitled to receive notice shall not invalidate the
proceedings at that meeting.
18.7 Every notice of a meeting shall specify the place, day and time of the
meeting and if for a general meeting the general nature of all special business
intended to be conducted thereat, unless specified in an information circular
relating thereto.
18.8 A director may waive his entitlement to receive a notice of any past,
present or future meeting or meetings of directors and may at any time withdraw
such waiver. After the waiver is received by the Company and until it is
withdrawn no notice need be given to such director or, unless the director
otherwise requires in writing to the Company, to his alternate. Meetings held
without such notice being given shall not have been improperly called by reason
thereof.
18.9 Not less than twenty-four hours' notice of a directors' meeting requiring
notice shall be given.
18.10 Where in these Articles any period of time dating from a given day, act or
event is prescribed the time shall be reckoned exclusive of such day, act or
event.
PART 19 -SEAL
19.1 Notwithstanding any resolution of the directors, if the seal of the Company
is affixed and accompanied by the signature of at least one of the Chairman of
the Board, the President, a Vice-President, the Secretary, or the Treasurer, or
a director, that shall constitute effective execution.
19.2 The Company may have an official seal for use in any other province, state,
territory or country.
19.3 The seal of the Company may, if directed by the Board, be reproduced on any
document by any means and in any form other than an impression thereof.
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PART 20 - PROHIBITIONS
20.1 Unless the Company is a reporting issuer, as defined under the Securities
Act, the directors may, without assigning reasons, refuse to transfer any share,
except as otherwise provided by the Company Act.
PART 21 - RIGHTS AND RESTRICTIONS
ATTACHED TO THE COMMON SHARES,
THE CLASS B COMMON SHARES,
THE CLASS A PREFERRED SHARES,
THE CLASS B PREFERRED SHARES,
THE CLASS D PREFERRED SHARES,
THE CLASS E PREFERRED SHARES,
THE CLASS F PREFERRED SHARES,
AND THE PREFERRED SHARES
21.1 DIVIDEND PROVISIONS
The holders of the Class A Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares and Class F Preferred Shares
(collectively "Existing Preferred Shares") shall be entitled to receive
dividends, out of any assets legally available therefor, when, as and if
declared by the Board of Directors; however, in the event dividends are paid on
any other outstanding shares of this Company, the holders of Existing Preferred
Shares shall be entitled to an amount per share equal to that paid on any other
outstanding shares of this Company as determined on a basis as if all the
Existing Preferred Shares in question had been fully converted into Common
Shares under the provisions of Article 21.4 (the"Converted Basis") on the date
of record for the payment of such dividend for such Existing Preferred Shares.
Such dividends shall not be cumulative. For greater certainty, if stock
dividends are declared and paid on Common Shares the holders of Existing
Preferred Shares shall not be entitled to stock or an amount equal to the value
of such stock calculated as aforesaid, provided that the Conversion Price for
the Class A Preferred Shares, Class B Preferred Shares, Class D Preferred
Shares, Class E Preferred Shares and Class F Preferred Shares is adjusted or
subject to adjustment pursuant to subparagraph 21.4(c) hereof.
21.2 LIQUIDATION PREFERENCE
(a) In the event of any liquidation, dissolution or winding up of this
Company, either voluntary or involuntary, the holders of Class F
Preferred Shares shall be entitled to receive, prior and in preference
to any distribution of any of the assets of this Company to the holders
of Class A Preferred Shares, Class B Preferred Shares, Class D Preferred
Shares, Class E Preferred Shares, Common Shares or Class B Common Shares
by reason of their ownership thereof, an amount per share equal to the
sum of:
(i) U.S. $6.21 for each outstanding Class F Preferred Share
(adjusted to reflect subsequent stock dividends, stock
splits or recapitalization) (the "Original Class F
<PAGE> 18
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Issue Price"); and
(ii) an amount equal to any declared but unpaid dividends on
such shares.
If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Class F Preferred Shares
shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then the entire
remaining assets and funds of the Company legally available for
distribution shall be distributed ratably among the holders of
the Class F Preferred Shares in proportion to the aggregate full
aforesaid preferential amounts to which each such holder would
otherwise be entitled.
(b) Upon the completion of the distribution required by subparagraph (a) of
this Article 21.2, if assets remain in this Company, the holders of
Class E Preferred Shares shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this Company to
the holders of Class A Preferred Shares, Class B Preferred Shares, Class
D Preferred Shares, Common Shares or Class B Common Shares by reason of
their ownership thereof, an amount per share equal to the sum of:
(i) U.S. $1.35 for each outstanding Class E Preferred Share
(adjusted to reflect subsequent stock dividends, stock
splits or recapitalization) (the "Original Class E Issue
Price"); and
(ii) an amount equal to any declared but unpaid dividends on
such shares.
If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Class E Preferred Shares
shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then the entire
remaining assets and funds of the Company legally available for
distribution shall be distributed ratably among the holders of
the Class E Preferred Shares in proportion to the aggregate full
aforesaid preferential amounts to which each such holder would
otherwise be entitled.
(c) Upon the completion of the distributions required by subparagraphs (a)
and (b) of this Article 21.2, if assets remain in this Company, the
holders of Class D Preferred Shares shall be entitled to receive, prior
and in preference to any distribution of any of the assets of this
Company to the holders of Class A Preferred Shares, Class B Preferred
Shares, Common Shares or Class B Common Shares by reason of their
ownership thereof, an amount per share equal to the sum of:
(i) U.S. $0.79 for each outstanding Class D Preferred Share
(adjusted to reflect subsequent stock dividends, stock
splits or recapitalization) (the "Original Class D Issue
Price"); and
(ii) an amount equal to any declared but unpaid dividends on
such shares.
If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Class D Preferred Shares shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire remaining assets and funds of the
Company legally available for distribution shall be distributed ratably
<PAGE> 19
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among the holders of the Class D Preferred Shares in proportion to the
aggregate full aforesaid preferential amounts to which each such holder
would otherwise be entitled.
(d) Upon the completion of the distributions required by subparagraphs (a),
(b) and (c) of this Article 21.2, if assets remain in this Company, the
holders of Class B Preferred Shares of this Company shall be entitled to
receive, prior and in preference to any distribution of any of the assets
of this Company to the holders of Class A Preferred Shares, Common Shares
or Class B Common Shares by reason of their ownership thereof, an amount
per share equal to the sum of:
(i) U.S. $1.00 for each outstanding Class B Preferred Share
(adjusted to reflect subsequent stock dividends, stock
splits or recapitalization) (the "Original Class B Issue
Price"); and
(ii) an amount equal to any declared but unpaid dividends on
such shares.
If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Class B Preferred Shares shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts , then the entire remaining assets and funds of the
Company legally available for distribution shall be distributed ratably
among the holders of the Class B Preferred Shares in proportion to the
aggregate full aforesaid preferential amounts to which each such holder
would otherwise be entitled.
(e) Upon the completion of the distributions required by subparagraphs (a),
(b), (c) and (d) of this Article 21.2, if assets remain in this Company,
the holders of Class A Preferred Shares of this Company shall be entitled
to receive, prior and in preference to any distribution of any of the
assets of this Company to the holders of Common Shares or Class B Common
Shares by reason of their ownership thereof, an amount per share equal to
the sum of:
(i) U.S. $0.30 for each outstanding Class A Preferred Share
(adjusted to reflect subsequent stock dividends, stock
splits or recapitalization) (the "Original Class A Issue
Price"); and
(ii) an amount equal to any declared but unpaid dividends on
such shares.
If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Class A Preferred Shares shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire remaining assets and funds of the
Company legally available for distribution shall be distributed ratably
among the holders of the Class A Preferred Shares in proportion to the
aggregate full aforesaid preferential amounts to which each such holder
would otherwise be entitled.
(f) Upon the completion of the distributions required by subparagraphs (a),
(b), (c), (d) and (e) of this Article 21.2, if assets remain in this
Company, the holders of the Common Shares of this Company shall be
entitled to receive, prior and in preference to any
<PAGE> 20
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distribution of any of the assets of this Company to the holders of the
Class B Common Shares by reason of their ownership thereof, an amount per
share equal to any declared but unpaid dividends on such share.
If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Common Shares shall be insufficient
to permit the payment to such holders of the full aforesaid preferential
amounts, then the entire remaining assets and funds of the Company
legally available for distribution shall be distributed ratably among the
holders of the Common Shares in proportion to the aggregate full
aforesaid preferential amounts to which each such holder would otherwise
be entitled.
(g) Upon the completion of the distributions required by subparagraphs (a),
(b), (c), (d), (e) and (f) of this Article 21.2, if assets remain in this
Company, the holders of the Class B Common Shares of this Company shall
be entitled to receive, prior and in preference to any distribution of
any of the assets of this Company to the holders of any other class of
shares by reason of their ownership thereof, an amount per share equal to
any declared but unpaid dividends on such share.
If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Class B Common Shares shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire remaining assets and funds of the
Company legally available for distribution shall be distributed ratably
among the holders of the Class B Common Shares in proportion to the
aggregate full aforesaid preferential amounts to which each such holder
would otherwise be entitled.
(h) After the distributions described in subparagraphs (a), (b), (c), (d),
(e), (f) and (g) of this Article 21.2 have been paid, the remaining
assets of the Company available for distribution to shareholders shall be
distributed among the holders of Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred Shares,
Class F Preferred Shares pro rata based on the number of Common Shares
held by each on a Converted Basis, together with the holders of Common
shares and Class B Common Shares.
(i) A reorganization of this Company or a consolidation or merger of this
Company with or into any other company or companies, or a sale,
conveyance or disposition of all or substantially all of the assets of
this Company or the completion of a transaction or class of related
transactions in which more than 50% of the voting power of the Company is
disposed of, except for and excluding a transaction described in Article
21.4(a)(iii)(A), shall be deemed to be a liquidation, dissolution or
winding up within the meaning of this Article 21.2.
(j) Any securities to be delivered pursuant to subparagraph (i) above shall
be valued as follows:
(i) Securities not subject to a hold period or other similar
restrictions on free marketability:
<PAGE> 21
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(A) If traded on a securities exchange, the value shall
be deemed to be the average of the closing prices
of the securities on such exchange over the 30-day
period ending three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing
bid or sale prices (whichever are applicable) over
the 30-day period ending three (3) days prior to
the closing; and
(C) If there is no active public market, the value
shall be the fair market value thereof, as mutually
determined by this Company and the holders of
Existing Preferred Shares which would be entitled
to receive such securities or the same type of
securities and which Existing Preferred Shares
represent at least a majority of the voting power
of all then outstanding shares of Existing
Preferred Shares.
(ii) The method of valuation of securities subject to a hold
period or other restrictions on free marketability (other
than restrictions arising solely by virtue of a
shareholder's status as an affiliate or former affiliate)
shall be to make an appropriate discount from the market
value determined as above in clause (i) (A), (B) or (C) to
reflect the approximate fair market value thereof, as
mutually determined by this Company and the holders of
Existing Preferred Shares which would be entitled to
receive such securities or the same type of securities and
which represent at least a majority of the voting power of
all then outstanding shares of such Existing Preferred
Shares.
(k) In the event the requirements of subparagraph (i) of this Article are not
complied with, the Company shall forthwith either:
(i) cause such closing to be postponed until such time
as the requirements of this Article 21.2 have been
complied with, or
(ii) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the
Class A, Class B, Class D, Class E and Class F
Preferred Shares, Common Shares and Class B Common
Shares shall revert to and be the same as such
rights, preferences and privileges existing
immediately prior to the date of the first notice
referred to in subparagraph (l) hereof.
(l) The Company shall give each holder of record of Existing Preferred
Shares written notice of such impending transaction not later than
twenty (20) days prior to the shareholders' meeting called to approve
such transaction, or twenty (20) days prior to the closing of such
transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the
impending transaction and the provision of this Article 21.2,
<PAGE> 22
- 22 -
and the Company shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner
than twenty (20) days after the Company has given the first notice
provided for herein or sooner than ten (10) days after the Company has
given notice of any material changes provided for herein; provided,
however, that such periods may be shortened upon the written consent of
the holders of Existing Preferred Shares which are entitled to such
notice rights or similar notice rights and which represents at least a
majority of the voting power of all then outstanding shares of such
Existing Preferred Shares.
(m) The provisions of this Article 21.2 are in addition to the protective
provisions of Article 21.6 hereof.
21.3 RETRACTION AT REQUEST OF SHAREHOLDER AND REDEMPTION BY THE COMPANY
(a) On or at any time after June 30, 2001, the Company shall, after receipt
by it of the written request of the holders of not less than 75% of the
outstanding Class B, Class D, Class E and Class F Preferred Shares,
redeem in whole or in part the Class B, Class D, Class E and Class F
Preferred Shares by paying in cash therefor:
(i) for the Class B Preferred Shares a sum per share equal to U.S.
$1.00 (adjusted to reflect subsequent stock dividends, stock
splits or recapitalization) together with all dividends declared,
but unpaid, with respect to such share to the Redemption Date
(defined below) (such total amount is hereinafter referred to as
the "Class B Redemption Price");
(ii) for the Class D Preferred Shares a sum per share equal to U.S.
$0.79 (adjusted to reflect subsequent stock dividends, stock
splits or recapitalization) together with all dividends declared,
but unpaid, with respect to such share to the Redemption Date
(such total amount is hereinafter referred to as the "Class D
Redemption Price");
(iii) for the Class E Preferred Shares a sum per share equal to U.S.
$1.35 (adjusted to reflect subsequent stock dividends, stock
splits or recapitalization) together with all dividends declared,
but unpaid, with respect to such share to the Redemption Date
(such total amount is hereinafter referred to as the "Class E
Redemption Price"); and
(iv) for the Class F Preferred Shares a sum per share equal to U.S.
$6.21 (adjusted to reflect subsequent stock dividends, stock
splits or recapitalization) together with all dividends declared,
but unpaid, with respect to such share to the Redemption Date
(such total amount is hereinafter referred to as the "Class F
Redemption Price").
(b) On or at any time after June 30, 2001, the Company may, after receipt by
it of written consent to redemption hereunder of the Class B, Class D,
Class E and Class F Preferred
<PAGE> 23
- 23 -
Shares, from the holders of Class B, Class D, Class E and Class F
Preferred Shares representing at least 75% of the voting power of the
then outstanding Class B, Class D, Class E and Class F Preferred Shares
of this Company, at any time it may lawfully do so, redeem in whole or
in part the Class B, Class D, Class E and Class F Preferred Shares by
paying in cash therefor a sum equal to the Class B Redemption Price in
the case of the Class B Preferred Shares, the Class D Redemption Price
in case of the Class D Preferred Shares, the Class E Redemption Price in
the case of the Class E Preferred Shares and the Class F Redemption
Price in the case of the Class F Preferred Shares so redeemed.
(c) (i) In the event of any redemption of only a part of the then
outstanding Class B, Class D, Class E and Class F Preferred
Shares, this Company shall, except as provided in Article
21.3(c)(iii), effect such redemption pro rata in proportion to
the aggregate redemption price for each class.
(ii) Within thirty (30) days after receipt of the written request
referred to in Article 21.3(a) or the written consent referred to
in Article 21.3(b), as the case may be, the Company shall give
written notice by mail, first class postage prepaid, to each
holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Class B,
Class D, Class E and Class F Preferred Shares to be redeemed, at
the address last shown on the records of this Company for such
holder or given by the holder to this Company for the purpose of
notice or, if no such address appears or is given, at the place
where the principal executive office of this Company is located,
notifying such holder of the redemption to be effected,
specifying the number of shares to be redeemed from such holder,
the date fixed by the Company for the redemption of any Class B,
Class D, Class E and Class F Preferred Shares, which date shall
be not less than 30 but no more 60 days after the date of such
mailing (the "Redemption Date"), the Redemption Price, the place
at which payment may be obtained and the date on which such
holder's Conversion Rights (as hereinafter defined) as to such
shares terminate and calling upon such holder to surrender to
this Company, in the manner and at the place designated, the
holder's certificate or certificates representing the shares to
be redeemed (the "Redemption Notice"). Except as provided in
Article 21.3(c)(iii), on or after the Redemption Date, each
holder of Class B, Class D, Class E and Class F Preferred Shares
to be redeemed shall surrender to this Company the certificate or
certificates representing such shares, in the manner and at the
place designated in the Redemption Notice, and thereupon the
Redemption Price of such shares shall be payable to the order of
the person whose name appears on such certificate or certificates
as the owner thereof and each surrendered certificate shall be
cancelled. In the event less than all the shares represented by
any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(iii) From and after the Redemption Date, unless there shall have been
a default in payment of the Redemption Price, all rights of the
holders of such shares as holders of Class B, Class D, Class E
and Class F Preferred Shares (except the right to receive the
Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such
shares, and such shares
<PAGE> 24
- 24 -
shall not thereafter be transferred on the books of this Company
or be deemed to be outstanding for any purpose whatsoever. If the
funds of this Company legally available for redemption of Class
B, Class D, Class E and Class F Preferred Shares on any
Redemption Date are insufficient to redeem the total number of
Class B, Class D, Class E and Class F Preferred Shares specified
in the Redemption Notice to be redeemed on such date, those funds
which are legally available will be used as follows:
A. First, the funds will be used to redeem the maximum
possible number of Class F Preferred Shares described in
the Redemption Notice at the Class F Redemption Price, in
priority and preference to any payment to the holders of
Class B Preferred Shares, Class D Preferred Shares and
Class E Preferred Shares, and if such funds are
insufficient to permit the payment of the full Redemption
Price for the Class F Preferred Shares that are described
in the Redemption Notice then the funds shall be paid
ratably among the holders of the Class F Preferred Shares
in proportion to the aggregate full preferential amounts
to which each holder would otherwise be entitled as
provided in Article 21.2(a),
B. Second, if funds remain after paying in full the Class F
Redemption Price to the holders of Class F Preferred
Shares, then the funds will be used to redeem the maximum
possible number of Class E Preferred Shares described in
the Redemption Notice at the Class E Redemption Price, in
priority and preference to any payment to the holders of
Class B Preferred Shares and Class D Preferred Shares, and
if such funds are insufficient to permit the payment of
the full Redemption Price for the Class E Preferred Shares
that are described in the Redemption Notice then the funds
shall be paid ratably among the holders of Class E
Preferred Shares in proportion to the aggregate full
preferential amounts to which each holder would otherwise
be entitled as provided in Article 21.2(b),
C. Third, if funds remain after paying in full the Class E
Redemption Price to the holders of Class E Preferred
Shares, then the funds will be used to redeem the maximum
possible number of Class D Preferred Shares described in
the Redemption Notice at the Class D Redemption Price, in
priority and preference to any payment to the holders of
Class B Preferred Shares, and if such funds are
insufficient to permit the payment of the full Redemption
Price for the Class D Preferred Shares that are described
in the Redemption Notice then the funds shall be paid
ratably among the holders of Class D Preferred Shares in
proportion to the aggregate full preferential amounts to
which each holder would otherwise be entitled as provided
in Article 21.2(c), and
D. Fourth, if funds remain after paying in full the Class D
Redemption Price to the holders of Class D Preferred
Shares, then the funds will be used to redeem the maximum
possible number of Class B Preferred Shares described in
the Redemption Notice at the Class B Redemption Price, and
<PAGE> 25
- 25 -
if such funds are insufficient to permit the payment of
the full Redemption Price for the Class B Preferred Shares
that are described in the Redemption Notice then the funds
shall be paid ratably among the holders of Class B
Preferred Shares in proportion to the aggregate full
preferential amounts to which each holder would otherwise
be entitled as provided in Article 21.2(d).
The Class B, Class D, Class E and Class F Preferred Shares not
redeemed shall remain outstanding and entitled to all the rights
and preferences provided herein. At any time thereafter when
additional funds of the Company are legally available for the
redemption of Class B, Class D, Class E and Class F Preferred
Shares, such funds will immediately be used to redeem the balance
of the shares which the Company has become obligated to redeem on
any Redemption Date but which it has not redeemed, in the
priority set out above.
(iv) Three days prior to the Redemption Date, this Company shall
deposit the Redemption Price of all outstanding Class B, Class D,
Class E and Class F Preferred Shares designated for redemption in
the Redemption Notice, and not yet redeemed or converted, with a
bank or trust company having aggregate capital and surplus in
excess of U.S. $50,000,000 as a trust fund for the benefit of the
respective holders of the shares designated for redemption and
not yet redeemed. Simultaneously, this Company shall deposit
irrevocable instruction and authority to such bank or trust
company to publish the notice of redemption thereof (or to
complete such publication if theretofore commenced) and to pay,
on and after the date fixed for redemption or prior thereto, the
Redemption Price of the Class B, Class D, Class E and Class F
Preferred Shares to the holders thereof upon surrender of their
certificates duly endorsed for transfer. Any moneys deposited by
this Company pursuant to this Article 21.3(c) (iv) for the
redemption of shares which are thereafter converted into Common
Shares pursuant to Article 21.4 hereof no later than the close of
business on the Redemption Date shall be returned to this Company
forthwith upon such conversion. The balance of any moneys
deposited by this Company pursuant to this Article 21.3(c)(iv)
remaining unclaimed at the expiration of two years following the
Redemption Date shall thereafter be returned to this Company,
provided that the shareholder to which such monies would be
payable hereunder shall be entitled, upon proof of its ownership
of Class B, Class D, Class E or Class F Preferred Shares and
payment of any bond requested by the Company, to receive such
monies but without interest from the Redemption Date.
21.4 CONVERSION
The holders of the Existing Preferred Shares shall have conversion rights as
follows (the "Conversion Rights"):
<PAGE> 26
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(a) Right to Convert.
(i) Subject to Article 21.4 (c), each Class A Preferred Share, Class
B Preferred Share, Class D Preferred Share, Class E Preferred
Share and Class F Preferred Share shall be convertible, at the
option of the holder thereof, at any time after the date of
issuance of such share and (in the case of a Class B Preferred
Share, Class D Preferred Share, Class E Preferred Share and Class
F Preferred Share) prior to the close of business on any
Redemption Date as may have been fixed in any Redemption Notice
with respect to such share, at the office of this Company or any
transfer agent for the Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred
Shares or Class F Preferred Shares into such number of fully paid
and non-assessable Common Shares as is determined by dividing the
Original Class A Issue Price, Original Class B Issue Price,
Original Class D Issue Price, Original Class E Issue Price or
Original Class F Issue Price as applicable, by the Conversion
Price at the time in effect for such share. The initial
Conversion Price per share for Class A Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares and Class F Preferred
Shares shall be the Original Class A Issue Price, the Original
Class D Issue Price, the Original Class E Issue Price and the
Original Class F Issue Price, respectively, and the initial
Conversion Price per share for Class B Preferred Shares shall be
U.S. $0.95 (adjusted to reflect subsequent stock dividends, stock
splits or recapitalization); provided, however, that the
Conversion Price for the Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred
Shares and Class F Preferred Shares shall be subject to
adjustment as set forth in Article 21.4(c).
(ii) In the event of a call for redemption of any Class B and/or Class
D and/or Class E and/or Class F Preferred Shares pursuant to
Article 21.3 hereof, the Conversion Rights shall terminate as to
the shares designated for redemption at the close of business on
the Redemption Date, unless default is made in payment of the
Redemption Price.
(iii) Each Class A Preferred Share, Class B Preferred Share, Class D
Preferred Share, Class E Preferred Share and Class F Preferred
Share shall automatically be converted into Common Shares at the
Conversion Price at the time in effect for such Class A Preferred
Shares, Class B Preferred Shares, Class D Preferred Shares, Class
E Preferred Shares and Class F Preferred Shares immediately upon
the earlier of:
A. the acquisition of all or substantially all of the assets
of the Company by a third party or the consummation of a
takeover of the Company by a third party as a result of an
offer to acquire all of the issued shares of the Company,
at a price or consideration which results in payment to
all of the shareholders of the Company of not less than
U.S. $7.50 per Common Share or Class B Common Share
(adjusted to reflect subsequent stock dividends, stock
splits or recapitalization) calculated on a basis that all
of the Existing Preferred Shares have been converted to
Common Shares and without regard to any liquidation
preferences for any class of shares as set
<PAGE> 27
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forth herein; and
B. the consummation of the Company's sale of its Common
Shares in a bona fide, firm commitment underwriting
pursuant to a registration statement under the Securities
Act of 1933 of the United States, as amended, the public
offering price of which was not less than U.S. $7.50 per
share (adjusted to reflect subsequent stock dividends,
stock splits or recapitalization) and U.S. $15,000,000 in
the aggregate, provided that the underwriters in such
public offering are acceptable to the holders of a
majority of the Class B, Class D Class E and Class F
Preferred Shares, such acceptance not to be unreasonably
withheld.
(b) Mechanics of Conversion. Before any holder of Class A Preferred Shares,
Class B Preferred Shares, Class D Preferred Shares, Class E Preferred
Shares or Class F Preferred Shares shall be entitled to convert the same
to Common Shares, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of this Company or
of any transfer agent for the Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred Shares and
Class F Preferred Shares, and shall give written notice by mail, postage
prepaid, to this Company at its principal corporate office, of the
election to convert the same and shall state therein the name or names
in which the certificate or certificates for Common Shares are to be
issued. This Company shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Class A Preferred Shares, Class
B Preferred Shares, Class D Preferred Shares, Class E Preferred Shares
or Class F Preferred Shares or to the nominee or nominees of such
holder, a certificate or certificates for the number of Common Shares to
which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business
on the date of such surrender of the Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred Shares or
Class F Preferred Shares to be converted, and the person or persons
entitled to receive the Common Shares issuable upon such conversion
shall be treated for all purposes as the record holder or holders of
such Common Shares as of such date. If the conversion is in connection
with an acquisition or take-over referred to in Article 21.4(a)(iii)(A)
or in connection with an underwritten offer of securities registered
pursuant to the Securities Act of 1933 of the United States, as amended,
as set out in Article 21.4(a)(iii)(B), the conversion may, at the option
of any holder tendering Class A Preferred Shares, Class B Preferred
Shares, Class D Preferred Shares, Class E Preferred Shares or Class F
Preferred Shares for conversion, be conditioned upon the consummation of
the acquisition of the assets or the take-over, or conditioned upon the
closing with the underwriter of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common
Shares issuable upon such conversion of the Class A Preferred Shares,
Class B Preferred Shares, Class D Preferred Shares, Class E Preferred
Shares or Class F Preferred Shares shall not be deemed to have converted
such Class A Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares or Class F Preferred Shares
until immediately prior to the closing of such acquisition, take-over or
sale of securities.
<PAGE> 28
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(c) Conversion Price Adjustments of Preferred Shares. The Conversion Price
of Class A Preferred Shares, Class B Preferred Shares, Class D Preferred
Shares, Class E Preferred Shares and Class F Preferred Shares shall be
subject to adjustment from time to time as follows:
(i) A. Upon each issuance by the Company of any Additional Shares
(as defined below), after the date upon which any of the
Class B Preferred Shares were first issued (the "Purchase
Date" with respect to the Class A and Class B Preferred
Shares) or after the date upon which any shares of the
Class D Preferred Shares were first issued (the "Purchase
Date" with respect to the Class D Preferred Shares) or
after the date upon which any shares of the Class E
Preferred Shares were first issued (the "Purchase Date"
with respect to the Class E Preferred Shares) or after the
date upon which any shares of the Class F Preferred Shares
were first issued (the "Purchase Date" with respect to the
Class F Preferred Shares), without consideration or for a
consideration per share less than the Conversion Price for
such class in effect immediately prior to the issuance of
such Additional Shares, the Conversion Price for such
class in effect immediately prior to each such issuance
shall forthwith (except as otherwise provided in this
Article 21.4(c)(i)) be adjusted to a price determined as
follows:
1. In the case of the Class A Preferred Shares, Class
D Preferred Shares, Class E Preferred Shares and
Class F Preferred Shares, by multiplying such
Conversion Price by a fraction, the numerator of
which shall be the number of Common Shares and
Class B Common Shares outstanding immediately prior
to such issuance plus the number of Common Shares
and Class B Common Shares which the aggregate
consideration received by the Company for such
issuance would purchase at such Conversion Price
and the denominator of which shall be the number of
Common Shares and Class B Common Shares outstanding
immediately prior to such issuance plus the number
of such Additional Shares; and
2. In the case of the Class B Preferred Shares no
adjustment to the Conversion Price for such class
shall be made upon the issuance by the Company of
any Additional Shares unless the consideration per
share for such issuance is less than U.S. $0.79
(adjusted to reflect subsequent stock dividends,
stock splits or recapitalization). In the event
that Additional Shares are issued by the Company
for consideration per share which is less than U.S.
$0.79 (adjusted to reflect subsequent stock
dividends, stock splits or recapitalization), then
the Conversion Price for the Class B Preferred
Shares will be adjusted to a price determined by
multiplying the Conversion Price for Class B
Preferred Shares in effect immediately prior to
such issuance by a fraction, the numerator of which
shall be the new Conversion Price for the Class D
Preferred Shares for the issuance of such Class D
Preferred Shares and the denominator of which shall
be the Conversion Price for the Class D Preferred
Shares in effect immediately prior to the issuance
of such Additional Shares.
<PAGE> 29
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B. No adjustment of the Conversion Price for the Class A
Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares or Class F
Preferred Shares shall be made in an amount less than one
cent U.S. per share, provided that any adjustments which
are not required to be made by reason of this Article
21.4(c)(i)B shall be carried forward and shall be either
taken into account in any subsequent adjustment made prior
to 3 years from the date of the event giving rise to the
adjustment being carried forward, or shall be made at the
end of 3 years from the date of the event giving rise to
the adjustment being carried forward. Except to the
limited extent provided for in Article 21.4(c)(i)(E)(3)
and (4), no adjustment of such Conversion Price pursuant
to this Article 21.4(c)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price
in effect immediately prior to such adjustment.
C. In the case of the issuance of Common Shares or Class B
Common Shares for cash, the consideration shall be deemed
to be the amount of cash paid therefor before deducting
any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this Company for any
underwriting or otherwise in connection with the issuance
and sale thereof.
D. In the case of the issuance of Common Shares or Class B
Common Shares for a consideration in whole or in part
other than cash, the consideration other than cash shall
be deemed to be the fair value thereof as determined by
the Board of Directors irrespective of any accounting
treatment.
E. In the case of the issuance (whether before, on or after
the applicable Purchase Date) of options to purchase or
rights to subscribe for Common Shares or Class B Common
Shares, securities by their terms convertible into or
exchangeable for Common Shares, Class B Common Shares or
options to purchase or rights to subscribe for such
convertible or exchangeable securities, the following
provisions shall apply for all purposes of this Article
21.4(c)(i) and (ii):
1. The aggregate maximum number of Common Shares or
Class B Common Shares deliverable upon exercise
(assuming the satisfaction of any conditions to
exercisability, including without limitation, the
passage of time, but without taking into account
potential antidilution adjustments) of such options
to purchase or rights to subscribe for Common
Shares or Class B Common Shares shall be deemed to
have been issued at the time such options or rights
were issued and for a consideration equal to the
consideration (determined in the manner provided in
Article 21.4(c)(i)(C) and (D)), if any, received by
the Company upon the
<PAGE> 30
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issuance of such options or rights plus the minimum
exercise price provided in such options or rights
(without taking into account potential antidilution
adjustments) for the Common Shares or Class B
Common Shares covered thereby.
2. The aggregate maximum number of Common Shares or
Class B Common Shares deliverable upon conversion
of or in exchange (assuming the satisfaction of any
conditions to convertibility or exchangeability,
including, without limitation, the passage of time,
but without taking into account potential
antidilution adjustments) for any such convertible
or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such
convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such
securities were issued or such options or rights
were issued and for a consideration, if any,
received by the Company for any such securities and
related options or rights (excluding any cash
received on account of accrued interest or accrued
dividends), plus the minimum additional
consideration, if any, to be received by the
Company (without taking into account potential
antidilution adjustments) upon the conversion or
exchange of such securities or the exercise of any
related options or rights (the consideration in
each case to be determined in the manner provided
in Article 21.4(c)(i)(C)and (D)).
3. In the event of any change in the number of Common
Shares or Class B Common Shares deliverable or in
the consideration payable to this Company upon
exercise of such options or rights or upon
conversion of or in exchange for such convertible
or exchangeable securities, including, but not
limited to, a change resulting from the
antidilution provisions thereof, the Conversion
Price of the Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E
Preferred Shares and Class F Preferred Shares to
the extent in any way affected by or computed using
such options, rights or securities, shall be
recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of
Common Shares, Class B Common Shares or any payment
of such consideration upon the exercise of any such
options or rights or the conversion or exchange of
such securities.
4. Upon the expiration of any such options or rights,
the termination of any such rights to convert or
exchange or the expiration of any options or rights
related to such convertible or exchangeable
securities, the Conversion Price of the Class A
Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares and
Class F Preferred Shares to the extent in any way
affected by or computed using such options, rights
or
<PAGE> 31
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securities or options or rights related to such
securities, shall be recomputed to reflect the
issuance of only the number of Common Shares and
Class B Common Shares (and convertible or
exchangeable securities which remain in effect)
actually issued upon the exercise of such options
or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or
rights related to such securities.
5. The number of Common Shares and Class B Common
Shares deemed issued and the consideration deemed
paid therefor pursuant to Article 21.4(c)(i)(E)(1)
and (2) shall be appropriately adjusted to reflect
any change, termination or expiration of the type
described in either Article 21.4(c)(i)(E)(3) or
(4).
(ii) "Additional Shares" shall mean any Common Shares or Class
B Common Shares issued (or deemed to have been issued
pursuant to Article 21.4(c)(i)(E)) by this Company after
the applicable Purchase Date other than:
A. Common Shares or Class B Common Shares issued
pursuant to a transaction described in Article
21.4(c)(iii),
B. Common Shares issuable or issued to employees,
consultants or directors of this Company directly
or pursuant to a share option plan or restricted
share plan approved by the Board of Directors of
this Company at any time when the total number of
Common Shares so issuable or issued (and any shares
repurchased at cost and not cancelled by the
Company in connection with the termination of
employment which shares shall be available for
re-issue by the Company) does not exceed 4,000,000
(adjusted to reflect subsequent stock dividends,
stock splits or recapitalization), or
C. Common Shares issued or issuable (I) in a public
offering before or in connection with which all
outstanding Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E
Preferred Shares and Class F Preferred Shares will
be converted to Common Shares or (II) upon exercise
of warrants or rights granted to underwriters in
connection with such a public offering.
(iii) In the event the Company should at any time or from time
to time after the applicable Purchase Date fix a record
date for the effectuation of a split or subdivision of the
outstanding Common Shares or Class B Common Shares or the
determination of holders of Common Shares or Class B
Common Shares entitled to receive a dividend or other
distribution
<PAGE> 32
- 32 -
payable in additional Common Shares, Class B Common Shares or
other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional
Common Shares or Class B Common Shares (hereinafter referred to
as "Common Share Equivalents") without payment of any
consideration by such holder for the additional Common Shares,
Class B Common Shares or the Common Share Equivalents (including
the additional Common Shares or Class B Common Shares issuable
upon conversion or exercise thereof), then, as of such record
date (or the date of such dividend distribution, split or
subdivision if no record date is fixed), the Conversion Price of
the Class A Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares and Class F Preferred
Shares shall be appropriately decreased so that the number of
Common Shares issuable on conversion of each share of such class
shall be increased in proportion to such increase of the
aggregate of Common Shares and Class B Common Shares outstanding
and those issuable with respect to such Common Share Equivalents
with the number of shares issuable with respect to Common Share
Equivalents determined from time to time in the manner provided
for deemed issuances in Article 21.4(c)(i)(E).
(iv) If the number of Common Shares or Class B Common Shares
outstanding at any time after the applicable Purchase Date is
decreased by a consolidation of the outstanding Common Shares or
Class B Common Shares, then, following the record date of such
consolidation, the Conversion Price for the Class A Preferred
Shares, Class B Preferred Shares, Class D Preferred Shares, Class
E Preferred Shares and Class F Preferred Shares shall be
appropriately increased so that the number of Common Shares
issuable on conversion of each share of such class shall be
decreased in proportion to such decrease in outstanding shares.
(d) Other Distributions. In the event this Company shall declare a
distribution payable in securities of other persons, evidences of
indebtedness issued by this Company or other persons, assets (excluding
cash dividends) or options or rights not referred to in Article
21.4(c)(iii), then, in each such case for the purpose of this Article
21.4(d), the holders of the Class A Preferred Shares, Class B Preferred
Shares, Class D Preferred Shares, Class E Preferred Shares or Class F
Preferred Shares shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of Common
Shares of the Company into which their Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred Shares or
Class F Preferred Shares are convertible as of the record date fixed for
the determination of the holders of Common Shares and Class B Common
Shares of the Company entitled to receive such distribution.
(e) Recapitalizations. If at any time or from time to time there shall be a
recapitalization of the Common Shares or Class B Common Shares (other
than a subdivision, consolidation or merger or sale of assets
transaction provided for elsewhere in this Article 21.4 or Article 21.2)
provision shall be made so that holders of the Class A Preferred Shares,
Class B Preferred Shares, Class D Preferred Shares, Class E Preferred
Shares or Class F Preferred Shares shall thereafter be entitled to
receive upon conversion of the Class A
<PAGE> 33
- 33 -
Preferred Shares, Class B Preferred Shares, Class D Preferred Shares,
Class E Preferred Shares or Class F Preferred Shares the number of
shares or other securities or property of the Company or otherwise, to
which a holder of Common Shares deliverable upon conversion would have
been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this
Article 21.4 with respect to the rights of holders of the Class A
Preferred Shares, Class B Preferred Shares, Class D Preferred Shares,
Class E Preferred Shares or Class F Preferred Shares after the
recapitalization to the end that the provisions of this Article 21.4
(including adjustments of the Conversion Price then in effect and the
number of shares issuable upon conversion of the Class A Preferred
Shares, Class B Preferred Shares, Class D Preferred Shares, Class E
Preferred Shares or Class F Preferred Shares), shall be applicable after
that event as nearly equivalent as may be practicable.
(f) No Impairment. This Company will not, by amendment of its Articles or
through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
this Company, but will at all times in good faith assist in the carrying
out of all the provisions of this Article 21.4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of holders of the Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred Shares or
Class F Preferred Shares against impairment.
(g) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion of the Class
A Preferred Shares, Class B Preferred Shares, Class D Preferred
Shares, Class E Preferred Shares or Class F Preferred Shares, and
the number of Common Shares to be issued shall be rounded to the
nearest whole share. Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of
the total number of Class A Preferred Shares, Class B Preferred
Shares, Class D Preferred Shares, Class E Preferred Shares and
Class F Preferred Shares that the holder is at the time
converting into Common Shares and the number of Common Shares
issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Class A Preferred Shares, Class B Preferred
Shares, Class D Preferred Shares, Class E Preferred Shares or
Class F Preferred Shares pursuant to this Article 21.4, this
Company, at its expense, shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and prepare
and furnish to each holder of Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred
Shares or Class F Preferred Shares a certificate setting forth
such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. This Company
shall, upon the written request at any time of any holder of
Class A Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares or Class F Preferred
Shares, furnish or cause to be furnished to such holder a like
certificate setting forth
<PAGE> 34
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(A) such adjustment and readjustment,
(B) the Conversion Price at the time in effect, and
(C) the number of Common Shares and the amount, if any, of
other property which at the time would be received upon
the conversion of a Class A Preferred Share, Class B
Preferred Share, Class D Preferred Share, Class E
Preferred Share or Class F Preferred Share.
(h) Notices of Record Date. In the event of any taking by this Company of a
record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of any class or
any other securities or property, or to receive any other right, this
Company shall mail to each holder of Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred Shares or
Class F Preferred Shares, at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend, distribution or right and the
amount and character of such dividend, distribution or right.
(i) Reservation of Shares Issuable Upon Conversion. This Company shall at
all times reserve and keep available out of its authorized but unissued
Common Shares solely for the purpose of effecting the conversion of the
Class A Preferred Shares, Class B Preferred Shares, Class D Preferred
Shares, Class E Preferred Shares and Class F Preferred Shares such
number of Common Shares as shall from time to time be sufficient to
effect the conversion of all outstanding Class A Preferred Shares, Class
B Preferred Shares, Class D Preferred Shares, Class E Preferred Shares
and Class F Preferred Shares; and if at any time the number of
authorized but unissued Common Shares shall not be sufficient to effect
the conversion of all then outstanding Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred Shares and
Class F Preferred Shares, in addition to such other remedies as shall be
available to the holder of such Existing Preferred Shares, this Company
will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued Common Shares to
such number of shares as shall be sufficient for such purposes.
(j) Notices. Any notice required by the provisions of this Article 21.4 to
be given to the holders of Class A Preferred Shares, Class B Preferred
Shares, Class D Preferred Shares, Class E Preferred Shares or Class F
Preferred Shares shall be deemed given if deposited in the United States
mail or Canadian mail, postage prepaid, and addressed to each holder of
record at that holder's address appearing on the books of this Company.
<PAGE> 35
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21.5 VOTING RIGHTS
The holder of each Class A Preferred Share, Class B Preferred Share, Class D
Preferred Share, Class E Preferred Share or Class F Preferred Share shall have
the right to one vote for each Common Share into which such Class A Preferred
Share, Class B Preferred Share, Class D Preferred Share, Class E Preferred Share
or Class F Preferred Share could then be converted (with any fractional share
determined on an aggregate conversion basis being rounded to the nearest whole
share), and with respect to such vote, such holder shall have full voting rights
and powers equal to the voting rights and powers of the holders of Common
Shares, and shall be entitled, notwithstanding any provision hereof, to notice
of any shareholders' meeting in accordance with the Articles of the Company, and
shall be entitled to vote, together with holders of Common Shares, with respect
to any question upon which holders of Common Shares have the right to vote.
21.6 PROTECTIVE PROVISIONS
So long as Class B Preferred Shares, Class D Preferred Shares, Class E Preferred
Shares or Class F Preferred Shares are outstanding, this Company shall not
without first obtaining the approval (by vote or written consent as provided by
law) of the holders of at least 75% of the then outstanding shares of Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred Shares and Class F
Preferred Shares acting together:
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or
consolidate with any other company (other than a wholly owned
subsidiary company) or effect any transaction or series of
related transactions in which more than 50% of the voting power
of the Company is disposed of; or
(b) increase the authorized number of Class B Preferred Shares, Class
D Preferred Shares, Class E Preferred Shares or Class F Preferred
Shares.
21.7 STATUS OF CONVERTED OR REDEEMED SHARES
In the event any Class A Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares or Class F Preferred Shares shall be
redeemed or converted pursuant to Article 21.3 or Article 21.4 hereof, the
shares so converted or redeemed shall be cancelled and shall not be issuable by
the Company.
21.8 The holders of Class A Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares and Class F Preferred Shares shall
have the right in priority to any other class, and in priority to any third
party, to be offered by the Company the right to subscribe for and purchase:
(a) the shares of any class that may be authorized and created by the
Company subsequent to June 30, 1995; and
(b) any additional shares of any class existing on June 30, 1995
resulting from any further increase in the Company's authorized
capital, subsequent to the said date;
<PAGE> 36
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and subject to the provisions of the Company Act, the holders of any other class
of shares subordinate to the Class A Preferred, Class B Preferred, Class D
Preferred, Class E Preferred and Class F Preferred shareholders waive any right
of subscription and purchase that they as holders of such other class may
otherwise be entitled to.
21.9 COMMON SHARES
(a) DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of shares at the time outstanding having prior rights as
to dividends, the holders of the Common Shares and holders of
Class B Common Shares shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the
Company legally available therefor, such dividends as may be
declared from time to time by the Board of Directors.
(b) LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding
up of the Company, the assets of the Company shall be distributed
as provided in Article 21.2.
(c) REDEMPTION. The Common Shares and Class B Common Shares are not
redeemable.
(e) VOTING RIGHTS. The holder of each Common Share or Class B Common
Share shall have the right to one vote for each Common Share or
Class B Common Share held, shall be entitled to notice of any
shareholders' meeting in accordance with the Articles of this
Company, and shall be entitled to vote upon such matters and in
such manner as may be provided by law.
21.10 PREFERRED SHARES
(a) Subject to Section 21.10(c), the Preferred shares may at any time and
from time to time be issued in one or more series. The directors may
from time to time, by resolution passed before the issue of any
particular series of Preferred shares, alter the memorandum of the
Company to fix the number of Preferred shares in, and to determine the
designation of the Preferred shares of, each series and alter the
memorandum or the articles to create, define and attach special rights
and restrictions to the Preferred shares of each series, including, but
without limiting the generality of the foregoing, the rate or amount of
dividends, whether cumulative, non-cumulative or partially cumulative,
the dates, places and currencies of payment thereof, the consideration
for, and the terms and conditions of, any purchase for cancellation or
redemption thereof, including redemption after a fixed term or at a
premium, conversion or exchange rights, the terms and conditions of any
share purchase plan or sinking fund, the restrictions respecting a
payment of dividends on, or the repayment of capital in respect of, any
other shares of the Company, and voting rights and restrictions; but no
special right or restriction so created, defined or attached may
contravene the provisions of Section 21.10(b).
(b) Holders of Preferred shares will be entitled, on the distribution of
assets of the Company on the liquidation, dissolution or winding-up of
the Company, whether voluntary or
<PAGE> 37
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involuntary, or on any other distribution of assets of the Company among
its members for the purpose of winding up its affairs, to receive before
any distribution is made to holders of Common Shares, Class B Common
Shares or any other shares of the Company ranking junior to the
Preferred shares with respect to repayment of capital, the amount paid
up with respect to each Preferred share held by them, together with the
fixed premium (if any) thereon, all accrued and unpaid cumulative
dividends (if any and if preferential) thereon, which for such purpose
will be calculated as if such dividends were accruing on a day-to-day
basis up to the date of such distribution, whether or not earned or
declared, and all declared and unpaid non-cumulative dividends (if any
and if preferential) thereon. After payment to holders of Preferred
shares of the amounts so payable to them, holders of Preferred shares
will not be entitled to share in any further distribution of the
property or assets of the Company except as specifically provided in the
special rights and restrictions attached to any particular series.
(c) So long as any Class A Preferred Shares, Class B Preferred Shares, Class
D Preferred Shares, Class E Preferred Shares or Class F Preferred Shares
are outstanding, the directors shall not, issue Preferred shares without
first obtaining the approval (by vote or written consent as provided by
law) of the holders of at least 75% of the then outstanding Class A
Preferred Shares, Class B Preferred Shares, Class D Preferred Shares,
Class E Preferred Shares and Class F Preferred Shares acting together.
<PAGE> 1
EXHIBIT 3.2
FORM OF MEMORANDUM AND ARTICLES
OF ASSOCIATION TO BE EFFECTIVE AT CLOSING
PIVOTAL CORPORATION
The memorandum and articles of association set out below will be the memorandum
and articles of association of the Company at the closing of the offering
described in the prospectus.
MEMORANDUM
(ALTERED)
OF
PIVOTAL CORPORATION
1. The name of the Company is PIVOTAL CORPORATION.
2. The authorized capital of the Company consists of 220,000,000 shares
divided into:
(a) 200,000,000 Common shares without par value; and
(b) 20,000,000 Preferred shares without par value.
3. Special rights and restrictions attached to the shares are set out in the
articles.
<PAGE> 2
ARTICLES
(AMENDED AND RESTATED)
OF
PIVOTAL CORPORATION
PART 1 - TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART 1 - TABLE OF CONTENTS...................................................................1
PART 2 - INTERPRETATION......................................................................2
PART 3 - SHARES..............................................................................2
PART 4 - BRANCH REGISTERS....................................................................3
PART 5 - TRANSFER AND TRANSMISSION OF SHARES.................................................3
PART 6 - PURCHASE AND REDEMPTION OF SHARES...................................................4
PART 7 - GENERAL MEETINGS....................................................................4
PART 8 - VOTING OF MEMBERS...................................................................6
PART 9 - DIRECTORS...........................................................................8
PART 10 - POWERS AND DUTIES OF DIRECTORS.....................................................9
PART 11 - DISCLOSURE OF INTEREST OF DIRECTORS................................................9
PART 12 - PROCEEDINGS OF DIRECTORS..........................................................10
PART 13 - EXECUTIVE AND OTHER COMMITTEES....................................................11
PART 14 - OFFICERS..........................................................................12
PART 15 - INDEMNITY AND PROTECTION OF DIRECTORS, OFFICERS
AND EMPLOYEES.................................................................12
PART 16 - DIVIDENDS AND RESERVE.............................................................13
PART 17 - DOCUMENTS, RECORDS AND REPORTS....................................................14
PART 18 - NOTICES...........................................................................14
PART 19 - EXECUTION OF DOCUMENTS............................................................15
PART 20 - SEAL..............................................................................15
PART 21 - SPECIAL RIGHTS AND RESTRICTIONS...................................................15
</TABLE>
<PAGE> 3
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PART 2 - INTERPRETATION
2.1 These Articles are subject to the provisions of the Company Act.
2.2 In these Articles, unless there is something in the subject or context
inconsistent herewith:
"Board" and "Directors" or "directors" mean the directors or sole
director of the Company for the time being.
"Company Act" means the Company Act of the Province of British Columbia
from time to time in force and includes the regulations made pursuant
thereto.
"registered owner", "registered holder", "owner", or "holder" when used
with respect to a share in the authorized capital of the Company means
the person registered in the register of members in respect of such
share.
"Securities Act" means the Securities Act of the Province of British
Columbia from time to time in force and includes the regulations and
policies made pursuant thereto.
2.3 A reference to writing includes any visible form of representing or
reproducing words.
2.4 Words importing the singular or plural, a person or corporation, or the
masculine, feminine or neuter gender shall include the other or others of them
respectively as the context requires.
2.5 The meaning of any words or phrases defined in the Company Act shall, if not
inconsistent with the subject or context, bear the same meaning in these
Articles.
PART 3 - SHARES
3.1 The shares in the Company shall be under the control of the directors who
may, subject to the rights of the holders of any shares, allot, issue, or
otherwise deal with them, at such times, to such persons (including directors)
in such manner, at such price or consideration, upon such terms and conditions,
as they, in their discretion, may determine.
3.2 The directors on behalf of the Company may pay a commission or allow a
discount to any person in consideration of his subscribing or agreeing to
subscribe, whether absolutely or conditionally, for any shares in the Company or
procuring or agreeing to procure subscriptions, whether absolutely or
conditionally, for any such shares.
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3.3 Except as required by law or these Articles, no person shall be recognized
by the Company as having any interest whatsoever in any share except the
registered holder thereof.
3.4 If a share is registered in the names of two or more persons they shall be
joint holders.
3.5 Neither the Company nor any transfer agent shall be liable for any loss
occasioned to the member owing to any share certificate being lost in the mail
or stolen.
3.6 A share certificate or debt obligation bearing the printed or mechanically
reproduced signature of a person shall not be invalid at its date of issue by
reason of the fact that such person shall have ceased to hold the office he is
stated to hold on such certificate or debt obligation.
PART 4 - BRANCH REGISTERS
4.1 Unless prohibited by the Company Act, the Company may keep or cause to be
kept one or more branch registers of members or debenture holders at such place
or places as the directors may from time to time determine.
PART 5 - TRANSFER AND TRANSMISSION OF SHARES
5.1 Subject to the provisions of the Memorandum and of these Articles, a member
may transfer any of his shares by instrument in writing executed by or on behalf
of such member and delivered to the Company or its transfer agent. The
instrument of transfer may be in the form, if any, on the back of the share
certificate representing the shares, or in such other form as the directors may
from time to time approve. Except to the extent that the Company Act may
otherwise provide, the transferor shall be deemed to remain the holder of the
shares until the name of the transferee is entered in the register of members or
a branch register of members in respect thereof.
5.2 The signature of the registered owner of any shares, or of his duly
authorized attorney, upon the instrument of transfer shall constitute a complete
and sufficient authority to the Company, its directors, officers and agents to
register in the name of the transferee as named in the instrument of transfer
or, if no transferee is named in the instrument of transfer, in the name of the
person on whose behalf any certificate for the shares to be transferred is
deposited with the Company for the purpose of having the transfer registered,
the number of shares specified in the instrument of transfer or, if no number is
specified, all the shares represented by all share certificates deposited with
the instrument of transfer.
5.3 Neither the Company nor any director, officer or agent thereof shall be
bound to inquire into the title of the person named in the instrument of
transfer as transferee, or, if no person is so named, of the person on whose
behalf the certificate is deposited for the purpose of having the transfer
registered, or be liable to any person for registering or not registering the
transfer, and the transfer when registered shall confer upon the person in whose
name the shares have been registered a valid title to the shares.
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5.4 Every instrument of transfer shall be executed by the transferor and left
for registration at the registered office of the Company or at the office of its
transfer agent or registrar together with the share certificate for the shares
to be transferred and such other evidence, if any, as the directors or the
transfer agent or registrar may require to prove the title of the transferor to,
or his right to transfer, the shares and the right of the transferee to have the
transfer registered. If the transfer is registered all instruments of transfer
and evidence shall be retained by the Company or its transfer agent or registrar
and, if the transfer is not registered, they together with the share certificate
shall be returned to the person depositing them.
5.5 There shall be paid to the Company in respect of the registration of any
transfer such sum, if any, as the directors may from time to time determine.
5.6 In the case of the death of a member, his legal personal representative, or
if he was a joint holder the surviving joint holder, shall be the only person
recognized by the Company as having any title to his interest in the shares.
Before recognizing a person as a legal personal representative the directors may
require him to obtain from a court of competent jurisdiction a grant of letters
probate or letters of administration.
PART 6 - PURCHASE AND REDEMPTION OF SHARES
6.1 The Company may purchase any of its shares unless the special rights and
restrictions attached thereto otherwise provide.
6.2 If the Company proposes to redeem some but not all of the shares of any
class, the directors may, subject to the special rights and restrictions
attached to such class of shares, decide the manner in which the shares to be
redeemed are to be selected.
PART 7 - GENERAL MEETINGS
7.1 The date, time and place of all general meetings of the Company shall be
fixed by the directors.
7.2 All business that is transacted at a general meeting shall be special except
in the case of an annual general meeting the conduct of and voting at such
meeting, the consideration of the financial
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statements and the reports of the directors and the auditor, a resolution to
elect two or more directors by a single resolution, the election of directors,
the appointment of the auditor, the fixing of the remuneration of the auditor,
such other business as by these Articles or the Company Act may be transacted at
a general meeting without prior notice thereof being given to the members, and
any business which is brought under consideration by the report of the
directors; and in the case of any other general meeting, such business as
relates to the conduct of or voting at that meeting.
7.3 Except as otherwise provided by the Company Act, where any special business
to be considered at a general meeting includes considering, approving,
ratifying, adopting or authorizing any document or the execution thereof or the
giving of effect thereto, the notice convening the meeting shall be sufficient
if, with respect to such document, it states that a copy of the document is or
shall be available for inspection by members at the registered office or records
office of the Company or at such other place designated in the notice during
usual business hours up to the date of such general meeting.
7.4 No business, other than the election of the chairman or the adjournment of
the meeting, shall be transacted at any general meeting unless there is a quorum
at the commencement of the meeting, but the quorum need not continue throughout
the meeting.
7.5 A quorum for a general meeting is holders of at least 50 percent of the
outstanding shares of the Company entitled to vote.
7.6 If within half an hour from the time appointed for a general meeting there
is no quorum, the meeting, if convened upon the requisition of members, shall
terminate. In any other case it shall be adjourned to the same day in the next
week, at the same time and place, and, if at the adjourned meeting there is no
quorum within half an hour from the time appointed for the meeting, the member
or members entitled to attend and vote at the meeting who are present or
represented by proxy or other proper authority shall be the quorum.
7.7 The Chairman of the Board, if any, or in his absence the President of the
Company or in his absence a Vice-President of the Company, if any, shall be
entitled to preside as chairman at every general meeting of the Company.
7.8 If at any general meeting neither the Chairman of the Board nor the
President nor a Vice-President is present within fifteen minutes after the time
appointed for holding the meeting or if present is not willing to act as
chairman, the directors present shall choose a chairman; but if all the
directors present decline to take the chair or fail so to choose or if no
director is present, the members present shall choose a chairman.
7.9 The chairman may, and shall if so directed by the meeting, adjourn the
meeting from time to time and from place to place, but no business shall be
transacted at any adjourned meeting other than the business left unfinished at
the meeting from which the adjournment took place. It shall not
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be necessary to give any notice of an adjourned meeting or of the business to be
transacted at an adjourned meeting.
7.10 The directors and any other person permitted by the chairman of the meeting
shall be entitled to attend any general meeting.
7.11 No motion proposed at a general meeting need be seconded and the chairman
may propose a motion.
7.12 Unless the Company Act otherwise provides, any action to be taken by a
resolution of the members may be taken by an ordinary resolution.
PART 8 - VOTING OF MEMBERS
8.1 Subject to any special voting rights or restrictions attached to any class
of shares and the restrictions on joint holders of shares, on a show of hands
every member who is present in person and entitled to vote thereat shall have
one vote and on a poll every member present in person or represented by proxy or
other proper authority shall have one vote for each share of which he is the
registered holder.
8.2 A member, being a corporation, may appoint a proxyholder and may also
appoint a representative to act for it by delivering to the Company a copy of a
resolution of its directors or other governing body naming a person as its
representative. Such representative, subject to any restrictions contained in
the resolution, shall be entitled to exercise the same powers on behalf of the
corporation as the corporation could exercise if it were an individual member.
If the corporation is a subsidiary of the Company its shares may not be voted
and its proxyholder or representative or the proxyholder of the representative
may not be counted to make a quorum.
8.3 In the case of joint registered holders of a share the vote of the senior
who exercises a vote, whether in person or by proxyholder, shall be accepted to
the exclusion of the votes of the other joint registered holders; and for this
purpose seniority shall be determined by the order in which the names stand in
the register of members. Two or more legal personal representatives of a
deceased member whose shares are registered in his sole name shall for the
purpose of this Article be deemed joint registered holders.
8.4 A member of unsound mind entitled to attend and vote in respect of whom an
order has been made by any court having jurisdiction may vote, whether on a show
of hands or on a poll, by his committee, curator bonis, or other person in the
nature of a committee or curator bonis appointed by that court, and any such
committee, curator bonis, or other person may appoint a proxyholder.
8.5 A member may by proxy appoint a proxyholder to vote for him on a poll.
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8.6 In the case of an equality of votes, whether on a show of hands or on a
poll, the chairman of the meeting at which the show of hands takes place or at
which the poll is demanded shall not be entitled to a second or casting vote.
8.7 If a poll is demanded it shall be taken either at the meeting and of the
members present in person or represented by proxy or other proper authority at
the time the poll is taken, or at such other time and in such manner as the
chairman may direct. Any business other than that upon which the poll has been
demanded may be proceeded with pending the taking of the poll. A demand for a
poll may be withdrawn.
8.8 In any dispute as to the admission or rejection of a vote the decision of
the chairman made in good faith shall be final and conclusive.
8.9 On a poll a person entitled to cast more than one vote need not, if he
votes, use all his votes or cast all the votes he uses in the same way.
8.10 A member holding more than one share in respect of which he is entitled to
vote shall be entitled to appoint one or more (but not more than two)
proxyholders to attend, act and vote for him on the same occasion. If such a
member should appoint more than one proxyholder for the same occasion he shall
specify the number of shares each proxyholder shall be entitled to vote. A
member may also appoint one or more alternate proxyholders to act in the place
and stead of an absent proxyholder.
8.11 A form of proxy shall be in writing under the hand of the appointor or his
attorney duly authorized in writing, or, if the appointor is a corporation,
either under the seal of the corporation or under the hand of a duly authorized
officer or representative of or attorney for the corporation.
A proxyholder shall be a member of the Company unless
(a) the Company is at the time a reporting company,
(b) the member appointing the proxyholder is a corporation,
(c) the Company shall have at the time only one member, or
(d) all the members present otherwise agree.
8.12 Unless otherwise provided by the directors, a form of proxy and the power
of attorney or other authority, if any, under which it is signed or a notarially
certified copy thereof shall be deposited at the registered office of the
Company or at such other place as is specified for that purpose in the notice
convening the meeting, or in the information circular relating thereto not less
than 48 hours, excluding Saturdays and holidays, before the time of the meeting.
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8.13 Except as otherwise provided by law or these Articles, a proxy may be in
any form the directors or the chairman of the meeting approve.
8.14 A vote given in accordance with the terms of a proxy shall be valid
notwithstanding the previous death or incapacity of the member giving the proxy
or the revocation of the proxy or of the authority under which the form of proxy
was executed or the transfer of the share in respect of which the proxy is
given, provided that no notification in writing of such death, incapacity,
revocation or transfer shall have been received at the registered office of the
Company or by the chairman of the meeting or adjourned meeting for which the
proxy was given before the vote is taken.
PART 9 - DIRECTORS
9.1 The members, except as otherwise restricted by the Memorandum or Articles,
shall be entitled to elect directors, but the number to be elected shall be
determined by the directors.
9.2 The directors may, from time to time, appoint additional directors.
9.3 A casual vacancy occurring in the Board of directors may be filled by the
remaining directors or director.
9.4 A director's term of office shall expire on the date fixed at the time of
his appointment or election and in the absence thereof on the election of
directors either at the annual general meeting next following his appointment or
election or by the consent in writing in lieu of such meeting, as the case may
be.
9.5 A retiring director shall be eligible for re-election.
9.6 Any director may by written notice to the Company appoint any person to be
his alternate to act in his place at meetings of the directors at which he is
not present or by these Articles deemed to be present unless the directors shall
have reasonably disapproved the appointment of such person and given notice to
that effect to the director within a reasonable time. Every alternate shall be
entitled to attend and vote at meetings at which the person who appointed him is
not present or deemed to be present, and, if he is a director, to have a
separate vote on behalf of the director he is representing in addition to his
own vote. A director may at any time by written notice to the Company revoke the
appointment of an alternate appointed by him. The remuneration payable to such
an alternate shall be payable out of the remuneration of the director appointing
him.
9.7 The directors may remove from office a director who is convicted of an
indictable offence.
9.8 The remuneration of the directors as such may from time to time be
determined by the directors. Such remuneration may be in addition to any salary
or other remuneration paid to any
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officer or employee of the Company who is a director. The directors shall be
repaid such reasonable travelling, hotel and other expenses as they incur in and
about the business of the Company and if any director shall perform any
professional or other services for the Company that in the opinion of the
directors are outside the ordinary duties of a director or shall otherwise be
specially occupied in or about the Company's business, he may be paid a
remuneration to be fixed by the Board, or, at the option of such director, by
resolution of the members and such remuneration may be either in addition to, or
in substitution for, any other remuneration that he may be entitled to receive.
The directors may pay a gratuity or pension or allowance on retirement to any
director who has held any salaried office or place of profit with the Company or
to his spouse or dependents and may make contributions to any fund and pay
premiums for the purchase or provision of any such gratuity, pension or
allowance.
PART 10 - POWERS AND DUTIES OF DIRECTORS
10.1 The powers of the Company shall be exercised only by the directors, except
those which by the Company Act or these Articles are required to be exercised by
a resolution of the members and those referred to the members by the directors.
10.2 The directors may from time to time
(a) borrow money in such manner and amount, on such security, from
such sources and upon such terms and conditions as they think
fit,
(b) issue bonds, debentures and other debt obligations either
outright or as security for any liability or obligation of the
Company or any other person, and
(c) mortgage or charge, whether by way of specific or floating
charge, or give other security on the undertaking and the whole
or any part of the property and assets (both present and future)
of the Company.
10.3 The directors may from time to time by power of attorney or other
instrument appoint any person to be the attorney of the Company for such
purposes, and with such powers, authorities and discretions (not exceeding those
vested in or exercisable by the directors under these Articles and excepting the
powers of the directors relating to the constitution of the Board and of any of
its committees and the appointment or removal of officers and the power to
declare dividends), for such period, with such remuneration and subject to such
conditions as the directors may think fit, and any such power of attorney may
contain such provisions for the protection or convenience of persons dealing
with such attorney as the directors think fit. Any such attorney may be
authorized by the directors to sub-delegate all or any of the powers,
authorities and discretions for the time being vested in him.
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PART 11 - DISCLOSURE OF INTEREST OF DIRECTORS
11.1 A director shall disclose his interest in and not vote in respect of any
proposed contract or transaction with the Company in which he is in any way
directly or indirectly interested, but such director shall be counted in the
quorum at the meeting of the directors at which the proposed contract or
transaction is approved.
11.2 A director may hold any office or place of profit with the Company in
addition to his office of director for such period and on such terms (as to
remuneration or otherwise) as the directors may determine and no director or
intended director shall be disqualified by his office from contracting with the
Company either with regard to his tenure of any such other office or place of
profit or as vendor, purchaser or otherwise, and no contract or transaction
entered into by or on behalf of the Company in which a director is in any way
interested shall be voided by reason thereof.
11.3 A director or his firm may act in a professional capacity for the Company
and he or his firm shall be entitled to remuneration for professional services
as if he were not a director.
11.4 A director may be or become a director, officer or employee of, or
otherwise interested in, any corporation or firm in which the Company may be
interested as a shareholder or otherwise, and such director shall not, except as
provided by the Company Act or these Articles, be accountable to the Company for
any remuneration or other benefit received by him as director, officer or
employee of, or from his interest in, such other corporation or firm, unless the
directors otherwise direct.
PART 12 - PROCEEDINGS OF DIRECTORS
12.1 Unless otherwise determined by the directors the President shall be the
Chairman of the Board.
12.2 A director may, and the Secretary shall on the request of a director, call
a meeting of the directors.
12.3 The Chairman of the Board, or in his absence the President, shall preside
as chairman at every meeting of the directors, or if there is no Chairman of the
Board or neither the Chairman of the Board nor the President is present within
fifteen minutes of the time appointed for holding the meeting or is willing to
act as chairman, or if the Chairman of the Board and the President have advised
the Secretary that they shall not be present at the meeting, the directors
present shall choose one of their number to be chairman of the meeting.
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12.4 The directors may meet for the dispatch of business, adjourn and otherwise
regulate their meetings as they think fit. Questions arising at any meeting
shall be decided by a majority of votes and in case of an equality of votes the
chairman shall have a second or casting vote.
12.5 A meeting of the Board, or of any committee of the Board, may be held in
any of the following ways:
(a) all of the participants meeting in person;
(b) some of the participants meeting in person and others
communicating with them, by telephone or other means of
communication, so that each participant can hear each of the
others; or
(c) all of the participants communicating with each other, by
telephone or other means of communication, so that each
participant can hear each of the others.
12.6 The quorum necessary for the transaction of business by the directors may
be fixed by the directors and if not so fixed shall be a majority of the Board.
12.7 The directors may if there is a quorum act notwithstanding any vacancy.
12.8 Every act of a director is valid notwithstanding any defect that may
afterwards be discovered in his election or appointment.
12.9 Any resolution of the directors or of a committee thereof may be passed
with the consent in writing to the resolution of all the directors or the
members of that committee. The consent may be in counterparts.
PART 13 - EXECUTIVE AND OTHER COMMITTEES
13.1 The directors may appoint an Executive Committee to consist of such member
or members of the Board as they think fit. The Executive Committee shall have
all the powers vested in the Board except the power to fill vacancies in the
Board, the power to change the membership of, or fill vacancies in the Executive
Committee or any other committee of the Board and such other powers, if any, as
are specified.
13.2 The directors may appoint one or more committees consisting of such member
or members of the Board as they think fit and may delegate to any such committee
any powers of the Board; except, the power to fill vacancies in the Board, the
power to change the membership of or fill vacancies in any committee of the
Board, and the power to appoint or remove officers appointed by the Board.
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13.3 All committees may meet and adjourn as they think fit. Questions arising at
any meeting shall be determined by a majority of votes of the members of the
committee, and in case of an equality of votes the chairman shall have a second
or casting vote.
13.4 All committees shall keep minutes of their actions and shall cause them to
be recorded in books kept for that purpose and shall report the same to the
Board at such times as the Board requires. The directors shall also have power
at any time to revoke or override any authority given to or acts to be done by
any such committees except as to acts done before such revocation or overriding
and to terminate the appointment or change the membership of a committee and to
fill vacancies in it. Committees may make rules for the conduct of their
business and may appoint such assistants as they may deem necessary.
PART 14 - OFFICERS
14.1 The directors may decide what functions and duties each officer shall
perform and may entrust to and confer upon him any of the powers exercisable by
them upon such terms and conditions as they think fit and may from time to time
revoke, withdraw, alter or vary any of such functions, duties and powers.
PART 15 - INDEMNITY AND PROTECTION OF DIRECTORS, OFFICERS
AND EMPLOYEES
15.1 Subject to the provisions of the Company Act, the Company shall indemnify a
director or former director of the Company and the Company may indemnify a
director or former director of a corporation of which the Company is or was a
shareholder and the heirs and personal representatives of any such person
against all costs, charges and expenses, including an amount paid to settle an
action or satisfy a judgment, actually and reasonably incurred by him or them in
a civil, criminal or administrative action or proceeding to which he is or they
are made a party by reason of his being or having been a director of the Company
or a director of such corporation, including any action brought by the Company
or any such corporation. Each person who acts or has acted at the Company's
request as a director and each director on being elected or appointed shall be
deemed to have contracted with the Company on the terms of the foregoing
indemnity.
15.2 Subject to the provisions of the Company Act, the directors may cause the
Company to indemnify any officer, employee or agent of the Company or of a
corporation of which the Company is or was a shareholder (notwithstanding that
he may also be a director) and his heirs and personal representatives against
all costs, charges and expenses whatsoever incurred by him or them and resulting
from his acting as an officer, employee or agent of the Company or such
corporation. In addition the Company shall indemnify the Secretary and any
Assistant Secretary of the Company
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if he is not a full time employee of the Company and notwithstanding that he may
also be a director and his respective heirs and legal representatives against
all costs, charges and expenses whatsoever incurred by him or them and arising
out of the functions assigned to the Secretary by the Company Act or these
Articles and the Secretary and Assistant Secretary shall on being appointed be
deemed to have contracted with the Company on the terms of the foregoing
indemnity.
15.3 The failure of a director or officer of the Company to comply with the
provisions of the Company Act, the Memorandum or these Articles shall not
invalidate any indemnity to which he is entitled under this Part.
15.4 The directors may cause the Company to purchase and maintain insurance for
the benefit of any person who is or was serving as a director, officer, employee
or agent of the Company or as a director, officer, employee or agent of any
corporation of which the Company is or was a shareholder and his heirs or
personal representatives against any liability incurred by him as such director,
officer, employee or agent.
15.5 The right to indemnification conferred in this Part is not exclusive of any
other right that any person may have or hereafter acquire under any statute,
provision of the articles of the Company, general or specific action of the
Board or shareholders, contract or otherwise.
PART 16 - DIVIDENDS AND RESERVE
16.1 The directors may from time to time declare and authorize payment of such
dividends, if any, as they deem advisable and need not give notice of such
declaration to any member. No dividend shall be paid otherwise than out of funds
or assets properly available for the payment of dividends and a declaration by
the directors as to the amount of such funds or assets available for dividends
shall be conclusive. Any dividend may be paid wholly or in part by the
distribution of specific assets and in particular by shares, bonds, debentures
or other securities of the Company or any other corporation or in any one or
more such ways as may be authorized by the directors. Where any difficulty
arises with regard to such a distribution the directors may settle the same as
they see fit, and in particular may fix the value for distribution of such
specific assets or any part thereof, and may determine that cash payment in
substitution for all or any part of the specific assets to which any member is
entitled shall be made to the member on the basis of the value so fixed in order
to adjust the rights of all parties and may vest any specific assets in trustees
for the persons entitled to the dividend.
16.2 Any dividend declared on shares of any class may be made payable on such
date as is fixed by the directors.
16.3 If persons are registered as joint holders of any share, any one of them
may give an effective receipt for any dividend, bonus or other monies payable in
respect of the share.
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16.4 Unless otherwise determined by the directors, no dividend shall be paid on
any share which has been purchased or redeemed by the Company while the share is
held by the Company.
16.5 Any dividend, bonus or other monies payable in cash in respect of shares
may be paid by cheque. The mailing of such cheque shall, to the extent of the
sum represented thereby (plus the amount of any tax required by law to be
deducted), discharge all liability for the dividend unless the cheque is not
paid on presentation or the amount of tax so deducted is not paid to the
appropriate taxing authority.
16.6 Notwithstanding anything contained in these Articles the directors may from
time to time capitalize any undistributed surplus on hand of the Company and may
from time to time issue shares, bonds, debentures or debt obligations of the
Company as a dividend representing such undistributed surplus on hand or any
part thereof.
PART 17 - DOCUMENTS, RECORDS AND REPORTS
17.1 No member of the Company shall be entitled to inspect the accounting
records of the Company unless the directors determine otherwise.
PART 18 - NOTICES
18.1 Any notice required to be given by these Articles or the Company Act unless
the form is otherwise specified may be given orally or in writing.
18.2 A notice in writing, statement, report or other document shall have been
effectively sent or given if posted prepaid, delivered, faxed or e-mailed to the
person entitled thereto at his address recorded on a register maintained by the
Company; and a certificate signed by the Secretary or other officer of the
Company or of any other corporation acting on behalf of the Company that the
notice, statement, report or other document was so sent or given shall be
conclusive evidence thereof.
18.3 A notice, statement, report or other document may be given by the Company
to the joint holders of a share by giving it to any of them.
18.4 A notice, statement, report or other document may be given by the Company
to the persons entitled to a share in consequence of the death, bankruptcy or
incapacity of a member in the same manner as the same might have been given if
the death, bankruptcy or incapacity had not occurred.
18.5 Notice of each directors' meeting, except a directors' meeting held
immediately following an annual general meeting of which no notice shall be
required, shall be given to every director and
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alternate director except a director or alternate director who has waived notice
or is absent from the Province of Alberta.
18.6 The accidental omission to give notice of a meeting to, or the non-receipt
thereof by, any person entitled to receive notice shall not invalidate the
proceedings at that meeting.
18.7 Every notice of a meeting shall specify the place, day and time of the
meeting and if for a general meeting the general nature of all special business
intended to be conducted thereat, unless specified in an information circular
relating thereto.
18.8 A director may waive his entitlement to receive a notice of any past,
present or future meeting or meetings of directors and may at any time withdraw
such waiver. After the waiver is received by the Company and until it is
withdrawn no notice need be given to such director or, unless the director
otherwise requires in writing to the Company, to his alternate. Meetings held
without such notice being given shall not have been improperly called by reason
thereof.
18.9 Not less than twenty-four hours' notice of a directors' meeting requiring
notice shall be given.
18.10 Where in these Articles any period of time dating from a given day, act or
event is prescribed the time shall be reckoned exclusive of such day, act or
event.
PART 19 - EXECUTION OF DOCUMENTS
19.1 Any document may be executed by the Company, under seal or not under seal:
(a) by any one director or any one of the Chairman of the Board or
the President;
(b) in any manner directed by the Board, either generally or in
relation to a particular document; or
(c) in any other manner permitted by law.
PART 20 - SEAL
20.1 The Company may have a seal, but need not.
20.2 The Company may have a seal for use in any place or places other than
British Columbia.
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20.3 Any seal of the Company may, as directed by the Board, be reproduced on any
document in any form or by any means rather than by an impression of it.
PART 21 - SPECIAL RIGHTS AND RESTRICTIONS
21.1 COMMON SHARES. The holders of Common shares are entitled to receive notice
of any meetings of the members of the Company and are entitled to one vote in
person or by proxy for each Common share held. Holders of Common shares are
entitled to receive dividends in the absolute discretion of the Directors, as
and when declared by the Directors. In the event of the liquidation, dissolution
or winding-up of the Company, whether voluntary or involuntary, or upon
distribution of the assets of the Company among its members for the purpose of
winding-up its affairs or upon a reduction or return of its capital the holders
of Common shares are entitled to receive, after the payment of any amounts to
holders of Preferred shares, the amount of capital paid up on their Common
shares and after payment of such amounts the holders of Common shares are
entitled to share equally, share for share, in the remaining assets of the
Company.
21.2 PREFERRED SHARES
(a) The Preferred shares may at any time from time to time be issued in one
or more series. The directors may from time to time, by resolution
passed before the issue of any particular series of Preferred shares,
alter the memorandum of the Company to fix the number of Preferred
shares in, and to determine the designation of the Preferred shares of,
each series and alter the memorandum or the articles to create, define
and attach special rights and restrictions to the Preferred shares of
each series, including, but without limiting the generality of the
foregoing, the rate or amount of dividends, whether cumulative,
non-cumulative or partially cumulative, the dates, places and currencies
of payment thereof, the consideration for, and the terms and conditions
of, any purchase for cancellation or redemption thereof, including
redemption after a fixed term or at a premium, conversion or exchange
rights, the terms and conditions of any share purchase plan or sinking
fund, the restrictions respecting a payment of dividends on, or the
repayment of capital in respect of, any other shares of the Company, and
voting rights and restrictions; but no special right or restriction so
created, defined or attached may contravene the provisions of Section
21.2(b).
(b) Holders of Preferred shares shall be entitled, on the distribution of
assets of the Company on the liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary, or on any other
distribution of assets of the Company among its members for the purpose
of winding up its affairs, to receive before any distribution is made to
holders of Common shares or any other shares of the Company ranking
junior to the Preferred shares with respect to repayment of capital, the
amount paid up with respect to each Preferred share held by them,
together with the fixed premium (if any) thereon, all accrued and unpaid
cumulative dividends (if any and if preferential) thereon, which for
such purpose shall be calculated as
<PAGE> 18
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if such dividends were accruing on a day-to-day basis up to the date of
such distribution, whether or not earned or declared, and all declared
and unpaid non-cumulative dividends (if any and if preferential)
thereon. After payment to holders of Preferred shares of the amounts so
payable to them, holders of Preferred shares shall not be entitled to
share in any further distribution of the property or assets of the
Company except as specifically provided in the special rights and
restrictions attached to any particular series.
<PAGE> 1
EXHIBIT 10.1
PIVOTAL SOFTWARE INC. (THE "COMPANY")
INCENTIVE STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF JANUARY 28, 1999)
1. PURPOSE:
The purposes of this Incentive Stock Option Plan (the "Plan") are to
attract and retain the best available people for positions of substantial
responsibility with the Company, to provide additional incentives to the
directors, officers and employees of and independent contractors and consultants
to the Company and to promote the success of the Company's business by providing
to such persons the opportunity to purchase shares in the Company pursuant to
options granted hereunder (the "Option" or "Options").
2. ADMINISTRATION:
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board"). Members of the Board who are either eligible for Options
or have been granted Options may vote on any matters affecting the
administration of the Plan or the grant of any Options pursuant to the Plan,
except that no such member shall act upon the granting of an Option to himself,
but any such member shall be counted in determining the existence of a quorum at
any meeting of the Board during which action is taken with respect to the
granting of Options to him.
(b) Subject to the terms of the Plan, the Board shall have the authority
to determine the persons to whom Options shall be granted, the number of Shares
covered by each Option, the price per Share specified in each Option, the time
or times at which Options shall be granted and the terms and provisions of the
instruments by which Options shall be evidenced.
(c) The interpretation and construction by the Board of any provisions
of the Plan or of any Option granted hereunder shall be conclusive and binding
upon the Company and the Optionees. The Board may from time to time adopt such
rules and regulations for carrying out the Plan as it may deem advisable. No
member of the Board shall be liable for any action or determination made in good
faith with respect to the Plan or any Option granted under it.
3. COMPLIANCE WITH LAWS
Transactions under the Plan are intended to comply with all relevant
provisions of law, including, without limitation, the United States Securities
Act of 1933 and the regulations thereunder, all applicable conditions of Rule
16b-3 or its successors under Section 16 of the United States Securities
Exchange Act of 1934, the Securities Act and the regulations thereunder of the
province in which the Company is resident and the provinces and states in which
Optionees may reside, and the requirements of the Vancouver Stock Exchange, the
Alberta Stock Exchange, The Toronto Stock Exchange, the National Association of
Securities Dealers Quotation System , and any other stock exchange or market
upon which the common shares of the Company may then be listed or quoted and the
United States Internal Revenue Code of 1986,
<PAGE> 2
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as amended (the "Code") (together, the "Applicable Laws"). To the extent any
provision of the Plan or action by the Board fails to so comply, it will be
deemed null and void, to the extent permitted by law and deemed advisable by the
Board.
The Company will not be obligated to issue and deliver any Shares
pursuant to the exercise of any Option until, in the opinion of the Company's
counsel, all Applicable Laws have been complied with. Without limiting the
generality of the foregoing, the Company may require from the person exercising
the Option such investment representation, undertaking or agreement, if any, as
counsel for the Company may consider necessary in order to comply with the
Applicable Laws.
4. ELIGIBLE PERSONS
The Board may from time to time authorize the grant of Options to anyone
who is at the time of such authorization:
(a) an officer or employee (collectively an "Employee") of the Company
or any subsidiary of the Company ("Subsidiary"), meaning any corporation in
which the Company owns or controls, directly or indirectly, not less than 50% of
the total combined voting power, and includes a subsidiary of a subsidiary;
(b) subject to the Applicable Laws, an independent contractor or other
person providing ongoing consulting services (collectively a "Consultant") to
the Company or a Subsidiary, partnership, joint venture or other entity in which
the Company owns or controls, directly or indirectly, not less than 50% of the
total combined voting power; or
(c) a member of the Board of the Company or a Subsidiary, partnership,
joint venture or other entity in which the Company owns or controls, directly or
indirectly, not less than 50% of the total combined voting power;
(collectively the "Eligible Persons"). The granting of any Option to an Eligible
Person (such Eligible Person, while having an Option, being referred to herein
as an "Optionee") shall neither entitle him to, nor disqualify him from,
participation in any other grant of Options. Options may be granted to one or
more Eligible Persons without being granted to other Eligible Persons, as the
Board may deem fit.
5. STOCK SUBJECT TO PLAN
(a) Options under the Plan shall be granted for voting common shares
(the "Shares") of the Company. Subject to the provisions of Section 13 of the
Plan, the maximum aggregate number of Shares which may be optioned by the
Company and purchased by Eligible Persons under the Plan is four million
(4,000,000) Shares. The said Shares are comprised of:
<PAGE> 3
- 3 -
(i) 992,314 Shares of the Company that were subject to options
granted by the Company in favour of Eligible Persons and
as at the date of the Plan were issued following the
exercising by Eligible Persons of those options; and
(ii) 1,239,432 Shares of the Company that were subject to
options granted by the Company in favour of Eligible
Persons and as at the date of the Plan (as amended and
restated on January 28, 1999) were not exercised by
Eligible Persons and therefore not issued, and
(iii) 1,718,254 Shares of the Company that were not subject to
existing options as at the date of adoption of the Plan
(as amended) and were not therefore granted as options to
Eligible Persons, and
(iv) 50,000 common Shares which were transferred by certain
original shareholders to certain employees on July 27,
1992 on the condition that such Shares be subject to all
of the rights, restrictions and benefits of the Plan.
For the purposes of this Plan the Previously Optioned Shares shall be subject to
the terms and conditions herein set forth and the options granted by the Company
in respect thereof shall be deemed to be Options granted pursuant to the Plan.
The Shares may be authorized, but unissued Shares, or may be Shares
which have been allotted to a trustee for purposes of issuance under the Plan.
If an Option should expire or become unexercisable for any reason without having
been exercised in full, the unpurchased Shares which were subject thereto shall,
unless the Plan shall have been terminated, return to the Plan and become
available for other Options under the Plan.
(b) The aggregate number of Shares to be issued upon the exercise of
Options granted under the Plan to Consultants from time to time will not exceed
2% of the issued and outstanding securities of the Company.
(c) If the Company purchases Shares from an Eligible Person pursuant to
the terms of a right of purchase or first refusal as hereinafter described, such
repurchased Shares shall be at the Company's discretion either retained or
cancelled by the Company, and, in the event they are retained by the Company,
may become available for other Options under the Plan.
6. GRANTING OF OPTIONS
The Board shall, subject to any limitations specified herein, have the
authority:
(a) to determine the exercise price of the Options to be granted,
based upon the fair market value of the Company's Shares and
other information considered relevant by the Board;
<PAGE> 4
- 4 -
(b) to determine the terms and provisions of any Option granted under
the Plan or any agreement required to be executed in connection
with the exercise of any Option;
(c) to determine the Eligible Persons to whom and the time at which
Options will be granted and the number of Shares to be
represented by each Option;
(d) to determine whether any agreement, undertaking, representation
or covenant will be required to be executed by the Eligible
Person as a condition of the exercise of an Option granted under
the Plan, and the terms and provisions of any such document; and
(e) to make all other determinations deemed necessary or advisable
for the administration of the Plan.
Options granted pursuant to this Plan shall be evidenced by written stock option
agreements or certificates ("Option Certificate"), substantially in the form
attached hereto as Exhibit A, or such other form or forms as the Board may from
time to time approve.
7. OPTION TERM
The Shares subject to each Option shall vest and the Option shall become
exercisable at the time or times as provided in the Option Certificate. Each
Option shall not be exercisable after the expiration of five years from the date
granted, subject to earlier termination as provided in Section 10, and may
expire on such earlier date or dates as may be fixed by the Board. Any Shares
not purchased prior to expiration of an Option granted hereunder may thereafter
be reallocated and become subject to Options in favour of Eligible Persons in
accordance with the provisions of the Plan.
8. OPTION PRICE
The per share Option price for the Shares to be issued pursuant to an
Option granted under the Plan shall be determined by the Board; provided,
however, that such price shall in no event be less than the fair market value
per share of the Company's Shares on the date of the grant of the Option as
determined by the Board and less, in the case of an Option which is not an
Incentive Stock Option as defined in the Code, any discount permitted by law and
by the regulations, rules and policies of the securities authorities and stock
exchanges having jurisdiction over the affairs of the Company; except that the
price shall be 110% of the fair market value in the case of any person who owns
shares possessing more than 10% of the total combined voting power of all
classes of Shares of the Company or a Subsidiary. The fair market value shall be
determined by the Board in its sole discretion, exercised in good faith, and in
making such determination the Board shall take into consideration all factors it
deems
<PAGE> 5
- 5 -
appropriate, and shall have regard to the earnings of the Company for the
financial periods of operation immediately preceding the date of the grant of an
Option and any recent sales or offer prices of shares of the Company in private
transactions negotiated at arm's length. Provided, however, that where there is
a public market for the Shares of the Company, the fair market value per Share
shall generally be the mean of the reported bid and asked price for the Shares
as of the date of grant, or, in the event the Shares are listed on a stock
exchange, the fair market value per Share shall generally be the closing price
on the exchange as of the date of grant of the Option, or if no Shares have been
traded on such day, then as of the last previous day for which a trade was
reported by such stock exchange.
9. EXERCISE OF OPTION
(a) Subject to the provisions of Section 10 and unless otherwise
provided by the Board, each Option granted under the Plan shall be exercisable
only with respect to the portion thereof that is vested in the Optionee to whom
the Option is granted. The right to exercise any Option shall become vested in
increments over a term of four years, save and except for the Previously
Optioned Shares, which shall become vested in increments over a term of three
years, calculated from the date of granting any such Option, according to the
following schedule and subject to the provisions of section 10:
(i) in the case of Shares, other than Previously Optioned
Shares, to an Optionee that has not previously been
granted an Option under the Plan:
<TABLE>
<CAPTION>
Percentage of Option Shares with
Vesting Date (calculated from Date Respect to which Optionee has a
Option Granted) Vested Right to Exercise
---------------------------------- --------------------------------
<S> <C>
First Anniversary 25%
The end of each 6 months following 12 1/2%
the First Anniversary
</TABLE>
(ii) in the case of Shares, other than Previously Optioned
Shares, to an Optionee that has previously been granted an
Option under the Plan, the Option shall be exercisable as
to 12 1/2% at the end of each 6 month period calculated
from the date the Option is granted.
(ii) in the case of Previously Optioned Shares:
<TABLE>
<CAPTION>
Percentage of Previously Optioned
Vesting Date (calculated from Date Shares with respect to which Optionee
Option Granted) has a Vested Right to Exercise
---------------------------------- -------------------------------------
<S> <C>
First Anniversary 33 1/3%
</TABLE>
<PAGE> 6
- 6 -
<TABLE>
<S> <C>
Second Anniversary 33 1/3%
Third Anniversary 33 1/3%
</TABLE>
(b) Any Option may be exercised in accordance with the provisions of
this Plan as to all or any portion of the Shares then exercisable and vested
under an Option, from time to time during the term of the Option. An Option may
not be exercised for a fraction of a share. The exercise at any time or times of
a part of an Option will not exhaust or terminate the Option as to the balance
unexercised, however, any Option not fully exercised within the times set out to
exercise shall automatically expire.
(c) An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company at its principal business office in
accordance with the terms of the Option by the Optionee and full payment for the
Shares with respect to which the Option is exercised and an amount necessary to
satisfy any applicable withholding taxes has been received by the Company,
accompanied by the executed Option Certificate, or other agreement, undertaking,
covenant or representation required by the terms of this Plan or the Option
granted hereunder. Until the Option is properly exercised hereunder and the
Company receives full payment for the Shares with respect to which the Option is
exercised, no right to receive dividends or any other rights as a shareholder
shall exist with respect to the Optioned Shares. No adjustment will be made for
a dividend or other rights for which the record date is prior to the date the
Option is properly exercised and payment in full is received except as provided
in Section 14.
(d) All Shares purchased under Options granted under the Plan and any
applicable withholding taxes shall be paid for in full by certified cheque or
cash, or such other consideration having equivalent value at the time of
purchase as the Board may determine.
(e) As soon as practicable after any proper exercise of an Option in
accordance with the provisions of this Plan and payment in full for the Shares
with respect to which the Option is exercised, the Company shall deliver to the
person that exercised the Option, at the principal business office of the
Company or at such other place as shall be mutually acceptable, a certificate or
certificates representing the Shares as to which the Option has been exercised
together with the Option Certificate, endorsed by the Company recording the
exercise of the Option. The time of issuance and delivery of the certificates
representing the Shares may be postponed by the Company for such period as may
be required for it to comply with any law or regulation applicable to the
issuance and delivery of such Shares.
(f) Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
10. TERMINATION OR SERVICE, DEATH OR DISABILITY
(a) If an Optionee ceases to be continuously engaged by the Company or
any of its
<PAGE> 7
- 7 -
Subsidiaries or a Controlled Entity within the meaning under the Code in the
capacity as a director, an officer, an employee, an independent contractor or a
consultant for any reason other than death or permanent and total disability, no
further instalments of his Options that have not vested as of the date of such
termination shall become exercisable. The Optionee shall be entitled to exercise
his Option only to the extent that he was entitled to exercise it prior to the
date of such termination and his right to exercise such Option shall terminate
after the passage of thirty (30) days from the date of his notice of termination
or the date of commencement of leave which has not been approved by the Board
under Section 10(c) but in no event later than on its specified expiration date.
To the extent that the Optionee was not entitled to exercise the Option at the
date of such termination, or if he does not exercise an Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate. If the Optionee ceases to be employed, engaged or retained by the
Company, a Subsidiary or a Controlled Entity for cause or if any Optionee is
removed from office as a director or becomes disqualified from being a director
by law, any Option or the unexercised portion thereof granted to such Optionee
shall terminate at the time of termination, removal or disqualification.
(b) If an Optionee ceases to serve as a director, an officer or an
employee of or an independent contractor or a consultant to the Company or any
of its Subsidiaries or Controlled Entities due to death or permanent and total
disability, thereby resulting in the termination of his continuous engagement,
the Option may be exercised but only within twelve (12) months following the
date of death or termination of such service due to disability (subject to any
earlier termination of the Option as provided hereunder), by the individual in
the case of disability, or in the case of death by the individual's estate or by
a person who acquired the right to exercise the Option by bequest or inheritance
or the laws of descent and distribution, but in any case only to the extent the
individual was entitled to exercise the Option at the date of his termination of
such service by death or disability.
(c) For the purpose of the Plan, "continuously engaged" or "continuous
engagement" in the case of a director, an officer or an employee shall mean the
absence of any interruption or termination of employment or service as a
director, an officer or an employee of the Company or any of its Subsidiaries,
and in the case of an independent contractor or consultant shall mean the
absence of any interruption or termination in the retainer or engagement other
than as a result of termination by effluxion of time or as a result of other
termination on terms agreed to between the independent contractor or consultant
and the directors of the Company. Continuous engagement shall not be considered
interrupted in the case of sick leave in excess of the Company's stated policy
on paid sick leave communicated to the Optionee and approved by the Board,
maternity or parental leave in excess of statutory entitlement approved by the
Board or any other leave of absence approved by the Board or in the case of
transfers between locations of the Company or in the case of any change in the
nature of service rendered to the Company, any of its Subsidiaries or Controlled
Entities. An Optionee while on any such leave or other leave of absence approved
by the Board shall be entitled to exercise any Options granted to him under the
Plan in respect of and only to the extent that he was entitled to exercise such
Options prior to any such leave and the vesting period shall be suspended during
the period of such leave
<PAGE> 8
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and shall be extended and the vesting date for the exercise of any Options shall
be delayed by the length of such leave.
11. TRANSFER RESTRICTIONS
(a) Shares purchased under the Plan shall not be transferred, assigned,
encumbered or otherwise made the subject of disposition in contravention of the
first refusal rights under Section 12 or otherwise, except as expressly
permitted hereunder. Such restrictions on transfer, however, shall not be
applicable to a transfer of title to such Shares effected pursuant to the
Optionee's will or the laws of intestate succession, descent and distribution.
(b) Each person to whom the Shares are transferred by means of one of
the permitted transfers specified in Section 11(a) must, as a condition
precedent to the validity of such transfer, acknowledge in writing to the
Company that such person is bound by the provisions of this Plan and that the
transferred Shares are subject to (i) the first refusal rights referred to
hereunder and (ii) the market stand-off provisions of Section 11(d), to the same
extent such Shares would be so subject if retained by the Optionee.
(c) For purposes of Section 12, the term "Owner" shall include the
Optionee and all subsequent holders of the purchased Shares who derive their
chain of ownership through a permitted transfer from the Optionee in accordance
with Section 11(a).
(d) (i) In connection with any underwritten public offering by the
Company of its Shares, including the Company's initial
public offering, no person shall sell, make any short sale
of, loan, hypothecate, pledge, grant any option for the
purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing
transactions with respect to, any Shares acquired upon
exercise of an Option or any right to acquire any Shares
issued under the Plan, without the prior written consent
of the Company or its underwriters. Such limitations shall
be in effect for such period of time from and after the
effective date of such offering as may be requested by the
Company or such underwriters provided, however, that in no
event shall such period exceed one hundred eighty (180)
days. The limitations of this Section 11(d) shall remain
in effect for the two-year period immediately following
the effective date of the Company's initial public
offering and shall thereafter terminate and cease to have
any force or effect.
(ii) Employees of and independent contractors or consultants to
the Company or any of its subsidiaries shall be subject to
the market stand-off provisions of this Section 11(d)
provided and only if the officers and directors of the
Company are also subject to similar arrangements.
<PAGE> 9
- 9 -
(iii) In the event of any stock dividend, stock split,
recapitalization or other change affecting the Company's
outstanding Shares effected as a class without receipt of
consideration, then any new, substituted or additional
securities distributed with respect to the Shares shall be
immediately subject to the provisions of this Section
11(d), to the same extent the Shares are at such time
covered by such provisions.
(e) Certificates for Shares acquired by an Optionee hereunder will be
endorsed with restrictive legends, on terms determined by the Board from time to
time, including a legend substantially as follows:
"This certificate and the shares represented hereby may not be
sold, assigned, transferred, encumbered, or in any manner
disposed of except in conformity with the terms of the Stock
Option Plan of the Company adopted by the Company as of July 31,
1992 (the "Plan").
12. RIGHT OF FIRST REFUSAL
(a) The Company shall have the right of first refusal, exercisable in
connection with any proposed sale or other transfer of Shares acquired by an
Owner under the Plan. For purposes of this Section 12, the term "transfer" shall
include any assignment or other disposition for value of the Shares intended to
be made by the Owner, but shall not include any transfer permitted under Section
11(a).
(b) In the event the Owner desires to accept a bona fide third-party
offer for the transfer of any or all of the Shares acquired under the Plan (the
shares subject to such offer to be hereinafter called the "Target Shares"),
which offer by such third-party must be only for a purchase price payable in
cash payable on a closing date or in instalments, the Owner shall promptly (i)
deliver to the secretary of the Company written notice (the "Disposition
Notice") of the offer and the basic terms and conditions thereof, including the
proposed purchase price, and (ii) provide satisfactory proof that the
disposition of the Target Shares to the third-party offeror would not be in
contravention of the provisions set forth in Section 11 hereof or the provisions
of any restrictions on transfer imposed by any government regulatory or
securities authorities. If the Owner and the third-party offeror are not dealing
at arms length, then the Company may require the Owner to provide evidence
reasonably satisfactory to it as to the method of calculation of the proposed
purchase price and the Disposition Notice shall be deemed to not have been
delivered to the Company until such information is provided to the Company. The
delivery by the Owner to the Company of a Disposition Notice shall constitute an
irrevocable offer by the Owner to sell the Target Shares to the Company.
(c) The Company shall, for a period of twenty-five (25) days following
receipt of the Disposition Notice, have the right to repurchase any or all of
the Target Shares specified in the
<PAGE> 10
- 10 -
Disposition Notice upon substantially the same terms and conditions specified
therein. Such right shall be exercisable by written notice (the "Company's
Exercise Notice") delivered to the Owner prior to the expiration of sixty (60)
days following receipt of the Disposition Notice.
(d) If the Company shall not exercise its right to repurchase all or any
of the Target Shares then the Company shall, within thirty (30) days following
receipt of the Disposition Notice, deliver to the holders of the Class A
preferred shares, the Class B preferred shares, the Class D preferred shares and
the Class E preferred shares (the "Preferred Shareholders") written notice (the
"Shareholder Notice") granting to the Preferred Shareholders the right to
purchase that portion or all of the Target Share that are not subject to the
Company's Exercise Notice. The written notice from the Company to the Preferred
Shareholders shall be accompanied by a copy of the Disposition Notice and the
Company's Exercise Notice. For a period of twenty (20) days following receipt of
the Shareholder Notice the Preferred Shareholders shall have the right to
purchase the balance of the Target Shares that are not subject to the Company's
Exercise Notice on a pro rata basis in accordance with their respective
shareholdings in the Company. Acceptance by the Preferred Shareholders shall be
by notice to the Company and by such acceptance a Preferred Shareholder may
specify any additional portion of the Target Shares offered for sale and
referred to in the Shareholder Notice that such Preferred Shareholder is
prepared to purchase in the event that any other Preferred Shareholder fails to
accept such offer, and if any of the other Preferred Shareholders fails to
accept such offer as contained in the Shareholder Notice, such Preferred
Shareholder (pro rata if more than one) shall be entitled to purchase such
additional number of Target Shares as shall be so available. It is understood
and agreed that the pro rata right of each of the Preferred Shareholders to
purchase Target Shares shall be determined on the basis that all of the
Preferred Shareholders shall have converted their Preferred Shares to common
shares of the Company, whether or not converted, and the pro rata right to
purchase Target Shares shall be exercisable among the holders of Class A
preferred shares, Class B preferred shares, Class D preferred shares and Class E
preferred shares based on the number of common shares held by each on a
converted basis.
(e) Prior to the expiry of sixty (60) days after receipt by the Company
of the Disposition Notice, the Company shall, concurrently with the delivery to
the Owner of the Company's Exercise Notice, if any, advise the Owner by notice
(the "Shareholder's Exercise Notice"), whether some or all of the Preferred
Shareholders have exercised the right to purchase the Target Shares, or the
balance not covered by the Company's Exercise Notice, in their entirety or in
part. If the purchase right is exercised with respect to all of the Target
Shares specified in the Disposition Notice, then the Company and/or the
Preferred Shareholders, as the case may be, shall effect the purchase of the
Target Shares, including payment of the purchase price, not more than five
business days after delivery of the Company's Exercise Notice and/or
Shareholder's Exercise Notice, and at such time the Owner shall deliver to the
Company the certificates representing the Target Shares to be purchased, each
certificate to be properly endorsed for transfer.
<PAGE> 11
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(f) In the event neither the Company's nor the Shareholder's Exercise
Notice is given to the Owner within sixty (60) days following the date of the
Company's receipt of the Disposition Notice, or in the event that the Exercise
Notices are in respect of a portion but not all the Target Shares, the Owner
shall have a period of thirty (30) days thereafter in which to sell or otherwise
dispose of the Target Shares or the portions thereof which are not covered by
the Exercise Notices to the third-party transferee identified in the Disposition
Notice upon terms and conditions (including the purchase price) no more
favourable to the third-party transferee than those specified in the Disposition
Notice; provided, however, that any such sale or disposition must not be
effected in contravention of the provisions of any restrictions on transfer
imposed by any governmental regulatory or securities authorities or Applicable
Laws. The third-party transferee shall acquire the Target Shares free and clear
of the first refusal rights hereunder but the acquired shares shall remain
subject to the market stand-off provisions of Section 11. In the event the Owner
does not effect such sale or disposition of the Target Shares within the
specified thirty (30) day period, the first refusal rights shall continue to be
applicable to any subsequent disposition of the Target Shares by the Owner until
such rights lapse in accordance with Section 12(g).
(g) The first refusal rights under this Section 12 shall lapse and cease
to have effect upon the earliest to occur of (i) a determination being made by
the Board that a public market exists for the outstanding shares of the Company
or (ii) a firm commitment underwritten public offering, covering the offer and
sale of the Company's common shares. However, the market stand-off provisions of
Section 11 shall continue to remain in full force and effect following the lapse
of the first refusal rights hereunder.
13. ALTERATION OF CAPITAL
(a) In the event that the class of Shares which are the subject of the
Plan shall be subdivided or combined into a greater or smaller number of shares
or if, upon a merger, consolidation, reorganization or recapitalization of the
Company, the Shares which are the subject of the Plan shall be exchanged for
other securities of the Company or of another company, each Optionee shall be
entitled, subject to the conditions herein stated, to purchase such number of
shares or amount of other securities of the Company or such other company as
were exchangeable for the number of Shares which such Optionee would have been
entitled to purchase except for such action, and appropriate adjustments shall
be made to the purchase price per Share to reflect such subdivision, combination
or exchange.
(b) In the event of a proposed sale of substantially all of the assets
of the Company, or the merger or consolidation of the Company with or into
another company, the Board may, if it so determines in the exercise of its sole
discretion, either declare that any portion of an Option that has not vested
shall terminate as of a date to be fixed by the Board or give the Optionee the
right to exercise his Option as to all or any part of such Optioned Shares as to
which the Option has not vested and would not otherwise be exercisable, or
accelerate and reduce the period for the exercise of those portions of Options
that have vested or the vesting date of those portions of
<PAGE> 12
- 12 -
Options that have not vested (provided that the exercise period shall in no
event be reduced to less than 30 days) or make such provision as it deems
appropriate for the continuance of outstanding and unexercised Options
subsequent to such sale, merger or consolidation, including the conversion of
such Options into options for the purchase of shares of a successor company.
(c) No fractional shares shall be issuable on account of any action
aforesaid, and the aggregate number of shares into which Shares then covered by
the Option, when changed as a result of such action, available to be issued,
shall be reduced to the largest number of whole shares resulting from such
action.
14. DIVIDENDS AND DISTRIBUTIONS
If the Company shall at any time during the period in which Options may
be exercised under the Plan pay any dividend, or make any other distribution,
payable in shares of the Company, the Optionee shall be entitled to receive upon
any exercise thereafter of the Option hereby granted (in addition to the number
of shares which the Optionee would have been entitled to receive on such
exercise of such Option if such dividend or distribution of Shares had not been
paid) such additional number of fully paid and non-assessable shares of the
appropriate class as would have been payable on the Shares which would have been
issuable on such exercise of Option if they had been outstanding on the record
date for the payment of such dividend or distribution, and in the event of the
payment of any dividend or distribution payable in any shares of the Company as
aforesaid the Company will reserve and set aside a sufficient number of shares
in which any such dividend or distribution shall be payable to enable it to
fulfil its obligations hereunder.
15. CONDITIONS UPON ISSUANCE OF SHARES
(a) Each Option shall be subject to the requirement that, if at any time
the Board or counsel for the Company shall determine, in its reasonable
discretion, that the listing, registration or qualification of the Shares
subject to such Option upon any securities exchange or under any provincial,
state or federal law, or the consent or approval of any governmental body, is
necessary or desirable, as a condition of, or in connection with, the granting
of such Option or the issue or purchase of Shares thereunder, no such Option may
be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free
from any conditions not acceptable to the Board and counsel for the Company. The
Company's obligation to issue Shares upon the exercise of an Option shall in any
case be subject to the Company being satisfied that the Shares purchased are
being purchased for investment purposes and not for the purpose or with the
intention to sell or distribute such Shares, if at the time of such exercise a
sale or distribution of such Shares would otherwise violate any Applicable Laws.
(b) As a condition to the exercise of an Option, the Board may require
the Optionee
<PAGE> 13
- 13 -
to execute such agreements or undertakings, and to make any
representation or warranty to the Company as may in the judgment of counsel for
the Company be required under Applicable Laws or regulation, including but not
limited to a representation and warranty that the Shares are being purchased
only for investment purposes and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is appropriate under any Applicable Laws.
16. ADDITIONAL PROVISIONS CONCERNING U.S. OPTIONEES
(a) Options granted to an Employee who is a United States citizen or
resident within the meaning of the Code (such Employee referred to in this
Section as a "U.S. Employee") will generally be Incentive Stock Options as that
term is defined in the Code, provided however, that the Board may, at its
discretion, at the time of the grant of the Options, make a determination as to
whether the Options will be deemed Incentive Stock Options or Non Qualified
Stock Options within the meaning of the Code.
(b) Options granted to an Optionee who is a United States citizen or
resident within the meaning of the Code who is not an Employee will not be
Incentive Stock Options, and any written agreement with such an Optionee for a
grant of Options under the Plan will state that the Options granted thereunder
are Non-Qualified Stock Options for U.S. income tax purposes.
(c) In addition to the terms and conditions of Options granted under the
Plan referred to in the preceding Sections, Options granted to a U.S. Employee
that are granted by the Board as Incentive Stock Options will be subject to the
following terms and conditions:
(i) Options will be designated in the written Option agreement
between the U.S. Employee and the Company as Incentive Stock
Options;
(ii) if the U.S. Employee is directly or indirectly the beneficial
owner of 10% or more of the combined voting power of all classes
of shares in the capital of the Company or a Subsidiary at the
time an Option is granted to the U.S. Employee, the exercise
price of such Option will be equal to at least 110% of the fair
market value of the Company's Shares;
(iii) Options may not be transferred, assigned or pledged in any manner
other than by will or applicable laws of descent and distribution
and shall be exercisable during the Optionee's lifetime only by
the Optionee; and
(iv) no Options may be granted after the date preceding the tenth
anniversary of the earlier of the date this Plan was adopted or
was approved by the Company's shareholders.
(d) If a U.S. Employee is granted Options under the Plan, the written
Option agreement with the U.S. Employee will contain acknowledgements by the
U.S. Employee that:
<PAGE> 14
- 14 -
(i) notwithstanding a designation of Options granted to a U.S.
Employee as Incentive Stock Options, to the extent that the
aggregate fair market value of the Shares subject to Options
which are exercisable for the first time by any U.S. Employee
during any calendar year exceeds US $100,000, such excess Options
will not be treated as Incentive Stock Options; and
(ii) in order for Options granted under the Plan to be treated as
Incentive Stock Options:
A. Shares purchased on the exercise of an Option must not be
sold or otherwise disposed of within 2 years from the date
the Option was granted, or within 1 year from the date the
Option was exercised; and
B. the U.S. Employee must maintain his status as a U.S.
Employee at all times during the period beginning on the
date the Option is granted and ending 30 days before the
date an Option is exercised.
(e) The acknowledgement of the U.S. Employee in (d)(ii)B above does not
confer upon the U.S. Employee any right with respect to continuation of his
employment relationship with the Company, nor will it interfere in any way with
the Company's right to terminate his employment relationship at any time, with
or without cause.
(f) Shares issued under this Plan to an Optionee who is a resident of
the United States of America will contain the following legend, as amended or
supplemented by Applicable Laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES AND MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED OR
ASSIGNED EXCEPT (A) TO THE COMPANY, (B) OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, IF AVAILABLE, OR
(C) INSIDE THE UNITED STATES (1) PURSUANT TO THE EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER,
IF AVAILABLE, AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR
(2) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE
SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, AND, IN
CONNECTION WITH ANY TRANSFERS PURSUANT TO (C)(1) OR (C)(2) ABOVE, THE
SELLER HAS FURNISHED TO THE COMPANY AN OPINION OF COUNSEL OF RECOGNIZED
STANDING, REASONABLY SATISFACTORY TO THE COMPANY, TO THAT EFFECT.
<PAGE> 15
- 15 -
17. TAX CONSEQUENCES OF PLAN
Notwithstanding Section 16, the Company does not assume responsibility
for the income or other tax consequences for Optionees or Eligible Persons under
the Plan and they are advised to consult with their own tax advisors.
18. AMENDMENT AND TERMINATION OF PLAN
The Board may terminate the Plan at any time, or amend the Plan from
time to time in such respects as the Board may deem advisable, except that,
without approval of the holders of the majority of the outstanding common shares
of the Company, no such revision or amendment shall:
(i) increase the number of Shares subject to the Plan other
than in connection with an adjustment under Section 13 of
the Plan;
(ii) change the designation of the class of individuals
eligible to be granted Options;
(iii) materially increase the benefits accruing to the
participants under the Plan; or
(iv) extend the term of the Plan over the maximum Option period
provided hereunder.
Without the written consent of the Optionee, and except as otherwise permitted
herein, any such termination of the Plan or any action of the Board shall not
affect Options already granted and such Options shall remain in full force and
effect as if this Plan had not been terminated.
19. RESERVATION OF SHARES
(a) The Company, during the term of this Plan, will at all times reserve
and keep available, and if necessary shall allot to a trustee for the benefit of
the Eligible Persons and to facilitate the granting of Options hereunder, the
number of Shares as shall be sufficient to satisfy the requirements of the Plan.
(b) The Company will, if necessary, use its best efforts to seek and to
obtain from appropriate regulatory authorities any requisite authorization in
order to issue and sell such number of Shares as shall be sufficient to satisfy
the requirements of the Plan. The inability of
<PAGE> 16
- 16 -
the Company to obtain the requisite authorization from any regulatory agency
having jurisdiction deemed by the Company's counsel to be necessary to the
lawful issuance and sale of any Shares hereunder or the inability of the Company
to confirm to its satisfaction that any issuance and sale of any Shares
hereunder will meet applicable legal requirements, shall relieve the Company of
any liability in respect to the non-issuance or sale of such Shares as to which
such requisite authority shall not have been obtained.
20. NOTICES
Any notice to be given to the Company pursuant to the provisions of this
Plan shall be addressed to the Company in care of its secretary at its principal
business office in North Vancouver, British Columbia, and any notice to be given
to an Optionee shall be delivered personally or addressed to him at the address
given beneath his signature on his Option Certificate, or at such other address
as such Optionee may hereafter designate in writing to the Company. Any such
notice shall be deemed duly given when made in writing and delivered to the
Company or the Optionee, as the case may be, or if mailed, then on the third
business day following the date of mailing such notice in a properly sealed
envelope addressed as aforesaid, registered or certified mail, postage prepaid,
in a post office or post office branch maintained in Canada or the United States
of America.
21. NO ENLARGEMENT OF RIGHTS
(a) This Plan is purely voluntary on the part of the Company, and the
continuance of the Plan shall not be deemed to constitute a contract between the
Company and any Eligible Person, or to be consideration for or a condition of
the acting by an individual as a director, an officer or an employee of or an
independent contractor or a consultant to the Company or any of its
Subsidiaries. Nothing contained in this Plan shall be deemed to give any
director, officer or employee the right to be retained in such capacity with the
Company of any Subsidiary or successor company, or to interfere with the right
of the Company or any such company or its shareholders to discharge or retire
any director, officer or employee thereof at any time. No Eligible Person shall
have any right to or interest in Options authorized hereunder prior to the grant
of such Option to such Eligible Person, and upon such grant, he shall have only
such rights and interests as are expressly provided herein, subject however, to
all applicable provisions of the Company's memorandum and articles as the same
may be amended from time to time.
(b) Nothing herein contained or done pursuant hereto shall obligate an
Optionee to purchase and/or pay for any Optioned Shares, except those Shares in
respect of which the Optionee shall have exercised his Option to purchase
hereunder in a manner hereinbefore provided.
22. FINANCIAL STATEMENTS
The Company shall provide to each Optionee at least annually a copy of
the financial statement for the Company for its last completed financial year in
the form and containing the information required under the British Columbia
Company Act.
<PAGE> 17
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23. GOVERNING LAW
The validity and construction of the Plan shall be governed by and
construed in accordance with the laws of the Province of British Columbia.
24. ADOPTION OF PLAN AND TERMINATION
This Plan was adopted by the Company and approved by the directors of
the Company as of the 31st day of July, 1992 and shall terminate ten years
thereafter.
<PAGE> 18
EXHIBIT A
PIVOTAL SOFTWARE INC.
INCENTIVE STOCK OPTION CERTIFICATE
___________________________________ Certificate
Name of Option Holder No.___________________________
___________________________________ Date:_________________________
Number of Shares
___________________________________
Exercise Price Per Share
INCENTIVE STOCK OPTION granted by Pivotal Software Inc. (the "Company") to the
above-named option holder (the "Optionee"), pursuant to the Company's Incentive
Stock Option Plan (the "Plan"), the terms of which are incorporated herein by
reference and which, in the event of any conflict, shall control over the terms
contained herein.
1. GRANT AND VESTING OF OPTION
Subject to the vesting schedule below, the Company hereby grants to the
Optionee an option to purchase on the terms herein provided a total of the
number of voting common Shares of the Company set forth above, at an exercise
price per Share as set forth above.
This option may be exercised only with respect to the portion thereof
that is vested in the Optionee. The Optionee's rights to exercise this option
shall become vested in increments over a term of four years, calculated from the
date of the granting of this option according to the following schedule:
(i) The following Schedule shall apply if this Certificate relates to
the first grant of an option to the Optionee:
<TABLE>
<CAPTION>
Percentage of Option Shares with
Vesting Date (calculated from Date Respect to which Optionee has a
Option Granted) Vested Right to Exercise
---------------------------------- --------------------------------
<S> <C>
First Anniversary 25%
The end of each 6 months following 12 1/2%
the First Anniversary
</TABLE>
(ii) If this Certificate relates to an Optionee that has previously
been granted an option under the Plan, then the option hereunder
shall be exercisable as to 12 1/2% at the
<PAGE> 19
- 19 -
end of each 6 month period calculated from the date the Option is
granted.
In the case of the first grant of an option to an Optionee, vesting
rights shall be calculated only in terms of a full year, in the case of the
first vesting, and thereafter semi-annually (i.e., from one semi-annual date to
the next). In the case of a subsequent grant of an option to an Optionee,
vesting rights shall be calculated semi-annually. No partial vesting credit
shall be given for partial periods.
This option shall expire and shall not be exercisable after the
expiration of five (5) years from the date it is granted.
2. EXERCISE OF OPTION
Each election to exercise this option shall be in writing in the form
attached hereto, signed by the Optionee or by the person authorized to exercise
this option under paragraph 5 hereof or otherwise permitted under the Plan, and
delivered to the secretary of the Company at its principal office accompanied by
this certificate.
In the event an option is exercised by the executor or administrator of
a deceased Optionee, or by the person or persons to whom the option has been
transferred by the Optionee's will or the applicable laws of descent and
distribution, the Company shall be under no obligation to deliver Shares
thereunder unless and until the Company is satisfied that the person or persons
exercising the option is or are the duly appointed executor or administrator of
the deceased Optionee or the person to whom the option has been transferred by
the Optionee's will or by the applicable laws of descent and distribution.
3. PAYMENT FOR AND DELIVERY OF SHARES
Payment in full by cash or a certified bank cheque shall be made for all
Shares for which this option is exercised and any applicable withholding taxes
at the time of such exercise, and no Shares shall be delivered until such
payment is made.
4. CONDITIONS UPON ISSUANCE OF SHARES
This option is subject to the requirement that, if at any time the
Company determines that the listing, registration or qualification of the Shares
subject to this option upon any securities exchange or under any provincial,
state or federal law, or the consent or approval of any government body, is
necessary or desirable in connection with the granting of this option or the
issue or purchase of Shares hereunder, this option may not be exercised in whole
or in part unless such listing, registration, qualification, consent or approval
has been obtained on conditions acceptable to the Company. The Company's
obligation to issue Shares upon the exercise of this option shall be subject to
the Company being satisfied that the Shares purchased are being purchased for
investment purposes and not for the purpose or with the intention to sell
<PAGE> 20
- 20 -
or distribute such Shares, if at the time of such exercise a sale or
distribution of such Shares would otherwise violate any applicable securities
law or other law, regulation or rule of any governmental authority, or the sale
or distribution of such Shares would otherwise violate any applicable securities
law or other law, regulation or rule of any governmental body.
The Optionee shall have no rights of a shareholder until the
Shares are actually delivered to him.
5. OPTION NOT TRANSFERABLE
Subject to the provisions of the Plan, this option may not be
transferred by the Optionee otherwise than by will or the laws of descent and
distribution and during the Optionee's lifetime this option may be exercised
only by him.
6. TERMINATION OF SERVICE
If the Optionee ceases to be continuously engaged by the Company or any
of its Subsidiaries in the capacity as a director, an officer, an employee, an
independent contractor or a consultant for any reason other than death or
permanent and total disability, this option shall terminate on the effective
date of such cessation and the Optionee may exercise this option not later than
30 days after the date of such cessation but only to the extent to which he was
entitled immediately prior to such cessation. If the Optionee ceases to be
employed, engaged or retained by the Company or any of its Subsidiaries for
cause or if the Optionee is removed from office as a director or becomes
disqualified from being a director by law, this option shall terminate
forthwith. Nothing herein shall be construed as extending the exercisability of
this option to a date more than five (5) years after the date this option is
granted.
7. DISABILITY
In the event of the Optionee ceasing to be a director or officer of the
Company or any of its Subsidiaries or in the event of termination of employment
or termination of the independent contract or consulting agreement of the
Optionee, because of permanent and total disability, this option shall terminate
one year after such termination and the Optionee may exercise this option prior
to such time but only to the extent to which he was entitled immediately prior
to such termination because of disability. Nothing herein shall be construed as
extending the exercisability of this option to a date more than five (5) years
after the date this option is granted.
8. DEATH
In the event of death of the Optionee while a director, an officer or an
employee of or an independent contractor or consultant to the Company or any of
its Subsidiaries, this option shall be exercisable within one (1) year after his
death, provided the option does not expire by its
<PAGE> 21
- 21 -
terms prior to that date, by the executor, administrator or other legal
representative of the estate of the deceased Optionee or the person or persons
to whom the deceased Optionee's rights under the option shall pass by will or
the laws of descent and distribution but only to the extent the deceased
Optionee was entitled to exercise this option immediately prior to his death.
Nothing herein shall be construed as extending the exercisability of this option
to a date more than five (5) years after the date this option is granted.
9. RIGHT OF FIRST REFUSAL
In the event that the Optionee desires, prior to the existence of a
public market for the Shares of the Company, to accept an offer from a third
party to acquire any of the Shares that have been acquired by the Optionee as a
result of the exercise of this option, the Optionee shall be obligated to first
offer to sell such Shares to the Company. The Company shall have the right to
purchase such Shares from the Optionee on substantially the same terms as would
apply to a sale to such third party. If the Company does not exercise its right
to purchase such Shares, then the Shares not so purchased will then be made
available for purchase by certain other shareholders of the Company. In the
event that neither the Company nor the certain other shareholders acquire all of
such Shares, the Optionee will have the right to transfer the remaining Shares
to such third party on terms no more favourable to the third party than those
offered to the Company.
10. ALTERATION OF SHARES
(a) If the Shares which are the subject of this option are subdivided or
combined into a greater or smaller number of Shares or if the Shares are
exchanged for other securities of the Company or of another company, the
Optionee shall be entitled, subject to the conditions herein stated, to purchase
such number of Shares or amount of other securities of the Company or such other
company as were exchangeable for the number of Shares which the Optionee would
have been entitled to purchase except for such action, and appropriate
adjustments shall be made to the purchase price per Share to reflect such
subdivision, combination or exchange.
(b) In the event of a proposed sale of substantially all of the assets
of the Company, or the merger or consolidation of the Company with another
company, the Board may, in its sole discretion, either declare that any portion
of this option that has not vested shall terminate as of a date to be fixed by
the Board or give the Optionee the right to exercise his option as to all or any
part of the Shares as to which this option has not vested and would not
otherwise be exercisable, or accelerate and reduce the period for the exercise
of that portion of the option that has vested or the vesting date of that
portion of the option that has not vested (provided that the exercise period
shall in no event be reduced to less than 30 days) or make such provision as it
deems appropriate for the continuance of outstanding and unexercised Options
subsequent to such sale, merger or consolidation, including the conversion of
such Options into options for the purchase of shares of a successor company.
<PAGE> 22
- 22 -
11. CONTINUANCE OF EMPLOYMENT
This option shall not be deemed to obligate the Company or any
subsidiary to retain the Optionee as a director, an officer, an employee, an
independent contractor or a consultant for any period.
12. CERTIFICATE SUBJECT TO TERMS OF PLAN
The terms and conditions of this certificate and the agreement
constituted hereby are subject to the provisions of the Plan adopted by the
Company as of July 31, 1992 as amended from time to time, which provisions are
incorporated by reference into this agreement. In the event of an inconsistency
between the provisions of the Plan and this agreement, the provisions of the
Plan shall prevail. The Plan shall be available for review by the Optionee at
its principal office.
IN WITNESS WHEREOF, Pivotal Software Inc. has caused this certificate to
be duly executed. This option is granted on the date first stated above.
PIVOTAL SOFTWARE INC.
By: ____________________________________
Authorized Signatory
<PAGE> 23
- 23 -
RECORD OF PARTIAL EXERCISE
Please do not write in these spaces. Entries will be made by the Company upon
the partial exercise.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Shares
Purchased Under Option Date of Exercise Official Signature
<S> <C> <C>
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 24
FORM OF EXERCISE OF OPTION
(for use by all Optionees other than US Employees)
(for use by US consultants and independent contractors)
Certificate No. _____________________
To: Pivotal Software Inc. ("Pivotal")
The undersigned Optionee hereby exercises his/her right to purchase the
following common Shares of Pivotal in accordance with the terms of the Incentive
Stock Option Certificate issued by Pivotal to the Optionee, and by exercising
this Option the undersigned acknowledges and agrees to be bound by the terms of
the Pivotal Incentive Stock Option Plan.
Name of Optionee:______________________________________________________
Number of Shares for which
this option is exercised: ________________________________________
Exercise price per Share: ________________________________________
Total Exercise Price: ________________________________________
The Option hereby exercised does not constitute an Incentive Stock
Option under the United States Internal Revenue Code.
The Optionee expressly acknowledges that any Shares to be issued and
delivered to the Optionee by Pivotal hereunder are subject to certain
limitations and restrictions on transfer and first refusal rights of purchase in
favour of Pivotal and certain of its shareholders.
The Optionee represents that he/she is purchasing the Shares for which
this Option is exercised for his/her own account and not with a view to or for
sale in connection with any distribution of the Shares.
The Optionee delivers herewith cash or a certified cheque in the amount
of the Total Exercise Price in payment for the Shares for which this option is
exercised.
Dated this _________ day of _______________________, 199__.
