<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 14, 2000
REGISTRATION NO. 333-31918
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM F-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
--------------------------
CHANGEPOINT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
ONTARIO 7372 NOT APPLICABLE
(PROVINCE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1595 SIXTEENTH AVENUE
SUITE 700
RICHMOND HILL, ONTARIO, CANADA
L4B 3N9
(905) 886-7000
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CT CORPORATION SYSTEM
111 8(TH) AVENUE
NEW YORK, NEW YORK 10011
(212) 894-8940
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
--------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
CHRISTOPHER W. MORGAN, ESQ. JOSEPH B. MAIEROVITS, ESQ. KEVIN M. DENNIS, ESQ.
Skadden, Arps, Slate, Goldman, Spring, Schwartz & Kichler SCOTT F. DUGGAN, ESQ.
Meagher & Flom LLP Suite 700, 40 Sheppard Avenue West Goodwin, Procter & Hoar LLP
Royal Bank Plaza, North Tower, Suite Toronto, Ontario M2N 6K9 Exchange Place
1820 (416) 225-9400 Boston, Massachusetts 02109
Toronto, Ontario M5J 2J4 (617) 570-1000
(416) 777-4700
</TABLE>
--------------------------
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. / /
--------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
INFORMATION REQUIRED TO BE
DELIVERED TO OFFEREES OR PURCHASERS
<PAGE>
We will amend and complete the information in this prospectus. Although we are
permitted by U.S. federal securities law to offer these securities using this
prospectus, we may not sell them or accept your offer to buy them until the
documentation filed with the SEC relating to these securities has been declared
effective by the SEC. This prospectus is not an offer to sell these securities
or our solicitation of your offer to buy these securities in any jurisdiction
where that would not be permitted or legal.
<PAGE>
SUBJECT TO COMPLETION , 2000.
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- --------------------------------------------------------------------------------
PROSPECTUS
, 2000
[LOGO]
COMMON SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CHANGEPOINT CORPORATION: THE OFFERING:
- - We provide Web-based software and an online - We are offering of our common shares.
exchange to manage the entire IT services - The underwriters have an option to purchase up
delivery process. to additional common shares from
- - Changepoint Corporation Changepoint to cover over-allotments.
1595 Sixteenth Avenue, Suite 700 - This is the initial public offering of our
Richmond Hill, Ontario L4B 3N9 common shares. We anticipate that the initial
(905) 886-7000 public offering price will be between $
and $ per common share.
PROPOSED SYMBOL AND MARKET: - We plan to use the proceeds from this offering
- - CPNT/Nasdaq National Market to fund sales and marketing activities,
research and development expenditures, working
capital and other general corporate purposes.
- Closing: , 2000.
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Per Share Total
- -----------------------------------------------------------------------------------
<S> <C> <C>
Public offering price: $ $
Underwriting commission:
Proceeds to Changepoint:
- -----------------------------------------------------------------------------------
</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
CIBC WORLD MARKETS
DLJDIRECT INC.
<PAGE>
[DESCRIPTION OF INSIDE COVER ARTWORK]
The following statement appears in a shaded rectangular box at the top of
the page:
Professional Services Automation
and Business to Business Exchange
for the IT Services Marketplace.
Underneath the box appears a three-dimensional diagram, representing
corporate IT departments, professional services organizations and staffing
companies. The prong representing corporate IT departments is in the form of a
flat cylinder, on top of which are pictures of buildings and a computer. The
prong representing professional services organizations is in the form of a flat
cylinder, on top of which are pictures of buildings, a car, a person carrying a
briefcase and an airplane. The prong representing staffing companies is in the
form of a flat cylinder, on top of which are a number of persons and a building.
Underneath each of the cylinders appears the word "Changepoint." In the center
of the three cylinders is a sphere bearing the term "myChangepoint." Each of the
cylinders is connected to the sphere and people appear to be travelling from
each of the cylinders toward the sphere. The three-dimensional diagram sits atop
an oval bearing the word "Internet".
Beneath the diagram appears the following:
Changepoint: Offering all participants in the IT services supply chain
distinct value.
Corporate IT Departments: Delivering technology solutions faster by
providing an efficient means to manage their services business and to coordinate
supplier interactions.
Professional Services Organizations: Increasing revenue and customer
satisfaction by integrating clients into an efficient services delivery
solution.
Staffing Companies: Expanding their demand network and improving their
ability to respond to job requisitions.
<PAGE>
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. We are under no duty to update the information in
this prospectus other than as required by law.
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.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary................ 3
Risk Factors...................... 7
Special Note Regarding Forward-
Looking Statements and Market
Data............................ 18
Exchange Rate Information......... 18
Enforceability of Civil
Liabilities..................... 19
Use of Proceeds................... 19
Dividend Policy................... 19
Corporate Information............. 19
Capitalization.................... 20
Dilution.......................... 21
Selected Consolidated Financial
Data............................ 22
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 24
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business.......................... 35
Management........................ 47
Transactions with Related
Parties......................... 54
Principal Shareholders............ 55
Description of Share Capital...... 57
Shares Eligible for Future Sale... 60
Tax Considerations................ 62
Underwriting...................... 66
Legal Matters..................... 69
Experts........................... 69
Additional Information............ 70
Index to Consolidated Financial
Statements...................... F-1
</TABLE>
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION ABOUT CHANGEPOINT AND THE COMMON SHARES BEING SOLD IN THIS OFFERING
AND THE CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED
ELSEWHERE IN THIS PROSPECTUS.
CHANGEPOINT CORPORATION
We provide Web-based software and an online exchange, myChangepoint.com,
which enable our customers to effectively manage the entire information
technology, or IT, services delivery process. Our comprehensive solution
automates and streamlines the business processes of IT services organizations
and facilitates business transactions and collaboration among buyers and
suppliers of IT services over the Internet. Our software is designed for and
marketed to both professional services organizations and corporate IT
departments. myChangepoint.com extends the benefits of our software by enabling
IT services organizations to manage the interactions with their customers and
partners over the Internet. The benefits of our software are further enhanced
when our customers extend the functionality of our software through
myChangepoint.com in order to include outside participants in the IT services
delivery process. To date, over 75 professional services organizations and
corporate IT departments have purchased our software, including Baltimore Gas &
Electric, BellSouth, Dell, Emerald Solutions, Greenwich Technologies, Guardian
Life Insurance, Interwoven and QAD.
Faced with shorter deadlines, higher customer expectations, increased
complexity of IT projects and an ongoing shortage of skilled IT professionals,
IT services organizations are increasingly relying on a network of IT services
firms and independent professionals to provide additional capacity, specialized
skills and regional expertise. We believe that, due to the high level of
collaboration and interdependence among professional services organizations,
corporate IT departments and independent IT professionals, the efficient
management of IT services delivery, including the management of resources,
projects and knowledge, has become one of the most significant problems facing
the IT services industry.
Many companies are beginning to use the Internet to more closely collaborate
with their customers and partners and streamline their operations. However, to
date, the business processes of professional services organizations and
corporate IT departments as well as the interactions among IT services
organizations have been largely unautomated and inefficient. This often results
in the misallocation and underutilization of resources, bottlenecks and delays
in the delivery of services and, ultimately, lost revenues.
We believe that competitive pressures to complete complex IT initiatives
rapidly have created a significant demand for solutions that manage the delivery
of IT services and facilitate business transactions and collaboration among
buyers and suppliers of IT services over the Internet.
Our Web-based software and myChangepoint.com are designed to improve and
streamline the delivery of IT services across the services supply chain.
Specifically, we designed our solution to:
- efficiently manage the core business processes of IT services
organizations, including the management of new IT engagements and ongoing
projects, the allocation of resources, the sharing of information and
knowledge, invoicing and customer support;
- facilitate collaboration over the Internet between IT services
organizations and their customers and partners by allowing them to
coordinate the management of resources and projects, as well as capture
associated time and expense billing information; and
- effectively source, procure and manage external IT services professionals
over the Internet according to their availability and specific skill sets.
3
<PAGE>
We believe our solution offers the following benefits to professional
services organizations:
- INCREASED REVENUES. Our solution enables professional services
organizations to increase revenues through improved management of new
business opportunities, more efficient services delivery and more accurate
financial management.
- HIGHER UTILIZATION AND RETENTION RATES. Our resource management
capabilities allow our customers to accurately monitor the availability,
skills and desired assignments of their IT services professionals to
maximize the utilization of their staff and improve employee retention.
- IMPROVED CUSTOMER SATISFACTION. Through better allocation of resources and
improved ability to leverage the knowledge within their organizations and
across the IT services supply chain, professional services organizations
are able to rapidly respond to changing customer demands and improve the
delivery of IT services, resulting in higher customer satisfaction.
We believe our solution offers the following benefits to corporate IT
departments:
- INCREASED SPEED OF TECHNOLOGY DELIVERY. By improving the coordination of
the IT services delivery process throughout the IT services supply chain,
our solution decreases overall delivery times and increases the likelihood
of success for IT projects.
- IMPROVED PRODUCTIVITY AND QUALITY OF WORK. The efficiencies gained by
using our solution enable corporate IT departments to maximize
productivity and improve the quality of work.
- ALIGNING IT RESOURCES WITH BUSINESS OBJECTIVES. Through improved
monitoring of ongoing and pending IT projects, our customers can
effectively and strategically deploy scarce IT services personnel to
better meet their business objectives and priorities.
We sell our software primarily through our direct sales force located in the
United States, Canada, and the United Kingdom. Through our partnership with
Corio, we also offer our software as an online hosted service.
Our objective is to be the leading provider of Web-based solutions for
managing the delivery of IT services. Key elements of our strategy include
maintaining leadership in providing Web-based solutions to the IT services
industry, establishing myChangepoint.com as the leading online exchange for IT
services, targeting large IT services organizations, continuing to expand our
direct and indirect sales channels and expanding internationally. In addition,
we will seek to leverage the network effect created as our customers introduce
our solution to their partners and customers by using myChangepoint.com to
collaborate and manage their interactions with them.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common shares offered.............................. shares
Common shares to be outstanding after
the offering..................................... shares
Use of proceeds.................................... To fund sales and marketing activities, research
and development expenditures, working capital
and other general corporate purposes.
Proposed Nasdaq National Market symbol............. CPNT
</TABLE>
Unless otherwise indicated, all information in this prospectus:
- assumes the underwriters have not exercised the option granted by us to
purchase up to additional common shares in this offering;
- gives effect to the termination of the redemption feature relating to
4,878,571 of our common shares, which will occur prior to the closing of
this offering;
- gives effect to the conversion of all outstanding Class A redeemable
convertible preferred shares into an aggregate of 8,975,943 common shares,
which will occur prior to the closing of this offering; and
- gives effect to the completion of a 3-for-2 split of our common shares,
which is expected to occur prior to the closing of this offering.
The number of common shares to be outstanding after the offering is based on
the number of shares outstanding as of April 10, 2000. The number of shares to
be outstanding excludes:
- 3,071,118 common shares issuable upon exercise of options outstanding at
April 10, 2000, with a weighted average exercise price of $3.44 per share;
and
- 3,031,933 common shares reserved for future issuance under our stock
option plans as of April 10, 2000.
PRESENTATION OF FINANCIAL INFORMATION
Our financial statements are reported in U.S. dollars and have been prepared
in accordance with generally accepted accounting principles in the United
States.
We express all dollar amounts in this prospectus in U.S. dollars, except
where otherwise indicated. References to "$" are to U.S. 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. See "Exchange Rate Information."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The pro forma information below gives effect to the:
- termination of the redemption feature relating to 4,878,571 of our common
shares, which will occur prior to the closing of this offering; and
- conversion of all outstanding Class A redeemable convertible preferred
shares into common shares, which will occur prior to the closing of this
offering, as if the conversion occurred August 1, 1998 and August 1, 1999.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JULY 31, JANUARY 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Products..................................... $ 1,008 $ 1,821 $ 3,974 $ 1,774 $ 2,781
Services..................................... 1,922 1,986 1,963 814 1,157
------- ------- ------- ------- -------
Total revenues............................. 2,930 3,807 5,937 2,588 3,938
Gross profit................................... 1,280 2,507 4,580 1,958 3,069
Loss from operations........................... (1,300) (1,421) (664) (295) (2,925)
Net loss....................................... (1,117) (1,347) (384) (285) (2,772)
Pro forma basic and diluted net loss per
share........................................ $ (0.02) $ (0.11)
Pro forma shares used in computation,
pro forma basic and diluted.................. 24,096 24,239
</TABLE>
The pro forma as adjusted column of the table below also gives effect to the
sale in this offering of common shares at an assumed initial public
offering price of $ per common share and after deducting estimated
underwriting commissions and estimated offering expenses.
<TABLE>
<CAPTION>
AS OF JANUARY 31, 2000
---------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
--------- --------- ---------
<S> <C> <C> <C>
BALANCE SHEETS DATA:
Cash and cash equivalents and short-term investments........ $ 4,149 $4,149 $
Working capital............................................. 5,524 5,524
Total assets................................................ 8,602 8,602
Long-term liabilities....................................... 94 94
Class A redeemable convertible preferred shares............. 74,800 --
Common shares eligible for redemption....................... 40,655 --
Shareholders' equity (deficiency)........................... (109,164) 6,291
</TABLE>
6
<PAGE>
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
WE HAVE A HISTORY OF LOSSES, WE MAY INCUR LOSSES IN THE FUTURE AND OUR LOSSES
MAY INCREASE BECAUSE OF OUR PLAN TO INCREASE OPERATING EXPENSES.
We have a history of losses and we expect to continue to experience losses
and negative cash flow even if sales of our products continue to grow, and we
may not generate sufficient revenues to achieve profitability in the future. Our
net loss was $1.1 million, $1.3 million and $384,000 for fiscal 1997, 1998 and
1999 and $2.8 million for the six months ended January 31, 2000. We may incur
larger losses over the subsequent six months and in future years. We have
increased our operating expenses by more than 100% during the six months ended
January 31, 2000 compared with the six months ended January 31, 1999 and expect
to continue increasing our operating expenses because of increases in:
- the number of our employees;
- sales and marketing activities; and
- other costs related to the implementation of our growth strategy.
WE ONLY RECENTLY INTRODUCED MYCHANGEPOINT.COM AND IT MAY NOT GAIN
MARKET ACCEPTANCE.
If the market for myChangepoint.com does not develop or if myChangepoint.com
does not gain market acceptance, our growth strategy may not be achieved. We
recently introduced myChangepoint.com, which enables corporate IT departments
and professional services organizations to interact over the Internet to
streamline the IT services delivery process. We do not yet have any customers
using myChangepoint.com and cannot be certain that a significant market will
develop for this product, or that myChangepoint.com will be able to accommodate
a large number of users. In addition, the use of the Internet is evolving
rapidly and we do not know what forms of products and services may emerge as
alternatives to myChangepoint.com or to any future Web-based features or
products we may introduce. We may also have difficulty scaling and adapting our
existing myChangepoint.com architecture to accommodate increased traffic and
technology advances. Some of our customers using earlier versions of our
software will have to upgrade to the current version of our software in order to
benefit from the functionality provided by myChangepoint.com.
FAILURE OF OUR SOFTWARE TO GAIN INCREASED MARKET ACCEPTANCE AND COMPETE
SUCCESSFULLY WOULD PREVENT US FROM ACHIEVING OUR GROWTH STRATEGY AND ADVERSELY
AFFECT OUR OPERATING RESULTS.
We currently derive substantially all of our revenues and growth from sales
of licenses of our software and the provision of related services to
professional services organizations and corporate IT departments. Accordingly,
failure of our software to gain increased market acceptance and compete
successfully would prevent us from achieving our growth strategy and adversely
affect our operating results. We recently introduced myChangepoint.com and
intend to continue to invest heavily in research and development and sales and
marketing activities related to this product. It is uncertain whether we will
recognize significant revenue, in the form of transaction fees or otherwise,
from myChangepoint.com.
7
<PAGE>
THE MARKET FOR OUR SOLUTION IS NEWLY EMERGING AND OUR FUTURE OPERATING RESULTS
AND GROWTH PROSPECTS DEPEND ON THIS MARKET'S CONTINUED GROWTH.
If IT services organizations do not continue to embrace solutions that
automate their business processes, the demand for and market acceptance of our
solution will be adversely affected. IT services organizations have only
recently begun to automate the management of their business processes. This
market may not continue to develop and grow and IT services organizations may
not choose to use our solution over manual processes, internally-developed
applications or solutions that offer limited functionality. Companies that have
already invested substantial resources in existing systems may be reluctant to
adopt a new approach that may replace, limit or compete with their existing
systems.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE.
The market for our products 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.
We currently face competition principally from developers of software used
to automate professional services and manage projects, relationships with
contractors and enterprise resources. Developers of software used to automate
professional services provide the most direct competition because their software
also automates and integrates aspects of the IT services business. We compete
with developers of software used to manage projects, relationships with
contractors and enterprise resources since these products each seek to automate
at least one aspect of the IT services business. We also face competition from
staffing companies and time and expense reporting software vendors. Many of our
potential customers have the ability to internally develop solutions, and may do
so rather than choose to purchase our products. In addition, as we continue to
promote myChangepoint.com to the IT services industry, we may begin competing
with companies with whom we have not previously competed. It is also possible
that new competitors will enter the market or that our competitors will form
alliances that may enable them to increase their market share.
