<PAGE> 1
As Filed with the Securities and Exchange Commission on January 12, 2000
Registration No. 333-
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM F-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
DELANO TECHNOLOGY CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ONTARIO 7372 98-0206122
(Province or other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or Organization)
</TABLE>
40 WEST WILMOT STREET, RICHMOND HILL, ONTARIO, CANADA L4B 1H8
(905) 764-5499
(Address and telephone number of Registrant's principal executive offices)
CT CORPORATION SYSTEM
111 8TH AVENUE, NEW YORK, NEW YORK 10011
(212) 894-8940
(Name, address and telephone number of agent for service)
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COPIES TO:
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<S> <C>
Christopher W. Morgan, Esq. Mark L. Johnson, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP Foley, Hoag & Eliot LLP
Suite 1820, North Tower One Post Office Square
P.O. Box 189, Royal Bank Plaza Boston, Massachusetts 02109
Toronto, Ontario M5J 2J4 (617) 832-1000
(416) 777-4700
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this 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
of 1933, 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 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. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO PROPOSED MAXIMUM OFFERING PRICE PROPOSED MAXIMUM AGGREGATE
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2)
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<S> <C> <C> <C>
Common Shares........... 5,750,000 shares $11.00 $63,250,000
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- --------------------------- ----------------
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TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
- --------------------------- ----------------
<S> <C>
Common Shares........... $16,698
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</TABLE>
(1) Includes offering price of shares that the Underwriters have the option to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) and based on a bona fide estimate
of the maximum offering price.
------------------------------------
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
PART I
INFORMATION REQUIRED TO BE
DELIVERED TO OFFEREES OR PURCHASERS
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: (a) one
prospectus to be used in connection with an offering in the United States and
certain provinces of Canada and (b) one prospectus to be used in connection with
a concurrent offering outside of the United States and Canada. The U.S./Canadian
prospectus and the international prospectus are identical in all respects except
for the front cover page and the "Underwriting" section. The front cover page
and the "Underwriting" section of the international prospectus are included
immediately before Part II of this registration statement.
<PAGE> 3
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 SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 12, 2000
[DELANO LOGO]
5,000,000 SHARES
COMMON SHARES
Delano Technology Corporation is offering 5,000,000 of its common shares.
This is our initial public offering and no public market currently exists for
our shares. We have applied to have the shares approved for quotation on the
Nasdaq National Market under the symbol "DTEC." We anticipate that the initial
public offering price will be between $9.00 and $11.00 per share.
------------------------------
INVESTING IN THE COMMON SHARES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Commissions.................................... $ $
Proceeds to Delano.......................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We have granted the underwriters a 30-day option to purchase up to
750,000 additional common shares to cover over-allotments.
------------------------------
ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
CIBC WORLD MARKETS
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE> 4
[DESCRIPTION OF INSIDE FRONT COVER ARTWORK]
[The Delano logo appears in the upper left corner.
To its right appear pictures of
(1) a globe floating above two hands,
(2) a computer screen and
(3) a man and a woman shaking hands.
Underneath the logo and pictures appear the following:]
DELANO TECHNOLOGY CORPORATION is a provider of
e-business communications software
DELANO E-BUSINESS INTERACTION SUITE
SALES
- order confirmation
- order fulfillment
- e-coupons...
MARKETING
- lead tracking/management
- customer registration
- customer surveys
- marketing campaigns
- winback programs...
SERVICE
- customer support
- personalized newsletters
- event notification
- personal page...
OPERATIONS
- destination reports
- equipment dispatch reports
- advanced shipping notices...
HR
- T&E reporting
- resume tracking
- suggestion box...
FINANCE
- aged A/R notification
- credit management
- invoice notification
- investor relations...
DELANO'S products and services enable e-businesses to use e-mail and the
web to interact with their customers, partners, suppliers and
employees. Our e-business communications software can be used by most
operational areas within an organization, including finance, marketing,
sales, service, operations and human resources.
<PAGE> 5
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, COMMON SHARES ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF
THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY
SALE OF OUR COMMON SHARES. IN THIS PROSPECTUS, "DELANO," "WE," "US" AND "OUR"
REFER TO DELANO TECHNOLOGY CORPORATION, AN ONTARIO CORPORATION, AND ITS WHOLLY
OWNED SUBSIDIARIES, UNLESS THE CONTEXT REQUIRES OTHERWISE.
EXCEPT PURSUANT TO A CANADIAN PROSPECTUS OR PROSPECTUS EXEMPTION UNDER
APPLICABLE SECURITIES LEGISLATION, THE COMMON SHARES MAY NOT BE OFFERED OR SOLD
IN CANADA, AND THIS PROSPECTUS IS NOT AN OFFER TO SELL, AND WE ARE NOT BY THIS
PROSPECTUS SOLICITING OFFERS TO BUY THESE SECURITIES, IN CANADA.
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON SHARES, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 1
Risk Factors................................................ 5
Special Note Regarding Forward-Looking Statements; Market
Data...................................................... 17
Exchange Rate Information................................... 18
Enforceability of Civil Liabilities......................... 18
Use of Proceeds............................................. 19
Dividend Policy............................................. 19
Capitalization.............................................. 20
Dilution.................................................... 21
Selected Consolidated Financial Data........................ 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 32
Management.................................................. 41
Transactions with Related Parties........................... 47
Principal Shareholders...................................... 48
Description of Share Capital................................ 50
Shares Eligible for Future Sale............................. 52
Tax Considerations.......................................... 53
Underwriting................................................ 57
Legal Matters............................................... 60
Experts..................................................... 60
Where You Can Find More Information......................... 60
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------------
Delano, Delano Campaign Server, Delano Component Development Kit, Delano
Component Pack for Back Office, Delano e-Business Interaction Application
Builder, Delano e-Business Interaction Server, Delano e-Business Interaction
Server Administrator, Delano e-Business Interaction Suite and the Delano logo
are trademarks of Delano. This prospectus also makes reference to trademarks of
other companies.
(i)
<PAGE> 6
SUMMARY
You should read the following summary together with the more detailed
information about Delano and the common shares being sold in this offering,
including our consolidated financial statements and the related notes appearing
elsewhere in this prospectus.
DELANO TECHNOLOGY CORPORATION
We provide communications software that enables companies to use e-mail
and the internet to automate business processes and to personalize and manage
interactions with their existing and prospective customers, partners, suppliers
and employees. Companies can use our software to rapidly develop and deploy
applications for business interactions over the internet, or e-business
communications. These applications can include marketing campaigns, tracking and
management of business leads, electronic surveys, personalized newsletters,
inbound e-mail support, automated customer support, and procurement and
inventory management. We are focusing our sales efforts on businesses in the
financial services, technology, telecommunications, transportation, retail and
marketing services industries, as well as other organizations engaged in, or
focused on, business-to-business or business-to-consumer commercial
opportunities using the internet. Where desirable, our professional services
group can assist our clients' internal information technology, or IT, personnel
to implement our products. To date, we have derived substantially all of our
revenues from the sale of software product licenses.
As the internet becomes an accepted channel for business-to-business and
business-to-consumer interactions, businesses increasingly need an effective and
reliable solution that enables them to manage the growing volume of inbound and
outbound traffic associated with the increased use of the internet. For example,
Jupiter Communications conducted a survey among 125 companies with content,
consumer brands, travel, retail and financial services web sites and discovered
that 51% of those sites either took longer than five days to reply to e-mail
inquiries or failed to respond at all. International Data Corporation estimates
that the worldwide customer relationship management application market will grow
from $1.9 billion in 1998 to $11.0 billion by 2003, and the Direct Marketing
Association estimates that interactive direct-marketing expenditures for the
business market will increase from $379.7 million in 1998 to $3.2 billion by
2003.
We believe our products provide the following principal benefits to our
clients:
- Enhanced Communications. Our products help a client develop and deploy
e-business communications applications across many operational areas,
enabling the client to respond rapidly and effectively to large volumes
of e-mail and other communications over the internet.
- Rapid Deployment. Our products are designed to enable our clients to
develop a wide range of e-business communications applications in a
matter of days or weeks.
- Scalability. We have designed our products to reliably support multiple
business processes and thousands of simultaneous e-business
interactions.
- Increased Revenue Opportunities and Reduced Operating Costs. Clients
can generate revenues through our applications for marketing campaigns
and for lead tracking and management. Our products enable clients to
process large volumes of interactions using a reduced number of support
and administrative personnel. This results in a lower incremental cost
per interaction than can be achieved using traditional methods.
Our objective is to establish our products as the leading e-business
communications software. The following are the key elements of our strategy for
achieving this objective:
- extend our technology leadership by developing new and enhanced
products, including products designed to manage higher volumes of
communications, improve integration with our clients' existing IT
infrastructures and further reduce our clients' time to deployment;
- increase our penetration of our target markets by, for example,
introducing new products for particular application areas relevant to
our target industries;
1
<PAGE> 7
- increase our presence worldwide beyond our historical focus on North
America to take advantage of the growing worldwide demand for
e-business communications applications; and
- increase our distribution capabilities to enhance our market presence
and leverage our sales and service resources by continuing to develop
relationships with established third-party distribution companies,
consulting organizations and software vendors.
Potential investors should consider the following additional
considerations before deciding to invest in our common shares. We first recorded
revenues in the quarter ended June 30, 1999 and have a limited operating
history, making it difficult to evaluate our business and prospects. Since our
inception, we have incurred substantial operating losses in every quarter,
resulting in an accumulated deficit of $6.2 million at December 31, 1999. We
expect to continue to incur losses for the foreseeable future. To date, a
significant portion of our total revenues has been derived from licenses of our
Delano e-Business Interaction Suite and related services to a small number of
clients. We expect that we will continue to be dependent upon a limited number
of clients for a significant portion of our revenues in future periods. Broad
and timely market acceptance of our products is critical to our future success.
Because our market is rapidly changing and highly competitive, we may not be
able to compete successfully against current or potential competitors. For a
discussion of these and other risks relating to an investment in our common
shares, see "Risk Factors."
Delano was incorporated under the laws of the Province of Ontario on May
7, 1998. Our principal executive offices are located at 40 West Wilmot Street,
Richmond Hill, Ontario, Canada L4B 1H8. Our telephone number at that location is
(905) 764-5499. Our web site address is www.delanotech.com. The information
contained on our web site is not part of this prospectus.
2
<PAGE> 8
THE OFFERING
Common shares offered by Delano......... 5,000,000 shares
Common shares to be outstanding after
the offering............................ 28,424,598 shares
Use of proceeds......................... To fund sales and marketing
activities, research and
development, and working capital
and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol.................................. DTEC
The number of common shares to be outstanding after the offering is based
on common shares outstanding as of December 31, 1999. This number includes
18,174,598 common shares to be issued upon completion of this offering as the
result of the conversion of our outstanding redeemable convertible special
shares and exercises of our outstanding special warrants. This number excludes
(1) 3,594,675 common shares issuable upon exercise of options outstanding at
December 31, 1999 under our stock option plan, which have a weighted average
exercise price of $0.88 per share, and (2) 394,737 common shares issuable upon
the exercise of a warrant outstanding at December 31, 1999, which has an
exercise price of $0.44 per share.
------------------------------
Unless otherwise indicated, the information in this prospectus assumes:
- the underwriters have not exercised the option granted by us to
purchase additional shares in this offering;
- the conversion of all outstanding redeemable convertible special shares
into an aggregate of 11,684,212 common shares, which will occur
automatically upon the completion of this offering;
- the exercise of all outstanding special warrants to purchase an
aggregate of 6,490,386 common shares in connection with the completion
of this offering; and
- the completion of a 3-for-2 split of our common shares, which was
approved by our shareholders on January 11, 2000 and will occur prior
to the completion of this offering.
See "Underwriting" and "Description of Share Capital".
------------------------------
Our financial statements are reported in United States dollars and have
been prepared in accordance with accounting principles generally accepted in the
United States.
We express all dollar amounts in this prospectus in United States dollars,
except where otherwise indicated. References to "$" are to United States dollars
and references to "Cdn$" are to Canadian dollars. This prospectus contains a
translation of some Canadian dollar amounts into U.S. dollars at specified
exchange rates solely for your convenience. Unless otherwise indicated, these
Canadian dollar amounts were translated into U.S. dollars based on Cdn$1.00 per
US$0.6925, which was the inverse of the noon buying rate in The City of New York
for cable transfers in Canadian dollars as certified for customs purposes by the
Federal Reserve Bank of New York on December 31, 1999. See "Exchange Rate
Information."
3
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables summarize the financial data of our business. The pro
forma share information included in the consolidated statements of operations
data has been computed as described in note 2 of the notes to consolidated
financial statements included elsewhere in this prospectus. The pro forma column
in the consolidated balance sheet data reflects the conversion of our
outstanding redeemable convertible special shares into common shares and the
exercise of our outstanding special warrants to acquire common shares, all in
connection with the completion of this offering. The pro forma as adjusted
column in the consolidated balance sheet data also reflects our sale of the
5,000,000 common shares offered by us at an assumed public offering price of
$10.00 per share after deducting estimated underwriting commissions and
estimated offering expenses, and the application of the estimated net proceeds
as described under "Use of Proceeds."
<TABLE>
<CAPTION>
PERIOD FROM MAY 7, PERIOD FROM MAY 7, NINE MONTHS
1998 (INCEPTION) TO 1998 (INCEPTION) TO ENDED
MARCH 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
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<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues:
Products................................ -- -- $ 5,061
Services................................ -- -- 296
Total revenues....................... -- -- 5,357
Gross profit.............................. -- -- 4,636
Loss from operations...................... $(1,702) $ (677) (4,600)
Loss for the period applicable to common
shares.................................. (1,790) (677) (4,458)
Basic and diluted loss per common share... $ (0.37) $ (0.16) $ (0.79)
======= ======= =======
Shares used in computing basic and diluted
loss per common share................... 4,887 4,210 5,649
======= ======= =======
Pro forma basic and diluted loss per
common share............................ $ (0.16) $ (0.19)
======= =======
Shares used in computing pro forma basic
and diluted loss per common share....... 10,715 21,834
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $11,940 $11,940 $57,640
Working capital.......................................... 12,187 12,187 57,887
Total assets............................................. 16,590 16,590 62,290
Long-term obligations, net of current portion............ 267 267 267
Redeemable convertible special shares.................... 3,851 -- --
Special warrants......................................... 14,703 -- --
Shareholders' equity (deficiency)........................ (5,458) 13,096 58,796
</TABLE>
4
<PAGE> 10
RISK FACTORS
Investing in our common shares will subject you 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
operations 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.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND
FORECAST OUR FUTURE OPERATING RESULTS.
We were incorporated on May 7, 1998, and we first recorded revenues in the
quarter ended June 30, 1999. We are still in the early stages of our development
and have a limited operating history, making it difficult to evaluate our
business and prospects. As a result of our limited operating history, it is
difficult or impossible for us to predict future operating results. For example,
we cannot forecast operating expenses based on our historical results because
our historical results are limited and we, to some extent, forecast expenses
based on future revenue projections. Moreover, due to our limited operating
history, any evaluation of our business and prospects must be made in light of
the risks and uncertainties often encountered by early-stage companies in
internet-related markets. Many of these risks are discussed in the subheadings
below, and include our ability to execute our product development activities,
implement our sales and marketing initiatives, both domestically and
internationally, and attract more clients. We may not successfully address any
of these risks.
FACTORS RELATING TO OUR BUSINESS MAKE OUR FUTURE OPERATING RESULTS UNCERTAIN,
AND MAY CAUSE THEM TO FLUCTUATE FROM PERIOD TO PERIOD.
Our quarterly revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter, particularly because our
products and services are relatively new and our prospects are uncertain. If our
quarterly revenues or operating results fall below the expectations of investors
or public market analysts, the price of our common shares could decline
substantially. Factors that might cause quarterly fluctuations in our operating
results include the risk factors described in the subheadings below as well as:
- the evolving and varying demand for interaction-based software products
and services for e-businesses, particularly our products and services;
- the timing of new releases of our products;
- the discretionary nature of our clients' purchasing and budgetary
cycles;
- changes in our pricing policies or those of our competitors, including
the extent to which we may need to offer discounts to match
competitors' pricing;
- the timing of execution of large contracts that materially affect our
operating results;
- the mix of sales channels through which our products and services are
sold;
- the mix of our domestic and international sales;
- costs related to the customization of our products;
- our ability to expand our operations, and the amount and timing of
expenditures related to this expansion;
- any costs or expenses related to our anticipated move to new corporate
offices; and
- global economic conditions, as well as those specific to large
enterprises with high e-mail volume.
5
<PAGE> 11
Our operating expenses are relatively fixed
Most of our expenses, such as employee compensation and rent, are
relatively fixed in the short term. Moreover, our expense levels are based, in
part, on our expectations regarding future revenue levels. As a result, if total
revenues for a particular quarter are below our expectations, we can not
proportionately reduce operating expenses for that quarter. Therefore, this
revenue shortfall would have a disproportionate effect on our operating results
for that quarter.
Period-to-period comparisons may be unreliable
As a result of the foregoing factors and the other risks discussed in this
prospectus, we believe that quarter-to-quarter comparisons of our operating
results are not a good indication of our future performance.
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.
Since we began operations in May 1998, we have incurred substantial
operating losses in every quarter. As a result of accumulated operating losses,
as of December 31, 1999, we had an accumulated deficit of $6.2 million. For the
nine months ended December 31, 1999, we had a net loss of $4.2 million, or 79.3%
of total revenues for that period. Our growth in recent periods has been from a
limited base of clients, and we may not be able to sustain our growth rate. We
expect to continue to increase our operating expenses. As a result, we expect to
continue to experience losses and negative cash flow, even if sales of our
products and services continue to grow, and we may not generate sufficient
revenues to achieve profitability in the future.
In addition, as a result of our rapid growth, we expect that our losses
will increase even more significantly because of additional costs and expenses
related to an increase in:
- the number of our employees;
- research and development activities; and
- sales and marketing activities.
OUR SALES CYCLE IS LONG AND SALES DELAYS COULD CAUSE OUR OPERATING RESULTS TO
VARY WIDELY.
The long sales cycle for our products may cause license revenues and
operating results to vary significantly from period to period. To date, the
sales cycle for our products has been three to six months in the United States
and Canada and may be longer in foreign countries. Our sales cycle is subject to
a number of significant risks, including customers' budgetary constraints and
internal acceptance reviews, over which we have little or no control. We invest
significant amounts of time and resources educating and providing information to
our prospective clients regarding the use and benefits of our products. Many of
our clients evaluate our software relatively slowly and deliberately, depending
on the specific technical capabilities of the client, the size of the
deployment, the complexity of the client's existing IT infrastructure, and the
quantity of hardware and the degree of hardware configuration necessary to
deploy our products. Consequently, if sales expected from a specific customer in
a particular quarter are not realized in that quarter, we are unlikely to be
able to generate revenues from alternate sources in time to compensate for the
shortfall. As a result, and due to the relatively large size of a typical order,
a lost or delayed sale could result in revenues that are lower than expected.
WE ARE DEPENDENT UPON A LIMITED NUMBER OF CLIENTS, AND A LOSS OF ANY OF THESE
CLIENTS OR A REDUCTION, DELAY OR CANCELLATION IN ORDERS FROM THESE CLIENTS COULD
HARM OUR BUSINESS.
To date, a significant portion of the our total revenues has been derived
from sales to a small number of clients. In the nine months ended December 31,
1999, one customer accounted for 26% of our total revenues. We expect that we
will continue to be dependent upon a limited number of clients for a significant
portion of our revenue in future periods. There can be no assurance that our
existing clients or any future clients will continue to use our products. A
reduction, delay or cancellation in orders from our clients, including
6
<PAGE> 12
reductions or delays due to market, economic or competitive conditions, could
have a material adverse effect on our business, operating results and financial
condition.
DIFFICULTIES IN IMPLEMENTING OUR PRODUCTS COULD HARM OUR BUSINESS.
Our success depends upon the ability of our staff and our clients to
implement our products. This implementation typically involves working with
sophisticated software, computing and communications systems. If we experience
implementation difficulties or do not meet project milestones in a timely
manner, we could be obligated to devote more customer support, engineering and
other resources to a particular project than anticipated. Some clients may also
require us to develop customized features or capabilities. If new or existing
clients require more time to deploy our products than is originally anticipated,
or require significant amounts of our professional services support or
customized features, our revenue recognition could be further delayed and our
costs could increase, causing increased variability in our operating results.
OUR PRODUCTS AND SERVICES MAY NOT BE ACCEPTED BY THE MARKETPLACE.
Of our total revenues of $5.4 million for the nine months ended December
31, 1999, $5.1 million were derived from licenses of our products and $296,000
were from related services. We are not certain that our target clients will
widely adopt and deploy our products and services. Our future financial
performance will depend on the successful development, introduction and client
acceptance of new and enhanced versions of our products. In the future, we may
not be successful in marketing our products and services or any new or enhanced
products.
WE EXPECT TO DEPEND ON SALES OF OUR DELANO E-BUSINESS INTERACTION SUITE FOR A
SUBSTANTIAL MAJORITY OF OUR REVENUES FOR THE FORESEEABLE FUTURE.
In the nine months ended December 31, 1999, we derived substantially all
of our revenues from licenses of our Delano e-Business Interaction Suite.
Although we expect to add new product offerings, we expect to continue to derive
a substantial majority of our revenues from sales of the Delano e-Business
Interaction Suite for the foreseeable future. Implementation of our strategy
depends on the Delano e-Business Interaction Suite being able to solve the
communication needs of businesses engaging in commercial transactions over the
internet or having an internet presence. If current or future clients are not
satisfied with the Delano e-Business Interaction Suite, our business and
operating results could be seriously harmed.
WE MUST CONTINUE TO DEVELOP ENHANCEMENTS TO OUR PRODUCTS AND NEW APPLICATIONS
AND FEATURES THAT RESPOND TO THE EVOLVING NEEDS OF OUR CLIENTS, RAPID
TECHNOLOGICAL CHANGE AND ADVANCES INTRODUCED BY OUR COMPETITORS.
Future versions of hardware and software platforms embodying new
technologies and the emergence of new industry standards could render our
products obsolete. The market for e-business communications software is
characterized by:
- rapid technological change;
- frequent new product introductions;
- changes in customer requirements; and
- evolving industry standards.
Our products are designed to work on, or interoperate with, a variety of
operating systems used by our clients. However, our software may not operate
correctly on evolving versions of operating systems, or the hardware upon which,
or with which, they are intended to run or interoperate, programming languages,
databases and other systems that our clients use. For example, because the
server component of the current versions of our products run only on the Windows
NT operating system from Microsoft, we must develop products and services that
are compatible with UNIX and other operating systems to meet the demands of
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our clients. If we cannot successfully develop these products in response to
client demands or improve our existing products to keep pace with technological
changes, our business could suffer.
We must continually improve the performance, features and reliability of
our products, particularly in response to competitive offerings. Our success
depends, in part, on our ability to enhance our existing software and to develop
new services, functionality and technologies that address the increasingly
sophisticated and varied needs of our prospective clients. If we do not properly
identify the feature preferences of prospective clients, or if we fail to
deliver features that meet the requirements of these clients on a timely basis,
our ability to market our products successfully and to increase our revenues
will be impaired.
DELAYS IN INTRODUCING NEW AND ENHANCED PRODUCTS COULD HARM OUR BUSINESS.
The development of proprietary technologies and necessary service
enhancements entails significant technical and business risks and requires
substantial expenditures and lead time. If we experience product delays in the
future we may face:
- customer dissatisfaction;
- cancellation of orders and license agreements;
- negative publicity;
- loss of revenues;
- slower market acceptance; and
- legal action by clients against us.
In the future, our efforts to remedy product delays may not be successful and we
may lose clients as a result. Delays in bringing to market new products or
product enhancements could be exploited by our competitors. If we were to lose
market share as a result of lapses in our product development, our business
would suffer.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE.
The market for our products and services is intensely competitive,
evolving and subject to rapid technological change. We expect the intensity of
competition to increase in the future. Increased competition may result in price
reductions, reduced gross margins and loss of market share. The market for
e-business communications software is new and intensely competitive. There are
no substantial barriers to entry in this emerging market segment, and we expect
established or new entities to enter this market segment in the near future.
We currently face competition for our products principally from systems
designed by in-house and third-party development efforts. In addition, some of
our competitors who currently offer licensed software products are now beginning
to offer online offerings, which involve providing software on a rental basis
hosted on the hardware of an application service provider, or ASP. We currently
do not offer online offerings in any material way.
Our competitors include companies providing software that is focused on a
few operational or functional areas, such as eGain Communications and Kana
Communications. We also compete with companies that provide customer management
and communications solutions, such as Siebel Systems, Silknet Software and
Vantive. Furthermore, established enterprise software companies, including
Hewlett-Packard, IBM and Microsoft, may leverage their existing relationships
and capabilities to offer e-business communications software that competes with
our products. We believe competition will increase as our current competitors
increase the sophistication of their offerings and as new participants enter the
market. We may also face competition from web application servers, messaging
server platform solutions, e-mail application vendors and e-mail service
bureaus.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition and a larger installed base of customers
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than we do. In addition, many of our competitors have well-established
relationships with our current and potential clients and have extensive
knowledge of our industry. We may lose potential clients to competitors for
various reasons, including the ability or willingness of our competitors to
offer lower prices and other incentives that we cannot match. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. We also expect that competition may
increase as a result of industry consolidations. We may not be able to compete
successfully against current and future competitors, and competitive pressures
may seriously harm our business.
THE DELANO E-BUSINESS INTERACTION SUITE ENABLES THIRD PARTIES TO DEVELOP
APPLICATIONS THAT COMPETE WITH OUR APPLICATIONS.
Third parties have the ability to develop their own applications on top of
the Delano e-Business Interaction Suite. The applications of these third parties
could compete with products developed by us or services which we offer now or
will offer in the future. If our target clients do not widely adopt and purchase
our products, or if third parties compete with applications developed by us, our
business would suffer.
FAILURE TO ATTRACT AND RETAIN ADDITIONAL QUALIFIED PERSONNEL COULD ADVERSELY
AFFECT OUR EXPANSION PLANS.
We intend to increase the number of our sales and marketing, engineering,
professional services and product management personnel significantly over the
next 12 months. Competition for these individuals is intense in our industry,
particularly in the Toronto area where we are headquartered, and there is a
limited number of experienced people available with the necessary technical
skills. Our ability to increase revenues in the future depends considerably upon
our success in recruiting, training and retaining additional direct sales
personnel and the success of the direct sales force. Our business will be harmed
if we fail to hire or retain qualified sales personnel, or if newly hired
salespeople fail to develop the necessary sales skills or develop these skills
more slowly than we anticipate. We also are substantially dependent upon our
ability to develop new products and enhance existing products, and we may not be
able to hire and retain highly qualified research and development personnel.
Similarly, our failure to attract and retain the highly trained personnel that
are integral to our professional services group, which is responsible for the
implementation and customization of, and technical support for, our products and
services, may limit the rate at which we can develop and install new products or
product enhancements, which would harm our business.
THE LOSS OF ANY OF OUR EXECUTIVE OFFICERS COULD ADVERSELY AFFECT OUR BUSINESS.
Our future success depends to a significant degree on the skills,
experience and efforts of our executive officers. In particular, we depend upon
the continued services of John Foresi, our President and Chief Executive
Officer, and Bahman Koohestani, our Executive Vice-President, Products and Chief
Technology Officer and a founder of Delano. Although we have purchased
Cdn$500,000 (approximately $346,000) life insurance benefitting Delano on these
two individuals, the loss of the services of either of these individuals could
significantly harm our business and operations.
We have not entered into employment agreements with our executive officers
which would require them to work solely for us on a long-term basis. If any of
our executive officers left or was seriously injured and unable to work and we
were unable to find a qualified replacement, our business could be harmed.
FAILURE TO INTEGRATE OUR EXECUTIVE TEAM MAY INTERFERE WITH OPERATIONS.
Our executive team has largely been hired in the past year. To integrate
into our company, these individuals must spend a significant amount of time
developing interpersonal relationships and learning our business model and
management system, in addition to performing their regular duties. Accordingly,
the integration of new personnel has resulted, and may continue to result, in
some disruption of our ongoing operations.
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WE HAVE EXPERIENCED RAPID GROWTH WHICH HAS PLACED A STRAIN ON OUR RESOURCES, AND
ANY FAILURE TO MANAGE OUR GROWTH EFFECTIVELY MAY CAUSE OUR BUSINESS TO SUFFER.
Our ability to offer our products and services successfully in a rapidly
evolving market requires an effective planning and management process. We have
limited experience in managing rapid growth. We are experiencing a period of
growth that is placing a significant strain on our managerial, financial and
personnel resources. On December 31, 1999, we had a total of 159 full-time
employees compared to 15 on December 31, 1998. We expect to continue to hire new
employees at a rapid pace. Our business will suffer if this growth continues and
we fail to manage this growth. Any additional growth will further strain our
management, financial, personnel and other resources. To manage any future
growth effectively, we must improve our financial and accounting systems,
controls, reporting systems and procedures, integrate new personnel and manage
expanded operations. Any failure to do so could negatively affect the quality of
our products, our ability to respond to our clients and retain key personnel,
and our business in general.
OUR FUTURE REVENUE GROWTH COULD BE IMPAIRED IF WE ARE UNABLE TO DEVELOP
ADDITIONAL DISTRIBUTION CHANNELS FOR OUR PRODUCTS.
We believe that our success in penetrating our target markets depends in
part on our ability to enter into agreements with established third-party
distribution companies, consulting organizations and software vendors relating
to the distribution of our products. We have recently entered into non-exclusive
distribution agreements with various parties, including Clarify,
Hewlett-Packard, Janna Systems, Macromedia and PricewaterhouseCoopers. Since
these agreements are non-exclusive and normally terminable without penalty on
short notice, some third parties may choose to discontinue working with us or
may decide to work with our competitors. We derive revenues from these
agreements through the sale of licenses. For the nine months ended December 31,
1999, we derived 26% of our total revenues from a single sale through one of
these agreements. We may not be able to derive significant revenues in the
future from these agreements.
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 BUSINESS WITH OUR OWN.
We intend to consider investments in complementary companies, products or
technologies. If we undertake an acquisition or investment, we may not realize
the anticipated benefits. If we buy a company, we may not be able to
successfully assimilate the acquired personnel, operations, technology and
products into our business. In particular, we will need to assimilate and retain
key technical, professional services, sales and marketing personnel. In
addition, acquired products or technology will have to be integrated into our
products and technology, and it is uncertain whether we may accomplish this.
These difficulties could disrupt our ongoing business, distract our management
and employees or increase our expenses. In connection with a merger, or
acquisition for shares, the issuance of these securities may be dilutive to our
existing shareholders or affect profitability. Furthermore, we may have to issue
equity or incur debt to pay for future acquisitions or investments, the issuance
of which could be dilutive to us or our existing shareholders or affect our
profitability. In addition, our profitability may suffer because of
acquisition-related costs or amortization costs for acquired goodwill and other
acquired intangible assets.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL TO GROW OUR BUSINESS, WHICH WE MAY NOT
BE ABLE TO DO.
Our future liquidity and capital requirements are difficult to predict
because they depend on numerous factors, including the success of our existing
and new service offerings as well as competing technological and market
developments. As a result, we may not be able to generate sufficient cash from
our operations to meet additional working capital requirements, support
additional capital expenditures or take advantage of acquisition opportunities.
Accordingly, we may need to raise additional capital in the future. Our ability
to obtain additional financing will be subject to a number of factors, including
market conditions and our operating performance. These factors may make the
timing, amount, terms and conditions of additional financing unattractive for
us. If we raise additional funds by selling equity securities, the relative
equity ownership of our existing investors could be diluted or the new investors
could obtain terms more favorable
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than previous investors. If we raise additional funds through debt financing, we
could incur significant borrowing costs. If we are unable to raise additional
funds when needed, our ability to operate and grow our business could be
impeded.
TECHNICAL PROBLEMS WITH INTERNAL OR OUTSOURCED COMPUTER AND COMMUNICATIONS
SYSTEMS COULD RESULT IN REDUCED REVENUES AND HARM TO OUR REPUTATION.
The success of our online support services depends on the efficient and
uninterrupted operation of our own and outsourced computer and communications
hardware and software systems. These systems and operations are vulnerable to
damage or interruption from human error, natural disasters, telecommunications
failures, break-ins, sabotage, computer viruses and similar adverse events. Our
operations depend on our ability to protect our systems against damage or
interruption. We cannot guarantee that our internet access will be
uninterrupted, error-free or secure. We have no formal disaster recovery plan in
the event of damage or interruption, and our insurance policies may not
adequately compensate us for losses that we may incur. Any system failure that
causes an interruption in our service or a decrease in responsiveness could harm
our relationships with our clients and result in reduced revenues.
FAILURE TO SELL ONLINE SERVICES MAY IMPAIR OUR FUTURE REVENUE GROWTH.
We currently focus primarily on software sales rather than online
offerings. Our competitors may move to a heavier emphasis on online offerings,
and our failure to focus on it at an early stage may make it difficult to
compete if online offerings become a dominant means of generating revenues
within the industry. In addition, although our sales force sells both our
software products and online offerings, the skills necessary to market and sell
online offerings are different than those relating to our software products. As
a result, our sales and marketing groups may not be able to maintain or increase
the level of sales of our online offerings.
A DECLINE IN OUR LICENSE REVENUES COULD CAUSE A DECLINE IN OUR SERVICE REVENUES.
Our products are designed to enable customers to rapidly develop and
deploy e-business communication applications. Where desirable, our professional
services group can assist our clients internal IT personnel to implement our
products. Because the revenues associated with these services are largely
correlated with the licensing of our products, a decline in license revenues
could also cause a decline in our service revenues.
CONFLICTS BETWEEN OUR PRODUCTS AND OTHER VENDORS' PRODUCTS COULD HARM OUR
BUSINESS AND REPUTATION.
Our clients generally use our products together with products from other
companies. As a result, when problems occur in the network, it may be difficult
to identify the source of the problem. Even when these problems are not caused
by our products, they may cause us to incur significant warranty and repair
costs, divert the attention of our engineering personnel from our product
development efforts and cause significant customer relations problems.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY RIGHTS.
We rely on contractual restrictions, such as confidentiality agreements
and licenses, to establish and protect our proprietary rights. None of our
trademarks is registered, nor do we have any trademark applications pending. We
currently have no patent applications pending relating to our software. Despite
any precautions that we take to protect our intellectual property:
- laws and contractual restrictions may be insufficient to prevent
misappropriation of our technology or deter others from developing
similar technologies;
- current laws that prohibit software copying provide only limited
protection from software "pirates", and effective trademark, copyright
and trade secret protection may be unavailable or limited in foreign
countries;
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- other companies may claim common law trademark rights based upon state,
provincial or foreign laws that precede any registrations we may
receive for our trademarks; and
- policing unauthorized use of our products and trademarks is difficult,
expensive and time-consuming, and we may be unable to determine the
extent of this unauthorized use.
It is possible that our intellectual property rights could be successfully
challenged by one or more third parties, which could result in our inability to
exploit, or our loss of the right to prevent others from exploiting, certain
intellectual property. We are aware that certain of our competitors have filed
patent applications.
Also, the laws of other countries in which we market our products may
offer little or no effective protection of our technology. Reverse engineering,
unauthorized copying or other misappropriation of our technology could enable
third parties to benefit from our technology without paying us for it, which
would significantly harm our business.
WE RELY ON SOFTWARE LICENSED TO US BY THIRD PARTIES FOR FEATURES WE INCLUDE IN
OUR PRODUCTS.
We use and in the future will use certain software technologies and other
information that we license or otherwise acquire from third parties, usually on
a non-exclusive basis, including software that is integrated with our internally
developed software and used in our products to perform what may be important
functions. If we are not able to continue to use the third-party software and
technologies, or if they fail to adequately update and support their products,
we could suffer delays or reductions in shipments of our products until
alternative software and technologies could be identified, which could adversely
affect our business and financial condition.
CLAIMS BY OTHER COMPANIES THAT OUR PRODUCTS INFRINGE THEIR PROPRIETARY RIGHTS
COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS AND INCREASE OUR COSTS.
Substantial litigation over intellectual property rights exists in our
industry. We expect that software in our industry may be increasingly subject to
third-party infringement claims as the number of competitors grows and the
functionality of products in different industry segments overlaps. Third parties
may currently have, or may eventually be issued, patents that our products or
technology infringe.
Any of these third parties might make a claim of infringement against us.
Many of our software license agreements require us to indemnify our clients and
suppliers from any claim or finding of intellectual property infringement. Any
litigation, brought by us or others, could result in the expenditure of
significant financial resources and the diversion of management's time and
efforts. In addition, litigation in which we are accused of infringement might
cause negative publicity, have an impact on prospective clients, cause product
shipment delays, require us to develop non-infringing technology or require us
to enter into royalty or license agreements, which might not be available on
acceptable terms, or at all. If a successful claim of infringement were made
against us and we could not develop non-infringing technology or license the
infringed or similar technology on a timely and cost-effective basis, our
business could be significantly harmed.
OUR INSURANCE MAY NOT BE SUFFICIENT TO COVER ALL POTENTIAL PRODUCT LIABILITY AND
WARRANTY CLAIMS.
Our products are integrated into our clients' networks. The sale and
support of our products results in the risk of product liability or warranty
claims based on damage to these networks. In addition, the failure of our
products to perform to client expectations could give rise to warranty claims.
Although we carry general liability insurance, our insurance would likely not
cover potential claims of this type or may not be adequate to protect us from
all liability that may be imposed.
OUR PRODUCTS COULD CONTAIN UNDETECTED DEFECTS OR ERRORS.
We face the possibility of higher costs as a result of the complexity of
our products and the potential for undetected errors. Due to the
mission-critical nature of our products and services, undetected errors are of
particular concern. We have only a limited number of clients that test new
features and the functionality of
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our software before we make these features and functionalities generally
available. If our software contains undetected errors or we fail to meet our
clients' expectations in a timely manner, we could experience:
- loss of or delay in revenues expected from the new product and an
immediate and significant loss of market share;
- loss of existing clients that upgrade to the new product and of new
clients;
- failure to achieve market acceptance;
- diversion of development resources;
- injury to our reputation;
- increased service and warranty costs;
- legal actions by clients against us; and
- increased insurance costs.
A product liability claim could harm our business by increasing our costs,
damaging our reputation and distracting our management.
OUR INTERNATIONAL EXPANSION EFFORTS MAY NOT BE SUCCESSFUL.
Our operations outside the United States and Canada are located in the
United Kingdom and, to date, have been limited. We plan to expand our existing
international operations and establish additional facilities in other parts of
the world. The expansion of our existing international operations and entry into
additional international markets are key parts of our growth strategy and will
require significant management attention and financial resources. In addition,
to expand our international sales operations, we will need to, among other
things:
- expand our international sales channel management and support
organizations;
- develop relationships with international service providers and
additional distributors and systems integrators; and
- customize our products for local markets.
Our investments in facilities in other countries may not produce desired
levels of revenues. Even if we are able to expand our international operations
successfully, we may not be able to maintain or increase international market
demand for our products.
OUR BUSINESS MAY SUFFER IF WE FAIL TO ADAPT APPROPRIATELY TO THE CHALLENGES
ASSOCIATED WITH OPERATING INTERNATIONALLY.
Expanding our operations outside the United States and Canada subjects us
to numerous inherent potential risks associated with international operations.
These risks include greater difficulty in accounts receivable collection, the
burden of complying with multiple and conflicting regulatory requirements,
foreign exchange controls, longer payment cycles, import and export restrictions
and tariffs, potentially adverse tax consequences, and political and economic
instability, any of which could impair our sales and results of operations. In
addition, our ability to expand our business in certain countries will require
modification of our products, particularly domestic language support.
Our international operations will increase our exposure to international
laws and regulations. If we cannot comply with foreign laws and regulations,
which are often complex and subject to variation and unexpected changes, we
could incur unexpected costs and potential litigation. For example, the
governments of foreign countries might attempt to regulate our products and
services or levy sales or other taxes relating to our activities. In addition,
foreign countries may impose tariffs, duties, price controls or other
restrictions on foreign currencies or trade barriers, any of which could make it
more difficult to conduct our business. The European Union, in which we have a
sales office, recently enacted its own privacy regulations that may result
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in limits on the collection and use of certain user information which, if
applied to the sale of our products and services, could negatively impact our
results of operations.
FLUCTUATIONS IN EXCHANGE RATES MAY AFFECT OUR OPERATING RESULTS.
A substantial portion of our revenues are now, and are expected to
continue to be, realized in currencies other than Canadian dollars. Our
operating expenses are primarily paid in Canadian dollars. Fluctuations in the
exchange rate between the Canadian dollar and these other currencies may have a
material effect on our results of operations. In particular, we may be adversely
affected by a significant strengthening of the Canadian dollar against the U.S.
dollar. We do not currently engage in currency hedging activities. We have not
yet, but may in the future, experience significant foreign exchange rate losses,
especially to the extent that we do not engage in hedging.
IF WE ARE OR BECOME A PASSIVE FOREIGN INVESTMENT COMPANY WE MAY NOT BE ABLE TO
SATISFY RECORD-KEEPING REQUIREMENTS, WHICH COULD HAVE ADVERSE TAX CONSEQUENCES
TO YOU.
The rules governing passive foreign investment companies can have
significant effects on U.S. investors. For a discussion of these and other tax
considerations relating to an investment in our common shares, see "Tax
Considerations."
RISKS RELATED TO OUR INDUSTRY
OUR FUTURE REVENUES AND PROFITS DEPEND ON THE CONTINUED GROWTH IN USE AND
EFFICIENT OPERATION OF THE INTERNET AND E-MAIL.
We sell our products and services primarily to organizations that receive
large volumes of e-mail and communications over the web. Consequently, our
future revenues and profits, if any, substantially depend upon the continued
acceptance and use of the web and e-mail, which are evolving as communications
media. Rapid growth in the use of e-mail is a recent phenomenon and may not
continue. As a result, a broad base of enterprises that use e-mail as a primary
means of communication may not develop or be maintained. Moreover, companies
that have already invested significant resources in other methods of
communications with customers, such as call centers, may be reluctant to adopt a
new strategy that may limit or compete with their existing investments. If
businesses do not continue to accept the web and e-mail as communications media,
our business would suffer.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE INTERNET COULD
DISCOURAGE COMMUNICATION BY E-MAIL OR OTHER INTERNET-BASED COMMUNICATIONS
FACILITATED BY OUR PRODUCTS.
Due to the increasing popularity and use of the internet, it is possible
that Canadian and U.S. federal, Canadian provincial, U.S. state, and other
foreign regulators could adopt laws and regulations that impose additional
burdens on those companies that conduct business online. These laws and
regulations could discourage communication by e-mail or other internet-based
communications facilitated by our products, which could reduce demand for our
products and services.
The growth and development of the market for online services may prompt
calls for more stringent consumer protection laws or laws that may inhibit the
use of internet-based communications or the information contained in these
communications. The adoption of any additional laws or regulations may slow the
growth of the internet. A decline in the growth of the internet, particularly as
it relates to online communication, could decrease demand for our products and
services and increase our costs of doing business, or otherwise harm our
business.
YEAR 2000 COMPLICATIONS MAY DISRUPT OUR OPERATIONS AND HARM OUR BUSINESS.
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates.
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We continue to monitor our software, the software we license for our
internal use, the systems that operate in conjunction with our software and our
internal and external systems for Year 2000 failures. We still may discover Year
2000 compliance problems in our systems that will require substantial revision.
In addition, third-party software, hardware or services incorporated into our
products and services may need to be revised or replaced, all of which could be
time-consuming and expensive and result in the following, any of which could
have a material adverse effect on our business including:
- delay or loss of revenue;
- cancellation of client contracts;
- diversion of development resources;
- damage to our reputation;
- increased service and warranty costs; and
- litigation costs.
RISKS RELATED TO THIS OFFERING
OUR MANAGEMENT HAS BROAD DISCRETION AS TO USE OF PROCEEDS FROM THIS OFFERING,
WHICH WE MAY NOT USE EFFECTIVELY.
We do not have specific uses for a significant portion of our proceeds
from this offering. As a result, our management will have broad discretion in
how we use the net proceeds from this offering. You will not have the
opportunity to evaluate the economic, financial or other information on which we
base our decisions regarding how to use the net proceeds from this offering, and
we may spend these proceeds in ways that do not increase our operating results
or market value.
INVESTORS WILL INCUR IMMEDIATE DILUTION AND MAY EXPERIENCE FURTHER DILUTION.
If you purchase common shares in this offering, you will incur immediate
dilution of $7.93 in the pro forma net tangible book value per share of the
common shares from the price you pay for the common shares. We also have a large
number of outstanding stock options and a warrant to purchase common shares with
exercise prices significantly below the estimated public offering price for the
common shares. To the extent these securities are exercised, there will be
further dilution. See "Dilution."
WE EXPECT MORE THAN 23 MILLION 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 28,424,598 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 tradeable. Of the
remaining 23,424,598 common shares outstanding after this offering, a total of
23,187,755 common shares will be available for sale in the public market 180
days after the date of this prospectus. See "Shares Eligible for Future Sale."
OUR SHARE PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL AT OR ABOVE
THE OFFERING PRICE.
There has previously not been a public market for our common shares. We
cannot predict the extent to which investor interest in us will lead to the
development of a trading market or how liquid that market might become. The
initial public offering price for our common shares will be determined by
negotiations between us and the representatives of the underwriters. Among the
factors to be considered in these negotiations are prevailing market conditions,
our financial information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential and the present state of our development. The initial public offering
price for our common shares may not be indicative of the prices that will
prevail in the trading market. In addition, the stock market in general, and the
Nasdaq National
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Market and software and internet-based companies like ours in particular, have
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of such companies. The trading
prices of many technology companies are at or near historical highs and these
trading prices and these trading prices may not be sustained. These broad market
and industry factors may materially adversely affect the market price of our
common shares, regardless of our actual performance. You may not be able to
resell your shares at or above the initial public offering price.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against that company. The institution of similar litigation against
us could result in substantial costs and a diversion of our management's
attention and resources.
AFTER THIS OFFERING, OUR OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS WILL
BENEFICIALLY OWN MORE THAN 35% OF OUR COMMON SHARES, AND MAY BE ABLE TO CONTROL
MATTERS SUBMITTED TO SHAREHOLDERS FOR APPROVAL.
Following this offering and completion of the amalgamation described under
"Principal Shareholders," our executive officers, directors and other principal
shareholders, in the aggregate, will beneficially own approximately 35.52% of
our outstanding common shares. As a result, these shareholders, if acting
together, may be able to control matters requiring shareholder approval,
including the election of directors, thereby permitting these shareholders to
obtain control of our management and affairs. The voting power of these
shareholders under certain circumstances could have the effect of delaying or
preventing a change in control of Delano, the effect of which may be to deprive
our shareholders of a control premium that might otherwise be realized in
connection with our acquisition.
BECAUSE WE ARE A CANADIAN COMPANY, IT MAY BE DIFFICULT FOR YOU TO ENFORCE
AGAINST US LIABILITIES BASED SOLELY UPON THE FEDERAL SECURITIES LAWS OF THE
UNITED STATES.
We have been incorporated under the laws of the Province of Ontario, and
our executive offices are located in Ontario. Many of our directors, controlling
persons and officers, and representatives of the experts named in this
prospectus, are residents of Canada and a substantial portion of their assets
and a majority of our assets are located outside the United States.
Consequently, it may be difficult for you to enforce against us or any of our
directors, controlling persons, officers or experts who are not resident in the
United States, liabilities based solely upon the federal securities laws of the
United States. See "Enforceability of Civil Liabilities."
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 articles of incorporation allow the issuance an unlimited number of
preferred shares in one or more series. 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."
WE DO NOT INTEND TO PAY ANY DIVIDENDS ON OUR COMMON SHARES.
We have not paid any cash dividends on our shares and we currently do not
have any plans to pay dividends on our shares. In addition, our lease line of
credit specifically prohibits the payment of dividends on our shares. See
"Dividend Policy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
16
<PAGE> 22
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS; MARKET DATA
This prospectus contains so-called forward-looking statements under
"Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere. These include
statements about our expectations, beliefs, intentions or strategies for the
future, which we indicate by words or phrases such as "anticipate," "expect,"
"intend," "plan," "will," "we believe," and similar language. We base all
forward-looking statements on our current expectations and these statements are
subject to risks and uncertainties and to assumptions we have made. Important
factors that could cause our actual results to differ materially from those
expressed or implied by these forward-looking statements include those listed
under "Risk Factors" or described elsewhere in this prospectus.
This prospectus contains market data related to the internet and us. These
data have been included in studies published by the market research firms of
Direct Marketing Association, International Data Corporation, and Jupiter
Communications.
Direct Marketing Association's estimate that interactive direct-market
expenditures for the business market will increase from $379.7 million in 1998
to $3.2 billion by 2003 is based on several assumptions, including that:
- employment growth rates will continue to increase; and
- direct marketing sales will continue to grow.
International Data Corporation's estimate that the worldwide customer
relationship management application market will grow from $1.9 billion in 1998
to $11.0 billion by 2003, is based on several assumptions, including that:
- the market encompasses applications designed for marketing automation,
sales force automation, customer service, and field service, as well as
internet customer relationship management;
- businesses will continue to try and establish closer ties to their
customers; and
- the demand from electronic commerce sites will outstrip that of
traditional customer calls to call centers.
International Data Corporation's estimates, that electronic commerce will
increase from $50.4 billion in 1998 to $1.3 trillion by 2003 and that the number
of web users will increase from 142.2 million in 1998 to 502.4 million in 2003,
are based on several assumptions, including that:
- the number of devices used to access the world wide web will continue
to increase;
- virtually all devices using the internet for e-mail will also use the
web for other purposes; and
- the number of web buyers and the average transaction value per buyer
will increase.
17
<PAGE> 23
EXCHANGE RATE INFORMATION
The following table sets forth, for each period indicated, the high and
low exchange rates for Canadian dollars expressed in U.S. dollars, the average
of such exchange rates on the last day of each month during such period, and the
exchange rate at the end of such period, based on the inverse of the noon buying
rate.
<TABLE>
<CAPTION>
PERIOD FROM MAY 7, 1998 PERIOD FROM MAY 7, 1998 NINE MONTHS
(INCEPTION TO) (INCEPTION TO) ENDED
MARCH 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------------- ----------------------- -----------------
<S> <C> <C> <C>
High............................... $0.6982 $0.6982 $0.6925
Low................................ 0.6341 0.6341 0.6607
End................................ 0.6626 0.6504 0.6925
Average............................ 0.6598 0.6587 0.6784
</TABLE>
On January 10, 2000, the inverse of the noon buying rate was Cdn$1.00 per
$0.6864.
ENFORCEABILITY OF CIVIL LIABILITIES
We have been incorporated under the laws of the Province of Ontario, and
our executive offices are located in Ontario. Many of our directors, controlling
persons and officers, and representatives of the experts named in this
prospectus, are residents of Canada, and a substantial portion of their assets
and a majority of our assets are located outside the United States. As a result,
it may be difficult for investors to effect service of process within the United
States upon the directors, controlling persons, officers and representatives of
experts who are not residents of the United States or to enforce against them
judgments of courts of the United States based upon civil liability under the
federal securities laws of the United States. There is doubt as to the
enforceability in Canada against us or against any of our directors, controlling
persons, officers or experts who are not residents of the United States, in
original actions or in actions for enforcement of judgments of United States
courts, of liabilities based solely upon the federal securities laws of the
United States.
18
<PAGE> 24
USE OF PROCEEDS
We expect to receive approximately $45,700,000 in net proceeds from the
sale of 5,000,000 common shares in this offering, assuming an initial public
offering price of $10.00 per common share. We estimate the net proceeds will be
approximately $52,675,000 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 our net proceeds for working capital and other general
corporate purposes, including sales and marketing expenses and research and
development expenditures. We have not yet determined with any certainty the
manner in which we will allocate the net proceeds, but we currently intend to
use approximately $8 million of the net proceeds to expand our sales and
marketing capabilities and approximately $3 million for research and development
expenditures. The amounts and timing of these expenditures will vary depending
on a number of factors, including future revenue growth, if any, the amount of
cash we generate from operations, the progress of our product development
efforts and developments in Internet commerce. We may also use a portion of the
net proceeds of this offering to fund acquisitions of, or investments in,
businesses, products or technologies that expand, complement or are otherwise
related to our current business and products. However, we have no present plans,
agreements or commitments, and are not currently engaged in any negotiations,
with respect to any such acquisition or investment. Pending the uses described
above, we intend to invest the net proceeds in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
We have not paid any cash dividends on our shares and we currently do not
have any plans to pay dividends on our shares. In addition, our lease line of
credit specifically prohibits the payment of dividends on our shares. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." We intend to retain all of our
available funds for use in the operation of our business. Any future
determination by us to pay dividends will be at the discretion of our board of
directors and in accordance with the terms and conditions of any outstanding
indebtedness and will depend upon our financial condition, results of
operations, capital requirements and such other factors as our board of
directors considers relevant.
19
<PAGE> 25
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis, giving effect to a 3-for-2 split of our common
shares, which was approved by our shareholders on January 11, 2000 and
will occur prior to the completion of this offering;
- on a pro forma basis to reflect the exercise of all of our outstanding
special warrants to purchase 6,490,386 common shares and the conversion
of all of our outstanding redeemable convertible special shares into
11,684,212 common shares in connection with the completion of this
offering as described in "Description of Share Capital;" and
- on a pro forma as adjusted basis to give effect to the sale of the
5,000,000 common shares offered by this prospectus at an assumed
initial public offering price of $10.00 and after deducting estimated
underwriting commissions and estimated offering expenses.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Obligations under capital leases, net of current portion.... $ 267 $ 267 $ 267
------- ------- -------
Redeemable convertible special shares; unlimited shares
authorized, 7,789,476 shares issued and outstanding,
actual; no shares authorized, issued or outstanding, pro
forma and pro forma as adjusted........................... 3,851 -- --
------- ------- -------
Special warrants; 4,326,924 special warrants issued and
outstanding, actual; no special warrants issued and
outstanding, pro forma and pro forma as adjusted.......... 14,703 -- --
------- ------- -------
Shareholders' equity (deficiency):
Common shares; unlimited shares authorized; 5,250,000
shares issued and outstanding, actual; 23,424,598
shares issued and outstanding, pro forma; 28,424,598
shares issued and outstanding, pro forma as adjusted... 6,318 24,872 70,572
Preferred shares (undesignated); no shares authorized,
issued or outstanding actual; unlimited shares
authorized, no shares issued or outstanding, pro forma
and pro forma as adjusted.............................. -- -- --
Warrant................................................... 126 126 126
Deferred stock-based compensation......................... (5,502) (5,502) (5,502)
Accumulated other comprehensive losses.................... (152) (152) (152)
Accumulated deficit....................................... (6,248) (6,248) (6,248)
------- ------- -------
Total shareholders' equity (deficiency)................ (5,458) 13,096 58,796
------- ------- -------
Total capitalization................................. $13,363 $13,363 $59,063
======= ======= =======
</TABLE>
The table above excludes options outstanding at December 31, 1999 to
purchase up to 3,594,675 common shares under our stock option plan.
20
<PAGE> 26
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 adjusted net tangible book value per common share after this
offering.
Our pro forma net tangible book value as of December 31, 1999 was $13.1
million, or $0.56 per common share. 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 conversion of all
our outstanding redeemable convertible special shares and the exercise of all
our outstanding special warrants.
After giving effect to our sale of 5,000,000 common shares in this
offering at an assumed public offering price of $10.00 per common share, and
after deducting the estimated underwriting commissions and estimated offering
expenses, our adjusted pro forma net tangible book value as of December 31, 1999
would have been $58.8 million, or $2.07 per common share. This amount represents
an immediate increase in pro forma net tangible book value of $1.51 per common
share to existing shareholders and an immediate dilution of $7.93 per common
share to new investors. The following table illustrates this dilution to new
investors:
<TABLE>
<S> <C> <C>
Assumed public offering price per common share.............. $10.00
Pro forma net tangible book value per common share as of
December 31, 1999...................................... $0.56
Increase per common share attributable to this offering... 1.51
-----
Adjusted pro forma net tangible book value per common share
after this offering....................................... 2.07
------
Dilution per common share to new investors in this
offering.................................................. $ 7.93
======
</TABLE>
If the underwriters exercise their option to purchase additional common
shares in this offering, our adjusted pro forma net tangible book value at
December 31, 1999 would be $65.7 million, or $2.25 per common share,
representing an immediate increase in pro forma net tangible book value to our
existing stockholders of $1.69 per share and an immediate dilution to new
investors of $7.75 per common share.
The table below shows on a pro forma basis as of December 31, 1999, after
giving effect to the conversion of all our outstanding redeemable convertible
special shares and the exercise of our outstanding special warrants, 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 estimated underwriting
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................. 23,424,598 82.4% $24,872,000 33.3% $ 1.06
New investors......................... 5,000,000 17.6 50,000,000 66.7 10.00
----------- ------ ----------- ------
Total............................... 28,424,598 100.0% $74,872,000 100.0%
=========== ====== =========== ======
</TABLE>
If the underwriters' over-allotment option is exercised in full, the
number of common shares held by new investors will increase to 5,750,000, or
19.7%, of the total common shares outstanding after this offering.
As of December 31, 1999, we had outstanding options to purchase 3,594,675
common shares at a weighted average exercise price of $0.88 per share and an
outstanding warrant to purchase 394,737 common shares at an exercise price of
$0.44 per share. In addition, there were 905,325 options available for future
grant under our stock option plan. If the option holders or warrant holder
exercise these outstanding securities, there will be further dilution to new
investors.
21
<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated financial data set forth below
in conjunction with our consolidated financial statements and the related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The selected consolidated
financial data are derived from our consolidated financial statements that have
been audited by KPMG LLP, independent auditors, and are included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM MAY 7, PERIOD FROM MAY 7,
1998 (INCEPTION) TO 1998 (INCEPTION) TO NINE MONTHS ENDED
MARCH 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
------------------- ------------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues:
Products................................ -- -- $ 5,061
Services................................ -- -- 296
------- ------- -------
Total revenues....................... -- -- 5,357
------- ------- -------
Cost of revenues:
Products................................ -- -- 20
Services................................ -- -- 701
------- ------- -------
Total cost of revenues............... -- -- 721
------- ------- -------
Gross profit.............................. -- -- 4,636
------- ------- -------
Operating expenses:
Sales and marketing..................... $ 554 $ 144 5,456
Research and development................ 797 486 2,244
General and administrative.............. 180 45 767
Amortization of deferred stock-based
compensation......................... 171 2 769
------- ------- -------
Total operating expenses................ 1,702 677 9,236
------- ------- -------
Loss from operations...................... (1,702) (677) (4,600)
Interest income, net...................... 13 -- 354
------- ------- -------
Loss before provision for income taxes.... (1,689) (677) (4,246)
Provision for income taxes................ -- -- --
------- ------- -------
Loss for the period....................... (1,689) (677) (4,246)
Less: accretion of dividends on redeemable
convertible special shares.............. (101) -- (212)
Loss applicable to common shares.......... $(1,790) $ (677) $(4,458)
======= ======= =======
Basic and diluted loss per common share... $ (0.37) $ (0.16) $ (0.79)
======= ======= =======
Shares used in computing basic and diluted
loss per common share................... 4,887 4,210 5,649
======= ======= =======
Pro forma basic and diluted loss per
common share............................ $ (0.16) $ (0.19)
======= =======
Shares used in computing pro forma basic
and diluted loss per common share....... 10,715 21,834
======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1999
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 1,989 $11,940
Working capital............................................ 1,607 12,187
Total assets............................................... 2,573 16,590
Long-term obligations, net of current portion.............. 66 267
Redeemable convertible special shares...................... 3,481 3,851
Special warrants........................................... -- 14,703
Shareholders' deficiency................................... (1,622) (5,458)
</TABLE>
22
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and the related notes appearing elsewhere in
this prospectus.
OVERVIEW
From the date of our incorporation on May 7, 1998 until April 1999 we were
a development stage company and had no revenues. Our operating activities during
this period consisted primarily of conducting research and developing our
initial products. In May 1999, we released and sold the first commercially
available version of the Delano e-Business Interaction Suite.
To date, we have derived substantially all of our revenues from the sale
of software product licenses and from the provision of professional services,
including implementation, training and maintenance services. Our products have
been sold primarily through our direct sales force.
Our products are offered on a licensed basis. We license our products
based on:
- a fee for each client, which depends on the specific and individual
needs of the client;
- an additional fee, which covers installation, configuration, training
and professional services; and
- a variable component, which depends on, among other things, the number
of servers and the number of optional applications and add-ons
purchased.
We recognize our software license revenues in accordance with the American
Institute of Certified Public Accountants, or AICPA, Statement of Position 97-2,
"Software Revenue Recognition," and related amendments and interpretations
contained in the AICPA's Statement of Position 98-9. We generally recognize
revenues allocated to software licenses upon delivery of the software products,
when all of the following conditions have been met:
- persuasive evidence of an arrangement exists;
- the license fee is fixed or determinable; and
- the license fee is collectible.
Because substantially all of our software license agreements include
related maintenance services, these agreements are multiple-element
arrangements. We allocate the fees in multiple-element arrangements based on the
respective value for each element, with maintenance being allocated as at least
18% of license revenue in all sales. Delivery of the software generally is
deemed to occur upon shipment of the software unless customers are provided the
opportunity to return the products. Revenues are recognized only when all refund
obligations have expired. In situations where we provide online offerings,
delivery of the software occurs upon initiation of the online offerings.
Revenues from maintenance and support services and online offerings are
recognized ratably over the related contractual period.
Our cost of revenues includes the cost of product documentation, the cost
of compact disks used to deliver our products, personnel-related expenses,
travel costs, equipment costs and overhead costs.
Our operating expenses are classified into four categories: sales and
marketing, research and development, general and administrative, and
amortization of deferred stock-based compensation.
- Sales and marketing expenses consist primarily of compensation and
related costs for sales and marketing personnel and promotional
expenditures, including public relations, advertising, trade shows and
marketing materials.
- Research and development expenses consist primarily of compensation and
related costs for research and development employees and contractors
and in connection with the enhancement of existing products and quality
assurance activities.
23
<PAGE> 29
- General and administrative expenses consist primarily of compensation
and related costs for administrative personnel, legal, accounting and
other general corporate expenses.
- Amortization of deferred stock-based compensation includes the
amortization, over the vesting period of a stock option, of the
difference between the exercise price of options granted to employees
and the deemed fair market value of the options for financial reporting
purposes. In addition, deferred stock-based compensation includes
compensation expenses arising on the issuance of a warrant to an
employee, calculated as the difference between the exercise price of
the warrant and the fair market value at the date of issuance.
We allocate common costs based on relative headcount or other relevant measures.
These allocated costs include rent and other facility-related costs for the
corporate head office, communication expenses and depreciation expenses for
furniture and equipment.
In connection with the granting of stock options and the issuance of a
warrant to our employees, we recorded deferred stock-based compensation totaling
$6.3 million through December 31, 1999. This amount represents the total
difference between the exercise prices of stock options and the warrant and the
deemed fair value of the underlying common stock for accounting purposes on the
date these stock options were granted and the warrant issued. This amount is
included as a component of stockholders' equity and is being amortized by
charges to operations over the vesting period of the options, consistent with
the method described in Financial Accounting Standards Board, or FASB,
Interpretation No. 28. We recorded $171,000 of stock-based compensation
amortization expense during the period from May 7, 1998 to March 31, 1999, and
$769,000 of stock-based compensation amortization expense during the nine months
ended December 31, 1999. As of December 31, 1999, we had a total of $5.5 million
of deferred stock-based compensation that had not been amortized. We expect to
record additional deferred stock-based compensation of at least $500,000 for
stock option grants made after December 31, 1999. The amortization of the
remaining deferred stock-based compensation will result in additional charges to
operations through December 2003 of approximately $475,000 per quarter. The
amortization of deferred stock-based compensation is classified as a separate
component of operation expenses in our consolidated statement of operations.
In our development of new products and enhancements of existing products,
the technological feasibility of the software is not established until
substantially all product development is complete. Historically, our software
development costs eligible for capitalization have been insignificant and all
costs related to internal product development have been expensed as incurred.
We believe that period-to-period comparisons of our historical operating
results are not necessarily meaningful and should not be relied upon as being a
good indication of our future performance. Our prospects must be considered in
light of the risks, expenses and difficulties frequently experienced by
companies in early stages of development, particularly companies in new and
rapidly evolving markets like ours. Although we have experienced significant
revenue growth recently, this trend may not be sustainable. Furthermore, we may
not achieve or maintain profitability in the future.
RESULTS OF OPERATIONS
Nine Months Ended December 31, 1999 Compared to Period from May 7, 1998
(Inception) to December 31, 1998.
Revenues. For the eight months included in the period from our inception
to December 31, 1998, we were a development stage company and had no revenues.
Total revenues for the nine months ended December 31, 1999 were $5.4 million.
License revenues accounted for $5.1 million, or 94.5% of total revenues.
Services revenues, including maintenance and services fees, accounted for the
remaining $296,000 or 5.5% of total revenues. Approximately 69.5% of our total
revenues were generated in the United States, 30.1% were generated in Canada and
0.4% were generated elsewhere in the nine months ended December 31, 1999.
Cost of revenues. Cost of product revenues was $20,000 for the nine
months ended December 31, 1999 or 0.4% of total revenues. Cost of service
revenues was $701,000 for the nine months ended
24
<PAGE> 30
December 31, 1999, or 13.1% of total revenues. We anticipate that cost of
service revenues will increase in absolute dollars as we continue to hire
additional services personnel. We anticipate that the cost of product revenues
will increase proportionately with increases in product revenues.
Sales and marketing. Sales and marketing expenses increased from $144,000
for the eight months ended December 31, 1998 to $5.5 million for the nine months
ended December 31, 1999. This increase was attributable primarily to the
addition of 46 sales and marketing personnel and higher marketing costs due to
expanded promotional activities. We anticipate that sales and marketing expenses
will increase in absolute dollars as we continue to hire additional sales and
marketing personnel and expand discretionary marketing programs.
Research and development. Research and development expenses increased
from $486,000 for the eight months ended December 31, 1998 to $2.2 million for
the nine months ended December 31, 1999. This increase was attributable
primarily to the addition of 39 product development and related services
personnel and to increased consulting and recruiting costs. The expenses were
reduced by investment tax credits of $142,000 for the nine months ended December
31, 1999. We anticipate that research and development expenses will increase in
absolute dollars, but will vary as a percentage of total revenues from period to
period as we continue to hire additional research and development personnel.
As a Canadian Controlled Private Corporation or CCPC, we qualified for
certain investment tax credits under the Income Tax Act (Canada) on eligible
research and development expenditures. Prior to this offering, refundable
investment tax credits, which result in cash payments to us, have been recorded
at a rate of 35% of eligible current and capital research and development
expenditures. Prior to this offering, we were entitled to an investment tax
credit at these rates for the first Cdn$2.0 million (approximately $1.4 million)
of eligible research and development expenditures and a further investment tax
credit at the rate of 20% of eligible research and development expenditures in
excess of Cdn$2.0 million. Investment tax credits on current expenditures earned
at the 35% rate are fully refundable to CCPCs. Investment tax credits earned by
a CCPC on capital expenditures at the 35% rate are refundable at a rate of 40%
of the amount of the credit. We will earn investment tax credits at a rate of
20% of eligible current and capital research and development expenditures made
after we complete our initial public offering. While a portion of investment tax
credits earned as a CCPC are refundable, investment tax credits earned after we
complete this offering may only be used to offset income taxes otherwise
payable.
General and administrative. General and administrative expenses increased
from $45,000 for the eight months ended December 31, 1998 to $767,000 for the
nine months ended December 31, 1999, due primarily to the addition of 11
administrative personnel, increased consulting costs and to higher facilities-
related expenses necessary to support our growth. We expect that general and
administrative expenses will increase in absolute dollars as we add personnel
and incur related costs to facilitate the growth of our business.
Amortization of deferred stock-based compensation. We incurred a charge
of $2,000 in the eight months ended December 31, 1998 and a charge of $769,000
for the nine months ended December 31, 1999 related to the issuance of stock
options with exercise prices less than the deemed fair market value for
financial reporting purposes on the date of grant.
Interest income, net. Interest income, net for the nine months ended
December 31, 1999 was $354,000, reflecting the interest earned on the cash and
cash equivalents balance arising from our special warrant offering in June 1999.
Interest income, net for the eight months ended December 31, 1998 was nil.
Provision for income taxes. A deferred tax asset of $2.7 million existed
as of December 31, 1999. A valuation allowance is recorded against a deferred
tax asset if it is more likely than not that the asset will not be realized. The
valuation allowance reflects the lack of profitability in the past, the
significant risk that taxable income would not be generated in the future and
the nontransferable nature of the deferred tax asset under certain conditions.
25
<PAGE> 31
Period from May 7, 1998 (Inception) to March 31, 1999
Sales and marketing. Sales and marketing expenses were $554,000 for the
eleven months included in the period from our inception to March 31, 1999. These
expenses consisted primarily of compensation and related costs for sales and
marketing personnel and promotional expenditures, including public relations,
advertising, trade shows and marketing materials.
Research and development. Research and development expenses were $797,000
for the eleven months ended March 31, 1999. These expenses consisted primarily
of compensation and related costs for research and development employees and
contractors. The expenses were reduced by investment tax credits of $201,000.
General and administrative. General and administrative expenses were
$180,000 for the eleven months ended March 31, 1999. These expenses consisted
primarily of compensation and related costs for administrative personnel, legal,
accounting and other general corporate expenses.
Amortization of deferred stock-based compensation. We incurred a charge
of $171,000 for the eleven months ended March 31, 1999 related to the issuance
of stock options with exercise prices less than the deemed fair market value for
financial reporting purposes on the date of grant.
Interest income, net. Interest income, net consisted of $13,000 earned on
cash and cash equivalents for the eleven months ended March 31, 1999.
26
<PAGE> 32
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statements
of operations data for our seven quarters of operation. In our management's
opinion, this unaudited information has been prepared on the same basis as our
annual consolidated financial statements appearing elsewhere in this prospectus
and includes all adjustments necessary to fairly present the unaudited quarterly
results. These adjustments consist only of normal recurring adjustments. This
information should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this prospectus. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1999 1999 1999 1999
-------- ------------- ------------ --------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Products................ -- -- -- -- $ 752 $ 1,561 $ 2,748
Services................ -- -- -- -- 59 54 183
---- ----- ----- ------- ------ ------- -------
Total revenues........ -- -- -- -- 811 1,615 2,931
---- ----- ----- ------- ------ ------- -------
Cost of revenues
Products................ -- -- -- -- -- 6 14
Services................ -- -- -- -- 149 231 321
---- ----- ----- ------- ------ ------- -------
Total cost of
revenues............ -- -- -- -- 149 237 335
---- ----- ----- ------- ------ ------- -------
Gross profit.............. -- -- -- -- 662 1,378 2,596
---- ----- ----- ------- ------ ------- -------
Operating expenses:
Sales and marketing..... -- $ 31 $ 113 $ 410 818 1,198 3,440
Research and
development........... $ 95 179 212 311 389 801 1,054
General and
administrative........ 4 11 30 135 157 255 355
Amortization of deferred
stock-based
compensation.......... -- -- 2 169 107 211 451
---- ----- ----- ------- ------ ------- -------
Total operating
expenses............ 99 221 357 1,025 1,471 2,465 5,300
---- ----- ----- ------- ------ ------- -------
Loss from operations...... (99) (221) (357) (1,025) (809) (1,087) (2,704)
Interest income, net...... -- -- -- 13 11 165 178
---- ----- ----- ------- ------ ------- -------
Loss before provision for
income taxes............ (99) (221) (357) (1,012) (798) (922) (2,526)
Provision for income
taxes................... -- -- -- -- -- -- --
---- ----- ----- ------- ------ ------- -------
Loss for the period....... $(99) $(221) $(357) $(1,012) $ (798) $ (922) $(2,526)
==== ===== ===== ======= ====== ======= =======
</TABLE>
Our revenues have increased in our three most recent quarters due to the
initial introduction of our products in May 1999 and our addition of
distribution channels. Each of our expense categories has increased on a
quarterly basis due to the growth of our business and the hiring of new
personnel.
Our quarterly operating results have varied widely in the past, and we
expect that they will continue to fluctuate in the future as a result of a
number of factors, many of which are outside our control. Our limited operating
history and the undeveloped nature of the market for interaction-based
e-business communications products make predicting future revenues difficult.
Our expense levels are based, in part, on expectations regarding future revenue
increases, and to a large extent, such expenses are fixed, particularly in the
short term. There can be no assurance that our expectations regarding future
revenues are accurate. Moreover, we may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Accordingly, any
significant shortfall in revenues in relation to our expectations would likely
cause significant increases in our net losses for that period.
Due to the foregoing factors, our operating results are difficult to
forecast. We believe that period-to-period comparisons of our operating results
are not meaningful, and you should not rely on them as indicative
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of our future performance. You should also evaluate our prospects in light of
the risks, expenses and difficulties commonly encountered by comparable
early-stage companies in new and rapidly emerging markets. We cannot assure you
that we will successfully address the risks and challenges that face us. In
addition, although we have experienced significant revenue growth recently, we
cannot assure you that our revenues will continue to grow or that we will become
or remain profitable in the future.
LIQUIDITY AND CAPITAL RESOURCES
Since the date of incorporation, we have raised an aggregate of $3.4
million through private placements of special shares. We have also raised $14.4
million, net of the agents' commission and offering expenses, through a private
placement of special warrants.
Our operating activities used cash of $1.1 million during the eleven
months ended March 31, 1999 and cash of $4.2 million for the nine months ended
December 31, 1999. Our negative operating cash flow resulted principally from
the net losses that we incurred during these periods as we invested in the
development of our products, expanded our sales force and expanded our
infrastructure to support our growth.
Our financing activities generated $3.4 million in cash during the eleven
months ended March 31, 1999 and $14.3 million in the nine months ended December
31, 1999. Of these financing activities, the issuance of redeemable convertible
special shares generated net proceeds of $3.4 million in the eleven months ended
March 31, 1999, and the issuance of special warrants generated net proceeds of
$14.4 million in the nine months ended December 31, 1999.
Our investing activities, consisting of the purchase of computer
equipment, software, furniture and equipment to support our growing number of
employees, used cash of $251,000 during the period ended March 31, 1999 and cash
of $464,000 during the nine months ended December 31, 1999.
In March 1999, we obtained a lease line of credit from a Canadian
chartered bank to purchase equipment and furniture. Approximately $96,000 was
outstanding on the lease line of credit as of March 31, 1999 and approximately
$476,000 was outstanding as of December 31, 1999. The ceiling on the lease line
of credit is Cdn$1,000,000 (approximately $693,000). The lease line of credit is
collateralized with cash for the amount of the line that is used for leasing
equipment.
Our capital requirements depend on a number of factors. We expect to
devote substantial resources to continue our research and development efforts,
expand our sales, support, marketing and product development organizations,
establish additional facilities worldwide and build the infrastructure necessary
to support our growth. Our expenditures have increased substantially since the
date of incorporation, and we anticipate that capital expenditures will continue
to increase in absolute dollars in the foreseeable future.
At December 31, 1999, we had cash and cash equivalents aggregating $11.9
million. We believe that the net proceeds from this offering, together with our
current cash and cash equivalents, will be sufficient to fund our operations for
at least the next 12 months. Thereafter, we may need to, or prior to that time
we may choose to, raise additional funds in order to facilitate more rapid
expansion, including significant increases in personnel and office facilities,
to develop new or enhance existing products or services, to respond to
competitive pressures, or to acquire or invest in complementary businesses,
technologies, services or products. In addition, if cash generated from
operations is insufficient to meet our long-term liquidity needs, we may need to
raise additional funds or seek other financing arrangements. Additional funding
may not be available on favorable terms or at all. In addition, although there
are no present understandings, commitments or agreements with respect to any
acquisition of other businesses, products or technologies, we may, from time to
time, evaluate potential acquisitions of other businesses, products and
technologies. In order to consummate potential acquisitions, we may issue
additional securities or need additional equity or debt financing and any such
financing may be dilutive to existing investors.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit
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entries to distinguish 21st century dates from 20th century dates. As a result,
computer systems and/or software used by many companies and governmental
agencies may need to be upgraded to comply with Year 2000 requirements or risk
system failure or miscalculations, causing disruptions of normal business
activities.
Scope of Our Year 2000 Assessment. Our IT group directed our Year 2000
compliance program and was charged with identifying issues of potential risk
within each department and making the appropriate evaluations, modifications,
upgrades or replacements. Members of our IT group worked with members of each of
our principal internal divisions in the course of assessing our Year 2000
compliance.
The scope of our Year 2000 compliance program included testing the Delano
e-Business Interaction Suite and the IT and non-IT systems used at our office in
Toronto, Ontario. Our other sales offices use the same third-party hardware and
software systems as those in our Toronto office. Accordingly, our IT group
determined that it would not conduct an independent review of those offices. The
operational areas under investigation included:
- products;
- software applications;
- facilities;
- suppliers and vendors; and
- computer systems.
We do not currently have any information concerning the Year 2000
compliance status of our clients. If our current or future clients failed to
achieve Year 2000 compliance or if they divert technology expenditures,
especially technology expenditures that were budgeted for our products, to
address Year 2000 compliance problems, our business could suffer.
Budget. We funded our Year 2000 plan from available cash and have not
separately accounted for these expenses in the past. Expenditures for Year 2000
compliance totalled less than $20,000. Because our products were designed to be
Year 2000 compliant, most of our expenses related to the operating costs
incurred by employees involved in the evaluation process and Year 2000
compliance matters generally.
Products. We have completed testing the products that we have shipped to
date. Our testing has determined that these products are capable of properly
distinguishing between 20th and 21st century dates when configured and used in
accordance with the related documentation, and provided that the underlying
operating system of the host machine and any other software used with these
products are also capable of properly distinguishing between 20th and 21st
century dates.
Third-party Hardware and Software Systems and Services. We have evaluated
all of the material third-party systems and software that we use in our
business. We have received written statements of Year 2000 compliance from
substantially all of the providers of hardware used in our business, and have
installed Year 2000 "patch kits" where appropriate. We have identified twelve
different software vendors that provide software products in our business. If
any of the compliance statements that we have received from our third-party
software or hardware providers are false, our internal systems and our ability
to ship our product would be materially harmed.
We also have obtained written compliance statements as to Year 2000
compliance from our other third-party service providers, including our Internet
service providers, cellular telephone providers and all of our utilities.
While we have not experienced any business disruptions, or other adverse
effects from Year 2000 problems to date, we continue to monitor our software,
the software we license for our internal use, the systems that operate in
conjunction with our software and our internal and external systems for Year
2000 failures. We do not expect that the Year 2000 issue will have a material
adverse effect on our business. However, it is not possible to be certain that
all aspects of the Year 2000 issues affecting us, including those
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related to the efforts of third parties, have been fully resolved. For
information concerning risks to us relating to the Year 2000 issue and its
potential impact on our business, see "Risk Factors -- Year 2000 complications
may disrupt our operations and harm our business."
Contingency Plan. We have developed a contingency plan to ensure that our
customers continue to receive service in the event of failure due to unforeseen
or unanticipated problems with internal or external systems, vendors or
suppliers. Our key systems are backed up with the data stored both on and off
premises. Key servers and systems have replacement systems containing all
applicable data. Key technical personnel will be monitoring all systems during
the critical period of the date change and much of our other personnel will be
on call. If our main Internet connection becomes inoperative, we have individual
dial facilities that can enable internal users to connect to our system. Our
product downloads are located offsite and we are satisfied that the hosting
company's Year 2000 compliance program and contingency plans are adequate. All
sales and support personnel are equipped with notebook computers with internal
modems allowing them to be self-sufficient outside of our main office.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," or SFAS No. 131, which we adopted in
1998. SFAS No. 131 establishes standards for disclosures about operating
segments, product and services, geographic areas and major customers. We operate
in a single reportable operating segment, that is the developing and marketing
of interaction-based e-business communications applications.
In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Costs of
Computer Software Development or Obtained for Internal Use," or SOP No. 98-1.
SOP No. 98-1 requires entities to capitalize certain costs related to internal
use software once certain criteria have been met. We adopted SOP 98-1 in 1998.
The adoption of SOP No. 98-1 did not have a material impact on our financial
position or results of operations.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities" which provides guidance on the financial reporting of
start-up costs. SOP 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred. We adopted SOP 98-5 in 1998. As we had not
capitalized these costs, adopting SOP 98-5 did not have an impact on our
consolidated financial statements.
In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP No.
97-2, Software Revenue Recognition with respect to Certain Transactions." SOP
No. 98-9 amends SOP No. 97-2 to require the entity to recognize revenue for
multiple element arrangements by means of the "residual method" when:
- there is vendor-specific evidence of the fair values of all of the
undelivered elements that are not accounted for by means of long-term
contract accounting;
- vendor-specific evidence of fair value does not exist for one or more
of the delivered elements; and
- all revenue recognition criteria of SOP No. 97-2, other than the
requirement for vendor-specific evidence of the fair value of each
delivered element, are satisfied.
We adopted SOP No. 98-9 commencing April 1, 1999. Adopting SOP 98-9 did
not have a material effect on our results of operations, financial position or
cash flows.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" or SFAS
No. 133. SFAS No. 133 establishes accounting and reporting standards requiring
that every derivative instrument be recorded on the balance sheet as either an
asset or liability measured at its fair value. SFAS No. 133, as recently
amended, is effective for the fiscal year ending March 31, 2002. We do not
believe that adopting SFAS No. 133 will have a material effect on our financial
position or results of operations.
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QUALITATIVE AND QUANTITATIVE MARKET RISK
We develop products in Canada and sell these products in North America and
Europe. Generally, our sales are made in local currency, which to date has been
mostly United States dollars. As a result, our financial results could be
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in foreign markets. We do not currently use derivative
instruments to hedge our foreign exchange risk. Our interest income is sensitive
to changes in the general level of U.S. interest rates, particularly since the
majority of our investments are in short-term instruments. Due to the nature of
our short-term investments, we have concluded that there is no material market
risk exposure.
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BUSINESS
OVERVIEW
We provide communications software that enables companies to use e-mail
and the internet to automate business processes and to personalize and manage
interactions with their existing and prospective customers, partners, suppliers
and employees. Companies can use our software to rapidly develop and deploy
applications for business interactions over the internet, or e-business
communications. These applications can include marketing campaigns, tracking and
management of business leads, electronic surveys, personalized newsletters,
inbound e-mail support, automated customer support, and procurement and
inventory management. We are focusing our sales efforts on businesses in the
financial services, technology, telecommunications, transportation, retail and
marketing services industries, as well as other organizations engaged in, or
focused on, business-to-business or business-to-consumer commercial
opportunities using the internet. Where desirable, our professional services
group can assist our clients' internal IT personnel to implement our products.
To date, we have derived substantially all of our revenues from the sale of
software product licenses.
INDUSTRY BACKGROUND
The internet is growing dramatically as a means of conducting business.
According to International Data Corporation, electronic commerce will increase
from $50.4 billion in 1998 to $1.3 trillion by 2003, as more consumers shop
online and the internet becomes an accepted channel for business-to-consumer and
business-to-business interactions. International Data Corporation estimates that
the number of web users will increase from 142.2 million in 1998 to 502.4
million in 2003. Businesses are using the web to interact more effectively with
existing and prospective customers, partners, suppliers and employees. For
example, companies in industries such as financial services, telecommunications,
transportation, retail and marketing services increasingly rely on e-mail and
other communications over the internet instead of traditional means of
communication such as telephone calls, letters, facsimiles and face-to-face
meetings. E-mail and the web, which once were used primarily within the
technical community, have become mainstream methods of communication.
Businesses can gain a significant competitive advantage by establishing
high quality, long-term relationships with customers, partners, suppliers and
employees, through interactions that help establish customer loyalty and build
brand identity. Interaction via traditional means can require expensive and
time-consuming investments in personnel, equipment and facilities, such as
customer call centers. E-mail and other applications that utilize the web can be
rapidly implemented and personalized to target specific individuals. These
applications enhance the timeliness and effectiveness of communications, and can
more effectively capture information about customers, partners, suppliers and
employees. E-mail and web-based applications can automate many business
processes, including marketing campaigns, tracking and management of business
leads, electronic surveys, personalized newsletters, inbound e-mail support,
automated customer support, and procurement and inventory management. Businesses
are increasingly using the internet to communicate with customers, partners,
suppliers and employees to take advantage of opportunities to build
relationships and streamline interactions.
In order to take advantage of the internet to communicate, businesses need
solutions that can manage both inbound and outbound traffic. For example,
Jupiter Communications conducted a survey of 125 companies with content,
consumer brands, travel, retail and financial services web sites and discovered
that 51% of those sites either took longer than five days to reply to e-mail
inquiries or failed to respond at all. Clients need solutions to manage the
growing volume of traffic associated with the increased use of the internet. For
example, International Data Corporation estimates that the worldwide customer
relationship management application market will grow from $1.9 billion in 1998
to $11.0 billion by 2003, and the Direct Marketing Association estimates that
interactive direct-marketing expenditures will increase from $379.7 million in
1998 to $3.2 billion by 2003.
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To date, organizational and operational constraints have made it difficult
and expensive to automate interactions and business processes between a company
and its customers, partners, suppliers and employees. Companies seeking to
implement e-business communications must either develop their own custom
applications or purchase prepackaged software that often has been developed to
focus on a single operational or functional area. Customized applications for
specific business requirements are often expensive and complex. The lengthy
development process can occupy an organization's most skilled IT personnel,
resulting in significant opportunity costs. To integrate custom applications
with new systems, technologies and platforms and to otherwise adapt the
applications to changing needs, internal IT programmers must be familiar with
the existing code and must often make complex modifications. In addition, since
applications typically are developed for internal business processes, they may
not be easily adapted to communicate with customers, partners, suppliers and
employees over the internet.
Although prepackaged software can eliminate a portion of the time and
expense required to develop a customized application, the implementation and
subsequent upgrades of a prepackaged solution may require business process
changes or software customization that strains internal IT resources. Since
prepackaged software often is designed to address a single operational area, an
organization may encounter difficulties using prepackaged software to address
the needs of other operational areas or to communicate with customers, partners,
suppliers and employees over the internet. In addition, prepackaged software is
less flexible than a customized solution and may not leverage an organization's
existing IT infrastructure, resulting in redundancies in software and data.
While an organization can purchase several different software packages for
distinct operational areas, they may not be fully interoperable and will likely
be upgraded on different schedules, causing further operational inefficiencies
as well as difficulties in dealing with multiple vendors.
Businesses increasingly require a solution that enables them to rapidly
develop and deploy applications that automate, personalize and manage their
interactions over the internet. The solution must leverage businesses' existing
IT infrastructures to provide a broad range of applications across many
operational areas. It must be able to handle large volumes of communications
reliably and cost-effectively to meet businesses' growing dependence on
communications over the internet. Finally, the solution must extend beyond the
walls of the enterprise to reach and connect customers, suppliers and partners.
THE DELANO SOLUTION
Our solution is based on the Delano e-Business Interaction Suite, which
enables businesses to use e-mail and the web to automate business processes and
personalize and manage interactions with their customers, partners, suppliers
and employees. By automating, personalizing and managing interactions, our
products assist our clients in building lasting relationships with customers,
partners and suppliers, communicating with employees, developing new and
incremental revenue streams, and facilitating greater operating efficiencies.
Where desirable, our professional services group can assist our clients'
internal IT personnel with the initial implementation of our products. We
believe that our solution offers the following specific benefits to our clients:
Enhanced Communications. Our e-business communications software enables
an organization to develop and deploy e-business communications applications
across many operational areas, including finance, marketing, sales, service,
operations and human resources. Our products permit our clients to respond
rapidly and effectively to large volumes of e-mail and web-based communications.
For example, our products allow companies to automatically respond to large
numbers of inbound communications and route inquiries to the appropriate
departments for action. In addition, our products enable organizations to
capture and analyze information more effectively. Our clients can use this
information to design better marketing programs, products and services and to
improve business processes to meet the needs of their customers, partners,
suppliers and employees.
Rapid Deployment. Our products are designed using a component-based
architecture that enables our clients to develop a wide range of e-business
communications applications in a matter of days or weeks. A component-based
architecture facilitates rapid development because it uses sophisticated
reusable building blocks that can be rapidly combined to build a complete
e-business communications application. Our
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products can be integrated with our clients' existing systems, applications and
databases, extending the capabilities of our clients' existing IT
infrastructure. The flexible and open nature of our component-based architecture
enables the Delano e-Business Interaction Suite to connect to new technologies,
such as enterprise resource planning, customer relationship management and
supply-chain management systems.
Scalability. We have designed our products to reliably support multiple
business processes and thousands of simultaneous e-business interactions. Our
component-based architecture supports incremental additions to hardware capacity
to address increased interaction volumes.
Increased Revenue Opportunities and Reduced Operating Costs. We believe
our products can help our clients increase their revenues and reduce their
operating costs. For example, clients can generate revenue through applications
for marketing campaigns and for lead tracking and management. In addition, our
service improvement applications, which include electronic surveys, personalized
newsletters and inbound e-mail support, increase customer loyalty, also can lead
to increased revenues. Using our solution enables clients to process large
volumes of interactions using a reduced number of support and administrative
personnel, which results in a lower incremental cost per interaction than can be
achieved using traditional methods such as call centers. Clients can reduce
costs by using our applications for processes such as overdue accounts
receivable notification, automated customer support, inventory management and
self-service.
BUSINESS STRATEGY
Our objective is to establish our products as the leading e-business
communications software. The following are the key elements of our strategy for
achieving this objective:
Extend Technology Leadership. We intend to continue to develop and
improve our products to extend our technological leadership. We believe we are
the first to market a component-based architecture designed to rapidly develop
and deploy e-business communications applications that can connect most of a
business's operational areas to its customers, partners, suppliers and
employees. We intend to continue to develop new and enhanced products, including
products designed to manage higher volumes of communications and improve
integration with our clients' existing IT infrastructures. In addition, we are
continuing to develop e-business applications such as the Delano Velocity
application suites, which are being designed as prepackaged applications for
specific business areas to further reduce our clients' time to deployment.
Increase Penetration of Target Markets. We are focusing our sales efforts
on industries that we believe are early adopters of e-business communications
applications. We use our in-house industry expertise to supply our products to
organizations in the financial services, technology, telecommunications,
transportation, retail and marketing services industries as well as to other
organizations that are engaged in, or focused on, business-to-business or
business-to-consumer commercial opportunities over the internet. We intend to
develop new products for particular application areas that are relevant to our
target industries.
Increase Presence Worldwide. We plan to extend our commitment to
international sales and support to take advantage of the growing worldwide
demand for e-business communications applications. We have recently opened an
office in the United Kingdom, which oversees and processes all orders for our
products and services in Europe and parts of Africa. We intend to increase our
international presence by opening additional offices and intensifying marketing
activities in Europe, and allying ourselves with selected international
third-party distribution companies, consulting organizations and software
vendors.
Increase Distribution Capabilities. We have entered into agreements with
established third-party distribution companies, consulting organizations and
software vendors, including Clarify, Macromedia and PricewaterhouseCoopers, to
enhance our market presence and extend our sales and services resources. We
intend to enter into additional agreements to further expand the distribution
channels for our products.
Pursue Strategic Acquisitions. We intend to pursue acquisitions of
complementary technologies and expertise. Acquisitions will be made only if we
believe that they are financially attractive and present opportunities for
expanding growth. For example, we will seek to identify opportunities to acquire
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technologies and personnel that will help us to expand the breadth of our
applications and provide us with additional domain expertise.
PRODUCTS
Our solution is based on the Delano e-Business Interaction Suite, which
automates business processes that utilize e-mail or the web to interact with a
client's customers, partners, suppliers and employees. We also offer other
products that complement the Interaction Suite and focus on specific
technologies or business areas, including products that manage higher volumes of
communications, improve integration with our clients' existing IT infrastructure
and further reduce our clients' time to deployment.
Delano e-Business Interaction Suite
The Delano e-Business Interaction Suite enables companies to rapidly
develop and deploy e-business applications that leverage e-mail and the web to
interact with their customers, partners, suppliers and employees. The
Interaction Suite consists of the following:
- The Delano e-Business Interaction Server is an application server
designed to manage thousands of e-business communications applications
simultaneously. The Interaction Server is Microsoft Windows NT-based
and includes an application repository to manage the storage and
version control of e-business communications applications. The
Interaction Server also manages and controls the quantity of
applications or interactions covered by the client's license. The
Interaction Server communicates directly with e-mail, web, database and
directory servers. Multiple Interaction Servers can operate effectively
within a client's enterprise.
- The Delano e-Business Application Builder is a graphical application
builder environment, designed to enable our clients to develop
e-business communications applications simply and quickly. The
Application Builder uses a simple "drag-and-drop" style interface that
allows our clients to define and outline a business process by
arranging application components in a flowchart-style environment. The
application components serve as the building blocks of the e-business
communications application. The Application Builder enables a client to
develop e-business communications applications, that, among other
things:
- interface with existing corporate databases;
- connect to corporate directories;
- gather information from, and post information to, a web server;
- send and receive e-mail using popular e-mail protocols, such as Post
Office Protocol 3 or POP3, Internet Message Access Protocol 4 or
IMAP4, and Simple Mail Transfer Protocol or SMTP; and
- parse and personalize various document types, including documents in
text, HyperText Markup Language or HTML, and eXtensible Markup
Language or XML formats.
- The Delano e-Business Interaction Server Administrator is a program
that enables our clients to configure, administer and manage e-business
applications created with the Application Builder and executed on the
Interaction Server. The Server Administrator is available as a Windows
NT application or as a web application to enable remote administration.
Delano Component Pack for BackOffice
Our component packs are being designed as groupings of components to
improve integration of the Interaction Suite with our clients' existing IT
infrastructures. In October 1999, we introduced the Delano Component Pack for
BackOffice, which delivers enhanced integration with, and access to, Microsoft
SQL Servers, Microsoft Exchange Servers, Microsoft Message Queues and Microsoft
Active Directories.
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Delano Component Development Kit
The Delano Component Development Kit enables software developers to create
customized components for use within the Interaction Suite. Our clients can
create customized components that integrate with their legacy or other
specialized IT systems, such as enterprise resource planning or customer
relationship management systems.
Delano Application Templates
The Delano Application Templates are designed to act as a starting point
for our clients to develop their own e-business communications applications. We
currently offer eleven application templates, including templates that act as
starting points for developing outbound marketing campaigns, customer surveys,
credit management applications and customer support applications.
Delano Campaign Server
The Campaign Server reliably manages the processing of high volumes of
outbound e-mail initiated from the Interaction Suite. The Campaign Server
significantly enhances the scalability of the Interaction Server by distributing
the outbound communications across a company's multiple e-mail servers to
achieve a higher number of e-mail deliveries in a shorter period of time.
SERVICES
If desired, our professional services group will work with clients to
learn about their specific requirements and implement integrated solutions based
on the Interaction Suite. This process is based on a four-step methodology, with
key client checkpoints at the completion of each step:
- Initial needs assessment. Our professional services group works with
our clients to define their requirements. Once a sale has been
completed, the professional services group works with the client to
prioritize applications, identify key data structures that are
required, and develop a detailed design overview document.
- Application building. The group will construct the required
applications using the Application Builder, develop web forms and
e-mail messages, and install and configure the Interaction Server in
the client's environment.
- Testing and training. The applications are volume- and user-tested.
The group also tests the interfaces between our applications and
existing legacy systems. The group will conduct training and develop
technical documentation for the specific applications.
- Deployment. The applications are published and integrated with
clients' systems. The group monitors production to ensure that the
application is functioning properly and that any modifications are
documented.
We typically provide professional services on a time-and-materials basis,
acting either alone or with third-party distribution companies, consulting
organizations and software vendors. After our solution has been implemented, our
client services and support organization handles ongoing account management and
monitors client satisfaction.