________________________________________
Signature of Optionee
<PAGE> 25
FORM OF EXERCISE OF OPTION
(US Employees only - not consultants or independent contractors)
Certificate No. _____________________
To: Pivotal Software Inc. ("Pivotal")
The undersigned Optionee hereby exercises his/her right to purchase the
following common Shares of Pivotal in accordance with the terms of the Incentive
Stock Option Certificate issued by Pivotal to the Optionee, and by exercising
this Option the undersigned acknowledges and agrees to be bound by the terms of
the Pivotal Incentive Stock Option Plan.
Name of Optionee:______________________________________________________
Number of Shares for which
this option is exercised: ________________________________________
Exercise price per Share: ________________________________________
Total Exercise Price: ________________________________________
The Option hereby exercised DOES/DOES NOT (DELETE AS APPLICABLE AND
INITIAL) constitute an Incentive Stock Option under the US Internal Revenue
Code.
The Optionee expressly acknowledges that any Shares to be issued and
delivered to the Optionee by Pivotal hereunder are subject to certain
limitations and restrictions on transfer and first refusal rights of purchase in
favour of Pivotal and certain of its shareholders.
The Optionee represents that he/she is purchasing the Shares for which
this Option is exercised for his/her own account and not with a view to or for
sale in connection with any distribution of the Shares.
The Optionee delivers herewith cash or a certified cheque in the amount
of the Total Exercise Price in payment for the Shares for which this option is
exercised.
Dated this _________ day of _______________________, 199__.
________________________________________
Signature of Optionee
<PAGE> 1
EXHIBIT 10.2
PIVOTAL CORPORATION
INCENTIVE STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF [INSERT CLOSING DATE])
1. PURPOSES
The purposes of this Incentive Stock Option Plan (the "Plan") are to
attract and retain the best available people for positions of substantial
responsibility with Pivotal Corporation (the "Company") and its subsidiaries, to
provide additional incentives to the directors, officers and employees of and
independent contractors and consultants to the Company and its subsidiaries and
to promote the success of the Company's business by providing to such persons
the opportunity to purchase common shares ("Shares") in the Company pursuant to
options granted hereunder ("Options").
2. ADMINISTRATION
a. The Plan shall be administered by the Board of Directors ("Board") or
a committee or committees appointed by, and consisting of two or more members
of, the Board (the Board or a committee thereof administering the Plan is
referred to below as the "Administrator"). If and so long as the Shares are
registered under Section 12(b) or 12(g) of the United States Securities Exchange
Act of 1934, as amended ("Exchange Act"), the Board shall consider in selecting
the Administrator and the membership of any committee acting as Administrator,
with respect to any persons subject or likely to become subject to Section 16 of
the Exchange Act, the provisions regarding (a) "outside directors" as
contemplated by Section 162(m) of the United States Internal Revenue Code of
1986, as amended ("Code") and "nonemployee directors" as contemplated by Rule
16b-3 under the Exchange Act. The Board may delegate the responsibility for
administering the Plan with respect to designated classes of eligible persons to
different committees consisting of two or more members of the Board, subject to
such limitations as the Board deems appropriate. Committee members shall serve
for such term as the Board may determine, subject to removal by the Board at any
time. To the extent consistent with applicable law, the Administrator may
authorize and designate two officers of the Company, acting together, to grant
Options to individuals eligible to receive grants under the Plan, other than
executive officers or directors of the Company, within the limits specifically
prescribed by the Administrator.
b. Subject to the terms of the Plan and, in the case of a committee of
the Board, the specific duties delegated by the Board to such committee, and
subject to the approval of any relevant authorities, including the approval, if
required, of any stock exchange or market upon which the Shares are listed or
quoted, the Administrator shall have the authority, in its discretion:
i. to determine the persons to whom Options may be granted;
ii. to determine the number of Shares covered by each Option;
iii. to determine the exercise price per Share specified in each
Option, based upon the Fair Market Value of the Shares,
determined in accordance with Section 7;
<PAGE> 2
- 2 -
iv. to determine the terms and conditions, not inconsistent with the
terms of the Plan, of Options granted hereunder or any agreement,
undertaking, representation or covenant required to be executed
in connection with or as a condition of the exercise of any
Option;
v. to set the time or times at which Options may be granted;
vi. to approve forms of agreements and instruments under the Plan;
vii. to amend the terms and conditions of the grant of any Option or
Option agreement and accelerate the vesting of Options;
viii. to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option previously
granted by the Administrator;
ix. to construe and interpret the terms of the Plan and Options
granted under the Plan;
x. to prescribe, amend and rescind such rules and regulations
relating to the Plan as it may deem advisable; and
xi. to make all other determinations deemed necessary or advisable
for administering the Plan.
c. The interpretation and construction by the Administrator of any
provisions of the Plan or of any Option granted hereunder shall be conclusive
and binding upon the Company and the persons holdings Options ("Optionees"). No
member of the Administrator shall be liable for any action or determination made
in good faith with respect to the Plan or any Option granted under it.
d. Options granted pursuant to this Plan shall be evidenced by written
stock option agreements or certificates ("Option Certificate"), substantially in
the form attached hereto as Exhibit A, or such other form or forms as the
Administrator may from time to time approve.
3. COMPLIANCE WITH LAWS
Transactions under the Plan are intended to comply with all relevant
provisions of law and the rules and regulations of any stock exchange or market
upon which the Shares may be listed or quoted. To the extent any provision of
the Plan or action by the Administrator fails to so comply, it will be deemed
null and void, to the extent permitted by law and deemed advisable by the
Administrator.
4. ELIGIBLE PERSONS
(a) The Administrator may from time to time authorize the grant of Options
to anyone who is at the time of such authorization:
<PAGE> 3
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(i) an officer or employee (collectively an "Employee") of the
Company or any subsidiary of the Company ("Subsidiary"), meaning
any corporation, partnership, joint venture or other entity in
which the Company owns or controls, directly or indirectly, not
less than 50% of the total combined voting power, and includes a
subsidiary of a subsidiary;
(ii) subject to applicable laws, an independent contractor or other
person providing ongoing consulting services (collectively a
"Consultant") to the Company or a Subsidiary; or
(iii) a member of the Board of the Company or a Subsidiary;
(collectively the "Eligible Persons"). The granting of any Option to an
Eligible Person shall neither entitle him to, nor disqualify him from,
participation in any other grant of Options. Options may be granted to
one or more Eligible Persons without being granted to other Eligible
Persons, as the Administrator may deem fit;
(b) The aggregate number of Shares reserved for issuance upon the exercise
of Options granted to Consultants from time to time shall not exceed 2%
of the issued and outstanding securities of the Company as of the date
of the grant of any Option to a Consultant.
5. STOCK SUBJECT TO PLAN
a. Subject to the provisions of Section 11 of the Plan, the maximum
aggregate number of Shares which may be optioned by the Company and purchased by
Eligible Persons under the Plan is 5,076,186 Shares, plus an annual increase to
be added on the first day of the Company's fiscal year beginning in 2001 and on
the first day of each fiscal year thereafter equal to the lesser of (i) 800,000
shares or (ii) 4% of the average number of outstanding Shares used to calculate
fully diluted earnings per share as reported in the Company's annual report to
shareholders for the preceding year.
The Shares may be authorized but unissued or reacquired Shares, or may
be Shares which have been allotted to a trustee for purposes of issuance under
the Plan. If an Option expires or becomes unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, return to the Plan and become
available for other Options under the Plan.
b. If the Company purchases Shares from an Eligible Person pursuant to
the terms of a right of purchase or first refusal as hereinafter described, such
repurchased Shares shall be at the Company's discretion either retained or
cancelled by the Company, and, in the event they are retained by the Company,
may become available for other Options under the Plan.
6. OPTION TERM
<PAGE> 4
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The Shares subject to each Option shall vest and the Option shall become
exercisable at the time or times as provided in the Option Certificate. Each
Option shall not be exercisable after the expiration of ten years from the date
granted, subject to earlier termination as provided in Section 9, and may expire
on such earlier date or dates as may be fixed by the Administrator. Any Shares
not purchased prior to expiration of an Option granted hereunder may thereafter
be reallocated and become subject to Options granted in favour of Eligible
Persons in accordance with the provisions of the Plan.
7. OPTION EXERCISE PRICE
(a) In this section and in this Plan "Fair Market Value" means:
i. if the Shares are listed on a stock exchange or a national market
system, the closing price per Share on the exchange or system as
of the last market trading day prior to the time of
determination, or if no Shares have been traded on such day, then
as of the last previous day for which a trade was reported by
such stock exchange or system;
ii. if the Shares are regularly quoted by a recognized securities
dealer but selling prices are not reported, the average between
the high bid and low asked prices for the Shares on the last
market trading day prior to the date of determination; or,
iii. in the absence of an established market for the Shares, the Fair
Market Value thereof shall be determined in good faith by the
Administrator.
(b) The per share Option exercise price for the Shares to be issued upon
exercise of an Option shall be determined by the Administrator; provided,
however, that such price shall in no event be less than the Fair Market Value
per Share less, in the case of an Option which is not an Incentive Stock Option
as defined in the Code, any discount permitted by law and by the regulations,
rules and policies of the securities authorities and stock exchange or market
having jurisdiction over the affairs of the Company; except that the exercise
price shall be 110% of the Fair Market Value per Share in the case of an Option
granted to any person who, at the time the Option is granted, owns shares
possessing more than 10% of the total combined voting power of all classes of
shares of the Company or a Subsidiary.
8. EXERCISE OF OPTION
a. Subject to the provisions of Section 9 and unless otherwise provided
by the Administrator, each Option granted under the Plan shall be exercisable
only with respect to the portion thereof that is vested in the Optionee to whom
the Option is granted. Unless otherwise provided by the Administrator the right
to exercise any Option shall become vested in increments over a term of four
years, calculated from the date of granting any such Option, according to the
following schedule and subject to the provisions of section 9:
<PAGE> 5
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i. in the case of Options granted to an Optionee that has not
previously been granted an Option under the Plan:
<TABLE>
<CAPTION>
Percentage of Option Shares with
Vesting Date (calculated from Date Respect to which Optionee has a
Option Granted) Vested Right to Exercise
---------------------------------- --------------------------------
<S> <C>
First Anniversary 25%
The end of each 6 months following 12 1/2%
the First Anniversary
</TABLE>
(ii) in the case of Options granted to an Optionee that has
previously been granted an Option under the Plan, the
Option shall be exercisable as to 12 1/2% at the end of
each 6 month period calculated from the date the Option is
granted.
b. Any Option may be exercised in accordance with the provisions of this
Plan as to all or any portion of the Shares then exercisable and vested under an
Option, from time to time during the term of the Option. An Option may not be
exercised for a fraction of a share. The exercise at any time or times of a part
of an Option will not exhaust or terminate the Option as to the balance
unexercised; however, any Option not fully exercised within the times set out to
exercise shall automatically expire.
c. An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company at its principal business office in
accordance with the terms of the Option by the Optionee and full payment for the
Shares with respect to which the Option is exercised and an amount necessary to
satisfy any applicable withholding taxes has been received by the Company,
accompanied by the executed Option Certificate, or other agreement, undertaking,
covenant or representation required by the terms of this Plan or the Option
granted hereunder. Until the Option is properly exercised hereunder and the
Company receives full payment for the Shares with respect to which the Option is
exercised, no right to receive dividends or any other rights as a shareholder
shall exist with respect to the Shares issuable upon exercise of Options. No
adjustment will be made for a dividend or other rights for which the record date
is prior to the date the Option is properly exercised and payment in full is
received except as provided in Section 12.
d. All Shares purchased on the exercise of Options and any applicable
withholding taxes shall be paid for in full by certified cheque or cash, or such
other consideration having equivalent value at the time of purchase as the
Administrator may determine.
e. As soon as practicable after any proper exercise of an Option in
accordance with the provisions of this Plan and payment in full for the Shares
with respect to which the Option is exercised, the Company shall deliver or
cause to be delivered to the person that exercised the Option, at the principal
business office of the Company or at such other place as shall be mutually
acceptable, a certificate or certificates representing the Shares as to which
the Option has been
<PAGE> 6
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exercised together with the Option Certificate, endorsed or
caused to be endorsed by the Company recording the exercise of the Option. The
time of issuance and delivery of the certificates representing the Shares may be
postponed by the Company for such period as may be required for it to comply
with any law or regulation applicable to the issuance and delivery of such
Shares.
f. Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
9. TERMINATION OF SERVICE, DEATH OR DISABILITY
a. If an Optionee ceases to be continuously engaged by the Company or
any of its Subsidiaries or a Controlled Entity within the meaning under the Code
in the capacity as a director, an officer, an employee, an independent
contractor or a consultant for any reason other than death or permanent and
total disability, no further instalments of his Options that have not vested as
of the date of such termination shall become exercisable. The Optionee shall be
entitled to exercise his Option only to the extent that he was entitled to
exercise it immediately prior to the date of such termination and his right to
exercise such Option shall terminate after the passage of thirty (30) days from
the date of termination or the date of commencement of leave which has not been
approved by the Company under Section 9(c) but in no event later than on the
Option's specified expiration date. To the extent that the Optionee was not
entitled to exercise the Option at the date of such termination, or if he does
not exercise an Option (which he was entitled to exercise) within the time
specified herein, the Option shall terminate. If the Optionee ceases to be
employed, engaged or retained by the Company, a Subsidiary or a Controlled
Entity for cause or if any Optionee is removed from office as a director or
becomes disqualified from being a director by law, any Option or the unexercised
portion thereof granted to such Optionee shall terminate at the time of
termination, removal or disqualification.
b. If an Optionee ceases to serve as a director, an officer or an
employee of or an independent contractor or a consultant to the Company or any
of its Subsidiaries or Controlled Entities due to death or permanent and total
disability, thereby resulting in the termination of his continuous engagement,
the Option may be exercised, to the extent the individual was entitled to
exercise the Option at the date of his termination of such service by death or
disability, but only within twelve (12) months following the date of death or
termination of such service due to disability (subject to and in no event later
than the Option's specified expiration date), by the individual or his personal
representative in the case of disability, or in the case of death by the
individual's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance or the laws of descent and distribution.
c. For the purpose of the Plan, "continuously engaged" or "continuous
engagement" in the case of a director, an officer or an employee shall mean the
absence of any interruption or termination of employment or service as a
director, an officer or an employee of the Company or any of its Subsidiaries,
and in the case of an independent contractor or consultant shall mean the
absence of any interruption or termination in the retainer or engagement other
than as a result of termination by effluxion of time or as a result of other
termination on terms agreed to between the independent
<PAGE> 7
- 7 -
contractor or consultant and the Board. Continuous engagement shall not be
considered interrupted in the case of sick leave in excess of the Company's
stated policy on paid sick leave communicated to the Optionee and approved by
the Board, maternity or parental leave in excess of statutory entitlement
approved by the Board or any other leave of absence approved by the Board or in
the case of transfers between locations of the Company or in the case of any
change in the nature of service rendered to the Company, any of its Subsidiaries
or Controlled Entities. An Optionee while on any such leave or other leave of
absence approved by the Board shall be entitled to exercise any Options granted
to him under the Plan in respect of and only to the extent that he was entitled
to exercise such Options prior to any such leave and the vesting period shall be
suspended during the period of such leave and shall be extended and the vesting
date for the exercise of any Options shall be delayed by the length of such
leave.
10. TRANSFER RESTRICTIONS
a. Options shall not be sold, transferred, assigned, encumbered or
otherwise disposed of except by will or the laws of intestate succession,
descent and distribution and, except as otherwise provided in Section 9, may be
exercised only by the Optionee.
b. i. In connection with any underwritten public offering by the
Company of its Shares, including the Company's initial
public offering, no person shall sell, make any short sale
of, loan, hypothecate, pledge, grant any option for the
purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing
transactions with respect to, any Shares acquired upon
exercise of an Option or any right to acquire any Shares
issued under the Plan, without the prior written consent
of the Company or its underwriters. Such limitations shall
be in effect for such period of time from and after the
effective date of such offering as may be requested by the
Company or such underwriters provided, however, that in no
event shall such period exceed one hundred eighty (180)
days. The limitations of this Section 10(b) shall remain
in effect for the two-year period immediately following
the effective date of the Company's initial public
offering and shall thereafter terminate and cease to have
any force or effect.
ii. Employees of and independent contractors or consultants to
the Company or any of its Subsidiaries shall be subject to
the market stand-off provisions of this Section 10(b)
provided and only if the officers and directors of the
Company are also subject to similar arrangements.
iii. In the event of any stock dividend, stock split,
recapitalization or other change affecting the Company's
outstanding Shares effected as a class without receipt of
consideration, then any new, substituted or additional
securities distributed with respect to the Shares shall be
immediately subject to the provisions of this Section
10(b), to the same extent the Shares are at such time
covered by such provisions.
<PAGE> 8
- 8 -
11. ALTERATION OF CAPITAL
a. In the event of any increase or decrease in the number of issued
Shares resulting from a share split, share consolidation or share dividend or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company, then the maximum number of Shares
subject to the Plan as set forth in Section 5(a) and the number of Shares
covered by each outstanding Option as well as the price per Share covered by
each outstanding Option shall be proportionately adjusted by the Administrator,
whose determination in that respect shall be final, conclusive and binding. The
conversion of any convertible securities of the Company shall not be deemed to
have been effected without receipt of consideration.
b. In the event of a proposed sale of substantially all of the assets of
the Company, or the merger, amalgamation, arrangement or consolidation of the
Company with or into another company, the Administrator may, if it so determines
in the exercise of its sole discretion, either declare that any portion of an
Option that has not vested shall terminate as of a date to be fixed by the
Administrator or give the Optionee the right to exercise his Option as to all or
any part of such Shares as to which the Option has not vested and would not
otherwise be exercisable, or accelerate and reduce the period for the exercise
of those portions of Options that have vested or the vesting date of those
portions of Options that have not vested (provided that the exercise period
shall in no event be reduced to less than 30 days and provided that the
acceleration of vesting or vesting dates shall not occur if, in the opinion of
the Company's outside accountants, it would render unavailable "pooling of
interest" accounting for a transaction that would otherwise qualify for such
accounting treatment) or make such provision as it deems appropriate for the
continuance of outstanding and unexercised Options subsequent to such sale,
merger, amalgamation, arrangement or consolidation, including the assumption of
such Options or substitution of equivalent options by a successor company.
c. No fractional shares shall be issuable on account of any action
aforesaid, and the aggregate number of shares into which Shares then covered by
the Option, when changed as a result of such action, available to be issued,
shall be reduced to the largest number of whole shares resulting from such
action.
12. DIVIDENDS AND DISTRIBUTIONS
If the Company shall at any time during the period in which Options may
be exercised under the Plan pay any dividend, or make any other distribution,
payable in shares of the Company, the Optionee shall be entitled to receive upon
any exercise thereafter of an Option granted under the Plan (in addition to the
number of shares which the Optionee would have been entitled to receive on
exercise of the Option if such dividend or distribution of shares had not been
paid) such additional number of fully paid and non-assessable shares of the
appropriate class as would have been payable on the Shares which would have been
issuable on the exercise of an Option if they had been outstanding on the record
date for the payment of such dividend or distribution, and in the event of the
payment of any dividend or distribution payable in any shares of the Company as
aforesaid the Company will reserve and set aside a sufficient number of shares
in which any such dividend or distribution shall be payable to enable it to
fulfil its obligations hereunder.
<PAGE> 9
- 9 -
13. CONDITIONS UPON ISSUANCE OF SHARES
a. Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of the Option and the issuance and delivery of Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the United States Securities Act of 1933, as amended, the
Exchange Act, the Securities Act (British Columbia) and other applicable
provincial securities laws, the rules and regulations promulgated thereunder,
and the requirements of any stock exchange or market upon which the Shares may
then be listed or quoted, and shall be further subject to the approval of
counsel for the Company with respect to such compliance. Without limiting the
foregoing, the Company's obligation to issue Shares upon the exercise of an
Option shall in any case be subject to the Company being satisfied that the
Shares purchased are being purchased for investment purposes and not for the
purpose or with the intention to sell or distribute such Shares, if at the time
of such exercise a sale or distribution of such Shares would otherwise violate
any applicable laws.
b. As a condition to the exercise of an Option, the Administrator may
require the Optionee to execute such agreements or undertakings, and to make any
representation or warranty to the Company as may in the judgment of counsel for
the Company be required under applicable laws or regulation, including but not
limited to a representation and warranty that the Shares are being purchased
only for investment purposes and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is appropriate under any applicable laws.
14. ADDITIONAL PROVISIONS CONCERNING U.S. OPTIONEES
a. Options granted to an Employee (which term includes, without
limitation, an officer or director who is also an Employee) who is a United
States citizen or resident within the meaning of the Code (such Employee
referred to in this Section as a "U.S. Employee") will generally be Incentive
Stock Options as that term is defined in the Code, provided however, that the
Administrator may, at its discretion, at the time of the grant of the Options,
make a determination as to whether the Options will be deemed Incentive Stock
Options or Non-Qualified Stock Options within the meaning of the Code.
Notwithstanding the foregoing, an Option that is an Incentive Stock Option shall
not be granted to an Employee of a Subsidiary unless such Subsidiary is also a
"subsidiary corporation" of the Company within the meaning of Section 424(f) of
the Code or any successor provision.
b. The maximum aggregate number of Shares which may be subject to
Options that are Incentive Stock Options under the Plan is 5,076,186 Shares,
subject to adjustment as provided in Section 11 and subject to the provisions of
Section 422 or 424 of the Code or any successor provision.
c. Options granted to an Optionee who is a United States citizen or
resident within the meaning of the Code who is not an Employee will not be
Incentive Stock Options, and any written agreement with such an Optionee for a
grant of Options under the Plan will state that the Options granted thereunder
are Non-Qualified Stock Options for U.S. income tax purposes.
<PAGE> 10
- 10 -
d. In addition to the terms and conditions of Options granted under the
Plan referred to in the preceding Sections, Options granted to a U.S. Employee
that are granted by the Administrator as Incentive Stock Options will be subject
to the following terms and conditions:
(i) Options will be designated in the written Option agreement
between the U.S. Employee and the Company as Incentive Stock
Options;
(ii) if the U.S. Employee is directly or indirectly the beneficial
owner of 10% or more of the combined voting power of all classes
of shares in the capital of the Company or a Subsidiary at the
time an Option is granted to the U.S. Employee, the exercise
price of such Option will be equal to at least 110% of the Fair
Market Value of the Shares, determined in accordance with Section
7, and the term of the Option shall be five years from the date
of grant thereof or such shorter term as may be provided in the
Option Certificate;
(iii) Options may not be transferred, assigned or pledged in any manner
other than by will or applicable laws of descent and distribution
and shall be exercisable during the Optionee's lifetime only by
the Optionee; and
(iv) no Options may be granted after the date immediately preceding
the tenth anniversary of the earlier of the date this Plan was
adopted or was approved by the Company's shareholders, except
that if an amendment and restatement of this Plan has
subsequently been approved by the Company's shareholders, no
Options may be granted after the date immediately preceding the
tenth anniversary of the date of such subsequent approval.
e. If a U.S. Employee is granted Options under the Plan, the written
Option agreement with the U.S. Employee will contain acknowledgments by the U.S.
Employee that:
(i) notwithstanding a designation of Options granted to a U.S.
Employee as Incentive Stock Options, to the extent that the
aggregate Fair Market Value, determined as of the date such
Options were granted, of the Shares issuable on exercise of
Options which are exercisable for the first time by any U.S.
Employee during any calendar year exceeds US$100,000, such excess
Options shall not be treated as Incentive Stock Options; and
(ii) in order for Options granted under the Plan to be treated as
Incentive Stock Options:
A. Shares purchased on the exercise of an Option must not be
sold or otherwise disposed of within 2 years from the date
the Option was granted, or within 1 year from the date the
Option was exercised; and
B. the U.S. Employee must maintain his status as a U.S.
Employee at all times during the period beginning on the
date the Option is granted and ending 30 days before the
date an Option is exercised.
<PAGE> 11
- 11 -
f. The acknowledgement of the U.S. Employee in (e)(ii)B above does not
confer upon the U.S. Employee any right with respect to continuation of his
employment relationship with the Company, nor will it interfere in any way with
the Company's right to terminate his employment relationship at any time, with
or without cause.
g. Unless and until Shares issuable upon the exercise of Options are
registered under the United States Securities Act of 1933, Shares issued under
this Plan to an Optionee who is a resident of the United States of America will
contain the following legend, as amended or supplemented by applicable laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES AND MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED OR
ASSIGNED EXCEPT (A) TO THE COMPANY, (B) OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, IF AVAILABLE, OR
(C) INSIDE THE UNITED STATES (1) PURSUANT TO THE EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER,
IF AVAILABLE, AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR
(2) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE
SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, AND, IN
CONNECTION WITH ANY TRANSFERS PURSUANT TO (C)(1) OR (C)(2) ABOVE, THE
SELLER HAS FURNISHED TO THE COMPANY AN OPINION OF COUNSEL OF RECOGNIZED
STANDING, REASONABLY SATISFACTORY TO THE COMPANY, TO THAT EFFECT.
15. TAX CONSEQUENCES OF PLAN
Notwithstanding Section 14, the Company does not assume responsibility
for the income or other tax consequences for Optionees or Eligible Persons under
the Plan and they are advised to consult with their own tax advisors.
16. AMENDMENT AND TERMINATION OF PLAN
a. The Board may at any time amend, alter, suspend, discontinue or
terminate the Plan. To the extent necessary and desirable to comply with Rule
16b-3 under the Exchange Act or with Section 422 of the Code (or any other
applicable law, rule or regulation, including the requirements of any exchange
or market system on which the Shares are listed or quoted), the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such a
degree as required by the applicable law, rule or regulation.
<PAGE> 12
- 12 -
b. Without the written consent of the Optionee, and except as otherwise
permitted herein, any such amendment, alteration, suspension, discontinuance or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended, altered, suspended, discontinued or terminated.
17. RESERVATION OF SHARES
a. The Company, during the term of this Plan, shall at all times reserve
and keep available, and if necessary shall allot to a trustee for the benefit of
the Eligible Persons and to facilitate the granting of Options hereunder, the
number of Shares as shall be sufficient to satisfy the requirements of the Plan.
b. The Company will, if necessary, use its best efforts to seek and to
obtain from appropriate regulatory authorities any requisite authorization in
order to issue and sell such number of Shares as shall be sufficient to satisfy
the requirements of the Plan. The inability of the Company to obtain the
requisite authorization from any regulatory agency having jurisdiction deemed by
the Company's counsel to be necessary to the lawful issuance and sale of any
Shares hereunder or the inability of the Company to confirm to its satisfaction
that any issuance and sale of any Shares hereunder will meet applicable legal
requirements, shall relieve the Company of any liability in respect to the
non-issuance or sale of such Shares as to which such requisite authority shall
not have been obtained.
18. NOTICES
Any notice to be given to the Company pursuant to the provisions of this
Plan shall be addressed to the Company in care of its secretary at its principal
business office in North Vancouver, British Columbia, and any notice to be given
to an Optionee shall be delivered personally or addressed to him at the address
given beneath his signature on his Option Certificate, or at such other address
as such Optionee may hereafter designate in writing to the Company. Any such
notice shall be deemed duly given when made in writing and delivered to the
Company or the Optionee, as the case may be, or if mailed, then on the third
business day following the date of mailing such notice in a properly sealed
envelope addressed as aforesaid, registered or certified mail, postage prepaid,
in a post office or post office branch maintained in Canada or the United States
of America.
19. NO ENLARGEMENT OF RIGHTS
a. This Plan is purely voluntary on the part of the Company, and the
continuance of the Plan shall not be deemed to constitute a contract between the
Company and any Eligible Person, or to be consideration for or a condition of
the acting by an individual as a director, an officer or an employee of or an
independent contractor or a consultant to the Company or any of its
Subsidiaries. Nothing contained in this Plan shall be deemed to give any
director, officer or
<PAGE> 13
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employee the right to be retained in such capacity with the Company of any
Subsidiary or successor company, or to interfere with the right of the Company
or any such company or its shareholders to discharge or retire any director,
officer or employee thereof at any time. No Eligible Person shall have any right
to or interest in Options authorized hereunder prior to the grant of such Option
to such Eligible Person, and upon such grant, he shall have only such rights and
interests as are expressly provided herein, subject however, to all applicable
provisions of the Company's memorandum and articles as the same may be amended
from time to time.
b. Nothing herein contained or done pursuant hereto shall obligate an
Optionee to purchase and/or pay for any Shares, except those Shares in respect
of which the Optionee shall have exercised his Option to purchase hereunder in a
manner hereinbefore provided.
20. FINANCIAL STATEMENTS
The Company shall provide to each Optionee at least annually a copy of
the financial statement for the Company for its last completed financial year in
the form and containing the information required under the British Columbia
Company Act.
21. MISCELLANEOUS
a. The validity and construction of the Plan shall be governed by and
construed exclusively in accordance with the laws of the Province of British
Columbia.
b. In this Plan, unless the context otherwise requires, words importing
the singular include the plural and vice versa and words importing gender
include all genders.
22. ADOPTION OF PLAN AND TERMINATION
This Plan was adopted by the Company and approved by the directors of
the Company as of the 31st day of July, 1992 and shall terminate fourteen years
thereafter.
<PAGE> 14
EXHIBIT A
PIVOTAL CORPORATION
INCENTIVE STOCK OPTION CERTIFICATE
___________________________________ Certificate
Name of Option Holder No.___________________________
___________________________________ Date:_________________________
Number of Shares
___________________________________
Exercise Price Per Share
___________________________________
Expiry Date
INCENTIVE STOCK OPTION granted by Pivotal Corporation (the "Company") to the
above-named option holder (the "Optionee"), pursuant to the Company's Incentive
Stock Option Plan (the "Plan"), the terms of which are incorporated herein by
reference and which, in the event of any conflict, shall control over the terms
contained herein.
1. GRANT AND VESTING OF OPTION
Subject to the vesting schedule below, the Company hereby grants to the
Optionee an option to purchase on the terms herein provided a total of the
number of voting common Shares of the Company set forth above, at an exercise
price per Share as set forth above.
This option may be exercised only with respect to the portion thereof
that is vested in the Optionee. The Optionee's rights to exercise this option
shall become vested in increments over a term of four years, calculated from the
date of the granting of this option according to the following schedule:
i. The following Schedule shall apply if this Certificate relates to
the first grant of an option to the Optionee:
<TABLE>
<CAPTION>
Percentage of Option Shares with
Vesting Date (calculated from Date Respect to which Optionee has a
Option Granted) Vested Right to Exercise
---------------------------------- --------------------------------
<S> <C>
First Anniversary 25%
The end of each 6 months following 12 1/2%
the First Anniversary
</TABLE>
<PAGE> 15
- 2 -
ii. If this Certificate relates to an Optionee that has previously
been granted an option under the Plan, then the option hereunder
shall be exercisable as to 12 1/2% at the end of each 6 month
period calculated from the date the Option is granted.
In the case of the first grant of an option to an Optionee, vesting
rights shall be calculated only in terms of a full year, in the case of the
first vesting, and thereafter semi-annually (i.e., from one semi-annual date to
the next). In the case of a subsequent grant of an option to an Optionee,
vesting rights shall be calculated semi-annually. No partial vesting credit
shall be given for partial periods.
This option shall expire and shall not be exercisable after the expiry
date set forth above ("Expiry Date").
2. EXERCISE OF OPTION
Each election to exercise this option shall be in writing in the form
attached hereto, signed by the Optionee or by the person authorized to exercise
this option under paragraph 5 hereof or otherwise permitted under the Plan, and
delivered to the secretary of the Company at its principal office accompanied by
this certificate.
In the event an option is exercised by the executor or administrator of
a deceased Optionee, or by the person or persons to whom the option has been
transferred by the Optionee's will or the applicable laws of descent and
distribution, the Company shall be under no obligation to deliver Shares
thereunder unless and until the Company is satisfied that the person or persons
exercising the option is or are the duly appointed executor or administrator of
the deceased Optionee or the person to whom the option has been transferred by
the Optionee's will or by the applicable laws of descent and distribution.
3. PAYMENT FOR AND DELIVERY OF SHARES
Payment in full by cash or a certified bank cheque shall be made for all
Shares for which this option is exercised and any applicable withholding taxes
at the time of such exercise, and no Shares shall be delivered until such
payment is made.
4. CONDITIONS UPON ISSUANCE OF SHARES
This option may not be exercised in whole or in part unless the exercise
of the option and the issuance and delivery of Shares pursuant to it complies
with all relevant provisions of law, including, without limitation, the United
States Securities Act of 1933, as amended, the United States Securities Exchange
Act of 1934, as amended, the Securities Act (British Columbia) and other
applicable provincial securities laws, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange or market upon which the
Shares may then be listed or quoted, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. Without
limiting the foregoing, the Company's obligation to issue Shares upon the
exercise of this option shall in any case be subject to the Company being
satisfied that the Shares purchased are being purchased for investment purposes
and not for the purpose or with the intention
<PAGE> 16
- 3 -
to sell or distribute such Shares, if at the time of such exercise a sale or
distribution of such Shares would otherwise violate any applicable law.
The Optionee shall have no rights of a shareholder of the Company
until the Shares are actually delivered to him.
5. OPTION NOT TRANSFERABLE
Subject to the provisions of the Plan, this option may not be
transferred by the Optionee otherwise than by will or the laws of descent and
distribution and during the Optionee's lifetime this option may be exercised
only by him.
6. TERMINATION OF SERVICE
If the Optionee ceases to be continuously engaged by the Company or any
of its Subsidiaries in the capacity as a director, an officer, an employee, an
independent contractor or a consultant for any reason other than death or
permanent and total disability, the Optionee may exercise this option not later
than 30 days after the date of such cessation but only to the extent to which he
was entitled immediately prior to such cessation. To the extent that the
Optionee was not entitled to exercise this option immediately prior to such
cessation, or if the Optionee does not exercise this option within 30 days of
the date of such cessation, this option shall terminate. If the Optionee ceases
to be employed, engaged or retained by the Company or any of its Subsidiaries
for cause or if the Optionee is removed from office as a director or becomes
disqualified from being a director by law, this option shall terminate
forthwith. Nothing herein shall be construed as extending the exercisability of
this option past its Expiry Date.
7. DISABILITY
In the event of the Optionee ceasing to be a director or officer of the
Company or any of its Subsidiaries or in the event of termination of employment
or termination of the independent contract or consulting agreement of the
Optionee, because of permanent and total disability, this option shall terminate
one year after such termination and the Optionee may exercise this option prior
to such time but only to the extent to which he was entitled immediately prior
to such termination because of disability. Nothing herein shall be construed as
extending the exercisability of this option past its Expiry Date.
8. DEATH
In the event of death of the Optionee while a director, an officer or an
employee of or an independent contractor or consultant to the Company or any of
its Subsidiaries, this option shall be exercisable within one (1) year after his
death, provided the option does not expire by its terms prior to that date, by
the executor, administrator or other legal representative of the estate of the
deceased Optionee or the person or persons to whom the deceased Optionee's
rights under the option shall pass by will or the laws of descent and
distribution but only to the extent the deceased Optionee was
<PAGE> 17
- 4 -
entitled to exercise this option immediately prior to his death. Nothing herein
shall be construed as extending the exercisability of this option past its
Expiry Date.
9. ALTERATION OF SHARES
a. In the event of any increase or decrease in the number of issued
Shares resulting from a share split, share consolidation or share dividend or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company, then the number of Shares covered by
this option as well as the purchase price per Share shall be proportionately
adjusted by the Administrator, whose determination in that respect shall be
final, conclusive and binding. The conversion of any convertible securities of
the Company shall not be deemed to have been effected without receipt of
consideration.
b. In the event of a proposed sale of substantially all of the assets of
the Company, or the merger, amalgamation, arrangement or consolidation of the
Company with or into another company, the Administrator may, if it so determines
in the exercise of its sole discretion, either declare that any portion of this
option that has not vested shall terminate as of a date to be fixed by the
Administrator or give the Optionee the right to exercise this option as to all
or any part of such Shares as to which this option has not vested and would not
otherwise be exercisable, or accelerate and reduce the period for the exercise
of those portions of this option that have vested or the vesting date of those
portions of this option that have not vested (provided that the exercise period
shall in no event be reduced to less than 30 days) or make such provision as it
deems appropriate for the continuance of this option if unexercised subsequent
to such sale, merger, amalgamation, arrangement or consolidation, including the
assumption of this option or substitution of equivalent options by a successor
company.
10. CONTINUANCE OF EMPLOYMENT
This option shall not be deemed to obligate the Company or any
subsidiary to retain the Optionee as a director, an officer, an employee, an
independent contractor or a consultant for any period.
11. CERTIFICATE SUBJECT TO TERMS OF PLAN
The terms and conditions of this certificate and the agreement
constituted hereby are subject to the provisions of the Plan adopted by the
Company as of July 31, 1992 as amended from time to time, which provisions are
incorporated by reference into this agreement. In the event of an inconsistency
between the provisions of the Plan and this agreement, the provisions of the
Plan shall prevail. The Plan shall be available for review by the Optionee at
its principal office.
<PAGE> 18
- 5 -
IN WITNESS WHEREOF, Pivotal Corporation has caused this certificate to
be duly executed. This option is granted on the date first stated above.
PIVOTAL CORPORATION
By:________________________________
Authorized Signatory
<PAGE> 19
- 6 -
RECORD OF PARTIAL EXERCISE
Please do not write in these spaces. Entries will be made by the Company upon
the partial exercise.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Number of Shares
Purchased Under Option Date of Exercise Official Signature
<S> <C> <C>
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
FORM OF EXERCISE OF OPTION
(for use by all Optionees other than US Employees)
(for use by US consultants and independent contractors)
Certificate No. _____________________
To: Pivotal Corporation ("Pivotal")
The undersigned Optionee hereby exercises his/her right to purchase the
following common Shares of Pivotal in accordance with the terms of the Incentive
Stock Option Certificate issued by Pivotal to the Optionee, and by exercising
this Option the undersigned acknowledges and agrees to be bound by the terms of
the Pivotal Incentive Stock Option Plan.
Name of Optionee: _____________________________________________________
Number of Shares for which
this option is exercised: ___________________________________
Exercise price per Share: ___________________________________
Total Exercise Price: ___________________________________
The Option hereby exercised does not constitute an Incentive Stock
Option under the United States Internal Revenue Code.
The Optionee expressly acknowledges that any Shares to be issued and
delivered to the Optionee by Pivotal hereunder are subject to certain
limitations and restrictions on transfer and first refusal rights of purchase in
favour of Pivotal and certain of its shareholders.
The Optionee represents that he/she is purchasing the Shares for which
this Option is exercised for his/her own account and not with a view to or for
sale in connection with any distribution of the Shares.
The Optionee delivers herewith cash or a certified cheque in the amount
of the Total Exercise Price in payment for the Shares for which this option is
exercised.
Dated this _________ day of _______________________, _____.
___________________________________
Signature of Optionee
<PAGE> 21
FORM OF EXERCISE OF OPTION
(US Employees only - not consultants or independent contractors)
Certificate No. _____________________
To: Pivotal Corporation ("Pivotal")
The undersigned Optionee hereby exercises his/her right to purchase the
following common Shares of Pivotal in accordance with the terms of the Incentive
Stock Option Certificate issued by Pivotal to the Optionee, and by exercising
this Option the undersigned acknowledges and agrees to be bound by the terms of
the Pivotal Incentive Stock Option Plan.
Name of Optionee: _____________________________________________________
Number of Shares for which
this option is exercised: ___________________________________
Exercise price per Share: ___________________________________
Total Exercise Price: ___________________________________
The Option hereby exercised DOES/DOES NOT (DELETE AS APPLICABLE AND
INITIAL) constitute an Incentive Stock Option under the US Internal Revenue
Code.
The Optionee expressly acknowledges that any Shares to be issued and
delivered to the Optionee by Pivotal hereunder are subject to certain
limitations and restrictions on transfer and first refusal rights of purchase in
favour of Pivotal and certain of its shareholders.
The Optionee represents that he/she is purchasing the Shares for which
this Option is exercised for his/her own account and not with a view to or for
sale in connection with any distribution of the Shares.
The Optionee delivers herewith cash or a certified cheque in the amount
of the Total Exercise Price in payment for the Shares for which this option is
exercised.
Dated this _________ day of _______________________, ______.
___________________________________
Signature of Optionee
<PAGE> 1
EXHIBIT 10.4
LEASE AGREEMENT
LANDLORD : 354875 B.C. LTD.
Sodican (B.C.) Inc.
TENANT : Pivotal Software Inc.
LEASE COMMENCEMENT: October 01, 1997
LEASE EXPIRES : September 30, 2002
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - DEFINITIONS
1.01 Additional Rent..... .................................................2
1.02 Additional Services...................................................2
2.03 Base Rent.............................................................2
1.04 Building..............................................................2
1.05 Capital Tax...........................................................3
1.06 Common Areas..........................................................3
1.07 Cost of Additional Services...........................................3
1.08 Commencement Date.....................................................4
1.09 Insured Damage........................................................4
1.10 Land..................................................................4
1.11 Landlord's Architect..................................................4
1.12 Lease.................................................................4
1.13 Leasehold Improvements................................................4
1.14 Normal Business Hours.................................................5
1.15 operating Costs.......................................................5
1.16 Permitted Use.........................................................7
1.17 Premises..............................................................7
1.18 Prime Rate............................................................7
1.19 Property..............................................................7
1.20 Proportionate Share...................................................7
1.21 Rent..................................................................7
1.22 Rentable Area.........................................................8
1.23 Service Areas.........................................................8
1.24 Sales Tax.............................................................8
1.25 Taxes.................................................................8
1.26 Term..................................................................9
ARTICLE 2 - PREMISES AND INTENT
2.01 Premises..............................................................9
2.02 Intent...............................................................10
ARTICLE 3 - TERM
3.01 Term.................................................................10
3.02 Renewal Option.......................................................10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 4 - RENT
4.01 Base Rent............................................................11
4.02 Additional Rent......................................................11
4.03 Estimate of Additional Rent..........................................12
4.04 Adjustment for Additional Rent.......................................12
4.05 Direct Assessment....................................................12
4.06 Landlord Tax Obligation..............................................13
4.07 Amounts Past Due.....................................................13
4.08 Value-Added Tax......................................................13
4.09 Waiver of Offset.....................................................14
4.10 Receipts, Etc........................................................14
4.11 Allocation of Taxes..................................................14
4.12 Parking..............................................................14
4.13 Deposit..............................................................15
ARTICLE 5 - TENANT'S COVENANTS
5.01 Occupancy............................................................15
5.02 Rent.................................................................15
5.03 Permitted Use........................................................15
5.04 Work and Nuisance....................................................16
5.05 Floor Loads..........................................................16
5.06 Insurance Risks......................................................16
5.07 Noxious Fumes, Odours and Environmental Matters......................17
5.08 Condition............................................................18
5.09 By-Laws..............................................................18
5.10 Rules and Regulations................................................18
5.11 Surrender, Overholding...............................................19
5.12 Signs and Directory..................................................19
5.13 Inspection and Access................................................20
5.14 Exhibiting Premises..................................................20
5.15 Name of Building.....................................................20
5.16 Acceptance of Premises...............................................21
5.17 Fire Exit Doors......................................................21
ARTICLE 6 - LANDLORD'S COVENANTS
6.01 Quiet Enjoyment......................................................21
6.02 Interior Climate Control.............................................21
6.03 Elevators............................................................22
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
6.04 Entrances, Lobbies...................................................23
6.05 Washrooms............................................................23
6.06 Janitor Services.....................................................23
ARTICLE 7 - UTILITIES AND ADDITIONAL SERVICES
7.01 Washrooms............................................................24
7.02 Utilities............................................................24
7.03 Electricity..........................................................24
7.04 Excess Use...........................................................25
7.05 Lamps................................................................25
7.06 Additional Services..................................................25
7.07 Extra Operating Costs................................................26
7.08 Energy Conservation..................................................26
7.09 Alterations..........................................................27
ARTICLE 8 - REPAIR, DAMAGE AND DESTRUCTION
8.01 Landlord's Repairs...................................................27
8.02 Tenant's Repairs.....................................................27
8.03 Abatement and Termination............................................28
ARTICLE 9 - LICENSES, ASSIGNMENTS AND SUBLETTINGS
9.01 Licenses.............................................................31
9.02 Assignments and Sublettings..........................................31
ARTICLE 10 - FIXTURES AND IMPROVEMENTS
10.01 Installation of Fixtures & Improvements..............................34
10.02 Liens and Encumbrances on Fixtures & Improvements....................35
10.03 Tenant's Goods.......................................................36
10.04 Removal of Fixtures and Improvements.................................36
ARTICLE 11 - INSURANCE, LIABILITY AND INDEMNITY
11.01 Landlord's Insurance.................................................37
11.02 Tenant's Insurance...................................................38
11.03 Limitation of Landlord's Liability...................................39
11.04 Indemnity............................................................40
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE 12 - SUBORDINATION, ATTORNMENT, REGISTRATION AND CERTIFICATES
12.01 Subordination and Attornment.........................................40
12.02 Registration.........................................................41
12.03 Certificates.........................................................41
ARTICLE 13 - REMEDIES OF LANDLORD AND TENANT'S DEFAULT
13.01 Remedying by Landlord, Non-payment and Interest......................42
13.02 Remedies Cumulative..................................................43
13.03 Right of Re-entry on Termination.....................................43
13.04 Re-entry and Termination.............................................43
13.05 Rights on Re-entry...................................................43
13.06 Distress.............................................................44
13.07 Payment of Rent, Etc., on Termination................................44
ARTICLE 14 - CANCELLATION OF INSURANCE AND EVENTS TERMINATING LEASE
14.01 Cancellation of Insurance............................................45
14.02 Default..............................................................46
ARTICLE 15 - MISCELLANEOUS
15.01 Notices..............................................................48
15.02 Entire Agreement.....................................................49
15.03 Area Determination...................................................49
15.04 Successors and Assigns, Interpretation...............................49
15.05 Force Majeure........................................................49
15.06 Waiver...............................................................50
15.07 Governing Law, Covenants, Severability...............................50
15.08 Headings, Captions...................................................51
15.09 Time for Payment.....................................................51
15.10 Time of Essence......................................................51
15.11 Communications Equipment.............................................51
15.12 Signage..............................................................51
15.13 Right of First Refusal...............................................51
15.14 Balconies............................................................52
15.15 Landlord's Work......................................................53
15.16 Workings Drawings....................................................54
15.17 Permits..............................................................54
15.18 Fixturing Period.....................................................54
15.19 Early Occupancy......................................................54
15.20 Option to Terminate..................................................55
</TABLE>
<PAGE> 6
SCHEDULE "A" - THE PREMISES
SCHEDULE "B" - THE LAND
SCHEDULE "C" - RULES AND REGULATIONS
SCHEDULE "D" - ESTOPPEL CERTIFICATE
<PAGE> 7
LEASE AGREEMENT made the 18th day of July A.D. 1997
BETWEEN:
354875 B.C. Ltd. c/o SODICAN (B.C.) INC.,
a body corporate carrying on business in the City of Vancouver,
in the Province of British Columbia
(hereinafter called the "Landlord")
OF THE FIRST PART
- and -
PIVOTAL SOFTWARE INC., whose address for purposes hereof until commencement of
the Term of this Lease, being #310 - 260 West Esplanade, North Vancouver, B.C.
V7M 3G7 and Suites # 202, 210, # 300 - 224 West Esplanade, North Vancouver,
B.C., hereafter being that of the Building (hereinafter defined),
(hereinafter called the "Tenant")
OF THE SECOND PART
WHEREAS 354875 B.C. Ltd. is the registered owner of that certain parcel of land
situated in the City of North Vancouver, in the Province of British Columbia and
more particularly described in Schedule "B" hereof (hereinafter called the
"Land"); and
WHEREAS the Landlord has constructed or intends to construct an office building
and related improvements upon the Land (the said office building and all other
fixed improvements now or hereafter on the Land being hereinafter called the
"Building"); and
WHEREAS the Tenant has agreed to, lease space in the Building which will
comprise the area more particularly hereinafter set forth for the term and at
the rental and subject to the terms, covenants, conditions and agreements
hereinafter contained;
<PAGE> 8
WITNESSETH THAT:
ARTICLE 1
DEFINITIONS
1.00 In this Lease the following expressions shall have the following
meanings:
1.01 ADDITIONAL RENT
"Additional Rent" means the payments of Operating Costs and Taxes and any other
payments which the Tenant is required to make to the Landlord pursuant to this
Lease.
1.02 ADDITIONAL SERVICES
"Additional Services" means the services and supervision supplied by the
Landlord and referred to in Article 7.06 or in any other provision hereof as
Additional Services, and any other services which from time to time the Landlord
supplies to the Tenant and which are additional to the janitor and cleaning and
other services which the Landlord has agreed to supply pursuant to the
provisions of this Lease and to like provisions of other leases of the Building
or may elect to supply to be included within the standard level of services
available to tenants generally and includes janitor and cleaning services in
addition to these normally supplied, the provision of labour and supervision in
connection with deliveries, supervision in connection with the moving of any
furniture or equipment of any tenant and the making of any repairs or
alterations by any tenant and maintenance or other services not normally
furnished to tenants generally.
1.03 BASE RENT
"Base Rent" means the fixed annual rent calculated and payable pursuant to
Article 4.01.
1.04 BUILDING
"Building" has the meaning set out on page 1 of the Lease.
2
<PAGE> 9
1.05 CAPITAL TAX
"Capital Tax" means an imputed amount presently or hereafter imposed from time
to time upon the Landlord and payable by the Landlord (or by any corporation
acting on behalf of the Landlord) and which is levied or assessed against the
Landlord on account of its ownership of or capital employed in the Land and
Building. Capital Tax shall be imputed as if the amount of such tax were that
amount due if the Land and Building were the only real property of the Landlord
and Capital Tax includes the amount of any capital or place of business tax
levied by the provincial government or other applicable taxing authority against
the Landlord with respect to the Land and Building whether or not known as
Capital Tax or by any other name.
1.06 COMMON AREAS
"Common Areas" means all areas of the Building, as may be designated by the
Landlord from time to time, including without limitation, corridors, elevator
foyers, rest rooms, mechanical rooms, electrical and telephone rooms, janitor
closets, refuge areas, vending areas and other similar facilities for the use of
all tenants.
1.07 COST OF ADDITIONAL SERVICES
"Cost of Additional Services" means in the case of Additional Services provided
by the Landlord a reasonable charge made therefor by the Landlord which shall
not exceed the cost of obtaining such services from independent contractors, and
in the case of Additional Services provided by independent contractors, the
Landlord's total cost of providing Additional Services to the Tenant including
the cost of all labour (including salaries, wages and fringe benefits) and
materials and other direct expenses incurred, the cost of supervision and other
indirect expenses capable of being allocated thereto (such allocation to be made
upon a reasonable basis) and all other out-of-pocket expenses made in connection
therewith including amounts paid to independent contractors, plus in either
case, an amount equal to ten (10%) percent thereof. A report of the Landlord's
independent chartered accountant as to the amount of any Cost of Additional
Services shall be conclusive, should a dispute arise.
3
<PAGE> 10
1.08 COMMENCEMENT DATE
"Commencement Date" means the first day of the Lease Term as set out in Article
3.01.
1.09 INSURED DAMAGE
"Insured Damage" means the part of any damage occurring to the Premises for
which the Landlord is responsible of which the cost of repair is actually
recoverable by the Landlord under a policy of insurance in respect of fire and
other perils from time to time effected by the Landlord.
1.10 LAND
"Land" means those lands described in Schedule "B".
1.11 LANDLORD'S ARCHITECT
"Landlord's Architect" means the independent architect, or engineer or quantity
surveyor selected by the Landlord from time to time for the purposes of making
determinations hereunder.
1.12 LEASE
"Lease", "hereof", "herein", "hereunder" and similar expressions mean or refer
to this Lease and includes all other Schedules attached hereto, and any
amendments thereof made from time to time by the parties in writing.
1.13 LEASEHOLD IMPROVEMENTS
"Leasehold Improvements" means all fixtures, improvements, installations,
alterations and additions from time to time made, erected or installed by or on
behalf of the Tenant or any previous tenant of the Premises with the exception
of trade fixtures or furniture and equipment not of the nature of fixtures, and
includes all wall-to-wall carpeting (whether or not supplied by the Landlord),
and all window coverings supplied by the Landlord.
4
<PAGE> 11
1.14 NORMAL Business Hours
"Normal Business Hours" means the hours from 7:30 a.m. to 6:00 p.m., Monday to
Friday, inclusive, of each week, statutory holidays excepted.
1.15 OPERATING COSTS
"Operating Costs" means the total of all expenses, costs and outlays of every
nature incurred in the complete maintenance, repair, operation, insuring and
management of the Property and the carrying out of the Landlord's obligations
under this Lease and similar tenant leases, all calculated in accordance with
generally accepted accounting principles. Without limiting the generality of the
foregoing, Operating Costs includes all expenses, costs and outlays relating to
the following: cleaning and janitorial service; cost of cleaning window and
floor coverings if not included in janitorial contracts; operating and servicing
elevators; all utilities; security (including rental of security equipment);
window cleaning; all insurance required to be carried by the Landlord pursuant
hereto and all other insurance relating to the Property as placed by the
Landlord from time to time in the Landlord's sole discretion; repairs and
replacements to the Building and its components; accounting and auditing;
provision of heating, cooling, ventilation and air conditioning throughout the
Building; all amounts paid to employees or third parties relating to work
performed in relation to the Property including in the case of employees all
usual benefits; should the Landlord elect to manage the Building itself a fee
for management and administration of the Property calculated at four (4%)
percent of the total Rent payable by all tenants in the Building; supplies and
materials used in relation to operating and maintaining the Property; uniforms;
provision of a building superintendent and associated personnel including a
reasonable rental value for office space used by those persons and related
expenses; all outdoor maintenance including landscaping and snow removal;
maintenance of the atrium area and the plants located therein; cost, of
decoration and maintenance of Common Areas; operation and maintenance of parking
area (including reasonable depreciation and materials for resurfacing the
parking area); preventative maintenance and inspection; cost of consulting
engineering fees; costs of all service contracts, legal and consulting services;
taxes (other than income taxes), including Capital Tax and Sales Tax, if
levied, and any sales and
5
<PAGE> 12
excise taxes;
Cost of each "major expenditure" (as hereinafter defined) as amortized over the
period of the Landlord's reasonable estimate of the economic life of the item
acquired, but not to exceed fifteen (15) years, using equal monthly instalments
of principal and interest at prime commercial loan rate charged at the time of
the expenditure to borrowers having the highest credit rating from time to time
by the Main Branch, Vancouver, British Columbia of the Landlord's principal bank
at the time, per annum compounded semi-annually (the "Interest Rate"), where
"major expenditure" shall mean any single expenditure incurred during or
subsequent to the fiscal period in which the lease commences, for replacement of
machinery, equipment, building elements, repairs, systems or facilities in
connection with the Property or Building, which expenditure is more than ten
percent (10%) of the total Operating Costs for the previous fiscal period, or
for modifications or additions to the Property if one of the principal purposes
of such modification or addition was to reduce energy consumption or Operating
Costs or was required by government regulation; and
Depreciation of: (1) the costs and expenses including repair and replacement, of
all maintenance and cleaning equipment and master utility meters, (2) costs and
expenses incurred for the initial supply and installation and for repairing or
replacing all other fixtures, equipment and facilities serving or comprising the
Building (including, without limitation, the heating, ventilating and
air-conditioning and climate control systems serving the Building) which by
their nature, require periodic or substantial repair or replacement unless they
are charged fully in the year in which they are incurred, in accordance with
sound accounting principles, and (3) interest on the undepreciated portion of
the cost of all fixtures and equipment at the Interest Rate referred to herein.
Operating Costs shall exclude the cost of structural repairs.
To the extent that any component of Operating Costs should be allocated, in the
reasonable opinion of the Landlord, to one group of tenants (for example, retail
tenants) the Landlord may, but shall not be obligated to allocate the cost of
component of Operating Costs to those tenants alone.
Any report of the Landlord's auditor or other licensed public
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accountant appointed by the Landlord for or the purpose, shall be conclusive as
to the amount of Operating Costs for any period to which such report relates.
1.16 PERMITTED USE
"Permitted Use" means the use specified in Article 5.03.
1.17 PREMISES
"Premises" means that portion of the Building shown outlined in red on the Plan
attached as Schedule "A" hereto. The exterior face of the Building and any space
in the Premises used for stairways or passageways to other premises, stacks,
shafts, pipes, conduits, ducts or other building facilities, the heating,
electrical, plumbing, air conditioning and other systems in the Building and the
use thereof, as well as access thereto through the Premises for the purpose of
use, operation, maintenance, replacement and repair, are expressly excluded from
the Premises and reserved to the Landlord.
1.18 PRIME RATE
"Prime Rate" means that rate of interest announced from time to time by the
chartered banks of Canada, as a reference rate then in effect for determining
interest rates on Canadian Dollar denominated commercial loans made in Canada.
1.19 PROPERTY
"Property" means the Lands and Building referred to herein and all other
improvements on the Land as are from time to time existing thereon.
1.20 PROPORTIONATE SHARE
When used herein, "Proportionate Share" means the ratio which (during each
calendar year) the Rentable Area of the Premises bears to the total Rentable
Area in the Building.
1.21 RENT
"Rent" means the Base Rent and the Additional Rent.
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1.22 RENTABLE AREA
"Rentable Area" as used herein shall mean:
(a) In the case of a single tenancy floor, all floor area measured from the
inside surface of the outer glass or exterior wall of the Building
where such exterior wall has no glass, and to the inside surface of the
opposite exterior wall, excluding Service Areas, with the exception of
those Service Areas which are for the specific use of the particular
Tenant such as elevator lobby, special stairs, washrooms, service
closets and fan rooms. No deductions from Rentable Area are made for
columns or projections necessary to the Building.
(b) In the case of a partial tenancy floor, all floor areas within the
inside surface of the outer glass or exterior walls, where such wall
has no glass, enclosing the portion of the 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 Common Areas, but including a
proportionate part of the Common Areas located on such floor based upon
the ratio which the Tenant's demised area (determined by excluding such
Common Areas) bears to the total demisable area of such floor
(determined by excluding such Common Areas) . No deductions from
Rentable Area are made for columns or projections necessary to the
Building.
1.23 SERVICE AREAS
"Service Areas" means areas used for elevators, building stairs, smoke shafts,
fire towers, elevator shafts, flues, vents, stacks, pipe shafts and vertical
ducts.
1.24 SALES TAX
"Sales Tax" shall have the meaning set out in Article 4.09.
1.25 TAXES
"Taxes" means all taxes, rates, duties, levies and assessments
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whatsoever, whether municipal, provincial, federal or otherwise, levied, imposed
or assessed against the Building, the Land and any Leasehold Improvements or any
of them, or upon the Landlord in respect thereof or from time to time levied,
imposed or assessed in lieu thereof, including those levied, imposed or assessed
for education, schools and local improvements, and including ail costs and
expenses (including legal and other professional fees and interest and penalties
on deferred payments) incurred by the Landlord in good faith in contesting,
resisting or appealing any taxes, rates, duties, levies or assessments, but
excluding taxes and license fees in respect of any business carried on by
tenants and occupants of the Building (including the Landlord) and income or
profits taxes upon the income of the Landlord to the extent such taxes are not
levied in lieu of taxes, rates, duties, levies and assessments against the
Building, the Land or Leasehold Improvements or upon the Landlord in respect
thereof and shall also include any and all taxes which may in the future be
levied in lieu of Taxes as hereinbefore defined.
1.26 TERM
"Term" means the term of the Lease set forth in Article 3.01 and any extension
thereof and any period of permitted overholding.
ARTICLE 2
PREMISES AND INTENT
2.01 PREMISES
In consideration of the rents, covenants, agreements and conditions hereinafter
reserved and contained on the part of the Tenant to be respectively paid, kept,
observed and performed, the Landlord hereby demises and leases unto the Tenant
the Premises as generally shown outlined in red on the floor plan attached
hereto as Schedule "A". The Rentable Area of the Premises is approximately
sixteen thousand and fifty three (16,053) square feet subject to final
determination by the Landlord's Architect. The certificate of measurement
prepared by the Landlord's Architect shall be final and binding upon the parties
hereto as to such Rentable Area.
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2.02 INTENT
The Tenant acknowledges and agrees that this Lease shall be a completely net
lease for the Landlord except as expressly herein set out and the Landlord shall
not be responsible during the Term hereof for any costs, charges, expenses and
outlays of any nature whatsoever arising from or relating to the Premises, or
the contents thereof and without limiting the generality of the foregoing, the
Tenant shall be liable for the payment of all charges, impositions and expenses
of every nature and kind relating to the Premises and the contents thereof and
its Proportionate Share of Operating Costs and Taxes as defined herein.
ARTICLE 3
TERM
3.01 TERM
The Term of this Lease shall be five (5) years and shall commence on the 1st day
of October, 1997 (the "Commencement Date"). In the event the Premises should not
be ready for occupancy by Commencement Date for any reason Landlord shall not be
liable or responsible for any claims, damages or liabilities in connection
therewith or by reason thereof. Should the Term of this Lease commence on a date
other than the Commencement Date the Landlord and the Tenant will, at the
request of the other, execute a declaration specifying a revised commencement
date of the Term of this Lease and in such event, rental under this Lease shall
not commence until the said revised commencement date which shall be deemed to
be the Commencement Date, and the stated Term in this Lease shall thereupon
commence and the expiration date shall be extended so as to give effect to the
full stated Term.
3.02 RENEWAL OPTION
Provided the Tenant has duly and punctually paid the Rent and duly and
punctually observed the other covenants and obligations on its part contained in
the Lease, the Tenant shall have the option to renew the Lease for a further
term of three (3) years on the same terms and conditions save the except Base
Rent, Base Rent abatement, Fixturing Allowance and this renewal option. The
Tenant shall exercise its option to renew by notice in writing
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given to the Landlord not less than six (6) months prior to the expiry of the
initial term of this Lease. In the event that the Landlord and the Tenant are
unable to agree as to base rent for the renewal term at least three (3) months
prior to the expiration of the Term, such base rent shall be determined by
arbitration pursuant to the British Columbia Commercial Arbitration Act as
re-enacted or amended from time to time. If such base rent has not been
determined at the commencement of the renewal term, the Tenant shall pay the
base rent requested by the Landlord and upon such base rent being determined, an
adjusting payment shall be made by the Landlord or the Tenant, as the case may
be, retroactive to the commencement of the renewal term.
ARTICLE 4
RENT
4.01 BASE RENT
From and after Commencement Date, the Tenant shall pay a base annual rent
(herein called "Base Rent") in the sum of Two Hundred Four Thousand, Six Hundred
Seventy Five Dollars and 75 Cents ($204,675.75) per year calculated on the basis
of Twelve Dollars and Seventy Five Cents ($12.75) per square foot of Rentable
Area of the Premises per annum. Such Base Rent, together with any adjustment of
rent provided for herein then in effect, shall be due and payable in twelve (12)
equal instalments on the first day of each calendar month during the initial
Term of this Lease and any extensions or renewals thereof, and the Tenant hereby
agrees to so pay such rent to the Landlord at the Landlord's address as provided
herein (or such other address as may be designated by the Landlord from time to
time) monthly in advance without demand. If the Term of this Lease as heretofore
established commences on other than the first day of a month or terminates on
other than the last day of a month, then the instalment or instalments so
prorated shall be paid in advance.
4.02 ADDITIONAL RENT
From and after Commencement Date, the Tenant shall pay as
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Additional Rent its Proportionate Share of Operating Costs and of Taxes, and all
other sums to be paid by the Tenant hereunder, and the Landlord shall have the
same remedies for default for the payment of Additional Rent as are available to
the Landlord in the case of default in the payment of Base Rent.
4.03 ESTIMATE OF ADDITIONAL RENT
Prior to the Commencement Date, and thereafter prior to the commencement of each
calendar year of the Tenant's occupancy the Landlord shall provide an estimate
of Operating Costs and of Taxes for the portion of the calendar year in which
Commencement Date occurs and thereafter for each calendar year. The Tenant shall
pay as Additional Rent its Proportionate Share of such estimate in equal monthly
instalments at the time and in the manner provided for payment of Base Rent.
4.04 ADJUSTMENT FOR ADDITIONAL RENT
Within one hundred and fifty (150) days, or as soon thereafter as possible of
the conclusion of each calendar year of the Term hereof, the Landlord shall
furnish to the Tenant a statement of the Landlord's actual Operating Costs and
Taxes for the said calendar year or portion thereof as the case may be. A lump
sum payment will be made from the Landlord to the Tenant or from the Tenant to
the Landlord, equal to the Proportionate Share of an amount by, which the actual
Operating Costs and Taxes is less than the estimated Operating Costs and Taxes
or equal to the Proportionate Share of an amount by which the actual Operating
Costs and Taxes exceeds the estimated Operating Costs and Taxes respectively.
4.05 DIRECT ASSESSMENT
The Tenant covenants to pay promptly:
(a) when billed, all taxes, rates duties or charges levied imposed or assessed
on its personal property, its use or occupation of the Premises, the business
carried on therein, all fixtures, equipment, machinery of the Tenant therein or
from time to time levied, imposed or assessed in the future in lieu thereof; and
Taxes levied, imposed or assessed on all Leasehold Improvements in the Premises;
and
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(b) in the event of a direct assessment of Taxes in respect of the Premises, the
amount of such direct assessment, when billed (and to provide a copy of such
assessment notice to the Landlord with evidence of such payment), plus its
Proportionate Share of all taxes on areas of the Property not demised
specifically to tenants.
4.06 LANDLORD TAX OBLIGATION
The Landlord covenants with the Tenant, subject to the provisions of Articles
4.02 and 4.06, to pay the Taxes promptly when due. The Landlord shall have the
right to appeal any taxes assessed or levied against the Property or the
Premises but shall not be obligated to so do. The cost incurred by the Landlord
to contest the Taxes shall be included in Operating Costs.
4.07 AMOUNTS PAST DUE
If the Tenant fails to pay, when the same is due and payable, any Base Rent, any
Additional Rent or any other amounts payable by the Tenant under this Lease,
such unpaid amounts shall bear interest from the due date thereof to the date of
payment at a rate per annum which is six (6%) percentage points above the Prime
Rate.
4.08 VALUE-ADDED TAX
Notwithstanding anything herein contained to the contrary, the Tenant shall pay
to the Landlord an amount equal to any and all goods and services taxes, sales
taxes, value-added taxes, business transfer taxes, or any other taxes imposed on
the Landlord with respect to Rent payable by the Tenant to the Landlord under
this Lease, or in respect of the rental of space under this Lease, whether
characterized as a goods and services tax, sales tax, value-added tax, business
transfer tax, or otherwise (herein called "Sales Tax"), it being the intention
of the parties that the Landlord shall be fully reimbursed by the Tenant with
respect to any and all Sales Taxes at the full tax rate applicable from time to
time in respect of the Rent or the rental of space, without reference to any tax
credits available to the Landlord. The amount of the Sales Taxes so payable by
the Tenant shall be calculated by the Landlord in accordance with the applicable
legislation and shall be paid to the Landlord at the same time as the amounts to
which such Sales Taxes apply are
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payable to the Landlord under the terms of this Lease or upon demand at such
other time or times as the Landlord from time to time determines. Despite any
other section or clause in this Lease, the amount payable by the Tenant under
this paragraph shall be deemed not to be Rent, but the Landlord shall have all
of the same remedies for and recovery of such amount as it has for recovery of
Base Rent under this Lease.
4.09 WAIVER OF OFFSET
The Tenant hereby waives and renounces any and all existing and future claims,
offsets and compensation against any Rent and agrees to pay such Rent regardless
of any claim, offset or compensation which may be asserted by the Tenant or on
its behalf.
4.10 RECEIPTS, ETC.
Whenever requested by the Landlord the Tenant will deliver to it receipts for
payments of all taxes, rates, duties, levies and assessments payable by the
Tenant pursuant to Section 4.06(a) hereof and furnish such other information in
connection therewith as the Landlord may reasonably require.
4.11 ALLOCATION OF Taxes
If a separate allocation of Taxes is not issued by the relevant taxing authority
with respect to any Leasehold Improvements, the Landlord or the Tenant may from
time to time apply to the taxing authority for a determination of the portion of
Taxes attributable to such Leasehold Improvements, which determination shall be
conclusive for the purposes of this Article. In the event that no such
determination may be obtained from-the taxing authority, the Landlord shall.
establish the portion of Taxes attributable to such Leasehold Improvements using
the then current established principles of assessment used by the taxing
authority, or such other method which is fair, reasonable and equitable as
determined by the Landlord.
4.12 PARKING
The Tenant shall lease thirty one (31) parking stalls. The rental rate for such
stalls shall be Sixty ($60.00) Dollars per month per stall for the term of the
Lease. The Landlord shall
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also provide a secure, locked space for the Tenant's bicycle storage at no
charge for the term of the lease to be the size of one (1) parking stall in the
parkade.
4.13 DEPOSIT
Deposit is Thirty Six Thousand Five Hundred Dollars and Fifty One Cents ($
36,500.51) first and last month's rent has been paid to CB Commercial Real
Estate Group Canada Inc. Upon execution hereof, said deposit shall be paid to
the Landlord and shall be applied towards Gross Rents for the first (1st) and
last month of the Term. If the Tenant fails to comply with the provisions hereof
or any Rent becomes overdue and unpaid, the Landlord may apply such deposit to
any overdue sum without limiting or excluding any other right which the Landlord
may have hereunder, or at law or in equity.
ARTICLE 5
TENANT'S COVENANTS
The Tenant covenants with the Landlord as follows:
5.01 OCCUPANCY
From the commencement of, and throughout, the Term to continuously occupy the
Premises and to carry on therein the business comprising the Permitted Use
subject to the terms hereof.
5.02 RENT
To pay the Rent hereby reserved, and all other sums payable hereunder to the
Landlord, promptly on the days and at the times and in the manner specified
herein, without demand, deduction or set-off.
5.03 PERMITTED USE
To use the Premises only for the purpose of general commercial office which use
the Tenant represents will not unreasonably interfere with normal use of a
first-class office building; and .not to use or permit to be used the Premises
or any part thereof
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for any other purpose or business whatsoever without the written consent of the
Landlord.
5.04 WORK AND NUISANCE
Not to commit or permit any waste or damage to the Premises including the
Leasehold Improvements and trade fixtures therein, any nuisance therein or any
use or manner of use causing annoyance to other tenants and occupants of the
Building and not to use or permit to be used any part of the Premises for any
trade or business which is, in the opinion of the Landlord, dangerous, noxious
or offensive; and not to place any objects on or otherwise howsoever obstruct
the heating or air conditioning vents within the Premises.
5.05 FLOOR LOADS
Not to place a load upon any portion of any floor of the Premises which exceeds
the floor load which the area of such floor being loaded was designed to carry
having regard to the loading of adjacent areas and that which is allowed by
code. The Landlord reserves the right to prescribe the weight and position of
all safes and heavy installation which the Tenant wishes to place in the
Premises, so as to distribute properly the weight thereof and the Tenant shall
pay for all costs incurred by the Landlord and the Landlord's Architect in
making such assessment. The Tenant shall repair any damage done to the Premises
or the Building by reason of any excessive weight placed in the Premises or
excessive vibration caused in the Premises.
5.06 INSURANCE RISKS
Not to do, omit to do or permit to be done upon the Premises anything which
would or might cause the Landlord's cost of insurance (whether fire, liability
or other) to be increased (and, without waiving the foregoing prohibition the
Landlord may demand, and the Tenant shall pay to the Landlord upon demand, the
amount of any such increase of cost caused by anything so done or omitted or
permitted to be done or omitted) or which would or might cause any policy of
insurance to be subject to cancellation or refusal of placement or renewal.
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5.07 NOXIOUS FUMES, ODOURS AND ENVIRONMENTAL MATTERS
To use the Premises so that noxious or objectionable fumes, vapours and odours
will not occur beyond the extent to which they are discharged or eliminated by
means of the flues and other devices provided in the Building by the Landlord
and shall prevent any such noxious or objectionable fumes, vapours and odours
from entering into the air conditioning or being discharged into other vents or
flues of the Building or annoying any of the tenants in the Building. Any
discharge of fumes, vapours and odours shall be permitted only during such
period or periods, to such extent, in such conditions and in such manner as
directed by the Landlord from time to time.
The Tenant covenants with the Landlord that it will not bring upon, permit or
use any substance, defined or designated as a hazardous or toxic waste,
hazardous or toxic material, a hazardous, toxic or radioactive substance or
other similar term, by any applicable federal, provincial, municipal or local
statute, regulation, by-law or ordinance now or hereafter in effect, or any
substance or materials, the use or disposition of which is regulated by any such
statute, regulation, by-law or ordinance (hereinafter called "Toxic Materials")
in, on or under the Premises or Property and the Tenant will promptly comply
with ail statutes, regulations, by-laws and ordinances, and with all orders,
decrees or judgements of governmental authorities or courts having jurisdiction,
relating to the use, collection, storage, treatment, control, removal or cleanup
of Toxic Materials in, on, or under the Premises or Property if the Premises or
Property become contaminated with Toxic Materials as a result of operations or
activities on the Premises or Property, or incorporated in any improvements
thereon. The Landlord may, but shall not be obliged to, enter upon the Premises
and the Property and take such actions and incur such costs and expenses to
effect such compliance as it deems advisable and the Tenant shall reimburse the
Landlord on demand for the full amount of all costs and expenses incurred by the
Landlord in connection with such compliance activities. The Tenant will
indemnify and hold the Landlord harmless against all losses, damages, costs,
expenses and liabilities suffered or incurred by the Landlord by reason of a
breach of any of the representations, warranties and covenants aforesaid which
indemnity shall survive any release or discharge of this Lease.
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5.08 CONDITION
Not to permit, in the opinion of the Landlord, the Premises to become untidy,
unsightly, offensive or hazardous or permit unreasonable quantities of waste or
refuse to accumulate therein, and at the end of each business day to leave the
Premises in a condition such as reasonably to facilitate the performance of the
Landlord's janitor and cleaning services referred to in Article 6.06, the Tenant
agreeing that the Landlord shall have the sole right to provide cleaning and
janitorial services to the Premises.
5.09 BY-LAWS
To comply at its own expense with all municipal, federal, provincial, sanitary,
fire, building and safety statutes, laws, by-laws, regulations, ordinances,
orders and requirements pertaining to the operation and use of the Premises, the
condition of the Leasehold Improvements, trade fixtures, furniture and equipment
installed by the Tenant therein and the making by the Tenant of any repairs,
changes or improvements therein or any other matter pertaining to the Premises
or the Tenant. as well as all rules and regulations of the Canadian Board of
Fire Underwriters, or any successor body and with the requirements of all
insurance companies having policies of any kind whatsoever in effect covering
the Building which are communicated to the Tenant.
5.10 RULES AND REGULATIONS
To observe, and to cause its employees, invitees and all others over whom the
Tenant can reasonably be expected to exercise control to observe the Rules and
Regulations attached as Schedule "C" hereto, and such further and other
reasonable Rules and Regulations and amendments and changes therein as may
hereafter be made by the Landlord of which notice in writing shall be given to
the Tenant and all such Rules and Regulations shall be deemed to be incorporated
into and form part of this Lease. For the enforcement of such Rules and
Regulations, the Landlord shall have available to it all remedies in this Lease
provided for a breach thereof and all legal remedies whether or not provided for
in this Lease, both at law and in equity. The Landlord shall not be responsible
or liable to the Tenant for the non-observance or violation by any other tenant
of any such Rules
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and Regulations or the non-enforcement as against other tenants of such Rules
and Regulations or any loss or damage arising out of the same.
5.11 SURRENDER, OVERHOLDING
That upon the expiration or other termination of the Term of this Lease, the
Tenant shall quit and surrender the Premises in vacant and clean possession and
in good order, repair, decoration, and condition (subject to the exceptions to
the Tenant's repair obligations contained in Article 8.02(a) hereof) and shall
remove all its property therefrom, except as otherwise provided in this Lease.
The Tenant's obligation to observe or perform this covenant shall survive the
expiration or other termination of the Term of this Lease. If the Tenant shall
continue to occupy the Premises after the expiration of this Lease without
further written agreement and without objection by the Landlord, the Tenant
shall be a month-to-month tenant at 150% of the Base Rent provided for herein
(plus Additional Rent) and (except as to length of tenancy) on and subject to
the provisions and conditions herein set out.
5.12 SIGNS AND DIRECTORY
Not to paint, display, inscribe, place or affix any sign, symbol, notice or
lettering of any kind anywhere outside the Premises (whether on the outside or
inside of the Building) or within the Premises so as to be visible from the
outside of the Premises, with the exception only of a building standard interior
identification sign at or near the entrance of the Premises and such other signs
as the Landlord may permit and a directory listing in the main lobby of the
Building, in each case containing only the name of the Tenant and such other
names as the Landlord may permit, and to be subject to the approval of the
Landlord. as to design, size, location and content. Such identification sign and
directory listing shall be installed at the expense of the Tenant, and the
Landlord reserves the right to install them as an Additional Service. All signs
which are the property of the Tenant shall be removed on the expiration of the
Term and any damage to the Premises or the Building as a result of the
installation or removal thereof shall be repaired by the Tenant.
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5.13 INSPECTION AND ACCESS
To permit the Landlord at any time and from time to time to enter and to have
its authorized agents, employees and contractors enter the Premises for the
purpose of (i) inspection, window cleaning, maintenance, providing janitor
services, making repairs, alterations or improvements to the Premises, adjoining
premises or the Building, or to have access to or make changes in utilities and
services (including underfloor and overhead ducts, air conditioning, heating,
plumbing, electrical and telephone facilities and access panels, all of which
the Tenant agrees not to obstruct) and (ii) to determine the electric light and
power consumption by the Tenant in the Premises and the Tenant shall provide
free and unhampered access for such purposes, and shall not be entitled to
compensation for any inconvenience, nuisance and discomfort or loss caused
thereby, but the Landlord in exercising its rights hereunder shall proceed to
the extent reasonably possible so as to minimize interference with the Tenant's
use and enjoyment of the Premises. Pivotal premises will be used for
confidential work and work products, and strategically sensitive business and
technical data. The Landlord shall comply with all Pivotal security and policies
for access to and work on the premises.
5.14 EXHIBITING PREMISES
To allow the Landlord or its agents acting reasonably to enter and exhibit the
Premises to prospective tenants or purchasers of the Property or the Premises
during Normal Business Hours during the Term hereof, and place upon the Building
a notice of reasonable dimensions and reasonably placed stating that said
Property or the Premises are for sale or for let, which notice the Tenant shall
not remove or obscure or permit to be removed or obscured.
5.15 NAME OF BUILDING
Not to refer to the Building by any name other than that designated from time to
time by the Landlord, nor to use such name for any purpose other than that of
the business address of the Tenant.
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5.16 ACCEPTANCE OF Premises
Except as otherwise agreed upon, the Tenant shall examine the Premises before
taking possession and the taking of possession shall be conclusive evidence as
against the Tenant that at the time thereof the Premises were in good order and
satisfactory condition and that all alterations, remodelling, decorating and
installation of equipment and fixtures required to be done by the Landlord have
been satisfactorily completed save only for such list in writing prepared by the
Tenant during a joint inspection by the Landlord and Tenant at the time of
taking such possession. Any dispute as to any aspects of the Landlord's Work or
completion or adequacy of the Building, the Premises or any part thereof shall
be determined by the Landlord's Architect.
5.17 FIRE EXIT DOORS
To permit the installation by the Landlord of all doors in the exterior wall of
the Premises necessary to comply with the requirements of any statute, law,
by-law, ordinance or regulation referred to in Section 5.09, and to permit
ingress and egress to and from the Premises by the Landlord or by other tenants
of the Landlord or by their respective employees, servants, workmen and
invitees, by use of such doors in case of fire or emergency.
ARTICLE 6
LANDLORD'S COVENANTS
The Landlord covenants with the Tenant as follows:
6.01 QUIET ENJOYMENT
That the Tenant paying the Rent hereby reserved at the times and in the manner
aforesaid and observing and performing each and every of the covenants,
conditions, restrictions and stipulations by the Tenant to be observed or
performed shall and may peaceably and quietly possess and enjoy the Premises for
the Term hereby granted without any interruption from the Landlord or any other
person lawfully claiming by, through, or under it.
6.02 INTERIOR CLIMATE CONTROL
To maintain in the Premises during Normal Business Hours, and to
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the extent permitted by law by means of a heating and cooling system, conditions
of reasonable temperature and comfort as determined by the Landlord in
accordance with standards of interior climate control generally pertaining to
occupancy of premises for office purposes, but the Landlord shall have no
responsibility for any inadequacy of performance of the said system if the
Premises depart from the design criteria for such system as determined by the
Landlord's Architect. If the use of the Premises or the location of the
partitions therein do not accord with the said design criteria and changes in
the system are feasible and desirable to accommodate such use or location, the
Landlord may make such changes and the Tenant shall pay the direct cost thereof
including any consulting fees to the Landlord plus fifteen (15%) percent of such
costs. So long as the Landlord makes reasonable efforts to maintain reasonable
temperature and comfort it shall not be liable to the Tenant for any failure to
so maintain the same and in particular, but without limiting the foregoing, in
the event any such system shall become inoperative or shall be damaged or
destroyed the Landlord shall have a reasonable time within which to repair or
replace such system; PROVIDED ALWAYS that in any event as aforesaid the Landlord
shall not be liable for indirect or consequential damages or other damages for
personal discomfort or illness.
6.03 ELEVATORS
To furnish for use by the Tenant and its employees and invitees in common with
other persons entitled thereto passenger elevator service to the floor on which
the Premises or portions thereof are located, and to furnish for the use of the
Tenant in common with others entitled thereto at reasonable intervals and at
such hours as the Landlord may select, elevator service for the carriage of
furniture, equipment, deliveries and supplies, provided however, that if the
elevators shall become inoperative or shall be damaged or destroyed the Landlord
shall have a reasonable time within which to repair such damage or replace such
elevator and the Landlord shall repair or replace the same as soon as reasonably
possible, but shall in no event be liable for indirect or consequential damages
or other damages for personal discomfort or illness during such period of repair
or replacement.
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6.04 ENTRANCES, LOBBIES
To permit the Tenant and its employees and invitees to have the use during
Normal Business Hours in common with others entitled thereto of the common
entrances, lobbies, stairways and corridors of the Building giving access to the
Premises (subject to the Rules and Regulations referred to in Article 5.10 and
such other reasonable limitations as the Landlord may from time to time impose)
; and to permit access to the Premises outside of Normal Business Hours by the
Tenant and its authorized employees subject to such reasonable restrictions for
security purposes as the Landlord may impose.
6.05 WASHROOMS
To permit the Tenant and its employees and invitees in common with others
entitled thereto to use the washrooms in the Building on the floor or floors on
which the Premises are situated and to provide therein normal washroom supplies.
6.06 JANITOR SERVICES
To exclusively provide cleaning and janitorial services throughout the Building
(including the Premises) including window cleaning, to a standard and with
services consistent with normal standards from time to time for similar
buildings in similar locations in the city or town in which the Building is
situated, provided that the Tenant shall at the end of each business day leave
the Premises in a reasonably tidy condition. With the exception of the
obligation to cause such work to be done, the Landlord shall not be responsible
for any act or omission on the part of the person or persons, firm or
corporation employed to perform such work, and such work shall be done at the
Landlord's direction, without interference by the Tenant, its servants, agents
or employees.
ARTICLE 7
UTILITIES AND ADDITIONAL SERVICES
The Landlord and Tenant further covenant and agree as follows:
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7.01 WASHROOMS
The Landlord shall provide hot and cold water to the building standard washrooms
on each floor on which the Premises are situate.
7.02 UTILITIES
The Tenant shall pay for the cost of all utilities provided for its exclusive
use in the Premises, including without restricting the generality of the
foregoing gas, water, electricity, telephone and communication service charges
and/or rates relating to services and/or utilities provided for the exclusive
use of the Tenant in respect of the Tenant's occupation of the Premises and
operation of its business carried on therein or therefrom, including laboratory
work and any special systems servicing its own computers or any other machinery.
7.03 ELECTRICITY
The Landlord may from time to time determine the Tenant's electrical consumption
in the Premises upon whatever reasonable basis may be selected by it, including
without limitation, the metering of electricity either to the Premises or to
special equipment therein or by estimating the consumption of the Premises or
any special equipment therein having regard to electrical capacity and hours of
use. If the Landlord determines that the Tenant's electrical consumption is
disproportionate to the electrical consumption of other tenants in the Building,
the Landlord may require the Tenant to install at the Tenant's expense a
domestic meter for measurement or checking of the Tenant's electrical
consumption or any part of such consumption or use; and in that event the Tenant
shall pay to the Landlord (or, as required by law, directly to the supplier of
the electricity) as and when due from time to time any and all electrical
charges for such electrical consumption which is disproportionate as aforesaid
and which the Landlord has required to be metered. The Landlord's determination
shall be verified by an engineer selected by the Landlord (who may be an
employee of the Landlord) and being so verified shall be binding on the parties
hereto.
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7.04 EXCESS USE
The Tenant's use of electric power in the Premises shall not be for the
operation of other than commercial computers for software development, and
business administration and management; normal office electrical fixtures,
lights, lamps, typewriters, photocopiers, bookkeeping machines, telexes,
telecopiers, adding machines and similar small office machines for Tenant's own
use solely (the Landlord to determine what equipment is characterizable as
"small office machines" and "normal office" equipment), without the prior
written consent of the Landlord and shall not at any time exceed the capacity of
any of the electrical conductors and equipment in or otherwise serving the
Premises. As a condition of granting such consent, the Landlord may require the
Tenant to pay as Additional Rent the cost of all additional risers and other
equipment required therefor as well as the increased cost to the Landlord of the
electric power and the Additional Services to be furnished by the Landlord in
connection therewith.
7.05 LAMPS
The Tenant shall pay throughout the Term promptly to the Landlord when demanded
the cost of maintaining and servicing in all respects all electric lighting
fixtures in the Premises including the cost of replacement on a regular basis or
otherwise of electric light bulbs, fluorescent tubes, starters and ballasts.
Such maintaining, servicing and replacing shall be within the exclusive right of
the Landlord and shall be carried out at reasonably competitive rates.
7.06 ADDITIONAL SERVICES
The Landlord, if it shall from time to time so elect, shall have the exclusive
right, by way of Additional Services, to provide or have its designated agents
or contractors provide any janitor or cleaning services to the Premises required
by the Tenant which are additional to those required to be provided by the
Landlord under Article 6.06, and to supervise the moving of furniture or
equipment of the Tenant and the making of repairs or alterations conducted
within the Premises, and to supervise or make deliveries to the Premises. The
reasonable cost of Additional Services provided to the Tenant shall be paid to
the Landlord by the Tenant from time to time promptly upon receipt of invoices
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therefor from the Landlord. The Landlord may include as part of its reasonable
costs of rendering such Additional Services an administration fee of ten (10%)
percent of the cost thereof. Costs of Additional Services recovered directly
from the Tenant and other tenants shall not be included in computing Operating
Costs.
7.07 EXTRA OPERATING COSTS
The Tenant will pay to the Landlord in the manner in which Operating Costs are
paid from time to time hereunder any and all additional costs and expenses of
the Landlord which may arise in respect of the use by the Tenant of the Premises
for business hours that do not coincide with Normal Business Hours for the
Building generally.
7.08 ENERGY CONSERVATION
The Tenant covenants with the Landlord:
(a) that the Tenant will cooperate with the Landlord in the
conservation of all forms of energy in the Building, including
without limitation the Premises;
(b) that the Tenant will comply with all laws, by-laws, regulations
and orders relating to the conservation of energy and affecting
the Premises or the Building;
(c) that the Tenant will at its own cost and expense comply with all
reasonable requests and demands of the Landlord made with a view
to such energy conservation provided that such requests are made
in accordance with good management practice and would be made by
a prudent owner of like property of like age; and
(d) that any and all costs and expenses paid or incurred by the
Landlord in complying with such laws, by-laws, regulations and
orders, so far as the same shall apply to or reasonably be
apportioned to the Building by the Landlord, shall be included in
the Landlord's Operating Costs.
The Landlord shall not be liable to the Tenant in any way for any loss, costs,
damages or expenses whether direct or consequential
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paid, suffered or incurred by the Tenant as a result of any reduction in the
services provided by the Landlord to the Tenant or to the Building as a result
of the Landlord's compliance with such laws, by-laws, regulations or orders.
7.09 ALTERATIONS
Where, after substantial completion of the Building, the Landlord is required by
law or a competent authority to make alterations to the Premises, then in each
year of the Term after completion of such alterations (but not after the cost
thereof has been repaid to the Landlord) the Tenant shall pay to the Landlord
not less than ten percent (10%) of all costs to the Landlord of making such
alterations, and if the Landlord is required to make similar alterations to
other portions or areas of the Building the cost of so doing shall be reasonably
apportioned by the Landlord to each of the premises.
ARTICLE 8
REPAIR, DAMAGE AND DESTRUCTION
The Landlord and Tenant further covenant and agree as follows:
8.01 LANDLORD'S REPAIRS
The Landlord covenants with the Tenant subject to Article 8.03(b) and Article
11.03 hereof and except for reasonable wear and tear and damage not covered by
insurance normally maintained by prudent landlords, to keep in a good and
substantial state of repair the common entrances, common lobbies, stairways and
corridors together with the exterior walls, roof, foundations, and bearing
structure of the Building and the pipes, heating and air conditioning, plumbing
and electrical wires installed by the Landlord.
8.02 TENANT'S REPAIRS
The Tenant covenants with the Landlord:
(a) subject to Article 8.03(b), to keep in a good and substantial state of
repair and decoration to at least the standard existing at the beginning of the
Term, the Premises including all Leasehold Improvements and all trade fixtures
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therein and all glass therein.
(b) that the Landlord may from time to time enter and view the state of
repair, and that the Tenant will repair according to notice in writing;
(c) that if any part of the Building including without limitation the
structure or the structural elements of the Building, or the systems for
interior climate control or for the provision of utilities or services
fall into disrepair, or become damaged or destroyed through the
negligence or misuse of the Tenant or of its employees, invitees or
others over whom the Tenant can reasonably be expected to exercise
control, the expense of repairs or replacements thereto necessitated
thereby, other than to the extent the same is recovered under a policy
of insurance required to be carried by the Landlord hereunder, shall be
paid by the Tenant at the Landlord's actual cost plus ten (10%) percent
thereof; and
(d) that the Tenant will notify the Landlord immediately upon the Tenant
becoming aware of any defect in the Premises or of any other condition
which may cause damage to the Premises or the Building.
8.03 ABATEMENT AND TERMINATION
It is agreed between the Landlord and the Tenant that:
(a) (i) In the event of partial destruction (as hereinafter defined) of the
Premises by fire, the elements or other cause or casualty, then in such event,
if the destruction is such, in the opinion of the Landlord's Architect, that the
Premises cannot be used for the Tenant's business until repaired, the Base Rent
and Additional Rent shall abate as hereinafter provided until the repair has
been made.
If the destruction is such that, in the opinion of the Landlord's Architect, the
Premises may be partially used for the Tenant's business while the repairs are
being made, then the Base Rent and Additional Rent shall abate in the proportion
that the part of the Premises rendered unusable bears to the whole of the
Premises, PROVIDED ALWAYS that if the part rendered unusable exceeds one-half
(1/2) of the Rentable Area of the Premises there shall be a total abatement of
Base Rent and Additional Rent until
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the repairs have been made unless the Tenant, with the permission of the
Landlord, in fact uses the undamaged part in which case the Tenant shall pay
proportionate Base Rent and Additional Rent for the part so used (being in the
same proportion to the Base Rent and Additional Rent, as the area in square feet
of the part of the Premises being used bears to the Rentable Area of the
Premises). "Partial destruction" shall mean any damage to the Premises less than
total destruction (as hereinafter defined), but which renders all or any part of
the Premises temporarily unfit for use by the Tenant for the Tenant's business.
A certificate of the Landlord's Architect as to whether the whole or a part of
the Premises is rendered unusable, and certifying the extent of the part
rendered unusable, shall be binding and conclusive upon both Landlord and Tenant
for the purposes hereof. If the partial destruction is repaired within fifteen
(15) days after the date of destruction there shall be no abatement of Rent.
(ii) In the event of partial destruction (as hereinbefore defined) the
Landlord shall, to the extent of proceeds of insurance it receives, repair and
restore the Premises according to the nature of the damage with all reasonable
diligence, except for improvements installed by or on behalf of the Tenant which
the Tenant shall repair and restore, in both cases, to substantially the
condition the Premises and those improvements were in immediately before such
destruction occurred, but to the extent that any part of the Premises is not
reasonably capable of use by reason of damage which the Tenant is obligated to
repair hereunder, any abatement of Rent to which the Tenant is otherwise
entitled hereunder shall not extend later than the time by which, in the
reasonable opinion of the Landlord, repairs by the Tenant ought to have been
completed with reasonable diligence. To the extent the Landlord receives
proceeds of insurance respecting damage the Tenant is to repair, the Landlord
will turn over those proceeds upon the Tenant completing such repair.
Notwithstanding anything herein otherwise contained, there shall be no abatement
of Rent if the damage is caused by wilful act or neglect of the Tenant.
(b) (i) In the event of the total destruction (as hereinafter defined) of
the Premises by fire, the elements or other cause or casualty, then in such
event the Landlord may at its option, to be exercised within sixty (60) days of
the date of such total
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destruction, terminate this Lease effective from the date when such destruction
occurs. Upon the Landlord exercising such option the Tenant shall immediately
surrender the Premises and all its interest therein to the Landlord and the
Tenant shall pay Base Rent and Additional Rent to the time of such destruction
and the Landlord may re-enter and repossess the Premises discharged of this
Lease. Upon such termination the Tenant shall remain liable to the Landlord for
all sums accrued due to the Landlord pursuant to the terms hereof to the date of
such destruction. If the Landlord does not exercise its option of termination
the provisions of repair and restoration set forth in Article 8.03(a)(ii) shall
apply. "Total destruction" shall mean such damage to the Premises that renders
same unfit for use by the Tenant for the Tenant's business and which cannot
reasonably be repaired within six (6) months of the date of the destruction to
the state wherein the Tenant could use substantially all of the Premises for its
business. A certificate of the Landlord's Architect certifying that "total
destruction" has occurred shall be binding and conclusive upon both Landlord and
Tenant for the purposes hereof.
(ii) Notwithstanding the foregoing provisions concerning total or partial
destruction of the Premises, in the event of total or partial destruction of the
Building of which the Premises form a part (and whether or not the Premises are
destroyed) to such a material extent or of such a nature that in the opinion of
the Landlord the damage to the Building cannot be repaired within one hundred
and eighty (180) days from the date of destruction or the Building must be or
should be totally or partially demolished, whether to be reconstructed in whole
or in part or not, then the Landlord may, at its option (to be exercised within
sixty (60) days from the date of total or partial destruction) give notice to
the Tenant that this Lease is terminated with effect from the date stated in the
notice. if the Tenant is able effectively to use the Premises after the
destruction, such date of termination shall be not less than thirty (30) days
from the date of the notice. If the Tenant is unable effectively to use the
Premises after the destruction, the date given in the notice shall be the date
of termination. Upon such termination, the Tenant shall immediately surrender
the Premises and all its interest therein to the Landlord and the Base Rent and
Additional Rent shall abate and be apportioned to the date of termination and
the Tenant shall remain liable to the Landlord for all sums accrued due pursuant
to the terms hereto to
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the date of termination. The Landlord's Architect shall determine whether the
Premises can or cannot be effectively used by the Tenant and his certificate
thereon shall be binding and conclusive upon both Landlord and Tenant for the
purposes hereof.
(iii) In none of the cases aforesaid shall the Tenant have any claim upon the
Landlord for any damages sustained by it nor shall the Landlord be obligated to
rebuild the Building or any part thereof in accordance with the original plans
and specifications therefor. No damages, compensation or claim whatsoever shall
be payable by the Landlord for inconvenience, loss of business or annoyance or
other loss or damage whatsoever arising from the occurrence of any such damage
or destruction of the Premises or of the Building and/or the repair or
restoration thereof.
ARTICLE 9
LICENSES, ASSIGNMENTS AND SUBLETTINGS
The Landlord and Tenant further covenant and agree as follows:
9.01 LICENSES
The Tenant shall not suffer or permit any part of the Premises to be used or
occupied by any persons other than the Tenant, any assignees or subtenants
permitted under Article 9.02 and the employees of the Tenant and any such
permitted assignee or subtenant, or suffer or permit any part of the Premises to
be used or occupied by any licensee or concessionaire, or suffer or permit any
persons to be upon the Premises other than the Tenant, such permitted assignees
or subtenants and their respective employees, customers and others having lawful
business with them.
9.02 ASSIGNMENTS AND SUBLETTINGS
(a) The Tenant shall not assign or mortgage this Lease or sublet the whole
or any part of the Premises unless it shall have first requested and obtained
the consent in writing of the Landlord, thereto, such consent to assign or
sublet shall not be unreasonably withheld. Any request for such consent shall be
in writing and shall be accompanied by a true copy of any offer to take an
assignment or sublease which the Tenant may have received as well as a copy of
the proposed assignment or sublease or mortgage and the Tenant shall furnish to
the Landlord all
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information available to the Tenant or requested by the Landlord as to the
business and financial responsibility and standing of the proposed assignee or
subtenant.
(b) If the Landlord consents to the Tenant's request for consent to assign
or sublet, which consent will not be unreasonably withheld, or mortgage, which
consent may be arbitrarily withheld, or if a consent to assign, mortgage or
sublet is obtained by order of a Court of competent jurisdiction, the Tenant
shall assign, mortgage or sublet, as the case may be, only upon the terms
submitted to the Landlord as aforesaid and not otherwise, PROVIDED THAT no such
assignment, mortgaging or subletting shall:
(i) in any manner or extent release or relieve the Tenant from the
performance or observance of any of its covenants or obligations hereunder
including, without limiting the generality of the foregoing, the performance or
observance of the covenants and obligations hereunder required to be performed
or observed during any renewal or extension of the Term in accordance with the
provisions of this Lease, notwithstanding that such renewal or extension arises
after the date of such assignment, mortgaging or subletting and notwithstanding
that the Base Rent is increased for such period of renewal or extension;
(ii) in the case of an assignment or subletting, be made other than to
responsible persons, firms, partnerships or bodies corporate who undertake by
agreement in writing with the Landlord to perform and observe the obligations of
the Tenant hereunder;
(iii) be made unless the Tenant is not in default of any of its obligations
under this Lease;
(iv) in the case of an assignment or subletting, be made to any person, firm,
partnership or body corporate who intends to or does use the Premises for any
business or use which is prohibited hereunder or which the Landlord is obliged
to restrict by reason of any other lease or contract relating to the Building,
or any use, purpose or business (other than the Permitted Use) to which the
Landlord in its entire discretion may object; and
PROVIDED THAT no such mortgage shall:
(i) be made unless the mortgagee covenants to pay to the
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Landlord all sums payable by the Tenant hereunder including all arrears) during
any period the mortgagee actually or constructively occupies the Premises and to
otherwise perform and observe the obligations of the Tenant hereunder during any
such period; and
(ii) unless the mortgagee covenants that any assignment or sublease it may
wish to make shall be subject to all the same terms affecting an assignment or
subletting made by the Tenant.
(c) The Landlord's consent to any assignment or sublease shall not be or
operate as a consent to any further assignment or sublease; and the Landlord's
prior consent in writing shall be required for each and every assignment or
sublease.
(d) If the Tenant is a corporation, other than a corporation the shares of
which are listed on any recognized stock exchange, effective control of the
corporation shall not be changed directly or indirectly by a sale, encumbrance
or other disposition of shares or otherwise howsoever without the Tenant first
obtaining the written consent of the Landlord; provided that the Landlord's
consent shall not be required for any sale or other disposition of shares by
present shareholders to and between themselves or in the event of any
transmission of shares on death or by operation of law and provided further that
the Landlord's consent shall not be unreasonably withheld where control of the
Tenant is to pass to a subsidiary or parent of the Tenant.
(e) Whether or not the Landlord consents to any request of the Tenant for an
assignment, subletting or mortgage, the reasonable costs incurred by the
Landlord in considering and processing the request for consent and in completing
any of the documentation involved in implementing such assignment, subletting or
mortgage shall be for the Tenant's account and payable forthwith on demand by
the Tenant to the Landlord.
(f) The Landlord may sell, transfer, lease, mortgage, encumber or otherwise
deal with the Property or any portion thereof or any interest of the Landlord
therein, in every case without the consent of the Tenant, and without
restriction, and to the extent that any purchaser, transferee or lessee from the
Landlord has become bound by and covenanted to perform the covenants and
obligations of the Landlord under this Lease, the Landlord shall
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without further written agreement be freed and relieved of liability upon such
covenants and obligations.
ARTICLE 10
FIXTURES AND IMPROVEMENTS
The Landlord and Tenant further covenant and agree as follows:
10.01 INSTALLATION OF FIXTURES & IMPROVEMENTS
(a) The Tenant will not make, erect, install or alter any Leasehold
Improvements or trade fixtures in the Premises without having requested and
obtained the Landlord's prior written approval, which the Landlord shall not
unreasonably withhold.
(b) In making, erecting, installing or altering any Leasehold Improvements
or trade fixtures the Tenant will not alter or interfere with any installations
which have been made by the Landlord without the prior written approval of the
Landlord, and in no event shall alter or interfere with or affect the structural
elements or the strength or outside appearance of the Building, or the
mechanical, electrical, plumbing and climate control systems thereof or the
window coverings installed by the Landlord on exterior and atrium windows.
(c) The Tenant's request for any approval hereunder shall be in writing and
accompanied by an adequate description of the contemplated work and, where
appropriate, working drawings and specifications therefor. Any out-of-pocket
expense incurred by the Landlord in connection with any such request for
approval shall be deemed incurred by way of an Additional Service. All work to
be performed in the Premises shall be performed by competent contractors and
subcontractors of whom the Landlord shall have approved (such approval not to be
unreasonably withheld, but provided that the Landlord may require that the
Landlord's contractors and subcontractors be engaged for any mechanical or
electrical work) and by workmen whose labour affiliations are compatible with
those of workmen employed by the Landlord and its contractors and
subcontractors. At the option of the Landlord, all such work shall be subject to
inspection by and the reasonable supervision of the Landlord. There will be no
charge for Additional Work provided the Tenant is overseeing the work, but the
Landlord will retain the right to inspections and approvals. If the Landlord has
to take over supervision and
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administration of the Work in the absence of supervision and inspection by the
Tenant, only then will the fee for "Additional Work" take effect. All work shall
be performed in accordance with any reasonable conditions or regulations imposed
by the Landlord (including without limitation the examination by the Landlord's
Architect or other experts of the detailed drawings and specification as an
Additional Service and contractor's liability insurance in reasonable amounts)
and completed in a good workmanlike manner in accordance with the description of
the work approved by the Landlord.
10.02 LIENS AND ENCUMBRANCES ON FIXTURES & IMPROVEMENTS
In connection with the making, erection, installation or alteration of Leasehold
Improvements and trade fixtures and all other work or installations made by or
for the Tenant in the Premises the Tenant shall comply with all the provisions
of the applicable provincial legislation in respect of builders' lien and
worker's compensation and other statutes from time to time applicable thereto
(including any provision requiring or enabling the retention of portions of any
sums payable by way of holdbacks) and except as to any such holdback shall
promptly pay all accounts relating thereto. The Tenant will not create or cause
to be created any mortgage, conditional sale agreement, lease or other
encumbrance in respect of the Leasehold Improvements or permit any such
mortgage, conditional sale agreement, lease or other encumbrance in respect of
the Leasehold Improvements or permit any such mortgage, conditional sale
agreement or other encumbrance to attach to the Premises or the Building or
any part thereof. If and whenever any builders' or other lien for work, labour,
services or materials supplied to or for the Tenant or for the cost of which the
Tenant may be in any way liable or claims therefor shall arise or be filed or
any such mortgage, conditional sale agreement, lease or other encumbrance shall
attach, the Tenant shall within four (4) days after receipt of notice thereof
procure the discharge thereof, including any certificate of lis pendens
registered in respect of any lien, by payment or giving security or in such
other manner as may be required or permitted by law, and failing which the
Landlord may in addition to all other remedies hereunder avail itself of its
remedy under Article 13.01 and may make any payments required to procure the
discharge of any such liens or encumbrances, and shall be reimbursed by the
Tenant as provided in Article 13.01, and its right to reimbursement shall not be
affected or impaired
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if the Tenant shall then or subsequently establish or claim that any lien or
encumbrance so discharged was without merit or excessive or subject to any
abatement, set-off or defence.
10.03 TENANT'S GOODS
The Tenant covenants that it will not sell, dispose of or remove any of the
trade fixtures, goods or chattels of the Tenant from or out of the Premises
during the Term without the consent of the Landlord, unless the Tenant is
substituting new trade fixtures, goods or chattels of equal value or is bona
fide disposing of individual items which have become excess for the Tenant's
purposes in the normal course of its business. The Tenant further covenants that
it will at all times have and retain full legal and beneficial ownership of its
trade fixtures, goods and chattels and will not permit them to be or become
subject to any lien, mortgage, charge, encumbrance or title retention agreements
except such as are bona fide incurred for the purpose of financing the purchase
of such trade fixtures, goods or chattels.
10.04 REMOVAL OF FIXTURES AND IMPROVEMENTS
All Leasehold Improvements in or upon the Premises installed or affixed by the
Tenant shall immediately upon termination of this Lease be and become the
Landlord's property without compensation therefor to the Tenant. Except to the
extent herein or otherwise expressly agreed by the Landlord in writing, no
Leasehold Improvements, trade fixtures, furniture or equipment shall be removed
by the Tenant from the Premises either during or at the expiration or sooner
termination of the Term, except that (a) the Tenant, if not in default
hereunder, may at the end of the Term remove its trade fixtures, furniture and
equipment; and (b) the Tenant shall at the end of the Term remove such of its
trade fixtures, furniture, equipment and Leasehold Improvements installed by it
as the Landlord shall require to be removed. The Tenant shall, in the case of
every removal either during or at the end of the Term, make good any damage
caused to the Premises and/or the Building by the installation and removal.
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ARTICLE 11
INSURANCE, LIABILITY AND INDEMNITY
11.01 LANDLORD'S INSURANCE
The Landlord shall throughout the Term provide and keep in force or cause to be
provided and kept in force:
(a) fire insurance (including standard extended coverage endorsement perils
and leakage from fire protective devices) or alternatively at Landlord's option,
all risk insurance in respect of the Building and its fixed improvements
including all rentable premises including the Premises but excluding tenant's
fixtures and (except to the extent that the Landlord elects to insure them)
Leasehold Improvements installed or constructed by tenants including the Tenant;
(b) loss of rental income insurance relating to rental abatement
contemplated in Article 8.03;
(c) if any boilers or pressure vessels are operated in the Building other
than in any rentable premises therein, boiler and pressure vessel insurance with
respect thereto;
(d) comprehensive general business liability insurance with respect to the
operation of the Building for personal and bodily injury or death and damage to
property of others; and
(e) insurance against any other occurrences and in such amounts as the
Landlord may deem prudent.
Insurance effected by the Landlord under this clause shall be with insurers duly
licensed to transact insurance in British Columbia and shall be in amounts which
the Landlord shall from time to time determine as being reasonable and
sufficient, shall be subject to such reasonable deductibles and exclusions as
the Landlord may determine, and shall otherwise be upon such terms and
conditions as the Landlord shall from time to time determine as being reasonable
and sufficient.
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11.02 TENANT'S INSURANCE
The Tenant shall throughout the Term provide and keep in force:
(a) fire insurance (including standard extended coverage endorsement perils,
leakage from fire protective devices and water damage generally) in respect of
the Tenant's fixtures, furniture, equipment, inventory and stock-in-trade, the
Tenant's Leasehold Improvements to the extent that the Landlord has not elected
to insure them pursuant to Article 11.01, and such other property in or forming
part of the Premises (not being property which the Landlord is bound to insure
pursuant to Article 11.01) as the Landlord may from time to time require;
(b) plate and other glass insurance;
(c) if any boiler or pressure vessel is operated in the Premises, boiler and
pressure vessel insurance with respect thereto;
(d) comprehensive general business liability insurance with respect to the
business carried on in or from the Premises and the use and occupancy thereof
for personal and bodily injury or death and damage to property of others; and
(e) Tenant's legal liability insurance and such other forms of insurance
including business interruption insurance as the Landlord may reasonably
require.
Insurance effected by the Tenant under this clause shall be with insurers duly
licensed to transact insurance in British Columbia, shall be in amounts which
the Landlord shall from time to time determine as being reasonable and
sufficient (and, without limiting the generality of the foregoing, in the case
of insurance under paragraphs (a), (b) and (c) shall be on a full replacement
cost basis subject only to such deductibles and exclusions as the Landlord may
approve and in the case of insurance under paragraph (d) shall have original
limits not less than $2,000,000 in respect of any one accident or occurrence),
shall permit the release of the Landlord from certain liability as set out in
Article 11.03, shall include the Landlord as an additional named insured, and
shall otherwise be upon such terms and conditions as the Landlord shall from
time to time require as being reasonable and sufficient. At the request of the
Landlord
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the Tenant shall file with the Landlord such copies of current policies or
certificates or other proofs as may be required to establish the Tenant's
insurance coverage in effect from time to time and the payment of premiums
thereon, and if the Tenant fails to insure or pay premiums or to file
satisfactory proof thereof as so required, the Landlord may without notice to
the Tenant effect such insurance and recover any premiums paid therefor from the
Tenant on demand. All such policies of insurance shall contain an undertaking by
the insurance company to notify the Landlord in writing thirty (30) days prior
to any material change in any such policies. To the extent applicable, the
Tenant agrees to use the proceeds of insurance to restore the Premises to the
condition existing immediately prior to any loss or damage.
11.03 LIMITATION OF LANDLORD'S LIABILITY
The Landlord shall not be liable or in any way responsible to the Tenant in
respect of any loss, injury or damage suffered by the Tenant or its employees,
invitees or licensees, or others unless resulting from the negligence of the
Landlord but in no event shall the Landlord be liable for loss, injury or
damage:
(a) to any property of the Tenant or others from theft, damage or any other
cause;
(b) caused to any persons or property by fire, explosion, falling plaster,
escaping steam or gas, electricity, water, rain or snow, or leaks from any part
of the Building including the Service Areas or from any pipes, appliances or
plumbing work therein, or by dampness;
(c) caused by other tenants or occupants or persons or the public in or
about the Premises or other rentable premises, the Service Areas or elsewhere in
the Building, or caused by operations in the conduct of any private or public
work;
(d) of the nature of indirect or consequential loss, injury or damage of any
nature whatsoever including without limitation matters affected by interruptions
in the supply of water, electricity, heating, air conditioning and other
utilities; or
(e) required to be insured by the Tenant under the provisions of Article
11.02.
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11.04 INDEMNITY
Notwithstanding any other provision of this Lease to the contrary the Tenant
shall be liable to the Landlord for and shall hold harmless and indemnify the
Landlord from and against:
all costs, liabilities, claims, damages, expenses, suits or actions (including,
without limiting the generality of the foregoing, direct losses, costs, damages
and expenses of the Landlord, including solicitor-client costs) resulting from:
(a) any breach, violation, or non-performance of any covenant, condition or
agreement in this Lease set forth and contained on the part of the Tenant to be
fulfilled, kept, observed or performed;
(b) any damage to property, including property of the Landlord, occasioned
by the operation of the Tenant's business on, or the Tenant's occupation of, the
Premises or arising out of any work done by, or any act, neglect, or omission
of, the Tenant or its employees, agents, contractors, invitees, concessionaires,
or licensees in or about the Building;
(c) any injury to person or persons, including death at any time resulting
therefrom, occasioned by the operation of the Tenant's business on, or the
Tenant's occupation of, the Premises or arising out of any work done by, or any
act, neglect, or omission of, the Tenant or its employees, agents, contractors,
invitees, concessionaires, or licensees in or about the Building; such covenant
of the Tenant to survive the expiration or sooner termination of the Term,
notwithstanding anything herein to the contrary.
ARTICLE 12
SUBORDINATION, ATTORNMENT, REGISTRATION AND CERTIFICATES
The Tenant agrees with the Landlord that:
12.01 SUBORDINATION AND ATTORNMENT
This Lease shall, at the option of the Landlord or the mortgagee under any
mortgage or the trustee under any trust deed or trust
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indenture, now or hereafter existing, (such mortgagee or trustee being in this
Article 12.01 called the "Holder" and such mortgage or trust deed or trust
indenture being called the "Security") affecting the Lands or Building,
exercisable at any time and from time to time by the Landlord or such Holder, be
either subject and subordinate to such Security and accordingly not binding upon
such Holder or, alternatively, prior to such Security and binding upon such
Holder. On request at any time and from time to time, the Tenant shall either
postpone and subordinate this Lease with the intent and effect that this Lease
and all rights of the Tenant shall be subject to the rights of such Holder as
fully as if the Security, regardless of when made, had been made prior to the
making of this Lease or, alternatively, to attorn to such Holder and become
bound to it as its tenant of the Premises for the then unexpired residue of the
Term and upon the terms and conditions contained in this Lease, in each case as
the Landlord or such Holder may require, without limiting the foregoing (and
notwithstanding that any of previous attornment or subordination in favour of
such Holder shall have been given) the Tenant shall execute promptly the
appropriate instrument of postponement and subordination or alternatively the
right instrument of attornment, as the case may be, in order to give effect to
the foregoing.
12.02 REGISTRATION
The Tenant will not register this Lease in the Land Title Office.
12.03 CERTIFICATES
The Tenant shall within ten (10) days of receipt of notice in writing from
Landlord execute and deliver to the Landlord and if required by the Landlord, to
any mortgagee (including any trustee under a trust deed or trust indenture)
designated by the Landlord a confirmation in writing as to the status of this
Lease, including as to whether it is in full force and effect, is modified or
unmodified, confirming the rental payable hereunder and the state of the
accounts between the Landlord and Tenant, the existence or non-existence of
defaults, the Rentable Area of the Premises, and any other matters pertaining to
this Lease as to which the Landlord shall request confirmation. Such certificate
to be substantially in the form attached hereto as Schedule "D".
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ARTICLE 13
REMEDIES OF LANDLORD AND TENANT'S DEFAULT
The Landlord and Tenant further covenant and agree as follows:
13.01 REMEDYING BY LANDLORD, NON-PAYMENT AND INTEREST
In addition to all rights and remedies of the Landlord available to it in the
event of any default hereunder by the Tenant either by any other provision of
this Lease or by statute or common law, the Landlord:
(a) shall have the right (but shall not be obligated to) at all times to
remedy or attempt to remedy any default of the Tenant, and in so doing may make
any payments due or alleged to be due by the Tenant to third parties and may
enter upon the Premises to do work or other things therein, and in such event
all expenses of the Landlord in remedying or attempting to remedy such default
shall be payable by the Tenant to the Landlord forthwith upon demand, together
with a fee for supervision for carrying out the Tenant's obligations in an
amount equal to ten (10%) percent of the cost of repairs or other work carried
out by or under the supervision of the Landlord which amount shall be in
addition to the incurred costs of such work together with interest at a rate of
six (6%) percent per annum above the Prime Rate from time to time on the
aggregate of the foregoing from the date funds were expended by the Landlord
until actual payment thereof by the Tenant;
(b) may recover as Additional Rent all sums paid or expenses incurred
hereunder by the Landlord, which ought to have been paid or incurred by the
Tenant, or for which the Landlord hereunder is entitled to reimbursement from
the Tenant, and any interest owing to the Landlord hereunder by any and all
remedies available to it for the recovery of Base Rent in arrears;
(c) if the Tenant shall fail to pay any Rent or other amount from time to
time payable by it to the Landlord hereunder promptly when due, shall be
entitled to interest thereon at a rate of six (6%) percent per annum above the
Prime Rate from time to time from, except where interest commences to accrue
earlier pursuant to Article 13.01(a), the date upon which the same was
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due until actual payment thereof.
13.02 REMEDIES CUMULATIVE
The Landlord may from time to time resort to any or all of the rights and
remedies available to it in the event of any default hereunder by the Tenant,
either by any provision of this Lease or by statute or the general law, all of
which rights and remedies are intended to be cumulative and not alternative, and
the express provisions hereunder as to certain rights and remedies are not to be
interpreted as excluding any other or additional rights and remedies available
to the Landlord by statute or the general law.
13.03 RIGHT OF RE-ENTRY ON TERMINATION
If this Lease shall have become terminated pursuant to any provision hereof, or
if the Landlord shall have become entitled to terminate this Lease and shall
have given notice terminating it pursuant to any provision hereof, then and in
every such case it shall be lawful for the Landlord thereafter to enter into and
upon the Premises or any part thereof in the name of the whole and the same to
have again, repossess and enjoy as of its former estate.
13.04 RE-ENTRY AND TERMINATION
If and whenever the Landlord becomes entitled to or does re-enter the Premises
under any provision of this Lease, the Landlord, in addition to all other rights
and remedies, shall have the right to terminate this Lease forthwith by leaving
upon the Premises notice in writing of such termination, and in such event the
Tenant shall forthwith vacate and surrender the Premises.
13.05 RIGHTS ON RE-ENTRY
Whenever the Landlord becomes entitled to re-enter upon the Premises under any
provision of this Lease, the Landlord in addition to all other rights it may
have shall have the right to enter the Premises, as agent of the Tenant, either
by force or otherwise without being liable for any loss or damage occasioned
thereby and to relet them and to receive the rent therefor and as the agent of
the Tenant to take possession of any furniture or other property thereon and to
sell the same at public or private
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sale without notice and to apply the proceeds thereof and any rent derived from
reletting the Premises, after deducting its costs of conducting such sale and
its cost of reletting, upon account of the Rent due and to become due under this
Lease and the Tenant shall be liable to the Landlord for the deficiency, if any.
13.06 DISTRESS
The Tenant waives and renounces the benefit of any present or future law taking
away or limiting the Landlord's right of distress on the property of the Tenant
and, notwithstanding any such law, the Landlord may seize and sell the Tenant's
goods and chattels, excepting for records and reports of a confidential nature,
whether within the Premises or removed therefrom and apply the proceeds of such
sale upon Rent and all other amounts outstanding including the cost of the
seizure and sale in the same manner as might have been done if such law had not
been passed. The Tenant further agrees that if it leaves the Premises leaving
any Rent or other amounts provided to be paid under this Lease unpaid, the
Landlord, in addition to any remedy otherwise provided at law or in equity, may
seize the goods and chattels of the Tenant at any place to which the Tenant or
any other person may have removed them from the Premises in the same manner as
if such goods and chattels had remained upon the Premises. For the purposes of
making any such distress the Landlord, by itself, its agents and bailiffs may
break open any door or window and enter upon the Premises at any time after Rent
or other monies shall accrue due.
13.07 PAYMENT OF RENT, ETC., ON TERMINATION
If the Landlord shall re-enter and this Lease shall be terminated as provided
for herein, then the Tenant shall pay to the Landlord on demand:
(a) Rent up to the time of re-entry or termination whichever shall be the
later plus accelerated, Rent as herein provided;
(b) all other amounts payable hereunder until such time;
(c) such expenses as the Landlord may incur or have incurred in connection
with re-entering or terminating and reletting, or collecting sums due or payable
by the Tenant or realizing upon
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assets seized including brokerage, legal fees and disbursements (on a
solicitor-client basis), and the expense of keeping the Premises in good order,
repairing the same and preparing them for reletting; and
(d) as liquidated damages for the loss of Rent and other income of the Landlord
expected to be derived from the Lease during the period which would have
constituted the unexpired portion of the Term had it not been terminated, the
amount, if any, by which the rental value of the Premises for such period
established by reference to the terms and provisions of this Lease exceeds the
rental value of the Premises for such period established by reference to the
terms and provisions upon which the Landlord relets them, if such reletting is
accomplished within a reasonable time after termination of this Lease, and
otherwise with reference to all market and other relevant circumstances. Rental
value is to be computed in each case by reducing to present worth at an interest
rate equal to the then current Prime Rate all Rent and other amounts to become
payable for such period and where the ascertainment of amounts to become payable
requires it, the Landlord may make estimates and assumptions of fact which shall
govern unless shown to be unreasonable or erroneous.
ARTICLE 14
CANCELLATION OF INSURANCE AND
EVENTS TERMINATING LEASE
The Landlord and Tenant further covenant and agree as follows:
14.01 CANCELLATION OF INSURANCE
If any policy of insurance upon the Building from time to time effected by the
Landlord shall be cancelled or be about to be cancelled by the insurer or an
insurer shall refuse or decline to place or renew insurance by reason of the use
or occupation of the Premises by the Tenant or any assignee, subtenant or
licensee of the Tenant or anyone permitted by the Tenant to be upon the Premises
and the Tenant after receipt of notice in writing from the Landlord shall have
failed to take such immediate steps in respect of such use or occupation as
shall enable the Landlord to reinstate, renew, replace or avoid cancellation of
(as the case may be), such policy of insurance, without limitation to any
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other right or remedy of the Landlord under this Lease, the Landlord may at its
option, at any time and without notice enter upon the Premises and remove the
said use or condition in which event the Tenant shall forthwith on demand pay to
the Landlord the cost to the Landlord related to such removal together with a
supervisory fee of fifteen (15%) percent of such cost and with interest on the
aggregate of the foregoing from the date funds were expended by the Landlord
until actual payment thereof.
14.02 DEFAULT
If and whenever:
(a) the Rent hereby reserved, or any part thereof, be not paid when due, or
there is non-payment of any other sum which the Tenant is obligated to pay under
any provisions hereof, and in either case such default shall continue for ten
(10) days after notice by the Landlord requiring the Tenant to rectify the same;
or
(b) the Term or any goods, chattels, equipment or other personal property of the
Tenant shall at any time be taken or be exigible in execution or attachment or
if a writ of execution shall issue against the Tenant, or the Tenant shall
attempt or threaten to move its goods, chattels or equipment out of the Premises
(other than in the ordinary course of its business or as permitted hereunder) or
shall, for a period of ten (10) consecutive days (without the prior written
consent of the Landlord) fail to conduct business from the Premises; or
(c) the Premises shall be vacated or abandoned or remain unoccupied for fifteen
(15) days or more while capable of being occupied; or
(d) the Tenant shall become insolvent or commit an act of bankruptcy or become
bankrupt or take the benefit of any Act that may be in force for bankrupt or
insolvent debtors or, if the Tenant is a corporation, become, involved in a
winding up proceeding or other proceeding for the termination of its corporate
existence or if a receiver shall be appointed for the business, property,
affairs or revenues of the Tenant or if any governmental authority should take
possession of the business or property of the Tenant or the Tenant shall make a
general assignment for the benefit of creditors; or
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(e) without the written consent of the Landlord, the Premises shall be used by
any persons other than the Tenant or its permitted assigns or sub-tenants or for
any purpose other than that for which they were leased, or shall be occupied by
any person whose occupancy is prohibited by this Lease; or
(f) the Tenant shall assign or sublet or purport to assign or sublet any portion
or all of the Term or the Premises without the written consent of the Landlord
or control of the Tenant, if a corporation, is changed without the prior written
consent of the Landlord, in either case as required pursuant to Article 9; or
(g) the Tenant shall fail to remedy any condition giving rise to cancellation,
threatened cancellation, reduction or threatened reduction of any insurance
policy on the Property or any part thereof within twenty four (24) hours after
notice thereof by the Landlord; or
(h) the Tenant shall breach or fail to observe or perform any other of the
covenants, agreements, provisions, stipulations and conditions herein to be
observed, performed and kept by the Tenant and shall persist in such failure for
ten (10) days after notice by the Landlord requiring that the Tenant remedy,
correct, desist or comply (or in the case of any such breach which reasonably
would require more than ten (10) days to rectify unless the Tenant shall
commence rectification within the said ten (10) day period and thereafter
promptly and diligently and continuously proceed with the rectification of the
breach); then and in any of such cases, at the option of the Landlord, the full
amount of the current month's and the next three (3) months' monthly Rent shall
immediately become due and payable and the Landlord may without notice or any
form of legal process forthwith re-enter upon and take possession of the
Premises or any part thereof in the name of the whole and remove and sell the
Tenant's goods, chattels and equipment therefrom any rule of law or equity to
the contrary notwithstanding; and the Landlord may seize and sell such goods,
chattels and equipment of the Tenant as are in the Premises or at any place to
which the Tenant or any other person may have removed them in the same manner as
if they had remained and been distrained upon the Premises; and such sale may be
effected in the discretion of the Landlord either by public auction or by
private treaty, and either in bulk or by
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individual item, or partly by one means and partly by another, all as the
Landlord in its entire discretion may decide.