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 than we do. We
may not be able to compete successfully against current and future competitors.
WE HAVE EXPERIENCED RAPID GROWTH, WHICH HAS PLACED A STRAIN ON OUR RESOURCES,
AND ANY FAILURE TO MANAGE OUR GROWTH EFFECTIVELY MAY ADVERSELY AFFECT OUR
OPERATING RESULTS.
Failure to manage our growth could negatively affect the quality of our
products, our ability to respond to our customers and retain key personnel, and
our business in general. We have been expanding our operations rapidly and
intend to continue this expansion for the foreseeable future. This expansion has
placed, and is expected to continue to place, a significant strain on our
managerial, operational and financial resources as we integrate new employees
and develop more customer and business relationships. On April 10, 2000, we had
a total of 199 full-time employees compared to 96 on October 31, 1999. In
addition, since July 31, 1999, we have opened 10 new offices. We expect to
continue to hire new employees and open new offices at a rapid pace. We must
improve our financial and accounting systems, controls, reporting systems and
procedures and integrate new personnel to manage our growth and expanded
operations effectively.
FAILURE TO CONTINUE TO DEVELOP ENHANCEMENTS TO OUR PRODUCTS AND NEW APPLICATIONS
AND FEATURES THAT RESPOND TO THE CHANGING NEEDS OF OUR CUSTOMERS, RAPID
TECHNOLOGICAL CHANGE AND ADVANCES INTRODUCED BY OUR COMPETITORS IMPAIR OUR
ABILITY TO INCREASE OUR MARKET SHARE.
If we do not properly identify the feature preferences of our existing and
potential customers, or if we fail to deliver features that meet the
requirements of these customers on a timely basis, our ability
8
<PAGE>
to market our products successfully, increase our market share and increase our
revenues will be impaired. The market in which we compete is characterized by:
- rapid technological change;
- frequent new product introductions;
- changes in customer requirements; and
- evolving industry standards.
To be successful, we must continually improve the performance, features and
reliability of our technology, particularly in response to customer needs and
competitive offerings. Our success depends on our ability to enhance our
existing software and to develop new functionality and technologies that address
the increasingly sophisticated and varied needs of the IT services industry.
DELAYS IN INTRODUCING NEW AND ENHANCED PRODUCTS COULD CAUSE US TO LOSE MARKET
SHARE AND HARM OUR ABILITY TO MAINTAIN OR INCREASE REVENUES.
The development of proprietary technologies 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 actions by customers.
In the future, our efforts to remedy product delays may not be successful
and we may lose customers as a result. Delays in bringing to market new products
or product enhancements could be exploited by our competitors. If we lose market
share as a result of lapses in our product development, we may not be able to
maintain or increase revenues.
FACTORS RELATING TO OUR BUSINESS AND THE MARKET FOR SOLUTIONS FOR THE IT
SERVICES INDUSTRY MAY CAUSE OUR FUTURE OPERATING RESULTS TO FLUCTUATE FROM
PERIOD TO PERIOD.
Our operating results have varied in the past, and we expect that they may
continue to fluctuate in the future. If our quarterly revenues or operating
results fluctuate and fall below the expectations of investors, the price of our
common shares could decline substantially. Factors that could affect the amount
and timing of our revenues and cause quarterly fluctuations in our operating
results include the following:
- the timing of new releases of our products;
- changes in our pricing policies or those of our competitors;
- the mix of direct and indirect sales channels through which our products
are sold;
- our ability to successfully expand our sales force and marketing programs;
- our ability to successfully expand our international operations; and
- any costs or expenses related to our anticipated move to new offices.
Our operating results may also be adversely affected by the following
factors over which we have little or no control:
- market acceptance of our products, particularly myChangepoint.com;
- the evolving and varying demand for information technology services;
9
<PAGE>
- the timing of execution of large contracts that materially affect our
operating results, which can be affected by customer order deferrals in
anticipation of new product introductions, product enhancements and the
discretionary nature of customer budgeting and purchasing cycles; and
- U.S. and global economic conditions.
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 cannot proportionately reduce operating expenses for
that quarter. Therefore, this revenue shortfall would have a disproportionate
negative effect on our operating results for that quarter.
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.
If we undertake an acquisition or investment, we may not realize the
anticipated benefits. We intend to consider investments in complementary
companies, products or technologies. If we buy a company, we may not be able to
successfully assimilate the acquired personnel, products, operations and
technology into our business. 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
operating results may suffer because of acquisition-related costs or
amortization costs for acquired goodwill and other acquired intangible assets.
FAILURE TO ATTRACT, TRAIN AND RETAIN ADDITIONAL QUALIFIED PERSONNEL COULD
ADVERSELY AFFECT OUR EXPANSION PLANS.
Our ability to implement our growth strategy depends considerably upon our
success in recruiting, training and retaining additional personnel. We intend to
increase the number of our sales and marketing, research and development, client
services and customer support personnel significantly over the next 12 months.
Competition for these individuals is intense as there is a limited number of
experienced people available with the necessary skills. We have at times
experienced, and continue to experience, difficulty in recruiting qualified
personnel. Our ability to grow our business and increase our market share will
be impeded if we fail to hire or retain qualified personnel or if newly hired
personnel fail to develop the necessary skills or develop these skills slower
than we anticipate.
THE LOSS OF ANY OF OUR EXECUTIVE OFFICERS COULD ADVERSELY AFFECT OUR BUSINESS.
If any of our executive officers resign or are seriously injured and unable
to work, and we are unable to find a qualified replacement, our business could
be harmed. 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 Gerald Smith, our Chairman, President and Chief
Executive Officer, and Randall Remme, our Chief Technology Officer and Vice
President, Product Development. Messrs. Smith and Remme do not have employment
agreements that would require them to work solely for us on a long-term basis
and, therefore, could terminate their employment with us at any time without
penalty.
OUR FUTURE REVENUE GROWTH COULD BE IMPAIRED IF WE ARE UNABLE TO DEVELOP
ADDITIONAL DISTRIBUTION CHANNELS FOR OUR PRODUCTS.
If we fail to develop and maintain relationships with significant indirect
distribution channels, or if these distribution channels are not successful in
their sales efforts, our ability to acquire new customers and increase revenues
may be impaired. We believe that our success in penetrating our target market
depends in part on our ability to develop and expand our indirect distribution
channels, including third-
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party distribution companies, software vendors and application service
providers. Since our agreements with third-party distributors generally 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. As we develop additional indirect distribution channels,
we may experience conflicts with our direct sales force since both of these
distribution channels may target the same customer bases. If we are not able to
successfully manage these potential conflicts, we may not be able to maximize
our revenue growth.
OUR TECHNOLOGY COULD CONTAIN UNDETECTED OR UNRESOLVED DEFECTS OR ERRORS THAT
COULD RESULT IN INCREASED OPERATING COSTS OR HARM TO OUR REPUTATION.
We face the possibility of higher costs as a result of the complexity of our
products and the potential for undetected or unresolved errors. Our products
have in the past contained, and may in the future contain, undetected or
unresolved errors. If our software contains undetected errors, 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 customers that upgrade to the new product and of new
customers;
- failure to achieve market acceptance;
- diversion of development resources;
- injury to our reputation;
- increased service and warranty costs;
- legal actions by customers; and
- increased insurance costs.
In addition, an associated product liability claim could harm our business
by increasing our costs, damaging our reputation and distracting our management.
TECHNICAL PROBLEMS WITH INTERNAL OR OUTSOURCED COMPUTER AND COMMUNICATIONS
SYSTEMS COULD RESULT IN REDUCED REVENUES AND HARM TO OUR REPUTATION.
The success of myChangepoint.com depends on the efficient and uninterrupted
operation of our own and outsourced computer and communications hardware and
software systems. 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. We currently host myChangepoint.com at our
corporate offices in Richmond Hill, Ontario. 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. Our disaster recovery plan in the
event of damage or interruption has not been formally tested and may not perform
as intended, and our insurance policies may not adequately compensate us for
losses that we may incur.
IF OUR SECURITY SYSTEM IS BREACHED, OUR REPUTATION AND ABILITY TO RETAIN
EXISTING AND ATTRACT NEW CUSTOMERS COULD SUFFER.
A fundamental requirement for business-to-business transactions over the
Internet is the secure transmission and storage of confidential information.
Customers that use myChangepoint.com to manage the delivery of IT services
transmit confidential information over the Internet about their businesses. If
unauthorized third parties are successful in obtaining confidential information
from us or
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users of myChangepoint.com, our reputation may be damaged and our ability to
retain existing and attract new customers may be impaired and we may be
subjected to liability.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS, WHICH COULD
SIGNIFICANTLY HARM OUR ABILITY TO GAIN MARKET SHARE AND INCREASE REVENUES.
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 ability to gain market share and increase
revenues. We rely on contractual restrictions, such as confidentiality
agreements and licenses, to establish and protect our proprietary rights. We
currently have no patents or patent applications pending relating to our
products or technology. 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;
- third parties 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, our
intellectual property, including our tradename, trademarks, domain names and
copyrights.
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 and technology in different industry segments
overlaps. Third parties may currently have, or may eventually be issued, patents
that our products or technology may infringe.
Any of these third parties might make a claim of infringement against us.
Any litigation could result in the expenditure of significant financial
resources and the diversion of management's time and resources. In addition,
litigation in which we are accused of infringement may cause negative publicity,
have an impact on prospective customers, cause product shipment delays, require
us to develop non-infringing technology or require us to enter into royalty or
license agreements, which may 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
and we could be exposed to legal actions by our customers.
OUR INTERNATIONAL EXPANSION EFFORTS MAY NOT BE SUCCESSFUL, WHICH WOULD IMPAIR
THE GROWTH OF OUR BUSINESS.
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 or business
relationships 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
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strategy and will require significant management attention and financial
resources. In addition, to grow our international sales operations, we will need
to expand our international sales channel management and support organizations
and customize our products for local markets. 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.
IF WE FAIL TO ADAPT APPROPRIATELY TO THE CHALLENGES ASSOCIATED WITH OPERATING
INTERNATIONALLY, THE GROWTH OF OUR BUSINESS MAY BE IMPEDED AND OUR OPERATING
RESULTS MAY BE ADVERSELY AFFECTED.
Expanding our operations outside the United States and Canada subjects us to
numerous inherent potential risks associated with international operations.
Factors that could negatively impact our sales and results of operations
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.
In addition, our ability to expand our business in certain countries
depends, in part, on our ability to modify our products for different tax
configurations and multiple currencies. We also plan to configure our products
for multiple languages. We expect to rely on third parties to adapt our software
to local business practices and translate it into local languages. If any of
these third parties should fail to properly adapt or translate our software, our
reputation could be damaged, we could be subjected to liability, and our
international expansion plans could suffer.
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 product revenues and
operating results to vary significantly from period to period, which could
negatively impact the price of our common shares. 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, and we incur significant costs
educating and providing information to our prospective customers regarding the
use and benefits of our technology. Many of our customers evaluate our
technology relatively slowly and deliberately, depending on the specific
technical capabilities of the customer, the size of the deployment, the level of
interaction between the customer and related customers and suppliers of IT
services, and the complexity of the customer's requirements. 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 and operating results that are lower than expected and could adversely
affect our financial position.
WE EXPECT SEASONAL TRENDS TO CAUSE OUR QUARTERLY REVENUES TO FLUCTUATE, WHICH
MAY NEGATIVELY IMPACT THE PRICE OF OUR COMMON SHARES.
We have experienced, and expect to continue to experience, seasonality with
respect to product license revenues. In recent years, we have experienced
relatively greater revenues from licenses in the fourth quarter of our fiscal
year, which ends on July 31, than in each of the first three quarters,
particularly the first quarter. We believe that these fluctuations are caused,
in part, by customer buying patterns and the efforts of our direct sales force
to meet or exceed fiscal year-end quotas. We expect
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that these trends are likely to continue in the future. If our quarterly
revenues fall below the expectations of investors, the price of our common
shares could decline substantially.
FLUCTUATIONS IN EXCHANGE RATES MAY NEGATIVELY 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.
OUR INSURANCE MAY NOT BE SUFFICIENT TO COVER ALL POTENTIAL PRODUCT LIABILITY AND
WARRANTY CLAIMS, WHICH COULD EXPOSE US TO SUBSTANTIAL OPERATING LOSSES.
Our products are integrated into our clients' internal IT infrastructure.
The sale and support of our products result in the risk of product liability or
warranty claims based on damage to this infrastructure. In addition, the failure
of our products to perform to client expectations could give rise to warranty
claims. 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.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL TO GROW OUR BUSINESS, WHICH WE MAY NOT
BE ABLE TO DO.
If we are unable to raise additional funds when needed, or on terms
acceptable to us, our ability to operate and grow our business could be impeded.
Our future liquidity and capital requirements are difficult to predict because
they depend on numerous factors, including the success of our existing and new
product 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 research and
development or capital expenditures, or take advantage of investment or
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 than previous
investors. If we raise additional funds through debt financing, we could incur
significant borrowing costs.
YEAR 2000 COMPLIANCE COSTS AND RISKS ARE DIFFICULT TO ASSESS AND COULD RESULT IN
DELAY OR LOSS OF REVENUE, DIVERSION OF DEVELOPMENT RESOURCES, DAMAGE TO OUR
REPUTATION OR INCREASED SERVICE, WARRANTY OR LITIGATION COSTS.
The latest versions of our products are Year 2000 tested and to the best of
our knowledge are free from any Year 2000 problems. However, there may be latent
undiscovered defects that affect the operation of our products, even though we
expected such defects to become evident on January 1, 2000. Should such defects
exist, they may have a detrimental effect on the operation of our products.
Earlier versions of our products may not be Year 2000 compliant, and we do not
intend to make them Year 2000 compliant. While we have checked with third
parties from whom we license software that they have taken Year 2000 readiness
measures, and we have not experienced any failures to date, our assurances are
only as good as their statements and any Year 2000 defects in our licensed
software that have escaped detection, in both their and our testing, may have
adverse effects on the operation of our products. Additionally, the Year 2000
problem may affect us by causing disruptions in the business operations of, or
delay technology purchases by, companies with which we do business, causing a
decrease in our revenues.
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HOLDING OUR SHARES COULD RESULT IN ADVERSE TAX CONSEQUENCES IF WE ARE TREATED AS
A PASSIVE FOREIGN INVESTMENT COMPANY.
Holding shares in a foreign company that is classified as a passive foreign
investment company may result in adverse tax consequences. We do not believe
that we are currently a passive foreign investment company and do not expect to
become one in the future. However, in the event we are treated as a passive
foreign investment company, these adverse tax consequences could result. See
"Tax Considerations -- Passive Foreign Investment Companies."
RISKS RELATED TO OUR INDUSTRY
IF THE CURRENT DEMAND FOR IT SERVICES DOES NOT CONTINUE, OUR ABILITY TO GROW AND
INCREASE REVENUES COULD BE MATERIALLY AND ADVERSELY AFFECTED.
The market for IT services is evolving rapidly. Demand and market acceptance
for IT services depend on a number of factors, including the following:
- the growth in consumer access to, and acceptance of, new interactive
technologies such as the Internet;
- the adoption of Internet-based business models; and
- the development of technologies that facilitate two-way communication
between companies and targeted audiences.
Industry analysts and others have made many favorable predictions concerning
the growth of information technology and IT services. These predictions should
not be relied upon as conclusive. If the market for IT services fails to grow as
quickly as anticipated, our growth and ability to increase revenues could be
materially and adversely affected.
OUR FUTURE REVENUES DEPEND ON THE CONTINUED GROWTH IN THE USE AND EFFICIENT
OPERATION OF THE INTERNET.
Promoting myChangepoint.com is a key component of our growth strategy.
Consequently, our future revenues and profits, if any, substantially depend upon
the continued acceptance and use of the Internet, which is evolving as a
communications medium. Rapid growth in the use of the Internet is a recent
phenomenon and may not continue. As a result, a broad base of customers that are
willing to use the Internet as a primary means of managing IT services may not
develop or be maintained. If businesses do not continue to accept the Internet
as a communications medium, the demand for myChangepoint.com could be
significantly reduced and any future Internet-based features that we develop or
market may not be commercially successful.
Factors that could inhibit the growth of the Internet and its use as a
communications medium include:
- delays in the development or adoption of new equipment, standards and
protocols to handle increased levels of Internet activity, security,
reliability, cost, ease of use, accessibility and quality of service;
- the ability of the Internet to support the demands placed on it by
continued growth;
- concerns about privacy and the use of data collected over the Internet;
- the possibility that U.S. federal, Canadian, state, provincial, local or
foreign governments will adopt laws or regulations limiting the use of the
Internet or the use of information collected from communications or
transactions over the Internet; and
- the possibility that governments will seek to tax Internet commerce.
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RISKS RELATED TO THIS OFFERING
WE WILL HAVE BROAD DISCRETION REGARDING THE USE OF PROCEEDS FROM THIS OFFERING,
WHICH WE MAY NOT USE TO DEVELOP AND GROW OUR BUSINESS EFFECTIVELY.