PRODUCTS UNDER DEVELOPMENT
We continue to invest in research and development to develop new products
and enhance the functionality of our existing products. For example, we
currently are developing:
- additional Component Packs, which are intended to extend the
capabilities of the Interaction Suite and facilitate integration
between the Interaction Suite and our clients' IT systems; and
- Delano Velocity application suites, which will complement the
Interaction Suite and will permit our clients to enhance specific areas
of operation through the use of prepackaged e-business
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communications applications. In addition, the Velocity application
suites are intended to enable the rapid deployment of applications while
still providing our clients with flexibility to update the applications
as their businesses evolve. Because the application suites utilize the
Interaction Suite, they can be easily customized to fit our clients'
business processes and to leverage our clients' existing customer
databases and infrastructures.
CLIENT SERVICE AND SUPPORT
Our technical services group provides maintenance and technical support to
our clients, including software upgrades and updates and emergency response. To
date, almost all our clients have entered into maintenance agreements that
entitle them to technical services. Annual maintenance fees are typically equal
to 18% of the product license fee. We provide support to our clients through our
support center located in Toronto.
SALES AND MARKETING
As of December 31, 1999, we had 60 sales, business development and
marketing professionals, including sales personnel, sales engineers, major
account representatives and marketing managers. We maintain four direct sales
representatives in Ontario as well as a total of 12 sales representatives in
California, Georgia, Illinois, Massachusetts, New York and two in the United
Kingdom, who oversees and processes all orders for our products and services in
Europe and parts of Africa. Our direct sales force is organized into regional
teams, which include both sales representatives and systems engineers.
Our direct sales force is complemented by telemarketing from our
headquarters in Toronto, Ontario, which generates, follows up and qualifies
leads, and by third-party distribution companies, consulting organizations and
software vendors with which we have agreements, such as Clarify, Macromedia and
PricewaterhouseCoopers. These third-parties further expand the distribution
channels for our products. We intend to increase our direct sales force,
establish additional sales offices and enter into additional agreements with
established third-party distribution companies, consulting organizations and
software vendors. We expect a substantial portion of our sales in the
foreseeable future to be derived from our direct sales force.
We also pursue original equipment manufacturer sales opportunities with
vendors of complementary technology, including developers of enterprise resource
planning systems, customer relationship management systems, and messaging,
internet and e-commerce solutions. These vendors may seek to enhance and extend
their solutions by integrating our products into theirs.
We plan to offer an online hosted application service in the first half of
2000. This service will provide an online offering of our products to businesses
that want to deploy an online customer communication system while limiting their
initial investments in hardware, software and services. We expect to be able to
manage customer information and provide our clients with real-time access to
this information. We believe this service will enable us to address markets that
are complementary to our direct sales and reseller markets.
To support our sales efforts, we conduct seminars for prospective clients
and ongoing public relations campaigns, participate in conferences and trade
shows and distribute direct mailings, newsletters and web site communications.
We typically market our products and services independently, but we also
selectively conduct joint marketing activities with third-party distribution
companies, consulting organizations and software vendors.
CLIENTS
We focus our sales efforts on organizations in five major market sectors:
financial services, technology, telecommunications, retail and transportation.
We have also identified demand in marketing services organizations and companies
focused on business-to-business or business-to-consumer commercial opportunities
over the internet. These industries have been selected because we believe them
to be early adopters of e-business communications applications. Although we
initially are primarily targeting clients in
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<PAGE> 43
these market sectors, we believe that increasing use of the internet and the
benefits offered by our products will provide opportunities in other market
sectors. The following is a representative list of our clients by market
segment.
- Financial Services -- Charles Schwab Canada Co., Talvest Fund
Management Inc. and Trimark Investment Management Inc.;
- Technology -- Clarify, Inc. and Macromedia, Inc.;
- Telecommunications -- Ericsson Inc. and BCE Emergis Inc.;
- Transportation -- Mark VII, Inc. and Cardinal Logistics;
- Retail -- Vision Corporation, a subsidiary of TLC Laser Eye Centers
Inc.;
- Marketing Services -- Mosaic Group Inc. and Transparent Languages Inc.;
- E-commerce (business-to-consumer) -- Chapters Online Inc., e-centives
inc., Harborfreight.com, a web service operated by Central Purchasing
Inc., Marketrend Communications Inc., Vitamins.com Internet LLC and We
Media Inc.; and
- E-commerce (business-to-business) -- Cowboy Corporation and
PlasticsNet.com, a web service operated by Commerx Inc.
In the nine months ended December 31, 1999, Clarify accounted for 26% of
our total revenues. No other customer accounted for more than 10% of our total
revenues in the nine months ended December 31, 1999. We expect a substantial
portion of our license and service revenues in any given quarter to be generated
from a limited number of clients. However, we do not believe that we will be
dependent on any ongoing commitments from any particular client.
CLIENT CASE STUDIES
The following case studies provide illustrations of how selected clients
have used our products and services to address their requirements. The case
studies represent the diversity of the various applications that can be deployed
with our products. We believe other customer deployments of our products do not
differ significantly from those presented in the case studies below.
Harborfreight.com. Central Purchasing owns and operates Harbor Freight
Tools, which sells tools through its 70 retail store locations, a mail-order
catalog business, and an e-commerce site, Harborfreight.com. Harborfreight.com
has improved customer service and has generated revenue by using our products
for outbound e-mail marketing campaigns.
Mark VII. Mark VII provides a complete range of transportation and
logistics capabilities to support supply chain operations around the world.
Using our technology, Mark VII has implemented several e-business communications
applications to automate, personalize and manage customer and supplier
interactions. Initial applications now automate the customer credit approval
process, accounts receivable aging, credit balance and customer statement
retrieval requests, vendor notifications, and destination and dispatch reports.
These applications have allowed Mark VII to reallocate personnel to
revenue-generating areas of its business.
Vision Corporation. Vision Corporation is a subsidiary of TLC Laser Eye
Centers, which operates more than 50 centers across North America and has a
network of more than 10,000 affiliated eye doctors. Vision Corporation
co-ordinates with the various TLC centers to provide centralized buying services
for business supplies such as letterhead, business cards, and other TLC branded
materials. Vision Corporation uses the Interaction Suite to manage and track its
central buying process from initial ordering through fulfillment. Since
implementing our solution, Vision Corporation has improved its order accuracy
and delivery rates by 20% and has reduced labor costs associated with its supply
procurement by more than 20%.
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<PAGE> 44
COMPETITION
The market for our products and services is highly competitive and we
believe that it will become increasingly competitive in the foreseeable future.
The market is evolving rapidly from both a commercial and a technological
perspective. We believe that the principal competitive factors affecting our
market include the breadth of the offered solution, the speed of deployment,
distribution breadth, product quality and reliability, customer and professional
services quality, a significant base of high-profile customers and industry
influencers, and demonstrable value for the customer. Although we believe that
our products compare favorably with respect to these factors, our market is
relatively new and is developing rapidly.
We currently, and will for the foreseeable future, face competition from
many sources, including systems designed in-house and by third-party development
efforts. E-business communications applications are frequently developed
internally by organizations for their own use. In addition, a number of
companies offer one or more products in the market for e-business communications
software, some of which compete directly with at least part of our products. For
example, our competitors include companies that provide software that is focused
on a few operational or functional areas, such as Annuncio, Brightware, eGain,
Kana, Mustang Software and Responsys.com. We may also compete with companies
that provide customer management and communications solutions, such as Genesys
Telecommunications Laboratories, Lucent Technologies, MessageMedia, Oracle,
Pivotal, Siebel Systems, Silknet Software and Vantive.
Furthermore, established enterprise software companies, including
Hewlett-Packard, IBM, Microsoft and similar companies may leverage their
existing relationships and capabilities to offer e-business communications
software that competes with our products. We also may face competition from web
application servers, messaging server platform solutions, e-mail application
vendors and e-mail service bureaus. We believe competition will increase as our
current competitors increase the sophistication of their offerings and as new
participants enter the market.
We intend to position at least part of our solution as complementary to
our competitors' solutions, thereby helping these vendors meet their clients'
needs. For example, we will participate in the customer relationship management
market by acting as the interaction technology for a variety of front office
solutions, such as Clarify, and in the web application server market as a
natural fit for vendors, such as Microsoft Site Server, looking to provide their
customers with enhanced e-mail capabilities. This will, in turn, help us to
preserve our distribution channel opportunities.
RESEARCH AND DEVELOPMENT
We believe that our future success depends in large part on our ability to
maintain and enhance our technology, to develop a large library of software
products, and to enhance our market positioning through the deployment of
emerging technologies. In fiscal 1999, we invested $659,000 in product
development. For the nine months ended December 31, 1999, we invested $2.4
million in product development.
In order to maintain our focus on developing new products and
enhancements, it is important that we recruit highly skilled, experienced
engineers and software developers. Our senior managers are generally experienced
in enterprise application development. We have designed a process for product
development which defines and addresses the activities required to successfully
bring product concepts and development projects to market, ensures that feedback
from our sales, marketing, and business development efforts is appropriately
integrated into the development cycle, and ensures that products and programs
are available within appropriate timeframes.
As of December 31, 1999, we had 62 personnel engaged in research and
development activities.
INTELLECTUAL PROPERTY
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, registered trademarks or copyrights. However, we will assess
appropriate occasions for seeking additional intellectual property protections
for those aspects of our technology that we
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<PAGE> 45
believe constitute innovations providing significant competitive advantages.
Such future applications may or may not result in the registration of trademarks
or copyrights.
As part of our confidentiality procedures, we generally require our
employees, clients and potential business partners to enter into confidentiality
and non-disclosure agreements before we will disclose any sensitive aspects of
our products, technology or business plans. In addition, we generally require
employees to agree to surrender to us any proprietary information, inventions or
other intellectual property they generate or come to possess while employed by
us. These efforts afford only limited protection.
Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary and third parties may attempt to
develop similar technology independently. These precautions may not prevent
misappropriation or infringement of our intellectual property. In addition, laws
of some countries do not protect our proprietary rights to the same extent as do
the United States or Canada. We cannot assure you that protection of our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology.
There has been a substantial amount of litigation in the software and
internet industries regarding intellectual property rights. It is possible that
in the future third parties may claim that we or our current or potential future
products infringe their intellectual property. We expect that software product
developers and providers of internet-related solutions will increasingly be
subject to infringement claims as the number of products and competitors in our
industry grows and the functionality of products in different industries
increasingly overlaps. Furthermore, former employers of our current and future
employees may assert that our employees have improperly disclosed confidential
or proprietary information to us. Any such claims, with or without merit, could
be time-consuming to defend, divert management's attention and resources, result
in costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements which may not be available on terms acceptable
to us or at all. In addition, parties making these claims may be able to obtain
an injunction, which could prevent us from selling our products in the United
States or abroad. A successful infringement claim against us and our failure or
inability to license the infringed rights or develop or license technology with
comparable functionality could have a material adverse effect on our business,
operating results and financial condition.
EMPLOYEES
As of December 31, 1999, we had 159 full-time employees, including 62 in
research and development, 20 in professional services, 60 in sales, business
development and marketing and 17 in general and administrative. We added 96
employees between July 1, 1999 and December 31, 1999, and we expect to continue
hiring employees at a rapid pace. None of our employees are covered by
collective bargaining agreements and we have never experienced a strike or work
stoppage. We believe our relations with our employees are good.
LEGAL PROCEEDINGS
We are not currently party to any material legal proceedings, nor are we
aware of any proceedings that are contemplated.
FACILITIES
Our corporate headquarters are located in Toronto, Ontario, where we lease
approximately 21,000 square feet. The lease for the principal portion of our
space expires on December 31, 2000. In November 1999, we entered into a 10-year
lease for approximately 34,400 square feet for a new corporate headquarters.
This new lease takes effect on March 1, 2000, and includes an option to lease an
additional 7,000 square feet. We believe that our facilities are adequate to
meet our requirements for the foreseeable future. We also lease office space in
California, Illinois, New York and Texas. We do not own any real property.
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<PAGE> 46
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age and positions with Delano for
each of our directors and officers as of December 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dennis Bennie(1)(2).......................... 46 Chairman
John Foresi(2)............................... 38 Director, President and Chief Executive Officer
Bahman Koohestani(2)......................... 37 Director, Executive Vice-President, Products
and Chief Technology Officer
Thomas Hearne................................ 35 Chief Financial Officer
Robert Lalonde............................... 36 Vice-President, Marketing
Barry Yates.................................. 34 Vice-President, North American Sales
Michael Hughes............................... 31 Vice-President, Eastern Sales and Marketing
Andrew Dennis................................ 32 Vice-President, Business Development
David Lewis.................................. 37 General Counsel and Secretary
Albert Amato(1)(2)........................... 41 Director
J. (Ian) Giffen(1)........................... 42 Director
Donald Woodley............................... 54 Director
</TABLE>
- ------------
(1) Member of the audit committee
(2) Member of the compensation committee
Dennis Bennie has been our Chairman since our inception in May 1998.
Currently, Mr. Bennie is the Chief Executive Officer and President of XDL
Capital Corp., a private venture capital firm that he established in January
1997 to focus on investing in and working with emerging Internet companies and
related technologies. Mr. Bennie is a director of MGI Software Corp., a company
that produces digital imaging software. In 1988, Mr. Bennie co-founded Delrina
Corporation, a designer of fax, data and voice communications software, where he
was the Chairman and Chief Executive Officer until the November 1995 sale of
Delrina to Symantec Corporation. He remained employed with Symantec as Executive
Vice President and was a director until mid-1996. Mr. Bennie has an accounting
degree from the University of Witwatersrand.
John Foresi has been our President and Chief Executive Officer and has
served as one of our directors since January 1999. From May 1998 to December
1998, he was the President, Transportation of i2 Technologies, a global supply
chain software company. In May 1998, i2 Technologies acquired InterTrans
Logistics Solutions, of which Mr. Foresi was President and Chief Executive
Officer from August 1994 to April 1998. Mr. Foresi has an MBA from the Harvard
Business School and a BBA from Wilfrid Laurier University.
Bahman Koohestani founded Delano in May 1998, has served as one of our
directors since our inception and was our President and Chief Executive Officer
from our inception until January 1999. Mr. Koohestani has been our Executive
Vice-President, Products and Chief Technology Officer since January 1999. Prior
to founding Delano, Mr. Koohestani was Director of Products, Messaging for
Netscape Communications from October 1996 to May 1998. From February 1991 to
September 1996, Mr. Koohestani served as Chief Architect of Electronic Forms and
Products e-Commerce at Delrina. Mr. Koohestani has a Bachelor of Science
(Honors) degree from York University.
Thomas Hearne has served as our Chief Financial Officer since November
1999. From October 1997 to November 1999, Mr. Hearne was Chief Financial Officer
of Open Text Corporation, a provider of intranet, extranet and e-community
platform solutions. From September 1996 to October 1997, Mr. Hearne served as
Vice President, Finance and Administration of Algorithmics Incorporated, a
developer of risk management software. From April 1996 to September 1996, Mr.
Hearne was the Controller of Algorithmics. From
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<PAGE> 47
September 1992 to April 1996, Mr. Hearne was European Controller and Manager,
Financial Reporting at Alias Research Inc., a developer of 3D graphics software
which was sold to Silicon Graphics, Inc. in June 1995. Mr. Hearne is a chartered
accountant and has an MBA from York University and a Bachelor of Economics
degree from Trent University.
Robert Lalonde has served as our Vice-President, Marketing since January
1999. From July 1993 to January 1999, Mr. Lalonde was the Vice-President,
Marketing of the Business Intelligence Division at Hummingbird Communications, a
provider of network connectivity, business intelligence, document and knowledge
management software. Mr. Lalonde has a Bachelor of Science from Laurentian
University.
Barry Yates has served as our Vice-President, North American Sales since
January 2000. Between September 1998 and January 2000, Mr. Yates served as our
Vice-President, Professional Services. Prior to joining us, Mr. Yates was
Manager at Bain & Company from December 1995 to September 1998. From April 1992
to November 1995, Mr. Yates was Principal at KPMG Management Consulting Company.
Mr. Yates has a Bachelor of Commerce (Honors) degree from Queen's University.
Michael Hughes has served as our Vice-President, Eastern Sales and
Marketing since July 1999. From January 1998 to July 1999, Mr. Hughes was
employed as a branch manager at Oracle. From January 1995 to October 1997, Mr.
Hughes was a sales representative at Watermark Software Inc., which was
subsequently purchased by FileNet Corporation in January 1997. From June 1994 to
January 1995, Mr. Hughes worked as a Regional Professional Services Manager for
Information Advantage, Inc., a software development company. Mr. Hughes received
his Bachelor of Science in Computer Engineering from Clemson University and he
has an MBA from the University of North Carolina.
Andrew Dennis has served as our Vice-President, Business Development since
June 1999. From January 1997 to June 1999, Mr. Dennis was a Vice President at
GartnerGroup, an independent provider of advisory and market research services
to information technology vendors and users. From June 1996 to February 1997,
Mr. Dennis was an independent consultant who provided strategic business
planning, sales and marketing, and information technology consulting advice.
From January 1995 to June 1996, Mr. Dennis was the Vice President at Hill Arts &
Entertainment Systems, a client-server application software vendor. From
November 1993 to January 1995 Mr. Dennis served as Director of Sales of Data
Lease International. Mr. Dennis has a BBA in Marketing from the Detroit College
of Business.
David Lewis has served as our General Counsel and Secretary since January
2000. From February 1999 to January 2000, Mr. Lewis was the Vice President,
Legal at Open Text. From November 1994 to February 1999, Mr. Lewis was the
General Counsel at Alias Wavefront (formerly Alias Research) prior to its
acquisition by Silicon Graphics in June 1995. Between June 1994 and November
1994, Mr. Lewis was an independent consultant and prior to June 1994, Mr. Lewis
was General Counsel at SoftKey Software Products Inc., a consumer software
publisher.
Albert Amato has served as one of our directors since May 1998. Since
November 1995, Mr. Amato has been a technology consultant and advisor to
software companies and technology investment funds. Mr. Amato was a founder and
was Chief Technical Officer of Delrina from 1989 to November 1995. After Delrina
was sold to Symantec, he served as a Vice President with Symantec from November
1995 to May 1996. Mr. Amato has a Bachelor of Applied Science and Engineering
(Honors) degree from the University of Toronto.
J. (Ian) Giffen has served as one of our directors since June 1998. Since
September 1996, Mr. Giffen has been a technology consultant and advisor to
software companies and technology investment funds. From February 1996 to
September 1996, Mr. Giffen was Chief Financial Officer of Algorithmics. From
January 1992 until February 1996, Mr. Giffen served as Chief Financial Officer
of Alias Research, which was sold to Silicon Graphics in June 1995. Mr. Giffen
is a director of and advisor to Macromedia Inc., a developer of software for web
publishing, multimedia and graphics and a director of MGI Software. Mr. Giffen
is also a consultant to XDL Capital. Mr. Giffen has a Bachelor of Arts in
Business Administration from the University of Strathclyde.
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<PAGE> 48
Donald Woodley has served as one of our directors since November 1999.
From February 1997 to October 1999, Mr. Woodley was President of Oracle
Corporation Canada Inc. From September 1987 to January 1997, he was President of
Compaq Canada Inc. Mr. Woodley serves on the board of directors of BCT.Telus, a
telecommunications company, and Star Data Systems Inc., a supplier of financial
and transaction processing services. Mr. Woodley has a Bachelor of
Communications from the University of Saskatchewan and an MBA from the
University of Western Ontario.
There are no family relationships among any of our directors and executive
officers.
BOARD OF DIRECTORS
Our board of directors is comprised of six persons. In accordance with the
provisions of the Business Corporations Act (Ontario), our directors are
authorized from time to time to increase the size of the board of directors, and
to fix the number of directors, up to a maximum of eight persons, without the
prior consent of our shareholders. Each director is elected at the annual
meeting of shareholders to serve until the next annual meeting or until a
successor is elected or appointed. The board of directors has established an
audit committee and a compensation committee.
Our audit committee's mandate is to assist the board of directors in
fulfilling its functions relating to corporate accounting and reporting
practices as well as financial and accounting controls, to provide effective
oversight of the financial reporting process, and to review financial statements
as well as proposals for the issue of securities. Messrs. Bennie, Amato and
Giffen are members of the audit committee.
Our compensation committee reviews and approves the compensation and
benefits for our executive officers, administers our stock option plan and
performs other duties as may from time to time be determined by our board of
directors. Messrs. Bennie, Amato, Foresi and Koohestani are members of the
compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth the actual compensation paid or awarded to
our named executive officers, who consist of John Foresi, our current chief
executive officer, and Bahman Koohestani, who preceded Mr. Foresi as our chief
executive officer during the fiscal year ended March 31, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- ------------
OTHER ANNUAL SECURITIES
SALARY COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION ($) ($) OPTIONS
- --------------------------- ------- ------------ ------------
<S> <C> <C> <C>
John Foresi, President and Chief Executive Officer.... $24,764 $1,188 1,144,737
Bahman Koohestani, Executive Vice President, Products
and Chief Technology Officer........................ 82,488 3,563 --
</TABLE>
Each named executive officer has a base salary of Cdn$150,000
(approximately $104,000) per year and receives a car allowance of Cdn$7,200
(approximately $5,000) per year. However, each was employed for less than one
full year as of the fiscal year ended March 31, 1999 and, accordingly, the
information in the table above reflects only the portion of the fiscal year that
they were employed. The amounts specified under "Other Annual Compensation"
consist of car allowances received by the named executive officers in the fiscal
year ended March 31, 1999.
In accordance with the terms of a subscription agreement between Delano
and Mr. Koohestani, in fiscal 1999 a total of 1,350,000 common shares were
released from escrow to a corporation owned by Mr. Koohestani. Under the terms
of the subscription agreement, Mr. Koohestani would not have been entitled to
receive these shares if he had resigned or had been dismissed for cause. See
"Transactions with Related
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<PAGE> 49
Parties -- Escrow Arrangement." Mr. Foresi has 750,000 options at $0.11 per
share and has a warrant to purchase an additional 394,737 common shares at $0.44
per share. The warrant expires when he ceases to be employed by us or on January
5, 2002, whichever occurs earlier.
During the fiscal year ended March 31, 1999, the aggregate compensation
paid to all of our officers and directors as a group, for services in all
capacities, was $191,025, based on currency exchange rates during the fiscal
year.
STOCK OPTIONS
The following table sets forth (1) the number of common shares underlying
the options granted to each of the named executive officers during the fiscal
year ended March 31, 1999, (2) the percentage that these options represent in
comparison to the total number of options granted to our employees during the
same period, (3) the exercise price of such options and (4) their expiration
date.
OPTION GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF SHARES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TO EXERCISE OPTION TERM
OPTIONS GRANTED EMPLOYEES IN PRICE PER SHARE EXPIRATION -----------------
NAME (#) FISCAL YEAR ($/SECURITY) DATE 5%($) 10%($)
- ---- ---------------- ------------------ --------------- --------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
John Foresi.......... 750,000 48% $0.11 January 4, 2004 $23,178 $51,218
Bahman Koohestani.... -- -- -- -- -- --
</TABLE>
There were no options exercised by the named executive officers during the
fiscal year ended March 31, 1999.
COMPENSATION OF DIRECTORS
We do not currently compensate our directors, but they are reimbursed for
out-of-pocket expenses incurred in connection with meetings of the Board of
Directors or its committees. Directors are eligible to participate in the Stock
Option Plan. See "Stock Option Plan."
EMPLOYMENT AGREEMENTS
We have entered into an agreement with Mr. Foresi pursuant to which he was
hired as our President and Chief Executive Officer effective January 4, 1999.
Pursuant to this agreement, Mr. Foresi receives a salary of Cdn$150,000
(approximately $104,000) per annum, exclusive of bonuses, benefits and other
compensation. Mr. Foresi has also been granted options to purchase 750,000
common shares at a price of $0.11 per share, which options expire on January 4,
2004, and a warrant to purchase an additional 394,737 common shares at a price
of $0.44 per share, which warrant expires when Mr. Foresi ceases to be employed
by us or January 5, 2002, whichever is earlier. Mr. Foresi also receives a
yearly car allowance and compensation for all expenses incurred from time to
time in connection with the carrying out of his duties. Our agreement with Mr.
Foresi may be terminated by us without cause within 12 months of the effective
date of the agreement, provided that Mr. Foresi receives either three months'
notice or payment of three months' severance. If dismissed without cause more
than 12 months after the effective date of the agreement, Mr. Foresi will be
entitled to receive either six months' notice or payment of six months'
severance. Options that have not vested and warrants that have not been
exercised prior to notice of termination (other than for cause) or during the
three- or six-month notice or severance period thereafter will be null and void.
The agreement further provides that in the event of a change of control of
Delano resulting in the termination of Mr. Foresi's employment without cause,
all of Mr. Foresi's options will vest within three months of the change of
control.
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<PAGE> 50
We have also entered into an agreement with Mr. Koohestani pursuant to
which he was hired as our Executive Vice President, Products and Chief
Technology Officer effective January 4, 1999. Pursuant to this agreement, Mr.
Koohestani receives a salary of Cdn$150,000 (approximately $104,000) per annum,
exclusive of bonuses, benefits and other compensation. Mr. Koohestani also
receives a yearly car allowance and compensation for all expenses incurred from
time to time in connection with the carrying out of his duties.
STOCK OPTION PLAN
We established our Stock Option Plan to provide incentives to our
directors, officers, employees and consultants through participation in our
growth and success. Options to purchase common shares may be granted from time
to time by our board of directors at an exercise price determined by them. The
maximum number of common shares that currently may be issued under the plan is
4,500,000 common shares. Options granted under the plan must be exercised no
later than five years after the date of the grant, except where our board of
directors specifically states otherwise, in which case the expiry date can be no
later than 10 years after the date of grant. The option price per common share
shall be determined by the board of directors at the time an option is granted.
The board of directors may accelerate the vesting of any or all outstanding
options of any or all optionees upon the occurrence of a change of control.
As at December 31, 1999, options to purchase a total of 3,594,675 common
shares have been granted pursuant to the plan, as follows:
<TABLE>
<CAPTION>
COMMON
SHARES UNDER EXERCISE PRICE
HOLDERS OF OPTIONS OPTIONS ($) EXPIRY DATE
- ------------------ ------------ -------------- ---------------------------
<S> <C> <C> <C>
Executive Officers (seven in
total)........................... 225,000 0.11 September 1, 2003
750,000 0.11 January 4, 2004
135,000 0.11 January 20, 2004
172,500 0.44 May 3, 2004
150,000 0.44 June 2, 2004
127,500 0.44 July 26, 2004
157,500 3.08 October 18, 2004
Directors who are not Executive
Officers (three in total)...... 105,000 0.11 August 26, 2003
15,000 3.08 October 18, 2004
30,000 4.51 November 26, 2004
Employees (133 in total)......... 603,750 0.11 May 1, 2003 to May 10, 2004
585,000 0.44 March 17, 2004 to November
1, 2004
437,625 2.35 to 5.95 October 1, 2004 to December
31, 2004
Others (eight persons)........... 100,800 0.11 to 2.35 June 14, 2004 to November
2, 2004
</TABLE>
As at December 31, 1999, none of the options granted pursuant to the plan
have been exercised by our employees.
EMPLOYEE STOCK PURCHASE PLAN
On January 10, 2000, our board of directors and shareholders approved the
Delano Technology Corporation Employee Stock Purchase Plan, which enables our
employees to acquire common shares through payroll deductions. The plan is
intended to qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code of 1986. The initial offering period will start on
February 1, 2000. Purchase periods within each offering period will run for six
months, commencing on February 1 and August 1 of each year and ending on January
31 and July 31. Each offering period will last for 24 months, with the purchase
price throughout the offering period being 85% of the fair market value of the
common shares on the first day
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<PAGE> 51
of the period or 85% of the fair market value of the common shares on the last
day of any six month purchase period, whichever is lower. Eligible employees may
select a rate of payroll deduction up to 15% of their compensation up to an
aggregate of $25,000 in each calendar year. An aggregate of 1,000,000 common
shares has been reserved for issuance under the plan.
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<PAGE> 52
TRANSACTIONS WITH RELATED PARTIES
RELATIONSHIP WITH PROTEGE
Dennis Bennie, our Chairman, is a trustee of the Bennie Childrens' Trust,
which owns 11.25% of Protege Software Limited, a company with which we have
entered into a services agreement dated as of June 1, 1999. Pursuant to this
agreement, Protege Software Limited has agreed to provide administrative
assistance and office space to facilitate the opening of our European offices in
return for a management fee of L125,000 (approximately $200,000) per year, as
well as between L5,500 and L6,000 (approximately $8,800 to $9,600) per month in
respect of its costs and a bonus of up to 15% of sales generated by our European
offices. Within the first 12 months of the 18 month term of the agreement, the
bonus may be converted into common shares at a price of $2.37 per share. In the
final six months of the agreement, one-half of the bonus may be converted into
common shares based on the average trading price for the 10 days preceding the
conversion date.
ESCROW ARRANGEMENTS
Pursuant to subscription agreements dated July 17, 1998, an aggregate of
4,500,000 common shares purchased by Bahman Koohestani, Sean Maurik, John Mah
and Robert Gayle were deposited with us in escrow.
The escrow arrangements were entered into with Bahman Koohestani, Sean
Maurik, John Mah and Robert Gayle in order to provide restrictions on the free
disposition by these individuals of the shares held by them and limiting the
ability of these shareholders to immediately divest themselves of all equity
participation in Delano, resulting in a reduced personal economic interest in
our future economic success.
In accordance with the terms of the subscription agreement between Delano
and Mr. Koohestani, one-twelfth of the 4,050,000 common shares acquired by him
were released from escrow on June 30, 1998 and an additional one-twelfth of the
common shares are to be released on the last day of each successive calendar
quarter. On June 24, 1999, all the securities of Delano owned by Mr. Koohestani
were transferred to 1329347 Ontario Inc. in its capacity as the general partner
of GHI Limited Partnership. As of December 31, 1999, 2,362,500 of the 4,050,000
common shares of Mr. Koohestani which were originally subject to escrow had been
released from escrow and 1,687,500 of the common shares held by 1329347 Ontario
Inc. remained in escrow.
In accordance with the terms of the subscription agreements between Delano
and each of Mr. Maurik, Mr. Mah and Mr. Gayle, 37,500 of their respective
150,000 common shares were released from escrow on June 30, 1999 and an
additional 9,375 of their respective common shares are to be released on the
last day of each successive calendar quarter. In the event of a change of
control of Delano, all of the common shares will be released from escrow. As of
December 31, 1999, 93,750 common shares had been released to each of Mr. Maurik,
Mr. Mah and Mr. Gayle and 56,250 of their respective common shares remained in
escrow.
SPECIAL WARRANT FINANCING
On June 24, 1999, we raised $14.4 million, net of the agents' commission
and offering expenses, through a private placement of special warrants. Each
special warrant entitles the holder to acquire at any time, without additional
payment, one Class C special share or, if our issued and outstanding shares have
been converted to common shares, one common share, subject to adjustment. In
connection with this offering, all of the special warrants will be exercised to
acquire common shares on the basis of 1.5 common shares for each special
warrant, giving effect to the 3-for-2 split of common shares that will occur
prior to the completion of this offering. See "Description of Capital Stock --
Special Warrants." Pursuant to the special warrant offering, Mr. Amato purchased
42,000 special warrants, XDL Delano Holdings Inc., one of our principal
shareholders, purchased 124,308 special warrants, and the June H. Yates Trust
under the Estate of Pearl B. Walker, a trust affiliated with Mr. Yates, one of
our officers, purchased 29,000 special warrants.
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<PAGE> 53
PRINCIPAL SHAREHOLDERS
The following table sets forth information about the beneficial ownership
of our outstanding common shares on December 31, 1999, by:
- each person or entity who is known by us to own beneficially more than
five percent of our common shares;
- each of the named executive officers;
- each of our directors; and
- all of our directors and executive officers as a group.
In accordance with SEC rules, beneficial ownership includes any shares as
to which a person or entity has sole or shared voting power or investment power
and any shares as to which the person or entity has the right to acquire
beneficial ownership within 60 days after December 31, 1999 through the exercise
of options, conversion of securities or otherwise. Except as noted below, we
believe that the persons named in the table have sole voting and investment
power with respect to the shares of common stock set forth opposite their names.
Percentage of beneficial ownership before the offering is based on 23,424,598
common shares outstanding as of December 31, 1999, including common shares into
which our outstanding redeemable convertible special shares will convert upon
completion of this offering, common shares issuable upon exercise of our
outstanding special warrants in connection with the completion of this offering,
and 5,250,000 common shares outstanding at December 31, 1999. Percentage of
beneficial ownership after the offering is based on 28,424,598 common shares
outstanding immediately after the offering. All shares included below under
"Outstanding Shares" represent shares and shares subject to outstanding special
shares or special warrants. All shares included below under "Right to Acquire"
represent outstanding shares subject to outstanding stock options or warrants.
The address of our executive officers and directors is in care of Delano
Technology Corporation, 40 West Wilmot Street, Richmond Hill, Ontario L4B 1H8,
Canada.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------------------ -------------------
OUTSTANDING RIGHT TO TOTAL BEFORE AFTER
SHARES ACQUIRE NUMBER OFFERING OFFERING
----------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
XDL Delano Holdings Inc................. 10,133,832 -- 10,133,832 43.26% 35.65%
Dennis Bennie........................... 10,133,832 -- 10,133,832 43.26 35.65
Bahman Koohestani....................... 3,900,000 -- 3,900,000 16.65 13.72
John Foresi............................. 789,474 644,737 1,434,211 5.96 4.93
Albert Amato............................ 213,000 37,500 250,500 1.07 *
J. (Ian) Giffen......................... -- 15,000 15,000 * *
Donald Woodley.......................... -- -- -- -- --
All current directors and executive
officers as a group (13 persons)...... 15,036,306 896,606 15,932,912 65.51 54.34
</TABLE>
- ------------
* Less than 1%.
The shares reflected as beneficially owned by XDL Delano Holdings and Mr.
Bennie consist of shares held of record by XDL Delano Holdings, of which Mr.
Bennie is the President, a director and a beneficial shareholder. XDL Delano
Holdings was formed as an investment vehicle to hold Delano securities. Pursuant
to an existing contractual arrangement, we will amalgamate with XDL Delano
Holdings in connection with the completion of this offering, with the result
that the Delano shares currently held by XDL Delano Holdings will be distributed
to the persons and entities that currently hold shares of XDL Delano Holdings.
The following table provides supplemental information with respect to the
distribution of the shares currently held by XDL Delano Holdings on a pro forma
basis, as if the amalgamation had occurred on December 31, 1999 and based upon
an assumed offering price of $10.00.
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<PAGE> 54
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
----------------------------------- -------------------
OUTSTANDING RIGHT TO TOTAL BEFORE AFTER
SHARES ACQUIRE NUMBER OFFERING OFFERING
----------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Dennis Bennie............................ 972,786 -- 972,786 4.15% 3.42%
Albert Amato............................. 277,849 37,500 315,349 1.34 1.11
Strategic Investment Holdings Inc. ...... 1,962,411 -- 1,962,411 8.38 6.90
Canadian Imperial Bank of Commerce....... 1,297,047 -- 1,297,047 5.54 4.56
All current directors and executive
officers as a group (13 persons)....... 6,836,715 -- 6,836,715 29.19 24.05
</TABLE>
Canadian Imperial Bank of Commerce is the parent of CIBC World Markets
Corp., one of the representatives of the underwriters of this offering. See
"Underwriting."
The shares reflected as beneficially owned by Mr. Koohestani consist of
shares held of record by 1329347 Ontario Inc., in its capacity as general
partner of GHI Limited Partnership. Mr. Koohestani is the sole shareholder of
1329347 Ontario Inc. A total of 1,687,500 of these shares are subject to escrow.
See "Transactions with Related Parties -- Escrow arrangements."
The shares reflected as beneficially owned by Mr. Foresi include 789,474
common shares held of record by Tofino Venture Capital Inc., of which Mr. Foresi
is the voting trustee.
To our knowledge, we are not directly or indirectly owned or controlled by
another corporation or by any foreign government.
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<PAGE> 55
DESCRIPTION OF SHARE CAPITAL
GENERAL
Our authorized share capital consists of an unlimited number of common
shares, an unlimited number of Class A special shares, an unlimited number of
Class B special shares and an unlimited number of Class C special shares. As of
December 31, 1999, there were 5,250,000 common shares issued and outstanding, as
well as a warrant issued to John Foresi, expiring on the date which Mr. Foresi
ceases to be employed by us or January 5, 2002, whichever is earlier,
exercisable into 394,737 common shares at an exercise price of $0.44 per share.
In addition, there were 4,000,000 Class A special shares and 3,789,476 Class B
special shares issued and outstanding as well as special warrants to acquire
4,326,924 Class C special shares. As at December 31, 1999, there were no Class C
special shares issued and outstanding.
Upon completion of this offering, all of our then-outstanding Class A
special shares, Class B special shares and Class C special shares will be
converted into common shares, and these classes of special shares will be
cancelled. In addition, in connection with the completion of this offering, our
outstanding special warrants will be exercised to purchase common shares. Based
on shares outstanding as of December 31, 1999, after giving effect to the
exercise of outstanding special warrants and the conversion of all special
shares into common shares, but prior to giving effect to this offering and
assuming no exercise of currently outstanding options or the warrant held by Mr.
Foresi, there will be 23,424,598 common shares outstanding held of record by 42
shareholders. After giving effect to this offering, but assuming no exercise of
the underwriters' over-allotment option and no exercise of outstanding options
or the outstanding warrant, there will be 28,424,598 common shares outstanding.
COMMON SHARES
Holders of common shares are entitled to receive notice of and to attend
all meetings of shareholders and to vote at all such meeting together as a
single class, except in respect of matters where only the holders of shares of a
specified class or specified series of shares are entitled to vote separately.
The common shares carry one vote per share. Holders of common shares are
entitled, subject to the rights, privileges, restrictions and conditions
attaching to any other class of our shares, to receive any dividend declared by
our board of directors. In the event of any liquidation, dissolution or
winding-up of Delano or other distribution of assets of Delano among our
shareholders for the purpose of winding-up our affairs, subject to the rights,
privileges, restrictions and conditions attaching to any other class of our
shares, the assets and funds of Delano shall be distributed among the holders of
common shares and the holders of any other class of our shares. This
distribution shall be made pro rata based on the number of common shares held by
each holder, assuming conversion into common shares of all other classes of our
shares, and any other participating outstanding series or class of our shares
convertible into common 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
Our articles of incorporation provide that the board of directors has the
authority, without further action by the shareholders, to issue up to an
unlimited number of 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, rights, 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 liquidations
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. We currently do not have any
plans to issue preferred shares.
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<PAGE> 56
REGISTRATION RIGHTS
On January 27, 1999, we entered into a registration rights agreement with
our then-existing shareholders under which, at any time after 120 days from the
completion of this offering, either XDL Delano Holdings Inc. individually or a
group of the other shareholders holding more than 50% of our outstanding common
shares, may make up to three requests to have us register all or any portion of
their shares under the Securities Act or under Canadian securities laws.
In addition, these share holders have "piggyback" registration rights. If
we propose to register any common shares under the Securities Act or qualify any
common shares under a Canadian prospectus, other than in connection with this
offering or in connection with the registration of securities issued under an
employee benefits plan or in consideration of an acquisition, each of these
shareholders may require us to include all or a portion of the common shares
held by them in the registration or qualification, as the case may be.
We are responsible for paying the expenses of any such registrations. Each
participating shareholder would bear its proportionate share of all underwriting
commissions. These registrations rights are subject to conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares.
SPECIAL WARRANTS
Pursuant to an agency agreement dated June 24, 1999 between Delano and
Griffiths McBurney & Partners, National Bank Financial Corp. and Charles Schwab
Canada Co., we issued and sold by way of private placement, special warrants for
proceeds of $14.4 million, net of the agents' commission and offering expenses.
Each special warrant entitles the holder to acquire at any time, without payment
of any additional compensation, one Class C special share or, if our outstanding
special shares have been converted to common shares, one common share, subject
to adjustment. Giving effect to the 3-for-2 split of our common shares, which
will occur prior to the completion of this offering, our outstanding special
warrants will be exercised to purchase an aggregate of 6,490,386 common shares
in connection with the completion of this offering.
OWNERSHIP RESTRICTIONS
There is no law or governmental decree or regulation in Canada that
restricts the export or import of capital, or affects the remittance of
dividends, interest or other payments to non-resident holders of common shares,
other than withholding tax requirements. See "Tax Considerations."
There is no limitation imposed by Canadian law or by the Articles of
Incorporation or other charter documents of the Company on the right of a
non-resident to hold or vote Common Shares, other than as provided by the
Investment Canada Act, the North American Free Trade Agreement Implementation
Act (Canada) and the World Trade Organization Agreement Implementation Act. The
Investment Canada Act requires notification and, in certain cases, advance
review and approval by the Government of Canada of the acquisition by a
"non-Canadian" of "control" of a "Canadian business," all as defined in the
Investment Canada Act. Generally speaking, the threshold for review will be
higher in monetary terms for a member of the World Trade Organization or North
American Free Trade Agreement.
CO-TRANSFER AGENTS AND REGISTRAR
The registrar and co-transfer agent for our common shares is Montreal
Trust Company of Canada. Its address is 151 Front Street, 8th Floor, Toronto,
Ontario M5J 2N1, and its telephone number at this location is (416) 867-5663.
American Securities Transfer and Trust Incorporated will act as co-transfer
agent. Its address is 104 East 45th Street, New York, New York 10019, and its
telephone number at this location is (212) 490-0852.
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<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, a total of 28,424,598 of our common
shares will be outstanding, assuming no exercise of the underwriters'
over-allotment option or of any outstanding options. 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.
All of the common shares sold in the offering 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>
NUMBER OF
SHARES
----------
<S> <C>
At the date of this prospectus.............................. --
180 days after the date of this prospectus.................. 23,187,755
Later than 180 days after the date of this prospectus....... 236,843
</TABLE>
We expect that holders of 23,424,598 common shares will enter into lock-up
agreements pursuant to which they will agree not to dispose of or hedge any of
their common shares for 180 days following the date of the prospectus without
the consent of FleetBoston Robertson Stephens Inc. on behalf of the
underwriters. See "Underwriting."
We intend to file with the SEC a registration statement on Form S-8 90
days 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 Canadian law.
U.S. RESALE RESTRICTIONS
Upon completion of this offering, 236,843 common shares will be held by
U.S. residents or others. As a result of the lock-up agreements and the
provisions of Rule 144 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 any of our affiliates, 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 Delano. Persons who are our affiliates 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.
For a description of the rights of some of our holders to require us to
register their common shares under the U.S. Securities Act, see "Description of
Share Capital -- Registration Rights."
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<PAGE> 58
TAX CONSIDERATIONS
In this section we summarize the material anticipated United States and
Canadian federal income tax considerations relevant to a purchase of common
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 (1980),
are resident in the United States, or are otherwise subject to United
States federal income taxation without regard to source, and not in
Canada;
- hold the common shares as capital assets for purposes of the Internal
Revenue Code and capital property for purposes of the Income Tax Act
(Canada);
- deal at arm's length with us for purposes of the Income Tax Act
(Canada);
- do not use or hold the common shares in carrying on a business in
Canada, through a permanent establishment or in connection with a fixed
base in Canada or otherwise, and are not an insurer which carries on
business in Canada and elsewhere; 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 (Canada) 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 (Canada) and regulations
under the Income Tax Act (Canada);
- the current provisions of the Internal Revenue Code and regulations
under the Internal Revenue Code;
- the current provisions of the Canada-United States Income Tax
Convention (1980);
- our understanding of the current administrative policies and practices
published by the Canada Customs and Revenue Agency;
- all specific proposals to amend the Income Tax Act (Canada) and the
regulations under the Income Tax Act (Canada) that have been publicly
announced by or on behalf of 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
UNDER PROVISIONS OF U.S. OR CANADIAN INCOME TAX LAW. THEREFORE, YOU SHOULD
CONSULT YOUR OWN TAX ADVISOR REGARDING THE PARTICULAR CONSEQUENCES TO YOU OF
PURCHASING COMMON SHARES IN THIS OFFERING.
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<PAGE> 59
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
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.
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<PAGE> 60
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
- 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, interests, 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 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
55
<PAGE> 61
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 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, 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. However, we can not assure you that we will not qualify as a
controlled foreign corporation in the future.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In this section, we summarize the material anticipated Canadian federal
income tax considerations relevant to your purchase of common shares.
Under the Income Tax Act (Canada), and the Canada-United States Income Tax
Convention (1980), 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 common shares unless you and persons with whom you did
not deal at arm's length for the purposes of the Income Tax Act (Canada) owned
or had interests in or rights to acquire 25% or more of our issued shares of any
class or series at any time during the five year period before the disposition
and the value of the shares derives principally from real property situated in
Canada.
Dividends paid, credited or deemed to have been paid or credited on the
common shares to Unconnected U.S. Shareholders will be subject to a Canadian
withholding tax at a rate of 25% under the Income Tax Act (Canada) on the gross
amount of the dividend. Under the Canada-United States Income Tax Convention
(1980), 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 common
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 generally have the income tax consequences
described above.
56
<PAGE> 62
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., U.S. Bancorp Piper Jaffray Inc. and CIBC
World Markets Corp., have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
common shares set forth opposite their names below. The underwriters are
committed to purchase and pay for all of the shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc. ........................
U.S. Bancorp Piper Jaffray Inc. ............................
CIBC World Markets Corp. ...................................
---------
Total.................................................. 5,000,000
=========
</TABLE>
We have been advised that the underwriters propose to offer our common
shares to the public at the public offering price located on the cover page of
this prospectus and to dealers at that price less a concession of not in excess
of $ per share, of which $ may be reallowed to other dealers. After
the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No reduction in
this price will change the amount of proceeds to be received by us as indicated
on the cover page of this prospectus.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 750,000 additional common shares to cover over-allotments, if
any, at the same price per share as we will receive for the 5,000,000 shares
that the underwriters have agreed to purchase. To the extent that the
underwriters exercise this option, each of the underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
shares that the number of common shares to be purchased by it shown in the above
table represents as a percentage of the 5,000,000 shares offered by this
prospectus. If purchased, the additional shares will be sold by the underwriters
on the same terms as those on which the 5,000,000 shares are being sold. We will
be obligated, under this option, to sell shares to the extent the option is
exercised. The underwriters may exercise the option only to cover
over-allotments made in connection with the sale of the 5,000,000 common shares
offered by this prospectus.
Underwriting commissions. The underwriting commissions will be an amount
equal to the public offering price per share, less the amount paid per share by
the underwriters to us. We currently expect that the underwriting commissions
will equal 7% of the public offering price. The following table shows the per
share and total underwriting commissions to be paid by us to the underwriters.
This information is presented assuming either no exercise or full exercise by
the underwriters of their over-allotment option.
57
<PAGE> 63
<TABLE>
<CAPTION>
WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OPTION OPTION
--------- -------------- --------------
<S> <C> <C> <C>
Assumed public offering price....................... $10.00 $50,000,000 $57,500,000
Estimated underwriting commissions.................. 0.70 3,500,000 4,025,000
------ ----------- -----------
Estimated proceeds, before expenses, to us.......... $ 9.30 $46,500,000 $53,475,000
====== =========== ===========
</TABLE>
The expenses of the offering, other than underwriting commissions, payable
by us are estimated at $800,000. FleetBoston Robertson Stephens Inc. expects to
deliver the common shares to purchasers on , 2000.
Canadian Imperial Bank of Commerce ("CIBC"), the parent of CIBC World
Markets Corp., one of the representatives of the underwriters, will own an
estimated 1,297,047 common shares upon our amalgamation with XDL Delano Holdings
Inc. See "Principal Shareholders."
In June 1999, CIBC acquired beneficial ownership of 29,253 special
warrants for an aggregate price of $103,264 as part of a private placement of
special warrants. See "Description of Share Capital -- Special Warrants." In
connection with the completion of this offering, the special warrants
beneficially owned by CIBC will be exercised into 43,879 common shares. CIBC's
purchase of special warrants was made on the same terms given to the other
purchasers in the private placement. Under the rules of the National Association
of Securities Dealers, Inc., CIBC's purchase of special warrants may be deemed
to be underwriting compensation in connection with this offering. In accordance
with the rules of the National Association of Securities Dealers, Inc., the
common shares that will be received by CIBC upon the conversion of its special
warrants will be restricted from sale or other transfer until one year after the
date of this prospectus, except as permitted by those rules.
Directed Share Program. The underwriters have reserved up to five percent
of the common shares to be issued by us and offered for sale in this offering,
at the initial public offering price, to directors, officers, employees,
business associates and persons otherwise connected to Delano. The number of
common shares available for sale to the general public will be reduced to the
extent these individuals purchase reserved shares. Any reserved shares which are
not purchased will be offered by the underwriters to the general public on the
same basis as the other shares offered in this offering.
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act, and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Agreements Not to Sell Shares. We expect that holders of a total of
23,424,598 common shares, including all of our executive officers and directors,
will agree that, during the period ending 180 days after the date of this
prospectus, subject to limited exceptions, not to offer to sell, contract to
sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any common shares or any options or warrants to purchase any common
shares, or any securities convertible into or exchangeable for common shares
owned as of the date of this prospectus or later acquired directly by such
holders or with respect to which they have the power of disposition, without the
prior written consent of FleetBoston Robertson Stephens Inc. However,
FleetBoston Robertson Stephens Inc. may, in its sole discretion and at any time
without notice, release all or any portion of securities subject to these
agreements not to sell shares. There are no existing agreements between the
representatives of the underwriters and any of our shareholder providing consent
to the sale of shares prior to the expiration of the respective periods.
Future Sales by Us. In addition, we have agreed that during the 180 days
after the date of this prospectus, we will not, without the prior written
consent of FleetBoston Robertson Stephens Inc., subject to certain exceptions,
(a) consent to the disposition of any shares held by shareholders subject to
agreements not to sell shares prior to the expiration of the respective periods,
(b) issue, sell, contract to sell, or otherwise dispose of, any common shares,
any options to purchase any common shares or any securities convertible into,
exercisable for or exchangeable for common shares other than our sale of shares
in this offering, the issuance
58
<PAGE> 64
of common shares upon the exercise of outstanding options, and the issuance of
options under existing stock option and incentive plans, provided such options
do not vest prior to the expiration of the 180-day period or (c) issue up to
1,000,000 common shares in connection with acquisitions of businesses or assets
of businesses or in connection with strategic alliances; provided that
- each person receiving common shares enters into a lock-up agreement
pursuant to which they agree not to dispose of or hedge any of their
common shares for 180 days following the date of this prospectus
without the consent of FleetBoston Robertson Stephens Inc. on behalf of
the underwriters; and
- we do not grant any rights that are exercisable for a period of six
months from the date we sign the purchase agreement with the
underwriters entitling the persons receiving common shares to require
us to register their shares under the U.S. Securities Act.
See "Shares Eligible for Future Sale."
Listing. We have applied to have our common shares approved for quotation
on the Nasdaq National Market under the symbol "DTEC."
No Distribution in Canada. The common shares may be offered in Canada by
the underwriters or their Canadian affiliates pursuant to a prospectus
qualifying the common shares for distribution in certain provinces of Canada or
pursuant to prospectus exemptions under applicable securities legislation. Each
of the underwriters has agreed that it will only distribute common shares in
Canada in accordance with prospectus and registration requirements of applicable
securities legislation or exemptions from these requirements.
No Prior Public Market. Prior to this offering, there has been no public
market for our common shares. Consequently, the initial public offering price
for the common stock offered by this prospectus will be determined through
negotiations among us and the representatives. Among the factors to be
considered in these negotiations are prevailing market conditions, our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Stabilization. The representatives have advised us that, under Regulation
M under the U.S. Securities Exchange Act, some participants in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of our common shares at a level
above that which might otherwise prevail in the open market. A "stabilizing bid"
is a bid for or the purchase of the common shares on behalf of the underwriters
for the purpose of fixing or maintaining the price of the common shares. A
"syndicate covering transaction" is the bid for or the purchase of the common
shares on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with this offering
if the common shares originally sold by the underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The representatives have advised us that such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
59
<PAGE> 65
LEGAL MATTERS
Osler, Hoskin & Harcourt LLP, Toronto, Ontario, will pass upon the
legality of the common shares offered by this prospectus. Skadden, Arps, Slate,
Meagher & Flom LLP, Toronto, Ontario and New York, New York, is acting as our
United States counsel with respect to the offering. Foley, Hoag & Eliot LLP,
Boston, Massachusetts, is acting as United States counsel to the underwriters.
EXPERTS
The consolidated financial statements of Delano as of March 31, 1999 and
December 31, 1999 and for the period from May 7, 1998 (inception) to March 31,
1999, the period from May 7, 1998 to December 31, 1998 and the nine months ended
December 31, 1999 included in this prospectus have been audited by KPMG LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included in this prospectus in reliance upon the authority of
KPMG LLP as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC, 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 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 SEC'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 SEC 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 SEC, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You
may call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The SEC maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, such as Delano, that file electronically with the SEC.
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 SEC 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
SEC. Following consummation of the offering, we will be required to file reports
and other information with the SEC under the U.S. Securities Exchange Act. As a
foreign private issuer, we are exempt from the rules under the U.S. Securities
Exchange Act prescribing the furnishing and content of proxy statements, and our
officers, directors and principal shareholders are exempt from the reporting and
short-swing profit recovery provisions contained in Section 16 of the U.S.
Securities Exchange Act. Under the U.S. Securities Exchange Act, we are not
required to publish financial statements as frequently or as promptly as United
States companies.
60
<PAGE> 66
DELANO TECHNOLOGY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Form of Independent Auditors' Report........................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Shareholders' Deficiency......... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Delano Technology Corporation
We have audited the accompanying consolidated balance sheets of Delano
Technology Corporation as of March 31, 1999 and December 31, 1999 and the
related consolidated statements of operations, shareholders' deficiency and cash
flows for the period from May 7, 1998 (date of inception) to March 31, 1999, the
period from May 7, 1998 (date of inception) to December 31, 1998 and the nine
months ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of March 31, 1999 and December 31, 1999 and the results of its operations and
its cash flows for the period from May 7, 1998 (date of inception) to March 31,
1999, the period from May 7, 1998 (date of inception) to December 31, 1998 and
the nine months ended December 31, 1999 in conformity with generally accepted
accounting principles in the United States.
Chartered Accountants
Toronto, Canada /s/ KPMG LLP
January 11, 2000
F-2
<PAGE> 68
DELANO TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
1999
PRO FORMA
MARCH 31, DECEMBER 31, SHAREHOLDERS'
1999 1999 EQUITY (NOTE 7)
--------- ------------ ----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 1,989 $ 11,940
Accounts receivable trade, net of allowance for doubtful
accounts of $200 at December 31, 1999.................. -- 2,662
Investment tax credits receivable........................ 201 155
Prepaid expenses and other............................... 65 657
-------- --------
Total current assets................................... 2,255 15,414
Property and equipment..................................... 318 1,176
-------- --------
Total assets............................................... $ 2,573 $ 16,590
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued liabilities................. $ 518 $ 2,591
Deferred revenue......................................... 100 427
Current portion of obligations under capital leases...... 30 209
-------- --------
Total current liabilities.............................. 648 3,227
Long-term liabilities:
Obligations under capital leases......................... 66 267
-------- --------
Total liabilities.......................................... 714 3,494
Class A redeemable convertible special shares:
Authorized:
Unlimited
Issued and outstanding:
4,000,000 shares at March 31, 1999 and December 31,
1999
Redemption amount -- $1,000 plus 8% cumulative
dividends......................................... 1,047 1,158 --
Class B redeemable convertible special shares:
Authorized:
Unlimited
Issued and outstanding:
3,789,476 shares at March 31, 1999 and December 31,
1999
Redemption amount -- $2,400 plus 8% cumulative
dividends......................................... 2,434 2,693 --
Special warrants:
Issued and outstanding:
4,326,924 warrants at December 31, 1999
Redemption amount -- $2,740 plus 8% cumulative
dividends......................................... -- 14,703 --
Shareholders' deficiency:
Capital stock:
Common shares:
Authorized:
Unlimited number of shares
Issued and outstanding:
6,000,000 shares at March 31, 1999 and 5,250,000
shares at December 31, 1999..................... 433 6,318 $ 24,872
Warrant.................................................. 126 126 126
Deferred stock-based compensation........................ (386) (5,502) (5,502)
Accumulated other comprehensive losses................... (5) (152) (152)
Deficit.................................................. (1,790) (6,248) (6,248)
-------- -------- --------
Total shareholders' deficiency......................... (1,622) (5,458) $ 13,096
-------- -------- ========
Total liabilities and shareholders' deficiency............. $ 2,573 $ 16,590
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 69
DELANO TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 7, 1998 MAY 7, 1998 NINE MONTHS
(INCEPTION) TO (INCEPTION) TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- -------------- ------------
<S> <C> <C> <C>
Revenues:
Products......................................... -- -- $ 5,061
Services......................................... -- -- 296
-------- -------- --------
Total revenues................................ -- -- 5,357
Cost of revenues:
Products......................................... -- -- 20
Services......................................... -- -- 701
-------- -------- --------
Total cost of revenues........................ -- -- 721
-------- -------- --------
Gross profit....................................... -- -- 4,636
-------- -------- --------
Operating expenses:
Sales and marketing.............................. $ 554 $ 144 5,456
Research and development......................... 797 486 2,244
General and administrative....................... 180 45 767
Amortization of deferred stock-based
compensation.................................. 171 2 769
-------- -------- --------
Total operating expenses...................... 1,702 677 9,236
-------- -------- --------
Loss from operations............................... (1,702) (677) (4,600)
Interest income, net............................... 13 -- 354
-------- -------- --------
Loss before provision for income taxes............. (1,689) (677) (4,246)
Provision for income taxes......................... -- -- --
-------- -------- --------
Loss for the period................................ (1,689) (677) (4,246)
Less: accretion of dividends on redeemable
convertible special shares.................... (101) -- (212)
-------- -------- --------
Loss applicable to common shares................. $ (1,790) $ (677) $ (4,458)
======== ======== ========
Basic and diluted loss per common share............ $ (0.37) $ (0.16) $ (0.79)
======== ======== ========
Shares used in computing basic and diluted loss per
common share (in thousands)...................... 4,887 4,210 5,649
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 70
DELANO TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON SHARES DEFERRED OTHER TOTAL
------------------- STOCK-BASED COMPREHENSIVE SHAREHOLDERS'
NUMBER AMOUNT WARRANT COMPENSATION LOSSES DEFICIT DEFICIENCY
--------- ------- ------- ------------ ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, May 7, 1998......... -- -- -- -- -- -- --
Issuance of common shares..... 6,000,000 $ 2 -- -- -- -- $ 2
Deferred stock-based
compensation................ -- 431 $ 126 $ (557) -- -- --
Amortization of deferred
stock-based compensation.... -- -- -- 171 -- -- 171
Accretion of dividends on
redeemable convertible
special shares.............. -- -- -- -- -- $ (101) (101)
Currency translation
adjustment.................. -- -- -- -- $ (5) -- (5)
Loss for the period........... -- -- -- -- -- (1,689) (1,689)
--------- ------- ------- ------- ------- ------- -------
Balances, March 31, 1999...... 6,000,000 433 126 (386) (5) (1,790) (1,622)
Deferred stock-based
compensation................ -- 5,885 -- (5,885) -- -- --
Amortization of deferred
stock-based compensation.... -- -- -- 769 -- -- 769
Repurchase of common shares... (750,000) -- -- -- -- -- --
Accretion of dividends on
redeemable convertible
special shares.............. -- -- -- -- -- (212) (212)
Currency translation
adjustment.................. -- -- -- -- (147) -- (147)
Loss for the period........... -- -- -- -- -- (4,246) (4,246)
--------- ------- ------- ------- ------- ------- -------
Balances, December 31, 1999... 5,250,000 $6,318 $ 126 $(5,502) $ (152) $(6,248) $(5,458)
========= ======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 71
DELANO TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 7, 1998 MAY 7, 1998 NINE MONTHS
(INCEPTION) TO (INCEPTION) TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- -------------- ------------
<S> <C> <C> <C>
Cash provided by (used in):
Operating activities:
Loss for the period.............................. $(1,689) $ (677) $(4,246)
Depreciation and amortization which does not
involve cash.................................. 33 20 125
Amortization of deferred stock-based
compensation.................................. 171 2 769
Changes in non-cash operating working capital:
Accounts receivable trade..................... -- -- (2,601)
Investment tax credits receivable............. (200) -- 54
Prepaid expenses and other.................... (65) (68) (576)
Accounts payable and accrued liabilities...... 516 48 2,003
Deferred revenue.............................. 99 -- 315
------- ------- -------
Net cash used in operating activities............ (1,135) (676) (4,157)
Financing activities:
Issuance of redeemable convertible special
shares........................................ 3,375 992 --
Issuance of common shares........................ 2 2 --
Issuance of special warrants..................... -- -- 14,436
Proceeds from bank loan.......................... -- -- 156
Repayment of bank loan........................... -- -- (156)
Repayment of obligations under capital leases.... (2) -- (182)
------- ------- -------
Net cash provided by financing activities........ 3,375 994 14,254
Investing activities:
Additions to property and equipment.............. (251) (140) (464)
------- ------- -------
Cash used in investing activities................ (251) (140) (464)
Effect of currency translation of cash balances.... -- 61 318
------- ------- -------
Increase in cash and cash equivalents.............. 1,989 116 9,951
Cash and cash equivalents, beginning of period..... -- -- 1,989
------- ------- -------
Cash and cash equivalents, end of period........... $ 1,989 $ 116 $11,940
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 72
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION OF THE COMPANY
Delano Technology Corporation (the "Company") was incorporated on May 7,
1998 and commenced commercial operations during the quarter ended June 30, 1999.
The Company develops and markets communications software that enables companies
to use e-mail and the internet for business interactions.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are stated in U.S. dollars, except where
otherwise noted. They have been prepared in accordance with accounting
principles generally accepted in the United States.
These consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated.
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.
(b) Cash and Cash Equivalents
All highly liquid investments, with an original maturity of three months
or less at the date of acquisition, are classified as cash equivalents.
(c) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization, and are amortized over their estimated useful lives.
Expenditures for maintenance and repairs have been charged to the statement of
operations as incurred. Depreciation and amortization are computed using the
straight-line method as follows:
<TABLE>
<S> <C>
Furniture and office equipment.............................. 30%
Computer hardware........................................... 33%
Computer software........................................... 50%
</TABLE>
The Company regularly reviews the carrying values of its property and
equipment by comparing the carrying amount of the asset to the expected future
cash flows to be generated by the asset. If the carrying value exceeds the
amount recoverable a writedown is charged to the statement of operations.
(d) Revenue Recognition
The Company recognizes revenue in accordance with the provisions of the
American Institute of Certified Public Accountants' ("AICPA") Statement of
Position No. 97-2, "Software Revenue Recognition" ("SOP No. 97-2") and related
provisions. The Company's revenues are derived from product elements, comprised
primarily of license fees and upgrades, and service elements, which include
postcontract customer support ("PCS"), installation, training, consulting and
other services. Fees for services are generally billed separately from licenses
of the Company's products. In cases where the Company sells a multi-element
arrangement, the fees are allocated to the elements based on Company-specific
objective evidence of each element's fair value.
Revenue from product elements, consisting primarily of license fees and
upgrades, is recognized pursuant to a contract or purchase order, when each
element is delivered to the customer and collection of the
F-7
<PAGE> 73
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related receivable is deemed probable by management. Reserves for product
returns and sales allowances are estimated and provided for at the time of sale.
Such reserves are based upon management's evaluation of historical experience
and current industry trends.
Revenue from service elements includes PCS which is recognized ratably
over the term of the agreement, which is typically twelve months. Revenues from
installation, training, consulting and other services are recognized when the
services are performed.
Product and service elements that have been prepaid but do not yet qualify
for recognition as revenue under the Company's revenue recognition policy are
reflected as deferred revenue on the Company's balance sheet.
(e) Currency Translation
Monetary assets and liabilities of the Company and of its wholly owned
subsidiaries, which are integrated foreign operations, that are denominated in
foreign currencies are translated into Canadian dollars (which is considered to
be the measurement currency) at the exchange rate prevailing at the balance
sheet date. Non-monetary assets and liabilities are translated at the historical
exchange rate. Transactions included in operations are translated at the average
rate for the period. Exchange gains and losses resulting from the translation of
these foreign denominated amounts are reflected in the consolidated statement of
operations in the period in which they occur. As the Company's reporting
currency is the U.S. dollar, the Company translates consolidated assets and
liabilities denominated in Canadian dollars into U.S. dollars at the exchange
rate prevailing at the balance sheet date, and the consolidated results of
operations at the average rate for the period. Cumulative translation
adjustments are included as a separate component of shareholders' deficiency.
(f) Research and Development Expenses
Costs related to research, design and development of products are charged
to research and development expense as incurred. Software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers. To date, completing a working model of the Company's products and
general release have substantially coincided. As a result, the Company has not
capitalized any software development costs since such costs have not been
significant.
(g) Investment Tax Credits
The Company is entitled to Canadian federal and provincial investment tax
credits which are earned as a percentage of eligible current and capital
research and development expenditures incurred in each taxation year. Certain
investment tax credits are fully refundable to the Company until such time as
the Company loses its status as a Canadian controlled private corporation. All
other investment tax credits are available to be applied against future income
tax liabilities, subject to a 10-year carryforward period. Investment tax
credits are accounted for as a reduction of the related expenditure for items of
a current nature and a reduction of the related asset cost for items of a
long-term nature, provided that the Company has reasonable assurance that the
tax credits will be realized.
(h) Income Taxes
Under the asset and liability method of Statement of Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109"), deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS 109,
the effect on
F-8
<PAGE> 74
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
deferred tax assets and liabilities of a change in tax rates is recognized in
the consolidated statement of operations in the period that includes the
enactment date.
(i) Stock-based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25 ("APB 25"), "Accounting for Stock Issued to Employees" and related
interpretations, in accounting for its employee stock options because the
alternative fair value accounting provided for under Financial Accounting
Standards Board, Statement No. 123 ("SFAS 123") "Accounting for Stock-Based
Compensation", requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, deferred stock-based
compensation is recorded at the option grant date in an amount equal to the
difference between the fair market value of a common share and the exercise
price of the option. Deferred stock-based compensation for options which are
contingently issuable based upon the achievement of performance criteria is
recorded based upon the current fair market value of the shares at the end of
each period. Deferred stock-based compensation resulting from employee option
grants is amortized over the vesting period of the individual options, generally
three or four years, in accordance with Financial Accounting Standards Board
Interpretation No. 28.
(j) Loss Per Common Share
Loss per common share has been calculated on the basis of earnings divided
by the weighted average number of common shares outstanding during each period.
Diluted loss per common share has been calculated assuming that redeemable
convertible special shares, special warrants, warrant and stock options
outstanding at the end of the period had been converted or exercised at the
later of the beginning of the period or their date of issuance, where such
conversion or exercise would not be anti-dilutive. Pro forma basic and diluted
loss per common share has been calculated to give effect to the conversion of
all outstanding redeemable convertible special shares and the exercise of all
outstanding special warrants upon the completion of the share offering.
(k) Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents and accounts
receivable trade. Cash equivalents consist of deposits with, or guaranteed by,
major commercial banks, the maturities of which are three months or less from
the date of purchase. With respect to accounts receivable trade, the Company
performs periodic credit evaluations of the financial condition of its customers
and typically does not require collateral from them. Management assesses the
need for allowances for potential credit losses by considering the credit risk
of specific customers, historical trends and other information.
(l) Fair Values of Financial Assets and Financial Liabilities
The carrying values of cash and cash equivalents, accounts receivable
trade, accounts payable and accrued liabilities approximate their fair values
due to the relatively short periods to maturity of the instruments. In addition,
the carrying values of obligations under capital leases, redeemable convertible
special shares and special warrants approximate their fair values. The following
methods and assumptions were used to estimate the fair value of the following
financial instruments:
(i) Redeemable convertible special shares and special warrants -- at the
present value of contractual future payments of dividends and capital,
discounted at the current market rates of interest available to the
Company for the same or similar instrument.
F-9
<PAGE> 75
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ii) Obligations under capital leases -- at the present value of the
contractual future payments of principal and interest, discounted at
the current market rates of interest available to the Company for the
same or similar debt instrument.
(m) Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and presentation of comprehensive income. This standard defines
comprehensive income as the changes in equity of an enterprise except those
resulting from shareholder transactions. Comprehensive loss for the period from
May 7, 1998 (inception) to March 31, 1999, the period from May 7, 1998
(inception) to December 31, 1998 and the nine months ended December 31, 1999,
was not materially different from net loss for the periods.
(n) Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 was
adopted by the Company in 1998. SFAS No. 131 establishes standards for
disclosures about operating segments, product and services, geographic areas and
major customers. The Company operates in a single reportable operating segment,
that is the developing and marketing of interaction-based e-business
communications applications.
In March 1998, the AICPA issued Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Development or Obtained for
Internal Use," ("SOP No. 98-1"). SOP No. 98-1 requires entities to capitalize
certain costs related to internal use software once certain criteria have been
met. SOP 98-1 was adopted by the Company in 1998. The adoption of SOP No. 98-1
did not have a material impact on the Company's financial position or results of
operations.
In April 1998, the AICPA issued Statement of Position No. 98-5, "Reporting
on the Costs of Start-Up Activities" ("SOP No. 98-5") which provides guidance on
the financial reporting of start-up costs. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. SOP 98-5 was
adopted by the Company in 1998. As the Company had not capitalized such costs,
the adoption of SOP 98-5 did not have an impact on the Company's financial
position or results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 establishes accounting and reporting standards requiring
that every derivative instrument be recorded in the balance sheet as either an
asset or liability measured at its fair value. SFAS No. 133, as recently
amended, is effective for the fiscal year ending March 31, 2002. Management
believes the adoption of SFAS No. 133 will not have a material effect on the
Company's financial position or results of operations.
In December 1998, the AICPA issued Statement of Position No. 98-9,
"Modification of SOP No. 97-2, Software Revenue Recognition with respect to
Certain Transactions" ("SOP No. 98-9"). SOP No. 98-9 amends SOP No. 97-2 to
require the entity to recognize revenue for multiple element arrangements by
means of the "residual method" when:
(a) there is vendor-specific evidence of the fair values of all of the
undelivered elements that are not accounted for by means of long-term
contract accounting;
(b) vendor-specific evidence of fair value does not exist for one or more
of the delivered elements; and
(c) all revenue recognition criteria of SOP No. 97-2, other than the
requirement for vendor-specific evidence of the fair value of each
delivered element, are satisfied.
F-10
<PAGE> 76
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SOP No. 98-9 was adopted by the Company commencing April 1, 1999. The
adoption of SOP 98-9 did not have a material effect on the Company's financial
position or results of operations.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
Furniture and office equipment.............................. $ 33 $ 36
Computer hardware........................................... 96 106
Computer software........................................... 15 15
Assets under capital leases:
Furniture and office equipment............................ 6 332
Computer hardware......................................... 198 799
Computer software......................................... 3 46
--------- -------
351 1,334
Less accumulated depreciation and amortization.............. 33 158
--------- -------
$ 318 $ 1,176
========= =======
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
Accounts payable............................................ $ 304 $ 936
Accrued bonuses............................................. -- 743
Accrued financing costs..................................... -- 196
Other accrued liabilities................................... 214 716
--------- -------
$ 518 $ 2,591
========= =======
</TABLE>
5. BANK LOAN
The bank loan bears interest at bank prime plus 2.5% per annum and was
repaid in December 1999 upon the Company's receipt of its investment tax
credits.
The Company also has a lease line of credit available to a maximum of
$679,000 (Cdn$1,000,000). Refer to note 6 for details as to the amounts utilized
under this line of credit as at December 31, 1999. The lease line of credit is
collateralized with cash for the amount of the line that is used for leasing
equipment.
F-11
<PAGE> 77
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OBLIGATIONS UNDER CAPITAL LEASES
The following is an analysis by year of the future minimum lease payments
for capital leases (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
March 31, 2000.............................................. $ 59
March 31, 2001.............................................. 209
March 31, 2002.............................................. 205
March 31, 2003.............................................. 52
-------
525
Less amount representing interest (at rates ranging from
7.7% to 8.5%)............................................. 49
-------
Balance of obligation....................................... 476
Less current portion........................................ 209
-------
$ 267
=======
</TABLE>
7. REDEEMABLE CONVERTIBLE SPECIAL SHARES AND SPECIAL WARRANTS
Redeemable Convertible Special Shares
The Company is authorized to issue an unlimited number of Class A, Class B
and Class C special shares. In July 1998, the Company issued 4,000,000 Class A
special shares for proceeds of $992,129. During January 1999, the Company issued
3,789,476 Class B special shares for proceeds of $2,382,528. To date, no Class C
special shares have been issued.
The holders of the special shares are entitled to receive dividends, when
declared by the Board of Directors, that will provide the holder with an 8%
cumulative compounding rate of return. To date, there have been no dividends
paid or declared by the Company. The holders of the Class A special shares rank
in preference to the Class B and Class C special shareholders in the event of
liquidation, dissolution or winding-up of the Company. The special shares rank
in preference to the common shares in the event of liquidation, dissolution or
winding-up of the Company.
Each holder of special shares is entitled to that number of votes equal to
the number of common shares into which the special shares are convertible.
The special shares are convertible into common shares at the option of the
holder, initially on a one-for-one basis and, thereafter based on a formula and
subject to adjustments for future dilution. Special shares automatically convert
into common shares at the then applicable conversion rate, upon a public
offering of the Company's common shares at a per share price of not less than a
specified amount, subject to adjustments for future dilution, with aggregate
proceeds in excess of $13,600,000.
In addition, the special shares may not be redeemed by the Company at any
time; however, they may be redeemed by the holder as follows:
(i) After July 31, 2002, up to 50% of the outstanding Class A special
shares may be redeemed at the option of the holder. All of the
outstanding Class A special shares may be redeemed after July 31,
2003. The redemption price for the Class A special shares is $0.255,
plus all accrued but unpaid dividends.
(ii) After December 31, 2002, up to 50% of the outstanding Class B
special shares may be redeemed at the option of the holder. All of the
outstanding Class B special shares may be redeemed after
F-12
<PAGE> 78
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2003. The redemption price for the Class B special shares
is $0.65 per share, plus all accrued but unpaid dividends.
(iii) After June 22, 2003, up to 50% of the outstanding Class C special
shares may be redeemed at the option of the holder. All of the
outstanding Class C special shares may be redeemed after June 22,
2004. The redemption price for the Class C special shares is $0.65 per
share, plus all accrued but unpaid dividends.
Special Warrants
On June 24, 1999, the Company closed a private placement of 4,326,924
special warrants at a price of $3.55 per special warrant for proceeds of
$14,486,978, net of issue costs of $873,602. Each special warrant entitles the
holder, upon exercise and without payment of further consideration, to acquire
one Class C special share of the Company, unless all of the issued and
outstanding Class A and Class B special shares of the Company have been
converted into common shares, in which case each special warrant shall be
exercisable for that number of common shares which is equal to the number of
common shares each Class C special share is then convertible into in accordance
with the articles of the Company.
As part of the special warrant transaction, the Company is required to
file a final prospectus in each jurisdiction in which special warrant holders
are resident, qualifying the shares of the Company to be issued upon exercise of
the special warrants, on or before May 15, 2000. If the final prospectus is not
filed by May 15, 2000, the holder of a special warrant shall be entitled to
acquire, upon exercise of the special warrant, 1.1 Class C special shares,
subject to the same conditions noted above.
On December 7, 1999, the Company's Board of Directors authorized the
initial filing of a registration statement with the Securities and Exchange
Commission that would permit the Company to sell shares of the Company's common
stock in connection with a proposed initial public offering ("IPO"). If the IPO
is consummated under the terms presently anticipated, in connection with the
closing of the proposed IPO, all of the then outstanding shares of the Company's
redeemable convertible special shares and special warrants will automatically
convert into common shares based on their respective conversion ratios. The
effect of the conversion has been reflected as unaudited pro forma shareholders'
equity in the accompanying consolidated balance sheet as at December 31, 1999.
The pro forma basic and diluted loss per common share after giving effect to the
conversion of the redeemable convertible special shares and the special warrants
is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1998 NINE MONTHS
(INCEPTION) TO ENDED
MARCH 31, DECEMBER 31,
1999 1999
-------------- ------------
<S> <C> <C>
Pro forma basic and diluted loss per common share........... $ (0.16) $ (0.19)
======= =======
Numerator for pro forma basic and diluted
loss per common share:
Loss for the period.................................... $(1,689) $(4,246)
======= =======
Denominator for pro forma basic and diluted loss per common
share:
Weighted average common shares............................ 4,887 5,649
Add:
Weighted average common shares on conversion of
redeemable convertible special shares and special
warrants............................................. 5,828 16,185
------- -------
10,715 21,834
======= =======
</TABLE>
F-13
<PAGE> 79
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SHAREHOLDERS' DEFICIENCY
The Company's share capital and loss per common share information has been
restated to reflect a 3-for-2 split of the Company's common shares, which was
approved by the Company's shareholders on January 11, 2000.
Stock Option Plan
The Company's stock option plan (the "Plan") was established for the
benefit of the employees, officers, directors and certain consultants of the
Company. The maximum number of common shares which may be set aside for issuance
under the Plan is 4,500,000 shares, provided that the Board of Directors of the
Company has the right, from time to time, to increase such number subject to the
approval of the shareholders of the Company when required by law or regulatory
authority. Generally, options issued subsequent to March 4, 1999 under the Plan
vest annually over a four-year period. Options issued prior to March 5, 1999
vest annually over a three-year period.
Details of stock option transactions are as follows:
<TABLE>
<CAPTION>
PERIOD FROM MAY 7, 1998 NINE MONTHS ENDED
(INCEPTION) TO MARCH 31, 1999 DECEMBER 31, 1999
----------------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE SHARES PER SHARE
---------- --------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period......... -- -- 1,779,000 $0.13
Granted.................................. 1,779,000 $0.13 1,815,675 $1.58
---------
Outstanding, end of period............... 1,779,000 $0.13 3,594,675 $0.88
========= =========
Options exercisable at end of period..... -- -- 319,376 $0.14
Weighted average fair value of options
granted during the period with exercise
prices equal to fair value at date of
grant.................................. $0.02 --
Weighted average fair value of options
granted during the period with exercise
prices less than fair value at date of
grant.................................. $0.29 $3.31
Weighted average fair value of options
granted during the period with exercise
prices greater than fair value at date
of grant............................... -- --
</TABLE>
The stock options expire at various dates between May 2003 and December
2004.
As of December 31, 1999, the range of exercise prices and weighted average
remaining contractual life of outstanding options were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE -------------------------------
REMAINING WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
RANGE OF EXERCISE PRICES OUTSTANDING (YEARS) PER SHARE EXERCISABLE PER SHARE
- ------------------------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.11................. 1,848,750 3.84 $0.11 319,376 $0.11
0.44................. 1,102,500 4.54 0.44 -- n/a
2.35-3.08............ 288,300 4.81 2.79 -- n/a
3.97-4.52............ 218,625 4.94 4.32 -- n/a
5.23-5.95............ 136,500 4.96 5.39 -- n/a
</TABLE>
F-14
<PAGE> 80
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company recorded deferred stock-based compensation amounting to
$557,000 for the period from May 7, 1998 (inception) to March 31, 1999 and $5.9
million for the nine months ended December 31, 1999. Amortization of deferred
stock-based compensation amounted to $171,000 for the period from May 7, 1998
(inception) to March 31, 1999, $2,000 for the period from May 7, 1998
(inception) to December 31, 1998 and $769,000 for the nine months ended December
31, 1999.
The amortization of deferred stock-based compensation relates to the
following cost of service revenues and operating expense categories (in
thousands):
<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1998 NINE MONTHS
(INCEPTION) TO ENDED
MARCH 31, DECEMBER 31,
1999 1999
-------------- -------------
<S> <C> <C>
Cost of service revenues.................................... $ 18 $144
Sales and marketing......................................... 11 465
Research and development.................................... 1 73
General and administrative.................................. 141 87
---- ----
$171 $769
==== ====
</TABLE>
Had compensation expense for the Company's stock option plans been
determined based on the fair value at the grant dates for the awards under the
plan consistent with the method under SFAS 123 "Accounting for Stock-Based
Compensation", the Company's loss and loss per common share would have been
reported as the pro forma amounts indicated in the table below. To determine the
fair value of each option on the grant date the following assumptions were used:
dividend yield of 0.0%, zero volatility, a weighted average risk free interest
rate of 5.5% and a weighted average expected life of options of 3.5 years. Pro
forma information for the period indicated is as follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1998 NINE MONTHS
(INCEPTION) TO ENDED
MARCH 31, DECEMBER 31,
1999 1999
-------------- -------------
<S> <C> <C>
Loss -- as reported......................................... $(1,689) $(4,246)
Loss -- pro forma......................................... (1,678) (3,942)
Loss per common share -- as reported...................... (0.37) (0.79)
Loss per common share -- pro forma........................ (0.36) (0.74)
Weighted average grant date fair value of options granted
during the period......................................... 0.24 3.31
</TABLE>
Warrant
During January 1999, the Company issued a warrant for no consideration to
an executive of the Company to purchase 394,737 common shares at a price of
$0.44 per share. The warrant expires when the executive ceases to be employed by
the Company or January 5, 2002 whichever is earlier.
Repurchase of Common Shares
During August 1999, the Company acquired 750,000 common shares of the
Company from a former executive of the Company for nominal cash consideration.
F-15
<PAGE> 81
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Escrow Shares
At December 31, 1999, 1,856,250 common shares of the Company are held in
escrow pursuant to escrow arrangements entered into with certain shareholders.
Under the terms of the arrangements 365,625 common shares will be released from
escrow on the last day of each successive calendar quarter subsequent to
December 31, 1999.
9. INCOME TAXES
The provision for income taxes differs from the amount computed by
applying the combined federal and provincial income tax rate of 44.6% to the
loss before provision for income taxes as a result of the following (in
thousands):
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM MAY 7, 1998
MAY 7, 1998 (INCEPTION) NINE MONTHS
(INCEPTION) TO TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Loss for the period................................ $ 1,689 $ 677 $ 4,246
======= ======= =======
Computed expected tax recovery..................... $ 753 $ 302 $ 1,894
Increase (reduction) in income tax recovery
resulting from:
Permanent differences............................ (79) (10) 52
Change in beginning of the year balance of the
valuation allowance allocated to income tax
expense....................................... (718) (326) (1,975)
Additional loss carry forward due to Ontario
Superallowance................................ 44 34 29
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the future tax assets and future tax liabilities at March 31, 1999
and December 31, 1999 are presented below (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
--------- -------------
<S> <C> <C>
Future tax assets:
Non-capital loss carried forward.......................... $ 650 $ 2,154
Research and development expenses deferred for income tax
purposes............................................... 166 160
Share issue costs......................................... -- 428
------- -------
Total gross future tax assets............................. 816 2,742
Less valuation allowance.................................. 718 2,693
------- -------
Net future tax assets..................................... 98 49
Future tax liabilities:
Depreciation and amortization............................. 30 19
Investment tax credits receivable......................... 68 30
------- -------
Total gross future tax liabilities........................ 98 49
------- -------
Net future tax assets (liabilities)....................... $ -- $ --
======= =======
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of
F-16
<PAGE> 82
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers projected future taxable income, uncertainties related to
the industry in which the Company operates, and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences, net of the
existing valuation allowances.
As at March 31, 1999, the Company had $1.8 million of losses and
deductions available to reduce future years' taxable income in Canada, of which
$1.5 million expire in 2006 and the remainder has no expiry date.
10. RELATED PARTY TRANSACTIONS
On June 1, 1999, the Company entered into a professional services
agreement with a company related to a director of the Company in connection with
the management of the Company's European subsidiary. Under the terms of the
agreement, the Company is required to pay certain annual fees, a portion of
which is calculated based on net revenues, as defined, of the European
subsidiary, with the option of converting all or part of this portion into
common shares of the Company subject to certain terms. As at December 31, 1999,
the Company has accrued fees aggregating $101,800 in respect of this agreement.
The Company has accrued consulting fees payable to a shareholder of the
Company amounting to nil for the periods ended March 31, 1999 and December 31,
1998 and $60,900 for the nine months ended December 31, 1999.
11. SEGMENTED INFORMATION
The Company reviewed its operations and determined that it operates in a
single reportable operating segment, being the development and marketing of
interaction-based e-business communications applications. All long-lived assets
relating to the Company's operations are located in Canada. Revenue per
geographic location, which is attributable to geographic location based on the
location of the external customer, is as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 7, 1998 MAY 7, 1998 NINE MONTHS
(INCEPTION) TO (INCEPTION) TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- -------------- ------------
<S> <C> <C> <C>
Revenue by geographic locations:
United States.................................... $ -- $ -- $3,723
Canada........................................... -- -- 1,613
Europe........................................... -- -- 21
------- ------- ------
$ -- $ -- $5,357
======= ======= ======
</TABLE>
For the nine months ended December 31, 1999, one customer accounted for
26% of total revenues. As at December 31, 1999, the Company had a receivable
from two significant customers amounting to 18% and 15% of total accounts
receivable trade, respectively.
F-17
<PAGE> 83
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUPPLEMENTARY CASH DISCLOSURES:
Supplementary cash disclosures are as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM MAY 7, 1998
MAY 7, 1998 (INCEPTION) NINE MONTHS
(INCEPTION) TO TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest........................... $ 1 $ -- $ 39
======= ======= =======
Supplemental disclosure of non-cash investing and
financing activities:
Capital lease obligations incurred for purchase
of capital assets............................. $ 99 $ -- $ 656
======= ======= =======
Deferred compensation on the grant of options to
purchase common shares with an exercise price
below fair value.............................. $ 557 $ -- $ 5,885
======= ======= =======
</TABLE>
13 LOSS PER COMMON SHARE
The following table reconciles the numerators and denominators of the
basic and diluted loss per common share computation (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM MAY 7, 1998
MAY 7, 1998 (INCEPTION) NINE MONTHS
(INCEPTION) TO TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Numerator for basic and diluted loss per common
share:
Loss for the period.............................. $ (1,689) $ (677) $ (4,246)
Less: accretion of dividends on redeemable
convertible special shares.................... (101) -- (212)
-------- -------- --------
Loss applicable to common shares................. $ (1,790) $ (677) $ (4,458)
======== ======== ========
Denominator for basic and diluted loss per common
share:
Weighted average common shares................... 4,887 4,210 5,649
======== ======== ========
Basic and diluted loss per common share............ $ (0.37) $ (0.16) $ (0.79)
======== ======== ========
</TABLE>
Due to the loss for all periods presented, all potential common shares
outstanding are considered anti-dilutive and are excluded from the calculation
of diluted loss per common share.
F-18
<PAGE> 84
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. LEASE COMMITMENTS
The Company is required to make minimum payments under the terms of
operating leases for premises, property and equipment expiring on various dates
to December 31, 2005. Future minimum lease payments by fiscal year are as
follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 167
2001........................................................ 614
2002........................................................ 423
2003........................................................ 419
2004........................................................ 413
thereafter.................................................. 413
------
$2,449
======
</TABLE>
Rent expense was $62,274, $37,042 and $207,180 for the period from May 7,
1998 (inception) to March 31, 1999, for the period from May 7, 1998 (inception)
to December 31, 1998 and for the nine months ended December 31, 1999,
respectively.
15. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
F-19
<PAGE> 85
[DESCRIPTION OF INSIDE BACK COVER ARTWORK]
[The Delano logo appears in the upper right corner. To its left appear pictures
of (1) a man and a woman shaking hands, (2) a computer screen and (3) a globe
floating above two hands.
Underneath the pictures and logo appear the following:]
DELANO TECHNOLOGY CORPORATION is a provider of
e-business communications software
DIRECTORIES --
DELANO E-BUSINESS -- IT SYSTEMS
INTERACTION SERVER AND ENTERPRISE
APPLICATIONS
DATABASES --
| |
| |
MAIL SERVER WEB SERVER
| |
- -------------------------------------------------------------------------------
| |
E-MAIL CLIENT WEB BROWSER CUSTOMERS
SUPPLIERS
PARTNERS
EMPLOYEES
Our e-business communications software integrates with and leverages
existing databases, directories and other enterprise IT systems to
permit our clients to interact over the internet and enhance their
existing e-business strategy.
<PAGE> 86
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 SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY
THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 12, 2000
[DELANO LOGO]
5,000,000 SHARES
COMMON SHARES
Delano Technology Corporation is offering 5,000,000 of its common shares.
This is our initial public offering and no public market currently exists for
our shares. We have applied to have the shares approved for quotation on the
Nasdaq National Market under the symbol "DTEC." We anticipate that the initial
public offering price will be between $9.00 and $11.00 per share.
------------------------------
INVESTING IN THE COMMON SHARES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Commissions.................................... $ $
Proceeds to Delano.......................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We have granted the underwriters a 30-day option to purchase up to
750,000 additional common shares to cover over-allotments.
------------------------------
ROBERTSON STEPHENS INTERNATIONAL
U.S. BANCORP PIPER JAFFRAY
CIBC WORLD MARKETS
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE> 87
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., U.S. Bancorp Piper Jaffray Inc. and CIBC
World Markets Corp., have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
common shares set forth opposite their names below. The underwriters are
committed to purchase and pay for all of the shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
- ----------------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc. ........................
U.S. Bancorp Piper Jaffray Inc. ............................
CIBC World Markets Corp. ...................................
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL UNDERWRITERS
- --------------------------
<S> <C>
FleetBoston Robertson Stephens International Limited........
U.S. Bancorp Piper Jaffray Inc. ............................
CIBC World Markets Corp. ...................................
---------
Total.................................................. 5,000,000
=========
</TABLE>
We have been advised that the underwriters propose to offer our common
shares to the public at the public offering price located on the cover page of
this prospectus and to dealers at that price less a concession of not in excess
of $ per share, of which $ may be reallowed to other dealers. After
the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No reduction in
this price will change the amount of proceeds to be received by us as indicated
on the cover page of this prospectus.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 750,000 additional common shares to cover over-allotments, if
any, at the same price per share as we will receive for the 5,000,000 shares
that the underwriters have agreed to purchase. To the extent that the
underwriters exercise this option, each of the underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
shares that the number of common shares to be purchased by it shown in the above
table represents as a percentage of the 5,000,000 shares offered by this
prospectus. If purchased, the additional shares will be sold by the underwriters
on the same terms as those on which the 5,000,000 shares are being sold. We will
be obligated, under this option, to sell shares to the extent the option is
exercised. The underwriters may exercise the option only to cover
over-allotments made in connection with the sale of the 5,000,000 common shares
offered by this prospectus.
57
<PAGE> 88
Underwriting commissions. The underwriting commissions will be an amount
equal to the public offering price per share, less the amount paid per share by
the underwriters to us. We currently expect that the underwriting commissions
will equal 7% of the public offering price. The following table shows the per
share and total underwriting commissions to be paid by us to the underwriters.
This information is presented assuming either no exercise or full exercise by
the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OPTION OPTION
--------- -------------- --------------
<S> <C> <C> <C>
Assumed public offering price....................... $10.00 $50,000,000 $57,500,000
Estimated underwriting commissions.................. 0.70 3,500,000 4,025,000
------ ----------- -----------
Estimated proceeds, before expenses, to us.......... $ 9.30 $46,500,000 $53,475,000
====== =========== ===========
</TABLE>
The expenses of the offering, other than underwriting commissions, payable
by us are estimated at $800,000. FleetBoston Robertson Stephens Inc. expects to
deliver the common shares to purchasers on , 2000.
Canadian Imperial Bank of Commerce ("CIBC"), the parent of CIBC World
Markets Corp., one of the representatives of the underwriters, will own an
estimated 1,297,047 common shares upon our amalgamation with XDL Delano Holdings
Inc. See "Principal Shareholders."
In June 1999, CIBC acquired beneficial ownership of 29,253 special
warrants for an aggregate price of $103,264 as part of a private placement of
special warrants. See "Description of Share Capital -- Special Warrants." In
connection with the completion of this offering, the special warrants
beneficially owned by CIBC will be exercised into 29,253 common shares. CIBC's
purchase of special warrants was made on the same terms given to the other
purchasers in the private placement. Under the rules of the National Association
of Securities Dealers, Inc., CIBC's purchase of special warrants may be deemed
to be underwriting compensation in connection with this offering. In accordance
with the rules of the National Association of Securities Dealers, Inc., the
common shares that will be received by CIBC upon the conversion of its special
warrants will be restricted from sale or other transfer until one year after the
date of this prospectus, except as permitted by those rules.
Directed Share Program. The underwriters have reserved up to five percent
of the common shares to be issued by us and offered for sale in this offering,
at the initial public offering price, to directors, officers, employees,
business associates and persons otherwise connected to Delano. The number of
common shares available for sale to the general public will be reduced to the
extent these individuals purchase reserved shares. Any reserved shares which are
not purchased will be offered by the underwriters to the general public on the
same basis as the other shares offered in this offering.
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act, and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Agreements Not to Sell Shares. We expect that holders of a total of
23,424,598 common shares, including all of our executive officers and directors,
will agree that, during the period ending 180 days after the date of this
prospectus, subject to limited exceptions, not to offer to sell, contract to
sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any common shares or any options or warrants to purchase any common
shares, or any securities convertible into or exchangeable for common shares
owned as of the date of this prospectus or later acquired directly by such
holders or with respect to which they have the power of disposition, without the
prior written consent of FleetBoston Robertson Stephens Inc. However,
FleetBoston Robertson Stephens Inc. may, in its sole discretion and at any time
without notice, release all or any portion of securities subject to these
agreements not to sell shares. There are no existing agreements between the
representatives of the underwriters and any of our shareholder providing consent
to the sale of shares prior to the expiration of the respective periods.
58
<PAGE> 89
Future Sales by Us. In addition, we have agreed that during the 180 days
after the date of this prospectus, we will not, without the prior written
consent of FleetBoston Robertson Stephens Inc., subject to certain exceptions,
(a) consent to the disposition of any shares held by shareholders subject to
agreements not to sell shares prior to the expiration of the respective periods,
(b) issue, sell, contract to sell, or otherwise dispose of, any common shares,
any options to purchase any common shares or any securities convertible into,
exercisable for or exchangeable for common shares other than our sale of shares
in this offering, the issuance of common shares upon the exercise of outstanding
options, and the issuance of options under existing stock option and incentive
plans, provided such options do not vest prior to the expiration of the 180-day
period or (c) issue up to 1,000,000 common shares in connection with
acquisitions of businesses or assets of businesses or in connection with
strategic alliances; provided that
- each person receiving common shares enters into a lock-up agreement
pursuant to which they agree not to dispose of or hedge any of their
common shares for 180 days following the date of this prospectus
without the consent of FleetBoston Robertson Stephens Inc. on behalf of
the underwriters; and
- we do not grant any rights that are exercisable for a period of six
months from the date we sign the purchase agreement with the
underwriters entitling the persons receiving common shares to require
us to register their shares under the U.S. Securities Act.
See "Shares Eligible for Future Sale."
Listing. We have applied to have our common shares approved for quotation
on the Nasdaq National Market under the symbol "DTEC."
No Distribution in Canada. The common shares may be offered in Canada by
the underwriters or their Canadian affiliates pursuant to a prospectus
qualifying the common shares for distribution in certain provinces of Canada or
pursuant to prospectus exemptions under applicable securities legislation. Each
of the underwriters has agreed that it will only distribute common shares in
Canada in accordance with prospectus and registration requirements of applicable
securities legislation or exemptions from these requirements.