ARTICLE 15
MISCELLANEOUS
The Landlord and Tenant further covenant and agree as follows:
15.01 NOTICES
All notices, demands, requests, consents, approvals and other instruments
required or permitted to be given pursuant to the terms of this Lease shall be
in writing and shall be deemed to have been properly given if personally served
or sent by registered mail (postage prepaid with return receipt requested) or
sent by telegram with report of delivery to the Landlord or the Tenant at the
addresses hereinbefore set forth or in the case of the Tenant at the Premises in
lieu of the address hereinbefore set forth. Provided, however, that such address
may be changed upon five (5) business days written notice thereof, similarly
given, to the other party.
The date of receipt of any such notice, demand, request, consent, approval or
other instrument shall be deemed to be as follows:
(a) in the case of personal service, the date of service;
(b) in the case of registered mail, the fifth (5th) business day following the
date of delivery to the Post Office, provided, however, that in the event of an
interruption of normal mail service receipt shall be deemed to be the fifth
(5th) business day following the date on which normal mail service is restored;
(c) in the case of telegram, the business day next following the day of sending.
Any notices required or permitted to be given by the Landlord pursuant to the
terms of this Lease may be served by the Landlord, its lawyer or its managing
agent.
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15.02 ENTIRE AGREEMENT
The Tenant acknowledges that there are no covenants, representations,
warranties, agreements or conditions expressed or implied relating to this Lease
or the Premises save as expressly set out in this Lease and the Offer to Lease
preceding this Lease. This Lease may not be modified except by an agreement in
writing executed by the Landlord and the Tenant.
15.03 AREA DETERMINATION
In the event that any calculation or determination by the Landlord of the
Rentable Area of any premises (including the Premises) of the Building is
disputed or called into question, it shall be calculated or determined by an
independent professional, whose certification shall be conclusive, the cost of
such remeasurement to be paid by and borne by the party so disputing or calling
into question the previous calculation or determination. The Landlord may at any
time convert all measurements relating to this Lease to metric measurements and
the Lease shall be appropriately modified.
15.04 SUCCESSORS AND ASSIGNS, INTERPRETATION
This Lease and everything herein contained shall enure to the benefit of and be
binding upon the successors and assigns of the Landlord and the heirs,
executors, administrators, successors and permitted assigns of the Tenant.
References to the Tenant shall be read with such changes in gender as may be
appropriate, depending on whether the Tenant is a male or female person or a
firm or corporation, and if the Tenant is more than one person or entity, the
covenants of the Tenant shall be deemed joint and several.
15.05 FORCE MAJEURE
Save and except for the obligations of the Tenant as set forth in this Lease to
pay Base Rent, Additional Rent, rent and any other monies required to be paid to
the Landlord, if either party shall fail to meet its obligations hereunder
within the time prescribed, and such failure shall be caused or materially
contributed to by any cause beyond the reasonable control of such party (but
lack of funds on the part of such party shall be
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deemed not to be a force majeure), such failure shall be deemed not to be a
breach of the obligations of such party hereunder but such party shall use
reasonable diligence to put itself in a position to carry out its obligations
hereunder, and the time for fulfillment of such obligation shall be extended for
the period in which such circumstance operates to delay or prevent the
fulfillment thereof and the other party to this Lease shall not be entitled to
compensation for any inconvenience, nuisance or discomfort thereby occasioned.
15.06 WAIVER
Failure of the Landlord to insist upon strict performance of any of the
covenants or conditions of this Lease or to exercise any right or option herein
contained shall not be construed as a waiver or relinquishment of any such
covenant, condition, right or option, but the same shall remain in full force
and effect. The Tenant undertakes and agrees, for itself and for any person
claiming to be a subtenant or assignee, that the acceptance by the Landlord of
any rent from any person other than the Tenant shall not be construed as a
recognition of any rights not herein expressly granted, or as a waiver of any of
the Landlord's rights, or as an admission that such person is, or as a consent
that such person shall be deemed to be, a subtenant or assignee of this Lease,
irrespective of whether the Landlord or said person claims that such person is a
subtenant or assignee of this Lease. The Landlord may accept rent from any
person occupying the Premises at any time without in any way waiving any right
under this Lease.
15.07 GOVERNING LAW, COVENANTS, SEVERABILITY
This Lease shall be governed by and construed in accordance with the laws of the
Province of British Columbia in which the Building is situate. The Landlord and
the Tenant agree that all of the provisions of this Lease are to be construed as
covenants and agreements as though the words importing such covenants and
agreements were used in each separate section hereof. Should any provision or
provisions of this Lease be illegal or not enforceable, it or they shall be
considered separate and severable from the Lease and its remaining provisions
shall remain in force and be binding upon the parties hereto as though the said
provision or provisions had never been included.
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15.08 HEADINGS, CAPTIONS
The headings and captions appearing in this Lease have been inserted for
convenience of reference only and in no way define, limit or enlarge the scope
or meaning of this Lease or of any provisions hereof.
15.09 TIME FOR PAYMENT
Unless otherwise expressly provided in this Lease, all amounts (other than Rent)
required to be paid by the Tenant to the Landlord pursuant to this Lease shall
be payable on demand at the place designated by the Landlord for payment of Rent
and if not so paid within ten (10) days of such demand be treated as Rent in
arrears.
15.10 TIME OF ESSENCE
Time shall be of the essence of this Lease.
15.11 COMMUNICATIONS EQUIPMENT
The Tenant shall be responsible for the installation and maintenance of its
telephones, computers and special communications equipment. The Landlord gives
the Tenant permission to install one (1) low power microwave dish on the
roof/balcony or within the Premises. All associated costs will be paid for by
the Tenant.
15.12 SIGNAGE
The Tenant at its expense, shall have the right to install two (2) back-lit
signs, location to be mutually agreed to by both parties. Design and size to be
approved by the Landlord in writing.
15.13 RIGHT OF FIRST REFUSAL
As and when any portion of the premises currently occupied by Public Works
Canada, described as the 4th, 5th and 6th floors of the Building, becomes
available for lease, and Public Works Canada decides not to renew or extend its
Lease on all or any portion of the Premises currently occupied by Public Works
Canada, the Landlord will deliver written notice to the Tenant
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setting out the portion of the Premises coming available for Lease, the date it
is available and the terms the Landlord is willing to accept for the Lease,
including, but not limited to Base Rent. The Tenant shall have twenty (20) days
from the receipt of the offer (the "Acceptance Period") to accept the terms of
the offer by notice in writing to the Landlord. If the Tenant decides to lease
only a portion of the Premises becoming available for lease, the Landlord,
acting reasonably, will determine how the Premises may be redemised in a manner
that allows for optimum leasing results and the tenant will have first choice of
premises in the newly demised plan.
Should the Landlord decide to convert the Restaurant space on the 2 d floor into
office space and decides to market this space as office space the Tenant will
have the right to lease this space on the same terms and conditions as set out
above for the 4th, 5th and 6th floors.
If the Tenant is not in agreement with the Landlord's determination of Base
Rent, the Tenant will have five (5) days from the commencement of the
"Acceptance Period" to notify the Landlord in writing and the Landlord will
retain a certified Real Estate Appraiser to prepare an appraisal of Prevailing
Market Rates for Base Rents. The cost of such appraisal to be borne equally by
the Landlord and the Tenant. The Tenant shall have ten (10) days from receipt of
the Appraisal to accept the Offer based on the prevailing market rates set out
by the Appraisal.
In the event the Tenant exercises its rights to lease all or a portion of the
Premises becoming available for lease, the term shall be coterminous with this
Lease.
If the Tenant does not accept the Offer in writing within the Acceptance Period,
or within ten (10) days after receipt of the new or revised Offer resulting from
an Appraisal, if an Appraisal is required, the Landlord shall have the
unrestricted rights to market any or all of the 4th, 5th and 6th floors (and 2 d
floor if it becomes available for office space) to third parties.
15.14 BALCONIES
The Tenant shall have the exclusive use of the balconies accessing the Premises
at no charge for the term of the Lease.
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15.15 LANDLORD'S WORK
The Landlord shall, at its cost, prior to August 15, 1997 and subject to the
Landlord receiving plans and adequate information from the Tenant in order for
the Landlord's Contractor to carry out the Landlord's Work with respect to the
Tenant's layout, will ensure that the decks are power washed and that all
mechanical systems including ductwork, diffusers, grilles and controls are to
base building standards and in good working order. Base building standards shall
be defined as distribution of ducting and diffusers conforming to the existing
layout on the second (2nd) and third (3rd) floors complete with a combination of
diffusers as existing on these two (2) floors. The Landlord will ensure that
there is adequate heating and cooling equipment to adequately heat and cool the
second (2nd) and third (3rd) floors and that said equipment will be in good
running order and be maintained by the Landlord. All light fixtures shall be
cleaned and relamped and reinstalled where applicable to original base building
standards and layout including switching and all shall be in good working
condition. The second floor electrical outlets, lights and plumbing fixtures
shall be good working order appropriate for healthy and standard office
configuration. It is understood and agreed that the above work is to original
base building standards and alterations to conform systems to new Tenant layout
are not included. It is further understood that with the exception of the work
outlined in this Landlord's Work clause, the Tenant is taking the Premises on an
"as is" basis. The second (2nd) floor space is to be gutted, at the Landlord's
cost, at a time that will be determined by the Tenant. However, if the Tenant
requires the work in stages and this increases the original cost to the
Landlord, such cost will be borne by the Tenant.
The Landlord will also complete the following base building improvements prior
to August 15, 1997:
- - Complete planned lobby and elevator upgrades.
- - Upgrade washrooms on the third floor including adding additional washrooms
and showers, as per the plan and scope of work prepared by Office Works
April 27, 1997;
- - For both the second (2nd) and third (3rd) floors, remove all ceiling tiles,
replace all broken or bent ceiling grid with new and make good, provide new
ceiling tiles and stack on each
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floor for installation by others;
- - Demise second (2nd) floor to incorporate the existing corridor into the
Premises and provide complete separation between the second (2nd) floor
Premises and the restaurant - such demising to be properly insulated to slab
in order to prevent restaurant odours from entering into the Premises. The
elevator lobby must be kept for the common use of the restaurant and the
Tenant to meet Building Code. The Landlord will use its best efforts to
minimize restaurant odours from entering into the elevator lobby.
15.16 WORKING DRAWINGS
The Tenant shall be responsible for the preparation of all space plan services
with respect to any new improvements to the Premises. The Tenant shall also
submit to the Landlord working drawings of the proposed Tenant's improvements to
the Premises, which drawings must be approved by the Landlord prior to the
commencement of any such work, such approvals to be timely and not unreasonably
withheld.
15.17 PERMITS
It is the Tenant's responsibility to secure all the necessary building permits
and approvals required by the City of North Vancouver for any new leasehold
improvements. Such permits must be secured before any such work shall commence
on the premises. The Tenant shall also be responsible for making application for
a certificate of occupancy as required by the City of North Vancouver as it
applies to the leasehold improvements.
15.18 FIXTURING PERIOD
The Tenant shall have a two (2) month fixturing period following the substantial
completion of the Landlord's Work and prior to the Commencement Date of the
lease term in which to carry out construction of its leasehold improvements.
Such fixturing period shall be provided free of base rent, operating expenses,
and property taxes.
15.19 EARLY OCCUPANCY
The Tenant shall have the right to occupy the Premises
prior to
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the Commencement Date at no charge, including the ability to occupy the second
(2nd) floor Premises immediately upon removing all the Tenant's subjects should
the Tenant decide to stage the improvement work in two phases. If the leasehold
improvements are not complete on the Commencement Date because of staging the
improvement work, rent shall still commence on the Commencement Date.
15.20 OPTION TO TERMINATE
The tenant has the option to terminate the Lease without penalty at any time
after the expiry of the third (3rd) year of the Lease term (September 30, 2000)
with six (6) months prior written notice delivered to the Landlord.
IN WITNESS WHEREOF the Landlord and Tenant have executed this Lease the day and
year first above written.
354875 B.C. LTD.
c/o SODICAN (B.C.) INC.
Per: /s/ Signed
----------------------------------
Per: (seal)
----------------------------------
Tenant: PIVOTAL SOFTWARE INC. WITNESSED in the presence of:
Per: /s/ Signed /s/ Signed
---------------------------------- ------------------------------
Authorized Signing Officer Name
Per: (seal)
----------------------------------
Authorized Signing Officer
55
<PAGE> 1
EXHIBIT 10.5
STANDARD FORM - NET LEASE
BETWEEN:
NOVO ESPLANADE LIMITED
Landlord
AND:
PIVOTAL SOFTWARE INC.
Tenant
PREMISES: Suite 310 - 260 West Esplanade
------------------------
North Vancouver, B.C.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1..............................................................................1
DEFINITIONS............................................................................1
1.01 Definitions...................................................................1
ARTICLE 2..............................................................................6
PREMISES.............................................................................6
2.01 Premises......................................................................6
ARTICLE 3 .............................................................................6
TERM.................................................................................6
3.01 Term..........................................................................6
3.02 Postponement..................................................................6
ARTICLE 4..............................................................................7
RENT.................................................................................7
4.01 Rent..........................................................................7
4.02 Payment of Rent...............................................................7
4.05 Rent for Irregular Periods....................................................9
4.06 Waiver of Offset..............................................................9
ARTICLE 5..............................................................................9
TENANT'S COVENANTS...................................................................9
5.00 Tenant's Covenants............................................................9
5.01 Rent..........................................................................9
5.02 Permitted Use.................................................................9
5.03 Waste and Nuisance............................................................9
5.04 Insurance Risks...............................................................9
5.05 Condition....................................................................10
5.06 By-Laws......................................................................10
5.07 Fire Exit Doors..............................................................10
5.08 Rules and Regulations........................................................10
5.09 Overholding..................................................................10
5.10 Signs and Directory..........................................................10
5.11 Inspection and Access........................................................10
5.12 Showing Leased Premises......................................................11
ARTICLE 6.............................................................................11
LANDLORD'S COVENANTS................................................................11
6.00 Landlord's Covenants.........................................................11
6.01 Quiet Enjoyment..............................................................11
6.02 Interior Climate Control.....................................................11
6.03 Elevators....................................................................11
6.04 Entrances, Lobbies, Etc......................................................12
6.05 Washrooms....................................................................12
6.06 Janitor Service..............................................................12
6.07 Maintenance of Common Areas..................................................12
ARTICLE 7.............................................................................12
REPAIR AND DAMAGE AND DESTRUCTION...................................................12
7.01 Landlord's Repairs...........................................................12
7.02 Tenants Repairs..............................................................13
7.03 Abatement and Termination....................................................13
ARTICLE 8.............................................................................14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
TAXES AND OPERATING COSTS...............................................................14
8.01 Landlord's Tax Obligations.....................................................14
8.02 Tenant's Tax Obligations.......................................................14
8.03 Tenant's Tax Cost..............................................................14
8.04 Postponement, Etc. of Taxes....................................................15
8.05 Receipts, Etc..................................................................15
8.06 Allocation of Taxes............................................................15
8.07 Operating Cost.................................................................15
8.08 Allocation of Operating Cost...................................................16
8.09 Allocation to Particular Tenant................................................16
ARTICLE 9...............................................................................16
UTILITIES AND ADDITIONAL SERVICES.....................................................16
9.01 Water and Telephone............................................................16
9.02 Additional Services............................................................16
9.03 Extra Operating Costs..........................................................17
9.04 Energy Conservation............................................................17
ARTICLE 10..............................................................................18
LICENSES, ASSIGNMENTS AND SUBLETTINGS.................................................18
10.01 Licenses, Etc.................................................................18
10.02 Assignment and Subletting.....................................................18
10.03 Conditions of Consent.........................................................18
10.04 Change in Control of Tenant...................................................19
ARTICLE 11..............................................................................19
FIXTURES AND IMPROVEMENTS.............................................................19
11.01 Installation of Fixtures and Improvements.....................................19
11.02 Liens and Encumbrances on Fixtures and Improvements...........................19
11.03 Removal of Fixtures and Improvements..........................................20
ARTICLE 12 .............................................................................20
INSURANCE AND LIABILITY ..............................................................20
12.01 Landlord's Insurance .........................................................20
12.02 Tenant's Insurance ...........................................................20
12.03 Limitation of Landlord's Liability ...........................................21
12.04 Limitation of Tenant's Liability .............................................21
12.05 Indemnity of Landlord ........................................................22
ARTICLE 13 .............................................................................22
SUBORDINATION, ATTORNMENT, REGISTRATION AND CERTIFICATES..............................22
13.00 Tenant's Covenants............................................................22
13.01 Sale or Financing of Building.................................................22
13.02 Subordination and Attornment..................................................22
13.03 Registration..................................................................23
13.04 Certificates..................................................................23
13.05 Assignment by Landlord........................................................23
ARTICLE 14..............................................................................23
OCCURRENCE OF DEFAULT.................................................................23
14.01 Unavoidable Delay.............................................................23
14.02 No Admission..................................................................24
14.03 Part Payment..................................................................24
ARTICLE 15..............................................................................24
REMEDIES OR LANDLORD AND TENANT'S DEFAULT.............................................24
15.01 Remedying by Landlord, Non-Payment and Interest...............................24
15.02 Remedies Cumulative...........................................................24
15.03 Right of Re-Entry on Default or Termination...................................24
15.04 Termination and Re-Entry......................................................25
15.05 Payment of Rent, Etc. on Termination..........................................25
15.06 Waiver of Distress............................................................25
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
15.07 Re-Letting, Etc...............................................................25
ARTICLE 16..............................................................................26
EVENTS TERMINATING LEASE..............................................................26
16.01 Cancellation of Insurance.....................................................26
16.02 Prohibited Occupancy, Bankruptcy, Etc.........................................26
ARTICLE 17..............................................................................26
MISCELLANEOUS.........................................................................26
17.01 Notices.......................................................................26
17.02 Extraneous Agreements.........................................................27
17.03 Time of Essence...............................................................27
17.04 Area Determination............................................................27
17.05 Successors and Assigns........................................................27
17.06 Frustration...................................................................27
17.07 Waiver........................................................................27
17.08 Governing Law.................................................................27
17.09 Net Lease.....................................................................28
17.10 Captions......................................................................28
17.11 Acceptance....................................................................28
ARTICLE 18..............................................................................28
SCHEDULES.............................................................................28
18.01 Schedules.....................................................................28
SCHEDULE "A" TO LEASE.................................................................30
SCHEDULE "B" TO LEASE.................................................................31
1. Legal Description of Esplanade Centre............................................31
2. Description of Leased Premises...................................................31
SCHEDULE "C" TO LEASE.................................................................32
RULES AND REGULATIONS...............................................................32
SCHEDULE "D" TO LEASE.................................................................34
OPTION TO RENEW.....................................................................34
SCHEDULE "E" TO LEASE.................................................................36
SPECIAL PROVISIONS..................................................................36
Parking...........................................................................36
Option to Terminate...............................................................36
Right of First Refusal............................................................36
Free Rent.........................................................................36
</TABLE>
<PAGE> 5
THIS LEASE made the 18th day of September, 1997.
BETWEEN: NOVO ESPLANADE LIMITED, a body corporate duly authorized and licensed
to carry on business in the Province of British Columbia.
(hereinafter called the "Landlord")
OF THE FIRST PART
AND PIVOTAL SOFTWARE INC, a body corporate duly authorized and licensed to
carry on business in the Province of British Columbia having an office
at SUITE 310 - 260 WEST ESPLANADE, NORTH VANCOUVER, B.C.
(hereinafter called the "Tenant")
OF THE SECOND PART
WITNESSETH THAT:
ARTICLE I
DEFINITIONS
1.01 DEFINITIONS
In this Lease the following expressions shall have the following meanings:
(a) "Additional Rent" means all sums of money to be paid by the Tenant
whether to the Landlord or otherwise pursuant to this Lease save
and except Annual Rent;
(b) "Additional Services" means the services and supervisions supplied
by the Landlord and referred to in section 9.02 or in any other
provision hereof as Additional Services, and any other services
which from time to time the Landlord supplies to the Tenant and
which are additional to other services which the Landlord has
agreed to supply pursuant to the provisions of this Lease and to
like provisions of other leases of space in the Building or may
elect to supply as included within the standard level of services
available to tenants in the Building generally and in addition to
those normally supplied, the provision of labour and supervision in
connection with the moving of any furniture or equipment of any
tenant and the making of any repairs or alterations for any tenant
and maintenance or other services not normally furnished to tenants
generally;
(c) "Annual Rent" means the annual rent reserved hereunder payable by
the Tenant as set forth in section 4.01(a);
(d) "Building" means that certain building and those certain areas and
improvements and amenities located on the Land and having the
municipal address of 260 West Esplanade, North Vancouver, British
Columbia;
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(e) "Capital Tax" means any tax or excise imposed upon the Landlord
which is measured by or based in whole or in part upon the capital
employed by the Landlord at and after the date of the substantial
completion of construction of the Building, computed as if the
amount of such tax or excise were that amount due if the Building
were the only real property of the Landlord and includes the amount
of any capital or place of business tax levied by any applicable
taxing authority against the Landlord with respect to the Building;
(f) "Commencement Date of the Term" means the date the Lease commences
as set forth in section 3.01;
(g) "Cost of Additional Services" shall mean in the case of Additional
Services provided by the Landlord a reasonable charge made therefor
by the Landlord which shall not exceed the cost of obtaining such
services from independent contractors and in the case of Additional
Services by independent contractors the Landlord's total cost of
providing Additional Services to the Tenant including the cost of
all labour (including salaries, wages and fringe benefits) and
materials and other direct expenses incurred, the cost of
supervision and other indirect expenses capable of being allocated
thereto (such allocation to be made upon a reasonable basis) and
all other out-of-pocket expenses made in connection therewith
including amounts paid to independent contractors, plus an
administration fee equal to 15% thereof;
(h) "Insured Damage" means that part of the damage occurring to any
portion of the Leased Premises for which the Landlord is
responsible of which the entire cost of repair is actually
recoverable by the Landlord under a policy of insurance in respect
of fire and other perils from time to time effected by the Landlord
or, if and to the extent that the Landlord has not insured and is
deemed to be a co-insurer or self-insurer pursuant to section
12.01, would have been recoverable had the Landlord effected
insurance in respect of perils and to amounts and on terms for
which it is deemed to be insured;
(i) "Land" means the parcels or tracts of land described in Schedule B;
(j) "Leased Premises" means, subject to section 2.02, that portion of
the second and third floors of the Building aggregating 8,627
square feet (801.44 square meters) of Rentable Area as shown
outlined in red on the plan attached as Schedule A hereto and
having the municipal address of Suites 200 & 310 - 260 West
Esplanade, North Vancouver, B.C. The exterior face of the Building
and any space in the Leased Premises used for stairways or
passageways to other premises, stacks, shafts, pipes, conduits,
ducts or other building facilities, heating, electrical, plumbing,
air conditioning and other Building systems supplied by the
Landlord for use in common with other tenants are expressly
excluded from the Leased Premises;
(k) "Leasehold Improvements" means all fixtures, improvements,
installations, alterations and additions from time to time made,
erected or installed in the Leased Premises with the exception of
trade fixtures and furniture and equipment not of the nature of
fixtures, but includes all partitions however fixed (including
moveable partitions) and includes all wall-to-wall carpeting with
the exception of such carpeting where laid over vinyl tile or other
finished floor and installed so as to be readily removable without
damage;
(l) "Market Rent for the Leased Premises" means the current market
rental value of premises similar to the Leased Premises including
similar leasehold improvements in buildings of similar age and
class in the geographic area in which the Building is located as
between persons dealing at arm's length;
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<PAGE> 7
(m) "Normal Business Hours" means the hours from 8:00 a.m. to 6:00 p.m.
Monday to Friday, inclusive, of each week, holidays excepted;
(n) "Office Portion of the Building" means that portion of the Building
designated from time to time by the Landlord for rental for office
purposes;
(o) "Operating Cost" means the total of all expenses, calculated in
accordance with generally accepted accounting principles, without
duplication, incurred in the complete maintenance and operation of
the Building and the Land, whether incurred by or on behalf of any
owner or owners of parts of or interests in the Building and the
Land with whom the Landlord may from time to time have agreements
for the pooling or sharing of costs or by or on behalf of tenants
of space in the Building with whom the Landlord may from time to
time have agreement whereby in respect of their premises such
tenants perform any cleaning, maintenance or other work or services
usually performed by the Landlord, and which expenses if directly
incurred by the Landlord would have been included in Operating
Cost. Operating Cost (without limiting the generality of the
foregoing) shall:
(i) include (but subject to certain deductions as hereinafter
provided) the cost of providing complete supervisory and all
maintenance services, the cost of operating elevators, the
cost of heating, cooling and ventilating all space including
both rentable and non-rentable areas, the cost of providing
hot and cold water, electricity (including lighting),
telephone and other utilities and services to both rentable
and non-rentable areas, the cost of cleaning, maintaining
and servicing in all respects all electric lighting fixtures
in the Building (including both rentable and non-rentable
areas) and the cost of replacement of electric light bulbs,
tubes, starters and ballasts (such to be within the
exclusive right of the Landlord), the cost of all repairs
and replacements including repairs and replacements of a
capital nature whether to the Building or the Land or any
part thereof, the cost of window cleaning and providing
security and supervision, the costs of all insurance for
liability or fire or other casualties (and if the Landlord
shall elect in whole or in part to self-insure, the amount
of reasonable contingency reserves not exceeding the amount
of premiums which would otherwise have been incurred in
respect of the risk undertaken), Capital Tax, accounting
costs incurred in connection with maintenance and operation
including computations required for the imposition of
charges to tenants and audit charges required to be incurred
for the conclusive determination of any costs hereunder, and
the reasonable rental value (having regard to the rentals
prevailing from time to time for similar space) of space
utilized by the Landlord in connection with the operation or
maintenance of the Building and the Land, the amount of all
salaries, wages and fringe benefits paid to employees
engaged in the maintenance or operation of the Building and
the Land, amounts paid to independent contractors for any
services in connection with such maintenance or operation,
the cost of direct supervision and of management and other
indirect expenses to the extent allocable to the maintenance
and operation of the Building and the Land, the cost to the
Landlord of capital improvements made for the general
benefit of tenants of the Building including improvements
intended to reduce Operating Cost, to increase safety and to
improve the maintenance and operation of the Land and
Building, the cost of any management fees and managing
agent's fees, interest (at the prime rate quoted by the
Landlord's bank at Toronto for loans to creditworthy and
substantial commercial customers) on the unamortized portion
of capital expenditures
3
<PAGE> 8
made under this subparagraph, and all other expenses of
every nature incurred in connection with the maintenance and
depreciation of the Building and the Land;
(ii) exclude Taxes (other than Capital Tax), debt service,
depreciation (except depreciation of costs incurred for
repairing and replacing fixtures, equipment and facilities
servicing or comprising the Building (including the
heating, ventilating, air conditioning and climate control
systems servicing the Building) which by their nature
require periodic repair or replacement and are not charged
fully in the year in which they are incurred at rates
determined from time to time by the Landlord in accordance
with sound accounting principles), expenses properly
chargeable to capital account (except capital expenditures
that are made by the Landlord with the intention of reducing
Operating Cost, increasing safety or improving the
maintenance and operation of the Land and Building), costs
determined by the Landlord from time to time to be fairly
allocable to the correction of construction faults or
initial maladjustments in operating equipment, the Cost of
Additional Services for any tenant of the Building, and all
management cost not allocable to the actual maintenance and
operation of the Building (such as in connection with
leasing and rental advertising).
In computing Operating Cost there shall be credited as a deduction
the amounts of proceeds of insurance relating to Insured Damage and
other damage actually recovered by the Landlord (or if the Landlord
is deemed to self-insure, a corresponding application of reserves)
applicable to such damage, recovery of electricity and light bulb
and tube and ballast replacement, in each case to the extent that
the cost thereof was included therein. If there are unoccupied
premises in the Building, the Landlord may make an equitable
adjustment of the amount of Operating Cost by reason of the fact
that unoccupied premises occasion lower cost to the end that the
tenants of the occupied premises will bear the actual amount of the
Operating Cost attributable to their premises. Any report of the
Landlord's auditor or other licensed public accountant appointed by
the Landlord for the purpose shall be conclusive as to the amount
of Operating Cost for any period to which such report relates;
(p) "Operating Cost" in any fiscal period means an amount equal to the
aggregate of all Operating Cost for such fiscal period;
(q) "Rent" means and includes the Annual Rent, Additional Rent and all
other sums payable by the Tenant to the Landlord under this Lease;
(r) "Rentable Area" in the case of a whole floor of the Building shall
include all area within the outside walls and shall be computed by
measuring to the inside surface of the glass of the outer Building
walls without deduction for columns and projections necessary to
the Building, and shall include the Service Areas within the
exclusively serving the floor, but shall not include stairs and
elevator shafts supplied by the Landlord for use in common with
other tenants, and flues, stacks, pipe shafts or vertical ducts
within their enclosing walls;
(s) "Rentable Area" in the case of part of a floor of the Building
shall include all area occupied and shall be computed by measuring
from the inside surface of the glass of the outer Building walls to
the office side of corridors or other permanent partitions or to
the lease line separating the Leased Premises from any other area
of the Building or Service Areas where no wall or partition exists
and to the centre of partitions which separate the area occupied
form adjoining Rentable Areas without deduction for columns and
projections necessary to the Building or for any storefront or
doorway area recessed from the lease line and shall include a
portion of the
4
<PAGE> 9
Service Areas within and exclusively serving only the floor, but
shall not include stairs and elevator shafts supplied by the
Landlord for use in common with other tenants, and flues, stacks,
pipe shafts and vertical ducts within their enclosing walls within
the area occupied; the portion of the Service Areas to be included
in the Rentable Area of the Leased Premises shall be equal to the
area of such Service Areas times a fraction, the numerator of which
is the area of the Leased Premises and the denominator of which is
the area of all leasable premises (including the Leased Premises)
on the floor, with such areas to be calculated in accordance with
this subsection without reference to Service Areas;
(t) "Rental Taxes" means any tax or duty imposed upon the Landlord
which is measured by or based in whole or in part directly upon the
Rent payable under this lease, whether existing at the date hereof
or hereinafter imposed by any governmental authority, including
without limitation value added tax, business transfer tax, retail
sales tax, federal sales tax, excise taxes or duties, or any tax
similar to any of the foregoing.
(u) "Retail Portion of the Building" means that portion of the Building
designated from time to time by the Landlord for rental for retail
purposes;
(v) "Service Areas" shall mean the area of corridors elevator lobbies,
service elevator lobbies, refuse area, washrooms, air-cooling
rooms, fan rooms, janitor's closets, telephone and electrical
closets and other closets on the floor serving the Leased Premises
and other premises on such floor should the floor be a multiple
tenancy floor;
(w) "Taxes" means all taxes, rates duties, levies and assessments
whatsoever, whether municipal, parliamentary or otherwise, levied,
imposed or assessed against the Building and the Land or upon the
Landlord in respect thereof or from time to time levied, imposed or
assessed in the future in lieu thereof, including those levied,
imposed or assessed for education, schools and local improvements,
and including all costs and expenses (including legal and other
professional fees and interest and penalties on deferred payments)
incurred by the Landlord in good faith in contesting, resisting or
appealing any taxes, rates, duties, levies or assessments, but
excluding taxes and license fees in respect of any business carried
on by tenants and occupants of the Building (including the
Landlord) and income or profits taxes upon the income of the
Landlord to the extent such taxes are not levied in lieu of taxes,
rates, duties, levies and assessments against the Building or the
Land or upon the Landlord in respect thereof and shall also include
any and all taxes which may in future be levied in lieu of taxes as
hereinbefore defined;
(x) "Tax Cost" for any calendar year means an amount equal to the
aggregate, without duplication, of all Taxes for such calendar
year;
(y) "Tenant's Particular Share" means the fraction, the numerator of
which is the Rentable Area of the Leased Premises and the
denominator of which is the Rentable Area of the portion of the
Building (i.e. Office Portion of the Building or Retail Portion of
the Building) in which the Leased Premises are located;
(z) "Tenant's Share" means the fraction, the numerator of which is the
Rentable Area of the Leased Premises and the denominator of which
is the Total Rentable Area;
(aa) "Term" means the term of this Lease set forth in section 3.01 and
any renewal or extension thereof and any period of permitted
overholding;
5
<PAGE> 10
(bb) "Total Rentable Area" shall mean the total Rentable Area of the
Building, whether rented or not, calculated as if the Building were
entirely occupied by tenants renting whole floors. The lobby and
entrances on the ground floor and subservice floors used in common
by tenants and areas rented or to be rented for automobile parking
or for storage shall be excluded from the foregoing calculations.
The calculation of the Total Rentable Area, whether rented or not,
shall be adjusted from time to time to give effect to any change.
ARTICLE 2
PREMISES
2.01 PREMISES
In consideration of the rents, covenants and agreements hereinafter reserved and
contained on the part of the Tenant to be paid, observed and performed, the
Landlord hereby demises and leases the Leased Premises to the Tenant.
ARTICLE 3
TERM
3.01 TERM
To have and to hold the Leased Premises for the term of five (5) years,
commencing on the 1st day of October, 1997, and to be fully completed and ended
on the 30th day of September, 2002.
3.02 POSTPONEMENT
If the Leased Premises are not ready for occupancy on the Commencement Date of
the Term, then the Tenant shall take possession of the Leased Premises as soon
as the same are ready for occupancy as determined by the Landlord or his
architect, and this Lease shall not be void or voidable nor shall the Landlord
be liable for any loss or damage resulting from the delay in the Tenant's
obtaining possession, and in such event the Term of the Lease shall commence on
the Commencement Date of the Term but Rent shall not commence until the Leased
Premises are ready for occupancy.
6
<PAGE> 11
ARTICLE 4
RENT
4.01 RENT
YIELDING AND PAYING THEREFOR unto the Landlord, at the office of the Landlord's
building manager, or at such other place as the Landlord may direct in writing,
during the Term in lawful money of Canada without any setoff, compensation or
deduction whatsoever on the days and at the times hereinafter specified, Rent
which shall include the aggregate of the sums specified in clauses (a) and (b)
below:
Annual Rent
(a) SUBJECT TO THE RECEIPT OF ANY FREE RENT PURSUANT TO SCHEDULE "E",
the Annual Rent of ONE HUNDRED AND TWENTY THOUSAND SEVEN HUNDRED
AND SEVENTY-EIGHT DOLLARS ($120,778.00) per annum payable in equal
consecutive monthly instalments of TEN THOUSAND AND SIXTY-FOUR
DOLLARS AND EIGHTY-THREE CENTS (10,064.83) in advance of the first
day of each and every month during years ONE to FIVE of the Term;
and
Additional Rent
(b) TOGETHER WITH the aggregate of the following:
(i) Rental Taxes, if any;
(ii) the Tenant's Share of Tax Cost; and
(iii) The Tenant's Particular Share of Operating Cost.
4.02 PAYMENT OF RENT
The Rent provided for in this Article 4 shall be paid by the Tenant as follows:
(a) The Annual Rent shall be paid in equal consecutive monthly
instalments in advance of the first day of each and every month
during the Term. The first monthly instalment of the Annual Rent
shall be paid by the Tenant on the Commencement Date of the Term.
Where the Commencement Date of the Term is the first day of a
month, such instalment shall be in respect of such month; where the
Commencement Date of the Term is not the first day of a calendar
month, the Annual Rent for the period from the Commencement Date of
the Term to the first day of the next ensuing calendar month shall
be pro-rated on a per diem basis and paid on the first day of such
month and the instalment of the Annual Rent paid upon the
Commencement Date of the Term shall be in respect of the Annual
Rent for the first full calendar month of the Term; thereafter in
either case subsequent monthly instalments shall each be in advance
on the first day of each ensuing calendar month during the Term.
Additional Rent Payments
(b) The amount of Additional Rent pursuant to section 4.01 (b) which
the Tenant is to pay shall be estimated by the Landlord for such
period as the Landlord may determine. The Tenant agrees to pay to
the Landlord such amount in monthly instalments, in advance during
such period on the dates and at the times for payment of the Annual
Rent provided for in this Lease. As soon as
7
<PAGE> 12
reasonable possible after the end of the period for which such
estimated payments have been made, the Tenant shall be advised of
the actual amount required to be paid as Additional Rent pursuant
to section 4.01(b) and if necessary an adjustment shall thereupon
be made between the parties.
Basis of Determining Rent
(c) The Tenant acknowledges that the Annual Rent is calculated on the
basis of the Rentable Area of the Leased Premises being 8,627
square feet at a rate of $14.00 for each square foot (801.44 square
meters at a rate of $150.64 for each square meter) of Rentable
Area. The Tenant agrees that the Landlord may adjust the Annual
Rent in the event that the Rentable Area of the Leased Premises is
found to be different than the Rentable Area stated above.
8
<PAGE> 13
4.05 RENT FOR IRREGULAR PERIODS
All Rent reserved herein shall be deemed to accrue from day to day, and if for
any reason it shall become necessary to calculate Rent for irregular periods of
less than one year an appropriate pro-rata adjustment shall be made on a daily
basis in order to compute Rent for such irregular period.
4.06 WAIVER OF OFFSET
The Tenant hereby waives and renounces any and all existing and future claims,
offsets and compensation against any Rent and agrees to pay such Rent regardless
of any claim, offset or compensation which may be asserted by the Tenant or on
its behalf.
ARTICLE 5
TENANT'S COVENANTS
5.00 TENANT'S COVENANTS
The Tenant covenants with the Landlord as follows:
5.01 RENT
To pay the Annual Rent and Additional Rent on the days and in the manner
provided herein.
5.02 PERMITTED USE
To use the Leased Premises only for the purpose of an office for the conduct of
the Tenant's business of general commercial purposes and not to use or permit to
be used the Leased Premises or any part thereof for any other purpose or
business.
5.03 WASTE AND NUISANCE
Not to commit or permit any waste or injury to the Leased Premises including the
Leasehold Improvements and trade fixtures therein, any overloading of the floors
thereof, any nuisance therein or any use or manner of use causing annoyance to
other tenants and occupants of the Building.
5.04 INSURANCE RISKS
Not to do, omit to do or permit to be done or omit to be done upon the Leased
Premises anything which would cause the Landlord's cost of insurance to be
increased (and, without waiving the foregoing prohibition, the Landlord may
demand and the Tenant shall pay to the Landlord upon demand the amount of such
increase of cost caused by anything so done or omitted to be done) or which
shall cause any policy of insurance to be subject to cancellation.
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5.05 CONDITION
Not to permit the Leased Premises to become untidy, unsightly or hazardous or
permit unreasonable quantities of waste or refuse to accumulate therein.
5.06 BY-LAWS
To comply at its own expense with all municipal, federal, provincial, sanitary,
fire and safety laws, by-laws, regulations and requirements pertaining to the
operation and use of the Leased Premises, the condition of the Leasehold
Improvements, trade fixtures, furniture and equipment installed therein and the
making by the Tenant of any repairs, changes or improvements therein.
5.07 FIRE EXIT DOORS
To permit the installation by the Landlord at the cost of the Tenant of any
door in any wall of the Leased Premises necessary to comply with the
requirements of any statute, law, by-law, ordinance, order or regulation
referred to in section 5.06, and to permit ingress and egress to and from the
Leased Premises by the Landlord or by other tenants of the Landlord or by their
respective employees, servants, workmen and invitees, by use of such doors in
case of fire or emergency.
5.08 RULES AND REGULATIONS
To observe, and to cause its employees, invitees and others over whom the Tenant
can reasonably be expected to exercise control to observe the Rules and
Regulations attached as Schedule "C" hereto, and such further and other
reasonable rules and regulations and amendments and changes therein as may
hereafter be made by the Landlord of which notice in writing shall be given to
the Tenant and all such rules and regulations shall be deemed to be incorporated
into and form part of this Lease.
5.09 OVERHOLDING
That if the Tenant shall continue to occupy the Leased Premises after the
expiration of this Lease without any further written agreement and without
objection by the Landlord, the Tenant shall be a monthly tenant at a monthly
rent equal to 150% of the monthly rent payable by the Tenant as set forth in
Article 4 hereof during the last month of the Term and (except as to length of
tenancy) on and subject to the provisions and conditions herein set out. NOT
WITHSTANDING THE FOREGOING, IF THE LANDLORD AND THE TENANT ARE IN ARBITRATION
PURSUANT TO SCHEDULE "D" HERETO, THE MONTHLY RENT PAYABLE BY THE TENANT DURING
SUCH PERIOD SHALL BE THE SAME AS THE MONTHLY RENT PAYABLE IN THE LAST MONTH OF
THE TERM UNTIL THE NEW RENTAL VALUE IS DETERMINED PURSUANT TO THE ARBITRATION.
5.10 SIGNS AND DIRECTORY
Not to paint, display, inscribe, place or affix any sign, symbol, notice or
lettering of any kind anywhere outside the Leased Premises (whether on the
outside or inside of the Building) or within the Leased Premises so as to be
visible from the outside of the Leased Premises, with the exception only of a
building standard identification sign at or near the entrance of the Leased
Premises and a directory listing in the main lobby of the Building, in each case
containing only the name of the Tenant, and to be subject to the approval of the
Landlord as to design, size and location. Such identification sign and directory
listing shall be installed at the expense of the Tenant, and the Landlord
reserves the right to install them as an Additional Service.
5.11 INSPECTION AND ACCESS
To permit the Landlord at any time and from time to time to enter and to have
its authorized agents, employees and contractors enter the Leased Premises for
the purpose of inspection, window cleaning, maintenance, making repairs,
alterations or improvements to the Leased Premises or the Building, or to have
access to utilities and services (including any underfloor header ducts and
access panels which the
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Tenant agrees not to obstruct) or to determine the electric light and power
consumption by the Tenant in the Leased Premises and the Tenant shall provide
free and unimpeded access for the purpose, and shall not be entitled to
compensation for any inconvenience, nuisance or discomfort caused thereby, but
the Landlord in exercising its rights hereunder shall proceed to the extent
reasonably possible so as to minimize interference with the Tenant's use and
enjoyment of the Leased Premises.
5.12 SHOWING LEASED PREMISES
To permit the Landlord and its authorized agents and employees to show the
Leased Premises to prospective tenants UPON PROVIDING AT LEAST TWENTY-FOUR (24)
HOURS NOTICE TO THE TENANT AND during the Normal Business Hours of the last six
months of the Term.
ARTICLE 6
LANDLORD'S COVENANTS
6.00 LANDLORD'S COVENANTS
The Landlord covenants with the Tenant as follows:
6.01 QUIET ENJOYMENT
The Landlord for itself, its successors and assigns, hereby covenants with the
Tenant, its successors and assigns that it and they, paying the rent hereby
reserved, and performing the covenants on its and their part contained, shall
and may peaceably possess and enjoy the Leased Premises for the Term hereby
granted, without any interruption or disturbance from the Landlord, its
successors, or assigns, or any other persons lawfully claiming by, from,
through, or under it, or any of them.
6.02 INTERIOR CLIMATE CONTROL
To provide to the Leased Premises during Normal Business Hours, by means of a
system for heating and cooling, filtering and circulating air, processed air in
such quantities, at such temperatures as shall maintain in the Leased Premises
conditions of reasonable temperature and comfort in accordance with good
standards of interior climate control generally pertaining at the date of this
Lease applicable to similar buildings based on normal occupancy of premises for
office purposes, but the Landlord shall have no responsibility for any
inadequacy of performance of the system if the Leased Premises depart from the
design criteria for such system, namely that the occupancy will not exceed one
person for every 100 square feet of floor area, that the electrical power
consumed in the Leased Premises for all purposes shall not exceed 3.0 watts per
square foot of floor area, that the Tenant shall not have installed partitions
or other installations in locations which interfere with the proper operation of
the system, that the window coverings on exterior windows shall be fully closed
while such windows are exposed to direct sunlight, and that the Landlord shall
have no responsibility to provide for the removal of smoke, dust or odors which
originate from within the Leased Premises. If the use of the Leased Premises
does not accord with the design criteria and changes in the system are feasible
and desirable to accommodate such use the Landlord may, and at the written
request of the Tenant shall, make such changes and the entire expense of such
changes will be reimbursed by the Tenant to the Landlord.
6.03 ELEVATORS
Subject to the supervision of the Landlord, to furnish for use by the Tenant and
its employees and invitees in common with other persons entitled thereto
passenger elevator service to the Leased Premises, and to furnish for the use of
the Tenant in common with others entitled thereto at reasonable intervals and at
such hours as the Landlord may select, elevator service to the Leased Premises
for the carriage of furniture, equipment, deliveries and supplies, provided
however, that if the elevators shall become inoperative or shall
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be damaged or destroyed the Landlord shall have a reasonable time within which
to repair such damage or replace such elevator and the Landlord shall repair or
replace the same as soon as reasonably possible, but shall in no event be liable
for indirect or consequential damages or other damages for personal discomfort
or illness during such period of repair or replacement.
6.04 ENTRANCES, LOBBIES, ETC.
To permit the Tenant and its employees and invitees during Normal Business Hours
in common with others entitled thereto to use the common entrances, lobbies,
stairways and corridors of the Building giving access to the Leased Premises
(subject to the Rules and Regulations referred to in section 5.08 and such other
reasonable limitations as the Landlord may from time to time impose).
6.05 WASHROOMS
To permit the Tenant and its employees and invitees in common with others
entitled thereto to use the washrooms in the Building on the floor and floors on
which the Leased Premises are situated.
6.06 JANITOR SERVICE
To cause when reasonably necessary from time to time the floors and windows of
the Leased Premises to be swept and cleaned and the desks, tables and other
furniture of the Tenant to be dusted all in keeping with a first-class office
building but with the exception of the obligation to cause such work to be done,
the Landlord shall not be responsible for any act of omission of commission on
the part of the persons employed to perform such work; such work shall be done
at the Landlord's direction without interference by the Tenant, its servants or
employees.
6.07 MAINTENANCE OF COMMON AREAS
To cause the elevators, common entrances, lobbies, stairways, corridors,
washrooms and other parts of the Building from time to time provided for common
use and enjoyment to be swept, cleaned or otherwise maintained substantially in
keeping with a first-class office building.
ARTICLE 7
REPAIR AND DAMAGE AND DESTRUCTION
7.01 LANDLORD'S REPAIRS
The Landlord covenants with the Tenant:
(a) subject to section 7.03(b), to keep in a good and reasonable state
of repair, and consistent with the general standards of first-class
office buildings in the city in which the Building is located:
(i) the Building (other than the Leased Premises and premises of
other tenants) including the foundation, roof, exterior
walls including glass portions thereof, the systems for
interior climate control, the elevators, entrances,
stairways, corridors and lobbies and washrooms from time to
time provided for use in common by the Tenant and other
tenants of the Building and the systems provided for
bringing utilities to the Leased Premises,
(ii) the structural members or elements of the Leased Premises;
and
(b) to repair defects in construction performed or installations made
by the Landlord in the Leased Premises and Insured Damage.
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7.02 TENANTS REPAIRS
The Tenant covenants with the Landlord:
(a) to keep in a good and reasonable state of repair and consistent
with the general standards of first-class office buildings in the
city in which the Building is located, but subject to section
7.03(b) the Leased Premises including all Leasehold Improvements
and all trade fixtures therein and all glass therein including
glass portions of exterior walls thereof, but with the exception of
structural members or elements of the Leased Premises and defects
in construction performed or installations made by the Landlord and
Insured Damage therein;
(b) that the Landlord may enter and view the state of repair, and that
the Tenant will repair according to notice in writing, and that the
Tenant will leave the Leased Premises in a good and reasonable
state of repair, subject always to the exceptions referred to in
section 7.02(a); and
(c) that if any part of the Building including the systems for interior
climate control and for the provision of utilities becomes out of
repair, damaged or destroyed through the negligence or misuse of
the Tenant or its employees, invitees or others over which the
Tenant can reasonably be expected to exercise control, the expense
of repairs or replacements thereto necessitated thereby shall be
reimbursed to the Landlord promptly upon demand.
7.03 ABATEMENT AND TERMINATION
It is agreed between the Landlord and the Tenant that:
(a) in the event of damage to the Leased Premises or to the Building
and if the damage is such that the Leased Premises or any
substantial part thereof are rendered not reasonably capable of use
and occupancy by the Tenant for the purposes of its business for
any period of time in excess of ten days, then:
(i) unless the damage was caused by the fault or negligence of
the Tenant of its employees, invitees or others under its
control, from and after the date of occurrence of the damage
and until the Leased Premises are again reasonably capable
of use and occupancy as aforesaid, Rent shall abate from
time to time in proportion to the part or parts of the
Leased Premises not reasonably capable of use and occupancy;
and
(ii) unless this Lease is terminated as hereinafter provided, the
Landlord or the Tenant, as the case may be (according to the
nature of the damage and their respective obligations to
repair as provided in sections 7.01 and 7.02 hereof) shall
repair such damage with all reasonable diligence, but to the
extent that any part of the Leased Premises is not
reasonably capable of such use and occupancy by reason of
damage which the Tenant is obligated to repair hereunder,
any abatement of rent to which the Tenant is otherwise
entitled hereunder shall not extend later than the time by
which, in the reasonable opinion of the Landlord, repairs by
the Tenant ought to have been completed with reasonable
diligence; and
(b) if either:
(i) the Leased Premises; or
(ii) premises whether of the Tenant or other tenants of the
Building comprising in the aggregate half or more of the
Rentable Area of the Building;
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are substantially damaged or destroyed by any cause to the extent
such that in the reasonable opinion of the Landlord they cannot be
repaired or rebuilt within 240 days after the occurrence of the
damage or destruction, the Landlord may at its option, exercisable
by written notice to the Tenant given 30 days after the occurrence
of such damage or destruction, terminate this Lease, in which event
neither the Landlord nor the Tenant shall be bound to repair as
provided in sections 7.01 and 7.02 hereof, and the Tenant shall
instead deliver up possession of the Leased Premises to the
Landlord with reasonable expedition but in any event within 60 days
after the delivery of such notice of termination, and rent shall be
apportioned and paid to the date upon which possession is so
delivered up (but subject to any abatement to which the Tenant may
be entitled under section 7.03(a) by reason of the Leased Premises
having been rendered in whole or in part not reasonably capable of
use and occupancy), but otherwise the Landlord or the Tenant as the
case may be (according to the nature of the damage and their
respective obligations to repair as provided in sections 7.01 and
7.02) shall repair such damage with such reasonable diligence.
ARTICLE 8
TAXES AND OPERATING COSTS
8.01 LANDLORD'S TAX OBLIGATIONS
The Landlord covenants with the Tenant subject to the provisions of section
8.02, to pay to the taxing authority or authorities having jurisdiction, all
Taxes.
8.02 TENANT'S TAX OBLIGATIONS
The Tenant covenants with the Landlord:
(a) to pay when due, all taxes, business taxes, business licence fees,
and other taxes, rates, duties or charges levied, imposed or
assessed by lawful authority in respect of the use and occupancy of
the Leased Premises by the Tenant, the business or businesses
carried on therein, or the equipment, machinery or fixtures brought
therein by or belonging to the Tenant, or to anyone occupying the
Leased Premises with the Tenant's consent, or from time to time
levied, imposed or assessed in the future in lieu thereof, and to
pay to the Landlord upon demand the portion of any tax, rate, duty
or charge levied or assessed upon the Land and Building that is
attributable to any equipment, machinery or fixtures on the Leased
Premises which are not the property of the Landlord, or which may
be removed by the Tenant;
(b) to pay promptly to the Landlord when demanded or otherwise due
hereunder all Taxes in respect of all Leasehold Improvements in the
Leased Premises;
(c) to pay to the Landlord in the manner specified in section 4.02(b)
the Tenant's Share of the Tax Cost.
8.03 TENANT'S TAX COST
After the commencement of the Term of this Lease and prior to the commencement
of each calendar year thereafter which commences during the Term the Landlord
may estimate the Tax Cost for the ensuing calendar year or (if applicable)
broken portion thereof, as the case may be, to become payable under Section
8.02, and notify the Tenant in writing of such estimate. When the Tax Cost for
the calendar year or broken portion of the calendar year in question becomes
finally determined the Landlord shall recalculate the same.
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If the Tenant has overpaid the Tenant's Share of Tax Cost, the Landlord shall
refund any excess paid but if any balance remains unpaid, the Landlord shall fix
monthly instalments for the then remaining balance of such calendar year or
broken portion thereof such that, after giving credit for instalments paid by
the Tenant hereunder on the basis of such estimate, the Tenant's Share of the
Tax Cost will have been entirely paid during such calendar year or broken
portion thereof. If for any reason the Tax Cost is not finally determined within
such calendar year or broken portion thereof, the parties shall make the
appropriate readjustment when such Tax Cost becomes finally determined. Any
report of the Landlord's auditor as to the Tax Cost shall be conclusive as to
the amount thereof for any period to which such report relates.
8.04 POSTPONEMENT, ETC. OF TAXES
The Landlord may postpone payment of any Taxes payable by it pursuant to section
8.01 and the Tenant may postpone payment of any Taxes, rates, duties, levies and
assessments payable by it under sections 8.02(a) and (b), in each case to the
extent permitted by law and if prosecuting in good faith any appeal against the
imposition thereof, and provided in the case of a postponement by the Tenant
that if the Building or any part thereof or the landlord shall become liable to
assessment, prosecution, fine or other liability the Tenant shall have given
security in a form and of an amount satisfactory to the Landlord in respect of
such liability and such undertakings as the Landlord may reasonably require to
ensure payment thereof.
8.05 RECEIPTS, ETC.
Whenever requested by the Landlord the Tenant will deliver to it receipts for
payment of all taxes, rates, duties levies and assessments payable by the Tenant
pursuant to sections 8.02(a) and (b) hereof and furnish such other information
in connection therewith as the Landlord may reasonably require.
8.06 ALLOCATION OF TAXES
If a separate allocation of Taxes is not issued by the relevant taxing authority
with respect to any Leasehold Improvements, the Landlord or the Tenant may from
time to time apply to the taxing authority for a determination of the portion of
Taxes attributable to such Leasehold Improvements, which determination shall be
conclusive for the purposes of this Article. In the event that no such
determination may be obtained from the taxing authority, the Landlord shall
establish the portion of Taxes attributable to such Leasehold Improvements using
the then current established principles of assessment used by the taxing
authority or such other method which is fair, reasonable and equitable as
determined by the Landlord.
8.07 OPERATING COST
During the Term of the Lease, the Tenant shall pay to the Landlord in the manner
set forth in this section the Tenant's Particular Share of the Operating Cost
allocated pursuant to section 8.08 to that portion of the Building in which the
Leased Premises are located. Prior to the commencement of the Term of this Lease
and the commencement of each fiscal period selected by the Landlord thereafter
which commences during the Term, the Landlord shall estimate the amount of
Operating Cost for the ensuing fiscal period or (if applicable) broken portion
thereof, as the case may be, and notify the Tenant in writing of such estimate.
The Landlord may from time to time alter the fiscal period selected, in which
case, and in the case where only a broken portion of a fiscal period is included
within the Term, the appropriate adjustment in monthly payments shall be made.
From time to time during a fiscal period the Landlord may re-estimate the amount
of Operating Cost in which event the Landlord shall notify the Tenant in writing
of such re-estimate and fix monthly instalments for the then remaining balance
of such fiscal period or broken portion thereof such that, after giving credit
for instalments paid by the Tenant on the basis of the previous estimate or
estimates, the Operating Cost will have been paid during such fiscal period or
broken potion thereof. As soon as practicable after the expiration of each
fiscal period, the Landlord shall make a final determination of Operating Cost
for such fiscal period or (if applicable) broken portion thereof and notify the
Tenant and the parties shall make the appropriate readjustment and any monies
owing by or to one party by the other upon final determination shall be paid to
the other within ten days of the final determination. Notices by the
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Landlord stating the amount of any estimate, re-estimate or determination of
Operating Cost, or monthly instalments payable need not include particulars of
Operating Cost; provided however, the Operating Cost shall be reported by the
Landlord's auditor and a copy of such report shall be furnished to the Tenant
upon request. Any report of the Landlord's auditor as to the Operating Cost
shall be conclusive as to the amount thereof for any period to which such report
relates.
8.08 ALLOCATION OF OPERATING COST
For any period of operation determined by the Landlord, the Landlord may
allocate all or any portion of the Operating Cost (or the individual items
making up the Operating Cost) between the Office Portion of the Building and
Retail Portion of the Building in such a manner which reasonably reflects the
use by and benefit to such tenants of the Operating Cost or item of Operating
Cost. The Tenant shall pay, in the manner set out in section 8.07, the Tenant's
Particular Share of the Operating Cost allocated to that portion of the Building
in which the Leased Premises are located. The provisions of section 8.07,
including those dealing with the re-estimate, adjustment and reporting of
Operating Cost, shall apply to the allocation of Operating Cost pursuant to this
section, of the Building, to the extent that those provisions are not
inconsistent with the provisions of this section.
8.09 ALLOCATION TO PARTICULAR TENANT
Notwithstanding any of the foregoing, whenever in the Landlord's reasonable
opinion, any Operating Cost or item of Operating Cost properly relates to a
particular tenant or tenants within the Building, the Landlord may allocate such
Operating Cost or item of Operating Cost to such tenant or tenants. Without
limitation, if in the Landlord's reasonable opinion the Tenant's consumption of
utilities is greater than the normal or average consumption by tenants of the
Building, the Landlord shall have the right either:
(a) to install meters at the Tenant's expense to measure the Tenant's
consumption of such utilities; or
(b) to retain a qualified consultant to determine the rate by which the
Tenant's consumption exceeds the normal or average consumption by
tenants of the Building.
Based upon the metered consumption or the consultant's report, as applicable,
the Landlord may allocate to the Tenant the amount by which the cost of the
utilities consumed by the Tenant exceeds the cost of utilities normally or on
average consumed by tenants of the Building. Any amount allocated by the
Landlord to the Tenant pursuant to this section shall be payable by the Tenant
forthwith upon demand.
ARTICLE 9
UTILITIES AND ADDITIONAL SERVICES
9.01 WATER AND TELEPHONE
The Landlord shall furnish ducts for bringing telephone services to the Leased
Premises and shall provide water to washrooms available for the Tenant's use in
common with others entitled thereto.
9.02 ADDITIONAL SERVICES
The Landlord, if it shall from time to time so elect, shall have the exclusive
right, by way of Additional Services, to provide or have its designated agents
or contractors provide any janitor or cleaning services to the Leased Premises
required by the Tenant, including the Additional Services which the Landlord
agrees to provide by arrangement and to supervise the moving of furniture or
equipment of the Tenant and the making of repairs or alterations conducted
within the Leased Premises, and to supervise or make deliveries
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to the Leased Premises. The Cost of Additional Services (including the
Landlord's administration fee as in section 1.01(g) hereof) provided to the
Tenant, whether the Landlord shall be obligated hereunder or shall elect to
provide them as Additional Services, shall be paid to the Landlord by the Tenant
from time to time promptly upon receipt of invoices therefor from the Landlord.
Cost of Additional Services charged directly to the Tenant and other tenants
shall be credited in computing Operating Cost to the extent that they would
otherwise have been included.
9.03 EXTRA OPERATING COSTS
The Tenant will pay to the Landlord in the manner in which Operating Cost is
paid from time to time hereunder any and all additional costs and expenses of
the Landlord which may arise in respect of the use by the Tenant of the Leased
Premises for business hours that do not coincide with Normal Business Hours for
the Building generally or that may arise in respect of extra heating,
ventilating and air conditioning supply, electrical supply and other services
which are required to be provided to tenants of the Building or outside of
Normal Business Hours. The Landlord reserves the right to install at the
Tenant's expense meters to check the Tenant's consumption of electricity, water
or other utilities.
9.04 ENERGY CONSERVATION
The Tenant covenants with the Landlord:
(a) that the Tenant will cooperate with the Landlord in the
conservation of all forms of energy in the Building, including
without limitation the Leased Premises;
(b) that the Tenant will comply with all laws, by-laws, regulations and
orders relating to the conservation of energy and affecting the
Leased Premises or the Building;
(c) that the Tenant will at its own cost and expense comply with all
reasonable requests and demands of the Landlord made with a view to
such energy conservation provided that such requests are made in
accordance with good management practice; and
(d) that any and all costs and expenses paid or incurred by the
Landlord in complying with such laws, by-laws, regulations and
orders, so far as the same shall apply to or reasonably be
apportioned to the Building by the Landlord, shall be included in
the Landlord's Operating Cost for the purposes of section 1.01(o).
The Landlord shall not be liable to the Tenant in any way for any loss, costs,
damages or expenses, whether direct or consequential, paid, suffered or incurred
by the Tenant as a result of any reduction in the services provided by the
Landlord to the Tenant or to the Building as a result of the Landlord's
compliance with such laws, regulations or orders.
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ARTICLE 10
LICENSES, ASSIGNMENTS AND SUBLETTINGS
10.01 LICENSES, ETC.
The Tenant shall not suffer or permit any part of the Leased Premises to be used
or occupied by any persons other than the Tenant, any subtenants permitted under
Section 10.02 and the employees of the Tenant and any such permitted subtenant
or suffer or permit any part of the Leased Premises to be used or occupied by
any licensee, franchisee or concessionaire, or suffer or permit any persons to
be upon the Leased Premises other than the Tenant, such permitted subtenants and
their respective employees, customers and others having lawful business with
them.
10.02 ASSIGNMENT AND SUBLETTING
The Tenant shall not assign this Lease or sublet the whole or any part of the
Leased Premises, unless (1) it shall have received or procured a bona fide
written offer to take an assignment or sublease which is not inconsistent with,
and the acceptance of which would not breach any provision of this Lease if this
section is complied with and which the Tenant has determined to accept subject
to this section being complied with, and (2) it shall have first requested and
obtained the consent in writing of the Landlord thereto. Any request for such
consent shall be in writing and accompanied by a true copy of such offer, and
the Tenant shall furnish to the Landlord all information available to the Tenant
and requested by the Landlord as to the responsibility, reputation, financial
standing and business of the proposed assignee or subtenant. Within 30 days
after the receipt by the Landlord of such request for consent and of all
information which the Landlord shall have requested hereunder (and if no such
information has been requested, within 30 days after receipt of such request for
consent) the Landlord shall have the right upon written notice to the Tenant, if
the request is to assign this Lease or sublet the whole of the Leased Premises,
to cancel and terminate this Lease, or if the request is to sublet a part of the
Leased Premises only, to cancel and terminate this Lease with respect to such
part, in each case of a termination date to be stipulated in the notice of
termination which shall not be less than 60 days or more than 90 days following
the giving of such notice, and in such event the Tenant shall surrender the
whole or part, as the case may be, of the Leased Premises in accordance with
such notice and rent shall be apportioned and paid to the date of surrender and,
if a part only of the Leased Premises is surrendered, rent payable under section
4.01 shall thereafter abate proportionately. If the Landlord shall not exercise
the foregoing right of cancellation then the Landlord's consent to the Tenant's
request for consent to assign or sublet shall not be unreasonably withheld and
if such consent shall be given, the Tenant shall assign or sublet, as the case
may be, only upon the terms set out in the offer submitted to the Landlord as
aforesaid and not otherwise. The Tenant further agrees that if the Landlord
consents to any such assignment or subletting, the Tenant shall be responsible
for and shall hold the Landlord harmless from any and all capital costs for
Leasehold Improvements and all other expenses, costs and charges in respect to
or arising out of any such assignment or subletting. Notwithstanding any such
consent being given by the Landlord and such assignment or subletting being
effected, the Tenant hereunder shall remain bound to the Landlord for the
fulfilment of all the terms, covenants, conditions and agreements herein
contained.
10.03 CONDITIONS OF CONSENT
The Landlord may require as a condition of its consent that the proposed
assignee or subtenant agree with the Landlord to observe and perform all the
obligations of the Tenant under this Lease and the Tenant agrees with the
Landlord that:
(a) in the case of an assignment, if the Tenant is to receive from any
assignee, either directly or indirectly, consideration in any form
whatsoever for the assignment of this Lease, the Tenant shall
forthwith pay an amount equal to such consideration to the
Landlord; and
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(b) if the Tenant sublets and receives consideration in any form
whatsoever from the subtenant, either directly or indirectly, at a
rate which is in excess of the Annual Rent payable under this Lease
(on a per square foot basis) for the sublet area, the Tenant shall
pay any such excess to the Landlord in addition to all Rent payable
hereunder.
10.04 CHANGE IN CONTROL OF TENANT
(a) If the Tenant is a private corporation and if by the sale or other
disposition, bequest or operation of law of its shares or securities the control
or the beneficial ownership of such corporation is changed at any time during
the Term of this Lease, such change shall be deemed to be an assignment of the
Lease within the meaning of section 10.02. If such control or beneficial
ownership is changed without the prior written consent of the Landlord, (WHICH
CONSENT WILL NOT BE UNREASONABLY WITHHELD), the Landlord may, at its option,
cancel the Lease and the Term hereby granted upon the giving of 60 days notice
to the Tenant of its intention to cancel and this Lease and the Term shall
thereupon be cancelled.
(b) If the Tenant is a partnership and, if at any time during the term
of this Lease, any person who at the time of the execution of this Lease owns a
partner's interest who ceases to own such partner's interest or there is a
material change in the ownership, in the opinion of the Landlord, in such
partner's interest, such cessation or change of ownership shall constitute as
assignment of this Lease for all purposes of this Article.
ARTICLE 11
FIXTURES AND IMPROVEMENTS
11.01 INSTALLATION OF FIXTURES AND IMPROVEMENTS
The Tenant will not make, erect install or alter any Leasehold Improvements or
trade fixtures in the Leased Premises without having requested and obtained the
Landlord's prior written approval, which the Landlord shall not unreasonably
withhold. In making, erecting, installing or altering any Leasehold Improvements
or trade fixtures the Tenant shall comply with the tenant construction
guidelines as established by the Landlord and shall obtain all required building
and occupancy permits and shall not alter or interfere with any installations
which have been made by the Landlord without the prior written approval of the
Landlord, and in no event shall alter or interfere with window coverings
installed by the Landlord on exterior windows. The Tenant's request for any
approval hereunder shall be in writing and accompanied by an adequate
description of the contemplated work and, where appropriate, working drawings
and specifications thereof. Any out of pocket expense incurred by the Landlord
in connection with any such approval shall be deemed incurred by way of
Additional Service. All work to be performed in the Leased Premises shall be
performed by competent contractors and subcontractors of whom the Landlord shall
have approved (such approval not to be unreasonably withheld, but provided that
the Landlord may require that the Landlord's contractors and subcontractors be
engaged for any mechanical or electrical work) and by workmen whose labour union
affiliations are compatible with those of workmen employed by the Landlord and
its contractors and subcontractors. All such work shall be subject to inspection
by and the reasonable supervision of the Landlord as an Additional Service and
shall be performed in accordance with any reasonable conditions or regulations
imposed by the Landlord and completed in good and workmanlike manner in
accordance with the description of the work approved by the Landlord.
11.02 Liens and Encumbrances on Fixtures and Improvements
In connection with the making, erection, installation or alteration of Leasehold
Improvements and trade fixtures and all other work or installations made by or
for the Tenant in the Leased Premises the Tenant shall comply with all the
provisions of the Construction Lien Act and other statutes from time to time
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applicable thereto (including any provision requiring or enabling the retention
of portions of any sums payable by way of holdbacks) and except as to any such
holdback shall promptly pay all accounts relating thereto. The Tenant shall not
create any mortgage, conditional sale agreement or other encumbrance in respect
of its Leasehold Improvements or trade fixtures or permit any such mortgage,
conditional sale agreement or other encumbrance to attach to the Leased
Premises. If and when any mechanics' or other lien for work, labour, services or
materials supplied to or for the Tenant or for the cost of which the Tenant may
be in any way liable or claims therefor shall arise or be filed or any such
mortgage, conditional sale agreement or other encumbrance shall attach, the
Tenant shall within 20 days after receipt of notice thereof procure the
discharge thereof, including any certificate of action registered in respect of
any lien, by payment or giving security or in such other manner as may be
required or permitted by law, and failing which the Landlord may in addition to
all other remedies hereunder avail itself of its remedy under section 15.01 and
may make any payments required to procure the discharge of any such liens or
encumbrances, shall be entitled to be reimbursed by the Tenant as provided in
section 15.01, and its right to reimbursement shall not be affected or impaired
if the Tenant shall then or subsequently establish or claim that no lien or
encumbrance so discharged was without merit or excessive or subject to any
abatement, setoff or defense.
11.03 REMOVAL OF FIXTURES AND IMPROVEMENTS
All Leasehold Improvements in or upon the Leased Premises shall immediately at
the expiry of the initial term of this Lease be and become the Landlord's
property without compensation therefor to the Tenant. Except to the extent
otherwise expressly agreed by the Landlord in writing, no Leasehold
Improvements, trade fixtures, furniture or equipment shall be removed by the
Tenant from the Leased Premises either during or at the expiration or sooner
termination of the Term except that (1) the Tenant may at the end of the Term
remove its trade Fixtures, (2) the Tenant shall at the end of the Term remove
such of the Leasehold Improvements and trade fixtures as the Landlord shall
require to be removed, and (3) the Tenant shall remove its furniture and
equipment at the end of the Term, and also during the Term in the usual and
normal course of its business where such furniture or equipment has become
excess for the Tenant's purposes or the Tenant is substituting therefor new
furniture and equipment. The Tenant shall, in the case of every removal either
during or at the end of the Term, immediately make good any damage caused to the
Leased Premises by the installation and removal.
ARTICLE 12
INSURANCE AND LIABILITY
12.01 LANDLORD'S INSURANCE
The Landlord shall be deemed to have insured (for which purpose it shall be a
co-insurer, if and to the extent that it shall not have insured) the Building
and all improvements and installations made by the Landlord in the Leased
Premises, except to the extent hereinafter specified, in respect of perils and
to amounts and on terms and conditions which from time to time are insurable at
a reasonable premium and which are normally insured by reasonably prudent owners
of properties similar to the Building, as from time to time determined at
reasonable intervals (but which need not be determined more often than annually
and shall be determined not less often than every three years) by insurance
advisors selected by the Landlord, and whose written opinion shall be
conclusive. Upon the request of the Tenant from time to time the Landlord will
furnish a statement as to the perils in respect of which and the amounts to
which it has insured the Building, and the Tenant shall be entitled at
reasonable times upon reasonable notice to the Landlord to inspect copies of the
relevant portions of policies of insurance in effect and a copy of any relevant
opinions of the Landlord's insurance advisors. The Landlord shall maintain such
other insurance in such amounts and upon such terms as would normally be carried
by a prudent owner.
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12.02 TENANT'S INSURANCE
The Tenant shall take out and keep in force during the Term:
(a) comprehensive general liability (including bodily injury, death and
property damage) insurance on an occurrence basis with respect to
the business carried on, in or from the Leased Premises and the
Tenant's use and occupancy thereof of not less than $2,000,000
which insurance shall include the Landlord as a named insured and
shall protect the Landlord in respect of claims by the Tenant as if
the Landlord were separately insured; and
(b) insurance in such amounts as may be reasonably required by the
Landlord in respect of fire and such other penis, including
sprinkler leakage as are from time to time defined in the usual
extended coverage endorsement covering the Tenant's trade fixtures
and the furniture and equipment of the Tenant and (except as to
Insured Damage) all Leasehold Improvements of the Tenant, and which
insurance shall include the Landlord as a named insured as the
Landlord's interest may appear with respect to the insured
Leasehold Improvements and provided that any proceeds recoverable
in the event of loss to Leasehold Improvements shall be payable to
the Landlord but the Landlord agrees to make available such
proceeds toward the repair or replacement of the insured property
if this Lease is not terminated pursuant to any other provision
hereof;
and if the Landlord shall require the same from time to time then also:
(c) Tenant's fire legal liability insurance in an amount not less than
the actual cash value of the Leased Premises.
All insurance required to be maintained by the Tenant hereunder shall be on
terms and with insurers to which the Landlord has no reasonable objection and
shall provide that such insurers shall provide to the Landlord thirty (30) days'
prior written notice of cancellation or material alteration of such terms. The
Tenant shall furnish to the Landlord certificates or other evidence acceptable
to the Landlord as to the insurance from time to time required to be effected by
the Tenant and its renewal or continuation in force. If the Tenant shall fail to
take out, renew and keep in force such insurance the Landlord may do so as the
agent of the Tenant and the Tenant shall repay to the Landlord any amounts paid
by the Landlord as premiums forthwith upon demand.
12.03 LIMITATION OF LANDLORD'S LIABILITY
The Tenant agrees that:
(a) the Landlord shall not be liable for any bodily injury or death
of, or loss or damage to any property belonging to, the Tenant or
its employees, invitees, or licensees or any other person in, on
or about the Building unless resulting from the actual fault or
negligence of the Landlord, but in no event shall the Landlord be
liable;
(i) for any damage other than Insured Damage which is caused
by steam, water, rain or snow which may leak into, issue
or flow from any part of the Building or from the pipes
or plumbing works thereof or from any other place or
quarter or for any damage caused by or attributable to
the condition or arrangement of any electric or other
wiring or for any damage caused by anything done or
omitted by any other tenant;
(ii) for any act or omission (including theft, malfeasance or
negligence) on the part of any agent, contractor or
person from time to time employed by it to perform
janitor
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services, security services, supervision or any other
work in or about the Leased Premises or the Building; or
(iii) for loss or damage, however caused, to money, securities,
negotiable instruments, papers or other valuables of the
Tenant; and
(b) the Landlord will have no responsibility or liability for the
failure to supply interior climate control or elevator service when
prevented from doing so by strikes, the necessity of repairs, any
order or regulation or anybody having jurisdiction, the failure of
the supply of any utility required for the operation thereof or any
other cause beyond the Landlord's reasonable control, and shall not
be held responsible for any bodily injury, death or damage to
property arising from the use of, or any happening in or about, any
elevator.
12.04 LIMITATION OF TENANT'S LIABILITY
The Landlord releases the Tenant from all claims or liabilities in respect of
any damage which is Insured Damage, to the extent of the cost of repairing such
damage, but not from injury, loss or damage which is consequential thereto or
which arises therefrom where the Tenant is negligent or otherwise at fault.
12.05 INDEMNITY OF LANDLORD
Except as provided in section 12.04, the Tenant agrees to indemnify and save
harmless the Landlord in respect of all claims for bodily injury or death,
property damage or other loss or damage arising from the conduct of any work by
or any act or omission of the Tenant or any assignee, subtenant, agent,
employee, contractor, invitee or licensee of the Tenant, and in respect of all
costs, expenses and liabilities incurred by the Landlord in connection with or
arising out of all such claims, including the expenses of any action or
proceeding pertaining thereto, and in respect of any loss, costs, expense or
damage suffered or incurred by the Landlord arising from any breach by the
Tenant of any of its covenants and obligations under this Lease.
ARTICLE 13
SUBORDINATION, ATTORNMENT, REGISTRATION AND CERTIFICATES
13.00 TENANT'S COVENANTS
The Tenant agrees with the Landlord that:
13.01 SALE OR FINANCING OF BUILDING
The rights of the Landlord under this Lease may be mortgaged, charged,
transferred or assigned to a purchaser or purchasers or to a mortgagee, or
trustee for bond holders and in the event of a sale or of default by the
Landlord under any mortgage, trust deed or trust indenture by the purchaser,
mortgagee or trustee, as the case may be, duly entering into possession of the
Building or the Leased Premises, the Tenant agrees to attorn to and become the
tenant of such purchaser or purchasers, mortgagee or trustee under the terms of
this Lease.
13.02 SUBORDINATION AND ATTORNMENT
This Lease and all rights of the Tenant hereunder (if required by any mortgagee
or the holder of any trust deeds or trust indentures), shall be subject and
subordinate to all mortgages, trust deeds or trust indentures now or hereafter
existing which may now or hereafter affect the Building and to all renewals,
modifications, affect the Building and to all renewals, modifications,
consolidations, replacements and extensions thereof; provided that the Tenant
whenever required by any mortgagee (including any trustee under a trust deed or
trust indenture) shall attorn to such mortgagee as the Tenant upon all of the
terms of this Lease. The Tenant
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agrees to execute promptly whenever requested by the Landlord or by such
mortgagee an instrument of subordination or attornment, as the case may be, as
may be required of it, provided that the mortgagee shall agree in writing not to
disturb the Tenant's possession hereunder so long as it is observing and
performing the covenants and the conditions on its behalf contained in this
Lease.
13.03 REGISTRATION
The Tenant agrees with the Landlord not to register this Lease, provided that
the Tenant at the request of the Landlord and at the cost and expense of the
Tenant, will cause this Lease to be registered; provided that the Tenant may at
its own expense register notice of this Lease subject to prior approval by the
Landlord of the form of such notice. Notwithstanding the provisions of section
13.02, in the event the Landlord requires this Lease to be registered in
priority to any mortgage, trust deed or trust indenture which may now or any
time hereafter affect in whole or in part the Leased Premises or the Building
and whether or not any such mortgage, trust deed or trust indenture shall affect
only the Leased Premises or the Building or shall be a blanket mortgage, trust
deed or trust indenture affecting other premises as well, the Tenant covenants
and agrees with the Landlord that the Tenant shall execute promptly upon request
by the Landlord any certificate, priority agreement, or other instrument which
may from time to time by requested to give effect thereto.
13.04 CERTIFICATES
The Tenant agrees with the Landlord that the Tenant shall promptly whenever
requested by the Landlord from time to time execute and deliver to the Landlord
(and if required by the Landlord, to any mortgagee (including any trustee under
a trust deed or trust indenture) or purchaser designated by the Landlord) a
certificate in writing as to the then status of this Lease, including as to
whether it is in full force and effect, is modified or unmodified, confirming
the rental payable hereunder and the state of the accounts between the Landlord
and Tenant, the existence or non-existence of defaults, and any other matters
pertaining to this Lease as to which the Landlord shall request a certificate.
13.05 ASSIGNMENT BY LANDLORD
In the event of a sale by the Landlord of the Building or a portion thereof
containing the Leased Premises or the assignment by the Landlord of this Lease
or any interest of the Landlord hereunder, and to the extent that such purchaser
or assignee has assumed the covenants and obligations of the Landlord hereunder,
the Landlord shall, without further written agreement, be freed and relieved of
liability upon such covenants and obligations.
ARTICLE 14
OCCURRENCE OF DEFAULT
14.01 UNAVOIDABLE DELAY
Except as herein otherwise expressly provided, if and whenever and to the extent
that either the Landlord or the Tenant shall be prevented, delayed or restricted
in the fulfilment of any obligations hereunder in respect of the supply or
provision of any service or utility, the making of any repair, the doing of any
work or any other thing (other than the payment of Rent) by reason of strikes or
work stoppages, or being unable to obtain any material, service, utility or
labour required to fulfil such obligation or by reason of any statute, law or
regulation of or inability to obtain any permission from any governmental
authority having lawful jurisdiction preventing, delaying or restricting such
fulfilment, or by reason of other unavoidable occurrence other than lack of
funds, the time for fulfilment of such obligation shall be extended during the
period in which such circumstance operates to prevent, delay or restrict the
fulfilment thereof, and the other party to this Lease shall not be entitled to
compensation for any inconvenience, nuisance or discomfort thereby
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occasioned; but nevertheless the Landlord will use its best efforts to maintain
services essential to the use and enjoyment of the Leased Premises.
14.02 NO ADMISSION
The acceptance of any rent from or the performance of any obligation hereunder
by a person other than the Tenant shall not be construed as an admission by the
Landlord of any right, title or interest of such person as a subtenant,
assignee, transferee or otherwise in the place and stead of the Tenant.
14.03 PART PAYMENT
The acceptance by the Landlord of a part payment of any sums required to be paid
hereunder shall not constitute waiver or release of the right of the Landlord to
payment in full of such sums.
ARTICLE 15
REMEDIES OR LANDLORD AND TENANT'S DEFAULT
15.01 REMEDYING BY LANDLORD, NON-PAYMENT AND INTEREST
In addition to all the rights and remedies of the Landlord available to it in
the event of any default hereunder by the Tenant either by any other provision
of this Lease or by statute or the general law, the Landlord:
(a) shall have the right at all times to remedy or attempt to remedy
any default of the Tenant, and in so doing may make any payments
due or alleged to be due by the Tenant to third parties and may
enter upon the Leased Premises to do any work or other things
therein and in such event all expenses of the Landlord in
remedying or attempting to remedy such default shall be payable
by the Tenant to the Landlord forthwith upon demand;
(b) shall have the same rights and remedies in the event of any
non-payment by the Tenant of any amounts payable by the Tenant
under any provision of this Lease as in the case of non-payment
of rent; and
(c) if the Tenant shall fail to pay any Rent promptly when due,
shall be entitled, if it shall demand it, to interest thereon at
a rate of three percent per annum in excess of the rate of
interest charged and published from time to time by the main
branch in the City in which the Building is located, of the
Landlord's bank, as its prime rate for loans to creditworthy and
substantial commercial customers, from the date upon which the
same was due until actual payment thereof.
15.02 REMEDIES CUMULATIVE
The Landlord may from time to time resort to any or all of the rights and
remedies available to it in the event of any default hereunder by the Tenant,
either by any provision of this Lease or by statute or the general law, all of
which rights and remedies are intended to be cumulative and not alternative, as
the express provisions hereunder as to certain rights and remedies are not to be
interpreted as excluding any other or additional rights and remedies available
to the Landlord by statute or general law.
15.03 RIGHT OF RE-ENTRY ON DEFAULT OR TERMINATION
Provided and it is expressly agreed that if and whenever the Rent hereby
reserved or other monies payable by the Tenant or any part thereof, whether
lawfully demanded or not, are unpaid and the Tenant shall have failed to pay
such Rent or other monies within five days after the Landlord shall have given
to the Tenant notice requiring such payment, or if the Tenant shall breach or
fail to observe and perform any of the
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covenants, agreements, provisos, conditions, rules or regulations and other
obligations on the part of the Tenant to be kept, observed or performed
hereunder and the Tenant shall fail to cure such breach or failure within IO
days after notice by the Landlord, or if this Lease shall have become terminated
pursuant to any provision hereof, or if the Landlord shall have become entitled
to terminate this Lease and shall have given notice terminating it pursuant to
any provision hereof, then and in every such case it shall be lawful for the
Landlord thereafter to enter into and upon the Leased Premises or any part
thereof and in the name of the whole and the same to have again, repossess and
enjoy as of its former estate, anything in this Lease contained to the contrary
notwithstanding.
15.04 TERMINATION AND RE-ENTRY
If and whenever the Landlord becomes entitled to re-enter upon the Leased
Premises under any provision of this Lease, the Landlord, in addition to all
other rights and remedies, shall have the right to terminate this Lease
forthwith by leaving upon the Leased Premises notice in writing of such
termination.
15.05 PAYMENT OF RENT, ETC. ON TERMINATION
Upon the giving by the Landlord of a notice in writing terminating this Lease,
this Lease and the Term shall terminate, and the Tenant shall immediately
deliver up possession of the Leased Premises to the Landlord and the Landlord
may re-enter and take possession of them. The Landlord, at its option and, in
addition to any other remedies it may have hereunder, may require the Tenant, by
notice, to pay to the Landlord as liquidated damages for the default of the
Tenant in the observance and performance of its covenants under this Lease, all
rent and additional payments reserved or required to be paid and remaining
unpaid by the Tenant under this Lease from the date of default by the Tenant to
and including the expiration of the term of this Lease and, for the purposes
hereof, it is agreed by the Tenant with the Landlord that this Lease constitutes
a commercial contract.
15.06 WAIVER OF DISTRESS
The Tenant waives and renounces the benefit of any present or future statute
taking away or limiting the Landlord's right of distress and covenants and
agrees that notwithstanding any such statute none of the goods and chattels of
the Tenant on the Leased Premises at any time during the Term shall be exempt
for levy by distress for rent in arrears. The Tenant will not sell, dispose of
or remove any of the fixtures, goods or chattels of the Tenant from or out of
the Leased Premises during the Term without the consent of the Landlord, unless
the Tenant is substituting new fixtures, goods or chattels of equal value or is
bona fide disposing of individual items which have become excess for the
Tenant's purposes; and the Tenant will be the owner of its fixtures, goods and
chattels and will not permit them to become subject to any lien, mortgage,
charge or encumbrance.
15.07 RE-LETTING, ETC.
Whenever the Landlord becomes entitled to re-enter upon the Leased Premises
under any provision of this Lease the Landlord in addition to all other rights
it may have shall have the right as agent of the Tenant to enter the Leased
Premises and re-let them and to receive the rent therefor and as the agent of
the Tenant to take possession of any furniture or other property thereon and to
sell the same at public or private sale without notice and to apply the proceeds
thereof and any rent derived from re-letting the Leased Premises upon account of
the rent due and to become due under this Lease and the Tenant shall be liable
to the Landlord for the deficiency, if any.
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ARTICLE 16
EVENTS TERMINATING LEASE
16.01 CANCELLATION OF INSURANCE
If any policy of insurance upon the Building from time to time effected by the
Landlord shall be cancelled or about to be cancelled by the insurer by reason of
the use or occupation of the Leased Premises by the Tenant or any assignee,
subtenant or licensee of the Tenant or anyone permitted by the Tenant to be upon
the Leased Premises and the Tenant after receipt of notice in writing from the
Landlord shall have failed to take such immediate steps in respect of such use
or occupation as shall enable the Landlord to reinstate or avoid cancellation of
(as the case may be) such policy of insurance, the Landlord may at its option
terminate the Lease by leaving upon the Leased Premises notice in writing of
such termination.
16.02 PROHIBITED OCCUPANCY, BANKRUPTCY, ETC.
In case without the written consent of the Landlord the Leased Premises shall be
used by any other persons than the Tenant or its permitted assigns or
subtenants, or for any purpose other than that for which they were leased, or
occupied by any persons whose occupancy is prohibited by this Lease, or if the
Leased Premises shall be vacated or abandoned, or remain unoccupied for 15 days
or more while capable of being occupied, or if the term or any of the goods and
chattels of the Tenant shall at any time be seized in execution or attachment,
or if the Tenant shall make any assignment for the benefit of creditors or any
bulk sale, become bankrupt or insolvent or take the benefit of any statute now
or hereafter in force for bankrupt or insolvent debtors or (if a corporation)
shall take any steps or suffer any order to be made for its winding-up or other
termination of its corporate existence, then in any such case the Landlord may
at its option terminate this Lease by leaving upon the Leased Premises notice in
writing of such termination and thereupon, in addition to the payment by the
Tenant of Rent and other payments for which the Tenant is liable under this
Lease, Rent shall immediately become due and be paid by the Tenant, or party
then controlling the Tenant's affairs.
ARTICLE 17
MISCELLANEOUS
17.01 NOTICES
Any notice required or contemplated by any provision of this Lease shall be
given in writing, and if to the Landlord, either delivered to an executive
officer of the Landlord or mailed by prepaid registered mail addressed to the
Landlord at:
c/o Brookfield Management Services Western Ltd.
Suite 1000 - 1050 West Pender Street
Vancouver, B.C.
V6E 3S7
and if to the Tenant, addressed to it and either delivered or mailed by prepaid
registered mail to the Leased Premises. Every such notice shall be deemed to
have been given when delivered or, if mailed as aforesaid, upon the third day
after the day of mailing thereof in Canada. Either the Landlord or the Tenant
may from time to time by notice in writing to the other designate another
address in Canada as the address to which notices are to be mailed or delivered
to it.
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17.02 EXTRANEOUS AGREEMENTS
The Tenant acknowledges that there are no covenants, representations,
warranties, agreements or conditions expressed or implied relating to this Lease
of the Leased Premises save as expressly set out in this Lease and in any
agreement to lease in writing between the Landlord and the Tenant pursuant to
which this Lease has been executed. This Lease may not be modified except by an
agreement in writing executed by the Landlord and the Tenant.
17.03 TIME OF ESSENCE
Time shall be of the essence of this Lease.
17.04 AREA DETERMINATION
If any calculation or determination by the Landlord of the Rentable Area of any
premises (including the Leased Premises) or the Building is disputed or called
into question, it shall be calculated or determined by the Landlord's architect
or quantity surveyor from time to time appointed for the purpose, whose
certificate shall be conclusive.
17.05 SUCCESSORS AND ASSIGNS
This Lease and everything herein contained shall enure to the benefit of and be
binding upon the successors and assigns of the Landlord and the successors and
permitted assigns of the Tenant. References to the Tenant shall be read with
such changes in gender as may be appropriate, depending upon whether the Tenant
is a male or female person or a firm or corporation, and if the Tenant is more
than one person or entity, the covenants of the Tenant shall be deemed joint and
several.
17.06 FRUSTRATION
The Landlord and the Tenant agree that notwithstanding the occurrence or
existence of any event or circumstance or the non-occurrence of any event or
circumstance and so often and for so long as the same may occur or continue
which, but for this section, would frustrate or void this Lease, the obligations
and liabilities of the Tenant hereunder shall continue in full force and effect
as if such event or circumstance had not occurred or existed.
17.07 WAIVER
No condoning, excusing or overlooking by the Landlord or Tenant of any default,
breach or non-observance by the Tenant or the Landlord at any time or times in
respect of any covenant, proviso or condition herein contained shall operate as
a waiver of the Landlord's or the Tenant's rights hereunder in respect of any
continuing or subsequent default, breach or non-observance or so as to defeat or
affect in any way the rights of the Landlord or the Tenant herein in respect of
any such continuing or subsequent default or breach and no waiver shall be
inferred from or implied by anything done or omitted by the Landlord or the
Tenant save only express waiver in writing.
17.08 GOVERNING LAW
This Lease shall be governed by and construed in accordance with the laws of the
province in which the Building is located. The Landlord and the Tenant agree
that all of the provisions of this Lease are to be construed as covenants and
agreements as though the words importing such covenants and agreements were
included in each separate section hereof Should any provision or provisions of
this Lease and its remaining provisions shall remain in force and be binding
upon the parties hereto as though the said provision or provisions had never
been included.
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17.09 NET LEASE
The Tenant acknowledges and agrees that it is intended that this Lease shall be
a completely carefree net lease for the Landlord except as shall be otherwise
provided in the specific provisions contained in this Lease, and that the
Landlord shall not be responsible during the Term for any costs, charges,
expenses and outlays of any nature whatsoever arising from or relating to the
Leased Premises, and the Tenant, except as shall be otherwise provided in the
specific provisions contained in this Lease, shall pay all charges, impositions
and costs of every nature and kind relating to the Leased Premises whether or
not referred to herein and whether or not within the contemplation of the
Landlord or the Tenant and the Tenant covenants with the Landlord accordingly.
17.10 CAPTIONS
The captions appearing in this Lease have been inserted as a matter of
convenience and for reference only and in no way define, limit or enlarge the
scope or meaning of this Lease or of any provision thereof.
17.11 ACCEPTANCE
The Tenant does hereby accept this Lease of the above described land, to be held
by it as tenant, and subject to the conditions, restrictions and covenants above
set forth.
ARTICLE 18
SCHEDULES
18.01 SCHEDULES
The following schedules are attached to this Lease and form part hereof:
Schedule A - Floor Plan of the Leased Premises
Schedule B - Legal Description of the Lands
Schedule C - Rules and Regulations
Schedule D - Option to Renew
Schedule E - Special Provisions
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IN WITNESS WHEREOF the Landlord and the Tenant have executed this Lease
as of the day and year first above written.
FOR THE LANDLORD:
THE CORPORATE SEAL OF )
NOVO ESPLANADE LIMITED )
_________________________________________)
was hereto affixed in the presence of: ) C/S
)
/s/ SIGNED )
- -----------------------------------------)
Authorized Signatory )
Title: )
-----------------------------------)
FOR THE TENANT:
THE CORPORATE SEAL OF )
PIVOTAL SOFTWARE INC. )
_________________________________________)
was hereto affixed in the presence of: )
)
)
/s/ SIGNED ) C/S
- -----------------------------------------)
Authorized Signatory )
)
Title: CFO )
-----------------------------------)
)
)
- -----------------------------------------)
Authorized Signatory )
Title: )
-----------------------------------)
29
<PAGE> 1
EXHIBIT 10.6
- --------------------------------------------------------------------------------
LEASE
BC RAIL CENTRE
NORTH VANCOUVER, B.C.
- --------------------------------------------------------------------------------
LANDLORD: BC RAIL LTD.
TENANT: PIVOTAL SOFTWARE INC.
PREMISES: Suite 300
221 West Esplanade
North Vancouver, B.C.
V7M 3J3
<PAGE> 2
LEASE
TABLE OF CONTENTS
<TABLE>
<S> <C>
LEASE 3
1. (a) Lease and Term 3
(b) Net Lease 3
(c) Sales Taxes 4
(d) Overholding 4
(e) Deposit 4
2. BASIC RENT 5
GENERAL COVENANTS 5
3. (a) Landlord Covenants 5
(b) Tenant Covenants 5
BUILDING SERVICES 5
4. (a) Interior Climate Control 5
(b) Janitor Service 6
(c) Telephone and Water 6
(d) Electricity 6
(e) Elevators, Common Areas, Washrooms 6
(f) Additional Services 7
USE AND OCCUPANCY OF PREMISES 7
5. (a) Permitted Use 7
(b) Waste and Nuisance 7
(c) Insurance Risks 7
(d) Condition 7
(e) By-laws 7
(f) Rules and Regulations 8
(g) Design Criteria 8
(h) Pollutants 8
(i) Parking 8
(j) Hazardous Substances 8
REPAIR AND DAMAGE 9
6. (a) Landlord's Repairs to the Lands and Building 9
(b) Landlord's Repairs to the Premises 9
(c) Tenant's Repairs 9
(d) Indemnification 10
(e) Abatement and Termination 10
ALLOCATION OF TAXES AND OPERATING EXPENSES 11
7. (a) Definitions 11
(b) Area Measurements 14
(c) Determination of Tenant's Proportionate Share 14
(d) Payment of Tenant's Proportionate Share 14
(e) Re-adjustment of Proportionate Share 14
(f) Change from Year Ending December 31 15
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
TAXES 15
8. (a) Payment by Landlord 15
(b) Payment by Tenant 15
(c) Postponement, Determination, Appeal, etc., of Taxes 15
(d) Payment for Additional Services 16
ASSIGNMENT AND SUBLETTING 16
9. (a) No Assignment Without Leave 16
(b) Assignment or Subletting Procedures 17
(c) Assumption of Obligations 17
SIGNS AND DIRECTORY 17
10.
LEASEHOLD IMPROVEMENTS AND TRADE FIXTURES 18
11. (a) Definition of Leasehold Improvements 18
(b) Installation of Improvement and Fixtures 18
(c) Liens and Encumbrances on Improvements and Fixtures 18
(d) Removal of Improvements and Fixtures 19
INSURANCE AND LIABILITY 19
12. (a) Landlord's Insurance 19
(b) Tenant's Insurance 20
(c) Insurance Validation 21
(d) Limitation of Landlord's Liability 21
(e) Indemnity of Landlord 22
SUBORDINATION, ATTORNMENT AND CERTIFICATES 22
13. (a) Subordination and Attornment 22
(b) Certificates 23
ACCESS OF LANDLORD 23
14. (a) Inspection and Access 23
(b) Exhibiting Premises 23
DELAY AND NON-WAIVER 23
15. (a) Unavoidable Delay 23
(b) Waiver 24
REMEDIES OF LANDLORD 24
16. (a) Remedies of Landlord 24
(b) Remedies Cumulative 24
(c) Right of Re-Entry on Default or Termination 25
(d) Termination and Re-Entry 25
(e) Payment of Rent, etc., on Termination 25
(f) Re-letting, etc. 25
IMPROPER USE OF PREMISES 25
17. (a) Cancellation of Insurance 25
(b) Bankruptcy, etc. 26
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
GENERAL PROVISIONS 26
18. Registration of Lease 26
19. Lease Constitutes Entire Agreement 26
20. Notices 26
21. Interpretation 27
22. Extent of Lease Obligations 27
23. Renewal 27
24. Parking 27
25. Landlord's Enquiries and Clean Up By Tenant 28
26. Landlord's Inspection 28
27. Ownership of Hazardous Substances 28
28. Survival of Covenants 28
29. Option to Terminate 28
30. Option to Expand 28
31. Right of First Refusal 29
Schedule "A" - Explanatory Plan showing Premises outlined 31
Schedule "B" - The Lands 32
Schedule "C" - Janitor and Cleaning Service Schedule 33
Schedule "D" - Rules and Regulations 35
Schedule "E" - Determination of Rentable Area 37
</TABLE>
iii
<PAGE> 5
LEASE SUMMARY
This two page Lease Summary is attached to and forms part of the
Indenture of Lease dated for reference and made as of the 14th day of
December, 1998, between BC RAIL LTD., as Landlord, and PIVOTAL SOFTWARE
INC., as Tenant.
<TABLE>
<S> <C> <C> <C>
1. LANDLORD
(a) Name: BC Rail Ltd.
(b) Address: c/o BCR Properties
Ltd. #506 - 221 West Esplanade
North Vancouver, B.C.
V7M 3J3
(c) Contact Person: Julie Marsh Emergency No.: (604) 984-5163
(d) Contact Numbers: Telephone: (604) 984-5448 Facsimile: (604) 984-5200
2. TENANT
(a) Legal Name: PIVOTAL SOFTWARE Inc.
(b) Address: 300 - 224 WEST ESPLANADE
NORTH VANCOUVER, B.C.
V7M 3M6
(d) Contact Person: SHERRY SIMON Emergency No. ( )
(c) Contact Numbers: Telephone: (604) 984-5358 Facsimile: ( )
3. INDEMNIFIER [INTENTIONALLY DELETED]
4. PREMISES
(a) Description: Those premises shown hatched in red on the plan attached
hereto AS Schedule "A" forming part OF the Building
(b) Municipal Address: Suite 300
221 West Esplanade
North Vancouver, B.C.
V7M 3J3
(c) Rentable Area
of the Premises: 8,500 square feet
5. TERM
(a) Term: THREE (3) YEARS AND EIGHT (8) MONTHS
(b) First Day of Term: FEBRUARY 1, 1999
(c) Last Day of Term: SEPTEMBER 30, 2002
</TABLE>
1
<PAGE> 6
6. BASIC RENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
RENT PER SQ.FT. ANNUAL MONTHLY
PERIOD PER ANNUM PAYMENT PAYMENT
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a) From FEBRUARY 1, 1999 $12.75 p.s.f. $108,375.00 $9,031.25
TO AND INCLUDING
SEPTEMBER 30, 2002
7. DEPOSIT
$19,326.88
$9,663.44 TO BE APPLIED TO THE BASIC RENT AND GST DUE FOR FEBRUARY 1, 1999
$9,663.44 TO BE HELD AS SECURITY DEPOSIT AND APPLIED TO THE BASIC RENT AND GST
FOR SEPTEMBER 1, 2002.
8. USE OF PREMISES
Use: For the purpose of a business office.
9. TENANT'S BUSINESS NAME
Pivotal Software Inc. or other name approved from time to time by the
Landlord in writing pursuant to paragraph 5(a).
10. RENEWAL
Option to renew for one (1) additional term of three (3) years as more
particularly set out in paragraph 23.
</TABLE>
2
<PAGE> 7
THIS LEASE MADE AS OF 14TH DAY OF DECEMBER, 1998
BETWEEN:
BC RAIL LTD. (Inc. No. 84014)
c/o, BCR PROPERTIES LTD.
#506 - 221 WEST ESPLANADE
NORTH VANCOUVER, BRITISH COLUMBIA
V7M 3J3
(herein called the 'Landlord')
OF THE FIRST PART
AND:
PIVOTAL SOFTWARE INC.
300 - 224 WEST ESPLANADE
NORTH VANCOUVER, BRITISH
COLUMBIA V7M 3M6
(herein called the "Tenant")
OF THE SECOND PART
This Lease witnesses that in consideration of the rents and
covenants herein contained, the parties covenant and agree as follows:
LEASE
1 (a) Lease and Term
The Landlord does hereby demise and lease to the Tenant the
premises (herein called the "Premises") consisting of a portion of the
building (herein called the "Building") civically described as 221 West
Esplanade, in the City of North Vancouver, forming part of the complex
known as BC Rail Centre (such complex, together with the land owned by
the Landlord legally described in Schedule "B" attached hereto, being
herein collectively called the "Lands"), the portion leased to the
Tenant consisting of approximately 8,500 square feet of Rentable Area
determined in accordance with paragraph 7(b) hereof and comprising a
part of the 3rd floor of the Building, which Premises are shown hatched
in red on the explanatory plan attached hereto as Schedule "A" and
civically described as Suite 300 - 221 West Esplanade, North Vancouver,
B.C. V7M 3J3.
To have and to hold for a term (herein called the "Term") of
three (3) years and eight (8) months commencing on the 1st day of
February, 1999 and to be fully complete and ended on the 30th day of
September, 2002, The Tenant shall have the right to renew this Lease for
one (1) additional term of three (3) years as provided in paragraph 23
hereof.
(b) Net Lease
This Lease is a completely net lease to the Landlord. Except as
stated in this Lease, the Landlord is not responsible for costs, charges
or expenses relating to the Premises, their use and occupancy, their
contents or the business carried on in them, and
3
<PAGE> 8
the Tenant shall pay the charges, impositions, costs and expenses
relating to the Premises except as stated in the Lease. The Landlord
shall have the right to collect such charges, impositions, costs and
expenses as additional rent with all rights of distress and otherwise as
reserved to the Landlord in respect of rent in arrears.
(c) Sales Taxes
Notwithstanding any other paragraph of this Lease, the Tenant
shall pay to the Landlord an amount equal to any and all goods and
service taxes, sales taxes, value added taxes, business transfer taxes
or any other taxes (imposed on the Landlord with respect to rent payable
by the Tenant to the Landlord under this Lease, or in respect of the
rental of space under this Lease whether characterized as a goods and
services tax, sales tax, value added tax, business transfer tax or
otherwise (herein called the "Sales Taxes")), it being the intention of
the parties that the Landlord shall be fully reimbursed by the Tenant
with respect to any and all Sales Taxes payable by the Landlord. The
amount of the Sales Taxes so payable by the Tenant shall be calculated
by the Landlord in accordance with the applicable legislation and shall
be paid to the Landlord at the same time as the amounts to which such
Sales Taxes apply are payable to the Landlord under the terms of this
Lease or upon demand at such other time or times as the Landlord from
time to time determines. Notwithstanding any other paragraph in this
Lease, the amount payable by the Tenant under this paragraph shall be
deemed not to be rent, but the Landlord shall have all of the same
remedies for and rights of recovery of such amount as it has for
recovery of rent under this Lease.
(d) Overholding - No Tacit Renewal
If the Tenant shall hold over after the expiration of the Term
or any renewal of the Term and the Landlord shall accept rent or any
portion thereof, the new tenancy thereby created shall be deemed a
monthly tenancy and not a yearly tenancy and shall be subject to the
covenants and conditions contained in this Lease insofar as they are
applicable to a tenancy from month to month, except that:
(i) if the Tenant remains in possession with the Landlord's
written consent, the monthly installments of Basic Rent,
unless there is an agreement in writing to the contrary,
shall be ONE HUNDRED AND TWENTY (120%) percent of the
monthly installments of Basic Rent payable for the last
month of the Term or any renewal of the Term, pro rated
on a daily basis for each day that the Tenant remain in
possession; or
(ii) if the Tenant remains in possession without the
Landlord's written consent, the monthly installments of
Basic Rent shall be two (2) times the monthly
installments of Basic Rent payable for the last month of
the Term or any renewal of the Term, pro rated on a
daily basis for each day that the Tenant remains in
possession, and in addition the Tenant shall be liable
for all costs, expenses, losses and damages resulting or
arising from the failure of the Tenant to deliver up
possession of the Premises to the Landlord.
(e) Deposit
Immediately upon delivery of a duly executed copy of this Lease
to the Tenant, the Tenant shall deliver to the Landlord the Deposit (as
set forth in the attached Lease Summary). The Landlord shall apply the
Deposit firstly towards the first month's Basic Rent and GST and the
balance, if any, shall be held by the Landlord, without liability for
the payment of interest thereon, as security for:
(i) the payment by the Tenant of rent; and
(ii) the observance or performance by the Tenant of all terms
and conditions in this Lease to be observed and
performed by the Tenant.
4
<PAGE> 9
If at any time rent is overdue and unpaid or the Tenant fails to
observe and perform any of the terms or conditions contained in this
Lease to be observed or performed by the Tenant, the Landlord may,
either before or after terminating this Lease, appropriate and apply the
whole or any part of the Deposit to the payment of such rent or to
compensate the Landlord for any loss, cost, damage or expense sustained
or suffered by the Landlord by reason of the failure of the Tenant to
observe or perform any of the terms or conditions of this Lease to be
observed or performed by the Tenant, and such appropriation and
application will be without prejudice to the Landlord's right to pursue
any other remedy set forth in this Lease.
If the Tenant promptly pays all rent as it falls due and observes
and performs all the terms and conditions in this Lease to be observed
and performed by the Tenant, the Landlord SHALL APPLY THE BALANCE of
the Deposit, to the LAST MONTH'S BASIC RENT AND GST.
2. BASIC RENT
Yielding and paying therefore yearly and every year during the
term as Basic Rent, the sum of $108,375.00 (based upon $12.75 per square
foot per annum of Rentable Area of the Premises as set forth in the
Lease Summary attached hereto) in lawful money of Canada, to be paid in
advance in equal monthly installments of $9,031.25 on the first day of
each and every month during the Term of this Lease to the Landlord, or
to the Landlord's agent as the Landlord may from time to time designate
in writing, at the Building or at such other place in Canada as the
Landlord may from time to time designate commencing on the 1st day of
FEBRUARY, 1999 up to and including the 30TH day of September, 2002. If
the Term commences on any day other than the first day of a month or
ends on any day other than the last day of a month, rent for the
fractions of a month at the commencement and at the end of the Term
shall be adjusted pro rata.
GENERAL COVENANTS
3. (a) The Landlord covenants with the Tenant:
(i) for quiet enjoyment; and
(ii) to observe and perform all covenants and obligations of
the Landlord herein.
(b) The Tenant covenants with the Landlord:
(i) to pay rent; and
(ii) to observe and perform all covenants and obligations of
the Tenant herein.
BUILDING SERVICES
4. The Landlord covenants with the Tenant:
(a) Interior Climate Control: to maintain in the Premises conditions
of reasonable temperature and comfort in accordance with good standards
of interior climate control generally pertaining at the date of this
Lease applicable to normal occupancy of premises for office purposes,
during hours to be determined by the Landlord (but to be at least the
hours from 7:30 a.m. to 5:30 p.m. from Monday to Friday inclusive, with
the exception of holidays), such conditions to be maintained by means of
a system for heating and cooling, filtering and circulating the
processed air. The Landlord shall have no responsibility for any
inadequacy of performance of the said system if the occupancy of the
Premises exceeds one person for every 140 square feet of floor area or
the electrical power consumed on the Premises for all purposes exceeds
4.0 watts per square foot of floor area or the Tenant installs
partitions or other installations in locations which
5
<PAGE> 10
interfere with the proper operation of the system of interior climate
control or if the window covering on exterior windows is not kept fully
closed while the windows are exposed to direct sunlight. If the use of
the Premises does not accord with the aforementioned requirements and
changes in the system are (in the opinion of the Landlord) feasible and
desirable to accommodate such use the Landlord may, and at die written
request of the Tenant shall, make such changes and the entire expense of
such changes will be reimbursed by the Tenant to the Landlord. If in the
opinion of the Landlord such changes result in maintenance costs or
operating costs in excess of those which would have occurred had such
changes not been made, the Landlord may estimate the amount of such
excess on a reasonable basis and such amount shall be an Additional
Service (as hereinafter defined in paragraph 8(d) hereto;
(b) Janitor Service: to provide janitor and cleaning services to the
Premises and to common areas of the Lands consisting of the services
more particularly described in Parts I and 2 of Schedule "C" attached
hereto, such services to be rendered substantially in accordance with
the standards of modern office buildings of a similar type in the
Greater Vancouver area at the date of this Lease. It is agreed by the
Tenant that any janitor or cleaning services which the Landlord shall
agree to provide to the Premises in excess of those described in Part I
of Schedule "C" hereto (including those additional services referred to
in Part 3 of Schedule "C") shall be Additional Services;
(c) Telephone and Water: to furnish ducts in the locations
contemplated by the Building plans for bringing telephone service to the
Premises and to provide hot and cold water to washrooms in the Building
available for the Tenant's use;
(d) Electricity: to furnish electricity to the Premises for lighting
and for office equipment capable of operating from the circuits
available and standard to the Building and the Landlord shall replace
from time to time in accordance with some reasonable procedure to be
determined by the Landlord the electrical light bulbs, tubes and
ballasts installed in lighting fixtures standard to the Building. If the
lighting fixtures installed in the Premises are not standard to the
Building, the Landlord may charge the Tenant, as an Additional Service,
for an amount estimated by the Landlord on a reasonable basis to be the
excess of the cost of replacing non-standard bulbs, tubes and ballasts
over what the cost would have been if the lighting fixtures in the
Premises had been standard to the Building. The Landlord may from time
to time establish a reasonable procedure to determine whether the use by
the Tenant of electricity is in excess (on a per square foot basis)
consumption in the Building and, if so, may charge the Tenant for the
cost of the excess as an Additional Service on a reasonable basis;
(e) Elevators, Common Areas, Washrooms: to keep available the
following facilities for use by the Tenant and its employees and
invitees in common with other persons entitled thereto:
(i) passenger and freight elevator service to each floor upon which
the premises are located, but the Landlord may prescribe the
hours during which and the procedures under which freight
elevator service shall be available and may limit the
availability for passenger elevator service outside normal
business hours, but except in the circumstances contemplated by
the concluding two sentences of this paragraph 4, at least one
elevator shall be kept available at all times, subject to use by
other tenants, which services each floor upon which the Premises
are located;
(ii) common entrances, lobbies, walkways, stairways and corridors
giving access to the Building and die Premises, including
plazas, landscaped areas from time to time provided by the
Landlord for common use and enjoyment within the Building;
(iii) the washrooms on the Tenant's floor which are standard to the
Building;
6
<PAGE> 11
(f) Additional Services: if, and to the extent that, the Landlord
shall from time to time elect to provide exclusively (either directly or
through agents or contractors designated by it) any janitor, cleaning or
other services in addition to those contemplated by paragraph 4 or to
supervise the moving of furniture or equipment of the Tenant or to make
deliveries or supervise the making of deliveries to the Premises, all of
the foregoing matters referred to in this paragraph 4(f) (including any
for the Additional Services referred to in Schedule "C") to be treated
as Additional Services.
The Landlord shall maintain and keep in repair the facilities required
for the provision of the interior climate control, elevator and other services
referred to in this paragraph 4 in accordance with the standards of modern
office buildings in the Greater Vancouver area at the date of this Lease, but
reserves the right to stop the use of any of these facilities and the supply of
the corresponding services when necessary by reason of accident or during the
making of repairs, alterations or improvements, in the judgment of the Landlord
necessary or desirable to be made, until the repairs , alterations or
improvements shall have been completed to the satisfaction of the Landlord. The
Landlord shall have no responsibility or liability for failure to operate any of
the said facilities or supply any of the said services when the use of the
facility is stopped as aforesaid or when the Landlord is prevented from using
the facility or supplying the service by strike, or by orders or regulations of
any governmental authority or agency or by failure of the electric current,
natural gas or water supply necessary to tile operation of any facility or by
the failure to obtain such a supply with the exercise of reasonable diligence,
or by any other cause beyond the Landlord's reasonable control PROVIDED THAT THE
LANDLORD MAKES ALL REASONABLE EFFORTS TO RECTIFY THE SITUATION WITH DUE
DILIGENCE.
USE AND OCCUPANCY OF PREMISES
5. The Tenant covenants with the Landlord:
(a) Permitted Use: to use the Premises only for the purpose of an
office for the conduct of the Tenant's business as specified in the
Lease Summary attached hereto, and not to use or permit to be used the
Premises or any part thereof for any other purpose or business without
the prior written consent of the Landlord WHICH CONSENT SHALL NOT BE
UNREASONABLY WITHHELD OF DELAYED.
(b) Waste and Nuisance: not to commit, or permit, any waste or
injury to the Premises including the Leasehold Improvements (as
hereinafter defined in paragraph 11(a) hereof) and any trade fixtures
therein, any loading of the floors thereof in excess of the maximum
degree of loading contemplated by the Design Criteria (as hereinafter
defined and referred to in paragraph 5(g) hereof), any nuisance therein
or any use or manner of use causing annoyance to other tenants and
occupants of the Building;
(c) Insurance Risks: not to do, omit to do or permit to be done or
omitted to be done upon the Premises anything which would cause to be
increased the Landlord's cost of insurance (which, if the Landlord has
elected to self-insure with respect to any risks, shall include any
costs which would have been incurred had the Landlord not so elected)
against any perils as to which the Landlord is obligated by this Lease
to insure (or self-insure) the Lands (and, without waiving the foregoing
prohibition, the Landlord may demand, and the Tenant shall pay to the
Landlord upon demand, the amount of any such increase of cost caused by
anything so done or omitted to be done) or which shall cause any policy
of insurance on the Lands to be subject to cancellation;
(d) Condition: not to permit the Premises to become untidy,
unsightly or hazardous or permit unreasonable quantities of waste or
refuse to accumulate therein, and at the end of each business day to
leave the Premises in a condition such as to reasonably facilitate the
performance of the Landlord's janitor and cleaning services referred to
in paragraph 4(b) hereof;
(e) By-laws: to comply at its own expense with all municipal,
federal and provincial, sanitary, fire and safety laws, regulations and
requirements pertaining to the occupation and use of the Premises, the
condition of the Leasehold Improvements, trade fixtures,
7
<PAGE> 12
furniture and equipment installed by or on behalf of the Tenant therein
and the making by the Tenant of any repairs, changes or improvements
therein;
(f) Rules and Regulations: to observe and perform and to cause its
employees, invitees and others over whom the Tenant can reasonably be
expected to exercise control to observe and perform the Rules and
Regulations attached as Schedule "D" hereto, and such further and other
reasonable rules and regulations and amendments and changes therein as
may hereafter be made by the Landlord and notified to the Tenant, except
that no change may be made which is inconsistent with this Lease unless
the Tenant consents thereto; the Rules and Regulations, as from time to
time amended, are not necessarily of uniform application, but may be
waived in whole or in part in respect of other tenants without affecting
their enforceability with respect to the Tenant and the Premises, and
may be waived in whole or in part with respect to the Premises without
waiving them as to future application to the Premises; and the
imposition of such Rules and Regulations shall not create or imply any
obligation of the Landlord to enforce them or create any liability on
the Landlord for their non-enforcement;
(g) Design Criteria: in its use of the Premises including without
limitation the making of renovations thereto and the construction of
Leasehold Improvements thereon, to comply with the reasonable
requirements of Design Criteria from time to time prepared by or on
behalf of the Landlord and distributed to the Tenant in common with
other tenants, except that such Design Criteria may not contain any
restriction which is inconsistent with this Lease unless the Tenant
consents thereto;
(h) Pollutants: not to discharge nor permit the discharge of any oil
or grease or any deleterious, objectionable, dangerous, radioactive,
poisonous or explosive matter or substance (the "Pollutants") into any
waters, ditches, culverts, drains or sewers on or adjacent to the Lands,
and the Tenant shall take all reasonable measures for ensuring that any
effluent discharged shall not be corrosive, poisonous or otherwise
harmful to any sewage disposal works or to the bacteriological process
of sewage purification. The Landlord shall be permitted access to the
Premises from time to time to test and monitor the effluent from the
Tenant's operations. In addition, the Tenant shall not dispose of,
discharge or accumulate or permit to be disposed or, discharged or
accumulated on, in or under the Lands any Pollutants;
(i) Parking: to observe all regulations made by the Landlord from
time to time with respect to the parking of vehicles in or around the
Building or on the Lands. The Tenant shall, upon request, supply the
Landlord with the automobile licence numbers for the vehicles owned by
its employees. In addition, the Landlord reserves the right to remove
with respect to the parking of vehicles from time to time, such removal
to be at the risk and expense of the Tenant. Further, the Landlord
reserves the right to designate from time to time certain parking spaces
for the exclusive use of other tenants of the Building; and
(j) Hazardous Substances: to:
(i) at its own cost and expense, comply with all laws and
regulations from time to time in force regulating the
manufacture, use, storage transportation, removal or
disposal of waste, Hazardous Substances and the
protection of the environment generally; and
(ii) not bring onto the Premises or the Lands or permit the
presence thereon of any Hazardous Substances, WHICH WERE
BROUGHT ON TO THE PREMISES OR THE LANDS BY THE TENANT,
OR ANY PARTY FOR WHOM THE TENANT IS RESPONSIBLE IN LAW,
without the prior written consent of the Landlord.
The Tenant shall, at its own expense, promptly and diligently remove any
unauthorized Hazardous Substances from the Premises of the Lands, WHICH WERE
BROUGHT ON TO THE PREMISES OR THE LANDS BY THE TENANT, OR ANY PARTY FOR WHOM THE
TENANT IS RESPONSIBLE IN LAW. The
8
<PAGE> 13
Tenant shall, at its own expense, remedy any damage to the Premises or the Lands
caused by such event or breach.
For the purposes of this Lease, the term "Hazardous Substances" shall
mean any substance which is hazardous to persons or property and includes,
without limiting the generality of the foregoing, any contaminant, pollutant,
dangerous substance, noxious substance, hazardous waste, flammable, explosive,
radioactive material, urea formaldehyde foam insulation, asbestos, PCBs and any
other substance or materials declared or defined to be hazardous or toxic
contaminants, in or pursuant to any applicable federal, provincial or municipal
statute or bylaw.
REPAIR AND DAMAGE
6. (a) Landlord's Repairs to the Lands and the Building
The Landlord covenants with the Tenant to keep in a good and
reasonable state of repair, with the exception of reasonable wear and tear and
damage caused by the act or omission of the Tenant:
(i) those portions of the Lands consisting of the courts,
concourses, lobbies, landscaped areas, entrances and
other facilities from time to time provided for common
use and enjoyment, and the exterior portions (including
exterior walls, foundations and roofs) of all buildings
and structures from time to time forming part of the
Lands and affecting its general appearance;
(ii) the Building (other than the Premises and premises of
other tenants) including the systems for interior
climate control, the elevators, entrances, stairways,
corridors and lobbies and washrooms from time to time
provided for use in common by the Tenant and other
tenants of the Building and the systems provided for
bringing utilities to the Premises.
(b) Landlord's Repairs to the Premises
The Landlord covenants with the Tenant to repair, so far as
reasonably feasible, and as expeditiously as reasonably feasible,
defects in construction performed or installations made by the Landlord
in the Premises (if and to the extent that such defects are sufficient
to impair the Tenant's ability to comply with the Design Criteria
referred to in paragraph 5(g) hereof). The Landlord shall in no event be
required to make repairs to Leasehold Improvements.
(c) Tenant's Repairs
The Tenant covenants with the Landlord to repair at the Tenant's
own cost, except insofar as the obligation to repair rests upon the
Landlord pursuant to paragraph 6(b), the Premises, including Leasehold
Improvements, reasonable wear and tear excepted, but this obligation
shall not extend to structural members or to exterior glass or to
repairs which the Landlord would be required to make under paragraph
6(b) but for the exclusion therefrom of defects not sufficient to impair
the Tenant's enjoyment of the Premises while using them in a manner
consistent with this Lease. The Landlord may enter and view the state
of repairs and the Tenant will repair according to notice in writing,
reasonable wear and tear excepted. If the Tenant shall fail to repair
after 15 DAYS WRITTEN notice to do so (OR COMMENCE SUCH REPAIRS WITHIN
THE 15 DAY PERIOD IF THE REPAIRS ARE OF A NATURE WHICH WILL REASONABLY
REQUIRE MORE THAN 15 DAYS TO COMPLETE), the Landlord may effect the
repairs and collect the cost thereof from the Tenant as additional rent
pursuant to paragraph 16(a)(i) hereof.
IT IS UNDERSTOOD AND AGREED THAT, IN THE EVENT THAT THE REQUIRED REPAIRS
ARE URGENT IN THE REASONABLE OPINION OF THE LANDLORD, NO NOTICE WILL BE
GIVEN.
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(d) Indemnification
The Tenant agrees that if any part of the Lands or Building
including exterior glass and the systems for interior climate control
and for the provision of utilities becomes out of repair, damaged or
destroyed through the negligence of or misuse by the Tenant or its
employees, agents, invitees or others under its control, the expense of
repairs or replacements thereto necessitated thereby shall be reimbursed
to the Landlord by the Tenant promptly upon demand.
(e) Abatement and Termination
It is agreed between the Landlord and the Tenant that:
(i) in the event of damage to the Premises or to other
portions of the Lands which affect access or services
essential to the Premises, and if the damage is such
that the Premises or any substantial part thereof is
rendered not reasonably capable of use and occupancy by
the Tenant for the purposes of its business for any
period of time in excess of ten (10) days, then;
(1) unless the damage was caused by the fault or
negligence of the Tenant or its employees, agents,
invitees or others under its control, from and after the
expiration of ten (10) days after the occurrence of the
damage and until the Premises are again reasonably
capable of use and occupancy as aforesaid, THE BASIC AND
ADDITIONAL RENTAL payable pursuant to paragraph 2 HEREOF
shall abate from time to time in proportion to the part
or parts of the Premises not reasonably capable of such
use and occupancy; and
(2) unless this Lease is terminated as hereinafter
provided, the Landlord or the Tenant as the case may be
(according to the nature of the damage and their
respective obligations to repair as provided in
paragraphs 6(a), (b) and (c)) shall repair such damage
with all reasonable diligence, but to the extent that
any part of the Premises is not reasonably capable of
such use and occupancy by reason of damage which the
Tenant is obligated to repair hereunder, any abatement
of rent to which the Tenant would otherwise be entitled
hereunder shall not extend later than the time by which,
in the reasonable opinion of the Landlord, repairs by
the Tenant ought to have been completed with reasonable
diligence; and
(ii) if either;
(1) the Premises; or
(2) premises whether of the Tenant or other tenants of
the Building comprising in the aggregate half or more of
the total number of square feet (or square metres) of
Rentable Area in the Building (in each case determined
in accordance with paragraph 7(b) hereof), or portions
of the Lands which affect access or services essential
thereto are substantially damaged or destroyed by any
cause other than by reason of the act or omission of the
Tenant,
and if, in the reasonable opinion of the Landlord, the
damage cannot reasonably be repaired within One Hundred
and Eighty (180) days after the occurrence of such
damage or destruction, then the Landlord SHALL, by
delivery of written notice to the Tenant within Thirty
(30) days after the date of the occurrence of such
damage or destruction, terminate this Lease, in which
event neither the Landlord nor the Tenant shall be bound
to repair as provided in paragraphs 6(a), (b) and (c),
and the Tenant shall instead deliver up possession of
the Premises to the Landlord with reasonable expedition
but in any event within sixty (60) days after delivery
of such
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notice of termination, and rent shall be apportioned and
paid to the date OF SUCH DAMAGE, but otherwise the
Landlord or the Tenant, as the case may be and according
to the nature of the damage and their respective
obligations to repair as provided in paragraphs 6(a),
(b) and (c), shall repair such damage with all
reasonable diligence.