We do not have specific uses for a significant portion of the 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 the use of 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 $ in the pro forma net tangible book value per common share
from the price you pay for the common shares. We also have a large number of
outstanding options 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 24 MILLION COMMON SHARES TO BECOME AVAILABLE FOR SALE
180 DAYS FROM THE DATE OF THIS PROSPECTUS, AND SALES OF THESE COMMON SHARES MAY
DEPRESS OUR SHARE PRICE.
After this offering, we will have outstanding 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 of the
common shares sold in this offering will be freely tradeable. We expect that the
remaining 24.2 million common shares outstanding after this offering 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. A risk
exists that there will be limited investor interest in our common shares and
that a liquid market for our shares may not develop. 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 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
may not be sustained. These broad market and industry factors may have a
material adverse effect on the market price of our common shares, regardless of
our actual performance. You may not be able to resell your common shares at or
above the initial public offering price.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could have a material adverse effect on our business and
the market price of our common shares.
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AFTER THIS OFFERING, OUR OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS WILL
BENEFICIALLY OWN MORE THAN % OF OUR COMMON SHARES, AND, IF ACTING TOGETHER,
WILL BE ABLE TO CONTROL MATTERS SUBMITTED TO SHAREHOLDERS FOR APPROVAL.
Following this offering our executive officers, directors and other
principal shareholders, in the aggregate, will beneficially own approximately
% of our outstanding common shares. As a result, these shareholders, if
acting together, will 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 Changepoint, the effect of which may be to
deprive our shareholders of a control premium that might otherwise be realized
in connection with an acquisition of our company.
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 amalgamated and organized 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 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. 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 THAT MAY
DELAY OR PREVENT A CHANGE OF CONTROL.
Prior to the completion of this offering, Changepoint will amalgamate with
several holding companies that are controlled by existing shareholders. Our new
articles of amalgamation will grant to our board of directors the authority to
issue an unlimited number of preferred shares in one or more series. Our board
of directors therefore will be able to set the rights and preferences of, and
issue, any series 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 could also have the effect of
delaying or preventing a change of control of our company. Immediately after
this offering, there will be no preferred shares outstanding issued under this
grant of authority. See "Description of Share Capital."
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA
This prospectus contains 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 also contains market data related to the Internet,
e-commerce and the IT services industry that have been included in studies
published by the market research firms of Dataquest and Gartner Group. These
market data include projections that are based on a number of assumptions,
including:
- IT services providers will be unable to internally track and implement new
information technology;
- a shortage of skilled IT services professionals will persist;
- IT solutions will become more standardized;
- capital will continue to be available to IT services providers;
- business-to-business e-commerce will grow to be the norm in many
industries by 2004; and
- Internet-based marketplaces will drive 40% of business-to-business
e-commerce by 2004.
If these assumptions turn out to be incorrect, actual results may differ from
the projections based on these assumptions.
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>
SIX MONTHS ENDED
YEAR ENDED JULY 31, JANUARY 31,
-------------------------------------------------------------- -----------------------
1995 1996 1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
High................. US$0.7457 US$0.7527 US$0.7513 US$0.7292 US$0.6891 US$0.6661 US$0.6969
Low.................. 0.7023 0.7235 0.7145 0.6617 0.6341 0.6341 0.6632
End.................. 0.7302 0.7274 0.7236 0.6617 0.6636 0.6625 0.6888
Average.............. 0.7265 0.7346 0.7305 0.6975 0.6614 0.6512 0.6814
</TABLE>
On April 10, 2000, the inverse of the noon buying rate was Cdn$1.00 per
$0.6842.
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ENFORCEABILITY OF CIVIL LIABILITIES
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.
USE OF PROCEEDS
We expect to receive approximately $ in net proceeds from the sale of
common shares in this offering, assuming an initial public offering price
of $ per common share. We estimate the net proceeds will be approximately
$ 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 to fund sales and marketing activities,
research and development expenditures, working capital and other general
corporate purposes. We have not yet determined with any certainty the manner in
which we will allocate the net proceeds. 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, if any,
and the progress of our product development efforts.
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 common shares and we currently do
not have any plans to pay dividends on our common shares. 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 or other securities and will depend upon our financial condition,
results of operations, capital requirements and such other factors as our board
of directors considers relevant.
CORPORATE INFORMATION
We have been amalgamated and organized under the laws of the Province of
Ontario. Our principal executive offices are located at 1595 Sixteenth Avenue,
Suite 700, Richmond Hill, Ontario, Canada L4B 3N9. Our telephone number at that
location is (905) 886-7000. Our Web site address is www.changepoint.com. The
information contained on our Web site is not part of this prospectus.
Changepoint, myChangepoint.com and the Changepoint logo are trademarks of
Changepoint. This prospectus also makes reference to trademarks of other
companies.
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CAPITALIZATION
The following table sets forth our capitalization as of January 31, 2000:
- on an actual basis, giving effect to a 3-for-2 split of our common shares,
which is expected to occur prior to the closing of this offering;
- on a pro forma basis to reflect the conversion of all of our outstanding
Class A redeemable convertible preferred shares into 8,975,943 common
shares prior to the closing of this offering and to reflect the
termination of the redemption feature relating to 4,878,571 of our common
shares, which will occur prior to the closing of this offering; and
- on a pro forma as adjusted basis to give effect to the sale of the
common shares offered by this prospectus at an assumed initial
public offering price of $ and after deducting estimated
underwriting commissions and estimated offering expenses.
The table below does not include:
- 2,851,501 common shares issuable upon the exercise of options outstanding
as of January 31, 2000; and
- 3,031,933 shares reserved for future issuance under our stock option plans
as of January 31, 2000.
<TABLE>
<CAPTION>
AS OF JANUARY 31, 2000
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash and cash equivalents, and short-term investments....... $ 4,149 $ 4,149 $
========= ========= =========
Current portion of obligations under capital leases......... $ 87 $ 87 $
========= ========= =========
Obligations under capital leases, net of current portion.... $ 94 $ 94 $
Class A redeemable convertible preferred shares;
5,983,962 shares authorized, 5,983,962 shares issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted.......... 74,800 -- --
Common shares eligible for redemption; unlimited shares
authorized, 4,878,571 shares issued and outstanding,
actual; no shares authorized, issued or outstanding, pro
forma and pro forma as adjusted........................... 40,655 -- --
Shareholders' equity (deficiency):
Common shares; unlimited shares authorized;
10,051,588 shares issued and outstanding, actual;
23,906,102 shares issued and outstanding, pro forma;
shares issued and outstanding, pro forma as
adjusted................................................ 4,425 119,880
Share purchase loans receivable........................... (56) (56)
Deferred stock-based compensation......................... (3,353) (3,353)
Cumulative other comprehensive income (loss).............. 28 28
Accumulated deficit....................................... (110,208) (110,208)
--------- --------- ---------
Total shareholders' equity (deficiency)................. (109,164) 6,291
--------- --------- ---------
Total capitalization.................................. $ 6,385 $ 6,385 $
========= ========= =========
</TABLE>
20
<PAGE>
DILUTION
Our pro forma net tangible book value as of January 31, 2000 was
$6.3 million, or $0.26 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, including common shares eligible for
redemption, and after giving effect to the automatic conversion of all of our
outstanding Class A redeemable convertible preferred shares.
After giving effect to the sale of common shares in this
offering at an assumed initial public offering price of $ per common
share, and after deducting the estimated underwriting commissions and estimated
offering expenses, our adjusted pro forma net tangible book value as of
January 31, 2000 would have been $ million, or $ per common share.
This amount represents an immediate increase in pro forma net tangible book
value of $ per common share to existing shareholders and an immediate
dilution of $ per common share to new investors purchasing common shares
in this offering. The following table illustrates this dilution to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per common share...... $
Pro forma net tangible book value per common share as of
January 31, 2000.......................................... $0.26
-----
Increase per common share attributable to this offering.....
-----
Adjusted pro forma net tangible book value per common share
after this offering.......................................
------
Dilution per common share to new investors in this
offering.................................................. $
======
</TABLE>
If the underwriters exercise their option to purchase additional common
shares in this offering, our adjusted pro forma net tangible book value at
January 31, 2000 would be $ million, or $ per common share,
representing an immediate increase in pro forma net tangible book value to our
existing shareholders of $ per share and an immediate dilution to new
investors purchasing common shares in this offering of $ per common share.
The table below shows on a pro forma basis as of January 31, 2000, after
giving effect to the automatic conversion of all our outstanding Class A
redeemable convertible preferred shares, the difference between our existing
shareholders and our new investors purchasing common shares in this offering
with respect to the number of common shares purchased, the total consideration
paid and the average price per common share paid, before deducting estimated
underwriting commissions and estimated offering expenses:
<TABLE>
<CAPTION>
COMMON SHARES
PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders...................... 23,906,102 % $14,965,000 % $0.63
New investors..............................
---------- ---- ----------- ----
Total...................................... 100% $ 100%
========== ==== =========== ====
</TABLE>
If the underwriters' option to purchase additional common shares is
exercised in full, the number of common shares held by new investors purchasing
common shares in this offering will increase to , or %, of the total
common shares outstanding after this offering.
As of January 31, 2000, we had outstanding options to purchase 2,851,501
common shares at a weighted average exercise price of $2.19 per share, of which
1,539,375 common shares were held by officers, directors or affiliates of
Changepoint. In addition, there were 1,051,192 options available for future
grant under our 1999 Stock Option Plan and 1,046,417 options available for
future grant under our 1997 Stock Option Plan. If the option holders exercise
these outstanding securities, there will be further dilution to new investors.
21
<PAGE>
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 consolidated statements of operations data for each of the three years
ended July 31, 1997, 1998 and 1999 and the consolidated balance sheets data as
of July 31, 1998 and 1999 are derived from our consolidated financial statements
that have been audited by KPMG LLP, independent auditors, and are included
elsewhere in this prospectus. The consolidated statements of operations data for
the years ended July 31, 1995 and 1996 and the consolidated balance sheets data
as of July 31, 1995 and 1996 are derived from audited consolidated financial
statements not included in this prospectus. The consolidated statements of
operations data for the six months ended January 31, 1999 and 2000 and the
consolidated balance sheet data as of January 31, 2000 have been derived from
our unaudited consolidated financial statements included elsewhere in this
prospectus that include, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
this unaudited financial information. The historical results presented below are
not necessarily indicative of the results to be expected for any future period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JULY 31, JANUARY 31,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Revenues:
Products..................................... $ 150 $ 316 $ 1,008 $ 1,821 $ 3,974 $ 1,774 $ 2,781
Services..................................... 2,001 2,621 1,922 1,986 1,963 814 1,157
------- ------- ------- ------- ------- ------- --------
Total revenues............................. 2,151 2,937 2,930 3,807 5,937 2,588 3,938
------- ------- ------- ------- ------- ------- --------
Cost of revenues:
Products..................................... 29 60 172 69 206 119 19
Services..................................... 1,316 1,848 1,478 1,231 1,151 511 850
------- ------- ------- ------- ------- ------- --------
Total cost of revenues..................... 1,345 1,908 1,650 1,300 1,357 630 869
------- ------- ------- ------- ------- ------- --------
Gross profit................................... 806 1,029 1,280 2,507 4,580 1,958 3,069
------- ------- ------- ------- ------- ------- --------
Operating expenses:
Research and development..................... 109 177 1,283 1,536 2,073 881 1,264
Sales and marketing.......................... 61 100 781 1,670 2,178 982 3,121
General and administrative................... 414 455 516 722 993 390 706
Amortization of stock-based compensation..... -- -- -- -- -- -- 903
------- ------- ------- ------- ------- ------- --------
Total operating expenses................... 584 732 2,580 3,928 5,244 2,253 5,994
------- ------- ------- ------- ------- ------- --------
Income (loss) from operations.................. 222 297 (1,300) (1,421) (664) (295) (2,925)
Interest income................................ -- -- 52 57 50 36 153
Other income................................... -- -- -- -- 250 -- --
------- ------- ------- ------- ------- ------- --------
Income (loss) before provision for income
taxes........................................ 222 297 (1,248) (1,364) (364) (259) (2,772)
Provision for income tax expense (recovery).... 70 108 (131) (17) 20 26 --
------- ------- ------- ------- ------- ------- --------
Net income (loss).............................. 152 189 (1,117) (1,347) (384) (285) (2,772)
Class A preferred share accretion.............. -- -- -- -- (2,293) -- (65,136)
------- ------- ------- ------- ------- ------- --------
Net income (loss) applicable to common
shares....................................... $ 152 $ 189 $(1,117) $(1,347) $(2,677) $ (285) $(67,908)
======= ======= ======= ======= ======= ======= ========
Basic and diluted net income (loss) per
share........................................ $116.92 $ 0.05 $ (0.09) $ (0.08) $ (0.15) $ (0.02) $ (4.45)
======= ======= ======= ======= ======= ======= ========
Shares used in computation, basic and
diluted...................................... 1.3 3,780 12,003 16,817 18,062 18,136 15,263
Pro forma basic and diluted net loss per
share........................................ $ (0.02) $ (0.11)
======= ========
Pro forma shares used in computation, pro forma
basic and diluted............................ 24,096 24,239
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF JULY 31, JANUARY 31,
---------------------------------------------------- --------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEETS DATA:
Cash and cash equivalents, and short-term
investments................................. $ 132 $ 239 $ 181 $ 1,598 $ 4,504 $ 689 $ 4,149
Working capital............................... 237 372 868 2,082 5,954 1,874 5,524
Total assets.................................. 727 987 2,073 3,434 7,811 3,293 8,602
Long-term liabilities......................... -- -- -- 52 131 37 94
Class A redeemable convertible preferred
shares...................................... -- -- -- -- 6,557 -- 74,800
Common shares eligible for redemption......... -- -- -- 5,873 6,243 -- 40,655
Shareholders' equity (deficiency)............. 365 537 (1,282) (3,359) (6,475) 2,237 (109,164)
</TABLE>
23
<PAGE>
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
Our company was founded in 1989, and in late 1992 began to focus its efforts
on providing project management consulting services to the IT services industry.
In 1994, we recognized a market opportunity to develop software that addressed
the needs of the IT services industry, and began to develop the first generation
of our existing solution. We first released our software in late 1994 and, in
1996, began to expand our sales and research and development infrastructure. As
our software business grew, we began to phase out our consulting services, and
discontinued those services by early 1998. Since then, we have continued
expanding the functionality of our software, and in early 1999, released our
Web-based solution to enable IT services organizations to manage all aspects of
the IT services delivery process. In order to leverage the Internet and extend
the functionality of our software across the IT services supply chain, we
recently introduced our online exchange, myChangepoint.com.
Our revenues were $2.9 million, $3.8 million and $5.9 million in fiscal
1997, 1998 and 1999 and $3.9 million for the six months ended January 31, 2000.
Currently, we derive substantially all of our revenues from the sale of software
product licenses and from the provision of related services, including
implementation, training and maintenance services. In the future, we also expect
to derive revenues from online transactions facilitated through
myChangepoint.com and from monthly fees from users of myChangepoint.com. For
example, we expect to charge a transaction fee for each external
IT professional sourced through myChangepoint.com and to charge a monthly fee to
customers for each external IT professional managed through myChangepoint.com.
We expect to derive revenues from myChangepoint.com beginning in the fourth
quarter of fiscal 2000.
We primarily sell our products through our direct sales force. However, we
have recently developed indirect distribution channels and expect to derive an
increasing percentage of our revenues from these channels in the future.
We license our software based on the number of users licensed and the level
of functionality requested by each customer. We recognize our product 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 recognize revenues allocated to software licenses when all of the
following conditions have been met:
- persuasive evidence of an arrangement exists;
- delivery of the product has occurred;
- no significant company obligations with regard to implementation remain;
- the license fee is fixed or determinable; and
- collectibility of the license fee is probable.
Delivery of the software is deemed to occur upon shipment of the software
unless customers are provided the opportunity to return the products, in which
case revenues are recognized only when any refund obligations have expired.
Substantially all of our software license agreements constitute
multiple-element arrangements as they include the license of our software as
well as the related implementation, training and maintenance services. We
allocate the revenues in these multiple-element arrangements based on our
24
<PAGE>
assessment of the fair value of each element. Implementation and training
services are typically delivered on a time-and-material basis, and revenues from
these services are recognized when the services are delivered. Revenues from
maintenance and support services are recognized ratably over the related
contractual period, which is typically one year.
We currently derive substantially all of our revenues from customers in
North America. We recently established an office in London, England to pursue
sales opportunities in Europe and intend to establish additional distribution
relationships outside North America. As a result, we expect international
revenues to increase as a percent of our total revenues in the future.
In connection with the granting of stock options to our employees and
directors, we recorded deferred stock-based compensation totaling $4.3 million
for the six months ended January 31, 2000. This amount represents the total
difference between the exercise prices of stock options and the fair value of
the underlying common shares on the date such stock options were granted. This
amount is included as a component of shareholders' equity and is being amortized
by charges to operations over the vesting period of the options, consistent with
the method described in Accounting Principles Board Opinion No. 25. As of
January 31, 2000, we had a total of $3.4 million of deferred stock-based
compensation that had not been amortized. The amortization of deferred
stock-based compensation is classified as a separate component of operating
expenses in our consolidated statement of operations.