No Prior Public Market. Prior to this offering, there has been no public
market for our common shares. Consequently, the initial public offering price
for the common stock offered by this prospectus will be determined through
negotiations among us and the representatives. Among the factors to be
considered in these negotiations are prevailing market conditions, our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Stabilization. The representatives have advised us that, under Regulation
M under the U.S. Securities Exchange Act, some participants in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of our common shares at a level
above that which might otherwise prevail in the open market. A "stabilizing bid"
is a bid for or the purchase of the common shares on behalf of the underwriters
for the purpose of fixing or maintaining the price of the common shares. A
"syndicate covering transaction" is the bid for or the purchase of the common
shares on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with this offering
if the common shares originally sold by the underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The representatives have advised us that such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
59
<PAGE> 90
<PAGE> 91
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTIONS
The following table sets forth the expenses payable by us in connection
with the sale of the common stock being registered, other than the underwriting
discounts and commissions. All amounts are estimates except the SEC registration
fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 16,698
NASD filing fee............................................. 6,825
Nasdaq National Market Fee.................................. 95,000
Blue Sky fees and expenses.................................. 10,000
Printing and engraving expenses............................. 125,000
Legal fees and expenses..................................... 325,000
Transfer Agent and Registrar fees........................... 10,000
Accounting fees and expenses................................ 150,000
Miscellaneous............................................... 61,477
--------
Total....................................................... $800,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with the Business Corporations Act (Ontario), the By-laws of
the Registrant provide that the Registrant shall indemnify a present or former
director or officer or a person who acts or acted at the Registrant's request as
a director or officer of another company of which the Registrant is or was a
stockholder or creditor, and his heirs and legal representatives, against all
costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment, reasonably incurred by him in respect of any civil, criminal
or administrative action or proceeding to which he is made a party by reason of
such position, provided that the director or officer acted honestly and in good
faith with a view to the best interests of the Registrant and, in the case of a
criminal or administrative action or proceeding that is enforced by a monetary
penalty, had reasonable grounds for believing that his conduct was lawful. Such
indemnification may, with the approval of the court, be made in connection with
the procuring of a judgment in favor of the Registrant or such other company if
the conditions set forth above have been fulfilled. Notwithstanding the
foregoing, a director or officer is entitled to indemnification from the
Registrant as a matter of right if he was substantially successful on the merits
in defense of the action or proceeding and fulfilled the conditions set forth
above.
A policy of directors' and officers' liability insurance is maintained by
the Registrant which insures directors and officers of the Registrant and its
subsidiaries against liability incurred by, arising from or against them for
certain of their acts, errors or omissions.
The form of Underwriting Agreement filed herewith as Exhibit 1.1 contains
provisions by which the Underwriters agree to indemnify the Registrant, each
person who controls the Registrant within the meaning of the Securities Act, as
amended, and each officer and director of the Registrant, with respect to
information furnished by the Underwriters for use in this Registration
Statement.
Reference is made to Item 17 for the undertakings of the Registrant with
respect to indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act").
II-1
<PAGE> 92
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Securities sold:
1. On May 7, 1998, the Registrant issued one common share at a price of
Cdn$1.00 for an aggregate consideration of Cdn$1.00. The common share
was issued to an employee in Canada in trust for a corporation in
Canada. The transaction was exempt under Regulation S under the
Securities Act. This share was repurchased by the Registrant on July
16, 1998.
2. On July 17, 1998, the Registrant issued 6,000,000 common shares at a
price of Cdn$0.0007 per share for an aggregate consideration of
Cdn$4,000. All of the common shares were issued to employees in
Canada. The transaction was exempt under Regulation S under the
Securities Act.
3. On July 17, 1998, the Registrant issued 2,400,000 Class A special
shares at a price of Cdn$0.375 per share for an aggregate
consideration of Cdn$900,000. All of the Class A preferred shares were
issued to a person in Canada. The transaction was exempt under
Regulation S under the Securities Act.
4. On September 30, 1998, the Registrant issued 1,600,000 Class A
special shares at a price of Cdn$0.375 per share for an aggregate
consideration of Cdn$600,000. All of the Class A special shares were
issued to a person in Canada. The transaction was exempt under
Regulation S under the Securities Act.
5. On January 4, 1999, the Registrant issued a warrant to an employee
in Canada. This warrant is exercisable into 394,737 common shares at
an exercise price of Cdn$0.95 per share. The transaction was exempt
under Regulation S under the Securities Act.
6. On January 25, 1999, the Registrant issued 3,473,686 Class B special
shares at a price of Cdn$0.95 per share for an aggregate consideration
of Cdn$3,300,001.70. Of the 3,473,686 Class B special shares issued,
3,157,896 were sold to persons in Canada and were exempt under
Regulation S under the Securities Act, and 315,790 were sold to
accredited investors in the United States pursuant to Section 4(2) of
the Securities Act.
7. On February 4, 1999, the Registrant issued 315,790 Class B special
shares at a price of Cdn$0.95 per share for an aggregate consideration
of Cdn$300,000.50. All of the shares were issued to persons in Canada.
The transaction was exempt under Regulation S under the Securities
Act.
8. On June 24, 1999, the Registrant issued 4,326,924 special warrants.
Each special warrant is exercisable into one Class C preferred share.
The special warrants were issued at Cdn$5.20 per special warrant for
an aggregate consideration of Cdn$22,500,004.80. Griffiths McBurney &
Partners, First Marathon Securities and Charles Schwab Canada acted as
agents in connection with such sales and were paid an aggregate
commission of Cdn$1,037,072. Of the 4,326,924 special warrants issued,
3,889,924 were sold to persons in Canada and were exempt under
Regulation S under the Securities Act, and 437,000 were sold to
accredited investors in the United States pursuant to Section 4(2) of
the Securities Act.
(b) Underwriters and Other Purchasers.
See (a) above.
(c) Consideration.
See (a) above.
(d) Exemption from Registration Claimed.
See (a) above.
II-2
<PAGE> 93
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
The following exhibits are attached hereto:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------- -----
<S> <C>
1.1* Form of Underwriting Agreement
3.1 Articles of Incorporation of the Registrant
3.2 By-laws of the Registrant
4.1* Specimen Common Share certificate
5.1* Opinion of Osler, Hoskin & Harcourt LLP as to the legality
of the securities offered hereby
8.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
certain U.S. Federal tax matters
8.2* Opinion of Osler, Hoskin & Harcourt LLP as to certain
Canadian Federal tax matters
10.1 Registration Rights Agreement, dated as of January 27, 1999,
between the Registrant and certain shareholders of the
Registrant
10.2 Agency Agreement, dated as of June 24, 1999, between the
Registrant and the Agents named therein
10.3 Professional Services Agreement, dated June 1, 1999, between
the Registrant and Protege Software Limited
10.4 Form of Subscription Agreement, dated July 17, 1998 between
the Registrant and each of Robert Gayle, Bahman Koohestani,
John Mah and Sean Maurik
10.5 Form of Subscription Agreement, dated July 17, 1998, between
the Registrant and Bahman Koohestani
10.6 Credit Facility, dated July 5, 1998 between the Registrant
and Royal Bank of Canada
10.7 Sub-lease Agreement, dated December 16, 1998 between the
Registrant and MGI Software Corp.
10.8 Lease Agreement, dated November 17, 1999 between the
Registrant and 302 Town Centre Limited.
10.9 Stock Option Plan
10.10 Employment Agreement, dated November 23, 1998, between John
Foresi and the Registrant
10.11 Employment Agreement, dated February 26, 1998, between
Bahman Koohestani and the Registrant
10.12 Employment Agreement and Form of Confidentiality Agreement
between the Registrant and its executive officers
10.13 Employee Stock Purchase Plan
23.1* Consent of Osler, Hoskin & Harcourt LLP (included in
Exhibits 5.1 and 8.2)
23.2* Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 8.1)
23.3 Consent of KPMG LLP
24.1 Powers of Attorney (contained on the signature pages of this
Registration Statement)
</TABLE>
- ------------
* To be supplied by amendment.
B. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or the required
information is shown in our consolidated financial statements and related notes.
II-3
<PAGE> 94
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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 part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, 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.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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 Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 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 whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(4) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on 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 Toronto, Province of Ontario, Canada, on January 12,
2000.
DELANO TECHNOLOGY CORPORATION
/s/ JOHN FORESI
By:
--------------------------------------
John Foresi
President and Chief Executive
Officer
II-5
<PAGE> 96
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each officer or director of Delano
Technology Corporation whose signature appears below constitutes and appoints
John Foresi and Thomas Hearne, and each of them, with full power to act without
the other, his true and lawful attorneys-in-fact and agents, with full and
several power of substitution, for him and in his name, place and stead, in any
and all capacities, to execute any or all amendments, including post-effective
amendments, and supplements to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by or on behalf of the following
persons in the capacities indicated and on January 12, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JOHN FORESI President and Chief
- --------------------------------------------- Executive Officer, Director
John Foresi (Principal Executive Officer)
/s/ THOMAS HEARNE Chief Financial Officer
- --------------------------------------------- (Principal Financial Officer
Thomas Hearne and Principal Accounting Officer)
/s/ DENNIS BENNIE Chairman of the Board of Directors
- ---------------------------------------------
Dennis Bennie
/s/ ALBERT AMATO Director
- ---------------------------------------------
Albert Amato
/s/ IAN GIFFEN Director
- ---------------------------------------------
Ian Giffen
/s/ BAHMAN KOOHESTANI Director
- ---------------------------------------------
Bahman Koohestani
/s/ DONALD WOODLEY Director
- ---------------------------------------------
Donald Woodley
</TABLE>
II-6
<PAGE> 97
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, the
undersigned certifies that it is the duly authorized United States
representative of Delano Technology Corporation and has duly caused this
Registration Statement to be signed on behalf of each of them by the
undersigned, thereunto duly authorized, in the City of Toronto, Province of
Ontario, on January 12, 2000.
DELANO TECHNOLOGY INC.
(Authorized United States
Representative)
By: /s/ THOMAS HEARNE
-------------------------------------
Thomas Hearne
Chief Financial Officer and Secretary
II-7
<PAGE> 98
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Articles of Incorporation of the Registrant
3.2 By-laws of the Registrant
4.1* Specimen Common Share certificate
5.1* Opinion of Osler, Hoskin & Harcourt LLP as to the legality
of the securities offered hereby
8.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
certain U.S. Federal tax matters
8.2* Opinion of Osler, Hoskin & Harcourt LLP as to certain
Canadian Federal tax matters
10.1 Registration Rights Agreement, dated as of January 27, 1999,
between the Registrant and certain shareholders of the
Registrant
10.2 Agency Agreement, dated as of June 24, 1999, between the
Registrant and the Agents named therein
10.3 Professional Services Agreement, dated June 1, 1999, between
the Registrant and Protege Software Limited
10.4 Form of Subscription Agreement, dated July 17, 1998 between
the Registrant and each of Robert Gayle, Bahman Koohestani,
John Mah and Sean Maurik
10.5 Form of Subscription Agreement, dated July 17, 1998, between
the Registrant and Bahman Koohestani
10.6 Credit Facility, dated July 5, 1998 between the Registrant
and Royal Bank of Canada
10.7 Sub-lease Agreement, dated as of December 16, 1998 between
the Registrant and MGI Software Corp
10.8 Lease Agreement, dated November 17, 1999 between the
Registrant and 302 Town Centre Limited
10.9 Stock Option Plan
10.10 Employment Agreement, dated November 23, 1998, between John
Foresi and the Registrant
10.11 Employment Agreement, dated February 26, 1998, between
Bahman Koohestani and the Registrant
10.12 Employment Agreement and Form of Confidentiality Agreement
between the Registrant and its executive officers
10.13 Employee Stock Purchase Plan
23.1* Consent of Osler, Hoskin & Harcourt LLP (included in
Exhibits 5.1 and 8.2)
23.2* Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 8.1)
23.3 Consent of KPMG LLP
24.1 Powers of Attorney (contained on the signature pages of this
Registration Statement)
</TABLE>
- ------------
* To be supplied by amendment.
<PAGE> 1
Exhibit 3.1
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la societe en Ontario
1294608
Ministry of Ministere de
[LOGO] Consumer and la Consommation
Commercial Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les presents
articles are effective on status entrant en vigueur le
MAY 7 MAI, 1998
- -------------------------------------------------------------
(Signed)
Director / Directeur
Business Corporations Act / Loi sur les societes par actions
<TABLE>
<S> <C> <C> <C> <C> <C>
TRANS Line Corp Method
CODE No. Stat Type Incorp.
A 0 0 A 3
18 20 28 29 30
Notice
Share Req'd Jurisdiction
S N ONTARIO
31 32 33 47
</TABLE>
ARTICLES OF INCORPORATION
STATUTS CONSTITUTIFS
Form 1 Business Corporations Act
Formule 1 Loi sur les societes par actions
1. The name of the corporation is:
Denomination sociale de la societe:
DELANO TECHNOLOGY CORPORATION
2. The address of the registered office is:
Adresse du siege social:
40 Sheppard Avenue West, Suite 206
---------------------------------------------------------------------------
(Street & Number or R.R. Number & if Multi-Office Building give Room No.)
(Rue et numero ou numero de la R.R. et, s'il s'agit
d'un edifice a bureaux, numero de bureau)
Toronto, Ontario M2N 6K9
---------------------------------------------------------------------------
(Name of Municipality or Post Office) (Postal Code)
(Nom de la municipalite ou du bureau de poste) (Code postal)
3. Number (or minimum and maximum number) of directors is:
Nombre (ou nombres minimal et maximal) d'adminstrateurs:
A minimum of one (1) and a maximum of ten (10).
4. The first director(s) is/are:
Premier(s) administrateur(s):
<TABLE>
<S> <C> <C>
First name, initials and surname Residence address giving Street & Resident Canadian State
No. or R.R. No., Municipality and Yes or No
Postal Code
Prenom, initials et nom de famille Adresse personnelle, y compris la Resident canadien
rue et le numero, le numero de la Oui/Non
R.R., le nom de la municipalite et
le code postal
Bahman Koohestani 16 Portsmith Road Yes
Toronto, ON M2L 2W8
Dennis Bennie 52 Owen Blvd. Yes
Toronto, ON M2P 1E9
</TABLE>
<PAGE> 2
2
5. Restrictions, if any, on business the corporation may carry on or on powers
the corporation may exercise.
Limites, s'il y a lieu, imposees aux activites commerciales ou aux
pouvoirs de la societe:
None
6. The classes and any maximum number of shares that the corporation is
authorized to issue.
Categories et nombre maximal, s'il y a lieu, d'actions que la societe est
autorisee a emettre:
An unlimited number of Common Shares.
<PAGE> 3
7. Rights, privileges, restrictions and conditions (if any) attaching to each
class of shares and directors authority with respect to any class of shares
which may be issued in series:
Droits, privileges, restrictions et conditions, s'il y a lieu, rattaches a
chaque categorie d'actions et pouvoirs des administrateurs relatifs a
chaque categorie d'actions qui peut etre emise en serie:
N/A
<PAGE> 4
8. The issue, transfer or ownership of shares is/is not restricted and the
restrictions (if any) are as follows:
L'emission, le transfert ou la propriete d'actions est/n'est pas restreint.
Les restrictions, s'il y a lieu, sont les suivantes:
The shares of the Corporation shall not be transferred without the approval
of the board of directors of the Corporation to be evidenced by a
resolution of the board.
<PAGE> 5
9. Other provisions (if any) are:
Autres dispositions, s'il y a lieu:
1. The number of shareholders of the Corporation exclusive of persons who are
in its employment and exclusive of persons who, having been formerly in the
employment of the Corporation, were, while in that employment, and have
continued after termination of that employment to be, shareholders of the
Corporation, is limited to not more than fifty, two or more persons who are the
joint registered owners of one or more shares being counted as one shareholder.
2. Any invitation to the public to subscribe for shares or other securities
of the Corporation shall be prohibited.
<PAGE> 6
6
10. The names and addresses of the incorporators are:
Nom et adresse des fondateurs:
<TABLE>
<S> <C>
First name, initials and surname or Full residence address or address
corporate name of registered office or of principal
place of business giving street &
No. or R.R. No., municipality and
postal code
Prenom, initiale et nom de famile ou Adresse personnelle au complet,
denomination sociale adresse du siege social ou adresse
de l'etablissement principal, y
compris la rue et le numero ou le
numero de la R.R., le nom de la
municipalite et le code postal
Bahman Koohestani 16 Portsmith Road
Toronto, ON M2L 2W8
Dennis Bennie 52 Owen Blvd.
Toronto, ON M2P 1E9
</TABLE>
These articles are signed in duplicate.
Les presents status sont signes en double exemplaire.
---------------------------------------------------------------------------
Signatures of incorporators
(Signatures des fondateurs)
(Signed) (Signed)
---------------------------------- ------------------------------------
Bahman Koohestani Dennis Bennie
<PAGE> 7
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la societe en Ontario
1294608
Ministry of Ministere de
[LOGO] Consumer and la Consommation
Commercial Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que las presents
articles are effective on status entrant en vigueur le
JULY 15 JUILLET, 1998
- -------------------------------------------------------------
(Signed)
Director / Directeur
Business Corporations Act / Loi sur les societes par actions
TRANS
CODE
C
18
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 Business Corporations Act
Formule numero 3 Loi sur les compagnies
1. The present name of the corporation is:
Denomination sociale actuelle de la compagnie:
DELANO TECHNOLOGY CORPORATION
2. The name of the corporation is changed to (if applicable):
Nouvelle denomination sociale de la compagnie (s'il y a lieu):
N/A
3. Date of incorporation/amalgamation:
Date de la constitution ou de la fusion:
7 May 1998
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are amended as follows:
Les statuts de la compagnie sont modifies de la facon suivante:
(a) to create an unlimited number of Class A Preferred Shares;
(b) to provide that the existing Common Shares and the Class A Preferred
Shares shall have attached thereto the following rights, privileges,
restrictions and conditions as set out in the attached Schedule A.
<PAGE> 8
1A
DELANO TECHNOLOGY CORPORATION
ARTICLES OF AMENDMENT
SCHEDULE A
COMMON SHARES
1. VOTING RIGHTS
Each holder of Common Shares shall be entitled to receive notice of and to
attend all meetings of shareholders of the Corporation and to vote thereat,
except meetings at which only holders of a specified class of shares (other than
Common Shares) or specified series of shares are entitled to vote. At all
meetings of holders of Common Shares, each holder of Common Shares shall be
entitled to one vote in respect of each Common Share held by such holder.
2. DIVIDENDS
The Common Shares shall be entitled, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of the
Corporation, to receive any dividend declared by the Board of Directors of the
Corporation.
3. LIQUIDATION, DISSOLUTION OR WINDING-UP
In the event of any liquidation, dissolution on winding-up of the Corporation or
other distribution of assets of the Corporation among its shareholders for the
purpose of winding-up its affairs, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of the
Corporation, the assets and funds of the Corporation available for distribution
to shareholders shall be distributed among the holders of the Common Shares and
the Class A Preferred Shares and any other class or series of shares entitled to
participate in a liquidation distribution with the holders of Common Shares, pro
rata based on the number of Common Shares held by each holder (assuming
conversion into Common Shares of all Class A Preferred Shares) and any other
participating outstanding series or class of shares convertible into Common
Shares.
CLASS A PREFERRED SHARES
1. DIVIDENDS
The holders of outstanding Class A Preferred Shares shall be entitled to
receive, in any fiscal year, annually or when otherwise as declared by the Board
of Directors and to the extent permitted under the Business Corporations Act
(Ontario), dividends in cash at the rate of $0.03 per share per annum plus an
amount per share equal to 8% per annum of the accrued and unpaid dividends
thereon (providing for an 8% cumulative compounding return), which shall accrue
as provided herein, before
<PAGE> 9
1B
any dividend is paid on the Common Shares. Such dividends shall accrue on
outstanding Class A Preferred Shares cumulatively, commencing on the date of the
original issuance thereof, on a daily basis. Except to the extent otherwise
permitted by these Articles, dividends or distributions may be declared and paid
upon Common Shares in any fiscal year of the Corporation only if all accrued
dividends shall have been paid on all Class A Preferred Shares in accordance
with this section. If, after payment of such dividends to holders of the Class A
Preferred Shares, dividends are paid to holders of Common Shares, the holders of
outstanding Class A Preferred Shares shall be entitled to receive, out of any
assets at the time legally available therefor, additional dividends per share
equal to the per share dividends paid to holders of Common Shares (treating each
Class A Preferred Share as being equal to the number of Common Shares into which
each such Class A Preferred Share could be converted pursuant to Section 4
(Conversion) hereof, with such number determined as of the record date for the
determination of holders of Common Shares entitled to receive such dividend).
2. LIQUIDATION, DISSOLUTION OR WINDING-UP
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of Class A
Preferred Shares shall be entitled to receive, prior and in preference
to any distribution of any of the assets of the Corporation to the
holders of the Common Shares, by reason of their ownership thereof,
the Class A Redemption Price (as defined in paragraph 5(c) below) for
each Class A Preferred Share then held by such holders. If the amount
available for such distribution is insufficient to pay the Class A
Redemption Price on all outstanding Class A Preferred Shares, the
assets available for distribution shall be distributed among the
holders of the Class A Preferred Shares pro rata in accordance with
the total number of Class A Preferred Shares held by such holders.
(b) After the payment of all preferential amounts required to be paid to
the holders of the Class A Preferred Shares and any other class or
series of shares of the Corporation ranking on liquidation on a parity
with the Class A Preferred Shares, upon the liquidation, dissolution
or winding up of the Corporation, the remaining assets and funds of
the Corporation available for distribution to its shareholders shall
be distributed among the holders of the Class A Preferred Shares and
the Common Shares and any other class or series of shares entitled to
participate in liquidation distributions with the holders of Common
Shares, pro rata based on the number of Common Shares held by each
holder (assuming conversion into Common Shares of all Class A
Preferred Shares) and any other participating outstanding series or
class of shares convertible into Common Shares.
(c) The amalgamation, merger or consolidation of the Corporation into or
with another corporation (where the shareholders of the Corporation
are not the majority shareholders of the merged entity), or the sale
of all or substantially all the assets of the Corporation, shall be
deemed a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 2 unless the prior written consent to such
<PAGE> 10
1C
transaction is obtained from the holders of at least two-thirds of the
outstanding Class A Preferred Shares.
(d) In the event of a liquidation, dissolution or winding up of the
Corporation resulting in the availability of assets other than cash
for distribution to the holders of Class A Preferred Shares, the cash
amount deemed distributed to such holders shall be the cash value of
the property, rights or securities distributed to such holders by the
Corporation or the acquiring corporation. If the non-cash
consideration is publicly traded shares, then the cash value for such
consideration shall be the simple average of the closing price (or
closing bid price during) in the ten trading days preceding
announcement of the distribution. The Board of Directors shall first
determine the value of such property, rights or other securities for
such purpose, and shall notify all holders of Class A Preferred Shares
of such determination. The value of such property, rights or other
securities for purposes of the distribution under this paragraph 2(d)
shall be the value as determined by the Board of Directors in good
faith, unless the holders of a majority of the outstanding Class A
Preferred Shares shall object thereto in writing within 15 days after
receiving written notice of such value. In the event of such
objection, the valuation of such property, rights or other securities
for purposes of such distribution shall be determined by an arbitrator
selected by the objecting shareholders and the Board of Directors, or
in the event a single arbitrator cannot be agreed upon within 10 days
after the written objection sent by the objecting shareholders in
accordance with the previous sentence, the valuation of such property,
rights or other securities shall be determined by arbitration in which
(i) the objecting shareholders shall name one arbitrator, (ii) the
Board of Directors shall name a second arbitrator, (iii) the two
arbitrators thus selected shall select a third arbitrator, and (iv)
the three arbitrators thus selected shall determine the valuation of
such property, rights or other securities within 15 days for purposes
of such distribution or as soon as practicable thereafter by majority
vote. The costs of such arbitration shall be borne by the Corporation
or by the holders of the Class A Preferred Shares (on a pro rata basis
out of the property, rights or other securities otherwise
distributable to them) as follows: (A) if the valuation as determined
by the arbitrators is equal to or exceeds the valuation as determined
by the Board of Directors, the holders of the Class A Preferred Shares
shall pay the costs of the arbitration, and (B) otherwise, the
Corporation shall bear the costs of the arbitration.
3. VOTING RIGHTS
Except as otherwise provided herein and except as otherwise required by law, on
all matters submitted to a vote of holders of Common Shares, a holder of Class A
Preferred Shares shall be entitled to the number of votes which is equal to the
number of Common Shares into which such Class A Preferred Shares are then
convertible pursuant to Section 4 (Conversion) hereof, and in all ways shall
have voting rights and powers equal to the voting rights and powers of the
Common Shares, including the right to notice of any shareholders' meeting in
accordance given to the holders of Common Shares. Except as otherwise required
by law, the Class A Preferred Shares and Common
<PAGE> 11
1D
Shares vote together as a single class. Fractional votes shall not, however, be
permitted and any fractional voting rights resulting from the above formula
(after aggregating all Common Shares into which Class A Preferred Shares held by
each holder could then be converted) shall be rounded to the nearest whole
number (with one-half being rounded upward).
4. CONVERSION
The holders of Class A Preferred Shares shall have the following conversion
rights (the "Conversion Rights"):
(a) RIGHT TO CONVERT.
(i) OPTIONAL CONVERSION. Each Class A Preferred Share shall be
convertible, at the option of the holder thereof, at the office
of the Corporation, into such number of fully paid and
non-assessable Common Shares as determined by dividing $0.375 by
the Conversion Price (as defined below), in effect at the time of
conversion. The price at which Common Shares shall be deliverable
upon conversion (the "Conversion Price") shall initially be
$0.375. Such Conversion Price shall be subject to adjustment as
hereinafter provided.
(ii) AUTOMATIC CONVERSION. Each Class A Preferred Share shall be
converted automatically into Common Shares at the then effective
Conversion Price immediately prior to (A) the completion of a
Canadian public offering of Common Shares pursuant to a
prospectus or a sale of Common Shares in a public offering
registered under the U.S. Securities Act of 1933, as amended, (or
the applicable law of such other jurisdiction in which the
Corporation goes public) that results in aggregate net proceeds
to the Corporation (defined as aggregate sales price to the
public, less expenses and underwriters' discounts) of at least
twenty million dollars ($20,000,000) at a price per share which
is based on a pre-offering valuation of the Corporation of not
less than thirty million dollars ($30,000,000) (a "Qualified
Public Offering"); or (B) the Corporation acquiring all or
substantially all of the assets of any other person or business
entity or entering into any consolidation, merger, or other
business combination, or transferring all or substantially all of
the Corporation's business or assets to any partnership, joint
venture or other similar jointly owned business venture, with any
other corporation or business entity, or effecting a liquidation,
winding up, reorganization or sale or other disposition of the
Corporation or of all or substantially all of the assets of the
Corporation in a transaction that in any such event either (x)
provides the holders of the Class A Preferred Shares with cash
proceeds, or securities of a class of shares that is traded on
the Toronto Stock Exchange, NASDAQ National Market system or the
NYSE or AMEX exchanges (or any other recognized exchange or
trading system of approximately equivalent stature) or some
combination thereof equal to at least $2.25 per Class A Preferred
Share, less the amount
<PAGE> 12
1E
of any dividends actually paid by the Corporation per share to
the holder of Class A Preferred Shares (if such transaction
closes on or prior to July 31, 2002), or $2.625 per Class A
Preferred Shares less the amount of any dividends actually paid
by the Corporation per share to the holder of Class A Preferred
Shares (if such transaction closes after July 31, 2002 but on or
prior to July 31, 2003) or (y) the holders of at least 50% of the
aggregate number of outstanding Class A Preferred Shares approve
in writing both the proposed transaction and the conversion of
Class A Preferred Shares to Common Shares. The Corporation shall
not pay dividends (regardless of whether such dividends have been
accrued or declared) on any Class A Preferred Shares that are
automatically converted pursuant to this subsection (ii) above in
addition to any dividends that were actually paid to holders of
Class A Preferred Shares prior to the automatic conversion.
(b) MECHANICS OF CONVERSION. Except on an automatic conversion under
subparagraph 4(a)(ii) above, before any holder of Class A Preferred
Shares shall be entitled to convert the same into Common Shares, such
holder shall surrender the certificate or certificates thereof, duly
endorsed, at the office of the Corporation and shall give written
notice to the Corporation at such office that such holder elects to
convert the same and shall state therein the name or names in which
such holder wishes the certificate or certificates for Common Shares
to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder, or to
such holder's nominee or nominees, 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 surrender of
the Class A 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 on such date. If a holder tenders Class
A Preferred Shares for conversion in connection with any automatic
conversion event described in subparagraph 4(a)(ii) above the
conversion may, at the option of the holder tendering Class A
Preferred Shares for conversion, be conditioned upon the closing of
the relevant transaction, in which event the person(s) entitled to
receive the Common Shares issuable upon such conversion of the Class A
Preferred Shares shall not be deemed to have converted such Class A
Preferred Shares until immediately prior to the closing of such
transaction.
(c) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this paragraph 4(c), the
following definitions shall apply:
(A) "Additional Common Shares" shall mean all Common Shares
issued (or, pursuant to subparagraph 4(c)(iii), deemed to be
issued) by the
<PAGE> 13
1F
Corporation after the Original Issue Date, other than Common
Shares issued or issuable:
(1) upon conversion of Class A Preferred Shares;
(2) to officers, directors or employees of, or consultants
to, the Corporation, in accordance with a plan approved
by the Board of Directors ("Permitted Employee
Shares"), subject to adjustment for all
reclassifications, subdivisions, combinations or
similar recapitalizations of Common Shares;
(3) as a dividend or distribution on Class A Preferred
Shares; and
(4) by way of dividend or other distribution on Common
Shares which were, when issued, excluded from the
definition of Additional Common Shares by the foregoing
clauses (1), (2) and (3) or this clause (4).
(B) "Convertible Securities" shall mean any evidence of
indebtedness, and shares (other than Common Shares) or other
securities convertible into or exchangeable for Common
Shares, including the Class A Preferred Shares.
(C) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common
Shares or Convertible Securities.
(D) "Original Issue Date" shall mean the date on which a Class A
Preferred Share was first issued.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
Conversion Price of Class A Preferred Shares shall be made in
respect of the issuance of Additional Common Shares unless the
Net Cash Consideration (as defined below) per share for an
Additional Common Share issued or deemed to be issued by the
Corporation is less than the Conversion Price in effect on the
date of, and immediately prior to such issue for such Class A
Preferred Shares. The "Net Cash Consideration" shall mean the
cash value of the consideration received by the Corporation
(determined pursuant to subparagraph 4(c)(v)) less any
commissions payable to third parties with respect to the
transaction in which the cash consideration is received.
(iii) DEEMED ISSUE OF ADDITIONAL COMMON SHARES.
<PAGE> 14
1G
(A) OPTIONS AND CONVERTIBLE SECURITIES. If the Corporation at
any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or
Convertible Securities, then the maximum aggregate number
(as set forth in the instrument relating thereto without
regard to any provision contained therein for a subsequent
adjustment of such number) of Common Shares issuable upon
the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be
Additional Common Shares issued as of the time of such issue
or, in case such a record date shall have been fixed, as of
the close of business on such record date. Notwithstanding
the foregoing, Additional Common Shares shall not be deemed
to have been issued unless the Net Cash Consideration (as
defined in subparagraph 4(c)(ii)) per share (determined
pursuant to subparagraph 4(c)(v) hereof) of such Additional
Common Shares would be less than the Conversion Price in
effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided
further that in any such case in which Additional Common
Shares are deemed to be issued:
(1) no further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible
Securities or Common Shares pursuant to the exercise of
such Options or conversion or exchange of such
Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise,
for any increase in the consideration payable to the
Corporation, or decrease in the number of Common Shares
issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed
to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(3) upon the expiration or termination of any such Options
or any rights of conversion or exchange under such
Convertible Securities which shall not have been
exercised, the Conversion Price computed upon the
original issue thereof (or upon the
<PAGE> 15
1H
occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such
expiration or termination, be recomputed as if:
A. in the case of Convertible Securities or Options for
Common Shares, the only Additional Common Shares issued
were the Common Shares, if any, actually issued upon
the exercise of such Options or the conversion or
exchange of such Convertible Securities and the
consideration received therefor was the consideration
actually received by the Corporation for the issue of
all such Options, whether or not exercised, plus the
consideration actually received by the Corporation upon
such exercise, or for the issue of all such Convertible
Securities, whether or not actually converted or
exchanged, plus the additional consideration, if any,
actually received by the Corporation upon such
conversion or exchange, and
B. in the case of Options for Convertible Securities, only
Convertible Securities, if any, actually issued upon
the exercise thereof were issued at the time of issue
of such options, and the consideration received by the
Corporation for the Additional Common Shares deemed to
have been then issued was the consideration actually
received by the Corporation for the issue of all such
Options, whether or not exercised, plus the
consideration deemed to have been received by the
Corporation upon the issue of the Convertible
Securities with respect to which such Options were
actually exercised; and
(4) for greater certainty, no adjustment pursuant to either
clause B. or C. above shall have the effect of increasing
the Conversion Price which shall continue to be, for the
purposes of any recalculation of the number of Additional
Common Shares deemed to be issued, the Conversion Price in
effect immediately prior to the initial deemed issuance of
such Additional Common Shares.
(B) SHARE DIVIDENDS AND SUBDIVISIONS. If the Corporation at any time
or from time to time after the Original Issue Date shall declare
or pay any dividend on the Common Shares payable in Common
Shares, or effect a subdivision of the outstanding shares of
Common Shares into
<PAGE> 16
1I
a greater number of shares of Common Shares (by reclassification
or otherwise than by payment of a dividend in Common Shares),
then, and in any such event, Additional Common Shares shall be
deemed to have been issued:
(1) in the case of any such dividend, immediately after the
close of business on the record date for the determination
of holders of any class of securities entitled to receive
such dividend, or
(2) in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon
which such corporate action becomes effective.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL COMMON SHARES.
If the Corporation shall issue Additional Common Shares (including Additional
Common Shares deemed to be issued pursuant to subparagraph 4(c)(iii)) for a Net
Cash Consideration (as defined in subparagraph 4(c)(ii)) per share less than the
Conversion Price on the date of and immediately prior to such issuance, then,
and in such event, the Conversion Price shall be reduced, concurrently with such
issue, to a price (calculated to the nearest hundredth of a cent) determined by
multiplying the Conversion Price by a fraction, the numerator of which shall be
the sum of (1) the number of Common Shares outstanding immediately prior to such
issue, (2) any Permitted Employee Shares which have not been issued immediately
prior to such issue, but are then issuable pursuant to options which have been
granted, and which have an exercise price below the price of such issue and (3)
the number of Common Shares which the aggregate consideration received by the
Corporation for the total number of Additional Common Shares so issued would
purchase at the Conversion Price; and the denominator of which shall be the sum
of (1) the number of Common Shares outstanding immediately prior to such issue,
(2) any Permitted Employee Shares which have not been issued immediately prior
to such issue but are then issuable pursuant to options which have been granted,
and which have an exercise price below the price of such issue, and (3) the
number of such Additional Common Shares so issued; provided that, for the
purposes of this subparagraph 4(c)(iv), all Common Shares issuable upon
conversion of outstanding Class A Preferred Shares and Convertible Securities
and upon the exercise of Options (including the conversion into Common Shares of
Convertible Securities issuable upon the exercise of such Options) and all
Additional Shares previously deemed issued pursuant to subparagraph 4(c)(iii)
(adjusted pursuant to subparagraph 4(c)(iii)(3), if applicable) shall be deemed
to be outstanding.
<PAGE> 17
1J
(v) DETERMINATION OF CONSIDERATION. For purposes of this paragraph 4(c), the
consideration received by the Corporation for the issue of any Additional
Common Shares shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(1) insofar as it consists of cash, be computed at the aggregate
amount of cash received by the Corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than cash, be computed
at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors (and if the
non-cash consideration is public traded company shares, then the
price shall be the simple average of the closing price (or
closing bid price) in the ten trading days preceding the issue or
deemed issue of the Additional Common Shares); and
(3) if Additional Common Shares are issued together with other shares
or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such
consideration so received in respect of the Additional Common
Shares, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share
received by the Corporation for Additional Common Shares deemed to
have been issued pursuant to subparagraph 4(c)(iii)(A), relating to
Options and Convertible Securities, shall be determined by dividing:
(1) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provisions contained
therein for a subsequent adjustment of such consideration)
payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in
the case of Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, by
(2) the maximum number of shares of Common Shares (as set forth in
the instruments relating thereto, without regard to any
<PAGE> 18
1K
provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(C) SHARE DIVIDENDS AND SHARE SUBDIVISIONS. Any Additional Common
Shares deemed to have been issued pursuant to subparagraph
4(c)(iii)(B), relating to share dividends and share subdivisions,
shall be deemed to have been issued for no consideration.
(vi) ADJUSTMENTS FOR COMBINATIONS OR CONSOLIDATION OF COMMON SHARES. If the
outstanding Common Shares shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of Common Shares,
the Conversion Price in effect immediately prior to such combination
or consolidation shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately increased.
(vii) ADJUSTMENT FOR MERGERS OR REORGANIZATION, ETC. In case of any
amalgamation, consolidation or merger of the Corporation with or into
another corporation or the conveyance of all or substantially all of
the assets of the Corporation to another corporation (which is not, in
any such case, deemed to be a liquidation, dissolution or winding up
of the Corporation pursuant to paragraph 2(c)) , each Class A
Preferred Share shall thereafter, at the option of the holder, be
convertible into the number of shares or other securities or property
to which a holder of Common Shares deliverable upon conversion of such
Class A Preferred Shares would have been entitled upon such
consolidation, merger or conveyance; and, in any such case,
appropriate adjustment (as determined by the Board of Directors) shall
be made in the application of the provisions herein set forth with
respect to the rights and interest thereafter of the holders of the
Class A Preferred Shares, to the end that the provisions set forth
herein (including provisions with respect to changes in and other
adjustments of the Conversion Price) shall hereafter be applicable, as
nearly as reasonably may be, in relation to any shares or other
property thereafter deliverable upon the conversion of the Class A
Preferred Shares.
(d) NO IMPAIRMENT. The Board of Directors of the Corporation will at all times
in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Class A Preferred Shares against impairment.
(e) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section 4, the
Corporation, at its expense, promptly shall compute such adjustment or
readjustment in accordance
<PAGE> 19
1L
with the terms hereof and, upon written request of any holder of Class A
Preferred Shares, shall cause independent public accountants selected by
the Corporation to verify such computation and prepare and furnish to each
holder of Class A Preferred Shares a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Class A Preferred Shares,
furnish or cause to be furnished to such holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the Conversion Price in
effect at the time, and (iii) the number of Common Shares and the amount,
if any, of other property which at the time would be received upon the
conversion of Class A Preferred Shares.
(f) TAXES. The Corporation shall pay any and all issue taxes that may be
payable solely in respect of any issue or delivery of shares of Common
Shares on conversion of Class A Preferred Shares pursuant hereto; provided,
however, that the Corporation shall not be obligated to pay any transfer
taxes resulting from any transfer requested by any holder in connection
with any such conversion.
(g) RESERVATION OF SHARES ISSUABLE UPON CONVERSION. The Corporation 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
shares of the Class A Preferred Shares, such number of its Common Shares as
shall from time to time be sufficient to effect the conversion of all
outstanding Class A 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, the
Corporation 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 purpose.
(h) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion
of any Class A Preferred Shares. All Common Shares (including fractions
thereof ) issuable upon conversion of more than one Class A Preferred Share
by a holder thereof shall be aggregated for purposes of determining whether
the conversion would result in the issuance of any fractional share. If,
after the aforementioned aggregation, the conversion would result in the
issuance of a fraction of a Common Share, the Corporation shall, in lieu of
issuing any fractional share, pay the holder otherwise entitled to such
fraction a sum in cash equal to the fair market value of such fraction on
the date of conversion (as determined in good faith by the Board of
Directors).
5. REDEMPTION
The Class A Preferred Shares may not be redeemed by the Corporation at any time,
but the holders may require the Corporation to redeem the Class A Preferred
Shares in the following circumstances:
<PAGE> 20
1M
(a) OPTIONAL REDEMPTION AFTER JULY 31, 2002. Each holder of Class A Preferred
Shares may require the Corporation to redeem, (i) after July 31, 2002, up
to fifty percent (50%) of the outstanding Class A Preferred Shares then
held by such holder, and (ii) after July 31, 2003, all or any portion of
the outstanding Class A Preferred Shares then held by such holder. At least
60 days prior to any redemption of Class A Preferred Shares, each holder of
Class A Preferred Shares electing to redeem its Class A Preferred Shares in
accordance with this paragraph 5(a) shall give written notice to the
Corporation specifying the number of Class A Preferred Shares such holder
desires the Corporation to redeem and the date of such redemption
(hereinafter referred to as a "Class A Redemption Date").
(b) OPTIONAL REDEMPTION UPON CHANGE OF CONTROL. Each holder of Class A
Preferred Shares may require the Corporation to redeem all, but not less
than all, of the outstanding Class A Preferred Shares then held by such
holder, upon a Change in Control. A "Change in Control" for purposes of
this paragraph 5(b) shall mean any issuance of voting securities by the
Corporation or transfer of voting securities by the holder(s) thereof (or
combination thereof) to any person or persons acting in concert or a group
of affiliated persons, which issuance and/or transfer results in such
person or persons or group holding in the aggregate voting securities
having the power to cast 50% or more of the votes on any matters submitted
from time to time to holders of voting securities of the Corporation or
which otherwise provides such persons with the ability to elect a majority
of the Board of Directors. Notice of such issuance and/or transfer (the
"Control Notice") shall be given to the holders of Class A Preferred Shares
by the Corporation within 10 days of the earlier of the Corporation's
making such issuance and/or being informed of such transfer. Within 60 days
of receiving the Control Notice, each holder of Class A Preferred Shares
electing to redeem all of such holder's Class A Preferred Shares in
accordance with this paragraph 5(b) shall give written notice to the
Corporation specifying the number of Class A Preferred Shares held by such
holder and the date of such redemption (also, a "Class A Redemption Date").
(c) REDEMPTION PRICE AND PAYMENT. The Class A Preferred Shares to be redeemed
on any Class A Redemption Date pursuant to paragraphs 5(a) or 5(b) above
shall be redeemed by paying for each share in cash an amount) equal to
$0.375 plus all accrued but unpaid dividends thereon up to and including
the date the redemption price is received by the holder (the "Class A
Redemption Price").
(d) REDEMPTION MECHANICS. Upon receipt of payment by each holder of Class A
Preferred Shares electing to redeem pursuant to paragraphs 5(a) or 5(b)
above of the Class A Redemption Price, all rights of holders of such
redeemed shares shall cease with respect to such shares, and such shares
shall not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever. If the funds of the
Corporation legally available for redemption of Class A Preferred Shares on
any Class A Redemption Date are insufficient to redeem the
<PAGE> 21
1N
total number of outstanding Class A Preferred Shares as to which redemption
is requested, the holders of Class A Preferred Shares requesting redemption
shall share rateably in any funds legally available for redemption of such
shares according to the respective amounts which would be payable with
respect to the full number of shares owned by such holders as to which
redemption is requested if all such outstanding shares were redeemed in
full. The Class A Preferred Shares not redeemed shall remain outstanding
and entitled to all rights and preferences provided herein. At any time
thereafter when additional funds of the Corporation are legally available
for the redemption of such Class A Preferred Shares, such funds will be
used, at the end of the next succeeding fiscal quarter, to redeem the
balance of such shares as to which redemption had been requested, or such
portion thereof for which funds are then legally available, on the basis
set forth above, regardless of whether any last date for giving notice
pursuant to paragraphs 5(a) or 5(b), as the case may be, has passed.
(e) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any Class A Preferred
Shares redeemed pursuant to this Section 5 or otherwise acquired by the
Corporation in any manner whatsoever shall be cancelled.
6. CURRENCY
All references herein to dollar amounts are references to Canadian dollars.
<PAGE> 22
5. The amendment has been duly authorized as required by Sections 168 & 170
(as applicable) of the Business Corporations Act.
La modification a ete dument autorisee conformement a l'article 168 et,
s'il y a lieu, a article 170 de la Loi sur les compagnies.
6. The resolution authorizing the amendment was approved by the
shareholders/directors (as applicable) of the corporation on
Les actionnaires ou les administrateurs (le cas echeant) de la compagnie
ont approuve la reesolution autorisant la modification
15 July 1998
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate.
Les presents status sont signes en double exemplaire.
DELANO TECHNOLOGY CORPORATION
---------------------------------------------------------------------------
(Name of Corporation)
(Denomination social de la compagnie)
By/Par: (Signed) Secretary
---------------------------------------------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
<PAGE> 23
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la societe en Ontario
1294608
Ministry of Ministere de
[LOGO] Consumer and la Consommation
Commercial Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que las presents
articles are effective on status entrant en vigueur le
JANUARY 27 JANVIER, 1999
- -------------------------------------------------------------
(Signed)
Director / Directeur
Business Corporations Act / Loi sur les societes par actions
TRANS
CODE
C
18
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 Business Corporations Act
Formule numero 3 Loi sur les compagnies
1. The present name of the corporation is:
Denomination sociale actuelle de la compagnie:
DELANO TECHNOLOGY CORPORATION
2. The name of the corporation is changed to (if applicable):
Nouvelle denomination sociale de la compagnie (s'il y a lieu):
N/A
3. Date of incorporation/amalgamation:
Date de la constitution ou de la fusion:
7 May 1998
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are amended as follows:
Les statuts de la compagnie sont modifies de la facon suivante:
(a) to create an unlimited number of Class B Preferred Shares;
(b) to provide that the rights, privileges, restrictions and conditions
attaching to the Class B Preferred Shares shall be as set out in
Schedule A attached hereto.
<PAGE> 24
1A
DELANO TECHNOLOGY CORPORATION
SCHEDULE A
COMMON SHARES
1. VOTING RIGHTS
Each holder of Common Shares shall be entitled to receive notice of and to
attend all meetings of shareholders of the Corporation and to vote thereat,
except meetings at which only holders of a specified class of shares (other than
Common Shares) or specified series of shares are entitled to vote. At all
meetings of holders of Common Shares, each holder of Common Shares shall be
entitled to one vote in respect of each Common Share held by such holder.
2. DIVIDENDS
The Common Shares shall be entitled, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of the
Corporation, to receive any dividend declared by the Board of Directors of the
Corporation.
3. LIQUIDATION, DISSOLUTION OR WINDING-UP
In the event of any liquidation, dissolution or winding-up of the Corporation or
other distribution of assets of the Corporation among its shareholders for the
purpose of winding-up its affairs, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of the
Corporation, the assets and funds of the Corporation available for distribution
to shareholders shall be distributed among the holders of the Common Shares, the
holders of the Class A Preferred Shares and the holders of the Class B Preferred
Shares, and any other class or series of shares entitled to participate in a
liquidation distribution with the holders of Common Shares, pro rata based on
the number of Common Shares held by each holder (assuming conversion into Common
Shares of all Class A Preferred Shares and Class B Preferred Shares) and any
other participating outstanding series or class of shares convertible into
Common Shares.
PREFERRED SHARES
1. DIVIDENDS ON PREFERRED SHARES
The Class A Preferred Shares and the Class B Preferred Shares (collectively, the
"Preferred Shares") shall participate equally with respect to dividends and for
greater certainty, all dividends which the directors may declare in any fiscal
year of the Corporation on the Class A Preferred Shares and the Class B
Preferred Shares shall be declared and paid in equal or equivalent amounts per
share on the
<PAGE> 25
1B
Class A Preferred Shares and the Class B Preferred Shares at the time
outstanding without preference or priority.
Holders of outstanding Class A Preferred Shares shall be entitled to receive, in
any fiscal year, annually or when otherwise as declared by the Board of
Directors of the Corporation and to the extent permitted under the Business
Corporations Act (Ontario), dividends in cash at the rate of $0.03 per share per
annum plus an amount per share equal to 8% per annum of the accrued and unpaid
dividends thereon (providing for an 8% cumulative compounding return), which
shall accrue as provided herein, before any dividend is paid on the Common
Shares. Such dividends shall accrue on outstanding Class A Preferred Shares
cumulatively, commencing on the date of the original issuance thereof, on a
daily basis. Except to the extent otherwise permitted by these Articles,
dividends or distributions may be declared and paid upon Common Shares in any
fiscal year of the Corporation only if all accrued dividends shall have been
paid on all Class A Preferred Shares in accordance with this section. If, after
payment of such dividends to holders of the Preferred Shares, dividends are paid
to holders of Common Shares, the holders of outstanding Preferred Shares shall
be entitled to receive, out of any assets at the time legally available
therefor, additional dividends per share equal to the per share dividends paid
to holders of Common Shares (treating each Preferred Share as being equal to the
number of Common Shares into which each such Preferred Share could be converted
pursuant to Section 4 (Conversion) hereof, with such number determined as of the
record date for the determination of holders of Common Shares entitled to
receive such dividend).
2. LIQUIDATION, DISSOLUTION OR WINDING-UP
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of Class A
Preferred Shares shall be entitled to receive, prior and in preference
to any distribution of any of the assets of the Corporation to the
holders of the Common Shares or to the holders of the Class B
Preferred Shares, by reason of their ownership thereof, the Class A
Redemption Price (as defined in paragraph 5(c) below) for each Class A
Preferred Share then held by such holders. If the amount available for
such distribution is insufficient to pay the Class A Redemption Price
on all outstanding Class A Preferred Shares, the assets available for
distribution shall be distributed among the holders of the Class A
Preferred Shares pro rata in accordance with the total number of Class
A Preferred Shares held by such holders.
(b) After the payment of all preferential amounts required to be paid to
the holders of the Class A Preferred Shares and any other class or
series of shares of the Corporation ranking on liquidation on a parity
with or senior to the Class A Preferred Shares, the holders of Class B
Preferred Shares shall be entitled to receive, prior and in preference
to any distribution of any of the assets of the Corporation to the
holders of the Common Shares, by reason of their ownership thereof,
for each Class B Preferred Share then held by a holder, a sum equal
to:
(i) the Class B Redemption Price (as defined in paragraph 5(c)
below); and
<PAGE> 26
1C
(ii) an additional amount equal to the following:
A. 8% of the holder's subscription price for the Class B
Preferred Share, per annum since the date of issuance
(non-compounded), if the aggregate value of all assets
available for distribution to the holders of the Corporation
(prior to making any payments pursuant to this Section 2) is
less than or equal to $9,999,999; or
B. 16% of the holder's subscription price for the Class B
Preferred Share, per annum since the date of issuance
(non-compounded), if the aggregate value of all assets
available for distribution to the holders of the Corporation
(prior to making any payments pursuant to this Section 2) is
greater than $9,999,999 but less than or equal to
$19,999,999; or
C. 24% of the holder's subscription price for the Class B
Preferred Share, per annum since the date of issuance
(non-compounded) if the aggregate value of all assets
available for distribution to the holders of the Corporation
(prior to making any payments pursuant to this Section 2) is
greater than $19,999,999.
If the amount available for such distribution is insufficient to pay the
Class B Redemption Price (plus any additional amount applicable pursuant to
this Section 2) on all outstanding Class B Preferred Shares, the assets
available for distribution shall be distributed among the holders of the
Class B Preferred Shares pro rata in accordance with the total number of
Class B Preferred Shares held by such holders.
(c) After the payment of all preferential amounts required to be paid to the
holders of the Class A Preferred Shares and the holders of the Class B
Preferred Shares and any other class or series of shares of the Corporation
ranking on liquidation senior to the Common Shares, upon the liquidation,
dissolution or winding up of the Corporation, the remaining assets and
funds of the Corporation available for distribution to its shareholders
shall be distributed among the holders of the Class A Preferred Shares and
the holders of the Class B Preferred Shares and the holders of the Common
Shares and any other class or series of shares entitled to participate in
liquidation distributions with the holders of Common Shares, pro rata based
on the number of Common Shares held by each holder (assuming conversion
into Common Shares of all Preferred Shares) and any other participating
outstanding series or class of shares convertible into Common Shares.
(d) The amalgamation, merger or consolidation of the Corporation into or with
another corporation (where the shareholders of the Corporation are not the
majority shareholders of the merged entity), or the sale of all or
substantially all the assets of
<PAGE> 27
1D
the Corporation, shall be deemed a liquidation, dissolution or winding up
of the Corporation for purposes of this Section 2 unless the prior written
consent to such transaction is obtained from the holders of at least
two-thirds of the outstanding Class A Preferred Shares and from the holders
of at least two-thirds of the outstanding Class B Preferred Shares, voting
separately.
(e) In the event of a liquidation, dissolution or winding up of the Corporation
resulting in the availability of assets other than cash for distribution to
the holders of Preferred Shares, the cash amount deemed distributed to such
holders shall be the cash value of the property, rights or securities
distributed to such holders by the Corporation or the acquiring
corporation. If the non-cash consideration is publicly traded shares, then
the cash value for such consideration shall be the simple average of the
closing price (or closing bid price during) in the ten trading days
preceding announcement of the distribution. The Board of Directors of the
Corporation shall first determine the value of such property, rights or
other securities for such purpose, and shall notify all holders of
Preferred Shares of such determination. The value of such property, rights
or other securities for purposes of the distribution under this paragraph
2(e) shall be the value as determined by the Board of Directors of the
Corporation in good faith, unless the holders of a majority of the
outstanding Preferred Shares shall object thereto in writing within 15 days
after receiving written notice of such value. In the event of such
objection, the valuation of such property, rights or other securities for
purposes of such distribution shall be determined by an arbitrator selected
by the objecting shareholders and the Board of Directors of the
Corporation, or in the event a single arbitrator cannot be agreed upon
within 10 days after the written objection sent by the objecting
shareholders in accordance with the previous sentence, the valuation of
such property, rights or other securities shall be determined by
arbitration in which (i) the objecting shareholders shall name one
arbitrator, (ii) the Board of Directors of the Corporation shall name a
second arbitrator, (iii) the two arbitrators thus selected shall select a
third arbitrator, and (iv) the three arbitrators thus selected shall
determine the valuation of such property, rights or other securities within
15 days for purposes of such distribution or as soon as practicable
thereafter by majority vote. The costs of such arbitration shall be borne
by the Corporation or by the holders of the Preferred Shares (on a pro rata
basis out of the property, rights or other securities otherwise
distributable to them) as follows: (A) if the valuation as determined by
the arbitrators is equal to or exceeds the valuation as determined by the
Board of Directors of the Corporation, the holders of the Preferred Shares
shall pay the costs of the arbitration, and (B) otherwise, the Corporation
shall bear the costs of the arbitration.
<PAGE> 28
1E
3. VOTING RIGHTS
Except as otherwise provided herein and except as otherwise required by law, on
all matters submitted to a vote of holders of Common Shares, a holder of
Preferred Shares shall be entitled to the number of votes which is equal to the
number of Common Shares into which such Preferred Shares are then convertible
pursuant to Section 4 (Conversion) hereof, and in all ways shall have voting
rights and powers equal to the voting rights and powers of the Common Shares,
including the right to notice of any shareholders' meeting in accordance given
to the holders of Common Shares. Except as otherwise required by law, the
Preferred Shares and Common Shares vote together as a single class. Fractional
votes shall not, however, be permitted and any fractional voting rights
resulting from the above formula (after aggregating all Common Shares into which
Preferred Shares held by each holder could then be converted) shall be rounded
to the nearest whole number (with one-half being rounded upward).
4. CONVERSION
The holders of Preferred Shares shall have the following conversion rights (the
"Conversion Rights"):
(a) RIGHT TO CONVERT.
(i) OPTIONAL CONVERSION. Each Class A Preferred Share shall be
convertible, at the option of the holder thereof, at the office
of the Corporation, into such number of fully paid and
non-assessable Common Shares as determined by dividing $0.375 by
the Class A Conversion Price (as defined below), in effect at the
time of conversion. The price at which Common Shares shall be
deliverable upon conversion (the "Class A Conversion Price")
shall initially be $0.375. Such Class A Conversion Price shall be
subject to adjustment as hereinafter provided. Each Class B
Preferred Share shall be convertible, at the option of the holder
thereof, at the office of the Corporation, into such number of
fully paid and non-assessable Common Shares as determined by
dividing $0.95 by the Class B Conversion Price (as defined
below), in effect at the time of conversion. The price at which
Common Shares shall be deliverable upon conversion (the "Class B
Conversion Price") shall initially be $0.95. Such Class B
Conversion Price shall be subject to adjustment as hereinafter
provided.
(ii) AUTOMATIC CONVERSION. Each Preferred Share shall be converted
automatically into Common Shares at the then effective Class A
Conversion Price or Class B Conversion Price, as the case may be,
immediately prior to (A) the completion of a Canadian public
offering of Common Shares pursuant to a prospectus or a sale of
Common Shares in a public offering registered under the U.S.
Securities Act of 1933, as amended, (or the applicable law of
such other jurisdiction in which the Corporation goes
<PAGE> 29
1F
public) that results in aggregate net proceeds to the Corporation
(defined as aggregate sales price to the public, less expenses
and underwriters' discounts) of at least twenty million dollars
($20,000,000) at a price per share which is based on a
pre-offering valuation of the Corporation of not less than thirty
million dollars ($30,000,000) (a "Qualified Public Offering"); or
(B) the Corporation acquiring all or substantially all of the
assets of any other person or business entity or entering into
any consolidation, merger, or other business combination, or
transferring all or substantially all of the Corporation's
business or assets to any partnership, joint venture or other
similar jointly owned business venture, with any other
corporation or business entity, or effecting a liquidation,
winding up, reorganization or sale or other disposition of the
Corporation or of all or substantially all of the assets of the
Corporation in a transaction that in any such event either (x)
provides the holders of the Preferred Shares with cash proceeds,
or securities of a class of shares that is traded on the Toronto
Stock Exchange, NASDAQ National Market system or the NYSE or AMEX
exchanges (or any other recognized exchange or trading system of
approximately equivalent stature) or some combination thereof
equal to at least $2.25 per Preferred Share, less the amount of
any dividends actually paid by the Corporation per share to the
holder of Preferred Shares (if such transaction closes on or
prior to July 31, 2002), or $2.625 per Preferred Share less the
amount of any dividends actually paid by the Corporation per
share to the holder of Preferred Shares (if such transaction
closes after July 31, 2002 but on or prior to July 31, 2003) or
(y) the holders of at least 50% of the aggregate number of
outstanding Class A Preferred Shares and the holders of at least
50% of the aggregate number of outstanding Class B Preferred
Shares, voting separately, approve at a meeting of shareholders
or otherwise in writing both the proposed transaction and the
conversion of Preferred Shares to Common Shares. The Corporation
shall not pay dividends (regardless of whether such dividends
have been accrued or declared) on any Preferred Shares that are
automatically converted pursuant to this subsection (ii) above in
addition to any dividends that were actually paid to holders of
Preferred Shares prior to the automatic conversion.
(b) MECHANICS OF CONVERSION. Except on an automatic conversion under
subparagraph 4(a)(ii) above, before any holder of Preferred Shares shall be
entitled to convert Preferred Shares into Common Shares, such holder shall
surrender the certificate or certificates thereof, duly endorsed, at the
office of the Corporation and shall give written notice to the Corporation
at such office that such holder elects to convert the Preferred Shares and
shall state therein the name or names in which such holder wishes the
certificate or certificates for Common Shares to be issued. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office
to such holder, or to such holder's nominee or nominees, a certificate or
certificates for the number of Common Shares to which such holder shall be
entitled as
<PAGE> 30
1G
aforesaid. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of surrender of the 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 on such
date. If a holder tenders Preferred Shares for conversion in connection
with any automatic conversion event described in subparagraph 4(a)(ii)
above the conversion may, at the option of the holder tendering Preferred
Shares for conversion, be conditioned upon the closing of the relevant
transaction, in which event the person(s) entitled to receive the Common
Shares issuable upon such conversion of the Preferred Shares shall not be
deemed to have converted such Preferred Shares until immediately prior to
the closing of such transaction.
(c) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this paragraph 4(c), the
following definitions shall apply:
(A) "Additional Common Shares" shall mean all Common Shares issued
(or, pursuant to subparagraph 4(c)(iii), deemed to be issued) by
the Corporation after the Original Issue Date, other than Common
Shares issued or issuable:
(1) upon conversion of Preferred Shares;
(2) to officers, directors or employees of, or consultants to,
the Corporation, in accordance with a plan approved by the
Board of Directors of the Corporation or pursuant to a
compensation package for new senior officers of the
Corporation which the holders of a majority of the Preferred
Shares have agreed to in writing ("Permitted Employee
Shares"), subject to adjustment for all reclassifications,
subdivisions, combinations or similar recapitalizations of
Common Shares;
(3) as a dividend or distribution on Preferred Shares; and
(4) by way of dividend or other distribution on Common Shares
which were, when issued, excluded from the definition of
Additional Common Shares by the foregoing clauses (1), (2)
and (3) or this clause (4).
(B) "Convertible Securities" shall mean any evidence of indebtedness,
and shares (other than Common Shares) or other securities
convertible
<PAGE> 31
1H
into or exchangeable for Common Shares, including the Preferred
Shares.
(C) "Options" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire either Common Shares or
Convertible Securities.
(D) "Original Issue Date" shall mean the date on which a Preferred
Share was first issued.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in either the Class A
Conversion Price or the Class B Conversion Price shall be made in
respect of the issuance of Additional Common Shares unless the Net
Cash Consideration (as defined below) per share for an Additional
Common Share issued or deemed to be issued by the Corporation is less
than the Class A Conversion Price or Class B Conversion Price, as the
case may be, in effect on the date of, and immediately prior to such
issue for such Preferred Shares. The "Net Cash Consideration" shall
mean the cash value of the consideration received by the Corporation
(determined pursuant to subparagraph 4(c)(v)) less any commissions
payable to third parties with respect to the transaction in which the
cash consideration is received.
(iii) DEEMED ISSUE OF ADDITIONAL COMMON SHARES.
(A) OPTIONS AND CONVERTIBLE SECURITIES. If the Corporation at any
time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities,
then the maximum aggregate number (as set forth in the instrument
relating thereto without regard to any provision contained
therein for a subsequent adjustment of such number) of Common
Shares issuable upon the exercise of such Options or, in the case
of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be
Additional Common Shares issued as of the time of such issue or,
in case such a record date shall have been fixed, as of the close
of business on such record date.
<PAGE> 32
1I
Notwithstanding the foregoing, in respect of Preferred Shares
Additional Common Shares shall not be deemed to have been issued
unless the Net Cash Consideration (as defined in subparagraph
4(c)(ii)) per share (determined pursuant to subparagraph 4(c)(v)
hereof) of such Additional Common Shares would be less than the
Class A Conversion Price or the Class B Conversion Price, as the
case may be, in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and provided
further that in any such case in which Additional Common Shares
are deemed to be issued:
(1) no further adjustment in the Class A Conversion Price or the
Class B Conversion Price shall be made upon the subsequent
issue of Convertible Securities or Common Shares pursuant to
the exercise of such Options or conversion or exchange of
such Convertible Securities;
(2) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any
increase in the consideration payable to the Corporation, or
decrease in the number of Common Shares issuable, upon the
exercise, conversion or exchange thereof, the Class A
Conversion Price and the Class B Conversion Price computed
upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or
the rights of conversion or exchange under such Convertible
Securities;
(3) upon the expiration or termination of any such Options or
any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Class A
Conversion Price and the Class B Conversion Price computed
upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration or
termination, be recomputed as if:
A. in the case of Convertible Securities or Options for
Common Shares, the only Additional Common Shares issued
were the Common Shares, if any, actually issued upon
the exercise of such Options or the conversion or
exchange of such Convertible Securities
<PAGE> 33
1J
and the consideration received therefor was the
consideration actually received by the Corporation for
the issue of all such Options, whether or not
exercised, plus the consideration actually received by
the Corporation upon such exercise, or for the issue
of all such Convertible Securities, whether or not
actually converted or exchanged, plus the additional
consideration, if any, actually received by the
Corporation upon such conversion or exchange, and
B. in the case of Options for Convertible Securities, only
Convertible Securities, if any, actually issued upon
the exercise thereof were issued at the time of issue
of such options, and the consideration received by the
Corporation for the Additional Common Shares deemed to
have been then issued was the consideration actually
received by the Corporation for the issue of all such
Options, whether or not exercised, plus the
consideration deemed to have been received by the
Corporation upon the issue of the Convertible
Securities with respect to which such Options were
actually exercised; and
(4) for greater certainty, no adjustment pursuant to either
clause B. or C. above shall have the effect of increasing
the Class A Conversion Price or the Class B Conversion Price
which shall continue to be, for the purposes of any
recalculation of the number of Additional Common Shares
deemed to be issued, the Class A Conversion Price or the
Class B Conversion Price, as the case may be, in effect
immediately prior to the initial deemed issuance of such
Additional Common Shares.
(B) SHARE DIVIDENDS AND SUBDIVISIONS. If the Corporation at any time
or from time to time after the Original Issue Date shall declare
or pay any dividend on the Common Shares payable in Common
Shares, or effect a subdivision of the outstanding shares of
Common Shares into a greater number of shares of Common Shares
(by reclassification or otherwise than by payment of a dividend
in Common Shares), then, and in any such event, Additional Common
Shares shall be deemed to have been issued:
(1) in the case of any such dividend, immediately after the
close of business on the record date for the determination
of holders of any class of securities entitled to receive
such dividend, or
<PAGE> 34
1K
(2) in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon
which such corporate action becomes effective.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL COMMON SHARES.
If the Corporation shall issue Additional Common Shares (including Additional
Common Shares deemed to be issued pursuant to subparagraph 4(c)(iii)) for a Net
Cash Consideration (as defined in subparagraph 4(c)(ii)) per share less than the
Class A Conversion Price or the Class B Conversion Price on the date of and
immediately prior to such issuance, then, and in such event, the Class A
Conversion Price and/or the Class B Conversion Price, as the case may be, shall
be reduced, concurrently with such issue, to a price (calculated to the nearest
hundredth of a cent) determined by multiplying such conversion price by a
fraction, the numerator of which shall be the sum of (1) the number of Common
Shares outstanding immediately prior to such issue, (2) any Permitted Employee
Shares which have not been issued immediately prior to such issue, but are then
issuable pursuant to options which have been granted, and which have an exercise
price below the price of such issue and (3) the number of Common Shares which
the aggregate consideration received by the Corporation for the total number of
Additional Common Shares so issued would purchase at such conversion price; and
the denominator of which shall be the sum of (1) the number of Common Shares
outstanding immediately prior to such issue, (2) any Permitted Employee Shares
which have not been issued immediately prior to such issue but are then issuable
pursuant to options which have been granted, and which have an exercise price
below the price of such issue, and (3) the number of such Additional Common
Shares so issued; provided that, for the purposes of this subparagraph 4(c)(iv),
all Common Shares issuable upon conversion of outstanding Preferred Shares and
Convertible Securities and upon the exercise of Options (including the
conversion into Common Shares of Convertible Securities issuable upon the
exercise of such Options) and all Additional Shares previously deemed issued
pursuant to subparagraph 4(c)(iii) (adjusted pursuant to subparagraph
4(c)(iii)(3), if applicable) shall be deemed to be outstanding.
(v) DETERMINATION OF CONSIDERATION. For purposes of this paragraph 4(c), the
consideration received by the Corporation for the issue of any Additional
Common Shares shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(1) insofar as it consists of cash, be computed at the aggregate
amount of cash received by the Corporation excluding
<PAGE> 35
1L
amounts paid or payable for accrued interest or accrued
dividends;
(2) insofar as it consists of property other than cash, be computed
at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors of the
Corporation (and if the non-cash consideration is public traded
company shares, then the price shall be the simple average of the
closing price (or closing bid price) in the ten trading days
preceding the issue or deemed issue of the Additional Common
Shares); and
(3) if Additional Common Shares are issued together with other shares
or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such
consideration so received in respect of the Additional Common
Shares, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors of the
Corporation.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share
received by the Corporation for Additional Common Shares deemed to
have been issued pursuant to subparagraph 4(c)(iii)(A), relating to
Options and Convertible Securities, shall be determined by dividing:
(1) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provisions contained
therein for a subsequent adjustment of such consideration)
payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in
the case of Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, by
(2) the maximum number of shares of Common Shares (as set forth in
the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(C) SHARE DIVIDENDS AND SHARE SUBDIVISIONS. Any Additional Common Shares
deemed to have been issued pursuant to
<PAGE> 36
1M
subparagraph 4(c)(iii)(B), relating to share dividends and share
subdivisions, shall be deemed to have been issued for no
consideration.
(vi) ADJUSTMENTS FOR COMBINATIONS OR CONSOLIDATION OF COMMON SHARES. If the
outstanding Common Shares shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of Common Shares,
the Class A Conversion Price and the Class B Conversion Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(vii) ADJUSTMENT FOR MERGERS OR REORGANIZATION, ETC. In case of any
amalgamation, consolidation or merger of the Corporation with or into
another corporation or the conveyance of all or substantially all of
the assets of the Corporation to another corporation (which is not, in
any such case, deemed to be a liquidation, dissolution or winding up
of the Corporation pursuant to paragraph 2(c)), each Preferred Share
shall thereafter, at the option of the holder, be convertible into the
number of shares or other securities or property to which a holder of
Common Shares deliverable upon conversion of such Preferred Shares
would have been entitled upon such consolidation, merger or
conveyance; and, in any such case, appropriate adjustment (as
determined by the Board of Directors of the Corporation and approved
in writing or at a meeting of all shareholders of the Corporation)
shall be made in the application of the provisions herein set forth
with respect to the rights and interest thereafter of the holders of
the Preferred Shares, to the end that the provisions set forth herein
(including provisions with respect to changes in and other adjustments
of the Class A Conversion Price and the Class B Conversion Price)
shall hereafter be applicable, as nearly as reasonably may be, in
relation to any shares or other property thereafter deliverable upon
the conversion of the Preferred Shares.
(d) NO IMPAIRMENT. The Board of Directors of the Corporation will at all times
in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Preferred Shares against impairment.
(e) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Class A Conversion Price or the Class B Conversion
Price pursuant to this Section 4, the Corporation, at its expense, promptly
shall compute such adjustment or readjustment in accordance with the terms
hereof and, upon written request of any holder of Class A Preferred Shares
or Class B Preferred Shares, as the case may be, shall cause independent
public accountants selected by the Corporation to verify such computation
and prepare and furnish to each holder
<PAGE> 37
1N
of Class A Preferred Shares or Class B Preferred Shares, as the case may
be, a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder
of Preferred Shares, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
conversion price applicable to such Preferred Shares in effect at the time,
and (iii) the number of Common Shares and the amount, if any, of other
property which at the time would be received upon the conversion of such
Preferred Shares.
(f) TAXES. The Corporation shall pay any and all issue taxes that may be
payable solely in respect of any issue or delivery of shares of Common
Shares on conversion of Preferred Shares pursuant hereto; provided,
however, that the Corporation shall not be obligated to pay any transfer
taxes resulting from any transfer requested by any holder in connection
with any such conversion or, for greater certainty, any income tax payable
by holders of Preferred Shares.
(g) RESERVATION OF SHARES ISSUABLE UPON CONVERSION. The Corporation 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
shares of the Preferred Shares, such number of its Common Shares as shall
from time to time be sufficient to effect the conversion of all outstanding
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 Preferred Shares, the Corporation 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 purpose.
(h) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion
of any Preferred Shares. All Common Shares (including fractions thereof )
issuable upon conversion of more than one Preferred Share by a holder
thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If, after
the aforementioned aggregation, the conversion would result in the issuance
of a fraction of a Common Share, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a
sum in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors of the
Corporation).
5. REDEMPTION
The Preferred Shares may not be redeemed by the Corporation at any time, but the
holders may require the Corporation to redeem the Preferred Shares in the
following circumstances:
<PAGE> 38
1O
(a) OPTIONAL REDEMPTION. Each holder of Class A Preferred Shares may require
the Corporation to redeem, (i) after July 31, 2002, up to fifty percent
(50%) of the outstanding Class A Preferred Shares then held by such holder,
and (ii) after July 31, 2003, all or any portion of the outstanding Class A
Preferred Shares then held by such holder. Each holder of Class B Preferred
Shares may require the Corporation to redeem, (i) after December 31, 2002,
up to fifty percent (50%) of the outstanding Class B Preferred Shares then
held by such holder, and (ii) after December 31, 2003, all or any portion
of the outstanding Class B Preferred Shares then held by such holder. At
least 60 days prior to any redemption of Preferred Shares, each holder of
Preferred Shares electing to redeem its Preferred Shares in accordance with
this paragraph 5(a) shall give written notice to the Corporation specifying
the number of Preferred Shares such holder desires the Corporation to
redeem and the date of such redemption (hereinafter referred to as a
"Redemption Date").
(b) OPTIONAL REDEMPTION UPON CHANGE OF CONTROL. Each holder of Class A
Preferred Shares may require the Corporation to redeem all, but not less
than all, of the outstanding Class A Preferred Shares then held by such
holder, upon a Change in Control. Similarly, each holder of Class B
Preferred Shares may require the Corporation to redeem all, but not less
than all, of the outstanding Class B Preferred Shares then held by such
holder, upon a Change in Control. A "Change in Control" for purposes of
this paragraph 5(b) shall mean any issuance of voting securities by the
Corporation or transfer of voting securities by the holder(s) thereof (or
combination thereof) to any person or persons acting in concert or a group
of affiliated persons, which issuance and/or transfer results in such
person or persons or group holding in the aggregate voting securities
having the power to cast 50% or more of the votes on any matters submitted
from time to time to holders of voting securities of the Corporation or
which otherwise provides such persons with the ability to elect a majority
of the Board of Directors of the Corporation. Notice of such issuance
and/or transfer (the "Control Notice") shall be given to the holders of
Preferred Shares by the Corporation within 10 days of the earlier of the
Corporation's making such issuance and/or being informed of such transfer.
Within 60 days of receiving the Control Notice, each holder of Preferred
Shares electing to redeem all of such holder's Class A Preferred Shares
and/or Class B Preferred Shares, as the case may be, in accordance with
this paragraph 5(b) shall give written notice to the Corporation specifying
the number of Preferred Shares held by such holder and the date of such
redemption (also, a "Redemption Date").
(c) REDEMPTION PRICE AND PAYMENT. The Class A Preferred Shares to be redeemed
on any Redemption Date pursuant to paragraphs 5(a) or 5(b) above shall be
redeemed by paying for each share in cash an amount) equal to $0.375 plus
all accrued but unpaid dividends thereon up to and including the date the
redemption price is received by the holder (the "Class A Redemption
Price"). The Class B Preferred Shares to be redeemed on any Redemption Date
pursuant to paragraphs 5(a) or 5(b) above shall be redeemed by paying for
each share in cash an amount) equal to $0.95
<PAGE> 39
1P
plus all accrued but unpaid dividends thereon up to and including the date
the redemption price is received by the holder (the Class B Redemption
Price").
(d) REDEMPTION MECHANICS. Upon receipt of payment by each holder of Preferred
Shares electing to redeem pursuant to paragraphs 5(a) or 5(b) above of the
redemption price applicable to such Preferred Shares (the Class A
Redemption Price or the Class B Redemption Price, as the case may be), all
rights of holders of such redeemed shares shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever.
If the funds of the Corporation legally available for redemption of
Preferred Shares on any Redemption Date are insufficient to redeem the
total number of outstanding Preferred Shares as to which redemption is
requested, the holders of Preferred Shares requesting redemption shall
share rateably in any funds legally available for redemption of such shares
according to the respective amounts which would be payable with respect to
the full number of shares owned by such holders as to which redemption is
requested if all such outstanding shares were redeemed in full. The
Preferred Shares not redeemed shall remain outstanding and entitled to all
rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the
redemption of such Preferred Shares, such funds will be used, at the end of
the next succeeding fiscal quarter, to redeem the balance of such shares as
to which redemption had been requested, or such portion thereof for which
funds are then legally available, on the basis set forth above, regardless
of whether any last date for giving notice pursuant to paragraphs 5(a) or
5(b), as the case may be, has passed.
(e) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any Preferred Shares
redeemed pursuant to this Section 5 or otherwise acquired by the
Corporation in any manner whatsoever shall be cancelled.
6. CURRENCY
All references herein to dollar amounts are references to Canadian dollars.
<PAGE> 40
5. The amendment has been duly authorized as required by Sections 168 & 170
(as applicable) of the Business Corporations Act.
La modification a ete dument autorisee conformement a l'article 168 et,
s'il y a lieu, a article 170 de la Loi sur les compagnies.
6. The resolution authorizing the amendment was approved by the
shareholders/directors (as applicable) of the corporation on
Les actionnaires ou les administrateurs (le cas echeant) de la compagnie
ont approuve la reesolution autorisant la modification
25 January 1999
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate.
Les presents status sont signes en double exemplaire.
DELANO TECHNOLOGY CORPORATION
---------------------------------------------------------------------------
(Name of Corporation)
(Denomination social de la compagnie)
By/Par: (Signed) Secretary
---------------------------------------------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
<PAGE> 41
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la societe en Ontario
1294608
Ministry of Ministere de
[LOGO] Consumer and la Consommation
Commercial Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que las presents
articles are effective on status entrant en vigueur le
JUNE 24 JUIN, 1999
- -------------------------------------------------------------
(Signed)
Director / Directeur
Business Corporations Act / Loi sur les societes par actions
TRANS
CODE
C
18
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 Business Corporations Act
Formule numero 3 Loi sur les compagnies
1. The present name of the corporation is:
Denomination sociale actuelle de la compagnie:
DELANO TECHNOLOGY CORPORATION
2. The name of the corporation is changed to (if applicable):
Nouvelle denomination sociale de la compagnie (s'il y a lieu):
N/A
3. Date of incorporation/amalgamation:
Date de la constitution ou de la fusion:
7 May 1998
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are amended as follows:
Les statuts de la compagnie sont modifies de la facon suivante:
(a) to create an unlimited number of Class C Preferred Shares;
(b) to delete the rights, privileges, restrictions and conditions
attaching to the Common Shares and Preferred Shares of the Corporation
and substitute therefor the rights, privileges, restrictions and
conditions as set out in Exhibit A attached hereto;
(c) to remove the following from paragraph 8 of the Articles of the
Corporation;
"The shares of the Corporation shall not be transferred without the
approval of the board of directors of the Corporation to be evidenced
by a resolution of the board."
(d) to remove the following from paragraph 9 of the Articles of the
Corporation;
"1. The number of shareholders of the Corporation exclusive of
persons who are in its employment and exclusive of persons who,
having been formerly in the employment of the Corporation, were,
while in that employment, and have continued after termination of
that employment to be shareholders of the Corporation, is limited
to not more than fifty, two or more persons who are the joint
registered owners of one or more shares being counted as one
shareholder.
2. Any invitation to the public to subscribe for shares or other
securities of the Corporation shall be prohibited."
<PAGE> 42
1A
DELANO TECHNOLOGY CORPORATION
ARTICLES OF AMENDMENT
EXHIBIT A
COMMON SHARES
1. VOTING RIGHTS
Each holder of Common Shares shall be entitled to receive notice of and to
attend all meetings of shareholders of the Corporation and to vote thereat,
except meetings at which only holders of a specified class of shares (other than
Common Shares) or specified series of shares are entitled to vote. At all
meetings of holders of Common Shares, each holder of Common Shares shall be
entitled to one vote in respect of each Common Share held by such holder.
2. DIVIDENDS
The Common Shares shall be entitled, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of the
Corporation, to receive any dividend declared by the Board of Directors of the
Corporation.
3. LIQUIDATION, DISSOLUTION OR WINDING-UP
In the event of any liquidation, dissolution or winding-up of the Corporation or
other distribution of assets of the Corporation among its shareholders for the
purpose of winding-up its affairs, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of the
Corporation, the assets and funds of the Corporation available for distribution
to shareholders shall be distributed among the holders of the Common Shares, the
holders of the Class A Preferred Shares the holders of the Class B Preferred
Shares, the holders of the Class C Preferred Shares and any other class or
series of shares entitled to participate in a liquidation distribution with the
holders of Common Shares, pro rata based on the number of Common Shares held by
each holder (assuming conversion into Common Shares of all Class A Preferred
Shares, Class B Preferred Shares and Class C Preferred Shares) and any other
participating outstanding series or class of shares convertible into Common
Shares.
PREFERRED SHARES
1. DIVIDENDS ON PREFERRED SHARES
The Class A Preferred Shares, the Class B Preferred Shares and the Class C
Preferred Shares (collectively, the "Preferred Shares") shall participate
equally with respect to dividends and for greater certainty, all dividends which
the directors may declare in any fiscal year of the Corporation on the Class A
Preferred Shares, the Class B Preferred Shares and the Class C Preferred Shares
shall be
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1B
declared and paid in equal or equivalent amounts per share on the Class A
Preferred Shares, the Class B Preferred Shares and the Class C Preferred Shares
at the time outstanding without preference or priority.
Holders of outstanding Class A Preferred Shares shall be entitled to receive, in
any fiscal year, annually or when otherwise as declared by the Board of
Directors of the Corporation and to the extent permitted under the Business
Corporations Act (Ontario), dividends in cash at the rate of $0.03 per share per
annum plus an amount per share equal to 8% per annum of the accrued and unpaid
dividends thereon (providing for an 8% cumulative compounding return), which
shall accrue as provided herein, before any dividend is paid on the Common
Shares. Such dividends shall accrue on outstanding Class A Preferred Shares
cumulatively, commencing on the date of the original issuance thereof, on a
daily basis. Except to the extent otherwise permitted by these Articles,
dividends or distributions may be declared and paid upon Common Shares in any
fiscal year of the Corporation only if all accrued dividends shall have been
paid on all Class A Preferred Shares in accordance with this section. If, after
payment of such dividends to holders of the Preferred Shares, dividends are paid
to holders of Common Shares, the holders of outstanding Preferred Shares shall
be entitled to receive, out of any assets at the time legally available
therefor, additional dividends per share equal to the per share dividends paid
to holders of Common Shares (treating each Preferred Share as being equal to the
number of Common Shares into which each such Preferred Share could be converted
pursuant to Section 4 (Conversion) hereof, with such number determined as of the
record date for the determination of holders of Common Shares entitled to
receive such dividend).
2. LIQUIDATION, DISSOLUTION OR WINDING-UP
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of Class A
Preferred Shares shall be entitled to receive, prior and in preference
to any distribution of any of the assets of the Corporation to the
holders of the Common Shares or to the holders of the Class B
Preferred Shares or the Class C Preferred Shares, by reason of their
ownership thereof, the Class A Redemption Price (as defined in
paragraph 5(c) below) for each Class A Preferred Share then held by
such holders. If the amount available for such distribution is
insufficient to pay the Class A Redemption Price on all outstanding
Class A Preferred Shares, the assets available for distribution shall
be distributed among the holders of the Class A Preferred Shares pro
rata in accordance with the total number of Class A Preferred Shares
held by such holders.
(b) After the payment of all preferential amounts required to be paid to
the holders of the Class A Preferred Shares and any other class or
series of shares of the Corporation ranking on liquidation on a parity
with or senior to the Class A Preferred Shares, the holders of Class B
Preferred Shares and the holders of Class C Preferred Shares shall be
entitled to receive, prior and in preference to any distribution of
any of the assets of the Corporation to the holders of the Common
Shares, by reason of their ownership thereof, for each Class B
Preferred Share and Class C Preferred Share then held by a holder, a
sum equal to:
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1C
FOR HOLDERS OF CLASS B PREFERRED SHARES:
(i) the Class B Redemption Price (as defined in paragraph 5(c) below); and
(ii) an additional amount equal to the following:
(A) 8% of the holders subscription price for the Class B Preferred
Share, per annum since the date of issuance (non-compounded), if
the aggregate value of all assets available for distribution to
the holders of the Corporation (prior to making any payments
pursuant to this Section 2) is less than or equal to $9,999,999;
or
(B) 16% of the holders subscription price for the Class B Preferred
Share, per annum since the date of issuance (non-compounded), if
the aggregate value of all assets available for distribution to
the holders of the Corporation (prior to making any payments
pursuant to this Section 2) is greater than $9,999,999 but less
than or equal to $19,999,999; or
(C) 24% of the holders subscription price for the Class B Preferred
Share, per annum since the date of issuance (non-compounded) if
the aggregate value of all assets available for distribution to
the holders of the Corporation (prior to making any payments
pursuant to this Section 2) is greater than $19,999,999.
FOR HOLDERS OF CLASS C PREFERRED SHARES:
(i) the Class C Redemption Price (as defined in paragraph 5(c) below); and
(ii) an additional amount equal to the following:
(A) 8% of the holders subscription price for the Class C Preferred
Share, per annum since the date of issuance (non-compounded), if
the aggregate value of all assets available for distribution to
the holders of the Corporation (prior to making any payments
pursuant to this Section 2) is less than or equal to $9,999,999;
or
(B) 16% of the holders subscription price for the Class C Preferred
Share, per annum since the date of issuance (non-compounded), if
the aggregate value of all assets available for distribution to
the holders of the Corporation (prior to making any payments
pursuant to this Section 2) is greater than $9,999,999 but less
than or equal to $19,999,999; or
<PAGE> 45
1D
(C) 24% of the holders subscription price for the Class C Preferred
Share, per annum since the date of issuance (non-compounded) if
the aggregate value of all assets available for distribution to
the holders of the Corporation (prior to making any payments
pursuant to this Section 2) is greater than $19,999,999.
If the amount available for such distribution is insufficient to pay the
Class B Redemption Price and the Class C Redemption Price (plus any
additional amount applicable pursuant to this Section 2) on all outstanding
Class B Preferred Shares and Class C Preferred Shares, the assets available
for distribution shall be distributed among the holders of the Class B
Preferred Shares and the holders of the Class C Preferred Shares pro rata
based on the number of Common Shares into which each Class B Preferred
Share and Class C Preferred Share could be converted pursuant to Section 4
(conversion) hereof.
(c) After the payment of all preferential amounts required to be paid to the
holders of the Class A Preferred Shares, the holders of the Class B
Preferred Shares and the holders of the Class C Preferred Shares and any
other class or series of shares of the Corporation ranking on liquidation
senior to the Common Shares, upon the liquidation, dissolution or winding
up of the Corporation, the remaining assets and funds of the Corporation
available for distribution to its shareholders shall be distributed among
the holders of the Class A Preferred Shares, the holders of the Class B
Preferred Shares, the holders of the Class C Preferred Shares and the
holders of the Common Shares and any other class or series of shares
entitled to participate in liquidation distributions with the holders of
Common Shares, pro rata based on the number of Common Shares held by each
holder (assuming conversion into Common Shares of all Preferred Shares) and
any other participating outstanding series or class of shares convertible
into Common Shares.
(d) The amalgamation, merger or consolidation of the Corporation into or with
another corporation (where the shareholders of the Corporation are not the
majority shareholders of the merged entity), or the sale of all or
substantially all the assets of the Corporation, shall be deemed a
liquidation, dissolution or winding up of the Corporation for purposes of
this Section 2 unless the prior written consent to such transaction is
obtained from the holders of at least two-thirds of the outstanding Class A
Preferred Shares, from the holders of at least two-thirds of the
outstanding Class B Preferred Shares and from the holders of at least two
thirds of the outstanding Class C Preferred Shares, voting separately.
(e) In the event of a liquidation, dissolution or winding up of the Corporation
resulting in the availability of assets other than cash for distribution to
the holders of Preferred Shares, the cash amount deemed distributed to such
holders shall be the cash value of the property, rights or securities
distributed to such holders by the Corporation or
<PAGE> 46
1E
the acquiring corporation. If the non-cash consideration is publicly traded
shares, then the cash value for such consideration shall be the simple
average of the closing price (or closing bid price during) in the ten
trading days preceding announcement of the distribution. The Board of
Directors of the Corporation shall first determine the value of such
property, rights or other securities for such purpose, and shall notify all
holders of Preferred Shares of such determination. The value of such
property, rights or other securities for purposes of the distribution under
this paragraph 2(e) shall be the value as determined by the Board of
Directors of the Corporation in good faith, unless the holders of a
majority of the outstanding Preferred Shares shall object thereto in
writing within 15 days after receiving written notice of such value. In the
event of such objection, the valuation of such property, rights or other
securities for purposes of such distribution shall be determined by an
arbitrator selected by the objecting shareholders and the Board of
Directors of the Corporation, or in the event a single arbitrator cannot be
agreed upon within 10 days after the written objection sent by the
objecting shareholders in accordance with the previous sentence, the
valuation of such property, rights or other securities shall be determined
by arbitration in which (i) the objecting shareholders shall name one
arbitrator, (ii) the Board of Directors of the Corporation shall name a
second arbitrator, (iii) the two arbitrators thus selected shall select a
third arbitrator, and (iv) the three arbitrators thus selected shall
determine the valuation of such property, rights or other securities within
15 days for purposes of such distribution or as soon as practicable
thereafter by majority vote. The costs of such arbitration shall be borne
by the Corporation or by the holders of the Preferred Shares (on a pro rata
basis out of the property, rights or other securities otherwise
distributable to them) as follows: (A) if the valuation as determined by
the arbitrators is equal to or exceeds the valuation as determined by the
Board of Directors of the Corporation, the holders of the Preferred Shares
shall pay the costs of the arbitration, and (B) otherwise, the Corporation
shall bear the costs of the arbitration.
3. VOTING RIGHTS
Except as otherwise provided herein and except as otherwise required by law, on
all matters submitted to a vote of holders of Common Shares, a holder of
Preferred Shares shall be entitled to the number of votes which is equal to the
number of Common Shares into which such Preferred Shares are then convertible
pursuant to Section 4 (Conversion) hereof, and in all ways shall have voting
rights and powers equal to the voting rights and powers of the Common Shares,
including the right to notice of any shareholders' meeting in accordance given
to the holders of Common Shares. Except as otherwise required by law, the
Preferred Shares and Common Shares vote together as a single class. Fractional
votes shall not, however, be permitted and any fractional voting rights
resulting from the above formula (after aggregating all Common Shares into which
Preferred Shares
<PAGE> 47
1F
held by each holder could then be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward).
4. CONVERSION
The holders of Preferred Shares shall have the following conversion rights (the
"Conversion Rights"):
(a) RIGHT TO CONVERT.
(i) OPTIONAL CONVERSION. Each Class A Preferred Share shall be
convertible, at the option of the holder thereof, at the office
of the Corporation, into such number of fully paid and
non-assessable Common Shares as determined by dividing $0.375 by
the Class A Conversion Price (as defined below), in effect at the
time of conversion. The price at which Common Shares shall be
deliverable upon conversion (the "Class A Conversion Price")
shall initially be $0.375. Such Class A Conversion Price shall be
subject to adjustment as hereinafter provided. Each Class B
Preferred Share shall be convertible, at the option of the holder
thereof, at the office of the Corporation, into such number of
fully paid and non-assessable Common Shares as determined by
dividing $0.95 by the Class B Conversion Price (as defined
below), in effect at the time of conversion. The price at which
Common Shares shall be deliverable upon conversion (the "Class B
Conversion Price") shall initially be $0.95. Such Class B
Conversion Price shall be subject to adjustment as hereinafter
provided. Each Class C Preferred Share shall be convertible, at
the option of the holder thereof, at the office of the
Corporation, into one Common Share and the number of Common
Shares received upon the conversion of Class C Preferred Shares
shall not be subject to adjustment at any time including, without
limitation, pursuant to the provisions of paragraph 4(c).
(ii) AUTOMATIC CONVERSION. Each Preferred Share shall be converted
automatically into Common Shares (for the Class A Preferred
Shares and the Class B Preferred Shares, at the then effective
Class A Conversion Price or Class B Conversion Price, as the case
may be) immediately prior to (A) the completion of a Canadian
public offering of Common Shares pursuant to a prospectus or a
sale of Common Shares in a public offering registered under the
U.S. Securities Act of 1933, as amended, (or the applicable law
of such other jurisdiction in which the Corporation goes public)
that results in aggregate net proceeds to the Corporation
(defined as aggregate sales price to the public, less expenses
and underwriters' discounts) of at least twenty million dollars
($20,000,000) at a price per share which is based on a
pre-offering valuation of the Corporation of not less than thirty
million dollars ($30,000,000) (a "Qualified Public Offering"); or
(B) the Corporation acquiring all or substantially all of the
assets of any other person or business
<PAGE> 48
1G
entity or entering into any consolidation, merger, or other
business combination, or transferring all or substantially all of
the Corporation's business or assets to any partnership, joint
venture or other similar jointly owned business venture, with any
other corporation or business entity, or effecting a liquidation,
winding up, reorganization or sale or other disposition of the
Corporation or of all or substantially all of the assets of the
Corporation in a transaction that in any such event either (x)
provides the holders of the Preferred Shares with cash proceeds,
or securities of a class of shares that is traded on the Toronto
Stock Exchange, NASDAQ National Market system or the NYSE or AMEX
exchanges (or any other recognized exchange or trading system of
approximately equivalent stature) or some combination thereof
equal to at least $2.25 per Preferred Share, less the amount of
any dividends actually paid by the Corporation per share to the
holder of Preferred Shares (if such transaction closes on or
prior to July 31, 2002), or $2.625 per Preferred Share less the
amount of any dividends actually paid by the Corporation per
share to the holder of Preferred Shares (if such transaction
closes after July 31, 2002 but on or prior to July 31, 2003) or
(y) the holders of at least 50% of the aggregate number of
outstanding Class A Preferred Shares, the holders of at least 50%
of the aggregate number of outstanding Class B Preferred Shares
and the holders of at least 50% of the aggregate number of
outstanding Class C Preferred Shares, voting separately, approve
at a meeting of shareholders or otherwise in writing both the
proposed transaction and the conversion of Preferred Shares to
Common Shares. The Corporation shall not pay dividends
(regardless of whether such dividends have been accrued or
declared) on any Preferred Shares that are automatically
converted pursuant to this subsection (ii) above in addition to
any dividends that were actually paid to holders of Preferred
Shares prior to the automatic conversion.
(b) MECHANICS OF CONVERSION. Except on an automatic conversion under
subparagraph 4(a)(ii) above, before any holder of Preferred Shares shall be
entitled to convert Preferred Shares into Common Shares, such holder shall
surrender the certificate or certificates thereof, duly endorsed, at the
office of the Corporation and shall give written notice to the Corporation
at such office that such holder elects to convert the Preferred Shares and
shall state therein the name or names in which such holder wishes the
certificate or certificates for Common Shares to be issued. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office
to such holder, or to such holder's nominee or nominees, 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 surrender of the
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 on
such date. If a holder tenders Preferred Shares for conversion in
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1H
connection with any automatic conversion event described in subparagraph
4(a)(ii) above the conversion may, at the option of the holder tendering
Preferred Shares for conversion, be conditioned upon the closing of the
relevant transaction, in which event the person(s) entitled to receive the
Common Shares issuable upon such conversion of the Preferred Shares shall
not be deemed to have converted such Preferred Shares until immediately
prior to the closing of such transaction.
(c) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this paragraph 4(c), the
following definitions shall apply:
(A) "Additional Common Shares" shall mean all Common Shares issued
(or, pursuant to subparagraph 4(c)(iii), deemed to be issued) by
the Corporation after the Original Issue Date, other than Common
Shares issued or issuable:
(1) upon conversion of Preferred Shares;
(2) to officers, directors or employees of, or consultants to,
the Corporation, in accordance with a plan approved by the
Board of Directors of the Corporation or pursuant to a
compensation package for new senior officers of the
Corporation which the holders of a majority of the Preferred
Shares have agreed to in writing ("Permitted Employee
Shares"), subject to adjustment for all reclassifications,
subdivisions, combinations or similar recapitalizations of
Common Shares;
(3) as a dividend or distribution on Preferred Shares; and
(4) by way of dividend or other distribution on Common Shares
which were, when issued, excluded from the definition of
Additional Common Shares by the foregoing clauses (1), (2)
and (3) or this clause (4).
(B) "Convertible Securities" shall mean any evidence of indebtedness,
and shares (other than Common Shares) or other securities
convertible into or exchangeable for Common Shares, including the
Preferred Shares.
(C) "Options" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire either Common Shares or
Convertible Securities.
<PAGE> 50
1I
(D) "Original Issue Date" shall mean the date on which a Preferred
Share was first issued.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in either the Class A
Conversion Price or the Class B Conversion Price shall be made in
respect of the issuance of Additional Common Shares unless the Net
Cash Consideration (as defined below) per share for an Additional
Common Share issued or deemed to be issued by the Corporation is less
than the Class A Conversion Price or Class B Conversion Price, as the
case may be, in effect on the date of, and immediately prior to such
issue for such Preferred Shares. The "Net Cash Consideration" shall
mean the cash value of the consideration received by the Corporation
(determined pursuant to subparagraph 4(c)(v)) less any commissions
payable to third parties with respect to the transaction in which the
cash consideration is received.