ALLOCATION OF TAXES AND OPERATING EXPENSES
7. (a) Definitions
For purposes of those provisions of this Lease relating to the
allocation of taxes and operating expenses, the following terms shall
have the following meanings:
(i) "Office/Retail Premises" means the whole of the Building
above grade designated to be leased or rented to
tenants, other than the portion thereof used for the
operation of a restaurant or a banking establishment;
(ii) "Architects" means a recognized firm of architects from
time to time designated by the Landlord as architects
hereunder;
(iii) "Tenant's Contributing Area" means the number which is
the numerator to be used in arriving at the proportion
of Allocable Taxes or Allocable Operating Expenses to be
paid by the Tenant with respect to the Premises, which
number shall be the Rentable Area in square feet or
square metres of the Premises calculated in accordance
with paragraph 7(b) hereof;
(iv) "Administrative Service Areas" means space in the
Building which would otherwise be leaseable to tenants
but which the Landlord utilizes in connection with the
operation or maintenance of the Lands other than any
such space which, in the reasonable opinion of the
Landlord, would be required for the operation or
maintenance of the Lands even if such operation and
maintenance was performed entirely by independent
contractors operating primarily from premises located
outside the Lands and not by the Landlord. Subject to
the foregoing, Administrative Service Areas include
office space occupied by personnel engaged in such
operation and maintenance and in management of the Lands
(other than leasing staff), locker, lunch and washrooms
for operating and maintenance staff, storage rooms for
building supplies, machine and maintenance shops, and
parcel delivery rooms and other like facilities for
common use by or service to tenants of the Building and
the Lands;
(v) "Gross Contributing Area for Operating Expense
Allocation" means the number which is the denominator to
be used in arriving at the proportion of Allocable
Operating Expenses to be paid by the Tenant with respect
to the Premises, which number is the total Rentable
Area, measured in square feet (or square metres), on a
full floor basis in accordance with paragraph 7(b)
hereof, of all Office/Retail Premises, restaurant or
banking establishment leaseable or available for
occupancy, whether or not rented or occupied, after
deduction of the area, measured in square feet (or
square metres), of space occupied by the Landlord, its
agents, contractors or subcontractors exclusively in
respect of the management, maintenance or operation of
the Building and the Lands.
For purposes of this definition, premises are considered
to be leaseable or available for occupancy if they are
capable of occupancy or would be made capable by the
addition of tenants' improvements;
(vi) "Gross Contributing Area for Tax Allocation" means the
number which is the denominator to be used in arriving
at the proportion of Allocable Taxes to be paid by the
Tenant with respect to the Premises, which number shall
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be determined as described in the definition of Gross
Contributing Area for Operating Expense Allocation;
(vii) "Allocable Taxes" means all taxes, rates, duties, levies
and assessments whatsoever, whether municipal,
parliamentary or otherwise, levied, imposed or assessed
against the Lands or any portion thereof or upon the
Landlord in respect thereof or from time to time levied,
imposed or assessed in the future in lieu thereof, or
for which the Landlord is liable with respect to the
Building and the Lands, including those levied, imposed
or assessed for education, schools and local
improvements, and including all costs and expenses
(including REASONABLE legal and other professional fees
and interest and penalties on deferred payments)
incurred by the Landlord in good faith in contesting,
resisting or appealing any taxes, rates, duties, levies
or assessments, but excluding:
(A) taxes and license fees in respect of any business
carried on by tenants and occupants of the Lands
(including the Landlord in respect of its business),
which taxes are herein collectively called "Business
Taxes";
(B) income or profits taxes upon the income of the
Landlord to the extent such taxes are not levied in lieu
of taxes, rates, duties, levies and assessments against
the Lands or upon the Landlord in respect thereof, which
taxes are herein collectively called the Landlord's
Income Taxes";
(C) all taxes, rates, duties, levies and assessments
(including Business Taxes) which the Landlord recovers
from tenants under paragraph 8(b) hereof and comparable
paragraphs of other leases, which taxes are herein
collectively called "Tenants' Taxes"; and
(D) ALL CAPITAL TAXES PAYABLE BY THE LANDLORD INCLUDING,
BUT NOT BEING LIMITED TO, CORPORATION CAPITAL TAX, (THE
"LANDLORD'S CAPITAL TAXES");
(viii) I. "Allocable Operating Expenses" for any period means,
WITHOUT DUPLICATION, all expenses, costs and
disbursements of every kind and nature (determined for
each year on an accrual basis) incurred in connection
with the management and operation of the Lands for such
period, except the following:
(A) costs of alterations of the Premises or of the
premises of other tenants and corresponding costs as to
premises occupied or to be occupied by the Landlord,
except as they relate to premises to be occupied by the
Landlord in the performance of its function as Landlord
of the Building and the Lands;
(B) costs of capital improvements and other costs
properly chargeable to capital account;
(C) depreciation, interest and principal payments on
mortgages and other debt costs except that Allocable
Operating Expenses may, at the discretion of the
Landlord, be calculated to include depreciation and
interest costs with respect to machinery, equipment,
systems, property or facilities installed in or used in
connection with the Lands if one of the principal
purposes of such installation or use was to reduce other
items of Allocable Operating Expenses, and also to
include reasonable depreciation and interest charges
with respect to equipment, such as janitorial equipment,
provided or used by the Landlord in the normal
maintenance of the Lands;
(D) real estate brokers' leasing commissions; and
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(E) repairs or replacement of structural elements of the
Building including, but not limited to load bearing
walls, floorslabs and masonry walls; replacement of the
roof, roof membrane or roof covering; any cost that
should have been paid by another Tenant had it not been
excused from doing so by the Landlord or had it not
defaulted under its Lease; any legal fees and other
costs in respect of financing or refinancing of the
Building or Lands.
II. All such expenses shall be included whether incurred
by or on behalf of the Landlord or incurred by or on
behalf of any owner or owners of parts of or interests
in the Lands with whom the Landlord may from time to
time have agreements for the pooling or sharing of costs
or by or on behalf of tenants of space in the Building
(including operators of parking garages) with whom the
Landlord may from time to time have agreements whereby
in respect of their premises such tenants perform any
cleaning, maintenance or other work or services usually
performed by the Landlord, and which expenses if
directly incurred by the Landlord would have been
included in Allocable Operating Expenses and shall
include the value of services not reflecting a direct
cost or detriment, such as the rental value of
Administrative Service Areas. Allocable Operating
Expenses shall also include insurance premiums payable
under policies held by the Landlord pursuant to
paragraph 12(a) hereof with respect to risks affecting
the Lands, together with related payments and costs
including an amount equal to any sum deducted if the
Landlord shall elect to insure with respect to any such
risks under a policy or policies containing provisions
which require a specified sum to be deducted from each
claim made thereunder.
III. In computing Allocable Operating Expenses there
shall be credited as a deduction:
(A) the amounts of proceeds of insurance and other
amounts actually recovered by the Landlord applicable to
damage the cost of repair of which was included in
Allocable Operating Expenses;
(B) amounts recovered as a result of direct charges to
the Tenant and other tenants in respect of Additional
Services under paragraph 8(d) hereof and comparable
paragraphs of other leases to the extent that the
amounts so recovered relate to costs thereof included in
Allocable Operating Expenses and the additional charge
of 10% of the aggregate of the cost of labour, materials
and other direct expenses chargeable under paragraph
8(d) shall be considered to be so related;
(C) all other recoveries from the Tenant and other
tenants applicable to expenses included in Allocable
Operating Expenses, other than contributions to
Allocable Operating Expenses by the Tenant pursuant to
the provisions of this Lease and contributions by other
tenants pursuant to comparable provisions of other
leases;
(ix) "Tenant's Proportionate Share" for any period means the
aggregate of:
(i) an amount determined by multiplying Allocable
Operating Expenses for the period by a fraction
calculated at or as of the end of such period, the
numerator of which is the Tenant's Contributing Area and
the denominator of which is the Gross Contributing Area
for Operating Expense Allocation; and
(ii) an amount determined by multiplying Allocable Taxes
for the period by a fraction calculated at or as of the
end of such period, the numerator of which is the
Tenant's Contributing Area and the denominator of which
is the Gross Contributing Area for Tax Allocation;
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(x) "Year" means a period of 12 months commencing on January
1 and ending on the next ensuing December 31 until
changed pursuant to paragraph 7(f).
(b) Area Measurements
All measurements of Rentable Area required to implement this
paragraph 7, or under other provisions of this Lease, shall be made in
accordance with the procedure outlined in Schedule "E" hereto. Such
measurements shall be made by the Landlord and included in the material
made available to the Tenant in connection with the determination of the
Tenant's Proportionate Share pursuant to paragraph 7(c). In the event of
any dispute as to the measurement made by the Landlord (which dispute
may not be advanced more than one year after the information as to the
measurement becomes available to the Tenant) the decision of the
Architects shall be final.
(c) Determination of Tenant's Proportionate Share
Insofar as the determination of the Tenant's Proportionate Share
is dependent upon calculations other than area measurements governed by
paragraph 7(b), the same shall be binding upon the Tenant if reasonably
performed by the Landlord, who shall within a reasonable time after
receipt of notice from the Tenant, given within one year after the end
of the Year to which it relates, provide the Tenant with a statement
disclosing in reasonable detail the costs and taxes being allocated and
the calculation of the Tenant's Proportionate Share and shall further
provide the Tenant with reasonable access to the books and records of
the Landlord pertaining thereto. Any expenses not directly incurred by
the Landlord but which are included in Allocable Operating Expenses may
be estimated by the Landlord on whatever reasonable basis the Landlord
may select.
(d) Payment of Tenant's Proportionate Share
Prior to the commencement of the Term and prior to May 1 in each
Year thereafter which commences during the Term the Landlord shall
estimate the Tenant's Proportionate Share for the ensuing Year or (if
applicable) broken portion thereof, as the case may be, and shall notify
the Tenant in writing of the estimate. The amount so estimated shall be
payable in equal monthly installments in advance over the Year or broken
portion of the Year in question, each installment being payable on each
monthly rental payment date provided in paragraph 2 hereof. From time to
time during a Year the Landlord may reestimate the amount of the
Tenant's Proportionate Share for the Year or broken portion thereof, in
which event the Landlord shall notify the Tenant in writing of the new
estimate and shall fix monthly installments for the then remaining
balance of such Year or broken portion thereof in order that, after
giving credit for the installments paid by the Tenant on the basis of
the previous estimate or estimates, the Tenant's Proportionate Share
will have been fully paid during such Year or broken portion thereof.
(e) Re-adjustment of Tenant's Proportionate Share
When the necessary information becomes available, the Landlord
shall re-calculate the Tenant's Proportionate Share for such Year or
broken portion thereof referred to in paragraph 7(d), after the expiry
of the Year or portion thereof. The Landlord and the Tenant shall
expeditiously make between them any re-adjustment which such
recalculation may show to be necessary, so that the Tenant shall be
credited for any overpayment or debited for any deficiency. Neither
party may claim a re-adjustment in respect of the Tenant's Proportionate
Share based upon any error of estimation, determination or calculation
thereof unless claimed in writing prior to the expiration of one year
after the end of the Year to which the payment relates, provided always
that the provisions of this paragraph 7(e) shall not affect any claim
for re-adjustment based upon other matters, including without limitation
the outcome of litigation affecting expenses which constitute component
parts of the Allocable Taxes or Allocable Operating Expenses.
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(f) Change from Year Ending December 31
In the event that the Landlord shall change its accounting
system or procedures so that it shall become more convenient for the
provisions of paragraphs 7(d) and 7(e) to be administered on the basis
of some 12-month period other than Years ending December 31, then the
Landlord may determine upon delivery of not less than six months'
written notice to the Tenant and other tenants that such provisions of
this Lease and comparable provisions of other leases of premises upon
the Lands shall be so administered, and after the expiry of such notice
period, the provisions of paragraphs 7(d) and 7(e) shall be and be
deemed and construed to be appropriately amended to that end.
TAXES
8. (a) Payment by Landlord
The Landlord covenants with the Tenant to pay promptly when due
to the taxing authority or authorities having jurisdiction all taxes,
which shall mean for purposes of this paragraph 8, "Allocable Taxes",
"Business Taxes" (insofar as such Business Taxes are exigible against
the Landlord with respect to the business of the Landlord), the
"Landlord's Income Taxes", the "LANDLORD'S CAPITAL TAXES" and any
"Tenants' Taxes", as such terms are defined in paragraph 7(a)(vii).
(b) Payment by Tenant
The Tenant covenants with the Landlord to pay promptly when due
to the taxing authority or authorities having jurisdiction all taxes,
rates, duties, levies and assessments whatsoever, whether municipal,
parliamentary or otherwise, levied, imposed or assessed in respect of
any and every business carried on in the Premises by the Tenant,
subtenants, licensees or other occupants of the Premises or in respect
of the use or occupancy thereof (including license fees), which shall
include all "Business Taxes" as defined in paragraph 7(a)(vii) hereof
(insofar as such Business Taxes are exigible with respect to any
business carried on in the Premises). The Tenant further covenants to
pay to the Landlord promptly on demand therefor by the Landlord, an
amount equal to all taxes charge in respect of all Leasehold
Improvements and trade fixtures and all furniture and equipment made,
owned or installed by or on behalf of the Tenant in the Premises, the
Landlord may determine to recover from the Tenant, and any amounts so
paid by the Tenant to the Landlord (and by other tenants under
corresponding paragraphs of other leases) shall be excluded in the
determination of Allocable Taxes under paragraph 7 hereof.
(c) Postponement, Determination, Appeal, etc., of Taxes
(i) The Landlord may postpone payment of any taxes payable
by it pursuant to paragraph 8(a) and the Tenant may
postpone payment of any taxes, rates, duties, levies and
assessment payable by it under the first sentence of
paragraph 8(b) in each case to the extent permitted by
law and if prosecuting in good faith an appeal against
the imposition thereof, and provided in the case of a
postponement by the Tenant that if the Lands or any part
thereof of the Landlord shall have become liable to
assessment, prosecution, fine or other liability, the
Tenant shall have given security in a form and in an
amount satisfactory to the Landlord in respect of such
liability and such undertakings as the Landlord may
reasonably require to ensure payment thereof.
(ii) For all purposes of this paragraph 8 and of paragraph 7,
where the determination of any taxes depends upon an
assessment or an apportionment of an assessment which
has not been made by the taxing authority or authorities
having jurisdiction, the Landlord may determine the
same. Any determinations so made by the Landlord shall
be binding upon the Tenant unless shown to be
unreasonable or erroneous in some substantial respect.
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Notwithstanding the foregoing, in the absence of any
separate assessment of Leasehold Improvements or trade
fixtures or (if assessable) furniture or equipment of
the Tenant referred to in paragraph 8(b), or of other
tenants, the Landlord may elect not to make a
determination thereof and may from time to time waive
payment of amounts which would otherwise be payable by
the Tenant under that item (and by other tenants under
comparable provisions of other leases of premises in the
Building), in which event such amounts shall form part
of Allocable Taxes, without prejudice to the right of
the Landlord to make any such determination in the
future, either generally or in the case of the Tenant or
any other tenant where the value of such Leasehold
Improvements, trade fixtures, furniture or equipment is
unusually large, with the intent that the enforcement or
non-enforcement of the said item (and any like
provisions in other leases) shall not be such as to
impose any substantial inequity amongst tenants
including the Tenant.
(iii) Whenever requested by the Landlord, the Tenant will
deliver to the Landlord receipts for payment of all
taxes, rates, duties, levies and assessments payable by
the Tenant pursuant to the first sentence of paragraph
8(b) hereof and furnish such other information in
connection therewith as the Landlord may reasonably
require.
(iv) The Tenant agrees that it will not conduct any appeal
from any governmental assessment or determination of the
value of the Lands or not the assessment or
determination affects the amount of tax to be paid by
the Tenant. The Tenant shall instead rely upon the
Landlord to conduct any such appeal in the interest of
all occupants of the Lands and the Landlord agrees that
it will do so (with the expense to likely to attain a
favourable result, provided always that the Landlord
shall in no event be responsible or liable to the Tenant
for any action or failure to act was not made in good
faith.
(d) Payment for Additional Services
The cost of Additional Services provided to the Tenant, whether
or not the Landlord is obligated to provide them, shall be paid to the
Landlord by the Tenant from time to time promptly upon receipt of
invoices therefor from the Landlord. For purposes of this Lease, the
term "Additional Services" includes all services supplied pursuant to
paragraph 4(f) hereof, all other services designated as Additional
Services by that paragraph, and all other services of whatsoever nature
or kind supplied by the Landlord to (the Tenant in addition to those
required by this Lease (other than any such services which the Landlord
may elect to supply as included within the standard level of services
furnished to tenants generally, the costs of which shall be included in
Allocable Operating Expenses). The invoices above referred to shall
reflect the Landlord's total cost of provision of the Additional
Services being charged for, including all costs of materials and labour
and other direct costs, costs of supervision and other indirect
expenses, capable of being allocated on a reasonable basis, plus an
amount equal to ten percent (10%) of the aggregate of the cost of
labour, materials and other direct expenses, to cover indirect expenses
incapable of reasonable allocation. The Landlord's reasonable
determination of the costs of Additional Services shall be conclusive.
ASSIGNMENT AND SUBLETTING
9. (a) No Assignment Without Leave
The Tenant covenants that it will not assign or sublet without
leave, which leave the Landlord covenants not to withhold unreasonably
OR DELAY as to any assignee or sublessee who, in the Landlord's
judgment, has a satisfactory financial condition, has a good reputation
in the business community and agrees to use the Premises for the
purposes satisfactory to the Landlord. Without limitation, the Tenant
shall for the purposes of this paragraph 9 be considered to assign or
sublet in any case where it permits the Premises or any portion thereof
to be occupied by persons other than the Tenant, its
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employees and others engaged in carrying on the business of the Tenant,
whether pursuant to assignment, subletting, license or other right. THE
TENANT SHALL GIVE THE LANDLORD WRITTEN NOTICE, BUT SHALL NOT BE REQUIRED
TO OBTAIN THE CONSENT OF THE LANDLORD, IF EFFECTIVE CONTROL OF THE
TENANT IS HEREAFTER CHANGED DIRECTLY OR INDIRECTLY BY SALE, ENCUMBRANCE
OR OTHER DISPOSITION OF SHARES OR OTHERWISE. NOTWITHSTANDING THE
FOREGOING, THE TENANT SHALL OBTAIN THE PRIOR WRITTEN CONSENT OF THE
LANDLORD (WHICH CONSENT WILL NOT BE UNREASONABLY WITHHELD OR DELAYED) IF
MORE THAN 50% OF THE SHARES OF THE TENANT ARE SOLD TO A PARTY WHO IS NOT
A SHAREHOLDER OF THE TENANT ON THE EFFECTIVE DATE OF THIS LEASE;
PROVIDED THAT THIS PARAGRAPH SHALL NOT APPLY AND THE TENANT SHALL NOT BE
REQUIRED TO GIVE THE LANDLORD NOTICE OR OBTAIN THE LANDLORD'S CONSENT IN
THE FOLLOWING INSTANCES:
(i) IF THE TENANT IS A CORPORATION THE SHARES OF WHICH ARE
LISTED ON ANY RECOGNIZED STOCK EXCHANGE OR IF THE TENANT
MAKES AN INITIAL PUBLIC OFFERING OF ITS SHARES;
(ii) IF THE PRESENT SHAREHOLDERS MAKE A SALE OR OTHER
DISPOSITION OF SHARES TO IN BETWEEN THEMSELVES; OR
(iii) IN THE EVENT OF ANY TRANSMISSION OF SHARES ON DEATH
(b) Assignment or Subletting Procedures
The Tenant shall not assign this Lease or sublet or share
possession of the whole or any part of the Premises unless:
(i) it shall have received or procured a bona fide written
offer to take an assignment or sublease which is not
inconsistent with this Lease, and the acceptance of
which would not breach any provision of this Lease if
this paragraph 9(b) is complied with and which the
Tenant has determined to accept subject to this
paragraph 9(b) being complied with; and
(ii) it shall have first requested and obtained the consent
in writing of the Landlord thereto.
ANY REQUEST FOR CONSENT SHALL BE IN WRITING AND ACCOMPANIED BY A TRUE
COPY OF THE OFFER, AND THE TENANT SHALL FURNISH TO THE LANDLORD ALL INFORMATION
AVAILABLE TO THE TENANT AND REQUESTED BY THE LANDLORD AS TO THE RESPONSIBILITY,
REPUTATION, FINANCIAL STANDING AND BUSINESS OF THE PROPOSED ASSIGNEE OR
SUBTENANT. IF SUCH CONSENT SHALL BE GIVEN THE TENANT SHALL ASSIGN OR SUBLET, AS
THE CASE MAY BE, ONLY UPON THE TERMS SET OUT IN THE OFFER SUBMITTED TO THE
LANDLORD AS AFORESAID AND NOT OTHERWISE.
(c) Assumption of Obligations
No assignment of this Lease shall be effective unless the
assignee shall execute an appropriate instrument assuming, as to the
assigned premises, all the obligations of the Tenant hereunder.
SIGNS AND DIRECTORY
10. The Tenant shall not paint, display, inscribe, place or affix any sign,
symbol, notice or lettering of any kind anywhere in or on the Lands outside the
Premises (whether on the outside or inside of the Building) or within the
Premises so as to be visible from the outside of the Premises, with the
exception only of an identification sign at or near the entrance to the Premises
and a directory listing in the main lobby of the Building, both to be subject to
the approval of the Landlord as to design, size and location. Unless the
Landlord consents to the inclusion of any other or additional name, the Tenant
shall be entitled to have included on such directory only the name of the
Tenant. The Landlord may at its discretion determine that either or both of the
identification sign and directory listing shall be installed at the expense of
the Tenant, and the Landlord reserves the right to install them as an Additional
Service.
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LEASEHOLD IMPROVEMENTS AND TRADE FIXTURES
11. (a) Definition of Leasehold Improvements
For purposes of this Lease, the term "Leasehold Improvements"
includes all items generally considered as leasehold improvements,
including without limitation all fixtures, improvements, installations,
alterations and additions from time to time made, erected or installed
by or on behalf of the Tenant, or any previous occupant of the Premises,
in the Premises and by or on behalf of other tenants in other premises
in the Lands (including the Landlord as occupant of its premises),
including all partitions however affixed, and whether or not movable,
and all wall-to-wall carpeting other than carpeting laid over finished
floors and affixed so as to be readily removable without damage with the
exception of TENANT'S trade fixtures, CHATTELS, furniture, MACHINERY and
equipment not of the nature of fixtures.
(b) Installation of Improvements and Fixtures
The Tenant will not make, erect, install or alter any Leasehold
Improvements or trade fixtures in the Premises without having requested
and obtained the Landlord's prior written approval. The Landlord shall
not unreasonably withhold or DELAY its approval to any such request, but
failure to comply with Design Criteria established by the Landlord from
time to time for the Building shall be considered sufficient reasons for
refusal. In making, erecting, installing or altering any Leasehold
Improvements or trade fixtures the Tenant will not, without the prior
written approval of the Landlord, WHICH SHALL NOT BE UNREASONABLY
WITHHELD OR DELAYED, alter or interfere with any installations which
have been made by the Landlord and in no event shall alter or interfere
with window coverings or other light control devices installed by the
Landlord on exterior windows or with the perimeter lighting adjacent to
exterior walls of the Building. The Tenant's request for any approval
hereunder shall be in writing and accompanied by an adequate description
of the contemplated work and, where appropriate, working drawings and
specifications thereof. Any out-of-pocket expense incurred by the
Landlord in connection with any such request for approval shall be
deemed incurred by way of an Additional Service. All work to be
performed in the Premises shall be performed by competent contractors
and subcontractors of whom the Landlord shall have approved, such
approval not to be unreasonably withheld OR DELAYED (except that the
Landlord may require that the Landlord's consultants be engaged for any
mechanical or electrical work) and by workers who have labour union
affiliations that are compatible with those of workers employed upon
the Lands by the Landlord and its contractors and subcontractors. All
such work shall be subject to inspection by and the reasonable
supervision of the Landlord, as all Additional Service, and shall be
performed in accordance with any reasonable conditions or regulations
imposed by die Landlord and completed in good and workmanlike manner in
accordance with the description of the work approved by the Landlord.
(c) Liens and Encumbrances on Improvements and Fixtures
In connection with the making, erection, installation or
alteration of Leasehold Improvements and trade fixtures and all other
work or installations made by or for the Tenant in the Premises the
Tenant shall comply with all the provisions of the Builders' Lien Act
and other statutes from time to time applicable thereto (including any
provision requiring or enabling the retention by way of hold-back of
portions of any sums payable) and except as to any such hold-back shall
promptly pay all accounts relating thereto. The Tenant will not create
any mortgage, conditional sale agreement or other encumbrance in respect
of its Leasehold Improvements or, without the consent of the Landlord
(NOT TO BE UNREASONABLY WITHHELD OR DELAYED), with respect to its trade
fixtures nor shall the Tenant take any action as a consequence of any
such mortgage, conditional sale agreement, or other encumbrance would
attach to the Premises, or to the Lands or any part thereof. If and
whenever any builders' or other lien for work, labour, services or
materials supplied to or for the Tenant or for the cost of which the
Tenant may be in ally way liable or claims therefor shall arise or be
filed or any such mortgage, conditional sale agreement or
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other encumbrance shall attach, the Tenant shall within twenty (20) days
after receipt of WRITTEN notice thereof procure the discharge thereof,
including any certificate of action registered in respect of any lien,
by payment or giving security or in such other manner as may be required
or permitted by law, and failing which the Landlord may in addition to
all other remedies hereunder avail itself of its remedy under paragraph
16(a)(i) hereof and may make any payments required to procure the
discharge of any such liens or encumbrances and shall be entitled to be
reimbursed by the Tenant as provided and in paragraph 16(a)(i), and its
right to reimbursement shall not be affected or impaired if the Tenant
shall then or subsequently establish or claim that any lien or
encumbrance so discharged was without merit or excessive or subject to
any abatement, set-off or defense. The Landlord shall not be authorized
to pay directly to the lien claimant on behalf of the Tenant any amount
which is rightfully contested by the Tenant in a court of law. Said
amount shall only be paid in trust to the appropriate tribunal. This
paragraph 11(c) shall not prevent the Tenant from mortgaging or
encumbering its chattels, furniture, MACHINERY or equipment not of the
nature of fixtures.
(d) Removal of Improvements and Fixtures
All Leasehold Improvements in or upon the Premises shall
immediately upon their placement be and become the Landlord's property
without compensation therefor to the Tenant. Except to the extent
otherwise expressly agreed by the Landlord in writing, no Leasehold
Improvements, trade fixtures, furniture or equipment shall be removed by
the Tenant from the Premises either during or at the expiration or
sooner termination of the Term except that:
(i) the Tenant may at the end of the Term remove its trade
fixtures;
(ii) the Tenant shall at the end of the Term remove such of
the Leasehold Improvements and trade fixtures in the
Premises as the Landlord shall require to be removed;
and
(iii) the Tenant may remove its CHATTELS, furniture, MACHINERY
and equipment at the end of the Term, and also during
the Term in the usual and normal course of its business
where such CHATTELS, furniture, MACHINERY or equipment
has become excess for the Tenant's purposes or the
Tenant is substituting therefor new CHATTELS, furniture,
MACHINERY and equipment.
The Tenant shall, in the case of every removal either during or at the
end of the Term, make good at the expense of the Tenant any damage caused to the
Premises and the Building by the installation and removal.
(e) COMMUNICATIONS EQUIPMENT
THE TENANT SHALL BE RESPONSIBLE FOR THE INSTALLATION AND
MAINTENANCE OF ITS TELEPHONES, COMPUTERS AND SPECIAL EQUIPMENT. THE
LANDLORD GIVES THE TENANT PERMISSION TO INSTALL ONE (1) LOW POWER
MICROWAVE DISH ON THE ROOF OF THE BUILDING OR WITHIN THE PREMISES.
INSURANCE AND LIABILITY
12. INSURANCE AND LIABILITY
(a) Landlord's Insurance
The Landlord shall maintain the insurance described below
throughout the Term on and with respect to the Lands, which insurance
shall include the following:
(i) all risk property insurance for the full replacement cost
of the buildings on the Lands;
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(ii) public liability and property damage insurance for
protection of the Landlord against all claims for bodily
injury, including death, and for property damage occurring
in, on or about the Lands for which the Landlord is
legally liable, in respect of injury to or death of one or
more persons, in respect of one or more occurrences, and
in respect of damage to property and including all
contractual obligations coverage and including actions of
the employees, contractors, subcontractors and agents
working on behalf of the Landlord;
(iii) broad boiler and machinery insurance covering property
damage; and
(iv) such other insurance as it is or may become customary for
prudent owners of lands and improvements in the Greater
Vancouver area similar to the Lands to carry for loss of
or damage to their lands and improvements or liability
arising therefrom.
The Landlord may elect, at any time and from time to time during
the Term, to self-insure any of the loss or damage described in
paragraph 12(a). If the Landlord so elects to self-insure, the Landlord
shall be deemed to have placed the insurance required by paragraph 12(a)
for the purpose of this Lease and shall be treated as a co-insurer to
the extent that it shall not have insured with insurance companies.
(b) Tenant's Insurance
The Tenant shall maintain the insurance described below throughout the
Term and any period when it is in possession of the Premises, and each policy of
that insurance shall name, as insureds, the Tenant and the Landlord as their
respective interests may appear. The insurance which the Tenant is required to
maintain is as follows:
(i) all risk (including flood and earthquake) property
insurance in an amount not less than 80% of the full
replacement cost with a replacement cost endorsement,
insuring:
(1) all property owned by the Tenant, or for which the
Tenant is legally liable, or installed by or on behalf of
the Tenant, and located on the Lands including, but not
limited to, fittings, installations, alterations,
additions, partitions and all other leasehold improvements
and any proceeds recoverable in the event of loss to
Leasehold Improvements, shall be payable to the Landlord
(but the Landlord agrees to make available such proceeds
towards the repair or replacement of the insured property
if the Lease is not terminated pursuant to any other
provision hereof);
(2) the Tenant's inventory, furniture and movable
equipment.
(ii) public liability and property damage insurance, including
personal injury liability, contractual liability,
non-owned automobile liability, employers' liability, with
respect to the use and occupancy of the Premises and of
any other part of the Lands with coverage, including the
activities and operations conducted by the Tenant and any
other person on the Premises and by the Tenant and any
other person performing work on behalf of the Tenant and
those for whom the Tenant is in law responsible, in any
other part of the Lands. Those policies shall:
(1) be written on a comprehensive basis with inclusive
limits of at least Five Million Dollars ($5,000,000) for
bodily injury for any one or more persons, or property
damage (but the Landlord, acting reasonably, may
reasonably require higher limits from time to time upon
not less than six (6) months notice);
(2) contain a severability of interest clause and
cross-liability clauses.
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(iii) Tenant's legal liability insurance with inclusive limits of at
least the replacement value of the portion of the Building
covered by this Lease (but the Landlord, acting reasonably, may
require higher limits from time to time upon not less than six
(6) months notice);
(iv) upon not less than ninety (90) days written notice, any other
form of insurance and with whatever higher limits the Landlord,
acting reasonably, requires from time to time, in form, in
amounts and for risks against which a prudent tenant would
insure.
The policies specified under Sections 12(b)(i), (ii), (iii) and (iv)
shall contain a waiver of any subrogation rights which the Tenant's insurers may
have against all and any of the Landlord and those for whom all and any of them
are or is in law responsible, whether the damage is caused by their act,
omission or negligence.
All policies shall:
(i) be taken out with insurers reasonably acceptable to the Landlord;
(ii) be in a form reasonably satisfactory to tile Landlord;
(iii) be non-contributing with and shall apply only as primary and not
excess to any other insurance available to the Landlord;
(iv) not be invalidated as respects the interest of the Landlord by
reason of any breach or violation of warranties, representations,
declarations or conditions contained in the policies; and
(v) contain an undertaking by the insurers to notify the Landlord in
writing not less than thirty (30) days before any material
change, cancellation or termination.
The Tenant shall deliver certificates of insurance duly executed by the
Tenant's insurers evidencing that the required insurance is in force and, if
required by the Landlord, the Tenant shall deliver CERTIFICATES of each
insurance policy as soon as reasonably possible after die placing of the
insurance. No review or approval of any insurance certificate or insurance
policy by the Landlord derogates from or diminishes tile Landlord's rights under
this Lease.
(c) Insurance Validation
The Tenant agrees not to do or permit to be done any act or thing which
may render void or voidable or conflict with the requirements of any policy or
policies of insurance, whereby the Premises, the Building or the Lands are
insured or which may cause any increase in premium to be paid in respect of any
such policy. In the event that any such policy or policies is or are canceled by
reason of any act or omission of the Tenant, the Landlord SHALL have the right,
at its option, to terminate this Lease forthwith by delivery of notice of
termination to the Tenant, and in the event that any premium to be paid in
respect of any such policy or policies is or are increased by reason of any act
or omission of the Tenant, the Tenant shall forthwith pay to the Landlord, as
additional rent, the amount by which such premium shall be so increased.
(d) Limitation of Landlord's Liability
The Tenant agrees that the Landlord shall not be liable for any bodily
injury or death of, or loss or damage to any property belonging to, the Tenant
or its employees, invitees or licensees or any other person in, on or about the
Lands unless resulting from the actual fault, privity or negligence of the
Landlord OR THOSE FOR WHOM THE LANDLORD IS RESPONSIBLE IN LAW. In no event shall
the Landlord be liable:
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(i) for any damage which is caused by steam, water, rain or
snow which may leak into, issue or flow from any part of
the Lands or from the pipes or plumbing works, including
the sprinkler system, therein or from any other place or
quarter or for any damage caused by or attributable to the
condition or arrangement of any electric or other wiring
or of sprinkler heads or for any damage caused by anything
done or omitted by any other tenant;
(ii) for any act or omission (including theft, malfeasance or
negligence) on the part of any agent, contractor or person
from time to time employed by it to perform janitor
services, security services, supervision or any other work
in or about the Premises or the Lands;
(iii) for loss or damage, however caused, to money, securities,
negotiable instruments, papers or other valuables of the
Tenant; or
(iv) for the collection or non-collection of any insurance
proceeds. However, the Landlord agrees to use reasonable
efforts to collect all applicable insurance proceeds.
(e) Indemnity of Landlord
The Tenant agrees to indemnify and save harmless the Landlord in
respect of:
(i) all claims for bodily injury or death, property damage or
other loss or damage arising from the conduct of any work
by or any act or omission of the Tenant or any assignee,
subtenant, agent, employee, contractor, invitee or
licensee of the Tenant, and in respect of all costs,
expenses and liabilities incurred by the Landlord in
connection with or arising out of all such claims,
including the expenses of any action or proceeding
pertaining thereto, EXCEPT TO THE EXTENT THAT SUCH CLAIM,
LOSS, DAMAGE, COST OR EXPENSE IS CAUSED BY THE NEGLIGENCE
OF THE LANDLORD OR THOSE FOR WHOM THE LANDLORD IS
RESPONSIBLE IN LAW;
(ii) any loss, cost, expense or damage suffered or incurred by
the Landlord arising from any breach by the Tenant of any
of its covenants and obligations under this Lease; and
(iii) all costs, expenses and reasonable legal fees that may be
incurred or paid by the landlord in enforcing against the
Tenant the covenants, agreements and representations of
the Tenant set out in this Lease.
SUBORDINATION, ATTORNMENT AND CERTIFICATES
13. The Tenant agrees that:
(a) Subordination and Attornment
This Lease and all the rights of the Tenant hereunder are subject
and subordinate to all mortgages now or hereafter existing (including
deeds of trust and mortgage and all instruments supplemental thereto)
which may now or hereafter affect the Lands and to all renewals,
modifications, consolidations, replacements and extensions thereof
provided the mortgagee or trustee agrees to accept this Lease if THE
TENANT IS not in default; and in recognition of the foregoing the Tenant
agrees that it will, whenever requested by the mortgagee under any such
mortgage (including any trustee under a deed of trust and mortgage)
attorn to such mortgagee as a tenant upon all the terms of this Lease.
The Tenant agrees to execute promptly whenever requested by the Landlord
or by such mortgagee an instrument of subordination or attornment, as
the case may be, as may be required of it. THE LANDLORD AGREES TO USE
COMMERCIALLY REASONABLE EFFORTS TO OBTAIN A NON DISTURBANCE AGREEMENT
FROM ANY MORTGAGEES.
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(b) Certificates
The Tenant shall promptly whenever requested by the Landlord from
time to time execute and deliver to the Landlord (and if required by the
Landlord, to any mortgagee [including any trustee under a deed of trust
and mortgage] designated by the Landlord) a certificate in writing as to
the then status of this Lease, including as to whether it is in full
force and effect, is modified or unmodified, confirming the rental
payable hereunder and the state of the accounts between the Landlord and
the Tenant, the existence or nonexistence of defaults, and any other
matters pertaining to this Lease as to which the Landlord may request.
ACCESS OF LANDLORD
14. (a) Inspection and Access
The Landlord shall be permitted UPON 24 HOURS PRIOR WRITTEN
NOTICE, EXCEPT IN THE CASE OF AN EMERGENCY, and from time to time to
enter and to have its authorized agents, employees and contractors enter
the Premises for the purposes of inspection, window cleaning,
maintenance, providing janitor service, making repairs, alterations or
improvements to the Premises or the Lands, or to have access to
utilities and services (including overhead header ducts and access
panels, which the Tenant agrees not to obstruct) and the Tenant shall
provide free and unhampered access for such purpose, and shall not be
entitled to compensation for any inconvenience, nuisance or discomfort
caused thereby, provided always that in exercising its rights hereunder
the Landlord shall, to the extent reasonably possible, minimize
interference with the Tenant's use and enjoyment of the Premises.
(b) Exhibiting Premises
The Landlord and its authorized agents and employees shall UPON
REASONABLE NOTICE be permitted entry to the Premises during the last six
(6) months of the Term for the purpose of exhibiting the Premises to
prospective lessees and shall be entitled to display signs and/or post
notices advertising the availability of the Premises for lease.
DELAY AND NON-WAIVER
15. (a) Unavoidable Delay
Except as herein otherwise expressly provided, if and whenever
and to the extent that either the Landlord or the Tenant shall, after
the application of all reasonable efforts, be prevented, delayed or
restricted in the fulfillment of any obligation hereunder in respect of
the supply or provision of any service or utility, the making of any
repair, the doing of any work or any other thing (other than the payment
of rent or other moneys due) by reason of:
(i) strikes or work stoppages;
(ii) being unable to obtain any material, service, utility or
labour required to fulfill such obligation;
(iii) any statute, law or regulation of, or inability to obtain
any permission from, any government authority having
lawful jurisdiction preventing, delaying or restricting
such fulfillment; or
(iv) other unavoidable occurrence,
the time for fulfillment of such obligation shall be extended during the period
in which such circumstance operates to prevent, delay or restrict the
fulfillment thereof, and the other party to the Lease shall not be entitled to
compensation for any inconvenience, nuisance or discomfort
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thereby occasioned; but nevertheless the Landlord will use its best efforts to
maintain services essential to the use and enjoyment of the Premises.
(b) Waiver
If either the Landlord or the Tenant shall overlook, excuse,
condone or suffer any default, breach or non-observance by the other of
any obligation hereunder, this shall not operate as a waiver of such
obligation in respect of any continuing or subsequent default, breach or
non-observance, and no such waiver shall be implied but shall only be
effective if expressed in writing.
REMEDIES OF LANDLORD
16. (a) Remedies of Landlord
In addition to all rights and remedies of the Landlord available
to it in the event of any default hereunder by the Tenant through
improper compliance or non-compliance with any obligation arising either
under this or any other provision of this Lease or under statute or the
general law the Landlord:
(i) AFTER NOTICE IS GIVEN by THE LANDLORD to THE TENANT IN
ACCORDANCE WITH THE LEASE AND ANY APPLICABLE NOTICE
PERIODS HAVE EXPIRED, shall have the right at all times to
remedy or attempt to remedy any default of the Tenant, and
in so doing may make any payments due or alleged to be due
by the Tenant to third parties and may enter upon the
Premises to do any work or other things therein, and in
such event all expenses of the Landlord in remedying or
attempting to remedy such default shall be payable by the
Tenant to the Landlord as additional rent forthwith upon
demand. The Landlord shall not be authorized to pay
directly to the third party on behalf of the Tenant any
amount which is rightfully contested by the Tenant in a
court of law. Said amount shall only be paid in trust to
the appropriate tribunal;
(ii) shall have the same rights and remedies in the event of
any non-payment by the Tenant of any amounts payable by
the Tenant under any provision of this Lease as in the
case of a non-payment of rent; and
(iii) if the Tenant shall fail to pay rent or other amount from
time to time payable by it to the Landlord hereunder
promptly when due, shall be entitled, if it shall demand
it, to interest thereon at a rate three percent (3%) per
annum in excess of the minimum lending rate to prime
commercial borrowers from time to time current at
chartered banks in British Columbia from the date upon
which the same was due until actual payment thereof.
(b) Remedies Cumulative
The Landlord may from time to time resort to any or all of the
rights and remedies available to it in the event of any default
hereunder by the Tenant, through improper compliance or non-compliance
with any obligation arising either under any provision of this Lease or
under statute or the general law, all of which rights and remedies are
intended to be cumulative and not alternative, and the express
provisions hereunder as to certain rights and remedies are not to be
interpreted as excluding any other or additional rights and remedies
available to the Landlord by statue or the general law.
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(c) Right of Re-Entry on Default or Termination
Provided and it is expressly agreed that if and whenever the rent
hereby reserved or other moneys payable by the Tenant or any part thereof shall
not be paid on the day appointed for payment thereof, whether lawfully demanded
or not, and the Tenant shall have failed to pay such rent or other moneys within
five (5) business days after the Landlord shall have delivered to the Tenant
written notice requiring such payment, or if the Tenant shall breach or fail to
observe and perform any of the other covenants, agreements, provisos,
conditions, rules or regulations and other obligations on the part of the Tenant
to be kept, observed or performed hereunder, and the Tenant shall have failed to
remedy such breach or failure within fifteen (15) business days after the
Landlord shall have delivered to the Tenant written notice requiring such remedy
(provided that if such breach may not be reasonably remedied within such fifteen
(15) day period, then the Tenant shall not continue to be in default hereunder
if the Tenant commences to remedy such default within the fifteen (15) day
period and continues same with due diligence) or if this Lease shall have become
terminated pursuant to any provision hereof, or if the Landlord shall have
become entitled to terminate this Lease and shall have given notice terminating
it pursuant to any provision hereof, then and in every such case it shall be
lawful for the Landlord thereafter to enter into and upon the Premises or any
part thereof in die name of the whole and the same to have again, repossess and
enjoy as of its former estate, anything in this Lease contained to the contrary
notwithstanding.
(d) Termination and Re-Entry
If and whenever the Landlord becomes entitle to re-enter upon the
Premises under any provision of this Lease the Landlord, in addition to all
other rights and remedies, shall have the right to terminate this Lease
forthwith by leaving upon the Premises notice in writing of such termination.
(e) Payment of Rent on Termination
Upon the delivery by the Landlord to the Tenant of a notice in
writing terminating this Lease, whether pursuant to this or any other provision
of this Lease, this Lease and the Term shall terminate, rent and any other
payments for which the Tenant is liable under this Lease shall be computed,
apportioned and paid in full to the date of such termination, and the Tenant
shall immediately deliver up possession of the Premises to the Landlord, and the
Landlord may re-enter and take possession of them.
(f) Re-letting
Whenever the Landlord becomes entitled to re-enter upon the
Premises under any provision of this Lease the Landlord in addition to all other
rights it may have, shall have the right as agent of the Tenant to enter the
Premises and re-let them and to receive the rent therefor and as the agent of
the Tenant to take possession of any furniture or other property thereon and to
sell the same at public or private sale without notice and to apply the proceeds
thereof and any rent derived from re-letting the Premises upon account of the
rent due and to become due under this Lease and the Tenant shall be liable to
the Landlord for the deficiency if any.
IMPROPER USE OF PREMISES
17. (a) Cancellation of Insurance
If any policy of insurance upon the Lands or any part thereof
from time to time effected by the Landlord shall be canceled or about to be
canceled by the insurer by reason of the use or occupation of the Premises by
the Tenant or any assignee, subtenant or licensee of the Tenant or anyone
permitted by the Tenant to be upon the Premises and the Tenant after receipt of
notice in writing from the Landlord shall have failed to take such immediate
steps in respect of such use or occupation as shall enable the Landlord to
reinstate or avoid cancellation (as the case may be of such policy of insurance,
the
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Landlord may at its option ENTER THE PREMISES AND REMEDY THE SITUATION
AND CHARGE THE COST THEREOF TO THE TENANT AS ADDITIONAL RENT, PROVIDED
THAT IF THE SITUATION GIVING RISE TO THE ACTUAL OR THREATENED
CANCELATION MAY NOT BE CORRECTED, THEN THE LANDLORD MAY TERMINATE THIS
LEASE BY LEAVING UPON THE PREMISES NOTICE IN WRITING OF SUCH
TERMINATION;
(b) Non-authorized Use, Bankruptcy
In the event that without the written consent of the Landlord the
Premises shall be used by any other persons than the Tenant or its
permitted assigns or subtenants or for any purpose other than that for
which they were leased, or occupied by any persons whose occupancy is
prohibited by this Lease, or if the Premises shall be vacated or
abandoned, or remain unoccupied for fifteen (15) days or more while
capable of being occupied, or if the balance of the Term or any of the
goods and chattels of the Tenant shall at any time be seized in
execution or attachment, or if the Tenant shall make any assignment for
the benefit of creditors or any bulk sale, become bankrupt or insolvent
or take the benefit of any statute now or hereafter in force for
bankrupt or insolvent debtors or (if a corporation) shall take any steps
or suffer any order to be made for its winding-up or other termination
of its corporate existence, then in any such case the Landlord may at
its option terminate this Lease by leaving upon the Premises notice in
writing of such termination and thereupon, in addition to the payment by
the Tenant of rent and other payments for which the Tenant is liable
under this Lease, rent for the current month and the next ensuing three
(3) months shall immediately become due and be paid by the Tenant.
GENERAL PROVISIONS
18. Registration of Lease
THE TENANT SHALL BE ENTITLED TO REGISTER THIS LEASE. THE LANDLORD SHALL
NOT BE OBLIGATED TO DELIVER TO THE TENANT THIS LEASE IN REGISTERABLE FORM AND
THE TENANT SHALL BEAR THE COST OF REGISTERING THE LEASE, INCLUDING BUT NOT
LIMITED TO, THE PREPARATION OF ANY EXPLANATORY PLAN OF LEASE OF THE PREMISES.
19. Lease Constitutes Entire Agreement
The Tenant acknowledges that there are no covenants, representations,
warranties, agreements or conditions express or implied, collateral or otherwise
forming part of or in any way affecting or relating to this Lease except as
expressly set out in this Lease, including Schedule "A", "B", "C", "D" and "E"
which are incorporated into and form part of this Lease, and that this Lease
constitutes the entire agreement between the Landlord and the Tenant and may not
be modified except as herein explicitly provided or except by agreement in
writing executed by the Landlord and the Tenant.
20. Notices
Any notice required or contemplated by any provision hereof shall be
given in writing, and if to the Landlord, either delivered to an executive
officer of the Landlord or mailed by prepaid registered mail addressed to the
Landlord at the Building, and if to the Tenant, either delivered to the Tenant
personally (or to a partner or officer of the Tenant if the Tenant is a firm or
corporation) or mailed by prepaid registered mail addressed to the Tenant at the
Premises. Every such notice shall be deemed to have been given when delivered,
or if mailed as aforesaid, upon the third normal business day after posting
provided it is mailed in Canada. The Landlord may from time to time by notice in
writing to the Tenant designate another address in Canada as the address to
which notices are to be mailed to it, or specify another location in the
Building to which such notices are to be mailed and may require that copies of
notices be sent to an agent designated by it.
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21. Interpretation
In this Lease, "herein", "hereof", "hereby", "hereunder", "hereto",
"hereinafter" and similar expressions refer to this Lease and not to any
particular paragraph, paragraph or other portion thereof, unless there is
something in the subject matter or context inconsistent therewith; "business
day" means any of the days from Monday to Friday inclusive of each week unless
such day is a holiday, and such additional days as may be designated by the
Landlord; and "normal business hours" means the hours from 8 a.m. to 5 p.m., and
such other hours as may be designated by the Landlord, on business days; and the
parties agree that all of tile provisions of this Lease are to be construed as
covenants and agreements as though words importing such covenants and agreements
were used in each separate paragraph hereof, and that should any provision or
provisions of the Lease be illegal or not enforceable it or they shall be
considered separate and severable from the Lease and its remaining provisions
shall remain in force and be binding upon the parties hereto as though the said
provision or provisions had never been included, and further that the captions
appearing for the provisions of this Lease have been inserted as a matter of
convenience and for reference only and in no way define, limit or enlarge the
scope or meaning of this Lease or of any provision hereof.
22. Extent of Lease Obligations
This Lease and everything herein contained shall enure to the benefit of
and be binding upon the respective heirs, executors, administrators, successors,
permitted assigns and other legal representatives, as the case may be, of each
and every of the parties hereto, subject to the granting of consent by the
Landlord to any assignment or sublease and every reference herein to any party
hereto shall include the heirs, executors, administrators, successors, assigns
and other legal representatives of such party, and where there is more than one
tenant or there is a male or female party the provisions hereof shall be read
with all grammatical changes thereby rendered necessary and all covenants shall
be deemed joint and several.
23. Renewal
If the Tenant duly and regularly pays the rent reserved hereunder and
performs all and every of the covenant, provisos and agreements herein on the
part of the Tenant to be observed and performed, the Landlord will at the expiry
of the original Term provided for in paragraph 1(a) hereof (without including
therein any other renewal, extension or overholding) and upon written notice
from the Tenant received by the Landlord at least six (6) months before the
expiry of the original Term, grant to the Tenant a renewal of this Lease for one
(1) additional term of three (3) years at such rent as may be mutually agreed
upon by the Landlord and the Tenant, having regard to rental rates prevailing in
the market, which for the purposes of this paragraph 23 shall include the rents
then being charged in the Building (and the Landlord and the Tenant each
undertake to negotiate in good faith with a view to agreeing upon such rent),
and otherwise upon and subject to the terms and conditions contained in this
Lease except this provision for renewal. In the absence of an agreement being
reached at least three (3) months prior to the expiry of tile original Term with
respect to die rent to be paid during such renewal term, the rent to be paid
during such renewal term, unless otherwise agreed by the Landlord and Tenant,
shall be determined by a single arbitrator if the parties agree upon the
identity of such arbitrator, and otherwise by three arbitrators, one to be
appointed by the Landlord, one to be appointed by the Tenant and the third to be
appointed by the two arbitrators so previously appointed, pursuant to the
provisions of the Commercial Arbitration Act (British Columbia).
24. Parking
The Landlord shall make available to the Tenant during the Term of this
Lease and the renewal Term, fourteen (14) parking stalls in the Building. Should
the Tenant utilize less that 14 parking stalls and wish to increase the parking
stalls used to the maximum of 14 stalls, the Tenant shall provide the Landlord
with at least 45 days written notice of such requirement. The rental for the
parking stalls shall BE $65.00 PER MONTH PER STALL THROUGHOUT THE TERM OF THE
LEASE.
27
<PAGE> 32
25. Landlord's Enquiries and Clean Up by Tenant
(a) The Tenant hereby authorizes the Landlord to make inquiries from
time to time with respect to the Tenant's compliance with any laws and
regulations pertaining to the Tenant, the Tenant's business and the Premises,
including without limitation, laws and regulations pertaining to Hazardous
Substances and the protection of the environment generally. The Tenant shall
provide such written authorization as the Landlord may reasonably require in
order to facilitate the obtaining of such information.
(b) If any governmental authority having jurisdiction shall require the
clean-up of any Hazardous Substances held, released, spilled, abandoned or
placed upon the Premises, the Building or the Lands or released into the
environment by the Tenant in the course of the Tenant's business or as a result
of the Tenant's use or occupancy of the Premises, then the Tenant shall, at its
own expense, prepare all necessary studies, plans and proposals and submit the
same for approval, provide all bonds and other security required by governmental
authorities having jurisdiction and carry out the work required and shall keep
the Landlord fully informed and provide to the Landlord full information with
respect to the proposed plans and comply with the Landlord's reasonable
requirements with respect to such plans.
26. Landlord's Inspection
The Landlord may at any time and from time to time inspect the Tenant's
goods within the Premises and the Tenant's records for the purpose of
identifying the nature of such goods and the existence of any Hazardous
Substances. The Tenant shall assist the Landlord in such inspection.
27. Ownership of Hazardous Substances
If the Tenant brings or creates within the Premises or on the Lands any
Hazardous Substances then, notwithstanding any rule of law to the contrary, such
Hazardous Substances shall be and remain the sole and exclusive property of the
Tenant and shall not become the property of the Landlord, notwithstanding the
degree of affixation to the land and notwithstanding the expiry or earlier
termination of this Lease.
28. Survival of Covenants
The obligations of the Tenant relating to Hazardous Substances shall
survive the expiry or earlier termination of this Lease. If the performance of
those obligations requires access to the Premises or the Lands, the Tenant shall
have such access only at such times and upon such terms and conditions as the
Landlord may specify. The Landlord may, at the Tenant's cost and expense,
undertake the performance of any necessary work in order to complete such
obligations of the Tenant. Having commenced such work, the Landlord shall have
no obligation to the Tenant to complete such work.
29. OPTION TO TERMINATE
THE TENANT HAS THE OPTION TO TERMINATE THIS LEASE WITH A PENALTY EQUAL
TO THE UNAMORTIZED PORTION (ON A STRAIGHT LINE BASIS) OF THE LEASING COMMISSION
PAYABLE BY BCR PROPERTIES LTD. TO CB COMMERCIAL REAL ESTATE GROUP CANADA INC. OF
THREE DOLLARS ($3.00) PER SQUARE FOOT OF RENTABLE AREA LEASED AT ANY TIME AFTER
SEPTEMBER 30, 2000 WITH SIX (6) MONTHS PRIOR WRITTEN NOTICE DELIVERED TO THE
LANDLORD, I.E. IF THE TENANT EXERCISED ITS RIGHT OF TERMINATION ON THE PREMISES
AS AT SEPTEMBER 30, 2000 THE PENALTY TO THE TENANT WOULD BE ONE DOLLAR AND SIXTY
CENTS ($1.60) PER SQUARE FOOT MULTIPLIED BY THE PREMISES.
30. OPTION TO EXPAND
THE LANDLORD HEREBY GRANTS TO THE TENANT THE OPTION TO LEASE THE
FOLLOWING AREA ON THE THIRD (3RD) FLOOR OF THE BUILDING ON THE FOLLOWING TERMS
AND CONDITIONS:
28
<PAGE> 33
THE AREA OF APPROXIMATELY ELEVEN THOUSAND NINE HUNDRED (11,900) SQUARE
FEET AS OUTLINED IN BLUE TO THE PLAN ATTACHED AS SCHEDULE "A" (THE
"EXPANSION SPACE) WHICH SHALL BE MADE AVAILABLE FOR THE TENANT'S
OCCUPANCY AS AT SEPTEMBER 1, 1999. THE TENANT SHALL HAVE THE RIGHT TO
THE EXPANSION SPACE BY PROVIDING WRITTEN NOTICE TO THE LANDLORD NO LATER
THAN MARCH 1, 1999. IN THE EVENT SUCH OPTION IS EXERCISED, THE PREMISES
SHALL, FROM SEPTEMBER 1, 1999 THROUGH THE BALANCE OF THE LEASE TERM, BE
DEEMED TO INCLUDE THE EXPANSION SPACE AREA AND THE TERMS AND CONDITIONS
OF THE LEASE APPLY. THE ACTUAL RENTABLE AREA OF THE SPACE SHALL BE
DETERMINED BY THE LANDLORD'S ARCHITECT AND THE RENT SHALL BE ADJUSTED
ACCORDINGLY. THE LANDLORD SHALL PROVIDE THE EXPANSION SPACE WITH ALL
EXISTING MECHANICAL SYSTEMS, ELECTRICAL OUTLETS, LIGHTS AND PLUMBING
FIXTURES IN GOOD WORKING ORDER AND WITH TWO (2) PARKING STALLS PER 1,200
SQUARE FEET LEASED AT MARKET RENTS FOR THE TERM, BUT OTHERWISE IN AN "AS
IS" CONDITION.
31. RIGHT OF FIRST REFUSAL
THE LANDLORD HEREBY GRANTS TO THE TENANT AN ONGOING FIRST RIGHT ("THE
RIGHT OF FIRST REFUSAL") TO LEASE ANY SPACE IN THE BUILDING THAT BECOMES
AVAILABLE FOR LEASE (THE "ADDITIONAL SPACE") ON THE FOLLOWING TERMS AND
CONDITIONS AND IN THE MANNER AS FOLLOWS:
THE LANDLORD SHALL GIVE NOTICE IN WRITING OF THE ADDITIONAL SPACE THEN
AVAILABLE FOR LEASE. THE TENANT SHALL HAVE A PERIOD OF FIVE (5) BUSINESS DAYS TO
PROVIDE WRITTEN NOTIFICATION OF ITS INTENTION OF LEASE THE ADDITIONAL SPACE. IF
THE TENANT DOES NOT RESPOND TO THE LANDLORD'S WRITTEN NOTICE WITHIN THE
PRESCRIBED RIVE (5) BUSINESS DAYS OR IF THE TENANT ADVISED THE LANDLORD THAT THE
TENANT DOES NOT WISH TO LEASE THE ADDITIONAL SPACE THEN AVAILABLE FOR LEASE, THE
LANDLORD SHALL BE FREE TO LEASE THE SPACE TO A THIRD PARTY.
AS AND WHEN THE TENANT EXERCISES ANY OF ITS FIRST RIGHTS TO LEASE, THE
ADDITIONAL SPACE LEASED SHALL FORM PART OF THE LEASED PREMISES AND TERMS OF SUCH
EXPANSION SPACE SHALL BE THE SAME AS THE ORIGINAL LEASE INCLUDING RENTAL CHARGE
PER SQUARE FOOT EXCEPT THE LANDLORD SHALL ENSURE THAT:
(a) ALL EXISTING MECHANICAL SYSTEMS, ELECTRICAL OUTLETS, LIGHTS AND
PLUMBING FIXTURES ARE IN GOOD WORKING ORDER AND THE EXISTING
H.V.A.C. SYSTEM IS OPERATING IN A MANNER CONSISTENT WITH AN "ALL
CLASS OFFICE BUILDING;
(b) THE PREMISES HAVE BEEN CLEANED;
(c) BASED ON A RATIO OF TWO (2) STALLS PER ONE THOUSAND TWO HUNDRED
(1,200) SQUARE FEET LEASED AT MARKET RENTS FOR THE TERM.
THIS RIGHT OF FIRST REFUSAL IS SUBJECT TO AND SUBORDINATE TO THE RIGHTS
OF ANY TENANTS IN THE BUILDING AS OF THE DATE OF ACCEPTANCE OF THE OFFER TO
LEASE.
29
<PAGE> 34
IN WITNESS WHEREOF the parties have executed this Lease as of the day and year
first written above.
The Corporate Seal of )
BC RAIL LTD. )
in the presence of: )
) C/S
/s/ (SIGNED) )
- ----------------------------------- )
Authorized Signatory )
The Corporate Seal of )
PIVOTAL SOFTWARE INC )
was hereunto affixed in the presence of: )
)
) C/S
/s/ CARMEN WENKOFF )
- ----------------------------------- )
Authorized Signatory )
)
- ----------------------------------- )
Authorized Signatory )
30
<PAGE> 1
EXHIBIT 10.7
- --------------------------------------------------------------------------------
LEASE
BC RAIL CENTRE
NORTH VANCOUVER, B.C.
- --------------------------------------------------------------------------------
LANDLORD: BC RAIL LTD.
TENANT: PIVOTAL SOFTWARE INC.
PREMISES: SUITE 400
221 WEST ESPLANADE
NORTH VANCOUVER, B.C.
V7M 3J3
<PAGE> 2
LEASE
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
LEASE 3
1. (a) Lease and Term 3
(b) Net Lease 3
(c) Sales Taxes 4
(d) Overholding 4
(e) Deposit 4
2. BASIC RENT 4
GENERAL COVENANTS 5
3. (a) Landlord Covenants 5
(b) Tenant Covenants 5
BUILDING SERVICES 5
4. (a) Interior Climate Control 5
(b) Janitor Service 5
(c) Telephone and Water 6
(d) Electricity 6
(e) Elevators, Common Areas, Washrooms 6
(f) Additional Services 6
USE AND OCCUPANCY OF PREMISES 7
5. (a) Permitted Use 7
(b) Waste and Nuisance 7
(c) Insurance Risks 7
(d) Condition 7
(e) By-laws 7
(f) Rules and Regulations 7
(g) Design Criteria 7
(h) Pollutants 8
(i) Parking 8
(j) Hazardous Substances 8
REPAIR AND DAMAGE 8
6. (a) Landlord's Repairs to the Lands and Building 8
(b) Landlord's Repairs to the Premises 9
(c) Tenant's Repairs 9
(d) Indemnification 9
(e) Abatement and Termination 9
ALLOCATION OF TAXES AND OPERATING EXPENSES 10
7. (a) Definitions 10
(b) Area Measurements 13
(c) Determination of Tenant's Proportionate Share 13
(d) Payment of Tenant's Proportionate Share 13
(e) Re-adjustment of Proportionate Share 13
(f) Change from Year Ending December 31 13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
TAXES 15
8. (a) Payment by Landlord 15
(b) Payment by Tenant 15
(c) Postponement, Determination, Appeal, etc., of Taxes 15
(d) Payment for Additional Services 16
ASSIGNMENT AND SUBLETTING 16
9. (a) No Assignment Without Leave 16
(b) Assignment or Subletting Procedures 17
(c) Assumption of Obligations 17
SIGNS AND DIRECTORY 17
10.
LEASEHOLD IMPROVEMENTS AND TRADE FIXTURES 17
11. (a) Definition of Leasehold Improvements 17
(b) Installation of Improvement and Fixtures 18
(c) Liens and Encumbrances on Improvements and Fixtures 18
(d) Removal of Improvements and Fixtures 19
(e) Communications Equipment 19
INSURANCE AND LIABILITY 19
12. (a) Landlord's Insurance 19
(b) Tenant's Insurance 20
(c) Insurance Validation 21
(d) Limitation of Landlord's Liability 21
(e) Indemnity of Landlord 22
SUBORDINATION, ATTORNMENT AND CERTIFICATES 22
13. (a) Subordination and Attornment 22
(b) Certificates 22
ACCESS OF LANDLORD 23
14. (a) Inspection and Access 23
(b) Exhibiting Premises 23
DELAY AND NON-WAIVER 23
15. (a) Unavoidable Delay 23
(b) Waiver 23
REMEDIES OF LANDLORD 24
16. (a) Remedies of Landlord 24
(b) Remedies Cumulative 24
(c) Right of Re-Entry on Default or Termination 24
(d) Termination and Re-Entry 25
(e) Payment of Rent, etc., on Termination 25
(f) Re-letting, etc. 25
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
IMPROPER USE OF PREMISES 25
17. (a) Cancellation of Insurance 25
(b) Bankruptcy, etc. 25
GENERAL PROVISIONS 26
18. Registration of Lease 26
19. Lease Constitutes Entire Agreement 26
20. Notices 26
21. Interpretation 26
22. Extent of Lease Obligations 27
23. Renewal 27
24. Parking 27
25. Landlord's Enquiries and Clean Up By Tenant 27
26. Landlord's Inspection 28
27. Ownership of Hazardous Substances 28
28. Survival of Covenants 28
29. Option to Terminate 28
30. Right of First Refusal 28
Schedule "A" - Explanatory Plan showing Premises outlined 30
Schedule "B" - The Lands 31
Schedule "C" - Janitor and Cleaning Service Schedule 32
Schedule "D" - Rules and Regulations 34
Schedule "E" - Determination of Rentable Area 36
</TABLE>
iii
<PAGE> 5
LEASE SUMMARY
This two page Lease Summary is attached to and forms part of the
Indenture of Lease dated for reference and made as of 14th day of
December, 1998, between BC RAIL LTD., as Landlord, and PIVOTAL SOFTWARE
INC., as Tenant.
<TABLE>
<S> <C> <C> <C>
1. LANDLORD
(a) Name: BC Rail Ltd.
(b) Address: c/o BCR Properties Ltd.
#506 - 221 West Esplanade
North Vancouver, B.C.
V7M 3J3
(c) Contact Person: Julie Marsh Emergency No.: (604) 984-5163
(d) Contact Numbers: Telephone: (604) 984-5448 Facsimile: (604) 984-5200
2. TENANT
(a) Legal Name: PIVOTAL SOFTWARE INC.
(b) Address: 300 - 224 WEST ESPLANADE
NORTH VANCOUVER, B.C.
V7M 3M6
(d) Contact Person: SHERRY SIMON Emergency No. < >
(c) Contact Numbers: TELEPHONE: (604) 984-5358 Facsimile: < >
3. IMDEMNIFIER [INTENTIONALLY DELETED]
4. PREMISES
(a) Description: Those premises shown hatched in red on the plan attached
hereto as Schedule "A" forming part of the Building
(b) Municipal Address: Suite 400
221 West Esplanade
North Vancouver, B.C.
V7M 3J3
(c) Rentable Area
of the Premises: 6,000 square feet
5. TERM
(a) Term: THREE (3) YEARS AND NINE (9) MONTHS
(b) First Day of Term: JANUARY 1, 1999
(c) Last Day of Term: SEPTEMBER 30, 2002
</TABLE>
1
<PAGE> 6
6. BASIC RENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RENT PER SQ.FT ANNUAL MONTHLY
PERIOD PER ANNUM PAYMENT PAYMENT
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(a) From JANUARY 1, 1999 $12.75 P.S.F. $76,500.00 $6,375.00
TO AND INCLUDING
SEPTEMBER 30, 2002
7. DEPOSIT
NIL
8. USE OF PREMISES
Use: FOR THE PURPOSE OF A BUSINESS OFFICE.
9. TENANT'S BUSINESS NAME
PIVOTAL SOFTWARE INC. or other name approved from time to time by the
Landlord in writing pursuant to paragraph 5(a).
10. RENEWAL
Option to renew for ONE (1) additional term of THREE (3) years as more
particularly set out in paragraph 23.
</TABLE>
2
<PAGE> 7
THIS LEASE made as of the 14th day of December, 1998.
BETWEEN:
BC RAIL LTD. (Inc. No. 84014)
c/o BCR PROPERTIES LTD.
#506 - 221 WEST ESPLANADE
NORTH VANCOUVER, BRITISH COLUMBIA
V7M 3J3
(herein called the "Landlord")
OF THE FIRST PART
AND:
PIVOTAL SOFTWARE INC.
300 - 224 WEST ESPLANADE
NORTH VANCOUVER,
BRITISH COLUMBIA
V7M 3M6
(herein called the "Tenant")
OF THE SECOND PART
This Lease witnesses that in consideration of the rents and
covenants herein contained, the parties covenant and agree as follows:
LEASE
I. (a) Lease and Term
The Landlord does hereby demise and lease to the Tenant the
premises -(herein called the "Premises") consisting of a portion of the
building (herein called the "Building") civically described as 221 West
Esplanade, in the City of North Vancouver, forming part of the complex
known as BC Rail Centre (such complex, together with the land owned by
the Landlord legally described in Schedule "B" attached hereto, being
herein collectively called the "Lands"), the portion leased to the
Tenant consisting of approximately 6,000 square feet of Rentable Area
determined in accordance with paragraph 7(b) hereof and comprising a
part of the 4th floor of the Building, which Premises are shown hatched
in red on the explanatory plan attached hereto as Schedule "A" and
civically described as Suite 400 - 221 West Esplanade, North Vancouver,
B.C. V7M 3J3.
To have and to hold for a term (herein called the "Term") of
three (3) years and nine (9) months commencing on the 1st day of
January, 1999 and to be fully complete and ended on the 30th day of
September, 2002. The Tenant shall have the right to renew this Lease for
one (1) additional term of three (3) years as provided in paragraph 23
hereof.
(b) Net Lease
This Lease is a completely net lease to the Landlord. Except as
stated in this Lease, the Landlord is not responsible for costs, charges
or expenses relating to the Premises, their use and occupancy, their
contents or the business carried on in them, and
3
<PAGE> 8
the Tenant shall pay the charges, impositions, costs and expenses
relating to the Premises except as stated in the Lease. The Landlord
shall have the right to collect such charges, impositions, costs and
expenses as additional rent with all rights of distress and otherwise as
reserved to the Landlord in respect of rent in arrears.
(c) Sales Taxes
Notwithstanding any other paragraph of this Lease, the Tenant
shall pay to the Landlord an amount equal to any and all goods and
service taxes, sales taxes, value added taxes, business transfer taxes
or any other taxes (imposed on the Landlord with respect to rent payable
by the Tenant to the Landlord under this Lease, or in respect of the
rental of space under this Lease whether characterized as a goods and
services tax, sales tax, value added tax, business transfer tax or
otherwise (herein called the "Sales Taxes")), it being the intention of
the parties that the Landlord shall be fully reimbursed by the Tenant
with respect to any and all Sales Taxes payable by the Landlord. The
amount of the Sales Taxes so payable by the Tenant shall be calculated
by the Landlord in accordance with the applicable legislation and shall
be paid to the Landlord at the same time as the amounts to which such
Sales Taxes apply are payable to the Landlord under the terms of this
Lease or upon demand at such other time or times as the Landlord from
time to time determines. Notwithstanding any other paragraph in this
Lease, the amount payable by the Tenant under this paragraph shall be
deemed not to be rent, but the Landlord shall have all of the same
remedies for and rights of recovery of such amount as it has for
recovery of rent under this Lease.
(d) Overholding - No Tacit Renewal
If the Tenant shall hold over after the expiration of the Term
or any renewal of the Term and the Landlord shall accept rent or any
portion thereof, the new tenancy thereby created shall be deemed a
monthly tenancy and not a yearly tenancy and shall be subject to the
covenants and conditions contained in this Lease insofar as they are
applicable to a tenancy from month to month, except that:
(i) if the Tenant remains in possession with the Landlord's
written consent, the monthly installments of Basic Rent,
unless there is an agreement in writing to the contrary,
shall be one hundred and twenty (120%) percent of the
monthly installments of Basic Rent payable for the last
month of the Term or any renewal of the Term, pro rated
on a daily basis for each day that the Tenant remain in
possession; or
(ii) if the Tenant remains in possession without the
Landlord's written consent, the monthly installments of
Basic Rent shall be two (2) times the monthly
installments of Basic Rent payable for the last month of
the Term or any renewal of the Term, pro rated on a
daily basis for each day that the Tenant remains in
possession, and in addition the Tenant shall be liable
for all costs, expenses, losses and damages resulting or
arising from the failure of the Tenant to deliver up
possession of the Premises to the Landlord.
(e) Deposit
NIL.
2. BASIC RENT
Yielding and paying therefore yearly and every year during the
term as Basic Rent, the sum of $76,500.00 (based upon $12.75 per square
foot per annum of Rentable Area of the Premises as set forth in the
Lease Summary attached hereto) in lawful money of Canada, to be paid in
advance in equal monthly installments of $6,375.00 on the first day of
each and every month during the Term of this Lease to the Landlord, or
to the Landlord's agent as the Landlord may from time to time designate
in writing, at the Building or at such other place in Canada as the
Landlord may from time to time
4
<PAGE> 9
designate commencing on the 1st day of January, 1999 up to and including
the 30th day of September, 2002. If the Term commences on any day other
than the first day of a month or ends on any day other than the last day
of a month, rent for the fractions of a month at the commencement and at
the end of the Term shall be adjusted pro rata.
GENERAL COVENANTS
3. (a) The Landlord covenants with the Tenant:
(i) for quiet enjoyment; and
(ii) to observe and perform all covenants and obligations of
the Landlord herein.
(b) The Tenant covenants with the Landlord:
(i) to pay rent; and
(ii) to observe and perform all covenants and obligations of
the Tenant herein.
BUILDING SERVICES
4. The Landlord covenants with the Tenant:
(a) Interior Climate Control: to maintain in the Premises conditions
of reasonable temperature and comfort in accordance with good standards
of interior climate control generally pertaining at the date of this
Lease applicable to normal occupancy of premises for office purposes,
during hours to be determined by the Landlord (but to be at least the
hours from 7:30 a.m. to 5:30 p.m. from Monday to Friday inclusive, with
the exception of holidays), such conditions to be maintained by means of
a system for heating and cooling, filtering and circulating the
processed air. The Landlord shall have no responsibility for any
inadequacy of performance of the said system if the occupancy of the
Premises exceeds one person for every 140 square feet of floor area or
the electrical power consumed on the Premises for all purposes exceeds
4.0 watts per square foot of floor area or the Tenant installs
partitions or other installations in locations which interfere with the
proper operation of the system of interior climate control or if the
window covering on exterior windows is not kept fully closed while the
windows are exposed to direct sunlight. If the use of the Premises does
not accord with the aforementioned requirements and changes in the
system are (in the opinion of the Landlord) feasible and desirable to
accommodate such use the Landlord may, and at the written request of the
Tenant shall, make such changes and the entire expense of such changes
will be reimbursed by the Tenant to the Landlord. If in the opinion of
the Landlord such changes result in maintenance costs or operating costs
in excess of those which would have occurred had such changes not been
made, the Landlord may estimate the amount of such excess on a
reasonable basis and such amount shall be an Additional Service (as
hereinafter defined in paragraph 8(d) hereof);
(b) Janitor Service: to provide janitor and cleaning services to the
Premises and to common areas of the Lands consisting of the services
more particularly described in Parts 1 and 2 of Schedule "C" attached
hereto, such services to be rendered substantially in accordance with
the standards of modern office buildings of a similar type in the
Greater Vancouver area at the date of this Lease. It is agreed by the
Tenant that any janitor or cleaning services which the Landlord shall
agree to provide to the Premises in excess of those described in Part 1
of Schedule "C" hereto (including those additional services referred to
in Part 3 of Schedule "C") shall be Additional Services;
(c) Telephone and Water: to furnish ducts in the locations
contemplated by the Building plans for bringing telephone service to the
Premises and to provide hot and cold water to washrooms in the Building
available for the Tenant's use;
5
<PAGE> 10
(d) Electricity: to furnish electricity to the Premises for lighting
and for office equipment capable of operating from the circuits
available and standard to the Building and the Landlord shall replace
from time to time in accordance with some reasonable procedure to be
determined by the Landlord the electrical light bulbs, tubes and
ballasts installed in lighting fixtures standard to the Building. If the
lighting fixtures installed in the Premises are not standard to the
Building, the Landlord may charge the Tenant, as an Additional Service,
for an amount estimated by the Landlord on a reasonable basis to be the
excess of the cost of replacing non-standard bulbs, tubes and ballasts
over what the cost would have been if the lighting fixtures in the
Premises had been standard to the Building. The Landlord may from time
to time establish a reasonable procedure to determine whether the use by
the Tenant of electricity is in excess (on a per square foot basis)
consumption in the Building and, if so, may charge the Tenant for the
cost of the excess as an Additional Service on a reasonable basis;
(e) Elevators, Common Areas, Washrooms: to keep available the
following facilities for use by the Tenant and its employees and
invitees in common with other persons entitled thereto:
(i) passenger and freight elevator service to each floor
upon which the premises are located, but the Landlord
may prescribe the hours during which and the procedures
under which freight elevator service shall be available
and may limit the availability for passenger elevator
service outside normal business hours, but except in the
circumstances contemplated by the concluding two
sentences of this paragraph 4, at least one elevator
shall be kept available at all times, subject to use by
other tenants, which services each floor upon which the
Premises are located;
(ii) common entrances, lobbies, walkways, stairways and
corridors giving access to the Building and the
Premises, including plazas, landscaped areas from time
to time provided by the Landlord for common use and
enjoyment within the Building;
(iii) the washrooms on the Tenant's floor which are standard
to the Building;
(f) Additional Services: if, and to the extent that, the Landlord
shall from time to time elect to provide exclusively (either directly or
through agents or contractors designated by it) any janitor, cleaning or
other services in addition to those contemplated by paragraph 4 or to
supervise the moving of furniture or equipment of the Tenant or to make
deliveries or supervise the making of deliveries to the Premises, all of
the foregoing matters referred to in this paragraph 4(f) (including any
for the Additional Services referred to in Schedule "C") to be treated
as Additional Services.
The Landlord shall maintain and keep in repair the facilities
required for the provision of the interior climate control, elevator and
other services referred to in this paragraph 4 in accordance with the
standards of modern office buildings in the Greater Vancouver area at
the date of this Lease, but reserves the right to stop the use of any of
these facilities and the supply of the corresponding services when
necessary by reason of accident or during the making of repairs,
alterations or improvements, in the judgment of the Landlord necessary
or desirable to be made, until the repairs, alterations or improvements
shall have been completed to the satisfaction of the Landlord. The
Landlord shall have no responsibility or liability for failure to
operate any of the said facilities or supply any of the said services
when the use of the facility is stopped as aforesaid or when the
Landlord is prevented from using the facility or supplying the service
by strike, or by orders or regulations of any governmental authority or
agency or by failure of the electric current, natural gas or water
supply necessary to the operation of any facility or by the failure to
obtain such a supply with the exercise of reasonable diligence, or by
any other cause beyond the Landlord's reasonable control provided that
the Landlord makes all reasonable efforts to rectify the situation with
due diligence.
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USE AND OCCUPANCY OF PREMISES
5. The Tenant covenants with the Landlord:
(a) Permitted Use: to use the Premises only for the purpose of an
office for the conduct of the Tenant's business as specified in the
Lease Summary attached hereto, and not to use or permit to be used the
Premises or any part thereof for any other purpose or business without
the prior written consent of the Landlord WHICH CONSENT SHALL NOT BE
UNREASONABLY WITHHELD OF DELAYED.
(b) Waste and Nuisance: not to commit, or permit, any waste or
injury to the Premises including the Leasehold Improvements (as
hereinafter defined in paragraph 11(a) hereof) and any trade fixtures
therein, any loading of the floors thereof in excess of the maximum
degree of loading contemplated by the Design Criteria (as hereinafter
defined and referred to in paragraph 5(g) hereof), any nuisance therein
or any use or manner of use causing annoyance to other tenants and
occupants of the Building;
(c) Insurance Risks: not to do, omit to do or permit to be done or
omitted to be done upon the Premises anything which would cause to be
increased the Landlord's cost of insurance (which, if the Landlord has
elected to self-insure with respect to any risks, shall include any
costs which would have been incurred had the Landlord not so elected)
against any perils as to which the Landlord is obligated by this Lease
to insure (or self-insure) the Lands (and, without waiving the foregoing
prohibition, the Landlord may demand, and the Tenant shall pay to the
Landlord upon demand, the amount of any such increase of cost caused by
anything so done or omitted to be done) or which shall cause any policy
of insurance on the Lands to be subject to cancellation;
(d) Condition: not to permit the Premises to become untidy,
unsightly or hazardous or permit unreasonable quantities of waste or
refuse to accumulate therein, and at the end of each business day to
leave the Premises in a condition such as to reasonably facilitate the
performance of the Landlord's janitor and cleaning services referred to
in paragraph 4(b) hereof;
(e) By-laws: to comply at its own expense with all municipal,
federal and provincial, sanitary, fire and safety laws, regulations and
requirements pertaining to the occupation and use of the Premises, the
condition of the Leasehold Improvements, trade fixtures, furniture and
equipment installed by or on behalf of the Tenant therein and the making
by the Tenant of any repairs, changes or improvements therein;
(f) Rules and Regulations: to observe and perform and to cause its
employees, invitees and others over whom the Tenant can reasonably be
expected to exercise control to observe and perform the Rules and
Regulations attached as Schedule "D" hereto, and such further and other
reasonable rules and regulations and amendments and changes therein as
may hereafter be made by the Landlord and notified to the Tenant, except
that no change may be made which is inconsistent with this Lease unless
the Tenant consents thereto; the Rules and Regulations, as from time to
time amended, are not necessarily of uniform application, but may be
waived in whole or in part in respect of other tenants without affecting
their enforceability with respect to the Tenant and the Premises, and
may be waived in whole or in part with respect to the Premises without
waiving them as to future application to the Premises; and the
imposition of such Rules and Regulations shall not create or imply any
obligation of the Landlord to enforce them or create any liability on
the Landlord for their non-enforcement;
(g) Design Criteria: in its use of the Premises including without
limitation the making of renovations thereto and the construction of
Leasehold Improvements thereon, to comply with the reasonable
requirements of Design Criteria from time to time prepared by or on
behalf of the Landlord and distributed to the Tenant in common with
other tenants, except that such Design Criteria may not contain any
restriction which is inconsistent with this Lease unless the Tenant
consents thereto;
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(h) Pollutants: not to discharge nor permit the discharge of any oil
or grease or any deleterious, objectionable, dangerous, radioactive,
poisonous or explosive matter or substance (the "Pollutants") into any
waters, ditches, culverts, drains or sewers on or adjacent to the Lands,
and the Tenant shall take all reasonable measures for ensuring that any
effluent discharged shall not be corrosive, poisonous or otherwise
harmful to any sewage disposal works or to the bacteriological process
of sewage purification. The Landlord shall be permitted access to the
Premises from time to time to test and monitor the effluent from the
Tenant's operations. In addition, the Tenant shall not dispose of,
discharge or accumulate or permit to be disposed or, discharged or
accumulated on, in or under the Lands any Pollutants;
(i) Parking: to observe all regulations made by the Landlord from
time to time with respect to the parking of vehicles in or around the
Building or on the Lands. The Tenant shall, upon request, supply the
Landlord with the automobile licence numbers for the vehicles owned by
its employees. In addition, the Landlord reserves the right to remove
with respect to the parking of vehicles from time to time, such removal
to be at the risk and expense of the Tenant. Further, the Landlord
reserves the right to designate from time to time certain parking spaces
for the exclusive use of other tenants of the Building; and
(j) Hazardous Substances: to:
(i) at its own cost and expense, comply with all laws and
regulations from time to time in force regulating the
manufacture, use, storage transportation, removal or
disposal of waste, Hazardous Substances and the
protection of the environment generally; and
(ii) not bring onto the Premises or the Lands or permit the
presence thereon of any Hazardous Substances, WHICH WERE
BROUGHT ON TO THE PREMISES OR THE LANDS BY THE TENANT,
OR ANY PARTY FOR WHOM THE TENANT IS RESPONSIBLE IN LAW,
without the prior written consent of the Landlord.
The Tenant shall, at its own expense, promptly and diligently remove any
unauthorized Hazardous Substances from the Premises of the Lands, WHICH WERE
BROUGHT ON TO THE PREMISES OR THE LANDS BY THE TENANT, OR ANY PARTY FOR WHOM THE
TENANT IS RESPONSIBLE IN LAW. The Tenant shall, at its own expense, remedy any
damage to the Premises or the Lands caused by such event or breach.
For the purposes of this Lease, the term "Hazardous Substances" shall
mean any substance which is hazardous to persons or property and includes,
without limiting the generality of the foregoing, any contaminant, pollutant,
dangerous substance, noxious substance, hazardous waste, flammable, explosive,
radioactive material, urea formaldehyde foam insulation, asbestos, PCB's and any
other substance or materials declared or defined to be hazardous or toxic
contaminants, in or pursuant to any applicable federal, provincial or municipal
statute or bylaw.
REPAIR AND DAMAGE
6. (a) Landlord's Repairs to the Lands and the Building
The Landlord covenants with the Tenant to keep in a good and
reasonable state of repair, with the exception of reasonable wear and
tear and damage caused by the act or omission of the Tenant:
(i) those portions of the Lands consisting of the courts,
concourses, lobbies, landscaped areas, entrances and
other facilities from time to time provided for common
use and enjoyment, and the exterior portions (including
exterior walls, foundations and roofs) of all buildings
and structures from time to time forming part of the
Lands and affecting its general appearance;
(ii) the Building (other than the Premises and premises of
other tenants)
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including the systems for interior climate control, the
elevators, entrances, stairways, corridors and lobbies and
washrooms from time to time provided for use in common by the
Tenant and other tenants of the Building and the systems
provided for bringing utilities to the Premises.
(b) Landlord's Repairs to the Premises
The Landlord covenants with the Tenant to repair, so far as
reasonably feasible, and as expeditiously as reasonably feasible,
defects in construction performed or installations made by the Landlord
in the Premises (if and to the extent that such defects are sufficient
to impair the Tenant's ability to comply with the Design Criteria
referred to in paragraph 5(g) hereof). The Landlord shall in no event be
required to make repairs to Leasehold Improvements.
(c) Tenant's Repairs
The Tenant covenants with the Landlord to repair at the Tenant's
own cost, except insofar as the obligation to repair rests upon the
Landlord pursuant to paragraph 6(b), the Premises, including Leasehold
Improvements, reasonable wear and tear excepted, but this obligation
shall not extend to structural members or to exterior glass or to
repairs which the Landlord would be required to make under paragraph
6(b) but for the exclusion therefrom of defects not sufficient to impair
the Tenant's enjoyment of the Premises while using them in a manner
consistent with this Lease. The Landlord may enter and view the state of
repairs and the Tenant will repair according to notice in writing,
reasonable wear and tear excepted. If the Tenant shall fail to repair
after 15 DAYS WRITTEN notice to do so (OR COMMENCE SUCH REPAIRS WITHIN
THE 15 DAY PERIOD IF THE REPAIRS ARE OF A NATURE WHICH WILL REASONABLY
REQUIRE MORE THAN 15 DAYS TO COMPLETE), the Landlord may effect the
repairs and collect the cost thereof from the Tenant as additional rent
pursuant to paragraph 16(a)(i) hereof.
IT IS UNDERSTOOD AND AGREED THAT, IN THE EVENT THAT THE REQUIRED REPAIRS
ARE URGENT IN THE REASONABLE OPINION OF THE LANDLORD, NO NOTICE WILL BE
GIVEN.
(d) Indemnification
The Tenant agrees that if any part of the Lands or Building
including exterior glass and the systems for interior climate control
and for the provision of utilities becomes out of repair, damaged or
destroyed through the negligence of or misuse by the Tenant or its
employees, agents, invitees or others under its control, the expense of
repairs or replacements thereto necessitated thereby shall be reimbursed
to the Landlord by the Tenant promptly upon demand.
(e) Abatement and Termination
It is agreed between the Landlord and the Tenant that:
(i) in the event of damage to the Premises or to other
portions of the Lands which affect access or services
essential to the Premises, and if the damage is such
that the Premises or any substantial part thereof is
rendered not reasonably capable of use and occupancy by
the Tenant for the purposes of its business for any
period of time in excess of ten (10) days, then;
(1) unless the damage was caused by the fault or
negligence of the Tenant or its employees, agents,
invitees or others under its control, from and after the
expiration of ten (10) days after the occurrence of the
damage and until the Premises are again reasonably
capable of use and occupancy as aforesaid, THE BASIC AND
ADDITIONAL RENTAL payable pursuant to paragraph 2 HEREOF
shall abate from time to time in proportion to the part
or parts of the Premises not reasonably capable of such
use and occupancy; and
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(2) unless this Lease is terminated as hereinafter
provided, the Landlord or the Tenant as the case may be
(according to the nature of the damage and their
respective obligations to repair as provided in
paragraphs 6(a), (b) and (c)) shall repair such damage
with all reasonable diligence, but to the extent that
any part of the Premises is not reasonably capable of
such use and occupancy by reason of damage which the
Tenant is obligated to repair hereunder, any abatement
of rent to which the Tenant would otherwise be entitled
hereunder shall not extend later than the time by which,
in the reasonable opinion of the Landlord, repairs by
the Tenant ought to have been completed with reasonable
diligence; and
(ii) if either;
(1) the Premises; or
(2) premises whether of the Tenant or other tenants of
the Building comprising in the aggregate half or more of
the total number of square feet (or square metres) of
Rentable Area in the Building (in each case determined
in accordance with paragraph 7(b) hereof), or portions
of the Lands which affect access or services essential
thereto are substantially damaged or destroyed by any
cause other than by reason of the act or omission of the
Tenant,
and if, in the reasonable opinion of the Landlord, the
damage cannot reasonably be repaired within One Hundred
and Eighty (180) days after the occurrence of such
damage or destruction, then the Landlord SHALL, by
delivery of written notice to the Tenant within Thirty
(30) days after the date of the occurrence of such
damage or destruction, terminate this Lease, in which
event neither the Landlord nor the Tenant shall be bound
to repair as provided in paragraphs 6(a), (b) and (c),
and the Tenant shall instead deliver up possession of
the Premises to the Landlord with reasonable expedition
but in any event within sixty (60) days after delivery
of such notice of termination, and rent shall be
apportioned and paid to the date of SUCH DAMAGE, but
otherwise the Landlord or the Tenant, as the case may be
and according to the nature of the damage and their
respective obligations to repair as provided in
paragraphs 6(a), (b) and (c), shall repair such damage
with all reasonable diligence.
ALLOCATION OF TAXES AND OPERATING EXPENSES
7. (a) Definitions
For purposes of those provisions of this Lease relating to the
allocation of taxes and operating expenses, the following terms shall
have the following meanings:
(i) "Office/Retail Premises" means the whole of the Building
above grade designated to be leased or rented to
tenants, other than the portion thereof used for the
operation of a restaurant or a banking establishment;
(ii) "Architects" means a recognized firm of architects from
time to time designated by the Landlord as architects
hereunder;
(iii) "Tenant's Contributing Area" means the number which is
the numerator to be used in arriving at the proportion
of Allocable Taxes or Allocable Operating Expenses to be
paid by the Tenant with respect to the Premises, which
number shall be the Rentable Area in square feet or
square metres of the Premises calculated in accordance
with paragraph 7(b) hereof;
(iv) "Administrative Service Areas" means space in the
Building which would otherwise be leaseable to tenants
but which the Landlord utilizes in
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connection with the operation or maintenance of the
Lands other than any such space which, in the reasonable
opinion of the Landlord, would be required for the
operation or maintenance of the Lands even if such
operation and maintenance was performed entirely by
independent contractors operating primarily from
premises located outside the Lands and not by the
Landlord. Subject to the foregoing, Administrative
Service Areas include office space occupied by personnel
engaged in such operation and maintenance and in
management of the Lands (other than leasing staff),
locker, lunch and washrooms for operating and
maintenance staff, storage rooms for building supplies,
machine and maintenance shops, and parcel delivery rooms
and other like facilities for common use by or service
to tenants of the Building and the Lands;
(v) "Gross Contributing Area for Operating Expense
Allocation" means the number which is the denominator to
be used in arriving at the proportion of Allocable
Operating Expenses to be paid by the Tenant with respect
to the Premises, which number is the total Rentable
Area, measured in square feet (or square metres), on a
full floor basis in accordance with paragraph 7(b)
hereof, of all Office/Retail Premises, restaurant or
banking establishment leaseable or available for
occupancy, whether or not rented or occupied, after
deduction of the area, measured in square feet (or
square metres), of space occupied by the Landlord, its
agents, contractors or subcontractors exclusively in
respect of the management, maintenance or operation of
the Building and the Lands.
For purposes of this definition, premises are considered
to be leaseable or available for occupancy if they are
capable of occupancy or would be made capable by the
addition of tenants' improvements;
(vi) "Gross Contributing Area for Tax Allocation" means the
number which is the denominator to be used in arriving
at the proportion of Allocable Taxes to be paid by the
Tenant with respect to the Premises, which number shall
be determined as described in the definition of Gross
Contributing Area for Operating Expense Allocation;
(vii) "Allocable Taxes" means all taxes, rates, duties, levies
and assessments whatsoever, whether municipal,
parliamentary or otherwise, levied, imposed or assessed
against the Lands or any portion thereof or upon the
Landlord in respect thereof or from time to time levied,
imposed or assessed in the future in lieu thereof, or
for which the Landlord is liable with respect to the
Building and the Lands, including those levied, imposed
or assessed for education, schools and local
improvements, and including all costs and expenses
(including reasonable legal and other professional fees
and interest and penalties on deferred payments)
incurred by the Landlord in good faith in contesting,
resisting or appealing any taxes, rates, duties, levies
or assessments, but excluding:
(A) taxes and license fees in respect of any
business carried on by tenants and occupants of the
Lands (including the Landlord in respect of its
business), which taxes are herein collectively called
"Business Taxes";
(B) income or profits taxes upon the income of the
Landlord to the extent such taxes are not levied in lieu
of taxes, rates, duties, levies and assessments against
the Lands or upon the Landlord in respect thereof, which
taxes are herein collectively called the Landlord's
Income Taxes";
(C) all taxes, rates, duties, levies and assessments
(including Business Taxes) which the Landlord recovers
from tenants under paragraph 8(b) hereof and comparable
paragraphs of other leases, which taxes are herein
collectively called "Tenants' Taxes"; and
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(D) ALL CAPITAL TAXES PAYABLE BY THE LANDLORD
INCLUDING, BUT NOT BEING LIMITED TO, CORPORATION CAPITAL
TAX, (THE "LANDLORD'S CAPITAL TAXES");
(viii) I. "Allocable Operating Expenses" for any period means,
WITHOUT DUPLICATION, all expenses, costs and
disbursements of every kind and nature (determined for
each year on an accrual basis) incurred in connection
with the management and operation of the Lands for such
period, except the following:
(A) costs of alterations of the Premises or of the
premises of other tenants and corresponding costs as to
premises occupied or to be occupied by the Landlord,
except as they relate to premises to be occupied by the
Landlord in the performance of its function as Landlord
of the Building and the Lands;
(B) costs of capital improvements and other costs
properly chargeable to capital account;
(C) depreciation, interest and principal payments on
mortgages and other debt costs except that Allocable
Operating Expenses may, at the discretion of the
Landlord, be calculated to include depreciation and
interest costs with respect to machinery, equipment,
systems, property or facilities installed in or used in
connection with the Lands if one of the principal
purposes of such installation or use was to reduce other
items of Allocable Operating Expenses, and also to
include reasonable depreciation and interest charges
with respect to equipment, such as janitorial equipment,
provided or used by the Landlord in the normal
maintenance of the Lands;
(D) real estate brokers' leasing commissions; and
(E) repairs or replacement of structural elements of
the Building including, but not limited to load bearing
walls, floorslabs and masonry walls; replacement of the
roof, roof membrane or roof covering; any cost that
should have been paid by another Tenant had it not been
excused from doing so by the Landlord or had it not
defaulted under its Lease; any legal fees and other
costs in respect of financing or refinancing of the
Building or Lands.
II. All such expenses shall be included whether
incurred by or on behalf of the Landlord or incurred by
or on behalf of any owner or owners of parts of or
interests in the Lands with whom the Landlord may from
time to time have agreements for the pooling or sharing
of costs or by or on behalf of tenants of space in the
Building (including operators of parking garages) with
whom the Landlord may from time to time have agreements
whereby in respect of their premises such tenants
perform any cleaning, maintenance or other work or
services usually performed by the Landlord, and which
expenses if directly incurred by the Landlord would have
been included in Allocable Operating Expenses and shall
include the value of services not reflecting a direct
cost or detriment, such as the rental value of
Administrative Service Areas. Allocable Operating
Expenses shall also include insurance premiums payable
under policies held by the Landlord pursuant to
paragraph 12(a) hereof with respect to risks affecting
the Lands, together with related payments and costs
including an amount equal to any sum deducted if the
Landlord shall elect to insure with respect to any such
risks under a policy or policies containing provisions
which require a specified sum to be deducted from each
claim made thereunder.
III. In computing Allocable Operating Expenses there
shall be credited as
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a deduction:
(A) the amounts of proceeds of insurance and other
amounts actually recovered by the Landlord applicable to
damage the cost of repair of which was included in
Allocable Operating Expenses;
(B) amounts recovered as a result of direct charges
to the Tenant and other tenants in respect of Additional
Services under paragraph 8(d) hereof and comparable
paragraphs of other leases to the extent that the
amounts so recovered relate to costs thereof included in
Allocable Operating Expenses and the additional charge
of 10% of the aggregate of the cost of labour, materials
and other direct expenses chargeable under paragraph
8(d) shall be considered to be so related;
(C) all other recoveries from the Tenant and other
tenants applicable to expenses included in Allocable
Operating Expenses, other than contributions to
Allocable Operating Expenses by the Tenant pursuant to
the provisions of this Lease and contributions by other
tenants pursuant to comparable provisions of other
leases;
(ix) "Tenant's Proportionate Share" for any period means the
aggregate of:
(i) an amount determined by multiplying Allocable
Operating Expenses for the period by a fraction
calculated at or as of the end of such period, the
numerator of which is the Tenant's Contributing Area and
the denominator of which is the Gross Contributing Area
for Operating Expense Allocation; and
(ii) an amount determined by multiplying Allocable
Taxes for the period by a fraction calculated at or as
of the end of such period, the numerator of which is the
Tenant's Contributing Area and the denominator of which
is the Gross Contributing Area for Tax Allocation;
(x) "Year" means a period of 12 months commencing on January
1 and ending on the next ensuing December 31 until
changed pursuant to paragraph 7(f).
(b) Area Measurements
All measurements of Rentable Area required to implement this
paragraph 7, or under other provisions of this Lease, shall be made in
accordance with the procedure outlined in Schedule "E" hereto. Such
measurements shall be made by the Landlord and included in the material
made available to the Tenant in connection with the determination of the
Tenant's Proportionate Share pursuant to paragraph 7(c). In the event of
any dispute as to the measurement made by the Landlord (which dispute
may not be advanced more than one year after the information as to the
measurement becomes available to the Tenant) the decision of the
Architects shall be final.
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(c) Determination of Tenant's Proportionate Share
Insofar as the determination of the Tenant's Proportionate Share
is dependent upon calculations other than area measurements governed by
paragraph 7(b), the same shall be binding upon the Tenant if reasonably
performed by the Landlord, who shall within a reasonable time after
receipt of notice from the Tenant, given within one year after the end
of the Year to which it relates, provide the Tenant with a statement
disclosing in reasonable detail the costs and taxes being allocated and
the calculation of the Tenant's Proportionate Share and shall further
provide the Tenant with reasonable access to the books and records of
the Landlord pertaining thereto. Any expenses not directly incurred by
the Landlord but which are included in Allocable Operating Expenses may
be estimated by the Landlord on whatever reasonable basis the Landlord
may select.
(d) Payment of Tenant's Proportionate Share
Prior to the commencement of the Term and prior to May 1 in each
Year thereafter which commences during the Term the Landlord shall
estimate the Tenant's Proportionate Share for the ensuing Year or (if
applicable) broken portion thereof, as the case may be, and shall notify
the Tenant in writing of the estimate. The amount so estimated shall be
payable in equal monthly installments in advance over the Year or broken
portion of the Year in question, each installment being payable on each
monthly rental payment date provided in paragraph 2 hereof. From time to
time during a Year the Landlord may re-estimate the amount of the
Tenant's Proportionate Share for the Year or broken portion thereof, in
which event the Landlord shall notify the Tenant in writing of the new
estimate and shall fix monthly installments for the then remaining
balance of such Year or broken portion thereof in order that, after
giving credit for the installments paid by the Tenant on the basis of
the previous estimate or estimates, the Tenant's Proportionate Share
will have been fully paid during such Year or broken portion thereof.
(e) Re-adjustment of Tenant's Proportionate Share
When the necessary information becomes available, the Landlord
shall re-calculate the Tenant's Proportionate Share for such Year or
broken portion thereof referred to in paragraph 7(d), after the expiry
of the Year or portion thereof. The Landlord and the Tenant shall
expeditiously make between them any re-adjustment which such
recalculation may show to be necessary, so that the Tenant shall be
credited for any overpayment or debited for any deficiency. Neither
party may claim a re-adjustment in respect of the Tenant's Proportionate
Share based upon any error of estimation, determination or calculation
thereof unless claimed in writing prior to the expiration of one year
after the end of the Year to which the payment relates, provided always
that the provisions of this paragraph 7(e) shall not affect any claim
for re-adjustment based upon other matters, including without limitation
the outcome of litigation affecting expenses which constitute component
parts of the Allocable Taxes or Allocable Operating Expenses.
(f) Change from Year Ending December 31
In the event that the Landlord shall change its accounting
system or procedures so that it shall become more convenient for the
provisions of paragraphs 7(d) and 7(e) to be administered on the basis
of some 12-month period other than Years ending December 31, then the
Landlord may determine upon delivery of not less than six months'
written notice to the Tenant and other tenants that such provisions of
this Lease and comparable provisions of other leases of premises upon
the Lands shall be so administered, and after the expiry of such notice
period, the provisions of paragraphs 7(d) and 7(e) shall be and be
deemed and construed to be appropriately amended to that end.
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TAXES
8. (a) Payment by Landlord
The Landlord covenants with the Tenant to pay promptly when due
to the taxing authority or authorities having jurisdiction all taxes,
which shall mean for purposes of this paragraph 8, "Allocable Taxes",
"Business Taxes" (insofar as such Business Taxes are exigible against
the Landlord with respect to the business of the Landlord), the
"Landlord's Income Taxes", the "LANDLORD'S CAPITAL TAXES" and any
"Tenants' Taxes", as such terms are defined in paragraph 7(a)(vii).
(b) Payment by Tenant
The Tenant covenants with the Landlord to pay promptly when due
to the taxing authority or authorities having jurisdiction all taxes,
rates, duties, levies and assessments whatsoever, whether municipal,
parliamentary or otherwise, levied, imposed or assessed in respect of
any and every business carried on in the Premises by the Tenant,
subtenants, licensees or other occupants of the Premises or in respect
of the use or occupancy thereof (including license fees), which shall
include all "Business Taxes" as defined in paragraph 7(a)(vii) hereof
(insofar as such Business Taxes are exigible with respect to any
business carried on in the Premises). The Tenant further covenants to
pay to the Landlord promptly on demand therefor by the Landlord, an
amount equal to all taxes charged in respect of all Leasehold
Improvements and trade fixtures and all furniture and equipment made,
owned or installed by or on behalf of the Tenant in the Premises, the
Landlord may determine to recover from the Tenant, and any amounts so
paid by the Tenant to the Landlord (and by other tenants under
corresponding paragraphs of other leases) shall be excluded in the
determination of Allocable Taxes under paragraph 7 hereof.
(c) Postponement, Determination, Appeal, etc., of Taxes
(i) The Landlord may postpone payment of any taxes payable
by it pursuant to paragraph 8(a) and the Tenant may
postpone payment of any taxes, rates, duties, levies and
assessment payable by it under the first sentence of
paragraph 8(b) in each case to the extent permitted by
law and if prosecuting in good faith an appeal against
the imposition thereof, and provided in the case of a
postponement by the Tenant that if the Lands or any part
thereof of the Landlord shall have become liable to
assessment, prosecution, fine or other liability, the
Tenant shall have given security in a form and in an
amount satisfactory to the Landlord in respect of such
liability and such undertakings as the Landlord may
reasonably require to ensure payment thereof.
(ii) For all purposes of this paragraph 8 and of paragraph 7,
where the determination of any taxes depends upon an
assessment or an apportionment of an assessment which
has not been made by the taxing authority or authorities
having jurisdiction, the Landlord may determine the
same. Any determinations so made by the Landlord shall
be binding upon the Tenant unless shown to be
unreasonable or erroneous in some substantial respect.
Notwithstanding the foregoing, in the absence of any
separate assessment of Leasehold Improvements or trade
fixtures or (if assessable) furniture or equipment of
the Tenant referred to in paragraph 8(b), or of other
tenants, the Landlord may elect not to make a
determination thereof and may from time to time waive
payment of amounts which would otherwise be payable by
the Tenant under that item (and by other tenants under
comparable provisions of other leases of premises in the
Building), in which event such amounts shall form part
of Allocable Taxes, without prejudice to the right of
the Landlord to make any such determination in the
future, either generally or in the case of the Tenant or
any other tenant where the value of such Leasehold
Improvements, trade fixtures, furniture or equipment is
unusually
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large, with the intent that the enforcement or
non-enforcement of the said item (and any like
provisions in other leases) shall not be such as to
impose any substantial inequity amongst tenants
including the Tenant.
(iii) Whenever requested by the Landlord, the Tenant will
deliver to the Landlord receipts for payment of all
taxes, rates, duties, levies and assessments payable by
the Tenant pursuant to the first sentence of paragraph
8(b) hereof and furnish such other information in
connection therewith as the Landlord may reasonably
require.
(iv) The Tenant agrees that it will not conduct any appeal
from any governmental assessment or determination of
the value of the Lands or not the assessment or
determination affects the amount of tax to be paid by
the Tenant. The Tenant shall instead rely upon the
Landlord to conduct any such appeal in the interest of
all occupants of the Lands and the Landlord agrees that
it will do so (with the expense to likely to attain a
favourable result, provided always that the Landlord
shall in no event be responsible or liable to the
Tenant for any action or failure to act was not made in
good faith.
(d) Payment for Additional Services
The cost of Additional Services provided to the Tenant, whether or not
the Landlord is obligated to provide them, shall be paid to the
Landlord by the Tenant from time to time promptly upon receipt of
invoices therefor from the Landlord. For purposes of this Lease, the
term "Additional Services" includes all services supplied pursuant to
paragraph 4(f) hereof, all other services designated as Additional
Services by that paragraph, and all other services of whatsoever nature
or kind supplied by the Landlord to the Tenant in addition to those
required by this Lease (other than any such services which the Landlord
may elect to supply as included within the standard level of services
furnished to tenants generally, the costs of which shall be included in
Allocable Operating Expenses). The invoices above referred to shall
reflect the Landlord's total cost of provision of the Additional
Services being charged for, including all costs of materials and labour
and other direct costs, costs of supervision and other indirect
expenses, capable of being allocated on a reasonable basis, plus an
amount equal to ten percent (10%) of the aggregate of the cost of
labour, materials and other direct expenses, to cover indirect expenses
incapable of reasonable allocation. The Landlord's reasonable
determination of the costs of Additional Services shall be conclusive.
ASSIGNMENT AND SUBLETTING
9. (a) No Assignment Without Leave
The Tenant covenants that it will not assign or sublet without
leave, which leave the Landlord covenants not to withhold unreasonably
OR DELAY as to any assignee or sublessee who, in the Landlord's
judgment, has a satisfactory financial condition, has a good reputation
in the business community and agrees to use the Premises for the
purposes satisfactory to the Landlord. Without limitation, the Tenant
shall for the purposes of this paragraph 9 be considered to assign or
sublet in any case where it permits the Premises or any portion thereof
to be occupied by persons other than the Tenant, its employees and
others engaged in carrying on the business of the Tenant, whether
pursuant to assignment, subletting, license or other right. THE TENANT
SHALL GIVE THE LANDLORD WRITTEN NOTICE, BUT SHALL NOT BE REQUIRED TO
OBTAIN THE CONSENT OF THE LANDLORD, IF EFFECTIVE CONTROL OF THE TENANT
IS HEREAFTER CHANGED DIRECTLY OR INDIRECTLY BY SALE, ENCUMBRANCE OR
OTHER DISPOSITION OF SHARES OR OTHERWISE. NOTWITHSTANDING THE
FOREGOING, THE TENANT SHALL OBTAIN THE PRIOR WRITTEN CONSENT OF THE
LANDLORD (WHICH CONSENT WILL NOT BE UNREASONABLY WITHHELD OR DELAYED)
IF MORE THAN 50% OF THE SHARES OF THE TENANT ARE SOLD TO A PARTY WHO IS
NOT A SHAREHOLDER OF THE TENANT ON THE EFFECTIVE DATE OF THIS LEASE;
PROVIDED THAT THIS PARAGRAPH SHALL NOT APPLY AND THE TENANT SHALL NOT
BE REQUIRED TO GIVE THE LANDLORD NOTICE OR OBTAIN THE LANDLORD'S
CONSENT IN THE FOLLOWING INSTANCES:
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(i) IF THE TENANT IS A CORPORATION THE SHARES OF WHICH
ARE LISTED ON ANY RECOGNIZED STOCK EXCHANGE OR IF THE
TENANT MAKES AN INITIAL PUBLIC OFFERING OF ITS
SHARES;
(ii) IF THE PRESENT SHAREHOLDERS MAKE A SALE OR OTHER
DISPOSITION OF SHARES TO IN BETWEEN THEMSELVES; OR
(iii) IN THE EVENT OF ANY TRANSMISSION OF SHARES ON DEATH
(b) Assignment or Subletting Procedures
The Tenant shall not assign this Lease or sublet or share
possession of the whole or any part of the Premises unless:
(i) it shall have received or procured a bona fide
written offer to take an assignment or sublease which
is not inconsistent with this Lease, and the
acceptance of which would not breach any provision of
this Lease if this paragraph 9(b) is complied with
and which the Tenant has determined to accept subject
to this paragraph 9(b) being complied with; and
(ii) it shall have first requested and obtained the
consent in writing of the Landlord thereto.
ANY REQUEST FOR CONSENT SHALL BE IN WRITING AND ACCOMPANIED BY A TRUE
COPY OF THE OFFER, AND THE TENANT SHALL FURNISH TO THE LANDLORD ALL INFORMATION
AVAILABLE TO THE TENANT AND REQUESTED BY THE LANDLORD AS TO THE RESPONSIBILITY,
REPUTATION, FINANCIAL STANDING AND BUSINESS OF THE PROPOSED ASSIGNEE OR
SUBTENANT. IF SUCH CONSENT SHALL BE GIVEN THE TENANT SHALL ASSIGN OR SUBLET, AS
THE CASE MAY BE, ONLY UPON THE TERMS SET OUT IN THE OFFER SUBMITTED TO THE
LANDLORD AS AFORESAID AND NOT OTHERWISE.
(c) Assumption of Obligations
No assignment of this Lease shall be effective unless the
assignee shall execute an appropriate instrument assuming, as to the
assigned premises, all the obligations of the Tenant hereunder.
SIGNS AND DIRECTORY
10. The Tenant shall not paint, display, inscribe, place or affix any sign,
symbol, notice or lettering of any kind anywhere in or on the Lands outside the
Premises (whether on the outside or inside of the Building) or within the
Premises so as to be visible from the outside of the Premises, with the
exception only of an identification sign at or near the entrance to the Premises
and a directory listing in the main lobby of the Building, both to be subject to
the approval of the Landlord as to design, size and location. Unless the
Landlord consents to the inclusion of any other or additional name, the Tenant
shall be entitled to have included on such directory only the name of the
Tenant. The Landlord may at its discretion determine that either or both of the
identification sign and directory listing shall be installed at the expense of
the Tenant, and the Landlord reserves the right to install them as an Additional
Service.
LEASEHOLD IMPROVEMENTS AND TRADE FIXTURES
11. (a) Definition of Leasehold Improvements
For purposes of this Lease, the term "Leasehold Improvements"
includes all items generally considered as leasehold improvements,
including without limitation all fixtures, improvements, installations,
alterations and additions from time to time made, erected or installed
by or on behalf of the Tenant, or any previous occupant of the
Premises, in the Premises and by or on behalf of other tenants in other
premises in the Lands (including the Landlord as occupant of its
premises), including all partitions however affixed, and
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whether or not movable, and all wall-to-wall carpeting other than
carpeting laid over finished floors and affixed so as to be readily
removable without damage with the exception of TENANT'S trade fixtures,
CHATTELS, furniture, MACHINERY and equipment not of the nature of
fixtures.
(b) Installation of Improvements and Fixtures
The Tenant will not make, erect, install or alter any
Leasehold Improvements or trade fixtures in the Premises without having
requested and obtained the Landlord's prior written approval. The
Landlord shall not unreasonably withhold OR DELAY its approval to any
such request, but failure to comply with Design Criteria established by
the Landlord from time to time for the Building shall be considered
sufficient reasons for refusal. In making, erecting, installing or
altering any Leasehold Improvements or trade fixtures the Tenant will
not, without the prior written approval of the Landlord, WHICH SHALL
NOT BE UNREASONABLY WITHHELD OR DELAYED, alter or interfere with any
installations which have been made by the Landlord and in no event
shall alter or interfere with window coverings or other light control
devices installed by the Landlord on exterior windows or with the
perimeter lighting adjacent to exterior walls of the Building. The
Tenant's request for any approval hereunder shall be in writing and
accompanied by an adequate description of the contemplated work and,
where appropriate, working drawings and specifications thereof. Any
out-of-pocket expense incurred by the Landlord in connection with any
such request for approval shall be deemed incurred by way of an
Additional Service. All work to be performed in the Premises shall be
performed by competent contractors and subcontractors of whom the
Landlord shall have approved, such approval not to be unreasonably
withheld OR DELAYED (except that the Landlord may require that the
Landlord's consultants be engaged for any mechanical or electrical
work) and by workers who have labour union affiliations that are
compatible with those of workers employed upon the Lands by the
Landlord and its contractors and subcontractors. All such work shall be
subject to inspection by and the reasonable supervision of the
Landlord, as an Additional Service, and shall be performed in
accordance with any reasonable conditions or regulations imposed by the
Landlord and completed in good and workmanlike manner in accordance
with the description of the work approved by the Landlord.
(c) Liens and Encumbrances on Improvements and Fixtures
In connection with the making, erection, installation or
alteration of Leasehold Improvements and trade fixtures and all other
work or installations made by or for the Tenant in the Premises the
Tenant shall comply with all the provisions of the Builders' Lien Act
and other statutes from time to time applicable thereto (including any
provision requiring or enabling the retention by way of hold-back of
portions of any sums payable) and except as to any such hold-back shall
promptly pay all accounts relating thereto. The Tenant will not create
any mortgage, conditional sale agreement or other encumbrance in
respect of its Leasehold Improvements or, without the consent of the
Landlord (NOT TO BE UNREASONABLY WITHHELD OR DELAYED), with respect to
its trade fixtures nor shall the Tenant take any action as a
consequence of any such mortgage, conditional sale agreement, or other
encumbrance would attach to the Premises, or to the Lands or any part
thereof. If and whenever any builders' or other lien for work, labour,
services or materials supplied to or for the Tenant or for the cost of
which the Tenant may be in any way liable or claims therefor shall
arise or be filed or any such mortgage, conditional sale agreement or
other encumbrance shall attach, the Tenant shall within twenty (20)
days after receipt of WRITTEN notice thereof procure the discharge
thereof, including any certificate of action registered in respect of
any lien, by payment or giving security or in such other manner as may
be required or permitted by law, and failing which the Landlord may in
addition to all other remedies hereunder avail itself of its remedy
under paragraph 16(a)(i) hereof and may make any payments required to
procure the discharge of any such liens or encumbrances and shall be
entitled to be reimbursed by the Tenant as provided and in paragraph
16(a)(i), and its right to reimbursement shall not be affected or
impaired if the Tenant shall then or subsequently establish or claim
that any lien or encumbrance so discharged was without merit or
excessive or subject to any abatement, set-off or defense. The Landlord
shall not be authorized to pay directly to the lien claimant on behalf
of the
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Tenant any amount which is rightfully contested by the Tenant in a
court of law. Said amount shall only be paid in trust to the
appropriate tribunal. This paragraph 11 (c) shall not prevent the
Tenant from mortgaging or encumbering its chattels, furniture,
MACHINERY or equipment not of the nature of fixtures.
(d) Removal of Improvements and Fixtures
All Leasehold Improvements in or upon the Premises shall
immediately upon their placement be and become the Landlord's property
without compensation therefor to the Tenant. Except to the extent
otherwise expressly agreed by the Landlord in writing, no Leasehold
Improvements, trade fixtures, furniture or equipment shall be removed
by the Tenant from the Premises either during or at the expiration or
sooner termination of the Term except that:
(i) the Tenant may at the end of the Term remove its
trade fixtures;
(ii) the Tenant shall at the end of the Term remove such
of the Leasehold Improvements and trade fixtures in
the Premises as the Landlord shall require to be
removed; and
(iii) the Tenant may remove its CHATTELS, furniture,
MACHINERY and equipment at the end of the Term, and
also during the Term in the usual and normal course
of its business where such CHATTELS, furniture,
MACHINERY or equipment has become excess for the
Tenant's purposes or the Tenant is substituting
therefor new CHATTELS, furniture, MACHINERY and
equipment.
The Tenant shall, in the case of every removal either during or at the
end of the Term, make good at the expense of the Tenant any damage caused to the
Premises and the Building by the installation and removal.
(e) COMMUNICATIONS EQUIPMENT
THE TENANT SHALL BE RESPONSIBLE FOR THE INSTALLATION AND MAINTENANCE OF
ITS TELEPHONES, COMPUTERS AND SPECIAL EQUIPMENT.
INSURANCE AND LIABILITY
12. INSURANCE AND LIABILITY
(a) Landlord's Insurance
The Landlord shall maintain die insurance described below
throughout the Term on and with respect to the Lands, which insurance
shall include the following:
(i) all risk property insurance for the full replacement
cost of the buildings on the Lands;
(ii) public liability and property damage insurance for
protection of the Landlord against all claims for
bodily injury, including death, and for property
damage occurring in, on or about the Lands for which
the Landlord is legally liable, in respect of injury
to or death of one or more persons, in respect of one
or more occurrences, and in respect of damage to
property and including all contractual obligations
coverage and including actions of the employees,
contractors, subcontractors and agents working on
behalf of the Landlord;
(iii) broad boiler and machinery insurance covering
property damage; and
(iv) such other insurance as it is or may become customary
for prudent owners of lands and improvements in the
Greater Vancouver area similar to the Lands
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to carry for loss of or damage to their lands and
improvements or liability arising therefrom.
The Landlord may elect, at any time and from time to time
during the Term, to self-insure any of the loss or damage described in
paragraph 12(a). If the Landlord so elects to self-insure, the Landlord
shall be deemed to have placed the insurance required by paragraph
12(a) for the purpose of this Lease and shall be treated as a
co-insurer to the extent that it shall not have insured with insurance
companies.
(b) Tenant's Insurance
The Tenant shall maintain the insurance described below throughout the
Term and any period when it is in possession of the Premises, and each policy of
that insurance shall name, as insureds, the Tenant and the Landlord as their
respective interests may appear. The insurance which the Tenant is required to
maintain is as follows:
(i) all risk (including flood and earthquake) property
insurance in an amount not less than 80% of the full
replacement cost with a replacement cost endorsement,
insuring:
(1) all property owned by the Tenant, or for which
the Tenant is legally liable, or installed by or on
behalf of the Tenant, and located on the Lands
including, but not limited to, fittings,
installations, alterations, additions, partitions and
all other leasehold improvements and any proceeds
recoverable in the event of loss to Leasehold
Improvements, shall be payable to the Landlord (but
the Landlord agrees to make available such proceeds
towards the repair or replacement of the insured
property if the Lease is not terminated pursuant to
any other provision hereof);
(2) the Tenant's inventory, furniture and movable
equipment.
(ii) public liability and property damage insurance,
including personal injury liability, contractual
liability, non-owned automobile liability, employers'
liability, with respect to the use and occupancy of
the Premises and of any other part of the Lands with
coverage, including the activities and operations
conducted by the Tenant and any other person on the
Premises and by the Tenant and any other person
performing work on behalf of the Tenant and those for
whom the Tenant is in law responsible, in any other
part of the Lands. Those policies shall:
(1) be written oil a comprehensive basis with
inclusive limits of at least Five Million Dollars
($5,000,000) for bodily injury for any one or more
persons, or property damage (but the Landlord, acting
reasonably, may reasonably require higher limits from
time to time upon not less than six (6) months
notice);
(2) contain a severability of interest clause and
cross-liability clauses.
(iii) Tenant's legal liability insurance with inclusive
limits of at least the replacement value of the
portion of the Building covered by this Lease (but
the Landlord, acting reasonably, may require higher
limits from time to time upon not less than six (6)
months notice);
(iv) upon not less than ninety (90) days written notice,
any other form of insurance and with whatever higher
limits the Landlord, acting reasonably, requires from
time to time, in form, in amounts and for risks
against which a prudent tenant would insure.
The policies specified under Sections 12(b)(i), (ii), (iii)
and (iv) shall contain a waiver of any subrogation rights which the
Tenant's insurers may have against all and any
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of the Landlord and those for whom all and any of them are or is in law
responsible, whether the damage is caused by their act, omission or
negligence.
All policies shall:
(i) be taken out with insurers reasonably acceptable to the
Landlord;
(ii) be in a form reasonably satisfactory to the Landlord;
(iii) be non-contributing with and shall apply only as primary and
not excess to any other insurance available to the Landlord;
(iv) not be invalidated as respects the interest of the Landlord by
reason of any breach or violation of warranties,
representations, declarations or conditions contained in the
policies; and
(v) contain an undertaking by the insurers to notify the Landlord
in writing not less than thirty (30) days before any material
change, cancellation or termination.
The Tenant shall deliver certificates of insurance duly executed by the
Tenant's insurers evidencing that the required insurance is in force and, if
required by the Landlord, the Tenant shall deliver CERTIFICATES of each
insurance policy as soon as reasonably possible after the placing of the
insurance. No review or approval of any insurance certificate or insurance
policy by the Landlord derogates from or diminishes the Landlord's rights under
this Lease.
(c) Insurance Validation
The Tenant agrees not to do or permit to be done any act or thing which
may render void or voidable or conflict with the requirements of any policy or
policies of insurance, whereby the Premises, the Building or the Lands are
insured or which may cause any increase in premium to be paid in respect of any
such policy. In the event that any such policy or policies is or are canceled by
reason of any act or omission of the Tenant, the Landlord shall have the right,
at its option, to terminate this Lease forthwith by delivery of notice of
termination to the Tenant, and in the event that any premium to be paid in
respect of any such policy or policies is or are increased by reason of any act
or omission of the Tenant, the Tenant shall forthwith pay to the Landlord, as
additional rent, the amount by which such premium shall be so increased.
(d) Limitation of Landlord's Liability
The Tenant agrees that the Landlord shall not be liable for any bodily
injury or death of, or loss or damage to any property belonging to, the Tenant
or its employees, invitees or licensees or any other person in, on or about the
Lands unless resulting from the actual fault, privity or negligence of the
Landlord OR THOSE FOR WHOM THE LANDLORD IS RESPONSIBLE IN LAW. In no event shall
the Landlord be liable:
(i) for any damage which is caused by steam, water, rain
or snow which may leak into, issue or flow from any
part of the Lands or from the pipes or plumbing
works, including the sprinkler system, therein or
from any other place or quarter or for any damage
caused by or attributable to the condition or
arrangement of any electric or other wiring or of
sprinkler heads or for any damage caused by anything
done or omitted by any other tenant;
(ii) for any act or omission (including theft, malfeasance
or negligence) on the part of any agent, contractor
or person from time to time employed by it to perform
janitor services, security services, supervision or
any other work in or about the Premises or the Lands;
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(iii) for loss or damage, however caused, to money,
securities, negotiable instruments, papers or other
valuables of the Tenant; or
(iv) for the collection or non-collection of any insurance
proceeds. However, the Landlord agrees to use
reasonable efforts to collect all applicable
insurance proceeds.
(e) Indemnity of Landlord
The Tenant agrees to indemnify and save harmless the Landlord
in respect of:
(i) all claims for bodily injury or death, property
damage or other loss or damage arising from the
conduct of any work by or any act or omission of the
Tenant or any assignee, subtenant, agent, employee,
contractor, invitee or licensee of the Tenant, and in
respect of all costs, expenses and liabilities
incurred by the Landlord in connection with or
arising out of all such claims, including the
expenses of any action or proceeding pertaining
thereto, EXCEPT TO THE EXTENT THAT SUCH CLAIM, LOSS,
DAMAGE, COST OR EXPENSE IS CAUSED BY THE NEGLIGENCE
OF THE LANDLORD OR THOSE FOR WHOM THE LANDLORD IS
RESPONSIBLE IN LAW;
(ii) any loss, cost, expense or damage suffered or
incurred by the Landlord arising from any breach by
the Tenant of any of its covenants and obligations
under this Lease; and
(iii) all costs, expenses and reasonable legal fees that
may be incurred or paid by the landlord in enforcing
against the Tenant the covenants, agreements and
representations of the Tenant set out in this Lease.