Our net loss was $1.1 million, $1.3 million and $384,000 in fiscal 1997,
1998 and 1999 and $2.8 million for the six months ended January 31, 2000. These
losses resulted from costs incurred in the development and sale of our products
and services. We expect to continue to experience significant growth in our
operating expenses, particularly in the areas of sales and marketing. As a
result, we expect to incur additional losses and cannot assure you that we will
achieve or sustain profitability in the future.
In connection with prior financings, we issued securities that are
redeemable if we do not complete a public offering by September 1, 2004. All of
these rights will terminate upon the completion of this offering. These
securities are redeemable at the higher of their original issuance prices or
fair market value. Accordingly, we have valued these securities at their fair
market values as of January 31, 2000. As a result, we recorded a $100.9 million
non-cash charge to deficit in the six months ended January 31, 2000. Pro forma
for this offering, the shareholders' deficiency is eliminated, yielding a
shareholders' equity of $6.3 million.
From January 1997 until June 1999, we offered a Web-based team collaboration
software product, involv. In June 1999, we sold our involv business to a
third-party. This sale had no material impact on our results of operations as
involv accounted for a small portion of our revenues and expenses. We did not
record any gain or loss on the disposition as no cash was received on the sale
and no value was assigned to the consideration received, and the recorded
amounts of the assets disposed of were insignificant. There were no costs
associated with the disposition, and the purchaser retained all the involv
employees and any related liabilities.
As a Canadian Controlled Private Corporation, or CCPC, we have qualified for
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
25
<PAGE>
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.
Investment tax credits are accounted for as a reduction of research and
development expenditure for items of a current nature and a reduction of the
related asset cost for items of a long-term nature.
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 new and rapidly evolving markets like ours. We cannot assure you
that we will successfully address the risks and challenges that we face.
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
The following table sets forth our statements of operations data as a
percentage of total revenues:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JULY 31, ENDED JANUARY 31,
------------------------------ ----------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Products........................................ 34.4% 47.8% 66.9% 68.5% 70.6%
Services........................................ 65.6 52.2 33.1 31.5 29.4
------ ------ ------ ------ --------
Total revenues................................ 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ --------
Cost of revenues:
Products........................................ 5.9 1.8 3.5 4.6 0.5
Services........................................ 50.4 32.3 19.4 19.7 21.6
------ ------ ------ ------ --------
Total cost of revenues........................ 56.3 34.1 22.9 24.3 22.1
------ ------ ------ ------ --------
Gross profit...................................... 43.7 65.9 77.1 75.7 77.9
------ ------ ------ ------ --------
Operating expenses:
Research and development........................ 43.8 40.3 34.9 34.0 32.1
Sales and marketing............................. 26.7 43.9 36.7 37.9 79.3
General and administrative...................... 17.6 19.0 16.7 15.1 17.9
Amortization of stock-based compensation........ -- -- -- -- 22.9
------ ------ ------ ------ --------
Total operating expenses...................... 88.1 103.2 88.3 87.0 152.2
------ ------ ------ ------ --------
Loss from operations.............................. (44.4) (37.3) (11.2) (11.3) (74.3)
Interest income................................... 1.8 1.5 0.8 1.3 3.9
Other income...................................... -- -- 4.2 -- --
------ ------ ------ ------ --------
Loss before provision for income taxes............ (42.6) (35.8) (6.2) (10.0) (70.4)
Provision for income tax expense (recovery)....... 4.5 0.4 (0.3) (1.0) --
------ ------ ------ ------ --------
Net loss.......................................... (38.1)% (35.4)% (6.5)% (11.0)% (70.4)%
====== ====== ====== ====== ========
</TABLE>
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000
REVENUES
TOTAL REVENUES. Total revenues increased 52.1% from $2.6 million to
$3.9 million for the six months ended January 31, 1999 and 2000.
26
<PAGE>
PRODUCTS. Product revenues increased 56.8% from $1.8 million to
$2.8 million for the six months ended January 31, 1999 and 2000. The increase in
product revenues was primarily due to greater market acceptance of our software
and increased sales to new customers.
SERVICES. Service revenues increased 42.1% from $814,000 to $1.2 million
for the six months ended January 31, 1999 and 2000. The growth in service
revenues was primarily due to increased maintenance revenues resulting from our
larger customer base and increased implementation services provided in
connection with new license sales.
COST OF REVENUES
PRODUCTS. Cost of product revenues consists primarily of the cost of
third-party software purchased for resale. Changepoint only resells third-party
software to the occasional customer who requests such software, resulting in
high variability for cost of product revenues. Cost of product revenues was
$119,000 and $19,000 for the six months ended January 31, 1999 and 2000,
representing 6.7% and 0.7% of product revenues in the respective periods.
SERVICES. Cost of service revenues consists primarily of payroll and
related costs for our services staff. Cost of service revenues was $511,000 and
$850,000 for the six months ended January 31, 1999 and 2000, representing 62.8%
and 73.5% of service revenues in the respective periods. The dollar increase was
attributable primarily to the addition of nine service personnel during the six
months ended January 31, 2000. The increase as a percentage of service revenues
was attributable primarily to the cost of training the newly hired service
personnel. We anticipate that cost of service revenues will increase in absolute
dollars as we continue to hire additional service personnel.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation and related costs for research and development
employees and costs related to developing new products and quality assurance
activities. Research and development expenses increased 43.5% from $881,000 to
$1.3 million for the six months ended January 31, 1999 and 2000, representing
34.0% and 32.1% of total revenues in the respective periods. This increase was
attributable primarily to the addition of 10 research and development personnel
during the period. We anticipate that research and development expenses will
increase in the future as we continue to hire additional research and
development personnel. To date, all research and development expenses have been
expensed as incurred.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
compensation and related costs for sales and marketing personnel, including
travel and entertainment, public relations, advertising, trade shows and
marketing materials. Sales and marketing expenses increased 217.8% from $982,000
to $3.1 million for the six months ended January 31, 1999 and 2000, representing
37.9% and 79.3% of total revenues in the respective periods. The increase in
sales and marketing expenses was attributable primarily to the addition of
34 sales and marketing personnel during the period, the opening of eight sales
offices, and higher marketing costs due to expanded promotional activities. We
intend to significantly expand our direct and indirect sales channels. As a
result, we anticipate that sales and marketing expenses will continue to
increase in the future.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of compensation and related costs for administrative personnel and
foreign exchange gains or losses. General and administrative expenses increased
81.0% from $390,000 to $706,000 for the six months ended January 31, 1999 and
2000, representing 15.1% and 17.9% of total revenues in the respective periods.
The increase was due primarily to the addition of four administrative personnel
during the period, increased travel and other activities, and increased
incentive compensation expenses. We expect
27
<PAGE>
that general and administrative expenses will increase 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
$903,000 in the six months ended January 31, 2000 related to the amortization of
the total difference between the exercise prices and the fair values on the date
of grant of stock options.
INTEREST INCOME. Interest income increased 325.0% from $36,000 to $153,000
for the six months ended January 31, 1999 and 2000, reflecting the interest
earned on the cash, cash equivalents and short-term investments balance arising
from our financings in July and October 1999.
FISCAL 1998 AND 1999
REVENUES
TOTAL REVENUES. Total revenues increased 55.9% from $3.8 million in fiscal
1998 to $5.9 million in fiscal 1999.
PRODUCTS. Product revenues increased 118.2% from $1.8 million in fiscal
1998 to $4.0 million in fiscal 1999. The increase was primarily due to greater
market acceptance of our software and the introduction of our Web-based solution
in early 1999.
Product revenues accounted for 47.8% and 66.9% of total revenues in fiscal
1998 and 1999. This increase as a percentage of revenues is attributable
primarily to our increased focus on our software business, and the fact that we
no longer provided IT project management consulting services in fiscal 1999.
SERVICES. Service revenues were $2.0 million in fiscal 1998 and 1999.
Revenues from services related to our software increased from $1.4 million in
fiscal 1998 to $2.0 million in fiscal 1999 due to increased market acceptance of
our software while revenues from IT project management consulting services
decreased from $538,000 to nil as we no longer provided these services in fiscal
1999.
COST OF REVENUES
PRODUCTS. Cost of product revenues was $69,000 in fiscal 1998 and $206,000
in fiscal 1999, representing 3.8% and 5.2% of product revenues in the respective
periods. The increase was primarily due to increased resales of third-party
software with our software.
SERVICES. Cost of service revenues was $1.2 million in fiscal 1998 and
1999, representing 62.0% and 58.8% of service revenues during the respective
periods. The cost of services related to our software increased 104.1% from
$564,000 in fiscal 1998 to $1.2 million in fiscal 1999 consistent with the
increased sales of our software and greater demands by our customers for
services. The cost of services for IT project management consulting services
decreased from $667,000 in fiscal 1998 to nil in fiscal 1999 as we no longer
provided these services.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses increased 35.0%
from $1.5 million in fiscal 1998 to $2.1 million in fiscal 1999, representing
40.3% and 34.9% of total revenues in the respective periods. The increase was
primarily due to an increase in research and development personnel.
SALES AND MARKETING. Sales and marketing expenses increased 30.4% from
$1.7 million in fiscal 1998 to $2.2 million in fiscal 1999, representing 43.9%
and 36.7% of total revenues in the respective
28
<PAGE>
periods. The increase in expenses was primarily due to expanded marketing
activities, including trade shows and other public relations activities, as well
as an increase in sales and marketing personnel.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
37.5% from $722,000 in fiscal 1998 to $993,000 in fiscal 1999, representing
19.0% and 16.7% of total revenues in the respective periods. The increase in
expenses was primarily due to increased consultant and compensation expenses and
increased travel, which was partially offset by lower foreign exchange losses.
INTEREST INCOME AND OTHER INCOME. Interest income decreased 12.3% from
$57,000 in fiscal 1998 to $50,000 in fiscal 1999, reflecting the interest earned
on the cash and cash equivalents arising from our financings in September 1996
and November 1997. In fiscal 1999, other income included a $250,000 break-up fee
from a third party in connection with an uncompleted transaction to acquire
Changepoint.
FISCAL 1997 AND 1998
REVENUES
TOTAL REVENUES. Total revenues increased 29.9% from $2.9 million in fiscal
1997 to $3.8 million in fiscal 1998.
PRODUCTS. Product revenues increased 80.7% from $1.0 million in fiscal 1997
to $1.8 million in fiscal 1998. The increase was primarily due to greater market
acceptance of our Changepoint software, as well as the additional product
revenues of $270,000 relating to the introduction of our involv product in
fiscal 1998.
SERVICES. Service revenues were $1.9 million in fiscal 1997 and
$2.0 million in fiscal 1998. Revenues from services related to our Changepoint
software increased 102.8% from $0.7 million in fiscal 1997 to $1.4 million in
fiscal 1998 due to increased market acceptance of our software. Revenues from IT
project management consulting services decreased 55.5% from $1.2 million in
fiscal 1997 to $0.5 million in fiscal 1998 as we phased out these services in
fiscal 1998.
Changepoint did not incur any costs relating to the phase-out of the
consulting services as most of the personnel and fixed assets used in the IT
project management consulting services were redeployed to servicing our software
customers.
COST OF REVENUES
PRODUCTS. Cost of product revenues was $172,000 in fiscal 1997 and $69,000
in fiscal 1998, representing 17.1% and 3.8% of product revenues in the
respective periods. These costs represent the cost of third-party software sold
to customers. In fiscal 1997, the entire cost of product revenues relates to
third-party software sold with our Changepoint software. In fiscal 1998, $21,000
of the cost of product revenues relates to third-party software sold with our
Changepoint software, and $48,000 relates to third-party software sold with our
involv software.
SERVICES. Cost of service revenues was $1.5 million in fiscal 1997 and
$1.2 million in fiscal 1998, representing 76.9% of service revenues in fiscal
1997 and 62.0% of service revenues in fiscal 1998. The cost of services related
to our Changepoint software increased 52.0% from $371,000 in fiscal 1997 to
$564,000 in fiscal 1998 due to the company providing more services relating to
the Changepoint software. This increase was offset by the phasing-out of IT
project management consulting services, which had lower gross margins.
29
<PAGE>
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses increased 19.7%
from $1.3 million in fiscal 1997 to $1.5 million in fiscal 1998, representing
43.8% and 40.3% of total revenues for the respective periods. The increase was
primarily due to an increase in research and development personnel.
SALES AND MARKETING. Sales and marketing expenses increased 113.8% from
$781,000 in fiscal 1997 to $1.7 million in fiscal 1998, representing 26.7% and
43.9% of total revenues for the respective periods. The increase in expenses was
primarily due to expanded marketing activities, including trade shows and other
public relations activities, as well as an increase in sales and marketing
personnel.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
39.9% from $516,000 in fiscal 1997 to $722,000 in fiscal 1998, representing
17.6% and 19.0% of total revenues for the respective periods. The increase in
expenses was primarily due to increased consultant and compensation expenses and
increased travel. In fiscal 1998, we recorded foreign exchange losses of
$136,000, which increased general and administrative expenses.
INTEREST INCOME. Interest income increased 9.6% from $52,000 in fiscal 1997
to $57,000 in fiscal 1998, reflecting the interest earned on the cash and cash
equivalents arising from our financings in September 1996 and November 1997.
30
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited consolidated statements of
operations data for the six quarters ended January 31, 2000, as well as such
data expressed as a percentage of our total revenues for the periods presented.
The information in the table below should be read in conjunction with our annual
audited consolidated financial statements and related notes included elsewhere
in this prospectus. We have prepared this information on the same basis as our
consolidated financial statements and the information includes all adjustments,
consisting only of normal recurring adjustments that we consider necessary for a
fair presentation of our financial position and operating results for the
quarters presented. Our quarterly operating results have varied substantially in
the past and may vary substantially in the future. You should not draw any
conclusions about our future results for any period from the results of
operations for any particular quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------
OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1998 1999 1999 1999 1999 2000
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues:
Products......................... $ 523 $1,250 $1,004 $ 1197 $ 962 $ 1,819
Services......................... 434 381 584 564 502 655
------ ------ ------ ------ ------ -------
Total revenues................. 957 1,631 1,588 1,761 1,464 2,474
------ ------ ------ ------ ------ -------
Cost of revenues:
Products......................... 101 22 49 34 4 15
Services......................... 226 284 255 386 344 506
------ ------ ------ ------ ------ -------
Total cost of revenues......... 327 306 304 420 348 521
------ ------ ------ ------ ------ -------
Gross profit....................... 630 1,325 1,284 1,341 1,116 1,953
------ ------ ------ ------ ------ -------
Operating expenses:
Research and development......... 481 400 611 581 564 700
Sales and marketing.............. 419 562 535 662 1,007 2,114
General and administrative....... 161 227 437 168 253 453
Amortization of stock-based
compensation................... -- -- -- -- -- 903
------ ------ ------ ------ ------ -------
Total operating expenses....... 1,061 1,189 1,583 1,411 1,824 4,170
------ ------ ------ ------ ------ -------
Income (loss) from operations...... (431) 136 (299) (70) (708) (2,217)
Interest income.................... 25 11 11 3 79 74
Other income....................... -- -- -- 250 -- --
------ ------ ------ ------ ------ -------
Income (loss) before provision for
income taxes..................... (406) 147 (288) 183 (629) (2,143)
Provision for income tax expense
(recovery)....................... 20 5 (5) -- -- --
Minority interest.................. -- 1 (28) 27 -- --
------ ------ ------ ------ ------ -------
Net income (loss).................. $ (426) $ 141 $ (255) $ 156 $ (629) $(2,143)
====== ====== ====== ====== ====== =======
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
---------------------------------------------------------------------------------
OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1998 1999 1999 1999 1999 2000
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Products......................... 54.7% 76.7% 63.2% 68.0% 65.7% 73.6%
Services......................... 45.3 23.3 36.8 32.0 34.3 26.4
------ ------ ------ ------ ------ ------
Total revenues................. 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------
Cost of revenues:
Products......................... 10.6 1.4 3.1 1.9 0.3 0.6
Services......................... 23.7 17.4 16.0 21.9 23.4 20.5
------ ------ ------ ------ ------ ------
Total cost of revenues......... 34.3 18.8 19.1 23.9 23.7 21.1
------ ------ ------ ------ ------ ------
Gross profit....................... 65.7 81.2 80.9 76.1 76.3 78.9
------ ------ ------ ------ ------ ------
Operating expenses:
Research and development......... 50.3 24.5 38.5 33.0 38.5 28.3
Sales and marketing.............. 43.8 34.5 33.8 37.6 68.8 85.5
General and administrative....... 16.6 13.8 27.5 9.4 17.3 18.3
Amortization of stock-based
compensation................... -- -- -- -- -- 36.5
------ ------ ------ ------ ------ ------
Total operating expenses....... 110.7 72.8 99.8 80.0 124.6 168.6
------ ------ ------ ------ ------ ------
Income (loss) from operations...... (45.0) 8.4 (18.9) (3.9) (48.3) (89.6)
Interest income.................... 2.6 0.6 0.7 0.2 5.4 3.0
Other income....................... -- -- -- 14.2 -- --
------ ------ ------ ------ ------ ------
Income (loss) before provision for
income taxes..................... (42.4) 9.0 (18.2) 10.5 (42.9) (86.7)
Provision for income tax expense
(recovery)....................... 2.1 0.3 (0.3) -- -- --
Minority interest.................. -- 0.1 (1.8) 1.7 -- --
------ ------ ------ ------ ------ ------
Net income (loss).................. (44.5)% 8.6% (16.1)% 8.8% (42.9)% (86.7)%
====== ====== ====== ====== ====== ======
</TABLE>
Revenues for the quarter ended January 31, 1999 increased significantly as a
result of two large contracts that we entered into during the quarter. Revenues
were lower in the quarter ended October 31, 1999 than in the previous quarter as
a result of seasonality. In recent years, we have experienced relatively greater
revenues from licenses in the fourth quarter of our fiscal year than in each of
the first three quarters, particularly the first quarter. We believe that these
fluctuations are caused, in part, by customer buying patterns and the efforts of
our direct sales force to meet or exceed fiscal year-end quotas. We generally
recorded net losses for the six quarters ended January 31, 2000. However, we
recorded net income for the quarter ended January 31, 1999 as a result of the
two large contracts entered into during the quarter. We also recorded net income
for the quarter ended July 31, 1999 due to the receipt of a $250,000 break-up
fee from a third party in connection with an uncompleted transaction by the
third party to acquire Changepoint. Net losses in the quarters ended
October 31, 1999 and January 31, 2000 increased due to higher expenses as we
substantially increased our sales and marketing activities.