(iii) DEEMED ISSUE OF ADDITIONAL COMMON SHARES.
(A) OPTIONS AND CONVERTIBLE SECURITIES. If the Corporation at any
time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities,
then the maximum aggregate number (as set forth in the instrument
relating thereto without regard to any provision contained
therein for a subsequent adjustment of such number) of Common
Shares issuable upon the exercise of such Options or, in the case
of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be
Additional Common Shares issued as of the time of such issue or,
in case such a record date shall have been fixed, as of the close
of business on such record date.
Notwithstanding the foregoing, in respect of Preferred Shares
Additional Common Shares shall not be deemed to have been issued
unless the Net Cash Consideration (as defined in subparagraph
4(c)(ii)) per share (determined pursuant to subparagraph 4(c)(v)
hereof) of such Additional Common Shares would be less than the
Class A Conversion Price or the Class B Conversion Price, as the
case may be, in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and provided
further that in any such case in which Additional Common Shares
are deemed to be issued:
(1) no further adjustment in the Class A Conversion Price or the
Class B Conversion Price shall be made upon the subsequent
<PAGE> 51
1J
issue of Convertible Securities or Common Shares pursuant to
the exercise of such Options or conversion or exchange of
such Convertible Securities;
(2) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any
increase in the consideration payable to the Corporation, or
decrease in the number of Common Shares issuable, upon the
exercise, conversion or exchange thereof, the Class A
Conversion Price and the Class B Conversion Price computed
upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or
the rights of conversion or exchange under such Convertible
Securities;
(3) upon the expiration or termination of any such Options or
any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Class A
Conversion Price and the Class B Conversion Price computed
upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration or
termination, be recomputed as if:
A. in the case of Convertible Securities or Options for
Common Shares, the only Additional Common Shares issued
were the Common Shares, if any, actually issued upon
the exercise of such Options or the conversion or
exchange of such Convertible Securities and the
consideration received therefor was the consideration
actually received by the Corporation for the issue of
all such Options, whether or not exercised, plus the
consideration actually received by the Corporation upon
such exercise, or for the issue of all such Convertible
Securities, whether or not actually converted or
exchanged, plus the additional consideration, if any,
actually received by the Corporation upon such
conversion or exchange, and
B. in the case of Options for Convertible Securities, only
Convertible Securities, if any, actually issued upon
the
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1K
exercise thereof were issued at the time of issue of
such options, and the consideration received by the
Corporation for the Additional Common Shares deemed to
have been then issued was the consideration actually
received by the Corporation for the issue of all such
Options, whether or not exercised, plus the
consideration deemed to have been received by the
Corporation upon the issue of the Convertible
Securities with respect to which such Options were
actually exercised; and
(4) for greater certainty, no adjustment pursuant to either
clause B. or C. above shall have the effect of increasing
the Class A Conversion Price or the Class B Conversion Price
which shall continue to be, for the purposes of any
recalculation of the number of Additional Common Shares
deemed to be issued, the Class A Conversion Price or the
Class B Conversion Price, as the case may be, in effect
immediately prior to the initial deemed issuance of such
Additional Common Shares.
(B) SHARE DIVIDENDS AND SUBDIVISIONS. If the Corporation at any time
or from time to time after the Original Issue Date shall declare
or pay any dividend on the Common Shares payable in Common
Shares, or effect a subdivision of the outstanding shares of
Common Shares into a greater number of shares of Common Shares
(by reclassification or otherwise than by payment of a dividend
in Common Shares), then, and in any such event, Additional Common
Shares shall be deemed to have been issued:
(1) in the case of any such dividend, immediately after the
close of business on the record date for the determination
of holders of any class of securities entitled to receive
such dividend, or
(2) in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon
which such corporate action becomes effective.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL COMMON
SHARES.
If the Corporation shall issue Additional Common Shares (including
Additional Common Shares deemed to be issued pursuant to subparagraph
4(c)(iii)) for a Net Cash Consideration (as defined in subparagraph
4(c)(ii)) per share less than the Class A Conversion Price or the Class B
Conversion Price on the date of and immediately
<PAGE> 53
1L
prior to such issuance, then, and in such event, the Class A Conversion
Price and/or the Class B Conversion Price, as the case may be, shall be
reduced, concurrently with such issue, to a price (calculated to the
nearest hundredth of a cent) determined by multiplying such conversion
price by a fraction, the numerator of which shall be the sum of (1) the
number of Common Shares outstanding immediately prior to such issue, (2)
any Permitted Employee Shares which have not been issued immediately prior
to such issue, but are then issuable pursuant to options which have been
granted, and which have an exercise price below the price of such issue and
(3) the number of Common Shares which the aggregate consideration received
by the Corporation for the total number of Additional Common Shares so
issued would purchase at such conversion price; and the denominator of
which shall be the sum of (1) the number of Common Shares outstanding
immediately prior to such issue, (2) any Permitted Employee Shares which
have not been issued immediately prior to such issue but are then issuable
pursuant to options which have been granted, and which have an exercise
price below the price of such issue, and (3) the number of such Additional
Common Shares so issued; provided that, for the purposes of this
subparagraph 4(c)(iv), all Common Shares issuable upon conversion of
outstanding Preferred Shares and Convertible Securities and upon the
exercise of Options (including the conversion into Common Shares of
Convertible Securities issuable upon the exercise of such Options) and all
Additional Shares previously deemed issued pursuant to subparagraph
4(c)(iii) (adjusted pursuant to subparagraph 4(c)(iii)(3), if applicable)
shall be deemed to be outstanding.
(v) DETERMINATION OF CONSIDERATION. For purposes of this paragraph 4(c),
the consideration received by the Corporation for the issue of any
Additional Common Shares shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(1) insofar as it consists of cash, be computed at the aggregate
amount of cash received by the Corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board of Directors
of the Corporation (and if the non-cash consideration is
public traded company shares, then the price shall be the
simple average of the closing price (or closing bid price)
in the ten trading days preceding the issue or deemed issue
of the Additional Common Shares); and
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1M
(3) if Additional Common Shares are issued together with other
shares or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such
consideration so received in respect of the Additional
Common Shares, computed as provided in clauses (1) and (2)
above, as determined in good faith by the Board of Directors
of the Corporation.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share
received by the Corporation for Additional Common Shares deemed
to have been issued pursuant to subparagraph 4(c)(iii)(A),
relating to Options and Convertible Securities, shall be
determined by dividing:
(1) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options
or Convertible Securities, plus the minimum aggregate amount
of additional consideration (as set forth in the instruments
relating thereto, without regard to any provisions contained
therein for a subsequent adjustment of such consideration)
payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible
Securities and the conversion or exchange of such
Convertible Securities, by
(2) the maximum number of shares of Common Shares (as set forth
in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities.
(C) SHARE DIVIDENDS AND SHARE SUBDIVISIONS. Any Additional Common
Shares deemed to have been issued pursuant to subparagraph
4(c)(iii)(B), relating to share dividends and share subdivisions,
shall be deemed to have been issued for no consideration.
(vi) ADJUSTMENTS FOR COMBINATIONS OR CONSOLIDATION OF COMMON SHARES. If the
outstanding Common Shares shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of Common Shares,
the Class A Conversion Price and the Class B Conversion Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
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1N
(vii) ADJUSTMENT FOR MERGERS OR REORGANIZATION, ETC. In case of any
amalgamation, consolidation or merger of the Corporation with or into
another corporation or the conveyance of all or substantially all of
the assets of the Corporation to another corporation (which is not, in
any such case, deemed to be a liquidation, dissolution or winding up
of the Corporation pursuant to paragraph 2(c)), each Preferred Share
shall thereafter, at the option of the holder, be convertible into the
number of shares or other securities or property to which a holder of
Common Shares deliverable upon conversion of such Preferred Shares
would have been entitled upon such consolidation, merger or
conveyance; and, in any such case, appropriate adjustment (as
determined by the Board of Directors of the Corporation) shall be made
in the application of the provisions herein set forth with respect to
the rights and interest thereafter of the holders of the Preferred
Shares, to the end that the provisions set forth herein (including
provisions with respect to changes in and other adjustments of the
Class A Conversion Price and the Class B Conversion Price) shall
hereafter be applicable, as nearly as reasonably may be, in relation
to any shares or other property thereafter deliverable upon the
conversion of the Preferred Shares.
(d) NO IMPAIRMENT. The Board of Directors of the Corporation will at all times
in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Preferred Shares against impairment.
(e) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Class A Conversion Price or the Class B Conversion
Price pursuant to this Section 4, the Corporation, at its expense, promptly
shall compute such adjustment or readjustment in accordance with the terms
hereof and, upon written request of any holder of Class A Preferred Shares
or Class B Preferred Shares, as the case may be, shall cause independent
public accountants selected by the Corporation to verify such computation
and prepare and furnish to each holder of Class A Preferred Shares or Class
B Preferred Shares, as the case may be, a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Class B Preferred Shares or
Class C Preferred Shares, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii)
the conversion price applicable to such Class B Preferred Shares and Class
C Preferred Shares in effect at the time, and (iii) the number of Common
Shares and the amount, if any, of other property which at the time would be
received upon the conversion of such Class B Preferred Shares and Class C
Preferred Shares.
(f) TAXES. The Corporation shall pay any and all issue taxes that may be
payable solely in respect of any issue or delivery of shares of Common
Shares on conversion of
<PAGE> 56
1O
Preferred Shares pursuant hereto; provided, however, that the Corporation
shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such conversion or,
for greater certainty, any income tax payable by holders of Preferred
Shares.
(g) RESERVATION OF SHARES ISSUABLE UPON CONVERSION. The Corporation 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
shares of the Preferred Shares, such number of its Common Shares as shall
from time to time be sufficient to effect the conversion of all outstanding
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 Preferred Shares, the Corporation 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 purpose.
(h) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion
of any Preferred Shares. All Common Shares (including fractions thereof)
issuable upon conversion of more than one Preferred Share by a holder
thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If, after
the aforementioned aggregation, the conversion would result in the issuance
of a fraction of a Common Share, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a
sum in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors of the
Corporation).
5. REDEMPTION
The Preferred Shares may not be redeemed by the Corporation at any time, but the
holders may require the Corporation to redeem the Preferred Shares in the
following circumstances:
(a) OPTIONAL REDEMPTION. Each holder of Class A Preferred Shares may require
the Corporation to redeem, (i) after July 31, 2002 up to fifty percent
(50%) of the outstanding Class A Preferred Shares then held by such holder,
and (ii) after July 31, 2003, all or any portion of the outstanding Class A
Preferred Shares then held by such holder. Each holder of Class B Preferred
Shares may require the Corporation to redeem, (i) after December 31, 2002,
up to fifty percent (50%) of the outstanding Class B Preferred Shares then
held by such holder, and (ii) after December 31, 2003, all or any portion
of the outstanding Class B Preferred Shares then held by such holder. Each
holder of Class C Preferred Shares may require the Corporation to redeem,
(i) after June 22, 2003, up to fifty percent (50%) of the outstanding Class
C Preferred Shares then held by such holder, and (ii) after June 22, 2004,
all or any portion of the outstanding Class C Preferred Shares then held by
such holder. At least 60 days prior to any redemption of Preferred Shares,
each holder of Preferred Shares
<PAGE> 57
1P
electing to redeem its Preferred Shares in accordance with this paragraph
5(a) shall give written notice to the Corporation specifying the number of
Preferred Shares such holder desires the Corporation to redeem and the date
of such redemption (hereinafter referred to as a "Redemption Date").
(b) OPTIONAL REDEMPTION UPON CHANGE OF CONTROL. Each holder of Class A
Preferred Shares may require the Corporation to redeem all, but not less
than all, of the outstanding Class A Preferred Shares then held by such
holder, upon a Change in Control. Similarly, each holder of Class B
Preferred Shares and Class C Preferred Shares may require the Corporation
to redeem all, but not less than all, of the outstanding Class B Preferred
Shares and Class C Preferred Shares then held by such holder, upon a Change
in Control. A "Change in Control" for purposes of this paragraph 5(b) shall
mean any issuance of voting securities by the Corporation or transfer of
voting securities by the holder(s) thereof (or combination thereof) to any
person or persons acting in concert or a group of affiliated persons, which
issuance and/or transfer results in such person or persons or group holding
in the aggregate voting securities having the power to cast 50% or more of
the votes on any matters submitted from time to time to holders of voting
securities of the Corporation or which otherwise provides such persons with
the ability to elect a majority of the Board of Directors of the
Corporation. Notice of such issuance and/or transfer (the "Control Notice")
shall be given to the holders of Preferred Shares by the Corporation within
10 days of the earlier of the Corporation's making such issuance and/or
being informed of such transfer. Within 60 days of receiving the Control
Notice, each holder of Preferred Shares electing to redeem all of such
holders Class A Preferred Shares and/or Class B Preferred Shares, as the
case may be, in accordance with this paragraph 5(b) shall give written
notice to the Corporation specifying the number of Preferred Shares held by
such holder and the date of such redemption (also, a "Redemption Date").
(c) REDEMPTION PRICE AND PAYMENT. The Class A Preferred Shares to be redeemed
on any Redemption Date pursuant to paragraphs 5(a) or 5(b) above shall be
redeemed by paying for each share in cash an amount equal to $0.375 plus
all accrued but unpaid dividends thereon up to and including the date the
redemption price is received by the holder (the "Class A Redemption
Price"). The Class B Preferred Shares to be redeemed on any Redemption Date
pursuant to paragraphs 5(a) or 5(b) above shall be redeemed by paying for
each share in cash an amount equal to $0.95 plus all accrued but unpaid
dividends thereon up to and including the date the redemption price is
received by the holder (the "Class B Redemption Price"). The Class C
Preferred Shares to be redeemed on any Redemption Date pursuant to
paragraphs 5(a) or 5(b) above shall be redeemed by paying for each share in
cash an amount equal to $0.95 plus all accrued but unpaid dividends thereon
up to and including the date the redemption price is received by the holder
(the "Class C Redemption Price").
<PAGE> 58
1Q
(d) REDEMPTION MECHANICS. Upon receipt of payment by each holder of Preferred
Shares electing to redeem pursuant to paragraphs 5(a) or 5(b) above of the
redemption price applicable to such Preferred Shares (the Class A
Redemption Price, the Class B Redemption Price or the Class C Redemption
Price, as the case may be), all rights of holders of such redeemed shares
shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to
be outstanding for any purpose whatsoever. If the funds of the Corporation
legally available for redemption of Preferred Shares on any Redemption Date
are insufficient to redeem the total number of outstanding Preferred Shares
as to which redemption is requested, the holders of Preferred Shares
requesting redemption shall share rateably in any funds legally available
for redemption of such shares according to the respective amounts which
would be payable with respect to the full number of shares owned by such
holders as to which redemption is requested if all such outstanding shares
were redeemed in full. The Preferred Shares not redeemed shall remain
outstanding and entitled to all rights and preferences provided herein. At
any time thereafter when additional funds of the Corporation are legally
available for the redemption of such Preferred Shares, such funds will be
used, at the end of the next succeeding fiscal quarter, to redeem the
balance of such shares as to which redemption had been requested, or such
portion thereof for which funds are then legally available, on the basis
set forth above, regardless of whether any last date for giving notice
pursuant to paragraphs 5(a) or 5(b), as the case may be, has passed.
(e) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any Preferred Shares
redeemed pursuant to this Section 5 or otherwise acquired by the
Corporation in any manner whatsoever shall be cancelled.
6. CURRENCY
All references herein to dollar amounts are references to Canadian dollars.
<PAGE> 59
5. The amendment has been duly authorized as required by Sections 168 & 170
(as applicable) of the Business Corporations Act.
La modification a ete dument autorisee conformement a l'article 168 et,
s'il y a lieu, a article 170 de la Loi sur les compagnies.
6. The resolution authorizing the amendment was approved by the
shareholders/directors (as applicable) of the corporation on
Les actionnaires ou les adminstrateurs (le cas echeant) de la compagnie ont
approuve la resolution autorisant la modification
June 24, 1999
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate.
Les presents status sont signes en double exemplaire.
DELANO TECHNOLOGY CORPORATION
---------------------------------------------------------------------------
(Name of Corporation)
(Denomination social de la compagnie)
By/Par: (Signed) Secretary
---------------------------------------------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
<PAGE> 60
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la societe en Ontario
1294608
Ministry of Ministere de
[LOGO] Consumer and la Consommation
Commercial Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que las presents
articles are effective on status entrant en vigueur le
DECEMBER 21 DECEMBRE, 1999
- -------------------------------------------------------------
(Signed)
Director / Directeur
Business Corporations Act / Loi sur les societes par actions
TRANS
CODE
C
18
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 Business Corporations Act
Formule numero 3 Loi sur les compagnies
1. The present name of the corporation is:
Denomination sociale actuelle de la compagnie:
DELANO TECHNOLOGY CORPORATION
2. The name of the corporation is changed to (if applicable):
Nouvelle denomination sociale de la compagnie (s'il y a lieu):
N/A
3. Date of incorporation/amalgamation:
Date de la constitution ou de la fusion:
7 May 1998
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are amended as follows:
Les statuts de la compagnie sont modifies de la facon suivante:
(a) to change the designation of the Class A Preferred Shares of the
Corporation to Class A Special Shares;
(b) to change the designation of the Class B Preferred Shares of the
Corporation to Class B Special Shares;
(c) to change the designation of the Class C Preferred Shares of the
Corporation to Class C Special Shares;
(d) to delete the words "Preferred Shares" throughout the rights,
privileges, restrictions and conditions attached to the Class A
Special Shares, the Class B Special Shares and the Class C Special
Shares and to replace them with the words "Special Shares"; and
(e) to create an unlimited number of Preferred Shares, issuable in series,
and to provide that the rights, privileges, restrictions and
conditions attaching to the Preference Shares, issuable in series,
shall be as set out in the attached Schedule A.
<PAGE> 61
1A
SCHEDULE A
PREFERENCE SHARES.
The Preference Shares, as a class, shall have the following rights, privileges,
restrictions and conditions:
1. One or more series - The Preference Shares may from time to time be issued
in one or more series;
2. Terms of each series - Subject to the following provisions, and subject to
the filing of articles of amendment in prescribed form and the endorsement
thereon of a certificate of amendment, in accordance with the Business
Corporations Act (Ontario), the directors may fix from time to time before
such issue the number of shares that is to comprise each series and the
designation, rights, privileges, restrictions and conditions attaching to
each series of Preference Shares including, without limiting the generality
of the foregoing, the issue price per share, the rate or amount of any
dividends or the method of calculating any dividends, the dates of payment
thereof, any redemption, purchase and/or conversion prices and terms and
conditions of any redemption, purchase and/or conversion, and any sinking
fund or other provisions;
3. Ranking of Preference Shares - The Preference Shares of each series shall,
with respect to the payment of any dividends and any distribution of assets
or return of capital in the event of liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, or any other return
of capital or distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs, rank on a parity
with the Preference Shares of every other series and be entitled to a
preference over the Common Shares, the Special Shares and over any other
shares of the Corporation ranking junior to the Preference Shares. The
Preference Shares of any series may also be given such other preferences,
not inconsistent with these articles, over the Common Shares, the Special
Shares and any other shares of the Corporation ranking junior to such
Preference Shares as may be fixed in accordance with section 2;
4. Cumulative Dividends and Payments on the Return of Capital - If any
cumulative dividends, whether or not declared, or any amounts payable on
the return of capital in the event of the liquidation, dissolution or
winding up of the Corporation, in respect of a series of Preference Shares
are not paid in full, the shares of such series of Preference Shares shall
participate rateably with the shares of all other series of Preference
Shares in respect of, all accumulated cumulative dividends, whether or not
declared, or all amounts payable on the return of capital in the event of
the liquidation, dissolution or winding up of the Corporation, as the case
may be.
5. Conversion into Common Shares - The Preference Shares of any series may be
made convertible into Common Shares;
6. Voting - Subject to the provisions of the Business Corporations Act
(Ontario), and section 7 below, the Preference Shares shall have no voting
rights as a class;
<PAGE> 62
1B
7. Variation of rights - The provisions attaching to the Preference Shares as
a class may be amended or repealed at any time with such approval as may
then be required by law to be given by the holders of the Preference Shares
as a class.
<PAGE> 63
5. The amendment has been duly authorized as required by Sections 168 & 170
(as applicable) of the Business Corporations Act.
La modification a ete dument autorisee conformement a l'article 168 et,
s'il y a lieu, a article 170 de la Loi sur les compagnies.
6. The solution authorizing the amendment was approved by the
shareholders/directors (as applicable) of the corporation on
Les actionnaires ou les adminstrateurs (le cas echeant) de la compagnie ont
approuve la resolution autorisant la modification
13 December 1999
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate.
Les presents status sont signes en double exemplaire.
DELANO TECHNOLOGY CORPORATION
---------------------------------------------------------------------------
(Name of Corporation)
(Denomination social de la compagnie)
By/Par: (Signed) Secretary
---------------------------------------------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
<PAGE> 1
Exhibit 3.2
BY-LAW NO. 1
a by-law relating generally
to the transaction of the
business and affairs of
DELANO TECHNOLOGY CORPORATION
(the "Corporation")
1 - INTERPRETATION
1.1 Definitions - In this by-law and all other by-laws of the Corporation,
unless the context requires otherwise:
(a) "the Act" means the Business Corporations Act (Ontario), or
any statute which may be substituted therefor, including the
regulations made thereunder as amended from time to time;
(b) "articles" means the original or restated articles of
incorporation, articles of amendment, articles of
amalgamation, articles of arrangement, articles of
continuance, articles of dissolution, articles of
re-organization, articles of revival, letters patent,
supplementary letters patent, a special Act and any other
instrument by which the Corporation is incorporated;
(c) "board" means the board of directors of the Corporation;
and "director" means a member of the board;
(d) "meeting of shareholders" means an annual meeting of
shareholders or a special meeting of shareholders;
(e) "non-business day" means Saturday, Sunday and any other day
that is a holiday as defined in the Interpretation Act
(Ontario);
(f) "person" includes an individual, sole proprietorship,
partnership, unincorporated association, unincorporated
syndicate, unincorporated organization, trust, body corporate,
and a natural person in the capacity of trustee, executor,
administrator, or other legal representative;
(g) "resident Canadian" means a Canadian citizen ordinarily
resident in Canada or as otherwise defined in the Act;
(h) "unanimous shareholder agreement" means a written agreement
among all the shareholders of the Corporation, or among all
such shareholders and one or more persons who are not
shareholders, or a written declaration by a person who is the
beneficial owner of all the issued shares of the Corporation,
that restricts, in whole or in part, the powers of the
directors to manage or supervise the
<PAGE> 2
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management of the business and affairs of the Corporation, as
may be from time to time amended;
(i) words importing the singular number also include the plural
and vice-versa; words importing the masculine gender include
the feminine and neuter genders;
(j) all words used in this by-law and defined in the Act shall
have the meanings given to such words in the Act or in the
related Parts thereof.
1.2 Execution in Counterpart - Any articles, notice, resolution,
requisition, statement or other document required or permitted to be executed by
more than one person for the purposes of the Act may be executed in several
documents of like form each of which is executed by one or more of such persons,
and such documents, when duly executed by all persons required or permitted, as
the case may be, to do so, shall be deemed to constitute one document for the
purposes of the Act.
2 - GENERAL BUSINESS
2.1 Registered Office - The registered office of the Corporation shall be
in the municipality or geographical township within Ontario specified in the
articles or in a special resolution and at such location therein as the board
may from time to time determine.
2.2 Seal - The Corporation may have a seal which shall be adopted and may
be changed by the board.
2.3 Financial Year - Until changed by the board, the financial year of the
Corporation shall end on the 31st day of March in each year.
2.4 Execution of Instruments - Deeds, transfers, assignments, contracts,
obligations, certificates and other instruments shall be signed on behalf of the
Corporation by any one person who holds the office of chairman of the board,
president, managing director, vice-president, secretary, treasurer, assistant
secretary, assistant treasurer, or any other office created by by-law or by
resolution of the board or who is a director.
In addition, the board may from time to time direct the manner in which and the
person or persons by whom any particular instrument or class of instruments may
or shall be signed.
The secretary or any other officer or any director may sign certificates and
similar instruments (other than share certificates) on the Corporation's behalf
with respect to any factual matters relating to the Corporation's business and
affairs, including certificates verifying copies of the articles, by-laws,
resolutions and minutes of meetings of the Corporation.
2.5 Banking Arrangements - The banking business of the Corporation, or any
part thereof, shall be transacted with such bank, trust company or other firm or
body corporate as the board may designate, appoint or authorize from time to
time and all such banking business, or any part thereof, shall be
transacted on the Corporation's behalf by such one or more officers or other
<PAGE> 3
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persons as the board may designate, direct or authorize from time to time and to
the extent thereby provided.
3 - BORROWING
3.1 Borrowing - Without limit to the powers of the board as provided in the
Act, the board may from time to time on behalf of the Corporation:
(a) borrow money upon the credit of the Corporation;
(b) issue, reissue, sell or pledge debt obligations of the
Corporation;
(c) to the extent permitted by the Act, give, directly or
indirectly, financial assistance to any person by means of a
loan, a guarantee or otherwise to secure the performance of an
obligation; and
(d) mortgage, hypothecate, pledge or otherwise create a security
interest in all or any property of the Corporation, owned or
subsequently acquired, to secure any obligation of the
Corporation.
3.2 Delegation - Subject to the Act, the articles, the by-laws and any
unanimous shareholder agreement, the board may from time to time delegate to a
director, a committee of directors or an officer of the Corporation or such
other person or persons so designated by the board all or any of the powers
conferred on the board by section 3.1 or by the Act to such extent and in such
manner as the board shall determine at the time of each such delegation.
4 - DIRECTORS
4.1 Duties of Directors - Subject to any unanimous shareholder agreement,
the board shall manage or supervise the management of the business and affairs
of the Corporation.
4.2 Qualifications of Directors - A majority of directors on the board
shall be resident Canadians but where a Corporation has only one or two
directors, that director or one of the two directors, as the case may be, shall
be a resident Canadian. No person shall be elected or appointed a director if
that person is less than 18 years of age, of unsound mind and has been so found
by a court in Canada or elsewhere, is not an individual, or has the status of
bankrupt. A director need not hold shares issued by the Corporation. At least
one-third of the directors of an offering corporation shall not be officers or
employees of the corporation or any of its affiliates.
4.3 Number of Directors - The board shall consist of such number of
directors as shall be set out in the articles or as may from time to time be
determined in accordance with the Act. Where the board is empowered by special
resolution to determine the number of directors within a range set out in the
articles:
<PAGE> 4
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(a) the directors may appoint additional directors provided that
after such appointment the total number of directors would not
be greater than one and one-third times the number of
directors required to have been elected at the last annual
meeting nor greater than the maximum number set out above; and
(b) the number of directors to be elected at the annual meeting
shall be the number of directors last determined by the board.
4.4 Quorum - A majority of the number as determined from time to time in
accordance with the Act shall constitute a quorum for the transaction of
business. Where the corporation has fewer than three directors, all directors
must be present at any meeting to constitute a quorum for the transaction of
business. Notwithstanding vacancies, a quorum of directors may exercise all the
powers of the board.
4.5 Election and Term - Directors shall be elected by the shareholders at
the first meeting of shareholders after the effective date of this by-law and at
each succeeding annual meeting at which an election of directors is required and
shall hold office until the next annual meeting of shareholders or, if elected
for an expressly stated term, for a term expiring not later than the close of
the third annual meeting of shareholders following the election. The number of
directors to be elected at any such meeting shall be that number most recently
determined in the manner referred to in section 4.3. The election need not be by
ballot unless a ballot is demanded by any shareholder or required by the
chairman in accordance with section 8.18. If an election of directors is not
held at an annual meeting of shareholders at which such election is required,
the incumbent directors shall continue in office until their successors are
elected.
4.6 Removal of Directors - Subject to the provisions of the Act, the
shareholders may, by ordinary resolution passed by a majority of the votes cast
at a meeting of shareholders, remove any director and may at that meeting elect
a qualified person in place of that director for the unexpired term of such
director's predecessor.
4.7 Ceasing to Hold Office - A director may resign as director by
delivering a written resignation to the Corporation and such resignation becomes
effective at the time the resignation is received by the Corporation or the time
specified in the resignation whichever is later. A director shall forthwith
cease to hold office as a director should the director cease to be qualified in
accordance with the Act. Any attempt to amend or terminate any unanimous
shareholder agreement without written consent of all persons who are then
directors of the Corporation shall constitute the immediately effective
resignation of all such directors who have not so consented.
4.8 Vacancies - Subject to the Act, a quorum of directors (whether or not
the majority of such quorum are resident Canadians) may fill a vacancy among the
directors, except a vacancy resulting from,
(a) an increase in the number of directors otherwise than an
increase in the board of directors pursuant to a special
resolution empowering the board to fix the number of directors
within a range set out in the articles; or,
<PAGE> 5
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(b) an increase in the maximum number of directors set out in the
articles, as the case may be; or,
(c) a failure to elect the number of directors required to be
elected at any meeting of shareholders.
4.9 Action by the Board - Subject to any unanimous shareholder agreement,
the board shall exercise its powers by or pursuant to a by-law or resolution
either passed at a meeting of directors at which a quorum is present and at
which a majority of the directors present are resident Canadians or consented to
by the signatures of all the directors then in office if constituting a quorum.
Where a corporation has fewer than three directors, one of the directors present
at a meeting of directors shall be a resident Canadian. Subject to the Act, the
board may transact business at a meeting of directors where a majority of
resident Canadian directors is not present if a resident Canadian director who
is unable to be present approves in writing or by telephone or other
communications facilities the business transacted at the meeting, and a majority
of resident Canadian directors would have been present had that director been
present at the meeting. Where the Corporation has only one director, that
director may constitute a meeting.
4.10 Action in Writing - A resolution in writing, signed by all the
directors entitled to vote on that resolution at a meeting of directors or a
committee of directors, is as valid as if it had been passed at a meeting of
directors or a committee of directors.
4.11 Meetings by Telephone - Any director may participate in a meeting of
the board by means of such telephone, electronic, or other communication
facilities as permit all persons participating in the meeting to communicate
with each other simultaneously and instantaneously, if all the directors present
at or participating in the meeting consent to the holding of meetings in such
manner.
4.12 Place of Meetings - Meetings of the board may be held at the
registered office of the Corporation or at any other place within or outside
Ontario and in any financial year of the Corporation a majority of the meetings
of the board need not be held in Canada.
4.13 Calling of Meetings - Meetings of the board shall be held from time to
time at such place, on such day and at such time as the board, the chairman of
the board, the managing director, the president, the secretary or any two
directors may determine.
4.14 Notice of Meetings - Notice of the time and place of each meeting of
the board shall be given to each director not less than 48 hours before the time
when the meeting is to be held and need not be in writing.
4.15 First Meeting of New Board - Provided a quorum of directors is
present, each newly elected board may without notice hold its first meeting
following the meeting of shareholders at which such board is elected.
4.16 Adjourned Meeting - Notice of an adjourned meeting of the directors is
not required if the time and place of the adjourned meeting is announced at the
original meeting.
<PAGE> 6
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4.17 Regular Meetings - The board may appoint a day or days in any month or
months for regular meetings at a place and hour to be named. A copy of any
resolution by the board fixing the time and place of regular meetings of the
board shall be sent to each director forthwith after being passed, but no other
notice shall be required for any such regular meeting.
4.18 Votes to Govern - At all meetings of the board any question shall be
decided by a majority of the votes cast on the question and in the case of an
equality of votes the chairman of the meeting shall be entitled to a second or
casting vote. Any question at a meeting of the board shall be decided by a show
of hands unless a ballot is required or demanded.
4.19 Chairman and Secretary - The chairman of the board or, in the absence
of the chairman, the president if a director or, in the absence of the
president, a vice-president who is a director shall be chairman of any meeting
of the board. If none of the said officers is present, the directors present
shall choose one of their number to be chairman. The secretary of the
Corporation shall act as secretary at any meeting of the board and, if the
secretary of the Corporation be absent, the chairman of the meeting shall
appoint a person who need not be a director to act as secretary of the meeting.
4.20 Remuneration and Expenses - Subject to any unanimous shareholder
agreement, the directors shall be paid such remuneration for their services as
directors as the board may from time to time authorize. The directors shall also
be entitled to be paid in respect of travelling and other expenses properly
incurred by them in attending meetings of the board or any committee thereof or
in otherwise serving the Corporation. Nothing herein contained shall preclude
any director from serving the Corporation in any other capacity and receiving
remuneration therefor.
4.21 Conflict of Interest - Subject to and in accordance with the
provisions of the Act, a director or officer of the Corporation who is a party
to a material contract or transaction or proposed material contract or
transaction with the Corporation, or is a director or an officer of or has a
material interest in any person who is a party to a material contract or
transaction or proposed material contract or transaction with the Corporation,
shall disclose in writing to the Corporation or request to have entered in the
minutes of meetings of directors the nature and extent of such interest, and any
such director shall refrain from voting in respect thereof unless otherwise
permitted by the Act.
5 - COMMITTEES
5.1 Committees of Directors - The board may appoint, from their number, a
committee or committees of directors, however designated, and delegate to such
committee or committees any of the powers of the board except powers to:
(a) submit to the shareholders any question or matter requiring
the approval of the shareholders;
(b) fill a vacancy among the directors or in the office of
auditor, or appoint or remove any of the chief executive
officer, however designated, the chief financial officer,
however designated, the chairman of the board or the president
of the corporation;
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(c) issue securities except in the manner and on the terms
authorized by the directors;
(d) declare dividends;
(e) purchase, redeem or otherwise acquire shares issued by the
Corporation;
(f) pay a commission for the sale of shares of the Corporation;
(g) approve a management information circular;
(h) approve a take-over bid or directors' circular;
(i) approve any annual financial statements; or
(j) adopt, amend or repeal by-laws.
A majority of the members of any such committee shall be resident Canadians.
5.2 Transaction of Business - The powers of a committee of directors may be
exercised by a meeting at which a quorum is present or by resolution in writing
signed by all the members of such committee who would have been entitled to vote
on that resolution at a meeting of the committee. Meetings of such committee may
be held at any place in or outside Ontario and, subject to the provisions of
section 4.11 which shall be applicable mutatis mutandis, may be held by means of
telephone or other communications equipment.
5.3 Procedure - Unless otherwise determined by the board, each committee
shall have the power to fix its quorum at not less than a majority of its
members, to elect its chairman and to regulate its procedure.
6 - OFFICERS
6.1 Appointment of Officers - Subject to any unanimous shareholder
agreement, the board may from time to time appoint a chairman of the board, a
managing director (who shall be a resident Canadian), a president, one or more
vice-presidents, a secretary, a treasurer and such other officers as the board
may determine, including one or more assistants to any of the officers so
appointed. The board may specify the duties of such officers and, in accordance
with this by-law and subject to the provisions of the Act, delegate to such
officers powers to manage the business and affairs of the Corporation other than
any of the powers listed in section 5.1. Except for a managing director and a
chairman of the board, an officer need not be a director and one person may hold
more than one office. The president or such other officer as the board may
designate shall be the chief executive officer of the Corporation.
6.2 Agents and Attorneys - The board shall have the power from time to time
to appoint agents or attorneys for the Corporation in or out of Ontario with
such powers of management or otherwise (including the power to sub-delegate) as
the board may determine.
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6.3 Conflict of Interest - An officer shall disclose an interest in any
material contract or transaction or proposed material contract or transaction
with the Corporation in accordance with section 4.21.
7 - PROTECTION OF DIRECTORS AND OFFICERS
7.1 Indemnity of Directors and Officers - The Corporation shall indemnify a
director or officer of the Corporation, a former director or officer of the
Corporation or a person who acts or acted at the Corporation's request as a
director or officer of a body corporate of which the Corporation is or was a
shareholder or creditor, and the heirs and legal representatives of any such
person, against all costs, charges and expenses, including an amount paid to
settle an action or satisfy a judgment, reasonably incurred by such person in
respect of any civil, criminal or administrative action or proceeding to which
the person is made a party by reason of being or having been a director or
officer of such corporation or body corporate, if
(a) the person acted honestly and in good faith with a view to the
best interests of the Corporation; and
(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, the person
had reasonable grounds for believing that the relevant conduct
was lawful.
The Corporation may, with the approval of the court, indemnify a person referred
to above in respect of an action by or on behalf of the Corporation or body
corporate to procure a judgment in its favour, to which the person is made a
party by reason of being or having been a director or an officer of the
Corporation or body corporate, against all costs, charges and expenses
reasonably incurred by that person in connection with such action if the person
fulfills the conditions set out in (a) and (b) above.
Notwithstanding anything in this section, a person referred to above is entitled
to indemnity from the Corporation in respect of all costs, charges and expenses
reasonably incurred by that person in connection with the defence of any civil,
criminal or administrative action or proceeding to which the person is made a
party by reason of being or having been a director or officer of the Corporation
or body corporate, if the person seeking indemnity,
(a) was substantially successful on the merits in that person's
defence of the action or proceeding; and
(b) fulfills the conditions set out in (a) and (b) above.
7.2 Insurance - Subject to the Act, the Corporation may purchase and
maintain insurance for the benefit of any person referred to above against any
liability incurred by that person,
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(a) in the capacity as a director or officer of the Corporation,
except where the liability relates to that person's failure to
act honestly and in good faith with a view to the best
interests of the Corporation; or
(b) in the capacity as a director or officer of another body
corporate where said person acts or acted in that capacity at
the Corporation's request, except where the liability relates
to that person's failure to act honestly and in good faith
with a view to the best interests of the body corporate.
8 - MEETINGS OF SHAREHOLDERS
8.1 Annual Meetings - The annual meeting of shareholders shall be held on
such day and at such time in each year as the board, or the chairman of the
board, or the president, in the absence of the chairman of the board, may from
time to time determine, for the purpose of considering the financial statements
and reports required by the Act to be placed before the annual meeting, electing
directors, appointing auditors and the transaction of such other business as may
properly be brought before the meeting.
8.2 Special Meetings - The board shall have power to call a special meeting
of shareholders at any time.
8.3 Resolution in Lieu of Meeting - Except where a written statement is
submitted by a director or where representations in writing are submitted by an
auditor in accordance with the provisions of the Act, a resolution in writing
signed by all the shareholders entitled to vote on that resolution at a meeting
of shareholders is as valid as if it had been passed at a meeting of the
shareholders; and a resolution in writing dealing with all matters required to
be dealt with at a meeting of shareholders, and signed by all the shareholders
entitled to vote at such meeting, satisfies all the requirements of the Act
relating to meetings of shareholders.
8.4 Place of Meetings - Subject to the articles and any unanimous
shareholder agreement, a meeting of shareholders of the Corporation shall be
held at such place in or outside Ontario as the directors determine or, in the
absence of such a determination, at the place where the registered office of the
Corporation is located.
8.5 Notices of Meetings - Notice of the time and place of every meeting of
shareholders shall be sent in the case of an offering corporation, not less than
21 days and, in the case of any other corporation, not less than 10 days, but in
either case, not more than 50 days before the meeting to each shareholder
entitled to vote at the meeting, to each director and to the auditor of the
Corporation. Notice of a meeting of shareholders at which special business is to
be transacted shall state or be accompanied by a statement of (i) the nature of
that business in sufficient detail to permit the shareholder to form a reasoned
judgment thereon and (ii) the text of any special resolution or by-law to be
submitted to the meeting. All business transacted at a special meeting of
shareholders and all business transacted at an annual meeting of shareholders,
except consideration of the minutes of an earlier meeting, the financial
statements and auditor's report,
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election of directors and reappointment of the incumbent auditor, is deemed to
be special business.
8.6 Record Date for Notice - The board may fix in advance a record date,
preceding the date of any meeting of shareholders by not more than 50 days and
not less than 21 days, for the determination of the shareholders entitled to
notice of the meeting, provided that notice of any such record date is given,
not less than 7 days before such record date, by advertisement in a newspaper
published or distributed in the place where the Corporation has its registered
office and in each place in Canada where it has a transfer agent or where a
transfer of the Corporation's shares may be recorded, and, where applicable, by
written notice to each stock exchange in Canada on which the Corporation's
shares are listed for trading unless notice of the record date is waived in
writing by every holder of a share of the class or series affected whose name is
set out in the securities register of the Corporation at the close of business
on the day the directors fix the record date. If no record date is fixed the
record date for the determination of the shareholders entitled to notice of the
meeting shall be at the close of business on the day immediately preceding the
day on which the notice is given.
8.7 List of Shareholders Entitled to Notice - For every meeting of
shareholders, the Corporation shall prepare a list of shareholders entitled to
receive notice of the meeting, arranged in alphabetical order and showing the
number of shares entitled to be voted at the meeting held by each shareholder.
If a record date for the meeting is fixed, such list shall be prepared as of
such record date and not later than 10 days after such record date. If no record
date is fixed, such list shall be prepared as of the close of business on the
day immediately preceding the day on which the notice of the meeting is given
and shall be prepared at such time. The list shall be available for examination
by any shareholder during usual business hours at the registered office of the
Corporation or at the place where its central securities register is maintained
and at the meeting for which the list is prepared. Notwithstanding the
foregoing, where no notice of meeting is given, such list shall be prepared as
of the day on which the meeting is held and so that it is available at such
meeting.
8.8 Chairman and Secretary - The chairman of the board or, in the absence
of the chairman, the president or, in the absence of the president, a
vice-president shall be chairman of any meeting of shareholders and, if none of
the said officers be present within 15 minutes after the time appointed for
holding the meeting, the shareholders present and entitled to vote shall choose
a chairman from amongst themselves. The secretary of the Corporation shall act
as secretary at any meeting of shareholders or, if the secretary of the
Corporation be absent, the chairman of the meeting shall appoint some person,
who need not be a shareholder, to act as secretary of the meeting. If desired,
one or more scrutineers, who need not be shareholders, may be appointed by
resolution or by the chairman with the consent of the meeting.
8.9 Persons Entitled to be Present - The only persons entitled to be
present at a meeting of shareholders shall be those entitled to vote thereat,
the directors and auditors of the Corporation and others who, although not
entitled to vote, are entitled or required under any provision of the Act or the
articles or by-laws to be present at the meeting. Any other person may be
admitted only on the invitation of the chairman of the meeting or with the
consent of the meeting.
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8.10 Quorum - A quorum of shareholders is present at a meeting of
shareholders irrespective of the number of persons actually present at the
meeting, if the holders of a majority of the shares entitled to vote at the
meeting are present in person or represented by proxy. A quorum need not be
present throughout the meeting provided that a quorum is present at the opening
of the meeting.
8.11 Right to Vote - At any meeting of shareholders every person who is
named in the list referred to in section 8.7, shall be entitled to vote the
shares shown thereon opposite such person's name except to the extent that such
person has transferred any of such shares and the transferee, upon producing
properly endorsed certificates evidencing such shares or otherwise establishing
that the transferee owns such shares, demands not later than the time at which
the meeting commences that the transferred name be included on the list to vote
the transferred shares at the meeting.
8.12 Proxies and Representatives - Every shareholder entitled to vote at a
meeting of shareholders may, by means of a proxy, appoint a proxyholder, or one
or more alternate proxyholders, who need not be shareholders, as that
shareholder's nominee, to attend and act at the meeting in the manner, to the
extent, and with the authority conferred by the proxy. A proxy shall be in
writing executed by the shareholder or shareholder's attorney authorized in
writing. A body corporate or association which is a shareholder of the
Corporation may be represented at a meeting of shareholders by any individual
authorized by a resolution of its directors or governing body of the body
corporate or association and such individual may exercise on behalf of the body
corporate or association represented all the powers it could exercise if it were
an individual shareholder. In the case of a proxy appointing a proxyholder to
attend and act at a meeting or meetings of shareholders of an offering
corporation, the proxy ceases to be valid one year from its date.
8.13 Time for Deposit of Proxies - The directors may by resolution fix a
time not exceeding forty-eight hours, excluding non-business days, preceding any
meeting or adjourned meeting of shareholders before which time proxies to be
used at that meeting must be deposited with the Corporation or an agent thereof,
and any period of time so fixed shall be specified in the notice calling the
meeting. A proxy may be used at the meeting only if, prior to the time so
specified, it shall have been deposited with the Corporation or an agent thereof
specified in such notice or, if no such time is specified in such notice, it
shall have been received by the secretary of the Corporation or by the chairman
of the meeting or adjournment thereof prior to the time of voting.
8.14 Joint Shareholders - Where two or more persons hold the same shares
jointly, one of those holders present or represented by proxy at a meeting of
shareholders may in the absence of the other or others vote such shares, but, if
more than one of such persons are present or represented by proxy, that one of
such persons whose name stands first on the securities register of the
Corporation or that person's proxy shall alone be entitled to vote such shares.
8.15 Votes to Govern - Except as otherwise required by the Act, all
questions proposed for the consideration of shareholders at a meeting of
shareholders shall be determined by the majority of the votes cast, whether by a
show of hands or by ballot, as the case may be.
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8.16 Casting Vote - In case of an equality of votes at any meeting of
shareholders either upon a show of hands or upon a ballot, the chairman of the
meeting shall be entitled to a second or casting vote.
8.17 Show of Hands - Any question at a meeting of shareholders shall be
decided by a show of hands unless a ballot thereon is required or demanded as
hereinafter provided. Upon a show of hands every person who is present and
entitled to vote thereon shall have one vote. Whenever a vote by show of hands
shall have been taken upon a question, unless a ballot thereon is so required or
demanded, a declaration by the chairman of the meeting that the vote upon the
question has been carried or carried by a particular majority or not carried and
an entry to that effect in the minutes of the meeting shall be prima facie
evidence of the fact without proof of the number or proportion of the votes
recorded in favour of or against any resolution or other proceeding in respect
of the said question, and the result of the vote so taken shall be the decision
of the shareholders upon the said question.
8.18 Ballots - On any question proposed for consideration at a meeting of
shareholders, and whether or not a show of hands has been taken thereon, the
chairman may require, or any shareholder or proxyholder entitled to vote at the
meeting may demand, a ballot. A ballot so required or demanded shall be taken in
such manner as the chairman shall direct. A requirement or demand for a ballot
may be withdrawn at any time prior to the taking of the ballot. If a ballot is
taken each person present shall be entitled, in respect of the shares which the
person is entitled to vote at the meeting upon the question, to that number of
votes provided by the Act or the articles, and the result of the ballot so taken
shall be the decision of the shareholders upon the said question.
8.19 Adjournment - If a meeting of shareholders is adjourned for less than
30 days, it shall not be necessary to give notice of the adjourned meeting,
other than by announcement at the earliest meeting that is adjourned. If a
meeting of shareholders is adjourned by one or more adjournments for an
aggregate of 30 days or more, notice of the adjourned meeting shall be given as
for an original meeting.
8.20 One Shareholder - Where the Corporation has only one shareholder or
only one holder of any class or series of shares, the shareholder present in
person or by proxy constitutes a meeting.
9 - SECURITIES
9.1 Options or Rights - Subject to the provisions of the Act, the articles
and any unanimous shareholder agreement, the board may from time to time issue
or grant options to purchase or rights to acquire unissued shares of the
Corporation at such times and to such persons and for such consideration as the
board shall determine, provided that no share shall be issued until it is fully
paid.
9.2 Commissions - The board may from time to time authorize the Corporation
to pay a reasonable commission to any person in consideration of purchasing or
agreeing to purchase
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shares of the Corporation, whether from the Corporation or from any other
person, or procuring or agreeing to procure purchasers for any such shares.
9.3 Securities Records - The Corporation shall prepare and maintain, at its
registered office or at any other place in Ontario designated by the board, a
securities register in which it records the securities issued by it in
registered form, showing with respect to each class or series of securities:
(a) the names, alphabetically arranged, of persons who,
(i) are or have been within six years registered as
shareholders of the Corporation, the address
including the street and number, if any, of every
such person while a holder, and the number and class
of shares registered in the name of such holder,
(ii) are or have been within six years registered as
holders of debt obligations of the Corporation, the
address including the street and number, if any, of
every such person while a holder, and the class or
series and principal amount of the debt obligations
registered in the name of such holder, or
(iii) are or have been within six years registered as
holders of warrants of the Corporation, other than
warrants exercisable within one year from the date of
issue, the address including the street and number,
if any, of every such person while a registered
holder, and the class or series and number of
warrants registered in the name of such holder; and
(b) the date and particulars of the issue of each security and
warrant.
9.4 Register of Transfer - The Corporation shall cause to be kept a
register of transfers in which all transfers of securities issued by the
Corporation in registered form and the date and other particulars of each
transfer shall be set out.
9.5 Registration of Transfer - Subject to the provisions of the Act, no
transfer of shares shall be registered in a securities register except upon
presentation of the certificate representing such shares with a transfer
endorsed thereon or delivered therewith duly executed by the registered holder
or by the holder's attorney or successor duly appointed, together with such
reasonable assurance or evidence of signature, identification and authority to
transfer as the board may from time to time prescribe, upon payment of all
applicable taxes and any fees prescribed by the board or in accordance with the
Act upon compliance with such restrictions on transfer as are authorized by the
articles and upon satisfaction of any lien referred to in section 9.6.
9.6 Lien for Indebtedness - Except in the case of any class or series of
shares of the Corporation listed on a stock exchange, the Corporation shall have
a lien on the shares registered in the name of a shareholder who is indebted to
the Corporation, to the extent of such indebtedness and such lien may be
enforced, subject to any provision of the articles and to any
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unanimous shareholder agreement, by the sale of the shares thereby affected or
by any other action, suit, remedy or proceeding authorized or permitted by law
or by equity and, pending such enforcement, the Corporation may refuse to
register a transfer of the whole or part of such shares.
9.7 Non-recognition of Trusts - Subject to the provisions of the Act, the
Corporation may treat the registered owner of a share as the person exclusively
entitled to vote, to receive notices, to receive any dividend or other payments
in respect thereof and otherwise to exercise all the rights and powers of an
owner of a share.
9.8 Security Instruments - Every holder of one or more securities of the
Corporation shall be entitled, at the holder's option, to a security certificate
in respect of the securities held by that person or to a non-transferable
written acknowledgement of that person's right to obtain a security certificate,
stating the number and class or series of shares held by that person as shown on
the securities register. Security certificates and acknowledgements of a
shareholder's right to a security certificate, respectively, shall be in such
form as the board may from time to time approve. Unless otherwise ordered by the
board, security certificates shall be signed by any one of:
(a) the chairman of the board, the president, the managing
director, a vice-president or a director,
and any one of:
(b) the secretary, treasurer, any assistant secretary or any
assistant treasurer or a director
and need not be under corporate seal. Signatures of signing officers may be
printed or mechanically reproduced in facsimile upon security certificates and
every such facsimile shall for all purposes be deemed to be the signature of the
officer whose signature it reproduces and shall be binding upon the Corporation;
provided that at least one director or officer of the Corporation shall manually
sign each certificate (other than a scrip certificate or a certificate
representing a fractional share or a warrant or a promissory note that is not
issued under a trust indenture) in the absence of a manual signature thereon of
a duly appointed transfer agent, registrar, branch transfer agent or issuing or
other authenticating agent of the Corporation or trustee who certifies it in
accordance with a trust indenture. A security certificate executed as aforesaid
shall be valid notwithstanding that an officer whose facsimile signature appears
thereon no longer holds office at the date of issue of the certificate.
9.9 Replacement of Security Certificates - Subject to the provisions of the
Act, the board or any officer or agent designated by the board may in the
discretion of the board or that person direct the issue of a new security
certificate in lieu of and upon cancellation of a security certificate claimed
to have been lost, apparently destroyed or wrongfully taken on payment of such
fee, prescribed by or in accordance with the Act, and on such terms as to
indemnity, reimbursement of expenses and evidence of loss and of title as the
board may from time to time prescribe, whether generally or in any particular
case.
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9.10 Joint Shareholders - If two or more persons are registered as joint
holders of any share, the Corporation shall not be bound to issue more than one
certificate in respect thereof, and delivery of such certificate to one of such
persons shall be sufficient delivery to all of them. Any one of such persons may
give effectual receipts for the certificate issued in respect thereof or for any
dividend, bonus, return of capital or other money payable or warrant issuable in
respect of such share.
9.11 Deceased Shareholders - In the event of the death of a holder, or of
one of the joint holders, of any share, the Corporation shall not be required to
make any entry in the securities register in respect thereof or to make payment
of any dividends thereon except upon production of all such documents as may be
required by the Act and upon compliance with the reasonable requirements of the
Corporation or transfer agent.
10 - DIVIDENDS AND RIGHTS
10.1 Dividends - Subject to the provisions of the Act, the articles and any
unanimous shareholder agreement, the board may from time to time declare
dividends payable to the shareholders according to their respective rights and
interests in the Corporation. Dividends may be paid in money or property or by
issuing fully paid shares or options or rights to acquire fully paid shares of
the Corporation.
10.2 Dividend Cheques - A dividend payable in cash shall be paid by cheque
drawn on the Corporation's bankers or one of them to the order of each
registered holder of shares of the class or series in respect of which it has
been declared and mailed by prepaid ordinary mail to such registered holder at
the address recorded in the Corporation's securities register, unless in each
case such holder otherwise directs. In the case of joint holders the cheque
shall, unless such joint holders otherwise direct, be made payable to the order
of all of such joint holders and, if more than one address is recorded in the
Corporation's security register in respect of such joint holding, the cheque
shall be mailed to the first address so appearing. The mailing of such cheque as
aforesaid, unless the same is not paid on due presentation, shall satisfy and
discharge the liability for the dividend to the extent of the sum represented
thereby plus the amount of any tax which the Corporation is required to and does
withhold.
10.3 Non-receipt or Loss of Cheques - In the event of non-receipt or loss
of any dividend cheque by the person to whom it is sent, the Corporation shall
issue to such person a replacement cheque for a like amount on such terms as to
indemnity, reimbursement of expenses and evidence of non-receipt and of title as
the board may from time to time prescribe, whether generally or in any
particular case.
10.4 Record Date for Dividends and Rights - The board may fix in advance a
date as the record date for the determination of the shareholders entitled to
receive payment of a dividend, entitled to participate in a liquidation or
distribution, or for any other purpose except to receive notice of or to vote at
a meeting, but the record date shall not precede by more than 50 days the
particular action to be taken. Notice of the record date shall be given, not
less than 7 days before such record date, by advertisement in a newspaper
published or distributed in the place where the
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Corporation has its registered office and in each place in Canada where it has a
transfer agent or where a transfer of the Corporation's shares may be recorded
and, where applicable, by written notice to each stock exchange in Canada on
which the Corporation's shares are listed for trading, unless notice of the
record date is waived in writing by every holder of a share of the class or
series affected whose name is set out in the securities register of the
Corporation at the close of business on the day the directors fix the record
date. If no such record date is fixed, such record date shall be the close of
business on the day on which the directors pass the resolutions relating
thereto.
10.5 Unclaimed Dividends - Any dividend unclaimed after a period of six
years from the date on which the same has been declared to be payable shall be
forfeited and shall revert to the Corporation.
11 - NOTICES
11.1 Method of Giving Notices - Any notice, communication or document
("notice") to be given or sent pursuant to the Act, the articles, the by-laws or
otherwise to or on a shareholder, director, officer, auditor or member of a
committee of the board shall be sufficiently given or sent if given or sent by
prepaid mail, prepaid transmitted or recorded communication, or delivered
personally to such persons's latest address as shown on the securities register
of the Corporation or, in the case of a director, if more current, the address
as shown in the most recent notice filed under the Corporations Information Act
(Ontario). A notice shall be deemed to have been received on the date when it is
delivered personally, or on the fifth day after mailing, or on the date of
dispatch of a transmitted or recorded communication. The secretary may change or
cause to be changed the recorded address of any shareholder, director, officer,
auditor or member of a committee of the board in accordance with any information
believed by the secretary to be reliable.
11.2 Notice to Joint Shareholders - If two or more persons are registered
as joint holders of any share, any notice shall be addressed to all of such
joint holders but notice to one of such persons shall be sufficient notice to
all of them.
11.3 Computation of Time - In computing the date when notice must be sent
under any provision requiring a specified period of days' notice of any meeting
or other event, the period of days shall commence on the day following the
sending of such notice and shall terminate on the day preceding the date of the
meeting or other event provided that the last day of the period shall not be a
non-business day.
11.4 Undelivered Notices - If any notice given or sent to a shareholder
pursuant to section 11.1 is returned on three consecutive occasions because the
person cannot be found, the Corporation shall not be required to give or send
any further notice to such shareholder until the Corporation is informed in
writing of the new address for such person.
11.5 Omissions and Errors - The accidental omission to give or send any
notice to any shareholder, director, officer, auditor or member of a committee
of the board or the non-receipt
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of any notice by any such person or any error in any notice not affecting the
substance thereof shall not invalidate any action taken at any meeting held
pursuant to such notice or otherwise based thereon.
11.6 Persons Entitled by Death or Operation of Law - Every person who, by
operation of law, transfer, death of a shareholder or any other means
whatsoever, shall become entitled to any share, shall be bound by every notice
in respect of such share which shall have been duly given or sent to the
shareholder from whom the person derives title to such share prior to that
person's name and address being entered on the securities register (whether such
notice was given or sent before or after the happening of the event upon which
that person becomes so entitled) and prior to that person furnishing to the
Corporation the proof of authority or evidence of entitlement prescribed by the
Act.
11.7 Waiver of Notice - Any shareholder (or shareholder's duly appointed
proxyholder), director, officer, auditor or member of a committee of the board
may at any time waive the giving or sending of any notice, or waive or abridge
the time for any notice, required to be given to that person under any provision
of the Act, the articles, the by-laws or otherwise and such waiver or
abridgement shall cure any default in the giving or sending or in the time of
such notice, as the case may be. Any such waiver or abridgement shall be in
writing except a waiver of notice of a meeting of shareholders or of the board
which may be given in any manner. Attendance of a director at a meeting of
directors or of a shareholder or any other person entitled to attend a meeting
of shareholders is a waiver of notice of the meeting except where such director,
shareholder or other person, as the case may be, attends a meeting for the
express purpose of objecting to the transaction of any business on the grounds
that the meeting is not lawfully called.
The foregoing By-law No. 1 is hereby passed as evidenced by the
signatures of all the directors of the Corporation pursuant to the provisions of
the Business Corporations Act (Ontario).
DATED this 7th day of May, 1998.
/s/ Bahman Koohestani /s/ Dennis Bennie
- ----------------------------------- -----------------------------------
Bahman Koohestani Dennis Bennie
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Exhibit 10.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the 27th day of January,
1999, by and between:
Bahman Koohestani, an individual residing in the
Province of Ontario ("Bahman")
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Anthony Davis, an individual resident in the Province
of Ontario ("Davis")
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Robert Gayle, an individual resident in the Province
of Ontario ("Gayle")
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John Mah, an individual resident in the Province of
Ontario ("Mah")
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Sean Maurik, an individual resident in the Province of
Ontario ("Maurik")
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John Foresi, an individual resident in the Province of
Ontario ("Foresi")
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Ron Schreiber, an individual resident in the State of
New York ("Schreiber")
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Jordan Levy, an individual resident in the State of
New York ("Levy")
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Delano Technology Corporation, a corporation governed
by the laws of Ontario (the "Corporation")
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Tofino Venture Capital Inc., a corporation governed by
the laws of Barbados ("Tofino")
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XDL Delano Holdings Inc., a corporation governed by
the laws of Ontario ("XDL")
and any other persons who, after the date of this Agreement, acquire Shares in
the capital of the Corporation and sign counterparts to this Agreement (the
"Additional Shareholders")
WHEREAS the parties to this Agreement are parties to the Amended and
Restated Shareholders' Agreement dated the date hereof relating to the
Corporation (the "Shareholders' Agreement"), which supersedes a previously
executed agreement among the shareholders of the Corporation pursuant to which
the parties thereto were granted certain registration rights; and
AND WHEREAS, in connection with the execution and delivery of the
Shareholders' Agreement, the parties desire to enter into this Agreement to set
out the registration rights of certain shareholders of the Corporation;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
DEFINITIONS
1. For purposes of this Agreement:
(a) "1933 ACT" means the United States Securities Act of 1933, as
amended.
(b) "APPROVED UNDERWRITER" has the meaning given to such term in
Section 5 of this Agreement.
(c) "APPROVED UNDERWRITER AMOUNT" has the meaning given to such
term in Section 4 of this Agreement.
(d) "AS IF CONVERTED TO SHARES BASIS" means that, for the purpose
of determining a percentage of outstanding Shares, all convertible
preference shares in the capital of the Corporation are deemed to be
converted to Shares in accordance with their terms, all shares in
the capital of the Corporation held in escrow are deemed to be
released therefrom, and all Option Pool Shares, whether or not they
are subject to an option grant and whether or not they are already
issued, are deemed to be issued.
(e) "DEMAND REGISTRATION" has the meaning given to such term in
Section 2 of this Agreement.
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(f) "DEMAND RIGHTS" shall mean the rights of any shareholder of the
Corporation to require the Corporation to register or qualify
Shares for distribution to the public.
(g) "ELECTING HOLDER" has the meaning given to such term in
Section 2 of this Agreement.
(h) "ELIGIBLE HOLDER" shall mean each of (A) XDL; and (B) Other
Shareholders individually or collectively owning Registrable Shares
to which are attached not less than 50% of the votes that may be
cast to elect the directors of the Corporation (on an as if
converted to Shares basis).
(i) "ELIGIBLE JURISDICTION" shall mean, as of a particular date,
any jurisdiction in which Shares were registered or qualified for
distribution to the public pursuant to the initial public offering
of the Shares and any other jurisdiction in which the Shares are
listed for trading on a securities exchange.
(j) "EXCHANGE ACT" means the United States Exchange Act of 1934.
(k) "FILING" shall mean any document provided to any securities
regulatory authority or made generally available to the shareholders
of the Corporation in connection with a registration, qualification
or offering of Shares.
(l) "HOLDER" shall mean any holder of Registrable Shares.
(m) "INDEMNIFIED PARTY" has the meaning given to such term in
Section 15 of this Agreement.
(n) "INDEMNIFYING PARTY" has the meaning given to such term in
Section 15 of this Agreement.
(o) "LOSSES" has the meaning given to such term in Section 13 of
this Agreement.
(p) "OPTION POOL SHARES" means shares in the capital of the
Corporation issuable pursuant to the Corporation's stock option plan
for directors, officers, consultants and employees of the
Corporation in accordance with the terms and conditions of the
Shareholders' Agreement.
(q) "OTHER SHAREHOLDERS" means, collectively, Bahman, Davis,
Gayle, Mah, Maurik, Foresi, Schreiber, Tofino, Levy and the
Additional Shareholders, if any, and their respective permitted
transferees in accordance with the terms and conditions of the
Shareholders' Agreement.
(r) "OTHER SHAREHOLDER REGISTRABLE SHARES" means any Shares now
held by Other Shareholders and any Shares issued in respect of other
shares of the Corporation held by Other Shareholders, including in
respect of share dividends or pre-
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emptive rights; provided however, that any Registrable Share shall
cease to be a Registrable Share when:
(A) a receipt for a prospectus qualifying such
Registrable Share for public distribution has been obtained
from the Ontario Securities Commission and such Registrable
Share has been disposed of pursuant to such prospectus; or
(B) a registration statement covering such
Registrable Share has been declared effective under the1933
Act by the SEC and such Registrable Share has been disposed of
pursuant to such effective registration statement.
(s) "REGISTRABLE SHARES" means all XDL Registrable Shares and
Other Shareholder Registrable Shares.
(t) "REGISTRATION FILING" has the meaning given to such term in
Section 9 of this Agreement.
(u) "RELATED OFFERING" has the meaning given to such term in
Section 9 of this Agreement.
(v) "REQUESTING HOLDER" has the meaning given to such term in
Section 2 of this Agreement.
(w) "SEC" means the U.S. Securities and Exchange Commission.
(x) "SHARES" means common shares in the capital of the
Corporation.
(y) "XDL REGISTRABLE SHARES" means any Shares now held by XDL and
any Shares issued in respect of other shares of the Corporation held
by XDL, including in respect of share dividends or pre-emptive
rights; provided however, that any Registrable Share shall cease to
be a Registrable Share when:
(A) a receipt for a prospectus qualifying such
Registrable Share for public distribution has been obtained
from the Ontario Securities Commission and such Registrable
Share has been disposed of pursuant to such prospectus; or
(B) a registration statement covering such
Registrable Share has been declared effective under the 1933
Act by the SEC and such Registrable Share has been disposed of
pursuant to such effective registration statement.
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DEMAND REGISTRATION
2. Request for Demand Registration - Subject to Sections 3 and 6 of this
Agreement, any Eligible Holder or Eligible Holders may, in respect of
Registrable Shares held by them, collectively initiate a total of three
requests at any time after 120 days from the date of any initial public
offering of the Shares for the registration or qualification of
Registrable Shares in any Eligible Jurisdiction. Each of the
registrations and/or qualifications under this Section 2 that satisfies
the requirements set forth in Section 3 of this Agreement shall be
referred to hereof as a "Demand Registration"; provided that a single
registration or qualification shall constitute a single Demand
Registration for purposes of Section 2(b) of this Agreement, even if more
than one Eligible Holder includes Registrable Shares in such registration
or qualification. Each Eligible Holder requesting a Demand Registration
shall be referred to hereof as a "Requesting Holder".
(a) Each request for a Demand Registration shall be in writing
and shall specify the number of the Registrable Shares proposed to
be sold, the intended method of disposition and the jurisdictions in
which registration and/or qualification is desired, provided that
only Eligible Jurisdictions may be selected.
(b) Subject to section 6 of this Agreement, within 10 days after
the receipt of such a request from a Requesting Holder or group of
Requesting Holders, the Corporation shall give notice thereof to the
other Holders. The Corporation shall include in such registration
and/or qualification any Registrable Shares that any other Holder
(an "Electing Holder") requests be included, provided that the
Corporation receives such request within 15 days after the
Corporation delivers its notice pursuant to this paragraph (b) of
this Section. Subject to Section 4 of this Agreement, the
Corporation shall be entitled to include in any offering made
pursuant to a Demand Registration, authorized but unissued Shares or
Shares held by shareholders other than the Holders; provided,
however, that such inclusion shall be permitted only to the extent
that it is pursuant and subject to the terms of any underwriting
agreement or arrangements entered into by the Requesting Holder(s)
(it being understood that to the extent that any offering made
pursuant to a Demand Registration is not an underwritten offering no
such inclusion of authorized but unissued Shares or Shares held by
shareholders other than the Holders shall be permitted without the
consent of the Requesting Holders); and provided further, however,
that no Shares held by shareholders other than the Holders shall be
entitled to be included unless such shareholders shall agree in
writing to pay their expenses referred to in Section 8 of this
Agreement.
(c) Subject to Section 6 of this Agreement, no later than 45 days
after receipt of a request for a Demand Registration, the
Corporation shall file with the SEC a registration statement
relating to the sale of Registrable Shares by the Holder(s) on Form
F-3 if such Form is available, and otherwise on such form as is
available to the Corporation or a prospectus with those Canadian
jurisdictions designated by the Holder pursuant to this Section and
thereafter the Corporation shall use its best efforts (A) to cause
the registration statement or prospectus, as the case may be, to
become effective or filed in final form as promptly as practicable
and to
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remain effective for the periods specified in Section 3 of this
Agreement and (B) to cause such Registrable Shares to be registered
or qualified for distribution to the public in accordance with
applicable securities laws (including, for greater certainty,
applicable blue sky laws of applicable United States jurisdictions)
and to remain effective for the periods specified in Section 3 of
this Agreement.
Notwithstanding anything to the contrary in this Agreement, Requesting
Holders may initiate more than three requests for a Demand Registration if
the Corporation is able to utilize a short-form registration statement or
prospectus, and proposed registrations or qualifications which are, for any
reason, not completed shall not be considered to be one of the three
requests allocated to each Eligible Holder pursuant to this Section.
3. Effective Demand Registration. A registration requested pursuant to
Section 2 of this Agreement shall not count as one of the Demand
Registrations to which the particular Requesting Holder(s) is or are
entitled unless: (i) such registration statement is declared effective and
remains effective until the earlier of (A) the date by which all of the
Registrable Shares covered by such registration statement have been
disposed of pursuant to such registration statement, and (B) 45 days, in
the case of an underwritten offering, or 90 days, in the case of any other
offering, after the effective date of such registration statement; and
(ii) at least 50% of the Registrable Shares which such Requesting
Holder(s) had specified in its request under subparagraph 2(a) of this
Agreement have been registered or qualified under the resulting
registration statement or prospectus, as applicable, following the
determination of the Approved Underwriter Amount under Section 4 of this
Agreement.
4. Demand Underwriting Procedures. If the Requesting Holder(s) so elect,
the offering pursuant to such Demand Registration shall be in the form of
an underwritten offering and the managing underwriter selected for such
offering shall be the Approved Underwriter selected in accordance with
Section 5 of this Agreement. In such event, if the Approved Underwriter
advises the Corporation in writing that, in its opinion, the aggregate
amount of securities requested to be included in such offering by the
Requesting Holders, the Electing Holders and the Corporation is
sufficiently large as to have a material adverse effect on the success of
such offering, then only the aggregate number of Registrable Shares that
in the opinion of the Approved Underwriter may be sold without any
material adverse effect on the success of such offering (the "Approved
Underwriter Amount") shall be included, and
(a) if the number of Registrable Shares to be included is greater
than the Approved Underwriter Amount, then each of the Holders shall
be entitled, in priority to the inclusion of other Shares in the
offering, to have included Registrable Shares sufficient for them to
receive proceeds (net of underwriting discounts or commissions)
equal to the total amount of cash invested by them in the
Corporation;
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(b) to the extent that the number of Registrable Shares to be included
by the Holders under clause (a) above is less than the Approved
Underwriter Amount, each of the Holders will be entitled to include
additional Registrable Shares equal to their respective pro rata
portion (on the basis of the number of Registrable Shares proposed
to be registered by each Holder) of the remaining balance of up to
the lessor of the Approved Underwriter Amount and the total number
of Registrable Shares proposed to be registered by all Holders; and
(c) to the extent that the total of the foregoing Registrable
Shares is less than the balance of the Approved Underwriter Amount
remaining, the Corporation shall be entitled to include, in its
discretion, unissued Shares to be issued for its own account or
Shares held by shareholders other than the Holders.
The calculation of proceeds for purposes of clauses (a) and (b) of this
Section shall be cumulative from one registration to another such that
from and after the completion of any registration or qualification
providing the Requesting and Electing Holders with receipt of all of
their respective amounts specified in clauses (a) and (b) of this
Section, the provisions of clauses (a) and (b) shall no longer be
applicable.
5. Selection of Underwriters. If any requested Demand Registration is in
the form of an underwritten offering, the Requesting Holder(s) shall
select and retain an investment banking firm to be the approved
underwriter (the "Approved Underwriter"); provided that such firm shall be
reasonably acceptable to the Corporation. In the event of an underwritten
offering pursuant to a Demand Registration, the Corporation shall enter
into an underwriting agreement in customary form reasonably satisfactory
to the Corporation with the Approved Underwriter and shall use its best
efforts to cooperate with the Approved Underwriter in the carrying out of
such offering, including, without limitation, making whatever requests are
appropriate, supplying whatever information is appropriate and otherwise
using its best efforts to obtain all legal opinions, auditor's consents
and comfort letters and experts' cooperation as may be necessary or
desirable.
6. Limitations on Demand Registrations. The Corporation shall not be
required to cause a Demand Registration to be effected or to take any
other action pursuant to Section 2 of this Agreement:
(a) within a period of 180 days after the effective date of any
registration statement of the Corporation (other than a "shelf"
registration statement pursuant to Rule 415 under the 1933 Act or
relating to any employee stock option or stock purchase or similar
plan or relating to any dividend reinvestment plan) under the 1933
Act or the date of any receipt for a prospectus of the Corporation
issued under the Canadian securities laws, in either case covering
securities of or convertible into the same class as any Registrable
Shares, if prohibited by the underwriting or agency agreement
relating to distribution of Shares pursuant to the initial public
offering of the Shares (or such longer period as required by such
underwriting or agency agreement);
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(b) if the Corporation provides notice to the Requesting Holder(s)
within 30 days of the request for a Demand Registration that the
Corporation is actively engaged in pursuing a firmly underwritten
public offering of Shares in which the Holders may include
Registrable Shares pursuant to Section 9 or 10 of this Agreement;
(c) if the Corporation provides to the Requesting Holders a
certificate signed by the Chief Executive Officer of the Corporation
stating that, in the good faith judgment of the Corporation's Board
of Directors, it would not be in the best interests of the
Corporation and its shareholders for a prospectus or registration
statement (as applicable) to be filed at such time and it is
therefore appropriate to defer the filing of such prospectus or
registration statement, in which case the Corporation may direct
that such request for a Demand Registration be delayed for a period
not in excess of 90 days, provided that such right to delay a
request may be exercised by the Corporation no more than once in any
twelve month period; or
(d) prior to such time as the Shares have been accepted for
trading by The Toronto Stock Exchange, the Montreal Exchange, the
New York Stock Exchange or the Nasdaq Stock Market Inc. for trading
through either the Nasdaq SmallCap Market or the Nasdaq National
Market.
7. Demand Registration Expenses Borne by Corporation. Except as provided in
Section 8 of this Agreement, and except as the Requesting Holders and
Electing Holders may agree pursuant to the provisions of Section 6 of this
Agreement, all fees and expenses arising out of any Demand Registration
and any offering related thereto shall be borne by the Corporation,
including, without limitation, (a) all registration and filing fees; (b)
the fees and expenses of the Corporation's compliance with applicable
securities laws including U.S. blue sky laws as applicable (including
reasonable fees and disbursements of counsel); (c) printing expenses; (d)
the fees and disbursements of counsel for the Corporation and one separate
counsel retained by the Holders; (e) the fees and expenses for independent
certified public accountants, underwriters and other persons retained in
connection with such registration, qualification or offering; (f) fees of
transfer agents and registrars; and (g) messenger and delivery expenses.
In addition, the Corporation shall pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any
annual audit or quarterly review, the expense of any liability insurance
obtained by the Corporation, and the expenses and fees for listing or
authorizing for quotation the securities to be registered on each
securities exchange or other trading facility on which Shares are then
listed or quoted.
8. Demand Registration Expenses Borne by Holders. Each Requesting and
Electing Holder shall pay any underwriting discounts and commissions
attributable to its Registrable Shares, the fees and disbursements of any
second or other additional separate counsel or other advisors retained by
the Holder and all of its internal expenses incurred in connection with
any registration, qualification or offering (including, without
limitation,
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all salaries and expenses of any officers or employees of such Holder
performing legal or accounting duties).
PIGGY-BACK REGISTRATION
9. Inclusion in Registration. If the Corporation determines (whether on its
own initiative or pursuant to the exercise of Demand Rights by a
shareholder other than a Holder) to file a prospectus under any of the
Canadian securities laws and/or a registration statement under the 1933
Act (any such prospectus or registration statement and any preliminary
prospectus or other preliminary filing related thereto a "Registration
Filing") covering any Shares, other than a Registration Filing relating to
an employee stock option, stock purchase or similar plan or relating to
any dividend reinvestment plan, or any Registration Filing on Form F-4 or
S-4 (or any successor form), the Corporation shall:
(a) within 30 days prior to the initial filing of any
Registration Filing, deliver to each Holder a written notice
thereof, describing such Registration Filing and any related public
offering (a "Related Offering"), including a list of the
jurisdictions in which the Corporation intends to attempt to qualify
the Shares under the applicable Canadian provincial or U.S. state
securities laws and, if applicable, the minimum and maximum proposed
offering price; and
(b) include in such Registration Filing (and any related
qualification under blue sky laws or other compliance) and in any
Related Offering, on the same terms (as applicable) as apply to all
other Shares included thereof, all Registrable Shares specified in
any written request made by a Holder within 15 days after receipt of
such written notice from the Corporation, except as set forth in
Section 11 of this Agreement. Such written request may specify all
or a part of the Holder's Registrable Shares.
10. Piggy-Back Underwriting Procedures. If the Corporation arranges for a
Related Offering that is underwritten and the managing underwriter of such
Related Offering advises the Corporation in writing that, in its opinion,
the aggregate number of Shares requested to be included in such Related
Offering is sufficiently large so as to have a material adverse effect on
the success of such Related Offering, then the Corporation shall include:
(a) if the registration or qualification related to such offering
was initiated pursuant to the exercise of Demand Rights by a
shareholder or shareholders other than the Holders, first, any
Shares that such shareholder(s) proposed to register and/or qualify
for sale, and, second, additional Shares to the extent of the number
of such Shares that the Corporation is so advised can be sold in (or
during the time of) such Related Offering without having such
adverse effect in the following priority: (i) any Shares proposed
to be registered and/or qualified for sale by the Corporation for
its own account and all Registrable Shares proposed to be registered
by the Holders, pro rata among such parties, provided that the
relative priorities among the Holders shall follow the procedures
set out in Section 4 of
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this Agreement, if applicable (on the basis of the number of Shares
proposed to be registered by the Corporation and each Holder); and
(ii) any Shares proposed to be registered and/or qualified for sale
by shareholders other than the shareholder(s) initially making the
demand for registration and the Holders; or
(b) if the registration or qualification related to such offering
was initiated by the Corporation and not pursuant to the exercise of
Demand Rights, first, any Shares that the Corporation proposed to
register and/or qualify for sale for its own account, and, second,
additional Shares to the extent of the number of such Shares that
the Corporation is so advised can be sold in (or during the time of)
such Related Offering without having such adverse effect in the
following priority: (i) all Registrable Shares proposed to be
registered and/or qualified for sale by the Holders, pro rata among
the Holders (on the basis of the number of shares proposed to be
registered by each Holder), provided that the relative priorities
among the Holders shall first follow the procedures set out in
Section 4 of this Agreement, if applicable; and (ii) any Shares
proposed to be registered and/or qualified by other shareholders.
11. Piggy-Back Registration Expenses Borne by Corporation. Except as
provided in Section 13 of this Agreement, the Corporation shall bear all
fees, costs and expenses of any registration, qualification or offering
that is not part of a Demand Registration, including, without limitation,
(a) all registration and filing fees; (b) the fees and expenses of the
Corporation's compliance with securities or U.S. blue sky laws and/or any
Canadian equivalent as applicable (including reasonable fees and
disbursements of counsel); (c) printing expenses; (d) the fees and
disbursements of counsel for the Corporation and one separate counsel
retained by the selling shareholders for each registration, qualification
and offering, and the fees and expenses for independent certified public
accountants, underwriters and other persons retained by the Corporation in
connection with such Registration Filing; (e) fees of transfer agents and
registrars; and (f) messenger and delivery expenses. In addition, the
Corporation shall pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance obtained by the
Corporation, and the expenses and fees for listing or authorizing for
quotation the securities to be registered on each securities exchange or
other trading facility on which Shares are then listed or quoted.
12. Piggy-Back Registration Expenses Borne by Holders. Each Holder shall pay
any underwriting discounts and commissions attributable to its Shares, the
fees and disbursements of any second or other additional separate counsel
or other advisors retained by the Holder and all of its internal expenses
incurred in connection with any registration, qualification or offering
(including, without limitation, all salaries and expenses of any officers
or employees of such Holder performing legal or accounting duties but
excluding fees and expenses of counsel that are payable by the Corporation
pursuant to Section 11 of this Agreement).
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INDEMNIFICATION; CONTRIBUTION
13. Indemnification by the Corporation. In the event of any proposed
registration, qualification or offering of Shares, the Corporation agrees
to indemnify and hold harmless (i) each Holder, each of such Holder's
officers, directors, partners, employees, and each of such Holder's legal
counsel and other agents and advisers, independent accountants, if any;
(ii) each person controlling any such persons within the meaning of
Section 15 of the 1933 Act or Section 20 of the Exchange Act; and (iii)
each underwriter, if any, and each person who controls any underwriter
within the meaning of Section 15 of the 1933 Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation, any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage,
liability or action, and any of the foregoing incurred in settlement of
any litigation, commenced or threatened) (collectively "Losses") arising
out of or based upon (i) any untrue statement or alleged untrue statement
of a material fact contained in any Filing in connection with or any
prospectus, offering circular or other document incidental to any
registration, qualification or offering or any omission or alleged
omission to state thereof a material fact required to be stated thereof or
necessary to make the statements thereof not misleading; (ii) any
violation by the Corporation of any rule or regulation promulgated under
any Canadian or U. S. securities law applicable to the Corporation and
relating to action or inaction by the Corporation in connection with any
registration, qualification or compliance required hereunder; or (iii) the
Corporation's breach of any representation, warranty, covenant or
agreement contained in this Agreement; provided, however, that the
Corporation shall not be liable to a Holder for any Losses to the extent
that such Losses resulted directly from any untrue statement or alleged
untrue statement of a material fact, or any omission or alleged omission
to state a material fact required to be stated or necessary to make the
statements made not misleading, in each case in any material furnished in
writing by such Holder expressly for use in a Filing in connection with
any registration, qualification or offering covering such Holder's Shares.
14. Indemnification by Holders. Each Holder agrees severally and not jointly
to indemnify and hold harmless the Corporation, its officers, directors,
employees, legal counsel and other agents and advisers and each person, if
any, who controls the Corporation within the meaning of either Section 15
of the 1933 Act or Section 20 of the Exchange Act and each underwriter, if
any, and each person who controls any underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of the Exchange Act for any
Losses, to the extent that such Losses resulted directly from an untrue
statement or alleged untrue statement of a material fact, or any omission
or alleged omission to state a material fact required to be stated or
necessary to make the statements made not misleading, in each case in any
material furnished in writing by such Holder expressly for use in a Filing
in connection with any registration, qualification or offering covering
its Shares, but only to the extent of the net sale proceeds actually
received by such Holder in connection with the applicable offering.
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15. Contribution. If the indemnification provided for in this Sections 14
and 15 of this Agreement is held by a court of competent jurisdiction to
be unavailable to any party entitled to indemnification under the terms
of Sections 14 and 15 of this Agreement (an "Indemnified Party") in
respect of any Losses referred to hereof, then the party or parties
responsible for such indemnification under the terms of Sections 14 and
15 of this Agreement (an "Indemnifying Party"), in lieu of indemnifying
such Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such Losses in the following
manner: as between the Indemnifying Party on the one hand and the
Indemnified Party on the other, in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and
the Indemnified Party on the other in connection with the statements or
omissions which resulted in such Losses, as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party
on the one hand and the Indemnified Party on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such
party, and the party's relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission;
provided, however, that in no event shall the obligation of any party to
contribute under this Section 16 exceed the amount that such party would
have been obligated to pay by way of indemnification if the
indemnification provided for under Sections 14 and 15 of this Agreement
had not been held to be unavailable; and provided that no person guilty
of fraudulent misrepresentation (within the meaning of subsection 11(f)
of the 1933 Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
16. Survival. The indemnity and contribution agreements contained in
Sections 14, 15 and 16 of this Agreement shall remain operative and in
full force and effect with respect to any sales or other distributions of
Shares made pursuant to any Filing in connection with any registration,
qualification or offering regardless of (a) any termination of this
Agreement, (b) any investigation made by or on behalf of any Indemnified
Party or by or on behalf of the Corporation, and (c) the consummation of
the sale or successive resale of the Shares.
17.
18.
19.
OTHER EXEMPTIONS; FILING REPORTS
20. Rule 144A; Rule 144; Other Exemptions. For so long as any Holder holds
Registrable Shares, the Corporation agrees that it shall take such action
as any Holder may reasonably request (including, but not limited to,
providing promptly any information required under Rules 144 and 144A under
the 1933 Act, including without limitation, providing promptly to any such
Holder and any prospective purchaser of such Registrable Shares, the
information required by Rule 144(c) or Rule 144A(d)(4) under the 1933
Act), all to the extent required from time to time to enable such Holders
to sell such Registrable
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Shares without registration under the 1933 Act within the limitation of
the exemptions provided by (i) Rule 144 or Rule 144A (if available with
respect to resales of such Registrable Shares) under the 1933 Act, as
such rules may be amended from time to time, or (ii) any other rules or
regulations now existing or hereafter adopted by the SEC; provided,
however, that the Corporation's obligations under this Section 18 shall
terminate at such time as all Shares held by the Holders may be sold
pursuant to Rule 144(k) without regard to the requirements of Rule
144(c).
21. Reporting Obligations. The Corporation agrees that it shall file in a
timely manner any reports required to be filed by it under applicable
Canadian or U.S. securities laws in connection with any registered
securities or previous public distributions of its securities.
REPRESENTATION OF THE CORPORATION
22. Existing Demand Rights. The Corporation hereby represents and warrants
to the Holders that except for the Demand Rights granted in this
Agreement, no party holds any Demand Rights, whether currently exercisable
or contingent on the occurrence of any event or on the passage of time,
with respect to the Corporation.
TERM
23. Term. This Agreement, including without limitation the representations,
warranties and covenants contained hereof, shall become effective on the
date first set out above and continue in full force and effect and be
binding upon the Corporation and the Shareholders unaffected by any
subsequent disposition of the Registrable Shares for a period of three
years from the earlier of: (a) the date on which the Corporation first
obtains a final receipt from the OSC for a prospectus qualifying the
distribution of Shares in Ontario; or (b) the date on which any
registration statement filed by the Corporation to register Shares in the
United States is declared effective by the SEC.
GENERAL
24. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the federal laws
of Canada applicable in Ontario.
25. Assignment. The rights of each Holder under this Agreement may be
assigned by such Holder in connection with the transfer of the Shares and
subject to assumption by the assignee in writing of the corresponding
obligations hereunder. Except as expressly otherwise provided in this
Agreement, none of the parties hereto may assign any rights or benefits
under this Agreement, including the benefit of any representation,
warranty or covenant, without the prior written consent of the
Corporation, in the case of an assignment by a Holder, or of Holders of
not less than 67% of the Registrable Shares then outstanding, in the case
of an assignment by the Corporation.
26. Time. Time is of the essence in this Agreement.
<PAGE> 14
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27. Notices. Unless otherwise provided hereof, any notice or other
communication to a party under this Agreement may be made, given or
served by hand delivery, by facsimile or by registered mail postage
prepaid and addressed to the parties at their respective addresses and
facsimile numbers maintained in the records of the Corporation. Any
notice or other communication delivered personally shall be deemed to
have been given or made at the time of such delivery. Any written notice
or other communication delivered by facsimile shall be deemed to have
been given or made on the first business day following such delivery.
Any notice or other communication mailed by registered mail shall be
deemed to have been given or made on the fifth business day following its
mailing; provided that in the event of a postal strike affecting mail
delivery, any notice by mail shall be deemed to have been given when
actually received. Each party may change its address for service at any
time by providing notice in writing of such change to each other party in
accordance herewith.
28. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes all previous negotiations,
communications, agreements or understandings between the parties in any
way relating to the subject matter of this Agreement.
29. Further Assurances. Each party hereto will execute, deliver and
undertake such other documents, transfers, deeds, assurances and
procedures as are in the opinion of counsel for the Corporation necessary
for the purpose of giving effect to or completing the transactions
contemplated by this Agreement.
30. Execution in Counterparts and by Facsimile. This Agreement may be
executed in counterparts (which may be delivered by facsimile), each of
which shall be deemed to be an original and all of which together shall be
deemed to form one and the same document.
31. No Waiver - No failure or delay on the part of any party in exercising
any right, power or remedy provided under this Agreement shall operate as
a waiver thereof except as expressly otherwise provided in this Agreement;
nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of
any other right, power or remedy provided under this Agreement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the
date first written above.
________________________________________
BAHMAN KOOHESTANI
________________________________________
ANTHONY DAVIS
<PAGE> 15
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________________________________________
ROBERT GAYLE
________________________________________
JOHN MAH
________________________________________
SEAN MAURIK
________________________________________
JOHN FORESI
________________________________________
RON SCHREIBER
________________________________________
JORDAN LEVY
DELANO TECHNOLOGY CORPORATION
By: ___________________________________
Name:
Title:
XDL DELANO HOLDINGS INC.
By: ___________________________________
Name:
Title:
TOFINO VENTURE CAPITAL INC.
By: ___________________________________
Name:
Title:
The undersigned hereby execute a counterpart to this Agreement as of
February 1, 1999 to become parties as Additional Shareholders, as
contemplated by this Agreement.
BLUE SKY CAPITAL CORPORATION
By: ___________________________________
Name:
Title:
________________________________________
TODD FINCH
<PAGE> 1
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Exhibit 10.2
AGENCY AGREEMENT
June 24 1999
Delano Technology Corporation
40 West Wilmot Street
Richmond Hill, Ontario
L4B 1H8
Attention: Mr. John Foresi, President and Chief Executive Officer
Dear Sir:
The undersigned, Griffiths McBurney & Partners ("GMP"), First Marathon
Securities Limited ("FM") and Charles Schwab Canada Co. ("CS") (collectively,
the "Agents"), understand that Delano Technology Corporation (the "Company")
proposes to create, issue and sell up to a maximum of 4,326,924 special
warrants (the "Special Warrants") of the Company (the "Offering") at a price of
$5.20 per Special Warrant (the "Offering Price"). Upon and subject to the
terms and conditions set forth herein, the Company hereby appoints the Agents
to act as the Company's exclusive agents to effect the sale of the Special
Warrants for an aggregate purchase price of $22,500,004.80 and the Agents
hereby agree to act as the agents of the Company for such purposes and to
effect such sale of the Special Warrants on the Company's behalf on a best
efforts basis only to persons resident in the Qualifying Provinces (as
hereinafter defined) (or in those jurisdictions outside of Canada where the
Special Warrants may be lawfully sold provided that such purchase transactions
do not give rise to a prospectus, registration statement or similar filing or
continuous disclosure obligations on behalf of the Company) pursuant to the
terms and conditions hereof. It is understood and agreed that the Agents are
under no obligation to purchase any of the Special Warrants, although the
Agents may subscribe for Special Warrants if they so desire.
Subject to the provisions hereof and of the special warrant indenture (the
"Special Warrant Indenture") to be entered into between the Company and The
Trust Company of Bank of Montreal, as warrant agent, the Special Warrants shall
be exercisable by the holders thereof at any time prior to the Expiry Date (as
hereinafter defined) and will be automatically exercised (without further act
on the part of the holder) at 5:00 p.m. (Toronto time) on the earlier of the
following dates (which date is hereinafter referred to as the "Expiry Date"):
(i) the fifth business day after the date on which a receipt has been issued by
the last of the Securities Regulators (as hereinafter defined) in each
Qualifying Province in which Purchasers of Special Warrants are resident for
the Final Prospectus (as hereinafter defined) qualifying the distribution of
the Class C Preferred Shares (the "Class C Shares") or common shares (the
"Common Shares") of the Company, as the case may be (the "Underlying Shares"),
to be issued upon exercise of the Special Warrants; and (ii) the date which is
12 months after the Closing Date (as hereinafter defined) (subject to the
rights of the individual holders of the Special Warrants to exercise such
Special Warrants at any time prior to the Expiry Date provided that exemptions
are available to
<PAGE> 2
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permit such exercise in compliance with the Canadian Securities Laws (as
hereinafter defined). The specific attributes of the Special Warrants shall be
set forth in the Special Warrant Indenture, which shall provide, among other
things, that the holders of Special Warrants shall be entitled to receive, upon
the exercise thereof and without payment of any consideration in addition to
the purchase price therefor, one Underlying Share for each Special Warrant
held.
The Special Warrants shall be exchangeable for Class C Shares unless all of the
issued and outstanding Class A Preferred shares and Class B Preferred shares of
the Corporation have been converted into Common Shares in accordance with their
terms, in which case each Special Warrant shall be exchangeable for that number
of Common Shares as is equal to the number of Common Shares each Class C Share
may be converted into in accordance with the articles of the Corporation, as
amended.
The purchase of the Special Warrants shall take place at a closing to be held
on June 24, 1999 or such other dates as the Agents and the Company may agree
(the "Closing Date") at 10:00 a.m. (Toronto time) or such other time as the
Agents and the Company may agree (the "Closing Time").
The Company shall use its commercially reasonable best efforts to prepare and
file, in accordance herewith and subject to the terms hereof, the Preliminary
Prospectus (as hereinafter defined) and the Final Prospectus in order to
qualify the Underlying Shares issuable on the exercise of the Special Warrants
for distribution in each of the Qualifying Provinces.
In consideration of the services to be rendered and the costs to be borne
by the Agents in connection with the purchase and sale of the Special
Warrants, including assisting in the preparation of the Prospectus and all
other matters in connection with the issue and sale of the Special Warrants
and the issue of the Underlying Shares, the Company shall pay to the Agents
a fee equal to 6.0% of the gross proceeds realized by the Company in
respect of the sale of the Special Warrants, being a fee of $0.312 per
Special Warrant (the "Commission"). The obligation of the Company to pay
the Commission shall arise at the Closing Time (as hereinafter defined) and
the Commission shall be fully earned and payment to the Agents of the
Commission and the Agents' out-of-pocket, including legal, expenses shall
be made by the Company at that time. Notwithstanding anything to the
contrary contained herein, the Company shall not be obligated to pay the
Agents the Commission in respect of any Special Warrants purchased by XDL
Delano Holdings Inc. ("XDL") and the group of firms or individuals
associated with XDL (collectively, the "XDL Associates"). If receipts for
the Final Prospectus qualifying the Underlying Shares to be issued upon
exercise of the Special Warrants sold to the XDL Associates are issued by
securities regulatory authorities in the Qualifying Provinces, the Company
shall pay a fee of 2% of the gross proceeds of the Special Warrants sold to
the XDL Associates by the Agents (but no fee shall be payable in connection
with the Special Warrants sold to XDL). Such fee shall be payable on the
date the first of such receipts is issued, but shall only be payable if GMP
has executed the underwriter's certificate in the Final Prospectus.
<PAGE> 3
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The Company and each of the Agents agree that all offers and sales of Special
Warrants to U.S. Persons or persons within the United States (as such
terms are defined in paragraph 20 hereof) shall be made in accordance with
paragraph 20 hereof.