SUBORDINATION, ATTORNMENT AND CERTIFICATES
13. The Tenant agrees that:
(a) Subordination and Attornment
This Lease and all the rights of the Tenant hereunder are
subject and subordinate to all mortgages now or hereafter existing
(including deeds of trust and mortgage and all instruments supplemental
thereto) which may now or hereafter affect the Lands and to all
renewals, modifications, consolidations, replacements and extensions
thereof provided the mortgagee or trustee agrees to accept this Lease
if THE TENANT IS not in default; and in recognition of the foregoing
the Tenant agrees that it will, whenever requested by the mortgagee
under any such mortgage (including any trustee under a deed of trust
and mortgage) attorn to such mortgagee as a tenant upon all the terms
of this Lease. The Tenant agrees to execute promptly whenever requested
by the Landlord or by such mortgagee an instrument of subordination or
attornment, as the case may be, as may be required of it. THE LANDLORD
AGREES TO USE COMMERCIALLY REASONABLE EFFORTS TO OBTAIN A NON
DISTURBANCE AGREEMENT FROM ANY MORTGAGEES.
(b) Certificates
The Tenant shall promptly whenever requested by the Landlord
from time to time execute and deliver to the Landlord (and if required
by the Landlord, to any mortgagee [including any trustee under a deed
of trust and mortgage] designated by the Landlord) a certificate in
writing as to the then status of this Lease, including as to whether it
is in full force and effect, is modified or unmodified, confirming the
rental payable hereunder and the state of the accounts between the
Landlord and the Tenant, the existence or non-existence of defaults,
and any other matters pertaining to this Lease as to which the Landlord
may request.
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ACCESS OF LANDLORD
14. (a) Inspection and Access
The Landlord shall be permitted upon 24 HOURS PRIOR WRITTEN
NOTICE, EXCEPT IN THE CASE OF AN EMERGENCY, and from time to time to
enter and to have its authorized agents, employees and contractors
enter the Premises for the purposes of inspection, window cleaning,
maintenance, providing janitor service, making repairs, alterations or
improvements to the Premises or the Lands, or to have access to
utilities and services (including overhead header ducts and access
panels, which the Tenant agrees not to obstruct) and the Tenant shall
provide free and unhampered access for such purpose, and shall not be
entitled to compensation for any inconvenience, nuisance or discomfort
caused thereby, provided always that in exercising its rights hereunder
the Landlord shall, to the extent reasonably possible, minimize
interference with the Tenant's use and enjoyment of the Premises.
(b) Exhibiting Premises
The Landlord and its authorized agents and employees shall
UPON REASONABLE NOTICE be permitted entry to the Premises during the
last six (6) months of the Term for the purpose of exhibiting the
Premises to prospective lessees and shall be entitled to display signs
and/or post notices advertising the availability of the Premises for
lease.
DELAY AND NON-WAIVER
15. (a) Unavoidable Delay
Except as herein otherwise expressly provided, if and whenever
and to the extent that either the Landlord or the Tenant shall, after
the application of all reasonable efforts, be prevented, delayed or
restricted in the fulfillment of any obligation hereunder in respect of
the supply or provision of any service or utility, the making of any
repair, the doing of any work or any other thing (other than the
payment of rent or other moneys due) by reason of:
(i) strikes or work stoppages;
(ii) being unable to obtain any material, service, utility
or labour required to fulfill such obligation;
(iii) any statute, law or regulation of, or inability to
obtain any permission from, any government authority
having lawful jurisdiction preventing, delaying or
restricting such fulfillment; or
(iv) other unavoidable occurrence,
the time for fulfillment of such obligation shall be extended during the period
in which such circumstance operates to prevent, delay or restrict the
fulfillment thereof, and the other party to the Lease shall not be entitled to
compensation for any inconvenience, nuisance or discomfort thereby occasioned;
but nevertheless the Landlord will use its best efforts to maintain services
essential to the use and enjoyment of the Premises.
(b) Waiver
If either the Landlord or the Tenant shall overlook, excuse,
condone or suffer any default, breach or non-observance by the other of
any obligation hereunder, this shall not operate as a waiver of such
obligation in respect of any continuing or subsequent default, breach
or non-observance, and no such waiver shall be implied but shall only
be effective if expressed in writing.
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REMEDIES OF LANDLORD
16. (a) Remedies of Landlord
In addition to all rights and remedies of the Landlord
available to it in the event of any default hereunder by the Tenant
through improper compliance or non-compliance with any obligation
arising either under this or any other provision of this Lease or under
statute or the general law the Landlord:
(i) AFTER NOTICE IS GIVEN BY THE LANDLORD TO THE TENANT
IN ACCORDANCE WITH THE LEASE AND ANY APPLICABLE
NOTICE PERIODS HAVE EXPIRED, shall have the right at
all times to remedy or attempt to remedy any default
of the Tenant, and in so doing may make any payments
due or alleged to be due by the Tenant to third
parties and may enter upon the Premises to do any
work or other things therein, and in such event all
expenses of the Landlord in remedying or attempting
to remedy such default shall be payable by the Tenant
to the Landlord as additional rent forthwith upon
demand. The Landlord shall not be authorized to pay
directly to the third party on behalf of the Tenant
any amount which is rightfully contested by the
Tenant in a court of law. Said amount shall only be
paid in trust to the appropriate tribunal;
(ii) shall have the same rights and remedies in the event
of any non-payment by the Tenant of any amounts
payable by the Tenant under any provision of this
Lease as in the case of a non-payment of rent; and
(iii) if the Tenant shall fail to pay rent or other amount
from time to time payable by it to the Landlord
hereunder promptly when due, shall be entitled, if it
shall demand it, to interest thereon at a rate three
percent (3%) per annum in excess of the minimum
lending rate to prime commercial borrowers from time
to time current at chartered banks in British
Columbia from the date upon which the same was due
until actual payment thereof.
(b) Remedies Cumulative
The Landlord may from time to time resort to any or all of the
rights and remedies available to It in the event of any default
hereunder by the Tenant, through improper compliance or non-compliance
with any obligation arising either under any provision of this Lease or
under statute or the general law, all of which rights and remedies are
intended to be cumulative and not alternative, and the express
provisions hereunder as to certain rights and remedies are not to be
interpreted as excluding any other or additional rights and remedies
available to the Landlord by statue or the general law.
(c) Right of Re-Entry on Default or Termination
Provided and it is expressly agreed that if and whenever the
rent hereby reserved or other moneys payable by the Tenant or any part
thereof shall not be paid on the day appointed for payment thereof,
whether lawfully demanded or not, and the Tenant shall have failed to
pay such rent or other moneys within five (5) business days after the
Landlord shall have delivered to the Tenant written notice requiring
such payment, or if the Tenant shall breach or fail to observe and
perform any of the other covenants, agreements, provisos, conditions,
rules or regulations and other obligations on the part of the Tenant to
be kept, observed or performed hereunder, and the Tenant shall have
failed to remedy such breach or failure WITHIN FIFTEEN (15) business
days after the Landlord shall have delivered to the Tenant WRITTEN
NOTICE REQUIRING SUCH REMEDY (PROVIDED THAT IF SUCH BREACH MAY NOT BE
REASONABLY REMEDIED WITHIN SUCH FIFTEEN (15) DAY PERIOD, THEN THE
TENANT SHALL NOT CONTINUE TO BE IN DEFAULT HEREUNDER IF THE TENANT
COMMENCES TO REMEDY SUCH DEFAULT WITHIN THE FIFTEEN (15) DAY PERIOD AND
CONTINUES SAME WITH DUE
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DILIGENCE) or if this Lease shall have become terminated pursuant to
any provision hereof, or if the Landlord shall have become entitled to
terminate this Lease and shall have given notice terminating it
pursuant to any provision hereof, then and in every such case it shall
be lawful for the Landlord thereafter to enter into and upon the
Premises or any part thereof in the name of the whole and the same to
have again, repossess and enjoy as of its former estate, anything in
this Lease contained to the contrary notwithstanding.
(d) Termination and Re-Entry
If and whenever the Landlord becomes entitled to re-enter upon
the Premises under any provision of this Lease the Landlord, in
addition to all other rights and remedies, shall have the right to
terminate this Lease forthwith by leaving upon the Premises notice in
writing of such termination.
(e) Payment of Rent on Termination
Upon the delivery by the Landlord to the Tenant of a notice in
writing terminating this Lease, whether pursuant to this or any other
provision of this Lease, this Lease and the Term shall terminate, rent
and any other payments for which the Tenant is liable under this Lease
shall be computed, apportioned and paid in full to the date of such
termination, and the Tenant shall immediately deliver up possession of
the Premises to the Landlord, and the Landlord may re-enter and take
possession of them.
(f) Re-letting
Whenever the Landlord becomes entitled to re-enter upon the
Premises under any provision of this Lease the Landlord in addition to
all other rights it may have, shall have the right as agent of the
Tenant to enter the Premises and re-let them and to receive the rent
therefor and as the agent of the Tenant to take possession of any
furniture or other property thereon and to sell the same at public or
private sale without notice and to apply the proceeds thereof and any
rent derived from re-letting the Premises upon account of the rent due
and to become due under this Lease and the Tenant shall be liable to
the Landlord for the deficiency if any.
IMPROPER USE OF PREMISES
17. (a) Cancellation of Insurance
If any policy of insurance upon the Lands or any part thereof
from time to time effected by the Landlord shall be canceled or about
to be canceled by the insurer by reason of the use or occupation of the
Premises by the Tenant or any assignee, subtenant or licensee of the
Tenant or anyone permitted by tile Tenant to be upon the Premises and
the Tenant after receipt of notice in writing from the Landlord shall
have failed to take such immediate steps in respect of such use or
occupation as shall enable the Landlord to reinstate or avoid
cancellation (as the case may be ) of such policy of insurance, the
Landlord may at its option ENTER THE PREMISES AND REMEDY THE SITUATION
AND CHARGE THE COST THEREOF TO THE TENANT AS ADDITIONAL RENT; PROVIDED
THAT IF THE SITUATION GIVING RISE TO THE ACTUAL OR THREATENED
CANCELATION MAY NOT BE CORRECTED, THEN THE LANDLORD MAY TERMINATE THIS
LEASE BY LEAVING UPON THE PREMISES NOTICE IN WRITING OF SUCH
TERMINATION;
(b) Non-authorized Use, Bankruptcy
In the event that without the written consent of the Landlord
the Premises shall be used by any other persons than the Tenant or its
permitted assigns or subtenants or for any purpose other than that for
which they were leased, or occupied by any persons whose occupancy is
prohibited by this Lease, or if the Premises shall be vacated or
abandoned, or remain unoccupied for fifteen (15) days or more while
capable of being occupied, or if the balance of the Term or any of the
goods and chattels of the Tenant shall at any time be seized in
execution or attachment, or if the Tenant shall make any
25
<PAGE> 30
assignment for the benefit of creditors or any bulk sale, become
bankrupt or insolvent or take the benefit of any statute now or
hereafter in force for bankrupt or insolvent debtors or (if a
corporation) shall take any steps or suffer any order to be made for its
winding-up or other termination of its corporate existence, then in any
such case the Landlord may at its option terminate this Lease by leaving
upon the Premises notice in writing of such termination and thereupon,
in addition to the payment by the Tenant of rent and other payments for
which the Tenant is liable under this Lease, rent for the current month
and the next ensuing three (3) months shall immediately become due and
be paid by the Tenant.
GENERAL PROVISIONS
18. Registration of Lease
THE TENANT SHALL BE ENTITLED TO REGISTER THIS LEASE. THE LANDLORD SHALL
NOT BE OBLIGATED TO DELIVER TO THE TENANT THIS LEASE IN REGISTERABLE FORM AND
THE TENANT SHALL BEAR THE COST OF REGISTERING THE LEASE, INCLUDING BUT NOT
LIMITED TO, THE PREPARATION OF ANY EXPLANATORY PLAN OF LEASE OF THE PREMISES.
19. Lease Constitutes Entire Agreement
The Tenant acknowledges that there are no covenants, representations,
warranties, agreements or conditions express or implied, collateral or otherwise
forming part of or in any way affecting or relating to this Lease except as
expressly set out in this Lease, including Schedule "A", "B", "C", "D" and "E"
which are incorporated into and form part of this Lease, and that this Lease
constitutes the entire agreement between the Landlord and the Tenant and may
not be modified except as herein explicitly provided or except by agreement in
writing executed by the Landlord and the Tenant.
20. Notices
Any notice required or contemplated by any provision hereof shall be
given in writing, and if to the Landlord, either delivered to an executive
officer of the Landlord or mailed by prepaid registered mail addressed to the
Landlord at the Building, and if to the Tenant, either delivered to the Tenant
personally (or to a partner or officer of the Tenant if the Tenant is a firm or
corporation) or mailed by prepaid registered mail addressed to the Tenant at the
Premises. Every such notice shall be deemed to have been given when delivered,
or if mailed as aforesaid, upon the third normal business day after posting
provided it is mailed in Canada. The Landlord may from time to time by notice in
writing to the Tenant designate another address in Canada as the address to
which notices are to be mailed to it, or specify another location in the
Building to which such notices are to be mailed and may require that copies of
notices be sent to an agent designated by it.
21. Interpretation
In this Lease, "herein", "hereof", "hereby", "hereunder", "hereto",
"hereinafter" and similar expressions refer to this Lease and not to any
particular paragraph, paragraph or other portion thereof, unless there is
something in the subject matter or context inconsistent therewith; "business
day" means any of the days from Monday to Friday inclusive of each week unless
such day is a holiday, and such additional days as may be designated by the
Landlord; and "normal business hours" means the hours from 8 a.m. to 5 p.m., and
such other hours as may be designated by the Landlord, on business days; and the
parties agree that all of the provisions of this Lease are to be construed as
covenants and agreements as though words importing such covenants and agreements
were used in each separate paragraph hereof, and that should any provision or
provisions of the Lease be illegal or not enforceable it or they shall be
considered separate and severable from the Lease and its remaining provisions
shall remain in force and be binding upon the parties hereto as though the said
provision or provisions had never been included, and further that the captions
appearing for the provisions of this Lease have been inserted as a matter of
convenience and for reference only and in no way define, limit or enlarge
26
<PAGE> 31
the scope or meaning of this Lease or of any provision hereof.
22. Extent of Lease Obligations
This Lease and everything herein contained shall enure to the benefit of
and be binding upon the respective heirs, executors, administrators, successors,
permitted assigns and other legal representatives, as the case may be, of each
and every of the parties hereto, subject to the granting of consent by the
Landlord to any assignment or sublease and every reference herein to any party
hereto shall include the heirs, executors, administrators, successors, assigns
and other legal representatives of such party, and where there is more than one
tenant or there is a male or female party the provisions hereof shall be read
with all grammatical changes thereby rendered necessary and all covenants shall
be deemed joint and several.
23. Renewal
If the Tenant duly and regularly pays the rent reserved hereunder and
performs all and every of the covenant, provisos and agreements herein on the
part of the Tenant to be observed and performed, the Landlord will at the expiry
of the original Term provided for in paragraph 1(a) hereof (without including
therein any other renewal, extension or overholding) and upon written notice
from the Tenant received by the Landlord at least six (6) months before the
expiry of the original Term, grant to the Tenant a renewal of this Lease for ONE
(1) ADDITIONAL TERM OF THREE (3) years at such rent as may be mutually agreed
upon by the Landlord and the Tenant, having regard to rental rates prevailing in
the market, which for the purposes of this paragraph 23 shall include the rents
then being charged in the Building (and the Landlord and the Tenant each
undertake to negotiate in good faith with a view to agreeing upon such rent),
and otherwise upon and subject to the terms and conditions contained in this
Lease except this provision for renewal. In the absence of an agreement being
reached at least three (3) months prior to the expiry of the original Term with
respect to the rent to be paid during such renewal term, the rent to be paid
during such renewal term, unless otherwise agreed by the Landlord and Tenant,
shall be determined by a single arbitrator if the parties agree upon the
identity of such arbitrator, and otherwise by three arbitrators, one to be
appointed by the Landlord, one to be appointed by the Tenant and the third to be
appointed by the two arbitrators so previously appointed, pursuant to the
provisions of the Commercial Arbitration Act (British Columbia).
24. Parking
The Landlord shall make available to the Tenant during the Term of this
Lease and the renewal Term, TEN (10) parking stalls in the Building. Should the
Tenant utilize less that 10 parking stalls and wish to increase the parking
stalls used to the maximum of 10 stalls, the Tenant shall provide the Landlord
with at least 45 days written notice of such requirement. The rental for the
parking stalls shall be $65.00 PER MONTH PER STALL THROUGHOUT THE TERM OF THE
LEASE.
25. Landlord's Enquiries and Clean Up by Tenant
(a) The Tenant hereby authorizes the Landlord to make inquiries from
time to time with respect to the Tenant's compliance with any laws and
regulations pertaining to the Tenant, the Tenant's business and the
Premises, including without limitation, laws and regulations pertaining
to Hazardous Substances and the protection of the environment generally.
The Tenant shall provide such written authorization as the Landlord may
reasonably require in order to facilitate the obtaining of such
information.
(b) If any governmental authority having jurisdiction shall require the
clean-up of any Hazardous Substances held, released, spilled, abandoned
or placed upon the Premises, the Building or the Lands or released into
the environment by the Tenant in the course of the Tenant's business or
as a result of the Tenant's use or occupancy of the Premises, then the
Tenant shall, at its own expense, prepare all necessary studies, plans
and proposals and submit the same for approval, provide all bonds and
other security required by governmental authorities having jurisdiction
and carry out the work required and shall keep the Landlord fully
informed and provide to the Landlord full information with
27
<PAGE> 32
respect to the proposed plans and comply with the Landlord's reasonable
requirements with respect to such plans.
26. Landlord's Inspection
The Landlord may at any time and from time to time inspect the Tenant's
goods within the Premises and the Tenant's records for the purpose of
identifying the nature of such goods and the existence of any Hazardous
Substances. The Tenant shall assist the Landlord in such inspection.
27. Ownership of Hazardous Substances
If the Tenant brings or creates within the Premises or on the Lands
any Hazardous Substances then, notwithstanding any rule of law to the contrary,
such Hazardous Substances shall be and remain the sole and exclusive property of
the Tenant and shall not become the property of the Landlord, notwithstanding
the degree of affixation to the land and notwithstanding the expiry or earlier
termination of this Lease.
28. Survival of Covenants
The obligations of the Tenant relating to Hazardous Substances shall
survive the expiry or earlier termination of this Lease. If the performance of
those obligations requires access to the Premises or the Lands, the Tenant shall
have such access only at such times and upon such terms and conditions as the
Landlord may specify. The Landlord may, at the Tenant's cost and expense,
undertake the performance of any necessary work in order to complete such
obligations of the Tenant. Having commenced such work, the Landlord shall have
no obligation to the Tenant to complete such work.
29. OPTION TO TERMINATE
The Tenant has the option to terminate this lease with a penalty equal
to the unamortized portion (on a straight line basis) of the leasing commission
payable by BCR Properties Ltd. to CB Commercial Real Estate Group Canada Inc. of
three dollars ($3.00) per square foot of rentable area leased at any time after
September 30, 2000 with six (6) months prior written notice delivered to the
Landlord, ie. if the tenant exercised its right of termination on the premises
as at September 30, 2000 the penalty to the Tenant would be one dollar and sixty
cents ($1.60) per square foot multiplied by the premises.
30. Right of First Refusal
The Landlord hereby grants to the tenant an ongoing first right ("the
right of first refusal") to lease any space in the building that becomes
available for lease (the "additional space") on the following terms and
conditions and in the manner as follows:
The Landlord shall give notice in writing of the additional space then
available for lease. the tenant shall have a period of five (5) business days to
provide written notification of its intention of lease the additional space. If
the tenant does not respond to the landlord's written notice within the
prescribed five (5) business days or if the tenant advised the landlord that the
tenant does not wish to lease the additional space then available for lease, the
Landlord shall be free to lease the space to a third party.
As and when the Tenant exercises any of its first rights to lease, the
additional space leased shall form part of the leased premises and terms of such
expansion space shall be the same as the original lease including rental charge
per square foot except the landlord shall ensure that:
(A) All existing mechanical systems, electrical outlets, lights and
plumbing fixtures are in good working order and the existing
H.V.A.C. system is operating in a manner consistent with an "A"
class office building;
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<PAGE> 33
(B) The premises have been cleaned;
(C) Based on a ratio of two (2) stalls per one thousand two hundred
(1,200) square feet leased at market rents for the term.
This right of first refusal is subject to and subordinate to the rights
of any tenants in the building as of the date of acceptance of the offer to
lease.
IN WITNESS WHEREOF the parties have executed this Lease as of the day and year
first written above.
The Corporate Seal of )
BC RAIL LTD. was hereunto affixed )
in the presence of )
)
/s/ SIGNED ) C/S
- ---------------------------------------- )
Authorized Signatory )
The Corporate Seal of )
)
PIVOTAL SOFTWARE INC. )
was hereunto AFFIXED in the presence of: )
- ---------------------------------------- )
)
) C/S
/s/ CARMAN WENKOFF )
- ---------------------------------------- )
Authorized Signatory )
)
/s/ CARMAN WENKOFF )
- ---------------------------------------- )
Authorized Signatory )
29
<PAGE> 1
EXHIBIT 10.8
LEASE
THIS LEASE is made as of the 11th day of December, 1998, by and between
YARROW BAY OFFICE III LIMITED PARTNERSHIP, a Washington limited partnership
("Landlord"), and Pivotal Software USA Inc. ("Tenant").
For and in consideration of the mutual promises, covenants and
conditions set forth in this Lease, Landlord and Tenant agree as follows:
SECTION I - PREMISES
1.1 Premises. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord, those certain premises (the "Premises") having an agreed
rentable area of 13,627 square feet and an agreed usable area of 11,964 square
feet. The Premises are situated on the 4th floor of a building located on the
real property legally described in Exhibit A attached, and all improvements
thereon, and all rights appurtenant thereto (the "Building"). The Premises are
more particularly shown on the floor plan of the Building attached to this Lease
as Exhibit D-1. The Building is part of a multi-phase project located on the
real property legally described on Exhibit B attached, and all improvements
thereon, and all rights appurtenant thereto, commonly known as The Plaza at
Yarrow Bay (the "Park"). The Building is commonly referred to as Building III of
the Park. The Premises and Building shall be remeasured using the most current
BOMA standards and Landlord shall notify Tenant of the recalculated area of
both, and lease provisions affected, including but not limited to, Minimum Rent
and Tenant's Share shall be adjusted using the recalculated measurements.
1.2 Reserved to Landlord. Landlord reserves all air rights over the
Premises, the use of the exterior walls, the roof, and the right to install,
maintain, use, repair and replace pipes, ducts, conduits and wires leading
through the Premises in locations which will not materially interfere with
Tenant's use thereof to serve other parts of the Building and/or the Park.
1.3 Changes to Park. Landlord reserves the right at any time to make
alterations or additions to the Building and to build adjoining the same.
Landlord also reserves the right from time to time to construct other buildings
or improvements in the Park, to make alterations thereof or additions thereto,
and to relocate the various buildings, parking and other common areas comprising
the Park.
SECTION II - TERM
2.1 Lease Term. This Lease shall be for a term of sixty (60) months
commencing on the earlier of the following two dates (the "Commencement Date"):
(a) the date Tenant occupies the Premises for a primary use other than
performing tenant improvement work, or (b) three (3) days after Landlord
notifies Tenant that Landlord has substantially completed the Premises in
accordance with Landlord's obligations under Section 7.1 below. The "Target
Commencement Date" is December 11, 1998, which date is only an estimate of the
date the Premises will be available for Tenant's occupancy. Landlord shall have
no liability to Tenant and this Lease shall not be void or voidable if the
Premises are not delivered to Tenant by the Target Commencement Date.
<PAGE> 2
2.5 Possession. If Landlord is unable to deliver the Premises or any
portion thereof on or before the Target Commencement Date, Landlord shall not be
liable for any damage caused thereby, nor shall this Lease thereby become void
or voidable, but in such event, Tenant shall not be liable for payment of any
rent or additional rent until such time as Landlord delivers possession, and the
Term shall not commence until the Premises are so delivered.
2.6 Option to Extend
a. So long as Tenant is not then in default under this
Lease, and so long as Tenant has not been ten (10) or more days late in payment
of rent more than a total of three (3) times during the term of this Lease,
Tenant shall have the right to extend the Lease term for one (1) additional five
(5) year period (the "Additional Term") on the terms and conditions stated in
this paragraph. To exercise its right to extend this Lease for the Additional
Term, Tenant must deliver to Landlord a written notice exercising its rights
under this paragraph at least two hundred seventy (270) days, but not more than
three hundred sixty (360) days, prior to the date the initial Lease term will
expire. All the terms and conditions of this Lease shall apply during the
Additional Term except (i) the minimum rent shall be an amount mutually agreed
to by Landlord and Tenant or determined by arbitration as set forth below; (ii)
unless otherwise agreed by Landlord in writing, there shall be no further
extension options; and (iii) Landlord shall have no tenant improvement
obligations with respect to the Premises. When the rental rate for the
Additional Term is determined, either by agreement of the parties or pursuant to
arbitration as provided below, Landlord and Tenant shall enter into a lease
extension agreement setting forth the new minimum rent for the Premises and such
other terms as may be applicable. If at the time Tenant delivers to Landlord its
written notice electing to extend this Lease term, or at any time between such
date and the commencement date of the Additional Term, Tenant defaults under
this Lease and fails to cure the default within the applicable cure period, if
any, Landlord shall have the option to declare Tenant's notice of exercise null
and void by written notice to Tenant, in which case the Lease term shall expire
on the expiration of the then current Lease term.
b. If Tenant exercises an extension right under this
paragraph, the minimum rent for the Additional Term shall be the then "fair
market rent" (defined below) for the Premises. For purposes of this lease, the
term "fair market rent" shall mean the fully serviced rate per rentable square
foot that willing, non-equity, non-renewal tenants are paying for comparable
space in the building and in comparable buildings in the Kirkland-Bellevue areas
for leases having a five (5) year term. Landlord shall advise Tenant in writing
of Landlord's determination of fair market rent for the Premises not later than
sixty (60) days after Tenant exercises its extension right. Within thirty (30)
days after receiving Landlord's determination of fair market rent, Tenant shall
notify Landlord in writing whether or not Tenant accepts Landlord's
determination of fair market rent. If Tenant disagrees with Landlord's
determination of fair market rent, Tenant shall advise Landlord of Tenant's
determination of fair market rent in the notice required pursuant to the
preceding sentence. If Tenant fails to so notify Landlord prior to expiration of
its thirty (30) day period to respond to Landlord's notice, then Tenant's notice
exercising its renewal rights under this paragraph shall be deemed null and
void, unless otherwise agreed in writing by Landlord and Tenant. If Tenant does
not accept Landlord's determination of fair market rent, the parties shall
promptly meet and attempt to resolve their differences.
<PAGE> 3
SECTION III - RENT
3.1 Minimum Rent. Tenant shall pay to Landlord, c/o JSH Properties,
Inc., at 10220 N.E. Points Drive, Suite 203, Kirkland, Washington 98033, or to
such other entity or address as may be specified by Landlord from time to time,
without any set off or deduction whatsoever, as fixed minimum rent, the amounts
listed as follows:
<TABLE>
<CAPTION>
Period Amount
-------------- ----------
<S> <C>
Months 01 - 12 $24,982.83
Months 13 - 24 $25,834.52
Months 25 - 36 $26,686.21
Months 37 - 48 $27,537.90
Months 49 - 60 $28,389.58
</TABLE>
Monthly installments of fixed minimum rent are due on or before the
first day of each month of the Lease term. Rent for partial months shall be
prorated. The minimum rent is referred to herein as "rent," and it does not
include the additional rent payable by Tenant pursuant to this Section III. Upon
execution of this Lease, Tenant shall deposit with Landlord first month's rent.
3.2 Additional Rent. In addition to rent, all other sums to be paid
or reimbursed by Tenant to Landlord, whether or not so designated, are
"additional rent" for the purposes of this Lease. If Tenant defaults in the
performance of any of its obligations hereunder, Landlord may, but shall not be
obligated to, perform such obligations, and the cost thereof to Landlord shall
also be additional rent. Unless otherwise specifically provided in this Lease,
Tenant shall pay Landlord all additional rent within ten (10) days after
Landlord's demand.
3.3 Tenant's Contributions.
3.3.1 On or before the Commencement Date, and no more than
ninety (90) days after the commencement of each calendar year thereafter,
Landlord will notify Tenant in writing of Landlord's estimate of Tenant's Share
of estimated "Operating Costs" and "Real Property Taxes" (such terms are defined
in Section 3.3.2 below) for the then current calendar year (or part thereof),
which amount Tenant shall pay in advance in twelve (12) equal monthly
installments, due and payable without set-off or deduction, on the first (1st)
day of each calendar month. As used herein, the term "Tenant's Share" (currently
16.48%), is determined by multiplying the cost to be shared by a fraction, the
numerator of which is the rentable area of the Premises from time to time and
the denominator of which is the rentable area of the Building for expenses
related to the Building, and the rentable area of the Park for expenses related
to the Park. If the rentable area of the Premises, the Building, or the Park
changes during the Lease Term, then the rentable area used for calculating the
Tenant's Share shall be the rentable area in effect during the period for which
the Tenant's Share is being determined. Within ninety (90) days after the end of
each year, Landlord will compute Tenant's Share for such year (or portion
thereof) based on actual costs and provide to Tenant an itemized statement (a
"Statement") of Tenant's Share for such year.
<PAGE> 4
Notwithstanding any of the foregoing, Tenant shall not be entitled to
inspect or audit the books and records of Landlord more frequently than once
each calendar year.
3.3.2 For purposes of this Section 3.3, the following
definitions apply:
(i) "Operating Costs" shall mean all expenses paid
or incurred by Landlord or charged to Landlord for maintaining, operating,
repairing, replacing and administering the Building, the Park or both (including
common areas and facilities), and the personal property used in conjunction
therewith, together with a sum equal to five percent (5%) of the cost thereof
(exclusive of Real Property Taxes and professional management fees) as an
administrative fee, including, without limitation, the costs of refuse
collection, water, sewer, electricity, heat, air conditioning, fuel, light, fire
protection, and other utilities; services; supplies; janitorial and cleaning
services; window washing; snow, garbage and refuse removal; security services
and systems; resurfacing, repair, maintenance, painting, lighting, cleaning,
striping and securing parking facilities; elevator operation, repair and
maintenance; landscape maintenance; services of independent contractors;
compensation (including employment taxes and fringe benefits) of all persons who
perform duties in connection with the operation, maintenance, repair,
replacement and administration of the Park, the Building or both, their
equipment and common areas and facilities; insurance premiums for all insurance
carried with respect to the Building or the Park; licenses, permits and
inspection fees (but not Landlord's general business license and related fees);
subsidies and other payments required by public bodies, including those for
traffic signals and controls and for fire protection; professional management
fees (in amounts competitive with those charged by third party property managers
in connection with the management of comparable first class office properties);
legal and accounting expenses; and all other expenses or charges whether or not
hereinabove described which, in accordance with generally accepted accounting
and management practices, would be considered an expense of maintaining,
operating, repairing, replacing and administering the Building or the Park, but
excluding: (a) costs of any special services rendered to individual tenants
(including Tenant) for which a special charge is made; (b) Real Property Taxes;
(c) Capital costs, or the depreciation or amortization of costs, required to be
capitalized in accordance with generally accepted accounting principles (except
Operating Costs shall include amortization over their useful life, on a straight
line basis, of capital improvements made subsequent to the date the last party
executes this Lease which are either designed with a reasonable probability of
improving the operating efficiency of the Building or the Park, as applicable,
or are required to be made to operate the Building or the Park in accordance
with applicable federal, state and local laws, regulations, ordinances and
codes; (d) executive salaries (i.e., salaries of all persons above Building
management level); (e) salaries of Budding management and service personnel to
the extent such personnel perform services not solely in connection with the
management, operation, repair or maintenance of the Building or the Park, unless
such salaries are prorated to reflect time spent on operating and managing the
Building or the Park, vis a vis time spent on matters unrelated to operating and
managing the Budding or the Park; (f) real estate broker commissions; (g)
attorney's fees, costs and disbursements incurred by Landlord in any dispute
with a tenant;
<PAGE> 5
SECTION IV - CONDUCT OF BUSINESS
4.1 Use of Premises. Tenant shall use the Premises only for general
office and related purposes, including as a facility for training Tenant's
employees and customers in the use of Tenant's products, excluding medical or
dental office, consistent with the operation of a first class office building.
Tenant shall not use or permit the use of the Premises for any other business or
purpose without Landlord's prior written consent, which consent Landlord may
grant or deny in its sole discretion. Tenant shall promptly comply with the
rules and regulations of the Building and the Park, as set forth in Exhibit C
attached, as the same may be changed from time-to-time by Landlord upon
reasonable notice to Tenant. Tenant shall not permit any public or private
nuisance to occur on the Premises, or any other act or circumstance which
disturbs the quiet enjoyment of any occupant of the Building or the Park.
4.2 Appearance of Premises. Tenant shall maintain the Premises in a
clean, orderly and neat fashion to conform with the high standards of the
Building and the Park, permitting no odors to be emitted from the Premises and
neither commit waste nor permit any waste to be committed thereon. Tenant shall
not burn any trash in or about the Premises or permit any accumulation of trash.
Tenant shall store all trash, refuse and waste material so as not to constitute
a health or fire hazard or nuisance, in adequately covered containers which are
located within the Premises which are not visible to the general public or in
areas designated by Landlord.
4.3 Unlawful Use. Tenant shall not use or permit the Premises or any
part thereof to be used for any purpose in violation of any municipal, county,
state or federal law, ordinance or regulation, or for any purpose offensive to
the standards of the community of which the Building is a part, or in any manner
which is not in the best interests of the tenants of the Building or the Park.
Tenant shall promptly comply, at its sole cost and expense, with all laws,
ordinances, and regulations now in force or hereafter adopted and with the
requirements of any board of fire underwriters or similar body relating to or
affecting the condition, use or occupancy of the Premises. Notwithstanding the
foregoing, Tenant shall not be responsible for the cost of compliance with the
violation of any law, ordinance, or regulation, which exists as of the date of
this Lease.
Tenant shall not do or permit anything to be done in or about the
Premises, nor bring or keep anything therein which will increase the existing
rate of or affect any fire or other insurance upon the Building or any of its
contents, or cause a cancellation of any insurance policy covering the Building
or any part thereof or any of its contents. Tenant shall promptly upon demand
reimburse Landlord for any additional premium charged for any such policy by
reason of Tenant's failure to comply with the provisions of this Section.
4.4 Liens and Encumbrances. Tenant shall keep the Premises free and
clear of all liens and encumbrances arising or growing out of its use and
occupancy of the Premises.
<PAGE> 6
Without limiting the foregoing, if Tenant causes or permits the presence
of any hazardous substance on the Premises or the Building that results in
contamination, Tenant shall promptly, at its sole expense, take any and all
necessary actions to return the Premises or Building to the condition existing
prior to the presence of any such hazardous substance on the Premises or
Building. Tenant shall first obtain Landlord's approval for any such remedial
action.
4.6 Signs. Tenant shall not erect or place, or permit to be erected
or placed, or maintain any signs of any nature or kind whatsoever on the
exterior walls or windows of the Premises or elsewhere in the Park. Tenant
agrees to abide by all signing rules and regulations, if any, promulgated by
Landlord. Landlord agrees to provide Tenant with the following signage
identifying Tenant as an occupant of the Building in size, color and style
acceptable to Landlord:
a. One (1) Building standard sign on the plaza level lobby
directory.
b. One (1) Building standard sign at the main entry to the
Premises.
c. One (1) Building standard sign on the Building III monument.
SECTION V - UTILITIES AND OTHER CHARGES
5.1 Utilities and Services.
5.1.1 In accordance with Section 3.3 of this Lease, as
additional rent, Tenant shall pay its share of all charges for heat, water,
light, gas, electricity, sewer, garbage, fire protection and any other utilities
and/or services used or consumed on or supplied to the Building and/or the Park,
including the Premises, and not separately metered or charged to Tenant or any
other tenant of the Building or the Park. Tenant shall be solely responsible for
and shall promptly pay when due all charges for telephone and all other charges,
which are separately metered or charged to the Premises.
5.1.2 Landlord shall cause the public and common areas of the
Building, such as lobbies, elevators, stairs, corridors and restrooms, to be
maintained in reasonably good order and condition, except for damage occasioned
by any act or omission of Tenant or Tenant's officers, contractors, agents,
invitees, licensees or employees, the repair of which latter damage shall be
paid for by Tenant. Twenty-four (24) hours per day, seven (7) days per week,
Tenant shall have access to the Premises (subject to such Building and Park
security systems and procedures as may be in place from time to time), and
Tenant shall have available to it water and electrical service for lighting and
operation of 110-volt office machines. From 7:00 a.m. to 6:00 p.m. on weekdays
(i.e., Monday through Friday) and 8:00 a.m. to 1:00 p.m. on Saturdays, excluding
legal holidays and holiday weekends (collectively "Normal Business Hours"),
Landlord shall furnish the Premises with heat and air conditioning services. If
requested by Tenant, Landlord shall furnish such services at times other than
Normal Business Hours, and Tenant shall pay for the cost of such after-hours
services at rates established by Landlord from time to time.
Landlord will provide janitorial services customary for
buildings comparable to the Building in quality and location. If Tenant requires
excessive or specialized janitorial services, Tenant shall promptly pay Landlord
the additional costs and expenses incurred by Landlord in providing such
services.
<PAGE> 7
If Tenant breaches any covenant or condition of this Lease, including
but not limited to the payment of rent or additional rent, Landlord may apply
all or any part of the security deposit to the payment of any sum in default and
any damage suffered by Landlord as a result of Tenant's breach. In such event,
Tenant shall, within five (5) days after written demand therefor by Landlord,
deposit with Landlord the amount so applied. Any payment to Landlord from the
security deposit shall not be construed as a payment of liquidated damages for
any default. If Tenant complies with all of the covenants and conditions of this
Lease throughout the Lease term, the security deposit shall be repaid to Tenant
without interest within 30 days after the vacation of the Premises by Tenant.
6.2 Letter of Credit. Upon execution of this Lease, Tenant shall
cause to be delivered to Landlord an irrevocable, standby Letter of Credit in
the sum of US $50,000.00, naming Landlord as beneficiary, issued by a lender
acceptable to Landlord and otherwise acceptable to Landlord in form and content.
Provided that Tenant is not then in default under this Lease, the Letter of
Credit may be reduced to the sum of US $25,000.00 on the third (3rd) anniversary
of the Commencement Date. The Letter of Credit shall not expire before the
fourth (4th) anniversary of the Commencement Date. If Tenant breaches any
covenant or condition of this Lease, including but not limited to the payment of
rent or additional rent, Landlord may draw on the Letter of Credit and apply any
sums so drawn to reimburse itself for any damages suffered as a result of
Tenant's breach, regardless of whether Landlord has previously applied Tenant's
security deposit or taken any other action against Tenant. Any payment to
Landlord from the Letter of Credit shall not be construed as a payment of
liquidated damages for any default.
SECTION VII - COMPLETION AND ALTERATIONS
7.1 Delivery of Premises. Landlord shall deliver the Premises to
Tenant in a condition in accordance with Exhibit D attached. Additional
improvements shall be made to the Premises as provided in Exhibit D-1 attached.
7.2 Alterations by Tenant. Tenant shall not make any alterations,
additions or improvements in or to the Premises without first submitting to
Landlord professionally prepared plans and specifications for such work and
obtaining Landlord's prior written approval thereof. Tenant covenants that it
will cause all such alterations, additions and improvements to be performed at
Tenant's sole cost and expense by Landlord or a contractor approved by Landlord
and in a manner which: (a) is consistent with the Landlord-approved plans and
specifications and any conditions imposed by Landlord in connection therewith;
(b) is in conformity with commercial standards; (c) includes acceptable
insurance coverage for Landlord's benefit; (d) does not affect the structural
integrity of the Building; (e) does not disrupt the business or operations of
adjoining tenants; and (f) does not invalidate or otherwise affect the
construction and systems warranties then in effect with respect to the Park.
With respect to any alterations, additions and improvements made by Landlord for
Tenant, Tenant shall pay Landlord a supervision fee which shall be in an amount
comparable to the fee a third party contractor would charge in connection with a
comparable project. Tenant shall secure all governmental permits and approvals,
as well as comply with all other applicable governmental requirements and
restrictions.
<PAGE> 8
Landlord shall have the right from time to time to establish, modify and
enforce rules and regulations regarding the use of the Common Areas and the
right to change the area, level, location and arrangement of the Common Areas.
9.2 Parking. Thirty (30) covered parking stalls in the Building
parking garage (currently at a monthly charge of $40.00 per stall) have been
allocated to the Premises and twelve (12) uncovered parking stalls elsewhere in
the Park (currently at no charge) have been allocated to the Premises. All of
the stalls allocated to the Premises are unreserved and available on a first
come, first served basis. There shall be no charge to Tenant for unreserved
parking stalls allocated to it pursuant to this paragraph. Tenant shall cause
its employees and invitees to comply with such rules and regulations from
time-to-time promulgated with respect to the parking areas of the Building and
the Park.
SECTION X - INSURANCE AND INDEMNITY
10.1 Indemnification. Landlord shall not be liable for any injury to
any person, or for any loss of or damage to any property (including property of
Tenant) occurring in or about the Premises from any cause whatsoever, other than
the negligence or intentional misconduct of Landlord or its employees or agents,
or for interference with light, air or view or for any latent defect in the
Premises. Tenant shall indemnify, defend and save Landlord, its officers,
agents, employees and contractors, and other tenants and occupants of the Park,
harmless from all losses, damages, fines, penalties, liabilities and expenses
(including Landlord's personnel and overhead costs and attorneys' fees and other
costs incurred in connection with such claims, regardless of whether claims
involve litigation) resulting from any actual or alleged injury to any person or
from any actual or alleged loss of or damage to any property alleged to be
attributable to Tenant's operation or occupation of the Premises or caused by or
resulting from any act or omission of Tenant or any licensee, assignee, or
concessionaire, or of any officer, agent, employee, guest or invitee of any such
person in or about the Premises, including, but not limited to, the deposit or
release of hazardous or toxic materials or substances or Tenant's breach of its
obligations hereunder. Tenant agrees that the foregoing indemnity specifically
covers actions brought by its own employees. Notwithstanding any of the
foregoing, if losses, liabilities, damages, liens, costs and expenses so arising
are caused by the concurrent negligence of both Landlord and Tenant their
employees, agents, invitees and licensees, Tenant shall indemnify Landlord only
to the extent of Tenant's own negligence or that of its officers, agents,
employees, guests or invitees. As between Landlord and Tenant, the foregoing
indemnity is specifically and expressly intended to constitute a waiver of
Tenant's immunity under Washington's Industrial Insurance Act, RCW Title 51,
for the sole purpose of and only to the extent necessary to provide Landlord
with a full and complete indemnity from claims made against Landlord by Tenant's
employees. The indemnification provided for in this Section with respect to acts
or omissions during the term of this Lease shall survive termination or
expiration of this Lease. Tenant shall promptly notify Landlord of casualties or
accidents occurring in or about the Premises.
<PAGE> 9
SECTION XI - ASSIGNMENT AND SUBLETTING
11.1 Assignment or Sublease. Tenant shall not voluntarily,
involuntarily or by operation of law, assign, sell, pledge, transfer, mortgage
or encumber this Lease or any interest therein, or sublet the whole or any part
of the Premises (any of which events being a "Transfer and any such assignee,
purchaser, mortgagee, pledgee or other transferee being a "Transferee" for
purposes of this Section XI) without first obtaining Landlord's written consent,
which shall not be unreasonably withheld if all of the following conditions
precedent are fully and completely satisfied, but which otherwise may be
withheld by Landlord in its sole discretion:
(a) The proposed Transferee is at least as creditworthy as
Tenant when Tenant entered into this Lease, and satisfies Landlord's then
current credit standards for tenants of the Building and the Park, and has the
financial strength and stability to perform all obligations under this Lease to
be performed by Tenant as and when they fall due.
(b) The proposed Transferee will use the Premises for a
purpose which in Landlord's opinion (i) is lawful, (ii) is consistent with the
permitted use of the Premises under this Lease, (iii) is consistent with the
general character of business carried on by tenants in similar office buildings,
(iv) does not conflict with any exclusive rights or covenants not to compete in
favor of any other tenant or proposed tenant in the Building and the Park, (v)
will not increase the likelihood of damage or destruction, (vi) will not
increase the rate of wear and tear to the Premises or common areas, (vii) will
not likely cause an increase in insurance premiums for insurance policies
applicable to the Building (unless the proposed Transferee agrees to pay such
additional cost), and (viii) will not require new tenant improvements
incompatible with then existing Building systems and components.
(c) Tenant pays to Landlord all of Landlord's attorneys'
fees and costs incurred in connection with negotiation, review and processing of
the Transfer, plus a processing fee of $1,000.
(d) Landlord is paid any increase in the Security Deposit
required by Landlord and permitted by law.
(e) At the time of the proposed Transfer, Tenant is not in
default under or in breach of any term, provision or covenant of this Lease.
(f) In Landlord's business judgment: (i) the proposed
Transferee must have a business reputation and financial strength equal to or
better than the average of all tenants occupying space at the Park at the time
of the proposed transfer, and (ii) the proposed transfer shall not create an
undesirable mix of tenants at the Park.
(g) At least fifty percent (50%) of the rentable area of the
Building and the Park is leased to paying tenants.
(h) The Transfer will not otherwise have or cause a material
adverse impact on Landlord's interests in the Park, the Building or the
Premises.
<PAGE> 10
provided (i) Landlord consents thereto pursuant to Section 11.1, (ii) Tenant
delivers to Landlord prior to the effective date of any such Transfer duplicate
originals of any instrument effecting such Transfer, in form and content
satisfactory to Landlord, and (iii) all amounts received by Tenant from the
Transferee in excess of the Rent payable hereunder for the area of the Premises
so Transferred and in excess of the costs described in Section 11.5(b) below
shall belong to and shall immediately be paid to Landlord as Additional Rent. No
action or inaction by Landlord in connection with its rights under this Section
11.3 shall constitute or be deemed to constitute an approval of a proposed
Transfer for purposes of Section 11.1 except as specifically set forth in a
notice from Landlord to Tenant.
11.4 Assignee Obligation. Any Transferee other than a subtenant
approved by Landlord shall assume all obligations of Tenant and shall be jointly
and severally liable with Tenant for the payment of rent, additional rent and
other charges and performance of all of Tenant's obligations under this Lease.
Tenant shall provide Landlord with full and complete duplicate originals of all
instruments of assignment, sublease or assumption. It shall not be unreasonable
for Landlord to withhold consent to a proposed assignment or sublease because it
wishes to exercise its right to recapture all or part of the Premises under
Section 11.3 hereof, or because (a) the proposed transferee is any governmental
agency, federal, state, local or foreign government or incorporation, (b) the
transfer would cause the Landlord to violate another lease or agreement to which
Landlord is a party or would give a Building tenant the right to cancel its
lease, or (c) the proposed transferee occupies space in the Building or the
Park, is negotiating with Landlord to lease space in the Building or the Park,
or has negotiated with Landlord to lease space in the Building or the Park
during the six months immediately proceeding the notification from Tenant.
11.5 Additional Consideration. If Tenant assigns its interest under
this Lease, or sublets all or any portion of the Premises, Tenant shall pay to
Landlord (in addition to minimum rent and all other amounts payable by Tenant
under this Lease) as additional rent, within ten (10) days after receipt, all
rent, bonus rent, assignment fees and other consideration payable by the
assignee or subtenant in excess of (a) the rent otherwise payable by Tenant from
time to time under this Lease, and (b) leasing commissions incurred by Tenant
due to the sublease or assignment, and out-of-pocket costs incurred by Tenant to
pay the hard costs of labor and materials (but not soft costs such as design
costs, interest, permit fees or other soft costs) for renovations made to the
premises to accommodate the assignee or subtenant.
11.6 Assignment by Landlord. If Landlord sells or otherwise transfers
the Building, or if Landlord assigns its interest under this Lease (other than
for security purposes), such purchaser, transferee or assignee thereof shall be
deemed to have assumed Landlord's obligations hereunder, and Landlord shall
thereupon be relieved of all liabilities hereunder, but this Lease shall
otherwise remain in full force and effect.
<PAGE> 11
The term "eminent domain" shall include the taking or damaging of
property by, through or under any governmental or statutory authority, and any
purchase or acquisition in lieu thereof, whether the damaging or taking is by
government or any other person.
13.2 Partial Taking. If a taking of any part of the Premises by
eminent domain renders the remainder thereof unusable for the business of
Tenant, in the reasonable judgment of Landlord, this Lease may, at the option of
either party, be terminated by written notice given to the other party not more
than thirty (30) days after Landlord receives notice (and provides Tenant
written notice) of the taking, and such termination shall be effective as of the
date when Tenant is required to vacate the portion of the Premises so taken. If
this Lease is so terminated, all rent shall be paid to the date of termination.
Whenever any portion of the Premises is taken by eminent domain and this Lease
is not terminated, Landlord shall at its expense proceed with all reasonable
dispatch to restore, to the extent of available proceeds and to the extent it is
reasonably prudent to do so, the remainder of the Premises to the condition it
was in immediately prior to such taking, and Tenant shall at its expense proceed
with all reasonable dispatch to restore its fixtures, furniture, furnishings,
floor covering and equipment to the same condition they were in immediately
prior to such taking. The minimum rent payable hereunder shall be reduced from
the date Tenant is required to partially vacate the Premises in the same
proportion that the area taken bears to the total area of the Premises prior to
taking.
13.3 Damages. Landlord reserves all right to the entire damage award
or payment for any taking by eminent domain or a transfer in lieu thereof, and
Tenant waives all claim whatsoever against Landlord for damages for termination
of its leasehold interest in the Premises or for interference with its business
as a result of such taking. Tenant hereby grants and assigns to Landlord any
right Tenant may now have or hereafter acquire to such damages and agrees to
execute and deliver such further instruments of assignment as Landlord may from
time to time request- however, Tenant shall have the right to claim from the
condemning authority all compensation that may be recoverable by Tenant on
account of any loss of or damage to improvements to the Premises installed by
Tenant, Tenant's trade fixtures and removable personal property, to the extent
such compensation is awarded separately in the eminent domain proceeding and not
as part of Landlord's damages.
SECTION XIV - DEFAULT OF TENANT
14.1 Defaults.
14.1.1 Time is of the essence of this Lease. Tenant shall
be in default under this Lease if (i) Tenant violates or breaches or fails to
keep or perform any covenant, term or condition of this Lease; (ii) Tenant or
any guarantor of Tenant's obligations under this Lease (a "Guarantor") files or
is the subject of a petition in bankruptcy; (iii) a trustee or receiver is
appointed for Tenant's or any Guarantor's assets; (iv) Tenant or any Guarantor
makes an assignment for the benefit of creditors; or (v) Tenant vacates or
abandons the Premises.
<PAGE> 12
plus (iv) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease, including, but not limited, any costs or expenses incurred by
Landlord in (1) retaking possession of the Premises, including reasonable
attorneys' fees therefor, (2) maintaining or preserving the Premises after such
default, (3) preparing the Premises for reletting to a new tenant, including
repairs or alterations to the Premises for such reletting, (4) leasing
commissions, and (5) any other costs necessary or appropriate to relet the
Premises; plus (v) at Landlord's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time by the laws of
the State of Washington; plus (vi) the total value at the time of the award of
all of the concessions granted to Tenant at the time of signing this Lease,
prorated based on the remainder of the initial term of the Lease. As used in
items (i) and (ii) above, the "worth at the time of award" is computed by
allowing interest at the interest rate specified in Section 3.4 hereof. As used
in item (iii) above, the "worth at the time of award" is computed by using a
discount rate of six percent (6%).
14.1.4 For all purposes of this Section 14.1 only, the term
"rental" shall be deemed to be the minimum rent and all additional rent and
other sums required to be paid by Tenant pursuant to the terms of this Lease.
All such sums, other than the minimum rent, shall, for the purpose of
calculating any amount due under the provisions of subparagraph (iii) above, be
computed on the basis of the average monthly amount thereof accruing during the
immediately preceding twelve (12) month period, except that if it becomes
necessary to compute such rental before such a twelve (12) month period has
occurred then such rental shall be computed on the basis of the average monthly
amount hereof accruing during such shorter period.
14.2 Legal Expenses. If either party consults an attorney in order to
enforce this Lease the prevailing party shall be entitled to reimbursement from
the non-prevailing party for the prevailing party's reasonable costs and
attorneys' fee, whether such costs and attorneys' fees are incurred with or
without litigation, in a bankruptcy court or on appeal.
14.3 Remedies Cumulative; Waiver. Landlord's remedies hereunder are
cumulative, and Landlord's exercise of any right or remedy due to a default or
breach by Tenant shall not be deemed a waiver of, or alter, affect or prejudice
any other right or remedy which Landlord may have under this Lease or by law.
Neither the acceptance of rent nor any other acts or omissions of Landlord at
any time or times after the happening of any event authorizing the cancellation
or forfeiture of this Lease shall operate as a waiver of any past or future
violation, breach or failure to keep or perform any covenant, agreement, term or
condition hereof or to deprive Landlord of its right to cancel or forfeit this
Lease, upon the written notice provided for herein, at any time that cause for
cancellation or forfeiture may exist, or be construed so as at any future time
to estop Landlord from promptly exercising any other option, right or remedy
that it may have under any term or provision of this Lease.
<PAGE> 13
Any holding over by Tenant after the expiration of the term hereof
without Landlord's consent shall be deemed to be a tenancy at will, terminable
at any time by Landlord at a rental rate equal to two (2) times the rental rate
in effect on the date of such expiration of the Lease term, prorated on a daily
basis, and otherwise on the terms, covenants and conditions of this Lease to the
extent applicable.
SECTION XVII - QUIET ENJOYMENT
17.1 Landlord's Covenant. Tenant, upon fully complying with and
promptly performing all of the terms, covenants and conditions of this Lease on
its part to be performed, shall have and quietly enjoy the Premises for the term
set forth herein, if its performance of such terms, covenants and conditions
continues for such period, subject, however, to matters of record on the date
hereof and to those matters to which this Lease may be subsequently
subordinated.
SECTION XVIII - MISCELLANEOUS
18.1 Notices. Any notices required in accordance with any of the
provisions herein shall be in writing and delivered or mailed by registered or
certified mail to the Landlord c/o JSH Properties, Inc., 10220 N.E. Points
Drive, Suite 203, Kirkland, Washington 98033, Attention: Property Manager; to
Tenant at the Premises; or to such other address as a party shall from time to
time advise the other party by a written notice given in accordance with this
Section 18.1. If Tenant is a partnership or joint enterprise, any notice
required or permitted hereunder may be given by or to any one partner thereof
with the same force and effect as if given by or to all thereof. A notice shall
be deemed received two (2) days after the postmark affixed on the envelope by
the United States Post Office.
18.2 Successors or Assigns. All of the terms, conditions, covenants
and agreements of this Lease shall extend to and be binding upon Landlord,
Tenant and, subject to the terms of Section XI hereof, their respective heirs,
administrators, executors, successors and permitted assigns, and upon any person
or persons coming into ownership or possession of any interest in the Premises
by operation of law or otherwise, and shall be construed as covenants running
with the land.
18.3 Insolvency. If a petition is filed under the Bankruptcy Act or
other law to have Tenant reorganized, dissolved or liquidated, or if a trustee
or receiver is appointed for Tenant's assets under the Bankruptcy Act or other
law or if a proceeding commenced to foreclose any mortgage or any other lien on
Tenant's interest in the Premises or on personal property kept or maintained
thereon, or if Tenant makes an assignment for the benefit of creditors, then
Tenant shall be deemed in default hereunder.
18.4 Tenant Defined. The word "Tenant" as used herein shall mean each
and every person, partnership or corporation who is mentioned as Tenant herein
or who executes this Lease as Tenant. If there shall be more than one Tenant,
they shall all be bound jointly and severally by the terms, covenants and
agreements herein.
<PAGE> 14
(vi) that Landlord is not in default under this Lease (or is such is not the
case, the extent and nature of such default); (vii) that all required advanced
by Landlord to Tenant on account of tenant improvements have been made (or the
extent that such is not the case); (viii) on the date of such certification
there are no existing defenses or claims which Tenant has against the
enforcement of this Lease by Landlord (or if such is not the case, the extent
and nature of such defenses or claims); (ix) the amount of the Security Deposit
paid to Landlord; and (x) any other fact or representation that a mortgagee or
purchaser may reasonably request. It is intended that any such statement
delivered pursuant to this Section 18.8.2 shall be fully and completely binding
upon Tenant for all purposes of this Lease, may be relied upon by a prospective
purchaser or mortgagee of Landlord's interest, or any assignee of any mortgage
upon Landlord's interest in the Building or the Land. If Tenant shall fail to
respond within ten (10) days of receipt of a written request by Landlord
therefor, Tenant shall be deemed to have given a certificate as above provided
without modification and shall be conclusively deemed to have admitted the
accuracy of any information supplied by Landlord to a prospective purchaser or
mortgagee, that this Lease is full force and effect, that there are no uncured
defaults in Landlord's performance, that the Security Deposit is as stated in
this Lease and that not more than one month's Rent has been paid in advance.
18.8.3 Notwithstanding anything to the contrary in this Lease,
Landlord shall not be in default under any provision of this Lease unless
written notice specifying such default is given to Landlord and to any lender
who has been identified to Tenant in writing as a party to whom notice must be
sent. Any lender of Landlord entitled to notice pursuant to the preceding
sentence shall have the right to cure any default on behalf of Landlord within
the later of (a) thirty (30) days after receipt of such notice, or (b) thirty
(30) days after the expiration of any cure period provided to Landlord pursuant
to this Lease; provided, if such default cannot reasonably be cured within such
thirty (30) day period, Landlord's lender shall be entitled to such additional
time as may be reasonably necessary to cure the default, if within the thirty
(30) day period the lender commences and thereafter diligently pursues the
actions necessary for the lender to cure such default by Landlord (including, if
possession of the Premises is necessary to cure the default, commencing such
judicial or non-judicial proceedings as may be necessary for lender or a
receiver to take possession of the Premises). So long as a lender is diligently
taking the actions reasonably necessary for it to cure Landlord's default,
Tenant shall not exercise its remedies for Landlord's default under this Lease.
18.9 Financial Statements. Within ten (10) days after Landlord's
request therefor, Tenant shall deliver to Landlord such current financial
statements regarding Tenant as Landlord may reasonably request. Tenant shall
certify the accuracy of such statements. Landlord may make the financial
statements available to potential lenders or purchasers, but shall otherwise
preserve their confidentiality except in connection with legal proceedings
between the parties or as otherwise directed by court rule or order.
18.10 Change of Location. Tenant shall move from the Premises at
Landlord's written request to another location in the Park, with substantially
the same number of square feet of area as in the Premises, with the new location
being substituted for the Premises, but all other terms hereof shall remain the
same with the exception of the minimum rent which shall be abated during the
period while Tenant is closed for business as the result of the move.
<PAGE> 15
18.16 Tax on Rent. The Rent herein is exclusive of any sales, business
and occupation, gross receipts or other tax based on Rents, or tax on Tenant's
property or tax upon or measured by the number of employees of Tenant, or any
similar tax or charge. If any such tax or charge be hereinafter enacted, and
imposed upon Landlord, Tenant shall pay Landlord the amount thereof concurrently
with each monthly Rent payment. If it shall not be lawful for Tenant so to
reimburse Landlord, the monthly Rent payable to Landlord under this Lease shall
be revised to net Landlord the same net rental after imposition of any such tax
or charge upon Landlord as would have been payable to Landlord prior to the
imposition of such tax or charge. Tenant shall not be liable to reimburse
Landlord for any federal income tax or other income tax of a general nature
applicable to Landlord's income.
18.17 Light, Air and View. Landlord does not guarantee the continued
present status of light or air over any property adjoining or in the vicinity of
the Building or the Park. Any diminution or shutting off of light, air or view
by any structure which may be erected near or adjacent to the Building or the
Park shall in no way affect this Lease or impose any liability on Landlord.
SECTION XIX - EXECUTION OF LEASE
19.1 Execution by Landlord and Tenant; Approval of Lender. Landlord
shall not be deemed to have made an offer to Tenant by furnishing Tenant with a
copy of this Lease with particulars inserted. No contractual or other rights
shall exist or be created between Landlord and Tenant until all parties hereto
have executed this Lease and, if so indicated by Landlord, until it has been
approved in writing by Lender and fully executed copies have been delivered to
Landlord and Tenant. Tenant agrees to make such changes herein as may be
requested by Lender so long as such do not increase amounts due from Tenant
hereunder or otherwise materially alter its rights hereunder.
SECTION XX - ENTIRE AGREEMENT - APPLICABLE LAW
20.1 Entire Agreement - Applicable Law. This Lease and the Exhibits
attached hereto, and by this reference incorporated herein, set forth the entire
agreement of Landlord and Tenant concerning the Premises, and there are no other
agreements or understanding, oral or written, between Landlord and Tenant
concerning the Premises.
Any subsequent modification or amendment of this Lease shall be binding
upon Landlord and Tenant only if reduced to writing and signed by them. This
Lease shall be governed by, and construed in accordance with the laws of the
State of Washington.
<PAGE> 16
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 22nd day of December 1998, before me, a Notary Public in and for the
State of Washington, duly commissioned and sworn, personally appeared Paul
Manheim, to me known to be the Vice President of HAL Realty III, Inc., the
General Partner of YARROW BAY OFFICE III, LIMITED PARTNERSHIP, the partnership
named in and which executed the foregoing instrument; and he acknowledged to me
that he signed the same as the free and voluntary act and deed of said
partnership for the uses and purposes therein mentioned.
I certify that I know or have satisfactory evidence that the person appearing
before me and making this acknowledgment is the person whose true signature
appears on this document.
WITNESS my hand and official seal the day and year in this certificate above
written.
/s/ DEIRDRE AFRICA
----------------------------------------
Signature
DEIRDRE AFRICA
----------------------------------------
Print Name
NOTARY PUBLIC in and for the State of
Washington, residing at Seattle
My commission expires 1-19-2000
<PAGE> 1
EXHIBIT 10.9
DATED: 12TH MARCH 1999
ERACHANGE LIMITED (1)
- and -
PIVOTAL SOFTWARE LIMITED (2)
LEASE
relating to
6TH FLOOR SOUTH WING
HAMILTON HOUSE
111 MARLOWES HEMEL HEMPSTEAD
Klimt & Co
49 Welbeck Street
London W1M 7HE
TEL: 0171-486 4432
FAX: 0171-4862127
Ref: GDP.GR.Erachange.7161
<PAGE> 2
THIS LEASE is made the 12th day of March 1999
BETWEEN:-
(1) ERACHANGE LIMITED company registration number 3501740 whose registered
office is situate at 15 GROSVENOR GARDENS LONDON SW1W OBD ("the Landlord")
(2) PIVOTAL SOFTWARE LIMITED company registration number 339429 whose
registered office is situate at 165 QUEEN VICTORIA STREET LONDON EC4Y 4DD
("the Tenant")
1. DEFINITIONS
IN THIS LEASE unless the context otherwise requires:-
"THE BUILDING" : the building known as HAMILTON HOUSE,
111 MARLOWES HEMEL HEMPSTEAD,
HERTFORDSHIRE shown for the purpose of
identification only shown edged red on
plan No. 1 annexed hereto
"THE DEMISED PREMISES" : the parts of the Building described in the
First Schedule and briefly known as 6TH
FLOOR SOUTH WING, HAMILTON HOUSE 111
MARLOWES HEMEL HEMPSTEAD HERTFORDSHIRE
"THE TERM" : Five years from the 12th day of March
1999 and the Term shall for all purposes
be computed as commencing on the date of
commencement of the Term and ending on its
expiration or earlier determination
"BASIC RENT" : L28,080.00 per annum (exclusive of Value
Added Tax)
"THE FIRST RENT DATE" : the 12th March, 1999
"THE AUTHORISED USE" : Offices
1.2 "BASIC RENT" means the rent first reserved by Clause 2
1.3 "INSURANCE RENT" means the rent secondly reserved by Clause 2
<PAGE> 3
1.4 "THE LANDLORD" includes the person for the time being entitled to
the reversion immediately expectant on the Term
1.5 "THE TENANT" includes the Tenant's successors in title including
where appropriate personal representatives
1.6 "COMMON PARTS" includes private roads footpaths forecourts and
yards appurtenant to the Building and entrances hallways passages
staircases lifts kitchens toilets and other parts of the Building
used in common with the Landlord its tenants licensees workmen and
all other duly authorised persons PROVIDED THAT there shall be at
all times during the Term be full and sufficient common parts to
enable the Tenant to carry on its normal business at the Demised
Premises
1.7 "SERVICE MEDIA" includes ducts flues gutters pipes drains sewers
cables conduits wires meters traps valves and other media plant
equipment or apparatus for conducting controlling or measuring
water soil gas electricity telephone telex and other electrical
impulses air smoke and fumes or for entry phones fire customs
heating and hot water air conditioning and other things of a like
nature
1.8 "OUTGOINGS" means all existing and future rates (including water
rates) taxes duties assessments charges and outgoings whatsoever
(whether imposed by statute or otherwise whether of a national or
local character whether in the nature of capital or revenue
whether of a recurring or non-recurring nature and whether of an
existing or novel character) charged or imposed upon the Demised
Premises or on the owner or occupier or lessor or lessee thereof
(but excluding any tax (other than Value Added Tax) payable by the
Landlord in respect of Basic Rent or any tax payable by the
Landlord directly arising out of the grant of this lease and any
dealing by the Landlord with its reversionary interest in the
Demised Premises not being a dealing
<PAGE> 4
deemed to take place as a result of any act by or on behalf of a
lessee or any underlessee)
1.9 "INSURED RISKS" means loss or damage by fire lightning explosion
storm tempest aircraft articles dropped therefrom in peacetime
flood civil commotion riot malicious persons (including terrorism)
burst and overflow water pipes tanks or other apparatus and impact
by road vehicles and such other risks as the Landlord may think
fit (and in addition to the foregoing such other risks as the
Tenant may reasonably request the Landlord to insure PROVIDED THAT
if the Landlord shall be unable to effect insurance against any
such risk having made reasonable endeavours to do so either at all
or only on terms which the Landlord acting reasonably considers
unsatisfactory and/or if any such insurance shall be subject to
exclusions or limitations then such uninsured risk and/or such
exclusions or limitations shall be excluded from the Insured Risks
and the Landlord shall inform the Tenant accordingly) and three
years loss of rent
1.10 "SPECIFIED RATE" means four per cent per annum above the base rate
for the time being of National Westminster Bank PLC or such other
member of the Committee of London and Scottish Clearing Bankers as
the Landlord may from time to time stipulate for this purpose
("the nominated bank") provided that if such base rate shall cease
to exist or otherwise be unascertainable there shall be
substituted for such base rate such rate of interest as the
nominated bank shall state in writing to be the current rate of
interest charged by such bank in respect of short term loans of
money at minimum risk
1.11 "JOINT AND SEVERAL LIABILITY" Covenants made by or binding on any
party that for the time being comprises two or more persons shall
be binding on those persons jointly and severally
<PAGE> 5
1.12 "INTERPRETATIONS" The neuter includes the masculine and the
feminine the singular includes the plural person includes
corporation and vice versa respectively month means calendar month
and each covenant by the Tenant not to do any act or thing shall
be deemed to include a covenant not knowingly to permit or suffer
that act or thing to be done
1.13 "STATUTES" References to any Act of Parliament includes any Act
replaced by it and any Act replacing or amending it or of a
similar nature or effect and in each case includes any order
regulation instrument direction scheme plan or permission made
under or deriving validity from any such Act
1.14 "HEADINGS" The headings shall not affect the interpretation of
this Lease
2. DEMISE
THE LANDLORD HEREBY DEMISES to the Tenant the Demised Premises TOGETHER
WITH the rights set out in the Second Schedule but EXCEPT AND RESERVING
the rights and stipulations set out in the Third Schedule TO HOLD unto the
Tenant for the Term the Tenant PAYING THEREFOR the following rents
(together with Value Added Tax if applicable):-
2.1 BASIC RENT
first the Basic Rent for the period commencing on the First Rent
Date and ending on the expiry of the Term which shall in all cases
be paid by equal quarterly payments in advance on the usual
quarter days in every year without any deduction or set off
whether legal or equitable or otherwise
2.2 INSURANCE RENT
secondly the Insurance Rent which shall be the aggregate of:-
<PAGE> 6
2.2.1 the reasonable and proper cost to the Landlord of
effecting and maintaining insurance of the Demised
Premises pursuant to the covenant in that behalf herein
contained and
2.2.2 the reasonable and proper cost to the Landlord of insuring
against loss of rent from the Demised Premises for the
period of not less than three years pursuant to the said
covenant
2.3 SERVICE CHARGE
thirdly the Service Charge to be calculated and paid in accordance
with the provisions of Part II of the Fourth Schedule
2.4 VALUE ADDED TAX
fourthly any Value Added Tax which is properly payable on any rent
or other sum payable by the Tenant under this Lease
3. TENANT'S COVENANTS
The Tenant HEREBY COVENANTS with the Landlord as follows:-
3.1 TO PAY RENT AND INTEREST
To pay the rents hereby reserved on the days and in the manner
aforesaid and if so required by the Landlord to make such payments
by direct debit banker's order or credit transfer to any account
with any bank as the Landlord may from time to time nominate in
the UK
3.2 INTEREST ON LATE PAYMENTS
If the Tenant shall fail to pay any of the rents Value Added Tax
or other payment that is payable to the Landlord under this Lease
within fourteen days of the date the same falls due (whether or
not demanded solely in the case of rent) or if acceptance of any
such sum shall be refused by the Landlord in order not to waive
any right of
<PAGE> 7
forfeiture of this Lease arising by virtue of the breach of any of
the Tenant's covenants herein contained such sum shall be payable
together with interest thereon (as well after as before any
judgment) at the Specified Rate on a day to day basis from the day
such sum falls due until actual payment or acceptance (as the case
may be) and every such sum with interest as aforesaid shall be
recoverable as rent in arrear provided that this sub-clause shall
take effect without prejudice to the obligation on the part of the
Tenant to pay the said sums on their due dates and without
prejudice to any right of re-entry or other right arising out of
or exercisable due to such default by the Tenant
3.3 TO PAY OUTGOINGS
3.3.1 To pay and discharge and to indemnify the Landlord against
all Outgoings relating to the Demised Premises
3.3.2 At all times during the Term to pay and indemnify the
Landlord against a due proportion (to be determined by the
Landlord acting reasonably) of any Outgoings relating both
to the Demised Premises and other premises so far as such
Outgoings do not form part of the Service Charge
3.4 TO PAY FOR ENERGY
To pay the suppliers for all gas water and electricity consumed
and all telephone telex and similar services used on the Demised
Premises during the Term
3.5 TO REPAIR
3.5.1 Subject to the provisions of clause 5.7 hereof to keep the
Demised Premises in good and substantial repair and
condition and clean and tidy
<PAGE> 8
throughout the Term and to rebuild renew and replace
whenever necessary in accordance with best modern practice
the whole or any part of the Demised Premises if the same
is or becomes beyond repair
3.5.2 (Without limiting the foregoing) to clean the inside of
the glass in the windows of the Demised Premises and the
outside and inside of the glass in any secondary glazing
in the windows of the Demised Premises not less than once
every month
3.6 TO REDECORATE
(Without limiting subclause 3.5) in the last six months of the
Term to wash prepare and prime (as appropriate) and then paint
paper and otherwise treat with an appropriate paint paper coating
or treatment in a good and workmanlike manner to the reasonable
satisfaction of the Landlord all internal parts of the Demised
Premises previously or usually painted papered or treated or which
require painting papering or other treatment for their proper
maintenance preservation or appearance (such painting papering or
other treatment to be carried out in colours patterns and
materials where they differ from those used at the date hereof to
be first approved in writing by the Landlord such approval not to
be unreasonably withheld or delayed)
3.7 TO PERMIT INSPECTION
To permit the Landlord at all reasonable times on reasonable prior
written notice (or at any time without notice in cases of
emergency) to enter the Demised Premises and to inspect the state
and condition thereof such right not to be exercised more than
once every six months
3.8 TO REPAIR ON NOTICE
3.8.1 (Without limiting the provisions of sub-clauses 3.5 and
3.6) If the Landlord shall at any time during the Term
serve on the Tenant a written
<PAGE> 9
notice specifying any works necessary to comply with the
Tenant's obligations under this Lease and requiring the
Tenant to carry out such works then the Tenant shall carry
out such works within a reasonable time
3.8.2 If the Tenant shall not within a reasonable time after
service of any such notice commence and diligently proceed
with the works mentioned in such notice and complete the
same to the reasonable satisfaction of the Landlord then
(but without prejudice to any other right or remedy of the
Landlord) the Landlord may enter the Demised Premises and
execute or complete such works and the cost thereof
(including but not by way of limitation all proper and
reasonable legal costs surveyors' and architects' and
other professional fees insurance costs and other expenses
relating to the exercise of these rights) shall be paid by
the Tenant to the Landlord within 7 days of presentation
of a set of valid VAT invoices and shall be recoverable as
a debt or (at the option of the Landlord) as rent in
arrear
3.9 MACHINERY
Not without the prior written consent of the Landlord (such
consent not to be unreasonably withheld or delayed) to install any
plant or machinery in or upon the Demised Premises other than such
as shall be appropriate to the Authorised Use
3.10 OVERLOADING
Not to suspend any excessive weight from the roof trusses nor
overload any part of the floors walls or ceilings of or in the
Demised Premises or any part thereof
3.11 VIBRATION
Not to cause any vibration to the Demised Premises or any
adjoining or nearby premises by plant or machinery or otherwise
<PAGE> 10
3.12 EFFLUENT
Not knowingly to discharge into the Service Media any effluent or
other matter which may be corrosive or harmful to the Service
Media or which may cause any obstruction or deposit therein or may
be of a poisonous or noxious nature or may pollute any water
supply
3.13 ALTERATIONS
3.13.1 Save as mentioned in sub-subclause 3.13.2 and as
authorised by Licence for Alterations of even date to this
Lease not to:-
3.13.1.1 enlarge or increase the floor area of the
Demised Premises or any building comprised
therein
3.13.1.2 erect any new structure upon or any other
addition to the Demised Premises or make any
external projection from the Demised Premises
3.13.1.3 alter remove cut into build upon or add to any
part of the Demised Premises
3.13.1.4 change the external appearance of the Demised
Premises or materially change the layout or
internal appearance of the Demised Premises
3.13.1.5 obscure or close up any windows or rooflights;
of the Demised Premises
3.13.2 Not to install alter or remove internal non-structural
partitioning without the prior written consent of the
Landlord (such consent not to be unreasonably withheld or
delayed)
<PAGE> 11
3.14 SIGNS
3.14.1 Not to affix to or exhibit upon any part of the exterior
of the Demised Premises (or upon the interior so as to be
visible from the exterior) any flag poster lettering
inscription pole signboard hanging sign or other
advertisement
3.14.2 The Tenant may affix one sign showing its name and
business on the notice board in each of the main entrance
hall of the Building and on the notice board in the sixth
floor lobby in each case to be a design that is in
accordance with the house style for the Building and which
shall be first approved by the Landlord acting reasonably
such approval not to be unreasonably withheld or delayed
3.15 COMPLIANCE WITH PLANNING ACTS
3.15.1 At all time during the Term to comply with the provisions
of the Town and Country Planning Acts 1990 and 1991 the
Planning (Listed Buildings and Conservation Areas) Act
1990 the Planning (Hazardous Substances) Act 1990 and the
Planning (Consequential Provisions) Act 1990 ("the
Planning Acts") so far as they affect or relate to the
Demised Premises or the use thereof
3.15.2 Not without the previous consent in writing of the
Landlord such consent not to be unreasonably withheld or
delayed to make any application for planning permission in
respect of the Demised Premises under the Planning Acts
3.15.3 If the Landlord gives consent for the making of any
application for planning permission then the Tenant shall
make such application in his own name on his own behalf
and (if so required by the Landlord) also in the
<PAGE> 12
name of and on behalf of the Landlord and any other person
for the time being interested in the Demised Premises
3.15.4 To obtain all other licences approvals of plans
permissions and other things necessary for the execution
of any permitted works of erection addition or alteration
and to comply with all conditions regulations by-laws and
other matters prescribed by any competent authority either
generally or specifically in respect thereof and to carry
out such works at the Tenant's own expense in a good and
workmanlike manner to the reasonable satisfaction of the
Landlord
3.15.5 Before commencing any such works to produce to the
Landlord all such notices permissions consents licences
and other documents relating thereto together with copies
for retention by the Landlord
3.15.6 To allow the Landlord at all reasonable times upon prior
written notice to enter upon the Demised Premises both for
the purpose of seeing that no unauthorised erections
additions or alterations have been made such right to be
exercised no more than once every year of the term and for
the purpose of seeing that authorised erections additions
and alterations are carried out in accordance with any
consent given hereunder and any permission granted by any
competent authority
3.15.7 At the Tenant's own expense to remove on demand any
erections additions or alterations made in contravention
of this Clause or without the requisite permission of any
competent authority or in respect of which the permission
of any competent authority is withdrawn or lapses and to
comply with every order of such authority requiring the
removal or other work in connection with such erections
additions or alterations and in all
<PAGE> 13
such cases to make good all damage caused by such removal
or other work and to restore all parts of the Demised
Premises affected thereby to a good and substantial
condition and properly decorated
3.16 STATUTORY REQUIREMENTS
3.16.1 To comply at the Tenant's own expense with the
requirements of every Act of Parliament applicable to the
Demised Premises including (but without limiting the
generality of the foregoing) the Planning Acts the Offices
Shops and Railway Premises Act 1963 the Shops Act 1950 the
Clean Air Acts 1956 to 1968 the Factories Acts the Public
Health Acts the Health and Safety at Work etc. Act 1974
the Control of Pollution Act 1974 the Fire Precautions Act
1971 and the Environmental Protection Act 1990 (whether
the obligation to comply with such requirements be imposed
upon the Landlord or the Tenant) and at all times to
indemnify the Landlord against any breach or
non-observance thereof and against the cost of complying
therewith
3.16.2 Within fourteen days of receipt to give a copy to the
Landlord of every permission notice or order or proposal
for a notice or order relating to the Demised Premises
received by the Tenant from any government department or
local or public authority under any statutory powers and
without delay to take all necessary steps to comply with
such notice or order or (if required by the Landlord) at
the request and cost of the Landlord to make or join with
the Landlord in making such objections or representations
against such notice order or proposal as the Landlord may
reasonably require except where the Tenant reasonably
considers that any such objection or representation is
against the best interests of the Tenant
<PAGE> 14
3.16.3 Not to agree to any assessment or valuation of the Demised
Premises for rating purposes without the prior written
consent of the Landlord and to observe the provisions of
the foregoing sub-clause in relation to any notice
proposal or assessment for rating purposes
3.17 NUISANCE
Not to do or bring anything in or upon the Demised Premises which
may in the reasonable opinion of the Landlord be or become a
nuisance or cause damage or be prejudicial to the Landlord or to
the owners or occupiers of any adjoining or neighbouring property
nor to use the Demised Premises for any illegal or immoral purpose
3.18 OBSTRUCTION
Not to stand anything in the Common Parts nor otherwise obstruct
or damage or litter or use in any unreasonable manner any means of
access to the Demised Premises or other parts of the Building
3.19 REGULATIONS
To comply with all reasonable regulations from time to time made
by the Landlord in its discretion for the good management of the
Building and notified in writing to the Tenant including (without
limiting the foregoing) keeping the kitchens and toilets in the
Common Parts clean and tidy Provided that any such regulations do
not interfere with the Tenant's use of or reasonable access to the
Demised Premises
3.20 AUCTIONS, MEETINGS AND RESIDENTIAL USE
Not to hold any sale by auction public exhibition or political or
other meeting on the Demised Premises nor to use the Demised
Premises for the purpose of gaming or sleeping or for residential
purposes
<PAGE> 15
3.21 THE AUTHORISED USE
3.21.1 Not to use the Demised Premises otherwise than for the
Authorised Use provided always that the Tenant hereby
acknowledges that no representation is or has prior to the
date hereof been given by or on behalf of the Landlord
that the Authorised Use is permitted under the Planning
Acts
3.21.2 Notwithstanding any consent which the Landlord may give to
any change of use not to change the use of the Demised
Premises without (where applicable) obtaining planning
permission for such change of use
3.21.3 Not to have the Demised Premises continuously unoccupied
for more than twenty one days without notifying the
Landlord
3.22 USE OF ESCAPE ROUTES
Not to use except for means of escape from fire or other peril any
escape routes over any adjoining premises and to indemnify the
Landlord and the owners and occupiers of any other premises in
respect of any loss or damage suffered by reason of or arising out
of any improper or negligent use thereof by the Tenant its
employees agents and visitors
3.23 INSURANCE
3.23.1 Not to do or bring anything in or upon the Demised
Premises which may render void or voidable any policy of
insurance of the Demised. Premises effected by the
Landlord or which may render any increased or extra
premium payable for such insurance
3.23.2 To carry out such works to the Demised Premises as may be
required by the insurers of the Demised Premises or any
competent authority for the
<PAGE> 16
better protection thereof and to take all reasonable
precautions against the outbreak of fire in the Demised
Premises
3.23.3 In the event of any damage to or destruction of the
Demised Premises to give immediate notice thereof to the
Landlord stating whether and to what extent such damage or
destruction may be believed or suspected to be due
directly or indirectly to any of the Insured Risks
3.24.4 Not to effect any policy of insurance on the Demised
Premises in respect of any of the Insured Risks and in
default the Landlord shall be entitled to any insurance
proceeds received by or payable to the Tenant
3.23.5 (Without limiting the generality of the foregoing) not to
bring or keep in or on the Demised Premises any dangerous
explosive combustible corrosive or offensive material
3.23.6 If any damage to or destruction of the Demised Premises
shall occur due to any of the Insured Risks and (by virtue
of a breach of any of the foregoing covenants or
otherwise) any insurance proceeds under any insurance
effected under the terms of this Lease shall be
irrecoverable in whole or in part by reason solely or
partly due to any act or default of the Tenant or its
servants in the course of their employment and within the
Tenant's control then the Tenant will forthwith pay to the
Landlord on demand the whole or (as the case may be) the
irrecoverable part of the cost (including any costs of
site and debris clearance and architects' surveyors'
quantity surveyors' engineers' and other professional
persons' reasonable and proper fees and incidental
expenses) of making good such damage or destruction
<PAGE> 17
3.24 ALIENATION
3.24.1 Not to assign underlet charge or part with possession of
or share the occupation of the whole or any part of the
Demised Premises save by an assignment or underletting
permitted under the following provisions of this Lease
3.24.2 Not to hold the Demised Premises or any part thereof upon
trust for any person other than the Tenant (save that
where the Tenant comprises one or more partners in a firm
carrying on in good faith business or practice upon the
Demised Premises in accordance with the terms hereof then
the Tenant may hold the Demised Premises on trust for
himself and some or all of his partners in such firm) nor
to permit the Lease to be held upon trust by any person
other than the Tenant (save as aforesaid)
3.24.3 Not to assign or underlet part only of the Demised
Premises
3.24.4 Not to assign the whole of the Demised Premises without
procuring that
3.24.4.1 any intended assignee first enters into direct
covenants with the Landlord during the residue
of the Term then subsisting or until released
pursuant to the Landlord and Tenant (Covenants)
Act 1995 to pay the rents hereby reserved and to
observe and perform all the covenants and
conditions on the Tenant's part herein contained
and (where the intended assignee is a firm)
procuring that such direct covenants are given
jointly and severally by such of its partners as
the Landlord may reasonably require
3.24.4.2 if reasonably required the Tenant enters into an
Authorised Guarantee Agreement guaranteeing the
performance of the
<PAGE> 18
covenants and conditions herein contained by the
intended assignee incorporating (inter alia) (a)
the provisions permitted by section 16(5) of the
Landlord and Tenant (Covenants) Act 1995 and (b)
the provisions of the Fifth Schedule
3.24.5 Subject as aforesaid not to assign the whole of the
Demised Premises without the prior written licence of the
Landlord such licence not to be unreasonably withheld or
delayed in the case of a respectable and responsible
intended assignee
3.24.6 Not to underlet the whole of the Demised Premises except
by way of deed which shall:-
3.24.6.1 contain a prohibition in the same terms as in
this lease against the underlessee assigning
underletting charging parting with possession or
sharing the occupation of the whole or any part
of the premises so underlet
3.24.6.2 be at the best rent which can reasonably be
obtained without taking a fine or premium and in
any event at a rent not less than the rent for
the time being reserved by this Lease
3.24.6.3 be (save as aforesaid) on terms and conditions
consistent with the terms and conditions of this
Lease
3.24.6.4 reserve sums equal to the whole of the Insurance
Rent and Service Charge nor to do so without
procuring that any intended underlessee first
enters into direct covenants with the Landlord
to observe and perform all the covenants and
conditions (other than as to the payment of
rent) to be contained in the proposed underlease
in accordance with the foregoing
<PAGE> 19
provisions and (where the intended underlessee
is a firm) procuring that such direct covenants
are given jointly and severally by such of its
partners as the Landlord may reasonably require
3.24.6.5 effectively exclude Sections 24 to 28 inclusive
of the Landlord and Tenant Act 1954 (as amended)
with the due authority of an appropriate court
order the Tenant giving to the Landlord prior to
the grant a copy of such order certified by the
Tenant's Solicitors to be a true copy
3.24.7 Subject as aforesaid not to underlet the whole of the
Demised Premises without the prior written licence of the
Landlord such licence not to be unreasonably withheld or
delayed in the case of a respectable and responsible
intended underlessee
3.24.8 To use all reasonable endeavours at the Tenant's own
expense to enforce observance and performance of and not
to waive the covenants on the part of an underlessee
contained in any underlease granted pursuant to the
provisions hereinbefore contained and to consult with the
Landlord in respect of any rent reviews under any
underleases and not to agree any new rents pursuant to
such reviews without the Landlord's prior written approval
(such approval not to be unreasonably withheld or delayed)
3.24.9 Prior to seeking any consent from the Landlord hereunder
to supply the Landlord with all such references and
financial and other information concerning the intended
assignee or underlessee as the Landlord may reasonably
require
<PAGE> 20
3.24.10 Notwithstanding anything contained in this Clause 3.24 the
Tenant may share occupation of the Demised Premises with a
member of the same group of companies (as defined by
Section 42(l) of the Landlord and Tenant Act 1954) of
which the Tenant is a member provided that no tenancy is
created by such occupation
3.25 REGISTRATION OF ASSIGNMENTS ETC
Within one month of every assignment transfer underlease assent or
devolution upon death of or relating to the Demised Premises to
give notice thereof in writing with particulars thereof to the
Landlord or its authorised agent and to deliver to them a
certified copy of such assignment transfer underlease assent or
the grant of representation under which such devolution arises (as
the case may be) and to pay a registration fee of Twenty-Five
Pounds (plus Value Added Tax) in respect of each such document
3.26 DETAILS OF OCCUPATION AND INTERESTS
Within one month of any demand by the Landlord from time to time
in that behalf to notify the Landlord in writing:-
3.26.1 of the persons in actual occupation or possession of the
Demised Premises and of the right in which they are in
such occupation or possession and
3.26.2 of all persons having an interest in the Demised Premises
(other than in reversion to the Term) and
3.26.3 of the terms of all underleases licences or devolutions
affecting the Demised Premises
3.27 NOTICES AND VIEWING FOR SALE OR RE-LETTING
3.27.1 To permit the Landlord during the last six months of the
Term (or earlier if there is reasonable likelihood of the
Term being determined within six
<PAGE> 21
months) to display on the Demised Premises notices for
re-letting the same or for selling the same with vacant
possession such notices to be placed in such a position so
as not to interfere with the Tenant's business
3.27.2 Any such notice shall be affixed and retained without
interference upon any suitable external parts of the
Demised Premises but not so as to obstruct access or the
passage of light or air to the Demised Premises
3.27.3 At all reasonable times of the day and upon reasonable
prior notice to the Tenant to permit all persons with
authority of the Landlord or its agents to enter and view
the Demised Premises but not with such frequency to have
an adverse effect on the Tenant's business
3.28 INSPECTION
To permit the Landlord at all reasonable times of the day upon
reasonable prior written notice but not more than once every six
months of the Term to enter the Demised Premises to take schedules
and inventories of the fixtures and fittings and also (with or
without any valuer appointed to advise on the insurance of the
Demised Premises) for the purpose of measuring or valuing the
Demised Premises
3.29 YIELDING UP
To yield up the Demised Premises at the expiry or sooner
determination of the Term with all additions and improvements from
time to time made thereto and all fixtures and fittings from time
to time affixed therein or thereupon (other than tenant's trade
fixtures and fittings) in such condition as shall be in accordance
with the covenants hereinbefore contained and in accordance with
the covenants or conditions contained in or imposed by any licence
or consent granted by the Landlord hereunder and in the event that
any alterations or additions shall have been made to the Demised
Premises during the Term if reasonably required by the Landlord
(but not otherwise) to
<PAGE> 22
reinstate the Demised Premises to the state and condition thereof
prior to the making of such alterations or additions and to remove
from the Demised Premises and to make good all damage caused to
the Demised Premises by such removal and by the removal of any
tenant's fixture and fittings or any furnishings or effects
belonging to the Tenant
3.30 REMOVAL OF PROPERTY AFTER DETERMINATION OF TERM
If after the Tenant has vacated the Demised Premises after the
determination of the Term any property of the Tenant shall remain
in or on the Demised Premises and the Tenant shall fail to remove
the same within seven days after being given notice to do so by
the Landlord then the Landlord shall be entitled (and for such
purpose is hereby appointed agent of the Tenant) on behalf of the
Tenant to sell such property or where reasonable dispose of it for
no monetary gain and shall hold the proceeds of such sale (after
deducting the costs and expenses of removal storage and sale
reasonably and properly incurred in connection therewith) to the
order of the Tenant
3.31 WORKS TO ADJOINING PREMISES
To permit the Landlord at any time during the Term to make
alterations or additions to any other part (including the Common
Parts) of the Building (but not so as to prevent access to or
egress from the Demised Premises or the running of the Tenant's
business at the Demised Premises ) and to execute works make
erections on rebuild alter or develop any land or building
belonging to the Landlord adjoining or near to the Demised
Premises and to use the same in each case as the Landlord may
think fit notwithstanding any interference with or diminution of
the passage of light or air to the Demised Premises in each case
provided no other reasonable way of carrying out these works and
the right to be exercised so as to cause as little adverse effect
as
<PAGE> 23
possible to the Tenant's business and all damage caused to be made
good to the Tenant's reasonable satisfaction.
3.32 ACCESS TO SERVICE MEDIA
Not knowingly to prevent access to or to interfere with the
Service Media running in or under or through the Demised Premises
as serve other parts of the Building or other adjacent premises
and to permit the Landlord and the owners and occupiers of such
premises at all reasonable times on reasonable prior notice (or at
any time without notice in cases of emergency) to enter the
Demised Premises for repairing maintaining renewing altering
connecting or cleansing of any other parts of the Building or any
adjacent premises or any Service Media serving the same or for
installing Service Media which can conveniently be laid through
the Demised Premises the persons exercising such rights doing so
in a reasonable manner progressing all works with reasonable
expedition and causing as little disturbance as possible and
making good all damage thereby caused to the Demised Premises
3.33 REMOVAL OF TENANTS FIXTURES ETC
If for the purpose of exercising its rights under the foregoing
sub-clause the Landlord shall reasonably require the removal of
any of the Tenant's fixtures fittings furniture goods or effects
from any part of the Demised Premises then forthwith upon
receiving a written request to do so the Tenant shall at its own
expense remove the same and if the Tenant shall fail to do so then
the Landlord may do so taking reasonable care
3.34 OTHER RIGHTS OF ENTRY
To permit the Landlord and all other authorised persons to enter
the Demised Premises in accordance with the provisions of the
Third Schedule
<PAGE> 24
3.35 EASEMENTS
To take all reasonable steps to prevent any encroachment upon the
Demised Premises or the acquisition of any right to light air
drainage or other easement over upon or under the Demised Premises
or the loss of any right or easement of light air or drainage or
otherwise which the Demised Premises may have at the date hereof
over any other property and forthwith to give notice to the
Landlord and at the Tenant's own cost to do all such things as may
be required by the Landlord for preventing the making of such
encroachment or the acquisition or loss (as the case may be) of
such right or easement
3.36 COVENANTS AFFECTING THE REVERSION
To observe and perform (so far as they may affect the Demised
Premises and are not the responsibility of any other person under
the express terms of this Lease) all covenants conditions and
restrictions (if any) to which any reversions immediately or
mediately expectant hereon may be subject
3.37 NOTICE TO LANDLORD
To give notice as soon as reasonably practicable after becoming
aware of the same to the Landlord of any material disrepair or
other matter which the Landlord is liable to remedy under the
Landlord's covenants hereinafter contained
3.38 COSTS OF NOTICES
To pay on a full indemnity basis all reasonable and proper costs
charges and expenses (including legal costs surveyors fees and
other professional charges) which may be incurred by the Landlord
or its agents:-
3.38.1 in or in contemplation of any application made at the
request of the Tenant to any planning or other competent
authority or any application by the Tenant to the Landlord
for any consent pursuant to the covenants in this
<PAGE> 25
Lease contained (whether consent or approval is granted or
refused and even if the application is withdrawn)
3.38.2 for the purpose of or incidental to or in reasonable
contemplation of the preparation service and enforcement
of any notice under sections 146 and 147 of the Law of
Property Act 1925 or under the Leasehold Property
(Repairs) Act 1938 (as amended by the Landlord and Tenant
Act 1954) or any schedule of dilapidations or other notice
schedule or demand (whether of a like nature or not) which
the Landlord may reasonably require to be given under the
provisions of this Lease and whether or not the same are
served during or within three months of the end or sooner
determination of the Term and notwithstanding that
forfeiture (if applicable) is avoided otherwise than by
relief granted by the Court
3.38.3 incidental to or in contemplation of the preparation and
service of any notices under Section 17 of the Landlord
and Tenant (Covenants) Act 1995
3.39 VALUE ADDED-TAX
3.39.1 Where any rent or other sum payable by the Tenant
hereunder is liable to Value Added Tax to pay such tax
3.39.2 Where any costs incurred by the Landlord are to be repaid
by the Tenant under the terms of this Lease, to repay any
Value Added Tax paid by the Landlord in respect of those
costs except to the extent (if any) to which the Landlord
is able to recover such Value Added Tax as input tax
3.40 INDEMNITY
To keep the Landlord fully and effectively indemnified from and
against all proper liabilities costs claims proceedings actions
and expenses (whether in respect of physical or financial loss or
any injury to or the death of any person or damage to any
<PAGE> 26
property moveable or immoveable or the infringement disturbance or
destruction of any right or easement or otherwise) arising
directly or indirectly out of or in respect of:-
3.40.1 any unauthorised use or occupation of the Demised Premises
or
3.40.2 the execution of any works upon the Demised Premises other
than by the Landlord or the Landlord's servants or agents
or
3.40.3 the state and condition of the Demised Premises or
3.40.4 any act or default of the Tenant its agents employees or
visitors or
3.40.5 any matters arising out of the provisions of the Defective
Premises Act 1972 or
3.40.6 any leakage from or overflowing of pipes tanks closets or
Service Media in or forming part of the Demised Premises
except only insofar as the same may be the direct
responsibility of the Landlord under the express terms of
this Lease or may be insured against by the Landlord under
the terms of this Lease
4. LANDLORD'S COVENANTS
The Landlord HEREBY COVENANTS with the Tenant for so long as the reversion
immediately expectant on the determination of the Term is vested in it:-
4.1 QUIET ENJOYMENT
That the Tenant paying the rents hereby reserved and observing and
performing the several covenants and stipulations on the Tenant's
part herein contained shall peaceably hold and enjoy the Demised
Premises during the Term without any interruption (except as
herein provided) by the Landlord or any person rightfully claiming
under or in trust for it
<PAGE> 27
4.2 INSURANCE
To insure (and if the Landlord so requires through the Landlord's own
agency) and (unless and for the period the insurance so effected shall
become void through or by reason of any act or omission of the Tenant or
any servant or agent of the Tenant) to keep insured the Building from
loss or damage by the Insured Risks with insurers or underwriters of
repute in the full reinstatement cost of the Building as advised by a
competent surveyor including the cost of site and debris clearance and
architects' surveyors' quantity surveyors' engineers' and all other
necessary professional persons' fees (including Value Added Tax on all
such costs and fees) and incidental expenses consequent upon such loss
or damage and against three years loss of rent from the Demised Premises
consequent upon any such loss or damage and against third party
liability public liability and property owners liability and in the
event of damage or destruction due to any such risks forthwith (as soon
as the necessary labour materials and permits are obtained) to lay out
in rebuilding and reinstatement all moneys received under or by virtue
of any such insurance (other than moneys received in respect of loss of
rent or third party or public liability) and make good any deficiency
out of the Landlord's own monies
PROVIDED ALWAYS that if the whole or a substantial part of the Demised
Premises shall be destroyed or damaged as aforesaid and if rebuilding or
reinstatement shall be rendered impossible or unlawful by virtue of the
provisions of any Act of Parliament or shall otherwise be frustrated or
if the Demised Premises shall not have been rebuilt or reinstated within
two years after the occurrence of such destruction or damage then either
the Landlord assuming it has made all reasonable attempts to reinstate
or the Tenant may serve not less than six months' written notice upon
the other to determine this Lease and upon the giving of
<PAGE> 28
any such notice the Landlord's obligations as to rebuilding or
reinstatement shall be discharged and upon the expiration of any such
notice the Term shall absolutely determine but without prejudice to the
rights and remedies of either party in respect of any antecedent breach
of covenant and in each such case the insurance monies shall be paid to
and belong beneficially to the Landlord
4.3 MAINTENANCE
To use all reasonable endeavours to perform the obligations and provide
the services set out in Part I of the Fourth Schedule
4.4 RESERVE FUND
As and when the Landlord thinks fit to set aside as a reserve such sums
of money as the Landlord shall reasonably require to meet future costs
which the Landlord reasonably expects to incur under this Lease in
carrying out work (not annually recurring) of replacement maintenance
repair redecoration and renewal and for the purpose of the Fourth
Schedule the sum set aside under this clause shall be treated as an item
of expenditure incurred by the Landlord
5 PROVISOS
PROVIDED ALWAYS and IT IS HEREBY AGREED AND DECLARED that:-
5.1 CESSER OF RENT
From and after any destruction of or damage to the Demised Premises from
any of the Insured Risks then (unless such insurance shall have been
vitiated or the policy moneys refused in whole or in part due to any act
or default of the Tenant or its servants or agents) the rents hereby
reserved or a proper proportion thereof according to the nature and
extent of the injury sustained shall forthwith cease to be payable by
<PAGE> 29
the Tenant until the Demised Premises shall have been rebuilt or
reinstated as aforesaid or until the expiration of three years from the
occurrence of such destruction or damage (whichever is the earlier)
5.2 DISPUTES
Any dispute relating to the provisions of Clause 5.1 of this Lease shall
be referred to the determination of an independent surveyor to be
appointed by the parties jointly or (in default of joint appointment) at
the request of either party by the President for the time being of the
Royal Institution of Chartered Surveyors and such surveyor shall act as
an arbitrator in accordance with the Arbitration Act 1996
5.3 COMPENSATION
The provisions for compensation contained in Section 37 of the Landlord
& Tenant Act 1954 shall not apply to the tenancy hereby created except
in the events specified in Section 38(2) of that Act
5.4 RE-ENTRY
Without prejudice to any other remedy or power of the Landlord if the
rents hereby reserved or any part thereof shall at any time be unpaid
for twenty-one days after becoming payable (whether lawfully demanded or
not) or if the covenants on the Tenant's part herein contained shall not
be materially performed or observed or if the Tenant shall become
bankrupt or make any assignment for the benefit of creditors or enter
into an agreement or make any arrangement with creditors for the
liquidation of debts by composition or otherwise or suffer any distress
or process of execution to be levied upon its goods or if the Tenant is
a company and shall enter into liquidation whether voluntary or
compulsory (save for the purpose of reconstruction or amalgamation not
involving a material reduction in net tangible assets) or shall have a
receiver administrator or administrative receiver appointed over any of
its
<PAGE> 30
assets and in any of the said cases it shall be lawful for the Landlord
at any time thereafter to re-enter upon the Demised Premises or any part
thereof in the name of the whole and thereupon this demise shall
absolutely determine but without prejudice to any right of action of the
Landlord in respect of any antecedent breach of the Tenant's covenants
herein contained
5.5 DISTRESS
Without prejudice to any other remedy or power of the Landlord if the
rents hereby reserved or any part thereof shall at any time be unpaid
for 21 days after becoming payable (whether lawfully demanded or not)
the Landlord may enter the Demised Premises and distrain upon all goods
(including tenant's fixtures and fittings and other things not
ordinarily distrainable) found therein or thereupon and sell the same
and (so far as may be permitted by law) apply the proceeds thereof in
payment of all costs expenses and commissions incurred in respect of
such sale and any balance in or towards payment of such unpaid rent or
rents
5.6 AVOIDANCE OF WAIVER
That each of the Tenant's covenants herein contained shall remain in
full force both at law and in equity unless the Landlord shall have
expressly waived or released the same
5.7 LIMITS ON TENANT'S REPAIR
The Tenant shall not be liable to repair or otherwise remedy any damage
to the Demised Premises caused by any of the Insured Risks except where
payment of the policy moneys is refused in whole or in part due to any
act or omission of the Tenant or its servants or agents or licensees or
sub-tenants
<PAGE> 31
5.8 EXCLUSION OF ADDITIONAL RIGHTS
The Tenant shall not be or become entitled by long user prescription
implication or otherwise to any right to light air or drainage or other
right easement or quasi-easement whatsoever over or from any other
premises nor to any covenant or obligation or additional service on the
part of the Landlord except as expressly provided by this Lease
5.9 EXCLUSION OF MUTUAL ENFORCEABILITY OF COVENANTS
Notwithstanding that the Landlord may from time to time grant other
leases in the same form as or in similar form to this Lease the
covenants therein contained shall not be enforceable by the Tenant nor
shall the covenants contained in this Lease be enforceable by other
tenants of the Landlord nor shall the Demised Premises or any adjacent
premises of the Landlord be or be deemed to be the subject of a building
scheme and the Landlord shall be free to grant other leases in such form
and for such purposes as it shall desire
5.10 NOTICES
5.10.1 Any notice under this Lease shall be in writing
5.10.2 Any notice to the Tenant shall be sufficiently served if served
in any of the following manners:-
5.10.2.1 addressed to the Tenant (either by name or by the
description "The Tenant" without any name) and left at
the Demised Premises
5.10.2.2 addressed to the Tenant and sent to the Tenant by post
to or left at the Tenant's last known address in Great
Britain
5.10.2.3 addressed to the Tenant and sent to the Tenant by post
to or left at the Tenant's registered office (if any)
<PAGE> 32
5.10.3 Any notice to the Landlord shall be sufficiently served
if addressed to the Landlord and sent by post to or left
at its last known address in Great Britain or (if the
Landlord is a company) to or at its registered office
5.10.4 Any notice to any person who shall be a surety under
this Lease or who shall hereafter give direct covenants
as surety under any deed of licence or covenant entered
into pursuant to sub-clause 3.24 of this Lease shall be
sufficiently served if addressed to such person and sent
by post to or left at his address as stated in this
Lease or in the said deed (as the case may be) or to or
at such other address as such person may have notified
to the Landlord in writing for such purpose
5.10.5 Any notice to a party that comprises two or more persons
shall be sufficiently served on all such persons if
addressed to all of them and served on any one of them
5.10.6 In addition to the aforesaid methods of service the
regulations contained in section 196 of the Law of
Property Act 1925 as amended by the Recorded Delivery
Service Act 1962 shall apply and the provisions thereof
and of this clause shall apply equally to any notice in
respect of the Demised Premises served under the
Landlord and Tenant Act 1954 as to any notice served
under the Law of Property Act 1925 or the Leasehold
Property (Repairs) Act 1938 or any notice served under
the express provisions of this Lease
5.11 PROCEEDINGS
The Tenant hereby submits to the non-exclusive jurisdiction of
the English courts and hereby agree that any proceedings arising
under or relating to this Lease or the Demised Premises may be
served upon the Tenant by delivery at the Demised
<PAGE> 33
Premises or at such other address in England (if any) as the
Tenant may from time to time notify to the Landlord in writing
for this purpose
5.12 POWER TO APPOINT AGENTS
Where the Landlord has the right or obligation to serve a notice
demand or certificate or to enter the Demised Premises for any
purpose such right or obligation may be exercised by a surveyor
or agent authorised to act on the Landlord's behalf and (in the
case of entry) if appropriate with workmen materials and
equipment
5.13 INTERRUPTION OF SERVICES
The Landlord shall not be liable for any loss damage or
inconvenience suffered by the Tenant or any employees agents
licensees or visitors of the Tenant (either personally or to
property including the Demised Premises) caused by:-
5.13.1 any failure or default in the lighting or heating of the
Demised Premises or the Common Parts
5.13.2 any failure or defect in the working of any lift which
the Tenant may be entitled to use as aforesaid
5.13.3 any interruption of the supply or passage of water or
other services to which the Tenant may be entitled
hereunder or the bursting or overflowing of or any
defect in any pipes wires cisterns or other Service
Media save to the extent to which the same may be
insured against by the Landlord and provided that the
Landlord shall use all reasonable endeavours to remedy
any such interruption or failure of services as soon as
practicable
5.14 AGREEMENT FOR LEASE
It is hereby certified that this Lease is not pursuant to an
agreement for lease
<PAGE> 34
5.15 NEW TENANCY
This Lease is a new tenancy for the purposes of the Landlord &
Tenant (Covenant) Act 1995
6 EXCLUSION OF LANDLORD AND TENANT ACT 1954
By authority of an Order of the Mayor's and City of London Court
dated the 11th day of March 1999 Sections 24 to 28 (as amended)
of the Landlord and Tenant Act 1954 do not apply to this Lease
EXECUTED as a deed the day and year first before written
<PAGE> 1
EXHIBIT 10.10
MM Equity No. ______
OFFICE LEASE
THIS LEASE, made as of this ____ day of ________, 1999 by and between
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, a Massachusetts corporation
("Landlord") through its agent CORNERSTONE REAL ESTATE ADVISERS, INC., having
an address at 311 South Wacker Drive, Suite 980, Chicago, Illinois 60606 and
PIVOTAL SOFTWARE USA, INC., a Washington corporation ("Tenant") having its
principal office at 224 W. Esplande, Suite 300, North Vancouver, British
Columbia, CANADA V7M3M6.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE TITLE PAGE
<S> <C> <C>
1. BASIC PROVISIONS............................................. 1
2. PREMISES, TERM AND COMMENCEMENT DATE......................... 2
3. RENT......................................................... 2
4. TAXES AND OPERATING EXPENSES................................. 3
5. LANDLORD'S WORK, TENANT'S WORK, ALTERATIONS AND ADDITIONS.... 4
6. USE.......................................................... 5
7. SERVICES..................................................... 6
8. INSURANCE.................................................... 7
9. INDEMNIFICATION.............................................. 8
10. CASUALTY DAMAGE.............................................. 9
11. CONDEMNATION................................................. 9
12. REPAIR AND MAINTENANCE....................................... 10
13. INSPECTION OF PREMISES....................................... 11
14. SURRENDER OF PREMISES........................................ 11
15. HOLDING OVER................................................. 11
16. SUBLETTING AND ASSIGNMENT.................................... 11
17. SUBORDINATION, ATTORNMENT AND MORTGAGEE PROTECTION........... 12
18. ESTOPPEL CERTIFICATE......................................... 13
19. DEFAULTS..................................................... 13
20. REMEDIES OF LANDLORD......................................... 14
21. QUIET ENJOYMENT.............................................. 15
22. ACCORD AND SATISFACTION...................................... 15
23. SECURITY DEPOSIT............................................. 15
24. BROKERAGE COMMISSION......................................... 16
25. FORCE MAJEURE................................................ 16
26. PARKING...................................................... 17
27. HAZARDOUS MATERIALS.......................................... 18
28. ADDITIONAL RIGHTS RESERVED BY LANDLORD....................... 19
29. DEFINED TERMS................................................ 20
30. MISCELLANEOUS PROVISIONS..................................... 22
31. ADDITIONAL PROVISIONS........................................ 26
</TABLE>
EXHIBITS
Exhibit A Plan Showing Property and Premises
Exhibit B Landlord's Work Letter
Exhibit C Intentionally Deleted
Exhibit D Building's Rules and Regulations; Janitorial Specifications
Exhibit E Commencement Date Confirmation
Exhibit F Guaranty
<PAGE> 2
ARTICLE 1.
BASIC PROVISIONS
A. TENANT'S TRADE NAME: Pivotal Software USA, Inc.
B. TENANT'S ADDRESS: 224 W. Esplande, Suite 300, North Vancouver
British Columbia, CANADA V7M3M6
C. OFFICE BUILDING NAME: O'Hare Commerce Center
ADDRESS: 1111 East Touhy Avenue
Des Plaines, IL 60018
D. PREMISES: SUITE/UNIT NO.: 550
SQUARE FEET (RENTABLE): 8,309
E. LANDLORD: Massachusetts Mutual Life Insurance Company
F. LANDLORD'S ADDRESS: c/o Cornerstone Real Estate Advisers, Inc.
311 South Wacker Drive, Suite 980
Chicago, Illinois 60606
G. BUILDING MANAGER/ADDRESS: Grubb & Ellis Management Services, Inc.
999 East Touhy Avenue
Des Plaines, Illinois 60018
H. COMMENCEMENT DATE: June 1, 1999
I. EXPIRATION DATE: May 31, 2004
J. SECURITY DEPOSIT: $12,636.60
K. MONTHLY RENT:
<TABLE>
<CAPTION>
MONTH OF TERM MONTHLY RENT ANNUAL RENT ANNUAL RENT/RSF
------------- ------------ ----------- ---------------
<S> <C> <C> <C>
1-12 $12,636.60 $151,639.20 $18.25
13-24 $12,982.81 $155,793.72 $18.75
25-36 $13,329.02 $159,948.24 $19.25
37-48 $13,675.23 $164,102.76 $19.75
49-60 $14,021.44 $168,257.28 $20.25
</TABLE>
L. OPERATING EXPENSES BASE: The actual amount of Operating Expenses for
calendar year 1999
M. TAX BASE: The actual amount of Taxes for calendar year
1999 (i.e. the ad valorem real estate taxes
payable in 1999)
N. TENANT'S PRO RATA SHARE: 5.39%. Tenant's Pro Rata Share shall be
determined by and adjusted by Landlord from
time to time (but shall not be readjusted
sooner than the commencement of the second
Lease year), by dividing the Tenant's
Rentable Square Feet of the Premises by the
rentable area of the Building and multiplying
the resulting
1
<PAGE> 3
quotient, to the second decimal place, by one hundred. THE RENTABLE SQUARE
FEET OF THE PREMISES AND THE RENTABLE AREA OF THE BUILDING SHALL BE
COMPUTED BY LANDLORD IN ACCORDANCE WITH BOMA STANDARD ANSI/BOMA Z65.1-1996.
O. NORMAL BUSINESS HOURS OF BUILDING:
Monday through Friday: 8:00 a.m. to 6:00 p.m.
Saturday: 8:00 a.m. to 1:00 p.m.
Sunday: Closed
P. BROKERS: Grubb & Ellis Company, CB/Richard Ellis, Inc.
Q. PARKING FEE: N/A
The foregoing provisions shall be interpreted and applied in accordance with
the other provisions of this Lease set forth below. The capitalized terms, and
the terms defined in Article 29, shall have the meanings set forth herein or
therein (unless otherwise modified in the Lease) when used as capitalized terms
in other provisions of the Lease.
ARTICLE 2.
PREMISES, TERM AND COMMENCEMENT DATE
Landlord hereby leases and demises to the Tenant and Tenant hereby takes and
leases from Landlord that certain space identified in Article 1 and shown on a
plan attached hereto as Exhibit A ("Premises") for a term ("Term") commencing
on the Commencement Date and ending on the Expiration Date set forth in Article
1, unless sooner terminated as provided herein, subject to the provisions
herein contained. The Commencement Date set forth in Article 1 shall be
advanced to such earlier date as Tenant commences occupancy of the Premises for
the conduct of its business. Such date shall be confirmed by execution of the
Commencement Date Confirmation in the form as set forth in Exhibit E. If
Landlord delays delivering possession of the Premises or substantial completion
of any Landlord's Work under Exhibit B, this Lease shall not be void or
voidable, except as provided in Article 5, and Landlord shall have no liability
for loss or damage resulting therefrom.
ARTICLE 3.
RENT
A. MONTHLY RENT. Tenant shall pay Monthly Rent in advance on or before the
first day of each month of the Term. If the Term shall commence and end on a day
other than the first day of a month, the Monthly Rent for the first and last
partial month shall be prorated on a per diem basis. Upon the execution of this
Lease, Tenant shall pay one installment of Monthly Rent for the first full month
of the Term and a prorated Monthly Rent for any partial month which may precede
it.
B. ADDITIONAL RENT. All costs and expenses which Tenant assumes or agrees to
pay and any other sum payable by Tenant pursuant to this Lease, including,
without limitation, its share of increases in Taxes and Operating Expenses,
shall be deemed Additional Rent.
C. RENT. Monthly Rent, Additional Rent, Taxes and Operating Expenses and any
other amounts which Tenant is or becomes obligated to pay Landlord under this
Lease are herein referred to collectively as "Rent", and all remedies
2
<PAGE> 4
applicable to the nonpayment of Rent shall be applicable thereto. Landlord may
apply payments received from Tenant to any obligations of Tenant then accrued,
without regard to such obligations as may be designated by Tenant.
D. PLACE OF PAYMENT, LATE CHARGE, DEFAULT INTEREST. Rent and other charges
required to be paid under this Lease, no matter how described, shall be paid by
Tenant to Landlord at the Building Manager's address listed in Article 1, or to
such other person and/or address as Landlord may designate in writing, without
any prior notice or demand therefor and without deduction or set-off or
counterclaim and without relief from any valuation or appraisement laws. In the
event Tenant fails to pay rent due under this Lease within ten (10) days of due
date of said Rent, Tenant shall pay to Landlord a late charge of ten percent
(10%) on the amount overdue. Any Rent not paid when due shall also bear
interest at the Default Rate.
ARTICLE 4.
TAXES AND OPERATING EXPENSES
A. PAYMENT OF TAXES AND OPERATING EXPENSES. It is agreed that during each
Lease Year beginning with the first month of the second Lease Year and each
month thereafter during the original Lease Term, or any extension thereof,
Tenant shall pay to Landlord an Additional Rent, at the same time as the
Monthly Rent is paid, an amount equal to one-twelfth (1/12) of Landlord's
estimate (as determined by Landlord in its sole discretion) of Tenant's Pro
Rata Share of any projected increase in the Taxes or Operating Expenses for the
particular Lease Year in excess of the Tax Base or Operating Expenses Base, as
the case may be (the "Estimated Escalation Increase"). A final adjustment (the
"Escalation Reconciliation") shall be made between the parties as soon as
practicable following the end of each Lease Year comparing the actual increase
in Tenant's Pro Rata Share of Taxes or Operating Expenses in excess of the Tax
Base or the Operating Expenses Base, as the case may be, to the Estimated
Escalation Increase.
As soon as practicable following the end of each Lease Year, Landlord shall
submit to Tenant a statement setting forth the Estimated Escalation Increase for
the following Lease Year. Beginning with said statement for the second Lease
Year, it shall also set forth the Escalation Reconciliation for the Lease Year
just completed. To the extent that the Escalation Reconciliation is different
from the Estimated Escalation Increase upon which Tenant paid Rent during the
Lease Year just completed, Tenant shall pay Landlord the difference in cash
within thirty (30) days following receipt by Tenant of such statement from
Landlord, or receive a credit on future Rent owing hereunder (or cash if there
is no future Rent owing hereunder) as the case may be. Until Tenant receives
such statement, Additional Rent for the new Lease Year shall continue to be paid
at the rate being paid for the particular Lease Year just completed, but Tenant
shall commence payment to Landlord of the monthly installment of Additional Rent
on the basis of said statement beginning on the first day of the month following
the month in which Tenant receives such statement. In addition to the above, if,
during any particular Lease Year, there is a change in the information on which
Landlord based the estimate upon which Tenant is then making its payment of
Estimated Escalation Increase so that such Estimated Escalation Increase
furnished to Tenant is no longer accurate, Landlord shall be permitted to revise
such Estimated Escalation Increase by notifying Tenant, and there shall be such
adjustments made in the Additional Rent on the first day of the month following
the serving of such statement on Tenant as shall be necessary by either
increasing or decreasing, as the case may be, the amount of Additional Rent then
being paid by Tenant for the balance of the Lease Year (but in no event shall
any such decrease result in a reduction of the rent below the Monthly rent plus
all other amounts of Additional Rent), PROVIDED, HOWEVER, THAT IN NO EVENT SHALL
ANY SUCH REVISION ADJUSTMENT BE MADE MORE THAN ONE TIME IN ANY LEASE YEAR.
Landlord's and Tenant's responsibilities with respect to the Additional Rent
described herein shall survive the expiration or early termination of this
Lease.
If the Building is not fully occupied during any particular Lease Year,
Landlord may adjust those Operating Expenses which are affected by Building
occupancy for the particular Lease Year, or portion thereof, as the case may
be, to reflect an occupancy of not less than ninety-five percent (95%) of all
such rentable area of the Building.
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B. DISPUTES OVER TAXES OR OPERATING EXPENSES. If Tenant disputes the amount of
an Escalation Reconciliation or an Estimated Escalation Increase, Tenant shall
give Landlord written notice of such dispute within sixty (60) days after
Landlord advises Tenant of same. Tenant's failure to give such notice shall
constitute a waiver of its right to dispute the amounts so determined. If Tenant
timely objects, Tenant shall have the right to engage its own accountants
("Tenant's Accountants") for the purpose of verifying the accuracy of the
Escalation Reconciliation statement in dispute, or the reasonableness of the
Estimated Escalation statement in dispute. If Tenant's Accountants determine
that an error has been made, Landlord and Tenant's Accountants shall endeavor to
agree upon the matter, failing which Landlord and Tenant's Accountants shall
jointly select an independent certified public accounting firm (the "Independent
Accountant") which firm shall conclusively determine whether the Escalation
Reconciliation is accurate or whether the Estimated Escalation Increase is
reasonable, and if not, what amount is accurate or reasonable, as the case may
be. Both parties shall be bound by such determination. If Tenant's Accountants
do not participate in choosing the Independent Accountant within 20 days after
written notice by Landlord, then Landlord's determination of the accuracy of the
Escalation Reconciliation statement or the reasonableness of the Estimated
Escalation Increase Statement, as the case may be, shall be conclusive and
Tenant shall be bound thereby. All costs incurred by Tenant in obtaining
Tenant's Accountants and the cost of the Independent Accountant shall be paid by
Tenant unless Tenant's Accountants disclose an error, acknowledged by Landlord
(or found to have conclusively occurred by the Independent Accountant), of more
than seven (7%) in the computation of the total amount of Taxes or Operating
Expenses as set forth in the statement submitted by Landlord with respect to the
matter in dispute; in which event Landlord shall pay the reasonable costs
incurred by Tenant in obtaining such audits. Tenant shall continue to timely pay
Landlord the amount of the prior year's Additional Rent determined to be
incorrect as aforesaid until the parties have concurred as to the appropriate
Additional Rent or have deemed to be bound by the determination of the
Independent Accountant in accordance with the preceding terms. Landlord's delay
in submitting any statement contemplated herein for any Lease Year shall not
affect the provisions of this Paragraph, nor constitute a waiver of Landlord's
rights as set forth herein for said Lease Year or any subsequent Lease Years
during the Term or any extensions thereof.
ARTICLE 5.
LANDLORD'S WORK, ALTERATIONS AND ADDITIONS
A. LANDLORD'S WORK. Landlord shall construct the Premises in accordance with
Landlord's obligations as set forth in the work letter attached hereto as
Exhibit B, and hereinafter referred to as "Landlord Work." Landlord will deliver
the Premises to Tenant with all of Landlord's Work completed (except for minor
and non-material punch list items on or before the Commencement Date. If
Landlord is delayed in completing Landlord's Work by strike, shortages of labor
or materials, delivery delays or other matters beyond the reasonable control of
Landlord, then Landlord shall give notice thereof to Tenant and the Commencement
Date shall be postponed for an equal number of days as the delay as set forth in
the notice. Providing, however, if such delays exceed one hundred and twenty
(120) days, then either Landlord or Tenant upon notice to the other shall have
the right to terminate this Lease without liability to either party. UPON SUCH
TERMINATION, LANDLORD SHALL REASONABLY PROMPTLY RETURN TO TENANT ANY MONIES PAID
TO LANDLORD, INCLUDING, BUT NOT LIMITED TO, AMOUNTS PAID BY TENANT IN EXCESS OF
THE ALLOWANCE (AS DEFINED IN EXHIBIT B) FOR LANDLORD'S WORK. If the Commencement
Date is postponed as aforesaid, Tenant agrees upon request of Landlord to
execute a writing confirming the Commencement Date on such form as set forth in
Exhibit E attached hereto.
B. INTENTIONALLY DELETED.
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C. ALTERATIONS. Tenant shall make no alterations or additions to the Premises
without the prior written consent of the Landlord, which consent Landlord may
grant or withhold in its sole discretion, PROVIDED, HOWEVER, THAT TENANT MAY
MAKE ALTERATIONS OF A PURELY NON-STRUCTURAL, DECORATIVE NATURE WITHOUT
LANDLORD'S PRIOR WRITTEN CONSENT IF TENANT PROVIDES LANDLORD WITH REASONABLE
PRIOR NOTICE OF SUCH ALTERATIONS AND SUCH ALTERATIONS DO NOT (a) REQUIRE THE
ISSUANCE OF A BUILDING PERMIT, (b) EXCEED $10,000, OR (c) AFFECT THE BASE
BUILDING MECHANICAL, ELECTRICAL OR PLUMBING SYSTEMS OR EQUIPMENT IN THE
BUILDING.
D. LIENS. Tenant will not cause or permit any mechanic's, materialman's or
similar liens or encumbrances to be filed or exist against the Premises or the
Building or Tenant's interest in this Lease in connection with work done under
this Article or in connection with any other work. Tenant shall remove any such
lien or encumbrance by bond or otherwise within twenty (20) days from the date
of their existence. If Tenant fails to do so, Landlord may pay the amount or
take such other action as Landlord deems necessary to remove any such lien or
encumbrance, without being responsible to investigate the validity thereof. The
amounts so paid and cost incurred by Landlord shall be deemed Additional Rent
under this Lease and payable in full upon demand.