Our quarterly operating results have fluctuated significantly 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 early stages of development of the market for our
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.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through the
sale of securities and the sale of our products and services. As of January 31,
2000, we have raised approximately $12.0 million, net of offering costs, through
private placements of securities. At January 31, 2000, we had cash and cash
equivalents aggregating $353,000, and short-term investments of $3.8 million.
Cash used in operating activities was $1.4 million, $1.1 million and
$1.2 million in fiscal 1997, 1998 and 1999 and $1.7 million for the six months
ended January 31, 2000. Cash used during the respective periods was due to
operating losses and increased accounts receivable.
Cash used in investing activities, consisting of the purchase of computer
equipment, software, furniture and equipment to support our growing number of
employees and was $480,000, $99,000 and $3,000 in fiscal 1997, 1998 and 1999 and
$429,000 for the six months ended January 31, 2000. We also invested
$3.8 million in short-term investments in the period ended January 31, 2000.
Cash provided by financing activities was $1.9 million, $2.8 million and
$4.1 million in fiscal 1997, 1998 and 1999 and $1.5 million for the six months
ended January 31, 2000. Cash provided by financing activities resulted from
private placements of special warrants, common shares eligible for redemption,
and Class A redeemable convertible preferred shares.
We have a credit facility with a Canadian chartered bank, which includes a
Cdn$1.5 million (approximately $1.0 million) operating line of credit and a
lease line of credit of Cdn$500,000 (approximately $346,000) to purchase
equipment and furniture. No amounts had been drawn on the operating line of
credit as of January 31, 2000. As of January 31, 2000, $181,000 had been drawn
on the lease line of credit. Borrowings under the operating line of credit are
repayable on demand and bear interest at the bank's prime rate plus 1.0%.
Borrowings under the lease line of credit have interest rates determined on a
per transaction basis. The credit facility is secured by all of our personal
property, including our inventory, equipment and accounts receivable and the
shares of our subsidiaries, and is guaranteed by our U.S. subsidiary.
We expect to devote substantial resources to continue our research and
development efforts, expand our sales, support, marketing and product
development organizations, expand internationally and build the infrastructure
necessary to support our growth. As a result, we anticipate that capital
expenditures will continue to increase in absolute dollars in the foreseeable
future. We believe that the net proceeds from this offering, together with our
current cash, cash equivalents and short-term investments, 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 or seek other
financing arrangements 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 the event additional financing is required, we may not be able to
raise it on acceptable terms or at all, and any such financing may be dilutive
to existing investors. 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
We have not experienced any significant disruptions related to Year 2000
issues, nor do we expect to experience any Year 2000-related disruptions in the
operation of our systems. To our knowledge, none of our customers or suppliers
have experienced any Year 2000-related issues with our products.
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<PAGE>
Although most Year 2000 problems should have become evident on January 1, 2000,
additional Year 2000-related problems may become evident only after that date.
We will continue to monitor our mission critical computer applications and those
of our suppliers and vendors throughout the year, to ensure that any Year 2000
matters that may arise are promptly addressed. We do not expect to incur any
significant costs relating to Year 2000 matters.
RECENT ACCOUNTING PRONOUNCEMENTS
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 July 31, 2001. We do
not believe that adopting SFAS No. 133 will have a material effect on our
financial position or results of operations.
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 Canadian and U.S. interest rates,
particularly since the majority of our investments are in short-term
instruments. Because of the short-term nature of our short-term investments, we
have concluded that there is no material market risk exposure.
34
<PAGE>
BUSINESS
We provide Web-based software and an online exchange, myChangepoint.com,
which enable our customers to effectively manage the entire IT services delivery
process. Our comprehensive solution automates and streamlines the business
processes of IT services organizations and facilitates business transactions and
collaboration among buyers and suppliers of IT services over the Internet. Our
software is designed for and marketed to both professional service organizations
and corporate IT departments. myChangepoint.com extends the benefits of our
software by enabling IT services organizations to manage the interactions with
their customers and partners over the Internet. The benefits of our software are
further enhanced when our customers extend the functionality of our software
through myChangepoint.com in order to include outside participants in the IT
services delivery process. To date, over 75 professional services organizations
and corporate IT departments have purchased our software, including Baltimore
Gas & Electric, BellSouth, Dell, Emerald Solutions, Greenwich Technology,
Guardian Life Insurance, Interwoven and QAD.
INDUSTRY BACKGROUND
THE IT SERVICES INDUSTRY
Economic growth and productivity gains during the past decade have been
driven, to a significant extent, by technological advances and corporate
spending on information technology. Companies are increasingly recognizing the
strategic role of information technology as a critical component of their
business initiatives and growth strategies. The importance of and dependence on
information technology have led to the rapid growth of the market for IT
services. In recent years, corporate initiatives to automate business operations
and improve customer interactions as well as more recent initiatives to
implement e-commerce and e-business strategies have further increased the demand
for IT services. Dataquest estimates that worldwide spending on IT services will
increase from $287 billion in 1998 to $633 billion in 2003.
In today's competitive business environment, companies are under pressure to
rapidly deploy and implement new IT solutions. Faced with shorter deadlines,
higher customer expectations, increased complexity of IT projects, and an
ongoing shortage of skilled IT professionals, professional services
organizations and corporate IT departments are often unable to single-handedly
deliver complete IT solutions. As a result, they are relying on a network of IT
services firms and independent professionals to provide additional capacity as
well as specialized skills and regional expertise. This network provides a
critical link in the IT services delivery process. We believe that, due to the
high level of collaboration and interdependence among professional services
organizations, corporate IT departments and independent IT professionals, the
efficient management of IT services delivery, including the management of
knowledge, resources and projects, has become one of the most significant
problems facing the IT services industry.
THE EMERGENCE OF INTERNET-BASED EXCHANGES FOR E-COMMERCE AND COLLABORATION
The Internet has emerged as a major platform for business by changing the
way companies communicate and share information as well as creating new ways for
conducting commerce. The Internet allows companies to more closely collaborate
with their customers and partners and streamline their operations. Companies can
exchange information, integrate their business processes with those of their
customers and partners, coordinate resources and effectively manage the delivery
of goods and services. In many industries, business-to-business, or B2B, online
exchanges are leveraging the low cost, broad accessibility and ease of use of
the Internet to facilitate the buying and selling of goods and services as well
as reduce transactional costs and inefficiencies. The Gartner Group estimates
that worldwide B2B e-commerce will increase from $145 billion in 1999 to more
than $7 trillion in 2004, of which $2.7 trillion will occur through online
exchanges. We believe that online exchanges are
35
<PAGE>
particularly well-suited for industries that are highly dispersed and
fragmented, have a large number of participants and require significant
collaboration and sharing of information among these participants.
MARKET OPPORTUNITY
To date, the business processes of professional services organizations and
corporate IT departments as well as the interactions among IT services
organizations have been largely unautomated and inefficient. Much of IT services
procurement, project collaboration, workflow management and invoicing is
performed using manual processes, internally-developed applications or solutions
that offer limited functionality. Moreover, these applications are frequently
incompatible with one another and do not allow IT services organizations to take
a centralized approach to managing their business. This often results in the
misallocation and under-utilization of resources, bottlenecks and delays in the
delivery of services and, ultimately, lost revenues.
We believe that competitive pressures to complete complex IT initiatives
rapidly has created a significant demand for solutions that streamline the
delivery of IT services and facilitate business transactions and collaboration
among buyers and suppliers of IT services over the Internet.
THE CHANGEPOINT SOLUTION
Our Web-based software and online exchange are designed to improve and
streamline the delivery of IT services across the IT services supply chain.
Specifically, we designed our solution to:
- efficiently manage the core business processes of IT services
organizations, including the management of new IT engagements and ongoing
projects, the allocation of resources, the sharing of information and
knowledge, invoicing and customer support;
- facilitate collaboration over the Internet between IT services
organizations and their customers and partners by allowing them to
coordinate the management of resources and projects, as well as capture
associated time and expense billing information; and
- effectively source, procure and manage external IT services professionals
over the Internet according to their availability and specific skill sets.
[DIAGRAM]
The diagram consists of a series of four concentric circles. The inner
circle represents the myChangepoint.com online exchange. Within this circle
appears the following text:
"Internet Exchange"
"myChangepoint.com"
The middle region, between the second and third concentric circles,
represents the Changepoint software. Within this area appears the following
text:
"Changepoint Software"
The outer region, between the third and fourth concentric circles,
represents the organizations that use the online exchange, myChangepoint.com,
and the Changepoint software. This area is broken into three sections,
"Professional Services Organizations," "Corporate IT Departments," and
"Online & Traditional Staffing Organizations." Double-sided arrows point between
each of these sections and the inner circle, representing myChangepoint.com.
36
<PAGE>
We believe our solution offers the following specific benefits to
professional services organizations and corporate IT departments:
PROFESSIONAL SERVICES ORGANIZATIONS
INCREASED REVENUES. Our solution enables professional services
organizations to increase revenues through improved creation and management of
new business opportunities, more efficient services delivery and more accurate
financial management. By providing an overall view of available resources, our
solution allows professional services organizations to manage resources more
effectively, which maximizes the number of projects they can service. In
addition, through myChangepoint.com, professional services organizations can
supplement their own staff and access specific skills in order to accelerate the
delivery of IT services. The sophisticated time and expense tracking
capabilities of our solution allow professional services organizations to
accurately record and invoice all billable work. Customers receive and approve
bills faster and with fewer disputes, leading to more complete, timely and
efficient payment for services.
HIGHER UTILIZATION AND RETENTION RATES. Our resource management
capabilities allow professional services organizations to accurately monitor the
availability and skills of their IT services professionals to maximize the
utilization of their staff, increasing both revenues and profits. In addition,
our solution enables professional services organizations to reduce
administrative burdens for IT services professionals, allowing them to focus on
supplying billable IT services. Our solution also allows professional services
organizations to consider the preferences of available IT services personnel and
match individuals with desired assignments, which improves employee satisfaction
and retention.
IMPROVED CUSTOMER SATISFACTION. Through myChangepoint.com, a professional
services organization can keep its customers fully informed and involved in the
IT services delivery process throughout the entire engagement by allowing the
customer to review and approve progress reports, time and expenses, and
invoices. As a result, professional services organizations can build closer
relationships with their customers. In addition, through better allocation of
resources and improved ability to leverage the knowledge within their
organizations and across the IT services supply chain, professional services
organizations are able to rapidly respond to changing customer demands and
improve the delivery of IT services, resulting in higher customer satisfaction.
CORPORATE IT DEPARTMENTS
INCREASED SPEED OF TECHNOLOGY DELIVERY. Our solution reduces the complexity
associated with using multiple IT services suppliers and provides the tools to
efficiently coordinate and manage IT projects. By improving the coordination of
the IT services delivery process across the IT services supply chain, our
solution decreases overall delivery times and increases the likelihood of
success for IT projects. In addition, through myChangepoint.com, a corporate IT
department can search for skilled IT professionals. By matching the demands of
the project with the appropriate skilled personnel, corporate IT departments can
reduce the risk of delayed and incomplete projects.
IMPROVED PRODUCTIVITY AND QUALITY OF WORK. The efficiencies gained by using
our solution enable corporate IT departments to maximize the productivity and
improve the quality of work of each IT project team member and the project team
as a whole. Given the use of technology as a competitive advantage, increasing
productivity and delivering quality work are corporate IT department
imperatives.
ALIGNING IT RESOURCES WITH BUSINESS OBJECTIVES. Our solution enables
corporate IT departments to manage all aspects of the IT services delivery
process. Through improved monitoring of ongoing and pending IT projects,
corporate IT departments and project managers can effectively and strategically
deploy scarce IT services personnel to better meet the organization's business
objectives and priorities.
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<PAGE>
GROWTH STRATEGY
Our objective is to be the leading provider of Web-based solutions for
managing the delivery of IT services. Key elements of our strategy include:
MAINTAIN LEADERSHIP IN PROVIDING WEB-BASED SOLUTIONS TO THE IT SERVICES
INDUSTRY. We focus exclusively on delivering comprehensive solutions to the IT
services industry. As a result, we have developed extensive knowledge and an
in-depth understanding of this market. We plan to continue to improve the
technology and functionality of our Web-based software and online exchange to
respond to the changing needs of the IT services industry. We intend to maintain
our leadership in this market through internal development, strategic
relationships and potential acquisitions of complementary technologies or
businesses.
ESTABLISH MYCHANGEPOINT.COM AS THE LEADING ONLINE EXCHANGE FOR IT
SERVICES. We believe that myChangepoint.com enables the efficient management of
IT services delivery throughout the IT services supply chain by integrating the
business processes of both buyers and suppliers. We intend to devote significant
resources to accelerate the market adoption of myChangepoint.com as the means to
source, procure and manage IT services as well as collaborate and interact with
customers and partners in the delivery of IT services.
LEVERAGE THE NETWORK EFFECT CREATED BY THE CHANGEPOINT SOLUTION. Our
software is designed for and marketed to both the buyers and suppliers of
IT services. Through myChangepoint.com, our customers can extend the
functionality of our software to their customers and partners. Therefore, we
believe that our customers will drive usage of our software and online exchange
among their extensive networks of business partners. We intend to continue to
leverage our relationships with our customers to market our solution to their
customers and partners.
TARGET LARGE IT SERVICES ORGANIZATIONS. We believe that large professional
services organizations and corporate IT departments will increasingly use the
Internet to efficiently source, manage and deliver their services and represent
a significant and growing source of demand for our solution. We also believe
that large IT services organizations provide valuable sales references and
feedback to drive product enhancements. Therefore, we will continue to
aggressively market our solution to these organizations.
CONTINUE TO EXPAND DIRECT AND INDIRECT SALES CHANNELS. We currently sell
our solution primarily through our direct sales force. In addition, through our
strategic relationship with Corio, a leading application service provider, we
also offer our software as an online hosted service. We intend to expand our
direct sales force as well as develop indirect sales channels.
EXPAND INTERNATIONALLY. We believe that a significant opportunity exists to
market our solution internationally. We currently have an office in the United
Kingdom from which we market our solution in Europe. Our software addresses the
complexity of global deployments, including different tax structures and
multiple currencies. In addition, we plan to release our software with support
for multiple languages. We intend to rapidly expand our international sales and
marketing activities.
38
<PAGE>
PRODUCTS
We provide Web-based software and an online exchange that enable IT services
organizations to manage all aspects of the IT services delivery process, both
internally and throughout the entire IT services supply chain. The following
table highlights the key functional elements of our solution.
<TABLE>
<CAPTION>
<S> <C> <C>
PROFESSIONAL SERVICES
FUNCTIONAL CATEGORY ORGANIZATIONS CORPORATE IT DEPARTMENTS
- ------------------------------------------------------------------------------------------------------
Client Relationship Management
OPPORTUNITY/DEMAND MANAGEMENT Sales - Marketing Work Request Management
SERVICES DELIVERY MANAGEMENT Engagements - Projects Engagements - Projects
Tasks - Resources Tasks - Resources
Services Supply Chain Services Supply Chain
Integration Integration
FINANCIAL MANAGEMENT Contracts - Time and Expenses Contracts - Time and Expenses
Invoicing Cross-Charging
SUPPORT MANAGEMENT Customer Support Customer Support - Help Desk
REPORTING AND ANALYSIS Performance Management Performance Management
Revenue Forecasting Budgeting
</TABLE>
Our solution has two main components. The first is our Web-based software
applications, Changepoint for Professional Services Organizations and
Changepoint for Corporate IT, which automate core IT services business
processes. The second is our online exchange, myChangepoint.com, which is
tightly integrated with our software and extends its functionality to
participants in the IT services supply chain that may not be using our software.
CHANGEPOINT FOR PROFESSIONAL SERVICES ORGANIZATIONS
Changepoint for Professional Services Organizations is Web-based software
that enables professional services organizations to manage the business of
delivering IT services. Further, this application connects to myChangepoint.com
over the Internet so that a professional services organization can coordinate
its activities with those of its customers and partners.
The following are the major functional capabilities of Changepoint for
Professional Services Organizations:
OPPORTUNITY MANAGEMENT. Our software provides the tools to automate and
manage the process of marketing and selling professional services. Our customers
are able to manage marketing campaigns, track competitions, align their sales
activities with their delivery capabilities and automate their sales forces.