DEFINITIONS
In this Agreement, in addition to the terms defined above, the following terms
shall have the following meanings:
"AGENTS" means collectively and individually, Griffiths McBurney & Partners,
First Marathon Securities Limited and Charles Schwab Canada Co., and "AGENT"
means one of them;
"AGREEMENT" means the agreement resulting from the acceptance by the Company of
the offer made by the Agents in this letter;
"BUSINESS DAY" means a day which is not a Saturday, Sunday or statutory or
civic holiday in the City of Toronto;
"CANADIAN SECURITIES LAWS" means all applicable securities laws in each of the
Qualifying Provinces and the respective regulations and rules made thereunder,
together with applicable published fee schedules, prescribed forms, policy
statements, orders, blanket rulings and other regulatory instruments of the
securities regulatory authorities in such provinces;
"CLAIM" has the meaning ascribed thereto in subparagraph 14(b);
"CLASS C SHARES" means the Class C Preferred Shares in the capital of the
Company,
"CLOSING DATE" means June 24, 1999 or such earlier or later date as the
Agents and the Company may in writing agree;
"CLOSING TIME" means 10:00 a.m. (Toronto time) on the Closing Date or such
other time on the Closing Date as the Company and the Agents may agree;
"COMMON SHARE" means the common shares in the capital of the Company;
"COMPANY'S AUDITORS" means PriceWaterhouseCoopers, Chartered Accountants,
or such other firm of chartered accountants as the Company may from time to
time appoint as auditors of the Company;
"FINAL PROSPECTUS" has the meaning ascribed thereto in subparagraph 2(b);
"FINANCIAL INFORMATION" means the Company's unaudited financial statements
as at and for the fiscal year ended March 31, 1999 together with the notes
thereto and any other financial statements or information to be contained in
the Preliminary Prospectus or Final Prospectus;
<PAGE> 4
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"INDEMNIFIED PARTY" has the meaning ascribed to it in subparagraph 14(b);
"MISREPRESENTATION", "MATERIAL FACT", "MATERIAL CHANGE", "PERSON",
"SUBSIDIARY", "AFFILIATE", "ASSOCIATE", and "DISTRIBUTION" have the respective
meanings ascribed thereto in the Securities Act (Ontario);
"PRELIMINARY PROSPECTUS" has the meaning ascribed thereto in subparagraph
2(a);
"PROSPECTUS" means, collectively, the Preliminary Prospectus and the Final
Prospectus;
"PURCHASERS" means the persons (which may include the Agents) who as
purchasers acquire Special Warrants by duly completing, executing and
delivering a Subscription Agreement;
"QUALIFICATION DATE" means the date upon which a receipt has been issued
by the last of the Securities Regulators in each Qualifying Province in which
Purchasers are resident for the Final Prospectus qualifying the distribution of
the Underlying Shares;
"QUALIFICATION DEADLINE" has the meaning ascribed thereto in paragraph 3;
"QUALIFICATION DEFAULT" has the meaning ascribed thereto in paragraph 3;
"QUALIFYING PROVINCES" means the Provinces of Canada in which Purchasers
who acquire Special Warrants at the Special Warrant Closing are resident on the
Closing Date;
"RESTRICTED SECURITIES" means securities the purchase or resale of which
is restricted or limited by means of an undertaking, agreement or statute by or
in respect of the purchaser of such securities;
"RIGHTS AGREEMENT" has the meaning ascribed thereto in subparagraph
6(b)(x);
"SHAREHOLDERS AGREEMENT" means the amended and restated shareholders
agreement of the Company dated as of January 27, 1999;
"SPECIAL WARRANT CLOSING" means the completion of the issue and sale by
the Company of the Special Warrants offered hereunder and the purchase by the
Purchasers of the Special Warrants pursuant to the Subscription Agreements;
"SPECIAL WARRANT INDENTURE" means a special warrant indenture to be dated
as of the Closing Date between the Company and The Trust Company of Bank of
Montreal, as trustee and special warrant agent (in such capacity, the "WARRANT
AGENT"), providing for the issue of the Special Warrants and in a form to be
agreed upon between the Company and the Agents, each acting reasonably;
"SUBSCRIPTION AGREEMENT" means a subscription agreement in the form agreed
upon by the Agents and the Company pursuant to which Purchasers agree to
subscribe for and purchase the
<PAGE> 5
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Special Warrants herein contemplated and shall include, for greater
certainty, all schedules thereto;
"SUBSIDIARY" has the meaning ascribed thereto in the Business Corporations
Act (Ontario);
"SUPPLEMENTARY MATERIAL" has the meaning ascribed thereto in subparagraph
4(b);
"TIME OF EXPIRY" means 5:00 p.m. (Toronto time) on the Expiry Date;
"TO THE BEST OF ITS KNOWLEDGE, INFORMATION AND BELIEF", with respect to
any party, means that no information has come to such party's attention which
has given such party actual knowledge of the facts or circumstances referred
to. However, such party has not undertaken any special or independent
investigation to determine the existence or absence of such facts or
circumstances; and
"UNDERLYING SHARES" means the Class C Shares or Common Shares, as the case
may be, issuable on exercise of the Special Warrants.
TERMS AND CONDITIONS
1. (a) SALE ON EXEMPT BASIS. The Agents shall offer for sale on behalf of the
Company the Special Warrants:
(i) in the Qualifying Provinces and foreign
jurisdictions, as agreed to by the Company, acting reasonably
in compliance with all applicable Canadian Securities Laws and
the applicable securities laws of such other jurisdictions;
and
(ii) only to such Purchasers and in such manner so
that, pursuant to the provisions of applicable Canadian
Securities Laws or the securities laws of such other
jurisdictions, no prospectus, offering memorandum or other
similar document need be filed or delivered in connection
therewith and no continuous disclosure obligations arise on
behalf of the Company.
(b) COMPANY FILINGS. The Company undertakes to file or cause to be filed
all forms or undertakings required to be filed by the Company in connection
with the purchase and sale of the Special Warrants so that the distribution of
the Special Warrants may lawfully occur without the necessity of filing a
prospectus or an offering memorandum in the Qualifying Provinces (but on terms
that will permit the Underlying Shares acquired by the Purchasers in the
Qualifying Provinces to be sold by such Purchasers at any time in the
Qualifying Provinces subject to applicable Canadian Securities Laws), and the
Agents undertake to use their commercially reasonable best efforts to cause
Purchasers of Special Warrants to complete any forms required by Canadian
Securities Laws. All fees payable in connection with such filings shall be at
the
<PAGE> 6
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expense of the Company. No provision of this Agreement shall be construed to
require the Company to register or qualify Underlying Shares for resale under
United States federal or state securities laws.
(c) NO OFFERING MEMORANDUM. None of the Company nor the Agents shall (i)
provide to prospective purchasers any document or other material that would
constitute an offering memorandum within the meaning of Canadian Securities
Laws; or (ii) cause the sale of the Special Warrants to be advertised in
printed, public media, radio, television or telecommunications, including
electronic display.
2. (a) PRELIMINARY PROSPECTUS. The Company shall use its commercially
reasonable best efforts from the date hereof until December 15, 1999 and from
June 15, 2000 going forward, to prepare and file and use all commercially
reasonable efforts to obtain receipts for a preliminary prospectus (the
"Preliminary Prospectus") in form and substance satisfactory to the Company and
the Agents, each acting reasonably, and other related documents relating to the
proposed distribution of the Underlying Shares under applicable Canadian
Securities Laws of each of the Qualifying Provinces and promptly resolve all
comments received or deficiencies raised by the Securities Regulators.
(b) FINAL PROSPECTUS. The Company shall, as soon as practicable after all
comments of the Securities Commissions have been satisfied with respect to the
Preliminary Prospectus, prepare, file and use all commercially reasonable best
efforts to obtain receipts therefor under applicable Canadian Securities Laws,
a (final) prospectus in form and substance satisfactory to the Company and the
Agents (the "Final Prospectus"), each acting reasonably, and fulfil and comply
with, to the satisfaction of the Agents' counsel, acting reasonably, all
applicable Canadian Securities Laws to be fulfilled or complied with by the
Company to enable the Underlying Shares to be lawfully distributed to the
public or the Agents (as the case may be) in the Qualifying Provinces in
connection with the exercise of the Special Warrants through the Agents or any
other investment dealer or broker registered as such in the Qualifying
Provinces in compliance with Canadian Securities Laws.
3. ADDITIONAL RIGHTS AND PROTECTION TO THE PURCHASERS. The Company recognizes
that it is fundamental to Purchasers of the Special Warrants that the
distribution of Underlying Shares be qualified under a prospectus in the
Qualifying Provinces within the time periods contemplated by this Agreement so
that the Underlying Shares will be freely tradeable in such Qualifying
Provinces without the necessity of the holder thereof filing a prospectus or
effecting the trade in a manner which falls within one of the various
prospectus exemptions under applicable Canadian Securities Laws (unless such a
trade is a "distribution" by virtue of subparagraph (c) of the definition
thereof set forth in the Securities Act (Ontario) or similar legislation). The
Company acknowledges that it is for this reason that the Company has agreed to
use its commercially reasonable best efforts to ensure that the Preliminary
Prospectus and the Final Prospectus are to be filed with all relevant
securities regulatory authorities in the Qualifying Provinces and receipts are
to be obtained therefor within the time periods contemplated by this Agreement.
Accordingly, if a Qualification Date has not occurred in a Qualifying
Province on or before December 15, 1999 (the "Qualification Deadline"), the
Special Warrants exercised after the
<PAGE> 7
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Qualification Deadline shall entitle such holders resident in such Qualifying
Province to receive 1.1 Underlying Shares (in lieu of one Underlying Share)
without payment of any additional consideration for each Special Warrant held.
Unless exercised earlier by the Purchaser thereof, the Special Warrants will be
and will be deemed to have been exercised immediately prior to 5:00 p.m.
(Toronto time) on the earlier of: (i) the fifth Business Day after the
Qualification Date; and (ii) the date which is twelve months after the Closing
Date.
4. (a) DELIVERIES AT TIME OF FILING. The Company shall deliver to the Agents
contemporaneously with or prior to the filing with the Securities Regulators of
the Preliminary Prospectus or the Final Prospectus, as the case may be:
(i) an executed copy of the Preliminary Prospectus or the Final
Prospectus, as the case may be;
(ii) executed copies of any other document required to be filed by
the Company at such time under the laws of each of the Qualifying
Provinces in compliance with Canadian Securities Laws applicable
therein; and
(iii) (iii) in the case of the Final Prospectus, a letter of the
Company's Auditors dated the date of the Final Prospectus addressed
to the Agents and the board of directors of the Company, in form and
substance satisfactory to the Agents, with respect to certain
financial and accounting information relating to the Company in the
Final Prospectus and which shall be based on procedures carried out
by the Company's Auditors to a date not more than two Business Days
prior to the date of the Final Prospectus and which letter shall be
in addition to the Company's Auditors' report contained in the Final
Prospectus.
(b) SUPPLEMENTARY MATERIAL. The Company shall also prepare and deliver
promptly to the Agents duly signed copies of all amended or supplementary
prospectuses or supplemental statements and related documents required to be
filed by the Company under the laws of any Qualifying Province or by Canadian
Securities Laws and of any amendment to the Preliminary Prospectus or the Final
Prospectus or other document required to be filed under paragraph 7 of this
Agreement (collectively, the "Supplementary Material"). The Preliminary
Prospectus, the Final Prospectus and the Supplementary Material shall be in
form and substance satisfactory to the Agents, acting reasonably.
(c) COPIES. The Company shall cause copies of the Preliminary Prospectus
and the Final Prospectus in the English language and, if required, French
language, to be delivered to the Agents without charge, in such numbers and in
such cities in the Qualifying Provinces as the Agents may reasonably request.
Such delivery shall be effected as soon as practicable and, in any event, on or
before a date two Business Days after the filing thereof with the Securities
Regulators of the Qualifying Provinces. The Company shall similarly cause to be
delivered copies of any Supplementary Material. The Agents shall cause to be
delivered to holders of Special Warrants copies of the Final Prospectus and any
required Supplementary Materials.
<PAGE> 8
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5. REPRESENTATION AS TO PROSPECTUS AND SUPPLEMENTARY MATERIAL. Delivery of the
Prospectus and any Supplementary Material shall constitute a representation and
warranty by the Company to the Agents, the Purchasers and their permitted
assigns that all information and statements (except information and statements
relating solely to or provided solely by the Agents) contained in the
Prospectus and Supplementary Material are true and correct in all material
respects at the time of delivery thereof and contain no misrepresentations and
constitute full, true and plain disclosure of all material facts relating to
the Company and the Underlying Shares and that no material fact or information
has been omitted therefrom (except facts or information relating solely to the
Agents) which is required to be stated therein or is necessary to make the
statements or information contained therein not misleading in light of the
circumstances under which they were made. Such delivery shall also constitute
the Company's consent to the Agents' use of the Preliminary Prospectus, Final
Prospectus, any Supplementary Material and any other public documents supplied
to the Agents by the Company for the distribution of the Underlying Shares in
the Qualifying Provinces in compliance with the provisions of this Agreement
and Canadian Securities Laws.
6. COVENANTS. (a) The Company covenants to the Agents, the Purchasers and
their permitted assigns that the Company shall at all times prior to the date
of the Final Prospectus allow the Agents and their representatives to conduct
all due diligence which the Agents may reasonably require to be conducted to
fulfil their obligations as agents under Canadian Securities Laws and in order
to enable the Agents responsibly to execute any certificate required to be
executed by the Agents in connection with a Prospectus, and it shall be a
condition precedent to the Agent's execution of any certificate in any
Prospectus that they be satisfied, acting reasonably, as to the form and
content of each Prospectus.
(b) The Company hereby covenants to the Agents, the Purchasers and their
permitted assigns that it shall:
(i) duly execute and deliver the Special Warrant
Indenture, the Subscription Agreements and the Special
Warrants at the Closing Time, and comply with and satisfy all
material terms, conditions and covenants therein contained to
be complied with or satisfied by the Company;
(ii) use its commercially reasonable best efforts to
fulfil, to the extent within its control, at or prior to the
Closing Date, each of the conditions set out in paragraph 10;
(iii) ensure that the Special Warrants shall be duly
and validly created, authorized and issued on payment of the
Offering Price therefor, and shall have attributes
corresponding in all material respects to the description
thereof set forth in this Agreement and the Subscription
Agreements;
(iv) ensure that the Underlying Shares shall, upon
issuance, be duly issued as fully paid and non-assessable
securities in the capital of the Company, and shall have
attributes corresponding in all material respects to the
<PAGE> 9
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description thereof set forth in this Agreement and the
Subscription Agreements;
(v) maintain the Warrant Agent or a substitute
licensed trust company as special warrant agent in respect of
the Special Warrants;
(vi) not, for a period of six months following the
Closing Date, issue or announce the issuance of, without the
prior written consent of GMP, such consent not to be
unreasonably withheld or delayed, any Common Shares,
securities convertible or exchangeable into Common Shares or
rights to acquire any of the foregoing at a purchase price
that implies a fully-diluted pre-offering valuation of the
Company of less than U.S. $65 million, other than (a) Common
Shares issued upon exercise or conversion of currently
outstanding securities, (b) Common Shares and options issued
to certain persons pursuant to the stock option plan of the
Company; and (c) Common Shares issued in connection with, or
issuable upon the exercise or conversion of, securities in
connection with any acquisition or strategic partnering
transactions effected by the Company;
(vii) in the event that the Company files a prospectus
(the "IPO Prospectus") with any of the Securities Regulators
in Canada in respect of an initial public offering of any
class of securities of the Company, the IPO Prospectus shall
qualify the Underlying Shares to be issued upon exercise of
the Special Warrants to the extent possible in accordance with
applicable Canadian Securities Laws. Provided that the Company
has not previously filed the IPO Prospectus with any of the
Securities Regulators in Canada, in the event that the Company
files a registration statement (the "Registration Statement")
in the United States in respect of an initial public offering
of any class of securities of the Company, the Registration
Statement shall register the resale, from time to time, of the
Underlying Shares, and shall be kept effective under the U.S.
Securities Act until such time as all Underlying Shares to be
issued upon exercise of the Special Warrants may be resold by
the holders pursuant to Rule 144(k) under the U.S. Securities
Act (as such term is defined in paragraph 20 hereof);
(viii) not, from the Closing Date until the Special Warrants are
exercised in accordance with the provisions of the Special
Warrant Indenture, declare any dividends on any issued and
outstanding shares of the Company or to redeem, retract or
otherwise purchase for cancellation any of the issued and
outstanding Class A Preferred shares or Class B Preferred
shares;
(ix) ensure that GMP, as agent of the Purchasers,
shall be entitled to nominate one independent director to the
Board of Directors of the Company on behalf of all of the
shareholders of the Company. A committee of the Board of
Directors, comprised of Bahman Koohestani, John Foresi and
<PAGE> 10
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Dennis Bennie, shall have the right, at its sole discretion,
to accept or reject such nominee;
(x) on the Closing Date, enter into an agreement (the
"Rights Agreement") with GMP as agent for the Purchasers, in a
form that is acceptable to GMP and the Company, each acting
reasonably, to record the Purchasers agreement as to the
manner in which the Company's affairs shall be conducted and
which shall provide the Purchasers with certain rights and
obligations similar to those set out in the amended and
restated shareholders' agreement dated January 27, 1999
relating to the Company. These rights and obligations shall
include: (i) certain restrictions on dealing with the Special
Warrants and/or the Underlying Shares received upon exercise
of the Special Warrants (including, without limitation,
restrictions on transfer, rights of first refusal,
piggyback/tag-along rights, pre-emptive rights and drag-along
rights); and (ii) confidentiality obligations;
(xi) accept the appointment of GMP by the Purchasers
to be the attorney of the Purchasers to act on their behalf
with the power and authority in their names, places and
steads, to enter into the Rights Agreement; and
(xii) provide copies of its interim or unaudited
annual financial statements, as the case may be, to GMP on
behalf of the Purchasers within 45 days of the end of each
quarter until the Time of Expiry.
(c) AGENTS' OBLIGATION. Each of the Agents covenants with the Company that:
(i) it will execute any certificate or deliver any
documents pertaining to either the Preliminary Prospectus or
the Final Prospectus, which delivery shall be conditional upon
compliance by the Company to the date of such execution and
delivery with each of its covenants contained in this
Agreement to be complied with prior to the filing of the
Preliminary Prospectus or the Final Prospectus, as the case
may be;
(ii) it will offer the Special Warrants for sale on
behalf of the Company only to Purchasers in the Qualifying
Provinces who will purchase such Special Warrants in
compliance with all applicable Canadian Securities Laws or to
Purchasers in jurisdictions outside of Canada but only in
compliance with all applicable laws of such jurisdiction;
(iii) it will not offer the Special Warrants for sale
on behalf of the Company to Purchasers resident in the
Province of Quebec;
<PAGE> 11
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(iv) it will conduct activities in connection with the
Offering for sale on behalf of the Company of the Special
Warrants in compliance with all applicable Canadian Securities
Laws and, without limitation, agrees that it has and will only
deliver to prospective Purchasers any documents or materials
that do not constitute an offering memorandum for the purposes
of the Canadian Securities Laws of the Qualifying Provinces
and that are not otherwise prohibited thereby;
(v) it will obtain from each Purchaser of Special
Warrants for acceptance by the Company an executed
Subscription Agreement for the purchase of the Special
Warrants together with the purchase price therefor;
(vi) upon the Company obtaining receipts therefor from
the Securities Regulators in the Qualifying Provinces and
delivering copies of the Final Prospectus to the Agents, one
copy of the Final Prospectus will be delivered to each
Purchaser of Special Warrants; and
(vii) it will not make any representations or
warranties with respect to the Company, the Special Warrants
or the Underlying Shares other than as set forth in this
Agreement, the Subscription Agreements or the Prospectus.
7. (a) MATERIAL CHANGES DURING DISTRIBUTION. During the period from the date
hereof to the completion of distribution of the Underlying Shares, the Company
shall promptly notify the Agents (and, if requested by the Agents, confirm such
notification in writing) of:
(i) any material adverse change (actual, anticipated, contemplated
or threatened, financial or otherwise) in the business, affairs,
operations, assets, liabilities (contingent or otherwise) or capital
of the Company;
(ii) any material adverse fact which has arisen and would have been
required to have been stated in the Final Prospectus had the fact
arisen on, or prior to, the date of the Final Prospectus; and
(iii) any change in any material adverse fact contained in the Final
Prospectus or the Supplementary Material or any amendments or
supplements thereto which change is, or may be, of such a nature as
to render any material statement in the Final Prospectus or any
Supplementary Material misleading or untrue or which would result in
a misrepresentation in the Final Prospectus or Supplementary Material
or which would result in the Final Prospectus or Supplementary
Material not materially complying (to the extent that such compliance
is required) with the Canadian Securities Laws or which would
reasonably be expected to have a significant effect on the market
price or value of the Underlying Shares.
During the period from the date hereof to the completion of distribution of the
Underlying Shares, the Company shall promptly and, in any event, within any
applicable time limitation,
<PAGE> 12
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comply with all applicable filing and other requirements under Canadian
Securities Laws as a result of such change; provided that the Company shall not
file any Supplementary Material or other document without first obtaining
approval of the Agents, after consultation with the Agents with respect to the
form and content thereof, which approval shall not be unreasonably withheld or
delayed. The Company shall in good faith discuss with the Agents any fact or
change in circumstances (actual, anticipated, contemplated or threatened, and
financial or otherwise) which is of such a nature that there is reasonable
doubt as to whether notice in writing need be given to the Agents pursuant to
this paragraph 7.
(b) CHANGE IN CANADIAN SECURITIES LAWS. If during the period of
distribution to the public of the Underlying Shares, there shall be any change
in Canadian Securities Laws which in the opinion of counsel to the Company or
counsel to the Agents requires the filing of Supplementary Material, the
Company shall, to the satisfaction of its counsel and the Agents' counsel,
acting reasonably, promptly prepare and file such Supplementary Material with
the appropriate Securities Regulators in each of the Qualifying Provinces where
such filing is required.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company
represents and warrants to the Agents, the Purchasers and their permitted
assigns, and acknowledges that each of them is relying upon such
representations and warranties in purchasing Special Warrants, that:
(i) the Company has been duly incorporated and is validly
existing under the laws of the Province of Ontario, has all
requisite power and authority and is duly qualified to carry on its
business as now conducted and to own its properties and assets and
the Company has all requisite power and authority to carry out its
obligations under this Agreement, the Subscription Agreements, the
Special Warrants and the Special Warrant Indenture;
(ii) the Company has no material subsidiaries nor any investment
in any person which is or would be material to the business and
affairs of the Company on a consolidated basis;
(iii) all consents, approvals, permits, authorizations or filings
as may be required under Canadian Securities Laws necessary for the
execution and delivery of and the performance by the Company of its
obligations under this Agreement, the Subscription Agreements, the
Special Warrants, the Special Warrant Indenture and the Rights
Agreement have been made or obtained, as applicable;
(iv) each of the execution and delivery of this Agreement, the
Rights Agreement, the Subscription Agreements, the Special Warrants
or the Special Warrant Indenture, the performance by the Company of
its obligations hereunder or thereunder, the sale of the Special
Warrants hereunder and the consummation of the transactions
contemplated in this Agreement, including the issuance and delivery
of the Underlying Shares upon the exercise of the Special Warrants,
do not and will not
<PAGE> 13
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conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, (whether
after notice or lapse of time or both), (A) , any statute, rule or
regulation applicable to the Company including, without limitation,
Canadian Securities Laws; (B) the constating documents, by-laws or
resolutions of the Company which are in effect at the date hereof;
(C) any material mortgage, note, indenture, contract, agreement,
instrument, lease or other document to which the Company is a party
or by which it is bound; or (D) any judgment, decree or order
binding the Company or the property or assets of the Company or its
subsidiaries, which breach, violation or default or the
consequences thereof, individually or in the aggregate, would have
a materially adverse effect on the Company;
(v) there has not occurred any material adverse change, financial
or otherwise, in the assets, liabilities (contingent or otherwise),
business, financial condition, capital or prospects of the Company,
on a consolidated basis, since the effective date of the Financial
Information, and no transaction has been entered into by the Company
(other than in the ordinary course of business) which is or would be
material to the Company;
(vi) the Financial Information and any interim financial
statements for any subsequent financial period have been prepared in
accordance with generally accepted accounting principles and present
fully, fairly and correctly the financial position of the Company as
at the dates thereof and the results of its operations and the
changes in the financial position of the Company for the periods
then ended;
(vii) as at the Closing Date, except as contemplated by this
Agreement, or in respect of which waivers have been obtained and
delivered to the Agents, no holder of outstanding shares in the
capital of the Company will be entitled to any pre-emptive or any
similar rights to subscribe for any of the Class C Shares or other
securities of the Company and, other than stock options which have
been granted in the ordinary course in accordance with the Company's
stock option plan and the securities which have been reserved by the
Company for issuance (directly or through options, warrants or other
arrangements) to senior management, consultants and key employees of
the Company and except as disclosed in Schedule "A" hereto, no
rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, any shares in the capital of the Company
are outstanding;
(viii) no legal or governmental proceedings have been commenced or are
pending to which the Company is a party or to which its property is
subject that would result individually or in the aggregate in any
material adverse change in the operation, business or condition of
the Company on a consolidated basis and, to the knowledge of the
Company, no such proceedings have been threatened against or are
contemplated with respect to the Company, on a consolidated basis,
or with respect to any of its properties;
<PAGE> 14
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(ix) the Company has conducted and is conducting its business in
compliance in all material respects with all applicable laws and
regulations of each jurisdiction in which it carries on business
and has not received a notice of non-compliance, or knows of, or
has reasonable grounds to know of, any facts that could give rise
to a notice of non-compliance with any such laws or regulations
which would have a material adverse effect on the Company on a
consolidated basis;
(x) the Company has all licences, leases, permits, authorizations
and other approvals necessary to permit it to conduct its business
as currently conducted, except where the failure to do so would not
have a material adverse effect on the Company on a consolidated
basis;
(xi) at the Closing Time, each of the Subscription Agreements, the
Rights Agreement, the Special Warrant Indenture and the Special
Warrants shall have been duly authorized and duly executed and
delivered by the Company and upon such execution and delivery each
shall constitute a valid and binding obligation of the Company and
each shall be enforceable against the Company in accordance with its
terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting the rights of creditors generally and except as limited by
the application of equitable principles when equitable remedies are
sought, and by the fact that rights to indemnity, contribution and
waiver, and the ability to sever unenforceable terms, may be limited
by applicable law;
(xii) at the Closing Time, all necessary corporate action will
have been taken by the Company to allot and authorize the issuance
of the Underlying Shares, and upon due exercise of the Special
Warrants in accordance with the provisions thereof, such Underlying
Shares will be validly issued as fully paid and non-assessable
securities in the capital of the Company;
(xiii) the authorized capital of the Company consists of an unlimited
number of common shares, an unlimited number of Class A Preferred
shares, an unlimited number of Class B Preferred shares and an
unlimited number of Class C Preferred Shares, of which 4,000,000
common shares, 4,000,000 Class A Preferred Shares, 3,789,396 Class B
Preferred Shares and no Class C Shares are issued and outstanding as
fully paid and non-assessable as at the date hereof;
(xiv) the Company has timely filed all necessary federal,
provincial, state, local and foreign tax returns and notices and has
paid or made provision for all applicable taxes of whatever nature
for all tax years to the date hereof to the extent such taxes have
become due or have been alleged to be due and, to the knowledge of
the Company, there are no material tax deficiencies or material
interest or penalties accrued or accruing, or alleged to be accrued
or accruing thereon which have not otherwise been provided for by
the Company;
<PAGE> 15
- 15 -
(xv) to the best of its knowledge, after due enquiry, none of the
directors, officers or principal shareholders of the Company (or
such shareholders respective principals) is or has ever been
subject to prior regulatory, criminal or bankruptcy proceeding in
Canada or elsewhere;
(xvi) with respect to each premises which is material to the
Company and which the Company or a subsidiary occupies as tenant
(the "Material Leased Premises"), the Company or a subsidiary
occupies the Material Leased Premises and has the exclusive right to
occupy and use the Material Leased Premises;
(xvii) each of the leases pursuant to which the Company occupies the
Material Leased Premises is in good standing and in full force and
effect, and neither the Company nor a subsidiary nor, to the best of
the knowledge, information and belief of the Company, after due
enquiry, any other party thereto is in breach of any material
covenants, conditions or obligations contained therein;
(xviii) The Trust Company of Bank of Montreal, at its principal office in
the City of Toronto, has been duly appointed trustee and as Warrant
Agent in respect of the Special Warrants;
(xix) other than the Agents, there is no person acting or
purporting to act at the request or on behalf of the Company who is
entitled to any brokerage or finder's fee in connection with the
transactions contemplated by this Agreement;
(xx) the Company is not aware of a claim of any infringement or
breach by the Company or any of its subsidiaries of any industrial
or intellectual property rights of any other person, nor has the
Company or any of its subsidiaries received any notice nor is the
Company or any of its subsidiaries otherwise aware that the use of
the business names, trademarks, service marks and other industrial
or intellectual property of the Company infringes upon or breaches
any industrial or intellectual property rights of any other person
and the Company has no knowledge of any infringement or violation of
any of its rights in such intellectual and industrial property and
is not aware of any state of facts that casts doubt on the validity
or enforceability of any such intellectual or industrial property
rights;
(xxi) the Company owns or possesses adequate enforceable rights to
use all patents, patent applications, trademarks, service marks,
copyrights, trade secrets, processes or formulations used or
proposed to be used in the conduct of its business;
(xxii) other than the usual customary health benefit plan for all
employees or as otherwise disclosed to the Agents (including those
listed in Schedule "A" hereto), there is presently no material plan
in place for retirement bonus, stock option (other than the
securities reserved by the Company for issuance (directly or through
options, warrants or other arrangements) to directors, senior
management
<PAGE> 16
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and key employees of the Company), deferred compensation, severance
or termination pay, insurance, medical, hospital, dental, vision
care, drug, sick leave, disability, salary continuation, legal
benefits, unemployment benefits, vacation, incentive or otherwise
contributed to or required to be contributed to, by the Company for
the benefit of any current or former director, officer, employee or
consultant of the Company and, to the extent that any such employee
benefit plan is in place, each such employee plan has been
maintained in compliance with its terms and with the requirements
by any and all statutes, orders, rules and regulations that are
applicable to each such employee plan; the Company does not
currently have and has not had any pension plan;
(xxiii) except as disclosed in writing to the Agents, the Company does
not owe any money to, nor has the Company any present loans to, or
borrowed any monies from, is or otherwise indebted to any officer,
director, employee, shareholder or any person not dealing at "arms
length" (as such term is defined in the Income Tax Act (Canada))
with the Company except for usual employee reimbursements and
compensation paid in the ordinary and normal course of the business
of the Company, other than as has been disclosed to the Agents;
(xxiv) to the knowledge of the Company, after due enquiry, except as
disclosed to the Agents and as disclosed in Schedule "A" hereto, the
Company is not a party to any contract, agreement or understanding
with any officer, director, employee, shareholder or any other
person not dealing at "arm's length" (as such term is defined in the
Income Tax Act (Canada)) with the Company;
(xxv) except as disclosed to the Agents, to the knowledge of the
Company, after due enquiry, no officer, director or shareholder of
the Company and no entity which is an affiliate or associate or any
one or more the foregoing owns, directly or indirectly, any interest
(except for shares representing less than 5% of the outstanding
shares of any class or series of any publicly traded company), or is
an officer, director, employee or consultant of, any person which
is, or is engaged in, a business competitive with the Company;
(xxvi) except as disclosed to the Agents, to the best knowledge of the
Company, after due enquiry, no present or former officer, director
or shareholder of the Company has any cause of action, or other
claim whatsoever, against, or owes any amount to, the Company in
connection with the Company and except for any liabilities reflected
in the Financial Information and claims in the ordinary and normal
course of the business of the Company such as for accrued vacation
pay and accrued benefits under any employee plans the particulars of
which have been described to the Agents;
(xxvii) all material accruals for unpaid vacation pay, premiums for
unemployment insurance, health premiums, pension plan premiums,
accrued wages, salaries and
<PAGE> 17
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commissions and employee benefit plan payments have been reflected
in the books and records of the Company;
(xxviii) the Company has not used or permitted to be used any of the
Material Leased Premises or any other premises which the Company or
a subsidiary occupies as tenant (the Material Leased Premises and
such other premises being, collectively, the "Leased Premises") or
any of its owned properties or facilities to generate, manufacture,
process, distribute, use, treat, store, dispose of, transport or
handle any pollutants, contaminants, chemicals or industrial toxic
or hazardous wastes or substances ("Hazardous Substances");
(xxix) the Company has not made any contracts with any labour union or
employee association nor made commitments to or conducted
negotiations with any labour union or employee association with
respect to any future agreement and the Company is not aware of any
current attempts to organize or establish any labour union or
employee association nor is there any certification of any such
union with regard to a bargaining unit;
(xxx) there has not been and there is not currently any material
disagreements or other difficulties with any of the Company's
employees which is adversely affecting or could reasonably adversely
affect, in a material manner, the carrying on of the Company's
business; and
(xxxi) the Company has established a comprehensive plan which includes
appropriate contingency measures and has taken all commercially
reasonable steps to ensure that the Company's business, systems,
processes, products and services to the extent that they are in the
Company's control will operate, in all material respects, prior to,
during and after the calendar year 2000 without any change in
operations associated with the advent of the new century, and all
components of same will function, both separately and as a whole in
conjunction with each other, without material error or delay
resulting from the advent of the new century and in substantially
the same manner before, during and after January 1, 2000; provided,
however, that the Company makes no representation and warranty in
respect of the year 2000 compliance of any third party products,
equipment, services or facilities which interconnect with or which
are used in combination with the Company's systems and software and
that the Company makes no representation and warranty in respect of
the whether or not the Company's systems and software are year 2000
compliant except as specifically set out in this paragraph.
9. SPECIAL WARRANT CLOSING DELIVERIES. The purchase and sale of the Special
Warrants shall be completed at the Closing Time at the offices of Osler, Hoskin
& Harcourt, Toronto, or at such other place as the Agents and the Company may
agree upon. At or prior to the Closing Time, the Company shall duly and validly
deliver to the Agents certificates in definitive form representing Special
Warrants registered in the names of such Purchasers or as indicated on their
respective Subscription Agreements, against payment at the direction of the
Company, to the
<PAGE> 18
- 18 -
Company or as it may otherwise direct, of the subscription price therefor in
lawful money of Canada by certified cheque or banker's draft payable at par in
the City of Toronto. In full satisfaction of the Agents' obligations in
respect of the aggregate subscription price for the Special Warrants and the
Company's obligations in respect of the Commission and the costs and expenses
of the Agents and their counsel as of the Closing Date, upon the mutual
agreement of the Company and the Agents, the Agents may deliver certified
cheques or banker's drafts in the amount of such aggregate subscription price
less such Commission and costs and expenses (together with the Agents' receipt
therefor) against delivery of the certificates in definitive form representing
the Special Warrants and receipts of the Company for the aggregate subscription
price for the Special Warrants.
10. SPECIAL WARRANT CLOSING CONDITIONS. Each Purchaser's obligation to purchase
the Special Warrants at the Closing Time shall be conditional upon the
fulfilment at or before the Closing Time of the following conditions:
(a) the Agents shall have received a certificate, dated as of the Closing
Date, signed by the Chief Executive Officer (or such other officer of the
Company as the Agents may agree), certifying for and on behalf of the
Company, to the best of the knowledge, information and belief of the
persons so signing, that:
(i) since March 31, 1999 (A) there has been no material adverse
change (actual, anticipated, contemplated or threatened, whether
financial or otherwise) in the business, affairs, operations,
assets, liabilities (contingent or otherwise) or capital of the
Company; and (B) no transaction has been entered into by the Company
which is or would be material to the Company on a consolidated
basis, or which is other than in the ordinary course of business,
except as has been disclosed to the Agents;
(ii) the Company has duly complied with all the terms, covenants
and conditions of this Agreement on its part to be complied with up
to the Closing Time;
(iii) the representations and warranties of the Company contained
in this Agreement are true and correct as of the Closing Time with
the same force and effect as if made at and as of the Closing Time
after giving effect to the transactions contemplated by this
Agreement; and
(v) such other matters as the Agents may reasonably request;
(b) the Agents shall have received at the Closing Time certificates dated the
Closing Date, signed by appropriate officers of the Company and addressed
to the Agents and their counsel, with respect to the articles and by-laws
of the Company, all resolutions of the Company's board of directors
relating to this Agreement, the Subscription Agreements, the Special
Warrant Indenture, the Special Warrants and the transactions contemplated
hereby and thereby, the incumbency and specimen signatures of signing
officers, and such other matters as the Agents may reasonably request;
<PAGE> 19
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(c) the Special Warrant Indenture, the Subscription Agreements and the
certificates representing the Special Warrants shall have been executed
and delivered by the parties thereto in form and substance satisfactory to
the Agents and their counsel, acting reasonably;
(d) the Agents shall have received favourable legal opinions addressed to the
Agents and counsel to the Agents, in form and substance satisfactory to
the Agents' counsel, dated the Closing Date, from Osler, Hoskin &
Harcourt, Toronto, counsel for the Company as to the laws of Canada and
the Qualifying Provinces, which counsel in turn may rely upon the opinions
of local counsel where they deem such reliance proper as to the laws other
than those of Canada and the Province of Ontario and, as to matters of
fact, on certificates of auditors, public officials and officers of the
Company, with respect to the following matters:
(i) as to the incorporation and subsistence of the Company under
the laws of its jurisdiction of incorporation;
(ii) as to the authorized and issued capital of the Company;
(iii) there are no restrictions on the Company's corporate power and
authority under the laws of its jurisdiction of incorporation
to carry on business, to own its properties and to carry out
its obligations and the transactions contemplated by this
Agreement, the Rights Agreement, the Subscription Agreements
and the Special Warrant Indenture and to issue the Special
Warrants and the Underlying Shares issuable upon exercise of
the Special Warrants;
(iv) none of the execution and delivery of this Agreement, the
Rights Agreement, the Subscription Agreements and the Special
Warrant Indenture, the performance by the Company of its
obligations hereunder and thereunder, the creation, sale or
issuance of the Special Warrants or the issuance of the
Underlying Shares upon the exercise of the Special Warrants,
will conflict with or result in any breach of the constating
documents or by-laws of the Company or the Shareholders
Agreement;
(v) each of this Agreement, the Rights Agreement, the Subscription
Agreements, the Special Warrants and the Special Warrant
Indenture has been duly authorized by the Company and duly
executed by the Company and constitutes a valid and legally
binding agreement of the Company enforceable against it in
accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, liquidation, reorganization,
moratorium or similar laws affecting the rights of creditors
generally and except as limited by the application of equitable
principles when equitable remedies are sought, and the
qualification that the
<PAGE> 20
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enforceability of rights of indemnity, contribution and
waiver and the ability to sever unenforceable terms, may be
limited by applicable law;
(vi) the Underlying Shares have been authorized for
issuance to the holders of the Special Warrants, and, upon the
exercise thereof in accordance with the provisions of the
Special Warrant Indenture, such Underlying Shares will be
validly issued as fully paid and non-assessable;
(vii) the Special Warrants (A) have been validly
created and issued by the Company; (B) have been duly executed
and delivered by the Company; and (C) are valid, legal and
binding obligations of the Company enforceable in accordance
with their terms subject to qualifications as in subclause (v)
above;
(viii) the issuance and sale of the Special Warrants by the Company
to the Purchasers is exempt from the prospectus requirements
of Canadian Securities Laws of the Qualifying Provinces and no
documents are required to be filed (other than specified forms
accompanied by requisite filing fees), proceedings taken or
approvals, permits, consents or authorizations obtained under
the Canadian Securities Laws of any of the Qualifying
Provinces to permit such issuance and sale and the issuance of
the Underlying Shares upon the exercise of the Special
Warrants are exempt from the prospectus and registration
requirements of Canadian Securities Laws of any of the
Qualifying Provinces, subject to certain provisos and
specified resale restrictions and the first trade of such
Underlying Shares in such Qualifying Provinces will be a
distribution subject to the registration and prospectus
requirements of the applicable Canadian Securities Laws unless
otherwise exempted under such Canadian Securities Laws and
specified resale restrictions;
(ix) upon the filing of the Final Prospectus and the
issuance of receipts therefor under Canadian Securities Laws,
(A) all legal requirements will have been fulfilled by the
Company under the Canadian Securities Laws to qualify, without
resort to the prospectus exemption provisions of such
applicable Canadian Securities Laws, the distribution of the
Underlying Shares in each of the Qualifying Provinces upon the
exercise of the Special Warrants; (B) the issuance of the
Underlying Shares in the Qualifying Provinces by the Company,
upon such exercise of the Special Warrants, will be exempt
from the registration requirements of such applicable Canadian
Securities Laws subject to certain provisos; and (C) the
Underlying Shares will not be subject to any statutory hold
period and no other documents will be required to be filed,
proceedings taken, or approvals, permits, consents, or
authorizations obtained under the Canadian Securities Laws to
permit the trading of such Underlying Shares in the Qualifying
Provinces, through registrants registered under
<PAGE> 21
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applicable laws who have complied with such applicable
Canadian Securities Laws or in circumstances in which there
is an exemption from the registration requirements of such
applicable Canadian Securities Laws, subject to usual
exceptions;
(x) The Trust Company of Bank of Montreal has been
duly appointed by the Company as warrant agent in respect of
the Special Warrants; and
(xi) such other matters as the Agents or their counsel
may reasonably request;
(e) the Agents shall have received a favourable United States legal opinion
to be delivered by United States counsel to the Company, addressed to the
Agents and the Company; and
(f) the Agents shall have received certificates of status or similar
certificates with respect to each jurisdiction in which the Company is
required to be licensed to carry on a material part of its business.
11. RIGHTS OF TERMINATION
(a) LITIGATION. If any enquiry, action, suit, investigation or other
proceeding whether formal or informal is instituted or threatened or any order
is made by any federal, provincial or other governmental authority in relation
to a material portion of the business and affairs of the Company or any of the
officers or directors of the Company or any of its principal shareholders,
except for any such enquiry, action, suit, investigation or other proceeding
based upon the activities or the alleged activities of the Agents and not the
Company, which, in the reasonable opinion of the Agents or either of them,
operates to prevent or materially restrict the distribution or trading of the
Special Warrants or the Underlying Shares, any of the Agents shall be entitled,
at its option and in accordance with subparagraph 11(f) of this Agreement, to
terminate its obligations under this Agreement (and the obligations of the
Purchasers arranged by it to purchase Special Warrants) by notice to that
effect given to the Company any time prior to the Closing Time.
(b) DISASTER OUT CLAUSE. In the event that prior to the Closing Time
there should develop, occur or come into effect any occurrence of national or
international consequence or any event, action, condition, law, governmental
regulation, inquiry or other occurrence of any nature whatsoever which, in the
reasonable opinion of any of the Agents, materially adversely affects or
involves, or will materially adversely affect or involve, the Canadian
financial markets or the business, operations or affairs of the Company on a
consolidated basis, any of the Agents shall be entitled at its option, in
accordance with subparagraph 11(f) of this Agreement, to terminate its
obligations under this Agreement (and the obligations of the Purchasers
arranged by it to purchase Special Warrants) by written notice to that effect
given to the Company prior to the Closing Time.
(c) MARKET OUT CLAUSE. If, prior to the Closing Time, the state of the
financial markets becomes such that the Special Warrants cannot, in the
reasonable opinion of the Agents,
<PAGE> 22
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be profitably marketed, the Agents shall be entitled at their option, in
accordance with subparagraph 11(f) of this Agreement, to terminate their
obligations under this Agreement (and the obligations of the Purchasers
arranged by them to purchase Special Warrants) by written notice to that effect
given to the Company prior to the Closing Time.
(d) CHANGE IN MATERIAL FACT. In the event that prior to the Closing Time
there should occur any material change, there should be discovered any
previously undisclosed material fact, or there should occur a change in any
material fact such as is contemplated by subparagraph 7(a), which results or,
in the reasonable opinion of any of the Agents, could reasonably be expected to
result, in the Purchasers of a material number of Special Warrants exercising
their contractual right of rescission granted to the Purchasers in respect of
the Special Warrants or the rights of rescission or damages under section 130
of the Securities Act (Ontario) or the corresponding provisions of applicable
securities legislation in the other Qualifying Provinces or, in the reasonable
opinion of any of the Agents, has or could reasonably be expected to have a
material adverse effect on the market price or value of the Special Warrants or
the Underlying Shares, any of the Agents shall be entitled, at its option, in
accordance with subparagraph 11(f), to terminate its obligations under this
Agreement (and the obligations of the Purchasers arranged by it to purchase
Special Warrants) by written notice to that effect given to the Company prior
to the Closing Time.
(e) NON-COMPLIANCE WITH CONDITIONS. The Company agrees that all terms and
condition in this Agreement shall be construed as conditions and complied with
so far as the same relate to acts to be performed or caused to be performed by
the Company, that it will use its commercially reasonable best efforts (or all
commercially reasonable efforts, as applicable) to cause such conditions to be
complied with, and any material breach or failure by the Company to comply with
any of such conditions shall entitle the Agents, or any of them, at their
option in accordance with subparagraph 11(f), to terminate their obligations
under this Agreement (and the obligations of the Purchasers arranged by them to
purchase Special Warrants) by notice to that effect given to the Company at or
prior to the Closing Time. The Agents may waive, in whole or in part, or
extend the time for compliance with, any terms and conditions without prejudice
to their rights in respect of any other of such terms and conditions or any
other or subsequent breach or non-compliance, provided that any such waiver or
extension shall be binding upon the Agents only if the same is in writing and
signed by all of the Agents.
(f) EXERCISE OF TERMINATION RIGHTS. The rights of termination contained in
subparagraphs 11(a), (b), (c), (d) and (e) may be exercised by any of the
Agents and are in addition to any other rights or remedies the Agents or any of
them may have in respect of any default, act or failure to act or
non-compliance by the Company in respect of any of the matters contemplated by
this Agreement or otherwise. In the event of any such termination, there shall
be no further liability on the part of the Agents to the Company or on the part
of the Company to the Agents except in respect of any liability which may have
arisen or may arise after such termination in respect of acts or omissions
prior to such termination under paragraphs 12, 14 and 15. A notice of
termination given by an Agent under subparagraphs 11(a), (b), (c), (d) and (e)
shall not be binding upon the other Agents.
<PAGE> 23
- 23 -
12. EXPENSES. Whether or not the sale of the Special Warrants or the issuance
of the Underlying Shares upon exchange of such Special Warrants shall be
completed, all reasonable expenses of or incidental to the issue and delivery
of such Special Warrants and Underlying Shares and/or incidental to all matters
in connection with the transactions herein set out shall be borne by the
Company including, without limitation, expenses in connection with the issuance
and sale of the Special Warrants, all private placement fees required under
Canadian Securities Laws, the qualification of the Underlying Shares for
distribution to the public, the fees and expenses of counsel to the Company and
all local counsel selected by the Company, the reasonable fees and expenses of
counsel to the Agents (plus reasonable disbursements and applicable GST), the
fees and expenses of the Special Warrant Agent, all reasonable out-of-pocket
expenses of the Agents, and all costs incurred in connection with the
preparation and printing of the Preliminary Prospectus, the Final Prospectus
and any Supplementary Material. All reasonable fees and expenses incurred by
the Agents or on their behalf shall be payable by the Company immediately upon
receiving an invoice therefor from the Agents, and shall be payable whether or
not the offering of Special Warrants contemplated by this Agreement is
completed. Such fees and expenses, both actual and estimated, will be deducted
from the gross proceeds otherwise payable to the Company at the Special Warrant
Closing.
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All warranties,
representations, covenants and agreements herein contained or contained in any
documents submitted pursuant to this Agreement and in connection with the
transactions herein contemplated shall survive the purchase and sale of the
Special Warrants and the exchange of such Special Warrants for the Underlying
Shares by the Purchasers and continue in full force and effect for the benefit
of the Agents, Purchasers and the Company for a period of three years from the
Closing Date and shall not be limited or prejudiced by any investigation made
by or on behalf of the Agents or the Company in connection with the purchase
and sale of the Special Warrants or the preparation of the Preliminary
Prospectus, the Final Prospectus or otherwise.
14. (a) INDEMNITY. The Company shall indemnify and save harmless each of the
Agents and each of their directors, officers, employees and agents from and
against all liabilities, claims, actions, suits, proceedings, losses (other
than loss of profits), costs, damages and expenses in any way caused by, or
arising directly or indirectly from, or in consequence of:
(i) any misrepresentation or alleged misrepresentation (as such
term is defined in the Securities Act (Ontario)) of the Company
contained herein or in any material change report or public document
filed or issued by the Company or on its behalf prior to the date of
the Final Prospectus;
(ii) any information or statement (except any information or
statement relating solely to the Agents) contained in the Prospectus
or any Supplementary Material or in any certificate of the Company
delivered under this Agreement or pursuant to this Agreement which
at the time and in the light of the circumstances under which it was
made contains or is alleged to contain a misrepresentation of the
Company;
<PAGE> 24
- 24 -
(iii) any omission or alleged omission of the Company to state in
the Prospectus, any Supplementary Material or any certificate of the
Company delivered under this Agreement or pursuant to this Agreement
any fact (except facts relating solely to the Agents), whether
material or not, required to be stated in such document or necessary
to make any statement in such document not misleading in light of
the circumstances under which it was made;
(iv) any order made or enquiry, investigation or proceedings
commenced or threatened by any securities commission or other
competent authority based upon any untrue statement or omission of
the Company or alleged untrue statement or alleged omission of the
Company or any misrepresentation or alleged misrepresentation of the
Company (except a statement or omission or alleged statement or
omission relating solely to the Agents) in the Prospectus or any
Supplementary Material or based upon any failure to comply with
Canadian Securities Laws (other than any failure or alleged failure
to comply by the Agents), preventing or restricting the trading in
or the sale or distribution of the Special Warrants or the
Underlying Shares in any of the Qualifying Provinces; or
(v) the non-compliance or alleged non-compliance by the Company
with any of the Canadian Securities Laws, including the Company's
non-compliance with any statutory requirement to make any document
available for inspection.
(b) NOTIFICATION OF CLAIMS. If any matter or thing contemplated by this
paragraph (any such matter or thing being referred to as a "Claim") is asserted
against any person or company in respect of which indemnification is or might
reasonably be considered to be provided, such person or company (the
"Indemnified Party") will notify the Company as soon as possible of the nature
of such Claim and the Company shall be entitled (but not required) to assume
the defence of any suit brought to enforce such Claim; provided, however, that
the defence shall be conducted through legal counsel acceptable to the
Indemnified Party acting reasonably and that no settlement of any such Claim
may be made by the Company or the Indemnified Party without the prior written
consent of the other party.
(c) RIGHT OF INDEMNITY IN FAVOUR OF OTHERS. With respect to any
Indemnified Party who is not a party to this Agreement, the Agents shall obtain
and hold the rights and benefits of this paragraph and paragraph 15 in trust
for and on behalf of such Indemnified Party.
(d) RETAINING COUNSEL. In any such Claim, the Indemnified Party shall
have the right to retain other counsel to act on his or its behalf and to
participate in the defence thereof, provided that the fees and disbursements of
such counsel shall be paid by the Indemnified Party unless: (i) the Company and
the Indemnified Party shall have mutually agreed to the retention of the other
counsel; (ii) the Company fails to assume the defence of such Claim on behalf
of the Indemnified Party within ten days of receiving notice of such Claim; or
(iii) the named parties to any such Claim (including any added third party)
include both the Indemnified Party and the Company and the Indemnified Party
shall have been advised by counsel that representation of the Indemnified Party
by counsel for the Company is inappropriate as a result of potential or actual
<PAGE> 25
- 25 -
differing interests of those represented; in each of which cases the Company
shall not have the right to assume the defence of such Claim on behalf of the
Indemnified Party but the Company shall be liable to pay the reasonable fees
and disbursements of counsel to the Indemnified Party, provided that in no
event shall the Company be responsible for the fees and expenses of more than
two separate legal counsel in respect of all Indemnified Parties.
(e) EXCEPTIONS TO INDEMNITY. The rights of indemnity contained in this
paragraph shall not enure to the benefit of the Agents if the Company has
complied with the provisions of paragraph 7 hereof and the person asserting any
Claim contemplated by this paragraph was not provided with a copy of any
Supplemental Material or other document which corrects any untrue statement or
omission or alleged omission which is the basis of such Claim and which is
required, under applicable Canadian Securities Laws, to be delivered to such
person by the Agents.
15. (a) CONTRIBUTION. In order to provide for a just and equitable
contribution in circumstances in which the indemnity provided in paragraph 14
would otherwise be available in accordance with its terms but is, for any
reason, held to be unavailable to or unenforceable by the Agents or enforceable
otherwise than in accordance with its terms, subject to the restrictions and
limitations referred to herein, the Company and the Agents shall severally
contribute to the aggregate of all claims, expenses, costs and liabilities and
all losses (other than loss of profits) of a nature contemplated in paragraph
14 in such proportions so that the Agents are responsible for the portion
represented by the percentage that the aggregate fee payable by the Company to
the Agents bears to the aggregate offering price of the Special Warrants and
the Company is responsible for the balance, whether or not they have been sued
together or sued separately. The Agents shall not in any event be liable to
contribute, in the aggregate, any amounts in excess of such aggregate fee or
any portion of such fee actually received. However, no party who has engaged in
any fraud, fraudulent misrepresentation or gross negligence shall be entitled
to claim contribution from any person who has not engaged in such fraud,
fraudulent misrepresentation or gross negligence.
(b) ADMISSION OF LIABILITY. No admission of liability shall be made by an
Indemnified Party without the consent of the Company and it shall not be made
liable for any settlement of any Claim made without its consent.
(c) RIGHT OF CONTRIBUTION IN ADDITION TO OTHER RIGHTS. The rights to
contribution provided in this paragraph 15 shall be in addition to and not in
derogation of any other right to contribution which the Agents may have by
statute or otherwise at law.
(d) CALCULATION OF CONTRIBUTION. In the event that the Company may be
held to be entitled to contribution from the Agents under the provisions of any
statute or at law, the Company shall be limited to contribution in an amount
not exceeding the lesser of:
(i) the portion of the full amount of the loss or liability
giving rise to such contribution for which the Agents are
responsible, as determined in subparagraph 15(a) above; and
<PAGE> 26
- 26 -
(ii) the amount of the aggregate fee actually received by the
Agents from the Company under this Agreement.
(e) NOTICE. If the Agents have reason to believe that a claim for
contribution may arise, they shall give the Company notice of such claim in
writing, as soon as reasonably possible, but failure to notify the Company
shall not relieve the Company of any obligation which it may have to the Agents
under this paragraph.
16. AGENTS' OBLIGATIONS. The Agents' obligations under this Agreement shall be
several and not joint, and the Agents' respective obligations and rights and
benefits hereunder shall be as to the following percentage:
<TABLE>
<S> <C> <C>
GMP - 70 %
FM - 15 %
CS - 15 %
</TABLE>
In the event that any of the Agents shall fail to purchase or arrange for the
purchase of the number of Special Warrants allocated to such Agent hereunder,
the other Agents shall have the right but shall not be obligated to purchase or
arrange for the purchase of all of such Special Warrants which would otherwise
have been allocated to the Agent in default. In the event that one but not all
of the Agents shall exercise its rights of termination under paragraph 11, the
other Agents shall have the right, but shall not be obligated, to purchase or
arrange for the purchase of all of the percentage of the Special Warrants which
would otherwise have been allocated to the Agent which has so exercised its
rights of termination.
17. AGENTS' AUTHORITY. The Company shall be entitled to and shall act on any
notice, request, direction, consent, waiver, extension and other communication
given or agreement entered into by or on behalf of the Agents by GMP who shall
represent the Agents and have authority to bind the Agents hereunder except in
respect of a notice of termination pursuant to paragraph 11, indemnity
provisions in paragraph 14, contribution provisions in paragraph 15.
18. ADVERTISEMENTS. The Company acknowledges that the Agents shall have the
right, subject always to clauses 1(a) and (c) and paragraph 8 of this
Agreement, at their own expense, to place such advertisement or advertisements
relating to the sale of the Special Warrants or the Underlying Shares
contemplated herein as the Agents may consider desirable or appropriate and as
may be permitted by applicable laws. The Company and the Agents each agree
that they will not make or publish any advertisement in any media whatsoever
relating to, or otherwise publicize, the transaction provided for herein so as
to result in any exemption from the prospectus and registration requirements of
Canadian securities laws being unavailable in respect of the sale of the
Special Warrants to prospective Purchasers.
19. CONTRACTUAL RIGHT OF ACTION FOR RESCISSION. As part of the Subscription
Agreements, the Company has delivered, and shall be deemed to have delivered,
to the Purchasers (including
<PAGE> 27
- 27 -
the Agents) contractual rights of action for rescission at the Special Warrant
Closing Time or subsequent thereto.
20. UNITED STATES OFFERS AND SALES. (a) As used in this paragraph 20, the
following terms shall have the meanings indicated:
(i) "Accredited Investor" means an accredited investor as that term is
defined in Rule 501(a) of Regulation D;
(ii) "Directed Selling Efforts" means directed selling efforts as that
term is defined in Regulation S. Without limiting the foregoing, but
for greater clarity herein, it means, subject to the exclusions from
the definition of directed selling efforts contained in Regulation S,
any activity undertaken for the purpose of, or that could reasonably
be expected to have the effect of, conditioning the market in the
United States for any of the Special Warrants or the Underlying
Shares and includes the placement of any advertisement in a
publication with a general circulation in the United States that
refers to the offering of the Special Warrants or the Underlying
Shares;
(iii) "Regulation D" means Regulation D adopted by the SEC under the 1933
Act;
(iv) "Regulation S" means Regulation S adopted by the SEC under the 1933
Act;
(v) "SEC" means the United States Securities and Exchange Commission;
(vi) "Substantial U.S. Market Interest" means substantial U.S. market
interest as that term is defined in Regulation S;
(vii) "U.S. Exchange Act" means the United States Securities Exchange Act
of 1934, as amended;
(viii) "U.S. Person" means a U.S. person as that term is defined in
Regulation S;
(ix) "U.S. Securities Act" means the United States Securities Act of 1933,
as amended; and
(x) "United States" means the United States of America, its territories
and possessions, any state of the United States, and the District of
Columbia.
(b) REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE AGENT. The Agents
acknowledge that the Special Warrants and the Underlying Shares have not been
registered under the U.S. Securities Act and may be offered and sold only in
transactions exempt from or not subject to the registration requirements of the
U.S. Securities Act. Accordingly, each of the Agents represents, warrants and
covenants to the Company that:
<PAGE> 28
- 28 -
(i) it has not offered and sold, and will not offer and sell, any
Special Warrants except (A) in an offshore transaction in accordance
with Rule 903 of Regulation S or (B) within the United States as
provided in subparagraphs (ii) through (viii) below. Accordingly,
neither the Agents, their affiliates nor any persons acting on their
behalf, has made or will make (except as permitted in subparagraphs
(ii) through (viii) below) (a) any offer to sell or any solicitation
of an offer to buy, any Special Warrants to any U.S. Person or any
person in the United States, (b) any sale of Special Warrants to any
purchaser unless, at the time the buy order was or will have been
originated, the purchaser was outside the United States, or such
Agent, affiliate or person acting on behalf of either reasonably
believed that such purchaser was outside the United States, or (c)
any Directed Selling Efforts in the United States with respect to
the Special Warrants. Terms used in this subparagraph have the
meanings given to them by Regulation S;
(ii) it has not entered and will not enter into any contractual
arrangement with respect to the distribution of the Special
Warrants, except with its affiliates, any selling group members or
with the prior written consent of the Company. It shall require
each selling group member to agree, for the benefit of the Company,
to comply with, and shall use its best efforts to ensure that each
selling group member complies with, the same provisions of this
paragraph 20 as apply to such Agent as if such provisions applied to
such selling group member;
(iii) all offers and sales of Special Warrants in the United
States shall be made through the Agents' U.S. registered
broker-dealer affiliates in compliance with all applicable U.S.
broker-dealer requirements;
(iv) offers and sales of Special Warrants in the United States
shall not be made (A) by any form of general solicitation or general
advertising (as those terms are used in Regulation D), including
advertisements, articles, notices or other communications published
in any newspaper, magazine, or similar media or broadcast over radio
or television, or any seminar or meeting whose attendees had been
invited by general solicitation or general advertising or (B) in any
manner involving a public offering within the meaning of Section
4(2) of the U.S. Securities Act;
(v) any offer, sale or solicitation of an offer to buy Special
Warrants that has been made or will be made in the United States was
or will be made only to Accredited Investors that are exempt, or in
transactions that are exempt, from registration under applicable
state securities laws;
(vi) the Agents, acting through their U.S. broker-dealer
affiliates, may offer the Special Warrants in the United States only
to offerees with respect to which such Agents have a pre-existing
relationship and have reasonable grounds to believe are Accredited
Investors;
<PAGE> 29
- 29 -
(vii) prior to completion of any sale of Special Warrants pursuant
to this Section 20, each U.S. purchaser will be required to execute
a Subscription Agreement for U.S. Purchasers and an Investors'
Questionnaire in the form attached hereto as Schedule "C";
(viii) at least one business day prior to the Closing Time, it will
provide the Warrant Agent with a list of all purchasers of the
Special Warrants in the United States; and
(ix) at Closing, the Agents together with their U.S. affiliates
selling Special Warrants in the United States, will provide a
certificate, substantially in the form of Schedule "B" hereto,
relating to the manner of the offer and sale of the Special Warrants
in the United States.
(c) REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company
represents, warrants, covenants and agrees that:
(i) the Company is a "foreign issuer" with the meaning of
Regulation S and reasonably believes that there is no Substantial
U.S. Market Interest in the Special Warrants or the Underlying
Shares;
(ii) the Company is not, and as a result of the sale of the
Special Warrants contemplated hereby will not be, an "investment
company" as defined in the United States Investment Company Act of
1940, as amended;
(iii) except with respect to offers and sales to Accredited
Investors within the United States in reliance upon any exemption
from registration under Section 4(2) of the U.S. Securities Act,
neither the Company nor any of its affiliates, nor any person acting
on its behalf, has made or will make: (A) any offer to sell, or any
solicitation of an offer to buy, any Special Warrants to a U.S.
Person or a person in the United States; or (B) any sale of Special
Warrants unless, at the time the buy order was or will have been
originated, the purchaser is (i) outside the United States or (ii)
the Company, its affiliates, and any person acting on their behalf
reasonably believes that the purchaser is outside the United States;
(iv) during the period in which the Special Warrants are offered
for sale, neither it nor any of its affiliates, nor any person
acting on its or their behalf (i) has made or will make any Directed
Selling Efforts in the United States, or (ii) has engaged in or will
engage in any form of general solicitation or general advertising
(as those terms are used in Regulation D) with respect to offers or
sales of the Special Warrants in the United States, including
advertisements, articles, notices or other communications published
in any newspaper, magazine or similar media, or broadcast over
radio, or television, or any seminar or meeting whose attendees have
been invited by general solicitation or general advertising; and
<PAGE> 30
- 30 -
(v) except with respect to the offer and sale of the Special
Warrants offered hereby and offers and sales of shares of the
Company pursuant to the Company's employee benefit plans, the
Company has not, for a period of six months prior to the date hereof
sold, offered for sale or solicited any offer to buy any of its
securities in the United States.
21. NOTICES. Unless otherwise expressly provided in this Agreement, any notice
or other communication to be given under this Agreement (a "notice") shall be
in writing addressed as follows:
If to the Company, to it at:
40 West Wilmot Street
Richmond Hill, Ontario
L4B 1H8
Attention: John Foresi, President, Chief Executive Officer
Telecopier: (905) 764-7445
with a copy to:
Osler, Hoskin & Harcourt
P.O. Box 50
1 First Canadian Place
Toronto, Ontario
M5X 1B8
Attention: Richard J. Nathan
Telecopier: (416) 862-6666
If to Griffiths McBurney & Partners, to it at:
145 King Street West
Suite 1100
Toronto, Ontario
M5H 1J8
Attention: Rob Fraser
Telecopier: (416) 943-6160
<PAGE> 31
- 31 -
If to First Marathon Securities Limited, to it at:
Exchange Tower
130 King Street West
Suite 3200
Toronto, Ontario
M5X 1J9
Attention: Owen Mitchell
Telecopier: (416) 869-6411
If to Charles Schwab Canada Co., to it at:
79 Wellington Street West
Suite 1207, P.O. Box 183
Aetna Tower, TD Centre
Toronto, Ontario
M5K 1H6
Attention: Charles Taerk
Telecopier: (416) 361-1099
With a copy to:
Wildeboer Rand Thomson Apps & Dellelce
1 First Canadian Place
Suite 810
Toronto, Ontario
M5X 1A9
Attention: Robert P. Wildeboer
Telecopier: (416) 361-1790
or to such other address as any of the parties may designate by notice given to
the others.
Each notice shall be personally delivered to the addressee or sent by telex or
facsimile transmission to the addressee and (i) a notice which is personally
delivered shall, if delivered on a Business Day, be deemed to be given and
received on that day and, in any other case, be deemed to be given and received
on the first Business Day following the day on which it is delivered; and (ii)
a notice which is sent by telex or facsimile transmission shall be deemed to be
given and received on the first Business Day following the day on which it is
sent.
22. TIME OF THE ESSENCE. Time shall, in all respects, be of the essence hereof.
<PAGE> 32
- 32 -
23. CANADIAN DOLLARS. All references herein to dollar amounts are to lawful
money of Canada.
24. HEADINGS. The headings contained herein are for convenience only and shall
not affect the meaning or interpretation hereof.
25. SINGULAR AND PLURAL, ETC. Where the context so requires, words importing
the singular number include the plural and vice versa, and words importing
gender shall include the masculine, feminine and neuter genders.
26. ENTIRE AGREEMENT. This Agreement constitutes the only agreement between the
parties with respect to the subject matter hereof and shall supersede any and
all prior negotiations and understandings, including the letter agreements
dated January 6, 1999 and January 14, 1999 between the Company and GMP. This
Agreement may be amended or modified in any respect by written instrument only.
27. SEVERABILITY. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect or limit the validity or
enforceability of the remaining provisions of this Agreement.
28. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
29. SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement shall be
binding upon and enure to the benefit of the Company, the Agents and the
Purchasers and their respective successors and permitted assigns; provided
that, except as provided herein or in the Subscription Agreements, this
Agreement shall not be assignable by any party without the written consent of
the others.
30. FURTHER ASSURANCES. Each of the parties hereto shall do or cause to be done
all such acts and things and shall execute or cause to be executed all such
documents, agreements and other instruments as may reasonably be necessary or
desirable for the purpose of carrying out the provisions and intent of this
Agreement.
31. EFFECTIVE DATE. This Agreement is intended to and shall take effect as of
the date first set forth above, notwithstanding its actual date of execution or
delivery.
32. COUNTERPARTS AND FACSIMILE EXECUTION. This Agreement may be executed in any
number of counterparts, which taken together shall form one and the same
agreement, and may be executed and delivered by telecopier or facsimile
transmission, which shall be binding on the parties as though originally
executed and delivered.
33. ENGLISH LANGUAGE. The parties hereby acknowledge that they have consented
and requested that all documents evidencing or relating in any way to the sale
of the Special Warrants be drawn up in the English language only.
<PAGE> 33
- 33 -
Nous, soussignes, reconnaissons par les presentes avoir consenti et
demande que tous les documents faisant foi ou se rapportant de quelque maniere
a la vente de ces bons de souscription achets soient redigis en anglais
seulement.
<PAGE> 34
- 34 -
If the Company is in agreement with the foregoing terms and conditions, please
so indicate by executing a copy of this letter where indicated below and
delivering the same to Griffiths McBurney & Partners on behalf of the Agents.
Yours very truly,
GRIFFITHS MCBURNEY & PARTNERS
Per: "Daniel Bruno"
Authorized Signing Officer
FIRST MARATHON SECURITIES LIMITED
Per: "Owen Mitchell"
Authorized Signing Officer
CHARLES SCHWAB CANADA CO.
Per: "Charles Taerk"
Authorized Signing Officer
The foregoing is hereby accepted on the terms and conditions therein set forth.
DATED effective as of the date and year first above written.
DELANO TECHNOLOGY CORPORATION.
Per: "David Latner"
David Latner,
Secretary
<PAGE> 35
- 35 -
SCHEDULE "A"
Outstanding options, warrants and other convertible securities of the Company.
The existing shareholders of the Company have certain pre-emptive rights
pursuant to the Shareholders Agreement (as such term is defined herein).
Options have been granted by the Company since April 30, 1999 but have not yet
been ratified by the Board of Directors of the Company.
John Foresi currently possesses a warrant to acquire 263,000 Common Shares of
the Company.
Albert Amato and Ian Giffen are directors of the Company and are also option
holders. David Latner is an officer of the Company and also holds options.
Bahman Koohestani, John Foresi and Tony Davis currently have employment
agreements with the Company.
<PAGE> 36
SCHEDULE "B"
AGENTS' CERTIFICATE
In connection with the private placement in the United States of the Special
Warrants (the "Special Warrants") of Delano Technology Corporation (the
"Company") pursuant to the Agency Agreement, dated June 24, 1999 (the "Agency
Agreement"), among the Company and Griffiths McBurney & Partners, First
Marathon Securities Limited and Charles Schwab Canada Co. (collectively, the
"Agents" and each an "Agent"), the undersigned does hereby certify as follows:
(i) each U.S. affiliate of each Agent who offered or sold Special Warrants in
the United States is a duly registered broker or dealer with the United States
Securities and Exchange Commission and is a member of and in good standing with
the National Association of Securities Dealers, Inc. on the date hereof;
(ii) immediately prior to offering Special Warrants to such offerees, we had
reasonable grounds to believe and did believe that each offeree was an
"accredited investor" as defined in Rule 501(a)of Regulation D (an "Accredited
Investor") under the Securities Act of 1933, as amended (the "1933 Act"), and,
on the date hereof, we continue to believe that each U.S. person purchasing
Special Warrants is an Accredited Investor;
(iii) no form of general solicitation or general advertising (as those terms
are used in Regulation D under the 1933 Act) was used by us, including
advertisements, articles, notices or other communications published in any
newspaper, magazine or similar media or broadcast over radio or television, or
any seminar or meeting whose attendees had been invited by general solicitation
or general advertising, in connection with the offer or sale of the Special
Warrants in the United States;
(iv) the offering of the Special Warrants in the United States has been
conducted by us through our U.S. affiliate in accordance with the terms of the
Agency Agreement; and
(v) prior to any sale of Special Warrants in the United States pursuant to
Section 4(2), we caused each U.S. purchaser to execute a Subscription Agreement
and an Investor Questionnaire in the form attached as Schedule "C" to the
Agency Agreement.
Terms used in this certificate have the meanings given to them in the
Agency Agreement unless otherwise defined herein.
Dated this __ day of June, 1999.
GRIFFITHS MCBURNEY & PARTNERS
on behalf of the Agents and their U.S.
affiliates
Per:__________________________________
Authorized Signing Officer
<PAGE> 37
- 1 -
SCHEDULE "C"
INVESTOR QUESTIONNAIRE
(ALL INFORMATION HEREIN WILL BE TREATED
CONFIDENTIALLY)
TO: DELANO TECHNOLOGY CORPORATION
Re: PRIVATE PLACEMENT OF SPECIAL WARRANTS
Ladies and Gentlemen:
The information in this questionnaire is being furnished to Delano
Technology Corporation (the "Company") to enable the Company to determine
whether the undersigned's Subscription Agreement to purchase Special Warrants
(the "Special Warrants") of the Company, may be accepted in light of the
requirements of the United States Securities Act of 1933 (the "Act"),
Regulation D promulgated thereunder, any applicable state securities law and
the suitability requirements for an investment in Special Warrants that the
Company has established. The undersigned understands that (a) the Company will
rely on the information contained herein for purposes of such determination,
(b) the Special Warrants will not be registered under the Act in reliance upon
an exemption from registration afforded by the Act and Regulation D, and (c)
this questionnaire is not an offer of Special Warrants or any other securities
to the undersigned.
In accordance with the foregoing, the undersigned makes the
following representations:
REPRESENTATION NO. 1
I am willing and able to bear the economic risk of
an investment in the Special Warrants in an amount equal to
the amount I have subscribed to purchase. In making this
statement, I have considered whether I could afford to hold
the Special Warrants for an indefinite period and whether, at
this time, I could afford a complete loss of my investment in
the Special Warrants.
<PAGE> 38
- 2 -
REPRESENTATION NO. 2
Except as indicated below, the purchase of Special Warrants will be
solely for the account of the undersigned and not for the account
of any other person.
State "No Exceptions" or set forth exceptions and give complete
details. Attach additional pages if necessary.
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
REPRESENTATION NO. 3
The undersigned represents to you that it (please initial the
applicable alternative in the box provided) is an Accredited
Investor (as that term is defined in Rule 501 of Regulation D under
the Act), as evidenced by meeting at least one of the following
standards:
[ ] (i) I am an individual and had income in excess of
$200,000 in the last two prior years and
reasonably expect to have income in excess of
$200,000 in the current year or along with my
spouse we had income in excess of $300,000 for
the last two prior years and reasonably expect to
have income in excess of $300,000 in the current
year. For purposes of this Questionnaire,
"Income" is my adjusted gross income as
determined for Federal income tax purposes (not
including my spouse's income unless she is a
co-purchaser), plus any deductions for long-term
capital gains under Section 1202 of the Internal
Revenue Code (the "Code"), any deduction for
depletion under Section 611 and related sections
of the Code, any exclusion for interest under
Section 103 of the Code or any partnership losses
allocated to me on Schedule E of Form 1040;
[ ] (ii) I am an individual and my net worth (i.e., excess
of total assets over total liabilities), either
individually or together with my spouse, is at
least $1,000,000.
[ ] (iii) I am an individual and a director or executive
officer of the Company;
<PAGE> 39
- 3 -
[ ] (iv) the undersigned is a corporation, a partnership,
a limited liability company, a Massachusetts or
similar business trust or an organization
described in Section 501(c)(3) of the Code; and
the undersigned has total assets in excess of
$5,000,000 and was not formed for the specific
purpose of acquiring the Special Warrants;
[ ] (v) the undersigned is a trust, not formed for the
specific purpose of acquiring the securities
offered, with total assets in excess of
$5,000,000 and whose purchase is directed by a
sophisticated person as described in Rule
506(b)(2)(ii) under the Act; or
[ ] (vi) the undersigned is an entity in which all of the
equity owners meet the standards set forth in
either of the immediately preceding
subparagraphs. (Please have each equity owner
(or, in the case of a trust, each income
beneficiary) complete this Questionnaire.).
REPRESENTATION NO. 4
I represent to you that (a) the information contained herein is
complete and accurate and may be relied upon by you and (b) I will
notify you immediately of any material change in any of such
information occurring prior to the date of the effectiveness of the
purchase of Special Warrants by me.
<PAGE> 40
- 4 -
INFORMATION REQUIRED OF EACH PROSPECTIVE INVESTOR
1. Name:______________________ Birth Date:________________
2. Permanent Residence Address (other than Post Office Box),
including Telephone Number:_____________________________
________________________________________________________
________________________________________________________
3. Name of Current business, Business Address and Telephone
Number:
________________________________________________________
________________________________________________________
________________________________________________________
Type of Current Business:_______________________________
________________________________________________________
Position and Number of Years Employed in Position:______
________________________________________________________
________________________________________________________
________________________________________________________
4. Name and Type of Business of Employer(s) during Past Five
Years and Dates of Employment:__________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
Position(s) Held during the Past Five Years at Above-named
Employers:______________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
Responsibilities Involved in Above-named Positions:_____
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
<PAGE> 41
- 5 -
5. Send correspondence to: Home:______________________________
Office:__________________________________________________
Other:___________________________________________________
Account Numbers
6. Bank:________________________ Checking:____________
Telephone Number:_____________ Savings:_____________
Address:______________________ Other:_______________
Person Familiar with your Account:___________________________
Bank:________________________ Checking:____________
Telephone Number:_____________ Savings:_____________
Address:______________________ Other:_______________
Person Familiar with your Account:___________________________
It is understood and agreed that verification of bank reference(s)
can and may be conducted.
<PAGE> 42
- 6 -
7. Business or Professional Education and the Degrees Received
are as follows:
Year
School Degree Received
_________________________ __________________ _________
_________________________ __________________ _________
_________________________ __________________ _________
_________________________ __________________ _________
8. Please provide the following information regarding actual or
projected gross income (check one category for each year):
Individual [ ] Joint Income With Spouse [ ]
<TABLE>
<S> <C> <C> <C> <C>
Gross Income 1996 1997 1998 1999
------------ ------- ------- ------- -------
Under $80,000 [ ] [ ] [ ] [ ]
$80,000-$100,000 [ ] [ ] [ ] [ ]
$100,000-$125,000 [ ] [ ] [ ] [ ]
$125,000-$150,000 [ ] [ ] [ ] [ ]
$150,000-$200,000 [ ] [ ] [ ] [ ]
$200,000-$225,000 [ ] [ ] [ ] [ ]
$225,000-$250,000 [ ] [ ] [ ] [ ]
$250,000-$300,000 [ ] [ ] [ ] [ ]
$300,000-over [ ] [ ] [ ] [ ]
</TABLE>
<PAGE> 43
- 7 -
9. Please provide the following information regarding actual or
projected taxable income (check one category for each year):
Individual [ ] Joint Income with Spouse [ ]
<TABLE>
<S> <C> <C> <C> <C>
Taxable Income 1996 1997 1998 1999
-------------- ------- ------- ------- -------
Under $80,000 [ ] [ ] [ ] [ ]
$80,000-$100,000 [ ] [ ] [ ] [ ]
$100,000-$125,000 [ ] [ ] [ ] [ ]
$125,000-$150,000 [ ] [ ] [ ] [ ]
$150,000-$200,000 [ ] [ ] [ ] [ ]
$200,000-$225,000 [ ] [ ] [ ] [ ]
$225,000-$250,000 [ ] [ ] [ ] [ ]
$250,000-$300,000 [ ] [ ] [ ] [ ]
$300,000-over [ ] [ ] [ ] [ ]
</TABLE>
10. Please provide the approximate percentage of your current
income by source:
<TABLE>
<S> <C>
Salary _______%
Bonus and Commissions _______%
Dividends and Interest _______%
Real Estate Income _______%
Other Income _______%
100%
</TABLE>
<PAGE> 44
- 8 -
11. Please provide the following information about securities
held.
Securities (Stocks and Bonds)
<TABLE>
<S> <C> <C> <C> <C>
Number of Shares or Name of Market Amount(1)
Bonds Security Cost Value Unpaid
___________ ____________________ $_____ $_____ $________
___________ ____________________ _____ _____ ________
___________ ____________________ _____ _____ ________
___________ ____________________ _____ _____ ________
___________ ____________________ _____ _____ ________
___________ ____________________ _____ _____ ________
Total $_____ $________
Less Amount Unpaid ($_____ )
Net Investment in Securities $
</TABLE>
- -----------------------
(1) That portion of the securities' cost which has not been paid; e.g., if
100 shares were purchased at $10 cost on a 40% margin, $400 is the amount
unpaid.
<PAGE> 45
\
- 9 -
Real Estate (excluding home)
<TABLE>
<S> <C> <C> <C> <C> <C>
Description Cost and Year
and Location Title Holder Purchased Market Value Mortgage Mortgage Holder
________________ ______ ________ $_____ $_______ ________
________________ ______ ________ _____ _______ ________
________________ ______ ________ _____ _______ ________
________________ ______ ________ _____ _______ ________
________________ ______ ________ _____ _______ ________
________________ ______ ________ _____ _______ ________
Total $_____ $__________________
Less Mortgages ($_____)
Less Mortgages ($_____)
Net Investment in Real Estate $
=
</TABLE>
<PAGE> 46
- 10 -
Notes Payable by the undersigned (including obligations in connection with
tax sheltered investments).
<TABLE>
<S> <C> <C>
Date Due Amount Due
(including due dates of any (including amounts of any
Holder of Note installment payments) installment payments)
____________________ ____________________ $___________________
____________________ ____________________ ___________________
____________________ ____________________ ___________________
____________________ ____________________ ___________________
____________________ ____________________ ___________________
____________________ ____________________ ___________________
Total: $___________________
</TABLE>
Other than those encumbrances indicated in the balance sheet below and
supporting schedules, have you pledged, assigned, hypothecated, mortgaged, or
transferred as collateral or otherwise, any assets?
Yes [ ] No [ ]
If yes, please provide details:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________
<PAGE> 47
- 11 -
12. The following information must be fully completed. Please
provide the following information (if married couples are the
investors include assets and liabilities of both):
Date of Balance Sheet:___________________________________
<TABLE>
<S> <C> <C> <C>
ASSETS LIABILITIES
Cash on Hand and in Notes Payable to
Banks: $__________ Banks-Secured: ____________
Net Investment in Notes Payable to
Securities: __________ Banks-Unsecured: ____________
Investment in Own
Company at Fair
Market Value: __________ Notes Payable to Others: ____________
Pension and Profit
Sharing (vested
portion) __________ Other Current Liabilities: ____________
Home Mortgage Payable
Net Investment in (Original Mortgage Balance:
Real Estate: __________ $_______) ____________
Market Value of Home
(Original Cost of
Home plus cost of
improvements): __________ Other Long-Term Liabilities: ____________
Personal Property: __________ TOTAL LIABILITIES: $___________
TOTAL WORTH:
Cash Value in Life (Total Assets minus Total
Insurance: __________ Liabilities): $___________
Accounts and Notes
Receivable: __________
Other Assets: __________
TOTAL ASSETS $__________
</TABLE>
<PAGE> 48
- 12 -
13. Are there any significant contingent liabilities (e.g.,
guarantees, pending law suits) for which you may be obligated? Yes
_________ No __________ If yes, please indicate type and amount.
14. Have you ever been subject to bankruptcy, reorganization or
debt restructuring? Yes _________ No __________ If yes, please
provide complete details.
<PAGE> 49
- 13 -
IN WITNESS WHEREOF, I have executed this Investor Questionnaire this
_______ day of ____________, 199___ and declare that it is truthful and
correct.
(Check One)
<TABLE>
<S> <C> <C>
_______ Individually ___________________________
Signature of Prospective Investor
Joint tenants with
_______ right of survivorship
Tenants in common ___________________________
_______ PRINT Investor Name
_______ In partnership*
As custodian, Trustee
or agent for
_______ _____________** ___________________________
Title, if corporation or trust
_______ Corporation***
_________________________
Signature of Prospective Co-Investor
__________________________
PRINT Co-Investor Name
__________________________
Title, if corporation or trust
</TABLE>
* If a partnership, please include a copy of partnership
agreement and certificate authorizing investment.
** If a custodian, trustee or agent, please include trust,
agency or other agreement and certificate authorizing
investment.
<PAGE> 50
- 14 -
*** If a corporation, please include certified corporate resolution or
other document authorizing investment, certificate of incumbency of
officers and certified or audited financial statements for the
preceding three fiscal years.
<PAGE> 1
EXHIBIT 10.3
CONFIDENTIAL
PROFESSIONAL SERVICES AGREEMENT
This PROFESSIONAL SERVICES AGREEMENT (the "Agreement") is made this 1(st)
day of June 1999 between PROTEGE SOFTWARE LIMITED, whose principal place of
business is Kinetic Centre, Theobald Street, Borehamwood, Hertfordshire WD6 4PJ
(the "Contractor") and DELANO TECHNOLOGY CORPORATION 40 West Wilmot Street,
Richmond Hill, Ontario, L4B 1H8, Canada, (the "Client Company") who agree as
follows:
1. TERM
The term of this Agreement shall begin on the date set out above (the
"Effective Date") and shall end when this Agreement is terminated in
accordance with Clause 7.
2. PROFESSIONAL SERVICES
(a) The Contractor agrees to act as General Manager for the Client Company
and to perform the professional services specified in Schedule A, as
modified from time to time by mutual agreement of the parties (the
"Professional Services").
(b) The Contractor shall in all cases act in a professional manner and
shall perform the Professional Services in a manner which conforms to
the standards, specifications and other reasonable requirements agreed
between the parties.
(c) The Contractor agrees to submit monthly progress reports to the Client
Company.
(d) The Contractor shall report to John Foresi or, in his absence, Deric
Moilliet, who shall act as the authorised liaison point on behalf of
the Client Company.
(e) The Contractor shall be entitled to attend such executive meetings of
the Client Company as the Client Company CEO deems appropriate,
(telephonically at the expense of the Client Company, or in person at
the expense of Contractor, unless Client Company CEO has specifically
required the Contractor to attend in person).
3. CONTRACTOR'S REWARD
The Client Company shall reward the Contractor for performing the
Professional Services in accordance with the provisions of Schedule B.
4. FINANCING OF SUBSIDIARY
The Client Company shall transfer in cleared funds to the Subsidiary (as
defined in Schedule A) or (as the case may be) any Other Entities (as
defined in Schedule A) within seven (7) days after the end of each calendar
month an amount equal to one hundred per cent (100%) of all costs
reasonably incurred by the Subsidiary and such Other Entities, which have
either been approved by the Client Company within the agreed Contractor
Business Plan (as defined below) or otherwise agreed to by the Client
Company and in accordance with procedures approved by Client Company CEO or
CFO. The Client Company can alter the Contractor Business Plan after
consultation with the Contractor and after reasonable notice. The
Contractor will keep records of, and receipts for, all costs incurred by
the Subsidiary and such Other Entities and will provide copies of such
records to the Client Company upon reasonable request.
<PAGE> 2
5. PROPRIETARY INFORMATION
(a) The Client Company acknowledges that any business plan and related
documentation which it receives from the Contractor as part of the
Professional Services ("Contractor Business Plan") will be based on
Proprietary Information (defined below) of the Contractor and may also
include Proprietary Information provided by the Client Company. The
Client Company undertakes not to use or disclose the Proprietary
Information in the Contractor Business Plan save as expressly
permitted by the Contractor or by this section 5. The Client Company
also acknowledges that the Contractor may use or disclose any
materials or techniques included in the Contractor Business Plan
(other than Proprietary Information provided by, or created by
Contractor specifically for, the Client Company), without reference to
the Client Company.
(b) Each party acknowledges that it may be furnished with or may otherwise
receive or have access to confidential or proprietary information
which belongs to or relates to the other party's business, including
(without limitation) past, present or future business plans, marketing
plans, products, software, research, development, inventions,
processes, techniques, design or other technical information and data
(the "Proprietary Information"). Each party further acknowledges that
all intellectual property rights residing in the other party's
Proprietary Information are and will remain the exclusive property of
the other party.
(c) Each party agrees to preserve and protect the confidentiality of the
other party's Proprietary Information and all forms thereof, whether
disclosed to it before this Agreement is signed or afterwards. In
addition, each party agrees that it shall not disclose or disseminate
the other party's Proprietary Information to any third party and shall
not use such Proprietary Information for its own benefit or for the
benefit of any third party (other than in furtherance of the goals of
the party to whom the Proprietary Information belongs or relates).
(d) The foregoing obligations shall not apply to any information which the
recipient can prove:
(i) is previously publicly known at the time of receipt from the
other party or which subsequently becomes publicly known through
no act or fault of the recipient;
(ii) was given to it by a third party not under any obligation to
maintain its confidentiality; or
(iii) was independently developed by it without resort to the
Proprietary Information of the other party.
(e) Within 30 days after the termination of this Agreement or such other
period as the parties may agree, each party shall return to the other
all materials embodying the Proprietary Information of the other in
its possession or control (including in the case of the Client
Company, the Contractor Business Plan) and shall confirm that all
copies of such materials have been permanently deleted from its
computer systems.
(f) Contractor shall not compete against Client Company, nor shall it act
on behalf of a direct competitor of Client Company, listed in Schedule
D from time to time, during the term, and for 6 months thereafter.
Client Company may at its discretion, but only acting reasonably and
in good faith, add additional names to Schedule D. Contractor agrees
to act reasonably and in good faith not to pursue any potential client
which it believes is a direct competitor of Client Company, and to
consult with Client Company in situations where it is in doubt.
(g) This Clause 5 shall survive the termination of the Agreement.
6. WARRANTIES AND COVENANTS
(a) The Contractor warrants and covenants that:
(i) it is able to perform the Professional Services specified in
Schedule A, and that doing so will not breach any other
obligation by which it is bound, legislative, contractual, in
tort or otherwise;
<PAGE> 3
(ii) it shall not infringe any intellectual property right, or trade
secret of any third party in the performance of its obligations
hereunder;
(iii) any information or materials it discloses to the Client Company
shall not in any way be based upon any confidential or
proprietary information derived from any source other than the
Contractor or the Client Company, unless the Contractor is
specifically authorised in writing by such source to use such
proprietary information;
(iv) if the Client Company incurs any liability or expense as a
result of any warranty which the Contractor makes in this
Agreement not being true, the Contractor shall indemnify the
Client Company and hold it harmless against all such liability
or expense, including reasonable attorney/solicitor fees,
provided that the Client Company notifies the Contractor of the
claim and co-operates with the Contractor in defending it
against the claim. Each party shall notify the other if it ever
becomes aware of any such claim; and
(v) it shall perform the Professional Services in a professional
manner.
(b) The Client Company warrants and covenants that:
(i) it is entitled to appoint the Contractor to perform the
Professional Services in the Territory (as defined in Schedule
C);
(ii) any information or materials it discloses to the Contractor
shall not in any way be based upon any confidential or
proprietary information derived from any source other than the
Contractor or the Client Company, unless the Client Company is
specifically authorised in writing by such source to use such
proprietary information;
(iii) it will not infringe any intellectual property right or trade
secret of any third party in the performance of its obligations
or the provision of information to the Contractor hereunder;
(iv) if the Contractor incurs any liability or expense as a result of
any warranty which the Client Company makes in this Agreement
not being true, the Client Company shall indemnify the
Contractor and hold it harmless against all such liability or
expense, including reasonable attorney/solicitor fees, provided
that the Contractor notifies the Client Company of the claim and
co-operates with the Client Company in defending it against the
claim. Each party shall notify the other if it ever becomes
aware of any such claim; and
(v) it will sell its products and services in the Territory only
through the Subsidiary, except for sales leads primarily
generated and developed outside the Territory.
(c) The Client Company undertakes with the Contractor that:
(i) it will provide prompt and clear instructions to the Contractor
in response to prompt and clear requests for information or
instruction from the Contractor in relation to the Professional
Services;
(ii) it shall procure that the Subsidiary and all Other Entities meet
in full all their debts as they fall due and the Client Company
acknowledges that any failure to do so will adversely affect the
goodwill of the Contractor;
(iii) other than claims arising out of the negligence or misconduct of
the Contractor, it will indemnify the Contractor and hold it
harmless against any liability or expense suffered or incurred
by the Contractor, including reasonable attorney/solicitor fees,
as a result of any claim against the Contractor that any product
supplied by the Subsidiary, any Other Entity or the Client
Company infringes the intellectual property rights or trade
secrets of any third party or suffers from a design or
manufacturing defect or is defective, dangerous or otherwise
faulty;
(iv) other than claims arising out of the negligence or misconduct of
the Contractor, it will indemnify the Contractor (for itself and
on behalf of its employees) and hold it harmless
<PAGE> 4
against any liability or expense suffered or incurred by the
Contractor or any of its employees, including reasonable
attorney/solicitor fees, in respect of the debts or liabilities
of the Client Company or any of its subsidiaries or associated
companies, including the Subsidiary and any Other Entities;
(v) it shall procure that the Subsidiary will obtain Directors'
Liability Insurance commensurate with the Directors' Liability
Insurance provided to directors of its other wholly owned
subsidiaries, as soon as practicable after the Subsidiary has
been incorporated.
(vi) it shall procure that a minimum of LS50,000 will be retained in
the Subsidiary's UK bank account and that L87,500 will be
transferred to the Subsidiary's UK bank account immediately
following execution by the Client Company of this Agreement, and
thereafter that the Subsidiary be funded in accordance with
reasonable commercial practice.
7. TERMINATION AND RENEWAL
(a) The initial term of this Agreement shall be for an 18 month period
from the Effective Date (the "Initial Term").
(b) This Agreement shall automatically continue, following the expiry of
the Initial Term, for subsequent periods of 12 months each ("Renewal
Terms"), unless terminated as set out below.
(c) This Agreement may be terminated by either party, as follows:
(i) without cause, on giving 3 months' written notice to the other,
such notice:
(aa) to expire at the end of the Initial Term; or
(bb) to expire at the end of any Renewal Term
(ii) during the Initial Term or any Renewal Term, if the other party
has committed any material breach of the terms of this
Agreement, in which case the following provisions shall apply:
(aa) if such breach is incapable of being cured, then the
non-defaulting party shall be entitled to terminate this
Agreement forthwith by giving written notice to that effect
to the other party;
(bb) if such breach is capable of being cured, the
non-defaulting party shall give to the other written notice
of the event or circumstances representing such breach
together with a demand that such breach be cured
immediately; and
(cc) if the breach has not been cured (or other arrangements
satisfactory to the non-defaulting party have not been
agreed to) within 30 days from the date of the notice
delivered under paragraph (bb) above, then the
non-defaulting party shall be entitled to terminate this
Agreement forthwith by giving to the other a second written
notice to that effect.
(d) This Agreement may be terminated by the Contractor with immediate
effect and on written notice, if proceedings are commenced for the
liquidation or winding up of the Client Company or the Subsidiary.
(e) This Agreement may be terminated by the Client Company with immediate
effect and on written notice, if proceedings are commenced for the
liquidation or winding up of the Contractor.
(f) This Agreement may be terminated by the Contractor on giving 3 months'
notice if a third party obtains control of the Client Company (and for
these purposes, control of the Client Company means the holding of
shares conferring in aggregate 50% or more of the total voting rights
conferred by all the shares in the capital of the Client Company for
the time being in issue and conferring the right to vote on all
resolutions passed at all general meetings).
<PAGE> 5
(g) This Agreement may be terminated by the Client Company on giving 3
months' notice if a third party obtains control of the Contractor (and
for these purposes, control of the Contractor means the holding of
shares conferring in aggregate 50% or more of the total voting rights
conferred by all the shares in the capital of the Contractor for the
time being in issue and conferring the right to vote on all
resolutions passed at all general meetings).
(h) Termination of this Agreement pursuant to this Clause 7 shall be
without prejudice to the accrued rights and remedies of either party
prior to such termination, including by way of example, but without
limitation, the Contractor's rights to payments in accordance with
Schedule B.
8. SET OFF
Where the Client Company, the Subsidiary or any Other Entity owes any sums
to the Contractor, or vice -- versa, whether contractual or non-contractual
and whether liquidated or unliquidated, the party owed shall have the right
to set-off any amounts in its possession or control payable to the
other(s), against the sums which are owed to the setting off party.
9. LIMITATION OF LIABILITY
REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN FAILS OF ITS ESSENTIAL
PURPOSE, IN NO EVENT WILL EITHER PARTY OR ANY MEMBER OF THE GROUP, OR
LICENSORS TO IT OF ANY THIRD PARTY SOFTWARE OR DATA EMBEDDED IN THE DELANO
SYSTEM, BE LIABLE TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT OR
SIMILAR DAMAGES, INCLUDING ANY LOST PROFITS OR LOST DATA ARISING OUT OF THE
USE OR INABILITY TO USE THE SYSTEM, EVEN IF THE CLAIMED AGAINST PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SOME JURISDICTIONS DO NOT
ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR
CONSEQUENTIAL DAMAGES SO THE ABOVE LIMITATION OR EXCLUSION MAY NOT APPLY.
IN NO CASE SHALL A PARTY'S LIABILITY EXCEED US$100,000.
10. MISCELLANEOUS
(a) The laws of Ontario and Canada shall govern this Agreement (excepting
their choice of law provisions) and the parties hereby submit to the
exclusive jurisdiction of the Ontario courts, in Toronto.
(b) This Agreement, including the Schedules attached hereto, comprises the
entire agreement between the parties. Any amendment to this Agreement
must be made in writing and signed by both the Client Company and the
Contractor.
(c) If any provision of this Agreement shall be deemed by a court to be
too broad, the court is hereby authorised to limit any scope, duration
or area of applicability, or all of them, so such provision is no
longer overly broad and to enforce the same as so limited. Subject to
the prior sentence, if any part of this Agreement is held
unenforceable for any reason, such unenforceability shall void only
such part and shall not render unenforceable any other part of this
Agreement.
(d) Either party's waiver of a default by the other does not constitute a
waiver of future or other defaults.
(e) Neither party shall, save with the consent of the other party (which
such consent shall, in the case of the Contractor, in respect of the
general manager (GM) employed by the Contractor to manage the
Subsidiary and Other Entities be given on the terms set out below),
during the term of this Agreement or for a period of 12 months after
its termination, hire or solicit for employment or for the provision
of services, any employee of the other party, or any employee of any
member of the other party's Group.
<PAGE> 6
The Client Company shall not, save with the consent of the Contractor
during the term of this Agreement or for a period of 12 months after
its termination, hire or solicit for employment or for the provision
of services, any employee of the Contractor's customers who are bound
by a reciprocal clause in favour of Client Company and its Subsidiary.
The Client Company shall not without the express written consent of
the Contractor commence dialogue with or initiate solicitation of the
GM in any form whether verbally, electronically or in writing
regarding the engagement of the GM for employment or for the provision
of services. If after such consent has been given by the Contractor in
accordance with this clause and if the Client Company or any member of
its Group does engage the GM for employment or for the provision of
services, the Client Company pays to the Contractor upon the
commencement of such engagement a sum equal to the guaranteed minimum
pre-tax salary and bonus (excluding options) which the Client Company
or any member of its Group has agreed to pay to the GM during the
first year of the GM's engagement with the Client Company or any
member of its Group. The provisions of this clause 10(e) shall survive
termination of this Agreement.
(f) The Contractor shall not assign its rights or obligations under this
Agreement unless it first obtains the prior written agreement of the
Client Company.
(g) Any notice or other communication required or permitted to be given by
this Agreement shall be in writing and shall be effectively given if
delivered personally, by facsimile confirmed received, or by
registered mail to the relevant party at its address set out below.