E. COMPLIANCE WITH ADA. Notwithstanding anything to the contrary contained in
this Lease, Landlord and Tenant agree that responsibility for compliance with
the Americans With Disabilities Act of 1990 (the "ADA") shall be allocated as
follows: (i) Landlord shall be responsible for compliance with the provisions of
Title III of the ADA for all Common Areas, including exterior and interior areas
of the Building not included within the Premises or the premises of other
tenants; (ii) Landlord shall be responsible for compliance with the provisions
of Title III of the ADA for any construction, renovations, alterations and
repairs made within the Premises if such construction, renovation, alterations
or repairs are made by Landlord for the purpose of improving the Building
generally or are done as Landlord's Work and the plans and specifications for
the Landlord's Work were prepared by Landlord's architect or space planner and
were not provided by Tenant's architect or space planner; (iii) Tenant shall be
responsible for compliance with the provisions of Title III of the ADA for any
construction, renovations, alterations and repairs made within the Premises if
such construction, renovations, alterations and repairs are made by Tenant, its
employees, agents or contractors, at the direction of Tenant or done pursuant to
plans and specifications prepared or provided by Tenant or Tenant's architect or
space planner.
ARTICLE 6.
USE
A. USE. Tenant shall use the Premises for general office purposes, and for
no other purpose whatsoever, subject to and in compliance with all other
provisions of this Lease, including without limitation the Building's Rules and
Regulations attached as Exhibit D hereto. Tenant and its invitees shall also
have the non-exclusive right, along with other tenants of the Building and
others authorized by Landlord, to use the Common Areas subject to such rules and
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regulations as Landlord in its REASONABLE discretion may impose from time to
time, WHICH RULES AND REGULATIONS SHALL BE APPLIED IN A NONDISCRIMINATORY
MANNER.
B. RESTRICTIONS. Tenant shall not at any time use or occupy, or suffer or
permit anyone to use or occupy, the Premises or do or permit anything to be
done in the Premises which: (a) causes or is liable to cause injury to persons,
to the Building or its equipment, facilities or systems; (b) impairs or tends
to impair the character, reputation or appearance of the Building as a first
class office building; (c) impairs or tends to impair the proper and economic
maintenance, operation and repair of the Building or its equipment, facilities
or systems; or (d) annoys or inconveniences or tends to annoy or inconvenience
other tenants or occupants of the Building.
C. COMPLIANCE WITH LAWS. Tenant shall keep and maintain the Premises, its use
thereof and its business in compliance with all governmental laws, ordinances,
rules and regulations. Tenant shall comply with all Laws relating to the
Premises and Tenant's use thereof, including without limitation, Laws requiring
the Premises to be closed on Sundays or any other days or hours and Laws in
connection with the health, safety and building codes, and any permit or
license requirements. Landlord makes no representation that the Premises are
suitable for Tenant's purposes.
ARTICLE 7.
SERVICES
A. CLIMATE CONTROL. Landlord shall furnish heat or air conditioning to the
Premises during Normal Business Hours of Building as set forth in Article 1 as
required in Landlord's reasonable judgment for the comfortable use and
occupation of the Premises. If Tenant requires heat or air conditioning at any
other time, Landlord shall use reasonable efforts to furnish such service upon
reasonable notice from Tenant, and Tenant shall pay all of Landlord's charges
therefor on demand.
The performance by Landlord of its obligations under this Article is subject to
Tenant's compliance with the terms of this Lease including any connected
electrical load established by Landlord. Tenant shall not use the Premises or
any part thereof in a manner exceeding the heating, ventilating or
air-conditioning ("HVAC") design conditions (including any occupancy or
connected electrical load conditions), including the rearrangement of
partitioning which may interfere with the normal operation of the HVAC
equipment, or the use of computer or data processing machines or other machines
or equipment in excess of that normally required for a standard office use of
the Premises. If any such use requires changes in the HVAC or plumbing systems
or controls servicing the Premises or portions thereof in order to provide
comfortable occupancy, such changes may be made by Landlord at Tenant's expense
and Tenant agrees to promptly pay any such amount to Landlord as Additional
Rent.
B. ELEVATOR SERVICE. If the Building is equipped with elevators, Landlord,
during Normal Business Hours of Building, shall furnish elevator service to
Tenant to be used in common with others. At least one elevator shall remain in
service during all other hours. Landlord may designate a specific elevator for
use as a service elevator.
C. JANITORIAL SERVICES. Landlord shall provide janitorial and cleaning
services to the Premises, substantially as described in Exhibit D attached
hereto. Tenant shall pay to Landlord on demand the reasonable costs incurred by
Landlord for (i) any cleaning of the Premises in excess of the specifications
in Exhibit D for any reason including, without limitation, cleaning required
because of (A) misuse or neglect on the part of Tenant or Tenant's agents,
contractors, invitees, employees and customers, (B) the use of portions of the
Premises for special purposes requiring greater or more difficult cleaning work
than office areas, (C) interior glass partitions or unusual quantities of
interior glass surfaces, and (D) non-building standard materials or finishes
installed by Tenant or at its request; and (ii) removal from the Premises of
any refuse and rubbish of Tenant in excess of that ordinarily accumulated in
general office occupancy or at times other than Landlord's standard cleaning
times.
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D. WATER AND ELECTRICITY. Landlord shall make available domestic water in
reasonable quantities to the common areas of the Building (and to the Premises
if so designated in Exhibit B) and cause electric service sufficient for
lighting the Premises and for the operation of Ordinary Office Equipment.
"Ordinary Office Equipment" shall mean office equipment wired for 120 volt
electric service and rated and using less than 6 amperes or 750 watts of
electric current or other office equipment approved by Landlord in writing.
Landlord shall have the exclusive right to make any replacement of lamps,
fluorescent tubes and lamp ballasts in the Premises. Landlord shall have the
exclusive right to make any replacement of lamps, fluorescent tubes and lamp
ballasts in the Premises. Landlord may adopt a system of relamping and ballast
replacement periodically on a group basis in accordance with good management
practice. Tenant's use of electric energy in the Premises shall not at any time
exceed the capacity of any of the risers, piping, electrical conductors and
other equipment in or serving the Premises. In order to insure that such
capacity is not exceeded and to avert any possible adverse effect upon the
Building's electric system, Tenant shall not, without Landlord's prior written
consent in each instance, connect appliances or heavy duty equipment, other
than ordinary office equipment, to the Building's electric system or make any
alteration or addition to the Building's electric system. Should Landlord grant
its consent in writing, all additional risers, piping and electrical conductors
or other equipment therefor shall be provided by Landlord and the cost thereof
shall be paid by Tenant within 10 days of Landlord's demand therefor. As a
condition to granting such consent, Landlord may require Tenant to agree to an
increase in Monthly Rent to offset the expected cost to Landlord of such
additional service, that is, the cost of the additional electric energy to be
made available to Tenant based upon the estimated additional capacity of such
additional risers, piping and electrical conductors or other equipment. If
Landlord and Tenant cannot agree thereon, such cost shall be determined by an
independent electrical engineer, to be selected by Landlord and paid equally by
both parties.
E. SEPARATE METERS. If the Premises are separately metered for any utility,
Tenant shall pay a utility charge to Landlord (or directly to the utility
company, if possible) based upon the Tenant's actual consumption as measured by
the meter. Landlord also reserves the right to install separate meters for the
Premises to register the usage of all or any one of the utilities and in such
event Tenant shall pay for the cost of utility usage as metered to the Premises
and which is in excess of the usage reasonably anticipated by Landlord for
normal office usage of the Premises. Tenant shall reimburse Landlord for the
cost of installation of meters if Tenant's actual usage exceeds the anticipated
usage level by more than 10 percent. In any event, Landlord may require Tenant
to reduce its consumption to the anticipated usage level. The term "utility"
for purposes hereof may refer to but is not limited to electricity, gas, water,
sewer, steam, fire protection system, telephone or other communication or alarm
service, as well as HVAC, and all taxes or other charges thereon.
F. INTERRUPTIONS. Landlord does not warrant that any of the services referred
to above, or any other services which Landlord may supply, will be free from
interruption and Tenant acknowledges that any one or more of such services may
be suspended by reason of accident, repairs, inspections, alterations or
improvements necessary to be made, or by strikes or lockouts, or by reason of
operation of law, or causes beyond the reasonable control of Landlord. Any
interruption or discontinuance of service shall not be deemed an eviction or
disturbance of Tenant's use and possession of the Premises, or any part
thereof, nor render Landlord liable to Tenant for damages by abatement of the
Rent or otherwise, nor relieve Tenant from performance of Tenant's obligations
under this Lease. Landlord shall however, exercise reasonable diligence to
restore any service so interrupted.
G. UTILITIES PROVIDED BY TENANT. Tenant shall make application in Tenant's own
name for all utilities not provided by Landlord and shall: (i) comply with all
utility company regulations for such utilities, including requirements for the
installation of meters, and (ii) obtain such utilities directly from, and pay
for the same when due directly to, the applicable utility company. The term
"utilities" for purposes hereof shall include but not be limited to
electricity, gas, water, sewer, steam, fire protection, telephone and other
communication and alarm services, as well as HVAC, and all taxes or other
charges thereon. Tenant shall install and connect all equipment and lines
required to supply such utilities to the extent not already available at or
serving the Premises, or at Landlord's option shall repair, alter or replace
any such existing items. Tenant shall maintain, repair and replace all such
items, operate the same, and keep the same in good working order and condition.
Tenant shall not install any equipment or fixtures, or use the same, so as to
exceed the safe and lawful capacity of any utility equipment or lines serving
the same. The installation, alteration, replacement or connection of any
utility equipment and lines shall be subject to the requirements for
alterations of the Premises set
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forth in Article 5. Tenant shall ensure that all Tenant's HVAC equipment, is
installed and operated at all times in a manner to prevent roof leaks, damage,
or noise due to vibrations or improper installation, maintenance or operation.
ARTICLE 8.
INSURANCE
A. REQUIRED INSURANCE. Tenant shall maintain insurance policies, with
responsible companies licensed to do business in the state where the Building
is located and satisfactory to Landlord, naming Landlord, Landlord's Building
Manager, Cornerstone Real Estate Advisers, Inc., Tenant and any Mortgagee of
Landlord, as their respective interests may appear, at its own cost and expense
including (i) "all risk" property insurance which shall be primary on the lease
improvements referenced in Article 5 and Tenant's property, including its
goods, equipment and inventory, in an amount adequate to cover their
replacement cost; (ii) business interruption insurance, (iii) comprehensive
general liability insurance on an occurrence basis with limits of liability in
an amount not less than $1,000,000 (One Million Dollars) combined single limit
for each occurrence. The comprehensive general liability policy shall include
contractual liability which includes the provisions of Article 9 herein.
On or before the Commencement Date of the Lease, Tenant shall furnish to
Landlord and its Building Manager, certificates of insurance evidencing
aforesaid insurance coverage, including naming Landlord, Cornerstone Real
Estate Advisers, Inc. and Landlord's Building Manager as additional insureds.
Renewal certificates must be furnished to Landlord at least thirty (30) days
prior to the expiration date of such insurance policies showing the above
coverage to be in full force and effect.
All such insurance shall provide that it cannot be canceled except upon thirty
(30) days prior written notice to Landlord. Tenant shall comply with all rules
and directives of any insurance board, company or agency determining rates of
hazard coverage for the Premises, including but not limited to the installation
of any equipment and/or the correction of any condition necessary to prevent
any increase in such rates.
B. WAIVER OF SUBROGATION. Landlord and Tenant each agree that neither
Landlord nor Tenant will have any claim against the other for any loss, damage
or injury which is covered by insurance by either party and for which recovery
from such insurer is made, notwithstanding the negligence of either party in
causing the loss. This release shall be valid only if the insurance policy in
question permits waiver of subrogation or if the insurer agrees in writing that
such waiver of subrogation will not affect coverage under said policy. Each
party agrees to use its best efforts to obtain such an agreement from its
insurer if the policy does not expressly permit a waiver of subrogation.
C. WAIVER OF CLAIMS. Except for claims arising from Landlord's negligence or
willful misconduct that are not covered by Tenant's insurance required
hereunder, Tenant waives all claims against Landlord for injury or death to
persons, damage to property or to any other interest of Tenant sustained by
Tenant or any party claiming, through Tenant resulting from: (i) any occurrence
in or upon the Premises, (ii) leaking of roofs, bursting, stoppage or leaking
of water, gas, sewer or steam pipes or equipment, including sprinklers, (iii)
wind, rain, snow, ice, flooding, freezing, fire, explosion, earthquake,
excessive heat or cold, or other casualty, (iv) the Building, Premises or the
operating and mechanical systems or equipment of the Building, being defective,
or failing, and (v) vandalism, malicious mischief, theft or other acts or
omissions of any other parties including without limitation, other tenants,
contractors and invitees at the Building. Tenant agrees that Tenant's property
loss risks shall be borne by its insurance, and Tenant agrees to look solely to
and seek recovery only from its insurance carriers in the event of such losses.
For purposes hereof, any deductible amount shall be treated as though it were
recoverable under such policies.
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ARTICLE 9.
INDEMNIFICATION
Tenant shall indemnify and hold harmless Landlord and its agents, successors
and assigns, including its Building Manager, from and against all injury, loss,
costs, expenses, claims or damage (including attorney's fees and disbursements)
to any person or property arising from, related to, or in connection with any
use or occupancy of the Premises by or any act or omission (including, without
limitation, construction and repair of the Premises arising out of Tenant's
Work or subsequent work) of Tenant, its agents, contractors, employees,
customers, and invitees, which indemnity extends to any and all claims arising
from any breach or default in the performance of any obligation on Tenant's
part to be performed under the terms of this Lease. This indemnification shall
survive the expiration or termination of the Lease Term.
Landlord shall not be liable to Tenant for any damage by or from any act or
negligence of any co-tenant or other occupant of the Building, or by any owner
or occupants of adjoining or contiguous property. Landlord shall not be liable
for any injury or damage to persons or property resulting in whole or in part
from the criminal activities or wilful misconduct of others. To the extent not
covered by all risk property insurance, Tenant agrees to pay all damage to the
Building, as well as all damage to persons or property of other tenants or
occupants thereof, caused by the negligence, fraud or willful misconduct of
Tenant or any of its agents, contractors, employees, customers and invitees.
Nothing contained herein shall be construed to relieve Landlord from liability
for any claim, damage, loss or injury, resulting from its negligence, fraud or
willful misconduct.
ARTICLE 10.
CASUALTY DAMAGE
Tenant shall promptly notify Landlord or the Building Manager of any fire or
other casualty to the Premises or to the extent it knows of damage, to the
Building. In the event the Premises or any substantial part of the Building is
wholly or partially damaged or destroyed by fire or other casualty which is
covered by Landlord's insurance, the Landlord will proceed to restore the same
to substantially the same condition existing immediately prior to such damage
or destruction unless such damage or destruction is incapable of repair or
restoration within one hundred eighty (180) days, in which event Landlord or
Tenant may, by written notice given to the other party within sixty (60) days
of such damage or destruction, declare this Lease terminated as of the
happening of such damage or destruction. Landlord agrees to give written notice
to Tenant within forty-five (45) days of such damage or destruction setting
forth Landlord's reasonable estimate of the amount of time necessary complete
the repair or restoration. If the Landlord's sole opinion the net insurance
proceeds recovered by reason of the damage or destruction will not be adequate
to complete the restoration of the Building, Landlord shall have the right to
terminate this Lease and all unaccrued obligations of the parties hereto by
sending a notice of such termination to Tenant. To the extent after fire or
other casualty that Tenant shall be deprived of the use and occupancy of the
Premises or any portion thereof as a result of any such damage, destruction or
the repair thereof, providing Tenant did not cause the fire or other casualty,
Tenant shall be relieved of the same ratable portion of the Monthly Rent
hereunder as the amount of damaged or useless space in the Premises bears to
the rentable square footage of the Premises until such time as the Premises may
be restored. Landlord shall reasonably determine the amount of damaged or
useless space and the square footage of the Premises referenced in the prior
sentence.
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ARTICLE II.
CONDEMNATION
In the event of a condemnation or taking of the entire Premises by a public or
quasi-public authority, this Lease shall terminate as of the date title vests in
the public or quasi-public authority. In the event of a taking or condemnation
of fifteen percent (15%) or more (but less than the whole) of the Building and
without regard to whether the Premises are part of such taking or condemnation,
Landlord may elect to terminate this Lease by giving notice to Tenant within
sixty (60) days of Landlord receiving notice of such condemnation. All
compensation awarded for any condemnation shall be the property of Landlord,
whether such damages shall be awarded as a compensation for diminution in the
value of the leasehold or to the fee of the Premises, and Tenant hereby assigns
to Landlord all of Tenant's right, title and interest in and to any and all such
compensation. Providing, however that in the event this Lease is terminated,
Tenant shall be entitled to make a separate claim for the taking of Tenant's
personal property (including fixtures paid for by Tenant), and for costs of
moving. Notwithstanding anything herein to the contrary, any condemnation award
to Tenant shall be available only to the extent such award is payable separately
to Tenant and does not diminish the award available to Landlord or any Lender of
Landlord and such award shall be limited to the amount of Rent actually paid by
Tenant to Landlord for the period of time for which the award is given. Any
additional portion of such award shall belong to Landlord. NOTHING CONTAINED IN
THIS ARTICLE 11 SHALL PROHIBIT TENANT FROM INSTITUTING SEPARATE PROCEEDINGS TO
PURSUE A SEPARATE CLAIM AGAINST THE CONDEMNING AUTHORITY FOR THE BOOK VALUE OF
ANY PERMANENT LEASEHOLD IMPROVEMENTS TO THE PREMISES PAID FOR BY TENANT SO LONG
AS SUCH CLAIM WILL NOT AFFECT OR DIMINISH ANY AWARD OR COMPENSATION OTHERWISE
RECOVERABLE BY LANDLORD.
ARTICLE 12.
REPAIR AND MAINTENANCE
A. TENANT'S OBLIGATIONS. SUBJECT TO ARTICLE 10 AND ARTICLE 11, Tenant shall
keep the Premises in good working order, repair (and in compliance with all
Laws now or hereafter adopted) and condition (which condition shall be neat,
clean and sanitary, and free of pests and rodents) and shall make all necessary
non-structural repairs thereto and any repairs to non-Building standard
mechanical, HVAC, electrical and plumbing systems or components in or serving
the Premises. Tenant's obligations hereunder shall include but not be limited
to Tenant's trade fixtures and equipment, security systems, signs, interior
decorations, floor-coverings, wall-coverings, entry and interior doors,
interior glass, light fixtures and bulbs, keys and locks, and alterations to
the Premises whether installed by Tenant or Landlord.
B. LANDLORD'S OBLIGATIONS. Landlord shall make all necessary structural
repairs to the Building and any necessary repairs to the Building standard
mechanical, HVAC, electrical, and plumbing systems in or servicing the Premises
(the cost of which shall be included in Operating Expenses under Article 4 [TO
THE EXTENT SPECIFIED IN ARTICLE 29]), excluding repairs required to be made by
Tenant pursuant to this Article. Landlord shall have no responsibility to make
any repairs unless and until Landlord receives written notice of the need for
such repair. Landlord shall not be liable for any failure to make repairs or to
perform any maintenance unless such failure shall persist for an unreasonable
time after written notice of the need for such repairs or maintenance is
received by LANDLORD from Tenant. Landlord shall make every reasonable effort
to perform all such repairs or maintenance in such a manner (in its judgment)
so as to cause minimum interference with Tenant and the Premises but Landlord
shall not be liable to Tenant for any interruption or loss of business
pertaining to such activities. Landlord shall have the right to require that
any damage caused by the willful misconduct of Tenant or any of Tenant's
agents, contractors, employees, invitees or customers, be paid for and
performed by the Tenant (without limiting Landlord's other remedies herein).
C. SIGNS AND OBSTRUCTIONS. Tenant shall not obstruct or permit the
obstruction of light, halls, Common Areas, roofs, parapets, stairways or
entrances to the Building or the Premises and will not affix, paint, erect or
inscribe any sign, projection, awning, signal or advertisement of any kind to
any part of the Building or the Premises, including the inside or outside of
the windows or doors, without the written consent of Landlord. If such work is
done by Tenant through any person, firm or corporation not
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designated by Landlord, or without the express written consent of Landlord,
Landlord shall have the right to remove such signs, projections, awnings,
signals or advertisements without being liable to the Tenant by reason thereof
and to charge the cost of such removal to Tenant as Additional Rent, payable
within ten (10) days of Landlord's demand therefor.
D. OUTSIDE SERVICES. Tenant shall not permit, except by Landlord or a person
or company reasonably satisfactory to and approved by Landlord: (i) the
extermination of vermin in, on or about the Premises; (ii) the servicing of
heating, ventilating and air conditioning equipment; (iii) the collection of
rubbish and trash other than in compliance with local government health
requirements and in accordance with the rules and regulations established by
Landlord, which shall minimally provide that Tenant's rubbish and trash shall
be kept in containers located so as not to be visible to members of the public
and in a sanitary and neat condition; or (iv) window cleaning, janitorial
services or similar work in the Premises.
ARTICLE 13.
INSPECTION OF PREMISES
Tenant shall permit the Landlord, the Building Manager and its authorized
representatives to, UPON NOT LESS THAN 24 HOURS' NOTICE TO TENANT, enter the
Premises to show the Premises during Normal Business Hours of Building and at
other reasonable times to inspect the Premises and to make such repairs,
improvements, alterations or additions in the Premises or in the Building of
which they are a part as Landlord may deem necessary or appropriate; PROVIDED
HOWEVER, THAT IN AN EVENT OF AN EMERGENCY, NO NOTICE SHALL BE REQUIRED.
ARTICLE 14.
SURRENDER OF PREMISES
Upon the expiration of the Term, or sooner termination of the Lease, Tenant
shall quit and surrender to Landlord the Premises, broom clean, in good order
and condition, normal wear and tear and damage by fire and other casualty
excepted. All leasehold improvements and other fixtures, such as light fixtures
and HVAC equipment, wall coverings, carpeting and drapes, in or serving the
Premises, whether installed by Tenant or Landlord, shall be Landlord's property
and shall remain, all without compensation, allowance or credit to Tenant. Any
property not removed shall be deemed to have been abandoned by Tenant and may
be retained or disposed of by Landlord at Tenant's expense free of any and all
claims of Tenant, as Landlord shall desire. All property not removed from the
Premises by Tenant may be handled or stored by Landlord at Tenant's expense and
Landlord shall not be liable for the value, preservation or safekeeping
thereof. At Landlord's option all or part of such property may be conclusively
deemed to have been conveyed by Tenant to Landlord as if by bill of sale
without payment by Landlord. The Tenant hereby waives to the maximum extent
allowable the benefit of all laws now or hereafter in force in this state or
elsewhere exempting property from liability for rent or for debt.
ARTICLE 15.
HOLDING OVER
Tenant shall pay Landlord 150% of the amount of Rent then applicable prorated
on a per diem basis for each day Tenant shall retain possession of the Premises
or any part thereof after expiration or earlier termination of this Lease,
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together with all damages sustained by Landlord on account thereof. The
foregoing provisions shall not serve as permission for Tenant to hold-over, nor
serve to extend the Term (although Tenant shall remain bound to comply with all
provisions of this Lease until Tenant vacates the Premises) and Landlord shall
have the right at any time thereafter to enter and possess the Premises and
remove all property and persons therefrom.
ARTICLE 16.
SUBLETTING AND ASSIGNMENT
Tenant shall not, without the prior written consent of Landlord list the
Premises or any part thereof as available for assignments or sublease with any
broker or agent or otherwise advertise, post, communicate or solicit
prospective assignees or subtenants through any direct or indirect means, nor
assign this Lease or any interest thereunder, or sublet Premises or any part
thereof, or permit the use of Premises by any party other than Tenant. In the
event that during the term of this Lease, Tenant desires to sublease and
introduces Landlord to a proposed replacement tenant for Tenant, which
replacement tenant has a good reputation, is of financial strength at least
equal to that of Tenant (as determined by Landlord in its sole REASONABLE
discretion) and has a use for Premises and a number of employees reasonably
consistent with that of Tenant's operation, the Landlord may consider such
replacement tenant and notify Tenant with reasonable promptness as to Landlord's
choice, at Landlord's sole REASONABLE discretion, of the following:
(a) The Landlord consents to a subleasing of the Premises or assignment of the
lease to such replacement tenant (WHICH CONSENT SHALL NOT BE UNREASONABLY
WITHHELD); provided that Tenant shall remain fully liable for all of its
obligations and liabilities under this Lease and provided further that
Landlord shall be entitled to any profit obtained by Tenant from such
subletting or assignment; or;
(b) That upon such replacement tenant's entering into a mutually satisfactory
new Lease for the Premises with Landlord, then Tenant shall be released
from all further obligations and liabilities under this Lease (excepting
only any unpaid rentals or any unperformed covenants then past due under
this Lease or any guarantee by Tenant of replacement tenant's obligations);
or
(c) That Landlord declines to consent to such sublease or assignment due to
insufficient or unsatisfactory documentation furnished to Landlord to
establish Tenant's reputation, financial strength and proposed use of and
operations upon Premises; or
(d) That Landlord elects to cancel the Lease and recapture the Premises (in the
case of an assignment) or that Landlord elects to cancel the Lease as to
the portion thereof that Tenant had wished to sublease. In either such
event Tenant shall surrender possession of the Premises, or the portion
thereof which is the subject of Tenant's request on the date set forth in a
notice from Landlord in accordance with the provisions of this Lease
relating to the surrender of the Premises. If this Lease shall be canceled
as to a portion of the Premises only, the Rent payable by Tenant hereunder
shall be abated proportionately according to the ratio that the area of the
portion of the Premises surrendered (as computed by Landlord) bears to the
area of the Premises immediately prior to such surrender. If Landlord shall
cancel this Lease, Landlord may relet the Premises, or the applicable
portion of the Premises, to any other party (including, without limitation,
the proposed assignee or subtenant of Tenant), without any liability to
Tenant.
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NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, TENANT SHALL HAVE
THE RIGHT AT ANY TIME DURING THE TERM OF THIS LEASE TO ASSIGN THIS LEASE, OR
SUBLET ALL OR ANY PORTION OF THE PREMISES TO ANY ENTITY (i) OWNED OR CONTROLLED
BY TENANT OR WHICH SHALL HOLD A MAJORITY OF TENANT'S STOCK; (ii) WHICH IS THE
RESULT OF ANY MERGER OR CONSOLIDATION OF TENANT; OR (iii) WHICH SHALL PURCHASE
SUBSTANTIALLY ALL OF THE ASSETS OF TENANT (COLLECTIVELY, "BUSINESS TRANSFER")
PROVIDED THAT IN THE EVENT OF A BUSINESS TRANSFER WHICH IS AN ASSIGNMENT, THE
ASSIGNEE ASSUMES THE OBLIGATIONS OF TENANT UNDER THE LEASE IN WRITING AND A
COPY THEREOF IS PROMPTLY DELIVERED TO LANDLORD.
IN NO CASE MAY TENANT ASSIGN ANY OPTIONS TO ANY SUBLESSEE(S) OR ASSIGNEE(S)
HEREUNDER, EXCEPT IN THE CASE OF A BUSINESS TRANSFER, ALL SUCH OPTIONS BEING
DEEMED PERSONAL TO PIVOTAL SOFTWARE USA, INC. ONLY. CONSENT BY LANDLORD
HEREUNDER SHALL IN NO WAY OPERATE AS A WAIVER BY LANDLORD OF, OR TO RELEASE OR
DISCHARGE TENANT FROM, ANY LIABILITY UNDER THIS LEASE OR BE CONSTRUED TO
RELIEVE TENANT FROM OBTAINING LANDLORD'S CONSENT TO ANY SUBSEQUENT ASSIGNMENT,
SUBLETTING, TRANSFER, USE OR OCCUPANCY.
ARTICLE 17.
SUBORDINATION, ATTORNMENT AND
MORTGAGEE PROTECTION
This Lease is subject and subordinate to all Mortgages now or hereafter placed
upon the Building, and all other encumbrances and matters of public record
applicable to the Building, including without limitation, any reciprocal
easement or operating agreements, covenants, conditions and restrictions and
Tenant shall not act or permit the Premises to be operated in violation
thereof. If any foreclosure or power of sale proceedings are initiated by any
Lender or a deed in lieu is granted (or if any ground lease is terminated),
Tenant agrees, upon written request of any such Lender or any purchaser at such
foreclosure sale, to attorn and pay Rent to such party and to execute and
deliver any instruments necessary or appropriate to evidence or effectuate such
attornment. In the event of attornment, no Lender shall be: (i) liable for any
act or omission of Landlord, or subject to any offsets or defenses which Tenant
might have against Landlord (prior to such Lender becoming Landlord under such
attornment), (ii) liable for any security deposit or bound by any prepaid Rent
not actually received by such Lender, or (iii) bound by any future modification
of this Lease not consented to by such Lender. Any Lender may elect to make
this Lease prior to the lien of its Mortgage, and if the Lender under any prior
Mortgage shall require, this Lease shall be prior to any subordinate Mortgage;
such elections shall be effective upon written notice to Tenant. Tenant agrees
to give any Lender by certified mail, return receipt requested, a copy of any
notice of default served by Tenant upon Landlord, provided that prior to such
notice Tenant has been notified in writing (by way of service on Tenant of a
copy of an assignment of leases, or otherwise) of the name and address of such
Lender. Tenant further agrees that if Landlord shall have failed to cure such
default within the time permitted Landlord for cure under this Lease, any such
Lender whose address has been so provided to Tenant shall have an additional
period of thirty (30) days in which to cure (or such additional time as may be
required due to causes beyond such Lender's control, including time to obtain
possession of the Building by power of sale or judicial action or deed in lieu
of foreclosure). The provisions of this Article shall be self-operative;
however, Tenant shall execute such documentation as Landlord or any Lender may
request from time to time in order to confirm the matters set forth in this
Article in recordable form. To the extent not expressly prohibited by Law,
Tenant waives the provisions of any Law now or hereafter adopted which may give
or purport to give Tenant any right or election to terminate or otherwise
adversely affect this Lease or Tenant's obligations hereunder if such
foreclosure or power of sale proceedings are initiated, prosecuted or
completed. NOTWITHSTANDING ANYTHING IN THIS ARTICLE 17 TO THE CONTRARY,
LANDLORD AGREES TO USE GOOD FAITH EFFORTS TO PROCURE A NON-DISTURBANCE
AGREEMENT FROM ANY FUTURE FIRST MORTGAGEE OR GROUND LESSOR OF THE BUILDING.
TENANT UNDERSTANDS THAT (a) LANDLORD SHALL NOT BE OBLIGATED TO EXPEND ANY FUNDS
TO PROCURE SUCH AGREEMENT AND (b) TENANT'S OBLIGATION UNDER THIS LEASE ARE NOT
CONDITIONED ON LANDLORD'S OBTAINING SUCH AGREEMENT FROM ANY SUCH MORTGAGEE OR
GROUND LESSOR AND TENANT'S SOLE AND EXCLUSIVE REMEDY FOR LANDLORD'S FAILURE TO
USE SUCH
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EFFORTS SHALL BE A CLAIM FOR ACTUAL DAMAGES DIRECTLY CAUSED AS A RESULT OF SUCH
BREACH (EXCLUDING ANY INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES), WHICH
DAMAGES SHALL NOT EXCEED THE AMOUNT OF RENT PAYABLE UNDER THIS LEASE FROM AND
AFTER THE DATE OF SAID DEFAULT, AND IN NO EVENT SHALL TENANT BE ENTITLED TO
TERMINATE THIS LEASE OR TO ANY ABATEMENT OF RENT AS A RESULT OF SUCH BREACH.
SUCH NON-DISTURBANCE AGREEMENT SHALL BE IN SUCH MORTGAGEE'S OR GROUND LESSOR'S
CUSTOMARY FORM.
ARTICLE 18.
ESTOPPEL CERTIFICATE
Tenant shall from time to time, upon written request by Landlord or Lender,
deliver to Landlord or Lender, within ten (10) days after from receipt of such
request, a statement in writing certifying: (i) that this Lease is unmodified
and in full force and effect (or there have been modifications, identifying
such modifications and certifying that the Lease, as modified, is in full force
and effect); (ii) the dates to which the Rent has been paid; (iii) that
Landlord is not in default under any provision of this Lease (or if Landlord is
in default, specifying each such default); and, (iv) the address to which
notices to Tenant shall be sent; it being understood that any such statement so
delivered may be relied upon in connection with any lease, mortgage or transfer.
Tenant's failure to deliver such statement within such time shall be conclusive
upon Tenant that: (i) this Lease is in full force and effect and not modified
except as Landlord may represent; (ii) not more than one month's Rent has been
paid in advance; (iii) there are not defaults by Landlord; and, (iv) notices to
Tenant shall be sent to Tenant's Address as set forth in Article 1 of this
Lease. Notwithstanding the presumptions of this Article, Tenant shall not be
relieved of its obligation to deliver said statement.
ARTICLE 19.
DEFAULTS
If Tenant: (i) fails to pay when due any installment or other payment of Rent
AND SUCH FAILURE CONTINUES FOR FIVE (5) DAYS AFTER WRITTEN NOTICE THEREOF GIVEN
BY OR ON BEHALF OF LANDLORD, WHICH NOTICE MAY BE GIVEN IN THE FORM OF A
LANDLORD'S STATUTORY 5-DAY NOTICE USED IN CONNECTION WITH FORCIBLE ENTRY AND
DETAINER PROCEEDINGS IN ILLINOIS, or to keep in effect any insurance required
to be maintained; or (ii) becomes insolvent, makes an assignment for the
benefit of creditors, files a voluntary bankruptcy or an involuntary petition
in bankruptcy is filed against Tenant which petition is not dismissed within
sixty (60) days of its filing, or (iii) fails to perform or observe any of the
other covenants, conditions or agreement contained herein on Tenant's part to
be kept or performed and such failure shall continue for thirty (30) days after
notice thereof given by or on behalf of Landlord, or (iv) if the interest of
Tenant shall be offered for sale or sold under execution or other legal process
if Tenant makes any transfer, assignment, conveyance, sale, pledge, disposition
of all or a substantial portion of Tenant's property, then any such event or
conduct shall constitute a "default" hereunder.
If Tenant shall file a voluntary petition pursuant to the United States
Bankruptcy Reform Act of 1978, as the same may be from time to time be amended
(the "Bankruptcy Code"), or take the benefit of any insolvency act or be
dissolved, or if any involuntary petition be filed against Tenant pursuant to
the Bankruptcy Code and said petition is not dismissed within thirty (30) days
after such filing, or if a receiver shall be appointed for its business or its
assets and the appointment of such receiver is not vacated within thirty (30)
days after such appointment, or if it shall make an assignment for the benefit
of its creditors, then Landlord shall have all of the rights provided for in
the event of nonpayment of the Rent.
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If any alleged default on the part of the Landlord hereunder occurs, Tenant
shall give written notice to Landlord in the manner herein set forth and shall
afford Landlord a reasonable opportunity to cure any such default. In addition,
Tenant shall send notice of such default by certified or registered mail,
postage prepaid, to the holder of any Mortgage whose address Tenant has been
notified of in writing, and shall afford such Mortgage holder a reasonable
opportunity to cure any alleged default on Landlord's behalf. In no event will
Landlord be responsible for any damages incurred by Tenant, including but not
limited to, lost profits or interruption of business as a result of any alleged
default by Landlord hereunder.
ARTICLE 20.
REMEDIES OF LANDLORD
The remedies provided Landlord under this Lease are cumulative.
i. Upon the occurrence of any default, Landlord may serve notice on
Tenant that the Term and the estate hereby vested in Tenant and any and all
other rights of Tenant hereunder shall cease on the date specified in such
notice and on the specified date this Lease shall cease and expire as fully and
with the effect as if the Term had expired for passage of time.
ii. Without terminating this Lease in case of a default or if this
Lease shall be terminated for default as provided herein, Landlord may re-enter
the Premises, remove Tenant, or cause Tenant to be removed from the Premises in
such manner as Landlord may deem advisable, with or without legal process, and
using such reasonable force as may be necessary. In the event of re-entry
without terminating this Lease, Tenant shall continue to be liable for all
Rents and other charges accruing or coming due under this Lease.
iii. If Landlord, without terminating this Lease, shall re-enter the
Premises or if this Lease shall be terminated as provided in paragraph (a)
above:
(i) All Rent due from Tenant to Landlord shall thereupon become
due and shall be paid up to the time of re-entry, dispossession or
expiration, together with reasonable costs and expenses (including,
without limitation, attorney's fees) of Landlord;
(ii) SUBJECT TO (vi) BELOW, Landlord, without any obligation to do
so, may relet the Premises or any part thereof for a term or terms which
may at Landlord's option be less than or exceed the period which would
otherwise have constituted the balance of the Term and may grant such
concessions in reletting as Landlord, in the exercise of its reasonable
business judgment, deems desirable. In connection with such reletting,
Tenant shall be liable for all costs of the reletting including, without
limitation, rent concessions, leasing commissions, legal fees and
alteration and remodeling costs; and
(iii) If Landlord shall have terminated this Lease, Tenant shall
also be liable to Landlord for all damages provided for in law and under
this Lease resulting from Tenant's breach including, without limitation,
the difference between the aggregate rentals reserved under the terms of
this Lease for the balance of the Term together with all other sums
payable hereunder as Rent for the balance of the Term, less the fair
rental value of the Premises for that period determined as of the date of
such termination. For purposes of this paragraph, Tenant shall be deemed
to include any guarantor or surety of the Lease.
iv. Tenant hereby waives all right to trial by jury in any claim,
action proceeding or counterclaim by either Landlord or Tenant against each
other or any matter arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, and/or Tenant's use or occupancy or the
Premises.
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v. In addition to the above, Landlord shall have any and all other
rights provided a Landlord under law or equity for breach of a lease or tenancy
by a Tenant.
vi. IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAWS, LANDLORD SHALL
USE REASONABLE EFFORTS TO MITIGATE THE DAMAGES RECOVERABLE BY LANDLORD DUE TO A
DEFAULT BY TENANT UNDER THIS LEASE; BUT IN NO EVENT SHALL LANDLORD BE REQUIRED
TO LEASE ANY PORTION OF THE PREMISES IN PREFERENCE TO THE LEASING OF ANY OTHER
PORTION OF THE BUILDING.
ARTICLE 21.
QUIET ENJOYMENT
Landlord covenants and agrees with Tenant that so long as Tenant pays the Rent
and observes and performs all the terms, covenants, and conditions of this
Lease on Tenant's part to be observed and performed, Tenant may peaceably and
quietly enjoy the Premises subject, nevertheless, to the terms and conditions
of this Lease, and Tenant's possession will not be disturbed by anyone claiming
by, through, or under Landlord.
ARTICLE 22.
ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of an amount less than full payment
of Rent then due and payable shall be deemed to be other than on account of the
Rent then due and payable, nor shall any endorsement or statement on any check
or any letter accompanying any check or payment as Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance of such Rent or pursue any other
remedy provided for in this Lease or available at law or in equity.
ARTICLE 23.
SECURITY DEPOSIT
To secure the faithful performance by Tenant of all of the covenants,
conditions and agreements set forth in this Lease to be performed by it,
including, without limitation, foregoing such covenants, conditions and
agreements in this Lease which become applicable upon its termination by
re-entry or otherwise, Tenant has deposited with Landlord the sum shown in
Article 1 as a "Security Deposit" on the understanding:
i. that the Security Deposit or any portion thereof may be applied to
the curing of any default that may exist, without prejudice to any other remedy
or remedies which the Landlord may have on account thereof, and upon such
application Tenant shall pay Landlord on demand the amount so applied which
shall be added to the Security Deposit so the same will be restored to its
original amount;
ii. that should the Premises be conveyed by Landlord, the Security
Deposit or any balance thereof may be turned over to the Landlord's grantee,
and if the same be turned over as aforesaid, Tenant hereby releases Landlord
from any and all liability with respect to the Security Deposit and its
application or return, and Tenant agrees to look solely to such grantee for
such application or return; and,
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iii. that Landlord may commingle the Security Deposit with other funds and
not be obligated to pay Tenant any interest;
iv. that the Security Deposit shall not be considered as advance payment
of Rent or a measure of damages for any default by Tenant, nor shall it be a
bar or defense to any actions by Landlord against Tenant;
v. that if Tenant shall faithfully perform all of the covenants and
agreements contained in this Lease on the part of the Tenant to be performed,
the Security Deposit or any then remaining balance thereof, shall be returned
to Tenant, without interest, within thirty (30) days after the expiration of
the Term. Tenant further covenants that it will not assign or encumber the
money deposited herein as a Security Deposit and that neither Landlord nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
ARTICLE 24.
BROKERAGE COMMISSION
Landlord and Tenant represent and warrant to each other that neither has dealt
with any broker, finder or agent except for the Broker(s) identified in Article
1. Tenant represents and warrants to Landlord that (except with respect to the
Broker identified in Article 1 and with whom Landlord has entered into a
separate brokerage agreement) no broker, agent, commission salesperson, or
other person has represented Tenant in the negotiations for and procurement of
this Lease and of the Premises and that no commissions, fees, or compensation
of any kind are due and payable in connection herewith to any broker, agent
commission salesperson, or other person. Tenant agrees to indemnify Landlord
and hold Landlord harmless from any and all claims, suits, or judgments
(including, without limitation, reasonable attorneys' fees and court costs
incurred in connection with any such claims, suits, or judgments, or in
connection with the enforcement of this indemnity) for any fees, commissions,
or compensation of any kind which arise out of or are in any way connection
with any claimed agency relationship not referenced in Article 1.
ARTICLE 25.
FORCE MAJEURE
Landlord shall be excused for the period of any delay in the performance of any
obligation hereunder when prevented from so doing by a cause or causes beyond
its control, including all labor disputes, civil commotion, war, war-like
operations, invasion, rebellion, hostilities, military or usurped power,
sabotage, governmental regulations or controls, fire or other casualty,
inability to obtain any material, services or financing, or through acts of
God. Tenant shall similarly be excused for delay in the performance of any
obligation hereunder; provided:
i. nothing contained in this Section or elsewhere in this Lease shall be
deemed to excuse or permit any delay in the payment of the Rent, or any delay
in the cure of any default which may be cured by the payment of money;
ii. no reliance by Tenant upon this Section shall limit or restrict in
any way Landlord's right of self-help as provided in this Lease; and
iii. Tenant shall not be entitled to rely upon this Section unless it
shall first have given Landlord notice of the existence of any force majeure
preventing the performance of an obligation of Tenant within five days after
the commencement of the force majeure.
ARTICLE 26.
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i. Landlord hereby grants to Tenant the right, in common with others
authorized by Landlord, to use the parking facilities owned by Landlord and
shown on Exhibit A, if any. Landlord, at its sole election, may designate the
types and locations of parking spaces within the parking facilities which Tenant
shall be allowed to use. Landlord shall have the right, at Landlord's sole
election, to change said types and locations from time to time; provided,
however, such designation shall be uniformly applied and shall not unfairly
favor any tenant in the Building.
ii. Commencing on the Commencement Date, Tenant shall pay Landlord the
Parking Fee, if any, shown in Article 1, as Additional Rent, payable monthly in
advance with the Monthly Rent. If there is a Parking Fee shown in Schedule 1,
then thereafter, and throughout the Term, the parking rate for each type of
parking space provided to Tenant hereunder shall be the prevailing parking rate,
as Landlord may designate from time to time, at Landlord's sole election, for
each such type of parking space. In addition to the right reserved hereunder by
Landlord to designate the parking rate from time to time, Landlord shall have
the right to change the parking rate at any time to include therein any amounts
levied, assessed, imposed or required to be paid to any governmental authority
on account of the parking of motor vehicles, including all sums required to be
paid pursuant to transportation controls imposed by the Environmental Protection
Agency under the Clean Air Act of 1970, as amended, or otherwise required to be
paid by any governmental authority with respect to the parking, use, or
transportation of motor vehicles, or the reduction or control of motor vehicle
traffic, or motor vehicle pollution.
iii. If requested by Landlord, Tenant shall notify Landlord of the license
plate number, year, make and model of the automobiles entitled to use the
parking facilities and if requested by Landlord, such automobiles shall be
identified by automobile window stickers provided by Landlord, and only such
designated automobiles shall be permitted to use the parking facilities. If
Landlord institutes such an identification procedure, Landlord may provide
additional parking spaces for use by customers and invitees of Tenant on a daily
basis at prevailing parking rates, if any. At Landlord's sole election, Landlord
may make validation stickers available to Tenant for any such additional parking
spaces, provided, however, if Landlord makes validation stickers available to
any other tenant in the Building, Landlord shall make such validation stickers
available to Tenant.
iv. The parking facilities provided for herein are provided solely for
the accommodation of Tenant and Landlord assumes no responsibility or liability
of any kind whatsoever from whatever cause with respect to the automobile
parking areas, including adjoining streets, sidewalks, driveways, property and
passageways, or the use thereof by Tenant or tenant's employees, customers,
agents, contractors or invitees.
ARTICLE 27.
HAZARDOUS MATERIALS
A. DEFINITION OF HAZARDOUS MATERIALS. The term "Hazardous Materials" for
purposes hereof shall mean any chemical, substance, materials or waste or
component thereof which is now or hereafter listed, defined or regulated as a
hazardous or toxic chemical, substance, materials or waste or component thereof
by any federal, state or local governing or regulatory body having
jurisdiction, or which would trigger any employee or community "right-to-know"
requirements adopted by any such body, or for which any such body has adopted
any requirements for the preparation or distribution of a materials safety date
sheet ("MSDS").
B. NO HAZARDOUS MATERIALS. Tenant shall not transport, use, store, maintain,
generate, manufacture, handle, dispose, release or discharge any Hazardous
Materials. However, the foregoing provisions shall not prohibit the
transportation
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to and from, and use, storage, maintenance and handling within the Premises of
Hazardous Materials customarily used in the business or activity expressly
permitted to be undertaken in the Premises under Article 6, provided: (a) such
Hazardous Materials shall be used and maintained only in such quantities as are
reasonably necessary for such permitted use of the Premises and the ordinary
course of Tenant's business therein, strictly in accordance with applicable
Law, highest prevailing standards, and the manufacturers' instructions
therefor, (b) such Hazardous Materials shall not be disposed of, released or
discharged in the Building BY THE TENANT, and shall be transported to and from
the Premises BY THE TENANT in compliance with all applicable Laws, and as
Landlord shall reasonably require, (c) if any applicable Law or Landlord's
trash removal contractor requires that any such Hazardous Materials be disposed
of separately from ordinary trash, Tenant shall make arrangements at Tenant's
expense for such disposal directly with a qualified and licensed disposal
company at a lawful disposal site (subject to scheduling and approval by
Landlord), and (d) any remaining such Hazardous Materials shall be completely,
properly and lawfully removed from the Building upon expiration or earlier
termination of this Lease.
C. NOTICES TO LANDLORD. Tenant shall promptly notify Landlord of: (i) any
enforcement, cleanup or other regulatory action taken or threatened by any
governmental or regulatory authority, OF WHICH TENANT RECEIVES NOTICE, with
respect to the presence of any Hazardous Materials on the Premises or the
migration thereof from or to other property, (ii) any demands or claims made to
TENANT or threatened AGAINST TENANT by any party relating to any loss or injury
resulting from any Hazardous Materials on the Premises, (iii) any release,
discharge or non-routine, improper or unlawful disposal or transportation of any
Hazardous Materials on or from the Premises or in violation of this Article, and
(iv) any matters where Tenant is required by Law to give a notice to any
governmental or regulatory authority respecting any Hazardous Materials on the
Premises. Landlord shall have the right (but not the obligation) to join and
participate, as a party, in any legal proceedings or actions affecting the
Premises initiated in connection with any environmental, health or safety law.
At such times as Landlord may reasonably request, Tenant shall provide Landlord
with a written list, certified to be true and complete, identifying any
Hazardous Materials then used, stored, or maintained upon the Premises, the use
and approximate quantity of each such materials, a copy of any MSDS issued by
the manufacturer therefor, and such other information as Landlord may reasonably
require or as may be required by Law.
D. INDEMNIFICATION OF LANDLORD. If any Hazardous Materials are released,
discharged or disposed of by Tenant or any other occupant of the Premises, or
their employees, agents, invitees or contractors, on or about the Building in
violation of the foregoing provisions, Tenant shall immediately, properly and
in compliance with applicable Laws clean up, remediate and remove the Hazardous
Materials from the Building and any other affected property and clean or
replace any affected personal property (whether or not owned by Landlord), at
Tenant's expense (without limiting Landlord's other remedies therefor). Tenant
shall further be required to indemnify and hold Landlord, Landlord's directors,
officers, employees and agents harmless from and against any and all claims,
demands, liabilities, losses, damages, penalties and judgments directly or
indirectly arising out of or attributable to a violation of the provisions of
this Article by Tenant, Tenant's occupants, employees, contractors or agents.
Any clean up, remediation and removal work shall be subject to Landlord's prior
written approval (except as emergencies), and shall include, without
limitation, any testing, investigation, and the preparation and implementation
of any remedial action plan required by any governmental body having
jurisdiction or reasonably required by Landlord. If Landlord or any Lender or
governmental body arranges for any tests or studies showing that this Article
has been violated, Tenant shall pay for the costs of such tests. The provisions
of this Article shall survive the expiration or earlier termination of this
Lease.
ARTICLE 28.
ADDITIONAL RIGHTS RESERVED BY LANDLORD
In addition to any other rights provided for herein, Landlord reserves the
following rights, exercisable without liability to Tenant for damage or injury
to property, person or business and without effecting and eviction,
constructive or actual, or disturbance of Tenant's use or possession or giving
rise to any claim:
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i. To name the Building and to change the name or street address of the
Building;
ii. To install and maintain all signs on the exterior and interior of the
Building;
iii. To designate all sources furnishing sign painting or lettering for
use in the Building;
iv. During the last ninety (90) days of the Term, if Tenant has vacated
the Premises, to decorate, remodel, repair, alter or otherwise prepare the
Premises for occupancy, without affecting Tenant's obligation to pay Rent for
the Premises;
v. To have pass keys to the Premises and all doors therein, excluding
Tenant's vaults and safes;
vi. On reasonable prior notice to Tenant, to exhibit the Premises to any
prospective purchaser, Lender, mortgagee, or assignee of any mortgage on the
Building or Land and to others having an interest therein at any time during
the Term, and to prospective tenants during the last six months of the Term;
vii. To take any and all measures, including entering the Premises for the
purpose of making inspections, repairs, alterations, additions and improvements
to the Premises or to the Building (including for the purpose of checking,
calibrating, adjusting and balancing controls and other parts of the Building
Systems), as may be necessary or desirable for the operation, improvement,
safety, protection or preservation of the Premises or the Building, or in order
to comply with all Laws, orders and requirements of governmental or other
authority, or as may otherwise be permitted or required by this Lease;
provided, however, that during the progress of any work on the Premises or at
the Building, Landlord will attempt not to inconvenience Tenant, but shall not
be liable for inconvenience, annoyance, disturbance, loss of business, or other
damage to Tenant by reason of performing any work or by bringing or storing
materials, supplies, tools or equipment in the Building or Premises during the
performance of any work, and the obligations of Tenant under this Lease shall
not thereby be affected in any manner whatsoever.
vii. To relocate various facilities within the Building and on the land of
which the Building is a part if Landlord shall determine such relocation to be
in the best interest of the development of the Building and Property, provided
that such relocation shall not materially restrict access to the Premises; and
ix. To install vending machines of all kinds in the Building and to
receive all of the revenue derived therefrom, provided, however, that no
vending machines shall be installed by Landlord in the Premises unless Tenant
so requests.
ARTICLE 29.
DEFINED TERMS
A. "Building" shall refer to the Building named in Article 1 of which the lease
Premises are a part (including all modifications, additions and alterations
made to the Building during the term of this Lease), the real property on which
the same is located, all plazas, common areas and any other areas located on
said real property and designated by Landlord for use by all tenants in the
Building. A plan showing the Building is attached hereto as Exhibit A and made
a part hereof and the Premises is defined in Article 2 and shown on said
Exhibit A by cross-hatched lines.
B. "Common Areas" shall mean and include all areas, facilities, equipment,
directories and signs of the Building (exclusive of the Premises and areas
leased to other Tenants) made available and designated by Landlord for the
common and joint use and benefit of Landlord, Tenant and other tenants and
occupants of the Building including, but not limited to, lobbies, public
washrooms, hallways, sidewalks, parking areas, landscaped areas and service
entrances. Common Areas may further include such areas in adjoining properties
under reciprocal easement agreements, operating
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agreements or other such agreements now or hereafter in effect and which are
available to Landlord, Tenant and Tenant's employees and invitees. Landlord
reserves the right in its sole discretion and from time to time, to construct,
maintain, operate, repair, close, limit, take out of service, alter, change,
and modify all or any part of the Common Areas.
C. "Default Rate" shall mean twelve percent (12%) per annum, or the highest
rate permitted by applicable law, whichever shall be less. If the application
of the Default Rate causes any provision of this Lease to be usurious or
unenforceable, the Default Rate shall be automatically reduced so as to prevent
such result.
D. "Hazardous Materials" shall have the meaning set forth in Article 27.
E. "Landlord" and "Tenant" shall be applicable to one or more parties as the
case may be, and the singular shall include the plural, and the neuter shall
include the masculine and feminine; and if there be more than one, the
obligations thereof shall be joint and several. For purposes of any provisions
indemnifying or limiting the liability of Landlord, the term "Landlord" shall
include Landlord's present and future partners, beneficiaries, trustees,
officers, directors, employees, shareholders, principals, agents, affiliates,
successors and assigns.
F. "Law" or "Laws" shall mean all federal, state, county and local
governmental and municipal laws, statutes, ordinances, rules, regulations,
codes, decrees, orders and other such requirements, applicable equitable
remedies and decisions by courts in cases where such decisions are binding
precedents in the state in which the Building is located, and decisions of
federal courts applying the Laws of such state.
G. "Lease" shall mean this lease executed between Tenant and Landlord,
including any extensions, amendments or modifications and any Exhibits attached
hereto.
H. "Lease Year" shall mean each calendar year or portion thereof during the
Term.
I. "Lender" shall mean the holder of a Mortgage at the time in question, and
where such Mortgage is a ground lease, such term shall refer to the ground
lessee.
J. "Mortgage" shall mean all mortgages, deeds of trust, ground leases and
other such encumbrances now or hereafter placed upon the Building or any part
thereof with the written consent of Landlord, and all renewals, modifications,
consolidations, replacements or extensions thereof, and all indebtedness now or
hereafter secured thereby and all interest thereon.
K. "Operating Expenses" shall mean all operating expenses of any kind or
nature which are necessary, ordinary or customarily incurred in connection with
the operation, maintenance or repair of the Building as determined by Landlord.
Operating Expenses shall include, but not be limited to:
1.1 costs of supplies, including, but not limited to, the cost of
relamping all Building standard lighting as the same may be required from time
to time;
1.2 costs incurred in connection with obtaining and providing energy for
the Building, including, but not limited to, costs of propane, butane, natural
gas, steam, electricity, solar energy and fuel oils, coal or any other energy
source;
1.3 costs of water and sanitary and storm drainage services;
1.4 costs of janitorial and security services;
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1.5 cost of general maintenance and repairs, including costs under HVAC
and other mechanical maintenance contracts and maintenance, repairs and
replacement of equipment and tools used in connection with operating the
Building;
1.6 costs of maintenance and replacement of landscaping;
1.7 insurance premiums, including fire and all-risk coverage, together
with loss of rent endorsements, the part of any claim required to be paid under
the deductible portion of any insurance policies carried by Landlord in
connection with the Building, PROVIDED, HOWEVER, IN NO EVENT SHALL SUCH A
DEDUCTIBLE EXCEED $50,000.00, public liability insurance and any other insurance
carried by Landlord on the Building, or any component parts thereof (all such
insurance shall be in such amounts as may be required by any holder of a
Mortgage or as Landlord may reasonably determine);
1.8 labor costs, including wages and other payments, costs to Landlord of
worker's compensation and disability insurance, payroll taxes, welfare fringe
benefits, and all legal fees and other costs or expenses incurred in resolving
any labor dispute;
1.9 professional building management fees required for management of the
Building NOT TO EXCEED FIVE PERCENT (5%) OF "STABILIZED" RENTS DERIVED FROM THE
BUILDING (I.E., ASSUMING THE BUILDING IS AT LEAST 95% OCCUPIED BY TENANTS WHO
ARE PAYING RENT WITHOUT ABATEMENT);
1.10 legal, accounting, inspection, and other consultation fees (including,
without limitation, fees charged by consultants retained by Landlord for
services that are designed to produce a reduction in Operating Expenses or to
reasonably improve the operation, maintenance or state of repair of the
Building) incurred in the ordinary course of operating the Building or in
connection with making the computations required hereunder or in any audit of
operations of the Building;
1.11 the costs of capital improvements or structural repairs or
replacements made in or to the Building in order to conform to changes,
subsequent to the date of this Lease, in any applicable laws, ordinances, rules,
regulations or orders of any governmental or quasi-governmental authority having
jurisdiction over the Building (herein "Required Capital Improvements") or the
costs incurred by Landlord to install a new or replacement capital item for the
purpose of reducing Operating Expenses (herein "Cost Savings Improvements"). The
expenditures for Required Capital Improvements and Cost Savings Improvements
shall be amortized over the useful life of such capital improvement or
structural repair or replacement (as determined by Landlord).
NOTWITHSTANDING THE FOREGOING, THE FOLLOWING ITEMS SHALL BE EXCLUDED FROM
OPERATING EXPENSES: (i) ANY LEASING COMMISSIONS OR OTHER EXPENSES INCURRED IN
LEASING SPACE IN THE BUILDING OR IN DISPUTES WITH PERSONS OTHER THAN TENANT;
(ii) TENANT IMPROVEMENT WORK FOR ANY TENANT, INCLUDING TENANT, AND OTHER
EXPENSES WHICH RELATE TO PREPARATION OF RENTAL SPACE FOR A TENANT; (iii)
EXPENSES OF INITIAL DEVELOPMENT AND CONSTRUCTION, INCLUDING BUT NOT LIMITED TO,
REMODELING OF THE COMMON AREAS (AS DISTINGUISHED FROM MAINTENANCE, REPAIR AND
REPLACEMENT OF THE FOREGOING), (iv) COSTS AND EXPENSES FOR WHICH LANDLORD
RECEIVES OR IS ENTITLED TO BE PAID OR RECEIVE REIMBURSEMENT FROM INSURANCE
PROCEEDS OR CONDEMNATION AWARDS, INDEMNIFICATION BY THIRD PARTIES OR OTHERWISE;
(v) FINANCING COSTS, INCLUDING INTEREST AND PRINCIPAL AMORTIZATION OF DEBTS;
(vi) ANY LIABILITIES, COSTS OR EXPENSES ASSOCIATED WITH OR INCURRED IN
CONNECTION WITH THE REMOVAL, ENCLOSURE, ENCAPSULATION OR OTHER HANDLING OF
HAZARDOUS MATERIALS NOT RELEASED IN CONNECTION WITH TENANT'S USE OR OCCUPANCY
OF THE PREMISES OR THE COMMON AREAS OR NOT CAUSED BY TENANT, OTHER THAN
REMOVAL, ENCLOSURE, ENCAPSULATION OR OTHER HANDLING REQUIRED BY ANY LAW
HEREINAFTER ENACTED; (vii) COSTS OF UTILITIES AND OTHER SERVICES, INCLUDING
APPLICABLE TAXES FOR WHICH LANDLORD IS ENTITLED TO DIRECT
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REIMBURSEMENT FROM ANY OTHER TENANT; (viii) LANDLORD'S GENERAL OVERHEAD NOT
ATTRIBUTABLE TO THE OPERATION AND MANAGEMENT OF THE BUILDING (E.G., THE
ACTIVITIES OF LANDLORD'S OFFICERS AND EXECUTIVES OR PROFESSIONAL DEVELOPMENT
EXPENDITURES); (ix) LATE FEES OR CHARGES INCURRED BY LANDLORD DUE TO LATE
PAYMENT OF EXPENSES AND COSTS DUE TO LANDLORD'S VIOLATION OF ANY LAW; (x) TAKES
ON LANDLORD'S BUSINESS (SUCH AS INCOME, BUSINESS AND OCCUPATION, EXCESS
PROFITS, FRANCHISE, CAPITAL STOCK, ETC.); (xi) CHARITABLE OR POLITICAL
CONTRIBUTIONS; AND (xii) DEPRECIATION CLAIMED BY LANDLORD FOR TAX PURPOSES
(PROVIDED THIS EXCLUSION OF "DEPRECIATION" IS NOT INTENDED TO DELETE FROM
OPERATING EXPENSES THE ACTUAL COSTS OF REQUIRED CAPITAL IMPROVEMENTS OR COST
SAVINGS IMPROVEMENTS WHICH ARE PROVIDED FOR ABOVE).
In making and computations contemplated hereby, Landlord shall also be
permitted to make such adjustments and modifications to the provisions of this
paragraph and Article 4 as shall be reasonable and necessary to achieve the
intention of the parties hereto.
L. "Rent" shall have the meaning specified therefor in Article 3.
M. "Tax" or "Taxes" shall mean:
1.1 all real property taxes and assessment levied against the Building
by any governmental or quasi-governmental authority. The foregoing shall
include all federal, state, county, or local governmental, special district,
improvement district, municipal or other political subdivision taxes, fees,
levies, assessments, charges or other impositions of every kind and nature,
whether general, special, ordinary or extraordinary, respecting the Building,
including without limitation, real estate taxes, general and special
assessments, interest on any special assessments paid in installments, transit
taxes, water and sewer rents, taxes based upon the receipt of rent, personal
property taxes imposed upon fixtures, machinery, equipment, apparatus,
appurtenances, furniture and other personal property used in connection with
the Building which Landlord shall pay during any calendar year, any portion of
which occurs during the Term (without regard to any different fiscal year used
by such government or municipal authority except as provided below). Provided,
however, any taxes which shall be levied on the rentals of the Building shall
be determined as of the Building were Landlord's only property, and provided
further that in no event shall the term "taxes or assessment," as used herein,
included any net federal or state income taxes levied or assessed on Landlord,
unless such taxes are a specific substitute for real property taxes. Such term
shall, however, include gross taxes on rentals. Expenses incurred by Landlord
for tax consultants and in contesting the amount or validity of any such taxes
or assessments shall be included in such computations.
1.2 all "assessments", including so-called special assessments, license
tax, business license fee, business license tax, levy, charge, penalty or tax
imposed by any authority having the direct power to tax, including any city,
county, state or federal government, or any school, agricultural, lighting,
water, drainage, or other improvement or special district thereof, against the
Premises of the Building or any legal or equitable interest of Landlord
therein. For the purposes of this lease, any special assessments shall be
deemed payable in such number of installments as is permitted by law, whether
or not actually so paid. If as of the Commencement Date the Building has not
been fully assessed as a completed project, for the purpose of computing the
Operating Expenses for any adjustment required herein or under Article 4, the
Tax shall be adjusted by Landlord, as of the date on which the adjustment is to
be made, to reflect full completion of the Building including all standard
Tenant finish work if the method of taxation of real estate prevailing to the
time of execution hereof shall be, or has been altered, so as to cause the
whole or any part of the taxes now, hereafter or theretofore levied, assessed
or imposed on real estate to be levied, assessed or imposed on Landlord, wholly
or partially, as a capital levy or otherwise, or on or measured by the rents
received therefrom, then such new or altered taxes attributable to the Building
shall be included within the term real estate taxes, except that the same
shall not include any enhancement of said tax attributable to other income of
Landlord. All of the preceding clauses K (1.1 and 1.2) are collectively
referred to as the "Tax" or "Taxes".
All other capitalized terms shall have the definition set forth in the Lease.
ARTICLE 30.
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MISCELLANEOUS PROVISIONS
A. RULES AND REGULATIONS.
Tenant shall comply with all of the rules and regulations promulgated by
Landlord from time to time for the Building. A copy of the current rules and
regulations is attached hereto as Exhibit D.
B. EXECUTION OF LEASE.
If more than one person or entity executes this Lease as Tenant, each such
person or entity shall be jointly and severally liable for observing and
performing each of the terms, covenants, conditions and provisions to be
observed or performed by Tenant.
C. NOTICES.
All notices under this Lease shall be in writing and will be deemed sufficiently
given for all purposes if, to Tenant, by delivery to Tenant at the Premises
during the hours the Building is open for business or by certified mail, return
receipt requested or by overnight delivery service (with one acknowledged
receipt), to Tenant at the address set forth below, and if to Landlord, by
certified mail, return receipt requested or by overnight delivery service (with
one acknowledged receipt), at the addresses set forth below.
Landlord: at address shown in Article 1, item F.
with a copy to: Building Manager at address shown in Article 1, item G.
Tenant: at address shown in Article 1, item B.
with a copy to: DORSEY & WHITNEY LLP
U.S. BANK BUILDING CENTER, SUITE 400
1420 FIFTH AVENUE
SEATTLE, WASHINGTON 98101
ATTENTION: SERENA M. SCHOURUP, ESQ.
D. TRANSFERS.
The term "Landlord" appearing herein shall mean only the owner of the Building
from time to time and, upon a sale or transfer of its interest in the Building,
the then Landlord and transferring party shall have no further obligations or
liabilities for matters accruing after the date of transfer of that interest
and Tenant, upon such sale or transfer, shall look solely to the successor owner
and transferee of the Building for performance of Landlord's obligations
hereunder.
E. RELOCATION.
Landlord shall be entitled during the Lease Term to cause Tenant to relocate
from the Premises to a comparable space within the Building (a "Relocation
Space") at any time after reasonable notice, which notice shall give Tenant no
less than sixty (60) days advance notice. Landlord or the third party tenant
replacing Tenant shall pay the expense of moving Tenant to a space within the
Building comparable to the Premises and providing comparable leasehold
improvements. Such a relocation shall not terminate, modify or otherwise affect
the Lease, INCLUDING, WITHOUT LIMITATION, TENANT'S RIGHT OF FIRST OFFER, OPTION
TO EXTEND, AND OPTION TO EXPAND UNDER ARTICLE 31, except with respect to the
location of the Premises from and after the date of such relocation.
"Premises", shall, thereafter, refer to the Relocation Space into which Tenant
has been moved, rather than the original Premises as herein defined.
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F. TENANT FINANCIAL STATEMENTS.
Upon the written request of Landlord, Tenant shall submit financial statements
for its most recent financial reporting period and for the prior Lease Year.
Landlord shall make such request no more than ONCE during any Lease Year. All
such financial statements shall be certified as true and correct by the
responsible officer or partner of Tenant and if Tenant is then in default
hereunder, the financial statements shall be certified by an independent
certified public accountant.
G. RELATIONSHIP OF THE PARTIES.
Nothing contained in this Lease shall be construed by the parties hereto, or by
any third party, as constituting the parties as principal and agent, partners
or joint venturers, nor shall anything herein render either party (other than a
guarantor) liable for the debts and obligations of any other party, it being
understood and agreed that the only relationship between Landlord and Tenant is
that of Landlord and Tenant.
H. ENTIRE AGREEMENT; MERGER.
This Lease embodies the entire agreement and understanding between the parties
respecting the Lease and the Premises and supersedes all prior negotiations,
agreements and understandings between the parties, all of which are merged
herein. No provision of this Lease may be modified, waived or discharged except
by an instrument in writing signed by the party against which enforcement of
such modification, waiver or discharge is sought.
I. NO REPRESENTATION BY LANDLORD.
Neither Landlord nor any agent of Landlord has made any representations,
warranties, or promises with respect to the Premises or the Building except as
expressly set forth herein.
J. LIMITATION OF LIABILITY.
Notwithstanding any provision in this Lease to the contrary, under no
circumstances shall Landlord's liability or that of its directors, officers,
employees and agents for failure to perform any obligations arising out of or
in connection with the Lease or for any breach of the terms or conditions of
this Lease (whether written or implied) exceed Landlord's equity interest in
the Building. Any judgments rendered against Landlord shall be satisfied solely
out of proceeds of sale of Landlord's interest in the Building. No personal
judgment shall lie against Landlord upon extinguishment of its rights in the
Building and any judgments so rendered shall not give rise to any right of
execution or levy against Landlord's assets. The provisions hereof shall inure
to Landlord's successors and assigns including any Lender. The foregoing
provisions are not intended to relieve Landlord from the performance of any of
Landlord's obligations under this Lease, but only to limit the personal
liability of Landlord in case of recovery of a judgment against Landlord; nor
shall the foregoing be deemed to limit Tenant's rights to obtain injunctive
relief or specific performance or other remedy which may be accorded Tenant by
law or under this Lease. If Tenant claims or assets that Landlord has violated
or failed to perform a covenant under the Lease, Tenant's sole remedy shall be
an action for specific performance, declaratory judgment or injunction and in
no event shall Tenant be entitled to any money damages in any action or by way
of set off, defense or counterclaim and Tenant hereby specifically waives the
right to any money damages or other remedies for any such violation or failure.
K. MEMORANDUM OF LEASE.
Neither party, without the written consent of the other, will execute or record
any this Lease or any summary or memorandum of this Lease in any public
recorders office.
L. NO WAIVERS; AMENDMENTS.
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Failure of Landlord to insist upon strict compliance by Tenant of any condition
or provision of this Lease shall not be deemed a waiver by Landlord of that
condition. No waiver shall be effective against Landlord unless in writing and
signed by Landlord. Similarly, this Lease cannot be amended except by a writing
signed by Landlord and Tenant.
M. SUCCESSORS AND ASSIGNS.
The conditions, covenants and agreements contained herein shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
N. GOVERNING LAW.
This Lease shall be governed by the law of the State where the Building is
located.
O. EXHIBITS.
All exhibits attached to this Lease are a part hereof and are incorporated
herein by reference and all provisions of such exhibits shall constitute
agreements, promises and covenants of this Lease.
P. CAPTIONS.
The captions and headings used in this Lease are for convenience only and in no
way define or limit the scope, interpretation or content of this Lease.
Q. COUNTERPARTS.
This Lease may be executed in one (1) or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
ARTICLE 31.
ADDITIONAL PROVISIONS
A. RIGHTS OF FIRST OFFER
DURING THE TERM OF THIS LEASE BUT SUBJECT TO THE PRIOR RIGHTS OF ANY OTHER
PARTY, IF ANY, TENANT IS HEREBY GRANTED A RIGHT OF FIRST OFFER ON THAT CERTAIN
SPACE LOCATED ON THE FIFTH FLOOR OF THE BUILDING CONTIGUOUS TO THE PREMISES
AND CONTAINING APPROXIMATELY 1,342 SQUARE FEET OF RENTABLE SPACE AND ANY SPACE
LOCATED ON THE SECOND FLOOR OF THE BUILDING WHICH MAY FROM TIME TO TIME BECOME
VACANT (COLLECTIVELY, THE "ROFO SPACE"). BEFORE LANDLORD MARKETS ANY PORTION
OF THE ROFO SPACE TO ANY PARTY OTHER THAN THE THEN CURRENT OCCUPANT, IF ANY, OR
THOSE HAVING A PRIOR RIGHT, LANDLORD WILL NOTIFY TENANT OF THE AVAILABILITY AND
DESCRIPTION OF THE ROFO SPACE AND THE BASIC TERMS UNDER WHICH LANDLORD IS GOING
TO MARKET THE ROFO SPACE AND TENANT WILL HAVE THE FIRST OPPORTUNITY TO LEASE
SUCH ROFO SPACE PRIOR TO OTHER THIRD PARTIES. WITHIN SEVEN (7) DAYS OF SUCH
NOTICE, TIME BEING OF THE ESSENCE, TENANT SHALL GIVE LANDLORD A NOTICE THAT IT
EITHER DOES OR DOES NOT WISH TO ENTER INTO A LEASE WITH LANDLORD FOR THE ROFO
SPACE. IN THE EVENT THAT TENANT'S NOTICE PROVIDES THAT IT DOES NOT WISH TO
ENTER INTO A LEASE FOR THE ROFO SPACE OR IF TENANT FAILS TO GIVE LANDLORD THE
NOTICE OF ITS DESIRES RESPECTING THE ROFO SPACE WITHIN THE FOREGOING REQUIRED
SEVEN (7) DAY PERIOD, THEN LANDLORD SHALL BE ENTITLED TO PROCEED TO MARKET
AND/OR LEASE THE ROFO SPACE TO A THIRD PARTY FREE AND CLEAR OF TENANT'S RIGHT
OF FIRST OFFER, BUT ON ECONOMIC TERMS WHICH ARE NOT SUBSTANTIALLY MORE
FAVORABLE THAN THOSE SUBMITTED TO TENANT IN LANDLORD'S NOTICE, WITHOUT ANY
FURTHER RIGHTS OF TENANT TO LEASE SUCH SPACE, UNTIL LANDLORD FAILS TO
CONSUMMATE A LEASE FOR SUCH SPACE OR SUCH THIRD-PARTY HAS VACATED THE ROFO
SPACE AND SUCH SPACE IS AGAIN AVAILABLE FOR LEASING BY A THIRD-PARTY.
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IN THE EVENT THAT TENANT GIVES LANDLORD A NOTICE AS REQUIRED IN THE PRECEDING
PARAGRAPH THAT IT WISHES TO LEASE THE ROFO SPACE FROM LANDLORD, THEN TENANT
SHALL HAVE THIRTY (30) DAYS FROM THE DATE OF THE NOTICE WITHIN WHICH TO AMEND
THIS LEASE BY ADDING THE ROFO SPACE. IN THE EVENT TENANT FAILS TO SIGN SUCH
AMENDMENT TO THIS LEASE WITHIN SAID THIRTY (30) DAY PERIOD, TIME BEING OF THE
ESSENCE, THEN LANDLORD SHALL BE ENTITLED TO PROCEED TO MARKET AND/OR LEASE THE
ROFO SPACE TO A THIRD PARTY FREE AND CLEAR OF SUCH RIGHT AND SUCH RIGHT SHALL
BE DEEMED TERMINATED WITH RESPECT TO THE ROFO SPACE DESCRIBED IN THE NOTICE
FROM LANDLORD.
B. OPTION TO EXTEND
TENANT SHALL HAVE ONE (1) OPTION TO EXTEND THIS LEASE FOR AN ADDITIONAL PERIOD
OF FIVE (5) YEARS. THE EXTENDED TERM SHALL BE ON ALL OF THE SAME TERMS AND
CONDITIONS OF THIS LEASE WITH THE EXCEPTION THAT THE MONTHLY RENT FOR THE
EXTENDED TERM SHALL BE LANDLORD'S THEN PREVAILING RENTAL RATE BEING CHARGED BY
LANDLORD FOR SPACE IN THE BUILDING REASONABLY COMPARABLE TO THE PREMISES. IN
ORDER FOR TENANT TO EXERCISE THIS OPTION TO EXTEND, TENANT MUST GIVE LANDLORD
WRITTEN NOTICE OF ITS ELECTION TO EXTEND AT LEAST NINE (9) MONTHS (BUT NO
SOONER THAN TWELVE (12) MONTHS) PRIOR TO THE NORMAL EXPIRATION DATE OF THE
LEASE (TIME BEING OF THE ESSENCE), WHICH NOTICE SHALL REQUEST THAT LANDLORD
PROVIDE TENANT WITH THE RENTAL RATE FOR THE EXTENDED TERM. LANDLORD SHALL
FURNISH TENANT WITH THE RENTAL RATE FOR THE EXTENDED TERM WITHIN FIFTEEN (15)
BUSINESS DAYS OF RECEIPT OF TENANT'S NOTICE TO EXTEND. THE PARTIES SHALL SIGN A
WRITTEN AMENDMENT TO THIS LEASE CONFIRMING THE EXTENDED TERM AND THE
CORRESPONDING RENTAL RATE AT LEAST THIRTY (30) DAYS PRIOR TO THE NORMAL
EXPIRATION DATE OF THE LEASE, TIME BEING OF THE ESSENCE.
TENANT AGREES TO EXECUTE SUCH ADDITIONAL DOCUMENTS, IF ANY, AS LANDLORD MAY
REASONABLY REQUIRE REGARDING ANY SUCH EXTENSION. THE FOREGOING OPTION TO EXTEND
IS GIVEN ON THE EXPRESS CONDITION THAT TENANT MAY NOT EXERCISE THE FOREGOING
OPTION TO EXTEND IF IT SHALL BE IN DEFAULT UNDER THE LEASE BEYOND ANY
APPLICABLE CURE PERIOD. ANY ATTEMPTED EXERCISE WHILE IN DEFAULT SHALL BE NULL
AND VOID AND OF NO EFFECT. TENANT HAS NO OTHER OPTION(S) TO EXTEND THE TERM OF
THIS LEASE EXCEPT AS SET FORTH IN THIS PARAGRAPH. THIS OPTION TO EXTEND IS
PERSONAL TO PIVOTAL SOFTWARE USA, INC. AND WILL BE NULL AND VOID IN THE EVENT
OF ANY ASSIGNMENT OR TRANSFER OF THE LEASE, EXCEPT IN THE CASE OF A BUSINESS
TRANSFER (AS DEFINED IN ARTICLE 16).
C. EXPANSION OPTION
i. FOR PURPOSES OF THIS LEASE, "OPTION SPACE" SHALL MEAN ANY SPACE IN
THE BUILDING CONTAINING UP TO 8,000 SQUARE FEET (BUT NOT LESS THAN 5,000 SQUARE
FEET) OF RENTABLE AREA AS DESIGNATED BY LANDLORD AS HEREINAFTER PROVIDED.
ii. TENANT SHALL HAVE AN OPTION (THE "EXPANSION OPTION") TO LEASE THE
OPTION SPACE FOR A LEASE TERM COMMENCING ON A DATE OCCURRING DURING THE PERIOD
(THE "EXPANSION PERIOD") COMMENCING ON THE FIRST DAY OF THE 36TH MONTH OF THE
TERM AND EXPIRING ON THE LAST DAY OF THE 42ND MONTH OF THE TERM. THE EXPANSION
OPTION IS GRANTED SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS:
(1) TENANT SHALL GIVE LANDLORD WRITTEN NOTICE ("TENANT'S NOTICE") OF
ITS ELECTION TO EXERCISE THE EXPANSION OPTION. TENANT'S NOTICE SHALL
CONTAIN THE PROPOSED COMMENCEMENT DATE OF THE LEAST TERM FOR THE OPTION
SPACE (WHICH DATE SHALL BE WITHIN THE EXPANSION PERIOD AND SHALL NOT BE
EARLIER THAN THE DATE WHICH IS NINE (9) MONTHS AFTER THE DATE TENANT GIVES
TENANT'S NOTICE TO LANDLORD);
(2) TENANT SUBMITS CURRENT AUDITED FINANCIAL STATEMENTS OF TENANT TO
LANDLORD CONCURRENTLY WITH TENANT'S NOTICE EXERCISING THE EXPANSION OPTION
AND SUCH FINANCIAL STATEMENTS ARE APPROVED IN WRITING BY LANDLORD; AND
27
<PAGE> 29
(3) TENANT IS NOT IN BREACH OR DEFAULT UNDER THIS LEASE EITHER ON THE
DATE THAT TENANT EXERCISES THE EXPANSION OPTION OR, UNLESS WAIVED IN WRITING BY
LANDLORD, ON THE PROPOSED COMMENCEMENT DATE OF THE LEASE TERM FOR THE OPTION
SPACE; AND
(4) WITHIN THIRTY (30) DAYS AFTER RECEIPT BY LANDLORD OF TENANT'S
NOTICE, LANDLORD SHALL GIVE TENANT WRITTEN NOTICE ("LANDLORD'S NOTICE") SETTING
FORTH EITHER (A) THE DATE UPON WHICH THE OPTION SPACE SHALL BE AVAILABLE FOR
OCCUPANCY AND THE ACTUAL LOCATION AND ACTUAL RENTABLE AREA OF THE OPTION SPACE,
WHICH LANDLORD SHALL DETERMINE IN ITS SOLE DISCRETION OR (B) THAT LANDLORD DOES
NOT HAVE ANY AVAILABLE SPACE IN THE BUILDING TO CONSTITUTE THE OPTION SPACE.
iii. IF TENANT EXERCISES THE EXPANSION OPTION:
(1) THE OPTION SPACE SHALL BE LEASED TO TENANT FOR A LEASE TERM
COMMENCING ON THE DATE SPECIFIED IN LANDLORD'S NOTICE. THE LEASE TERM FOR THE
OPTION SPACE SHALL BE COTERMINOUS WITH THE TERM FOR THE ORIGINAL PREMISES
DEMISED UNDER THIS LEASE;
(2) THE ANNUAL RATE OF BASE RENT PER RENTABLE SQUARE FOOT PAYABLE FOR
THE OPTION SPACE SHALL AT ALL TIMES DURING THE LEASE TERM FOR THE OPTION SPACE
BE EQUAL TO THE ANNUAL RATE OF BASE RENT PER RENTABLE SQUARE FOOT THEN PAYABLE
UNDER THIS LEASE FOR THE ORIGINAL PREMISES. TENANT SHALL NOT BE ENTITLED TO
RECEIVE ANY RENT ABATEMENT FOR THE OPTION SPACE. TENANT SHALL PAY ADDITIONAL
RENT FOR THE OPTION SPACE, AS PROVIDED IN ARTICLE 4 OF THIS LEASE, COMMENCING
IMMEDIATELY UPON THE COMMENCEMENT DATE OF THE LEASE TERM FOR THE OPTION SPACE,
AND "TENANT'S PROPORTIONATE SHARE" AS DEFINED IN ARTICLE 1(N) SHALL MEAN THE
PERCENTAGE DETERMINED BY DIVIDING THE AGGREGATE RENTABLE AREA OF THE ORIGINAL
PREMISES AND THE OPTION SPACE BY THE RENTABLE AREA OF THE BUILDING, WHICH SHALL
BE MEASURED UTILIZING THE BOMA STANDARD SET FORTH IN SECTION 1N ABOVE; AND
(3) TENANT SHALL ACCEPT THE OPTION SPACE IN AN "AS-IS", "WHERE-IS"
PHYSICAL CONDITION FROM LANDLORD, WITHOUT ANY AGREEMENT, REPRESENTATION, CREDIT
OR ALLOWANCE FROM LANDLORD WITH RESPECT TO THE IMPROVEMENT OR CONDITION THEREOF.
ALL OF THE PROVISIONS OF THIS LEASE TO THE EXTENT NOT INCONSISTENT WITH
THE ABOVE PROVISIONS SHALL APPLY TO THE OPTION SPACE.
iv. IF TENANT EXERCISES THE EXPANSION OPTION, LANDLORD AND TENANT SHALL
EXECUTE AND DELIVER AN AMENDMENT TO THIS LEASE REFLECTING THE LEASE BY LANDLORD
TO TENANT OF THE OPTION SPACE ON THE TERMS PROVIDED ABOVE, WHICH AMENDMENT
SHALL BE EXECUTED AND DELIVERED WITHIN THIRTY (30) DAYS AFTER TENANT GIVES
LANDLORD TENANT'S NOTICE.
v. THE EXPANSION OPTION SHALL AUTOMATICALLY TERMINATE AND BECOME NULL
AND VOID AND OF NO FORCE OR EFFECT UPON THE EARLIER TO OCCUR OF (1) THE
EXPIRATION OR TERMINATION OF THIS LEASE, (2) THE TERMINATION OF TENANT'S RIGHT
TO POSSESSION OF THE PREMISES, (3) THE ASSIGNMENT OF THIS LEASE BY TENANT, IN
WHOLE OR IN PART, EXCEPT IN THE CASE OF A BUSINESS TRANSFER (AS DEFINED IN
ARTICLE 16), (4) THE SUBLEASE BY TENANT OF THE PREMISES, OR ANY PART THEREOF,
EXCEPT IN THE CASE OF A BUSINESS TRANSFER (AS DEFINED IN ARTICLE 16), (5) THE
RECAPTURE BY LANDLORD OF ANY SPACE UNDER ARTICLE 16 ABOVE, OR (6) THE FAILURE
OF TENANT TO TIMELY OR PROPERLY EXERCISE THE EXPANSION OPTION.
vi. IF (AND ONLY IF) LANDLORD'S NOTICE STATES THAT LANDLORD DOES NOT HAVE
ANY AVAILABLE SPACE IN THE BUILDING TO CONSTITUTE THE OPTION SPACE, THEN TENANT
SHALL HAVE THE OPTION (THE "TERMINATION OPTION") TO TERMINATE THIS LEASE
EFFECTIVE AS OF A DATE (THE "TERMINATION DATE") WHICH SHALL BE THE LAST DAY OF
ANY MONTH OF THE TERM AND WHICH SHALL BE ESTABLISHED BY TENANT. THE TERMINATION
OPTION IS GRANTED SUBJECT TO THE FOLLOWING TERM AND CONDITIONS:
28
<PAGE> 30
(1) TENANT GIVES LANDLORD WRITTEN NOTICE ("TENANT'S TERMINATION
NOTICE") OF TENANT'S ELECTION TO EXERCISE THE TERMINATION OPTION, WHICH
NOTICE SHALL BE GIVEN NOT LATER THAN THIRTY (30) DAYS AFTER TENANT RECEIVES
LANDLORD'S NOTICE;
(2) TENANT'S TERMINATION NOTICE SHALL DESIGNATE THE ACTUAL
TERMINATION DATE, WHICH SHALL BE NO EARLIER THAN THE DATE WHICH IS SIX (6)
MONTHS AFTER THE DATE THAT LANDLORD RECEIVES TENANT'S TERMINATION NOTICE;
(3) TENANT IS NOT IN DEFAULT UNDER THIS LEASE EITHER ON THE DATE THAT
TENANT EXERCISES THE TERMINATION OPTION, OR UNLESS WAIVED IN WRITING BY
LANDLORD, ON THE TERMINATION DATE;
(4) TENANT PAYS TO LANDLORD CONCURRENTLY WITH TENANT'S EXERCISE OF
THE TERMINATION OPTION, A CASH TERMINATION FEE (THE "FEE") IN AN AMOUNT
EQUAL TO THE UNAMORTIZED AMOUNT (THE "UNAMORTIZED AMOUNT") AS OF THE
TERMINATION DATE OF THE SUM OF THE FOLLOWING COSTS RELATING TO BOTH THE
ORIGINAL PREMISES DEMISED UNDER THIS LEASE AND TO ALL EXPANSION SPACE
SUBSEQUENTLY LEASED BY TENANT UNDER THIS LEASE:
(a) ALL BROKERAGE COMMISSIONS PAID OR INCURRED BY LANDLORD IN
CONNECTION WITH THE APPLICABLE SPACE; PLUS
(b) ALL RENT ABATEMENTS AND CASH ALLOWANCES PROVIDED BY LANDLORD
TO TENANT IN CONNECTION WITH THE APPLICABLE SPACE; PLUS
(c) THE COSTS OF ALL TENANT IMPROVEMENT WORK (AND ALL
ARCHITECTURAL FEES ASSOCIATED THEREWITH) PAID OR INCURRED BY LANDLORD
IN CONNECTION WITH THE APPLICABLE SPACE,
WHICH COSTS SHALL BE AMORTIZED ON A STRAIGHT-LINE BASIS OVER THE INITIAL
TERM OF THIS LEASE (WITH RESPECT TO THOSE COSTS RELATING TO THE ORIGINAL
PREMISES DEMISED UNDER THIS LEASE) OR OVER THE LEASE TERM FOR THE
APPLICABLE EXPANSION SPACE (WITH RESPECT TO THOSE COSTS RELATING TO EACH
EXPANSION SPACE), AS THE CASE MAY BE, PLUS INTEREST ON THE UNAMORTIZED
AMOUNT AT THE RATE OF TWELVE PERCENT (12%) PER ANNUM, FROM THE COMMENCEMENT
DATE OF THE TERM OF THIS LEASE (WITH RESPECT TO THAT PORTION OF THE
UNAMORTIZED AMOUNT ATTRIBUTABLE TO THE ORIGINAL PREMISES DEMISED UNDER THIS
LEASE) OR FROM THE COMMENCEMENT DATE OF THE LEASE TERM FOR THE APPLICABLE
EXPANSION SPACE (WITH RESPECT TO THAT PORTION, IF ANY, OF THE UNAMORTIZED
AMOUNT ATTRIBUTABLE TO EACH EXPANSION SPACE) TO THE TERMINATION DATE.
(5) WITHIN THIRTY (30) DAYS AFTER LANDLORD'S RECEIPT OF A NOTICE FROM
TENANT REQUESTING A DETERMINATION OF THE ACTUAL AMOUNT OF THE FEE, LANDLORD
SHALL NOTIFY TENANT OF SUCH AMOUNT.
vii. IF TENANT EXERCISES THE TERMINATION OPTION, ALL RENT SHALL BE PAID
THROUGH AND APPORTIONED AS OF THE TERMINATION DATE (IN ADDITION TO PAYMENT BY
TENANT OF THE FEE) AND NEITHER PARTY SHALL HAVE ANY FURTHER RIGHTS OR
OBLIGATIONS UNDER THIS LEASE FIRST ACCRUING AFTER THE TERMINATION DATE, EXCEPT
THOSE WHICH ARE INTENDED TO SURVIVE THE EXPIRATION OR TERMINATION OF THE TERM.
(SIGNATURE PAGE FOLLOWS.)
29
<PAGE> 31
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
have duly executed this Lease with the Exhibits attached hereto, as of this
19th day of April, 1999.
LANDLORD:
Attest or Witness: MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: CORNERSTONE REAL ESTATE ADVISERS,
- ----------------------------- INC., its agent
By:
---------------------------------
Title:
------------------------------
Date:
-------------------------------
TENANT:
Attest or Witness: PIVOTAL SOFTWARE USA, INC., a Washington
corporation
/s/ DIANE S. GOLDEN By: /s/ CARMAN R. WENKOFF
- ----------------------------- ---------------------------------
Diane S. Golden Carman R. Wenkoff
Title: Secretary
------------------------------
Date: April 19, 1999
-------------------------------
30
<PAGE> 32
Certificate of Tenant
(If A Corporation or Partnership)
I, _______________________, Secretary or General Partner of Pivotal
Software USA, Inc., Tenant, hereby certify that the officers executing the
foregoing Lease on behalf of Tenant is/are duly authorized to act on behalf of
and bind the Tenant.
--------------------------------
Secretary or General Partner
(Corporate Seal)
<PAGE> 1
EXHIBIT 10.11
[PIVOTAL LETTERHEAD]
November 21,1997
Mr. Robert Runge
13123 - 167th Ave. N.E.
Redmond WA 98052-1191
Dear Bob:
The Board at its meeting on October 21,1997 agreed to grant to you an option to
acquire 250,000 common shares of the Company at a price of $.25 Canadian dollars
per share. Your Option will be in accordance with the terms of the Company's
Incentive Stock Option Plan and the Option Certificate which accompanies this
letter, however, the terms of the Option will be amended in the following
respects:
1. the option will vest and be exercisable by you immediately;
2. if you cease to be employed by the Company within four years of your
date of effective employment, the Company will have the right to
repurchase from you at the option price, that portion of the shares
acquired by you under this option and that would not have vested in
accordance with the Company's normal four year vesting period under the
Plan, calculated from your effective employment date, and any
outstanding options will then terminate;
3. if your employment with the Company is terminated without cause and as a
consequence of an acquisition by a third party of substantially all the
assets or shares of the Company, then:
(a) if such acquisition occurs within 12 months of your effective
date of employment, you will be entitled to retain only 125,000
shares acquired under the Plan of the total 250,000 shares
referred in this resolution, and the option in respect of the
125,000 balance of shares will be cancelled and if any portion
of such option in respect of such balance of shares has been
exercised by you prior to such acquisition, then such shares
will be repurchased by the Company from you at the option
price; and
<PAGE> 2
Mr. Robert Runge
November 21, 1997
Page 2
(b) if such acquisition occurs more than 12 months but less than 48
months after the effective date of employment, you will be
entitled to retain only the number of shares acquired under the
Plan that would have vested under the normal four year vesting
period under the Plan as at the date of such acquisition, which
four year period shall be calculated from the date hereof,
together with one-half of the balance of the shares that would
not have then vested under the Plan, and the option in respect
of the balance of shares will be cancelled, and if any portion
of such option has been exercised by you prior to such
acquisition, then such shares will be repurchased by the Company
from you at the option price.
Would you please acknowledge your agreement to the foregoing terms by signing
and returning a copy of this letter.
Yours truly,
/s/ NORM FRANCIS
- ------------------
President & CEO
I agree with the forgoing terms of my option.
/s/ ROBERT RUNGE 12/17/97
- ------------------
Robert Runge
<PAGE> 1
EXHIBIT 10.12
[PIVOTAL LETTERHEAD]
November 21,1997
Mr. Glenn Hasen
1221 1st Avenue
Apt.#1415
Seattle WA 98101
Dear Glenn:
The Board at its meeting on October 21, 1997 agreed to grant to you an option to
acquire 136,000 common shares of the Company at a price of $.25 per share. Your
Option will be in accordance with the terms of the Company's Incentive Stock
Option Plan and the Option Certificate which accompanies this letter, however,
the terms of the Option will be amended in the following respects:
1. the option will vest and be exercisable by you immediately;
2. if you cease to be employed by the Company prior to November 1, 2000,
the Company will have the right to repurchase from you at the option
price, that portion of the shares acquired by you under your option that
would not have vested in accordance with the Company's normal four year
vesting period under the Plan, calculated from November 1, 1996, and any
outstanding options will then terminate; and
3. if your employment with the Company is terminated without cause and as a
consequence of an acquisition by a third party of substantially all the
assets or shares OF the Company, then if such acquisition occurs prior
to November 1, 2000, you will be entitled to retain only the number of
shares acquired under the Plan that would have vested under the
Company's normal four year vesting period under the Plan, calculated
from November 1, 1996, determined as at the date of such acquisition,
together with one-half of the balance of the shares that would not have
then vested under the Plan, and the option in respect of the balance of
the shares will be cancelled, and if any portion of such option has been
exercised by you prior to such acquisition, then such shares will be
repurchased by the Company from you at the option price.
<PAGE> 2
Mr. Glenn Hasen
November 21, 1997
Page 2
Would you please acknowledge your agreement to the foregoing terms by signing
and returning a copy of this letter.
Yours truly,
/s/ NORM FRANCIS
- ------------------------
Norm Francis
President & CEO
NB:cl
I agree with the forgoing terms of my option.
/s/ GLENN HASEN
- ------------------------
Glenn Hasen
<PAGE> 1
EXHIBIT 10.13
PIVOTAL SOFTWARE INC.
CLASS F PREFERRED SHARE
SUBSCRIPTION AND PURCHASE AGREEMENT
January 15, 1999
<PAGE> 2
TABLE OF CONTENTS
1. SUBSCRIPTION FOR AND SALE OF SHARES.........................................1
1.1 Subscription for and Issuance of Class F Preferred Shares........1
1.2 Closing..........................................................1
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................1
2.1 Organization, Good Standing and QUALIFICATION....................1
2.2 Capitalization and Voting Rights.................................2
2.3 Subsidiaries.....................................................2
2.4 Right, Power and Authority.......................................2
2.5 Authorization....................................................2
2.6 Valid Issuance of Preferred and Common Shares....................3
2.7 Corporate Records of the Company.................................3
2.8 Governmental Consents............................................4
2.9 Approval of Third Parties........................................4
2.10 Litigation.......................................................4
2.11 Proprietary Information and Shareholder Agreements...............4
2.12 Patents and Trademarks...........................................4
2.13 Compliance with Other Instruments................................5
2.14 Agreements; Action...............................................5
2.15 Related-Party Transactions.......................................6
2.16 Permits..........................................................7
2.17 Environmental and Safety Laws....................................7
2.18 Manufacturing and Marketing Rights...............................7
2.19 Disclosure.......................................................7
2.20 Registration Rights..............................................7
2.21 Corporate Documents..............................................7
2.22 Title to Property and Assets.....................................7
2.23 Interests in Real Property.......................................8
2.24 Financial Statements.............................................8
2.25 Changes..........................................................8
2.26 Goodwill.........................................................9
2.27 Financial Records of the Company.................................9
2.28 Debt Obligations of the Company..................................9
2.29 Guarantees and Other Agreements of the Company...................9
2.30 Tax Returns, Payments and Elections.............................10
2.31 Insurance.......................................................10
2.32 Labour Agreements and Actions...................................10
2.33 Conduct of the Company's Business...............................10
2.34 Real Property Holding Company...................................10
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS............................10
3.1 Organization, Good Standing and Qualification...................11
3.2 Authorization...................................................11
<PAGE> 3
3.3 Purchase Entirely for Own Account.............................11
3.4 Disclosure of Information.....................................12
3.5 No Prospectus.................................................12
3.6 Advertising...................................................13
3.7 Investment Experience.........................................13
3.8 Accredited Investor...........................................13
3.9 Restricted Securities.........................................13
3.10 Further Limitations on Disposition............................13
3.11 Legends.......................................................14
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING............................15
4.1 Representations and Warranties................................15
4.2 Performance...................................................15
4.3 Compliance Certificate........................................15
4.4 Qualifications................................................15
4.5 Proceedings and Documents.....................................15
4.6 Directors.....................................................15
4.7 Opinion of Company Counsel....................................15
4.8 Investors' Rights Agreement...................................18
4.9 Shareholders Agreement.......................................
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.........................18
5.1 Representations and Warranties................................18
5.2 Payment of Purchase PRICE.....................................18
5.3 California Qualification......................................19
6. MISCELLANEOUS..............................................................19
6.1 Survival of Warranties........................................19
6.2 Successors and Assigns........................................19
6.3 Governing Law.................................................19
6.4 Counterparts..................................................19
6.5 Titles and Subtitles..........................................19
6.6 Notices.......................................................19
6.7 Finder's Fee..................................................20
6.8 Expenses......................................................19
6.9 Amendments and Waivers........................................19
6.10 Severability..................................................20
6.11 Aggregation of Shares.........................................20
6.12 Entire Agreement..............................................20
6.13 Funds.........................................................21
6.14 Limitation of Liability.......................................21
6.15 Further Assurances............................................21
6.16 Non-Waiver....................................................21
<PAGE> 4
THIS SHARE SUBSCRIPTION AGREEMENT is made as of the 15th day of January 1999, by
and between Pivotal Software Inc., a British Columbia company (the "Company"),
and the investors listed on Schedule A hereto, each of which is herein referred
to as an "Investor" and collectively referred to as "Investors".
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. SUBSCRIPTION FOR AND SALE OF SHARES
1.1 SUBSCRIPTION FOR AND ISSUANCE OF CLASS F PREFERRED SHARES. Subject to the
terms and conditions of this Agreement, each Investor agrees, severally, to
subscribe for and purchase at the Closing and the Company agrees to allot and
issue and sell to each Investor at the Closing, that number of the Company's
Class F Preferred Shares set forth opposite each Investor's name on Schedule A
hereto for the purchase price set forth thereon.
1.2 CLOSING. The purchase and sale of the Class F Preferred Shares shall take
place at the offices of Davis & Company, 2800 Park Place, 666 Burrard Street,
Vancouver, British Columbia, on January 15, 1999, or at such other time and
place as the Company and Investors acquiring in the aggregate more than half the
Class F Preferred Shares sold pursuant hereto mutually agree upon orally or in
writing (which time and place are designated as the "Closing"). At the Closing
the Company shall deliver to each Investor a certificate representing the Class
F Preferred Shares which such Investor is purchasing against delivery to the
Company by such Investor of a cheque in the amount of the purchase price
therefor payable to the Company's order.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Investor as of the Closing
that, except as set forth on A Schedule of Exceptions attached hereto as
Schedule B and furnished to each investor specifically identifying the relevant
subparagraph hereof, which exceptions shall be deemed to be representations and
warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a company duly
organized, validly existing and in good standing under the laws of British
Columbia and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify would have a material adverse effect on its
business or properties.
1
<PAGE> 5
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital of the Company
consists, or will consist prior to the Closing, of:
(a) Preferred Shares. 11,946,474 Preferred Shares (the "Preferred
Shares"), of which 2,000,000 shares have been designated Class A
Preferred Shares, all of which are outstanding, 2,000,000 shares
have been designated Class B Preferred Shares, all of which are
outstanding, 2,658,228 shares have been designated Class D
Preferred Shares, all of which are outstanding, 4,000,000 shares
have been designated Class E Preferred Shares, all of which are
outstanding and 1,288,246 shares have been designated Class F
Preferred Shares, all of which will be sold pursuant to this
Agreement. The rights, privileges and preferences of the Class F
Preferred Shares are as stated in the Company's Altered
Memorandum and Articles filed with the Registrar of Companies
for British Columbia on December 29, 1998.
(b) Common Shares. 50,600,000 common shares ("Common Shares"), of
which 50,000,000 shares have been designated Class A Common
Shares,3,403,299 shares of which are issued and outstanding, and
600,000 shares have been designated Class B Common Shares,
476,786 shares of which are issued and outstanding.
(c) Except for (A) the conversion privileges of the outstanding
Class A Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares and Class F Preferred
Shares to be issued under this Agreement, (B) the rights
provided in paragraph 2.4 of the Investors' Rights Agreement,
and (C) 1,523,115 Common Shares reserved for options to
employees pursuant to the Company's Share Option Plan, of which
1,202,861 Common Shares are subject to options which have been
granted and are not exercised, particulars of which are as set
forth in Schedule C attached hereto, there are not outstanding
any options, warrants, rights (including conversion or
preemptive rights, other than preemptive rights under section 41
of the Company Act (British Columbia)) or agreements for the
purchase or acquisition from the Company of any of its shares.
The Company is not a party or subject to any agreement or
understanding, and, to the Company's knowledge, there IS no
agreement or understanding between any persons and/or entities,
which affects or relates to the voting or giving of written
consents with respect to any security or by a director of the
Company.
2.3 SUBSIDIARIES. The Company does not presently own or control, directly or
indirectly, any interest in any other corporation, association, or other
business entity, other than its US and UK subsidiaries.
2.4 RIGHT, POWER AND AUTHORITY. The Company has the capacity and authority to
enter into this Agreement, the Investors' Rights Agreement and the Shareholders
Agreement.
2.5 AUTHORIZATION. All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement, the Investors'
2
<PAGE> 6
Rights Agreement and the Shareholders Agreement, the performance of all
obligations of the Company hereunder and thereunder and the authorization,
issuance (or reservation for issuance) and delivery of the Class F Preferred
Shares being sold hereunder and the Common Shares issuable upon conversion of
the Class F Preferred Shares has been taken or will be taken prior to the
Closing, including, without limitation, waiver of all pre-emptive rights and
rights of first offer or refusal, and this Agreement, the Investors' Rights
Agreement and the Shareholders Agreement constitute valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Investors' Rights Agreement may be limited by applicable federal or state
securities laws.
2.6 VALID ISSUANCE OF PREFERRED AND COMMON SHARES.
(a) The Class F Preferred Shares which are being purchased by the
Investors hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed
herein, will be duly and validly issued, fully paid and
nonassessable, free and clear of any liens, encumbrances or
charges whatsoever, and, based in part upon the representations
of the Investors in this Agreement, will be issued in compliance
with all applicable British Columbia securities laws, except
that the Company must file, within the prescribed time period,
with respect to the issue of any Class F Preferred Shares to
which the Securities Act (British Columbia) applies, a report in
Form 20 with the British Columbia Securities Commission together
with the appropriate fees and a fee checklist form. 12,051,737
of authorized but unissued Class A Common Shares have been duly
and validly reserved for issuance upon the conversion of the
Class A Preferred Shares, the Class B Preferred Shares, the
Class D Preferred Shares, the Class E Preferred Shares and the
Class F Preferred Shares and, upon issuance in accordance with
the terms of the Altered Memorandum and Articles, shall be duly
and validly issued, fully paid and nonassessable, and issued in
compliance with all applicable securities laws, as presently in
effect, of British Columbia.
(b) The outstanding Class A, Class B, Class D and Class E Preferred
Shares and Common Shares are all duly and validly authorized and
issued, fully paid and nonassessable, and were issued in
compliance with all applicable British Columbia securities laws.
2.7 CORPORATE RECORDS OF THE COMPANY. The corporate records and minute books of
the Company contain complete and accurate minutes of all meetings of the
directors and shareholders of the Company actually held since its incorporation
and all such meetings were duly called and held. The share certificate books,
register of security holders, register of transfers and register of directors of
the Company are complete and accurate.
3
<PAGE> 7
2.8 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
Canadian or provincial governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement, the Investors' Rights Agreement or the Shareholders Agreement,
except that the Company must file, within the prescribed time period, with
respect to the issue of any Class F Preferred Shares to which the Securities Act
(British Columbia) applies, a report in Form 20 with the British Columbia
Securities Commission together with the appropriate fees and a fee checklist
form.
2.9 APPROVAL OF THIRD PARTIES. The Company is under no obligation, contractual
or otherwise, to request or obtain the consent of any person or entity to any of
the transactions contemplated in this Agreement, the Investors' Rights Agreement
or the Shareholders Agreement or to the sale, transfer, assignment or delivery
of the Class F Preferred Shares.
2.10 LITIGATION. There is no action, suit, proceeding or investigation pending
or currently threatened against the Company which questions the validity of this
Agreement, the Investors' Rights Agreement or the Shareholders Agreement or the
right of the Company to enter into any of them, or to consummate the
transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse changes in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor is the Company aware
that there is any basis for the foregoing. The foregoing includes, without
limitation, actions pending or threatened (or any basis therefor known to the
Company) involving the prior employment of any of the Company's employees, their
use in connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or subject
to the provisions of any order, writ, injunction, judgement or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
2.11 PROPRIETARY INFORMATION AND SHAREHOLDER AGREEMENTS. Each employee, officer
and consultant of the Company has executed a Proprietary Information and
Inventions Agreement in the form provided to counsel to the Investors. The
Company, after reasonable investigation, is not aware that any of its employees,
officers or consultants are in violation thereof, and the Company will use its
best efforts to prevent any such violation.
2.12 PATENTS AND TRADEMARKS. The Company has sufficient title and ownership of
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights, processes and any other intellectual property
necessary for its business as now conducted and as proposed to be conducted
without any conflict with or infringement of the rights of others. There are no
outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights, processes and any other intellectual property of any other person or
entity. The Company has not received any communications alleging and is not
aware of any allegations that the
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Company has violated or, by conducting its business as presently conducted or as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights or intellectual
property of any other person or entity. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgement,
decree or order of any court or administrative agency, that would interfere with
the use of the employee's best efforts to promote the interests of the Company
or that would conflict with the Company's business as presently conducted or as
proposed to be conducted. Neither the execution nor delivery of this Agreement,
the Investors' Rights Agreement and the Shareholders Agreement nor the carrying
on of the Company's business by the employees of the Company, nor the conduct of
the Company's business as presently conducted or as proposed, will, to the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions of
any of its employees (or people it currently intends to hire) made prior to
their employment by the Company. No person or entity other than the Company has
any right to license or use commercially the source code for the Company's set
of products known as Pivotal Relationship.
2.13 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default of any provisions of its
Altered Memorandum and Articles or of any instrument, judgement,
order, writ, decree or contract to which it is a party or by which it
is bound or, to its knowledge, of any provision of any Canadian
federal or provincial statute, rule or regulation applicable to the
Company. The execution, delivery and performance of this Agreement,
the Investors' Rights Agreement or the Shareholders Agreement and the
consummation of the transactions contemplated hereby and thereby will
not result in any such violation or be in conflict with or constitute,
with or without the passage of time and giving of notice, either a
default under any such provision, instrument, judgement, order, writ,
decree or contract or an event which results in the creation of any
lien, charge or encumbrance upon any assets of the Company or the
suspension, revocation, impairment, forfeiture, or nonrenewal of any
material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or
properties.
(b) The Company has avoided every condition, and has not performed any
act, the occurrence of which would result in the Company's loss of any
right granted under any license, distribution or other agreement.
2.14 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby and by the
Investors' Rights Agreement and the Shareholders Agreement, there are
no agreements, understandings
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or proposed transactions between the Company and any of its officers,
directors, affiliates, or any affiliate thereof.
(b) The Company has performed all of its obligations under, is entitled to
all benefits under, and is not in default or alleged to be in default
in respect of any material contracts.
(c) The Company has not (i) declared or paid any dividends, or authorized
or made any distribution upon or with respect to any class or series
of its capital shares, (ii) at December 31, 1998, incurred any
indebtedness for money borrowed or any other liabilities individually
in excess of $5,000 or, in the case of indebtedness and/or liabilities
individually less than $5,000, in excess of $25,000 in the aggregate,
(iii) made any loans or advances to any person, other than ordinary
advances for travel and other expenses (except as specifically
provided in Schedule B), or (iv) sold, exchanged or otherwise disposed
of any of its assets or rights, other than the sale of its inventory
in the ordinary course of business and sale of obsolete or unnecessary
items and equipment.
(d) For the purposes of subsection (c) above, all indebtedness and
liabilities involving the same person or entity (including persons or
entities the Company has reason to believe are affiliated therewith)
shall be aggregated for the purpose of meeting the individual minimum
dollar amounts of such subsection.
(e) The Company is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under its
Altered Memorandum and Articles, which adversely affects its business
as now conducted or as proposed to be conducted, its properties or its
financial condition.
(f) The Company has not engaged in the past three (3) months in any
discussion (i) with any representative of any corporation or
corporations regarding the consolidation or merger of the Company with
or into any such corporation or corporations, (ii) with any
corporation, partnership association or other business entity or any
individual regarding the sale, conveyance or disposition of all or
substantially all of the assets of the Company or a transaction or
series of related transactions in which more than fifty percent (50%)
of the voting power of the Company is disposed of, or (iii) regarding
any other form of acquisition, liquidation, dissolution or winding up
of the Company.
2.15 RELATED-PARTY TRANSACTIONS. Other than with respect to travel or business
expenses in the ordinary course, no employee, officer, or director of the
Company or member of his or her immediate family is indebted to the Company, nor
is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them for amounts that exceed $5,000, except as specifically
provided in Schedule B. To the best of the Company's knowledge, none of such
persons has any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated
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or with which the Company has a business relationship, or any firm or
corporation that competes with the Company, except that employees, officers, or
directors of the Company and members of their immediate families may own shares
in publicly traded companies that may compete with the Company. No member of the
immediate family of any officer or director of the Company is directly or
indirectly interested in any material contract with the Company.
2.16 PERMITS. The Company has all franchises, permits, licenses, and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could materially and adversely affect the business,
properties, prospects, or financial condition of the Company and believes it can
obtain, without undue burden or expense, any similar authority for the conduct
of its business as planned to be conducted. The Company is not in default in any
material respect under any of such franchises, permits, licenses, or other
similar authority.
2.17 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge, the Company is
not in violation of any applicable statute, law, or regulation relating to the
environment or occupational health and safety, and to the best of its knowledge,
no material expenditures are or will be required in order to comply with any
such existing statute, law, or regulation.
2.18 (intentionally deleted)
2.19 DISCLOSURE. The Company has fully provided each Investor with all the
information which such Investor has requested for deciding whether to purchase
the Class F Preferred Shares and all information which the Company believes is
reasonably necessary to enable such Investor to make such decision. Neither this
Agreement, the Investors' Rights Agreement, and the Shareholders Agreement, nor
any other statements or certificates made or delivered in connection herewith or
therewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.
2.20 REGISTRATION RIGHTS. Except as provided in the Investors' Rights Agreement
and the Shareholders Agreement, the Company has not granted or agreed to grant
any registration rights, including piggyback rights, to any person or entity.
2.21 CORPORATE DOCUMENTS. Except for amendments necessary to satisfy
representations and warranties or conditions contained herein (the form of which
amendments has been approved by the Investors), the Altered Memorandum and
Articles of the Company are in the form previously provided to counsel for the
Investors.
2.22 TITLE TO PROPERTY AND ASSETS. The Company owns its Property and assets
free and clear of all mortgages, liens, loans and encumbrances, except such
encumbrances and liens which arise in the ordinary course of business and do not
materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances. The property and assets
owned and/or leased by the Company is all of the property and assets necessary
to conduct the Company's business as presently conducted.
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2.23 INTERESTS IN REAL PROPERTY. The Company is not the owner of or a party to
or bound by or obligated under any agreement or commitment to own any real
property.
2.24 FINANCIAL STATEMENTS. The Company has delivered to each Investor its
unaudited financial statements (balance sheet and profit and loss statement,
statement of shareholders' equity and statement of changes in financial
position) at June 30, 1998 and for the fiscal year then ended and its unaudited
financial statements (balance sheet and profit and loss statement) at and for
the six-month period ended December 31, 1998 (the "Financial Statements"). The
Financial Statements are complete and correct in all material respects and have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated and with each
other, except that the unaudited Financial Statements may not contain all
footnotes required by generally accepted accounting principles. The Financial
Statements accurately set out and describe the financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein,
subject to normal year-end audit adjustments. Except as set forth in the
Financial Statements, the Company has no liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to June 30, 1998, and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with Canadian and US generally
accepted accounting principles.
2.25 CHANGES. Since June 30, 1998 there has not been:
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business which
have not been, in the aggregate, materially adverse.
(b) any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as
such business is presently conducted and as It is proposed to be
conducted);
(c) any waiver by the Company of a valuable right or of a material debt
owed to it;
(d) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company, except in the ordinary
course of business and which is not material to the assets,
properties, financial condition, operating results or business of the
Company (as such business is presently conducted and as it is proposed
to be conducted);
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(e) any change or amendment to a material contract or arrangement by which
the Company or any of its assets or properties is bound or subject;
(f) any material change in any compensation arrangement or agreement with
any employee, director or officer; or
(g) to the Company's knowledge, any other event or condition of any
character which might materially and adversely affect the assets,
properties, financial condition, operating results or business of the
Company (as such business is presently conducted and as it is proposed
to be conducted).
2.26 GOODWILL. The Company is not aware of the occurrence or existence of any
fact, matter or thing which may have a material adverse effect on the business
of the Company.
2.27 FINANCIAL RECORDS OF THE COMPANY. The books and records of the Company have
been consistently kept in accordance with the Company's internal policies and do
fairly and correctly set out and disclose as at the date hereof in all material
respects:
(i) the assets, liabilities and shareholders' equity of the Company, all
as at the date hereof, and
(ii) the revenues and expenses of the Company for the period from and
including June 30, 1998 to the date hereof,
and all material financial transactions of the Company have been accurately
recorded in such books and records up to and including the date hereof and all
supporting information and material required for entry of all material
transactions into the books and records from and including June 30, 1998, to the
date hereof is and shall be available for inspection by the Investors and their
representatives. Without in any way limiting the generality of the foregoing,
all bonuses, commissions and other payments are reflected in the books of
account of the Company.
2.28 DEBT OBLIGATIONS OF THE COMPANY. Except as set forth in the Financial
Statements, the Company does not have any outstanding, and is not a party to or
bound by or obligated under, any bonds, debentures, mortgages, notes or other
indebtedness or other like instruments, agreements or arrangements, and the
Company is not a party to or bound by or obligated under any agreement to create
or issue any bonds, debentures, mortgages, notes or other indebtedness or other
like instruments, agreements or arrangements.
2.29 GUARANTEES AND OTHER AGREEMENTS OF THE COMPANY. Except as set out in the
Financial Statements, the Company is not a party to or bound by any agreement of
guarantee, indemnification, assumption or endorsement or any other like
commitment of the obligations, liabilities (contingent or otherwise) or
indebtedness of any person or entity, and the Company has not given any
guarantee or warranty in respect of any property, products or services sold or
leased by it except in the ordinary course of business.
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2.30 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed all tax returns
and reports as required by law. These returns and reports are true and correct
in all material respects. The Company has paid all taxes and other assessments
due, except those contested by it in good faith which are listed in the Schedule
of Exceptions. The provision for taxes of the Company as shown in the Financial
Statements is adequate for taxes due or accrued as of the date thereof. The
Company has not made any elections pursuant to Canadian tax laws (other than
elections which relate solely to methods of accounting, depreciation or
amortization) which would have a material effect on the Company, its financial
condition, its business as presently conducted or proposed to be conducted or
any of its properties or material assets.
2.31 INSURANCE. The Company has in full force and effect fire and casualty
insurance policies, with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow it to replace any of its properties that might
be damaged or destroyed. The Company has in full force and effect products
liability and errors and omissions insurance in amounts customary for companies
similarly situated.
2.32 LABOUR AGREEMENTS AND ACTIONS. The Company is not bound by or subject to
(and none of its assets or properties is bound by or subject to) any written or
oral, express or implied, contract, commitment or arrangement with any labour
union, and no labour union has requested or, to the knowledge of the Company,
has sought to represent any of the employees, representatives or agents of the
Company. There is no strike or other labour dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labour organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
Subject to general principles related to wrongful termination of employees, the
employment of each officer and employee of the Company is terminable at the will
of the Company upon reasonable notice or payment in lieu thereof.
2.33 CONDUCT OF THE COMPANY'S BUSINESS. The Company's business has been carried
on in the ordinary and normal course of business since June 30, 1998.
2.34 REAL PROPERTY HOLDING COMPANY. The Company is not a real property holding
company within the meaning of Section 897 of the United States Internal Revenue
Code of 1986, as amended.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor hereby represents and warrants (as and to the extent that the
representation and warranty is applicable to it) that:
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3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of Kleiner, Perkins,
Caufield & Byers VI, Integral Capital Partners II, LP, Integral Capital Partners
International II C.V. and Oak Investment Partners VI, L.P. is a duly formed and
validly existing partnership (or foreign partnership) under the laws of the
State of California, the State of Delaware or the Netherlands Antilles and is
resident (for investment decisions) in the State of California and has all
requisite power, right, authority and capacity to acquire, own and dispose of
the Class F Preferred Shares which will be sold to it pursuant to this
Agreement, to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. Bank of Montreal Capital Corporation is a duly
formed and validly existing corporation under the Canada Business Corporations
Act, and KPMG Peat Marwick LLP is a duly formed and validly existing partnership
under the laws of and is a resident in the State of New York, and each of them
has all requisite power, right, authority and capacity to acquire, own and
dispose of the Class F Preferred Shares which will be sold to it pursuant to
this Agreement, to execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby.
3.2 AUTHORIZATION. All action on the part of each of the Investors necessary for
the authorization, execution and delivery of this Agreement, the Investors'
Rights Agreement and the Shareholders Agreement and the performance of all
obligations of the Investors hereunder and thereunder has been taken or will be
taken prior to the Closing, and this Agreement, the Investors' Rights Agreement
and the Shareholders Agreement constitute valid and legally binding obligations
of the Investors, enforceable in accordance with their respective terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
and other laws of general application affecting enforcement of creditors' rights
generally, and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
3.3 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with each Investor
in reliance upon such Investor's representation to the Company, which by such
Investor's execution of this Agreement such Investor hereby confirms, that
either:
(a) the Class F Preferred Shares to be received by such Investor and the
Class A Common Shares issuable upon conversion thereof (collectively,
the "Securities") will be acquired by the Investor for investment as
principal for such Investor's own account, not as a nominee or agent,
and the acquisition cost to the Investor is not less than Cdn.
$97,000; or
(b) the Investor carries on business as a portfolio manager in California
and is purchasing the Securities as an agent for accounts that are
fully managed by the Investor, and the aggregate acquisition cost to
the Investor is not less than Cdn. $97,000, provided that
(i) the total asset value of the investment portfolios the Investor
manages on behalf of clients is not less than Cdn. $20,000,000;
and
(ii) the form attached as Schedule "D" will be completed by the
Investor, and will be filed by the Company, on or before the 10th
day after the Closing, with the British Columbia Securities
Commission, and
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that the Securities will be acquired not with a view to resale or distribution
of any part thereof, and that such Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, each Investor further represents that such Investor does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to such person or to any third person,
with respect to any of the Securities. Each Investor represents that it has full
power and authority to enter into this Agreement. If the Investor is not an
individual but is a corporation, partnership, trust, fund, association or any
other organized group of persons, it was not created solely, nor is it used
primarily, to permit a group of individuals to purchase securities without a
prospectus and it will have an aggregate acquisition cost of purchasing the
Class F Preferred Shares of not less than Cdn. $97,000 or, if it is such an
entity created or used primarily for such purpose, each of the individuals who
form part of the group has contributed at least Cdn. $97,000 to such entity for
the purpose of purchasing the Class F Preferred Shares; and if the Investor is a
corporation, syndicate, partnership or other form of unincorporated
organization, it pre-existed the offering of the Class F Preferred Shares and
has a bona fide purpose other than investment in the Class F Preferred Shares
or, if created to permit such investment, the individual share of the aggregate
acquisition cost for each participant is not less than Cdn. $97,000.
3.4 DISCLOSURE OF INFORMATION. Each Investor believes it has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Class F Preferred Shares. Each Investor further represents that it
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Class F Preferred
Shares. The foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement or the right of the
Investors to rely thereon. To the best of the Investor's knowledge, the offer of
the Class F Preferred Shares was not advertised; and no person has made to the
Investor any written or oral representations:
(a) that any person will resell or repurchase the Class F Preferred
Shares and any Class A Common Shares into which the Class F
Preferred Shares may be converted (together, the "Securities");
(b) that any person will refund the purchase price of the
Securities;
(c) as to the future price or value of the Securities; or
(d) that the Securities will be listed and posted for trading on a
stock exchange or that application has been made to list and
post the Securities for trading on a stock exchange.
3.5 NO PROSPECTUS. Each Investor acknowledges that no prospectus has been filed
by the Company in connection with the issuance of the Securities because the
issuance is exempted from the registration and prospectus requirements of the
Securities Act (British Columbia) (the "B.C.
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Act") and the rules and regulation (collectively the "B.C. Regulations")
promulgated pursuant to the B.C. Act and as a result:
(a) each such Investor is restricted from using most of the civil
remedies available under the B.C. Act and the B.C. Regulations;
(b) each such Investor may not receive information that would
otherwise be required to be provided to the Investor under the
B.C. Act and the B.C. Regulations; and
(c) the Company is relieved from certain obligations that would
otherwise apply under the B.C. Act and the B.C. Regulations.
3.6 ADVERTISING. Each Investor acknowledges that it has no knowledge of, and
will not be purchasing the Class F Preferred Shares, on the basis of any
advertising.
3.7 INVESTMENT EXPERIENCE. Each Investor is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Class F Preferred Shares. If other
than an individual, Investor also represents it has not been organized for the
purpose of acquiring the Class F Preferred Shares.
3.8 ACCREDITED INVESTOR. Each Investor that is a resident of the United States
is an "accredited investor" within the meaning of SEC Rule 501 of Regulation D,
as presently in effect.
3.9 RESTRICTED SECURITIES. It understands that the Securities are characterized
as "restricted securities" under the federal securities laws of the United
States and the securities laws of the Province of British Columbia and that
under such laws and applicable regulations such securities may be resold only in
certain limited circumstances. In this connection, each Investor, in the case of
a resident of the United States, represents that it is familiar with SEC Rule
144, as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act of 1933, as amended(the "1933 Act").
3.10 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, each Investor further agrees not to make any
disposition of all or any portion of the Class F Preferred Shares (or the Common
Shares issuable upon the conversion thereof) unless and until the transferee has
agreed in writing for the benefit of the Company to be bound by the provisions
of this Section 3 and the Investors' Rights Agreement and Shareholders
Agreement, provided and to the extent that such provisions are then applicable,
and:
(a) there is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made
in accordance with such Registration Statement and/or a
prospectus qualifying the proposed disposition has been filed
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with the relevant securities authorities in Canada and a receipt
has been obtained therefor, as the case may be; or
(b) (i) such Investor shall have notified the Company of the
proposed disposition and shall have furnished the
Company with a detailed statement of the circumstances
surrounding the proposed disposition, and
(ii) if reasonably requested by the Company, such Investor
shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such
shares under the 1933 Act or is exempt from the
registration and prospectus requirements of the relevant
securities laws of Canada. It is agreed that the Company
will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual
circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above,
no such Registration Statement shall be necessary for a transfer
by an Investor which is a partnership to a partner of such
partnership or a retired partner of such partnership who retires
after the date hereof, or to the estate of any such partner or
retired partner or the transfer by gift, will or intestate
succession of any partner to his spouse or to the siblings,
lineal descendants or ancestors of such partner or his spouse,
if the transferee agrees in writing to be subject to the terms
hereof to the same extent as if he were an original Investor
hereunder.