SERVICES DELIVERY MANAGEMENT. Our software allows our customers to manage
engagements, including deliverables, contract details, staffing, billing rates
and workflow rules. Our software also provides project management capabilities,
including the distribution and tracking of tasks and their status, and is
integrated with Microsoft Project. Professional services organizations can
manage their resources by tracking reported availability and workloads and
enabling personnel searches based on criteria such as skills and availability.
FINANCIAL MANAGEMENT. Our software enables professional services
organizations to record and track time and expense data and create invoices
based on this data and resource billing rates. Billable time and expense data
can be assembled into invoices and routed for approval before delivery to
customers. In addition, our financial management functionality can be integrated
with major financial packages and accounting systems.
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<PAGE>
SUPPORT MANAGEMENT. Our software allows professional services organizations
to automate the process of providing ongoing support to their customers. Our
software provides the tools for managing customer support, including tracking
customer calls and issues, routing problems to the appropriate resources,
tracking IT assets and developing and sharing a knowledge base.
REPORTING AND ANALYSIS. Our software allows management to make better
informed decisions and more accurately forecast revenues by providing extensive
reporting and analysis capabilities.
CHANGEPOINT FOR CORPORATE IT
Changepoint for Corporate IT is Web-based software that enables a corporate
IT department to manage the complete process of delivering internal IT services.
Further, this application connects to myChangepoint.com over the Internet so
that a corporate IT department can interoperate and work with professional
services organizations and external IT contract staff in the same manner as with
internal staff.
The following are the major functional capabilities of Changepoint for
Corporate IT:
DEMAND MANAGEMENT. Our software provides the tools to manage the
relationship between a corporate IT department and other departments within the
organization. This includes contact management, the scheduling of work and
activities, and prioritization of corporate IT department service requests.
SERVICES DELIVERY MANAGEMENT. Our software allows our customers to manage
internal engagements, including deliverables, contract details, staffing,
billing rates and workflow rules. Our software also provides project management
capabilities, including the distribution and tracking of tasks and their status,
and is integrated with Microsoft Project. Corporate IT departments can manage
their resources by tracking reported availability and workloads, and enabling
personnel searches based on criteria such as skills and availability. Our
solution also allows corporate IT departments to store and retrieve departmental
knowledge.
FINANCIAL MANAGEMENT. Our software enables corporate IT departments to
capture and track time and expense data and create invoices or cross charges
based on this data and resource billing rates. Billable time and expense data
can be assembled into departmental cross charges either by invoices generated by
Changepoint for Corporate IT or by integration to common back office accounting
systems or popular financial packages.
SUPPORT MANAGEMENT. Our software allows corporate IT departments to
automate the process of providing ongoing support within the organization. Our
software also provides the tools for managing internal systems support,
including tracking support calls and issues, routing problems to the appropriate
resources, tracking IT assets and developing and sharing a knowledge base.
REPORTING AND ANALYSIS. Our software allows management to make better
informed decisions and more accurately budget by providing extensive reporting
and analysis capabilities.
MYCHANGEPOINT.COM
myChangepoint.com is an online exchange that allows professional services
organizations and corporate IT departments to integrate their business processes
in the delivery of IT services. Through myChangepoint.com, IT services
organizations can extend the functionality of our software to their customers
and partners, as well as external IT contract staff by allowing them to receive
work assignments, report status and submit time and expenses through an
easy-to-use, browser-based interface.
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myChangepoint.com provides the following specific capabilities:
- coordinating the management of resources and projects among buyers and
sellers of IT services;
- managing time and expense reporting and the associated approval process
and invoicing; and
- sourcing and procuring external IT services personnel based on required
skills and availability.
CUSTOMERS
To date, over 75 professional services organizations and corporate IT
departments have purchased our software. The following is a list of our
customers:
By integrating business processes between IT services organizations,
myChangepoint.com enables our customers to build more flexible and collaborative
business relationships.
<TABLE>
<CAPTION>
PROFESSIONAL SERVICES ORGANIZATIONS
<S> <C> <C>
Acceleron Solution El Camino Resources OpenText
Algorithmics Emerald Solutions Patricia Seybold Group
Anderson Financial Network EXE Technologies Professional Development Group
Apex IT Florida Manufacturing Promethean System Consultants
AVCOM Technology Center QAD
Barnhill and Associates Geotrain Corporation Rhino Productions
Brokercom Greenwich Technology Partners Selectica
Capita Tech InfoAdvantage Softrax
Castek Inteq Solution Technology
Catalyst Solutions Internet Frontier Spectra Securities Software
Citria Interwoven Steeves and Associates
Commercialware Ironside Technologies StrataSys
Computer Methods International JPH International SunGard Planning Solutions
Concept Five Technologies Lightbridge SYMIX
Concrete Media Longview Solutions Synergy International
Corio Lotus Development Timberline Software
CYBERplex Mortice Kern Systems Trimax Retail Systems
Delano Technology Motive Communications Xerox
Dell Computer Navigator Systems
Digital Medical Systems Netera
CORPORATE IT DEPARTMENTS
Abbott Laboratories Canam Manac Howmet Corporation Integris
Baltimore Gas & Electric Canmet Health
BellSouth Telecommunications Chesapeake Display and IBM -- Foremost Insurance
California Department of Packaging L.R. Nelson Corp.
Transportation Conseco (Greentree) Financial Manulife Financial
Canada Life Financial Electricidad De Caracas Ministry of Transportation
Canadian National Railway FedEx - Custom Critical Revenue Canada
Canadian Tire Guardian Life Insurance Toronto Stock Exchange
</TABLE>
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The following case studies illustrate how selected customers have used our
software products to address their business needs.
GUARDIAN LIFE INSURANCE
Guardian Life Insurance is one of the largest mutual life insurance
companies in the United States, offering a broad range of insurance and
financial products.
BUSINESS CHALLENGE. Guardian's IT department treats each of Guardian's
business units as a client that is billed for IT initiatives the department
undertakes on its behalf. Guardian currently has over 400 IT personnel and
augments its services delivery capacity by using a variety of professional
services organizations, which provide over 200 additional IT professionals.
Guardian's IT department must deliver detailed cost reports for all IT projects
to ensure accurate billing and to provide its internal clients with a view of
how they are spending their IT budgets. As Guardian's IT needs have increased in
recent years, Guardian required a comprehensive solution to effectively track
and centrally manage and coordinate the delivery of IT services by its IT
department and external IT staff.
SOLUTION. Guardian chose Changepoint for Corporate IT to manage the
operations of its IT department. Our solution enables Guardian's IT department
to reduce the complexity associated with using multiple IT services suppliers
and provides the tools to efficiently coordinate and centrally manage activities
related to all IT projects. Through improved monitoring of all IT services
activities, Guardian can effectively and strategically deploy its IT services
personnel to better meet the organization's business initiatives. In addition,
the integrated invoicing or cross-charging capabilities of our software
automates the process of inter-office billing for IT services and removes the
administrative burden of manually performing this task. Contractor management is
also greatly improved as Guardian can now monitor and track contractor time and
expenses and payment with the same efficiency as it does its own staff.
QAD
QAD is a provider of enterprise resource planning and e-business software
with over 1,600 employees in 21 countries.
BUSINESS CHALLENGE. QAD needed solutions to address the challenges of both
its IT department and its professional services division, which services
external customers. Specifically, QAD's IT department needed an automated
solution to manage and streamline its internal IT services delivery across 13
countries. The company wanted to improve the consistency of its global IT
solution delivery and resource management effectiveness and more accurately
align internal IT efforts with business priorities. Further, QAD's professional
services division, with approximately 400 IT professionals, was in need of a
solution that could scale to meet increased demands as a result of significant
growth and that would enable QAD to effectively control the core processes of
its services delivery business.
SOLUTION. QAD chose Changepoint for Corporate IT to manage its internal IT
services delivery process. Our solution has enabled QAD's corporate IT
department to improve the consistency in quality of service delivery through
more effective project management and reporting and increased resource
utilization. With our software, QAD now has the reporting and analytic
capabilities to ensure that its internal IT efforts are aligned with its
strategic initiatives. QAD is also using Changepoint for Professional Services
Organizations to manage its entire professional services division. Our solution
has resulted in more efficient management of business processes in QAD's
services delivery, yielding greater margins and improved utilization of its IT
professionals through more accurate monitoring and placement.
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CYBERPLEX
CYBERplex is a professional services organization focused on providing
Internet and e-commerce solutions.
BUSINESS CHALLENGE. As a fast-growing professional services organization,
CYBERplex faced the challenge of effectively managing its ongoing engagements
and pipeline of upcoming projects as well as accurately tracking its project
plans, time and expense, and invoicing. CYBERplex's internally-developed systems
lacked the functionality and scalability required by the organization's rapid
growth. As a result, CYBERplex sought an integrated solution to automate and
effectively manage its entire IT services delivery business.
SOLUTION. CYBERplex chose to deploy Changepoint for Professional Services
Organizations to automate its entire IT service delivery business. Our solution
enables CYBERplex to better control the core processes of its professional
services business. Specifically, our software provides improved opportunity
creation and management, better resource management, enhanced services delivery
processes and more accurate time and expense capture and invoicing. Changepoint
has allowed CYBERplex to benefit from a significant improvement in business
performance across the organization.
INTERWOVEN
Interwoven is a provider of content management software and services for
corporate Web sites, enabling electronic commerce, customer relationship
management, supply chain management and knowledge management for Web leaders and
Fortune 1000 companies moving to the Web.
BUSINESS CHALLENGE. Interwoven needed an integrated solution that could
scale to meet the demands for its services as a result of rapid growth in the
market for its products. Interwoven needed to manage its decentralized workforce
and effectively control and coordinate the business processes and activities
related to its professional services delivery.
SOLUTION. Interwoven deployed Changepoint for Professional Services
Organizations to manage its entire professional services delivery process. By
automating field operations, our solution, integrated with Softrax's operations
and financial software, provides Interwoven with the critical centralized
management functions for its workforce. In addition, our solution enables
Interwoven to implement a standard engagement management process. Interwoven can
now instantly search and match appropriately skilled staff with specific
assignments, efficiently deploy projects, capture time and expense data and
generate accurate invoices more quickly than before.
STRATEGIC RELATIONSHIPS
We believe that strategic relationships are important for increasing our
market presence and expanding our business. To date, we have entered into the
following significant strategic relationships:
CORIO. In December 1999, we signed a five-year agreement with Corio, a
leading application service provider, under which Corio will market, sell and
host our software on its servers and pay us a percentage of the hosting fees
charged to its customers. This arrangement allows customers to access our
software from Corio's servers without any supporting software or infrastructure
of their own. Our agreement contains a one-year joint marketing provision under
which Changepoint and Corio will exclusively promote each others' solutions. To
date, Corio has sold our software as part of its applications suite to
two customers.
SKILLSVILLAGE. In February 2000, we entered into a one-year, renewable
agreement with SkillsVillage, an online IT staffing exchange, to provide our
customers with access to the SkillsVillage recruiting network. Under this
arrangement, SkillsVillage pays us a transaction fee each time a staffing
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request posted by one of our customers is fulfilled through the SkillsVillage
network. Our customers use myChangepoint.com to access the SkillsVillage
network.
In the future, we plan to enter into similar agreements with other
recruiting services and staffing organizations in order to provide our customers
with the broadest possible personnel pool in which to search for appropriately
skilled IT services professionals.
CLIENT SERVICES AND CUSTOMER SUPPORT
We believe that high quality client services and customer support are
critical to ongoing customer satisfaction. Our client services group provides
the professional services necessary to successfully implement our software.
These services include project management, process consulting, customization,
technical implementation and integration as well as training. Our client
services group is located in offices in Chicago, Illinois, Newton,
Massachusetts, Toronto, Ontario and London, England. We will continue to expand
the client services group to keep pace with our increasing sales and customer
base.
Our customer support group provides maintenance and technical support to our
customers. Our customers have the option of purchasing a maintenance agreement,
which is typically a one-year renewable contract, that entitles them to software
updates and technical support, including telephone support and twenty-four hour
access to the support area of our Web site.
SALES AND MARKETING
To date, we have primarily sold our software through our direct sales force
located in the United States, Canada and the United Kingdom. Our sales force
includes both sales and pre-sales technical staff who are responsible for
evaluating customer needs and recommending the product and product features that
will most benefit our customers. In addition, we have developed indirect sales
channels through relationships with Corio and Softrax, an independent software
vendor. Further, we are currently building a sales force that will focus
specifically on developing additional indirect sales relationships.
In December 1999, we entered into a services agreement with Protege
Software, under which Protege has agreed to provide administrative and sales
services through July 31, 2001, in order to establish our European direct sales
presence. To date, Protege has assisted us with establishing our United Kingdom
office and has commenced sales efforts for us in Europe.
We direct our marketing efforts towards promoting our products and services,
creating market and brand awareness, and generating sales opportunities. Our
marketing initiatives include conducting both live and Internet-based seminars,
participating in industry trade shows and conferences, advertising through print
and Web media, and direct marketing using e-mail and traditional mailers.
Further, we engage in extensive public relations efforts designed to develop
relationships with members of trade and business press and industry analysts. We
also conduct joint marketing campaigns with strategic partners such as Corio.
COMPETITION
The market for our software is highly competitive and constantly changing,
and we believe that it will become increasingly competitive in the foreseeable
future. The market is evolving rapidly from both a commercial and technological
perspective. We believe that the principal competitive factors affecting our
market are:
- product features and functionality;
- product quality and performance;
- ease of use;
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- breadth and depth of the offered solution;
- a significant base of reference customers;
- customer service and support; and
- an in-depth understanding and knowledge of the IT services industry.
We believe that we compete favorably with respect to these factors.
We currently, and will for the foreseeable future, face competition from
many sources, including developers of software used to automate professional
services and manage projects, relationships with contractors and enterprise
resources. Professional services automation developers provide the most direct
competition because their software also automates and integrates aspects of the
IT services business. We compete with developers of software used to manage
projects, relationships with contractors and enterprise resources since these
products each seek to automate at least one aspect of the IT services business.
We also face competition from staffing companies and time and expense reporting
software vendors. Many of our potential customers have the ability to develop
their own solutions, and may do so rather than purchasing our products.
Some of our competitors offer products that are designed to address the
needs of professional services organizations. Other competitors offer products
to address the needs of corporate IT departments. We do not believe that any of
our competitors provide solutions that adequately address the needs of both
buyers and suppliers of IT services.
RESEARCH AND DEVELOPMENT
We believe that our future success depends in large part on our ability to
maintain and enhance our core technology and product functionality, and to
develop and exploit new technologies and functionality. In order to do so, it is
important that we recruit highly skilled software developers. We have
established a process for product development that defines and addresses the
activities required to successfully bring product concepts and development
projects to market. This process incorporates feedback from our sales, marketing
and business development efforts into the development cycle to allow for faster
releases of new products. To date, we have devoted significant resources to our
product development efforts and intend to continue to do so in the foreseeable
future.
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 or registered copyrights. However, we will assess appropriate occasions
for seeking additional intellectual property protections for those aspects of
our technology that we believe constitute innovations providing significant
competitive advantages. Such future applications may or may not result in the
registration of patents, 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
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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 rights. 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 April 10, 2000, we had 199 full-time employees, including 67 in
research and development, 66 in sales and marketing, 50 in client services and
customer support and 16 in general and administrative. None of our employees is
covered by collective bargaining agreements and we have never experienced a
strike or work stoppage. We believe our relations with our employees are good.
FACILITIES
Our corporate headquarters are located in Richmond Hill, Ontario, where we
lease approximately 27,000 square feet. The lease for the principal portion of
our space expires on September 30, 2000. In February 2000, we entered into a
10-year lease for approximately 35,000 square feet for a new corporate
headquarters in Richmond Hill, Ontario. We also lease office space in Phoenix,
Arizona; Los Angeles and Campbell, California; Chicago, Illinois; Newton,
Massachusetts; Livonia, Michigan; Dallas and Houston, Texas; and London,
England. We do not own any real property.
LEGAL PROCEEDINGS
We are not currently party to any material legal proceedings, nor are we
aware of any proceedings that are contemplated.
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MANAGEMENT
OFFICERS AND DIRECTORS
The following table sets forth the name, age and position with Changepoint
for each of our officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
OFFICERS
Gerald W. Smith........................... 35 Chairman, President and Chief Executive
Officer
John A. Anhang............................ 39 Chief Financial Officer and Vice
President, Finance and Administration
Randall N. Remme.......................... 36 Chief Technology Officer and Vice
President, Product Development
L. Geoffrey Joynt......................... 37 Executive Vice President, Sales
P. Douglas Cummings....................... 41 Vice President, Global Accounts
Harvey Gordon............................. 51 Vice President, Business Development
Paul Lupinacci............................ 35 Vice President, Product Support
Richard P. Moreau......................... 44 Vice President, Client Services
Charles E. Tatham......................... 31 Vice President, Marketing
DIRECTORS
Bernard M. Goldsmith...................... 56 Director
David C. Wetmore(1)....................... 51 Director
Robert J. Sywolski(2)..................... 62 Director
J. Ian Giffen(1).......................... 42 Director
David W. Ferguson(1)(2)................... 40 Director
Howard T. Gwin(2)......................... 41 Director
</TABLE>
- ------------------------
(1) Member of the audit committee
(2) Member of the compensation committee
OFFICERS
GERALD W. SMITH has been our Chairman since October 1996 and our President
and Chief Executive Officer since July 1994. From October 1992 to July 1994,
Mr. Smith was our Vice President of Consulting Services. Mr. Smith is a licensed
Professional Engineer and has a bachelor of science degree in mechanical
engineering from the University of Toronto and a master of business
administration degree from McMaster University.