Dated at this day of 1999
- ---------------------------------------------------------
duly authorised for and on behalf of
DELANO TECHNOLOGY CORPORATION
40 West Wilmot Street,
Richmond Hill, Ontario, L4B 1H8, Canada
Dated at this day of 1999
- ---------------------------------------------------------
duly authorised for and on behalf of
PROTEGE SOFTWARE LIMITED
of Kinetic Centre, Theobald Street,
Borehamwood, Hertfordshire WD6 4PJ
<PAGE> 7
SCHEDULE A
WORK ASSIGNMENT
During the term of this Agreement, the Contractor shall perform the
following professional services in the Territory.
A. CLIENT COMPANY SUBSIDIARY
The Contractor shall:
(a) incorporate, or otherwise set up, a wholly owned subsidiary of the
Client Company (subject to local approval) to be called (the
"Subsidiary");
(b) incorporate, or otherwise set up, such other corporations or entities
as the Client Company and Contractor agree to establish in the
Territory from time to time ("Other Entities").
B. ANALYSIS, RECOMMENDATIONS AND IMPLEMENTATION
The Contractor shall carry out analysis and make recommendations relating
to:
- marketing positioning
- presentation
- technical support
- competitiveness
- localisation
The Contractor shall implement its approved recommendations for:
- sales
- marketing
- technical support
- production
- finance and administration
all for operations in the Territory, as more particularly set out in the
annual business plans (including budgets) of the Client Company, as such
plans and budgets relate to its operations implemented directly or through
the Subsidiary and/or Other Entities.
The business plan and budgets shall be mutually agreed by the Contractor
and Client Company.
C. SCOPE OF ACTIVITIES
The establishment of an organisation for the Territory, to complement the
current resources, technology and economic considerations of the Client Company,
and the circumstances that prevail in the Territory, so that through the
Subsidiary and Other Entities, the Client Company may professionally provide the
following:
(a) solicitation of sales orders generating Net Revenue;
(b) provision of support for the Client Company's distributors and dealers
in the Territory;
(c) co-ordination of product and warranty service between the Subsidiary
and such other affiliated or third party, arms length corporations or
entities, and licensees and distributors/VARs etc. of the Client
Company's products (including Other Entities), located in the
Territory;
(d) provision of product technical support services;
<PAGE> 8
(e) the conducting of periodic training courses and seminars regarding
applications and operations of the products in major marketing centres
located in the Territory for the benefit of distributors and dealers
etc.;
(f) development of business plans for the Territory;
(g) management and co-ordination of the implementation of the Client
Company's marketing strategy in the Territory (for the products of the
Client Company handled by the Contractor);
(h) localisation of products;
(i) set up of systems (such as accounting, legal and human resources
consistent with those set-up by the Client Company) and for these
purposes the Contractor shall assist the Subsidiary (and other related
entities as agreed at the Client Company's request) with
implementation and administration of all general, administrative and
financial systems as requested by the Client Company; and
(j) administration of the "Market Development Fund" specified in the
budget approved by the Client Company related to customers in the
Territory (for products of the Client Company).
D. SOLICITATION OF CONTRACTS
(a) The Subsidiary and any Other Entities shall solicit orders for product
only at such current prices as may be periodically established in
writing by the Client Company and notified to the Contractor.
(b) All orders solicited by the Subsidiary or Other Entities from
customers in the Territory are subject to acceptance or rejection
based on agreed authorisation procedures.
(c) The Contractor agrees to despatch all inquiries received by it,
applicable to the Client Company or the products of the Client
Company, from points or sources outside the Territory promptly to the
Client Company for attention and handling.
(d) All invoices in connection with sales to customers in the Territory
shall be rendered by the Subsidiary or (as the case may be) Other
Entities to such customers. It is expressly understood that full power
by and such authority for all collections rests with the Subsidiary or
(as the case may be) Other Entities and the Client Company, which
exercise complete control over the approval of all customers' credit,
orders, and contracts. The Contractor agrees to protect the Subsidiary
or (as the case may be) Other Entities and the Client Company, as far
as is reasonable, by reporting adverse credit information of which it
is aware with respect to customers of the Subsidiary or (as the case
may be) Other Entities in the Territory.
<PAGE> 9
SCHEDULE B
CONTRACTOR'S REWARD
1. GENERAL
Without prejudice to either party's liabilities to the other for all sums
payable pursuant to this Agreement, the Contractor shall be entitled to
invoice the Subsidiary or (as the case may be) Other Entities in respect of
any sums payable by the Client Company to the Contractor pursuant to this
Agreement and to deduct such sums from any funds held by the Subsidiary or
(as the case may be) Other Entities in satisfaction of such invoices.
All sums due to the Contractor from the Client Company pursuant to this
Agreement shall be paid in UK pounds sterling and all sums payable to the
Contractor by the Client Company pursuant to this Agreement are quoted
(unless the contrary is stated) exclusive of VAT.
2. NET REVENUE
In this Schedule, Net Revenue means:
(a) invoiced gross revenue of the Subsidiary and Other Entities from sales
and/or licenses of product and services in the Territory (net of
returns, allowances, credits, discounts (based on volume or otherwise)
and net of actual bad debts and net of fees generated in connection
with Mark VII); and
(b) 15% of invoiced gross revenue of the Client Company and any other
member of its Group (other than the Subsidiary and Other Entities)
from sales and/or licences of products and services within the
territory (net of returns, allowances, credits, discounts (based on
volume or otherwise) and net of actual bad debts).
In all cases invoiced gross revenue means the value of invoices without
reduction for any deferred revenue which may not be treated as recognisable
income by the Client Company or the Subsidiary.
3. MANAGEMENT FEE
The Client Company shall pay the Contractor a management fee of L125,000
per annum. The management fee shall be payable quarterly in advance, the
first such instalment being due on the Effective Date, with each subsequent
instalment being due quarterly thereafter.
4. PROTEGE FINANCIAL SERVICES FEE
The Client Company shall pay to the Contractor a fee, calculated as set out
below, for the provision and/or co-ordination of Financial Services
functions (the "Financial Services Fee"). Such Financial Services functions
shall provide back office administration services, including, but not
necessarily limited to:
(a) ensuring that the Subsidiary and any Other Entities are properly
incorporated;
(b) providing persons to act as directors, company secretary and (if
required) other officers of the Subsidiary and any Other Entities;
(c) providing and/or co-ordinating facilities management, banking
facilities, VAT management, accounts receivable, accounts payable and
cash management, purchase orders, all financial reporting (including
integration with the Client Company's financial systems), Government
reporting requirements, payroll functions, income tax reporting and
tax returns for the Subsidiary and any Other Entities; and
(d) providing day-to-day Human Resources management in connection with the
hiring and personnel management requirements of the Subsidiary and any
Other Entities.
<PAGE> 10
The Financial Services Fee will be charged at the rate of L5,500 per month
until the Subsidiary and Other Entities are employing 5 staff. Once the
number of employees has reached 5 the Financial Services Fee shall be
increased to L6,000 per month to reflect the increased Human Resources
management costs. An additional Financial Services Fee of L1,750 per month
shall be charged for each additional country in the Territory (other than
the United Kingdom) in which the Client Company instructs the Contractor to
establish an office or Other Entity. The Financial Services Fee will be
invoiced on the last day of each calendar month and shall be payable seven
days thereafter.
5. CORPORATE BONUS
(a) The Contractor shall be entitled to an annual corporate bonus from the
Client Company (the "Corporate Bonus"), calculated and payable in
accordance with the following provisions of this paragraph 5.
(b) Subject to paragraphs (c), (d) and (e), the Corporate Bonus shall be
the sum which is 15 per cent. of Net Revenue during:
(i) the 12 month period from the Effective Date until the first
anniversary of the Effective Date (the "First Period");
(ii) the 6 month period from the end of the first Period (the "Second
Period") and
(iii) each 12 month period from the end of the Second Period until the
next anniversary thereof (the subsequent "Periods"),
and the Corporate Bonus shall be invoiced at the end of each Period in
arrears and paid by the Client Company 60 days after the end of each
relevant Period. The Client Company hereby agrees to notify the
Contractor of any dispute in the amount invoiced within a reasonable
period of time.
The Contractor shall have the option of converting part or all the
Corporate Bonus in respect of the First Period into shares of common
stock in the Client Company and up to 50% of the Corporate Bonus in
respect of the Second Period into shares of common stock in the Client
Company on the conditions set out below. The Contractor shall notify
the Client Company of its intention to exercise this option when the
Corporate Bonus is due to be paid.
-- If the Contractor decides to have part or all of the Corporate
Bonus for the First Period converted into shares of common stock,
the amount of the Corporate Bonus for the First Period satisfied in
this way shall be established by the Client Company's Series C
round of financing of US$3.55 per share provided that the number of
shares issued by the Client Company to the Contractor in respect of
the First Period shall not exceed a maximum of 100,000 shares of
common stock.
If the Contractor decides to have part or all of the Corporate Bonus
for the Second Period converted into shares of common stock, the
amount of the Corporate Bonus for the Second Period satisfied in this
way shall be established by the Client Company's then most recent
round of financing if it is private (and a round of financing has
occurred subsequent to the June, 1999 round), the then current fair
market value strike price for options being granted to employees (if
no round of financing has occurred subsequent to the June, 1999
round), or the average trading price for the Client Company shares for
the ten trading days prior to June 1, 2000, provided that the number
of shares issued by the Client Company to the Contractor in respect of
the Second Period shall not exceed a maximum of 50,000 shares of
common stock in respect of each period and that a maximum of 50% of
the total Corporate Bonus for the Second Period may be so converted.
If the length of any Period is less than 12 months in the case of the
First Period, or 6 months in the case of the Second Period, then the
maximum number of shares that can be issued under this clause shall be
reduced proportionately.
There shall be no additional conversion rights.
<PAGE> 11
(c) If, prior to the end of any Period, this Agreement is terminated
pursuant to Clause 7 "Termination and Renewal", in such case a
"triggering event", then the Contractor shall be entitled (but not
obliged) to require the Corporate Bonus to be calculated and paid by
the Client Company within 60 days after the triggering event. In such
circumstances, the Corporate Bonus shall be the sum which is 15 per
cent. of Average Net Revenue.
Average Net Revenue shall be the product of:
(i) calculating the average Net Revenue for each completed calendar
month between the start of the relevant Period and the date of
the triggering event (the "Monthly Average"); and
(ii) multiplying the Monthly Average by twelve.
(d) If:
(i) Net Revenue during any Period amounts to less than 10 per cent.
of World-wide Revenue during that Period; or
(ii) (in the circumstances specified in paragraph 5(c) above),
Average Net Revenue calculated for the purposes of any
incomplete Period amounts to less than 10 per cent. of
World-wide Revenue (such World-wide Revenue to be calculated in
the same way, mutatis mutandis, as Average Net Revenue for that
incomplete Period), then the Bonus for that Period or incomplete
Period (as the case may be) shall be reduced proportionately.
For example, if Net Revenue during any Period amounts to 8 per
cent. of World-wide Revenue during that Period, then the
percentage of Net Revenue which is payable as the Bonus shall be
reduced as follows:
15 - ((2)/(10) x 15)
(e) If:
(i) Net Revenue during any Period amounts to more than 25 per cent.
of World-wide Revenue during that Period; or
(ii) (in the circumstances specified in paragraph 5(c) above),
Average Net Revenue calculated for the purposes of any
incomplete Period amounts to more than 25 per cent. of
World-wide Revenue (such World-wide Revenue to be calculated in
the same way, mutatis mutandis, as Average Net Revenue for that
incomplete Period),
then the Bonus for that Period or incomplete Period (as the case
may be) shall be increased proportionately.
For example, if Net Revenue during the relevant Period amounts
to 30 per cent. of World-wide Revenue during that Period, then
the percentage of Net Revenue which is payable as the Bonus
shall be increased as follows:
15 + ((5)/(25) x 15)
6. TRANSITION, CHANGE OF CONTROL OR CLOSURE OF THE SUBSIDIARY
The Contractor shall be entitled to a fee of L8,000 on completion of the
Initial Term if this Agreement is not renewed by Client Company (or at the
end of a Renewal Term if this Agreement is not further renewed by Client
Company). This fee shall be for the provision of the Financial Services
support in the transition of the Subsidiary and any Other Entities from the
Contractor to a stand-alone basis. The services included in this fee
include the hand-over of accounting information to the new management of
the Subsidiary and the management of employment issues such as relocation
of staff to new premises. In addition, the Contractor shall liase with the
Subsidiary's (and any Other Entities) recruitment agents for the employment
of administrative staff for the Subsidiary. This fee is not payable in the
event of termination by Client Company of the Agreement for cause.
<PAGE> 12
In the event of the closure of the Subsidiary (or any Other Entity) during
the term or any renewal term, the Contractor shall be entitled to a fee of
L12,000, payable immediately. This fee is for the provision of Financial
Services support in order to ensure an orderly closure of the Subsidiary
(and any Other Entity) including the dismissal of the Subsidiary's
employees.
In the event of a change of control of the Client Company the Contractor
shall be entitled to a fee of L12,000, payable immediately. This fee is for
the provision of Financial Services support in connection with the change
of control, including the provision of additional accounting information
and dealing with any changes to employees' contracts of employment. For
these purposes, control of the Client Company means the holding of shares
by a third party or group acting in concert, conferring in the aggregate
50% or more of the total voting rights conferred by all the shares in the
capital of the Client Company for the time being in issue and conferring
the right to vote on all resolutions passed at all general meetings.
7. SHARE OPTIONS
(a) The GM shall be entitled to an additional incentive from the Client
Company in accordance with the following provisions of this paragraph
7.
(b) The Client Company has on the date hereof reserved and/or granted
options to the GM (the "Share Options") over 100,000 shares of common
stock of the Client Company (the "Option Shares"), at an exercise
price of C$0.95 per share, pursuant to the Client Company option plan
(the "Scheme") and subject to the terms of a notice of grant of stock
option entered into on the date hereof between the GM and the Client
Company (the "Notice").
(c) The GM's options will vest in accordance with the Scheme, and vested
options may be exercised subject to the terms of the Scheme, so long
as he or she remains the GM of the Subsidiary. There are no GM
specific performance obligations (apart from the generally applicable
obligations of the Scheme).
(d) The Client Company warrants and represents to the Contractor that:
(i) it has full power and authority to grant the Share Options,
which have been validly granted to the Contractor in accordance
with the rules of the Scheme;
(ii) it has all the necessary approvals and permits required by
regulatory authorities having jurisdiction over the Scheme to
grant the Share Options and to issue the Option Shares;
(iii) it has, and will have when the Share Options are exercised,
sufficient available authorised but unissued share capital with
which to issue the Option Shares; and
(iv) when exercised, the Option Shares will rank pari passu in all
respects with the other shares of common stock of the Client
Company.
(v) In the event of a capital re-organisation of the Client Company
the number of options and the exercise price thereof shall be
amended accordingly.
(e) Upon exercise of the Share Options by the GM, the Client Company shall
endeavour to notify the Contractor thereof and provide such details as
the Contractor may request in writing, to enable Contractor to
calculate any liability it, (or during the term, which Subsidiary or
Client Company) may have in respect of PAYE or employees' national
insurance contributions or any equivalent or replacement taxes in
connection with the exercise of the Share Options ("Option Tax
Liability").
(f) Notwithstanding anything else in this Agreement, so long as the Client
Company has not acted with misconduct or in a grossly negligent manner
in fulfilling its responsibilities under subparagraph (e) above, it
shall bear no liability to Contractor with regard to any Option Tax
Liability (and Contractor agrees to indemnify Client Company for any
Option Tax Liability imposed upon it or the Subsidiary, and any
associated costs and interest, in circumstances where the liability
arose during the time period when General Manager was an employee of
Contractor).
<PAGE> 13
(g) If Client Company changes the Scheme, so that it has the right to
withhold the Option Tax Liability, and does so generally, then it will
endeavour to do so on behalf of the Contractor with regard to the GM.
8. PUBLIC OFFERING OF THE CLIENT COMPANY'S SHARES
A. The Client Company undertakes that if, at any time during the term of
this Agreement or within twelve months after its termination (other
than a termination for cause), there is a public offering of shares in
the Client Company, then,:
(a) as an additional reward for the Contractor in performing the
Professional Services, the Client Company shall use reasonable
efforts to have the underwriters allocate to Contractor the right
to participate in any such public offering of the Client
Company's shares by subscribing up to US$500,000 for shares of
common stock of the Client Company at the price at which those
shares are offered pursuant to the public offering; and
(b) it will notify the Contractor in good time and generally keep the
Contractor fully informed of its intentions in connection with,
and of any proposed, public offering of the Client Company's
shares.
B. Notwithstanding s.8.A., Contractor acknowledges that the allocation
may be reduced without liability to Client Company, that there is no
minimum allocation due to Contractor, and that the reductions may
occur or restrictions may be imposed, among other reasons, due to
Underwriters' cut backs and obligations imposed by Underwriters,
Exchanges and Securities Regulators concerning the period of time
shares must be held, and subject to the Delano's strategic decisions
regarding allocations in order to achieve its then current goals.
<PAGE> 14
SCHEDULE C
TERRITORY
In this Agreement, Territory means Europe, Africa (other than South Africa)
and the Middle East, subject to then prevailing export regulations in Canada,
the United States or countries in which the Client Company resides. Territory
specifically does not include Australia.
Middle East means all Arab League countries, Turkey and Israel.
Europe means the countries listed below, except to the extent that sales of
the Client Company's products are prohibited in any of them pursuant to the laws
of Canada or other jurisdiction applicable to the Client Company's operations.
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------
Albania Gibraltar Portugal
Andorra Greece Romania
Armenia Hungary Russia Federation
Austria Iceland San Marino
Azerbaijan Republic of Ireland Serbia
Belarus Italy Slovak Republic
Belgium Kazakhstan Slovenia
Bosnia Kyrgyzstan Spain
Bulgaria Latvia Sweden
Byclorussia Liechtenstein Switzerland
Croatia Lithuania Tajikstan
Cyprus Luxembourg Turkey
Czech Republic Macedonia Turkmenistan
Denmark Malta & Gozo Ukraine
Estonia Moldova United Kingdom
Federal Republic of Monaco Uzabekistan
Yugoslavia
Finland The Netherlands Vatican City State
France Norway
Germany Poland
- ------------------------------------------------------------------------
</TABLE>
<PAGE> 15
SCHEDULE D
DIRECT COMPETITORS
Direct competitors shall include:
Message Media
Octane Inc.
Silknet Responsys
And such other names as are added in accordance with the provisions of this
Agreement.
Personal & Confidential
February 26, 1998
Bahman Koohestani
Dear Bahman
On behalf of HERMOD Corp., I am pleased to offer employment to you in the
position of in the position of Chief Technology Officer and Interim
President. I believe you will find this position challenging and rewarding, and
that it will provide you with an opportunity for personal career development.
The following are the terms and conditions of this offer of employment.
This offer of employment is for an indefinite term, commencing on May 1,
1998. The salary will be $150,000 per annum, payable on a semimonthly basis by
cheque. At a later date, we will be able to direct deposit to your financial
institution.
Additionally we will pay for one month's rental for a two bedroom apartment
for the month of May, and will provide a reasonable sum towards moving costs
from California to Toronto (which is non-recoverable assuming you do not resign
within 6 months).
You will be eligible to participate in the company's benefit programs
generally applicable to employees, as they are implemented. As an initial
employee, there is no probationary period to be completed.
As an initial team member, you will be issued 3,700,000 common shares of
the company, subject to the terms set out in the attached schedule "CONFIDENTIAL
SUMMARY OF TRANSACTION". Your shares will be issued on closing, and held in
escrow, vesting in 12 equal quarterly releases of 308,333.33 thereafter. (You
acknowledge that an additional person may join, and that you may transfer up to
1,000,000 shares to him at nominal consideration, from your personal
shareholding).
You are entitled to three weeks vacation (exclusive of statutory or public
holidays) each financial year, that leave to be prorated over any partial year
of employment. Such vacation is to be taken at a time acceptable to the company
subject to its operational requirements.
The company reserves the right to reassign you to a comparable or senior
position to that which this offer relates at any time and from time to time.
Except as provided in this letter, the company reserves all managerial rights
permitted by law with respect to the terms and conditions of your employment.
Both the company and you agree that your role as president will be interim only,
during the start up phase until the board hires a full time president and/or
CEO. Your compensation as CTO will remain the same even after you cease to be
president.
Under our company policy we all employees must complete a 90 day
probationary period of employment. At the end of this period, an evaluation of
the employee's performance in the position will be made, and the results of this
evaluation will be discussed with the employee. The company reserves the right
<PAGE> 16
to terminate an employee's employment at any time during the probation period
without notice or pay in lieu thereof to the employee. However, as an initial
team member, the company is waiving the probationary period.
Performance appraisals and compensation review will be conducted on an
annual basis.
Should you elect to leave the employment of the company, you are requested
to provide the company with at least one month's notice in writing.
All employees of the company are required to sign a Confidentiality
Agreement. A copy of this Agreement is enclosed for your review.
The company has adopted a policy which prohibits smoking in all of its
facilities and expects all employees to respect and comply with this policy.
Except as modified by this letter, signing this letter signifies acceptance
of the then current company policies from time to time.
Please confirm your acceptance of this offer by returning a signed copy of
this letter and confidentiality agreement to us no later than Friday March 6,
1998, after which it expires.
The offer letter (and its attachments) are for your use only, in connection
with your evaluation of our offer. Without limiting the foregoing, this letter
is not to be provided, nor its contents disclosed, to any other party. We also
ask that you not reveal our conversations to date or current interest. Any such
disclosure will immediately terminate the effectiveness of this indication of
interest.
This offer letter is not intended to have any binding effect upon either
party (with the exception of the confidentiality and exclusivity requirements).
No such binding obligation will exist prior to finalization of the employment
agreement and related corporate/shareholding documentation.
If you have any further questions, please do not hesitate to contact me.
We look forward to you joining the team.
Sincerely,
HERMOD Corp.
Dennis Bennie
CEO
I have had an opportunity to review the offer letter and the
confidentiality and transaction summary schedules. I have had an opportunity to
obtain independent legal advice.
<TABLE>
<S> <C>
- --------------------------------------- ------------------------------------
Bahman Koohestani March , 1998
Signed in Acceptance of the Above Terms
</TABLE>
<PAGE> 1
Exhibit 10.4
SUBSCRIPTION AGREEMENT
JULY _____, 1998
TO: DELANO TECHNOLOGY CORPORATION (THE "COMPANY")
RE: SUBSCRIPTION FOR AND PURCHASE OF COMMON SHARES OF THE COMPANY
This Subscription Agreement is being entered into between the undersigned
investor (the "Purchaser") and the Company in connection with the offering and
sale by the Company of 100,000 common shares of the Company (such common shares
actually offered and sold being referred to below as the "Common Shares") at a
price of $0.001 (one tenth of a cent) per Common Share resulting in total gross
proceeds to the Company of $100 (the "Offering"). The Common Shares are being
sold to Canadian residents under one or more exemptions from the prospectus
requirements of applicable securities laws.
1. SUBSCRIPTION
The undersigned Purchaser hereby irrevocably subscribes for and agrees to
purchase from the Company, subject to the terms and conditions set forth
herein, that number of Common Shares set forth below the Purchaser's name in
paragraph 17 hereof at a price of $0.001 (one tenth of a cent) per Common
Share.
2. RESALE RESTRICTIONS ON COMMON SHARES
The Common Shares will be subject to statutory hold periods during which these
securities may not be resold. Purchasers are advised to consult their own
legal advisers in this regard. In particular, the Purchaser understands that
the hold period for the Common Shares will be indefinite (i.e. will not begin
to expire) until such time as the Company becomes a reporting issuer (or its
equivalent) under applicable securities legislation in the Purchaser's province
of residence and, until such time, none of the Common Shares may be resold
except pursuant to a statutory exemption or a discretionary ruling.
3. SUBSCRIPTION AGREEMENT AND PAYMENT
A Purchaser of Common Shares must complete, sign and return to the Company as
soon as possible one executed copy of this Subscription Agreement. The
aggregate amount payable by the Purchaser in respect of the Common Shares (the
"Subscription Price") must accompany this Subscription Agreement and shall be
made by certified cheque or bank draft drawn on a Canadian chartered bank and
payable to the Company. In the alternative, other acceptable payment
arrangements may be made with the Company.
<PAGE> 2
- 2 -
4. CLOSING
(a) Confirmation of acceptance or rejection of a subscription will be forwarded
to the Purchaser promptly after the acceptance or rejection by the Company of
the subscription. If this subscription is rejected in whole and if the
Purchaser has delivered a certified cheque or bank draft representing the
Subscription Price for the Common Shares subscribed for, such certified cheque
or bank draft will be promptly returned to the Purchaser without interest.
(b) Certificates representing the Common Shares (individually, a "Certificate"
and collectively, the "Certificates") will be available for delivery at the
closing of the Offering ("Closing"), which is expected to occur on or about
July 15, 1998 at the offices of the Company's counsel Osler, Hoskin & Harcourt,
1 First Canadian Place, Suite 6600, Toronto, Ontario.
5. PROSPECTUS EXEMPTION
(a) The Purchaser acknowledges and agrees that the sale and delivery of the
Common Shares to the Purchaser is conditional upon such sale being exempt from
the requirements under applicable securities legislation requiring the filing
of a prospectus in connection with the distribution of the Common Shares or
upon the issuance of such rulings, orders, consents or approvals as may be
required to permit such sale without the requirement of filing a prospectus.
(b) The Purchaser acknowledges and agrees that the Purchaser has not been
provided with a prospectus (as defined in the applicable securities
legislation) in connection with its purchase of Common Shares; that the
Purchaser's decision to execute this Subscription Agreement and to purchase the
Common Shares agreed to be purchased hereunder has not been based upon any
verbal or written representation as to fact or otherwise made by or on behalf
of the Company; and that the Purchaser has been advised to consult its own
legal advisors with respect to applicable resale restrictions and restrictions
on transferability and that the Purchaser is solely responsible and the Company
is not in any way responsible for compliance with applicable resale
restrictions.
(c) The Purchaser acknowledges that the Company may be required by law or
otherwise to disclose to regulatory authorities the identity of the Purchaser
and each beneficial purchaser of Common Shares for whom the Purchaser may be
acting, and the Purchaser consents thereto.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER
The Purchaser hereby represents, warrants, acknowledges and covenants to and
with the Company that:
(a) this Subscription Agreement has been authorized, executed and delivered by,
and constitutes a legal, valid and binding agreement of, the undersigned;
<PAGE> 3
- 3 -
(b) if the Purchaser is an individual, he has attained the age of majority and
in every case he is legally competent to execute this Subscription Agreement
and to take all actions required pursuant hereto;
(c) the Purchaser is resident at the address below the Purchaser's name in
paragraph 17 hereof;
(d) as the Common Shares are subject to resale restrictions under applicable
securities legislation, the Purchaser shall comply with all applicable
securities legislation concerning any resale of Common Shares and shall consult
with its own legal advisors with respect to such compliance;
(e) the Purchaser, or each beneficial purchaser for whom it is purchasing, is
acquiring Common Shares to be held for investment and not with a view to resale
or distribution;
(f) in the case of the purchase by the Purchaser of Common Shares as agent or
trustee for any principal whose identity is disclosed or undisclosed or
identified by account number only, the Purchaser has due and proper authority
to act as agent or trustee for and on behalf of such beneficial purchaser in
connection with the transactions contemplated hereby;
(g) the Purchaser has not received an offering memorandum (including, without
limitation, as such term is defined in the regulations to the Securities Act
(Ontario)) or similar document in connection with this offering and has not
received, nor has the Purchaser requested, nor does the Purchaser need to
receive, any other document;
(h) the Purchaser has such knowledge and experience in financial and business
affairs as to be capable of evaluating the merits and risks of the investment
hereunder in Common Shares and is able to bear the economic risk of loss of
such investment;
(i) the offer and sale of the Common Shares has not been accompanied by an
advertisement; and
(j) the Purchaser shall enter into a shareholders agreement among the Company,
the Purchaser and each other shareholder of the Company (the "Shareholders
Agreement") on or before Closing.
7. RELIANCE UPON REPRESENTATIONS, WARRANTIES AND COVENANTS
The Purchaser acknowledges that the representations, warranties and covenants
contained in this Subscription Agreement are being relied upon by the Company
to, among other things, determine the Purchaser's eligibility to purchase the
Common Shares and the Purchaser hereby agrees to indemnify the Company against
all losses, claims, costs, expenses and damages or liabilities which the
Company may suffer or incur which are caused by or arise from, directly or
indirectly, its reliance thereon. The Purchaser further agrees that by
accepting the Common Shares the Purchaser shall be representing and warranting
that the foregoing representations and warranties are true as at the date of
issuance of the Common Shares with the same force and effect as if they had
been made by the Purchaser on such date and that they shall survive the
purchase by the Purchaser of the Common Shares and shall continue in full force
and effect
<PAGE> 4
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notwithstanding any subsequent disposition by the Purchaser of the Common
Shares until their expiry on the third anniversary of the Closing.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company hereby represents, warrants and covenants to and with the Purchaser
that:
(a) The Company (i) has been duly incorporated and organized, is validly
existing and has not been dissolved under the laws of Ontario; (ii) has
all requisite corporate power and authority to carry on its business as
now conducted and to own, lease and operate its properties and assets; and
(iii) has all required corporate power and authority to create, issue and
sell the Common Shares, to enter into this Agreement and to carry out the
provisions of this Agreement;
(b) the authorized capital of the Company consists solely of an unlimited
number of common shares and an unlimited number of Class A preferred
shares;
(c) the Common Shares will be issued as fully paid and non-assessable shares
in the capital of the Company;
(d) after giving effect to the completion of the Offering, 100% of the issued
and outstanding Class A preferred shares of the Company will be owned by
XDL Delano Holdings Inc. or another affiliate of XDL Ventures Corporation;
and
(e) after giving effect to the completion of the Offering and the issuance of
common shares and Class A preferred shares to other investors concurrent
with the Closing, the Common Shares will represent 1% of the issued and
outstanding capitalization of the Company (on an "as if converted to
Common basis" (as defined in the Shareholders Agreement), as at Closing).
9. RELIANCE UPON REPRESENTATIONS, WARRANTIES AND COVENANTS
The Company acknowledges that the representations, warranties and covenants
contained in this Subscription Agreement are being relied upon by the Purchaser
to, among other things, determine whether the Purchaser will subscribe for the
Common Shares and the Company hereby agrees to indemnify the Purchaser against
all losses, claims, costs, expenses and damages or liabilities which the
Purchaser may suffer or incur which are caused by or arise from, directly or
indirectly, its reliance thereon. The Company further agrees that by selling
the Common Shares the Company shall be representing and warranting that the
foregoing representations and warrants are true as at the date of issuance of
the Common Shares with the same force and effect as if they had been made by
the Company on such date and that they shall survive the purchase by the
Purchaser of the Common Shares and shall continue in full force and effect
notwithstanding any subsequent disposition by the Purchaser of the Common
Shares until their expiry on the third anniversary of the Closing.
<PAGE> 5
- 5 -
10. COSTS
The Purchaser acknowledges that all costs and expenses incurred by the
Purchaser (including any fees and disbursements of any counsel or adviser
retained by the Purchaser) relating to the purchase of the Common Shares by the
Purchaser shall be borne by the Purchaser.
11. CURRENCY
Except as may be otherwise expressly stated, all references to dollar amounts
herein are to lawful money of Canada.
12. TIME OF THE ESSENCE
Time shall, in all respects, be of the essence hereof.
13. HEADINGS
The headings contained herein are for convenience only and shall not affect the
meaning or interpretation hereof.
14. ENTIRE AGREEMENT
This Subscription Agreement constitutes the only agreement between the parties
with respect to the subject matter hereof and shall supersede any and all prior
negotiations and understandings. This Subscription Agreement may be amended or
modified in any respect by written instrument only.
15. SUCCESSORS AND ASSIGNS
The terms and provisions of this Subscription Agreement shall be binding upon
and enure to the benefit of the Purchaser and the Company and their respective
successors and assigns; provided that, except as herein provided, this
Subscription Agreement shall not be assignable by any party without the written
consent of the other.
16. GOVERNING LAW
This Subscription Agreement is governed by the laws of Ontario.
17. SUBSCRIPTION PARTICULARS
(a) The aggregate price of the Common Shares being subscribed for is
$_________. The Common Shares are to be registered in the name of (same as name
of Purchaser): .
(b) Subject to paragraph 18 below, the Certificates representing the Common
Shares are to be delivered to:
<PAGE> 6
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Name of Purchaser: Please Print
___________________________________________________
Number of Common Shares: ____________________________
Address of Purchaser: __________________________________
Province/State: ______________________ Country: _________
18. ESCROW
(a) The Purchaser hereby acknowledges and agrees that the Common Shares are to
be held in escrow upon the terms and conditions set out in this paragraph 18.
(b) The Purchaser hereby appoints the Company to act as escrow agent and the
Company hereby accepts such appointment. The Purchaser hereby deposits the
Certificates with the Company as escrow agent.
(c) The Common Shares are being deposited in escrow to provide the Purchaser
with an incentive to remain employed with the Company. The Company shall
release 25,000 of the Common Shares to the Purchaser out of escrow on June 30,
1999. In addition, the Company shall release 6,250 of the Common Shares out
of escrow on September 30, 1999 and on the last day of each of the next eleven
(11) successive calendar quarters thereafter. Notwithstanding the foregoing,
should the Purchaser's employment with the Company be terminated other than for
cause or resignation (i) during the first twelve (12) months following Closing,
then the Purchaser shall be entitled to receive out of escrow one third of the
Common Shares initially deposited into escrow (i.e. less any Common Shares
previously released to the Purchaser), or (ii) at any time by an acquiror of
legal Control (as defined in the Shareholders Agreement) of the Company, then
the Purchaser shall be entitled to receive all of the Common Shares out of
escrow within three (3) months of such change of Control. If an "Event of
Default" (as defined in the Shareholders Agreement) occurs in respect of the
Purchaser, the Purchaser shall be deemed to be a "Defaulting Shareholder" under
the Shareholders Agreement and shall sell all of the Common Shares, whether or
not all or some of the Common Shares are then held in escrow, in accordance
with the Shareholders Agreement. Solely for the purposes of such sale under
the Shareholders Agreement, if the Event of Default arises due to the
termination of the Purchaser's employment with the Company, the Purchaser's
Common Shares held in escrow which would have been released from escrow at the
end of the calendar quarter in which his or her employment was terminated shall
be deemed to be so released. Any Common Shares released from escrow shall be
delivered to the Purchaser in accordance with subparagraph 17(b) above.
(d) The Purchaser remains the beneficial owner of the Common Shares held in
escrow and shall, subject to the articles of the Company and the Shareholders
Agreement, be entitled to exercise voting and other rights attaching to such
shares and to receive any dividends and distributions attaching thereto, but,
subject to subparagraph 18(c) above, may not sell any escrowed Common Shares or
any of the Purchaser's rights in relation to such escrowed Common Shares.
<PAGE> 7
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(e) The Company shall not be liable for any error of judgement, or for any act
done or step taken or omitted by it in good faith or for any mistake of fact or
law which it may make, in connection with the performance of its duties as
escrow agent pursuant to this paragraph 18.
(f) Any dispute relating to this paragraph 18 shall be referred to arbitration
in accordance with the Shareholders Agreement.
IN WITNESS WHEREOF the Purchaser has executed this Subscription Agreement this
_____ day of July, 1998.
WITNESS: PURCHASER
Signature: __________________________ Signature: __________________________
Print Name: Print Name:
This Subscription Agreement is confirmed and accepted by the Company.
DATED the ______ day of July, 1998.
DELANO TECHNOLOGY CORPORATION
By: ______________________________
Authorized Signatory
<PAGE> 1
Exhibit 10.5
SUBSCRIPTION AGREEMENT
JULY _____, 1998
TO: DELANO TECHNOLOGY CORPORATION (THE "COMPANY")
RE: SUBSCRIPTION FOR AND PURCHASE OF COMMON SHARES OF THE COMPANY
This Subscription Agreement is being entered into between the undersigned
investor (the "Purchaser") and the Company in connection with the offering and
sale by the Company of 2,700,000 common shares of the Company (such common
shares actually offered and sold being referred to below as the "Common
Shares") at a price of $0.001 (one tenth of a cent) per Common Share resulting
in total gross proceeds to the Company of $2700 (the "Offering"). The Common
Shares are being sold to Canadian residents under one or more exemptions from
the prospectus requirements of applicable securities laws.
1. SUBSCRIPTION
The undersigned Purchaser hereby irrevocably subscribes for and agrees to
purchase from the Company, subject to the terms and conditions set forth
herein, that number of Common Shares set forth below the Purchaser's name in
paragraph 17 hereof at a price of $0.001 (one tenth of a cent) per Common
Share.
2. RESALE RESTRICTIONS ON COMMON SHARES
The Common Shares will be subject to statutory hold periods during which these
securities may not be resold. Purchasers are advised to consult their own
legal advisers in this regard. In particular, the Purchaser understands that
the hold period for the Common Shares will be indefinite (i.e. will not begin
to expire) until such time as the Company becomes a reporting issuer (or its
equivalent) under applicable securities legislation in the Purchaser's province
of residence and, until such time, none of the Common Shares may be resold
except pursuant to a statutory exemption or a discretionary ruling.
3. SUBSCRIPTION AGREEMENT AND PAYMENT
A Purchaser of Common Shares must complete, sign and return to the Company as
soon as possible one executed copy of this Subscription Agreement. The
aggregate amount payable by the Purchaser in respect of the Common Shares (the
"Subscription Price") must accompany this Subscription Agreement and shall be
made by certified cheque or bank draft drawn on a Canadian chartered bank and
payable to the Company. In the alternative, other acceptable payment
arrangements may be made with the Company.
<PAGE> 2
- 2 -
4. CLOSING
(a) Confirmation of acceptance or rejection of a subscription will be forwarded
to the Purchaser promptly after the acceptance or rejection by the Company of
the subscription. If this subscription is rejected in whole and if the
Purchaser has delivered a certified cheque or bank draft representing the
Subscription Price for the Common Shares subscribed for, such certified cheque
or bank draft will be promptly returned to the Purchaser without interest.
(b) Certificates representing the Common Shares (individually, a "Certificate"
and collectively, the "Certificates") will be available for delivery at the
closing of the Offering ("Closing"), which is expected to occur on or about
July 15, 1998 at the offices of the Company's counsel Osler, Hoskin & Harcourt,
1 First Canadian Place, Suite 6600, Toronto, Ontario.
5. PROSPECTUS EXEMPTION
(a) The Purchaser acknowledges and agrees that the sale and delivery of the
Common Shares to the Purchaser is conditional upon such sale being exempt from
the requirements under applicable securities legislation requiring the filing
of a prospectus in connection with the distribution of the Common Shares or
upon the issuance of such rulings, orders, consents or approvals as may be
required to permit such sale without the requirement of filing a prospectus.
(b) The Purchaser acknowledges and agrees that the Purchaser has not been
provided with a prospectus (as defined in the applicable securities
legislation) in connection with its purchase of Common Shares; that the
Purchaser's decision to execute this Subscription Agreement and to purchase the
Common Shares agreed to be purchased hereunder has not been based upon any
verbal or written representation as to fact or otherwise made by or on behalf
of the Company; and that the Purchaser has been advised to consult its own
legal advisors with respect to applicable resale restrictions and restrictions
on transferability and that the Purchaser is solely responsible and the Company
is not in any way responsible for compliance with applicable resale
restrictions.
(c) The Purchaser acknowledges that the Company may be required by law or
otherwise to disclose to regulatory authorities the identity of the Purchaser
and each beneficial purchaser of Common Shares for whom the Purchaser may be
acting, and the Purchaser consents thereto.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER
The Purchaser hereby represents, warrants, acknowledges and covenants to and
with the Company that:
(a) this Subscription Agreement has been authorized, executed and delivered by,
and constitutes a legal, valid and binding agreement of, the undersigned;
<PAGE> 3
- 3 -
(b) if the Purchaser is an individual, he has attained the age of majority and
in every case he is legally competent to execute this Subscription Agreement
and to take all actions required pursuant hereto;
(c) the Purchaser is resident at the address below the Purchaser's name in
paragraph 17 hereof;
(d) as the Common Shares are subject to resale restrictions under applicable
securities legislation, the Purchaser shall comply with all applicable
securities legislation concerning any resale of Common Shares and shall consult
with its own legal advisors with respect to such compliance;
(e) the Purchaser, or each beneficial purchaser for whom it is purchasing, is
acquiring Common Shares to be held for investment and not with a view to resale
or distribution;
(f) in the case of the purchase by the Purchaser of Common Shares as agent or
trustee for any principal whose identity is disclosed or undisclosed or
identified by account number only, the Purchaser has due and proper authority
to act as agent or trustee for and on behalf of such beneficial purchaser in
connection with the transactions contemplated hereby;
(g) the Purchaser has not received an offering memorandum (including, without
limitation, as such term is defined in the regulations to the Securities Act
(Ontario)) or similar document in connection with this offering and has not
received, nor has the Purchaser requested, nor does the Purchaser need to
receive, any other document;
(h) the Purchaser has such knowledge and experience in financial and business
affairs as to be capable of evaluating the merits and risks of the investment
hereunder in Common Shares and is able to bear the economic risk of loss of
such investment;
(i) the offer and sale of the Common Shares has not been accompanied by an
advertisement; and
(j) the Purchaser shall enter into a shareholders agreement among the Company,
the Purchaser and each other shareholder of the Company (the "Shareholders
Agreement") on or before Closing.
7. RELIANCE UPON REPRESENTATIONS, WARRANTIES AND COVENANTS
The Purchaser acknowledges that the representations, warranties and covenants
contained in this Subscription Agreement are being relied upon by the Company
to, among other things, determine the Purchaser's eligibility to purchase the
Common Shares and the Purchaser hereby agrees to indemnify the Company against
all losses, claims, costs, expenses and damages or liabilities which the
Company may suffer or incur which are caused by or arise from, directly or
indirectly, its reliance thereon. The Purchaser further agrees that by
accepting the Common Shares the Purchaser shall be representing and warranting
that the foregoing representations and warranties are true as at the date of
issuance of the Common Shares with the same force and effect as if they had
been made by the Purchaser on such date and that they shall survive the
purchase by the Purchaser of the Common Shares and shall continue in full force
and effect
<PAGE> 4
- 4 -
notwithstanding any subsequent disposition by the Purchaser of the Common
Shares until their expiry on the third anniversary of the Closing.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company hereby represents, warrants and covenants to and with the Purchaser
that:
(a) The Company (i) has been duly incorporated and organized, is validly
existing and has not been dissolved under the laws of Ontario; (ii) has
all requisite corporate power and authority to carry on its business as
now conducted and to own, lease and operate its properties and assets; and
(iii) has all required corporate power and authority to create, issue and
sell the Common Shares, to enter into this Agreement and to carry out the
provisions of this Agreement;
(b) the authorized capital of the Company consists solely of an unlimited
number of common shares and an unlimited number of Class A preferred
shares;
(c) the Common Shares will be issued as fully paid and non-assessable shares
in the capital of the Company;
(d) after giving effect to the completion of the Offering, 100% of the issued
and outstanding Class A preferred shares of the Company will be owned by
XDL Delano Holdings Inc. or another affiliate of XDL Ventures Corporation;
and
(e) after giving effect to the completion of the Offering and the issuance of
common shares and Class A preferred shares to other investors concurrent
with the Closing, the Common Shares will represent 27% of the issued and
outstanding capitalization of the Company (on an "as if converted to
Common basis" (as defined in the Shareholders Agreement), as at Closing).
9. RELIANCE UPON REPRESENTATIONS, WARRANTIES AND COVENANTS
The Company acknowledges that the representations, warranties and covenants
contained in this Subscription Agreement are being relied upon by the Purchaser
to, among other things, determine whether the Purchaser will subscribe for the
Common Shares and the Company hereby agrees to indemnify the Purchaser against
all losses, claims, costs, expenses and damages or liabilities which the
Purchaser may suffer or incur which are caused by or arise from, directly or
indirectly, its reliance thereon. The Company further agrees that by selling
the Common Shares the Company shall be representing and warranting that the
foregoing representations and warrants are true as at the date of issuance of
the Common Shares with the same force and effect as if they had been made by
the Company on such date and that they shall survive the purchase by the
Purchaser of the Common Shares and shall continue in full force and effect
notwithstanding any subsequent disposition by the Purchaser of the Common
Shares until their expiry on the third anniversary of the Closing.
<PAGE> 5
- 5 -
10. COSTS
The Purchaser acknowledges that all costs and expenses incurred by the
Purchaser (including any fees and disbursements of any counsel or adviser
retained by the Purchaser) relating to the purchase of the Common Shares by the
Purchaser shall be borne by the Purchaser.
11. CURRENCY
Except as may be otherwise expressly stated, all references to dollar amounts
herein are to lawful money of Canada.
12. TIME OF THE ESSENCE
Time shall, in all respects, be of the essence hereof.
13. HEADINGS
The headings contained herein are for convenience only and shall not affect the
meaning or interpretation hereof.
14. ENTIRE AGREEMENT
This Subscription Agreement constitutes the only agreement between the parties
with respect to the subject matter hereof and shall supersede any and all prior
negotiations and understandings. This Subscription Agreement may be amended or
modified in any respect by written instrument only.
15. SUCCESSORS AND ASSIGNS
The terms and provisions of this Subscription Agreement shall be binding upon
and enure to the benefit of the Purchaser and the Company and their respective
successors and assigns; provided that, except as herein provided, this
Subscription Agreement shall not be assignable by any party without the written
consent of the other.
16. GOVERNING LAW
This Subscription Agreement is governed by the laws of Ontario.
17. SUBSCRIPTION PARTICULARS
(a) The aggregate price of the Common Shares being subscribed for is
$_________. The Common Shares are to be registered in the name of (same as name
of Purchaser):______________________.
(b) Subject to paragraph 18 below, the Certificates representing the Common
Shares are to be delivered to:
<PAGE> 6
- 6 -
Name of Purchaser: Please Print
___________________________________________________
Number of Common Shares: ____________________________
Address of Purchaser: __________________________________
Province/State: ______________________ Country: _________
18. ESCROW
(a) The Purchaser hereby acknowledges and agrees that the Common Shares are to
be held in escrow upon the terms and conditions set out in this paragraph 18.
(b) The Purchaser hereby appoints the Company to act as escrow agent and the
Company hereby accepts such appointment. The Purchaser hereby deposits the
Certificates with the Company as escrow agent.
(c) The Common Shares are being deposited in escrow to provide the Purchaser
with an incentive to remain employed with the Company. The Company shall
release one twelfth of the Common Shares to the Purchaser out of escrow on
September 30, 1998, and an additional one-twelfth of the Common Shares on the
last day of each successive calendar quarter. Notwithstanding the foregoing,
should the Purchaser's employment with the Company be terminated other than for
cause or resignation (i) during the first twelve months following Closing, then
the Purchaser shall be entitled to receive out of escrow one third of the
Common Shares initially deposited into escrow (i.e. less any Common Shares
previously released to the Purchaser), or (ii) at any time by an acquiror of
legal Control (as defined in the Shareholders Agreement) of the Company, then
the Purchaser shall be entitled to receive all of the Common Shares out of
escrow within three (3) months of such change of Control. If an "Event of
Default" (as defined in the Shareholders Agreement) occur in respect of the
Purchaser, the Purchaser shall be deemed to be a "Defaulting Shareholder" under
the Shareholders Agreement and shall sell all of the Common Shares, whether or
not all or some of the Common Shares are then held in escrow, in accordance
with the Shareholders Agreement. Solely for the purposes of such sale under
the Shareholders Agreement, if the Event of Default arises due to the
termination of the Purchaser's employment with the Company, the Purchaser's
Common Shares held in escrow which would have been released from escrow at the
end of the calendar quarter in which his or her employment was terminated shall
be deemed to be so released. Any Common Shares released from escrow shall be
delivered to the Purchaser in accordance with subparagraph 17(b) above.
(d) The Purchaser remains the beneficial owner of the Common Shares held in
escrow and shall, subject to the articles of the Company and the Shareholders
Agreement, be entitled to exercise voting and other rights attaching to such
shares and to receive any dividends and distributions attaching thereto, but,
subject to subparagraph 18(c) above, may not sell any escrowed Common Shares or
any of the Purchaser's rights in relation to such escrowed Common Shares.
<PAGE> 7
- 7 -
(e) The Company shall not be liable for any error of judgment, or for any act
done or step taken or omitted by it in good faith or for any mistake of fact or
law which it may make, in connection with the performance of its duties as
escrow agent pursuant to this paragraph 18.
(f) Any dispute relating to this paragraph 18 shall be referred to arbitration
in accordance with the Shareholders Agreement.
IN WITNESS WHEREOF the Purchaser has executed this Subscription Agreement this
_____ day of July, 1998.
WITNESS: PURCHASER
Signature: __________________________ Signature: __________________________
Print Name: Print Name:
This Subscription Agreement is confirmed and accepted by the Company.
DATED the ______ day of July, 1998.
DELANO TECHNOLOGY CORPORATION
By: ______________________________
Authorized Signatory
<PAGE> 1
Exhibit 10.6
July 5, 1999
PRIVATE AND CONFIDENTIAL
Delano Technology Corporation
40 West Wilmot Drive
Richmond Hill, Ontario
L4B 1H8
Dear Sirs:
Further to our recent discussions, we are pleased to confirm the revolving
demand Credit Facility described below, subject to the following terms and
conditions.
DEFINITIONS: The definitions attached hereto in Schedule "A" are incorporated
in this agreement by reference as if set out in full herein.
BORROWERS: DELANO TECHNOLOGY CORPORATION (the "Borrower").
LENDER: Royal Bank of Canada (the "Bank"), through its Branch at 260
East Beaver Creek, Richmond Hill, Ontario (the "Branch of
Account").
CREDIT
FACILITY: The Credit Facility is available in the following segments in
Canadian Dollars by way of, at the Borrower's option:
Segment(1) Lease line of credit/Equipment lease ("Leases").
Segment(2) Term - ITC Financing:
(a) RBP Loans.
(collectively the "Borrowings").
AMOUNT(S): Segment(1) $1,000,000.
Segment(2) $230,000.
TERMS OF
SEGMENT(1): The terms and conditions regarding Leases will be as outlined in
separate agreements entered into by the Borrower and the Bank.
PURPOSE: Segment(2) Finance ITC receivable.
REPAYMENT: Segment(2) Interest only. To be repaid from collection of ITC
receivable. Maximum term 8 months.
AVAILABILITY: Segment(2)
The Borrower may borrow and convert up to the amount of this
reducing term facility.
INTEREST
RATES & FEES: Segment(2) (a) Royal Bank Prime ("RBP") + 2.50%. (ITC only)
<PAGE> 2
DELANO TECHNOLOGY CORPORATION
July 5, 1999 Page 2)
________________________________________________________________________________
PAYMENT OF
INTEREST & FEES: RBP Loans
Interest on these loans shall be computed on the daily
principal amounts outstanding, at the aforementioned rates,
based on the actual number of days elapsed divided by 365,
and shall be payable in arrears on the 26th of each month.
The yearly rates of interest to which the rates determined
in accordance with this Payment of Interest and Fees section
are equivalent, are the rates so determined multiplied by
the actual number of days in the calendar year and divided
by 365.
Overdue Payments
Any overdue payment in Canadian Dollars shall be deemed to
be a RBP Loan with interest payable at RBP plus 5%.
OTHER FEES: Arrangement Fee -- An arrangement fee of Nil is payable upon
acceptance of this agreement. The arrangement fee is
non-refundable and will be deemed to have been earned by the
Bank upon acceptance of this offer, to compensate for time,
effort and expense incurred by the Bank to approve these
facilities.
Re-Negotiation Fee -- The Borrower acknowledges that fees
may be levied for the annual review of the Credit Facilities
or the re-negotiation of the amount, collateral security
and/or the terms and conditions of this agreement during the
currency of this agreement.
Nothing in this agreement shall be construed as obliging the
Borrower to pay any interest, charges or other expenses as
provided by this agreement or in any other security
agreement related thereto in excess of what is permitted by
law.
PREPAYMENT: May be prepaid in whole or in part in reverse order of
maturity at any time or times without payment of bonus
interest.
COLLATERAL
SECURITY: General Security Agreement covering all assets
other than real property.
Cash Collateral Agreement covering GIC for the total amount
of outstanding leases at any time.
CONDITIONS
PRECEDENT: The obligation of the Bank to make available the
Borrowings to the Borrower is subject to and conditional
upon:
(1) receipt by the Bank of a properly executed copy of this
agreement;
(2) receipt by the Bank of the within stipulated Collateral
Security in form and substance satisfactory to the
Bank, together with such corporate authorizations and
legal opinions as the Bank may require;
(3) receipt by the Bank of satisfactory Y2K scored
questionnaire;
(4) Letter of Opinion from auditors regarding Investment
Tax Credit receivable (now held).
<PAGE> 3
DELANO TECHNOLOGY CORPORATION
July 5, 1999 Page 3)
- --------------------------------------------------------------------------------
EVIDENCE OF
INDEBTEDNESS: The bank shall open and maintain at the Branch of Account
accounts and records evidencing the Borrowings made available
to the Borrower by the Bank under this agreement. The Bank
shall record the principal amount of such Borrowings, the
payment of principal and interest on account of the loans, and
all other amounts becoming due to the Bank under this
agreement.
The Bank's accounts and records constitute, in the absence of
manifest error, prima facie evidence of the indebtedness of the
Borrower to the Bank pursuant to this agreement.
The Borrower authorizes and directs the Bank to automatically
debit, by mechanical, electronic or manual means, any bank
account of the Borrower for all amounts payable under this
agreement, including but not limited to, the repayment of
principal and the payment of interest, fees and all charges for
the keeping of such bank accounts.
REPRESENTATIONS
AND WARRANTIES The Borrower represents and warrant to the Bank that:
(a) it is a corporation validly incorporated and subsisting
under the laws of Ontario, and that it is duly registered
or qualified to carry on business in all jurisdictions
where the character of the properties owned by it or the
nature of its business transacted makes such registration
or qualification necessary; and
(b) the execution and delivery of this agreement has been duly
authorized by all necessary actions and does not violate
any law or any provision of its constatating documents or
by-laws or any unanimous shareholders' agreement to which
it is subject, or result in the creation of any
encumbrance on its properties and assets except as
contemplated hereunder.
NON-MERGER: The provisions of this agreement shall not merge with any
security given by the Borrower to the Bank, but shall continue
in full force for the benefit of the parties hereto.
COVENANTS: The Borrower agrees:
(a) to pay all sums of money when due under this agreement;
(b) to provide the Bank with the following reports on an
annual basis, within 90 days of the end of its fiscal
year.
(i) audited financial statements;
(c) to give the Bank prompt notice of any Event of Default or
any event which, with notice or lapse of time or both,
would constitute an Event of Default;
(d) to refrain from declaring dividends which aggregate more
than the amount by which 50% of he cash flow generated by
earnings exceeds the current portion of long-term debt.
Cash flow generated by earnings shall be as defined in the
Statement of Changes in Financial Position of its audited
annual report;
<PAGE> 4
DELANO TECHNOLOGY CORPORATION
July 5, 1999 Page 4)
- -------------------------------------------------------------------------------
(e) to file all material tax returns which are or will be
required to be filed, to pay or make provision for payment
of all material taxes (including interest and penalties) and
other Potential Preferred Claims which are or will become
due and payable and to provide adequate reserves for the
payment of any tax, the payment of which is being contested;
(f) not to dispose of shares of any of its subsidiaries;
(g) not to grant, create, assume or suffer to exist any
mortgage, charge, lien, pledge, security interest,
including a purchase money security interest, or other
encumbrance affecting any of its properties, assets or other
rights;
(h) not to sell, transfer, convey, lease or otherwise dispose of
any part of its property or assets, without the prior
written consent of the Bank, except in the ordinary course
of business;
(i) not to, directly or indirectly, guarantee or otherwise
provide for, on a direct or indirect or contingent basis,
the payment of any monies or performance of any obligations
by any third party except as provided herein;
(j) to give the Bank 30 days prior notice in writing of any
intended change in the ownership of its shares;
(k) to insure and to keep fully insured all properties
customarily insured by companies carrying on a similar
business;
(l) not to change its name or merge, amalgamate or consolidate
with any other corporation; and
(m) to comply with all applicable environmental laws and
regulations; to advise the Bank promptly of any Action
Requests or Violation Notices (as such terms are defined
under the Environmental Protection Act (Ontario)) received
concerning any of the Borrower's property; and to hold the
Bank harmless for any costs or expenses which it incurs for
any environment-related liabilities existent now or in the
future with respect to the Borrower's property.
(n) The Borrower covenants to provide to the Bank any and all
information that the Bank may reasonable request from time
to time relating to the state of the Year 2000 readiness of
the Borrower.
For purposes of the foregoing, the "Year 2000 readiness" of
the Borrower means the ability of all information technology
used by the Borrower and its suppliers to continue to
perform all date-related functions and computations
accurately on and after January 1, 2000.
Events of
Default: Without limitation and notwithstanding the terms for
repayment of certain facilities as recited herein, if any
one or more of the following events has occurred and is
continuing:
(a) the non-payment when due of principal, or interest or any
other amounts due under this agreement:
<PAGE> 5
DELANO TECHNOLOGY CORPORATION
July 5, 1999 Page 5)
- --------------------------------------------------------------------------------
(b) the breach by the Borrower of any provisions of this
agreement or any other agreement with the Bank;
(c) if any representation or warranty made herein shall be
false or inaccurate in any materially adverse respect;
(d) if in the opinion of the Bank there is material adverse
change in the financial condition, ownership, or
operation of the Borrower;
(e) the breach at any time and in any material respect of the
provisions of any applicable law, regulation, by-law,
ordinance or work order of any lawful authority whether
federal, provincial, state, municipal, local or
otherwise, (including without restriction, those dealing
with pollution of the environment and toxic materials or
other environmental hazards, or public health and
safety), affecting any property of the Borrower or any
activity or operation carried out thereon; or
(f) if proceedings for the dissolution, liquidation or
winding-up of the Borrower or for the suspension of the
operations of the Borrower are commenced, unless such
proceedings are being actively and diligently contested
by the Borrower in good faith, or in the event of the
bankruptcy, liquidation, or general insolvency of the
Borrower, or if a receiver or receiver-manager is
appointed for all or any part of the business or assets
of the Borrower;
then the right of the Borrower to make further Borrowings
under this agreement shall immediately terminate and the Bank
may, by written notice to the Borrower, declare the Borrowings
under this agreement to be immediately due and payable without
further notice or demand.
Upon receipt of such notice, the Borrower shall immediately
pay to the Bank all Borrowings outstanding under this
agreement.
EXPENSES: The Borrower agrees to pay all of the Bank's costs incurred
from time to time in the preparation, negotiation and
execution of this agreement and the collateral security, and
any costs incurred in the operation or enforcement of this
agreement or any other agreement entered into pursuant to this
agreement.
GAAP: Unless otherwise provided, all accounting terms used in this
agreement shall be interpreted in accordance with Canadian
Generally Accepted Accounting Principles from time to time.
SEVERABILITY: If any provision of this agreement is or becomes prohibited or
unenforceable in any jurisdiction, such prohibition or
unenforceability shall not invalidate or render unenforceable
the provision concerned in any other jurisdiction nor shall it
invalidate, affect or impair any of the remaining provisions.
GOVERNING LAW: This agreement shall be construed in accordance with and
governed by the laws of the Province of Ontario and of Canada
applicable therein.
ACCEPTANCE: This offer expires if not accepted by July 15, 1999, unless
extended in writing by the Bank.
<PAGE> 6
DELANO TECHNOLOGY CORPORATION
July 5, 1999 Page 6)
________________________________________________________________________________
If this agreement is acceptable, kindly sign and return the attached copy to
the Bank.
Yours truly,
ORIGINAL SIGNED BY
A.F. LA VISTA
Tony La Vista
Senior Account Manager
We acknowledge and accept the within terms and conditions.
DELANO TECHNOLOGY CORPORATION
Per: _______________________ Date:
Name:
Title:
Per: _______________________ Date:
Name:
Title:
<PAGE> 7
SCHEDULE "A"
Schedule "A" to the Letter Agreement dated the 5th day of July, 1999 between
DELANO TECHNOLOGY CORPORATION as the Borrower and Royal Bank of Canada as the
Bank.
For purposes of the foregoing agreement, the following terms and phrases shall
have the following meanings:
"Business Day" means a day on which the Branch of Account is open for business;
"Canadian Dollars" and "Cdn$" means lawful money of Canada;
"Person" includes an individual, a partnership, a joint venture, a trust, an
incorporated organization, a company, a corporation, an association, a
government or any department or agency thereof, and any other incorporated or
unincorporated entity;
"Potential Preferred Claims" means amounts owing for wages, employee
deductions, sales tax, excise tax, income tax, worker's compensation,
government royalties, pension fund obligations, overdue rents or taxes,
purchase-money security interests, and other statutory preferred claims;
"Premises" means any real property owned by the Borrower, either directly or
indirectly, against which the Bank holds a mortgage;
"RBP" means the annual rate of interest announced by the bank from time to time
as being a reference rate then in effect for determining interest rates on
Canadian Dollar commercial loans in Canada;
<PAGE> 1
EXHIBIT 10.7
To: Delano Technology Inc. ("Delano")
From: MGI Software Corp. ("MGI")
1. MGI owns 30 work stations at 40 West Wilmot St. Richmond Hill, units
4,5,6,8,9.
2. MGI hereby grants to Delano a right of first refusal to purchase the
work stations from MGI.
Delano Tenant shall have the continuing right of first refusal to purchase
up to 30 work stations (the "Right of First Refusal") that may subject to a bona
fide, third party offer to purchase (the "Offer") under the same terms and
conditions of such Offer as is acceptable to MGI. MGI agrees to deliver a true
copy of any such Offer to MGI. Delano shall have five (5) business days from
such delivery within which to exercise the Right of First Refusal. This right
may only be exercised, within such time, by Delano delivering a notice in
writing of its acceptance to MGI, whereupon a binding agreement to purchase
shall exist between MGI and Delano on the terms and conditions contained in the
said Offer.
If Delano shall not so exercise this right of first refusal with respect
to a particular Offer, the work stations governed by said Offer may thereafter
be sold by MGI to the party identified in said bona fide offer and subject to
the terms and conditions contained therein, but not otherwise, and failing sale
as aforesaid, the provisions of this section shall apply again. Nothing herein
derogates from the rights of Delano with regard to work stations not governed by
a particular Offer.
Delano shall not have the right to assign this Right of First Refusal
except in conjunction with a permitted assignment of all its rights under the
Lease.
MGI shall have the right to store the 30 work stations on the premises
rented to Delano, rent free, subject to written notice from Delano to remove
same. Delano shall provide 60 days notice to MGI requiring removal of the work
stations from the premises. Delano shall have the right to use the 30 work
stations subject to their sale by MGI after Delano has been offered but declined
to exercise, its Right of First Refusal. MGI shall provide 60 days notice to
Delano of any sale of the work stations to a third party.
Dated at Toronto, this 16(th) day of December, 98
Delano Technology Corporation
(Signed)
David Latner
Dated at Richmond Hill, this 16(th) day of December, 98
MGI Software Corp.
(Signed)
<PAGE> 2
FOR USE IN THE PROVINCE OF ONTARIO
OFFER TO LEASE
(ICI)
TO MGI SOFTWARE CORP. Lessor (Landlord)
I DELANO TECHNOLOGY CORP. Lessee (Tenant) having inspected the premises or
plans, hereby offer to lease through LANDSITE REAL ESTATE SERVICES INC. (Listing
Broker) and (Co-operating Broker), the premises known municipally as
40 WEST WILMOT STREET units 4, 5, 6, 8 & 9 in the TOWN of RICHMOND HILL
comprising 15,500 square feet, more or less (as outlined in Schedule
" " attached hereto) for a term of 2 YEARS from JANUARY 1, 1999 to
DECEMBER 31, 2000 at a rental of $139,500.00 per annum payable $11,625.00
monthly, in advance, on the 1ST day of each month during the said term.
Cash/Cheque in the amount of $35,934.15 as a deposit, payable to the
Listing broker in trust for the Lessor, is submitted ACCEPTANCE (Thereafter/Upon
acceptance) to be held pending completion or other termination of this
Agreement, and is to be credited on account of 1st and last months net rent &
T.M.I. plus G.S.T. rental.
The lease shall be drawn by the Lessor and executed by the Lessee and the
Lessor forthwith subject to minor adjustments as negotiated between the Lessor's
and the Lessee's Solicitors, both acting reasonably.
The premises is to be used for OFFICES. IT IS UNDERSTOOD AND AGREED that
. This OFFER TO LEASE shall be read as a OFFER TO SUB LEASE, and all
references made to the LESSOR and LESSEE shall be read as SUB LESSOR and SUB
LESSEE and the term LEASE shall be read as SUB LEASE.
(1) The Lessee acknowledges that the lease is a net lease to the Lessor
and, in addition to the net rent, the Lessee shall pay all additional
costs including, but not limited to, realty taxes, business taxes,
utility charges, heat, hydro, water, building insurance and all other
operating costs as defined in the lease. The estimated T.M.I. for the
base year 1998 is $62,000.00 per annum. Notwithstanding the above,
repairs of a capital nature, including parking lot repairs and repairs
to the roof including the membrane, are the sole responsibility of the
Lessor at the Lessor's sole cost.
(2) It is understood and agreed that, immediately upon acceptance of this
Offer To Lease the Lessee shall be granted possession of the demised
premises, net rent free to January 31, 1999, subject to T.M.I.
(3) Provided that the Lessee is not in default under the terms of the
original lease, the Lessee shall have the option to renew said lease
for a further 1 x 5 year terms on the same terms and conditions, save
and except for a further renewal, and the rental rate, which shall be
the then current rent for similar location, and on similar lease terms
at the time of renewal. Subject to the terms of the head lease (MGI
SOFTWARE INC and JBG HOLDINGS).
(4) Any work carried out by the Lessee, their employees, agents or
contractors shall be done in a workmanlike and professional manner.
(5) The Lessee may make any necessary alterations and improvements to said
premises, at his own expense, subject to the Lessor's written consent,
and such consent shall not be unreasonably withheld. The Lessee may,
however, make any necessary minor internal improvements to said
premises, at his own expense, without the Lessor's consent.
(6) The Lessor warrants that all mechanical, heating, ventilating, air
conditioning equipment (HVAC), and electrical equipment will be in
good working order, normal wear and tear expected, on or before the
occupancy set herein.
<PAGE> 3
THIS OFFER shall be irrevocable by the LESSOR until 5:00 (p.m.) on the
16th day of December 1998 after which time if not accepted, this offer shall be
null and void and all deposit monies paid by the Lessee hereunder shall be
refunded without any interest or deduction whatsoever.
It is further understood that all representations by the Lessor or any of
his representatives, are set out in this Agreement.
<PAGE> 4
The heirs, executors, administrators, successors and assigns of the
undersigned are bound by the terms hereof. This Agreement shall be read with
such changes of gender or number as may be required by the context.
DATED at this 14th day of December 1998
<TABLE>
<S> <C>
SIGNED SEALED AND DELIVERED IN WITNESS whereof I have hereunto set my hand and seal:
in the presence of I have authority to bind the Company
- --------------------------- ------------------------------------------------------------
(Witness) (Lessee) DELANO TECHNOLOGY CORP. (Seal) (Date)
- --------------------------- ------------------------------------------------------------
(Witness) (Lessee) (Seal) (Date)
</TABLE>
I hereby accept the above Offer and agree with the above named Listing
Broker to pay in consideration of procuring this Offer a commission as per the
listing agreement or if no listing agreement exists, commission shall be as
follows:
AS PER AGREEMENT of the first year's rental, and of
the rental for the balance of the lease, upon the date above set for
opening, occupancy, upon signing of a lease, or upon occupancy by the Lessee,
whichever occurs first, said commission is then due and payable. If this Offer
to Lease contains and OPTION to renew the lease, I agree to pay the said Listing
Broker upon the Lessee exercising the said OPTION or any future OPTION a further
commission of of the said rental payable during such renewal lease. If
this Offer to Lease contains an option to expand during the outlined lease term,
I agree to pay a further commission of of the said rental payable on the
expansion space upon the Lessee exercising such OPTION.
When the lease or agreement to lease provides for any periods where no rent
or a reduced rent is payable, the commission payable hereunder shall be
calculated on the stated rate per annum as if there were no period of free or
reduced rent.
Any deposit in respect of any agreement shall first be applied to reduce
the commission payable. Should such amounts paid to you from the deposit or by
my solicitor not be sufficient, I shall be liable to pay to you, on demand, any
deficiency in commission and taxes owing on such commission. All amounts set out
as commission are to be paid plus applicable Goods and Services Tax (G.S.T.) on
such commission.
DATED at this 16th day of DECEMBER 1998
<TABLE>
<S> <C>
SIGNED SEALED AND DELIVERED IN WITNESS whereof I have hereunto set my hand and seal:
in the presence of I have authority to bind the Company
- --------------------------- ------------------------------------------------------------
(Witness) (Lessee) MGI SOFTWARE CORP. (Seal) (Date)
- --------------------------- ------------------------------------------------------------
(Witness) (Lessee) (Seal) (Date)
</TABLE>
- --------------------------------------------------------------------------------
CONFIRMATION OF PRESENTATION
<TABLE>
<S> <C>
I hereby acknowledge and confirm the Listing Broker I hereby acknowledge and confirm the Listing Broker
represents the interests of the represents the interests of the
__________________________________ in this transaction. ________________________________________ in this transaction.
(Lessor/Lessor and the Lessee) (Lessor/Lessor)
- -------------------------------------------------------- -------------------------------------------------------------
Signature of Listing Broker or authorized representative Signature of Co-operating Broker or authorized representative
LANDSITE REAL ESTATE SERVICES INC. LANDSITE REAL ESTATE SERVICES INC.
- -------------------------------------------------------- -------------------------------------------------------------
Name of Listing Broker Name of Co-operating Broker
(416) 667-8002 (416)667-9501 ( ) ( )
- -------------------------------------------------------- -------------------------------------------------------------
Tel No. FAX No. Tel No. FAX No.
</TABLE>
<PAGE> 5
- --------------------------------------------------------------------------------
ACKNOWLEDGEMENT
<TABLE>
<CAPTION>
<S> <C>
I THE UNDERSIGNED hereby acknowledge this date having
I THE UNDERSIGNED hereby acknowledge this date having received my signed copy of this accepted Offer to Lease
received my signed copy of this accepted Offer to Lease and authorized the agent to forward a copy to my
and authorized the agent to forward a copy to my solicitor. solicitor.
- ----------------------------------------------------------- -------------------------------------------------------
(Lessor) (Date) (Lessee) (Date)
- ----------------------------------------------------------- -------------------------------------------------------
(Lessor) (Date) (Lessee) (Date)
- ----------------------------------------------------------- -------------------------------------------------------
(Lessor's address) (Lessee's address)
( ) ( )
- ----------------------------------------------------------- -------------------------------------------------------
Tel. No. Tel. No.
- ----------------------------------------------------------- -------------------------------------------------------
(Lessor's Solicitor) (Lessee's Solicitor)
- ----------------------------------------------------------- -------------------------------------------------------
(Solicitor's Address) (Solicitor's Address)
( ) ( ) ( ) ( )
- ----------------------------------------------------------- -------------------------------------------------------
Tel. No. FAX No. Tel. No. FAX No.
</TABLE>
- --------------------------------------------------------------------------------
COMMISSION TRUST AGREEMENT
The Listing Broker in consideration of the preparation and submission of
this agreement, hereby declares that the right to commission, and all
amounts payable or paid thereunder are held in trust by the Listing Broker
for and on behalf of the Listing Broker and Co-operating Broker as their
interest may be.
<TABLE>
<S> <C>
-------------------------------------------------------- -------------------------------------------------------------
Signature of Listing Broker or authorized representative Signature of Co-operating Broker or authorized representative
</TABLE>
<PAGE> 6
FOR USE IN THE PROVINCE OF ONTARIO
SCHEDULE "A" TO THE
OFFER TO LEASE
This Schedule is attached to and forms part of the OFFER TO LEASE BETWEEN:
LESSEE, DELANO TECHNOLOGY CORP. and LESSOR, MGI SOFTWARE INC. for the
lease of 40 WEST WILMOT STREET
(7) The Lessee agrees to accept the premises in an as is basis, except for
clause 6 above, and remove all debris in the warehouse area and to be
left in a broom swept condition.
(8) The Lessor agrees to sell all the following in the premises at a cost
of $4,000.00 payable to the Lessor upon occupancy:
(a) work stations X 9
(b) all voice and data wiring
(c) all racks for networking
(d) 4 X SML 331 TC HUBS
(e) 1 X 3 com link 2000
(f) alarm system, not included in price but available at 20% below
any replacement cost.
(g) master lock system
(9) Lessor warrants that to the best of the Lessors knowledge, information
and belief, the property has not been contaminated by any dangerous,
toxic or hazardous substances or contaminants as per the Environmental
Protection Act R.S.O. 1990, as amended.
(10) The Lessee may install in, upon, or about the said premises any signs
and advertising material which shall remain the property of the
Lessee, which the Lessee may remove up the expiration of the Lease,
provided that all damage caused is repaired and the premised left in
good repair. All signs and location(s) are to be approved beforehand
in writing by the Lessor (such consent not to be unreasonably
withheld) and must conform with all municipal and local by-laws.
(11) The Lessee may, at its own expense, subject to the written approval
of the Lessor, install any fittings, fixtures and partitions that may
be necessary for the operation of its business, from time to time
during the lease term, provided that upon termination of the lease
term or renewal thereof, the Lessee shall, at the option of the
Lessor, restore the premises to its original condition, at no cost to
the Lessor.
(12) Acceptance of this offer, or any counter-offer, may be made by either
party by telefax, or similar system reproducing the original, with
the necessary signatures and initials. Such acceptance shall be
deemed to be made when the telefax is received by the party, or
his/her real estate agent or lawyer. The person sending such telefax
shall immediately thereafter send, or deliver, the original to the
receiver of the telefax.
(NOTE: This form must be initialled by all parties to the OFFER TO LEASE.)
<TABLE>
<S> <C>
(Signed) (Signed)
(Lessee) DELANO TECHNOLOGY CORP. (Lessor) MGI SOFTWARE CORP.
- --------------------------------------------- ---------------------------------------------
(Lessee) (Lessor)
</TABLE>
<PAGE> 7
SCHEDULE "A" PAGE 2
(13) It is agreed and understood that all representations made by any party
to this agreement are set out in this agreement, and that there are no
other representations or agreements of any kind.
(14) It is understood and agreed that the contract resulting from the
acceptance of this offer shall be as expressly set out herein and in
the schedules attached hereto and, except as expressly set out herein
and in the attached schedules hereto, there are no collateral or other
representations, warranties, conditions or agreements of the Lessor
and none shall be implied.
(15) The parties to this Agreement acknowledge that the real estate
broker(s) so named in this offer has recommended that they obtain
advice from their Legal counsel prior to signing this document. The
parties further acknowledge that no information provided by such real
estate broker(s) is to be construed as expert legal, tax or
environmental advice.
(16) The Lessee shall have the right to assign its interests under this
lease to a limited company, partnership, or person. The lessee agrees
to send written notice of his intention to assign to the Lessor and
obtain the Lessor's written approval prior to an assignment. Such
approval shall not be arbitrarily withheld or delayed.
(17) The Lessee acknowledges that Goods and Services Tax (GST) will be
collectable by the Lessor on the gross rent paid.
(18) The Lessee shall be allowed to assign or sublease at any time or
times, with the Lessor's prior written consent, such consent not to be
unreasonably withheld.
(19) This offer to lease is conditional for a period of 2 business days
from the date latter of the (A) acceptance (B) upon receipt of the
head lease in order for the Lessee to inspect and review the contents
of the lease and find it satisfactory in its sole and absolute
discretion. This condition is inserted for the sole benefit of the
Lessee and may be waived by the Lessee in writing at any time prior to
the end of this conditional period. If this condition is not waived in
writing prior to the end of the conditional period this Offer To Lease
shall become null and void and the deposit returned in full.
(20) This Offer To Lease is further conditional for a period of 2 business
days from the date of removal of the above stated condition (clause
19), upon the Lessor obtaining written approval to assign and sublet
the above stated premises in accordance with the terms of the head
lease. If approval is not obtained within this time period than his
Offer To Lease shall become null and void.
(21) The Lessor agrees to deliver a copy of the head lease and all other
agreements and or side agreements between MGI SOFTWARE INC. and J.B.G.
HOLDINGS upon acceptance of this Offer To Lease.
(22) Lessee shall abide by all terms of the head lease and no term in this
offer to lease will breach this lease.
<PAGE> 8
FOR USE IN THE PROVINCE OF ONTARIO
OFFER TO LEASE
(ICI)
TO JBG HOLDINGS Lessor (Landlord)
I MGI SOFTWARE CORP. Lessee (Tenant) having inspected the premises or
plans, hereby offer to lease through RE/MAX REALTRON REALTY INC. (Listing
Broker) and MASON INTERNATIONAL INC. (Co-operating Broker) the premises known
municipally as PART OF 40 WEST WILMOT STREET in the TOWN of RICHMOND HILL
comprising 5,300 square feet, more or less for a term of FIVE (5) YEARS from
JANUARY 1, 1999 to DECEMBER 31, 2000 at a rental of per annum payable
$ monthly, in advance, on the FIRST as per scheduled day of each month
during the said term. Cheque in the amount of $ as a deposit, payable
to the Listing Broker in trust for the Lessor submitted herewith to be held
pending completion or other termination of this Agreement and is to be credited
on acc -- FIRST AND LAST MONTH'S RENT, ADDITIONAL RENT, for first month AND
G.S.T.
The lease shall be drawn by the Lessor and executed by the Lessee and the
Lessor forthwith subject to adjustments as negotiated between the Lessor's and
the Lessee's Solicitors, both acting reasonably.
The premises is to be used for OFFICES
IT IS UNDERSTOOD AND AGREED that
SEE SCHEDULE "A" ATTACHED HERETO AND FORMING PART OF THIS OFFER TO LEASE.
THIS OFFER shall be irrevocable by the Lessor until 5:00 (p.m.) on the
20th day of OCTOBER 19 -- after which time if not accepted, this offer shall
be null and void and all deposit monies paid by the Lessee hereunder -- be
refunded without any interest or deduction whatsoever.
It is further understood that all representations by the Lessor or any of
his representatives, are set out in this Agreement.
<PAGE> 9
The heirs, executors, administrators, successors and assigns of the
undersigned are bound by the terms hereof. This Agreement shall be read with
such changes of gender or number as may be required by the context.
DATED at MARKHAM this 26TH day of OCTOBER 1995
<TABLE>
<S> <C>
SIGNED, SEALED AND DELIVERED IN WITNESS whereof I have hereunto set my
in the presence of hand and seal:
I have authority to bind the Company MGI
SOFTWARE CORP.
- --------------------------------------------- per: (Signed) (Affix Seal) Oct. 26/95
(Lessee) (Date)
- --------------------------------------------- per: (Affix Seal)
(Lessee) (Date)
</TABLE>
I hereby accept that above Offer and agree with the above named Listing
Broker to pay in consideration of procuring this Offer a commission of AS PER
M.L.S. AGREEMENT
Any deposit in respect of any agreement shall first be applied to reduce
the commission payable. Should such amounts paid to you from the deposit or by
my solicitor not be sufficient, I shall be liable to pay to you, on demand, any
deficiency in commission and taxes owing on such commission. All amounts set out
as commission are to be paid plus applicable federal goods and services tax
(G.S.T.) on such commission.
DATED at RICHMOND HILL this 27th day of OCTOBER 1995
<TABLE>
<S> <C>
SIGNED, SEALED and DELIVERED IN WITNESS whereof I have hereunto set my
in the presence of hand and seal;
I have authority to bind the Company J.B.G.
HOLDINGS
- --------------------------------------------- per: (Signed) (Affix Seal) 27/10/95
(Lessor) (Date)
- --------------------------------------------- per:
(Lessor) (Date)
</TABLE>
- --------------------------------------------------------------------------------
COMMISSION TRUST AGREEMENT
The Listing Broker in consideration of the preparation and submission of
this agreement, hereby declares that the right to commission, and all amounts
payable or paid thereunder are held in trust by the Listing Broker for and on
behalf of the Listing Broker and Co-Operating Broker as their interests may be.
<TABLE>
<S> <C>
--------------------------------------------- ---------------------------------------------
(Listing Broker or Sales Representative) (Co-Operating Broker or Sales Representative)
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 10
ACKNOWLEDGEMENT
<TABLE>
<S> <C>
I THE UNDERSIGNED hereby acknowledge this I THE UNDERSIGNED hereby acknowledge this
date having received my signed copy of this date having received my signed copy of this
accepted Offer to Lease and authorize a copy accepted Offer to Lease and authorize a copy
to be forwarded to my solicitor. to be forwarded to my solicitor.
- --------------------------------------------- ---------------------------------------------
Lessor (Date) Lessee (Date)
- --------------------------------------------- ---------------------------------------------
Lessor (Date) Lessee (Date)
- --------------------------------------------- ---------------------------------------------
Lessor's Address Lessee's Address
- --------------------------------------------- ---------------------------------------------
(Phone #) (Phone #)
- --------------------------------------------- ---------------------------------------------
Lessor's Solicitor Lessee's Solicitor
- --------------------------------------------- ---------------------------------------------
Solicitor's Address Solicitor's Address
- --------------------------------------------- ---------------------------------------------
(Phone #) (Phone #)
</TABLE>
<PAGE> 11
SCHEDULE "A"
Attached to and forming part of an offer to Lease between to Lease between
JBG HOLDINGS, as Lessor an MGI SOFTWARE CORP., as Lessee
1. UTILITIES
The Lessee shall pay all hydro, and gas charges.
2. ADDITIONAL RENT
The Lessee shall pay its proportionate share of realty taxes, outside
maintenance, building insurance, water, and management fee, currently
estimated to be ( ) per square foot per annum, and to be adjusted
according to actual costs.
3. LESSEE'S IMPROVEMENTS AND ALTERATIONS
The Lessee may make any necessary non-structural alterations and
improvements to said premises, at its own expense, subject to the Lessor's
consent, and such consent may not be unreasonably withheld or delayed. The
Lessee may, however, make any necessary minor internal improvements to said
premised, at its own expense, without the Lessor's consent.
4. ACCESS
5. SIGN
The Lessee shall have the privilege to erect a sign on the exterior of the
demised premises denoting its tenancy therein, such sign shall be subject
to the approval of the Lessor, such approval shall not be unreasonably
withheld and the sign shall conform to all governmental regulations
governing signs.
6. ASSIGN OR SUBJECT
The Lessee may assign or sublet such premises, in whole or in part, with
the Lessor's consent, such consent shall not be unreasonably withheld.
7. OPTION TO RENEW
Provided that the Lessee has not been in default herein, either in payment
of rent observance of the covenants herein, and provided the Lessee shall
give the Lessor six (6) months' notice in writing, the Lessee shall have
the option to renew this Lease for a further term of five (5) years, at the
same terms and conditions herein, save at except this renewal clause, and
save and except rental amount, which shall be negotiated at the then market
value, or prevailing rates, and failing agreement, rent amount to be
determined by arbitration under the Ontario Arbitration Act.
8. CONDITION OF MECHANICAL INSTALLATIONS
9. RIGHT OF FIRST REFUSAL
The Lessee shall have the right of first refusal to lease any space in the
complex that becomes available during the said term of the Lease.
10. DEPOSIT CHEQUE
The Lessee and the Lessor acknowledge and agree that the deposit cheque
delivered herewith to the Agent shall not be deposited in the Agents' Trust
Account until said Offer to Lease is accepted by both parties. Upon
acceptance, the deposit cheque ill be deposited in an interest-bearing
account with the interest accruing to the Lessee.
<PAGE> 12
11. ACCEPTANCE BY TELEFAX
Acceptance of this offer, or any counter-offer, amy be made by either party
by telefax, or similar system reproducing the original, with the necessary
signatures and initials. Such acceptance shall be deemed to be made when
the telefax is received by the party, or his/her real estate agent or
lawyer. The person pending such telefax shall immediately thereafter send,
or deliver, the original to the receiver of the telefax.
12. SUB-AGENT
The parties to this transaction hereby acknowledge that the Co-operating
Broker has acted, and is acting, as sub-agent of the Lessor and will be
compensated through the Listing Broker.
<PAGE> 13
SCHEDULE "B"
LESSOR: JBG HOLDINGS
LESSEE: MGI SOFTWARE CORPORATION
PROPERETY: 40 WEST WILMOT STREET, RICHMOND HILL
(1) NET LEASE:
The rent herein shall be a net rental to the Lessor. In addition to the
rent the Lessee shall pay his own business taxes, telephone expenses,
related expenses and will provide their own contents and 3rd party
insurance. The Lessee shall pay real estate taxes, maintenance, and
building insurance (TMI).
The parties acknowledge and agree that the cost for realty taxes,
maintenance and building insurance together (TMI) for the available space
under consideration is estimated to be approximately per square foot per
annum for 1995 and shall be adjusted accordingly each year to reflect any
increase/decrease in costs.
The Lessee agrees to pay its proportion of the share of hydro, water, and
utilities and may ask for copies of gross utilities twice a year to confirm
their proportionate share.
(2) SCHEDULE OF NET RENTAL:
<TABLE>
<S> <C>
Year 1
Year 2 per sq ft per annum
Year 3
Year 4 per sq ft per annum
Year 5
</TABLE>
NOTE:
For purpose of net rental calculations, these figures are based on 5,300
square feet, more or less.
ACCESS:
This access period is for renovations and repairs only and any occupancy
for the purpose for carrying on business shall not originate until post
December 15, 1995. From the date of access by the Lessee, the Lessee shall
be responsible for their proportionate share of common costs.
The Lessee agrees to provide post-dated cheques for each 12 month period at
the begining of each new year and starting January 1st, 1996.
OCCUPANCY:
The Lessor warrants that all heating, ventilation, air conditioning (HVAC
System), electrical, mechanical, plumbing and sprinkler systems will be in
good working condition at the date of official occupancy (January 1, 1996)
by the Lessee.
FINANCIAL STATUS:
The Lessee agrees to confer and answer reasonable questions as deemed
necessary by the Lessor as to the financial status of the Lessee.
<PAGE> 14
JBG HOLDINGS
40 WEST WILMOT ST.
RICHMOND HILL, ONT. L4B 1H8
January 2, 1997
Mr. Joel Goldman
MGI Software Corp.
40 West Wilmot St., Suite 6
Richmond Hill, Ont. L4B 1H8
Dear Joel:
This letter will summarize the terms of occupancy of units 8 and 9 at 40
West Wilmot St. This space was previously occupied by Electronics project
management, who have agreed to the termination of their lease effective December
31, 1996 upon the payment by MGI of a relocation fee to EPM.
As landlord, JBG Holdings has agreed to terminate its lease with EPM
effective December 31, 1996. It will then enter into an agreement with MGI to
lease the said space effective January 1, 1997, on the following terms: The base
rent will remain at per square foot, triple net, with a lease
termination date set to coincide with the termination of the lease foe MGI's
original space. Other terms and conditions are as per the original lease
agreement.
New rental invoices for the unit 8 & 9 space will be prepared effective
January 1, 1997, with the standard first and last month's rent payable in
advance.
Please prepare and deliver to me, a copy of the proposed work for the
stairwell joining the upper and lower levels of MGI's space. I understand that
MGI will be retaining Besteight Construction to complete this work, which can
begin upon receipt of the engineered plans.
Your truly,
JBG Holdings
(Signed)
Paul Greenhalgh
<PAGE> 15
AGREEMENT
Belwean JBL, HOLDINGS (LANDLORD) and MB7 SOFTWARE CAP/ (TENANT) for construction
of the -- finishing of units 8 and 9 at 40 West Wilmot Street, Richmond
Hill, Ontario.
Whereas Tenant currently occupies Unit 6 at 40 West Wilmot Street and
requires additional space, and
Whereas 1026059 Ontario Inc. (EAM) is a tenant at the building who
occupies units 4 and 5, and whereas.
The Tenant wishes to leave from the landlord this space occupied by EAM
they (Tenant) have agreed to the following terms:
(1) Construct finishing to Units 8 and 9 in the building at their own
expense per the attached plans. Such cash will include all costs of
construction, insurance liability, permits and fees but in all cases
will include all costs associated with completion of units 8 and 9 to
the satisfaction of EPM.
(2) Pay to EPM prior to their move from Units 4 and 5 to Units 8 and 9 the
sum of to cover the cost of the EPM relocation. EPM will
agree to move upon payment of as being inclusive of all
cost.
(3) Enter into a lease with JBI Holdings for the lease of Units 4 and 5 at
the rate of $ per sq. ft. -- net payable monthly in
advance. The lease matures on 31 December 2000 subject to any early
-- clause as set out in the lease for Unit 6-7M1 as extra per
landlord calculation.
<PAGE> 16
(4) Provide JGB Holdings (landlord) with -- from cell -- working
on the said units 8 and 9. MGI warrants that units 8 and 9 will be
lien free at time of completion and -- following occupancy as a
result of such --
(5) MGI will begin paying rent to landlord for unit 4 and 5 at the time
EPM relocates to that 8, 9 and begins paying rent in their units.
(6) -- landlord and its agent -- from any liability that may
accrue or costs associated with any delay in completion of the
described work on with 8, 9.
(7) Provide the landlord with a building permit, engineered drawings and
-- of all plans prior to the start of work.
(8) Provide landlord with a -- for all aspects.
of construction at the completion of the work had in all cases prior to their
occupancy of Units 4 and 5.
(8) Enter into a formal agreement prepared by Landlords' lawyer reflecting
these terms and any other reasonable term as Landlord may require.
and Whereas the Landlord agrees as follows:
(1) Tenants to allow MI,1 and their construction access to Units 8 or 9
during construction with proper insurance policy provided by MI,1.
(2) Allow MI,1 a relocation in that total rent for Units 4, 5 and 6 in
the amount of applicable to have and only, after
accompany by EAM of Units 8 and 9 and commencement of payment by
MI,1 of rent for Units 4 and 5, until the earlier of
(A) Termination of lease by either Landlord, a MI,1, or,
(B) May 31, 2001
(C) The vacating of Units 8, 9 by EPM of the Expiry of their lease
of March 31, 1998 or; unless occupied by MGI a new tenant and
similar rent.
(D) Clauses against the landlord by the Town for any deficiencies
in the work performed, or
(E) Claims against the Landlord by any of the Construction sub
trades or employees on the construction who did work or
delivered materials to the Unit 8 and 9 finishing job, or
(F) Suspension of rent payments to the Landlord by EPM due to
claims of deficiency in the work completed in Units 8, 9.
Both the Landlord and Tenant agree to enter into a formal lease when
prepared by the Landlords solicitor under terms and conditions similar to
-- of lease for unit 6.
Attachments include the Building Permit, plans for Electrical, Mechanical,
-- as approved by the Town of Richmond Hill Building Dept.
Agreement entered into and signed in triplicate in the Town of Richmond
Hill, Province of Ontario on the 29th day of April 1996.
<TABLE>
<S> <C> <C>
------------------------------ ------------------------------ ------------------------------
(signed) Tenant MGI Software Corp. Landlord JBG, Holdings,
Witness by Joel Boldman by Paul Greenhalg
</TABLE>
<PAGE> 1
Exhibit 10.8
OFFICE LEASE
BETWEEN
302 TOWN CENTRE LIMITED
- AND -
DELANO TECHNOLOGY CORP.
PART OF THE 2ND FLOOR, 3RD FLOOR & 4TH FLOOR
302 TOWN CENTRE BOULEVARD
MARKHAM, ONTARIO
INDEX
OFFICE LEASE
TABLE OF CONTENTS
ARTICLE 1
SPECIAL PROVISIONS
ARTICLE 2
PREMISES, TERM AND ACCEPTANCE
OF THE PREMISES
Section 2.1 Premises
Section 2.2 Use of Additional Areas
Section 2.3 Grant and Term
Section 2.4 Construction of Premises
ARTICLE 3
RENT
Section 3.1 Covenant to Pay
Section 3.2 Basic Rent
Section 3.3 Pre-Authorized Payments/Postdated Cheques
Section 3.4 Advance Rent
Section 3.5 Rent Past Due
<PAGE> 2
ARTICLE 4
TAXES AND OPERATING COSTS
Section 4.1 Taxes Payable by Landlord
Section 4.2 Taxes Payable by Tenant
Section 4.3 Business Taxes and Other Taxes of the Tenant
Section 4.4 Tenant's Proportionate Share of Operating Costs
Section 4.5 Payment of Taxes and Operating Costs
Section 4.6 Administration Fee
ARTICLE 5
BUILDING - CONTROL AND SERVICES
Section 5.1 Control of the Building
Section 5.2 Landlord's Services
Section 5.3 Tenant's Responsibilities
Section 5.4 Relocation of the Premises - Intentionally Deleted
Section 5.5 Additional Services
ARTICLE 6
UTILITIES
Section 6.1 Charges for Utilities
ARTICLE 7
USE OF THE PREMISES
Section 7.1 Use of the Premises
Section 7.2 Conduct of Business
Section 7.3 Observance of Law
Section 7.4 Hazardous Substances
ARTICLE 8
INSURANCE AND INDEMNITY
Section 8.1 Tenant's Insurance
Section 8.2 Increase in Insurance Premiums
Section 8.3 Cancellation of Insurance
Section 8.4 Loss or Damage - Intentionally Deleted
Section 8.5 Landlord's Insurance
<PAGE> 3
Section 8.6 Indemnification - Intentionally Deleted
Section 8.7 Release and Indemnification
ARTICLE 9
MAINTENANCE, REPAIRS AND ALTERATIONS
Section 9.1 Maintenance and Repairs by the Landlord
Section 9.2 Maintenance and Repairs by the Tenant
Section 9.3 Landlord's Approval of the Tenant's Repairs
Section 9.4 Removal and Restoration by the Tenant
Section 9.5 Tenant to Discharge all Liens
Section 9.6 Signs and Advertising
Section 9.7 Tenant Not to Overload Facilities
Section 9.8 Tenant Not to Overload Floors
ARTICLE 10
DAMAGE AND DESTRUCTION
Section 10.1 Destruction of the Premises
Section 10.2 Destruction of the Building
Section 10.3 Expropriation
Section 10.4 Architect
ARTICLE 11
ASSIGNMENT AND SUBLETTING
Section 11.1 Assignment and Subletting
Section 11.2 Assignment by the Landlord
ARTICLE 12
ACCESS AND ALTERATIONS
Section 12.1 Right of Entry
ARTICLE 13
STATUS STATEMENT, SUBORDINATION AND ATTORNMENT
Section 13.1 Status Statement
Section 13.2 Subordination and Attornment
Section 13.3 Attorney
Section 13.4 Financial Information
<PAGE> 4
ARTICLE 14
DEFAULT
Section 14.1 Right to Re-enter
Section 14.2 Right to Relet
Section 14.3 Expenses
Section 14.4 Waiver of Exemption from Distress
Section 14.5 Landlord's Rights
Section 14.6 Remedies Generally
ARTICLE 15
MISCELLANEOUS
Section 15.1 Rules and Regulations
Section 15.2 Intent and Interpretation
Section 15.3 Overholding - No Tacit Renewal
Section 15.4 Tenant Partnership or Group
Section 15.5 Waiver
Section 15.6 Accord and Satisfaction
Section 15.7 Force Majeure
Section 15.8 Notices
Section 15.9 Registration
Section 15.10 Accrual of Basic Rent and Additional Rent
Section 15.11 Compliance with the Planning Act
Section 15.12 Quiet Enjoyment
Section 15.13 Consent and Approval
Section 15.14 Non-Liability
ARTICLE 16
DEFINITIONS
SCHEDULE "A" - LEGAL DESCRIPTION
SCHEDULE "B" - FLOOR PLAN
SCHEDULE "C" - CONSTRUCTION OF THE PREMISES
SCHEDULE "D" - METHOD OF FLOOR MEASUREMENT - INTENTIONALLY DELETED
SCHEDULE "E" - RULES AND REGULATIONS
SCHEDULE "F" - ADDITIONAL PROVISIONS
<PAGE> 5
THIS LEASE is made as of November 17, 1999.