3.11 LEGENDS. It is understood that the certificates evidencing the Class F
Preferred Shares (and the Class A Common Shares issuable upon conversion
thereof) will bear the following legends:
"These securities have not been registered under the United States
Securities Act of 1933. They may not be sold, offered for sale, pledged
or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required, or
unless sold pursuant to Rule 144 of such Act." and
"The securities represented by this certificate are subject to a hold
period and may not be traded in British Columbia until the expiry of the
hold period except as permitted by the Securities Act (British Columbia)
and rules and regulations made thereunder."
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING
The obligations of each Investor under Section 1.1 of this Agreement are subject
to the fulfilment on or before the Closing of each of the following conditions,
the waiver of which shall not be effective against any Investor who does not
consent in writing thereto:
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4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the
Company contained in Section 2 shall be true on and as of the Closing with the
same effect as though such representations and warranties had been made on and
as of the date of such Closing.
4.2 PERFORMANCE. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
4.3 (intentionally deleted)
4.4 QUALIFICATIONS. The Commissioner of Corporations of the State of California
shall have issued a permit qualifying the offer and sale pursuant to this
Agreement of the Class F Preferred Shares and the underlying Class A Common
Shares to those Investors that are residents of California, or such offer and
sale shall be exempt from such qualification under the California Corporate
Securities Law of 1968, as amended.
4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection
with the transactions contemplated at the Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to Investors'
counsel, and they shall have received all such counterpart original and
certified or other copies of such documents as they may reasonably request.
4.6 DIRECTORS. The directors of the Company shall have resolved pursuant to
Article 9.1 of the Articles of the Company that the number of directors shall be
six and the directors of the Company shall be Norman Francis, Keith Wales,
Douglas Mackenzie, Robert Louis, Jeremy Jaech and Roger Siboni.
4.7 OPINION OF COMPANY COUNSEL. Each Investor shall have received from Davis &
Company, counsel for the Company, an opinion, dated as of the Closing, in form
and substance satisfactory to counsel to the Investors, to the effect that:
(a) The Company is a company-duly organized, validly existing and in
good standing (except for the residency requirement as disclosed
in Schedule B hereto) in respect of the filing of annual reports
with the Registrar of Companies under the laws of British
Columbia, and the Company has the requisite corporate power and
authority to own its properties and to conduct its business.
(b) The Company has the capacity to do business in any state,
province or jurisdiction of the United States and Canada where
it seeks to do business, subject to complying with any
registration or filing requirements and subject to the
availability for use of its corporate name in any such state,
province or jurisdiction, and is so qualified in any state,
province or jurisdiction in which it is currently doing
business.
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(c) The Company has the requisite corporate power and authority to
execute, deliver and perform this Agreement, the Investors'
Rights Agreement and the Shareholders Agreement. The Agreement,
the Investors' Rights Agreement and the Shareholders Agreement
have been duly and validly authorized by the Company, duly
executed and delivered by an authorized officer of the Company
and this Agreement and the Shareholders Agreement constitute
legal, valid and binding obligations of the Company. Subject to
bankruptcy and other laws of general application affecting the
rights and remedies of creditors, the Agreement and the
Shareholders Agreement are enforceable according to their
respective terms, except that no opinion need be given as to the
availability of equitable remedies.
(d) The capitalization of the Company is as follows:
(i) Preferred Shares. 11,946,474 Preferred Shares (the
"Preferred Shares"), of which 2,000,000 shares have been
designated Class A Preferred Shares, all of which are
recorded in the books of the Company as having been duly
authorized, issued and delivered and as being validly
outstanding, fully paid and nonassessable, 2,000,000
shares have been designated Class B Preferred Shares,
all of which are recorded in the books of the Company as
having been duly authorized, issued and delivered and as
being validly outstanding, fully paid and nonassessable,
2,658,228 shares have been designated Class D Preferred
Shares, all of which are recorded in the books of the
Company as having been duly authorized, issued and
delivered and as being validly outstanding, fully paid
and nonassessable, 4,000,000 shares have been designated
Class E Preferred Shares, all of which are recorded in
the books of the Company as having been duly authorized,
issued and delivered and as being validly outstanding,
fully paid and nonassessable, and 1,288,246 shares have
been designated Class F Preferred Shares and are to be
sold pursuant to this Agreement. The Class F Preferred
Shares, when issued, sold and delivered in accordance
with the terms of this Agreement, will be validly
outstanding, fully paid and nonassessable, approved by
all requisite corporate action, and issued in compliance
with all applicable Canadian federal and provincial laws
regarding the sale of securities, except that the
Company must file, within the prescribed time period,
with respect to the issue of any Class F Preferred
Shares to which the Securities Act (British Columbia)
applies, a report in Form 20 with the British Columbia
Securities Commission together with the appropriate fees
and a fee checklist form and may be required to file
with the British Columbia Securities Commission the
Certificate referred to in Section 3.3. The respective
rights, privileges and preferences of the Class A
Prefer-red Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares and Class F
Preferred Shares are as stated in the Company's Altered
Memorandum and Articles attached as Exhibit A to this
Agreement. 12,051,737 of the authorized but unissued
Class A Common Shares have been duly and validly
reserved for issuance
16
<PAGE> 20
upon the conversion of the Class A Preferred Shares, the
Class B Preferred Shares, the Class D Preferred Shares,
the Class E Preferred Shares and the Class F Preferred
Shares and, when issued in accordance with the Company's
Articles, will be validly issued, fully paid and
nonassessable.
(ii) Common Shares. 50,600,000 Common Shares, of which
50,000,000 shares have been designated Class A Common
Shares, 3,403,299 shares of which are recorded in the
books of the Company as having been duly authorized,
issued and delivered and as being validly outstanding,
fully paid and nonassessable and were issued in
compliance with all applicable Canadian federal and
provincial laws regarding the sale of securities, and
600,000 shares have been designated Class B Common
Shares, 476,786 shares of which are recorded in the
books of the Company as having been duly authorized,
issued and delivered and as being validly outstanding,
fully paid and nonassessable and were issued in
compliance with all applicable Canadian federal and
provincial laws regarding the sale of securities.
(iii) Except for (A) the conversion privileges of the Class A
Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares and Class F
Preferred Shares (B) the rights of the Investors
pursuant to Section 2.4 of the Investors' Rights
Agreement, and (C) 1,523,115 Common Shares reserved for
options to employees pursuant to the Company's Option
Plan, of which 1,202,861 Common Shares are subject to
options which have been granted and are not exercised,
there are no preemptive rights or, to the best of
counsel's knowledge, options, warrants, conversion
privileges or other rights (or agreements for any such
rights) outstanding to purchase or otherwise obtain any
of the Company's securities.
(e) All corporate steps and proceedings have been taken by the
Company to allot and issue, as fully paid and non-assessable,
the 1,288,246 Class F Preferred Shares to be sold pursuant to
this Agreement.
(f) The execution, delivery, performance and compliance with the
terms of this Agreement and the Shareholders Agreement and
Sections 2 and 3 of the Investors' Rights Agreement do not
violate any provision of any applicable Canadian federal or
provincial, or, to the best of such counsel's knowledge, local
law, rule or regulation or any provision of the Company's
Altered Memorandum and Articles and, to the best of such
counsel's knowledge, do not conflict with or constitute a
default under the provision of any judgement, writ, decree,
order or agreement to which the Company is a party or by which
it is bound.
(g) All consents, approvals, orders or authorizations of, and all
qualifications, registrations, designations, declarations or
filings with, any Canadian federal or provincial governmental
authority on the part of the Company required in connection
17
<PAGE> 21
with the consummation of the transactions contemplated by this
Agreement, the Shareholders Agreement and sections 2 and 3 of
the Investors' Rights Agreement have been obtained, and are
effective, as of the Closing, except for the filing by the
Company, of a report in Form 20 with the British Columbia
Securities Commission together with appropriate fees and a fee
checklist form, and such counsel is not aware of any
proceedings, or threat thereof, which question the validity
thereof.
(h) Such counsel is not aware that there is any action, proceeding
or investigation pending, against the Company or any of its
officers, directors or employees, or that any of the foregoing
has received any threat thereof, which questions the validity of
the Agreement, the Investors' Rights Agreement or the
Shareholders Agreement or the right of the Company or its
officers, directors and employees to enter into such agreements
or which might result, either individually or in the aggregate,
in any material adverse change in the assets, condition, affairs
or prospects of the Company, nor is such counsel aware of any
litigation pending against the Company or that the Company has
received any threat thereof, by reason of the proposed
activities of the Company, the past employment relationships of
its officers, directors or employees, or negotiations by the
Company or any of its officers or directors with possible
investors in the Company or its business.
(i) Neither the Altered Memorandum nor the Articles of the Company
is in violation of any provision of the laws of British
Columbia.
4.8 INVESTORS' RIGHTS AGREEMENT. The Company and each Investor shall have
entered into the Investors' Rights Agreement of even date herewith.
4.9 SHAREHOLDERS AGREEMENT. The Company, Norman Francis, Keith Wales, Patricia
Wales, The Francis Family Trust, Boardwalk Ventures Inc., Daybreak Software
Inc., Fireweed Investments Inc. and the Investors shall each have entered into
the Shareholders Agreement of even date herewith.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company to each Investor under this Agreement are subject
to the fulfilment on or before the Closing of each of the following conditions
by that Investor:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the
Investor contained in Section 3 shall be true on and as of the Closing with the
same effect as though such representations and warranties had been made on and
as of the Closing.
5.2 PAYMENT OF PURCHASE PRICE. The Investor shall have delivered the purchase
price specified in Section 1.2 and entered into the Investors' Rights Agreement
and the Shareholders Agreement.
18
<PAGE> 22
5.3 CALIFORNIA QUALIFICATION. The Commissioner of Corporations of the State of
California shall have issued a permit qualifying the offer and sale to the
Investors that are resident in California of the Class F Preferred Shares and
the Class A Common Shares issuable upon the conversion thereof or such offer and
sale shall be exempt from such qualification under the California Corporate
Securities Law of 1968, as amended.
6. MISCELLANEOUS
6.1 SURVIVAL OF WARRANTIES. The warranties, representations and covenants of the
Company and Investors contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of the Investors or the Company.
6.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties (including transferees of
any Class F Preferred Shares sold hereunder or any Common Shares issued upon
conversion thereof). Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
6.3 GOVERNING LAW. This Agreement shall be governed by and construed under the
laws of British Columbia and the laws of Canada applicable therein.
6.4 COUNTERPARTS. This Agreement may be executed in two or more counterparts or
facsimile counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
6.5 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
6.6 NOTICES. Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
by personal delivery to the party to be notified, by facsimile transmission or
by mailing from a United States or Canadian Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties and any such notice will be considered to have been received,
if delivered, upon the date of delivery, if sent by facsimile, then on the
business day next following the date of transmission, and if mailed, then five
business days after the date of mailing. If normal mail service is interrupted
by strike, slowdown, force majeure or other cause, a notice sent by mail will
not be considered to be received until actually received, and the party sending
the notice will deliver or transmit by facsimile such notice in order to ensure
prompt receipt thereof.
19
<PAGE> 23
6.7 FINDER'S FEE. Each party represents that it neither is nor will be obligated
for any finders' fee or commission in connection with this transaction. Each
Investor agrees to indemnify and to hold harmless the Company from any liability
for any commission or compensation in the nature of a finders' fee (and the
costs and expenses of defending against such liability or asserted liability)
for which the Investor or any of its officers, partners, employees, or
representatives is responsible. The Company agrees to indemnify and hold
harmless each Investor from any liability for any commission or compensation in
the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
6.8 EXPENSES. Irrespective of whether the Closing is effected, the Company shall
pay all costs and expenses that it incurs with respect to the negotiation,
execution, delivery and performance of this Agreement. If the Closing is
effected, the Company shall, at the Closing, reimburse the reasonable fees and
disbursements of the Investors, not to exceed $2,500 per Investor. If any action
at law or in equity IS necessary to enforce or interpret the terms of this
Agreement or the Altered Memorandum and Articles, the prevailing party shall be
entitled to reasonable legal fees, costs and necessary disbursements in addition
to any other relief to which such party may be entitled.
6.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the Class A
Common Shares issued or issuable upon conversion of the Class F Preferred
Shares. Any amendment or waiver effected in accordance with this paragraph shall
be binding upon each holder of any securities purchased under this Agreement at
the time outstanding (including securities into which such securities are
convertible), each future holder of all such securities, and the Company;
provided, however, that no condition set forth in Section 5 hereof may be waived
with respect to any Investor who does not consent thereto.
6.10 SEVERABILITY. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
6.11 AGGREGATION OF SHARES. All the Preferred Shares held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
6.12 ENTIRE AGREEMENT. This Agreement and the documents referred to herein
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations, or
covenants except as specifically set forth herein or therein.
20
<PAGE> 24
6.13 FUNDS. All references to funds and/or dollar amounts are stated in U.S.
currency, unless expressly stated otherwise.
6.14 LIMITATION OF LIABILITY. The Investors agree that the Company shall not be
liable for any damages suffered by the Investors resulting from a breach of any
of the warranties and representations set out in Section 2 hereof except to the
extent that the damages suffered by the Investors exceed the sum of $5,000 for
any individual breach and the aggregate sum of $25,000 for any one or more
breaches.
6.15 FURTHER ASSURANCES. The parties will execute and deliver all other
appropriate supplemental agreements and other instruments, and take any other
action necessary, to give full effect to this Agreement, and to make this
Agreement legally effective, binding and enforceable as between them, and as
against third parties.
6.16 NON-WAIVER. The failure of a party to insist upon the strict performance of
any term of this Agreement, or to exercise any right, or remedy contained in
this Agreement, will not be construed as a waiver or a relinquishment by that
party for the future, of that term, right or remedy.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
PIVOTAL SOFTWARE INC.
By: /s/ Norman Francis
-------------------------
Norman Francis, President
Address: 300-224 West Esplanade
North Vancouver, BC V7M 3M6
Facsimile: 604-988-0035
INVESTORS:
KLEINER, PERKINS, CAUFIELD & BYERS VI
by: /s/ SIGNED
--------------------------
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
Facsimile: 415-233-0366
Attention: Doug Mackenzie
21
<PAGE> 25
INTEGRAL CAPITAL PARTNERS 11, L.P.
By Integral Capital Management II, L.P.,
its general partner
by: /s/ Pamela Hagenah
--------------------------
a General Partner
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
Facsimile: 650-233-0366
Attention: Roger McNamee or
John Powell
INTEGRAL CAPITAL PARTNERS INTERNATIONAL II, CV
By Integral Capital Management II, L.P.,
its Investment General Partner
by: /s/ Pamela Hagenah
----------------------------
a General Partner
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
Facsimile: 650-233-0366
Attention: Roger McNamee or
John Powell
BANK OF MONTREAL CAPITAL CORPORATION
By its manager, Ventures West Management TIP Inc.
per: /s/ SIGNED
----------------------------
Address: 280 - 1285 West Pender Street
Vancouver, BC V6E 4B 1
Facsimile: 604-687-2145
Attention: Robin J. Louis
22
<PAGE> 26
MANAGING MEMBER OF VI, LLC,
THE GENE OF
OAK INVESTMENT PARTNERS VI.
LIMITED PARTNERSHIP
OAK INVESTMENT PARTNERS VI, L.P.
by: /s/ SIGNED
----------------------------
Address: 525 University Avenue
Suite 1300, Palo Alta, CA 94301
Facsimile: 650-328-6345
Attention: Mr. Fred Harman
KPMG PEAT MARWICK LLP
by: /s/ SIGNED
----------------------------
Address: Suite 2000 - 303 Peachtree Street, NE
Atlanta, GA 30308
Facsimile: 6504044501
Attention: Rod McGeary
23
<PAGE> 27
PIVOTAL SOFTWARE, INC.
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
CLASS F AMOUNT
PURCHASER ADDRESS SHARES (US$)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kliener Perkins Caufield & Byers 2750 Sand Hill Road 309,557 $1,922,346
VI Menlo Park, CA 94025
- -------------------------------------------------------------------------------------------------------
Integral Capital Partners II, L.P. 2750 Sand Hill Road 383,802 $2,383,410
Menlo Park, CA 94025
- -------------------------------------------------------------------------------------------------------
Integral Capital Partners 2750 Sand Hill Road 99,290 $ 616,590
International II, C.V. Menlo Park, CA 94025
- -------------------------------------------------------------------------------------------------------
Bank of Montreal Capital c/o Ventures West Management 204,848 $1,272,104
Corporation TIP Inc.
2800-1285 West Pender Street
Vancouver, BC V63 481
- -------------------------------------------------------------------------------------------------------
Oak Investment Partners VI, L.P. 525 University Avenue, Suite 1300 129,718 $ 805,550
Palo Alto, California, 94301
- -------------------------------------------------------------------------------------------------------
KPMG Peat Marwick LLP 2000 - 303 Peachtree Street, NE 161,031 $1,000,000
Atlanta, Georgia, 30308
- -------------------------------------------------------------------------------------------------------
TOTAL 1,288,246 $8,000,000
=======================================================================================================
</TABLE>
24
<PAGE> 28
SCHEDULE B
PIVOTAL SOFTWARE INC.
CLASS F PREFERRED SHARE PURCHASE AGREEMENT
SCHEDULE OF EXCEPTIONS
2.1, 21.3 The Company is currently in technical non-compliance of the
directors residency requirement under section 133 of the British
Columbia Company Act, as amended. Section 133(1) requires that
the majority of the directors of the Company be persons
ordinarily resident in Canada. At the present time, the Board of
Directors of the Company consists of 3 persons ordinarily
resident in Canada and 3 persons ordinarily resident in the US.
The Company has been advised by the Registrar of Companies that
no serious consequences flow from this technical non-compliance
and that no actions of the Company will be invalid as a result.
Further, this residency requirement is expected to be repealed
in the revised Company Act which is expected to come into force
within two years.
2.15 The Company has loaned Glenn Hasen, the Company's Vice President
of Sales, a total of US $24,489 of which $12,712 remains
outstanding. This amount was used to purchase shares in the
Company.
<PAGE> 29
PIVOTAL SOFTWARE INC.
SCHEDULE C
Schedule of Shareholders and Share options Information as at January 12, 1998
<TABLE>
<CAPTION>
COMMON SHARES
TOTAL SHARES
NAME COMMON A COMMON B
<S> <C> <C>
NORM FRANCIS 680,800 45,000
KEITH WALES 669,550 56,250
PATRICIA WALES 644,550 56,250
FRANCIS FAMILY TRUST 575,800 125,000
LEWIS JAMES 2,034 63,700
PAMELA GLANCY 19,133
ALEX KACHURA 19,133
MARK DUMONT 342,500 62,500
LAUREN BANERD 1,400 7,200
JOHN MCINNES 320
STEVE KREHBIEL 5,400
DANIELA MORRISON 600
LARRY PALAZZI 580
FAY TUP CHONG 840 1,160
DEBBIE BULYAKI 280 160
STEPHEN DECOURCEY 320
JANE MALES 1,600
KATHRYN POTTER 160
MICHAEL QUAN 160
SHARKA STUYT 14,250 4,000
JOHN WOAKES 160
JAMES YEATES 8,000
CATHY BROWN 38,400
DENNIS CROW 21,244
ROBERT RUNGE 250,000
JOHN HODGSON 440
PAYMAN ARMIN 440
RICK SCHULTZ 300
GLENN HASEN 136,000
</TABLE>
<PAGE> 30
Revolving Loan
<TABLE>
<CAPTION>
- --------------------------------------------------------
<S> <C> <C>
ELAINE TAM 160
- --------------------------------------------------------
NICOLE LEBLANC 160
- --------------------------------------------------------
KELLY LYNCH 300
- --------------------------------------------------------
COLLEEN NICHOLLS 300
- --------------------------------------------------------
SONYA KONIG 240
- --------------------------------------------------------
SCOTT BULMER 1,180
- --------------------------------------------------------
TRACEY BOLLEMAN 1,812
- --------------------------------------------------------
HEATHER DRUGGE 440
- --------------------------------------------------------
PETER INMAN 12,000
- --------------------------------------------------------
TOM DEVER 400
- --------------------------------------------------------
LYN DAVIES 625
- --------------------------------------------------------
DAVE MARTENSON 240
- --------------------------------------------------------
RACHEL HOUPT 300
- --------------------------------------------------------
STEPHANIE ITO 160
- --------------------------------------------------------
EHAB SAMY 160
- --------------------------------------------------------
GORD BREESE 1,042
- --------------------------------------------------------
SCOTT ANDERSON 740
- --------------------------------------------------------
TONY YE 300
- --------------------------------------------------------
ERICA HO 160
- --------------------------------------------------------
BRIAN BONNER 250
- --------------------------------------------------------
ELAINE TAM 140
- --------------------------------------------------------
TIM GARCIA 1,812
- --------------------------------------------------------
ANDRE CHANG 500
- --------------------------------------------------------
PAULA MAY 250
- --------------------------------------------------------
LAUREL PARSONS 250
- --------------------------------------------------------
JULIE GALLA 550
- --------------------------------------------------------
- --------------------------------------------------------
TOTAL 3,403,299 476,786
- --------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A PREFERRED SHARES
- --------------------------------
NAME TOTAL
SHARES
- --------------------------------
<S> <C>
- --------------------------------
BOARDWALK 857,143
VENTURES
- --------------------------------
NORM FRANCIS 142,857
- --------------------------------
DAYBREAK 428,572
SOFTWARE
- --------------------------------
FIREWEED 428,571
INVESTMENTS
- --------------------------------
Pivotal Subscription Agreement
Jan 15, 1999
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------
PATRICIA WALES 71,429
- -----------------------------
KEITH WALES 71,428
- -----------------------------
- -----------------------------
TOTAL 2,000,000
- -----------------------------
</TABLE>
CLASS B PREFERRED SHARES
<TABLE>
<CAPTION>
- -----------------------------
NAME TOTAL
SHARES
- -----------------------------
<S> <C>
KPCB VI 1,800,000
- -----------------------------
INTEGRAL CAPITAL I 200,000
- -----------------------------
- -----------------------------
TOTAL 2,000,000
- -----------------------------
</TABLE>
CLASS D PREFERRED SHARES
<TABLE>
<CAPTION>
- -----------------------------
NAME TOTAL
SHARES
- -----------------------------
<S> <C>
VW BC TECHNOLOGY 1,645,570
- -----------------------------
BoM CAPITAL CORP. 40,259
- -----------------------------
INTEGRAL CAPITAL II 126,582
- -----------------------------
KPCB VI 820,318
- -----------------------------
OAK INVESTMENTS VI 24,918
- -----------------------------
OAK VI AFFILIATE 581
FUND
- -----------------------------
- -----------------------------
TOTAL 2,658,228
- -----------------------------
</TABLE>
<PAGE> 32
I CERTIFY THIS IS A COPY OF A
DOCUMENT FILED ON
DEC 29 1998
JOHN S. POWELL
REGISTRAR OF COMPANIES
PROVINCE OF BRITISH COLUMBIA
FORM 19
(SECTION 348)
COMPANY ACT
SPECIAL RESOLUTION
Certificate of
Incorporation No. 398393
The following special resolution was passed by the company referred to
below on the date stated:
Name of company PIVOTAL SOFTWARE INC.
Date resolution passed December 16, 1998
Resolution:
A. RESOLVED, as a special resolution, that the memorandum and
articles of the Company be altered by:
1. abrogating the special rights and restrictions attached to the
Common shares, Class A Preferred shares, Class B Preferred
shares, Class D Preferred shares and Class E Preferred shares
and deleting Part 21 of the articles of the Company in its
entirety;
2. changing the name or designation of the Common shares without
par value to that of Class A Common shares without par value;
3. increasing the authorized capital of the Company by creating
600,000 unissued Class B Common shares with a par value of $0.03
each and 1,288,246 unissued Class F Preferred shares without par
value; and
4. creating, defining and attaching to the Class A Common, Class B
Common, Class A Preferred, Class B Preferred, Class D Preferred,
Class E Preferred and Class F Preferred shares the special
rights and restrictions set forth in Schedule 2 attached hereto,
which shall be included as Part 21 of the articles of the
Company.
<PAGE> 33
2. RESOLVED, as a special resolution, that the memorandum be in the
form attached and marked Schedule 1, so that the memorandum as
altered will, at the time of filing, comply with the Company
Act."
Certified a true copy December 22, 1998.
/s/ NORMAN FRANCIS
----------------------------------------
(Signature)
President & CEO
----------------------------------------
(Relationship to Company)
2
<PAGE> 34
CLASS E PREFERRED SHARES
<TABLE>
<S> <C>
NAME TOTAL
SHARES
- ----------------------- ---------
OAK INVESTMENTS VI 1,476,658
- ----------------------- ---------
OAK VI AFFILIATE FUND 34,453
- ----------------------- ---------
KPCB VI 951,852
- ----------------------- ---------
INTEGRAL CAPITAL II 548,148
- ----------------------- ---------
INTEGRAL INT'L 192,593
- ----------------------- ---------
VW BC TECHNOLOGY 370,370
- ----------------------- ---------
BOM CAPITAL CORP. 370,370
- ----------------------- ---------
JEREMY JAECH 55,556
- ----------------------- ---------
TOTAL 4,000,000
- ----------------------- ---------
</TABLE>
STOCK OPTION PLAN
<TABLE>
<S> <C>
Total Options which Board is 2,500,000
authorized to issue
- ------------------------------- ---------
Total Options issued to date 2,179,746
- ------------------------------- ---------
Options exercised to date 976,885
- ------------------------------- ---------
Unexercised options 1,202,861
- ------------------------------- ---------
Options available for granting 320,254
- ------------------------------- ---------
</TABLE>
<PAGE> 35
SCHEDULE D
CERTIFICATION BY FOREIGN PORTFOLIO MANAGER
The undersigned is purchasing securities of Pivotal Software Inc. (the
"Issuer").
The undersigned hereby certifies that:
a it is purchasing securities of the Issuer on behalf of managed accounts
over which it has absolute discretion as to purchasing and selling, and in
respect of which it receives no instructions from any person beneficially
interested in such accounts or from any other person;
b it carries on the business of managing the investment portfolios of clients
through discretionary authority granted those clients (a "portfolio
manager" business) in ________________________________ California, and it
is permitted by law to carry on a portfolio manager business in that
jurisdiction;
c it was not created solely or primarily for the purpose of purchasing
securities of the Issuer;
d the total asset value of the investment portfolios it manages on behalf of
clients is not less than Cdn $20,000,000;
e it does not believe, and has no reasonable grounds to believe, that any
resident of British Columbia has a beneficial interest in any of the
managed accounts for which it is purchasing; and
f the Issuer has provided it with a list of the directors, senior officers
and other insiders of the Issuer, and the persons that carry on investor
relations activities for the Issuer (which list is attached as a schedule
to this Form), and it does not believe, and has no reasonable grounds to
believe, that any of those persons has a beneficial interest in any of the
managed accounts for which it is purchasing, except as follows:
__________________________________________________________________________
(name of insider(s) or person(s) carrying on
investor relations activities for the Issuer that have a beneficial
interest in an account)
The undersigned acknowledges that it is bound by the provisions of the British
Columbia Securities Act including, without limitation, sections 70 and 93
concerning the filing of insider reports and reports of acquisitions.
Dated at _________________________ this __________________ day of _____, 19__.
(Name of Purchaser - please print)
(Authorized Signatory)
(Official Capacity - please print)
(please print name of individual whose signature appears
above, if different from name of purchaser printed above)
30
<PAGE> 36
PIVOTAL SOFTWARE INC.
EXHIBIT A
ALTERED MEMORANDUM & ARTICLES
<PAGE> 37
SCHEDULE 1
ATTACHED TO SPECIAL RESOLUTIONS OF
PIVOTAL SOFTWARE INC.
PASSED BY THE COMPANY ON DECEMBER 16,1998
MEMORANDUM
(ALTERED)
OF
PIVOTAL SOFTWARE INC.
I wish to be formed into a company with limited liability under the Company Act
in pursuance of this memorandum.
1. The name of the Company is PIVOTAL SOFTWARE INC.
2. The authorized capital of the Company consists of 62,546,474 shares divided
into:
(a) 50,000,000 Class A Common shares without par value;
(b) 600,000 Class B Common shares with a par value of $0.03 each;
(c) 2,000,000 Class A Preferred shares without par value;
(d) 2,000,000 Class B Preferred shares with a par value of $1.17 each;
(e) 2,658,228 Class D Preferred shares without par value;
(f) 4,000,000 Class E Preferred shares without par value; and
(g) 1,288,246 Class F Preferred shares without par value.
3. Special rights and restrictions attached to the shares are set out in the
articles.
<PAGE> 38
SCHEDULE 2
ATTACHED TO SPECIAL RESOLUTIONS OF
PIVOTAL SOFTWARE INC.
PASSED BY THE COMPANY ON DECEMBER 16, 1998
PART 21
RIGHTS AND RESTRICTIONS ATTACHED TO THE CLASS A COMMON SHARES,
THE CLASS B COMMON SHARES,
THE CLASS A PREFERRED SHARES,
THE CLASS B PREFERRED SHARES,
THE CLASS D PREFERRED SHARES,
THE CLASS E PREFERRED SHARES,
AND THE CLASS F PREFERRED SHARES
21.1 DIVIDEND PROVISIONS
The holders of the Class A Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares and Class F Preferred Shares shall be
entitled to receive dividends, out of any assets legally available therefor,
when, as and if declared by the Board of Directors; however, in the event
dividends are paid on any other outstanding shares of this Company, the holders
of Class A, Class B, Class D, Class E and Class F Preferred Shares shall be
entitled to an amount per share equal to that paid on any other outstanding
shares of this Company as determined on a basis as if all the Preferred Shares
in question had been fully converted into Class A Common Shares under the
provisions of Article 21.4 (the "Converted Basis") on the date of record for the
payment of such dividend for such Class A, Class B, Class D, Class E and Class F
Preferred Shares. Such dividends shall not be cumulative.
21.2 LIQUIDATION PREFERENCE
(a) In the event of any liquidation, dissolution or winding up of this Company,
either voluntary or involuntary, the holders of Class F Preferred Shares
shall be entitled to receive, prior and in preference to any distribution
of any of the assets of this Company to the holders of Class A Preferred
Shares, Class B Preferred Shares, Class D Preferred Shares, Class E
Preferred Shares or Common Shares by reason of their ownership thereof, an
amount per share equal to the sum of:
(i) U.S. $6.21 for each outstanding Class F Preferred Share (adjusted to
reflect subsequent stock dividends, stock splits or recapitalization)
(the "Original Class F Issue Price"); and
<PAGE> 39
(ii) an amount equal to any declared but unpaid dividends on such shares.
If upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Class F Preferred Shares shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then the entire remaining assets and funds of the Company legally available for
distribution shall be distributed ratably among the holders of the Class F
Preferred Shares in proportion to the aggregate full aforesaid preferential
amounts to which each such holder would otherwise be entitled.
(b) Upon the completion of the distribution required by subparagraph (a) of
this Article 21.2, if assets remain in this Company, the holders of Class E
Preferred Shares shall be entitled to receive, prior and in preference to
any distribution of any of the assets of this Company to the holders of
Class A Preferred Shares, Class B Preferred Shares, Class D Preferred
Shares or Common Shares by reason of their ownership thereof, an amount per
share equal to the sum of:
(i) U.S. $1.35 for each outstanding Class E Preferred Share (adjusted to
reflect subsequent stock dividends, stock splits or recapitalization)
(the "Original Class E Issue Price"); and
(ii) an amount equal to any declared but unpaid dividends on such shares.
If upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Class E Preferred Shares shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then the entire remaining assets and funds of the Company legally available for
distribution shall be distributed ratably among the holders of the Class E
Preferred Shares in proportion to the aggregate full aforesaid preferential
amounts to which each such holder would otherwise be entitled.
(c) Upon the completion of the distributions required by subparagraphs (a) and
(b) of this Article 21.2, if assets remain in this Company, the holders of
Class D Preferred Shares shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this Company to the
holders of Class A Preferred Shares, Class B Preferred Shares or Common
Shares by reason of their ownership thereof, an amount per share equal to
the sum of:
(i) U.S. $0.79 for each outstanding Class D Preferred Share (adjusted to
reflect subsequent stock dividends, stock splits or recapitalization)
(the "Original Class D Issue Price"); and
(ii) an amount equal to any declared but unpaid dividends on such shares.
If upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Class D Preferred Shares shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then the entire remaining assets and funds of the Company legally available for
distribution shall be distributed ratably among the holders of the Class D
Preferred
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<PAGE> 40
Shares in proportion to the aggregate full aforesaid preferential amounts to
which each such holder would otherwise be entitled.
(d) Upon the completion of the distributions required by subparagraphs (a), (b)
and (c) of this Article 21.2, if assets remain in this Company, the holders
of Class B Preferred Shares of this Company shall be entitled to receive,
prior and in preference to any distribution of any of the assets of this
Company to the holders of Class A Preferred Shares or Common Shares by
reason of their ownership thereof, an amount per share equal to the sum of:
(i) U.S. $1.00 for each outstanding Class B Preferred Share (adjusted to
reflect subsequent stock dividends, stock splits or recapitalization)
(the "Original Class B Issue Price"); and
(ii) an amount equal to any declared but unpaid dividends on such shares.
If upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Class B Preferred Shares shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then the entire remaining assets and funds of the Company legally available for
distribution shall be distributed ratably among the holders of the Class B
Preferred Shares in proportion to the aggregate fall aforesaid preferential
amounts to which each such holder would otherwise be entitled.
(e) Upon the completion of the distributions required by subparagraphs (a),
(b), (c) and (d) of this Article 21.2, if assets remain in this Company,
the holders of Class A Preferred Shares of this Company shall be entitled
to receive, prior and in preference to any distribution of any of the
assets of this Company to the holders of Common Shares by reason of their
ownership thereof, an amount per share equal to the sum of:
(i) U.S. $0.30 for each outstanding Class A Preferred Share (adjusted to
reflect subsequent stock dividends, stock splits or recapitalization)
(the "Original Class A Issue Price"); and
(ii) an amount equal to any declared but unpaid dividends on such shares.
If upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Class A Preferred Shares shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then the entire remaining assets and funds of the Company legally available for
distribution shall be distributed ratably among the holders of the Class A
Preferred Shares in proportion to the aggregate full aforesaid preferential
amounts to which each such holder would otherwise be entitled.
(f) Upon the completion of the distributions required by subparagraphs (a),
(b), (c), (d) and (e) of this Article 21.2, if assets remain in this
Company, the holders of the Class A Common Shares of this Company shall be
entitled to receive, prior and in preference to any distribution of any of
the assets of this Company to the holders of the Class B Common
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<PAGE> 41
Shares by reason of their ownership thereof, an amount per share equal to
any declared but unpaid dividends on such share.
If upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Class A Common Shares shall be insufficient to permit
the payment to such holders of the full aforesaid preferential amounts, then the
entire remaining assets and funds of the Company legally available for
distribution shall be distributed ratably among the holders of the Class A
Common Shares in proportion to the aggregate full aforesaid preferential amounts
to which each such holder would otherwise be entitled.
(g) Upon the completion of the distributions required by subparagraphs (a),
(b), (c), (d), (e) and (f) of this Article 21.2, if assets remain in this
Company, the holders of the Class B Common Shares of this Company shall be
entitled to receive, prior and in preference to any distribution of any of
the assets of this Company to the holders of any other class of shares by
reason of their ownership thereof, an amount per share equal to any
declared but unpaid dividends on such share.
If upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Class B Common Shares shall be insufficient to permit
the payment to such holders of the full aforesaid preferential amounts, then the
entire remaining assets and funds of the Company legally available for
distribution shall be distributed ratably among the holders of the Class B
Common Shares in proportion to the aggregate full aforesaid preferential amounts
to which each such holder would otherwise be entitled.
(h) After the distributions described in subparagraphs (a), (b), (c), (d), (e),
(f) and (g) of this Article 21.2 have been paid, the remaining assets of
the Company available for distribution to shareholders shall be distributed
among the holders of Class A Preferred Shares, Class B Preferred Shares,
Class D Preferred Shares, Class E Preferred Shares, Class F Preferred
Shares and Common Shares pro rata based on the number of shares of Common
Shares held by each on a Converted Basis.
(i) A reorganization of this Company or a consolidation or merger of this
Company with or into any other company or companies, or a sale, conveyance
or disposition of all or substantially all of the assets of this Company or
the completion of a transaction or class of related transactions in which
more than 50% of the voting power of the Company is disposed of, except for
and excluding a transaction described in Article 21.4(a)(iii)(A), shall be
deemed to be a liquidation, dissolution or winding up within the meaning of
this Article 21.2.
(j) Any securities to be delivered pursuant to subparagraph (i) above shall be
valued as follows:
(i) Securities not subject to a hold period or other similar restrictions on
free marketability:
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<PAGE> 42
(A) If traded on a securities exchange, the value shall be deemed to be
the average of the closing prices of the securities on such
exchange over the 30-day period ending three (3) days prior to
the closing;
(B) If actively traded over-the-counter, the value shall be deemed to be
the average of the closing bid or sale prices (whichever are
applicable) over the 30-day period ending three (3) days prior to
the closing; and
(C) If there is no active public market, the value shall be the fair
market value thereof, as mutually determined by this Company and
the holders of Preferred Shares which would be entitled to
receive such securities or the same type of securities and which
Preferred Shares represent at least a majority of the voting
power of all then outstanding shares of such Preferred Shares.
(ii) The method of valuation of securities subject to a hold period or other
restrictions on free marketability (other than restrictions arising
solely by virtue of a shareholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market
value determined as above in clause (i) (A), (B) or (C) to reflect the
approximate fair market value thereof, as mutually determined by this
Company and the holders of Preferred Shares which would be entitled to
receive such securities or the same type of securities and which
represent at least a majority of the voting power of all then
outstanding shares of such Preferred Shares.
(k) In the event the requirements of subparagraph (i) of this Article are not
complied with, the Company shall forthwith either:
(i) cause such closing to be postponed until such time as the requirements
of this Article 21.2 have been complied with, or
(ii) cancel such transaction, in which event the rights, preferences and
privileges of the holders of the Class A, Class B, Class D, Class
E and Class F Preferred Shares and Class A Common Shares shall
revert to and be the same as such rights, preferences and
privileges existing immediately prior to the date of the first
notice referred to in subparagraph (l) hereof.
(l) The Company shall give each holder of record of Class A, Class B, Class D,
Class E and Class F Preferred Shares written notice of such impending
transaction not later than twenty (20) days prior to the shareholders'
meeting called to approve such transaction, or twenty (20) days prior to
the closing of such transaction, whichever is earlier, and shall also
notify such holders in writing of the final approval of such transaction.
The first of such notices shall describe the material terms and conditions
of the impending transaction and the provision of this Article 21.2, and
the Company shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after the Company has given the first notice provided for
herein or sooner than ten (10) days after the Company has given notice of
any material changes provided for herein; provided,
5
<PAGE> 43
however, that such periods may be shortened upon the written consent of the
holders of Preferred Shares which are entitled to such notice rights or
similar notice rights and which represents at least a majority of the
voting power of all then outstanding shares of such Preferred Shares.
(m) The provisions of this Article 21.2 are in addition to the protective
provisions of Article 21.6 hereof.
21.3 RETRACTION AT REQUEST OF SHAREHOLDER AND REDEMPTION BY THE COMPANY
(a) On or at any time after June 30, 2001, the Company shall, after receipt by
it of the written request of the holders of not less than 75% of the
outstanding Class B, Class D, Class E and Class F Preferred Shares, redeem
in whole or in part the Class B, Class D, Class E and Class F Preferred
Shares by paying in cash therefor:
(i) for the Class B Preferred Shares a sum per share equal to U.S. $1.00
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) together with all dividends declared, but unpaid,
with respect to such share to the Redemption Date (defined below)
(such total amount is hereinafter referred to as the "Class B
Redemption Price");
(ii) for the Class D Preferred Shares a sum per share equal to U.S. $0.79
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) together with all dividends declared, but unpaid,
with respect to such share to the Redemption Date (such total amount
is hereinafter referred to as the "Class D Redemption Price");
(iii) for the Class E Preferred Shares a sum per share equal to U.S. $1.35
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) together with all dividends declared, but unpaid,
with respect to such share to the Redemption Date (such total amount
is hereinafter referred to as the "Class E Redemption Price"); and
(iv) for the Class F Preferred Shares a sum per share equal to U.S. $6.21
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) together with all dividends declared, but unpaid,
with respect to such share to the Redemption Date (such total amount
is hereinafter referred to as the "Class F Redemption Price").
(b) On or at any time after June 30, 2001, the Company may, after receipt by it
of written consent to redemption hereunder of the Class B, Class D, Class E
and Class F Preferred Shares, from the holders of Class B, Class D, Class E
and Class F Preferred Shares representing at least 75% of the voting power
of the then outstanding Class B, Class D, Class E and Class F Preferred
Shares of this Company, at any time it may lawfully do so, redeem in whole
or in part the Class B, Class D, Class E and Class F Preferred Shares by
paying in cash therefor a sum equal to the Class B Redemption Price in the
case of the Class B Preferred Shares, the Class D Redemption Price in case
of the Class D Preferred Shares, the Class E Redemption
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<PAGE> 44
Price in the case of the Class E Preferred Shares and the Class F
Redemption Price in the case of the Class F Preferred Shares so
redeemed.
(c) (i) In the event of any redemption of only a part of the then
outstanding Class B, Class D, Class E and Class F Preferred
Shares, this Company shall, except as provided in Article
21.3(c)(iii), effect such redemption pro rata in proportion to
the aggregate redemption price for each class.
(ii) Within thirty (30) days after receipt of the written request
referred to in Article 21.3(a) or the written consent referred
to in Article 21.3(b), as the case may be, the Company shall
give written notice by mail, first class postage prepaid, to
each holder of record (at the close of business on the business
day next preceding the day on which notice is given) of the
Class B, Class D, Class E and Class F Preferred Shares to be
redeemed, at the address last shown on the records of this
Company for such holder or given by the holder to this Company
for the purpose of notice or, if no such address appears or is
given, at the place where the principal executive office of this
Company is located, notifying such holder of the redemption to
be effected, specifying the number of shares to be redeemed from
such holder, the date fixed by the Company for the redemption of
any Class B, Class D, Class E and Class F Preferred Shares,
which date shall be not less than 30 but no more 60 days after
the date of such mailing (the "Redemption Date"), the Redemption
Price, the place at which payment may be obtained and the date
on which such holder's Conversion Rights (as hereinafter
defined) as to such shares terminate and calling upon such
holder to surrender to this Company, in the manner and at the
place designated, the holder's certificate or certificates
representing the shares to be redeemed (the "Redemption
Notice"). Except as provided in Article 21.3(c)(iii), on or
after the Redemption Date, each holder of Class B, Class D,
Class E and Class F Preferred Shares to be redeemed shall
surrender to this Company the certificate or certificates
representing such shares, in the manner and at the place
designated in the Redemption Notice, and thereupon the
Redemption Price of such shares shall be payable to the order of
the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the
shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(iii) From and after the Redemption Date, unless there shall have been
a default in payment of the Redemption Price, all rights of the
holders of such shares as holders of Class B, Class D, Class E
and Class F Preferred Shares (except the right to receive the
Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on
the books of this Company or be deemed to be outstanding for any
purpose whatsoever. If the funds of this Company legally
available for redemption of Class B, Class D, Class E and Class
F Preferred Shares on any Redemption Date are insufficient to
redeem the total number of Class B, Class
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<PAGE> 45
D, Class E and Class F Preferred Shares specified in the Redemption Notice to be
redeemed on such date, those funds which are legally available will be used as
follows:
A. First, the funds will be used to redeem the maximum possible number of
Class F Preferred Shares described in the Redemption Notice at the Class F
Redemption Price, in priority and preference to any payment to the holders
of Class B Preferred Shares, Class D Preferred Shares and Class E Preferred
Shares, and if such funds are insufficient to permit the payment of the
full Redemption Price for the Class F Preferred Shares that are described
in the Redemption Notice then the funds shall be paid ratably among the
holders of the Class F Preferred Shares in proportion to the aggregate full
preferential amounts to which each holder would otherwise be entitled as
provided in Article 21.2(a),
B. Second, if funds remain after paying in full the Class F Redemption Price
to the holders of Class F Preferred Shares, then the funds will be used to
redeem the maximum possible number of Class E Preferred Shares described in
the Redemption Notice at the Class E Redemption Price, in priority and
preference to any payment to the holders of Class B Preferred Shares and
Class D Preferred Shares, and if such funds are insufficient to permit the
payment of the full Redemption Price for the Class E Preferred Shares that
are described in the Redemption Notice then the funds shall be paid ratably
among the holders of Class E Preferred Shares in proportion to the
aggregate full preferential amounts to which each holder would otherwise be
entitled as provided in Article 21.2(b),
C. Third, if funds remain after paying in full the Class B Redemption Price to
the holders of Class E Preferred Shares, then the funds will be used to
redeem the maximum possible number of Class D Preferred Shares described in
the Redemption Notice at the Class D Redemption Price, in priority and
preference to any payment to the holders of Class B Preferred Shares, and
if such funds are insufficient to permit the payment of the full Redemption
Price for the Class D Preferred Shares that are described in the Redemption
Notice then the funds shall be paid ratably among the holders of Class D
Preferred Shares in proportion to the aggregate full preferential amounts
to which each holder would otherwise be entitled as provided in Article
21.2(c), and
D. Fourth, if funds remain after paying in full the Class D Redemption Price
to the holders of Class D Preferred Shares, then the funds will be used to
redeem the maximum possible number of Class B Preferred Shares described in
the Redemption Notice at the Class B Redemption Price, and if such funds
are insufficient to permit the payment of the full Redemption Price for the
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<PAGE> 46
Class B Preferred Shares that are described in the Redemption Notice
then the funds shall be paid ratably among the holders of Class B
Preferred Shares in proportion to the aggregate full preferential
amounts to which each holder would otherwise be entitled as provided
in Article 21.2(d).
The Class B, Class D, Class E and Class F Preferred Shares not redeemed
shall remain outstanding and entitled to all the rights and preferences
provided herein. At any time thereafter when additional funds of the
Company are legally available for the redemption of Class B, Class D, Class
E and Class F Preferred Shares, such funds will immediately be used to
redeem the balance of the shares which the Company has become obligated to
redeem on any Redemption Date but which it has not redeemed, in the
priority set out above.
(iv) Three days prior to the Redemption Date, this Company shall deposit the
Redemption Price of all outstanding Class B, Class D, Class E and Class F
Preferred Shares designated for redemption in the Redemption Notice, and
not yet redeemed or converted, with a bank or trust company having
aggregate capital and surplus in excess of U.S. $50,000,000 as a trust fund
for the benefit of the respective holders of the shares designated for
redemption and not yet redeemed. Simultaneously, this Company shall deposit
irrevocable instruction and authority to such bank or trust company to
publish the notice of redemption thereof (or to complete such publication
if theretofore commenced) and to pay, on and after the date fixed for
redemption or prior thereto, the Redemption Price of the Class B, Class D,
Class E and Class F Preferred Shares to the holders thereof upon surrender
of their certificates duly endorsed for transfer. Any moneys deposited by
this Company pursuant to this Article 21.3(c) (iv) for the redemption of
shares which are thereafter converted into Class A Common Shares pursuant
to Article 21.4 hereof no later than the close of business on the
Redemption Date shall be returned to this Company forthwith upon such
conversion. The balance of any moneys deposited by this Company pursuant to
this Article 21.3(c)(iv) remaining unclaimed at the expiration of two years
following the Redemption Date shall thereafter be returned to this Company,
provided that the shareholder to which such monies would be payable
hereunder shall be entitled, upon proof of its ownership of Class B, Class
D, Class E or Class F Preferred Shares and payment of any bond requested by
the Company, to receive such monies but without interest from the
Redemption Date.
21.4 CONVERSION
The holders of the Class A, Class B, Class D, Class E and Class F Preferred
Shares shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
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<PAGE> 47
(i) Subject to Article 21.4 (c), each Class A Preferred Share, Class B
Preferred Share, Class D Preferred Share, Class E Preferred Share and
Class F Preferred Share shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share and (in the
case of a Class B Preferred Share, Class D Preferred Share, Class E
Preferred Share and Class F Preferred Share) prior to the close of
business on any Redemption Date as may have been fixed in any Redemption
Notice with respect to such share, at the office of this Company or any
transfer agent for the Class A Preferred Shares, Class B Preferred Shares,
Class D Preferred Shares, Class E Preferred Shares or Class F Preferred
Shares into such number of fully paid and non-assessable Class A Common
Shares as is determined by dividing the Original Class A Issue Price,
Original Class B Issue Price, Original Class D Issue Price, Original Class
E Issue Price or Original Class F Issue Price as applicable, by the
Conversion Price at the time in effect for such share. The initial
Conversion Price per share for Class A Preferred Shares, Class D Preferred
Shares, Class E Preferred Shares and Class F Preferred Shares shall be the
Original Class A Issue Price, the Original Class D Issue Price, the
Original Class E Issue Price and the Original Class F Issue Price,
respectively, and the initial Conversion Price per share for Class B
Preferred Shares shall be U.S. $0.95 (adjusted to reflect subsequent stock
dividends, stock splits or recapitalization); provided, however, that the
Conversion Price for the Class A Preferred Shares, Class B Preferred
Shares, Class D Preferred Shares, Class E Preferred Shares and Class F
Preferred Shares shall be subject to adjustment as set forth in Article
21.4(c).
(ii) In the event of a call for redemption of any Class B and/or Class D and/or
Class E and/or Class F Preferred Shares pursuant to Article 21.3 hereof,
the Conversion Rights shall terminate as to the shares designated for
redemption at the close of business on the Redemption Date, unless default
is made in payment of the Redemption Price.
(iii) Each Class A Preferred Share, Class B Preferred Share, Class D Preferred
Share, Class E Preferred Share and Class F Preferred Share shall
automatically be converted into Class A Common Shares at the Conversion
Price at the time in effect for such Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred Shares and
Class F Preferred Shares immediately upon the earlier of:
A. the acquisition of all or substantially all of the assets of the
Company by a third party or the consummation of a takeover of the
Company by a third party as a result of an offer to acquire all of
the issued shares of the Company, at a price or consideration which
results in payment to all of the shareholders of the Company of not
less than U.S. $7.50 per Common Share (adjusted to reflect subsequent
stock dividends, stock splits or recapitalization) calculated on a
basis that all of the Preferred Shares have been converted to Class A
Common Shares and without regard to any liquidation preferences for
any class of shares as set forth herein; and
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<PAGE> 48
B. the consummation of the Company's sale of its Common Shares in a bona
fide, firm commitment underwriting pursuant to a registration
statement under the Securities Act of 1933 of the United States, as
amended, the public offering price of which was not less than U.S.
$7.50 per share (adjusted to reflect subsequent stock dividends, stock
splits or recapitalization) and U.S. $15,000,000 in the aggregate,
provided that the underwriters in such public offering are acceptable
to the holders of a majority of the Class B, Class D Class E and Class
F Preferred Shares, such acceptance not to be unreasonably withheld.
(b) Mechanics of Conversion. Before any holder of Class A Preferred Shares,
Class B Preferred Shares, Class D Preferred Shares, Class E Preferred
Shares or Class F Preferred Shares shall be entitled to convert the same to
Class A Common Shares, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of this Company or of
any transfer agent for the Class A Preferred Shares, Class B Preferred
Shares, Class D Preferred Shares, Class E Preferred Shares and Class F
Preferred Shares, and shall give written notice by mail, postage prepaid,
to this Company at its principal corporate office, of the election to
convert the same and shall state therein the name or names in which the
certificate or certificates for Class A Common Shares are to be issued.
This Company shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Class A Preferred Shares, Class B Preferred
Shares, Class D Preferred Shares, Class E Preferred Shares or Class F
Preferred Shares or to the nominee or nominees of such holder, a
certificate or certificates for the number of Class A Common Shares to
which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the
date of such surrender of the Class A Preferred Shares, Class B Preferred
Shares, Class D Preferred Shares, Class E Preferred Shares or Class F
Preferred Shares to be converted, and the person or persons entitled to
receive the Class A Common Shares issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such Class A
Common Shares as of such date. If the conversion is in connection with an
acquisition or take-over referred to in Article 21.4(a)(iii)(A) or in
connection with an underwritten offer of securities registered pursuant to
the Securities Act of 1933 of the United States, as amended, as set out in
Article 21.4(a)(iii)(B), the conversion may, at the option of any holder
tendering Class A Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares or Class F Preferred Shares for
conversion, be conditioned upon the consummation of the acquisition of the
assets or the take-over, or conditioned upon the closing with the
underwriter of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Class A Common Shares issuable
upon such conversion of the Class A Preferred Shares, Class B Preferred
Shares, Class D Preferred Shares, Class E Preferred Shares or Class F
Preferred Shares shall not be deemed to have converted such Class A
Preferred Shares, Class B Preferred Shares, Class D Preferred Shares, Class
E Preferred Shares or Class F Preferred Shares until immediately prior to
the closing of such acquisition, take-over or sale of securities.
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<PAGE> 49
(c) Conversion Price Adjustments of Preferred Shares. The Conversion Price of
Class A Preferred Shares, Class B Preferred Shares, Class D Preferred
Shares, Class E Preferred Shares and Class F Preferred Shares shall be
subject to adjustment from time to time as follows:
(i) A. Upon each issuance by the Company of any Additional Shares
(as defined below), after the date upon which any of the Class B
Preferred Shares were first issued (the "Purchase Date" with
respect to the Class A and Class B Preferred Shares) or after the
date upon which any shares of the Class D Preferred Shares were
first issued (the "Purchase Date" with respect to the Class D
Preferred Shares) or after the date upon which any shares of the
Class E Preferred Shares were first issued (the "Purchase Date"
with respect to the Class E Preferred Shares) or after the date
upon which any shares of the Class F Preferred Shares were first
issued (the "Purchase Date" with respect to the Class F Preferred
Shares), without consideration or for a consideration per share
less than the Conversion Price for such class in effect
immediately prior to the issuance of such Additional Shares, the
Conversion Price for such class in effect immediately prior to
each such issuance shall forthwith (except as otherwise provided
in this Article 21.4(c)(i)) be adjusted to a price determined as
follows:
1. In the case of the Class A Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares and Class F
Preferred Shares, by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of
Common Shares outstanding immediately prior to such issuance
plus the number of Common Shares which the aggregate
consideration received by the Company for such issuance
would purchase at such Conversion Price and the denominator
of which shall be the number of Common Shares outstanding
immediately prior to such issuance plus the number of such
Additional Shares; and
2. In the case of the Class B Preferred Shares no adjustment to
the Conversion Price for such class shall be made upon the
issuance by the Company of any Additional Shares unless the
consideration per share for such issuance is less than U.S.
$0.79 (adjusted to reflect subsequent stock dividends, stock
splits or recapitalization). In the event that Additional
Shares are issued by the Company for consideration per share
which is less than U.S. $0.79 (adjusted to reflect
subsequent stock dividends, stock splits or
recapitalization), then the Conversion Price for the Class B
Preferred Shares will be adjusted to a price determined by
multiplying the Conversion Price for Class B Preferred
Shares in effect immediately prior to such issuance by a
fraction, the numerator of which shall be the new
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<PAGE> 50
Conversion Price for the Class D Preferred Shares for the
issuance of such Class D Preferred Shares and the
denominator of which shall be the Conversion Price for the
Class D Preferred Shares in effect immediately prior to the
issuance of such Additional Shares.
B. No adjustment of the Conversion Price for the Class A Preferred Shares,
Class B Preferred Shares, Class D Preferred Shares, Class E Preferred
Shares or Class F Preferred Shares shall be made in an amount less than one
cent U.S. per share, provided that any adjustments which are not required
to be made by reason of this Article 21.4(c)(i)B shall be carried forward
and shall be either taken into account in any subsequent adjustment made
prior to 3 years from the date of the event giving rise to the adjustment
being carried forward, or shall be made at the end of 3 years from the date
of the event giving rise to the adjustment being carried forward. Except to
the limited extent provided for in Article 21.4(c)(i)(E)(3) and (4), no
adjustment of such Conversion Price pursuant to this Article 21.4(c)(i)
shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.
C. In the case of the issuance of Common Shares for cash, the consideration
shall be deemed to be the amount of cash paid therefor before deducting any
reasonable discounts, commissions or other expenses allowed, paid or
incurred by this Company for any underwriting or otherwise in connection
with the issuance and sale thereof.
D. In the case of the issuance of Common Shares for a consideration in whole
or in part other than cash, the consideration other than cash shall be
deemed to be the fair value thereof as determined by the Board of Directors
irrespective of any accounting treatment.
E. In the case of the issuance (whether before, on or after the applicable
Purchase Date) of options to purchase or rights to subscribe for Common
Shares, securities by their terms convertible into or exchangeable for
Common Shares or options to purchase or rights to subscribe for such
convertible or exchangeable securities, the following provisions shall
apply for all purposes of this Article 21.4(c)(i) and (ii):
1. The aggregate maximum number of Common Shares deliverable upon
exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but
without taking into account potential antidilution adjustments) of
such options to purchase or rights to subscribe for Common Shares
shall be deemed to have been issued at the time such options or rights
were issued and for a consideration equal to the consideration
(determined in the
13
<PAGE> 51
manner provided in Article 21.4(c)(i)(C) and (D)), if any, received by
the Company upon the issuance of such options or rights plus the
minimum exercise price provided in such options or rights (without
taking into account potential antidilution adjustments) for the Common
Shares covered thereby.
2. The aggregate maximum number of Common Shares deliverable upon
conversion of or in exchange (assuming the satisfaction of any
conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or
exchangeable securities or upon the exercise of options to purchase or
rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or
rights were issued and for a consideration, if any, received by the
Company for any such securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any, to be
received by the Company (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such
securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in
Article 21.4(c)(i)(C)and (D)).
3. In the event of any change in the number of Common Shares deliverable
or in the consideration payable to this Company upon exercise of such
options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to,
a change resulting from the antidilution provisions thereof, the
Conversion Price of the Class A Preferred Shares, Class B Preferred
Shares, Class D Preferred Shares, Class E Preferred Shares and Class F
Preferred Shares to the extent in any way affected by or computed
using such options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made for the
actual issuance of Common Shares or any payment of such consideration
upon the exercise of any such options or rights or the conversion or
exchange of such securities.
4. Upon the expiration of any such options or rights, the termination of
any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Class A Preferred Shares,
Class B Preferred Shares, Class D Preferred Shares, Class E Preferred
Shares and Class F Preferred Shares to the extent in any way affected
14
<PAGE> 52
by or computed using such options, rights or securities or options or
rights related to such securities, shall be recomputed to reflect the
issuance of only the number of Common Shares (and convertible or
exchangeable securities which remain in effect) actually issued upon
the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or
rights related to such securities.
5. The number of Common Shares deemed issued and the consideration deemed
paid therefor pursuant to Article 21.4(c)(i)(E)(1) and (2) shall be
appropriately adjusted to reflect any change, termination or
expiration of the type described in either Article 21.4(c)(i)(E)(3) or
(4).
(ii) "Additional Shares" shall mean any Common Shares issued (or deemed to have
been issued pursuant to Article 21.4(c)(i)(E)) by this Company after the
applicable Purchase Date other than:
A. Common Shares issued pursuant to a transaction described in
Article 21.4(c)(iii),
B. Common Shares issuable or issued to employees, consultants or
directors of this Company directly or pursuant to a share option
plan or restricted share plan approved by the Board of Directors
of this Company at any time when the total number of Common
Shares so issuable or issued (and any shares repurchased at cost
and not cancelled by the Company in connection with the
termination of employment which shares shall be available for
re-issue by the Company) does not exceed 2,500,000 (adjusted to
reflect subsequent stock dividends, stock splits or
recapitalization), or
C. Common Shares issued or issuable (I) in a public offering before
or in connection with which all outstanding Class A Preferred
Shares, Class B Preferred Shares, Class D Preferred Shares, Class
E Preferred Shares and Class F Preferred Shares will be converted
to Common Shares or (II) upon exercise of warrants or rights
granted to underwriters in connection with such a public
offering.
(iii) In the event the Company should at any time or from time to time after the
applicable Purchase Date fix a record date for the effectuation of a split
or subdivision of the outstanding Common Shares or the determination of
holders of Common Shares entitled to receive a dividend or other
distribution payable in additional Common Shares or other securities or
rights convertible into, or entitling the holder thereof to receive
directly or indirectly, additional
15
<PAGE> 53
Common Shares (hereinafter referred to as "Common Share
Equivalents") without payment of any consideration by such holder
for the additional Common Shares or the Common Share Equivalents
(including the additional Common Shares issuable upon conversion
or exercise thereof), then, as of such record date (or the date
of such dividend distribution, split or subdivision if no record
date is fixed), the Conversion Price of the Class A Preferred
Shares, Class B Preferred Shares, Class D Preferred Shares, Class
E Preferred Shares and Class F Preferred Shares shall be
appropriately decreased so that the number of Common Shares
issuable on conversion of each share of such class shall be
increased in proportion to such increase of the aggregate of
Common Shares outstanding and those issuable with respect to such
Common Share Equivalents with the number of shares issuable with
respect to Common Share Equivalents determined from time to time
in the manner provided for deemed issuances in Article
21.4(c)(i)(E).
(iv) If the number of Common Shares outstanding at any time after the
applicable Purchase Date is decreased by a consolidation of the
outstanding Common Shares, then, following the record date of such
consolidation, the Conversion Price for the Class A Preferred Shares,
Class B Preferred Shares, Class D Preferred Shares, Class E Preferred
Shares and Class F Preferred Shares shall be appropriately increased
so that the number of Common Shares issuable on conversion of each
share of such class shall be decreased in proportion to such decrease
in outstanding shares.
(d) Other Distributions. In the event this Company shall declare a distribution
payable in securities of other persons, evidences of indebtedness issued by
this Company or other persons, assets (excluding cash dividends) or options
or rights not referred to in Article 21.4(c)(iii), then, in each such case
for the purpose of this Article 21.4(d), the holders of the Class A
Preferred Shares, Class B Preferred Shares, Class D Preferred Shares, Class
E Preferred Shares or Class F Preferred Shares shall be entitled to a
proportionate share of any such distribution as though they were the
holders of the number of Common Shares of the Company into which their
Class A Preferred Shares, Class B Preferred Shares, Class D Preferred
Shares, Class E Preferred Shares or Class F Preferred Shares are
convertible as of the record date fixed for the determination of the
holders of Common Shares of the Company entitled to receive such
distribution.
(e) Recapitalizations. If at any time or from time to time there shall be a
recapitalization of the Common Shares (other than a subdivision,
consolidation or merger or sale of assets transaction provided for
elsewhere in this Article 21.4 or Article 21.2) provision shall be made so
that holders of the Class A Preferred Shares, Class B Preferred Shares,
Class D Preferred Shares, Class E Preferred Shares or Class F Preferred
Shares shall thereafter be entitled to receive upon conversion of the Class
A Preferred Shares, Class B Preferred Shares, Class D Preferred Shares,
Class E Preferred Shares or Class F Preferred Shares the number of shares
or other securities or property of the Company or otherwise, to which a
holder of Common Shares deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application
16
<PAGE> 54
of the provisions of this Article 21.4 with respect to the rights of
holders of the Class A Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares or Class F Preferred Shares
after the recapitalization to the end that the provisions of this Article
21.4 (including adjustments of the Conversion Price then in effect and the
number of shares issuable upon conversion of the Class A Preferred Shares,
Class B Preferred Shares, Class D Preferred Shares, Class E Preferred
Shares or Class F Preferred Shares), shall be applicable after that event
as nearly equivalent as may be practicable.
(f) No Impairment. This Company will not, by amendment of its Articles or
through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
this Company, but will at all times in good faith assist in the carrying
out of all the provisions of this Article 21.4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of holders of the Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred Shares or
Class F Preferred Shares against impairment.
(g) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion of the Class A
Preferred Shares, Class B Preferred Shares, Class D Preferred Shares,
Class E Preferred Shares or Class F Preferred Shares, and the number
of Common Shares to be issued shall be rounded to the nearest whole
share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of
Class A Preferred Shares, Class B Preferred Shares, Class D Preferred
Shares, Class E Preferred Shares and Class F Preferred Shares that the
holder is at the time converting into Common Shares and the number of
Common Shares issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Class A Preferred Shares, Class B Preferred
Shares, Class D Preferred Shares, Class E Preferred Shares or Class F
Preferred Shares pursuant to this Article 21.4, this Company, at its
expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each
holder of Class A Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares or Class F Preferred Shares
a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment
is based. This Company shall, upon the written request at any time of
any holder of Class A Preferred Shares, Class B Preferred Shares,
Class D Preferred Shares, Class E Preferred Shares or Class F
Preferred Shares, furnish or cause to be furnished to such holder a
like certificate setting forth
(A) such adjustment and readjustment,
17
<PAGE> 55
(B) the Conversion Price at the time in effect, and
(C) the number of Common Shares and the amount, if any,
of other property which at the time would be received upon the
conversion of a Class A Preferred Share, Class B Preferred Share,
Class D Preferred Share, Class E Preferred Share or Class F
Preferred Share.
(h) Notices of Record Date. In the event of any taking by this Company of a
record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend) or other distribution, any right to subscribe
for, purchase or otherwise acquire any shares of any class or any other
securities or property, or to receive any other right, this Company shall
mail to each holder of Class A Preferred Shares, Class B Preferred Shares,
Class D Preferred Shares, Class E Preferred Shares or Class F Preferred
Shares, at least 20 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and the amount and character of
such dividend, distribution or right.
(i) Reservation of Shares Issuable Upon Conversion. This Company shall at all
times reserve and keep available out of its authorized but unissued Common
Shares solely for the purpose of effecting the conversion of the Class A
Preferred Shares, Class B Preferred Shares, Class D Preferred Shares, Class
E Preferred Shares and Class F Preferred Shares such number of Common
Shares as shall from time to time be sufficient to effect the conversion of
all outstanding Class A Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares and Class F Preferred Shares;
and if at any time the number of authorized but unissued Common Shares
shall not be sufficient to effect the conversion of all then outstanding
Class A Preferred Shares, Class B Preferred Shares, Class D Preferred
Shares, Class E Preferred Shares and Class F Preferred Shares, in addition
to such other remedies as shall be available to the holder of such
Preferred Shares, this Company will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but
unissued Common Shares to such number of shares as shall be sufficient for
such purposes.
(j) Notices. Any notice required by the provisions of this Article 21.4 to be
given to the holders of Class A Preferred Shares, Class B Preferred Shares,
Class D Preferred Shares, Class E Preferred Shares or Class F Preferred
Shares shall be deemed given if deposited in the United States mail or
Canadian mail, postage prepaid, and addressed to each holder of record at
that holder's address appearing on the books of this Company.
21.5 VOTING RIGHTS
The holder of each Class A Preferred Share, Class B Preferred Share, Class D
Preferred Share, Class E Preferred Share or Class F Preferred Share shall have
the fight to one vote for each Common Share
18
<PAGE> 56
into which such Class A Preferred Share, Class B Preferred Share, Class D
Preferred Share, Class E Preferred Share or Class F Preferred Share could then
be converted (with any fractional share determined on an aggregate conversion
basis being rounded to the nearest whole share), and with respect to such vote,
such holder shall have full voting rights and powers equal to the voting rights
and powers of the holders of Common Shares, and shall be entitled,
notwithstanding any provision hereof, to notice of any shareholders' meeting in
accordance with the Articles of the Company, and shall be entitled to vote,
together with holders of Common Shares, with respect to any question upon which
holders of Common Shares have the right to vote.
21.6 PROTECTIVE PROVISIONS
So long as Class B Preferred Shares, Class D Preferred Shares, Class E Preferred
Shares or Class F Preferred Shares are outstanding, this Company shall not
without first obtaining the approval (by vote or written consent as provided by
law) of the holders of at least 75% of the then outstanding shares of Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred Shares and Class F
Preferred Shares acting together:
(a) sell, convey, or otherwise dispose of or encumber all or substantially
all of its property or business or merge into or consolidate with any
other company (other than a wholly owned subsidiary company) or effect
any transaction or series of related transactions in which more than
50% of the voting power of the Company is disposed of; or
(b) increase the authorized number of Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares or Class F Preferred
Shares.
21.7 STATUS OF CONVERTED OR REDEEMED SHARES
In the event any Class A Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares or Class F Preferred Shares shall be
redeemed or converted pursuant to Article 21.3 or Article 21.4 hereof, the
shares so converted or redeemed shall be cancelled and shall not be issuable by
the Company.
21.8 The holders of Class A Preferred Shares, Class B Preferred Shares, Class D
Preferred Shares, Class E Preferred Shares and Class F Preferred Shares shall
have the right in priority to any other class, and in priority to any third
party, to be offered by the Company the right to subscribe for and purchase:
(a) the shares of any class that may be authorized and created by the
Company subsequent to June 30, 1995; and
(b) any additional shares of any class existing on June 30, 1995 resulting
from any further increase in the Company's authorized capital,
subsequent to the said date;
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<PAGE> 57
and subject to the provisions of the Company Act, the holders of any other class
of shares subordinate to the Class A Preferred, Class B Preferred, Class D
Preferred, Class E Preferred and Class F Preferred shareholders waive any
right of subscription and purchase that they as holders of such other class may
otherwise be entitled to.
21.9 COMMON SHARES
(a) INTERPRETATION. References in this Article 21 to Common Shares, and
not further described as Class A Common Shares or Class B Common
Shares, means both the Class A Common Shares and the Class B Common
Shares.
(b) DIVIDEND RIGHTS. Subject to the prior fights of holders of all classes
of shares at the time outstanding having prior rights as to dividends,
the holders of the Common Shares shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the
Company legally available therefor, such dividends as may be declared
from time to time by the Board of Directors.
(c) LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up of
the Company, the assets of the Company shall be distributed as
provided in Article 21.2.
(d) REDEMPTION. The Common Shares are not redeemable.
(e) VOTING RIGHTS. The holder of each Common Share shall have the fight to
one vote, and shall be entitled to notice of any shareholders' meeting
in accordance with the Articles of this Company, and shall be entitled
to vote upon such matters and in such manner as may be provided by
law.
20
<PAGE> 1
EXHIBIT 10.14
PIVOTAL SOFTWARE INC.
SHAREHOLDERS AGREEMENT
January 15, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
1. RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST OFFER.....................1
1.1 Grant...................................................1
1.2 Restrictions on Transfer................................2
1.3 Pro Rata Determination..................................4
1.4 Further Restriction.....................................4
1.5 Not to Encumber.........................................4
1.6 Affiliate...............................................4
2. CO-SALE RIGHTS IN SALES BY A SHAREHOLDER..............................5
2.1 Grant of Co-Sale Rights.................................5
2.2 Payment of Proceeds.....................................6
2.3 Non-Exercise............................................6
3. CO-SALE RIGHTS ON CHANGE OF CONTROL...................................6
3.1 Grant of Change of Control Co-Sale Rights...............6
3.2 Exercise of Co-Sale Rights..............................7
3.3 Control Price...........................................7
3.4 Non-Exercise............................................7
4. EXEMPT TRANSFERS......................................................8
4.1 Permitted Transactions..................................8
4.2 Transfers to Affiliates.................................9
4.3 Number of Transferees...................................9
4.4 Company Repurchase or Public Offering..................10
5. PROHIBITED TRANSFERS.................................................10
5.1 Grant...................................................10
5.2 Put Option..............................................10
6. LEGEND REQUIREMENTS..................................................11
6.1 Legend..................................................11
6.2 Removal.................................................11
7. CONDUCT OF COMPANY AFFAIRS...........................................11
7.1 Conduct by Shareholders.................................11
7.2 Constitution of Board...................................11
7.3 Removal.................................................12
7.4 Articles................................................12
7.5 Audit and Compensation Committees.......................12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
8. MISCELLANEOUS PROVISIONS............................................12
8.1 Allocation of Rights.................................12
8.2 Termination..........................................12
8.3 Notice...............................................13
8.4 Severability.........................................13
8.5 Waiver or Modification...............................13
8.6 Governing Law........................................13
8.7 Legal Fees...........................................13
8.8 Further Assurances...................................13
8.9 Successors and Assigns...............................14
8.10 Aggregation of Shares................................14
8.11 Termination of Prior Agreement.......................14
8.12 Counterparts.........................................14
8.13 Remedies Cumulative..................................14
</TABLE>
<PAGE> 4
SHAREHOLDERS AGREEMENT
THIS AGREEMENT is made as of the 15th day of January, 1999, by and among Pivotal
Software, Inc., a British Columbia company (the "Company"), and certain
shareholders of the Company (individually a "Shareholder" and collectively the
"Shareholders");
WHEREAS, the Company and certain of the Shareholders are parties to the Class F
Preferred Share Subscription and Purchase Agreement of even date herewith (the
"Class F Agreement"), pursuant to which those Shareholders are purchasing the
Company's Class F Preferred Shares.
WHEREAS, each of the Shareholders is a beneficial owner of the number of Class A
Common Shares, Class B Common Shares, Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred Shares and Class F
Preferred Shares of the Company set forth opposite such Shareholder's name on
Schedule A hereto (collectively the "Shares," which term shall also include any
additional Common Shares and/or Preferred Shares of the Company, or securities
convertible into or exchangeable for such shares, now owned or hereafter
acquired by the Shareholders).
WHEREAS, the Shareholders that are not parties to the Class F Agreement wish to
provide a further inducement to the other Shareholders to purchase the Company's
Class F Preferred Shares pursuant to the terms of the Class F Agreement.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST OFFER
1.1 GRANT. The Company and the Shareholders are hereby each granted a right of
first offer with respect to any proposed disposition of Shares by a Shareholder
(or by any permitted transferee of the Shares under Part 4 hereof, hereafter
collectively included in all references to "Shareholder"), in the following
order of priority. The Company shall have the first right to purchase any Shares
proposed to be transferred to a third party by a Shareholder. In the event the
Company elects not to exercise its first right to purchase with respect to all
or any portion of such proposed transfer, the Company agrees to waive such
rights with respect to such portion in favour of the Shareholders' first offer
and co-sale rights under this Agreement. The parties agree that the restrictions
on transfer and the procedure for exercising the right of offer and purchase
shall be governed by the provisions of this Part 1.
<PAGE> 5
1.2 RESTRICTIONS ON TRANSFER. Except as otherwise permitted in this Agreement:
(a) no Shareholder shall sell, transfer or otherwise dispose of, or offer
to sell, transfer or otherwise dispose of, any of its Shares unless
that Shareholder (the "Offeror") first offers to the Company and to
the other Shareholders (the "Others") by notice in writing (the
"Offer") delivered to the secretary of the Company (the "Secretary")
the prior right to purchase, receive or otherwise acquire the same;
(b) the Offer shall state that the Offeror has determined to avail itself
of the provisions of this Part I and shall set forth:
(i) the number and kind of Shares offered for sale (the "Target
Shares");
(ii) the price per share in cash at which the Offeror is prepared to
sell the Target Shares;
(iii) the terms and conditions of the sale;
(iv) that the Offer is open for acceptance by the Company and the
Others for a period of 60 days after receipt of such Offer by the
Secretary; and
(v) the identity of the proposed purchaser, if any (the "Proposed
Purchaser");
(c) upon receipt of the Offer, the Secretary shall forthwith:
(i) transmit the Offer to each director of the Company;
(ii) transmit the Offer to each of the Others; and
(iii) call a meeting of the directors of the Company to consider the
Offer;
(d) the Company shall have the first right to accept the Offer and
purchase all or a portion of the Target Shares and to the extent that
it is accepted, the Others agree to refuse any pro rata offer by the
Company to purchase shares which is required to be made by the Company
under the Company Act, (British Columbia) the Articles of the Company
or this Agreement;
(e) if the Offer is not wholly accepted by the Company within 30 days
after receipt thereof by the Secretary:
(i) the Secretary shall forthwith advise the Others of the extent to
which the Offer is still open forthwith upon the expiration of
the aforesaid 30 day period;
2
<PAGE> 6
(ii) that portion of the Offer not accepted by the Company shall be
open for acceptance within the next 20 days by the Others pro
rata in accordance with their respective shareholdings in the
Company, it being understood and agreed that each of the
Shareholders pro rata portions shall be determined on the basis
set out in Paragraph 1.3;
(iii) acceptance by the Others shall be by notice to the Secretary and
by such acceptance a Shareholder may specify any additional
portion of the Target Shares offered for sale that such
Shareholder is prepared to purchase in the event that any of the
Others fails to accept such Offer, and if any of the Others fails
to accept such Offer, such Shareholder (pro rata if more than
one) shall be entitled to purchase such additional portion of the
Target Shares as shall be so available;
(iv) the Secretary shall advise the Company of the extent to which the
Offer is still open forthwith upon the expiration of the
aforesaid 20 day period;
(f) if, and to the extent the Offer is not accepted by the Others within
the 20 days that it is open to them, the Company shall be entitled
prior to the expiration of the Offer to accept the Offer with respect
to that portion of the Target Shares as shall then be available, in
which event the Others agree to refuse any pro rata offer by the
Company to purchase shares which is required to be made by the Company
under the Company Act (British Columbia), the Articles or this
Agreement;
(g) prior to the expiration of the 60 day period, the Secretary shall
advise the Offeror whether the Offer has been accepted in its entirety
or in part, and by whom;
(h) if the Offer is not wholly accepted or is accepted only in part within
the 60 days that it is open, the Offeror may, within 120 days
thereafter sell, transfer or otherwise dispose of the whole of the
Target Shares, or that portion of the Target Shares that has not been
accepted by the Company and/or the Others, as the case may be, being
offered under this Part to any other person, firm or corporation (a
"Third Party") for not less than the price, payable in cash or by
certified cheque or by bank draft and on no better terms and
conditions than as set out in the Offer;
(i) upon the expiry of the said 120 day period without the completion of a
sale to a Third Party, the provisions of this Paragraph 1.2 will again
become applicable to the sale, transfer or other disposition of the
Target Shares or any part thereof and so on from time to time; and
(j) upon the acceptance of the Offer, the Company, the Others and the
Third Party, as the case may be, shall purchase, at the stated
purchase price the Target Shares (or that part thereof) being sold and
the closing of the purchase thereof shall occur on the
3
<PAGE> 7
30th day following the date of the last acceptance in respect of the
Offer or, if that day is a non juridical day, then on the next ensuing
juridical day (or such other date as the parties thereto may agree),
at which time the appropriate parties shall execute and deliver such
cash, certified cheques, share certificates, instruments, conveyances,
assignments, and releases as may be reasonably required to effect and
complete the sale.
1.3 PRO RATA DETERMINATION. It is understood and agreed that each of the
Shareholder's pro rata portions shall be determined on the basis that:
(a) if an Offer is for Common Shares, the Shareholders shall have
converted their Preferred Shares to Common Shares, whether or not
converted; and,
(b) if an Offer is for Preferred Shares of a particular class, the Offeror
of those Preferred Shares and all Others shall have converted their
Preferred Shares to Common Shares, whether or not converted,
and pro rata distributions among the holders of Class A Preferred Shares, Class
B Preferred Shares, Class D Preferred Shares, Class E Preferred Shares, Class F
Preferred Shares, Class A Common Shares and Class B Common Shares shall be based
on the number of Common Shares held by each on a converted basis.
1.4 FURTHER RESTRICTION. No Common Shares or Preferred Shares shall be sold,
assigned, transferred, conveyed or issued, whether pursuant to Paragraph 1.2 or
other-wise, by a Shareholder to any person other than the parties hereto, unless
and until the proposed transferee enters into an agreement on the same terms in
all material respects as this Agreement with the Company, or to any person or
Affiliate of any person that has a financial interest in any company or business
that is competitive with the Company (other than an interest not exceeding five
percent (5%) in the shares of a publicly traded company) or to any person or
Affiliate of any person that the directors believe, on reasonable basis, will
have an adverse affect on the activities or business prospects of the Company.
1.5 NOT TO ENCUMBER. No Shareholder shall mortgage, pledge, charge, hypothecate
or otherwise encumber its Shares or any part thereof without the prior written
unanimous consent thereto of the directors of the Company, which consent may be
arbitrarily withheld without giving any reason therefore, unless the holder of
the mortgage, pledge, charge, hypothecation or encumbrance agrees to be bound by
the provisions of this Agreement.
1.6 AFFILIATE. For the purposes of this Agreement "Affiliate" of a person means
any corporation, partnership or limited liability partner which is controlled by
or which controls that person or any other corporation controlled by or which
controls that corporation, partnership or limited liability partner and any
partnership or limited liability partner that is controlled by the same general
partner or members, whether such control be direct or indirect, and "control"
means:
4
<PAGE> 8
(a) the right to exercise a majority of the votes which may be cast at a
general meeting of a corporation; and
(b) the right to elect or appoint, directly or indirectly, a majority of
the directors of a corporation or other persons who have the right to
manage or supervise the management of the affairs and business of the
corporation.
2. CO-SALE RIGHTS IN SALES BY A SHAREHOLDER
2.1 GRANT OF CO-SALE RIGHTS. After completing the procedures set out in Part 1,
if an Offeror proposes to enter into a transaction regarding the sale of Common
Shares to a Third Party, which, if consummated, would result in aggregate sales
of Common Shares by the Offeror in excess of 50,000 shares in any calendar year
to Third Parties, the Offeror shall give written notice of the intended
disposition (the "Disposition Notice") and the basic terms and conditions
thereof, including the identity of the Proposed Purchaser, if determined, to the
Others and the Others shall have the right, exercisable upon written notice to
the Offeror within thirty (30) days after receipt of the Disposition Notice, to
participate in such sale of the Target Shares on the same terms and conditions
as those set forth in the Disposition Notice. To the extent the Others exercise
such right of participation, the number of Target Shares that the Offeror may
sell in the transaction shall be correspondingly reduced. The right of
participation of the Others shall be subject to the terms and conditions set
forth in this Part 2.
(a) The Others shall be deemed to own the number of Common Shares that the
Others actually hold plus the number of Common Shares that are
issuable upon conversion of any Class A Preferred Shares, Class B
Preferred Shares, Class D Preferred Shares, Class E Preferred Shares
and Class F Preferred Shares then held by the Others. The Offeror
shall be deemed to own the number of Common Shares that the Offeror
actually holds plus the number of Common Shares that are issuable upon
conversion of any Class A Preferred Shares, Class B Preferred Shares,
Class D Preferred Shares, Class E Preferred Shares and Class F
Preferred Shares then held by the Offeror.
(b) The Others may sell all or any part of a number of Common Shares of
the Company equal to the product obtained by multiplying (i) the
aggregate number of Common Shares covered by the purchase offer by
(ii) a fraction, the numerator of which is the number of Common Shares
of the Company at the time owned by the Others and the denominator of
which is the combined number of Common Shares of the Company at the
time owned by the Offeror and the Others.
(c) The Others may effect their participation in the sale by delivering to
the Offeror for transfer to the Proposed Purchaser one or more
certificates, properly endorsed for transfer, which represent:
5
<PAGE> 9
(i) the number of Common Shares that the Others elect to sell pursuant to
this Paragraph 2.1; or
(ii) that number of Class A, Class B, Class D, Class E or Class F Preferred
Shares that is at such time convertible into the number of Common
Shares that the Others have elected to sell pursuant to this Paragraph
2.1; provided, however, that if the Proposed Purchaser objects to the
delivery of Class A, Class B, Class D, Class E or Class F Preferred
Shares in lieu of Common Shares, the Others may convert and deliver
Common Shares as provided in subparagraph (i) above.
2.2 PAYMENT OF PROCEEDS. The share certificates that the Others deliver to the
Offeror pursuant to Paragraph 2.1 shall be transferred by the Offeror to the
Proposed Purchaser in consummation of the sale of the Common Shares pursuant to
the terms and conditions specified in the Disposition Notice, and the Offeror
shall promptly thereafter remit to the Others that portion of the sale proceeds
to which the Others are entitled by reason of their participation in such sale.
Otherwise, the closing of the purchase shall be as set out in Subparagraph
1.2(j).
2.3 NON-EXERCISE. The exercise or non-exercise of the rights of the Others
hereunder to participate in one or more sales of Common Shares made by the
Offeror shall not adversely affect their rights to participate in subsequent
Common Shares sales by the Offeror.
3. CO-SALE RIGHTS ON CHANGE OF CONTROL
3.1 GRANT OF CHANGE OF CONTROL CO-SALE RIGHTS. Without limiting the terms of
Part 2, where the Offeror desires to sell any of its Shares to any person who,
together with any of its Associates and Affiliates, is already entitled or would
thereafter be entitled to exercise in excess of 50% of the votes at a general
meeting of the Company (determined on a fully converted basis in respect of the
Preferred Shares), the Offeror shall deliver a written notice of the intended
sale (the "Control Notice") to the Others at least 30 days prior to the date of
such intended sale, which Control Notice shall specify the terms of the intended
sale, including, without limitation:
(a) the name and address of the Proposed Purchaser;
(b) the number and class of Shares owned by the Proposed Purchaser and its
Associates and Affiliates;
(c) the purchase price and other terms and conditions for the sale of the
Shares included in the Control Notice;
(d) the date on or about which such sale is intended to be made;
(e) the number and class of Shares to be sold (herein called the "Control
Shares"); and,
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<PAGE> 10
(f) similar details of any previous transactions by which the Offeror has
sold any Shares since the date of this Agreement.
3.2 EXERCISE OF CO-SALE RIGHTS. Each of the Others shall have 30 days from the
date of receipt of the Control Notice to elect to sell to the buyer named in the
Control Notice (the "Buyer") all of their Shares (of whatever class) at a price
per Share equal to the Control Price (as herein defined) and otherwise on the
same terms and conditions as set forth in the Control Notice. If any of the
Others so elects to sell its Shares to the Buyer, it shall so inform both the
Buyer and the Offeror in writing not more than 30 days after receipt of the
Control Notice. Such sale shall take place coincidentally with the sale of the
Control Shares, and the Offeror shall not complete its sale unless all such
transactions between the Buyer and any Others who elect to sell, are similarly
completed. If the Buyer will not purchase such Shares on the sale date, the
proposed sale by the Offeror as described in the Control Notice shall not be
made.
3.3 CONTROL PRICE. The term "Control Price" shall mean the price per Share,
computed separately according to its class, of the Company which is the greater
of:
(a} the amount payable per Share of that class for the Shares of that
class proposed to be sold by the Offeror as specified in the Control
Notice; and
(b) the average price per Share of that class paid at any previous time by
the Buyer together with any of its Affiliates or Associates to the
Offeror,
provided that where Common Shares are proposed to be sold or have been sold, the
average amount applicable to a Preferred Share shall be computed as if such
Preferred Share were converted to a Common Share in accordance with the
provisions of the Articles, and where Preferred Shares are proposed to be sold
or have been sold, the average amount applicable to a Common Share shall be
computed on the basis of a reverse conversion.
3.4 NON-EXERCISE. To the extent that the Others do not elect to sell as provided
in Paragraph 3.2 then subject to compliance with Parts I and 2 (if applicable),
the Offeror may sell the Shares offered for sale to the Buyer at the price and
terms specified in the Control Notice. If the Offeror has not sold the Shares
offered for sale within 120 days after the mailing of the Control Notice to the
Others, the Offeror shall not sell such Shares offered for sale without again
complying with the terms of this Part 3.
7
<PAGE> 11
4. EXEMPT TRANSFERS
4.1 PERMITTED TRANSACTIONS. Notwithstanding the foregoing, the first offer
rights of the Company and the Shareholders and the co-sale rights of the Others
shall not apply to any transfer, sale or other disposition:
(a) in the case of Shareholders that are individuals, to the ancestors,
descendants, siblings or spouse of the Shareholder or to trusts for
the benefit of such persons;
(b) to a partner or retired partner of a Shareholder that is a partnership
or to the estate of any such partner or retired partner or the
transfer by gift, will or intestate succession of any partner to his
or her spouse, ancestors, descendants, or siblings or to trusts for
the benefit of such persons;
(c) between any one or more of Norman Francis, the spouse of Norman
Francis , Keith Wales, Patricia Wales, the Francis Family Trust,
Boardwalk Ventures Inc., Daybreak Software Inc. and Fireweed
Investments Inc., ancestors, descendants or siblings of any of them
and to trusts for the benefit of any of them;
(d) in the case of VW B.C. Technology Investment Fund Limited Partnership
("Ventures West") to:
(i) any limited partnership of which the general partner is under
common control with those persons who controlled Ventures West
Management B.C. Ltd. as at the date of the disposition;
(ii) any corporation or form of entity whose senior officers are, or
which is managed by, a corporate manager whose senior officers
are common officers of Ventures West Management B.C. Ltd. as at
the date of the disposition; and
(iii) persons who are bona fide investors (including the general
partner or fund manager, as the case may be, and any of its
Associates or Affiliates), in Ventures West who are entitled to
participate in a distribution of the assets of Ventures West
upon winding up, liquidation or dissolution where the Shares are
distributed to them on such occurrence;
(e) in the case of Bank of Montreal Capital Corporation ("BMO-CC"):
(i) to Ventures West Management TIP Inc., the manager of BMO-CC;
(ii) in connection with a reorganization of the Bank of Montreal
group of companies with respect to the activities of BMO-CC; and
8
<PAGE> 12
(iii) if BMO-CC is required to divest itself of its Shares in order to
remain a "specialized financing corporation" (as defined in the
Bank Act, as amended from time to time);
and
(f) in the event the BMO-CC Shares are transferred to Ventures West
Management TIP Inc., notwithstanding Paragraph 1.2, Ventures West
Management TIP Inc. may sell, transfer or otherwise dispose of the
whole or any part of its Shares to:
(i) any limited partnership of which the general partner is under
common control with those persons who controlled Ventures West
management TIP Inc. as at the date of the transfer; and
(ii) any corporation or other form of entity whose senior officers
are, or which is managed by, a corporate manager whose senior
officers are common officers of Ventures West Management TIP Inc.
at the date of the transfer;
provided that the transferee shall furnish the Shareholders and the Company with
a written agreement to be bound by and comply with all provisions of this
Agreement. Such transferred Shares shall remain "Shares" hereunder, and such
transferee shall be treated as a "Shareholder" for the purposes of this
Agreement. For purposes of this Agreement, "Associate" shall have the meaning as
defined in the Company Act (British Columbia).
4.2 TRANSFERS TO AFFILIATES. Notwithstanding Paragraph 1.2, any Shareholder may
sell, transfer or otherwise dispose of the whole or any part of its Shares to
any of its Affiliates provided that the Shareholder and the Affiliate enter into
an agreement with the other Shareholders that:
(a) the Affiliate will remain an Affiliate so long as the Affiliate
holds the Shares or any part thereof;
(b) prior to the Affiliate ceasing to be such, the Affiliate will
transfer its Shares back to the Shareholder or to another
Affiliate of the Shareholder provided that such other Affiliate
enters into an agreement on the same terms in all material
respects as this Agreement with the other Shareholders and the
Company; and
(c) the Affiliate will otherwise be bound by and have the benefit of
the provisions of this Agreement.
4.3 NUMBER OF TRANSFEREES. The rights of the Shareholders under Paragraphs 4.1
and 4.2 to sell, transfer or otherwise dispose of the whole or any part of its
Shares without going through the first offer provisions of paragraph 1.2 is
subject to the condition that no such transfer shall cause the
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<PAGE> 13
Shares of the Company to be held by 50 or more persons, counting any two or more
joint registered owners of Shares as one beneficial owner, exclusive of persons:
(a) that are employed by the Company or any Affiliate of the Company;
or
(b) that beneficially owned, directly or indirectly, Shares of the
Company while employed by the Company or by an Affiliate of the
Company and, at all times since ceasing to be so employed, have
continued to beneficially own, directly or indirectly, at lease
one Share of the Company.
4.4 COMPANY REPURCHASE OR PUBLIC OFFERING. The provisions of this Agreement
shall not apply to the sale of any Shares (a) to the public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the U.S. Securities Act of 1933, as amended (the
"Securities Act") or (b) to the Company, except the co-sale rights on change of
control as more particularly set out in Part 3.
5. PROHIBITED TRANSFERS
5.1 GRANT. In addition to any other rights or remedies available to the other
Shareholders at law or in equity, in the event a Shareholder should sell any
Shares (a "Breaching Shareholder") of the Company in contravention of the
participation rights of the other Shareholders under this Agreement (a
"Prohibited Transfer"), the other Shareholders shall have the put option
provided in Paragraph 5.2.
5.2 PUT OPTION. In the event of a Prohibited Transfer, the other Shareholders
and each of them shall have the option to sell to the Breaching Shareholder a
number of Common Shares of the Company (either directly or through delivery of
Preferred Shares) equal to the number of shares that such other Shareholders
would have been entitled to sell had such Prohibited Transfer been effected in
accordance with Parts 2 and 3 hereof, on the following terms and conditions:
(a) The price per share at which the shares are to be sold to the
Breaching Shareholder shall be equal to the price per share paid to
the Breaching Shareholder by the third party purchaser or purchasers
of the Breaching Shareholder's Shares.
(b) The other Shareholders shall deliver to the Breaching Shareholder
within 30 days after they have received notice from the Breaching
Shareholder or otherwise become aware of the Prohibited Transfer, the
certificate or certificates representing shares to be sold, each
certificate to be properly endorsed for transfer.
(c) The Breaching Shareholder shall, upon receipt of the certificates for
the shares, pay the aggregate Paragraph 5.2 purchase price therefor,
by certified cheque or bank draft made payable to the order of the
other Shareholders that have delivered the
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<PAGE> 14
certificates for the shares and shall reimburse such other
Shareholders for any additional expenses, including legal fees and
expenses, incurred in effecting such purchase and sale and the parties
shall otherwise do such acts and execute such documents (including
replacement share certificates) as may be reasonably required to
effect and complete the sale.
6. LEGEND REQUIREMENTS
6.1 LEGEND. Each certificate representing the Shares owned by the Shareholders
shall be endorsed with the following legend:
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDERS AGREEMENT
DATED JANUARY 15,1999 BY AND AMONG THE REGISTERED HOLDER (OR ITS PREDECESSOR
IN INTEREST), THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF
SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY."
6.2 REMOVAL. The Paragraph 6.1 legend shall be removed upon termination of this
Agreement in accordance with the provisions of Paragraph 8.2.
7. CONDUCT OF COMPANY AFFAIRS
7.1 CONDUCT BY SHAREHOLDERS. Each of the Shareholders covenants and agrees at
all times to vote its shares and use its best efforts and take all steps as may
be reasonably required so as to cause the Company to act in the manner
contemplated by the provisions of this Agreement and to implement fully the
provisions of this Agreement and, to the extent permitted by law, cause the
board of directors of the Company (the "Board") to so act.
7.2 CONSTITUTION OF BOARD. Each of the Shareholders shall vote its shares so
that the number of directors on the Board shall be six and the Board shall
consist of the following:
(a) two directors shall be nominated and elected annually by the holders
of Common Shares and none of the holders of any of the other classes
of Shares shall have the right to vote with respect to such directors;
(b) so long as there are any Class B Preferred Shares issued and
outstanding, the holders of the Class B Preferred Shares shall have
the right to nominate and elect annually one director, and none of the
holders of any of the other classes of Shares shall have the right to
vote with respect to such one director, provided however, that if
there are no Class B Preferred Shares issued and outstanding, then
such director shall be
11
<PAGE> 15
nominated and elected by the members of the Company holding shares
entitled to vote;
(c) so long as there are any Class D Preferred Shares issued and
outstanding, the holders of the Class D Preferred Shares shall have
the right to nominate and elect annually one director, and none of the
holders of any of the other classes of Shares shall have the right to
vote with respect to such one director, provided however, that if
there are no Class D Preferred Shares issued and outstanding, then
such director shall be nominated and elected by the members of the
Company holding shares entitled to vote; and
(d) two directors shall be appointed by the Shareholders upon the
recommendation or approval of the majority of the directors that have
been nominated and elected pursuant to Paragraphs 7.2(a), (b) and (c)
above.
In the event that a position on the Board shall be vacated or be otherwise open
for any reason, the Shareholder or Shareholders whose nominee shall have
formerly occupied such position shall be entitled to nominate and elect a new
director to fill such vacancy.
7.3 REMOVAL. In the event that a director shall fail to vote and act as a
director to carry out the provisions of this Agreement then the Shareholders
agree to exercise their rights as shareholders of the Company and in accordance
with the Articles of the Company to remove such director from the Board.
7.4 ARTICLES. Unless otherwise provided herein the conduct of the business of
the Company shall be governed in accordance with the Articles of the Company.
7.5 AUDIT AND COMPENSATION COMMITTEES. The Board shall appoint an audit
committee and a compensation committee, each of which will be comprised of three
individuals, and the majority of which individuals on each committee will not be
involved in the management of the Company.
8. MISCELLANEOUS PROVISIONS
8.1 ALLOCATION OF RIGHTS. All rights granted under this Agreement to the
Shareholders shall be exercisable by and among the Shareholders on a pro rata
basis based on the number of Shares then held by the Shareholder, or on such
other basis as the Shareholder so agree.
8.2 TERMINATION. The rights of the Company and the Shareholders under this
Agreement and the correlative obligations of each Shareholder with respect to
the Company and each other Shareholder, except in the case of a Breaching
Shareholder, shall terminate at such time as the Shareholders to which the
rights or obligations relate shall no longer be the owner of any capital
12
<PAGE> 16
shares of the Company. Unless sooner terminated in accordance with the preceding
sentence, this Agreement shall terminate upon the occurrence of any one of the
following events:
(a) the liquidation, dissolution or indefinite cessation of the business
operations of the Company;
(b) the execution by the Company of a general assignment for the benefit
of creditors or the appointment of a receiver or trustee to take
possession of the property and assets of the Company;
(c) immediately prior to the closing of a bona fide firm commitment
underwritten public offering of the Company's Common Shares registered
under the Securities Act.
8.3 NOTICE. Unless otherwise provided, any notice required or permitted to be
given to a party pursuant to the provisions of this Agreement shall be in
writing and shall be effectively given by personal delivery to the party to be
notified, by facsimile transmission or by mail from a United States or Canadian
Post Office, by registered or certified mail, postage prepaid and properly
addressed to the party to be notified as set forth below such party's signature
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties hereto, and any such notice will be
considered to have been received, if delivered, upon the date of delivery, if
sent by facsimile, then on the business day next following the date of
transmission, and if mailed, then five business days after the date of mailing.
If normal mail service is interrupted by strike, slowdown, force majeure or
other cause, a notice sent by mail will not be considered to be received until
actually received, and the party sending the notice will deliver or transmit by
facsimile such notice in order to ensure prompt receipt thereof.
8.4 SEVERABILITY. In the event one or more of the provisions of this Agreement
should, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions of this Agreement, and this Agreement shall be construed and
interpreted in such manner as to be effective and valid under applicable law.
8.5 WAIVER OR MODIFICATION. Any amendment or modification of this Agreement
shall be effective only if evidenced by a written instrument executed by the
Shareholders and the Company.
8.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of British Columbia and the laws of Canada applicable
therein.
8.7 LEGAL FEES. In the event of any dispute involving the terms hereof, the
prevailing parties shall be entitled to collect legal fees and expenses from the
other party to the dispute.
8.8 FURTHER ASSURANCES. Each party agrees to act in accordance herewith and not
to take any action that is designed to avoid the intention hereof.
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<PAGE> 17
8.9 SUCCESSORS AND ASSIGNS. This Agreement and the rights and obligations of the
parties hereunder shall inure to the benefit of, and be binding upon, their
respective successors, assigns and legal representatives.
8.10 AGGREGATION OF SHARES. For the purposes of determining the availability of
any rights under this Agreement, the holdings of transferees and assignees of an
individual or a partnership who are spouses, ancestors, lineal descendants or
siblings of such individual or partners or retired partners of such partnership
(including spouses and ancestors, lineal descendants and siblings of such
partners or spouses who acquire Common Shares by gift, will or intestate
succession) shall be aggregated together with the individual or partnership, as
the case may be, for the purpose of exercising any rights or taking any action
under this Agreement.
8.11 TERMINATION OF PRIOR AGREEMENT. This Agreement supersedes and replaces the
Shareholders Agreement dated November 5, 1996 made among the Company, Norman
Francis, Keith Wales, the Francis Family Trust, Patricia Wales, Boardwalk
Ventures Inc., Daybreak Software Inc., Kleiner Perkins Caufield & Byers VI,
Integral Capital Partners 1, LP, Integral Capital Partners II, LP, VW B.C.
Technology Investment Fund Limited Partnership and James Yeates, Bank of
Montreal Capital Corporation, Integral Capital Partners International II C.V.,
Jeremy Jaech and Oak Investment Partners VI, L.P. ( the "Prior Agreement"), and
upon execution and delivery of this Agreement, the Prior Agreement shall
terminate and have no further force or effect.
8.12 COUNTERPARTS. This Agreement may be executed in facsimile counterparts,
each of which when executed and delivered shall be deemed to be an original and
all of which together shall constitute the same document.
8.13 REMEDIES CUMULATIVE. All rights and remedies of the parties in this
Agreement are cumulative and are in addition to and shall not be deemed to
exclude any other rights or remedies allowed by law and all rights and remedies
may be exercised concurrently.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first indicated above.
PIVOTAL SOFTWARE INC.
per: /s/ NORMAN FRANCIS
--------------------
Norman Francis, President
Address: 300 - 224 West Esplanade
North Vancouver, BC V7M 3M6
Facsimile: 604-988-0035
14
<PAGE> 18
THE FRANCIS FAMILY TRUST
per: /s/ NORMAN FRANCIS
-------------------------------------
Address: 1872 Fulton Avenue
West Vancouver, BC V7V 1S9
Facsimile: 604-926-6305
BOARDWALK VENTURE INC.
per: /s/ NORMAN FRANCIS
-------------------------------------
Address: 1872 Fulton Avenue
West Vancouver, BC V7V 1S9
Facsimile: 604-926-6305
DAYBREAK SOFTWARE INC.
per: /s/ KEITH WALES
-------------------------------------
Address: 5960 Raven Place
West Vancouver, BC V7W 1W2
FIREWEED INVESTMENTS INC.
per: /s/ PATRICIA WALES
-------------------------------------
Address: 420 Westholme Road
West Vancouver, BC V7V 2N1
15
<PAGE> 19
/s/ NORMAN FRANCIS
-------------------------
NORMAN FRANCIS
Address: 1872 Fulton Avenue
West Vancouver, BC V7V 1S9
Facsimile: 604-926-6305
/s/ KEITH WALES
-------------------------
KEITH WALES
Address: 5960 Raven Place
West Vancouver, BC V7V 1X2
Facsimile: 604-922-9779
/s/ PATRICIA WALES
-------------------------
PATRICIA WALES
Address: 420 Westholme Road
West Vancouver, BC V7V 2N1
/s/ JEREMY JAECH
-------------------------
JEREMY JAECH
Address: 3729 Prospect Street
Seattle, WA 98112-4441
16
<PAGE> 20
VW B.C. TECHNOLOGY INVESTMENT FUND
LIMITED PARTNERSHIP
By its general, partner Ventures West
Management B.C. Ltd.
per: /s/ SIGNED
------------------------------------
Address: 280 - 1285 West Pender Street
Vancouver, BC V6E 4B1
Facsimile: 604-687-2145
Attention: Robin J. Louis
BANK OF MONTREAL CAPITAL CORPORATION
By its manager, Ventures West Management
TIP Inc.
per: /s/ SIGNED
------------------------------------
Address: 280 - 1285 West Pender Street
Vancouver, BC V6E 4B1
Facsimile: 604-687-2145
Attention: Robin J. Louis
KLEINER PERKINS CAUFIELD & BYERS VI
by: /s/ SIGNED
-------------------------------------
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
Facsimile: 650-233-0300
Attention: Doug Mackenzie
17
<PAGE> 21
INTEGRAL CAPITAL PARTNERS, L.P.
by: /s/ SIGNED
-----------------------------------
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
Facsimile: 650-233-0366
Attention: Roger McNamee or
John Powell
INTEGRAL CAPITAL PARTNERS II, L.P.
By Integral Capital Management II, L.P.,
its General Partner
by: /s/ PAMELA HAGENAH
-----------------------------------
A General Partner
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
Facsimile: 650-233-0366
Attention: Roger McNamee or
John Powell
INTEGRAL CAPITAL PARTNERS INTERNATIONAL
II, C.V.
By Integral Capital Management II, L.P.,
its Investment General Partner
by: /s/ PAMELA HAGENAH
-----------------------------------
A General Partner
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
Facsimile: 650-233-0366
Attention: Roger McNamee or
John Powell
18
<PAGE> 22
OAK INVESTMENT PARTNERS VI, L.P.
by: /s/ SIGNED
-----------------------------------
Address: 525 University Avenue
Suite 1300
Palo Alto, California 94301
Facsimile: 650-328-6345
Attention: Mr. Fred Harman
OAK VI AFFILIATES FUND, L.P.
by: /s/ SIGNED
-----------------------------------
Address: 525 University Avenue
Suite 1300
Palo Alto, California 94301
Facsimile: 650-328-6345
Attention: Mr. Fred Harman
KPMG PEAT MARWICK LLP
by: /s/ SIGNED
-----------------------------------
Address: Suite 2000-303 Peachtree Street, NE
Atlanta, GA 30308
Facsimile: 650-404-4501
Attention: Rod McGeary
19
<PAGE> 23
Schedule A
PIVOTAL SOFTWARE INC.
SHARE CAPITAL
<TABLE>
<CAPTION>
AFTER
PRIOR TO PFD CLASS F
PFD CLASS F FINANCING FINANCING
---------------------------------------------- -----------------
FULLY
DILUTED
CONVERTED AT US $6.21
SHARE TYPE ISSUED % BASIS % # %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOUNDERS
Norm Francis Common A 680,800 680,800 680,000
Norm Francis Common B 45,000 45,000 45,000
Norm Francis Preferred Class A 142,857 142,857 142,857
868,657 5.97% 868,657 5.37% 868,657 4.98%
Boardwalk Ventures Preferred Class A 857,143 5.90% 857,143 5.30% 857,143 4.91%
Francis Family Trust Common A 575,800 3.96% 575,800 3.56% 575,800 3.30%
Francis Family Trust Common B 125,000 0.86% 125,000 0.77% 125,000 0.72%
Keith Wales Common A 669,550 669,550 669,550
Keith Wales Common B 56,250 56,250 56,250
Keith Wales Preferred Class A 71,428 71,428 71,428
(stock split, Aug 10, 1998) 797,228 5.48% 797,228 4.93% 797,228 4.57%
Daybreak Software Preferred Class A 428,572 2.95% 428,572 2.65% 428,572 2.46%
Patricia Wales Common A 644,550 4.43% 644,550 3.99% 644,550 3.69%
Patricia Wales Common B 56,250 0.39% 56,250 0.35% 56,250 0.32%
Patricia Wales Preferred Class A 71,429 0.49% 71,429 0.44% 71,429 0.41%
Fireweed Investments Inc. Preferred Class A 428,571 2.95% 428,571 2.65% 428,571 2.46%
(stock split, Aug 10, 1998)
----- ----- -----
TOTAL FOUNDERS 4,853,200 33.38% 4,853,200 30.02% 4,853,200 27.80%
----- ----- -----
NON-FOUNDERS Common A 832,599 5.73% 832,599 5.15% 832,599 4.77%
Common B 194,286 1.34% 194,286 1.20% 194,286 1.11%
----- ----- -----
7.06% 6.35% 5.88%
----- ----- -----
VENTURES WEST
BCTIF Preferred Class D 1,645,570 11.32% 1.645,570 10.18% 1,645,570 9.43%
BCTIF Preferred Class E 370,370 2.55% 370,370 2.29% 370,370 2.12%
Bk of Montreal
Capital Corp. Preferred Class D 40,259 0.28% 40,259 0.25% 40,259 0.23%
Bk of Montreal
Capital Corp. Preferred Class E 370,370 2.55% 370,370 2.29% 370,370 2.12%
CLASS F 204,848 1.17% $1,272,104
----- ----- ----- ----------
2,426,569 16.69% 2,426,569 15.01% 2,426,569 15.08% $1,272,104
----- ----- ----- ----------
---------- ----- ---------- ----- ---------- -----
SUBTOTAL 8,306,654 57.14% 8,306,654 51.38% 8,511,502 48.76%
---------- ----- ---------- ----- ---------- -----
Integral Capital Partners Preferred Class B 200,000 210,526 210,526
Integral Capital
Partners II Preferred Class B 126,582 126,582 126,582
Integral Capital
Partners II Preferred Class B 548,148 548,148 548,148
Integral Capital
Partners Int'l. Preferred Class E 192,593 192,593 192,593
CLASS F 483,092 $3,000,000
----- ----- -----
1,067,323 7.34% 1,077,849 6.67% 1,560,941 8.94%
----- ----- -----
Kleiner Perkins
Caulfield VI Preferred Class B 1,614,600 1,699,579 1,699,579
Kleiner Perkins
Caulfield VI Preferred Class E 951,852 951,852 951,852
Kleiner Perkins
Caulfield VI Preferred Class D 658,481 658,481 658,481
Kleiner Perkins
Caulfield VI Preferred Class D 60,824 60,824 60,824
Kleiner Perkins
Caulfield VI Preferred Class B 185,400 195,158 195,158
Kleiner Perkins
Caulfield VI Preferred Class D 101,013 101,013 101,013
CLASS F 309,557 $1,922,346
----- ----- -----
3,572,170 24.57% 3,666,907 22.68% 3,976,464 22.78%
----- ----- -----
Oak VI Affiliates Fund L.P. Preferred Class D 581 0.00% 581 0.00% 581 0.00%
Oak Investment Partners Preferred Class D 24,918 0.17% 24,918 0.15% 24,918 0.14%
Oak Investment Partners Preferred Class E 1,511,111 10.39% 1,511,111 9.35% 1,511,111 8.66%
CLASS F 129,718 0.74% $805,550
----- ----- -----
10.57% 9.50% 9.55%
----- ----- -----
----- ----- -----
Jeremy Jaech Preferred Class E 55,556 0.38% 55,556 0.34% 55,556 0.32%
----- ----- -----
-----
KPMG CLASS F 161,031 0.92% $1,000,000
-----
---------- ----- ---------- ----- ---------- -----
6,231,659 42.86% 6,336,922 39.20% 7,420,319 42.51%
---------- ----- ---------- ----- ---------- -----
---------- ----- ---------- ----- ---------- -----
SUBTOTAL 14,538,313 100.00% 14,643,576 90.58% 15,931,821 91.27%
---------- ----- ---------- ----- ---------- -----
BEFORE UNEXERCISED AND UNGRANTED OPTIONS
EMPLOYEE OPTIONS
Granted, not exercised 1,202,861 7.44% 1,202,861 6.89%
Not granted 320,254 1.98% 320,254 1.83%
---------- ----- ---------- ---- ----------
TOTAL Fully Diluted with Options 16,166,691 100% 17,454,936 100% $8,888,888
========== ===== ========== ==== ==========
</TABLE>
<PAGE> 1
EXHIBIT 10.15
PIVOTAL SOFTWARE INC.
INVESTORS' RIGHTS AGREEMENT
JANUARY 15, 1999
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<S> <C> <C> <C>
1. REGISTRATION RIGHTS.....................................................................1
1.1 Definitions.............................................................1
1.2 Request for Registration................................................2
1.3 Company Registration....................................................3
1.4 Obligations of the Company..............................................4
1.5 Furnish Information.....................................................5
1.6 Expenses of Demand Registration.........................................5
1.7 Expenses of Company Registration........................................5
1.8 Underwriting Requirements...............................................6
1.9 Delay of Registration...................................................6
1.10 Indemnification.........................................................6
1.11 Reports Under Securities Exchange Act of 1934...........................9
1.12 Form S-3 Registration...................................................9
1.13 Assignment of Registration Rights......................................10
1.14 Limitations on Subsequent Registration Rights..........................11
1.15 "Market Stand-Off" Agreement...........................................11
1.16 Integral Exemption and Acknowledgement.................................12
1.17 Termination of Registration Rights.....................................12
2. COVENANTS OF THE COMPANY...............................................................12
2.1 Delivery of Financial Statements.......................................12
2.2 Inspection.............................................................13
2.3 Termination of Information and Inspection Covenants....................13
2.4 Right of First Offer...................................................13
3. MISCELLANEOUS..........................................................................15
3.1 Successors and Assigns.................................................16
3.2 Governing Law..........................................................16
3.3 Counterparts...........................................................16
3.4 Titles and Subtitles...................................................16
3.5 Notices................................................................16
3.6 Expenses...............................................................16
3.7 Amendments and Waivers.................................................16
3.8 Severability...........................................................16
3.9 Aggregation of Shares..................................................17
3.10 Further Assurances.....................................................17
3.11 Waivers................................................................17
3.12 Funds..................................................................17
3.13 Entire Agreement.......................................................17
3.14 Termination of Prior Agreement.........................................17
</TABLE>
<PAGE> 3
INVESTORS' RIGHTS AGREEMENT
THIS INVESTORS' RIGHTS AGREEMENT is made as of the 15th day of January 1999, by
and between Pivotal Software Inc., a British Columbia company (the "Company"),
and the investors listed on Schedule A hereto, each of which is herein referred
to as an "Investor", and the founders listed on Schedule A hereto, each of which
is herein referred to as a "Founder."
RECITALS
WHEREAS, the Company and certain of the Investors are parties to the Class F
Preferred Share Subscription and Purchase Agreement of even date herewith (the
"Class F Agreement");
WHEREAS, in order to induce the Company to enter into the Class F Agreement and
to induce certain of the Investors to invest funds in the Company pursuant to
the Class F Agreement, the Investors, the Founders and the Company hereby agree
that this Agreement shall govern the rights of the Investors and the Founders to
cause the Company to register Common Shares issuable or issued to the Investors
and the Founders and certain other matters as set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. REGISTRATION RIGHTS
The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement
or similar document in compliance with the Securities Act of 1933 (the
"Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means (1) the Class A Common Shares
issuable or issued upon conversion of the Class A Preferred Shares,
(2) the Class A Common Shares issuable or issued upon conversion of
the Class B Preferred Shares, (3) the Class A Common Shares issuable
or issued upon conversion of the Class D Preferred Shares, (4) the
Class A Common Shares issuable or issued upon conversion of the
1
<PAGE> 4
Class E Preferred Shares, (5) the Class A Common Shares issuable or
issued upon conversion of the Class F Preferred Shares, (6) the Common
Shares issued to the Founders as of the date hereof (but not for
purposes of Section 1.2 hereof) and (7) any Common Shares of the
Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or
other distribution with respect to, or in exchange for or in
replacement of, such Class A Preferred Shares, Class B Preferred
Shares, Class D Preferred Shares, Class E Preferred Shares, Class F
Preferred Shares or Common Shares, excluding in all cases, however,
any Registrable Securities sold by a person in a transaction in which
his rights under this Section 1 are not assigned;
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Shares
outstanding which are, and the number of shares of Common Shares
issuable pursuant to then exercisable or convertible securities which
are, Registrable Securities.
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof; and
(e) The term "Form S-3" means such form under the Act as in effect on the
date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which
permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after the earlier of (i)
October 31, 1999, or (ii) six (6) months after the effective date of
the first registration statement for a public offering of securities
of the Company (other than a registration statement relating either to
the sale of securities to employees of the Company pursuant to a share
option, share purchase or similar plan or a SEC Rule 145 transaction),
a written request from the Holders of a majority of the Registrable
Securities then outstanding that the Company file a registration
statement under the Act covering the registration of at least twenty
percent (20%) of the Registrable Securities then outstanding (or a
lesser percent if the anticipated aggregate offering price, net of
underwriting discounts and commissions, would exceed $2,000,000), then
the Company shall, within ten (10) days of the receipt thereof, give
written notice of such request to all Holders and shall, subject to
the limitations of subsection 1.2(b), effect as soon as practicable,
and in any event within 120 days of the receipt of such request, the
registration under the Act of all Registrable Securities which the
Holders request to
2
<PAGE> 5
be registered within twenty (20) days of the mailing of such notice by
the Company in accordance with Section 3.5.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this
Section 1.2 and the Company shall include such information in the
written notice referred to in subsection 1.2(a). The underwriter will
be selected by a majority in interest of the Initiating Holders and
shall be reasonably acceptable to the Company. In such event, the
right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such
underwriting shall (together with the Company as provided in
subsection 1.4(e)) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders.
Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing
factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders
of Registrable Securities which would otherwise be underwritten
pursuant hereto, and the number of shares of Registrable Securities
that may be included in the underwriting shall be allocated among all
Holders thereof, including the Initiating Holders, in proportion (as
nearly as practicable) to the amount of Registrable Securities of the
Company owned by each Holder; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting
shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) The Company is obligated to effect only two (2) such registrations
pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would
be seriously detrimental to the Company and its shareholders for such
registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, the Company shall
have the right to defer such filing for a period of not more than 90
days after receipt of the request of the Initiating Holders; provided,
however, that the Company may not utilize this right more than once in
any twelve month period.
1.3 COMPANY REGISTRATION. If (but without any obligation to do so) the Company
proposes to register (including for this purpose a registration effected by the
Company for shareholders other
3
<PAGE> 6
than the Holders) any of its shares or other securities under the Act in
connection with the public offering of such securities solely for cash (other
than a registration relating solely to the sale of securities to participants in
a Company share plan, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with Section 3.5,
the Company shall, subject to the provisions of Section 1.8, cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered.
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to effect
the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one
hundred twenty (120) days.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each
Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto
is required to be delivered under the
4
<PAGE> 7
Act of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing.
1.5 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that
such Holder shall furnish to the Company such information
regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable
Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12
if, due to the operation of subsection 1.5(a), the number of
shares or the anticipated aggregate offering price of the
Registrable Securities to be included in the registration does
not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified
in subsection 1.2(a) or subsection 1.12(b)(2), whichever is
applicable.
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Section 1.2, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 1.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2.
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
1.3 for each Holder (which right may be assigned as provided in Section 1.13),
including (without limitation) all registration, filing, and qualification fees,
printers' and accounting fees relating or apportionable thereto and the fees and
disbursements of one counsel for the selling Holders selected by them, but
excluding underwriting discounts and commissions relating to Registrable
Securities.
5
<PAGE> 8
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering involving an
underwriting of shares of the Company's capital shares, the Company shall not be
required under Section 1.3 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it (or by other persons
entitled to select the underwriters), and then only in such quantity as the
underwriters determine in their sole discretion will not jeopardize the success
of the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering (the securities so included to be apportioned pro
rata among the selling shareholders according to the total amount of securities
entitled to be included therein owned by each selling shareholder or in such
other proportions as shall mutually be agreed to by such selling shareholders)
but in no event shall (i) the amount of securities of the selling Holders
included in the offering be reduced below thirty percent (30%) of the total
amount of securities included in such offering, unless such offering is the
initial public offering of the Company's securities in which case the selling
shareholders may be excluded if the underwriters make the determination
described above and no other shareholder's securities are included or (ii)
notwithstanding (i) above, any shares being sold by a shareholder exercising a
demand registration right similar to that granted in Section 1.2 be excluded
from such offering. For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and shareholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling shareholder", and
any pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder", as defined in
this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities are included in a
registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Act or the Securities Exchange
Act of 1934, as amended (the "1934 Act"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become
subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based
6
<PAGE> 9
upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company
of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to each such Holder,
underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this
subsection 1.10(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement
is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage, liability, or action to
the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by
any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers
who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter,
any other Holder selling securities in such registration statement and
any controlling person of any such underwriter or other Holder,
against any losses, claims, damages, or liabilities (joint or several)
to which any of the foregoing persons may become subject, under the
Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by
such Holder expressly for use in connection with such registration;
and each such Holder will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 1.10(b), in connection with investigating
or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this
subsection 1.10(b) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement
is effected without the consent of the Holder, which consent shall not
be unreasonably withheld; provided, that, in no event shall any
indemnity under this subsection 1.10(b) exceed the gross proceeds from
the offering received by such Holder.
7
<PAGE> 10
(c) Promptly after receipt by an indemnified party under this Section 1.10
of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under
this Section 1.10, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed,
to assume the defence thereof with counsel mutually satisfactory to
the parties, provided, however, that an indemnified party (together
with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding.
The failure to deliver written notice to the indemnifying party within
a reasonable time of the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under
this Section 1.10, but the omission so to deliver written notice to
the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section
1.10.
(d) If the indemnification provided for in this Section 1.10 is held by a
court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such
loss, liability, claim, damage, or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on
the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of
a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or
omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions
in the underwriting agreement shall control.
8
<PAGE> 11
(f) The obligations of the Company and Holders under this Section 1.10
shall survive the completion of any offering of Registrable Securities
in a registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration or pursuant to
a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the first registration statement
filed by the Company for the offering of its securities to the general
public;
(b) take such action, including the voluntary registration of its Common
Shares under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable
Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement filed
by the Company for the offering of its securities to the general
public is declared effective;
(c) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC
Rule 144 (at any time after ninety (90) days after the effective date
of the first registration statement filed by the Company), the Act and
the 1934 Act (at any time after it has become subject to such
reporting requirements), or that it qualifies as a registrant whose
securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration
or pursuant to such form.
1.12 FORM S-3 REGISTRATION. In case the Company shall receive from any Holder or
Holders a written request or requests that the Company effect a registration on
Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
9
<PAGE> 12
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion
of such Holder's or Holders' Registrable Securities as are specified
in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as
are specified in a written request given within 15 days after receipt
of such written notice from the Company; provided, however, that the
Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 1.12: (1) if
Form S-3 is not available for such offering by the Holders; (2) if the
Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $250,000; (3) if the Company shall furnish
to the Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such
time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a period of not more
than 90 days after receipt of the request of the Holder or Holders
under this Section 1.12; provided, however, that the Company shall not
utilize this right more than once in any twelve month period; (4) if
the Company has, within the twelve (12) month period preceding the
date of such request, already effected two registrations on Form S-3
for the Holders pursuant to this Section 1.12; or (5) in any
particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so
requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in
connection with a registration requested pursuant to Section 1.12,
including (without limitation) all registration, filing,
qualification, printer's and accounting fees and the reasonable fees
and disbursements of counsel for the selling Holder or Holders and
counsel for the Company, and including any underwriters' discounts or
commissions associated with Registrable Securities, shall be borne pro
rata by the Holder or Holders participating in the Form S-3
Registration. Registrations effected pursuant to this Section 1.12
shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2 or 1.3, respectively.
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities pursuant to this Section 1 may be assigned (but
only with all related obligations) by a Holder to a transferee or assignee of
such securities who, after such assignment or
10
<PAGE> 13
transfer, holds at least 100,000 shares of Registrable Securities (subject to
appropriate adjustment for share splits, share dividends, combinations and other
recapitalizations), provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act. For the purposes of determining the number of shares
of Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired partners
of such partnership (including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Registrable Securities by gift,
will or intestate succession) shall be aggregated together and with the
partnership; provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices or
taking any action under this Section 1.
1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of
this Agreement, the Company shall not, without the prior written consent of the
Holders of a majority of the outstanding Registrable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company
which would allow such holder or prospective holder (a) to include such
securities in any registration filed under Section 1.2 hereof, unless under the
terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders which is included or (b) to make a demand registration which could
result in such registration statement being declared effective prior to the
earlier of either of the dates set forth in subsection 1.2(a) or within one
hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.2.