JOHN A. ANHANG has been our Chief Financial Officer and Vice President of
Finance and Administration since January 1997, and has been our Corporate
Secretary since December 1999. From March 1995 to January 1997, Mr. Anhang was
Vice President and Chief Financial Officer at Footprint Software, a provider of
retail delivery systems for financial institutions. From January 1994 to
March 1995, Mr. Anhang was a consultant at Cole and Partners, a corporate
finance consulting firm. Mr. Anhang is a licensed Professional Engineer and has
a bachelor of science degree in chemical
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engineering from Yale University and a master of business administration degree
from the University of Western Ontario.
RANDALL N. REMME has been our Vice President of Product Development since
1993 and our Chief Technology Officer since September 1998. Since joining
Changepoint, Mr. Remme has been, and continues to be, responsible for the design
and architecture of all aspects of our solution.
L. GEOFFREY JOYNT has been our Executive Vice President of Sales since
January 2000. From July 1998 to December 1999, Mr. Joynt was Vice President of
Sales at PowerCerv, a vendor of enterprise resource planning software. From
July 1995 to June 1998, Mr. Joynt was a Regional Vice President at Epicor
Software, a vendor of enterprise resource planning software. From July 1994 to
June 1995, Mr. Joynt served as an Account Executive at Epicor. Mr. Joynt has a
bachelor of arts degree in economics from York University.
P. DOUGLAS CUMMINGS has been our Vice President of Global Accounts since
December 1999. From July 1998 to November 1999, Mr. Cummings served as Vice
President of Operations Management Services at Compaq Canada, a provider of
information technology products and software, and from August 1997 to
June 1998, was Director of Major Account Sales at Compaq Canada. From
April 1997 to August 1997, Mr. Cummings was Acting General Manager at Tandem
Computers Canada, a provider of specialized information technology products and
services, and, from October 1994 to April 1997, was Vice President of Sales and
Operations at Tandem Computers Canada. Mr. Cummings has a bachelor of science
degree from the University of Western Ontario.
HARVEY GORDON has been our Vice President of Business Development since
November 1999. From January 1997 to October 1999, Mr. Gordon was Vice President
of Business Development at Algorithmics, a developer of risk management software
for financial institutions. From February 1996 to December 1996, Mr. Gordon was
Vice President of Sales and Marketing at Algorithmics. From February 1994 to
January 1996, Mr. Gordon was Senior Vice President of Sales and Marketing at
Minicom Data, a developer and vendor of real estate and asset management
software. Mr. Gordon has both a bachelor of science degree in engineering
science and a master of science degree in computer science from the University
of Toronto and has completed the Business Management Development program at
Bishop's University.
PAUL LUPINACCI has been our Vice President of Product Support since
April 1998. From May 1997 to April 1998, Mr. Lupinacci served as our Vice
President of Business Partners. From April 1995 to April 1997, Mr. Lupinacci
served as our Director of Implementation. Mr. Lupinacci is a licensed
Professional Engineer and has a bachelor of applied science degree from the
University of Toronto and a master of business administration degree from York
University.
RICHARD P. MOREAU has been our Vice President of Client Services since
October 1997. From October 1995 to October 1997, Mr. Moreau served as our
Director of Client Services. From March 1995 to October 1995, Mr. Moreau served
as a consultant to Changepoint. Prior to that, Mr. Moreau served in a variety of
positions, including System Development Supervisor, at Ontario Hydro, an
electric power generation and distribution company. Mr. Moreau has a bachelor of
engineering and management degree from McMaster University and a master of
business administration degree from York University.
CHARLES E. TATHAM has been our Vice President of Marketing since
September 1996. From May 1995 to August 1996, Mr. Tatham served as Business
Partner Sales Manager at Lotus, a software development company and, prior to
that, Mr. Tatham served in various technical, marketing and sales capacities at
Lotus. Mr. Tatham has a bachelor of science degree in psychology from the
University of Toronto.
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DIRECTORS
BERNARD M. GOLDSMITH has served as one of our directors since
November 1999. Since 1987, Mr. Goldsmith has been a Managing Director of Updata
Capital, an investment banking firm. Mr. Goldsmith is a director of Compuware
Corporation, a consulting and systems software firm, a director of Dendrite
International, a supplier of customer relationship management software and
services, and a director of Astea International, a provider of field services
software and services. Mr. Goldsmith has a bachelor of arts degree from Rutgers
University.
DAVID C. WETMORE has served as one of our directors since November 1999.
Since 1995, Mr. Wetmore has been a Managing Director of Updata Capital, and
prior to that he served as Chief Operating Officer of Legent Corporation, a
provider of system software and services. Mr. Wetmore is a director of
CareerBuilder an Internet recruiting company, a director of Walker Interactive
Systems, a developer and provider of business systems software and services, and
a director of the Nationwide Family of Funds, a mutual fund company.
Mr. Wetmore has a bachelor of science degree from the University of Notre Dame
and a masters of business administration from Ohio State University, and is a
member of the American Institute of Certified Public Accountants.
ROBERT J. SYWOLSKI has served as one of our directors since November 1999.
Since March 2000, Mr. Sywolski has been the Chief Executive Officer of
Blackbaud, a developer of fund-raising and accounting applications for
not-for-profit organizations. From February 1998 to March 2000, Mr. Sywolski was
a Managing Member of JMI Associates III, the general partner of JMI Equity Fund,
a private equity fund. From August 1995 to January 1998, Mr. Sywolski was Chief
Executive Officer at Huthwaite, a consulting company. Prior to that,
Mr. Sywolski served as Chief Executive Officer at Business Mail Express, a
company specializing in high-volume corporate mailings. Mr. Sywolski has a
bachelor of science degree in electrical engineering from Widener University and
a masters of business administration degree from Long Island University.
J. IAN GIFFEN has served as one of our directors since September 1999. 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 Vice President and Chief Financial Officer of
Algorithmics. From January 1992 to January 1996, Mr. Giffen was Vice President
and Chief Financial Officer at Alias Research, a developer of 3D graphics
software. Mr. Giffen is a director of Macromedia, a developer of software for
Web publishing, multimedia and graphics, a director of Delano Technology, a
producer of Internet communications software, and a director of MGI Software, a
producer of digital imaging software. Mr. Giffen also is a consultant to XDL
Capital, a private venture capital firm. Mr. Giffen is a Chartered Accountant
and has a bachelor of arts degree in business administration from the University
of Strathclyde.
DAVID W. FERGUSON has served as one of our directors since October 1996.
Since July 1994, Mr. Ferguson has been a Managing Director at Vengrowth Capital
Management, a private venture capital firm. Mr. Ferguson is a director of OCI
Communications, a competitive local exchange carrier, and a director of Andaurex
Industries, a project engineering firm. Mr. Ferguson is a Chartered Accountant
and has a bachelor of commerce degree from the University of Manitoba and a
master of business administration degree from the University of Western Ontario.
HOWARD T. GWIN has served as one of our directors since March 2000. Since
January 2000, Mr. Gwin has been President and Chief Operating Officer of Solect
Technology Group, a provider of billing, customer care and service management
software. From November 1994 to January 2000, Mr. Gwin held a variety of
positions at Peoplesoft, a provider of enterprise application software,
including Managing Director, Europe, Senior Vice President, International and
Executive Vice President, Worldwide Operations. Mr. Gwin has a bachelor of
business administration from Simon Fraser University.
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BOARD OF DIRECTORS
Our board of directors is currently comprised of seven persons. Pursuant to
our charter documents, the size of the board or directors may range from a
minimum of one to a maximum of 12 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 the maximum of 12 persons, without the prior consent of our
shareholders. Each director is elected at the annual meeting of shareholders to
serve for a stated term which will expire no later than the third annual meeting
following the election. In accordance with the provisions of the BUSINESS
CORPORATIONS ACT (Ontario), our directors may appoint an additional director or
directors between meetings of our shareholders if, after such appointment, the
total number of directors would not exceed one and one-third times the number of
directors required to have been elected at the last annual meeting of
shareholders.
Because Changepoint is an Ontario corporation, a majority of our board of
directors as well as a majority of the members of each committee of our board of
directors must be Canadian residents.
Messrs. Goldsmith, Sywolski and Ferguson were appointed as directors
pursuant to the terms of a shareholders agreement in connection with our prior
financings. The shareholders agreement terminates upon the closing of this
offering.
BOARD COMMITTEES
The board of directors has established an audit committee and a compensation
committee.
AUDIT COMMITTEE. Our audit committee reviews and monitors our corporate
accounting and reporting practices, as well as our financial and accounting
controls. Our audit committee oversees our internal and external audits,
including the results and scope of the annual audit and other services provided
by our independent auditors and our compliance with legal matters that have a
significant impact on our financial reports. The audit committee reports to our
board of directors on our financial statements prior to approval by our board of
directors. In addition, the audit committee is responsible for reviewing and
recommending the appointment of our independent auditors. The current members of
the audit committee are Messrs. Wetmore, Giffen and Ferguson.
COMPENSATION COMMITTEE. Our compensation committee reviews and makes
recommendations to the board regarding all forms of compensation provided to our
executive officers and directors, including stock compensation and loans. The
current members of the compensation committee are Messrs. Gwin, Sywolski and
Ferguson.
COMPENSATION OF DIRECTORS
Our by-laws allow us to compensate our directors. We do not currently
compensate our directors with cash fees, but they are reimbursed for
out-of-pocket expenses incurred in connection with meetings of the board of
directors or its committees. Directors are also eligible to participate in the
1999 Stock Option Plan. See "1999 Stock Option Plan."
In December 1999, Messrs. Goldsmith, Wetmore, Sywolski, Giffen and Ferguson
each received options to purchase 30,000 common shares for their services as
directors. In March 2000, Mr. Gwin received options to purchase 30,000 common
shares for his services as a director. We granted these options under the 1999
Stock Option Plan. Each option was fully vested when granted and expires ten
years from the date of grant. Options granted to Messrs. Goldsmith, Wetmore,
Sywolski, Giffen and Ferguson have an exercise price of $1.15. Options granted
to Mr. Gwin have an exercise price of $10.
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INDEMNIFICATION
In accordance with the BUSINESS CORPORATIONS ACT (Ontario), our by-laws
contain provisions relating to the limitation of liability and indemnification
of our directors and officers. Our by-laws require us to indemnify our present
and former directors and officers, or any person who acts or acted at our
request as a director or officer of another company of which we are or were a
shareholder or creditor. We will indemnify the director or officer against all
amounts paid to settle or satisfy a judgment reasonably incurred in respect of
any action or proceeding to which the director or officer is made a party by
reason of being or having been such a director or officer if:
- he acted honestly and in good faith with a view to our best interests; and
- in the case of a criminal or administrative action or proceeding that is
enforced by a monetary penalty, he had reasonable grounds for believing
that his conduct was lawful.
Further, we maintain directors' and officers' liability insurance which insures
our directors and officers against liability incurred by, arising from or
against them for certain of their acts, errors or omissions.
EXECUTIVE COMPENSATION AWARDED IN LAST FISCAL YEAR
The following table sets forth the actual compensation paid or awarded to
our named executive officers, who include our chief executive officer and our
executive officers who earned more than $100,000, during the fiscal year ended
July 31, 1999. Based on these criteria, our named executive officers are Gerald
Smith, our Chairman, President and Chief Executive Officer and John Link, who
was our Vice President of Sales during the fiscal year ended July 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
------------------- UNDERLYING
SALARY BONUS OPTIONS
NAME AND PRINCIPAL POSITION ($) ($) (#)
- --------------------------- -------- -------- ------------
<S> <C> <C> <C>
Gerald Smith, Chairman, President and Chief Executive
Officer................................................... $72,831 $38,807 --
John Link, Vice President of Sales.......................... $76,396 $56,694 --
</TABLE>
During the fiscal year ended July 31, 1999, the aggregate compensation paid
to all of our officers and directors as a group, for services in all capacities,
was $676,160, based on currency exchange rates during the fiscal year.
OPTION GRANT IN LAST FISCAL YEAR
There were no options granted to the named executive officers during the
fiscal year ended July 31, 1999.
STOCK OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
There were no options exercised by the named executive officers during the
fiscal year ended July 31, 1999. At July 31, 1999, John Link held exercisable
options to acquire 33,333 common shares and unexercisable options to acquire
66,667 common shares. The value of John Link's exercisable options was $9,955,
and the value of his unexercisable options was $19,911. Gerald Smith did not own
any options at July 31, 1999.
51
<PAGE>
OPTIONS OWNED BY OFFICERS AND DIRECTORS
As of April 10, 2000, our officers and directors owned options entitling
them to purchase 976,250 of our common shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION PROGRAM
With the exception of Mr. Smith, who was a member of the compensation
committee until April 3, 2000, no member of the compensation committee is or has
been an officer or employee of ours. All decisions regarding the compensation of
our executive officers for the fiscal year ended July 31, 1999 were made by the
compensation committee, except that Mr. Smith did not participate in
deliberations or decisions regarding his own compensation. None of our executive
officers serves as a member of the board of directors or compensation committee
of any other entity that has one or more executive officers serving as a member
of our board of directors or compensation committee.
EMPLOYMENT AGREEMENTS
We executed an offer letter with John Link, who was our Vice President of
Sales during the fiscal year ended July 31, 1999. This letter, effective
April 1998, established Mr. Link's initial base salary at Cdn$120,000
(approximately $79,500). In the fiscal year ended July 31, 1999, Mr. Link
received total compensation, consisting of base salary and bonus, of
approximately Cdn$201,000 (approximately $133,000).
We do not have an employment agreement with Gerald Smith.
EMPLOYEE STOCK OPTION PLANS
1997 STOCK OPTION PLAN
Our board of directors adopted the 1997 Stock Option Plan in August 1997.
The 1997 Stock Option Plan permits us to grant stock options to our full-time
employees in good standing. Directors and others, who are not full-time
employees, are not eligible to participate under this plan. The 1997 Stock
Option Plan allows for the issuance of up to 1,500,000 common shares. As of
April 10, 2000, options to purchase 678,860 shares have been granted to
employees under the 1997 Stock Option Plan, of which 219,776 common shares held
by former employees have been cancelled and options to purchase 1,040,916 common
shares remain available for grant. No options have been granted under the 1997
Stock Option Plan since September 1998.
The 1997 Stock Option Plan is interpreted and administered by our board of
directors. Subject to the provisions of the plan, our board of directors selects
the individuals eligible to receive awards and determines the terms and
conditions of the awards granted.
An optionee's rights under the 1997 Stock Option Plan are not transferable
or assignable. An optionee therefore may not transfer, assign, pledge or dispose
of or encumber any of the options received by him or her under this plan.
The exercise price of options granted under the 1997 Stock Option Plan is
determined by our board of directors. Options typically vest according to a
schedule. In most cases, vesting occurs over three years, and terminates five
years from the date of grant. Upon the exercise of options, the option exercise
price must be paid in full in cash.
In the event of a reorganization or merger or sale or lease of all or
substantially all of our assets, regardless of whether we are the surviving
entity, each option granted under the 1997 Stock Option Plan will be adjusted to
apply to the securities that a holder of the common shares underlying each
option would have been entitled to under the terms of the reorganization, merger
or sale or lease of all or substantially all of our assets.
52
<PAGE>
1999 STOCK OPTION PLAN
Our board of directors and shareholders adopted the 1999 Stock Option Plan,
effective August 1, 1999. The 1999 Stock Option Plan permits us to grant
incentive stock options and non-qualified stock options. These grants may be
made to our directors, officers, employees and consultants. The 1999 Stock
Option Plan allows for the issuance of up to 4,500,000 common shares. As of
April 10, 2000, options to purchase 2,687,108 common shares have been granted to
directors, employees and Protege Virtual Management Limited under the 1999 Stock
Option Plan, of which 178,125 held by former employees have been cancelled, and
options to purchase 1,991,017 common shares remain available for grant.
The 1999 Stock Option Plan is interpreted and administered by our board of
directors. Subject to the provisions of the plan, our board of directors selects
the individuals eligible to receive awards, determines the terms and conditions
of the awards granted, including the number of common shares covered by each
option and the time or times when options will be granted and exercisable. An
optionee's rights under the 1999 Stock Option Plan are not transferable or
assignable. An optionee therefore may not transfer, assign, pledge or dispose of
or encumber any of the options received by him or her under this plan.