B E T W E E N:
302 TOWN CENTRE LIMITED
(the "LANDLORD")
OF THE FIRST PART
- and -
DELANO TECHNOLOGY CORP.
(the "TENANT")
OF THE SECOND PART
THIS LEASE WITNESSES that in consideration of the mutual covenants and
agreements contained in this Lease and other good and valuable consideration
(the receipt and sufficiency of which is hereby acknowledged by the parties) the
parties covenant and agree as follows:
ARTICLE 1
SPECIAL PROVISIONS
The following are certain special provisions, which are part
of, and are referred to in subsequent provisions of this Lease. Any conflict or
inconsistency between these special provisions and the provisions contained
elsewhere in this Lease will be resolved in favour of the provisions contained
elsewhere in this Lease:
SECTION 1.1 PREMISES
The Premises shall be all of the third and fourth floors and
that part of the second floor of the Building, outlined in red on Schedule "B"
attached hereto of the Building. The Premises contain a Rentable Area of
approximately THIRTY-FOUR THOUSAND, FOUR HUNDRED AND EIGHTEEN (34,418) square
feet. (Section 2.1).
SECTION 1.2 FIXTURING PERIOD - Intentionally Deleted.
<PAGE> 6
SECTION 1.3 COMMENCEMENT DATE AND TERM
The Term shall be a period of 10 years commencing on March 1,
2000 (the "Commencement Date") and ending on February 28, 2010, unless sooner
terminated or extended as provided for in this Lease.
Provided that if there is any Landlord's Work to be performed,
the Commencement Date is subject to adjustment in accordance with Section 2.4.
Notwithstanding any change in the Commencement Date calculated
in accordance with the preceding provisions hereof, the Term shall expire on the
date set forth for such expiry in the first paragraph of this Section 1.3,
subject always to earlier termination as provided for in this Lease.
SECTION 1.4 BASIC RENT
Annual payments during the Term based upon the following
annual rates per square foot of the Rentable Area of the Premises and payable in
accordance with the terms of this Lease, as follows:
Period Annual Monthly Rate per
of Term Basic Rent Basic Rent Square Foot
Commencement Date to
end of the first month $0.00 $0.00 $0.00
of the Term
One (1) month after the
Commencement Date to $413,016.00 $34,418.00 $12.00
February 28, 2005
March 1, 2005 to $481,852.00 $40,154.33 $14.00
February 28, 2010
SECTION 1.5 ADVANCE RENT
The sum of Seventy-Nine Thousand, Seven Hundred and Ninety-Two
Dollars and Thirty-Six Cents ($79,792.36) (Section 3.4).
SECTION 1.6 ADDRESS OF LANDLORD (SECTION 15.8)
c/o 81 Ronald Avenue
Toronto, Ontario, M6E 4M9
<PAGE> 7
SECTION 1.7 ADDRESS OF TENANT (Section 15.8)
Prior to the Commencement Date:
40 West Wilmont Street
Richmond Hill, Ontario, L4B 1H8
From and after the Commencement Date:
The Premises.
SECTION 1.8 INDEMNIFIER (Appendix "A")
None.
SECTION 1.9 ADDRESS OF INDEMNIFIER (Appendix "A")
Not Applicable
SECTION 1.10 USE OF THE PREMISES (Section 7.1)
The Tenant may use the Premises for office uses and as a training
centre. The Tenant may also use the Premises for any other lawful use as long as
it first obtains the Landlord's consent, which consent shall not be unreasonably
withheld.
SECTION 1.11 ADDITIONAL PROVISIONS
See Schedule "F"
ARTICLE 2
PREMISES, TERM AND ACCEPTANCE
OF THE PREMISES
SECTION 2.1 PREMISES
The Landlord leases to the Tenant, and the Tenant leases from the
Landlord, the Premises. As soon as reasonably possible and in any event prior to
the Commencement Date, the Landlord shall provide to the Tenant a certificate of
measurement from the Architect certifying the actual Rentable Area
<PAGE> 8
of the Premises and the Rentable Area of the Building. If such certificate shows
that the actual Rentable Area of the Premises is more or less than thirty-four
thousand, four hundred and eighteen (34,418) square feet of Rentable Area, the
Basic Rent shall be adjusted accordingly. It is understood and agreed that the
measurement will: (a) be in accordance with BOMA; and (b) be based upon an
actual on-site measurement of the Premises and the Building and not upon the
plans for the Premises or the Building. The Architect's certificate shall be
binding on the parties, except in the case of manifest error or if such person
has not acted in accordance with the standards of such person's profession.
SECTION 2.2 USE OF ADDITIONAL AREAS
The Tenant's use of the Premises includes the non-exclusive right of
the Tenant and persons having business with the Tenant in common with the
Landlord and all others entitled, to the use of the Common Areas and Facilities.
SECTION 2.3 GRANT AND TERM
The Tenant shall, subject to the terms of this Lease, have and hold
the Premises during the Term (being the period referred to in Section 1.3 of the
Special Provisions) subject to the observance and performance of the Tenant's
Covenants.
SECTION 2.4 CONSTRUCTION OF PREMISES
(a) The Landlord will substantially complete the work designated as
"Landlord's Work" in accordance with the provisions of Schedule "C" prior to the
Commencement Date.
(b) If the Landlord is unable to substantially complete the Landlord's
Work prior to the Commencement Date other than by reason of the Tenant's act or
omission:
(i) the Commencement Date shall, for all purposes, be
postponed to the first business day following the date that the Landlord
substantially completes the Landlord's Work and the Term shall only commence and
run from such date. The number of days from the original Commencement Date to
such postponed Commencement Date is called the "Delayed Period". Provided
however that if the plans to be agreed upon by the Landlord and the Tenant in
respect of the Landlord's Work have not been delivered to the Architect prior to
November 30, 1999, as approved (excluding interior design materials and finishes
specifications), then the Delayed Period shall be reduced by the number of days
from November 30 until such date as the plans, as approved are delivered to the
Architect; and
(ii) the Landlord shall pay the Tenant an amount (provided
such amount is a positive number) equal to $1,000.00 multiplied by the number of
days in the Delayed Period in excess of 15 days (the "Damages Amount"), such
amount representing the parties' genuine estimate of the damages that the Tenant
will suffer as a result of the Landlord not substantially completing the
Landlord's Work prior to April 1, 2000. Provided the
<PAGE> 9
Tenant is not in default beyond any cure period provided for in the Lease, the
Landlord shall pay the Damages Amount to the Tenant within 20 days following the
date that the Landlord substantially completes the Landlord's Work, failing
which the Tenant shall be entitled to deduct the Damages Amount from the Rent
otherwise payable by the Tenant. If the Tenant is in default at the time the
Damages Amount is to be paid by the Landlord and the Tenant subsequently cures
its default and is not in default under the terms of the Lease, then the
Landlord shall pay the Damages Amount within thirty (30) days following such
cure.
(c) If the Landlord's Work has only been substantially completed on the
date that the Landlord delivers vacant possession of the Premises to the Tenant,
the Landlord shall diligently proceed to fully complete all of the Landlord's
Work as quickly as possible and in doing so shall take reasonable steps to
minimize its interference with the Tenant's business operations in the Premises.
(d) The Tenant shall, at its expense, carry out all additional work
required to open the Premises for business. Such work shall be carried out in a
good and workmanlike manner, using first class materials during the month
immediately following the Commencement Date and otherwise in accordance with the
provisions of this Lease.
(e) Whenever the Landlord or the Tenant is required by the terms of
this Lease to carry out any work, repairs or replacements to the Premises or, in
the case of the Landlord, to the Building, including, without limitation, the
Landlord's Work or the Tenant's Work, the Landlord and the Tenant shall: (i) use
competent and qualified workers and, in the case of the Tenant, such workers
shall be approved by the Landlord; (ii) perform such work in a good and
workmanlike manner consistent with the general standards of first-class
buildings similar to the Building; (iii) use defect free, good quality
materials; and (iv) comply with all applicable laws, by-laws and building codes.
(f) If there is a dispute as to (i) completion of the Landlord's Work,
or (ii) the availability of the Premises for possession by the Tenant, or (iii)
the Usable Area or the Rentable Area of the Premises, the opinion of the
Architect will be final and binding.
(g) The Tenant will examine the Premises before taking possession and
unless the Tenant serves the Landlord with written notice specifying any
deficiencies or defects within ten (10) days after the Commencement Date, the
Tenant will be deemed to have examined the Premises and to have agreed that they
are in good order and that the Landlord's Work, if any, has been satisfactorily
completed. There is no promise, representation or undertaking by or binding upon
the Landlord with respect to any alteration, remodelling or redecorating of, or
installation of equipment or fixtures in, the Premises, unless expressly set
forth in this Lease.
(h) Subject to subsection (b) hereof, the Tenant acknowledges that if
there is a delay which results in the Building or the Landlord's Work not being
completed on schedule, the Tenant shall and does hereby release the Landlord
from all costs, expenses, claims, losses or damages suffered or incurred as a
result of such delay whether or not
<PAGE> 10
caused, or to the extent contributed to, by the acts, omissions or negligence of
the Landlord or those for whom it is at law responsible.
SECTION 2.5 COMPLETION OF THE PROJECT
The parties acknowledge and agree that:
(a) the Property is still in the process of being developed and completed
and that the Landlord intends to construct two (2) additional buildings (the
"ADDITIONAL BUILDINGS") on lands adjacent to the Lands;
(b) the Building, the Additional Buildings and the lands on which they are
situate will be operated by the Landlord as an integrated project (the
"PROJECT");
(c) the underground parking area currently serving the Building will serve
the entire Project;
(d) such ongoing construction activities shall not be a breach of the
covenant of quiet enjoyment, a nuisance or constitute any type of activity
entitling the Tenant to any sort of relief or claim, including without
limitation, any claim for damages as a result of any of the Landlord's
activities, except as set out in Section 2.4;
(e) during such development or any future development, use of the Common
Areas and Facilities may be temporarily impeded or obstructed or otherwise
affected, but the Landlord shall take such steps as are necessary to ensure that
there is always adequate parking for the tenants of the Building; and
(f) upon such development being completed, the exterior Common Areas and
Facilities of the Project (including, without limitation, the underground
parking facilities) will be shared by the occupants of the Project and the costs
related to the operation and maintenance (but excluding any Excluded Costs) of
such Common Areas and Facilities will be allocated by the Landlord among the
Property and the Additional Buildings comprising the Project in an equitable
manner, and the amount so allocated to the Building will be included in the
Operating Costs, and the Landlord shall, at the time of making its allocation,
provide to the Tenant a written explanation as to its method of allocation.
ARTICLE 3
RENT
SECTION 3.1 COVENANT TO PAY
The Tenant will pay Basic Rent and Additional Rent when due and
payable as set out in this Lease from and after the Commencement Date unless
otherwise specified in this Lease. All Rent shall be paid by the Tenant to the
Landlord without notice or demand and without
<PAGE> 11
abatement, deduction or set-off for any reason whatsoever, except as may be
expressly permitted by the terms of this Lease.
SECTION 3.2 BASIC RENT
The Tenant will, from and after the Commencement Date and thereafter
throughout the Term, pay the Landlord as Basic Rent, in equal consecutive
monthly instalments, in advance on the first day of each calendar month of each
Lease Year, the amounts specified in Section 1.4. Basic Rent will be pro-rated
on a daily basis for any fractional month period at the beginning or end of the
Term. When the Rentable Area of the Premises is determined the Basic Rent and
Additional Rent shall, if necessary, be adjusted retroactively to the
Commencement Date.
SECTION 3.3 PRE-AUTHORIZED PAYMENTS/POSTDATED CHEQUES
At the Landlord's request, the Tenant will participate in a
pre-authorized payment plan whereby the Landlord will be authorized to debit the
Tenant's bank account each month or from time to time during each Lease Year in
an amount equal to the Basic Rent and Additional Rent payable on a monthly
basis, and, if applicable, generally any amount payable provisionally pursuant
to the provisions of this Lease on an estimated basis. The Tenant hereby
undertakes to sign a form of application which is the same or similar to
Schedule "F" to give full force and effect to the foregoing within five (5) days
of presentation.
In lieu of the pre-authorized payment plan referred to above, the
Landlord shall be entitled to require the Tenant to present at the beginning of
each Lease Year a series of monthly postdated cheques for each such Lease Year
for the aggregate of the monthly payments of Basic Rent and Additional Rent
payable on a monthly basis, and, if applicable, generally any amount payable
provisionally pursuant to the provisions of this Lease on an estimated basis.
Despite the foregoing, so long as the tenant is Delano Technology
Corp., the Tenant shall not be required to participate in any such
pre-authorized plan or provide post-dated cheques unless it has been in monetary
default on more than three (3) occasions. If more than three (3) defaults occur,
the Tenant shall forthwith upon the request of the Landlord provide such
pre-authorized payment authorization or post-dated cheques, at the Landlord's
option, to the Landlord.
SECTION 3.4 ADVANCE RENT
The Landlord acknowledges receipt of the sum specified in Section 1.5
of the Special Provisions as Advance Rent which it will apply towards the
payment of Basic Rent (plus applicable GST) for the second and last months of
the Term except that the
<PAGE> 12
Landlord may apply all or part of the amount retained for application towards
the last month's Basic Rent as compensation for any loss or damage arising from
the breach by the Tenant of any provision of this Lease. This right will not be
construed to limit the Landlord's other rights under this Lease or at law or to
limit the amount recoverable by the Landlord for damages in respect of breaches
by the Tenant of this Lease. If the Landlord uses all or part of the Advance
Rent for the last month's Basic Rent as provided above, the Tenant will, upon
notification by the Landlord, pay to the Landlord the amount required to
reimburse it for the amounts so applied. The Landlord will not be required to
pay interest to the Tenant on the Advance Rent. The Landlord may deliver the
Advance Rent to any purchaser of the Landlord's interest in the Building or any
part thereof, whereupon the Landlord will immediately be discharged from any
further liability with respect to the Advance Rent. The Tenant will not assign
or encumber its interest in the Advance Rent except in connection with a
permitted Transfer, in which case the Tenant's interest in the Advance Rent will
be deemed to have been assigned to the permitted Transferee as of the date of
the Transfer.
SECTION 3.5 RENT PAST DUE
If the Tenant fails to pay any Rent when due, then, in addition to all
other rights and remedies available to the Landlord, the unpaid amounts will
bear interest from the due date to the date of payment at an annual rate of four
(4) percentage points above the Prime Rate, calculated and compounded monthly
or, at the Landlord's option, at the maximum annual rate permitted by law.
SECTION 3.6 ABATEMENT OF RENT
If, as a result of any negligent omissions or actions of the Landlord
or the Landlord's Employees, the Tenant is prevented from accessing or from
carrying on its business in the Premises for more than 48 hours, then all Rent
shall abate until such time as the Tenant is again able to carry on its business
from the Premises. This section shall not apply in situations where the Landlord
is exercising its right of distress or has re-entered or otherwise terminated
the Lease due to the Tenant's default or in circumstances of force majeure which
are otherwise dealt with in this Lease.
ARTICLE 4
TAXES, OPERATING COSTS AND ADMINISTRATION FEE
SECTION 4.1 TAXES PAYABLE BY LANDLORD
The Landlord will pay directly to the taxing authority all Taxes. The
Landlord may, nevertheless, defer payment of Taxes to the fullest extent
permitted by law, so long as it diligently prosecutes any contest or appeal of
Taxes. If any deferment results in interest payments, fines or other penalties
being payable, the Landlord will be solely responsible for the payment of same.
<PAGE> 13
SECTION 4.2 TAXES PAYABLE BY TENANT
(a) (i) If separate tax bills for the portion of Taxes relating to the Premises
(the "Premises Taxes") are available, then the Tenant shall pay to the Landlord,
or the taxing authorities if the Landlord so directs, the Premises Taxes for
each Lease Year. The Tenant shall promptly deliver to the Landlord receipts
evidencing the payment of all such Premises Taxes and such other information in
connection therewith as the Landlord reasonably requires.
(ii) If there are no separate tax bills for Premises Taxes, but there are
separate assessments for Premises Taxes, then the Landlord shall allocate to the
Premises for such Lease Year, a portion of the Taxes determined by reference to
such separate assessments, and the Tenant shall pay to the Landlord, the portion
of such Taxes so allocated by the Landlord.
(iii) If there are no separate tax bills for Premises Taxes and there are no
separate assessments for Premises Taxes, then the Tenant will pay its
Proportionate Share of Taxes assessed against the Property. The Landlord will
endeavour to obtain a separate assessment for the Property and its related
facilities, for the purposes of determining the Taxes applicable to the
Property.
(iv) As referred to Section 2.5 hereof, it is understood that the Building is
one of several buildings to be developed on the Project, which other buildings
may or may not be commercial buildings. The Landlord will endeavour to obtain a
separate assessment for the Property, for the purposes of determining the
Tenant's Proportionate Share of Taxes payable, but if it is not able to do so,
the Tenant will pay a Proportionate Share of the Project's taxes, as allocated
to the Property by the Landlord, acting reasonably, and the Landlord shall, at
the time of making its allocation, provide to the Tenant a written explanation
as to its method of allocation.
(b) If: (i) the Tenant or permitted Transferee or other occupant of the Premises
shall elect to have the Premises or any part thereof assessed for separate
school taxes; and (ii) there are no separate tax bills or separate assessments
relating to the Premises, then the Tenant shall pay to the Landlord as
Additional Rent, as soon as the amount of such separate school taxes is
ascertained, any amount by which the amount of separate school taxes exceeds the
amount which would otherwise have been payable for school taxes had such
election not been made by the Tenant or the Transferee or other occupant of the
Premises.
SECTION 4.3 GST
In addition to the Rent payable hereunder, the Tenant will pay to the
<PAGE> 14
Landlord (acting as agent for the taxing authority if applicable) or directly to
the taxing authority (if required by the applicable legislation) in the manner
specified by the Landlord, the full amount of all goods and services taxes,
sales taxes, value-added taxes, multi-stage taxes, business transfer taxes and
any other taxes imposed on the Landlord or the Tenant in respect of the Rent
payable by the Tenant under this Lease or in respect of the rental of space by
the Tenant under this Lease (collectively and individually, "GST"). GST is
payable by the Tenant whether characterized as a goods and services tax, sales
tax, value-added tax, multi-stage tax, business transfer tax, or otherwise. GST
so payable by the Tenant will: (i) be calculated by the Landlord in accordance
with the applicable legislation; (ii) be paid by the Tenant at the same time as
the amounts to which the GST applies 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); and (iii) despite anything else in this Lease, be
considered not to be Rent, but the Landlord shall have all of the same remedies
for and rights of recovery with respect to such amounts as it has for
non-payment of Rent under this Lease or at law.
SECTION 4.4 BUSINESS TAXES AND OTHER TAXES OF THE TENANT
(a) For the purposes of this section, "Business Taxes" means all business taxes,
personal property taxes, licence fees or other similar rates and assessments
levied or assessed against or in relation to the Tenant's business, assets,
Leasehold Improvements and Fixtures in the Premises and which, if not paid,
could either result in (i) a lien or other encumbrance being registered against
title to the Lands; and/or (ii) the Landlord being liable for the payment of
same.
(b) The Tenant will pay to the lawful taxing authorities all Business Taxes.
(c) The Tenant will indemnify and hold the Landlord harmless from and against
payment of all loss, costs, charges and expenses occasioned by or arising from
all Taxes and Business Taxes and any taxes which may in future be levied in lieu
of or in addition to such amounts or which may be assessed against any rentals
payable pursuant to this Lease in lieu of such amounts, whether against the
Landlord or the Tenant, including, without limitation, any increase in Taxes and
Business Taxes arising directly or indirectly out of any appeal or contestation
by the Tenant.
SECTION 4.5 TENANT'S PROPORTIONATE SHARE OF OPERATING COSTS
The Tenant will pay, in accordance with Section 4.7, the Tenant's
Proportionate Share of Operating Costs for the Property, including, without
limitation, a portion of the exterior Operating Costs for the Project as
allocated to the Property by the Landlord.
SECTION 4.6 ADMINISTRATION FEE
<PAGE> 15
The Tenant will pay in accordance with Section 4.7, an Administration
Fee equal to ten percent (10%) of the amounts payable under Sections 4.2, 4.5
and 6.1 (other than pursuant to section 6.1(a)) hereof), unless and for the
period of time that the Landlord has retained a property management company for
the Property (or the Project, as the case may be).
.
SECTION 4.7 PAYMENT OF TAXES, OPERATING COSTS AND FEES
(a) The Tenant will pay the amounts payable under Sections 4.2, 4.3, 4.4, 4.5
and 4.6 according to estimates or revised estimates made by the Landlord from
time to time in respect of periods determined by the Landlord. The Tenant's
payments will be made in monthly instalments in advance, together with Basic
Rent, for the periods in respect of which the estimates are made. When a bill
for an estimated amount is received by the Landlord, the Landlord may bill the
Tenant for the amount the Tenant is obligated to pay under this Lease and the
Tenant will immediately pay the Landlord the billed amount (less amounts
previously paid by the Tenant with respect to such billed amount on the basis of
the Landlord's estimate and which amounts are to be credited to such billed
amount).
(b) Within one hundred and twenty (120) days after the end of the period for
which the estimated payments have been made or so soon thereafter as is
reasonably possible, the Landlord will determine and advise the Tenant of the
exact amount of the Tenant's obligations under Sections 4.2 , 4.3 (if
applicable), 4.4 (if applicable), 4.5 and 6.1 and provide the Tenant with a
statement setting out such amounts. If necessary, an adjustment will be made
between the parties within fifteen (15) days after the Tenant receives such
statement. This provision shall survive the expiration or earlier termination of
the Term.
(c) Regardless of any other provision of this Lease, the amounts payable by the
Tenant pursuant to sections 4.2 and 4.5 hereof for the calendar year 2000 will
not exceed Ten Dollars ($10.00) per square foot of the Rentable Area of the
Premises.
(d) At the Tenant's request, the Landlord shall either: (i) provide to the
Tenant copies of all invoices, statements of account and all other reasonable
items which the Tenant may require in order to facilitate its review and
verification of the information contained in the statement referred to in
subsection (b) hereof; or (ii) allow the Tenant during the Landlord's regular
business hours, at the Landlord's head office and upon prior written notice to
it, to inspect and make copies of (at the Tenant's expense) the Landlord's books
and records relating to the information contained in such statement in order to
allow the Tenant to verify the information contained in such statement. If the
Tenant's review
<PAGE> 16
reveals errors in the statement which the Landlord does not dispute, the
appropriate adjustments shall be made between the parties within thirty (30)
days of the Tenant advising the Landlord of such errors. The Tenant shall keep
all information provided or made available to it confidential, but the Tenant
shall be entitled to reveal such information to its professional advisers for
the purposes of this subsection (d). This provision shall survive the expiration
or earlier termination of the Term.
ARTICLE 5
BUILDING - CONTROL AND SERVICES
SECTION 5.1 CONTROL OF THE BUILDING
(a) The Landlord will operate and maintain the Building as would a
prudent landlord of a similar first class office building.
(b) The Project is at all times subject to the exclusive control,
management and operation of the Landlord. The Landlord has the right with
respect to such control, management and operation to:
(i) obstruct or close off all or any part of the Project for the purpose of
maintenance, repair or construction;
(ii) employ all personnel necessary for the operation and management of the
Project, either directly or through a third party property management company;
(iii) construct other improvements and make alterations, additions, subtractions
or re-arrangements, build additional storeys and construct facilities adjoining
or proximate to the Building, including underground tunnels and pedestrian
walkways and overpasses; (iv) do and perform such other acts in and to the
Project, as, in the use of good business judgment, the Landlord determines to be
advisable for the more efficient and proper operation of the Property; and
(v) control, supervise and regulate the Parking Areas in such manner as the
Landlord determines from time to time, including, without limitation, imposing
charges or rates as may from time to time be determined by the Landlord for the
use of the Parking Areas.
(c) The Landlord is not subject to any liability, nor is the Tenant
entitled to any compensation or abatement of Rent as a result of the Landlord's
exercise of its rights conferred under Section 5.1 so long as the Landlord
proceeds as expeditiously as reasonably possible to minimize interference with
the Tenant's business.
SECTION 5.2 LANDLORD'S SERVICES
(a) During the Term, the Landlord shall provide the following services
and utilities subject to force majeure upon the terms and subject to the
conditions set out in Section 5.2(b) hereof, at the Tenant's cost (either
directly or as part of Operating Costs):
<PAGE> 17
(i) except during the completion of repairs, alterations or Leasehold
Improvements, climate control for the Premises shall be provided during the
Tenant's business hours in order to maintain a temperature adequate for normal
occupancy in accordancewith reasonable standards of interior climate control
generally pertaining at the date of this Lease applicable to normal occupancy of
premises for usual office purposes.
(ii) janitor and cleaning services to the Premises and to the Building in
accordance with the standards of other buildings of a similar type located near
the Building at the date of this Lease;
(iii) water and electricity in such quantities as the Landlord, in its sole
discretion, determines to be reasonable, shall be made available to the tenants
of the Building. As part of this obligation, the Landlord shall provide hot and
cold water to washrooms available for the Tenant's use in common with others
entitled thereto and shall furnish electricity to the Premises during the
Tenant's business hours for lighting and also for office equipment. If the
Tenant's equipment requires such Utilities in excess of the quantities normally
supplied by the Landlord and the Tenant requests the Landlord to supply such
excess quantities, facilities to supply such excess quantities may be provided
by the Landlord at the sole expense of the Tenant, if such excess facilities are
available, subject to the following conditions:
(A) the Landlord will have the right to refuse to supply such excess Utilities
if the supplying of additional facilities or excess Utilities shall materially
adversely affect the operation, the aesthetics or the Structure of the Building,
or in any material adverse way reduce the efficiency of existing electricity,
water or other Utilities supplied to the Building; and
(B) the actual cost of supplying such additional facilities or excess Utilities
shall be paid by the Tenant to the Landlord in accordance with Section 6.1
hereof, together with an amount equal to ten percent (10%) of the total cost
thereof representing the Landlord's overhead and administrative costs;
(iv) passenger elevator service for use by the Tenant and its Employees, agents
and those doing business with it in common with other persons entitled thereto,
to the Premises during the Tenant's normal business hours, subject to the
Building's usual security requirements and any other rules and regulations
required for the safe and efficient operation of the elevator servicing the
Building; and
(v) usual facilities for bringing telephone service to the Premises.
(b) The provision by the Landlord of the services and Utilities referred to
in Section 5.2(a) shall be subject to the following terms and conditions:
(i) the Landlord shall have no responsibility or liability for
failure to supply climate control services when stopped or prevented from so
doing by strikes or other causes
<PAGE> 18
beyond the Landlord's reasonable control;
(ii) any use of the Premises not in accordance with the design standards of the
Building or any arrangement of partitions which interferes with the normal
operation of the climate control system for the Building may require changes or
alterations in the system or the ducts. Any changes or alterations so required,
if such changes can be accommodated by the Landlord's equipment, shall be made
by the Landlord, at the Tenant's expense, and only after such changes or
alterations have received the Landlord's prior written consent. If installation
of partitions, equipment or fixtures by or on behalf of the Tenant (other than
the partitions installed pursuant to the Landlord's Work as set out in Schedule
"C") necessitates the rebalancing of the portion of the climate control
equipment serving the Premises, such work will be performed by the Landlord at
the Tenant's expense, together with an amount equal to ten percent (10%) of the
total expense thereof representing the Landlord's overhead and administrative
costs, and shall be payable by the Tenant within fifteen (15) days after written
demand as Additional Rent;
(iii) the Landlord shall use reasonable efforts to adjust and balance the
climate control systems as soon as reasonably possible after the Commencement
Date;
(iv) the Landlord will not be responsible for any inadequacy of performance of
the climate control system serving the Premises if: (1) the occupancy of the
Premises exceeds one (1) person for every one hundred (100) square feet of the
Rentable Area of the Premises; or (2) the electrical power consumed in the
Premises for all purposes, exclusive of the heating, ventilating and
air-conditioning system, exceeds nine (9) watts per square foot of the Rentable
Area of the Premises (or such other level of wattage determined by the Landlord
from time to time); or (3) the window coverings or exterior windows are 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
climate control system are desirable or necessary to accommodate such use, the
Landlord may make such changes and the entire cost thereof shall be paid by the
Tenant to the Landlord as Additional Rent as set out in subparagraph (ii)
hereof. If, in the opinion of the Landlord, such changes result in 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 payable by the Tenant as Additional Rent in accordance
with the terms of this Lease;
(v) the elevator services provided by the Landlord shall be subject to the Rules
and Regulations attached hereto as Schedule "E". Temporary interruption of
elevator service may be required during periods when repairs, alterations or
Leasehold Improvements are being made; and
(vi) the Landlord shall not be liable and the Tenant hereby releases and holds
harmless the Landlord from any claim, loss or damage resulting from: (1) any
interruption or disruption of elevator service caused or contributed to by
mechanical failure; (2) any failure by the Landlord to provide elevator service
during any period of power interruption; (3) any cause beyond the control of the
Landlord; or (4) the carrying out
<PAGE> 19
of any repairs, maintenance or replacements of the elevators.
SECTION 5.3 TENANT'S RESPONSIBILITIES
The Tenant will regulate those portions of the climate control
equipment within and exclusively serving the Premises so as to maintain such
reasonable conditions of temperature and humidity within the Premises as are
determined by the Landlord and its Architect and engineers so that no direct or
indirect appropriation of the heating, ventilating and air-conditioning from the
Common Areas and Facilities occurs. The Tenant shall comply with such
stipulations and with all Rules and Regulations of the Landlord pertaining to
the operation and regulation of such equipment. If the Tenant fails to comply
with such stipulations and the Rules and Regulations, the Landlord shall be
entitled to take such steps as it deems advisable to correct such defaults
(including, without limitation, entering upon the Premises and assuming control
of such equipment) without liability to the Tenant, and the Tenant will pay to
the Landlord within fifteen (15) days following invoice as Additional Rent all
costs and expenses incurred by the Landlord in so doing, together with an amount
equal to ten percent (10%) of such costs and expenses representing the
Landlord's overhead and administrative costs.
SECTION 5.4 RELOCATION OF THE PREMISES - Intentionally Deleted.
SECTION 5.5 ADDITIONAL SERVICES
(a) If the Tenant requires any Additional Services to be performed in
or relating to the Premises, it shall so advise the Landlord in writing, and the
Landlord shall have the right, but shall not be obligated, to perform any such
Additional Services.
(b) If the Landlord performs any such Additional Services, the Tenant
shall pay all costs and expenses incurred by the Landlord or on the Landlord's
behalf in performing or completing such Additional Services within fifteen (15)
days of receipt of the invoice therefor from the Landlord, together with an
amount equal to ten percent (10%) of such costs and expenses representing the
Landlord's overhead and administrative costs. If the Landlord does not wish to
exercise its right to perform any Additional Services, the Tenant shall not
cause any such Additional Services to be performed by any other Person unless
and until it has obtained the consent of the Landlord in writing to: (i) the
performance of such Additional Services; and (ii) the Person to be performing
such Additional Services, such consent not to be unreasonably withheld.
(c) If the Tenant disputes or contests the calculation of any costs or
expenses incurred by the Landlord or on the Landlord's behalf in performing or
completing such Additional Services as set out in the Landlord's invoice
therefor, it shall notify the Landlord in writing, and the Landlord shall, upon
receipt of such notice, request its senior
<PAGE> 20
financial officer to prepare a statement of calculation with respect to such
Additional Services which shall be conclusive of such costs and expenses and
shall be binding upon the Landlord and the Tenant. The cost of preparation of
such statement shall be paid by the Tenant and shall be added to the cost of
such Additional Services. Notwithstanding any such objection or contestation by
the Tenant to the Landlord's calculation of the cost or expense of such
Additional Services, the full amount as calculated by the Landlord in its
invoice shall be due and payable within fifteen (15) days of receipt of such
invoice, and shall be readjusted, if necessary, within fifteen (15) days
following the Tenant's receipt of the statement from the Landlord's senior
financial officer.
(d) Subject to force majeure and so long as the Tenant is not in
default beyond any cure periods provided for in this Lease, the Landlord shall,
at additional cost to the Tenant and subject to the standard Building
requirements, provide electric power, hot and cold running water, heat (when
necessary), air-conditioning (when necessary) and lights within the Premises,
twenty-four (24) hours per day, seven (7) days a week, at the going rate
(without any gross-up or profit factor for the Landlord save and except for its
10% administration fee).
(e) Subject to force majeure and so long as the Tenant is not in
default beyond any cure periods provided for in the Lease, the Landlord shall
allow the Tenant access to the Premises twenty-four (24) hours per day and,
where elevator service exists in the Building, shall ensure that elevator
service to the Premises is available to the Tenant 24 hours per day. However, in
accessing the Premises outside of normal business hours, the Tenant shall comply
with all reasonable security regulations which the Landlord may impose for the
general security of the Building.
ARTICLE 6
UTILITIES
SECTION 6.1 CHARGES FOR UTILITIES
(a) If there are separate meters (other than check meters) installed
pursuant to Section 6.1(d) for the Premises, the Tenant will pay Utilities
directly to the Utility suppliers on the basis of the separate meters.
(b) If there are no separate meters for the Premises, the Tenant will
pay to the Landlord, or as the Landlord otherwise directs, as Additional Rent,
the aggregate, without duplication, of:
(i) the cost of all Utilities applicable or attributable to the Premises, as
determined by the Landlord;
(ii) the costs of any other charges levied or assessed in lieu of or in
addition to such Utilities as determined by the Landlord; and
<PAGE> 21
(iii) all costs incurred by the Landlord in determining or allocating the
charge for Utilities including, without limitation, professional engineering and
consulting fees.
Charges for Utilities will be paid in equal monthly instalments in advance on
the basis of an initial rate determined by the Landlord or its engineers. Such
initial rate shall be based upon the Tenant's Proportionate Share of the
Utilities. If the Landlord or its engineers determine that the Tenant's use of
Utilities is in excess of the standard usage of general office premises in the
Building, then the Landlord shall be entitled to charge the Tenant an additional
amount for such excess consumption on such reasonable basis as may be determined
by the Landlord or its engineers, together with all costs incurred by the
Landlord in determining or allocating the additional charge for Utilities. The
Landlord shall provide the Tenant a written explanation as to its method of
determining such additional charge at the same time that it invoices the Tenant
for such additional charge (but, for greater certainty, the Landlord shall only
have to do so once, and thereafter whenever the Landlord changes the then
current methodology. The parties acknowledge and agree that at the date of
execution of this Lease there are no separate meters in the Building designed to
measure the consumption of Utilities in the Premises.
(c) The Landlord will have the exclusive right to attend to the
replacement of standard electric light bulbs, tubes and ballasts in the Premises
throughout the Term on the basis determined by the Landlord in accordance with
good commercial practice. The Landlord, at its option, may either include the
cost of replacement in Operating Costs or require the Tenant to pay a monthly
charge for such replacement (subject to adjustment based on actual costs) per
bulb, tube and ballast. If the Landlord elects not to relamp and reballast on a
scheduled basis, then the replacement of these standard electric light bulbs,
tubes and ballasts in the Premises will be undertaken by the Landlord at such
time as they actually burn out and after notice from the Tenant that replacement
is required. In that event, the cost of replacement and installation will be
paid by the Tenant with the next monthly payment of Additional Rent, together
with an amount equal to ten percent (10%) of such cost representing the
Landlord's overhead and administrative costs.
(d) The Tenant shall pay for the cost of any metering which the Tenant
requests the Landlord to install in the Premises for the purpose of assisting in
determining the consumption of any Utility in the Premises, in which case, at
the Landlord's option, the Tenant shall be billed separately for such Utility
pursuant to subsection (a) hereof and the costs of same shall no longer be
included in Operating Costs.
(e) In no event shall the Landlord be liable for, nor shall the
Landlord have any obligation with respect to any interruption or cessation of,
or failure in the supply of, any Utilities, services or systems in, to or
serving the Building or the Premises, whether or not supplied by the Landlord or
otherwise.
ARTICLE 7
USE OF THE PREMISES
<PAGE> 22
SECTION 7.1 USE OF THE PREMISES
The Premises will be used solely for the purpose specified in
Section 1.10 of the Special Provisions and the Tenant will not use or permit or
suffer the use of, the Premises or any part thereof for any other business or
purpose.
SECTION 7.2 CONDUCT OF BUSINESS
In occupying the Premises, the Tenant will commence and carry
on its business operations and use the Premises in a reputable and first-class
manner from and after the Commencement Date and throughout the Term. The Tenant
will not commit or permit to be committed any waste or injury to the Premises,
the Leasehold Improvements or Fixtures or any other part of the Project or any
nuisance therein or any use or manner of use causing annoyance to other tenants
and occupants of the Project. The Tenant agrees not to refer to the Building by
any name other than that designated from time to time by the Landlord and the
Tenant will use the name of the Building for the business address of the Tenant
but for no other purpose. Upon at least thirty (30) days prior written notice to
the Tenant, the Landlord may change the name of the Building and the Landlord
shall not be responsible for any costs or expenses incurred by the Tenant as a
result of such change of name.
SECTION 7.3 OBSERVANCE OF LAW
The Tenant will, at its expense, and subject to Section 9.3:
(i) comply with all provisions or changes of law and other requirements of all
governmental bodies which pertain to or affect the Premises or require or govern
the making of any repairs, alterations or other changes of or to the Premises or
the Tenant's use of it;
(ii) obtain all necessary permits, licences and approvals relating to the use of
the Premises and the conduct of business therein; and
(iii) comply with all reasonable directions given or regulations introduced by
the Landlord or measures introduced by any governmental or quasi-governmental
authority from time to time in the interest of energy conservation and to
control Operating Costs whereby the Landlord may by the use of a pulse or other
system turn out or reduce all lighting in the Premises by local switching for
the Premises and reduce energy consumption in the Premises or in the Building.
However, if the Tenant does not participate in such measures with respect to the
Premises, the Tenant may be required to pay, as Additional Rent, for the
additional energy consumed in the Premises as a result of its not participating
in such measures. In addition, it is understood and agreed that any and all
costs and expenses paid or incurred by the Landlord in installing energy
conservation equipment and systems and safety or life support systems shall be
included in Operating Costs.
<PAGE> 23
Notwithstanding the foregoing, the Tenant shall not be responsible for any
non-compliance of the Premises with respect to the requirements of any laws,
orders, ordinances, rules and regulations of any governmental authority having
jurisdiction and which exists on the date the Tenant takes possession of the
Premises, and the Landlord, at its sole cost and expense, shall promptly take
all actions necessary and perform all work necessary to correct such
non-compliance. In addition, the Tenant shall not be responsible for making any
repairs or improvements to the Premises which may be required by any of the
aforesaid bodies if the Tenant would not have to make such repairs or
improvements pursuant to the other terms of this Lease, or unless such repairs
or improvements are necessitated as a result of the Tenant's business operations
in the Premises, in which case the Tenant will be responsible.
SECTION 7.4 HAZARDOUS SUBSTANCES
(a) The Tenant covenants and agrees to utilize the Premises and operate its
business in a manner so that no part of the Premises are used to generate,
manufacture, refine, treat, transport, store, handle, dispose of, transfer,
produce or process any Hazardous Substances. Further the Tenant hereby covenants
and agrees to indemnify and save harmless the Landlord and those for whom the
Landlord is in law responsible from any and all losses, costs, claims, damages,
liabilities, expenses or injuries caused or contributed to by any Hazardous
Substances which are at any time located, stored or incorporated in any part of
the Premises, provided that the Tenant or the Tenant's Employees were
responsible for such Hazardous Substances as provided in subsection (d) hereof.
(b) The Tenant hereby agrees that the Landlord or its authorized representatives
shall have the right to conduct such environmental site reviews and
investigations as it may deem necessary for the purposes of ensuring compliance
with this Section 7.4. The Landlord shall be solely responsible for the costs of
such audit, unless same reveals a default on the part of the Tenant of its
obligations under this Lease regarding Hazardous Substances.
(c) The Tenant's obligations pursuant to this Section 7.4 shall survive the
expiration or earlier termination of the Term.
(d) Notwithstanding any other provision of this Lease, the Tenant shall not be
responsible for any Hazardous Substances located on or in the Premises, the
Building or the Project unless same were brought upon, located on or in, stored
or incorporated into the Premises, the Building or the Project as a result of
the act or omission of the Tenant or the Tenant's Employees.
(e) The Landlord shall be solely responsible for all Hazardous Substances
located on the Premises, the Building and the Project prior to the Commencement
Date ("Existing Hazardous Substances"). If a work order is issued in respect of
any Existing Hazardous Substances, the Landlord will be solely responsible for
carrying out the work required by such work order, and the Landlord shall be
entitled to access the Premises, on prior
<PAGE> 24
reasonable notice (except in the case of emergency, in which event no notice
shall be required), as necessary, to perform such work.
ARTICLE 8
INSURANCE AND INDEMNITY
SECTION 8.1 TENANT'S INSURANCE
(a) The Tenant shall, throughout the period that the Tenant is given
possession of the Premises and during the entire Term, at its sole cost and
expense, take out and keep in full force and effect the following insurance:
(i) "all risks" (excluding flood and earthquake) insurance in an amount of at
least ninety percent (90%) of the full replacement cost, insuring 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 within the Building including, but not
limited to, furniture, Fixtures, installations, alterations, additions,
partitions and all other Leasehold Improvements. Such insurance shall include a
standard joint loss agreement. The Landlord shall be named as an insured and the
Mortgagee shall be named as a loss payee in such insurance policies, but only in
respect of the Leasehold Improvements and Fixtures (other than trade fixtures)
in the Premises;
(ii) broad form boiler and machinery insurance on a blanket repair and
replacement basis with limits for each accident in an amount at least equal to
90% of the replacement cost of all Leasehold Improvements and of all boilers,
pressure vessels, air-conditioning equipment and miscellaneous electrical
apparatus owned or operated by the Tenant (other than equipment owned by the
Landlord) or by others (other than the Landlord) on behalf of the Tenant in the
Premises. The Landlord shall be named as an additional insured and the Mortgagee
shall be named as a loss payee pursuant to the terms of the standard Insurance
Bureau of Canada mortgage clause in such insurance policies; and
(iii) public liability and property damage on an occurrence basis insurance
including personal injury liability, bodily injury liability, contractual
liability, "all-risks" tenants' legal liability for the full replacement costs
of the Premises, non-owned automobile liability and owners' and contractors'
protective insurance coverage with respect to the Premises and the Common Areas
and Facilities, coverage to include the business operations conducted by the
Tenant and any other Person on the Premises. Such policies shall be written on a
comprehensive basis with limits of not less than $3,000,000.00 for bodily injury
to any one or more persons. The Landlord and the Mortgagee shall be named as an
additional insured in such insurance policies.
(b) The following terms and conditions are applicable to the insurance
policies specified under section 8.1(a):
(i) the policies specified under sections 8.1(a)(i) and (ii) shall contain the
<PAGE> 25
Mortgagee's standard mortgage clause and may have reasonable deductibles. If
there is a dispute as to the full replacement cost, the determination of the
Landlord's insurers shall prevail;
(ii) the Tenant shall use best efforts to obtain a waiver of subrogation in
respect of the policies specified under sections 8(a)(i) and (ii) in favour of
the Landlord and the Landlord's Employees;
(iii) all of the policies shall be taken out with insurers qualified to carry on
business in Ontario;
(iv) all of the policies shall be non-contributing with and only apply as
primary and not as excess to any other insurance available to the Landlord;
(v) none of the policies shall be invalidated as respects the interests of the
Landlord and the Mortgagee by reason of any breach or violation by the Tenant of
any warranties, representations, declarations or conditions contained in the
policies; and
(vi) all of the policies shall contain an undertaking by the insurers to notify
the Landlord and the Mortgagee in writing not less than 30 days prior to any
material change, cancellation or termination.
(c) The Tenant agrees to deliver certificates of insurance to the
Landlord within a reasonable period of time following receipt of the Landlord's
written request for same.
(d) If there is damage or destruction to the Leasehold Improvements or
Fixtures (other than trade fixtures) in the Premises, the Tenant will use the
full insurance proceeds received in respect of such damage or destruction for
the sole purpose of repairing or restoring them. If there is damage to or
destruction of the Building and as a consequence thereof this Lease is
terminated under Sections 10.1 or 10.2, then, if the Premises have also been
damaged or destroyed, the Tenant will pay the Landlord all of its insurance
proceeds relating to the Leasehold Improvements and Fixtures (other than trade
fixtures). For greater certainty, if: (i) any portion of the insurance proceeds
are payable solely to the Tenant, and not to the Landlord, to compensate the
Tenant for the loss of its future use of the Leasehold Improvements and Fixtures
(other than trade fixtures); and (ii) such payment to the Tenant does not
decrease the amount payable to the Landlord to compensate it for the loss of the
Leasehold Improvements and Fixtures (other than trade fixtures) on the
replacement basis contemplated by section 8.1(a), then the Tenant shall be
entitled to retain such portion.
SECTION 8.2 INCREASE IN INSURANCE PREMIUMS
If: (a) the occupancy of the Premises; (b) the conduct of
business in the Premises; or (c) any acts or omissions of the Tenant in the
Premises or in any other part
<PAGE> 26
of the Project results in any increase in premiums to the insurance carried by
the Landlord with respect to any part of the Building, the Tenant will pay the
increase in premiums within fifteen (15) days after invoices for additional
premiums are rendered by the Landlord. In determining whether the Tenant is
liable for increased premiums and the amount for which the Tenant is
responsible, a schedule issued by the organization that computes the insurance
rate on the Project showing the components of the rate will be conclusive
evidence of the items that make up the rate.
SECTION 8.3 CANCELLATION OF INSURANCE
If any insurance policy in respect of any part of the Building
is cancelled or threatened by the insurer to be cancelled, or the coverage
reduced by the insurer by reason of the use and occupation of the Premises and
if the Tenant fails to remedy the condition giving rise to cancellation,
threatened cancellation or reduction of coverage within forty-eight (48) hours
after notice by the Landlord, the Landlord may, at its option, either: (a)
exercise its rights of re-entry including termination under Article 14; or (b)
at the Tenant's expense, enter upon the Premises and remedy the condition giving
rise to the cancellation, threatened cancellation or reduction.
SECTION 8.4 LOSS OR DAMAGE - INTENTIONALLY DELETED
SECTION 8.5 LANDLORD'S INSURANCE
(a) The Landlord shall maintain in full force and effect during the
Term, such insurance with respect to the Property (including the leaseholds in
the Building) against such occurrences and in such amounts and on such terms and
conditions and with such deductibles as would be obtained by a prudent landlord
of a similar property, and which will include the following:
(i) broad form boiler and machinery insurance on items owned by the Landlord
(except for the Leasehold Improvements in the leasable premises and property
that the Tenant and other tenants of the Building are required to insure);
(ii) "all-risks" insurance which shall insure the Building for an amount of not
less than ninety percent (90%) of the replacement cost thereof from time to time
(including foundations), against loss or damage by perils as may now or
hereafter from time to time be embraced by or defined in a standard all-risk
insurance policy;
(iii) rental value insurance in such amount as would be carried by a prudent
landlord in the circumstances and in any event for an indemnity period of at
least twelve (12) months;
(iv) third party liability hazards including exposure to personal injury, bodily
injury
<PAGE> 27
and property damage on an occurrence basis including insurance for all
contractual obligations and covering all actions of all authorized employees,
subcontractors and agents while working on behalf of the Landlord. Such policy
shall contain a limit of not less than $2,000,000.00 for combined bodily injury
and property damage.
(b) Landlord shall use best efforts to obtain a waiver of subrogation
in all property, boiler and machinery and rental income insurance policies which
are taken out by the Landlord in respect of the Property, provided that if
obtainable at a cost, same shall be obtained at the Tenant's expense.
(c) Notwithstanding the Landlord's obligation to insure as set out
above and the Tenant's contribution to the cost of the Landlord's insurance
premiums: (i) intentionally deleted (ii) no insurable interest is conferred upon
the Tenant under the Landlord's insurance policies; and (iii) the Tenant has no
right to receive proceeds from the Landlord's insurance policies.
SECTION 8.6 INDEMNIFICATION - Intentionally Deleted.
SECTION 8.7 RELEASE AND INDEMNIFICATION
(a) Notwithstanding anything to the contrary in this Lease
contained:
(i) subject to Sections 8.7(a)(ii) and (iii), each of the Landlord and Tenant
hereby releases the other and waives all claims against the other and those for
whom the other is in law responsible with respect to occurrences insured against
or required to be insured against by the releasing party, whether any such
claims arise as a result of the negligence or otherwise of the other or those
for whom it is in law responsible (in the case of the Landlord, the Landlord's
Employees and, in the case of the Tenant, the Tenant's Employees);
(ii) such release and waiver shall be effective only to the extent of proceeds
of insurance received by the releasing party and proceeds which would have been
received if the releasing party obtained all insurance required to be obtained
by it under this Lease and for this purpose deductible amounts shall be deemed
to be proceeds of insurance received;
(iii) notwithstanding anything to the contrary in this Section 8.7(a), the
Landlord and Tenant shall each be liable to any third person (being any person
other than the Landlord, the Landlord's Employees, the Tenant or the Tenant's
Employees) to the extent of their respective fault or negligence and each shall
be entitled to full indemnity and contribution from the other to the extent of
the other's fault or negligence.
(b) To the extent not released under Section 8.7(a), each party shall
indemnify and save harmless the other from all liabilities, damages, losses or
expenses arising out
<PAGE> 28
of:
(i) any breach, violation or non-performance by the indemnifying party of any
covenant, condition or agreement in this Lease on the part of the indemnifying
party to be observed or performed;
(ii) any contract, lien or mortgage on the Project, the Property or the Premises
and any loss, cost or expense arising from or occasioned by the act, default or
negligence of the indemnifying party, its officers, agents, servants, employees,
contractors, customers, invitees or licensees; and
(iii) any obligation of the indemnifying party arising or outstanding upon the
expiration or earlier termination of this Lease.
Such indemnity shall survive the termination of this Lease, anything to the
contrary notwithstanding.
ARTICLE 9
MAINTENANCE, REPAIRS AND ALTERATIONS
SECTION 9.1 MAINTENANCE AND REPAIRS BY THE LANDLORD
Save and except for the Tenant's maintenance and repair
obligations and save and except as may be otherwise provided in this Lease, the
Landlord will maintain and repair the Structure of the Building and the
mechanical, electrical, heating, ventilating, air-conditioning and other base
building systems of the Building, as would a prudent owner of a similar
first-class office building. The cost of such maintenance and repairs will be
included in Operating Costs, except to the extent such costs constitute an
Excluded Cost. However, if the Landlord is required, due to the business carried
on by the Tenant, to make repairs or replacements to the Structure or any other
part of the Building by reason of the application of laws, ordinances or other
regulations of any governmental body, or by reason of any act, omission or
default of the Tenant or those for whom the Tenant is in law responsible, then
the Tenant will be liable for the total cost of those repairs or replacements
plus ten percent (10%) of the total cost representing the Landlord's overhead
and administrative costs.
SECTION 9.2 MAINTENANCE AND REPAIRS BY THE TENANT
(a) Subject to section 9.2(b), the Tenant will at all times, at its
expense, maintain the whole of the Premises including without limitation, all
interior partitions, doors, electrical, lighting, wiring, plumbing fixtures and
equipment and the heating, ventilating and air-conditioning systems and
equipment within and exclusively serving the Premises in good order, first-class
condition and repair, reasonable wear and tear only excepted. The Tenant will
make all such repairs and replacements with due diligence and dispatch.
<PAGE> 29
(b) The Tenant's obligation to repair the Premises shall not include
the following, all of which shall be made by the Landlord:
(i) repairs to the Structure of the Building or repairs
resulting from structural weaknesses or defects, improper materials or
workmanship or faulty construction;
(ii) repairs or maintenance which the Landlord is obligated to
make pursuant to this Lease;
(iii) repairs or replacements the cost of which would constitute
a capital expenditure in accordance with generally accepted accounting
principles; and
(iv) repairs or replacements which are covered by warranties
in favour of the Landlord from third parties.
(c) If required by the Landlord or any governmental authority, the
Tenant will, at its expense, remove from the Premises any Hazardous Substances
for which it is responsible under this Lease. The foregoing obligation to remove
such Hazardous Substances shall survive the expiration or earlier termination of
the Term of this Lease.
(d) Notwithstanding anything contained in this Lease, if any such
repairs or replacements to the Premises or to any Leasehold Improvements
installed by or on behalf of the Tenant in the Premises, affect the Structure of
the Building, or any part of the electrical, mechanical, plumbing, heating,
ventilating, air-conditioning, lighting or other base building systems of the
Building, such work shall be performed only by the Landlord at the Tenant's sole
cost and expense. Upon completion thereof, the Tenant shall pay to the Landlord,
as Additional Rent within fifteen (15) days after demand, both the Landlord's
reasonable costs relating to such repairs or replacements including the fees of
any architectural and engineering consultants plus a sum equal to ten percent
(10%) of the total cost thereof representing the Landlord's overhead and
administrative costs.
(e) The Tenant will leave the Premises in a reasonably neat and tidy
condition at the end of each day in order that the Landlord's cleaning services
can be performed.
(f) The Tenant will advise the Landlord of any damage to or breakage of
the glass in or forming part of the Premises (including outside windows and
doors on or at the perimeter of the Premises) and the Landlord will complete all
needed repairs and replacements to such glass with due diligence. The cost of
completing such repairs and replacement shall payable by the Tenant as part of
Operating Costs except in the event that the repairs or replacements to the
glass are required as a result of the negligence or wilful acts or omissions of
the Tenant or those for whom it is at law responsible, in which event the cost
thereof shall be payable by the Tenant to the Landlord, as Additional Rent,
within fifteen (15) days of invoice.
(g) At the expiration or earlier termination of the Term, the Tenant
will surrender the Premises to the Landlord in as good a condition as the Tenant
is required to
<PAGE> 30
repair and maintain them throughout the Term.
(h) Notwithstanding any other provisions of this Lease, other than
section 8.7 to which this section 9.2(h) is subject, if the Building or any part
thereof, or any equipment, machinery, facilities or Leasehold Improvements
contained therein or made thereto, or the Structure thereof requires repair or
replacement or becomes damaged or destroyed through the negligence, carelessness
or misuse of the Tenant or those for whom it is in law responsible or by any
Person having business with the Tenant or by the Tenant or those for whom it is
in law responsible in any way stopping up or damaging the climate control,
heating and air-conditioning apparatus, water pipes, drainage pipes or other
equipment or facilities or parts of the Building, the cost of the resulting
repairs, replacements or alterations plus a sum equal to ten percent (10%) of
the cost thereof representing the Landlord's overhead and administrative costs
will be paid by the Tenant to the Landlord as Additional Rent within fifteen
(15) days after demand therefor by the Landlord.
(i) The Tenant shall, when it becomes aware of it, notify the Landlord
of damage to, or deficiency or defect in any part of the Building, including the
Premises, any equipment or utility systems, or any installations located in the
Building or the Premises, provided the Landlord shall not have any obligation in
respect thereof, subject to the terms of this Lease.
SECTION 9.3 LANDLORD'S APPROVAL OF THE TENANT'S REPAIRS
(a) So long as the Tenant is not in default of any of the Tenant's
Covenants beyond any cure period provided for in this Lease, the Tenant shall
only be required to obtain the Landlord's consent to the carrying out of any
Alterations if same involve the Structure of the Building or any of its systems.
However, the Tenant shall be required to obtain the Landlord's consent to the
initial Tenant's work in the Premises.
(b) If the Landlord's consent to the making of any Alterations is
required, then the Landlord will not be required to consider any request for its
approval until the Tenant has submitted to it details of the proposed work,
including professionally prepared drawings if requested by the Landlord, and
specifications conforming to good engineering practices. Any approval shall be
conditional upon the Tenant delivering to the Landlord prior to the commencement
of any such Alterations:
(i) evidence satisfactory to the Landlord that the Tenant has
obtained, at its expense, all necessary consents, permits,
licences and inspections from all governmental and regulatory
authorities having jurisdiction; and
(ii) security in an amount and form required by the Landlord, as
an indemnification against construction liens, costs, damages and
expenses resulting from such Alterations.
(c) All Alterations will be performed by competent workmen: (i) at the
<PAGE> 31
Tenant's expense; (ii) in a good and workmanlike manner; (iii) in accordance
with the drawings and specifications approved by the Landlord, where such
approval is required; and (iv) subject to the reasonable regulations, controls
and inspection of the Landlord.
Notwithstanding the foregoing, the Landlord shall be entitled to
withhold its consent or approval to any proposed Alterations if, in its
reasonable opinion, such Alterations decrease the Market Rental value of the
Premises or are inconsistent or incompatible with the general design or quality
of the Building.
(d) Any Alterations requiring the Landlord's consent and which are made
by the Tenant without the prior consent of the Landlord or not made in
accordance with the drawings and specifications approved by the Landlord will,
if requested by the Landlord, be promptly removed by the Tenant and the Premises
restored to their previous condition at the Tenant's expense.
(e) If however, all or any portion of the proposed Alterations affect
the Structure or any of the electrical, mechanical or other base building
systems of any part of the Building, such Alterations (or the appropriate
portion of them), if approved by the Landlord, will be performed only by the
Landlord, and the Tenant shall pay to the Landlord, within fifteen (15) days
following invoice, the cost of completing such Alterations together with an
amount equal to ten percent (10%) of such cost representing the Landlord's
overhead and administrative costs.
SECTION 9.4 REMOVAL AND RESTORATION BY THE TENANT
(a) All Leasehold Improvements and Fixtures (other than trade fixtures)
made by the Tenant, or made by the Landlord on the Tenant's behalf immediately
become the property of the Landlord upon affixation or installation and will not
be removed from the Premises at any time unless permitted or required by the
Landlord. The Landlord is under no obligation to repair, maintain or insure
these Leasehold Improvement, or Fixtures. The Tenant shall not be required or
entitled to remove any Leasehold Improvements or Fixtures (other than trade
fixtures) from the Premises at the end of the Term. However, the Tenant shall
remove its signage from the Building if required by the Landlord. The Tenant
shall forthwith repair any damage to the Premises caused by the installation or
removal of the trade fixtures or, if applicable, the signage. In addition, the
Tenant will, prior to the end of the Term, at its cost, remove from the Premises
any Hazardous Substances for which the Tenant is responsible hereunder. The
Tenant's obligation to observe and perform this covenant shall survive the
expiration of the Term or earlier termination of this Lease. If the Tenant does
not remove any such Hazardous Substances from the Premises at the end of the
Term, such Hazardous Substances or materials may, without further notice to the
Tenant, be immediately removed from the Premises and may be disposed of or
stored, at the option of the Landlord, and as the Landlord sees fit. Any costs
or expenses incurred or damages suffered by the Landlord in removing, disposing
or storing such Hazardous Substances shall be paid by the Tenant to the
Landlord, within fifteen (15) days following the Tenant's receipt of an invoice
from the Landlord, together with an amount equal to ten percent (10%) of such
costs and expenses representing the Landlord's overhead and administrative
costs.
<PAGE> 32
(b) If the Tenant does not remove all of its trade fixtures at the end
of the Term, all such trade fixtures may, without further notice to the Tenant,
be immediately removed from the Premises and may be disposed of, sold or stored,
at the option of the Landlord, and as the Landlord sees fit. Any costs or
expenses incurred by the Landlord in removing, disposing, selling or storing
such trade fixtures shall be paid by the Tenant to the Landlord, within fifteen
(15) days following invoice, together with an amount equal to ten percent (10%)
of such costs and expenses representing the Landlord's overhead and
administrative costs. Any trade fixtures not removed from the Premises at the
end of the Term, will at the Landlord's option, become the property of the
Landlord (and, in such event, this paragraph shall have the effect of assigning
the Tenant's right and title in such trade fixtures to the Landlord) and may be
removed from the Premises and sold or disposed of by the Landlord in such manner
as it deems advisable.
(c) The Tenant shall, in the case of every installation or removal of
Leasehold Improvements, Fixtures or trade fixtures either during or at the
expiration of the Term, effect the same at times prescribed by the Landlord and
utilizing only those elevators designated by the Landlord and shall promptly
make good any damage caused to the Premises or the Building or any part thereof
by the installation or removal of such Fixtures and Leasehold Improvements, all
at its sole expense.
SECTION 9.5 TENANT TO DISCHARGE ALL LIENS
(a) The Tenant shall ensure that no construction liens or other liens
or encumbrances in respect of materials supplied or work done or to be done by
the Tenant or on behalf of the Tenant or related to the Tenant's Work shall be
registered against or shall otherwise affect the Project or any part thereof or
the Landlord's or the Tenant's interest in the Premises.
(b) If a lien or other encumbrance is registered against or otherwise
affects the Project the Landlord's, or the Tenant's interest therein, and the
Tenant fails to discharge or vacate or cause any such lien or encumbrance to be
discharged or vacated within fifteen (15) days after it is filed or registered,
then, in addition to any other rights or remedies of the Landlord, the Landlord
may (but shall not be obligated to) discharge or vacate the lien or encumbrance
by paying the amount claimed into court and the amount so paid, plus an amount
equal to ten percent (10%) thereof representing the Landlord's overhead and
administrative costs, together with all costs and expenses (including legal
costs and expenses) plus interest at the Prime Rate, shall be immediately due
and payable by the Tenant to the Landlord as Additional Rent within fifteen (15)
days following demand.
SECTION 9.6 SIGNS AND ADVERTISING
(a) The Tenant shall solely be entitled to install in and on the
Premises signs and advertising materials, provided that all of same comply with
all applicable laws, the
<PAGE> 33
Tenant first obtains the Landlord's consent and the provisions of this Section
9.6 are complied with. The Tenant shall be entitled to have exclusive exterior
signage rights on two (2) sides of the top of the Building, such sides being
determined by the Tenant.
(b) Save as referred to in subsection (a), the Tenant will not place or
permit any notice, lettering or other signage on any part of the outside of the
Building without the Landlord's approval. The Landlord may prescribe a uniform
pattern of identification signs for tenants to be placed in a location
designated by the Landlord. The Landlord shall install, at the Tenant's sole
cost, the Landlord's standard tenant identification signs in accordance with the
Landlord's design criteria, on or near the main door to the Premises and, at the
Landlord's option, at other locations on the floor on which the Premises are
located.
(c) At the expiration of the Term of this Lease, the Tenant will remove
all signs, pictures, advertisements, notices, letterings or decorations from the
Premises at the Tenant's expense and will promptly repair all damages caused by
its installation and removal.
(d) The Landlord may provide a directory board in the main lobby of the
Building in a location designated by the Landlord in which event the Tenant's
name shall be displayed therein and the costs associated with the directory
board shall be included in Operating Costs.
SECTION 9.7 TENANT NOT TO OVERLOAD FACILITIES
The Tenant will not install any equipment which will exceed or
overload the capacity of any utility, electrical or mechanical facilities in the
Premises and the Tenant will not bring into the Premises or install any utility,
electrical or mechanical facility or service which the Landlord does not
approve. The Tenant agrees that if any equipment installed by the Tenant
requires additional utility, electrical or mechanical facilities, the Landlord
may, in its sole discretion, if they are available, elect to install them at the
Tenant's expense and in accordance with plans and specifications to be approved
in advance in writing by the Landlord.
SECTION 9.8 TENANT NOT TO OVERLOAD FLOORS
The Tenant will not bring upon the Building or the Premises
any machinery, equipment, article or thing that by reason of its weight, size or
use, might in the opinion of the Landlord damage the Building or the Premises
and will not at any time overload the floors of the Premises. If any damage is
caused to the Building or the Premises by any machinery, equipment, object or
thing or by overloading, the Tenant will forthwith repair such damage, or, at
the option of the Landlord, pay the Landlord within fifteen (15) days after
demand as Additional Rent the cost of repairing such damage plus a sum equal to
ten percent (10%) of such cost representing the Landlord's overhead and
<PAGE> 34
administrative costs.
ARTICLE 10
DAMAGE AND DESTRUCTION
SECTION 10.1 DESTRUCTION OF THE PREMISES
Regardless of any other provision of this Lease, if at any time during
the Term the Building is damaged or destroyed by fire, lightning or tempest or
by other casualty (the date of such damage or destruction being called the
"Damage Date"), then and in every such event:
(a) if the damage or destruction renders twenty five percent (25%) or
more of the Rentable Area of the Building unfit for occupancy or it is
impossible or unsafe to use and occupy it, or if in the opinion of the Landlord
the Building is damaged or destroyed to such a material extent or the damage or
destruction is of such a nature that the Building must be or should be totally
or partially demolished, whether or not the Premises are damaged or destroyed
and whether the Premises are to be reconstructed in whole or in part or not, or
if Building, or any material and significant portion thereof, is damaged or
destroyed in respect of a casualty for which the Landlord is not insured
hereunder and was not required to be insured against, the Landlord may at its
option terminate this Lease by giving to the Tenant notice in writing of such
termination within sixty (60) days of the Damage Date, in which event this Lease
and the Term hereby demised shall cease and be at an end as of the Damage Date
and the Rent shall be apportioned and paid in full to the Damage Date;
(b) if the damage or destruction is such that the Premises are rendered
wholly unfit for occupancy or it is impossible or unsafe to use and occupy them,
and if in either event, the damage, in the opinion of the Architect cannot be
repaired with reasonable diligence within one hundred and eighty (180) days from
the Damage Date, then the Landlord or the Tenant may terminate this Lease by
giving to the other notice in writing of such termination within thirty (30)
days after receipt of the Architect's certificate, in which event this Lease and
the Term hereby demised shall cease and be at an end as at the Damage Date and
the Rent shall be apportioned and paid in full to the Damage Date.
(c) If neither the Landlord nor the Tenant terminates this Lease, the
Landlord will do the Landlord's Reconstruction and, to the extent of insurance
proceeds actually received by the Landlord (or which would have been received
had the Landlord not been in default of its insurance obligations under this
Lease), the Rent will abate from the Damage Date until the earlier of:
(i) sixty (60) days after the Landlord has completed the
Landlord's Reconstruction; and
(ii) the date upon which the Tenant commences its business
operations
<PAGE> 35
from the Premises;
(the "ABATEMENT PERIOD"). The term "Landlord's Reconstruction" in this
section means the reconstruction or repair of the Premises in accordance with
section 9.1 of this Lease. Once the Landlord has substantially completed its
Restoration Work the Tenant will complete all work required to fully restore the
Premises for the Tenant's business operations. If any part of the Building is
destroyed or damaged and the Landlord does not elect to terminate this Lease,
the Landlord will commence diligently to restore the Building, but only to the
extent of the Landlord's obligations as set out pursuant to the terms of the
various leases for the premises in the Building, and exclusive of any tenant's
responsibilities set out therein. If the Landlord elects to restore the
Building, the Landlord may restore according to plans and specifications and
working drawings other than those used in the original construction of the
Building;
(d) if the damage or destruction is such that the Premises are wholly
unfit for occupancy or if it is impossible or unsafe to use or occupy it, but if
in either event the damage, in the opinion of the Landlord, can be repaired with
reasonable diligence within one hundred and eighty (180) days from the Damage
Date, the Landlord will do the Landlord's Reconstruction and to the extent of
insurance proceeds actually received by the Landlord ( or which would have been
received had the Landlord not been in default of its insurance obligations under
this Lease), the Rent will abate throughout the Abatement Period;
(e) if in the opinion of the Landlord the damage or destruction to the
Building or the Premises (as the case may be) can be made good, as aforesaid,
within one hundred and eighty (180) days from the Damage Date and the damage or
destruction is such that a portion of the Premises is capable of being partially
used for the purposes for which it is hereby demised, then the Landlord will do
the Landlord's Reconstruction and, to the extent of insurance proceeds actually
received by the Landlord (or which would have been received had the Landlord not
been in default of its insurance obligations under this Lease) the Rent will
abate proportionately to the part of the Premises rendered untenantable
throughout the Abatement Period. Despite the foregoing, if the Tenant acting
reasonably, determines that it would not be commercially feasible for it to
carry on its business in that portion of the Premises which is not destroyed,
and does not in fact occupy such portion of the Premises, then all Rent shall
abate throughout the Abatement Period, to the extent of insurance proceeds
actually received by the Landlord ( or which would have been received had the
Landlord not been in default of its insurance obligations under this Lease)
(f) if the Landlord elects to repair, reconstruct or rebuild the
Project in accordance with the provisions of this section, it is acknowledged
and agreed by the Tenant that the Landlord shall be entitled to use plans and
specifications and working drawings in connection therewith other than those
used in the original construction of the Project, but the Premises as rebuilt,
will have reasonably similar layout, facilities and services to those in the
Premises prior to such damage; and
(g) the Landlord shall exercise its rights set out in this section
acting bona fide
<PAGE> 36
and not in a manner discriminating against the Tenant and not primarily for the
purpose of depriving the Tenant of its rights under this Lease.
SECTION 10.2 EXPROPRIATION
Both the Landlord and Tenant agree to co-operate with the
other regarding an expropriation of the Premises or the Property or any part
thereof, so that each may receive the maximum award to which they are
respectively entitled at law. To the extent that any portion of the Property
other than the Premises is expropriated, then, the full proceeds accruing or
awarded as a result will belong to the Landlord and the Tenant will abandon or
assign to the Landlord any rights which the Tenant may have or acquire by
operation of law to those proceeds or awards and will execute all such documents
as in the opinion of the Landlord are necessary to give effect to this
intention. No party shall assert any claims against the other arising out of
such expropriation, condemnation or taking.
SECTION 10.3 ARCHITECT
The opinion, decision or certificate of the Architect will
bind the parties as to: (a) the percentage of the Rentable Area of the Building
damaged or destroyed; (b) the period of time required to restore the Premises or
the Building; (c) whether or not the Premises are rendered untenantable and the
extent of such untenantability; (d) the date upon which the Landlord's or
Tenant's obligations restoration obligations are completed or substantially
completed and the date when the Premises are rendered tenantable; and (e) the
state of completion of any work of either the Landlord or the Tenant under this
Lease.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
SECTION 11.1 ASSIGNMENT AND SUBLETTING
(a) After the date that the Tenant's Work in the Premises is completed,
the Tenant shall have the right at any time during the Term or an Extension Term
to effect a Transfer upon obtaining the written consent of the Landlord, such
consent not to be unreasonably withheld or delayed. However, notwithstanding any
statutory provisions to the contrary, the Landlord will be deemed to be
reasonable if it bases its decision whether or not to consent on any or all of
the following factors:
(i) whether the Transfer is contrary to any covenants or restrictions granted by
the Landlord to other existing or prospective tenants or occupants of the
Building, or to the Mortgagee or any other parties;
<PAGE> 37
(ii) whether in the Landlord's opinion the financial background, business
history and capability of the Transferee is satisfactory; and
(iii) whether in the Landlord's opinion the Transferee will be able to pay the
Rent in full when due and payable.
(b) The consent by the Landlord to any Transfer will not constitute a
waiver of the necessity for consent to any subsequent Transfer.
(c) This prohibition against a Transfer without first obtaining the
Landlord's consent applies to a change in the direct or indirect effective
voting control of the Tenant from the Person(s) holding voting control at the
date of this Lease (or if the Tenant is not a corporation, at the date of the
assignment of this Lease to a corporation), unless the Tenant is a public
corporation whose shares are listed and traded on any recognized stock exchange
in Canada or the United States or the change is pursuant to a public offering of
the Tenant's shares.
If the Tenant is a partnership or is controlled by a partnership (either
directly or indirectly), this prohibition against a Transfer also includes a
change in the constitution of the partnership resulting from the withdrawal of
any of the partners existing as of the Commencement Date (or if the Tenant is
not a partnership, at the date of the assignment of this Lease to a partnership)
or the addition of any partners to the partnership subsequent thereto. This
prohibition against a Transfer also includes an assignment by operation of law.
(d) No Transfer may be made where any portion of Rent is lower than
then current Market Value for the Building.
(e) If the Tenant intends to effect a Transfer, then the Tenant will
give prior written notice to the Landlord of such intent, specifying the
proposed Transferee and providing additional information regarding the
Transferee which the Landlord may reasonably require in order to determine
whether or not to provide its consent, including without limitation, a copy of a
bona fide written offer, if any, with respect to the proposed Transfer which the
Tenant is prepared to accept subject to compliance with the provisions of this
Lease and which must disclose any and all Rent payments (or other consideration
on account of or in lieu of Rent, provided that the Tenant need not disclose the
portion of the purchase price attributable to the Lease), made or to be made by
the proposed Transferee as consideration for such Transfer and any other
information concerning the financial or business status of the Transferee that
the Landlord requires. The Landlord will, within fifteen (15) days after having
received notice and all necessary information, notify the Tenant in writing
either that:
(i) it consents or does not consent to the Transfer. If the
Landlord does not give its consent, it shall provide the Tenant with its reasons
for not giving its consent at the time it advises the Tenant that it is not
providing its consent; or
(ii) it elects to cancel this Lease in preference to giving
consent
<PAGE> 38
(provided that the Landlord acknowledges that so long as the Tenant is Delano
Technology Corp., the Landlord shall not be entitled to terminate this Lease
upon the Tenant requesting the Landlord's consent to a Transfer). If the
Landlord elects to cancel this Lease, the Tenant will notify the Landlord
in writing within fifteen (15) days thereafter of the Tenant's intention
either to refrain from the Transfer or to accept the cancellation of this
Lease. If the Tenant fails to deliver its notice within the fifteen (15)
day period, this Lease will be terminated upon the date stipulated by the
Landlord in its notice of cancellation. If the Tenant advises the Landlord it
intends to refrain from the Transfer, then the Landlord's election to cancel
this Lease will be void.
(f) If there is a Transfer, the Landlord may collect Rent from the
Transferee, and apply the net amount collected to the Rent required to be paid
pursuant to this Lease, but no acceptance by the Landlord of any payments by a
Transferee will be a waiver of the requirement for the Landlord's consent to
such Transfer, or the acceptance of the Transferee as the Tenant, or a release
of the Tenant from the further performance by the Tenant of its covenants or
obligations.
(g) Any documents evidencing the consent to the Transfer will be
prepared by the Landlord or its solicitors, and all reasonable legal costs
incurred by the Landlord and the Landlord's then-standard fee with respect
thereto (such Landlord's fee, not including legal costs, not to exceed $500.00)
will be paid by the Tenant to the Landlord or its solicitors as Additional Rent.
(h) Notwithstanding a Transfer, the Tenant will be jointly and
severally liable with the Transferee on this Lease and will not be released from
performing any of the Tenant's Covenants, except in respect of an Extension
Term, the option for which has not yet been exercised or the term of which has
not yet commenced.
(i) If the Tenant receives consent under Section 11.1, it will be
subject to the following conditions that:
(i) all Rent received by the Tenant from any subtenant as a
result of the Transfer shall be for the Tenant's sole account;
(ii) in the case of an assignment, each of the Transferee and
the Landlord shall enter into an agreement with the other agreeing to observe
and perform all of their respective covenants and agreements in this Lease to be
observed and performed; and
(iii) if this Lease is disaffirmed, disclaimed, repudiated or
terminated by any trustee in bankruptcy of a Transferee, the original Tenant
named in this Lease or any Transferee (except the bankrupt Transferee) will be
considered, upon notice from the Landlord given within thirty (30) days after
the disaffirmation, disclaimer, repudiation or termination, to have entered into
a lease (the "Remainder Period Lease") with the Landlord, on the same terms and
conditions as are contained in this Lease, mutatis mutandis, except that the
term of the Remainder Period Lease shall commence on the date of the
disaffirmation, disclaimer, repudiation or termination and shall expire on the
date this Lease would have
<PAGE> 39
expired had it not been so disaffirmed, disclaimed, repudiated or terminated.
(j) Regardless of the provisions of this Lease requiring the Landlord's
consent to a Transfer, the Tenant shall not require the Landlord's consent to
effect a Transfer to:
(i) any person who is controlled by, a subsidiary of, or
affiliated with (as those terms are defined in the Business Corporations Act
(Ontario) as at the date of this Lease) the Tenant;
(ii) a successor corporation resulting from a merger,
amalgamation or corporate reorganization of the Tenant, provided that the net
worth of such successor is equal to or greater than that of the Tenant; or
(iii) a bona fide purchaser for value of the Tenant's
business.
The Tenant shall provide the Landlord with prior written notice of any such
Transfer and the Landlord and Transferee shall enter into an agreement with one
another as referred to in Section 11.1(i)(ii). No such Transfer shall release
the Tenant, except in accordance with subsection 11.1(h).
SECTION 11.2 ASSIGNMENT BY THE LANDLORD
If there is a sale, lease or other disposition by the Landlord
of the Building, Property, the Project or any part thereof, or the assignment by
the Landlord of this Lease or any interest of the Landlord hereunder, and to the
extent that the purchaser or assignee assumed the covenants and obligations of
the Landlord hereunder, the Landlord will, thereupon and without further
agreement, be relieved of all further liability with respect to its covenants
and obligations.
ARTICLE 12
ACCESS AND ALTERATIONS
SECTION 12.1 RIGHT OF ENTRY
The Landlord and its agents have the right to enter the
Premises at all reasonable times and upon not less than one (1) Business Day's
written notice (except in the event of an emergency, when the Landlord can enter
at any time) to show them to prospective purchasers, lessees or mortgagees, and
to examine them and make repairs, alterations or changes to the Premises or the
Building as the Landlord considers necessary including, without limitation,
repairs, alterations or changes to the pipes, conduits, wiring, ducts and other
installations in the Premises where necessary to serve another part of the
Building. For that purpose, the Landlord may take all required
<PAGE> 40
material into the Premises and may have access to all ducts located under the
floor or above the ceiling and access panels to mechanical shafts and the
Landlord has the right to check, calibrate, adjust and balance controls and
other parts of the heating, ventilating and air-conditioning. The Rent will not
abate while any repairs, alterations or changes are being made due to loss or
interruption of the business of the Tenant or otherwise, and the Landlord will
not be liable for any damage, injury or death caused to any Person, or to the
property of the Tenant or of others located on the Premises as a result of the
entry.
ARTICLE 13
STATUS STATEMENT, SUBORDINATION AND ATTORNMENT
SECTION 13.1 STATUS STATEMENT
At any time and from time to time during the Term, either
party shall, at the request of the other (the "Requester"), execute and deliver
to the Requester or to whom the Requester may reasonably direct, a statement in
writing, in the form supplied by the Requester, or, if the Requester is the
Landlord, a certificate to any proposed purchaser, assignee, lessor or
mortgagee, which will contain such statements, acknowledgments and information
as is customarily called for in status statements and estoppel certificates
delivered in conjunction with commercial tenancies, and which statement will, in
any event, certify that the Lease is unmodified and in full force and effect (or
if modified, stating the modification and that the Lease is in full force and
effect as modified), the commencement date of the Lease, the amount of Rent then
being paid under this Lease, the dates to which Rent has been paid, whether or
not there is any existing default on the part of the Requester of which the
other party (the "REQUESTEE") is aware and any other particulars regarding this
Lease, the Premises, the Building or the Project as the Requester may reasonably
require. The Requestee shall execute and return such statement to the Requester
within ten (10) days following the date that the request for such statement was
made.
SECTION 13.2 SUBORDINATION AND ATTORNMENT
(a) This Lease and the Tenant's rights hereunder are, and will at all
times be, subordinate to all ground or underlying leases, mortgages, trust deeds
or the charge or lien resulting from, or any instruments of, any financing,
refinancing or collateral financing (collectively, an "Encumbrance") or any
renewals or extensions thereof from time to time in existence against the
Property or any part thereof, and the Tenant will, upon request, execute any
document requested by the Landlord to confirm the subordination of this Lease to
any Encumbrance and to the advances made or to be made on the security of the
Encumbrance. The Tenant will also, if requested: (i) attorn to the Owners, the
holder of any Encumbrance or any representative, receiver or receiver-manager
appointed or designated by the Owner or the holder of any Encumbrance; and (ii)
attorn to the purchaser or transferee of the Property (or any part of it) or of
any ownership or equity interest in the Property (or any part of it).
<PAGE> 41
(b) The Tenant will, if possession is taken under, or any proceedings
are brought for possession under or the foreclosure of, or in the event of the
exercise of the power of sale under, any Encumbrance, attorn to the Encumbrancer
or the purchaser upon any such foreclosure, sale or other proceeding and
recognize the Encumbrancer or the purchaser as the Landlord under this Lease.
(c) Subject to subsection (d) hereof, the form and content of any
document confirming or effecting the subordination and attornment provided for
in this Section 13.2 will be that required by the Landlord or the holder of any
Encumbrance or the purchaser or transferee in each case, and each such document
will be executed and delivered by the Tenant to the Landlord within ten (10)
days after the Landlord requests it.
(d) The Landlord shall, on the earlier of this Lease being signed and
the Commencement Date, provided the Tenant has concluded its negotiations as
hereinafter referred to, obtain a non-disturbance agreement in writing from all
existing Encumbrancers who have priority over the Tenant's leasehold interest in
the Premises. Despite the preceding provisions of this Section, this Lease shall
not be subordinated to and the Tenant shall not be required to subordinate this
Lease to any future Encumbrancer unless such person provides a non-disturbance
agreement to the Tenant. The non-disturbance agreement referred to above shall
be in the Encumbrancer's standard form, subject to such reasonable changes as
may be negotiated directly by the Tenant with such Encumbrancer, at the Tenant's
expense, and which will in any event provide that so long as the Tenant is not
then in default, the Tenant shall be entitled to remain undisturbed in its
possession of the Premises subject to the terms and conditions of this Lease
regardless of the exercise of any or all of the rights of any such Encumbrancer
under its security.
SECTION 13.3 POWER OF ATTORNEY
In circumstances where the Tenant has failed to comply with
the Tenant's Covenants beyond the applicable cure period provided for in this
Lease, the Tenant hereby irrevocably appoints the Landlord as the attorney for
the Tenant with full power and authority to execute and deliver in the name of
the Tenant any instrument or certificates required to carry out the intent of
Sections 13.1 or 13.2 which the Tenant shall have failed to sign and deliver.
SECTION 13.4 FINANCIAL INFORMATION
The Tenant will, upon request, provide the Landlord with such
information as to the Tenant's financial standing and corporate organization as
the Landlord or the Mortgagee requires, provided that so long as the Tenant is
Delano Technology Corp., this provision shall have no application save and
except for information as may be reasonably required in connection with a
request for consent to a Transfer.
<PAGE> 42
ARTICLE 14
DEFAULT
SECTION 14.1 RIGHT TO RE-ENTER
If and whenever:
(a) the Tenant fails to pay any Rent on the day or dates appointed for the
payment thereof and such failure continues for ten (10) days following written
demand for the payment thereof being made by the Landlord; or
(b) the Tenant fails to observe or perform any of the Tenant's Covenants (other
than the payment of Rent and the covenants set out below in subparagraph (c) for
which no notice shall be required) and, if the breach is remediable:
(i) fails to remedy such breach within fifteen (15) days of
the receipt or deemed receipt by the Tenant of written notice from the Landlord
respecting such breach; or
(ii) if such breach cannot be reasonably remedied within such
fifteen (15) day period, the Tenant fails to commence to remedy such breach
within fifteen (15) days and thereafter fails to proceed diligently to remedy
such breach; or
(c) the Tenant becomes bankrupt or insolvent or takes the benefit of any act now
or hereafter in force for bankrupt or insolvent debtors or files any proposal or
makes any assignment for the benefit of creditors or any arrangement or
compromise; a receiver or a receiver-manager is appointed for all or a portion
of the Tenant's property; any steps are taken or any action or proceedings are
instituted by the Tenant or by any other party to dissolve, wind-up or liquidate
the Tenant or its assets; the Tenant abandons the Premises, or sells or disposes
of the trade fixtures, goods or chattels of the Tenant or removes them from the
Premises so that there would not in the event of such sale or disposal be
sufficient trade fixtures, goods or chattels of the Tenant on the Premises
subject to distress to satisfy all Rent due or accruing hereunder for a period
of at least three (3) months; the Premises become and remain vacant for a period
of five (5) consecutive Business Days; the Tenant effects or permits a Transfer
without the Landlord's consent where required; this Lease or any of the Tenant's
assets are taken under any writ of execution; or re-entry is permitted under any
other terms of this Lease;
(d) the Tenant is in default of the provisions of section 8.1 and fails to
correct such default within forty eight (48) hours of receipt of notice of such
default;
then the Landlord, in addition to any other rights or remedies available to it,
has the immediate right of re-entry upon the Premises and it may repossess the
Premises and enjoy them as of its former estate and may expel all Persons and
remove all property
<PAGE> 43
from the Premises and such property may be removed and sold or disposed of by
the Landlord as it deems advisable or may be stored in a public warehouse or
elsewhere at the cost and for the account of the Tenant, all without service of
notice or resort to legal process and without the Landlord being considered
guilty of trespass or becoming liable for any loss or damage which may be
occasioned. If the Landlord re-enters the Premises (except for the purpose of
leving a distress) or terminates this Lease, the Landlord shall not be entitled
to take possession of or sell any of the Tenant's equipment, furniture, trade
fixtures or other personal property located on the Premises without first
allowing the Tenant a period of ten (10) days following the date of such
re-entry or termination to remove same.
SECTION 14.2 RIGHT TO RELET
(a) If the Landlord elects to re-enter the Premises, or if it takes
possession pursuant to legal proceedings or pursuant to any notice provided for
by law, it may either terminate this Lease or it may without terminating this
Lease make any alterations and repairs as are necessary in order to relet the
Premises. Upon each reletting (which reletting the Landlord may do at such
rental and upon such other terms and conditions as the Landlord in its sole
discretion may deem advisable) all rent received by the Landlord will be
applied, first to the payment of any indebtedness other than Basic Rent or
Additional Rent due hereunder; second, to the payment of any costs and expenses
of reletting including reasonable brokerage fees and reasonable solicitor's fees
and the costs of alterations and repairs; third, to the payment of Basic Rent
and Additional Rent due and unpaid hereunder; and the residue, if any, will be
held by the Landlord and applied in payment of future Rent as it becomes payable
hereunder. No re-entry or taking possession of the Premises will be construed as
an election on its part to terminate this Lease unless a written notice of that
intention is given to the Tenant. Notwithstanding any such reletting without
termination, the Landlord may at any time thereafter elect to terminate this
Lease for such previous breach.
(b) If the Landlord terminates this Lease, in addition to other
remedies available, it may recover from the Tenant, unless a court orders
otherwise, all damages the Landlord incurs by reason of the Tenant's breach,
including the cost of recovering the Premises, all reasonable legal costs
incurred by the Landlord and the Basic Rent, Additional Rent and GST which would
have been payable for the remainder of the Term had the Lease not otherwise have
been terminated, all of which shall be immediately due and payable by the Tenant
to the Landlord.
(c) Upon the occurrence of any of the events referred to in Section
14.1, in addition to all other rights, the full amount of the current month's
instalment of Basic Rent and Additional Rent, together with the next three
months' instalments of Basic Rent and Additional Rent, all of which will be
deemed to be accruing due on a day-to-day basis, will become due and payable
upon the default continuing beyond the applicable notice period as accelerated
rent, and the Landlord may distrain for the same, together with any arrears then
unpaid.
<PAGE> 44
SECTION 14.3 EXPENSES
If legal action is brought for recovery of possession of the
Premises, for the recovery of Basic Rent, Additional Rent and GST or any other
amount due under this Lease, or because of the breach of any other of the
Tenant's obligations, the Tenant will pay to the Landlord all reasonable
expenses incurred therefor, including reasonable solicitors' fee (on a solicitor
and his client basis), unless a court otherwise awards, plus ten percent (10%)
of such expenses to cover the Landlord's overhead and administrative costs.
SECTION 14.4 WAIVER OF EXEMPTION FROM DISTRESS
Despite the Commercial Tenancies Act, or any other applicable
Act, legislation, or any legal or equitable rule of law, none of the goods and
chattels of the Tenant which are on or have at any time been on the Premises
will be exempt from levy by distress for Basic Rent or Additional Rent in
arrears by the Tenant. The Landlord shall not be entitled to exercise its right
of distress unless Rent has been in arrears for a period of ten (10) days
following written notice of such arrears having been given by the Landlord to
the Tenant.
SECTION 14.5 LANDLORD'S RIGHTS
(a) If the Tenant fails to pay any Additional Rent payable to a third
party when due, the Landlord may, but will not be obligated to, pay all or part
of the amount payable.
(b) If the Tenant is in default in the performance of any of its other
covenants or obligations under the Lease beyond the applicable cure period as
contemplated in Section 14.1, the Landlord may, but will not be obligated to,
after giving reasonable notice (it being agreed that forty-eight (48) hours is a
reasonable notice of default in respect of Section 8.1) or, without notice in
the case of an emergency, perform or cause to be performed all or part of what
the Tenant failed to perform and may enter upon the Premises and do those things
that the Landlord considers necessary for that purpose. The Tenant will pay to
the Landlord as Additional Rent, within fifteen (15) days following invoice, the
Landlord's expenses incurred under this Section 14.5 plus an amount equal to ten
percent (10%) of those expenses for the Landlord's overhead and administrative
costs. The Landlord will have no liability to the Tenant for loss or damages
resulting from its action or entry upon the Premises.
SECTION 14.6 REMEDIES GENERALLY
Mention in this Lease of any particular remedy of the Landlord
or the Tenant in respect of the default by the Tenant or the Landlord, as the
case may be, does
<PAGE> 45
not preclude the Landlord or the tenant, s the case may be, from any other
remedy in respect thereof, whether available at law or in equity or by statute
or expressly provided for in this Lease. No remedy shall be exclusive or
dependent upon any other remedy, but the Landlord or the Tenant, as the case may
be, may from time to time exercise any one or more of such remedies generally or
in combination, such remedies being cumulative and not alternative.
SECTION 14.7 LANDLORD'S DEFAULT
If the Landlord fails to observe or perform any of the
Landlord's Covenants and such failure continues after the Tenant has provided
the Landlord with fifteen (15) days written notice of such failure (unless the
Landlord has commenced to remedy such failure within such fifteen (15) day
period and is diligently proceeding to remedy same), the Tenant may rectify such
default and the Landlord shall be responsible for, and shall pay to the Tenant
within thirty (30) days following demand, all reasonable costs incurred by the
Tenant as a result of such default, including, without limitation, the
reasonable costs incurred by the Tenant in rectifying such default (if the
Tenant elects to rectify such default). If the Landlord fails to pay any such
costs within such thirty (30) day period, the Tenant shall be entitled to deduct
such costs from Rent.
ARTICLE 15
MISCELLANEOUS
SECTION 15.1 RULES AND REGULATIONS
The Rules and Regulations adopted by the Landlord including,
without limitation, those set out in Schedule "E", are made a part of this
Lease, and the Tenant will observe them. The Landlord reserves the right to
amend or supplement the Rules and Regulations applicable to the Premises or the
Property or any part thereof as in the Landlord's judgment are needed for the
safety, care, cleanliness and efficient operation of the Building. Notice of the
Rules and Regulations and amendments and supplements, if any, will be given to
the Tenant and the Tenant, its invitees or those for whom the Tenant is at law
responsible, will thereupon observe them provided that they do not contradict
any terms, covenants and conditions of this Lease. Any breach of any of the
Rules and Regulations by the Tenant, its invitees or those for whom the Tenant
is at law responsible, shall constitute a breach under this Lease and all
remedies and rights generally available to the Landlord for a breach by the
Tenant under this Lease shall be available and may be applied against the
Tenant. In the event of any inconsistency between the rules and regulations and
the provisions of this Lease, the provisions of this Lease shall govern. The
Landlord shall act reasonably and in a non-discriminatory manner in making and
enforcing such rules and regulations, which rules and regulations shall not
unduly interfere with the Tenant's business. The Landlord shall enforce such
rules and regulations against the tenants of the Building.
<PAGE> 46
SECTION 15.2 INTENT AND INTERPRETATION
(a) NET LEASE
The Tenant acknowledges that, except as otherwise expressly
set out in this Lease:
(i) it is intended that this Lease is a completely
carefree and triple net lease to the Landlord;
(ii) the Landlord is not responsible during the Term for
any costs, charges, expenses and outlays of any nature whatsoever arising from
or relating to the Premises, or the use and occupancy thereof; and
(iii) the Tenant will pay all charges, impositions, costs
and expenses of every nature and kind relating to the Premises.
(B) OBLIGATIONS AS COVENANTS AND SEVERABILITY
Each obligation or agreement of the Landlord or the Tenant
expressed in this Lease, even though not expressed as a covenant, is considered
to be a covenant for all purposes. If any provision of this Lease is or becomes
invalid, void, illegal or unenforceable, it shall be considered separate and
severable from the Lease and the remaining provisions shall remain in force and
be binding upon the parties as though such provision had not been included.
(c) ENTIRE AGREEMENT AND AMENDMENT OR MODIFICATION
This Lease and the Schedules, and Riders, if any, attached
together with the Rules and Regulations set forth all covenants, promises,
agreements, conditions or understandings, either oral or written, between the
Landlord and the Tenant. No alteration or amendment to this Lease will be
binding upon the Landlord or the Tenant unless in writing and signed by the
Tenant and the Landlord.
(d) GOVERNING LAW
This Lease will be construed in accordance with and governed
by the laws of the Province of Ontario.
(e) TIME OF THE ESSENCE
Time is of the essence of this Lease and of every part of it.
SECTION 15.3 OVERHOLDING - NO TACIT RENEWAL
<PAGE> 47
If the Tenant remains in possession of the Premises after the
end of the Term without having signed a new lease or an extension of Term
agreement, there is no tacit renewal of this Lease or the Term, notwithstanding
any statutory provisions or legal presumptions to the contrary, and the Tenant
will be deemed to be occupying the Premises as a tenant from month-to-month at a
monthly Basic Rent equal to one and one-half (1-1/2) times the monthly amount of
Basic Rent payable during the last month of the Term, and otherwise, upon the
same terms, covenants and conditions as are set forth in this Lease (including
the payment of Additional Rent) so far as these are applicable to a monthly
tenancy.
SECTION 15.4 TENANT PARTNERSHIP OR GROUP
(a) If the Tenant is a partnership ("Tenant Partnership") each Person
who is presently a member of the Tenant Partnership, and each Person who
subsequently becomes a member of any successor Tenant Partnership will be and
continue to be liable jointly and severally for the full performance of, and
will be and continue to be subject to, the terms, covenants and conditions of
this Lease, whether or not the Person ceases to be a member of the Tenant
Partnership or successor Tenant Partnership.
(b) If the Tenant is comprised of more than one (1) Person, each such
Person will be and continue to be liable jointly and severally for the full
performance of, and will be and continue to be subject to, the terms, covenants
and conditions of this Lease, whether or not the Person ceases to be actively
involved in the business operations conducted from the Premises.
SECTION 15.5 WAIVER
The waiver by either party of any breach of the other of any
term, covenant or condition herein contained, is not deemed to be a waiver of
such term, covenant or condition or of any subsequent breach of the same or of
any other term, covenant or condition herein contained. The subsequent
acceptance of Rent by the Landlord is not deemed to be a waiver of any preceding
breach by the Tenant regardless of the Landlord's knowledge of the preceding
breach at the time of acceptance of the Rent. No term, covenant or condition of
this Lease is deemed to have been waived by the Landlord unless the waiver is in
writing by the Landlord.
SECTION 15.6 RENT PAID WITHOUT DEDUCTION
Except as otherwise expressly stated in this Lease, all Rent
to be paid by the Tenant to the Landlord will be paid without any deduction,
abatement, set-off or compensation whatsoever, and the Tenant hereby waives the
benefit of any statutory or other rights in respect of abatement, set-off or
compensation in its favour at the time hereof or at any future time.
<PAGE> 48
SECTION 15.7 ACCORD AND SATISFACTION
No payment by the Tenant or receipt by the Landlord of a
lesser amount than the monthly payment of Rent stipulated is deemed to be other
than on account of the earliest stipulated Rent, nor is any endorsement or
statement on any cheque or any letter accompanying any cheque or payment as Rent
deemed an acknowledgement of full payment of accord and satisfaction. The
Landlord may accept and cash any cheque or payment without prejudice to the
Landlord's right to recover the balance of the Rent due or to pursue any other
remedy provided in this Lease.