1.15 "MARKET STAND-OFF" AGREEMENT. Subject to Section 1.16, each Investor and
Founder hereby agrees that, during the period of duration specified by the
Company and an underwriter of common shares or other securities of the Company
following the effective date of a registration statement of the Company filed
under the Act, which period shall not exceed 180 days unless otherwise agreed by
the parties hereto, it shall not, to the extent requested by the Company and
such underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at the beginning of such period,
at any time during such period except common shares included in such
registration; provided, however, that:
(a) such agreement shall be applicable only to the first such registration
statement of the Company which covers common shares (or other
securities) to be sold on its behalf to the public in an underwritten
offering; and
11
<PAGE> 14
(b) all officers and directors of the Company and all other persons with
registration rights (whether or not pursuant to this Agreement) enter
into similar agreements.
In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Investor and
Founder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.16 INTEGRAL EXEMPTION AND ACKNOWLEDGEMENT. Integral Capital Partners, L.P.
Integral Capital Partners II, L.P., and Integral Capital Partners International
II, C.V. (individually and collectively, "Integral") are exempt from any
restrictions on the sale or transfer of securities as set out in Section 1.15
with respect to any Common Shares it purchases pursuant to a public offering or
any securities it purchases in the public market over and above the existing
shares it owns as at Closing. Integral acknowledges that despite this Section
1.16, an underwriter may require that Integral lock-up any Common Shares it
purchases pursuant to a public offering or securities it purchases in the public
market over and above the existing shares which Integral owns in the capital of
the Company as at Closing.
1.17 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled to exercise
any right provided for in this Section 1 after five (5) years following the
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public.
2. COVENANTS OF THE COMPANY
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to each
Investor:
(a) as soon as practicable, but in any event within one hundred twenty
(120) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and
statement of shareholder's equity as of the end of such year, and a
schedule as to the sources and applications of funds for such year,
such year-end financial reports to be in reasonable detail, prepared
in accordance with generally accepted accounting principles ("gaap"),
and audited and certified by independent public accountants of
nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five (45) days
after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited profit or loss statement, schedule
as to the sources and application of funds for such fiscal quarter and
an unaudited balance sheet and a statement of shareholder's equity as
of the end of such fiscal quarter and a statement showing the number
of shares of each class and series of capital shares and securities
convertible into or exercisable for shares of capital shares
outstanding at the end of the period, the number of common shares
issuable upon conversion or exercise of any outstanding securities
12
<PAGE> 15
convertible or exercisable for common shares and the exchange ratio or
exercise price applicable thereto, all in sufficient detail as to
permit the Investor to calculate its percentage equity ownership in
the Company. The statements will include as a note a statement as to
the status of government filings and remittances, indicating whether
the Company is current with respect to such obligations.
(c) within forty-five (45) days of the end of each month, an unaudited
income statement and schedule as to the sources and application of
funds and balance sheet for and as of the end of such month, in
reasonable detail;
(d) as soon as practicable, but in any event thirty (30) days prior to the
end of each fiscal year, a budget and business plan for the next
fiscal year, prepared on a monthly basis, including balance sheets and
sources and applications of funds statements for such months and, as
soon as prepared, any revised budgets approved by the Board of
Directors;
(e) with respect to the financial statements called for in subsections (b)
and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with gaap consistently applied
with prior practice for earlier periods (with the exception of
footnotes that may be required by gaap) and fairly present the
financial condition of the Company and its results of operation for
the period specified, subject to year-end audit adjustment;
(f) such other information relating to the financial condition, business,
prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time request, provided,
however, that the Company shall not be obligated under this subsection
(f) or any other subsection of Section 2.1 to provide information
which it deems in good faith to be a trade secret or similar
confidential information.
2.2 INSPECTION. The Company shall permit each Investor, at such Investor's
expense, to visit and inspect the Company's properties, to examine its books of
account and records and to discuss the Company's affairs, finances and accounts
with its officers, all at such reasonable times as may be requested by the
Investor; provided, however, that the Company shall not be obligated pursuant to
this Section 2.2 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information and access
shall not be granted to the same Investor more than once per calendar quarter.
2.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The covenants set forth
in subsections 2.1 (c), (d) and (f) and Section 2.2 shall terminate as to
Investors and be of no further force or effect when the sale of securities
pursuant to a registration statement filed by the Company under the Act in
connection with the firm commitment underwritten offering of its securities to
the
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<PAGE> 16
general public is consummated or when the Company first becomes subject to the
periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act,
whichever event shall first occur.
2.4 RIGHT OF FIRST OFFER. Subject to the terms and conditions specified in this
Section 2.4, the Company hereby grants to each holder of Class A Preferred
Shares, Class B Preferred Shares, Class D Preferred Shares, Class E Preferred
Shares or Class F Preferred Shares ("Major Investor") a right of first offer
with respect to future sales by the Company of its shares (as hereinafter
defined). For purposes of this Section 2.4, Major Investor includes any general
partners and affiliates of a Major Investor. A Major Investor shall be entitled
to apportion the right of first offer hereby granted it among itself and its
partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities convertible
into or exercisable for any shares of, any class of its capital shares
("Shares"), the Company shall first make an offering of such Shares to each
Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail ("Notice") to the
Major Investors stating (i) its bona fide intention to offer such
Shares, (ii) the number of such Shares to be offered, and (iii) the
price and terms, if any, upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within 20 calendar
days after giving of the Notice, the Major Investor may elect to
purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the proportion
that the number of shares of Common Shares issued and held, or
issuable upon conversion of the Class A Preferred Shares or Class B
Preferred Shares or Class D Preferred Shares or Class E Preferred
Shares or Class F Preferred Shares then held, by such Major Investor
bears to the total number of shares of Common Shares issued and held,
or issuable upon conversion of the Class A Preferred Shares or Class B
Preferred Shares or Class D Preferred Shares or Class E Preferred
Shares or Class F Preferred Shares then held, by all the Major
Investors. The Company shall promptly, in writing, inform each Major
Investor which purchases all the Shares available to it
("Fully-Exercising Investor") of any other Major Investor's failure to
do likewise. During the ten-day period commencing after such
information is given, each Fully-Exercising Investor shall be entitled
to obtain that portion of the Shares for which Major Investors were
entitled to subscribe but which were not subscribed for by the Major
Investors which is equal to the proportion that the number of shares
of Common Shares issued and held, or issuable upon conversion of Class
A Preferred Shares or Class B Preferred Shares or Class D Preferred
Shares or Class E Preferred Shares or Class F Preferred Shares then
held, by such Fully-Exercising Investor bears to the total number of
shares of Common Shares issued and held, or issuable upon conversion
of the Class A Preferred Shares or Class B Preferred Shares or Class D
Preferred Shares or Class E Preferred Shares or Class F Preferred
Shares then held,
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<PAGE> 17
by all Fully-Exercising Investors who wish to purchase some of the
unsubscribed Shares.
(c) If all Shares which Major Investors are entitled to obtain pursuant to
subsection 2.4(b) are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the 30-day period
following the expiration of the period provided in subsection 2.4(b)
hereof, offer the remaining unsubscribed portion of such Shares to any
person or persons at a price not less than, and upon terms no more
favourable to the offeree than those specified in the Notice. If the
Company does not enter into an agreement for the sale of the Shares
within such period, or if such agreement is not consummated within 30
days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless first
reoffered to the Major Investors in accordance herewith.
(d) The right of first offer in this Section 2.4 shall not be applicable
(i) to the issuance or sale of not to exceed 2,500,000 shares of
Common Shares (or options therefor) to employees or consultants for
the primary purpose of soliciting or retaining their employment or
services, provided each employee or consultant executes an agreement
under the Pivotal Software Inc. Incentive Stock Option Plan or (ii) to
or after consummation of a bona fide, firmly underwritten public
offering of shares of Common Shares, registered under the Act; at an
offering price of at least $7.50 per share (appropriately adjusted for
any share split, dividend, combination or other recapitalization) and
$15,000,000 in the aggregate, (iii) the issuance of securities
pursuant to the conversion or exercise of convertible or exercisable
securities, (iv) the issuance of securities in connection with a bona
fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of shares or otherwise
or (v) the issuance of shares, warrants or other securities or rights
to persons or entities with which the Company has business
relationships provided such issuances are for other than primarily
equity financing purposes and provided that such issuance shall not
exceed 20% of the shares of the Company on a fully converted basis and
provided that the recipient of the issuance enters into an agreement
in the same terms in all material respects as the Shareholders
Agreement of even date herewith.
3. MISCELLANEOUS
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties (including transferees of
any shares of Registrable Securities). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by
15
<PAGE> 18
reason of this Agreement, except as expressly provided in this Agreement.
3.2 GOVERNING LAW. This Agreement shall be governed by and construed under the
laws of British Columbia and the laws of Canada applicable therein.
3.3 COUNTERPARTS. This Agreement may be executed in two or more counterparts and
facsimile counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3.4 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
3.5 NOTICES. Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
by personal delivery to the party to be notified, by facsimile transmission or
by mailing from a United States or Canadian Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties and any such notice shall be considered to have been received,
if delivered, upon the date of delivery, if sent by facsimile, then on the
business day next following the date of transmission, and if mailed, then five
business days after the date of mailing. If normal mail service is interrupted
by strike, slowdown, force majeure, or other cause, a notice sent by mail will
not be considered to be received until actually received, and the party sending
the notice will deliver or transmit by facsimile such notice in order to ensure
prompt receipt thereof.
3.6 EXPENSES. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable legal fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
3.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of at least seventy-five percent
(75%) of the Registrable Securities then outstanding. Any amendment or waiver
effected in accordance with this Section shall be binding upon each holder of
any Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
3.8 SEVERABILITY. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
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<PAGE> 19
3.9 AGGREGATION OF SHARES. All shares of Registrable Securities held or acquired
by affiliated entities or persons shall be aggregated together for the purpose
of determining the availability of any rights under this Agreement.
3.10 FURTHER ASSURANCES. The parties will execute and deliver all other
appropriate supplemental agreements and other instruments, and take any other
action necessary, to give full effect to this Agreement, and to make this
Agreement legally effective, binding and enforceable as between them, and as
against third parties.
3.11 WAIVERS. The failure of a party to insist upon the strict performance of
any term of this Agreement, or to exercise any right, or remedy contained in
this Agreement, will not be construed as a waiver or a relinquishment by that
party for the future, of that term, right or remedy.
3.12 FUNDS. All references to funds and/or dollar amounts are stated in U.S.
currency, unless expressly stated otherwise.
3.13 ENTIRE AGREEMENT. This Agreement (including the Schedules and Exhibits
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
3.14 TERMINATION OF PRIOR AGREEMENT. This Agreement supersedes and replaces the
Investors' Rights Agreement dated November 5, 1996 made among the Company, the
Founders, Kleiner Perkins Caufield & Byers VI, Integral Capital Partners I,
L.P., Integral Capital Partners II, L.P., VW B.C. Technology Investment Fund
Limited Partnership, James Yeates, Integral Capital Partners International II
C.V., Bank of Montreal Capital Corporation, Jeremy Jaech and Oak Investment
Partners VI, L.P. (the "Prior Agreement"), and upon execution and delivery of
this Agreement the Prior Agreement shall terminate and have no further force or
effect.
17
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
PIVOTAL SOFTWARE, INC.
by: /s/ NORMAN FRANCIS
----------------------------------
Norman Francis, President
Address: 300-224 West Esplanade
North Vancouver, BC V7M 3M6
Facsimile: 604-988-0035
INVESTORS:
KLEINER PERKINS CAUFIELD & BYERS VI
by: /s/ SIGNED
----------------------------------
Address: SUITE 2750 Sand Hill Road
Menlo Park, CA 94025
Facsimile: 650.233-0366
KPMG PEAT MARWICK LLP
by: /s/ SIGNED
----------------------------------
Address: Suite 2000 - 303 Peachtree
Atlanta, GA 30308
Facsimile: 650-303-4501
Attention: Rod McGear
18
<PAGE> 21
VW B.C. TECHNOLOGY INVESTMENT FUND
LIMITED PARTNERSHIP
By its general partner Ventures West
Management B.C. Ltd.
Per: /s/ SIGNED
------------------------------------
Address: 280 - 1285 West Pender Street
Vancouver, BC V6E 4B1
Facsimile: 604-687-2145
Attention: Robin J. Louis
BANK OF MONTREAL CAPITAL CORPORATION
By its manager, Ventures West Management
TIP Inc.
Per: /s/ SIGNED
------------------------------------
Address: 280 - 1285 West Pender Street
Vancouver, BC V6E 4B1
Facsimile: 604-687-2145
Attention: Robin J. Louis
19
<PAGE> 22
INTEGRAL CAPITAL PARTNERS, L.P.
by: /s/ SIGNED
----------------------------------
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
Facsimile: 650-233-0366
Attention: Roger McNamee or
John Powell
INTEGRAL CAPITAL PARTNERS II, L.P.
by: /s/ PAMELA HAGENAH
----------------------------------
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
Facsimile: 650-233-0366
Attention: Roger McNamee or
John Powell
INTEGRAL CAPITAL PARTNERS INTERNATIONAL
II C.V.
by: /s/ PAMELA HAGENAH
----------------------------------
A General Partner
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
Facsimile: 650-233-0366
Attention: Roger McNamee or
John Powell
20
<PAGE> 23
OAK INVESTMENT PARTNERS VI, L.P.
by: /s/ SIGNED
---------------------------
Address: 525 University Avenue
Suite 1300, Palo Alto, CA 94301
Facsimile: 650-328-6345
Attention: Mr. Fred Harman
OAK VI AFFILIATES FUND, L.P.
by: /s/ SIGNED
---------------------------
Address: 525 University Avenue
Suite 1300, Palo Alto, CA 94301
Facsimile: 650-614-3700
Attention: Mr. Fred Harman
/s/ JEREMY JAECH
- -------------------------------
JEREMY JAECH
Address: 3729 E. Prospect Street
Seattle, WA 98112-4441
21
<PAGE> 24
FOUNDERS:
THE FRANCIS FAMILY TRUST
by: /s/ NORMAN FRANCIS
-----------------------------------
Address: 1872 Fulton Avenue
West Vancouver, BC V7V 1S9
Facsimile: 604-926-6305
BOARDWALK VENTURES INC.
by: /s/ NORMAN FRANCIS
-----------------------------------
Address: 1872 Fulton Avenue
West Vancouver, BC V7V 1S9
Facsimile: 604-926-6305
DAYBREAK SOFTWARE INC.
by: /s/ KEITH WALES
-----------------------------------
Address: 5960 Raven Place
West Vancouver, BC V7W 1X2
FIREWOOD INVESTMENTS INC.
by: /s/ PATRICIA WALES
-----------------------------------
Address: 420 Westholme Road
West Vancouver, BC V7V 2N1
22
<PAGE> 25
/s/ NORMAN FRANCIS
----------------------------------------
NORMAN FRANCIS
Address: 1872 Fulton Avenue
West Vancouver, BC V7V 1S9
Facsimile: 604-926-6305
/s/ KEITH WALES
----------------------------------------
KEITH WALES
Address: 5960 Raven Place
West Vancouver, BC V7W 1X2
/s/ PATRICIA WALES
----------------------------------------
PATRICIA WALES
Address: 420 Westholme Road
West Vancouver, BC V7V 2N1
23
<PAGE> 26
SCHEDULE A
INVESTORS:
KLEINER PERKINS CAUFIELD & BYERS VI
INTEGRAL CAPITAL PARTNERS, L.P.
INTEGRAL CAPITAL PARTNERS II, L.P.
INTEGRAL CAPITAL PARTNERS INTERNATIONAL II C.V.
VW B.C. TECHNOLOGY INVESTMENT FUND LIMITED PARTNERSHIP
BANK OF MONTREAL CAPITAL CORPORATION
JEREMY JAECH
OAK INVESTMENT PARTNERS VI, L.P.
OAK VI AFFILIATES FUND, L.P.
KPMG PEAT MARWICK LLP
FOUNDERS:
THE FRANCIS FAMILY TRUST
BOARDWALK VENTURES INC.
DAYBREAK SOFTWARE INC.
FIREWEED INVESTMENTS INC.
NORMAN FRANCIS
KEITH WALES
PATRICIA WALES
<PAGE> 1
EXHIBIT 10.16
SHARE PURCHASE AGREEMENT
THIS AGREEMENT dated > is between:
<name of shareholder>, <address>
("Shareholder")
AND
PIVOTAL SOFTWARE INC., (BC Incorporation No. 398393), a company
incorporated under the laws of British Columbia with its
registered and records office located at 2800-666 Burrard Street,
Vancouver, BC V6C 2Z7
("Company")
BACKGROUND
A. The Shareholder is the registered holder of > Class A Common shares without
par value in the capital of the Company ("Class A Shares").
B. The Shareholder has agreed to sell the Class A Shares to the Company, which
has agreed to buy them from the Shareholder upon the terms and conditions set
out herein.
AGREEMENTS
For good and valuable consideration, the receipt and sufficiency of which
each party acknowledges, the parties agree as follows:
1. The Shareholder acknowledges having received from the Company upon the
execution of this Agreement, > Class B Common shares with a par value of $> per
share, in the capital of the Company ("New Shares") from the Company and in
consideration thereof:
(a) assigns, transfers and conveys title to the Class A Shares to the
Company, its successors and assigns; and
(b) warrants to the Company that it has good title to and is the legal and
beneficial owner of the Class A Shares, free and clear of all liens,
charges and encumbrances, and has authority to assign, transfer and
convey them as aforesaid.
<PAGE> 2
-2-
2. The Shareholder acknowledges having received from the Company the New
Shares as full and complete consideration for the Class A Shares.
This Agreement constitutes the entire Agreement between the parties and
there are no agreements collateral hereto relating to the subject matter hereof.
TO EVIDENCE THEIR AGREEMENT each of the parties has executed this Agreement as
of the date of this Agreement.
SIGNED AND DELIVERED in the )
presence of: )
)
- -------------------------------------) --------------------------------------
(Signature) ) Name of Shareholder:
)
- -------------------------------------)
(Print Name) )
)
- -------------------------------------)
(Address) )
)
- -------------------------------------)
(Occupation) )
(as to all signatures) )
)
PIVOTAL SOFTWARE INC.
By:
- -------------------------------------
Authorized Signatory
<PAGE> 1
EXHIBIT 10.17
SHARE PURCHASE AGREEMENT
THIS AGREEMENT dated for reference May 31, 1999 is between the undersigned
(the "VENDOR") listed on Schedule A to this agreement and PIVOTAL SOFTWARE INC.
(the "PURCHASER"), a British Columbia company.
BACKGROUND:
A. The Vendor is the legal and beneficial owner of that number of Class B
Common shares ("CLASS B SHARES" and each, a "CLASS B SHARE") in the capital of
the Purchaser as set out alongside the Vendor's name in Schedule A attached.
B. The authorized share capital of the Purchaser currently consists of
62,546,474 shares divided into 50,000,000 Class A Common shares without par
value, 600,000 Class B Common shares with a par value of $0.03 each, 2,000,000
Class A Preferred shares without par value, 2,000,000 Class B Preferred shares
with a par value of $1.17 each, 2,658,228 Class D Preferred shares without par
value, 4,000,000 Class E Preferred shares without par value, and 1,288,246 Class
F Preferred shares without par value.
C. As part of a capital reorganization, the Purchaser proposes to increase the
number of Class A Common shares from 50,000,000 to 200,000,000 and to
redesignate the Class A Common shares as Common shares ("COMMON SHARES" and
each, a "COMMON SHARE").
D. The Vendor wishes to sell and the Purchaser wishes to purchase the Class B
Shares held by the Vendor at a purchase price ("Purchase Price") payable by the
issuance by the purchaser of one Common Share for each Class B Share.
AGREEMENTS:
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
each party acknowledges, the parties agree as follows:
1. PURCHASE AND SALE. The Vendor hereby agrees to sell and the Purchaser
hereby agrees to
<PAGE> 2
2
purchase all Class B Shares held by the Vendor free and clear of all liens,
charges and encumbrances for the Purchase Price on the terms and conditions of
this agreement. The Purchase Price will be paid and satisfied by the Purchaser's
allotment and issuance to the Vendor of one Common Share for each Class B Share
sold by the Vendor to the Purchaser.
2. CLOSING. The closing ("CLOSING") of the purchase and sale of the Class B
Shares will occur at the time and place to be established by the Purchaser but
in no case will such closing occur after December 31, 1999.
3. DELIVERY OF ENDORSED CERTIFICATES TO PURCHASER. At or before the Closing
the Vendor will deliver or cause to be delivered to the Purchaser the
certificates representing all Class B Shares held by the Vendor duly endorsed in
blank for transfer or accompanied by a duly executed share transfer form and
execute and deliver, or cause to be executed and delivered, such other
instruments and documents to the Purchaser or its agents as are necessary to
give effect to the terms and conditions of this agreement.
4. ISSUE OF COMMON SHARES. At the Closing the Purchaser will allot and issue
to the Vendor that number of Common Shares equal to the Class B Shares sold by
the Vendor to the Purchaser and execute and deliver, or cause to be executed and
delivered, to the Vendor certificates representing such Common Shares.
5. TITLE. The Vendor represents and warrants that the Vendor has good and
marketable title to the Vendor's Class B Shares, free and clear of all
encumbrances of whatever nature and kind whatsoever.
6. VALID ISSUANCE. The Purchaser represents and warrants that each Common
Share issued hereunder, when issued, will be duly authorized and validly
allotted and issued as fully paid and non-assessable.
7. ENTIRE AGREEMENT. The terms and provisions of this agreement constitute the
entire agreement between the parties and supersedes all previous oral or written
communications in respect of the subject matter hereof.
<PAGE> 3
3
8. SCHEDULE. The schedule which is attached to this agreement is incorporated
into this agreement by reference and is deemed to be a part hereof.
9. CHOICE OF LAW. This agreement will be governed by and construed in
accordance with the laws of the Province of British Columbia and the laws of
Canada applicable therein.
10. FURTHER ACTS. The Vendor and the Purchaser will do all such further acts
and things as may be necessary to give effect to the terms and conditions of
this agreement.
11. ENUREMENT. This agreement will enure to the benefit of and be binding upon
the Vendor and the Purchaser and their respective successors and assigns,
administrators, executors, heirs, and personal representatives, as applicable.
12. COUNTERPARTS. This agreement may be executed by facsimile in counterparts,
each of which will be deemed to be an original, and which together will
constitute one and the same agreement.
IN WITNESS WHEREOF the parties have executed this agreement effective as of
May 31, 1999.
SIGNED AND DELIVERED BY THE PURCHASER:
PIVOTAL SOFTWARE INC.
By:
----------------------------------------
(signature of authorized representative)
<PAGE> 4
4
SIGNED AND DELIVERED BY THE )
VENDOR IN THE PRESENCE OF: )
)
)
(SIGNATURE OF WITNESS) )
)
(PRINT NAME OF WITNESS) )
) --------------------------------------
) <NAME OF VENDOR HERE>
(ADDRESS) )
)
<PAGE> 5
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF CLASS B SHARE CERTIFICATE
NAME COMMON SHARES HELD NUMBER
---- ------------------ -----------------
<S> <C> <C>
- --------------------------------------------- ----------------------------------- ----------------------------------
- --------------------------------------------- ----------------------------------- ----------------------------------
- --------------------------------------------- ----------------------------------- ----------------------------------
- --------------------------------------------- ----------------------------------- ----------------------------------
- --------------------------------------------- ----------------------------------- ----------------------------------
- --------------------------------------------- ----------------------------------- ----------------------------------
- --------------------------------------------- ----------------------------------- ----------------------------------
- --------------------------------------------- ----------------------------------- ----------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.18
MERRILL LYNCH & CO. May __, 1999
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear Stearns & Co., Inc.
Dain Rauscher Wessels
(a division of Dain Rauscher Incorporated)
C/O MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Pivotal Software Inc.
Dear Sirs:
The undersigned, a stockholder or optionholder of Pivotal Software Inc.
(the "Company") understands that Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the underwriters listed above
proposes to enter into a Purchase Agreement (the "Purchase Agreement") with the
Company providing for the public offering of the Company's common shares, [no
par value per share] (the "Common Stock"). In recognition of the benefit that
such an offering will confer upon the undersigned as a stockholder or
optionholder of the Company, and in order to induce Merrill Lynch to enter into
the Purchase Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned agrees
with each underwriter to be named in the Purchase Agreement that, during the
period beginning on the above date and ending 180 days from the date of the
Purchase Agreement, the undersigned will not, without the prior written consent
of Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of or otherwise dispose
of or transfer any shares of the Company's Common Stock or any securities
convertible into or exchangeable or exercisable for Common Stock, whether now
owned or hereafter acquired by the undersigned or with respect to which the
undersigned has or hereafter acquires the power of disposition or file any
registration statement under the Securities Act of 1933, as amended, with
respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock, whether
any such swap or transaction is to be settled by delivery of Common Stock or
other securities in cash or otherwise. In addition, the undersigned hereby
waives any right to
<PAGE> 2
receive notice of the proposed offering and related registration and to cause
the Company to include in the proposed registration any securities of the
undersigned.
Very truly yours,
Signature:
------------------------------
Print Name:
<PAGE> 1
EXHIBIT 10.19
[CIBC LOGO]
Knowledge-Based Business
Commercial Banking Centre
Commerce Place
400 Burrand Street, 7th Floor
Vancouver, BC
V6C 3A6
March 18, 1998
Pivotal Software Inc.
310 - 260 West Esplanade
North Vancouver, BC
V7M 3G7
Attention: Mr. Peter B. Inman
Dear Mr. Inman:
We, Canadian Imperial Bank of Commerce ("CIBC"), are pleased to establish
the following Credits for you, our customer.
<TABLE>
CREDIT A: COMMITTED INSTALLMENT LOAN (CIBC/WED INFORMATION TECHNOLOGY & TELECOMMUNICATIONS LOAN PROGRAM)
<S> <C>
Loan Amount: $2,000,000.
Purpose: To assist with market development costs.
Interest Rate: Prime Rate plus 4% per year.
Repayment: Repayable immediately and without notice upon your failure to pay when due any amount owing hereunder, and
repayable 10 days after notice is given to you of any other Event of Default unless you cure such default within
such 10 day period.
Scheduled
Payments: Unless an Event of Default has occurred which has not been cured within the time allowed to cure such default (if
any), you will pay CIBC as follows:
Interest only until facility is fully drawn. Repayment to begin no later than October 31, 1998 with a maximum
amortization 3 years.
</TABLE>
<PAGE> 2
Pivotal Software Inc. March 18, 1998
SECURITY
Security: The Credit shall be secured by all security now or hereafter
held by CIBC to secure your obligations to us, including
without limitation the following security. Any amounts
realized on the following security shall be applied first to
amounts owing by you to CIBC under Operating Line, Letters
of Credits/Guarantees, Foreign Exchange Contracts, Cheque
Credits, and second to amounts owing under this Credit:
Security Agreement All personal property of the business now owned (which
(GSA): includes among other things inventory, equipment and
receivables), and all personal property acquired in the
future.
Bank Act security: Security under section 427 of the Bank Act.
Other security: Acknowledged assignment of fire and other perils insurance
on the business assets, with loss payable to CIBC firstly.
COVENANTS
Covenants: You will ensure that:
Quick Ratio: Your Quick Ratio is not at any time less than
1.75 : 1, tested quarterly.
Debt to Effective Equity Ratio: Your Debt to Effective
Equity Ratio does not at any time exceed 1.25 : 1, tested
quarterly.
Minimum Shareholders' Equity: The Minimum Shareholders'
Equity is not at any time less than $6,000,000.
Capital Expenditures: Your total capital expenditures for
fixed or capital assets in the current fiscal year will not
exceed financial plan, without our prior consent. (This
amount includes expenditures made by all subsidiaries.)
Dividends and Withdrawals: The total of all dividends,
shareholder loan repayments and other capital withdrawals in
the current fiscal year will not exceed $Nil without our
prior consent.
Negative Pledge: There is no Lien on any of your present or
future assets, and that you do not assign any right to any
income, without our prior consent, except for the four
exceptions below, namely:
2 of 5
<PAGE> 3
Pivotal Software Inc. March 18, 1998
(a) a Purchase Money Lien;
(b) a Lien existing on an asset when it was acquired;
(c) a renewal or replacement of a Purchase Money Lien or a
Lien referred to in (b) above, so long as the principal
amount secured by the Lien does not increase; or
(d) a Normal Course Lien.
CONDITIONS PRECEDENT
Conditions
Precedent: Credit "A" is confirmed providing the following
condition is met:
1) CIBC receives a budget from the Company which is to detail
the proposed market development costs and advertising cost
expenditures totalling $2,000,000.
DRAW DOWN RESTRICTIONS
Draw Down
Restrictions: The Borrower, on a monthly basis, must be in compliance with all
covenants of this credit, in order to draw down on Credit "A".
Requests are to be accompanied by a progress report which is to
show:
1) Market development and advertising costs incurred and paid
by category as outlined in your budget.
The report is to be signed by the required authorized officers
certifying that all funds have been spent in accordance with the
eligible expense categories under the CIBC/WED Information
Technology & Telecommunications Loan Program.
The CIBC shall not contribute to any cost that is not a
reasonable and proper cost of the CIBC/WED Information
Technology and Telecommunications Loan Program.
For clarification, eligible expense categories are as follows:
PRECOMMERCIAL AND COMMERCIAL PRODUCT DEVELOPMENT REQUIREMENTS.
Includes those post research and development activities prior to
introducing the product into the market providing a market has
been established. Costs may involve hiring consultants,
packaging costs, label design, testing for product quality and
developing marketing strategies.
MARKET DEVELOPMENT. Is an activity that involves establishing a
product in the market place. Costs may involve market studies,
accessing shelf space, in-store sampling, advertising,
promotional materials and trade shows.
REPORTING REQUIREMENTS
Reporting
Requirements: (1) Within 30 days of the end of each month, financial
statements and sales activity reports for that month,
together with a comparison of actual to budget for that
period. Material variances from the Company's financial
plan/budget, in excess of 10%, shall be accompanied by
management comments.
(2) Within 30 days of the end of each quarter, management
statistics for that quarter, and a monthly cash flow
projection for the upcoming two quarters.
(3) Within 120 days of each fiscal year-end, financial
statements for that fiscal year on an audited basis.
(4) 30 days prior to each fiscal year-end, a business
plan/forecast for the next fiscal year, including
month-by-month projected balance sheets, income statements
and cash flow projections.
OTHER PROVISIONS
Next Scheduled
Review Date: October 31, 1998
Standard Credit
Terms:
The attached Schedule - Standard Credit Terms forms part of
this Agreement.
3 of 5
<PAGE> 4
Pivotal Software Inc. March 18, 1998
Please indicate your acceptance of these terms by returning a signed copy
of this Agreement. If we do not receive a signed copy by March 27, 1998 then
this offer will expire.
Yours truly,
CANADIAN IMPERIAL BANK OF COMMERCE
by: /s/ RODERICK N. CAMPBELL
------------------------------------------
Roderick N. Campbell
Director, Knowledge-Based Business
Phone no.: (604) 665-1652
Fax no.: (604) 665-1144
Acknowledgement: The undersigned certifies that all information provided to
CIBC is true, and acknowledges receipt of a copy of this
Agreement (including any Schedules referred to above).
Accepted this 24th day of March, 1998.
------ -------
PIVOTAL SOFTWARE INC.
By: /s/ N. FRANCIS
----------------------------
Name: N. Francis
----------------------------
Title: President & CEO
----------------------------
5 of 5
<PAGE> 1
EXHIBIT 10.20
[CIBC LOGO] Knowledge-Based Business
Commercial Banking Centre
Commerce Place
400 Burrard Street, 7th Floor
Vancouver, BC
V6C 3A6
March 18, 1998
Pivotal Software Inc.
310-260 West Esplanade
North Vancouver, BC
V7M 3G7
Attention: Mr. Peter B. Inman
Dear Mr. Inman:
We, Canadian Imperial Bank of Commerce ("CIBC"), are pleased to establish the
following credits for you, our customer.
OVERALL CREDIT LIMIT
Overall Credit Limit: The total use of Credits:
Operating Line
Letters of Credits/Guarantees
Foreign Exchange Contracts
Cheque Credit
is not at any time to exceed $3,000,000.
CREDIT A: OPERATING LINE
Credit Limit: The lesser at any time of:
(a) $3,000,000; and
(b) the total of
-- 75% of the Receivable Value plus 65% of
filed investment tax credits
We will consider including in the
Receivable Value, accounts receivables
that are in excess of 90 Days, or that are
due from outside of North America, on a
case by case basis.
<PAGE> 2
Pivotal Software Inc. March 18, 1998
Filed investment tax credits are to be
confirmed to the satisfaction of the CIBC and
must be outstanding for less than 180 days.
Description and Rate: A revolving demand credit, for general business
purposes, having the following parts:
(1) Canadian dollar loans and overdrafts and L/C
Acceptances. The Interest Rate is as follows:
Prime Rate plus 1.0% per year.
(2) U.S. dollar loans and overdrafts and L/C
Acceptances. Loans and overdrafts under this part
of Credit A may not at any time exceed the U.S.
dollar equivalent of C$3,000,000. The Interest
Rate is as follows: U.S. Base Rate plus 1.0% per
year.
If we sign an L/C Acceptance, the available
Credit Limit will be reduced by the amount of the
L/C Acceptance.
(3) Canadian dollar or foreign currency L/Cs. The
total amount of L/Cs outstanding at any time may
not exceed 25% of the Credit Limit of Credit A.
L/Cs may not have terms to expiry of more than 12
months. Fees are CIBC's standard L/C fees
(currently 1.3% per year), minimum $150, plus out
of pocket expenses. Our standard L/C
documentation is also required.
If there is a drawing under any L/C, we will pay
it by drawing on your Operating Account, unless
you have made other arrangements with us.
CREDIT B: FOREIGN EXCHANGE CONTRACTS
Credit Limit: U.S.$100,000.
Description: You may, at our discretion, enter into one or more
spot, forward or other foreign exchange rate
transactions with us and/or Wood Gundy Inc. Your
ability to make use of this Credit will depend upon
your outstanding obligations under such transactions,
as determined by us. This is a demand Credit.
2 of 6
<PAGE> 3
Pivotal Software Inc. March 18, 1998
CREDIT C: CHEQUE CREDIT
<TABLE>
<S> <C>
Credit Limit: $100,000.
Description: You may negotiate cheques at our Lonsdale & 16th Branch in a total face amount each day of up to the
Credit Limit of this Credit.
SECURITY
Security: The following security is required:
Security Agreement All personal property of the business now owned (which includes among other things inventory, equipment
(GSA): and receivables), and all personal property acquired in the future.
Bank Act security: Security under section 427 of the Bank Act.
Other security: Acknowledged assignment of fire and other perils insurance on the business assets, with loss payable to CIBC
firstly.
COVENANTS
Covenants: You will ensure that:
Quick Ratio: Your Quick Ratio is not at any time less than 1.75:1, tested quarterly.
Debt to Effective Equity Ratio: Your Debt to Effective Equity Ratio does not at any time exceed 1.25:1,
tested quarterly.
Minimum Shareholders' Equity: The Minimum Shareholders' Equity is not at any time less than $6,000,000.
Capital Expenditures: Your total capital expenditures for fixed or capital assets in the current fiscal year
will not exceed financial plan levels, without our prior consent. (This amount includes expenditures made by
all subsidiaries.)
Dividends and Withdrawals: The total of all dividends, shareholder loan repayments and other capital
withdrawals in the current fiscal year will not exceed $Nil without our prior consent.
</TABLE>
3 of 6
<PAGE> 4
Pivotal Software Inc. March 18, 1998
Negative Pledge: There is no Lien on any of your present
or future assets, and that you do not assign any right to
any income, without our prior consent, except for the
four exceptions below, namely:
(a) a Purchase Money Lien;
(b) a Lien existing on an asset when it was acquired;
(c) a renewal or replacement of a Purchase Money Lien or
a Lien referred to in (b) above, so long as the
principal amount secured by the Lien does not
increase; or
(d) a Normal Course Lien.
REPORTING REQUIREMENTS
Reporting (1) Within 30 days of each calendar month-end, a summary
Requirements: of Receivable Value, together with an aged list of
receivables, an aged list of accounts payable and a
Monthly Statement of Available Credit Limit, as of
that month-end.
(2) Within 30 days of the end of each month, financial
statements and sales activity reports for that
month, together with a comparison of actual to
budget for the period. Material variances from the
Company's financial plan/budget, in excess of 10%,
shall be accompanied by management comments.
(3) Within 30 days of the end of each quarter,
management statistics for that quarter, and a
monthly cash flow projection for the upcoming two
quarters.
(4) Within 120 days of each fiscal year-end, financial
statements for that fiscal year on an audit basis.
(5) 30 days prior to each fiscal year-end, a business
plan/forecast for the next fiscal year, including
month-by-month projected balance sheets, income
statements and cash flow projections.
FEES
Loan Administration: $500 per month.
Standby: Waived
4 of 6
<PAGE> 5
Pivotal Software Inc. March 18, 1998
Set-up: A fee of $50,000. (payable on acceptance of this offer).
Equity Participation: Waived
OTHER PROVISIONS
Calculations: The calculations made under the "Covenants" and
"Reporting Requirements" sections of this Agreement are
to be done on an consolidated basis.
Default Interest Rate: Currently 21% per year. If the Credit Limit of a Credit,
or the Credit Limit of part of a Credit, or the Overall
Credit Limit, is exceeded at any time, interest at the
Default Rate is calculated on that excess amount. In
connection with any amounts in foreign currency, see
"Foreign Currency Conversion" in the Attached Schedule.
Next Scheduled
Review Date: October 31, 1998
Standard Credit Terms: The attached Schedule - Standard Credit Terms forms part
of this Agreement.
Please indicate your acceptance of these terms by returning a signed copy
of this Agreement. If we do not receive a signed copy by March 27, 1998, then
this offer will expire.
Yours truly,
CANADIAN IMPERIAL BANK OF COMMERCE
by: /s/ Roderick N. Campbell
------------------------------------
Roderick N. Campbell
Director, Knowledge-Based Business
Phone no.: (604) 665-1652
Fax no.: (604) 665-1144
5 of 6
<PAGE> 6
Pivotal Software Inc. March 18, 1998
Acknowledgement: The undersigned certifies that all information provided to
CIBC is true, and acknowledges receipt of a copy of this
Agreement (including any Schedules referred to above).
Accepted this 24th day of March, 1998.
PIVOTAL SOFTWARE INC.
By: /s/ N. FRANCIS
---------------------------------
Name: N. Francis
---------------------------------
Title: President & CEO
---------------------------------
6 of 6
<PAGE> 1
EXHIBIT 10.21
Canadian Imperial Branch: 400 Burrard Street
Bank of Commerce Vancouver, B.C. V6C 3A6
SECURITY AGREEMENT
For valuable consideration, the undersigned (the "Customer") agrees with
Canadian Imperial Bank of Commerce ("CIBC") as follows:
1. GRANT OF SECURITY. The Customer mortgages, charges and assigns to CIBC,
and grants to CIBC, and CIBC takes a Security Interest in the property described
in the following paragraph or paragraphs of this section (as applicable in
accordance with the NOTE appearing at the end of this section), and in all
property described in any schedules, documents or listings that the Customer may
from time to time sign and provide to CIBC in connection with this Agreement,
and in all present and future Accessions to, and all Proceeds of, any such
property (collectively: the "Collateral") as a general and continuing collateral
security for the due payment and performance of the Liabilities:
[ ] (a) Specific Personal Property: the Personal Property described in
Schedule A.
[X] (b) All Personal Property: all of the Customer's present and after-
acquired undertaking and Personal Property (including any
property that may be described in Schedule A) but excluding
Consumer Goods.
[ ] (c) All Real Property: all of the Customer's present and after-
acquired real property (including any property that may be
described in Schedule A), together with all buildings placed,
installed or erected on any such property.
NOTE: Check appropriate box or boxes to indicate which of paragraphs (a), (b) or
(c) are to apply. If no box is checked off, paragraph (b) will apply.
2. GOVERNING LAW. This Agreement is governed by the laws of British
Columbia.
ADDITIONAL TERMS AND CONDITIONS. THE ADDITIONAL TERMS AND CONDITIONS (INCLUDING
ANY SCHEDULES) ON THE FOLLOWING PAGES FORM PART OF THIS AGREEMENT.
The Customer has signed this Agreement on April 30th, 1998.
This Agreement is dated for reference April 15, 1998.
Witness: PIVOTAL SOFTWARE INC.
--------------------------------------
Customer's name in full
/s/ CARMEN WENKOFF Carmen Wenkoff /s/ NORMAN FRANCIS
- -------------------------------------- --------------------------------------
Signature Name (Print) Signature Norman Francis
President, CEO
- -------------------------------------- --------------------------------------
Signature Name (Print) Signature
300-224 West Esplanade
--------------------------------------
Customer's street address
North Vancouver, B.C., V7M 3M6
--------------------------------------
City/Town, Province and Postal Code
Note: If the Customer is a corporation, no witness is needed. The office (such
as "President" or "Secretary") of the person signing should be noted
below that person's signature.
- --------------------------------------------------------------------------------
FOR INDIVIDUALS ONLY, record the following information:
- --------------------------------------------------------------------------------
First and second names in full; surname Birth Date* Sex
Month M/F
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* For Alberta, Ontario, Saskatchewan and the Yukon, record: day month year.
For British Columbia and Manitoba, record: year month day.
<PAGE> 2
ADDITIONAL TERMS AND CONDITIONS
3. PLACES OF BUSINESS. The Customer represents and warrants that the
locations of all existing Places of Business are specified in Schedule B. The
Customer will promptly notify CIBC in writing of any additional Places of
Business as soon as they are established. Subject to section 5, the Collateral
will at all times be kept at the Places of Business, and will not be removed
without CIBC's written consent.
4. COLLATERAL FREE OF CHARGES. The Customer represents and warrants that
the Collateral is, and agrees that the Collateral will at all times be, free of
any Charge or trust except in favour of CIBC or incurred with CIBC's prior
written consent. CIBC may, but will not have to, pay any amount or take any
action required to remove or redeem any unauthorized Charge. The Customer will
immediately reimburse CIBC for any amount so paid and will indemnify CIBC in
respect of any action so taken.
5. USE OF COLLATERAL. The Customer will not, without CIBC's prior written
consent, sell, lease or otherwise dispose of any of the Collateral (other than
Inventory, which may be sold, leased or otherwise disposed of in the ordinary
course of the Customer's business). All Proceeds of the Collateral (including
among other things all amounts received in respect of Receivables), whether or
not arising in the ordinary course of the Customer's business, will be received
by the Customer as trustee for CIBC and will be immediately paid to CIBC.
6. INSURANCE. The Customer will keep the Collateral insured to its full
insurable value against loss or damage by fire and such other risks as are
customarily insured for property similar to the Collateral (and against such
other risks as CIBC may reasonably require). At CIBC's request, all policies in
respect of such insurance will contain a loss payable clause, and if the
Collateral includes real property will contain a mortgage clause, in favour of
CIBC and in any event the Customer assigns all proceeds of insurance on the
Collateral to CIBC. The Customer will, from time to time at CIBC's request,
deliver such policies (or satisfactory evidence of such policies) to CIBC. If
the Customer does not obtain or maintain such insurance, CIBC may, but will not
have to, do so. The Customer will immediately reimburse CIBC for any amount so
paid. The Customer will promptly give CIBC written notice of any loss or damage
to all or any part of the Collateral.
7. INFORMATION AND INSPECTION. The Customer will from time to time
immediately give CIBC in writing all information requested by CIBC relating to
the Collateral, the Places of Business, and the Customer's financial or business
affairs. The Customer will promptly advise CIBC of the Serial Number, model
year, make and model of each Serial Number Good at any time included in the
Collateral that is held as Equipment, including in circumstances where the
Customer ceases holding such Serial Number Good as Inventory and begins holding
it as Equipment. CIBC may from time to time inspect any Books and Records and
any Collateral, wherever located. For that purpose CIBC may, without charge,
have access to each Place of Business and to all mechanical or electronic
equipment, devices and processes where any of them may be stored or from which
any of them may be retrieved. The Customer authorizes any Person holding any
Books and Records to make them available to CIBC, in a readable form, upon
request by CIBC.
8. RECEIVABLES. If the Collateral includes Receivables, CIBC may advise any
Person who is liable to make any payment to the Customer of the existence of
this Agreement. CIBC may from time to time confirm with such Persons the
existence and the amount of the Receivables. Upon Default, CIBC may collect and
otherwise deal with the Receivables in such manner and upon such terms as CIBC
considers appropriate.
9. RECEIPTS PRIOR TO DEFAULT. Until Default, all amounts received by CIBC
as Proceeds of the Collateral will be applied on account of the Liabilities in
such manner and at such times as CIBC may consider appropriate or, at CIBC's
option, may be held unappropriated in a collateral account or released to the
Customer.
10. DEFAULT.
(1) Events of Default. The occurrence of any of the following events or
conditions will be a Default:
(a) the Customer does not pay any of the Liabilities when due;
(b) the Customer does not observe or perform any of the Customer's
obligations under this Agreement or any other agreement or
document existing at any time between the Customer and CIBC;
(c) any representation, warranty or statement made by or on behalf of
the Customer to CIBC is untrue in any material respect at the time
when or as of which it was made;
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<PAGE> 3
(d) the Customer ceases or threatens to cease to carry on in the
normal course the Customer's business or any material part
thereof;
(e) if the Customer is a corporation, there is, in CIBC's reasonable
opinion, a change in effective control of the Customer, or if the
Customer is a partnership, there is a dissolution or change in the
membership of the partnership;
(f) the Customer becomes insolvent or bankrupt or makes a proposal or
files an assignment for the benefit of creditors under the
Bankruptcy Act (Canada) or similar legislation in Canada or any
other jurisdiction; a petition in bankruptcy is filed against the
Customer; or, if the Customer is a corporation, steps are taken
under any legislation by or against the Customer seeking its
liquidation, winding-up, dissolution or reorganization or any
arrangement or composition of its debts;
(g) a Receiver, trustee, custodian or other similar official is
appointed in respect of the Customer or any of the Customer's
property;
(h) the holder of a Charge takes possession of all or any part of the
Customer's property; or a distress, execution or other similar
process is levied against all of such property; or
(i) CIBC, in good faith and upon commercially reasonable grounds,
believes that the prospect of payment or performance is or is
about to be impaired or that the Collateral is or is about to be
placed in jeopardy.
(2) Rights upon Default. Upon Default, CIBC and a Receiver, as applicable,
will to the extent permitted by law have the following rights.
(a) Appointment of Receiver. CIBC may by instrument in writing appoint
any Person as a Receiver of all or any part of the Collateral.
CIBC may from time to time remove or replace a Receiver, or make
application to any court of competent jurisdiction for the
appointment of a Receiver. Any Receiver appointed by CIBC will
(for purposes relating to responsibility for the Receiver's acts
or omissions) be considered to be the Customer's agent. CIBC may
from time to time fix the Receiver's remuneration and the Customer
will pay CIBC the amount of such remuneration. CIBC will not be
liable to the Customer or any other Person in connection with
appointing or not appointing a Receiver or in connection with the
Receiver's actions or omissions.
(b) Dealings with the Collateral. CIBC or a Receiver may take
possession of all or any part of the Collateral and retain it for
as long as CIBC or the Receiver considers appropriate, receive any
rents and profits from the Collateral, carry on (or concur in
carrying on) all or any part of the Customer's business or refrain
from doing so, borrow on the security of the Collateral, repair
the Collateral, process the Collateral, prepare the Collateral for
sale, lease or other disposition, and sell or lease (or concur in
selling or leasing) or otherwise dispose of the Collateral on such
terms and conditions (including among other things by arrangement
providing for deferred payment) as CIBC or the Receiver considers
appropriate. CIBC or the Receiver may (without charge and to the
exclusion of all other Persons including the Customer) enter upon
any Place of Business.
(c) Realization. CIBC or a Receiver may use, collect, sell, lease or
otherwise dispose of, realize upon, release to the Customer or
other Persons and otherwise deal with, the Collateral in such
manner, upon such terms (including among other things by
arrangement providing for deferred payment) and at such time as
CIBC or the Receiver considers appropriate. CIBC or the Receiver
may make any sale, lease or other disposition of the Collateral in
the name of and on behalf of the Customer or otherwise.
(d) Application of Proceeds After Default. All Proceeds of Collateral
received by CIBC or a Receiver may be applied to discharge or
satisfy any expenses (including among other things the Receiver's
remuneration and other expenses of enforcing CIBC's rights under
this Agreement), Charges, borrowings, taxes and other outgoings
affecting the Collateral or which are considered advisable by CIBC
or the Receiver to preserve, repair, process, maintain or enhance
the Collateral or prepare it for sale, lease or other disposition,
or to keep in good standing any Charges on the Collateral ranking
in priority to any Charge created by this Agreement, or to sell,
lease or otherwise dispose of the Collateral. The balance of such
Proceeds will be applied to the Liabilities in such manner and at
such times as CIBC considers appropriate and thereafter will be
accounted for as required by law.
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<PAGE> 4
(3) Other Legal Rights. Before and after Default, CIBC will have, in
addition to the rights specifically provided in this Agreement,
the rights of a secured party under the PPSA, as well as the
rights recognized at law and in equity. No right will be exclusive
of or dependent upon or merge in any other right, and one or more
of such rights may be exercised independently or in combination
from time to time.
(4) Deficiency. The Customer will remain liable to CIBC for payment of
any Liabilities that are outstanding following realization of all
or any part of the Collateral.
11. CIBC NOT LIABLE. CIBC will not be liable to the Customer or any other
Person for any failure or delay in exercising any of its rights under this
Agreement (including among other things any failure to take possession of,
collect, or sell, lease or otherwise dispose of, any Collateral). None of CIBC,
a Receiver or any agent of CIBC (including, in Alberta, any sheriff) is required
to take, or will have any liability for any failure to take or delay in taking,
any steps necessary or advisable to preserve rights against other Persons under
any Chattel Paper, Securities or instrument in possession of CIBC, a Receiver or
CIBC's agent.
12. CHARGES AND EXPENSES. The Customer agrees to pay on demand all costs
and expenses incurred (including among other things legal fees on a solicitor
and client basis) and fees charged by CIBC in connection with obtaining or
discharging this Agreement or establishing or confirming the priority of the
Charges created by this Agreement or by law, compliance with any demand by any
Person under the PPSA to amend or discharge any registration relating to this
Agreement, and by CIBC or any Receiver in exercising any remedy under this
Agreement (including among other things preserving, repairing, processing,
preparing for disposition and disposing of the Collateral by sale, lease or
otherwise) and in carrying on the Customer's business. All such amounts will
bear interest from time to time at the highest interest rate then applicable to
any of the Liabilities, and the Customer will reimburse CIBC upon demand for any
amount so paid.
13. FURTHER ASSURANCES. The Customer will from time to time immediately
upon request by CIBC take such action (including among other things the signing
and delivery of financing statements and financing change statements, other
schedules, documents or listings describing property included in the Collateral,
further assignments and other documents, and the registration of this Agreement
or any other Charge against any of the Customer's real property) as CIBC may
require in connection with the Collateral or as CIBC may consider necessary to
give effect to this Agreement. If permitted by law, the Customer waives the
right to sign or receive a copy of any financing statement or financing change
statement, or any statement issued by any registry that confirms any
registration of a financing statement or financing change statement, relating to
this Agreement. The Customer irrevocably appoints the Manager or the Acting
Manager from time to time of CIBC's branch specified on the first page of this
Agreement as the Customer's attorney (with full powers of substitution and
delegation) to sign, upon Default, all documents required to give effect to this
section. Nothing in this section affects the right of CIBC as secured party, or
any other Person on CIBC's behalf, to sign and file or deliver (as applicable)
all such financing statements, financing change statements, notices,
verification agreements and other documents relating to the Collateral and this
Agreement as CIBC or such other Person considers appropriate.
14. DEALINGS BY CIBC. CIBC may from time to time increase, reduce,
discontinue or otherwise vary the Customer's credit facilities, grant extensions
of time and other indulgences, take and give up any Charge, abstain from taking,
perfecting or registering any Charge, accept compositions, grant releases and
discharges and otherwise deal with the Customer, customers of the Customer,
guarantors and others, and with the Collateral and any Charges held by CIBC, as
CIBC considers appropriate without affecting the Customer's obligations to CIBC
or CIBC's rights under this Agreement.
15. DEFINITIONS. In this Agreement:
"Accessions", "Account", "Chattel Paper", "Document of Title", "Equipment",
"Goods", "Instrument", "Intangible", "Inventory", "Proceeds", "Purchase-Money
Security Interest" and "Security Interest" have the respective meanings given to
them in the PPSA.
"Books and Records" means all books, records, files, papers, disks, documents
and other repositories of data recording, evidencing or relating to the
Collateral to which the Customer (or any Person on the Customer's behalf) has
access.
"Charge" means any mortgage, charge, pledge, hypothecation, lien (statutory or
otherwise), assignment, financial lease, title retention agreement or
arrangement, security interest or other encumbrance of any nature however
arising, or any other security agreement or arrangement creating in favour of
any creditor a right in respect of a particular property that is prior to the
right of any other creditor in respect of such property.
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<PAGE> 5
"Consumer Goods" has the meaning given to it in the PPSA, except that, if this
Agreement is governed by the laws of the Yukon, it does not include special
consumer goods as that term is defined in the Yukon PPSA.
"Default" has the meaning set our in subsection 10(1).
"Liabilities" means all present and future indebtedness and liability of every
kind, nature and description (whether direct or indirect, joint or several,
absolute or contingent, matured or unmatured) of the Customer to CIBC, wherever
and how incurred and any unpaid balance thereof excluding such amounts as CIBC
may deem to be, in its sole discretion, or pursuant to the CIBC/WED Information
Technology & Telecommunications Loan Program and which are secured by security
agreement dated for reference April 16, 1998 executed by the Customer in favour
of CIBC (the "WED Security Agreement").
"Money" has the meaning given to it in the PPSA or, if there is no such
definition, means a medium of exchange authorized or adopted by the Parliament
of Canada as part of the currency of Canada, or by a foreign government as part
of its currency.
"Person" means any natural person or artificial body (including among others any
firm, corporation or government).
"Personal Property" means personal property and includes among other things
Inventory, Equipment, Receivables, Book and Records, Chattel Paper, Goods,
Documents of Title, Instruments, Intangibles (including intellectual property),
Money and Securities, and includes all Accessions to such property.
"Place of Business" means a location where the Customer carries on business or
where any of the Collateral is located (including any location described in
Schedule B).
"PPSA" means the legislation that applies in the province or territory noted in
section 2 of this Agreement, as such legislation may be amended, renamed or
replaced from time to time (and includes all regulations from time to time made
under such legislation) as follows: in the case of Ontario, the Personal
Property Security Act, 1989; in the case of Alberta, British Columbia, Manitoba,
Prince Edward Island, Saskatchewan and the Yukon Territory, the Personal
Property Security Act; and in the case of any other province or territory, such
legislation as deals generally with Charges on personal property.
"Receivables" means all debts, claims and choses in action (including among
other things Accounts and Chattel Paper now or in the future due or owing to or
owned by the Customer.
"Receiver" means a receiver or a receiver and manager.
"Securities" has the meaning given to it in the PPSA or, if there is no such
definition and the PPSA defines "security" instead, it means the plural of that
term.
"Serial Number" means the number that the Person who manufactured or constructed
a Serial Number Good permanent marked or attached to it for identification
purposes or, if applicable, such other number as the PPSA stipulates as the
serial number or vehicle information number to be used for registration purposes
of such Serial Number Good.
"Serial Number Good" means a motor vehicle, trailer, mobile home, aircraft
airframe, aircraft engine or aircraft propeller, boat or an outboard motor for a
boat.
16. General.
(1) Reservation of the Last Day of any Lease. The Charges created by this
Agreement do not extend to the last of the term of any lease or
agreement for lease; however, the Customer will hold such last day in
trust for CIBC and, upon the exercise by CIBC of any of its rights
under this Agreement following Default, will assign ???? last day as
directed by CIBC.
(2) Attachment of Security Interest. The Security Interests created by this
Agreement are intended to attach to existing Collateral when the
Customer signs this Agreement, and (ii) to Collateral subsequently
acquired by the Customer, immediately upon the Customer acquiring any
rights in such Collateral. The parties do not intend to postpone the
attachment of any Security Interest created by this Agreement.
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(3) Purchase-Money Security Interest. If CIBC gives value for the purpose of
enabling the Customer to acquire rights in or to any of the Collateral, the
Customer will in fact apply such value to acquire those rights (and will
provide CIBC with such evidence in this regard as CIBC may require), and
the Customer grants to CIBC, and CIBC takes, a Purchase-Money Security
Interest in such Collateral to the extent that the value is applied to
acquire such rights. A certificate or affidavit of any of CIBC's authorized
representatives is admissible in evidence to establish the amount of any
such value.
(4) Description of Collateral in Schedule A. The fact that box (b) or box (c)
of section 1 has been checked without there being any property described in
Schedule A does not affect the nature or validity of CIBC's security in the
Collateral.
(5) Entire Agreement. CIBC has not made any representation or undertaken any
obligation in connection with the subject matter of this Agreement other
than as specifically set out in this Agreement, and in particular nothing
contained in this Agreement will require CIBC to make, renew or extend the
time for payment of any loan or other credit accommodation to the Customer
or any other Person.
(6) Additional Security. The Charges created by this Agreement are in addition
and without prejudice to any other Charge now or later held by CIBC. No
Charge held by CIBC will be exclusive of or dependent upon or merge in any
other Charge, and CIBC may exercise its rights under such Charges
independently or in combination.
(7) Joint and Several Liability. If more than one Person signs this Agreement
as the customer, the obligations of such Persons will be joint and several.
(8) Severability; Headings. Any provision of this Agreement that is void or
unenforceable in any jurisdiction is, as to that jurisdiction, ineffective
to that extent without invalidating the remaining provisions of this
Agreement. The headings in this Agreement are for convenience only and do
not limit or extend the provisions of this Agreement.
(9) Interpretation. When the context so requires, the singular will be read as
the plural, and vice versa.
(10) Copy of Agreement. The Customer acknowledges receipt of a copy of this
Agreement.
(11) Waivers. If this Agreement is governed by the laws of Saskatchewan and the
Customer is a corporation, the Customer agrees that The Limitation of Civil
Rights Act, The Land Contracts (Actions) Act and Part IV (excepting only
section 46) of The Saskatchewan Farm Security Act do not apply insofar as
they relate to actions as defined in those Acts, or insofar as they relate
to or affect this Agreement, the rights of CIBC under this Agreement or any
instrument, Charge, security agreement or other document of any nature that
renews, extends or is collateral to this Agreement.
(12) Notice. CIBC may send to the Customer, by prepaid regular mail addressed to
the Customer at Customer's address last known to CIBC, copies of any
document required by the PPSA to be delivered by CIBC to the Customer. Any
document mailed in this manner will be deemed to have been received by the
Customer upon the earlier of actual receipt by the Customer and the expiry
of 10 days after the mailing date. A certificate or affidavit of any of
CIBC's authorized representatives is admissible in evidence to establish
the mailing date.
(13) Enurement; Assignment. This Agreement will enure to the benefit of and be
binding upon (i) CIBC, its successors and assigns, and (ii) the Customer
and the Customer's heirs, executors, administrators, successors and
permitted assigns. The Customer will not assign this Agreement without
CIBC's prior written consent.
(14) Priority. The mortgages, charges, assignments and security interests
created by this Agreement shall have priority over the mortgages, charges,
assignments and security interests created by the WED Security Agreement
(as defined in the definition of "Liabilities" in section 15 of this
Agreement).
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The following is a description of property included in the Collateral (describe
personal property by item or kind; if space is insufficient, use a separate
sheet):
Schedule B
The following are the Places of Business (if space is insufficient, use a
separate sheet):
310 - 260 West Esplanade, North Vancouver, B.C. V7H 3O7
300 - 240 West Esplanade, North Vancouver, B.C. V7M 3M6
202 - 224 West Esplanade, North Vancouver, B.C. V7M 3M6
<PAGE> 1
EXHIBIT 10.22
[CIBC Logo]
400 Burrard Street
Vancouver, B.C., V6C 3A6
-------------------------
Bank Office (insert mailing
address and postal Code)
CONTRACT RELATIVE TO SPECIAL SECURITY UNDER THE BANK ACT
For valuable consideration, the undersigned customer (the "Customer") agrees
with Canadian Imperial Bank of Commerce ("CIBC") as follows:
1. BANK ACT SPECIAL SECURITY. This Contract applies to all security that the
Customer gives or has given to CIBC under the "Special Security" provisions
of the Bank Act (sections 425 to 436, inclusive as well as section 463, and
their predecessor and successor sections) over the Property.
2. PLACE OF BUSINESS. The Customer represents and warrants that the location
of all existing Places of Business is specified in CIBC's Form 65 entitled
"Special Security in respect of specified property or classes of property
described in section 427 of the Bank Act".
3. PROPERTY FREE OF CHARGES. The Customer represents and warrants that the
Property is, and agrees that the Property will at all times be free of any
Charge or trust except in favour of CIBC or incurred with CIBC's prior
written consent. CIBC may, but will have no obligation to pay any amount
required to remove any unauthorized Charge and the Customer will
immediately reimburse CIBC for any amount so paid.
4. USE OF PROPERTY. The Customer will not, without CIBC's prior written
consent, sell, lease or otherwise dispose of any of the Property other
than inventory, which may be sold, leased or otherwise disposed of in the
ordinary course of the Customer's business until either Default or CIBC
gives the Customer a notice instructing the Customer to stop any further
sale, lease or other disposition of the inventory.
5. GOVERNING LAW. This Contract is governed by the laws of British Columbia
(without reference to the choice of law doctrine). The Customer
irrevocably agrees to submit to the non-exclusive jurisdiction of its
courts.
6. COPY RECEIVED. The Customer acknowledges having received a copy of this
Contract.
NOTE: THE "ADDITIONAL TERMS AND CONDITIONS OF THIS CONTRACT" ON THE FOLLOWING
PAGES FORM PART OF THIS CONTRACT.
Dated April 30th, 1998
--------------------------------
PIVOTAL SOFTWARE INC.
- -------------------------------------
Customer's Name (Record in full)
/s/ NORMAN FRANCIS
- -------------------------------------
Signature
300 - 224 Esplanade
- -------------------------------------
Customer's address
North Vancouver, B.C., V7M 3M6
- -------------------------------------
(City/Town, Province and Postal Code)
Note: If the customer is a corporation, the office (such as "President" or
"Secretary" of the Person signing should be noted below that Person's
signature.
<PAGE> 2
ADDITIONAL TERMS AND CONDITIONS OF THIS CONTRACT
7. INSURANCE. The Customer will keep the Property insured to its full
insurable value against loss or damage by fire and such other risks as are
customarily insured for property similar to the Property (and against such other
risks as CIBC may reasonably require). At CIBC's request, all policies will
contain a loss payable clause. The Customer will, from time to time at CIBC's
request, deliver such policies (or satisfactory evidence of such policies) to
CIBC. If the Customer does not obtain or maintain such insurance, CIBC may, but
will have no obligation to, do so. The Customer will immediately reimburse CIBC
for any amount so paid. The Customer will promptly give CIBC written notice of
any loss or damage to the Property.
8. INFORMATION AND INSPECTION. The Customer will from time to time immediately
give CIBC in writing all information requested by CIBC relating to the Property,
the Places of Business, and the Customer's financial or business affairs. CIBC
may from time to time inspect any books and records and any Property, wherever
located. For that purpose CIBC may, without charge, have access to each Place of
Business and to all mechanical and electronic equipment, devices and processes
where any of them may be stored or from which any of them may be retrieved.
9. PROCEEDS PRIOR TO DEFAULT. The Customer assigns all proceeds to CIBC and
will pay or transfer to CIBC all Proceeds received forthwith upon receipt. Until
paid or transferred, the Customer will hold all such Proceeds in trust for and
on behalf of CIBC. The Customer's signature on this Contract and CIBC's
acceptance of the security granted by this Contract are in furtherance of this
security, and do not constitute any acknowledgement by CIBC that the Customer
has any right or title to such Proceeds. If this Contract is governed by the
laws of a province or territory other than Quebec, the following provisions also
apply: Until Default, all moneys received by CIBC as Proceeds may be applied on
account of the Liabilities or, at CIBC's option, may be held unappropriated in a
collateral account or released to the Customer.
10. DEFAULT.
(1) EVENTS OF DEFAULT. The occurrence of any of the following events or
conditions will be a Default:
(a) the Customer does not pay any of the Liabilities when due;
(b) the Customer does not observe or perform any of the Customer's
obligations under this Contract or any other contract or document
existing at any time between the Customer and CIBC;
(c) any representation, warranty or statement made by the Customer or
on the Customer's behalf to CIBC is untrue in any material respect
at the time when or as of which it was made;
(d) the Customer ceases or threatens to cease to carry on in the
normal course of business or any material part thereof;
(e) if the Customer is a corporation, there is, in CIBC's reasonable
opinion, a change in its effective control, or if the customer is
a partnership, there is a dissolution or a change in its
membership;
(f) the Customer becomes insolvent or bankrupt, or makes a proposal or
files an assignment for the benefit of creditors under the
Bankruptcy and Insolvency Act (Canada), the Farm Debt Review Act
(Canada) or similar legislation in Canada or any other
jurisdiction; a petition in bankruptcy is filed against the
Customer; or, if the Customer is a corporation, steps are taken
under any legislation by or against the Customer seeking its
liquidation, winding-up, dissolution or reorganization of the
corporation or any arrangement or composition of its debts;
(g) a receiver, receiver and manager, trustee, custodian or other
similar official is appointed in respect of the Customer or any of
the Customer's property;
(h) the holder of a Charge takes possession of any of the Customer's
property, or a distress, execution or other similar process is
levied against any part of it; or
(i) CIBC in good faith and upon commercially reasonable grounds
believes that the prospect of payment or performance is or is
about to be impaired or that the Property is or is about to be
placed in jeopardy.
(2) RIGHTS UPON DEFAULT. Upon Default, CIBC will have the following rights:
(a) Appointment of Receiver. CIBC may by letter or other document in
writing appoint a Receiver of all or any of the Property, CIBC may
from time to time remove or replace a Receiver, or make
application to any court of competent jurisdiction for the
appointment of a Receiver. Any Receiver appointed by CIBC will
(for purposes relating to responsibility for the Receiver's acts
or omissions) be considered to be the Customer's agent. CIBC may
from time to time fix the Receiver's remuneration, and the
Customer will pay CIBC any costs incurred by CIBC relating to such
appointment including, among other things, the amount of the
Receiver's remuneration, CIBC will not be liable to the Customer
or any other Person in connection with appointing or not
appointing a Receiver or in connection with the Receiver's actions
or omissions.
(b) Dealings with the Property. CIBC or a Receiver may take possession
of any of the Property and retain the same for as long as it
considers appropriate, receive any rents and profits from the
Property, carry on (or concur in carrying
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<PAGE> 3
on) any of the Customer's business or refrain from doing so, borrow on
the security of the Property, and sell or lease (or concur in
selling or leasing) the Property. CIBC or a Receiver may (without
charge and to the exclusion of all other Persons including the
Customer) enter upon any of the Places of Business.
(c) REALIZATION. CIBC or a Receiver may use, collect, sell or otherwise
dispose of, realize upon, release to the Customer or other Persons,
and otherwise deal with the Property in such manner, upon such terms
and at such times as CIBC or the Receiver considers appropriate.
(d) APPLICATION OF PROCEEDS AFTER DEFAULT. All Proceeds of Property
received by CIBC or a Receiver may be applied to discharge or satisfy
any expenses (including among other things the Receiver's
remuneration), Charges, borrowings, taxes and other outgoings
affecting the Property or which are considered advisable by CIBC or
the Receiver to preserve, maintain or enhance the Property, or to
keep in good standing any Charges on the Property ranking in priority
to any Charge created by this Contract. The balance of such Proceeds
will be applied to the Liabilities in such manner and at such times
as CIBC considers appropriate and thereafter will be paid to those
persons who are legally entitled to it.
(e) OTHER LEGAL RIGHTS. Before and after Default, CIBC will have, in
addition to the rights specifically provided in this Contract, all
rights given to it under the Bank Act, as well as the rights
recognized at law and in equity. No right will be exclusive of or
dependent upon any other right and one or more of such rights may be
exercised independently or in combination from time to time.
(f) DEFICIENCY. The Customer will remain liable to CIBC for payment of
any Liabilities which are outstanding following realization of any of
the Property.
11. CIBC NOT LIABLE. CIBC will not be liable to the Customer or any other
Person for any failure or delay in exercising any of its rights under this
Contract (including among other things any failure to take possession of,
collect, sell, or otherwise dispose of, any Property).
12. CHARGES AND EXPENSES. The Customer will pay all costs and expenses
(including among other things all legal fees and disbursements) incurred by
CIBC or any Receiver in exercising any remedy under this Contract
(including among other things preserving, preparing for disposition and
disposing of the Property) and in operating the Customer's business. Also,
upon Default, CIBC will be required to exercise greater than normal
supervision of the Customer's business. The Customer will therefore
reimburse CIBC for all such extra internal costs that CIBC reasonably
incurs as a result. All amounts payable under this Section will bear
interest from time to time at the highest interest rate then applicable to
any of the Liabilities and the Customer will reimburse CIBC upon demand
for any such amount.
13. FURTHER ASSURANCES. The Customer will from time to time immediately upon
request by CIBC take such action as CIBC may require in connection with
the Property or as CIBC may consider necessary to give effect to this
Contract. The Customer irrevocably appoints the manager or the acting
manager from time to time of CIBC's branch specified on the first page of
this Contract as the Customer's attorney (with full powers of substitution
and delegation) to sign, upon Default, all documents required to give
effect to this section.
14. DEALINGS BY CIBC. Neither the Customer's obligations to CIBC nor CIBC's
rights under this Contract will be limited or affected by
(a) any increase, reduction, renewal, substitution or other change in, or
discontinuance of, the terms relating to the Liabilities; any
agreement to any proposal or scheme of arrangement concerning, or
granting any extensions of time or other indulgences or concessions
to the Customer or any other Person; any taking of or giving up of
any Security; abstaining from taking, perfecting or registering any
Security; allowing any Security to lapse (whether by failing to make
or maintain any registration or otherwise); or any neglect or
omission by CIBC in respect of, or in the course of, doing any of
these actions; or
(b) accepting compositions from or granting releases and discharges to the
Customer or any other Person, or any other dealing with the Customer
or any other Person or with any Security that CIBC considers
appropriate.
15. GENERAL.
(a) ENTIRE AGREEMENT. There are no representations, collateral agreements
or conditions with respect to, or affecting the Customer's liability
under this Contract other than as contained in this Contract. In
particular, nothing contained in this Contract will require CIBC to
make, renew or extend the time for payment of any loan or other
accommodation to the Customer.
(b) JOINT AND SEVERAL LIABILITY. If more than one Person signs this
Contract as the Customer, the obligations of such Persons will be
joint and several. If this Contract is governed by the laws of
Quebec, the following provisions apply: If more than one Person signs
this Contract as the Customer, the obligations of such Persons will
be solidary.
(c) SEVERABILITY; HEADINGS. Any provision of this Contract that is void
or unenforceable in any jurisdiction is, as to that jurisdiction,
ineffective to that extent without invalidating the remaining
provisions of this Contract. The headings in this Contract are for
convenience only and do not limit or extend the provisions of this
Contract.
(d) INTERPRETATION. When the context of this Contract so requires, the
singular will be read as the plural.
3
<PAGE> 4
(e) NOTICE: CIBC may send to the Customer by prepaid regular mail
addressed to the Customer at the Customer's address last known to CIBC,
copies of any document that it wishes to send to the Customer. Any document
mailed in this manner will be deemed to have been received by the Customer
upon the earlier of actual receipt by the Customer and the expiry of 10
days after the mailing date.
(f) ENUREMENT; ASSIGNMENT. This Contract will enure to the benefit of and
be binding upon CIBC and the Customer and their respective heirs,
executors, administrators, successors and permitted assigns. The Customer
will not assign this Contract without CIBC's prior written consent.
(g) CONSENT TO DISCLOSE INFORMATION. CIBC may from time to time give any
credit or other information about the Customer to, or receive such
information from, (a) any financial institution, credit reporting agency,
rating agency or credit bureau, (b) any person, firm or corporation with
whom the Customer may have or propose to have financial dealings, and (c)
any person, firm or corporation in connection with any dealings the
Customer has or proposes to have with CIBC. The Customer agrees that CIBC
may use that information to establish and maintain the Customer's
relationship with CIBC and to offer any services as permitted by law,
including services and products offered by CIBC's subsidiaries when it is
considered that this may be suitable to the Customer.
(h) (QUEBEC ONLY) LANGUAGE. It is the express wish of the parties that this
document and any related documents be drawn up in English. Les parties aux
presentes ont expressement demande que ce document et tous les documents
s'y rattachant soient rediges en anglais.
16. DEFINITIONS. In this Contract:
(a) "Charge" means any mortgage, charge, pledge, hypothecation, lien
(statutory or otherwise), security interest or other encumbrance of any nature
however arising, or any other security agreement or arrangement creating in
favour of any creditor a right in respect of a particular property that is prior
to the right of any other creditor in respect of such property.
(b) "Default" has the meaning set out Section 10(1).
(c) "Liabilities" means all present and future indebtedness and liability
of every kind, nature and description, direct or indirect, joint or several,
absolute or contingent of the Customer to CIBC wherever and however incurred and
any unpaid balance thereof and includes any liability to CIBC in connection with
any bankers' acceptances accepted by CIBC on the Customer's behalf and any
standby letters of credit issued upon the Customer's application.
(d) "Person" includes a natural person, personal representative,
partnership, corporation, association, organization, estate, trade union, church
or other religious organization, syndicate, joint venture, trust, trustee in
bankruptcy, government and government body, and any other entity, and where
appropriate specifically includes any guarantor.
(e) "Place of Business" means a location where the Customer carries on
business or where any of the Property is located.
(f) "Proceeds" means any personal property in any form (including among
other things money) resulting from any sale, lease or other disposition of the
Property, whether or not arising in the ordinary course of the Customer's
business.
(g) "Property" means all of the property assigned by the Customer to CIBC
under the "Special Security" provisions of the Bank Act and, for greater
certainty, if the property assigned to CIBC is or includes natural gas required
to be gathered and/or processed in the plant, the term "Property" includes all
agreements relating to the Customer's interest in any such plant and the
Customer's rights to gathering and/or process any such gas.
(h) "Receivables" means all debts, claims, choses in action now or
hereafter due or owing to or owned by the Customer.
(i) "Receiver" means any person appointed as a receiver or receiver and
manager of property.
(j) "Section" means a section, subsection or paragraph of this Contract.
(k) "Security" means any security held by CIBC as security for payment of
the Liabilities and includes, among other things, any and all guarantees.
4
<PAGE> 5
CERTIFICATE
TO: CANADIAN IMPERIAL BANK OF COMMERCE
In consideration of loans granted or to be granted by Canadian
Imperial Bank of Commerce ("CIBC") to Pivotal Software Inc. (the "BORROWER"),
the Borrower represents and warrants to, and covenants with, CIBC as follows:
(a) the software described in the Schedule to this Certificate, together
with all inventions, discoveries, trade secrets, designs, computer
programs, patents, trade marks, copyrights and other forms of
intellectual property, documentation and other material relating
thereto (collectively, the "SOFTWARE") is legally and beneficially
owned by the Borrower free and clear of all liens, charges and
encumbrances other than those in favour of CIBC;
(b) the Borrower has not granted to any person, other than to CIBC, any
rights in the Software other than licences to use and access the
Software; and
(c) until the Borrower's obligations to CIBC have been satisfied in full
and CIBC has released its security from the Borrower, the Borrower
will continue to be the legal and beneficial owner of the Software and
will not sell or otherwise dispose of the Software or any rights in or
to it, other than licenses to use and access the Software, without the
prior written consent of CIBC.
DATED this 30th day of April, 1998.
PIVOTAL SOFTWARE INC.
C/S
BY: /s/ NORMAN FRANCIS
-----------------------------------
<PAGE> 6
SCHEDULE
Customer relationship management and business data-management software programs
called the "Relationship System" including without limitation, all computer
code, modules and programs in object code form and related data files, rules,
parameters and documentation and all updates, upgrades and modifications and
such other components or services as may be added or modified from time to time
and all its component parts (excluding Third Party Software being computer
code, related data files, rules, parameters and documentation created by
vendors other than the Borrower) being Pivotal Relationship Server, including
Pivotal Business Module, Web Client Server, Customer Support, Order Capture,
Telemarketing, Mobile Client, Pivotal Web Client, Toolkit (including Pivotal
Customization Module, and Pivotal OCX).
<PAGE> 7
ACKNOWLEDGMENT AND WAIVER
Pivotal Software Inc. (the "BORROWER") hereby acknowledges receiving
a copy of the following (collectively, the "SECURITY AGREEMENTS"):
(a) the security agreement dated for reference April 15, 1998 executed by
the Borrower in favour of Canadian Imperial Bank of Commerce ("CIBC")
in connection with CIBC's loans of up to $3,000,000 to the Borrower
by way of an operating line, letters of credit/guarantee, foreign
exchange contracts and cheque credit; and
(b) the security agreement dated for reference April 16, 1998 executed by
the Borrower in favour of CIBC in connection with CIBC's loan of
$2,000,000 to the Borrower by way of a committed instalment loan
(CIBC/WED Information Technology & Telecommunications Loan Program).
The Borrower hereby waives all rights to receive from CIBC a copy of
any financing statement or financing change statement registered or verification
statement issued at any time in respect of the Security Agreements.
Dated this 30th day of April, 1998.
PIVOTAL SOFTWARE INC.
C/S
By: /s/ NORMAN FRANCIS
------------------------------------
<PAGE> 1
EXHIBIT 10.23
Form 6326-95/06
(WPS1CRED)
[CIBC LOGO]
SCHEDULE - STANDARD CREDIT TERMS
ARTICLE 1 - GENERAL
1.1 INTEREST RATE. You will pay interest on each Credit at nominal rates per
year equal to:
(a) for amounts above the Credit Limit of a Credit or a part of a Credit
or for amounts that are not paid when due, the Default Interest Rate, and
(b) for any other amounts, the rate specified in this Agreement.
1.2 VARIABLE INTEREST. Each variable interest rate provided for under this
Agreement will change automatically, without notice, whenever the Prime Rate or
the U.S. Base Rate, as the case may be, changes.
1.3 PAYMENT OF INTEREST. Interest is calculated on the daily balance of the
Credit at the end of each day. Interest is due once a month, unless the
Agreement states otherwise. Unless you have made other arrangements with us, we
will automatically debit your Operating Account for interest amounts owing. If
your Operating Account is in overdraft and you do not deposit to the account an
amount equal to the monthly interest payment, the effect is that we will be
charging interest on overdue interest (which is known as compounding). Unpaid
interest continues to compound whether or not we have demanded payment from you
or started a legal action, or get judgment, against you.
1.4 DEFAULT INTEREST. To determine whether Default Interest is to be charged,
the following rules apply:
(a) Default Interest will be charged on the amount that exceeds the Credit
Limit of any particular Credit.
(b) If there are several parts of a Credit, Default Interest will be
charged if the Credit Limit of a particular part is exceeded. For example, if
Credit A's limit is $250,000, and the limit of one part is $100,000 and the
limit of that part is exceeded by $25,000, Default Interest will be charged on
that $25,000 excess, even if the total amount outstanding under Credit A is less
than $250,000.
1.5 FEES. You will pay CIBC's fees for each Credit as outlined in the Letter.
You will also reimburse us for all reasonable fees (including legal fees) and
out-of-pocket expenses incurred in registering any security, and in enforcing
our rights under this Agreement or any security. We will automatically debit
your Operating Account for fee amounts owing.
1.6 OUR RIGHTS RE DEMAND CREDITS. At CIBC, we believe that the banker-customer
relationship is based on mutual trust and respect. It is important for us to
know all the relevant information (whether good or bad) about your business.
CIBC is itself a business. Managing risks and monitoring our customers' ability
to repay is critical to us. We can only continue to lend when we feel that we
are likely to be repaid. As a result, if you do something that jeopardizes that
relationship, or if we no longer feel that you are likely to repay all amounts
borrowed, we may have to act. We may decide to act, for example, because of
something you have done, information we receive about your business, or changes
to the economy that affect your business. Some of the actions that we may decide
to take include requiring you to give us more financial information, negotiating
a change in the interest rate or fees, or asking you to get further accounting
assistance, put more cash into the business, provide more security, or produce a
satisfactory business plan. It is important to us that your business succeeds.
We may, however, at our discretion, demand immediate repayment of any
outstanding amounts under any demand Credit. We may also, at any time and for
any cause, cancel the unused portion of any demand Credit. Under normal
circumstances, however, we will give you 30 days' notice of any of these
actions.
1.7 PAYMENTS. If any payment is due on a day other than a Business Day, then
the payment is due on the next Business Day.
1.8 APPLYING MONEY RECEIVED. If you have not made payments as required by this
Agreement, or if you have failed to satisfy any term of this Agreement (or any
other agreement you have that relates to this Agreement), or at any time before
default but after we have given you appropriate notice, we may decide how to
apply any money that we receive. This means that we may choose which Credit to
apply the money against, or what mix of principal, interest, fees and overdue
amounts within any Credit will be paid.
1.9 INFORMATION REQUIREMENTS. We may from time to time reasonably require you
to provide further information about your business. We may require information
from you to be in a form acceptable to us.
1.10 INSURANCE. You will keep all you business assets and property insured (to
the full insurable value) against loss or damage by fire and all other risks
usual for property such as yours (plus for any other risks we may reasonably
require). If we request, these policies will include a loss payee clause (and if
you are giving us mortgage security, a mortgagee clause). As further security,
you assign all insurance proceeds to us. If we ask, you will give us either the
policies themselves or adequate evidence of their existence. If your insurance
coverage for any reason stops, we may (but do not have to) insure the property.
We will automatically debit your Operating Account for these amounts. Finally,
you will notify us immediately of any loss or damage to the property.
1.11 ENVIRONMENTAL. You will carry on your business, and maintain your assets
and property, in accordance with all applicable environmental laws and
regulations. If (a) there is any release, deposit, discharge or disposal of
pollutants of any sort (collectively, a "Discharge") in connection with either
your business or your property, and we pay any fines or for any clean-up, or (b)
we suffer any loss or damage as a result of any Discharge, you will reimburse
CIBC, its directors, officers, employees and agents for any and all losses,
damages, fines, costs and other amounts (including amounts spent preparing any
necessary environmental assessment or other reports, or defending any lawsuits)
that result. If we ask, you will defend any lawsuits, investigations or
prosecutions brought against CIBC or any of its directors, officers, employees
and agents in connection with any Discharge. Your obligation to us under this
section continues even after all Credits have been repaid and this Agreement has
terminated.
1.12 CONSENT TO RELEASE INFORMATION. We may from time to time give any credit or
other information about you to, or receive such information from, (a) any
financial institution, credit reporting agency, rating agency or credit bureau,
(b) any person, firm or
PIVOTAL SOFTWARE 1 OF 4 MARCH 18, 1998
<PAGE> 2
corporation with whom you may have or propose to have financial dealings, and
(c) any person, firm or corporation in connection with any dealings you have or
propose to have with us. You agree that we may use that information to establish
and maintain your relationship with us and to offer any services as permitted by
law, including services and products offered by our subsidiaries when it is
considered that this may be suitable to you.
1.13 OUR PRICING POLICY: Fees, interest rates and other charges for your banking
arrangements are dependent upon each other. If you decide to cancel any of
these arrangements, you will have to pay us any increased or added fees,
interest rates and charges we determine and notify you of. These increased or
added amounts are effective from the date of the changes that you make.
1.14 PROOF OF DEBT. This Agreement provides the proof, between CIBC and you, of
the credit made available to you. There may be times when the type of Credit you
have requires you to sign additional documents. Throughout the time that we
provide you credit under this Agreement, our loan accounting record will provide
complete proof of all terms and conditions of your credit (such as principal
loan balances, interest calculations, and payment dates).
1.15 RENEWALS OF THIS AGREEMENT. This Agreement will remain in effect for your
Credits for as long as they remain unchanged. We have shown a Next Scheduled
Review Date in the Letter. If there are no changes to the Credits this Agreement
will continue to apply, and you will not need to sign anything further. If there
are any changes, we will provide you with either an amending agreement, or a new
replacement Letter, for you to sign.
1.16 CONFIDENTIALITY: The terms of this Agreement are confidential between you
and CIBC. You therefore agree not to disclose the contents of this Agreement to
anyone except your professional advisors.
1.17 PRE-CONDITIONS. You may use the Credits granted to you under this Agreement
only if:
(a) we have received properly signed copies of all documentation that we may
require in connection with the operation of your accounts and your ability to
borrow and give security;
(b) all the required security has been received and registered to our
satisfaction;
(c) any special provisions or conditions set forth in the Letter have been
complied with; and
(d) if applicable, you have given us the required number of days notice for
a drawing under a Credit.
1.18 NOTICES. We may give you any notice in person or by telephone, or by letter
that is sent either by fax or by mail.
1.19 INSTALMENT LOANS. The following terms apply to each Instalment Loan.
(a) NON-REVOLVING LOANS. Unless otherwise stated in the Letter, any
Instalment Loan is non-revolving. This means that any principal payment made
permanently reduces the available Loan Amount. Any payment we receive is applied
first to overdue interest, then to current interest owing, then to overdue
principal, then to any fees and charges owing, and finally to current principal.
(b) FLOATING RATE INSTALMENT LOANS. Floating Rate Instalment Loans may have
either (i) blended payments or (ii) payments of fixed principal amounts, plus
interest, as described below.
(i) BLENDED PAYMENTS. If you have a Floating Rate Loan that has blended
payments, the amount of your monthly payment is fixed for the term of the loan,
but the interest rate varies with changes in the Prime or U.S. Base Rate (as the
case may be). If the Prime or U.S. Base Rate during any month is lower than what
the rate was at the outset, you may end up paying off the loan before the
scheduled end date. If, however, the Prime or U.S. Base Rate is higher than what
it was at the outset, the amount of principal that is paid off is reduced. As a
result, you may end up still owing principal at the end of the term because of
these changes in the Prime or U.S. Base Rate.
(ii) PAYMENTS OF PRINCIPAL PLUS INTEREST. If you have a Floating Rate
Loan that has regular principal payments, plus interest, the principal payment
amount of your Loan is due on each payment date specified in the Letter. The
interest payment is also due on the same date, but it is debited from your
Operating Account one or two banking days later. Although the principal payment
amount is fixed, your interest payment will usually be different each month, for
at least one and possibly more reasons, namely: the reducing principal balance
of your loan, the number of days in the month, and changes to the Prime Rate or
U.S. Base Rate (as the case may be).
(c) PREPAYMENT. Unless otherwise agreed, the following terms apply to
prepayment of any Instalment Loan:
(i) FLOATING RATE INSTALMENT LOANS. You may prepay all or part of a
Floating Rate Instalment Loan (whether it is a Demand or a Committed Loan) at
any time without notice or penalty.
(ii) FIXED RATE INSTALMENT LOANS. You may prepay all or part of a Fixed
Rate Instalment Loan, on the following condition. You must pay us, on the
prepayment date, a prepayment fee equal to the interest rate differential for
the remainder of the term of the Loan, in accordance with the standard formula
used by CIBC in these situations.
1.20 NOTICE OF DEFAULT. You will promptly notify us of the occurrence of any
event that is an Event of Default (or any that would be an Event of Default if
the only thing required is either notice being given or time elapsing, or both).
ARTICLE 2 - DEFINITIONS
2.1 DEFINITIONS. In this Agreement, the following terms have the following
meanings:
"Business Day" means any day (other than a Saturday or a Sunday) that the CIBC
Branch/Centre is open for business.
"CIBC Branch/Centre" means the CIBC branch or banking centre noted on the first
page of this Agreement, as changed from time to time by agreement between the
parties.
"Committed Instalment Loan" means an Instalment Loan that is payable in regular
instalments but is repayable in full only upon the occurrence of an Event of
Default. Such a Loan may be either at a fixed or a floating rate of interest.
"Credit" means any credit referred to in the Letter, and if there are two or
more parts to a Credit, "Credit" includes reference to each part.
"Credit Limit" of any Credit means the amount specified in the Letter as its
Credit Limit, and if there are two or more parts to a Credit, "Credit Limit"
includes reference to each such part.
"Current Assets" are cash, accounts receivable, inventory and other assets that
are likely to be converted into cash, sold, exchanged or expended in the normal
course of business within one year or less, excluding amounts due from related
parties.
2 of 4
<PAGE> 3
"Current Liabilities" means debts that are or will become payable within one
year or one operating cycle, whichever is longer, excluding amounts due to
related parties, and which will require Current Assets to pay. They usually
include accounts payable, accrued expenses, deferred revenue and the current
portion of long-term debt.
"Current Ratio" means the ratio of Current Assets to Current Liabilities.
"Debt to Effective Equity Ratio" means the ratio of X to Y, where X is the total
of all liabilities, less all Postponed debt, and Y is the total Shareholders'
Equity, plus all Postponed Debt, less (i) amounts due from/investments in
related parties and (ii) intangibles.
"Default Interest Rate", unless otherwise defined in the Letter, means the
Standard Overdraft Rate.
"Event of Default" means, in connection with any Committed Instalment Loan (even
if that Loan has not yet been drawn) , the occurrence of any of the following
events (or the occurrence of any other event of default described in this
Agreement, in any of the security documents or in any other agreement or
document you have signed with us):
(1) You do not pay, when due, any amount that you are required to pay us under
this Agreement or otherwise, or you do not perform any of your other obligations
to us under this Agreement or otherwise.
(2) Any part of the security terminates or is no longer in effect, without our
prior written consent.
(3) You cease to carry on your business in the normal course, or it reasonably
appears to us that that may happen.
(4) A representation that you have made (or deemed to have made) in this
Agreement or in any security agreement is incorrect or misleading in any
material respect.
(5) (i) An actual or potential default or event of default occurs in connection
with any debt owed by you, with the result that the payment of the debt has
become, or is capable of becoming, accelerated, or (ii) you do not make a
payment when due in connection with any such debt. (This subsection (5),
however, applies only to amounts that we reasonably consider to be material).
(6) If you are a corporation, there is, in our reasonable opinion, a change in
effective control of the corporation, or if you are a partnership, there is a
change in the partnership membership.
(7) We believe, in good faith and upon commercially reasonable grounds, that
all or part of the property subject to any of the security is or is about to be
placed in jeopardy or that a material adverse change in your business operations
or financial affairs has occurred.
(8) The holder of a Lien takes possession of all or part of your property; or a
distress, execution or other similar process is levied against any such
property.
(9) You (i) become insolvent; (ii) are unable generally to pay your debts as
they become due; (iii) make a proposal in bankruptcy, or file a notice of
intention to make such a proposal; (iv) make an assignment in bankruptcy; (v)
bring a court action to have yourself declared insolvent or bankrupt; or someone
else brings an action for such declaration; or (vi) you default in payment or
breach any other obligation to any of your other creditors.
(10) If you are a corporation, (i) you are dissolved; (ii) your shareholders or
members pass a resolution for your winding up or liquidation; (iii) someone goes
to court seeking your winding-up or liquidation, or the appointment of an
administrator, conservator, receiver, trustee, custodian or other similar
official for you or for all or substantially all your assets; or (iv) you seek
protection under any statute offering relief against the company's creditors.
"Fixed Rate Instalment Loan" means an Instalment Loan that is also a Fixed Rate
Loan.
"Fixed Rate Loan" means any loan drawn down, converted or extended under a
Credit at an interest rate which was fixed for a term, instead of referenced to
a variable rate such as the Prime Rate or U.S. Base Rate, at the time of such
drawdown, conversion or extension. For purposes of certainty, a Fixed Rate Loan
includes a LIBOR Loan.
"Floating Rate Instalment Loan" means either an Instalment Loan that is either
a Prime Rate Loan or a Base Rate Loan.
"Instalment Loan" means a loan that is repayable either in fixed instalments of
principal, plus interest, or in blended instalments of both principal and
interest. A Demand Instalment Loan is repayable on demand. A Committed
Instalment Loan is repayable only upon the occurrence of an Event of Default.
"Intangibles" means assets of the business that have no value in themselves but
represent value. They include such things as copyright, patents and trademarks;
franchises; licenses; leases; research and development costs; and deferred
development costs.
"Letter" means the letter agreement between you and CIBC to which this Schedule
and any other Schedules are attached.
"Lien" includes a mortgage, charge, lien, security interest or encumbrance of
any sort on an asset, and includes conditional sales contracts, title retention
agreements, capital trusts and capital leases.
"Minimum Shareholders' Equity" means the total Shareholders' Equity, minus (a)
amounts due from/investments in related parties, and the value of all
intangibles, plus (b) all Postponed Debt.
"Normal Course Lien" means a Lien that (a) arises by operation of law or in the
ordinary course of business as a result of owning any such asset (but does not
include a Lien given to another creditor to secure debts owed to that creditor)
and (b), taken together with all other Normal Course Liens, does not materially
affect the value of the asset or its use in the business.
"Operating Account" means the account that you normally use for the day-to-day
cash needs of your business, and may be either or both of a Canadian dollar and
a U.S. dollar account.
"Postponed Debt" means any debt owed by you that has been formally postponed to
CIBC.
"Prime Rate" means the variable reference rate of interest per year declared by
CIBC from time to time to be its prime rate for Canadian dollar loans made by
CIBC in Canada.
"Prime Rate Loan" means a Canadian dollar loan on which interest is calculated
by reference to Prime Rate.
"Purchase Money Lien" means a lien incurred in the ordinary course of business
only to secure the purchase price of an asset, or to secure debt used only the
finance the purchase of the asset.
"Quick Ratio" means the ratio of Cash or equivalents plus Accounts Receivable to
Current Liabilities.
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<PAGE> 4
"Shareholders' Equity" means paid-in
capital, retained earnings and
attributed or contributed surplus.
"Standard Overdraft Rate" means the
variable reference interest rate
per year declared by CIBC from time
to time to be its standard
overdraft rate on overdrafts in
Canadian or U.S. dollar accounts
maintained with CIBC in Canada.
4 of 4
<PAGE> 1
EXHIBIT 10.24
[LOGO]
SCHEDULE - STANDARD CREDIT TERMS
ARTICLE 1 - GENERAL
1.1 INTEREST RATE. You will pay interest on each Credit at nominal rates per
year equal to:
(a) for amounts above the Credit Limit of a Credit or a part of a Credit or
the Overall Credit Limit, as described in section 1.4, or for amounts that are
not paid when due, the Default Interest Rate, and
(b) for any other amounts, the rate specified in this Agreement.
1.2 VARIABLE INTEREST. Each variable interest rate provided for under this
Agreement will change automatically, without notice, whenever the Prime Rate or
the U.S. Base Rate, as the case may be, changes.
1.3 PAYMENT OF INTEREST. Interest is calculated on the daily balance of the
Credit at the end of each day. Interest is due once a month, unless the
Agreement states otherwise. Unless you have made other arrangements with us, we
will automatically debit your Operating Account for interest amounts owing. If
your Operating Account is in overdraft and you do not deposit to the account an
amount equal to the monthly interest payment, the effect is that we will be
charging interest on overdue interest (which is known as compounding). Unpaid
interest continues to compound whether or not we have demanded payment from you
or started a legal action, or get judgment, against you.
1.4 DEFAULT INTEREST. To determine whether Default Interest is to be charged,
the following rules apply:
(a) Default Interest will be charged on the amount that exceeds the Credit
Limit of any particular Credit. That will happen even if the Overall Credit
Limit has not been exceeded.
(b) If there are several parts of a Credit, Default Interest will be charged if
the Credit Limit or a particular part is exceeded. For example, if Credit A's
limit is $250,000, and the limit of one part is $100,000 and the limit of that
part is exceeded by $25,000, Default Interest will be charged on that $25,000
excess, even if the total amount outstanding under Credit A is less than
$250,000.
(c) To determine if the Overall Credit Limit has been exceeded, the
outstanding principal amount of each Credit is totalled, and any amounts in
foreign currency are converted to Canadian dollars. If that total exceeds the
Overall Credit Limit, Default Interest will be charged on that excess amount.
For example, if there are three Credits, each with a Credit Limit of $100,000
and an Overall Credit Limit of $250,000, if each of those Credits is at
$90,000, they are each under their own Credit Limits, but the Overall Credit
Limit has been exceeded by $20,000, and Default Interest will be charged on
that excess amount.
1.5 FEES. You will pay CIBC's fees for each Credit as out lined in the Letter.
You will also reimburse us for all reasonable fees (including legal fees) and
out-of-pocket expenses incurred in registering any security, and in enforcing
our rights under this Agreement or any security. We will automatically debit
your Operating Account for fee amounts owing.
1.6 OUR RIGHTS RE DEMAND CREDITS. At CIBC, we believe that the banker-customer
relationship is based on mutual trust and respect. It is important for us to
know all the relevant information (whether good or bad) about your business.
CIBC is itself a business. Managing risks and monitoring our customers' ability
to repay is critical to us. We can only continue to lend when we feel that we
are likely to be repaid. As a result, if you do something that jeopardizes that
relationship, or if we no longer feel that you are likely to repay all amounts
borrowed, we may have to act. We may decide to act, for example, because of
something you have done, information we receive about your business, or changes
to the economy that affect your business. Some of the actions that we may
decide to take include requiring you to give us more financial information,
negotiating a change in the interest rate or fees, or asking you to get further
accounting assistance, put more cash into the business, provide more security,
or produce a satisfactory business plan. It is important to us that your
business succeeds. We may, however, at our discretion, demand immediate
repayment of any outstanding amounts under any demand Credit. We may also, at
any time and for any cause, cancel the unused portion of any demand Credit.
Under normal circumstances, however, we will give you 30 days' notice of any of
these actions.
1.7 PAYMENTS. If any payment is due on a day other than a Business Day, then
the payment is due on the next Business Day.
1.8 APPLYING MONEY RECEIVED. If you have not made payments as required by this
Agreement, or if you have failed to satisfy any term of this Agreement (or any
other agreement you have that relates to this Agreement), or at any time before
default but after we have given you appropriate notice, we may decide how to
apply any money that we receive. This means that we may choose which Credit to
apply the money against, or what mix of principal, interest, fees and overdue
amounts within any Credit will be paid.
1.9 INFORMATION REQUIREMENTS. We may from time to time reasonably require you
to provide further information about your business. We may require information
from you to be in a form acceptable to us.
1.10 INSURANCE. You will keep all your business assets and property insured (to
the full insurable value) against loss or damage by fire and all other risks
usual for property such as yours (plus for any other risks we may reasonably
require). If we request, these policies will include a loss payee clause (and
if you are giving us mortgage security, a mortgagee clause). As further
security, you assign all insurance proceeds to us. If we ask, you will give us
either the policies themselves or adequate evidence of their existence. If your
insurance coverage for any reason stops, we may (but do not have to) insure the
property. We will automatically debit your Operating Account for these amounts.
Finally, you will notify us immediately of any loss or damage to the property.
1.11 ENVIRONMENTAL. You will carry on your business, and maintain your assets
and property, in accordance with all applicable environmental laws and
regulations. If (a) there is any release, deposit, discharge or disposal of
pollutants of any sort (collectively, a "Discharge") in connection with either
your business of your property, and we pay any fines or for any clean-up, or
(b) we suffer any loss or damage as a result of any Discharge, you will
reimburse CIBC, its directors, officers, employees and agents for any and all
losses, damages, fines, costs and other amounts (including amounts
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PIVOTAL SOFTWARE INC. MARCH 18, 1998
<PAGE> 2
spent preparing any necessary environmental assessment or other reports, or
defending any lawsuits) that result. If we ask, you will defend any lawsuits,
investigations or prosecutions brought against CIBC or any of its directors,
officers, employees and agents in connection with any Discharge. Your obligation
to us under this section continues even after all Credits have been repaid and
this Agreement has terminated.
1.12 Consent to release information. We may from time to time give any credit or
other information about you to, or receive such information from, (a) any
financial institution, credit reporting agency, rating agency or credit bureau,
(b) any person, firm or corporation with whom you may have or propose to have
financial dealings, and (c) any person, firm or corporation in connection with
any dealings you have or propose to have with us. You agree that we may use that
information to establish and maintain your relationship with us and to offer any
services as permitted by law, including services and products offered by our
subsidiaries when it is considered that this may be suitable to you.
1.13 Our pricing policy: Fees, interest rates and other charges for your banking
arrangements are dependent upon each other. If you decide to cancel any of these
arrangements, you will have to pay us any increased or added fees, interest
rates and charges we determine and notify you of. These increased or added
amounts are effective from the date of the changes that you make.
1.14 Proof of debt. This Agreement provides the proof, between CIBC and you, of
the credit made available to you. There may be times when the type of Credit you
have requires you to sign additional documents. Throughout the time that we
provide you credit under this Agreement, our loan accounting records will
provide complete proof of all terms and conditions of your credit (such as
principal loan balances, interest calculations, and payment dates).
1.15 Renewals of this Agreement. This Agreement will remain in effect for your
Credits for as long as they remain unchanged. We have shown a Next Scheduled
Review Date in the Letter. If there are no changes to the Credits this Agreement
will continue to apply, and you will not need to sign anything further. If there
are any changes, we will provide you with either an amending agreement, or a new
replacement Letter, for you to sign.
1.16 Confidentiality: The terms of this Agreement are confidential between you
and CIBC. You therefore agree not to disclose the contents of this Agreement to
anyone except your professional advisors.
1.17 Pre-conditions. You may use the Credits granted to you under this Agreement
only if:
(a) we have received properly signed copies of all documentation that we
may require in connection with the operation of your accounts and your ability
to borrow and give security;
(b) all the required security has been received and registered to our
satisfaction;
(c) any special provisions or conditions set forth in the Letter have been
complied with; and
(d) if applicable, you have given us the required number of days notice for
a drawing under a Credit.
1.18 Notices. We may give you any notice in person or by telephone, or by letter
that is sent either by fax or by mail.
1.19 Use of the Operating Line. You will use your Operating Line only for your
business operating cash needs. You are responsible for all debits from the
Operating Account that you have either initiated (such as cheques, loan
payments, pre-authorized debits, etc.) or authorized us to make. Payments are
made by making deposits to the Operating Account. You may not at any time exceed
the Credit Limit. We may, without notice to you, return any debit from the
Operating Account that, if paid, would result in the Credit Limit being
exceeded, unless you have made prior arrangements with us. If we pay any of
these debits, you must repay us immediately the amount by which the Credit Limit
is exceeded.
1.20 Margin Requirements. If your Operating Line is margined against inventory
and/or Receivable Value, the available Credit Limit of that Credit is the lesser
of the Credit Limit stated in the Letter and the amount calculated using the
Monthly Statement of Available Credit Limit.
1.21 Foreign Currency Conversion. If this Agreement includes foreign currency
Credits, then currency changes may affect whether either the Credit Limit of any
Credit or the Overall Credit Limit has been exceeded.
(a) See section 1.4 for the general rules on how Default Interest is
calculated.
(b) To determine the Overall Credit Limit, all foreign currency amounts are
converted to Canadian dollars, even if the Credit Limits of any particular
Credits are quoted directly in a foreign currency (such as U.S. dollars). No
matter how the Credit Limit of a particular Credit is quoted, therefore,
currency fluctuations can affect whether the Overall Credit Limit has been
exceeded. For example, if Credits X and Y have Credit Limits of C$100,000 and
US$50,000, respectively, with an Overall Credit Limit of C$175,000, if Credit X
is at C$90,000 and Credit Y is at US$45,000, Default Interest will be charged
only if, after converting the US dollar amount, the Overall Credit Limit is
exceeded.
(c) Whether the Credit Limit of a particular Credit has been exceeded will
depend on how the Credit Limit is quoted, as described below.
(d) If the Credit Limit is quoted as, for example, the U.S. dollar
equivalent of a Canadian dollar amount, daily exchange rate fluctuations may
affect whether that Credit Limit has been exceeded. If, on the other hand, the
Credit Limit is quoted in a foreign currency (for example, directly in US
dollars), whether that Credit Limit has been exceeded is determined by reference
only to the closing balance of that Credit in that currency.
(e) For example, assume an outstanding balance of a Credit on a particular
day of US$200,000. If the Credit Limit is stated as "the US dollar equivalent of
C$275,000", then whether the Credit Limit of that Credit has been exceeded will
depend on the value of the Canadian dollar on that day. If the conversion
calculations determine that the outstanding balance is under the Credit Limit, a
drop in the value of the Canadian dollar the next day (without any change in the
balance) may have the effect of putting that Credit over its Credit Limit. If,
on the other hand, the Credit Limit is stated as "US$200,000", the Credit Limit
is not exceeded, and a drop in the value of the dollar the next day will not
change that (although the Overall Credit Limit may be affected).
(f) Conversion calculations are done on the closing daily balance of the
Credit. The conversion factor used is the mid-point between the buying and
selling rate offered by CIBC for that currency on the conversion date.
ARTICLE 2 - DEFINITIONS.
2.1 Definitions. In this Agreement, the following terms have the following
meanings:
"Base Rate Loan" means a U.S. dollar loan on which interest is calculated by
reference to the U.S. Base Rate.
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PIVOTAL SOFTWARE INC MARCH 18, 1998
<PAGE> 3
"Business Day" means any day (other than a Saturday or a Sunday) that the CIBC
Branch/Centre is open for business.
"CIBC Branch/Centre" means the CIBC branch or banking centre noted on the first
page of this Agreement, as changed from time to time by agreement between the
parties.
"Credit" means any credit referred to in the Letter, and if there are two or
more parts to a Credit, "Credit" includes reference to each part.
"Credit Line" of any Credit means the amount specified in the Letter as its
Credit Limit, and if there are two or more parts to a Credit, "Credit Limit"
includes reference to each such part.
"Current Assets" are cash, accounts receivable, inventory and other assets that
are likely to be converted into cash, sold, exchanged or expended in the normal
course of business within one year or less, excluding amounts due from related
parties.
"Current Liabilities" means debts that are or will become payable within one
year or one operating cycle, whichever is longer, excluding amounts due to
related parties, and which will require Current Assets to pay. They usually
include accounts payable, accrued expenses, deferred revenue and the current
portion of long-term debt.
"Current Ratio" means the ratio of Current Assets to Current Liabilities.
"Debt to Effective Equity Ratio" means the ratio of X to Y, where X is the total
of all liabilities, less all Postponed Debt, and Y is the total
Shareholders' Equity, plus all Postponed Debt, less (i) amounts due
from/investments in related parties and (ii) intangibles.
"Default Interest Rate", unless otherwise defined in the Letter, means the
Standard Overdraft Rate.
"Intangibles" means assets of the business that have no value in themselves but
represent value. They include such things as copyright, patents and trademarks;
franchises; licences; leases; research and development costs; and deferred
development costs.
"Letter" means the letter agreement between you and CIBC to which this Schedule
and any other Schedules are attached.
"Letter of Credit" or "L/C" means a documentary or stand-by letter of credit, a
letter of guarantee, or a similar instrument in form and substance satisfactory
to us.
"L/C Acceptance" means a draft (as defined under the Bills of Exchange Act
(Canada)) payable to the beneficiary of a documentary L/C which the L/C
applicant or beneficiary, as the case may be, has presented to us for
acceptance under the terms of the L/C.
"Lien" includes a mortgage, charge, lien, security interest or encumbrance of
any sort on an asset, and includes conditional sales contracts, title retention
agreements, capital trusts and capital leases.
"Minimum Shareholders' Equity" means the total Shareholders' Equity, minus (a)
amounts due from/investments in related parties, and the value of all
intangibles, plus (b) all Postponed Debt.
"Monthly Statement of Available Credit Limit" means the CIBC form by that name,
as it may from time to time be changed.
"Normal Course Lien" means a Lien that (a) arises by operations of law or in
the ordinary course of business as a result of owning any such asset (but does
not include a Lien given to another creditor to secure debts owed to that
creditor) and (b), taken together with all other Normal Course Liens, does not
materially affect the value of the asset or its use in the business.
"Operating Account" means the account that you normally use for the day-to-day
cash needs of your business, and may be either or both of a Canadian dollar and
a U.S. dollar account.
"Postponed Debt" means any debt owed by you that has been formally postponed to
CIBC.
"Prime Rate" means the variable reference rate of interest per year declared by
CIBC from time to time to be its prime rate for Canadian dollar loans made by
CIBC in Canada.
"Prime Rate Loan" means a Canadian dollar loan on which interest is calculated
by reference to Prime Rate.
"Priority Payable" means any amount owing to a creditor that ranks, or may
rank, equal to or in priority to our security. These may include unremitted
source deductions and taxes; other amounts owing to governments and
governmental bodies; and amounts owing to creditors who may claim priority
under the Bankruptcy and Insolvency Act or under a purchase money security
interest in inventory or equipment.
"Purchase Money Lien" means a Lien incurred in the ordinary course of business
only to secure the purchase price of an asset, or to secure debt used only the
finance the purchase of the asset.
"Quick Ratio" means the ratio of Cash or equivalents plus Accounts Receivable
to Current Liabilities.
"Receivable Value" means, at any time of determination, the total value of
those of your trade accounts receivable, including accounts domiciled in the
United States, that are subject to the security (other than those accounts:
(i) outstanding for 90 days or more,
(ii) owing by persons, firms or corporations affiliated to you, and
(iii) that we may from time to time designate).
"Shareholders' Equity" means paid-in capital, retained earnings and attributed
or contributed surplus.
"Standard Overdraft Rate" means the variable reference interest rate per year
declared by CIBC from time to time to be its standard overdraft rate on
overdrafts in Canadian or U.S. dollar accounts maintained with CIBC in Canada.
"U.S. Base Rate" means the variable reference interest rate per year as
declared by CIBC from time to time to be its base rate for U.S. dollar loans
made by CIBC in Canada.
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PIVOTAL SOFTWARE INC MARCH 18, 1998
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[CIBC LOGO]
MONTHLY STATEMENT OF AVAILABLE CREDIT LIMIT
The undersigned, being an authorized officer of the Customer noted below,
certifies to CIBC that, in accordance with margin requirements established by
agreement with CIBC, and based on the attached report in respect of trade
account receivables which is true and complete as at ____________________, the
Credit Limit available to the Customer in respect of the operating line
margined to such receivables is, as of that date, as follows:
RECEIVABLES
<TABLE>
<S> <C> <C>
Total trade account receivables (aged list attached)..................................... + $ ____________ (1)
Less the following amounts:
Receivables outstanding for ___ days or more .......................... $ ____________ (2)
Receivables/holdbacks excluded from margin provisions ................. $ ____________ (3)
Receivables due from affiliated persons, firms or corporations ........ $ ____________ (4)
Receivables due from or claims owned to suppliers on receivable list .. $ ____________ (5)
Claims for wages and employee deductions having or purporting to have
priority to CIBC over the receivables represented on line (1) ......... $ ____________ (6)
Claims having priority to CIBC for ____________________________________ $ ____________ (7)
Claims having priority to CIBC for ____________________________________ $ ____________ (8)
Claims having priority to CIBC for ____________________________________ $ ____________ (9)
Sub-total of lines (2) through (3) inclusive ............................................ - $ ____________ (10)
Receivable Value = $ ____________ (11)=(1)-(10)
Margin percentage or Receivable Value ................................................... X ____________ % (12)
Credit Limit attributed to Receivable Value ............................................. = $ ____________ (13)=(12)X(11)
</TABLE>
CREDIT LIMIT CALCULATION
<TABLE>
<S> <C>
Net Credit Limit attributed to Receivable Value ......................................... = $ ____________ (14)=(13)
Maximum Credit Limit .................................................................... = $ ____________ (15)
Credit Limit as of the date noted above
(insert the lesser of line (14) and line (15)) .......................................... = $ ____________ (16)
</TABLE>
The Customer represents and warrants to CIBC that the information set out and
certified in this Statement and on any accompanying reports is true and complete
in all respects, and acknowledges that CIBC is relying upon these
representations and warranties and this certification.
-----------------------------------------
(Signature)
<TABLE>
<S> <C> <C> <C>
Name of Customer: Name of Authorized Officer: Title: Date of Signature:
</TABLE>
<PAGE> 1
EXHIBIT 10.25
INDEMNITY AGREEMENT
This Agreement dated , 1999 is between:
PIVOTAL CORPORATION (British Columbia Incorporation No. 398393)
(the "Company")
AND
_________________,
(the "Indemnitee").
BACKGROUND
A. The Company was incorporated under the provisions of the British Columbia
Company Act ("Act").
B. The Indemnitee is or may become a director or officer of the Company or of a
body corporate of which the Company is, was or may become a shareholder or
creditor (an "Interested Company") or, at the request of the Company or an
Interested Company, a director or officer of (or acting in a similar capacity
for) a corporation, partnership, association, syndicate, joint venture, trust or
other organization, whether incorporated or unincorporated (an "Other Entity").
C. The Company has requested the Indemnitee to serve or to continue to serve as
a director or officer of the Company, an Interested Company or Other Entity and
the Indemnitee has agreed, subject to the granting of the indemnities in this
Agreement, to serve or to continue to serve as a director or officer of the
Company, an Interested Company or Other Entity.
AGREEMENTS
For good and valuable consideration, the receipt and sufficiency of
which each party acknowledges, the parties agree as follows:
1. GENERAL INDEMNITY. Except in the case of the gross negligence or wilful
misconduct of the Indemnitee in connection with the duties of the Indemnitee as
a director or officer of the Company, an Interested Company or Other Entity, the
Company will indemnify and hold harmless the Indemnitee and the respective
heirs, executors, administrators and other legal representatives of the
Indemnitee (each of which is included in any reference hereinafter made to the
"Indemnitee") against and from all liabilities, losses, damages, costs, fees,
charges, disbursements, fines, penalties and expenses whatsoever regardless of
when they arose and howsoever arising, including, without limiting the
generality of the foregoing, all fees, charges and disbursements for the
services of any
<PAGE> 2
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experts, all legal fees, charges and disbursements on and as between a solicitor
and client basis and any amount paid to settle any actions or satisfy any
judgments, (any and all of the foregoing being hereinafter referred to as
"Liabilities") which the Indemnitee may sustain, pay or incur as a result of or
in connection with any manner of action, suit, proceeding, claim, demand, order
or investigation (whether civil, criminal, administrative or otherwise,
including, without limiting the generality of the foregoing, any and all appeals
and whether made by any person, firm, corporation, government, or by any
governmental department, body, commission, board, bureau, agency or
instrumentality (any and all of the foregoing being hereinafter referred to as
an "Action") to which the Indemnitee is made or threatened to be made a party
for or in respect to any act done or step taken or alleged to have been done or
step taken, or not done or taken or alleged not to have been done or taken, in
the course of or arising from carrying out or conducting the Indemnitee's duties
as, or the fact that the Indemnitee is, a director or officer of the Company, an
Interested Company or Other Entity.
2. SPECIFIC INDEMNITY FOR STATUTORY OBLIGATIONS. In particular, and without in
any way limiting the generality of Section 1 of this Agreement, the Company will
indemnify and hold the Indemnitee harmless against and from all Liabilities at
any time imposed upon or at any time made against the Indemnitee by virtue of
the Act, the Securities Act (British Columbia), the Securities Act of 1933
(United States), the Securities Exchange Act of 1934 (United States), the
Bankruptcy and Insolvency Act (Canada), the Income Tax Act (Canada) and under
any other federal, state, provincial, regional, county or municipal legislation
or any re-enactment or amendment of such legislation and which in any way
involve the business or affairs of the Company, an Interested Company or Other
Entity.
3. TAXATION INDEMNITY. Without limiting the generality of Sections 1 and 2, the
Company agrees that with respect to taxes and other similar charges howsoever
designated, levied by governments and by agencies and divisions of governments,
whether federal, state, provincial, regional, county or municipal:
(a) the Company will abide, and use its reasonable efforts to cause
an Interested Company or Other Entity to abide, by all laws,
by-laws, legislative requirements and regulatory requirements of
any government or any agency or division of any government,
whether federal, state, provincial, regional, county or
municipal, relating to the ownership of the Company and to any
business conducted by the Company, an Interested Company or Other
Entity; and
(b) to the extent that the Indemnitee becomes responsible for the
preparation or filing of any report or return to any government
or any agency or division of any government, whether federal,
state, provincial, state, regional, county or municipal, the
Company will supply and will use its reasonable efforts to cause
an Interested Company or Other Entity to supply, all necessary
information for such preparation and filing and will be
responsible for paying all charges, costs and expenses, including
those of accountants, appraisers, lawyers and other consultants,
relating to such preparation and filing.
<PAGE> 3
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4. PAYMENT OF EXPENSES. Any expenses incurred or to be incurred by the
Indemnitee in connection with any Action covered under this Agreement will, at
the request of the Indemnitee, be paid by the Company in advance to enable the
Indemnitee to properly investigate, defend or appeal such Action.
5. NOTICES OF PROCEEDINGS. The Indemnitee will give notice, in writing, to the
Company upon the Indemnitee being served with any statement of claim, writ,
notice of motion, indictment, subpoena, investigation order or other document
commencing, threatening or continuing any Action involving the Company, an
Interested Company or Other Entity or the Indemnitee which may result in a claim
for indemnification under this Agreement, and the Company agrees to notify the
Indemnitee, in writing, forthwith upon it or any Interested Company or Other
Entity being served with any statement of claim, writ, notice of motion,
indictment, subpoena, investigation order or other document commencing,
threatening or continuing any Action involving the Indemnitee. Failure by either
party to so notify the other of any Action will not relieve the Company from
liability hereunder except to the extent that the failure materially prejudices
the Indemnitee or the Company, as the case may be.
6. SUBROGATION. Promptly after receiving notice of any Action or threatened
Action from the Indemnitee, the Company may, and upon the written request of the
Indemnitee will, promptly assume the defence thereof and retain counsel on
behalf of the Indemnitee who is reasonably satisfactory to the Indemnitee, to
represent the Indemnitee in respect of the Action. If the Company assumes
conduct of the defence on behalf of the Indemnitee, the Indemnitee hereby
consents to the conduct thereof and of any action taken by the Company, in good
faith, in connection therewith and the Indemnitee will fully cooperate in such
defence including, without limitation, the provision of documents, attending
examinations for discovery, making affidavits, meeting with counsel, testifying
and divulging to the Company all information reasonably required to defend or
prosecute the Action.
7. SEPARATE COUNSEL. In connection with any Action the Indemnitee will have the
right to employ separate counsel of the Indemnitee's choosing and to participate
in the defence thereof but the fees and disbursements of such counsel will be at
the Indemnitee's expense unless:
(a) counsel chosen by the Company to represent the Indemnitee
reasonably determines that there are legal defences available to
the Indemnitee that are different from or in addition to those
available to the Company, the Interested Company or Other Entity
or that a conflict of interest exists which makes representation
by counsel chosen by the Company not advisable;
(b) the Company has not assumed the defence of the Action and
employed counsel therefor reasonably satisfactory to the
Indemnitee within a reasonable period of time after receiving
notice thereof; or
(c) employment of such other counsel has been authorized by the
Company;
<PAGE> 4
- 4 -
in which event the fees and disbursements of such separate counsel will be paid
by the Company.
8. SETTLEMENT OF CLAIM. No admission of liability and no settlement of any
Action or threatened Action in a manner adverse to the Indemnitee will be made
without the consent of the Indemnitee, such consent not to be unreasonably
withheld. No admission of liability will be made by the Indemnitee without the
consent of the Company and the Company will not be liable for any settlement of
any Action or threatened Action made without its consent, such consent not to be
unreasonably withheld.
9. DETERMINATION OF RIGHT TO INDEMNIFICATION. If the payment of an indemnity
hereunder requires the approval of a court, under the provisions of the Act or
otherwise, either the Company or, failing the Company, the Indemnitee, may apply
to a court of competent jurisdiction for an order approving such indemnity by
the Company of the Indemnitee pursuant to this Agreement.
10. NOTICES. Any notice to be given by one party to the other will be sufficient
if delivered by hand, deposited in any post office in Canada or the United
States, registered, postage prepaid, or sent by means of electronic transmission
(in which case any message so transmitted will be immediately confirmed in
writing and mailed as provided above), addressed, as the case may be:
(a) to the Company:
300 - 224 West Esplanade
North Vancouver, BC V7M 3M6
Attention: General Counsel
Facsimile: (604) 983-6658
(b) to the Indemnitee:
Facsimile:___________________
or at such other address of which notice is given by the parties pursuant to the
provisions of this section. Such notice will be deemed to have been received
when delivered, if delivered, and if mailed, on the fifth business day
(exclusive of Saturdays, Sundays and statutory holidays) after the date of
mailing. Any notice sent by means of electronic transmission will be deemed to
have been given and received on the day it is transmitted, provided that if such
day is not a business day then the notice will be deemed to have been given and
received on the next business day following. In the case of an interruption of
postal service, all notices or other communications will be delivered
<PAGE> 5
- 5 -
or sent by means of electronic transmission as provided above, except that it
will not be necessary to confirm in writing and mail any notice electronically
transmitted.
11. SURVIVAL OF COVENANTS. The indemnity herein provided for will survive the
termination of the Indemnitee's position as a director or officer of the
Company, an Interested Company or Other Entity and will continue in full force
and effect thereafter.
12. INSOLVENCY. The liability of the Company under this Agreement will not be
affected, discharged, impaired, mitigated or released by reason of the discharge
or release of the Indemnitee in any bankruptcy, insolvency, receivership or
other similar proceeding of creditors.
13. TIME FOR PAYMENT. All monies to be paid under this Agreement will be paid
within 30 days of becoming payable.
14. SEVERABILITY. If any provision of this Agreement is determined to be invalid
or unenforceable in whole or in part, such invalidity or unenforceability will
attach only to that provision or part, and the remaining part of the provision
and all other provisions of this Agreement will continue in full force and
effect. The parties agree to negotiate in good faith to agree to a valid and
enforceable provision which will be as close as possible to the intention of any
invalid or unenforceable provision. The invalidity or unenforceability of any
provision in any particular jurisdiction will not affect its validity in any
other jurisdiction where it is valid or enforceable.
15. FURTHER ACTS. Each party agrees to do all such things and take all such
actions as may be necessary or desirable to give full force and effect to the
matters contemplated by this Agreement.
16. ENUREMENT. This Agreement enures to the benefit and is binding upon the
parties and their respective heirs, executors, administrators, legal
representatives, successors and permitted assigns.
17. INDEPENDENT LEGAL ADVICE. The Indemnitee acknowledges that he or she has
been advised to obtain independent legal advice with respect to entering into
this Agreement, that he or she has obtained such independent legal advice or has
expressly decided not to seek such advice, and that he or she is entering into
this Agreement with full knowledge of the contents hereof, of his or her own
free will and with full capacity to do so.
18. TIME OF ESSENCE. Time will be of the essence in this Agreement.
<PAGE> 6
- 6 -
19. INTERPRETATION. This Agreement and the application or interpretation of it
is governed exclusively by its terms and by the laws of the Province of British
Columbia and the parties hereby irrevocably attorn to the exclusive jurisdiction
of the courts of the Province of British Columbia.
TO EVIDENCE THEIR AGREEMENT each of the parties has executed this
Agreement as of the date of this Agreement.
PIVOTAL CORPORATION
Per:________________________________
(Name of Indemnitee)
<PAGE> 1
Exhibit 21.1
Subsidiaries of Registrant
A. Pivotal Software USA, Inc., a Delaware corporation
B. Pivotal Software Limited, a United Kingdom corporation
<PAGE> 1
EXHIBIT 23.1
[DELOITTE & TOUCHE LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Pivotal Corporation
(formerly, Pivotal Software Inc.) on Form F-1 of our report dated November 6,
1998 appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
CHARTERED ACCOUNTANTS
Vancouver, British Columbia
July 14, 1999
<PAGE> 1
EXHIBIT 23.2
[KPMG CHARTERED ACCOUNTANTS LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Pivotal Corporation
(formerly Pivotal Software Inc.)
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in this registration statement on Form F-1.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
July 14, 1999