SECTION 15.8 FORCE MAJEURE
Notwithstanding anything in this Lease, if either party is
bona fide delayed or hindered in or prevented from the performance of any term,
covenant or act required hereunder by reason of strikes or labour troubles;
inability to procure materials or services; power failure; restrictive
governmental laws or regulations; riots; insurrection; sabotage; rebellion; war;
act of God; climatic conditions; or other reason whether of a like nature or not
which is not the fault of the party delayed in performing work or doing acts
required under the terms of this Lease, then the performance of that term,
covenant or act is excused for the period of the delay and the party delayed
will be entitled to perform that term, covenant or act within the appropriate
time period after the expiration of the period of the delay. However, the
provisions of this Section do not operate to excuse the Tenant from the prompt
payment of Rent.
SECTION 15.9 NOTICES
Any notice, demand, request or other instrument which may be
or is required to be given under this Lease will be personally delivered or sent
by telecopy, fax or registered mail postage prepaid and will be addressed (a) if
to the Landlord, to the address specified in Section 1.6 of the Special
Provisions, and (b) if to the Tenant, at the address specified in Section 1.7 of
the Special Provisions. Any notice, demand, request or consent is conclusively
deemed to have been given or made on the day upon which it is personally
delivered or sent by telecopy or fax, or, if mailed, then four (4) Business Days
following the day of mailing, as the case may be. Either party may give written
notice of any change of its address and thereafter the new address is deemed to
be the address of that party for the giving of notices. If the postal service is
interrupted or is substantially delayed, any notice, demand, request or other
instrument must be personally delivered.
SECTION 15.10 REGISTRATION
Neither the Tenant nor any one on the Tenant's behalf or
claiming under the Tenant will register this Lease. However, either party may
register a document for the purpose only of giving notice of this Lease or of
any assignment of this Lease, or any sublease of the Premises, which will (a) if
requested by the Tenant, be prepared by the
<PAGE> 49
Tenant or its solicitors at the Tenant's expense, and (b) only describe the
parties, the Premises, the Term, the Commencement Date and the expiration date
of the Term, the extension rights contemplated in paragraph 1 on Schedule "F",
the Tenant's expansion rights contained in paragraph 4 on Schedule "F", the
Tenant's right of first refusal rights contained in paragraph 5 on Schedule "F"
and the Tenant's parking rights and shall not disclose the financial terms of
this Lease. Such document shall be subject to the approval of the Landlord's
solicitors, but at the Landlord's expense. Such approval shall be obtained prior
to the document being registered, and shall be prepared by the Tenant and
registered at the sole cost and expense of the Tenant.
SECTION 15.11 ACCRUAL OF BASIC RENT AND ADDITIONAL RENT
Rent will be considered as annual and accruing from day-to-day
based upon a three hundred and sixty-five (365) day calendar year and where it
becomes necessary for any reason to calculate Rent for an irregular period of
less than one (1) year, an appropriate apportionment and adjustment will be
made.
SECTION 15.12 COMPLIANCE WITH THE PLANNING ACT
It is a condition of this Lease that the subdivision control
provisions of the Planning Act (Ontario), and amendments thereto, be complied
with if they apply. If the provisions of the Planning Act do apply, then until
any necessary consent to the Lease is obtained, the Term (including any
extensions thereof) and the Tenant's rights granted by this Lease are deemed to
extend for a period only of twenty-one (21) years less one (1) day from the
Commencement Date.
SECTION 15.13 QUIET ENJOYMENT
If the Tenant pays the Rent and observes and performs all its
terms, covenants and conditions, the Tenant shall and may peaceably possess and
enjoy the Premises for the Term without any hindrance, interruption or
disturbance from the Landlord or any other Person lawfully claiming by, from or
under it, unless otherwise permitted under the terms of this Lease.
SECTION 15.14 CONSENT AND APPROVAL
Whenever a party (the "Deciding Party") is making a
determination (including, without limitation, a determination of whether or not
to provide its consent or approval where the Deciding Party's consent or
approval is required), designation, calculation, estimate, conversion or
allocation under this Lease, the Deciding Party shall (unless this Lease
specifically provides to the contrary) act reasonably, in good faith and without
undue delay, unless the Lease otherwise provides. If the Deciding Party refuses
to provide its consent or approval when requested to do so, it shall provide the
party requesting such consent or approval (the "Requesting Party") with the
reasons for its refusal at the same time as it advises the Requesting Party that
it refuses to provide its
<PAGE> 50
consent or approval. Each accountant, architect, engineer or surveyor, or other
professional Person employed or retained by the Landlord will act in accordance
with the applicable principles and standards of that Persons' profession.
ARTICLE 16
DEFINITIONS AND INTERPRETATION
SECTION 16.1 DEFINITIONS
In this Lease, unless there is something in the subject matter or
context inconsistent therewith, the following words and terms, which may be used
in the singular or the plural, have the respective meanings given them as
follows:
"Additional Rent" means all sums of money or charges required to be paid by the
Tenant under this Lease (except Basic Rent) whether or not designated
"Additional Rent" or payable to the Landlord;
"Additional Buildings" has the meaning given that term in section 2.5;
"Additional Services" means the services and supervision thereof by the Landlord
referred to in Section 5.5 hereof, and all other services of any nature or kind
supplied by the Landlord in addition to those required to be supplied by the
Landlord to the Tenant pursuant to this Lease, except for any services which the
Landlord elects to supply to all of the tenants of the Building the cost of
which is included in Operating Costs;
"Alterations" means any repairs, replacements, decorations, Leasehold
Improvements or other alterations made by the Tenant or its representatives to
any part of the Premises, or made by any other tenant to any other Premises in
the Building;
"Architect" means the architect, surveyor or space planner from time to time
named by the Landlord. The decision of the Architect whenever required by this
Lease (or requested by the Landlord) and any certificate prepared or approved by
the Architect will be final and binding, except in the case of manifest or
demonstrable error;
"Basic Rent" means the sums payable by the Tenant to the Landlord as set out in
Section 3.2 of this Lease;
"BOMA" means the Standard Method for Measuring Floor Area in Office Buildings -
American National Standard, as approved June 7, 1996 and known as BOMA
Z65.1-1996;
"Building" means the multi-storey office building erected on the Lands and
located in the City of MARKHAM, Province of ONTARIO, known municipally as 302
TOWN CENTRE BOULEVARD, MARKHAM and forming a part of the Project, from and
including the lowest floor or level of the Building to and including the roof
thereon, the Common Areas and
<PAGE> 51
Facilities, the Parking Areas, and the areas and facilities serving the
Building, as determined by the Landlord, which areas and facilities may include,
without limitation, lobbies, foyers and vestibules, sidewalks, storage and
mechanical areas, janitor rooms, mail rooms, telephone, mechanical and
electrical rooms, stairways, escalators, elevators, truck and receiving areas,
driveways, loading docks and corridors and shall also include the Retail Area,
the Office Area, the Storage Areas and those areas designated or intended by the
Landlord to be leased or used for service, administration, management, safety
and operational purposes;
"Business Day" means any day which is not a Saturday, Sunday or a statutory
holiday observed in Ontario, and "Business Days" shall have a corresponding
meaning;
"Capital Taxes" - intentionally deleted;
"Common Areas and Facilities" means: (a) those areas, facilities, utilities,
improvements, equipment and installations in the Property, or the Project as the
case may be, which, from time to time, are not designated or intended by the
Landlord to be leased to tenants of the Building, or the Project as the case may
be; and (b) those areas, facilities, utilities, improvements, equipment and
installations which serve or are for the benefit of the Project, whether or not
located within, adjacent to, or near the Building and which are designated from
time to time by the Landlord as part of the Common Areas and Facilities,
including, without limitation, all areas, facilities, utilities, improvements,
equipment and installations which are provided or designated (and which may be
changed from time to time) by the Landlord for the use or benefit of the
tenants, their employees, customers and other invitees in common with others
entitled to the use and benefit thereof in the manner and for the purposes
permitted by this Lease;
"Excluded Costs" means the following:
(a) any and all costs of repairs or replacements to the Structure;
(b) any and all costs and expenses incurred as a result of faulty construction
or design, improper materials or workmanship or defects or weaknesses in respect
of the Structure of the Building;
(c) any income taxes, corporation taxes, capital taxes, business taxes, or other
taxes personal to the Landlord, or interest or penalties relating to the late
payment by the Landlord of any taxes, whether personal to the Landlord or not;
(d) any ground rentals, and any principal, interest or other carrying charges or
mortgage payments or other financing costs in respect of the Project;
(e) any and all costs and expenses which are considered to be capital expenses
in accordance with generally accepted accounting principles. However, the
Landlord may amortize any such costs and expenses over the useful life of the
item to which such costs and expenses relate in accordance with generally
accepted accounting principles and may
<PAGE> 52
include in the Operating Costs applicable to each year of the term of the Lease,
the amortized amount attributable to such year of the term;
(f) depreciation and interest on the undepreciated portion of items located on
the Lands which may be depreciated;
(g) any costs or expenses (including real property taxes) in respect of any
lands which do not form part of the Project as parking area, landscaped area or
built upon common area;
(h) any reserves for future expenditures which would be incurred subsequent to
the then current accounting year;
(i) any costs incurred by the Landlord to the extent that the Landlord receives
insurance proceeds (or would have received had it taken out the insurance
required by this Lease to be taken out by it);
(j) any increase in the cost of the Landlord's insurance where such increase is
attributable to the actions or omissions of other tenants or occupants of the
Building;
(k) all work to the Premises necessitated by the non-compliance of the Landlord
or its contractors, subcontractors, suppliers or those for whom the Landlord is
responsible at law, with governing codes, by-laws, laws, regulations and
ordinances relating to the construction of the Premises;
(l) all costs attributable to the operations of any other tenant in the
Building, other than occupancy costs;
(m) all amounts paid by the Landlord for enforcing or honouring the leases of
any other tenant or occupant of the Building or for remedying or fulfilling the
obligations, whether to the Landlord or to any other party, of any other tenant
or occupant of the Building;
(n) all hard and soft costs of development and construction, reconstruction and
redevelopment of the Building (except for those items of work designated in this
Lease as the Tenant's work), including, without limitation, any levies, charges,
fees or assessments imposed by governmental authorities having jurisdiction over
the development and construction of the Building (such as, by way of example,
development charges, education development charges, cash in-lieu-of land
conveyances, sewer impost charges and Building permit fees);
(o) any amounts paid by the Landlord to persons, firms or corporations which do
not deal with the Landlord at arm's length (as determined pursuant to the Income
Tax Act (Canada)) to the extent, if any, that such payments exceed the amount
which would be paid to person, firms or corporations which do deal with the
Landlord at arm's length;
<PAGE> 53
(p) amounts expended by the Landlord for advertising and promotion of the
Building;
(q) the amount of any leasing commissions, tenant inducements, legal fees or
tenant allowances in connection with leasing any part of the Building;
(r) costs of improving or renovating space for a tenant or space vacated by a
tenant;
(s) costs or expenses to the extent recoverable by warranty or recoverable from
third parties (subject to the other provisions of this Lease)and any amounts
directly chargeable by the Landlord to any other tenant or tenants other than as
Operating Costs or Taxes;
(t) all goods and services tax payable by the Landlord on the purchase of goods
and services included in Operating Costs to the extent that the Landlord may
claim same as a credit or refund in determining its net tax liability on account
of goods and services tax;
(u) all management and administration costs (including wages and benefits) for
offsite or head office overhead of the Landlord (but this provision shall not
prohibit the inclusion of the Landlord's administrative fee);
(v) costs or expenses arising from or relating the existence of a Hazardous
Substance on the Lands on which the Premises are located, or the containment or
removal of such pollutants, including, without limitation, all costs of making
any alterations, repairs or replacements in connection with or as a result of
such Hazardous Substances, unless the Tenant is responsible for Hazardous
Substances being located on such Lands; and
(w) expenses for the defense of the Landlord's title to the Premises and/or the
Building;
(x) charitable or political contributions; and
(y) artwork costs in excess of $20,000 per item except as artwork costs in
excess of such amount may be required by a regulatory or other municipal or
government authority.
"Extension Term" has the meaning given that term in paragraph 1 on Schedule "F";
"Fixtures" means all fixtures (other than trade fixtures) and equipment
installed in the Premises, affixed in any manner thereto or to any of its
systems;
"Fixturing Period" - intentionally deleted;
"Hazardous Substances" means any contaminant, pollutant, dangerous substance,
potentially dangerous substance, noxious substance, toxic substance, hazardous
waste, flammable, explosive or radioactive material, urea formaldehyde foam
insulation, asbestos, PCB's or any other substances or materials that are
declared or defined to be hazardous, toxic, contaminants or pollutants in or
pursuant to any applicable federal, provincial or municipal statute, by-law or
regulation;
<PAGE> 54
"Indemnifier" - intentionally deleted;
"Landlord" means the party of the First Part and includes the Landlord and its
duly authorized representatives;
"Landlord's Covenants" means all of the terms, covenants and conditions of this
Lease on the part of the Landlord to be observed and performed;
"Landlord's Employees" means the Landlord's directors, officers, employees,
servants, agents and those for whom the Landlord is responsible at law;
"Landlord's Work" means all construction and other work referred to as
"Landlord's Work" in Schedule "C" attached hereto; "Lands" means the lands
underneath, adjacent and appurtenant to the Building, as more particularly
described in Schedule "A" attached to this Lease or as such Lands may be
altered, expanded or reduced from time to time;
"Lease" means this agreement and all the terms, covenants and conditions set out
herein, as amended from time to time in accordance with Section 15.2(c) hereof;
"Leasehold Improvements" means all items generally considered as leasehold
improvements at law, including without limitation all installations, alterations
and additions from time to time made, erected or installed in the Premises by or
on behalf of the Tenant, or any previous occupant of the Premises or by or on
behalf of tenants in other premises in the Building including, without
limitation, all partitions however affixed and whether or not moveable, heating,
ventilating and air-conditioning systems, facilities and equipment, light
fixtures, internal stairways and doors, floor, wall and ceiling coverings, and
any and all fixtures, facilities, equipment or installations installed by or on
behalf of the Landlord in accordance with Schedule "C". For greater certainty,
only free-standing furniture, equipment and trade fixtures not in any material
way connected to the Premises or to any Utilities system shall not be considered
a Leasehold Improvement;
"Market Rental" means, at any given time, the then current market net rental
rate for net leases with similar terms (including, without limitation, the
length of the term and the frequency of adjustments in rent, if any) entered
into at arm's length for premises of similar size, age, quality and use,
similarly improved and fixtured in similar office buildings in the vicinity of
the Building;
"Mortgagee" means any mortgagee or chargee (including any trustee for
bondholders), from time to time, of the Project or any part thereof, or of the
Landlord's or the Owners' interest in the Project;
"Normal Business Hours" means the hours from 8:00 a.m. to 6:00 p.m. on Mondays
to Fridays unless such a day is a statutory holiday;
<PAGE> 55
"Operating Costs" means the total amounts incurred, paid or payable whether by
the Landlord or by others on behalf of the Landlord which are applicable or
attributable to the Property (or the Project, as the case may be) for the
complete management, administration, operation, insuring, repair and maintenance
of the Property (or the Project, as the case may be)(including, without
limitation, interior and exterior maintenance and janitorial services and the
cost of utilities consumed in the Building) as a first class property. Operating
Costs shall be calculated without duplication of expense, without profit to the
Landlord (which shall not be construed so as to eliminate the Landlord's
administration fees) and in accordance with generally accepted accounting
principles applied on a basis consistent with previous years. Operating Costs
include, without limitation and without duplication, the aggregate of:
(a) the total annual costs of insuring the Property (or the Project, as the case
may be) and equipment and other property servicing the Property (or the Project,
as the case may be) from time to time as the Landlord, or the Mortgagee, from
time to time determines;
(b) the cost of cleaning (including carpet cleaning and window cleaning), snow
removal, garbage and waste collection and disposal, including the cost of
performing the work referred to in Section 5.2(a), and the cost of security,
supervision and traffic control;
(c) the aggregate of the costs and amounts paid by the Landlord, to the extent
such costs are not separately metered and paid for directly by individual
tenants, for Utilities used in the maintenance, operation, heating, ventilating
and air-conditioning of the Building;
(d) salaries, wages and other amounts paid or payable for all management,
supervisory, and operational personnel including the Property (or the Project,
as the case may be) manager, engineers, janitors, caretakers, security staff,
management personnel (in each case whether employed by the Landlord or pursuant
to a third party management contract) and all other related staff and the total
charges (including contributions and premiums for fringe benefits, unemployment
insurance, and Workers' Compensation, pension plan contributions and similar
premiums and contributions) of any independent contractors or managers, engaged
in the repair, care, maintenance, security, management and cleaning of the
Property (or the Project, as the case may be);
(e) the cost of the rental of any equipment and signs, and the cost of supplies,
used by the Landlord in the maintenance and operation of the Property or the
Project as the case may be and the cost of the directory board signage in the
Building;
(f) audit fees and the cost of accounting services incurred in the preparation
of the statements referred to in this Lease and the financial statements related
thereto, and in the computation of the Rent and other charges payable by tenants
of the Building;
(g) the cost of all repairs to and maintenance (including, without limitation,
<PAGE> 56
landscaping maintenance) and operation of the Property (or the Project, as the
case may be) and the systems, facilities and equipment serving the Building
(including without limitation, the components of the heating, ventilating and
air-conditioning systems serving portions of the Building which are maintained
and repaired by the Landlord) and all repairs undertaken by the Landlord for the
general safety and benefit of the tenants of the Property (or the Project, as
the case may be) or to reduce Operating Costs and the cost of installing
separate meters for any utilities in the Building incurred generally with
respect to the Building;
(h) if the costs described in paragraph (g) above constitute a capital
expenditure in accordance with generally accepted accounting principles, the
Landlord may amortize any such costs and expenses in accordance with generally
accepted accounting principles and may include in the Operating Costs applicable
to each year of the term of the Lease, the amortized amount attributable to such
year of the term;
(i) all Taxes attributable to the Property (or the Project, as the case may be);
(j) all business taxes and other Taxes, if any, from time to time payable by the
Landlord with respect to the Common Areas and Facilities;
(k) the Market Rental, business taxes and other Taxes, if any, attributable to
space in the Building occupied by the Landlord or the Building manager for
management, supervisory or administrative purposes including, without
limitation, space leased or used for service, administration, management, safety
and operational purposes; and
(l) if the Landlord has retained an arm's length property manager for the
Property (or the Project, as the case may be), the amount charged to the
Landlord by such property manager.
From the total of the above costs, there shall be deducted (but only if
originally included):
(i) all net recoveries which reduce Operating Costs received by the Landlord
from tenants as a result of any act, omission, default or negligence of such
tenants or by reason of a breach by such tenants of provisions in their
respective leases (other than recoveries from such tenants under clauses in
their respective leases requiring their contribution to Operating Costs); and
(ii) net proceeds received by the Landlord from insurance policies taken out by
the Landlord to the extent that the proceeds relate to Operating Costs.
Despite the foregoing, Operating Costs shall not include any Excluded Costs;
"Parking Areas" means the improvements constructed, or which may be constructed,
in or as part of the Building or the Property for use as parking facilities and
the areas and facilities that are appurtenant solely to those improvements,
including, without limitation, the underground parking facilities serving the
Project;
<PAGE> 57
"Person", if the context allows, includes any person, firm, partnership or
corporation, or any group of persons, firms, partnerships or corporations or any
combination thereof.
"Premises" means the premises demised by this Lease as set out in Section 2.1;
"Prime Rate" means the annual rate of interest from time to time publicly quoted
by any Canadian chartered bank designated by the Landlord as its reference rate
of interest for determining rates of interest chargeable in Toronto on Canadian
dollar demand loans to commercial customers;
"Project" has the meaning given that term in Section 2.5;
"Property" means the Building and the Lands as herein defined, and as the same
may be modified, altered, amended or otherwise changed in the future;
"Proportionate Share" means a fraction to be calculated by the Landlord, in each
case being a fraction which has as its numerator the Rentable Area of the
Premises and as its denominator the Rentable Area of the Building. The Landlord
may recalculate or adjust the Tenant's Proportionate Share from time to time due
to changes, additions or improvements to the Building;
"Rent" means all Basic Rent and Additional Rent payable hereunder;
"Rentable Area" of any portion of the Building, including the Premises, shall be
determined in accordance with BOMA, and adjusted from time to time to take
account of any structural, functional or other change affecting the Building;
"Retail Area" - intentionally deleted;
"Storage Areas" means all those areas (which in all cases are separate and apart
from leasable premises) to be used by tenants for storage in conjunction with
use of leasable premises.
"Structure" means the foundations, roof (including the roof membrane), exterior
wall assemblies including weather walls and bearing walls, subfloor and
structural columns and beams of the Building and any other portions of the
Building designated by the Landlord from time to time as Structure;
"Taxes" means all real property taxes, rates, duties and assessments (including
local improvement taxes, except for those imposed in connection with the
original construction of the Property or any part of it), imposts, charges or
levies, whether general or special, that are levied, rated, charged or assessed
against the Property (or the Project, as the case may be) or any part thereof or
Rent therefrom from time to time by any lawful taxing authority, whether
federal, provincial, municipal, school or otherwise, and any taxes or other
amounts which are imposed in lieu of, or in addition to, any such real property
taxes whether of the foregoing character or not and whether in existence at the
Commencement
<PAGE> 58
Date or not, including, without limitation, any excise tax, business transfer
tax or any tax levied, rated, charged or assessed in respect of the rental of
space by the Tenant under this Lease, and any real property taxes or other taxes
levied or assessed against the Landlord on account of its interest in the
Property (or the Project, as the case may be) or any part thereof, or its
ownership thereof, as the case may be, calculated on the basis of the Building
or buildings being assessed as a fully leased and operational building or
buildings, and the reasonable costs and expenses incurred for consulting,
appraisal, legal and other services to the extent they are incurred in an
attempt to minimize or reduce any of the foregoing real property taxes or other
taxes referred to above;
"Tenant" means the party of the Second Part. If there is more than one Tenant,
any notice required or permitted by this Lease may be given by or to any one of
them and has the same force and effect as if given by or to all of them. Any
reference to "Tenant" includes, where the context allows, the Tenant's
Employees;
"Tenant's Covenants" means all of the terms, covenants and conditions of this
Lease on the part of the Tenant to be observed and performed including, without
limitation ,the payment of Basic Rent and Additional Rent;
"Tenant's Employees" means the Tenant's directors, officers, employees,
servants, agents and those for whom the Tenant is responsible at law;
"Tenant's Work" means all construction and other work required to be provided or
performed in order to render the Premises complete and suitable to open for
business, including without limitation, all work designated as Tenant's Work in
Schedule "C" attached hereto but excluding those items specifically referred to
as "Landlord's Work";
"Term" means the term of this Lease as set out in Section 1.3, any extended or
renewal term and any overholding period;
"Transfer" means any of:
(a) an assignment of this Lease by the Tenant in whole or in part;
(b) any arrangement, written or oral, whether by sublease, licence
or otherwise, whereby rights to use space within the Premises are granted to any
Person (other than the Tenant) from time to time, which rights of occupancy are
derived through or under the interest of the Tenant under this Lease; and
(c) a mortgage or other encumbrance of this Lease, or the
Leasehold Improvements or Fixtures or of all or any part of the Premises, or any
interest therein; and
"Transferee" means any Person deriving rights through a Transfer;
"Utilities" means all gas, electricity, water, sewer, steam, fuel, power,
telephone and
<PAGE> 59
other utilities used in or for the Building or the Premises, as
the case may be, or allocated to the Premises by the Landlord in accordance with
the terms of this Lease.
SECTION 16.2 INTERPRETATION
The provisions of Schedule "C" attached hereto in respect of
Tenant's Work shall apply in respect of work performed by the Tenant at the
commencement of the Term and throughout the Term of this Lease.
IN WITNESS WHEREOF, the Landlord and the Tenant have signed and sealed this
Lease.
302 TOWN CENTRE LIMITED
Per:__________________________
Name:
Title:
Per:__________________________
Name:
Title:
DELANO TECHNOLOGY CORP.
Per:__________________________
Name:
Title
Per:__________________________
Name:
Title:
<PAGE> 60
SCHEDULE "B"
FLOOR PLAN
See Diagrams Attached.
SCHEDULE "C"
CONSTRUCTION OF THE BUILDING
ARTICLE 1
Landlord's Work
The Landlord's Work shall consist of completing the Building in
accordance with the Landlord's specifications, which shall include the
following:
(a) in the Premises, constructing 2 training rooms, 60 private offices and
meeting rooms, 3 boardrooms, 1 kitchen , 1 lunch room , 2 kitchenettes, a
reception area with marble entrance (the foregoing shall not include equipment
and fixtures). All paint, carpet, marble, vinyl tiles and cabinets to be
selected by Tenant from Landlord's standard samples for a class "A" office
building;
(b) elevator to be card accessed controlled after business hours;
(c) card access system for front door of the Building and all other doors
leading to the Premises and the underground parking area serving the Building
(the "Parking Area");
(d) the installation of such lighting in the Parking Area as to make same well
lit and secured;
(e) the lobby on the Main Floor to be finished in accordance with a Class "A"
office building including a tenant's directory;
(f) all windows to be covered with horizontal Venetian blinds;
(g) all doors to be full height wood with individual locks;
(h) all offices and work areas to have individual light switches;
(i) washrooms on all floors as per code;
(j) after hour access only through enter phone system or card access system;
<PAGE> 61
(k) supply cabling conduit or trays for all floors of the Building;
(l) change the colour of utility room on the roof of the Building;
(m) all lighting in the office area to be glare free lighting;
(n) installation of such controls so that the lighting, heating and
air-conditioning to the Premises may be controlled by the Tenant 24 hours a day,
seven days a week, at no additional cost to the Tenant, other than the actual
cost of the Utilities consumed and the costs set out in Section 5.5;
(o) landscaping to be completed no later than June 2000 subject to force
majeure;
(p) all exterior lighting to be according to code at a minimum but must be well
lit for security of employees;
(q) lit pylon sign listing all tenants in the Building to be placed in such
location as determined by the Landlord's architect;
(r) construction of a deck on the second floor "walk out" area, with glass
sliding door access;
(s) to supply a qualified space planner for the Tenant to enable the Tenant to
plan the office layout at no cost to the Tenant; and
(t) to supply halogen pot lights in board rooms and entranceways to provide
reasonable illumination.
ARTICLE 2
Tenant's Work
(a) Any alterations or construction not included as part of the Landlord's Work
and any changes desired by the Tenant which depart from the Building's standard
or which involve the use of materials not standard to the Building are the
Tenant's Work. The Tenant's Work is subject to the Landlord's prior written
approval and shall be completed at the expense of the Tenant.
(b) All permits necessary for the installation of the Tenant's Leasehold
improvements and approval of plans must be obtained from the applicable
authorities prior to the commencement of installations by the Tenant at its
expense. The Tenant's Work shall be carried out in accordance with section 9.3.
<PAGE> 62
(c) The Tenant and its contractors are responsible to remove garbage and debris
from the Premises daily and place same into garbage containers provided by the
Landlord for that purpose. All tenants will be assessed their share, as
reasonably determined by the Landlord, of the cost of providing empty garbage
containers on the job site during the construction of their Premises. Any of the
Tenant's garbage or debris removed by the Landlord's employees will be charged
to the Tenant's account and shall be payable as Additional Rent by the Tenant
within fifteen (15) days following invoice.
(d) The Tenant will pay to the Landlord within fifteen (15) days of demand: (a)
all reasonable costs incurred by the Landlord with respect to supervision and
administration during the installation of the Leasehold Improvements, including
without limitation, supervision by mechanical, engineering and other
consultants; (b) all reasonable costs incurred by the Landlord during the period
the Tenant fixtures the Premises for vertical transport of men and materials
with respect to the carrying out of the Tenant's Work in the Premises; and (c)
all other costs incurred by the Landlord during the period the Tenant fixtures
the Premises as more particularly set out in Section 2.4 of the Lease.
ARTICLE 3
Procedures
Section 3.1 The Tenant shall, prior to entering any portion of the Building or
the Premises for the commencement of the Tenant's Work, complete each of the
following obligations to the Landlord's satisfaction:
(a) prepare and submit to the Landlord for approval (in triplicate) working
drawings and specifications for the Tenant's Work as prepared by one or more
qualified design engineers, each of whom to be approved by the Landlord. The
Tenant's submission shall include full architectural, mechanical, electrical and
structural drawings and specifications.
(b) The Landlord shall notify the Tenant either of its approval thereof or of
all the specific changes required by it and the Tenant shall then promptly
prepare and submit to the Landlord within fifteen (15) days next following,
complete drawings and specifications so amended.
(c) For the preparation of its mechanical and electrical plans and the
specifications for the plumbing, heating, ventilating, air conditioning,
sprinklers and electrical systems, the Tenant shall employ persons suitably
qualified in that field acceptable to the Landlord and such plans and
specifications shall be subject to the prior written approval of the Landlord
and the Landlord's consultants.;
(d) provide the Landlord with certificates of insurance in a form satisfactory
to the Landlord, duly executed by the Tenant's insurers evidencing that the
insurance required to be placed by the Tenant pursuant to the Lease has been
obtained;
(e) ensure that all work on or in respect of the Premises is performed by
competent
<PAGE> 63
workmen in a good and workmanlike manner. All contractors shall be subject to
the prior reasonable approval of the Landlord;
(f) provide evidence satisfactory to the Landlord that the Tenant has obtained
at its expense all necessary consents, permits and licenses from all appropriate
governmental and regulatory authorities. Should the Tenant fail to obtain any
such required consent, permit or license, the Landlord may, but shall not be
obliged to, obtain same on behalf of the Tenant, the cost or expense incurred by
the Landlord shall be payable by the Tenant as Additional Rent within fifteen
(15) days following invoice, and the Landlord shall be entitled to exercise all
of the remedies contained in Article 14 hereof; and
(g) provide evidence satisfactory to the Landlord of the Tenant's work schedule
for completion of the Tenant's Work.
ARTICLE 4
Requirements after Performance of Tenant's Work
The Tenant shall, upon completion of the Tenant's Work and if
requested by the Landlord:
Section 4.1 Provide the Landlord with statutory declarations of the head
contractor and one of the Tenant's officers (the "declaration"):
(a) stating that the Tenant's Work has been performed in accordance with all of
the provisions of the plans and specifications approved by the Landlord and
Schedule "C" and that all deficiencies (if any) which the Landlord has brought
to the Tenant's attention have been corrected;
(b) stating that there are no construction lien or other liens or encumbrances
registered or otherwise outstanding against the Premises or the Building in
respect of work, services or materials relating to the Tenant's Work and that
all accounts for work, services or materials have been paid in full with respect
to all of the Tenant's Work;
(c) listing each contractor and subcontractor who did work or provided materials
in connection with the Tenant's Work;
(d) confirming the date on which the last work was performed and materials were
supplied.
Section 4.2 Deleted.
Section 4.3 Provide to the Landlord a clearance certificate issued under the
Workers' Compensation Act in respect of each contractor and subcontractor listed
on the declaration.
<PAGE> 64
Section 4.4 Obtain and provide to the Landlord a copy of every occupancy and
other permit which may be required by any governmental or other regulatory
authority having jurisdiction, to permit the Tenant to open for business.
Section 4.5 Provide the Landlord with a certificate of a professional engineer
or architect acceptable to the Landlord, certifying that the Tenant's Work has
been carried out in accordance with the plans and specifications as approved by
the Landlord, the Architect and the Landlord's engineering consultants.
ARTICLE 5
Liens
Section 5.1 The Tenant shall ensure that no construction liens or other liens or
encumbrances in respect of materials supplied or work done or to be done by the
Tenant or on behalf of the Tenant or related to the Tenant's Work shall be
registered against or shall otherwise affect the Project or any part thereof or
the Landlord's, or the Tenant's interest in the Project or any part thereof.
ARTICLE 6
General
Section 6.1 The opinion in writing of the Architect shall be binding on both the
Landlord and the Tenant respecting all matters of dispute regarding the
Landlord's Work and the Tenant's Work, including the state of completion and
whether or not the work is completed in a good and workmanlike manner and in
accordance with the approved plans.
Section 6.2 The Landlord or public utility companies, subject to the Landlord's
approval, shall have the right prior to and throughout the term of the Lease to
install utility lines, drainage and other pipes, conduits, wires or ductwork
where necessary through the ceiling space, column space or other parts of the
Premises and to maintain, repair or replace same. The Tenant shall, prior to and
throughout the Term of the Lease, provide the Landlord with free and
uninterrupted access for such purpose as and when required, after receipt of
reasonable notice with respect to the requirement for such access.
Section 6.3 The Landlord, or the Architect or contractor, shall at all times
have access to inspect the Tenant's Work whenever it is in preparation or
progress.
SCHEDULE "D"
METHOD OF FLOOR MEASUREMENT
Intentionally Deleted
SCHEDULE "E"
<PAGE> 65
RULES AND REGULATIONS
A.. The Tenant will not place or permit any debris, garbage, trash or refuse to
be placed or left in or upon any part of the Building outside of the Premises.
B.. The Landlord will permit the Tenant and the Tenant's employees and all
Persons lawfully requiring communication with them to have the use of the main
entrance and the stairways, corridors, elevators, if any, or other mechanical
means of access leading to the Premises, subject to the Building's security
systems and requirements. At times other than during Normal Business Hours the
Tenant and its employees will have access to the Building and to the Premises
only in accordance with the Rules and Regulations and will be required to
identify themselves satisfactorily and to register in any book which may at the
Landlord's option be kept by the Landlord for that purpose. In no event will the
Tenant be permitted to move in or out of the Premises during Normal Business
Hours.
C.. The Landlord will permit the Tenant and its employees to use the washrooms
on the Tenant's floor of the Building.
D.. The Tenant will permit access to the Premises for window cleaners to clean
the windows of the Premises during Normal Business Hours.
E.. The sidewalks, entrances, passages, elevators and staircases will not be
obstructed or used by the Tenant, its agents, servants, contractors, invitees or
employees for any purpose other than ingress to and egress from the Premises or
the Building.
F.. The Tenant, its agents, servants, contractors, invitees or employees, will
not bring in or take out, position, construct, install or move any safe or other
heavy machinery or equipment or anything liable to injure or destroy any part of
the Building without first obtaining the written consent of the Landlord. The
Landlord will have the right to prescribe the weight permitted and the position
thereof, and the use and design of planks, skids or platforms, to distribute
weight. All damage done to the Building by moving or using any heavy equipment
or other office equipment or furniture will be repaired at the expense of the
Tenant. The moving of all heavy equipment or other office equipment or furniture
will occur only by prior arrangement with the Landlord. No Tenant will employ
anyone to do its moving in the Building other than staff of the Building, unless
permission to employ anyone else is given by the Landlord and the reasonable
cost of such moving will be paid by the Tenant. Safes and other heavy office
equipment and machinery will be moved through the halls and corridors only upon
steel bearing plates. No freight or bulky matter of any description will be
received into the Building or carried in the elevators except during hours
approved by the Landlord.
G.. The Tenant will not place or cause to be placed any additional locks upon
any doors of the Premises without the approval of the Landlord and subject to
any reasonable conditions imposed by the Landlord.
<PAGE> 66
H.. Canvassing, soliciting and peddling in or about the Building are prohibited.
Intentionally Deleted.
I.. The Tenant will not place or maintain any supplies, merchandise or other
articles in any vestibule or entry of the Premises, on the footwalks adjacent
thereto or elsewhere on the exterior of the Premises or elsewhere in the
Building.
J.. The Tenant will not permit or allow any odours, vapours, steam, water,
vibrations, noises or other undesirable effects to emanate from the Premises or
any equipment or installation therein, which in the Landlord's opinion, are
objectionable or cause any interference with the safety, comfort or convenience
of the Building by the Landlord or the occupants and tenants thereof or their
agents, servants, invitees or employees.
K.. The Tenant will use only the Building standard window blinds as determined
by the Landlord and will not install or permit to be installed on or adjacent to
the windows in the Premises any other window coverings or shades of any type
whatsoever whether or not visible from the outside of the Building, including,
without limitation, drapes, curtains, blinds or shades.
L.. The Tenant shall not receive or ship fixtures, equipment or articles of any
kind whatsoever except through facilities, doors and elevators designated by the
Landlord and at hours prescribed by the Landlord and under the supervision of
the Landlord, its agents or employees.
M.. The Tenant will, at its expense, comply with any waste management, disposal
and recycling requirements of both the Landlord and any applicable governmental
authorities.
SCHEDULE "F"
ADDITIONAL PROVISIONS
1. Right to Extend
(a) The Tenant may extend the term of this Lease for one further term of five
(5) years (such term being called the "Extension Term"), commencing on the day
following the date of expiration of the Term, provided that the Tenant shall
only be entitled to extend this Lease if it:
(i) is not in default of any provision of the Lease beyond any cure period
provided in respect of such default in the Lease; and
(ii) advises the Landlord in writing that it wishes to extend this Lease not
less than 6 months prior to the expiration of the Term.
(b) If the Tenant exercises its right of extension in accordance with the
foregoing, this Lease shall be extended upon the same terms and conditions
herein contained, save and except as follows:
<PAGE> 67
(i) there will be no further right of extension;
(ii) the Landlord will not be required to perform the Landlord's Work, if any,
and the Tenant will not be required to perform the Tenant's Work, if any, and
the Tenant will not be entitled to any leasehold improvement allowance, tenant
inducement or rent free period;
(iii) the Basic Rent shall be the then current fair Market Rental of the
Premises, as established by the mutual agreement of the Landlord and the Tenant
but not less than that payable in the last year of the Term. If the Basic Rent
for the Extension Term has not been agreed upon by the Landlord and the Tenant
at least 90 days prior to the expiry of the Term, the Basic Rent for the
Extension Term will be determined in accordance with the following procedure:
(A) each party will within five (5) Business Days of the expiry of the time
period referred to above appoint a qualified real estate appraiser and advise,
in writing, the other party of the person appointed (which notice shall set out
the Appraiser's name, address, phone and fax number and experience);
(B) within five (5) Business Days of both Appraisers being appointed, the two
Appraisers so chosen shall appoint a third Appraiser and advise the Landlord and
the Tenant of such appointment;
(C) if either party fails to appoint an Appraiser within five (5) Business Days
of receiving written notice from the other party of the appointment of such
party's Appraiser, then the Appraiser so appointed shall determine the fair
market rental value of the Premises in accordance with the procedure set out
below;
(D) in order to be selected as an Appraiser, the person so selected shall be
qualified by education, experience and training to value real estate for rental
purposes in the Province of Ontario and have been ordinarily engaged in the
valuation of real property in the Greater Toronto area for the 5 years
immediately preceding their appointment;
(E) acting independently of each other, each of the 3 Appraisers within 30 days
after the appointment of the third Appraiser (or, if only 1 Appraiser is
appointed, that Appraiser) shall submit to the Landlord and the Tenant a written
report and appraisal stating his/her opinion as to the Market Rental of the
Premises during the Extension Term. The 2 of the 3 appraisals reported by the 3
Appraisers which are closest in amount shall be averaged and the Basic Rent for
the Extension Term will be equal to such averaged amount (or, if only 1
Appraiser has been appointed, the Basic Rent for the Extension Term will be
equal to the amount determined by such Appraiser). Provided that in no event
shall the Basic Rent be less than that payable during the last year of the Term.
The determination of the Basic Rent for the Extension Term in accordance with
the foregoing will be conclusive and binding upon the Landlord and the Tenant;
and
<PAGE> 68
(F) the cost of the Appraiser selected by a party shall be borne by that party
and the costs of the third Appraiser shall be borne equally by the parties.
2. Tenant Financing
The Landlord acknowledges and agrees that if the Tenant obtains bank or
other institutional financing (such lender being called the "Bank"), and if
requested by the Bank, the Landlord will waive its right to distrain against the
personal property of the Tenant in favour of the rights which the Bank may, at
any time, have with respect to the personal property of the Tenant. The Landlord
shall also agree with the Bank that in no event will the Landlord exercise any
right to or claim any interest in the personal property of the Tenant in
priority to the security interests of the Bank, whether pursuant to the
Landlord's right of distress or under any security agreement that the Landlord
may hold, or otherwise.
3. Landlord's Representations and Warranties
The Landlord represents and warrants that as of the Commencement Date:
(a) it is the registered owner in fee simple of the Lands and such Premises are
unencumbered;
(b) it has the full right and authority to enter into this Lease with the Tenant
and to lease the Premises to the Tenant in accordance with this Lease;
(c) to the best of its information and belief, all heating and air conditioning
equipment and all mechanical, electrical and plumbing systems serving the
Premises shall be in good working order on the Commencement Date; and
(d) to the best of its information and belief, there is no asbestos, PCB's of
any other contaminants contained within the Premises and the Premises have not
otherwise been contaminated by any dangerous, toxic or hazardous substances or
contaminants as contemplated by the Environmental Protection Act (Ontario).
4. Expansion
From and after the date the parties sign this Lease to June 1, 2000
(the "VACANT PERIOD"), the Landlord shall not lease all of any part of the
balance of the second floor of the Building (the "BALANCE"). At any time during
the Vacant Period, the Tenant shall be entitled to give written notice to the
Landlord advising the Landlord that it wishes to lease the Balance, whereupon
this Lease shall be deemed to be amended so that the Premises includes the
Balance, except that:
(a) the Landlord's Work shall consist of such work which the Tenant requires to
be done to the Premises, provided that such work which shall consist of open
space finish, using materials comparable to or the same as those used for the
balance of the Second
<PAGE> 69
Floor (the "BALANCE WORK");
(b) the Landlord shall complete the Balance Work within thirty (30) days
following the date that the Tenant advises the Landlord of the Balance Work; and
(c) the Tenant shall not be required to pay any Rent in respect of the Balance
until the date that the Landlord notifies the Tenant that the Balance Work has
been substantially completed, upon which date Rent, including Basic Rent on the
Balance at the rate per square foot then in effect for the Premises, shall
commence to be payable.
5. Right of First Refusal
(a) From and after the date the parties sign this Lease, so long as the Tenant
is Delano Technology Corp. and is not in default beyond any cure period provided
for in the Lease and is in occupation of the whole of the Premises, if the
Landlord makes or receives from a third party (the "Third Party") a bona fide
offer (which shall include any agreement or offer prepared by the Landlord and
which is made and acceptable to such third party, any counter-offer or other
response thereto) to lease premises (the "Additional Premises") in the first of
the Additional Buildings provided such building is to be used for commercial
office purposes (the "First Building") to be constructed by the Landlord (the
"Third Party Offer"), the Landlord shall immediately deliver a true copy of the
Third Party Offer to the Tenant. Despite the foregoing, this section shall:
(i) not apply if the Additional Premises which are the subject matter of the
Third Party Offer exceed 20,000 square feet; and
(ii) cease to apply upon the Tenant leasing at least 20,000 square feet in the
First Building.
(b) Upon receiving a true copy of the Third Party Offer, the Tenant shall have
two(2) Business Days (the "Acceptance Period") within which to advise the
Landlord in writing that it wishes to lease all or any part of the Additional
Premises on the same terms as contained in the Third Party Offer, save and
except that (A) the term shall be co-terminus with the Term; and (B) the Tenant
may use the Additional Premises for the same uses as the Premises (collectively,
the "Modified Terms"). If the Tenant:
(i) so advises the Landlord within the Acceptance Period, the Landlord shall
lease the Additional Premises to the Tenant on the terms contained in the Third
Party Offer; or
(ii) fails to so advise the Landlord within the Acceptance Period, the Landlord
shall be entitled to lease the Additional Premises to the Third Party in
accordance with the Third Party Offer.
(c) If the Landlord and the Third Party amend a material term of the Third Party
Offer, the Landlord shall again be required to comply with the provisions of
this section.
<PAGE> 70
(d) For greater certainty, the Tenant's rights contained in this section shall
continue throughout the Term and shall in no way be diminished or extinguished
by the Tenant failing to elect to lease the Additional Premises at any time or
times during the Term.
(e) The Tenant shall prior to taking possession of any portion of the Additional
Premises execute an amending agreement to this Lease.
6. Parking
Throughout the Term, the Tenant and all persons using the Project shall
be entitled to the use of two hundred and twenty-five (225) parking spots in
common with all other users thereof in the underground parking facilities
serving the Building at no additional rental cost. The Tenant shall be entitled
to up to twenty-five (25) of such spots as being for the Tenant's exclusive use
in a location designated by the Landlord.
7. Garbage Disposal Box
Throughout the Term, the Landlord shall make available to the Tenant, a
garbage disposal box and the Landlord shall be responsible for the removal of
all garbage from such disposal box, the costs of which may be included in
Operating Costs.
<PAGE> 1
Exhibit 10.9
JUNE , 1999
DELANO TECHNOLOGY CORPORATION
STOCK OPTION PLAN
1. PURPOSE
The purpose of this Stock Option Plan (the "PLAN") is to provide a means whereby
DELANO TECHNOLOGY CORPORATION (the "COMPANY") may, through the grant of options
to purchase common shares of the Company ("COMMON SHARES") to its executives,
employees, directors and others (including consultants to the extent permitted
by the Ontario Securities Act) who have contributed to the development of the
Company, motivate such individuals to exert their best efforts on behalf of the
Company and to allow them to directly benefit from the Company's growth,
development and financial success.
2. INTERPRETATION
(a) The following terms as used in the Plan shall have the respective
meanings set forth below unless the context otherwise requires:
"BOARD" means the board of directors of the Company or any committee of such
board of directors to which such board of directors may delegate the
responsibility of administering the Plan;
"BUSINESS DAY" means any day other than Saturday, Sunday or a statutory holiday
in the Province of Ontario;
"CHANGE OF CONTROL" of the Company, means the acquisition of Control of the
Company by any person (but specifically excludes the loss of control which
occurs at law upon a public offering where the shareholders prior to the public
offering have less than 50% of the voting control plus one vote, subsequent to
the public offering);
"CONTROL", of the Company or of another corporation, means ownership of shares
to which are attached greater than 50% of the votes that may be cast to elect
directors of such corporation;
"OPTION" means an option to purchase Common Shares granted pursuant to the
terms of the Plan;
"OPTIONED SHARES" means, in respect of an Option, the total number of Common
Shares which an Optionee may purchase pursuant to that Option;
"OPTIONEE" means an individual to whom an Option has been granted; and
"SHAREHOLDERS' AGREEMENT" means the shareholders' agreement dated July 16, 1998
among the Company and its shareholders, as it may be amended from time to time.
(b) As used in the Plan, words importing the singular number only shall
include the plural and vice versa and words importing gender shall include both
genders, unless the context clearly requires otherwise.
<PAGE> 2
3. SHARES AVAILABLE UNDER PLAN
Options may be granted by the Company in accordance with the terms of the Plan
to Optionees to purchase such number of Common Shares as the Board may determine
from time to time, in accordance with and subject to the provisions of the
Shareholders' Agreement.
4. ADMINISTRATION
(a) The Plan shall be administered under the supervision of the Board
and in accordance with the Shareholders' Agreement.
(b) The Board shall have the power to:
(i) determine and designate from time to time those
Optionees who shall be eligible to participate in the
Plan and to whom Options are to be granted, and the
number and type of Options to be granted to each such
Optionee; and
(ii) determine the time or times when, and the manner in
which, each Option shall be exercisable and the
duration of the exercise period,
provided the initial grant of Options made in conjunction with the approval of
the Plan by the Board shall be in accordance with the provisions of the Plan set
forth herein.
(c) An Optionee may, if such Optionee is otherwise eligible, be granted
an additional option or options under this Plan or any other share option or
purchase plan of the Company if the Board so determines.
(d) The Board may interpret the Plan and prescribe, amend or rescind
any rules and regulations necessary or appropriate for the administration of the
Plan, and shall make such other determinations and take such other action in
connection with the administration of the Plan as it deems necessary or
advisable. Each Optionee shall be given notice not less than 14 days prior to
the effective date of any interpretation or determination formally made by the
Board. Any such interpretation or determination so made shall be final, binding
and conclusive.
5. TERMS AND CONDITIONS
Each Option granted under the Plan shall be evidenced by an option
agreement (the "OPTION AGREEMENT"), in the form set out as Exhibit 1 or in such
other form as may be approved by the Board, which, subject to paragraph 4(b),
shall be subject to the following express terms and conditions and to such other
terms and conditions as set out in the Option Agreement as the Board may deem
appropriate:
(a) Exercise Period. Subject to paragraph 5(e), Options shall become
exercisable in accordance with the vesting periods set out in paragraph 5(d) and
shall expire on the expiry date set out in the Option Agreement (the "EXPIRY
DATE") which shall be no later than five (5) years after their date of issuance
(unless the Board has specifically resolved otherwise for one or more optionees,
in which case the Expiry date shall be no later than ten (10) years after
issuance), subject to the date of termination of the Plan under paragraph 8(a).
<PAGE> 3
(b) Exercise Price. Subject to adjustment in accordance with paragraph
5(h), the purchase price of each Common Share subject to an Option (the
"EXERCISE PRICE") shall be equal to the exercise price set out in the Option
Agreement.
(c) Payment of Exercise Price. The Exercise Price of any Common Share
in respect of which an Option is exercised shall be paid in cash or by certified
cheque payable to the Company at the time of exercise.
(d) Vesting Periods. Subject to paragraph 5(e) or to any contrary
resolution of the Board:
(i) an Option shall not be exercisable prior to the end
of the first anniversary of the date of issuance, at
which time and thereafter (prior to the Expiry Date)
the Option may be exercised to acquire up to an
aggregate of 25% of the total number of Optioned
Shares; and
(ii) every quarter thereafter, for the next twelve
quarters, the Option may be exercised to acquire up
to an additional 6.25% per quarter of the total
number of Optioned Shares; and
(ii) as of the fourth anniversary of the date of issuance
and thereafter (prior to the Expiry Date), an Option
may be exercised to acquire up to an aggregate of
100% of the total number of Optioned Shares.
(e) Changes of Control. Upon the Company entering into an agreement
relating to a transaction which, if completed, would result in a Change of
Control:
(i) NOTICE - the Company shall give written notice of the
proposed Change of Control to the Optionees, together
with a description of the effect of such Change of
Control on outstanding Options, not less than 10
Business Days prior to the closing of the transaction
contemplated by such agreement.
(ii) EARLY VESTING - at its election, the Board may
accelerate the vesting of any or all outstanding
Options of any or all Optionees to provide that,
notwithstanding paragraph 5(d), for all Options
governed by the applicable Board resolution
accelerating vesting, all outstanding Options shall
be fully vested and conditionally exercisable upon
the occurrence of the Change of Control contemplated
by such agreement. If the Board elects to accelerate
the vesting of the Options, to the extent that such
Options are not exercised within 10 Business Days
after the Optionees are given the notice contemplated
by paragraph 5(e)(i), such Options shall terminate
and expire upon the occurrence of the proposed Change
of Control. If, for any reason, the Change of Control
does not occur within the time period contemplated by
such agreement, the acceleration of the vesting of
the Options shall be retracted and vesting shall
instead proceed in the manner provided in paragraph
5(d).
<PAGE> 4
(iii) ADJUSTMENT TO THE TERMS OF THE OPTIONS - to the
extent that the Change of Control would also result
in a capital reorganization, arrangement,
amalgamation or reclassification of the share capital
of the Company and the Board does not accelerate the
vesting of Options pursuant to paragraph 5(e)(ii),
the Company shall make adequate provisions to ensure
that, upon completion of the proposed Change of
Control, the number and kind of shares subject to
outstanding Options and/or the Exercise Price per
share of Options shall be appropriately adjusted in
such manner as the Board considers equitable to
prevent substantial dilution or enlargement of the
rights granted to Optionees.
(f) Non-transferability. No Option shall be transferable or assignable
other than by will or by the laws of succession. During the lifetime of the
Optionee, an Option shall be exercisable only by such Optionee and for such
Optionee's sole beneficial interest.
(g) Conformity to Securities Laws.
(i) Each Option shall be subject to the requirement that,
if at any time the Board shall determine, in its sole
discretion, that the registration, qualification or
other approval of, or in connection with, the Plan or
the Common Shares covered by the Plan is necessary or
desirable under any applicable law, then such Option
may not be exercised, in whole or in part, unless and
until such registration, qualification or approval
shall have been obtained free of any condition not
acceptable to the Board. The Company will exercise
reasonable efforts to obtain such registration,
qualification or approval. The Optionees shall, to
the extent applicable, cooperate with the Company in
relation to such registration, qualification or other
approval and shall have no claim or cause of action
against the Company, or any of its officers or
directors, as a result of any failure by the Company
to obtain or to take any steps to obtain any such
registration, qualification or approval.
(ii) The granting of Options and the issuance of Common
Shares under the Plan shall be carried out in
compliance with applicable law and with regulations
of governmental authorities and applicable stock
exchanges.
(h) Adjustments in Event of Change in Common Shares. In the event of
any change in the issued Common Shares by reason of any stock dividend,
recapitalization, reorganization, merger, consolidation, split, combination or
exchange of shares, or any similar change affecting the issued Common Shares,
the number and kind of shares which after such change may be optioned and sold
under the Plan, the number and kind of shares subject to outstanding Options
and/or the Exercise Price per share of Options shall be appropriately adjusted
consistent with such change in such manner as the Board deems equitable to
prevent substantial dilution or enlargement of the rights granted to, or
available for, participants in the Plan.
(i) No Rights as Shareholder. No Optionee shall have any rights as a
shareholder with respect to any Common Shares subject to an Option granted to
such Optionee prior to the Optionee's exercise of such Option.
<PAGE> 5
(j) Share Certificates. The Company shall issue to the Optionee the
number of Common Shares that such Optionee elects to purchase within 15 days
from the date the Company receives notice of such exercise in the form required
pursuant to the Plan and the Option Agreement. The Company shall be required to
issue Common Shares pursuant to this paragraph only upon the Optionee first
exercising the Optionee's Option to purchase Common Shares in accordance with
the Plan and after the Company has received payment of the Exercise Price for
each Common Share to be issued in the manner required by the Plan.
(k) Termination of Employment. Neither the Plan nor any Option shall
confer upon any Optionee any right with respect to continuance of employment or
engagement with or continuance as a director or officer of the Company, or
interfere in any way with the right of the Company to terminate any Optionee's
employment at any time in accordance with applicable law. If an Optionee is an
employee of the Company at the date an Option is granted, to the extent that
such Optionee's Options have vested but have not been exercised on the date the
Optionee ceases to be an employee of the Company for any reason (other than in
accordance with paragraph 5(l)), the Expiry Date of such Optionee's Options
shall be changed to the date which is 30 Business Days after the date of
termination of employment. The date of termination of an Optionee's employment
for the purposes of this paragraph shall be the date so determined by the
Company, acting reasonably, in its sole discretion.
(l) Death of Optionee. If an Optionee shall die, all vested Options of
such Optionee to the extent still outstanding, may immediately be exercised by
the person or persons to whom such Optionee's rights under the Options pass by
will or applicable law, or if no such person has such right, by such Optionee's
executors or administrators at any time, or from time to time, up to the earlier
of the applicable Expiry Date or the first anniversary of death.
(m) Execution of Shareholders' Agreement. It shall be a condition of
the exercise of an Option by an Optionee that if required by the Board, the
Optionee shall execute and be a party to the Shareholders' Agreement effective
as at the date of the issue of the Common Shares to the Optionee.
6. PROCEEDS FROM SALES OF SHARES
Any cash proceeds from the sale of Common Shares issued upon exercise
of the Options shall be added to the general funds of the Company and shall
thereafter be used from time to time for such corporate purposes as the Board
may determine.
7. ASSIGNMENT OR ALIENATION
Except as specifically provided under the Plan, or unless otherwise
required by applicable law, no rights or interests of a participant under the
Plan shall be given as security or assigned or alienated by any participant nor
shall any portion of any Common Shares reserved for issuance under the Plan be
subject to attachment, charge, anticipation, execution, garnishment,
sequestration or other seizure under any legal or other process. Any transaction
purporting to effect such a prohibited result is void.
8. TERMINATION OR AMENDMENT OF PLAN
(a) Termination. The Plan will terminate and, for greater certainty,
all unexercised Options shall terminate and expire, on the earliest of:
<PAGE> 6
(i) July 31, 2008; and
(ii) in the event that the Board accelerates the vesting
of all Options pursuant to paragraph 5(e)(ii), upon
the occurrence of a Change of Control of the Company;
unless renewed for such further period and upon such terms and conditions as the
Board may determine. No Options will be granted after the effective date of
termination of the Plan.
(b) Amendment. Subject to the Shareholders' Agreement, notwithstanding
paragraph 8(a) and without the consent of any other party, the Board may
interpret, amend or terminate the Plan at any time if:
(i) such interpretation, amendment or termination is
required by applicable laws or by the rules of any
regulatory authority to whose jurisdiction the
Company is subject or in order to obtain the listing
of any securities of the Company on any stock
exchange; or
(ii) in the opinion of the Board, the rights of the
Optionees are not materially prejudiced by any such
interpretation, amendment or termination.
9. MISCELLANEOUS
(a) Covenants. The Company represents and warrants in respect of each
Common Share that is issued pursuant to this Plan, effective the date of such
issue, that:
(i) it is duly incorporated, organized and subsisting
under the laws of the Province of Ontario;
(ii) it has all the necessary corporate power, authority
and capacity to issue and sell such Common Share and
that the issue and sale of such Common Share has been
duly authorized by all necessary corporate action on
the part of the Company; and
(iii) the issue and sale of such Common Share will not
conflict with or result in the breach of any
provision of the constating documents, by-laws or
resolutions of the Company or of any material
agreement or order to which the Company is a party or
by which it is bound or of any agreement to which it
is a party governing the relationship among any of
its shareholders.
(b) Severability. If any provision of the Plan is ever held illegal or
invalid for any reason, such illegality or invalidity shall not affect the
remaining parts or provisions of the Plan and the Plan shall be construed,
administered and enforced as if such illegal or invalid provision had never been
included in the Plan.
(c) Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable in Ontario.
<PAGE> 7
(d) Headings. The division of the Plan into paragraphs and clauses and
the insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation of the Plan.
(e) Notice. Any notice required or permitted to be given pursuant to
the terms of the Plan shall be given by delivery or registered mail to the
address of the recipient shown in the records of the Company, or to the Company
at its registered office, to the attention of the President, and shall be deemed
to have been received when delivered or on the third day of uninterrupted postal
service after mailing, as the case may be. Any inadvertent failure by the
Company to give notice to any Optionee or Optionees pursuant to the Plan shall
not invalidate any action proposed to be taken by the Company in connection with
such notice.
10. EFFECTIVE DATE
This Plan was approved by the Board of Directors on March 5, 1999 and
shall come into effect on the date hereof.
DATED as at MARCH 5, 1999.
DELANO TECHNOLOGY CORPORATION
By: _______________________________________
Title: President & CEO ____________________
<PAGE> 8
EXHIBIT 1
DELANO TECHNOLOGY CORPORATION
STOCK OPTION PLAN
STOCK OPTION AGREEMENT
OPTIONEE - [NAME]
OPTIONED SHARES - [NUMBER] Common Shares
EXERCISE PRICE - [ O ]
EXPIRY DATE - [DATE]
WHEREAS by resolution of the Board of Directors dated o , DELANO
TECHNOLOGY CORPORATION (the "Company") has granted to the undersigned (the
"Optionee") an option (the "Option") to purchase that number of common shares in
the capital of the Company set out above ("Optioned Shares") at a price per
share equal to the Exercise Price specified above.
NOW THEREFORE it is agreed as follows:
1. The Option is in all respects subject to and governed by the terms and
conditions of the Stock Option Plan of the Company (the "Plan"), all of which
terms and conditions are incorporated into and form a part of this Agreement.
2. Subject to the terms of the Plan, and subject as otherwise provided in this
Agreement, this Option is exercisable in whole or in part at any time and from
time to time.
3. The Optionee shall, without limiting the generality of the Plan, be entitled
to exercise this Option by executing and delivering to the Company an Option
Exercise Letter substantially in the form attached to this Agreement.
4. This Agreement shall be binding upon and enure to the benefit of the Company,
its successors and assigns and the Optionee and the legal representative of his
or her estate and any person who acquires the Optionee's rights in respect of
any Options by will or by the law of succession.
5. This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable in Ontario.
6. The Optionee agrees to bound by the Shareholders Agreement (as defined in the
Plan).
The Company hereby acknowledges the Optionee's acceptance of the terms
of this Agreement and the Option.
DATED this day of ,
DELANO TECHNOLOGY CORP.
By: __________________________________
Signature of Witness Signature of Optionee
<PAGE> 9
DELANO TECHNOLOGY CORPORATION
STOCK OPTION PLAN
OPTION EXERCISE LETTER
Date: __________________________________
To: DELANO TECHNOLOGY CORPORATION
Re: Stock Option Plan (the "Plan")
Dear Sirs:
1. On __________, there was granted to me under the Plan by agreement (the
"Option Agreement") an Option to purchase __________ Common Shares of DELANO
TECHNOLOGY CORPORATION at the price of $___________ per share. I duly accepted
the grant of such Option in accordance with the terms of the Plan.
2. On this day of ______________, _____, I hereby exercise the Option granted
to me as set forth below. The number of Common Shares of DELANO TECHNOLOGY
CORPORATION which I elect to purchase at this time is ___________ shares.
3. I enclose my certified cheque payable to DELANO TECHNOLOGY CORPORATION in the
amount of $ __________________ as payment in full for such shares.
4. I agree to sign and be bound by the Shareholder's Agreement (as defined in
the Option Plan).
Yours very truly,
Signature of Optionee
Name of Optionee
<PAGE> 1
Exhibit 10.10
PERSONAL & CONFIDENTIAL
November 23, 1998 Fax/Delivered
John Foresi
Dear John,
On behalf of DELANO Technology, I am pleased to offer employment to you in the
position of CEO. I believe you will find this position challenging and
rewarding. The following are the terms and conditions of this offer.
1. This offer is for an indefinite term, commencing at latest on January 2,
1999. The base salary will be $150,000 per annum, payable on a twice a
month basis by cheque, and a car allowance of $7,200 p.a.. As CEO you agree
to be available on a full time basis, consistent with the amount of hours
appropriate for a CEO of a technology start up.
2. a) You have agreed to invest $500,000 to purchase 526,316 preference
shares, representing 4% of the company on a post money basis in accordance
with the attached term sheet dated November 2, 1998.
b) You will receive a warrant to purchase $250,000 worth of DELANO common
shares on the following terms:
i. The warrant is granted upon your commencing employment
ii. The warrant becomes effective on the first anniversary of your
employment
iii. On the first anniversary, and until the third anniversary, of
your commencement of employment you shall be entitled to
purchase up to $250,000 worth of common shares at $0.95 per
share (263,158 shares).
iv. The share prices shall be readjusted to reflect share spits and
consolidations.
v. The warrant expires upon the earlier of your ceasing to be
employed by the company (except as noted below), and the day
after the third anniversary of your commencing employment.
3. In addition you will be entitled to reimbursement by DELANO for any and all
reasonable out-of-pocket expenses you incur specifically in connection with
services on behalf of DELANO and at DELANO's request or otherwise as
approved by the compensation committee. Expenses must be acceptable and in
accordance with DELANO's then current corporate policy. Payments will be
made to you by DELANO on presentation of account (subject to approval by
the compensation committee, if applicable).
<PAGE> 2
4. In addition you will be entitled to options to purchase 500,000 common
shares of DELANO (currently equal to 5% of the fully diluted capitalization
of the Company as at the effective date hereof).1 Option plan attached.
5. In your capacity as a shareholder, you shall, upon request, execute the
shareholder agreement and/or other applicable agreements, then existing
between XDL and the other shareholders of the Company, and be entitled to
the pre-emptive rights and tag-a-long rights and other rights set out
therein for material common shareholders, so long as you agree to be
subject to the obligations set out therein. As a senior officer, you shall
benefit from the indemnity of directors and officers currently in the
articles of the Company and form and D&O and E&O insurance, which the
Company has or may obtain in the future.
6. You will be eligible to participate in DELANO's then current Benefit
Program, subject to the terms of the Program.
7. You are entitled to 3 weeks vacation (exclusive of statutory or public
holidays) each financial year, that leave to be prorated over any partial
year of employment. Such vacation is to be taken at a time acceptable to
DELANO subject to its operational requirements.
8. Performance appraisals and salary review will be conducted on an annual
basis by the compensation committee of the board of directors. In the first
year, Compensation Committee, including the Chairman of the Board, will
conduct quarterly written operational reviews of your performance (not
necessarily for purposes of assessing compensation).
9. You acknowledge that by virtue of your position, you are a fiduciary. For
the period in question, you agree to perform the following services to the
best of your ability and in a manner consistent with the highest standards
of the industry to:
a) create and lead the execution of strategic and business plans to drive
growth, to create a vehicle which may achieve liquidity over time, on
terms acceptable to the shareholders;
b) provide services in support of the operations of the company in the
areas of marketing, sales, business development, research &
development, customer service, professional services; and
c) such other responsibilities as are set out herein or as may be set out
in Schedule C hereto from time to time by the board of directors or
the compensation committee.
10. You shall provide a brief written report to the Board upon request, but no
less frequently than monthly, summarizing your activities on DELANO's
behalf, and your assessment of DELANO, relative to its goals and
competition.
11. Should you elect to leave the employment of DELANO, you are requested to
provide DELANO with at least two months written notice. DELANO may waive
any such notice in whole or part, resulting in an earlier termination date
for you, in which case DELANO will pay your base salary during the balance
of the notice period.
12. All employees of DELANO are required to sign a Confidentiality Agreement. A
copy of this Agreement is attached for your review. You warrant that (i)
neither entering into this Agreement nor providing any information, shall
breach any fiduciary or other duty or any covenant, agreement or
understanding
- --------
1 These will: a) be exercisable at a strike price equal to C$0.25 per share; b)
vesting in thirds on the over 3 years, on the first 3 anniversaries of your
commencing employment; c) expire after five years, and d) otherwise be governed
by the generally applicable DELANO option plan.
<PAGE> 3
(including any agreement relating to any proprietary information, knowledge
or data created or acquired by you in confidence, trust or otherwise
prior to entering into any work relationship with DELANO) to which you are
a party or by the terms of which you may be bound or any similar duty
imposed by law or equity.
13. This letter signifies acceptance of this offer, and all generally
applicable employee standards from time to time.
14. This Agreement will be covered by and interpreted in accordance with the
laws applicable in the Ontario, Canada, excepting its choice of law
provisions. Toronto shall be the venue of any dispute resolution or
litigation.
15. If you are dismissed without cause, within 12 months of your employment,
you will receive 3 months notice or payment of 3 months severance in lieu
thereof. If you are dismissed without cause, after 12 months of employment,
you will receive 6 months notice or payment of 6 months severance in lieu
thereof. Options that have not vested, and warrants that have not become
effective, prior to the notice of termination (other than for cause) or
during the 3 or 6 month notice or severance period thereafter, shall be
null and void. Notwithstanding anything else herein, should your employment
be terminated (other than for cause or resignation) at any time, by an
acquiror of legal Control (as defined in the Shareholder's Agreement) of
Delano, then all options granted hereunder shall vest within three months
of such change of Control.
Please confirm your acceptance of this offer by returning a signed copy of this
letter and confidentiality agreement to us not later than 5:00 p.m., Monday,
November 30, 1998.
If you have any further questions, please do not hesitate to contact me. We look
forward to you joining the DELANO team.
Sincerely,
DELANO TECHNOLOGY CORP.
/s/ David Latner
_______________________________________
David Latner
A.S.O.
/s/ John Foresi
_______________________________________ ________________________
John Foresi Nov. , 1998
Singed in Acceptance of the Above Terms
<PAGE> 1
Exhibit 10.11
Personal & Confidential
February 26, 1998
Bahman Koohestani
Dear Bahman
On behalf of HERMOD Corp., I am pleased to offer employment to you in the
position of in the position of Chief Technology Officer and Interim President. I
believe you will find this position challenging and rewarding, and that it will
provide you with an opportunity for personal career development. The following
are the terms and conditions of this offer of employment.
This offer of employment is for an indefinite term, commencing on May 1, 1998.
The salary will be $150,000 per annum, payable on a semimonthly basis by cheque.
At a later date, we will be able to direct deposit to your financial
institution.
Additionally we will pay for one month's rental for a two bedroom apartment for
the month of May, and will provide a reasonable sum towards moving costs from
California to Toronto (which is non-recoverable assuming you do not resign
within 6 months).
You will be eligible to participate in the company's benefit programs generally
applicable to employees, as they are implemented. As an initial employee, there
is no probationary period to be completed.
As an initial team member, you will be issued 3,700,000 common shares of the
company, subject to the terms set out in the attached schedule "CONFIDENTIAL
SUMMARY OF TRANSACTION". Your shares will be issued on closing, and held in
escrow, vesting in 12 equal quarterly releases of 308,333.33 thereafter. (You
acknowledge that an additional person may join, and that you may transfer up to
1,000,000 shares to him at nominal consideration, from your personal
shareholding).
You are entitled to three weeks vacation (exclusive of statutory or public
holidays) each financial year, that leave to be prorated over any partial year
of employment. Such vacation is to be taken at a time acceptable to the company
subject to its operational requirements.
The company reserves the right to reassign you to a comparable or senior
position to that which this offer relates at any time and from time to time.
Except as provided in this letter, the company reserves all managerial rights
permitted by law with respect to the terms and conditions of your employment.
Both the company and you agree that your role as president will be interim only,
during the start up phase until the board hires a full time president and/or
CEO. Your compensation as CTO will remain the same even after you cease to be
president.
Under our company policy we all employees must complete a 90 day probationary
period of employment. At the end of this period, an evaluation of the employee's
performance in the position will be made, and the results of this evaluation
will be discussed with the employee. The company reserves the right to terminate
an employee's employment at any time during the probation period without notice
or pay in lieu thereof to the employee. However, as an initial team member, the
company is waiving the probationary period.
Performance appraisals and compensation review will be conducted on an annual
basis.
Should you elect to leave the employment of the company, you are requested to
provide the company with at least one month's notice in writing.
<PAGE> 2
All employees of the company are required to sign a Confidentiality Agreement. A
copy of this Agreement is enclosed for your review.
The company has adopted a policy which prohibits smoking in all of its
facilities and expects all employees to respect and comply with this policy.
Except as modified by this letter, signing this letter signifies acceptance of
the then current company policies from time to time.
Please confirm your acceptance of this offer by returning a signed copy of this
letter and confidentiality agreement to us no later than Friday March 6, 1998,
after which it expires.
The offer letter (and its attachments) are for your use only, in connection with
your evaluation of our offer. Without limiting the foregoing, this letter is not
to be provided, nor its contents disclosed, to any other party. We also ask that
you not reveal our conversations to date or current interest. Any such
disclosure will immediately terminate the effectiveness of this indication of
interest.
This offer letter is not intended to have any binding effect upon either party
(with the exception of the confidentiality and exclusivity requirements). No
such binding obligation will exist prior to finalization of the employment
agreement and related corporate/shareholding documentation.
If you have any further questions, please do not hesitate to contact me.
We look forward to you joining the team.
Sincerely,
HERMOD Corp.
Dennis Bennie
CEO
I have had an opportunity to review the offer letter and the confidentiality and
transaction summary schedules. I have had an opportunity to obtain independent
legal advice.
/s/ Bahman Koohestani
_______________________________________ ____________________________
Bahman Koohestani March , 1998
Signed in Acceptance of the Above Terms
<PAGE> 1
Exhibit 10.12
PERSONAL & CONFIDENTIAL
Date___________________
_______________________
_________________Street
______________, Ontario
_______________________
Dear Mr. ________:
On behalf of Delano Technology Corporation, I am pleased to offer employment to
you in the position of _____________________. I believe you will find this
position challenging and rewarding, and that it will provide you with an
opportunity for personal career development. The following are the terms and
conditions of this offer of employment.
This offer of employment is for an indefinite term, commencing on
_______________, 1999. The salary will be C$____________ per annum, payable on a
semimonthly basis by direct deposit to your financial institution. There will be
a car allowance of C$_____ per month to cover travel in the GTA; other travel
beyond this vicinity will be compensated accordingly.
You will be entitled to a bonus of C$____________ per annum. The bonus is based
upon reaching corporate targets and will be paid on a quarterly basis at
C$__________ per quarter. The quarters are defined as June 30th, September 30th,
December 31st and March 31st.
In addition, you will be entitled to __________ options, subject to the then
current rights and obligations set out in the company option plan from time to
time. The options will be exercisable at the market value on your start date per
share and vest over a 4 year period; 1/4 after the first year, and on a
quarterly basis in the three years thereafter.
You will be eligible to participate in the company's benefit programs generally
applicable to employees, as they are implemented.
You are entitled to three weeks vacation (exclusive of statutory or public
holidays) each financial year, that leave to be prorated over any partial year
of employment. Such vacation is to be taken at a time acceptable to the company
subject to its operational requirements.
Performance appraisals and compensation review will be conducted at least on an
annual basis.
Should you elect to leave the employment of the company, you are requested to
provide the company with at least one month's notice in writing. If you are
terminated by the Company, other than for cause, you will be entitled to 1 month
severance, and thereafter at least 1 month severance.
All employees of the company are required to sign a Confidentiality Agreement. A
copy of this Agreement is enclosed for your review as Schedule A.
The company has adopted a policy which prohibits smoking in all of its
facilities and expects all employees to respect and comply with this policy.
<PAGE> 2
Except as modified by this letter, signing this letter signifies acceptance of
the then current company policies from time to time.
Please confirm your acceptance of this offer by returning a signed copy of this
letter and confidentiality agreement to us no later than 5:00 P.M.,
____________________, 1999, after which it expires.
The offer letter (and its attachments) are for your use only, in connection with
your evaluation of our offer. Without limiting the foregoing, this letter is not
to be provided, nor its contents disclosed, to any other party. We also ask that
you not reveal our conversations to date or current interest. Any such
disclosure will immediately terminate the effectiveness of this indication of
interest.
This offer letter is not intended to have any binding effect upon either party
(with the exception of the confidentiality and exclusivity requirements) until
the employment agreement is finalized by your signing.
If you have any further questions, please do not hesitate to contact me. We look
forward to you joining the team.
Sincerely,
DELANO TECHNOLOGY CORP.
_______________________
_______________________
I have had an opportunity to review the offer letter and the confidentiality
agreement. I have had an opportunity to obtain independent legal advice.
______________________________________ _________________________
CANDIDATE NAME DATE
Signed in Acceptance of the Above Terms
<PAGE> 3
EMPLOYEE CONFIDENTIALITY AGREEMENT
IN CONSIDERATION OF my employment with Delano Technology Corporation or any of
its Affiliates ("Delano"), I agree that my employment is subject to the
following conditions:
1. During the term of my employment, and for three years thereafter, I
will not disclose the Confidential Information of DELANO to anyone without
DELANO's prior written permission, and will use the Confidential Information
only for those purposes required by my duties with DELANO and not for my own
benefit or for the benefit of third parties, in a manner potentially adverse to
DELANO. I will disclose Confidential Information only to other DELANO employees
or independent contractors employed by DELANO on an "as needed" basis, and third
parties, in each case under suitable confidentiality agreements. Until
specifically authorized by DELANO, I will not advise anyone (other than
government authorities) of the identity of DELANO, or the nature of the work I
perform or which the company performs.
2. I understand that DELANO "Confidential Information" includes:
(a) all computer programs in both source code and object code,
documentation, systems, specifications, know-how, improvements, inventions,
programming techniques, processes, modifications, and details of all research
and developments;
(b) all computer lists, customer data, payroll and financial
information (including shareholding and corporate set up information), marketing
data and strategies, trade secrets and other business information related to the
business of DELANO; and
(c) any software programs, manuals, documentation or other
information provided to DELANO by third parties pursuant to a non-disclosure
agreement;
but excludes information which is and/or becomes generally available to the
public other than due to a breach of this Agreement.
3. I will not copy or remove Confidential Information without DELANO's
written permission except as required by my duties with DELANO. Upon DELANO
request, I will immediately return all Confidential Information which is in my
possession or control.
4. I will not provide any assistance to any third party or do anything
which would adversely affect the value of any Confidential Information. I will
advise DELANO promptly of any information known to me prior to my employment
with DELANO which could be included as Confidential Information but which I
consider to be excluded from the provisions of this Agreement. I agree DELANO
requires that I shall not divulge to, or incorporate into any work performed
for, DELANO, any Confidential Information which I have received from any third
party unless I have provided to DELANO the prior written authorization of that
third party and DELANO has in writing advised me that it has received written
confirmation from the third party that the disclosure to and/or use by DELANO
is acceptable.
5. I acknowledge that disclosure or use of Confidential Information by
me contrary to this Agreement will cause DELANO irreparable harm, for which
damages may be inadequate compensation. I acknowledge DELANO is therefore
entitled to equitable relief, including an injunction, in order to stop any
breach or threatened breach by me of this Agreement.
6. I will fully disclose all Developments to DELANO I hereby irrevocably
waive all my moral rights in all Developments and transfer all my interest
(including but not limited to copyright, patent and trade secret rights) in all
Developments exclusively to DELANO on a worldwide, royalty-free basis and, as
required by DELANO, will protect DELANO interests in such Developments. I
understand that "Developments" includes every computer program, marketing
program, design, improvement.
<PAGE> 4
documentation, process, technique or procedure which is in any way related to
DELANO business and which is developed, invented or written by me alone or
together with others, during the course of my employment, or at any time using
Confidential Information.
7. During the term of my employment, and for two years thereafter, without
the prior written approval of DELANO, I will not directly or indirectly; a)
compete against DELANO; b) employ or solicit the employment of any DELANO
staff; or c) use Confidential Information to compete against DELANO.
8. I agree to execute any documents which DELANO feels are necessary, at
DELANO expense, to enable DELANO to apply for or enforce its patent, copyright,
industrial design or trade mark rights, or any other industrial or intellectual
property rights in the Developments.
9. This Agreement shall remain in full force during my employment and shall
survive for three years after the termination of my employment with DELANO.
10. If any term or provision hereof shall be deemed by a court of competent
jurisdiction to be overly broad, such court is hereby directed to limit the
scope, duration or area of applicability, or all of them, so that such term or
provision is not overly broad and to enforce same as so limited.
11. This agreement a) binds me, my heirs, executors, administrators and other
legal representatives; b) and all benefits arising under it accrue to DELANO and
its successors and assigns.
12. No term of this Agreement can be amended, or waived except by further
written agreement between us, which will only be valid when signed by myself
and DELANO.
13. This agreement shall be governed by, interpreted and construed in
accordance with the laws of Ontario.
14. I acknowledge having read and understood all provisions of this Agreement.
15. DELANO and I acknowledge we have agreed that this Agreement be drawn up in
the English language only. Nous sommes reconnaissent avoir convenu que ce
contrat soient rediges dans la langue anglaise seulement.
16. This Agreement constitutes the entire agreement and understanding between
myself and DELANO respecting the subject-matter of this Agreement and
integrates all prior discussions related to this matter.
DELANO TECHNOLOGY CORPORATION EMPLOYEE
- ----------------------------- ----------------------
EMPLOYEE
----------------------
Witness
- ----------------------------- ----------------------
Date Date
<PAGE> 1
EXHIBIT 10.13
[ DELANO LOGO ]
DELANO TECHNOLOGY CORP0RATION
EMPLOYEE STOCK PURCHASE PLAN
The following constitutes the provisions of the Employee Stock Purchase Plan
(herein called the "Plan") of Delano Technology Corporation.
1. PURPOSE. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Shares of
the Company through payroll deductions. It is the intention of the Company that
the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the
Internal Revenue Code of 1986, as amended. The provisions of the Plan shall,
accordingly, be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
2. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company, or to the extent
authorized by the Board, a Committee of the Board.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Shares" means the Common Shares of the Company.
(d) "Company" means Delano Technology Corporation and Designated Subsidiaries
of the Company.
(e) "Compensation" means base pay, plus any amounts attributable to overtime,
shift premium, incentive compensation, bonuses and commissions.
(f) "Designated Subsidiaries" means the Subsidiaries which have been designated
by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" means any individual who is an Employee of the Company for tax
purposes whose customary employment with the Company is at least twenty
(20) hours per week and more than five (5) months in a calendar year. For
purposes of the Plan, the employment relationship will be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved in writing by the Company. Where the period of leave
(other than a personal leave of absence) exceeds 90 days and the
individual's right to reemployment is not guaranteed either by statute or
by contract, the employment relationship shall be deemed to have terminated
on the 91st day of such leave. In the case of a personal leave of absence,
the employment relationship shall be deemed to have terminated on the
commencement date.
(h) "Enrollment Date" means the first Trading Day of each Offering Period.
(i) "Exercise Date" means the last Trading Day of each Purchase Period.
(j) "Fair Market Value" means, as of any date, the value of the Common Shares
determined by the Board based on such factors as the Board determines
relevant, provided however, that if there is a public market for the Common
Shares the fair market value will be determined as follows:
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(1) If the Common Shares are listed on any established stock exchange or a
national market system, their Fair Market Value shall be the closing
sales price for such shares (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market
trading day on or prior to the date of such determination, as reported
in The Wall Street Journal or such other source as the Board deems
reliable; or
(2) If the Common Shares are regularly quoted by a recognized securities
dealer but selling prices are not reported, their Fair Market Value
shall be the mean of the closing bid and asked prices for the Common
Shares on or prior to the date of such determination, as reported in
The Wall Street Journal or such other source as the Board deems
reliable.
(k) "Offering Date" means the first day of each Offering Period of the Plan.
(l) "Offering Period" means a period of twenty-four (24) months consisting of
four six-month Purchase Periods during which options granted pursuant to
the Plan may be exercised. The duration and timing of Offering Periods may
be changed pursuant to Sections 4 and 19 of this Plan.
(m) "Plan" means this Employee Stock Purchase Plan.
(n) "Purchase Period" means the approximately six-month period commencing after
one Exercise Date and ending with the next Exercise Date, except that the
first Purchase Period of any Offering Period will commence on the
Enrollment Date and end with the next Exercise Date.
(o) "Purchase Price" means 85% of the Fair Market Value of a Common Share on
the Enrollment Date or on the Exercise Date, whichever is lower; provided
however, that the Purchase Price may be adjusted by the Board pursuant to
Section 19.
(p) "Reserves" means the number of Common Shares covered by each option under
the Plan that has not yet been exercised and the number of Common Shares
that have been authorized for issuance under the Plan but not yet placed
under option.
(q) "Subsidiary" means any corporation, domestic or foreign, in which the
Company or a Subsidiary owns, directly or indirectly, 50% or more of the
voting shares, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(r) "Trading Day" means a day on which national stock exchanges and the Nasdaq
System are open for trading.
3. ELIGIBILITY.
(a) GENERAL RULE. Any Employee who is employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan, subject to
the requirements of Section 5(a) and the limitations imposed by Section
423(b) of the Code.
(b) EXCEPTIONS. Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan if (i) immediately after
the grant, such Employee (or any other person whose stock ownership would
be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock and/or hold outstanding options to purchase shares
possessing five percent (5%) or more of the total combined voting power or
value of all classes of the capital stock of the Company or of any
Subsidiary, or (ii) the rate of withholding under such option would permit
the employee's rights to purchase shares under all employee stock purchase
plans (described in Section 423 of the Code) of the Company and its
subsidiaries to accrue (i.e., become exercisable) at a rate which exceeds
Twenty-Five Thousand Dollars ($25,000) of fair market value of such shares
(determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
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4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after February 1 and August 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20. The Board shall have the power to change the
duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without shareholder approval, if such change is
announced prior to the scheduled beginning of the first Offering Period to be
affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by completing a
subscription agreement authorizing payroll deductions in the form provided
by the Company and filing it with the Company prior to the applicable
Enrollment Date, unless a later time for filing the subscription agreement
is set for all eligible Employees with respect to such Offering Period.
Unless otherwise determined by the Board, an eligible Employee may
participate in only one Offering Period at a time.
(b) Payroll deductions for a participant shall commence with the first payroll
following the Enrollment Date (or as soon as administratively feasible) and
shall end on the last payroll in the Offering Period to which such
authorization is applicable, unless sooner terminated by the participant as
provided in Section 10.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription agreement, he or
she shall elect to have payroll deductions made on each payday during all
subsequent Offering Periods at a rate not exceeding fifteen percent (15%),
or such other rate as may be determined from time to time by the Board, of
the Compensation which he or she would otherwise receive on such payday
without regard to deferral elections, provided that the aggregate of such
payroll deductions during any Offering Period shall not exceed fifteen
percent (15%), or such other percentage as may be determined from time to
time by the Board, of the aggregate Compensation which he or she would
otherwise have received during said Offering Period.
(b) All payroll deductions authorized by a participant shall be credited to his
or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan as
provided in Section 10, or may change the rate of his or her payroll
deductions during an Offering Period by completing and filing with the
Company a new authorization for payroll deduction. The Board may, in its
discretion, limit the number of participation rate change in any Offering
Period. The change in rate shall be effective as soon as administratively
feasible following the Company's receipt of the new authorization. A
participant's subscription agreement shall remain in effect for successive
Offering Periods unless terminated as provided in Section 10.
(d) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b) of the Plan, a participant's
payroll deductions may be automatically decreased to zero percent (0%) at
any time during a Purchase Period. Payroll deductions shall recommence at
the rate provided in such participant's subscription agreement at the
beginning of the first Purchase Period which is scheduled to end in the
following calendar year, unless terminated by the participant as provided
in Section 10.
(e) At the time the option is exercised, in whole or in part, or at the time
some or all of the Company's Common Shares issued under the Plan are
disposed of, the participant must make adequate provision for the Company's
federal, state or other tax withholding obligations, if any, which arise
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on the exercise of the option or the disposition of the Common Shares. At
any time the Company may, but shall not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to
make available to the Company any tax deductions or benefits attributable
to sale or early disposition of Common Shares by the Employee.
7. GRANT OF OPTION. On each Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) a number of Common Shares arrived at by dividing such
Employee's payroll deductions to be accumulated prior to such Exercise Date and
retained in the Employee's account as of the Exercise Date by the applicable
Purchase Price; provided that the maximum number of shares a participant may
purchase during each Offering Period shall be determined by (i) dividing $40,000
by the Fair Market Value of a share of the Company's Common Shares on the
Offering Date or (ii) if less, by the "Maximum Cap" set for such Offering
Period; and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12. The "Maximum Cap" for each
Offering Period shall be the number of shares purchasable under the Plan during
that Offering Period with the maximum payroll deductions permitted by Section
6(d), based on the Fair Market Value of the Common Shares at the beginning of
the Offering Period. The Board may, for future Offering Periods, increase or
decrease, in its absolute discretion, the maximum number of Common Shares an
Employee may purchase during each Purchase Period of such Offering Period.
Exercise of the option shall occur as provided in Section 8 of the Plan, unless
the participant has withdrawn pursuant to Section 10. The option shall expire on
the last day of the Offering Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Offering Period as provided in
Section 10, his or her option for the purchase of shares will be exercised
automatically on the Exercise Date, and the maximum number of full shares
subject to option will be purchased at the applicable Purchase Price with
the accumulated payroll deductions in his or her account. No fractional
shares will be purchased. Any payroll deductions accumulated in a
participant's account that are not sufficient to purchase a full share will
be retained in the participant's account for the subsequent Purchase Period
or Offering Period, subject to earlier withdrawal by the participant as
provided in Section 10. The shares purchased upon exercise of an option
hereunder shall be deemed to be transferred to the participant on the
Exercise Date. During his or her lifetime, a participant's option to
purchase shares hereunder is exercisable only by the participant.
(b) If the Board determines that, on a given Exercise Date, the number of
shares with respect to which options are to be exercised may exceed (i) the
number of Common Shares that were available for sale under the Plan on the
Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board
may in its sole discretion provide that the Company shall make a pro rata
allocation of the Common Shares available for purchase on such Enrollment
Date or Exercise Date, as applicable, in as uniform a manner as shall be
practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common
Shares on such Exercise Date, and (x) continue all Offering Periods then in
effect, or (y) terminate any or all Offering Periods then in effect
pursuant to Section 19. The Company may make pro rata allocation of the
shares available on the Enrollment Date of any applicable Offering Period
pursuant to the preceding sentence, notwithstanding any authorization of
additional shares for issuance under the Plan by the Company's shareholders
subsequent to such Enrollment Date.
9. DELIVERY. The shares purchased by participants will be issued
electronically by the Company's transfer agent to a participant's custodial
account as soon as practicable after each Exercise Date. Shares purchased under
the Plan will be issued only in the name of the participant (or, if his or her
authorization so designates, in the name of the participant and another person
of legal age as joint tenants with rights of survivorship). The custodial
account of participants shall be maintained by a bank, broker-dealer or similar
custodian that has agreed to hold such shares for the accounts of the respective
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participants. Fees and expenses of the bank, broker-dealer or similar custodian
shall be paid by the Company or allocated among the respective participants in
such manner as the Board determines. A participant or his or her legal
representative may withdraw shares from his or her custodial account at any
time; however any withdrawal within 2 years of the first day of the Purchase
Period and one year of the Exercise Date will be treated by the Company as a
disqualifying disposition under the Code and be reported on the participant's
tax Form W-2. For participants residing in Canada and subject to Canadian law,
disposition may occur at any time or times without any similar limitations until
they are imposed by the Board with respect to any purchases made to such
participants after notice of any such hold requirement is imposed.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all, but not less than all, the payroll
deductions credited to his or her account and not yet used to exercise his
or her option under the Plan at any time by giving written notice to the
Company on a form provided for such purpose. All of the participant's
payroll deductions credited to his or her account will be paid to the
participant as soon as practicable after receipt of the notice of
withdrawal, his or her option for the current Offering Period will be
automatically canceled, and no further payroll deductions for the purchase
of shares will be made during such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions will not resume at
the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee for any reason, including
retirement or death, he or she will be deemed to have elected to withdraw
from the Plan and the payroll deductions accumulated in his or her account
during the Offering Period but not yet used to exercise the option will be
returned to him or her as soon as practicable after such termination or, in
the case of death, to the person or persons entitled thereto under Section
14, and his or her option will be automatically canceled. The preceding
sentence notwithstanding, a participant who receives payment in lieu of
notice of termination of employment shall be treated as continuing to be an
Employee for the participant's customary number of hours per week of
employment during the period in which the participant is subject to such
payment in lieu of notice.
(c) A participant's withdrawal from an Offering Period will not have any effect
upon his or her eligibility to participate in a succeeding Offering Period
or in any similar plan which may hereafter be adopted by the Company.
11. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent permitted
by any applicable laws, regulations or stock exchange rules, if the Fair Market
Value of the Common Shares on any Exercise Date in an Offering Period is lower
than the Fair Market Value of the Common Shares on the Enrollment Date of such
Offering Period, then all participants in such Offering Period will be
automatically withdrawn from such Offering period immediately after the exercise
of their option on such Exercise Date and automatically reenrolled in the
immediately following Offering Period as of the first day thereof.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. COMMON SHARES.
(a) Subject to adjustment upon changes in capitalization of the Company as
provided in Section 18, the maximum number of Common Shares which shall be
reserved for sale under the Plan shall be an initial reservation of
1,000,000 shares. The shares to be sold to participants in the Plan may be,
at the election of the Company, either treasury shares or shares authorized
but unissued. If the total number of shares which would otherwise be
subject to options granted pursuant to Section 7(a) hereof on the Offering
Date of an Offering Period exceeds the number of shares then available
under the Plan (after deduction of all shares for which options have been
exercised or are then outstanding), the Company shall make a pro rata
allocation of the shares
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remaining available for option grant in as uniform and equitable a manner
as is practicable. In such event, the Company shall give written notice of
such reduction of the number of shares subject to the option to each
participant affected thereby and shall similarly reduce the rate of payroll
deductions if necessary and return any excess funds accumulated in each
participant's account as soon as practicable after the affected Exercise
Date of such Offering Period.
(b) The participant will have no interest or voting rights in shares covered by
his or her option until such option has been exercised.
14. ADMINISTRATION. The Plan shall be administered by the Board or a committee
of members of the Board appointed by the Board. The Board or its committee shall
have full and exclusive discretionary authority to construe, interpret and apply
the terms of the Plan, to determine eligibility and to adjudicate all disputed
claims filed under the Plan. Every finding, decision and determination made by
the Board or its committee shall, to the full extent permitted by law, be final
and binding upon all parties.
15. TRANSFERABILITY. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way by the participant. Any such attempt at assignment,
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds in accordance with
Section 10.
16. USE OF FUNDS. All payroll deductions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such payroll deductions.
17. REPORTS. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be given to participating Employees at
least annually, and will set forth the amounts of payroll deductions, the
Purchase Price, the number of shares purchased and the remaining cash balance,
if any.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the Reserves, the maximum number of shares
each participant may purchase each Purchase Period (under Section 7), as
well as the price per share and the number of Common Shares covered by each
option under the Plan that has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of
issued Common Shares resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Shares or any
other increase or decrease in the number of shares of Common Shares
effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall
not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of any class, or
securities convertible into shares of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of Common Shares subject to option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or
liquidation of the Company, the Offering Period then in progress will be
shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless otherwise provided by the Board. The New
Exercise Date shall be before the date of the Company's proposed
dissolution or liquidation. The Company shall notify each participant in
writing prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise
Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10.
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(c) MERGER OR ASSET SALE. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each option under the Plan shall
be assumed or an equivalent option shall be substituted by the successor
corporation or a parent or Subsidiary of the successor corporation. If the
successor corporation refuses to assume or substitute for the option, any
Purchase Periods then in progress shall be shortened by setting a new
Exercise Date (the "New Exercise Date") and any Offering Periods then in
progress shall end on the New Exercise Date. The New Exercise Date shall be
before the date of the Company's proposed sale or merger. The Board shall
notify each participant in writing prior to the New Exercise Date, that the
Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option will be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in
Section 10.
The Board may, if it so determines in the exercise of its sole discretion,
so make provision for adjusting the Reserves, as well as the price per
Common Share covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding
Common Shares, and in the event of the Company being consolidated with or
merged into any other corporation.
19. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for any reason
terminate or amend the Plan. Except as provided in Section 18, no such
termination will affect options previously granted, provided that an
Offering Period may be terminated by the Board on any Exercise Date if the
Board determines that the termination of the Offering Period or the Plan is
in the best interests of the Company and its shareholders. Except as
provided in Section 18 and this Section 19, no amendment may make any
change in any option theretofore granted which adversely affects the rights
of any participant. In addition, to the extent necessary to comply with
Section 423 of the Code (or any successor rule or provision or any other
applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as
required.
(b) Without shareholder consent and without regard to whether any participant
rights may be considered to have been "adversely affected," the Board (or
its committee) shall be entitled to change the Offering Periods, limit the
frequency and/or number of changes in the amount withheld during an
Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding
in excess of the amount designated by a participant in order to adjust for
delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied
toward the purchase of Common Shares for each participant properly
correspond with amounts withheld from the participant's Compensation and
establish such other limitations or procedures as the Board or its
committee determines in its sole discretion advisable which are consistent
with the Plan.
(c) In the even the Board determines that the ongoing operation of the Plan may
result in unfavorable financial accounting consequences, the Board may, in
its discretion and, to the extent necessary or desirable, modify or amend
the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period including an
Offering Period underway at the time of the change in Purchase Price;
(ii) shortening any Offering Period so that Offering Period ends on a new
Exercise Date, including an Offering Period underway at the time of
the Board action; and
(iii) allocating shares.
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Such modifications or amendments shall not require shareholder approval or
the consent of any Plan participants.
20. NOTICES. All notices or other communications by a participant to the
Company in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof. Notices given by means of the
Company's "Intranet", e-mail or similar system will be deemed to be written
notices under the Plan.
21. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to approval
by the shareholders of the Company within twelve months before or after the date
the Plan is adopted. Such shareholder approval shall be obtained in the manner
and degree required under Ontario Law.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of
its adoption by the Board of Directors or its approval by the shareholders of
the Company as described in Section 21. It shall continue in effect for a term
of twenty (20) years unless sooner terminated under Section 19.
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EXHIBIT 23.3
The Board of Directors
Delano Technology Corporation
We consent to the use of our report included herein and to the references to our
firm under the headings "Selected Consolidated Financial Data" and "Experts" in
the prospectus.
Toronto, Canada
December 12, 1999 /s/ KPMG LLP