The exercise price of options granted under the 1999 Stock Option Plan is
determined by our board of directors. Under current law, incentive stock options
and options intended to qualify as performance-based compensation under
Section 162(m) of the Internal Revenue Code of 1986, as amended, may not be
granted at an exercise price less than the fair market value of the common
shares on the date of grant, or less than 110% of the fair market value in the
case of incentive stock options granted to optionees holding more than 10% of
the voting power of outstanding capital stock. Similarly, under this plan,
non-qualified options may not be granted at prices less than the fair market
value of the underlying common shares on the date of grant. Options typically
are subject to vesting schedules and terminate ten years from the date of grant,
unless otherwise stipulated by our board of directors. However, an incentive
stock option granted to an optionee holding more than 10% of the voting power of
outstanding capital stock must terminate within five years from the date of
grant. Upon the exercise of options, the option exercise price must be paid in
full in cash or in an alternative manner approved by our board of directors.
The 1999 Stock Option Plan provides that in the event of any capital
reorganization, reclassification, subdivision or consolidation of our capital
stock, or any merger or amalgamation of us with another corporation, a condition
of that transaction will be that the optionee will have the right to purchase
the number of shares of stock or other securities being exchanged for the number
of common shares that the optionee would have had the right to purchase upon
exercising his or her option had the transaction not taken place.
OTHER STOCK OPTION GRANTS
Prior to the adoption of our 1999 Stock Option Plan, we also granted options
from time to time to our directors and employees under individual option
agreements. Under these agreements, we have granted options to purchase 912,953
of our common shares.
Each agreement evidences an option to purchase the number of our common
shares set forth in the agreement at a designated exercise price. These options
typically vest according to a schedule, although under some grants, the option
vests on the execution date of the agreement. These options generally terminate
five years from the date of grant. Upon exercising an option or a portion of an
option, the option exercise price must be paid in full in cash. Neither the
option nor any of the rights granted to the optionee under any of these
agreements is transferable.
53
<PAGE>
Each agreement provides that in the event of any capital reorganization,
reclassification, subdivision or consolidation of our capital stock, or any
merger or amalgamation of us with another corporation, a condition of that
transaction will be that the optionee will have the right to purchase the number
of shares of stock or other securities being exchanged for the number of common
shares that the optionee would have had the right to purchase upon exercising
his or her option had the transaction not taken place.
EMPLOYEE STOCK PURCHASE PLAN
Our board of directors and shareholders adopted an Employee Stock Purchase
Plan, effective upon the closing of this offering. Under the plan, our employees
can subscribe through payroll withholdings to purchase common shares from our
treasury at 85% of the lesser of: (1) the fair market value of the common shares
on the first business day of the purchase period, and (2) the fair market value
of the common shares on the purchase date. An aggregate 1,500,000 common shares
have been reserved for purchase under the plan, subject to adjustments in the
event of stock dividends, stock splits, combinations of shares, or other similar
changes in our capitalization.
TRANSACTIONS WITH RELATED PARTIES
FINANCINGS
On November 3, 1997, we issued 2,000,000 units for net proceeds of
Cdn$4.0 million (approximately $2.8 million). Each unit consisted of 1.5 common
shares of the Company and one option to purchase 0.2648 additional common shares
without further payment, exercisable if we did not complete an initial public
offering or sale of our business by November 3, 1999. Pursuant to this offering,
Vengrowth Capital Management, Inc. purchased 1,500,000 common shares and
1,000,000 options. On November 3, 1999, these options were exercised and
264,707 common shares were issued. David Ferguson, one of our directors, is a
managing director of Vengrowth.
On July 31, 1999, we raised Cdn$6.4 (approximately $4.2) million, net of
offering expenses, through an initial private placement of Class A redeemable
convertible preferred shares. Pursuant to this initial offering, Vengrowth
Capital Management, Inc. purchased 2,020,408 Class A redeemable convertible
preferred shares. David Ferguson, one of our directors, is a managing director
of Vengrowth.
On October 8, 1999, we raised Cdn$4.6 (approximately $3.1) million, net of
offering expenses, through a second private placement of Class A redeemable
convertible preferred shares. Pursuant to this second offering, two of our
directors, Bernard Goldsmith and David Wetmore, purchased 414,001 and 246,636
Class A redeemable convertible preferred shares, respectively, and JMI Equity
Fund, L.P. purchased 2,448,980 Class A redeemable convertible preferred shares.
Robert Sywolski, one of our directors, is a general partner of JMI.
LOANS TO OFFICERS
In 1997, we loaned Cdn$100,000 (approximately $69,000) to Randall Remme, our
Chief Technology Officer and Vice President, Product Development, at an interest
rate of 6% per annum. Mr. Remme repaid this loan on July 30, 1999.
In August 1999, we loaned Cdn$250,000 (approximately $170,000) to Gerald
Smith, our Chairman, President and Chief Executive Officer at an interest rate
of 6% per annum. Mr. Smith repaid this loan on November 30, 1999.
54
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information about the beneficial ownership of
our outstanding common shares on April 10, 2000, by:
- each of the named executive officers;
- each of our directors;
- each person or entity who is known by us to own beneficially more than
five percent of our common shares; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes any common shares as
to which a person or entity has sole or shared voting power or investment power
and any common shares as to which the person or entity has the right to acquire
beneficial ownership within 60 days after April 10, 2000 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 common shares set forth opposite their names.
Percentage of beneficial ownership before the offering is based on 24,241,604
common shares outstanding as of April 10, 2000, including 8,975,943 common
shares into which our outstanding redeemable convertible preferred shares will
convert upon completion of this offering and 15,265,661 common shares
outstanding as of January 31, 2000. All shares included in the table below under
"Stock Options" represent stock options that are exercisable within 60 days
after April 10, 2000. Unless otherwise indicated, the address of each of the
individuals listed in the table below is in care of Changepoint Corporation,
1595 Sixteenth Avenue, Suite 700, Richmond Hill, Ontario, Canada L4B 3N9.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES BENEFICIALLY
BENEFICIALLY OWNED OWNED
----------------------------------- -------------------
OUTSTANDING STOCK TOTAL BEFORE AFTER
SHARES OPTIONS NUMBER OFFERING OFFERING
----------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Gerald W. Smith(1).......................... 4,181,633 -- 4,181,633 17.2%
Barry M. Goldsmith.......................... 628,502 -- 628,502 2.6
David C. Wetmore............................ 399,954 -- 399,954 1.6
Robert J. Sywolski(2)....................... -- 30,000 30,000 *
J. Ian Giffen............................... -- 30,000 30,000 *
David W. Ferguson(2)(3)..................... 5,855,730 45,000 5,900,730 24.3
Howard T. Gwin.............................. -- -- -- *
The Vengrowth Investment Fund Inc.(2)....... 5,855,730 45,000 5,900,730 24.3
145 Wellington Street West,
Suite 200
Toronto, Ontario M5J 1H8
JMI Equity Fund (Barbados) SRL(2)........... 3,673,470 30,000 3,703,472 15.3
1119 St. Paul Street
Baltimore, Maryland 21202
Paul Edwards(1)............................. 2,845,010 -- 2,845,010 11.7
Randall N. Remme(1)......................... 1,353,062 -- 1,353,062 5.6
Paul Lupinacci(1)........................... 1,405,103 -- 1,405,103 5.8
All current directors and executive officers
as a
group (15 persons)(3)..................... 13,967,018 301,253 14,268,270 58.9
</TABLE>
- ------------------------
* Less than 1% of our outstanding common shares.
55
<PAGE>
(1) An aggregate of 7,273,290 common shares beneficially owned by Gerald W.
Smith, Paul Edwards, Paul Lupinacci and Randall N. Remme are held through
holding companies that will amalgamate with Changepoint immediately prior to
the closing of this offering. See "Description of Share Capital--General."
(2) The options to purchase 45,000 common shares held by The Vengrowth
Investment Fund Inc. and the options to purchase 30,000 common shares held
by JMI Equity Fund (Barbados) SRL, represented in the table above under the
"Stock Options" column, are held in the names of David W. Ferguson and
Robert J. Sywolski, respectively.
(3) Includes 5,855,730 common shares owned by The Vengrowth Investment
Fund Inc. Mr. Ferguson is Managing Director of Vengrowth Capital Management.
Mr. Ferguson disclaims beneficial ownership of the common shares held by
Vengrowth, except to the extent of his pecuniary interest therein.
To our knowledge, we are not directly or indirectly owned or controlled by
another corporation or by any foreign government. We are not aware of any
arrangements, the operation of which may at a subsequent date result in a change
of control of our company.
56
<PAGE>
DESCRIPTION OF SHARE CAPITAL
GENERAL
Prior to the closing of this offering, Changepoint will amalgamate with
several holding companies that are controlled by existing shareholders. We have
been advised by the principals that these holding companies do not own or
control any assets other than common shares of Changepoint, nor do they have any
liabilities or conduct any operations. Upon the amalgamation, the Changepoint
common shares held by the holding companies will be issued to the
above-described shareholders of the holding companies. As a result, the
shareholders of the holding companies will hold our common shares directly. The
amalgamation will have no effect on our issued and outstanding share capital.
Prior to the amalgamation, our authorized share capital consists of an
unlimited number of common shares and 5,983,962 Class A redeemable convertible
preferred shares. Following the amalgamation, our authorized share capital will
consist of an unlimited number of common shares and an unlimited number of
preferred shares, issuable in one or more series. As of April 10, 2000, there
were 15,265,661 common shares issued and outstanding and 5,983,962 redeemable
convertible preferred shares issued and outstanding.
Prior to the closing of this offering, all of our then-outstanding
redeemable convertible preferred shares will be converted into common shares,
and this class of preferred shares will be cancelled. Based on the number of
common shares outstanding as of April 10, 2000, after giving effect to the
conversion of all Class A redeemable convertible preferred shares into common
shares and the amalgamation, but prior to giving effect to this offering and
assuming no exercise of currently outstanding options, there will be
24,241,604 common shares outstanding held of record by 35 shareholders. After
giving effect to this offering, but assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options, there will be
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 meetings 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 Changepoint or other distribution of assets of Changepoint 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 Changepoint will be distributed among the
holders of common shares and the holders of any other class of our shares. This
distribution will 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 in this offering will be fully
paid and nonassessable.
PREFERRED SHARES
Our articles of amalgamation will 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
will be 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
57
<PAGE>
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 Changepoint. We
currently do not have any plans to issue preferred shares.
REGISTRATION RIGHTS
Pursuant to the Amended and Restated Registration Rights Agreement dated
October 8, 1999, among us and the holders of our Class A redeemable convertible
preferred shares, the holders of 8,975,943 common shares will be entitled to
rights with respect to the registration of these shares under the
U.S. Securities Act, as described below.
DEMAND REGISTRATION RIGHTS. At any time after six months following the
effective date of the registration statement related to this offering, the
holders of at least 40% of the common shares having registration rights can
request that we register all or a portion of their shares, so long as such
registration covers at least 20% of their common shares or any lesser percentage
if the total offering price of the common shares to the public is at least
$2 million. We will only be required to file two registration statements in
response to their demand registration rights.
PIGGYBACK REGISTRATION RIGHTS. If we register any securities for public
sale, the shareholders with registration rights will have the right to include
their common shares in the registration statement. The managing underwriter of
any underwritten offering will have the right to limit the number of common
shares included in a registration statement by these holders if it is of the
opinion that the inclusion of these common shares would adversely affect the
marketing of the securities to be sold by the Company.
FORM S-3 REGISTRATION RIGHTS. The holders of the common shares having
registration rights can request that we register their shares if we are eligible
to file a registration statement on Forms F-3 or S-3 and if the total price of
the shares offered to the public is at least $500,000.
CANADIAN OFFERINGS. The holders of shares having registration rights also
have rights with respect to demand, piggyback and short-form registrations in
Canada, which rights are substantially similar to those described in the
paragraphs above, with appropriate changes to recognize the differences between
U.S. and Canadian offerings.
We will pay all expenses incurred in connection with the registrations
described above, except for underwriters' and brokers' discounts and
commissions, which will be paid by the selling shareholders.
Holders of these registration rights have waived the exercise of any demand
registration rights for 180 days following the date of this prospectus.
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 our articles of
amalgamation or other charter documents on the right of a non-resident to hold
or vote common shares, other than as provided by the Investment Canada Act, as
amended by 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
58
<PAGE>
higher in monetary terms for a member of the World Trade Organization or North
American Free Trade Agreement.
TRANSFER AGENTS AND REGISTRAR
The registrar and transfer agent for our common shares is American
Securities Transfer and Trust Incorporated. Its address is 1 Liberty Plaza, New
York, New York 10006, and its telephone number at this location is
(800) 663-9097.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, a total of 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 and could impair our
ability to raise capital through the sale of our equity securities. As described
below, most of our common shares currently outstanding will not be available for
sale immediately after this offering due to restriction on resale. Public sales
of substantial amounts of our common shares following the lapse of those
restrictions could adversely affect the prevailing market price of our common
shares and our ability to raise capital in the future.
All of the common shares sold in this offering will be freely tradable
without restriction under the Securities Act of 1933, except by "affiliates" as
defined in Rule 144 under the Securities Act.
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:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
----------
<S> <C>
At the date of this prospectus.............................. --
180 days after the date of this prospectus.................. 24,241,604
Later than 180 days after the date of this prospectus....... --
</TABLE>
Each of our directors, officers and shareholders have entered into lock-up
agreements pursuant to which they have agreed not to dispose of or hedge any of
their common shares for 180 days following the date of the prospectus without
the consent of Donaldson, Lufkin & Jenrette Securities Corporation on behalf of
the underwriters. See "Underwriting."
We intend to file with the SEC a registration statement on Form S-8
following the date of this prospectus. The S-8 registration statement will allow
holders of common shares that are issued under equity incentive arrangements to
resell those common shares in the public market, subject to lock-up agreements
entered into by certain of the option holders and any restrictions imposed by
Canadian law.
U.S. RESALE RESTRICTIONS
We believe that upon completion of this offering, 1,479,668 common shares
will be held by U.S. residents. As a result of the lock-up agreements and the
provisions of Rule 144 and Rule 701 under the Securities Act, such common 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, which will equal approximately
common shares after the closing of this offering; and
- the average weekly trading volume of the common shares on the Nasdaq
National Market during the four calendar weeks immediately preceding
filing of the Form 144 with respect to such sale.
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 Changepoint. Persons who are our affiliates must also
comply with the restrictions and requirements of Rule 144, other than the
one-year
60
<PAGE>
holding period requirement, in order to sell common shares in the public market
which are not restricted securities.
Under Rule 144(k), a person who is deemed to have been our affiliate at any
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell such
shares without having to comply with the manner of sale, public information,
volume limitation or notice filing provision of Rule 144.
Our employees, directors, officers, consultants or advisors may rely on
Rule 701 to resell common shares issued to them, pursuant to written
compensatory benefit plans or written contracts relating to their compensation.
Rule 701 also will apply to common shares acquired upon exercise of options
granted before the date of this prospectus, including exercises after the date
of this prospectus. Common shares issued in reliance on Rule 701 are restricted
securities and, subject to the 180-day lock-up agreements described above, may
be sold beginning 90 days after the date of this prospectus:
- by persons other than affiliates of Changepoint, subject only to the
manner of sale provisions of Rule 144; and
- by persons deemed to be affiliates of Changepoint under Rule 144 without
compliance with its one-year minimum holding period requirements.
Holders of 8,975,943 common shares will be entitled to require us to
register their common shares under the Securities Act, subject to the lock-up
agreements. See "Description of Share Capital--Registration Rights."
61
<PAGE>
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 of income, 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 or 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 the regulations
thereunder;
- 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 and an assumption that the proposed amendments
will be enacted in their current form;
- 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 ADDRESS 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.
62
<PAGE>
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. We will report to you the portion of any dividend
distribution that exceeds our current or accumulated earnings and profits, as
required by the Internal Revenue Code and regulations thereunder.
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
that you may claim. The Internal Revenue Code applies various limitations on the
amount of foreign tax credit that may be claimed by a U.S. taxpayer. Because of
the complexity of those limitations, you should consult your own tax advisor
with respect to the amount of the foreign taxes you may claim as a credit.
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 United States source
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. Subject to the
following discussion of our being treated as a passive foreign investment
company, 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:
- 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 outstanding shares; and
- we receive 60% or more of our U.S. related adjusted ordinary gross income
from specified passive sources, such as interest, dividends, rents and
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.
63
<PAGE>
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 in us, you may have to 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
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 order to make a qualified electing fund election, the Unconnected
U.S. Shareholder must receive from us annually an information statement setting
forth the earnings and capital gains for the year.
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 those shares 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 the sale or disposition of the shares, 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.
64
<PAGE>
You should consult your tax advisor with respect to how the passive foreign
investment company rules affect your tax situation, including the advisability
of making an election to treat us as a qualified electing fund or making a mark
to market election.
CONTROLLED FOREIGN CORPORATION
If more than 50% of the voting power of all classes of our shares or the
total value of our shares is owned, directly or indirectly, by citizens of the
United States, U.S. domestic partnerships and corporations or estates or trusts
other than foreign estates or trusts, each of which owns 10% or more of the
total combined voting power of all classes of our shares, we could be treated as
a "controlled foreign 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." The term "Subpart F Income" is defined by the Internal Revenue Code and
includes certain specified categories of income earned by a controlled foreign
corporation. In addition, gain from the sale or exchange of shares by an
Unconnected U.S. Shareholder who is or was such 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. This
section will only apply if you do not use or hold and are not deemed to use or
hold the common shares in, or in the course of, carrying on a business in Canada
for the purposes of the Income Tax Act (Canada).
Under the Income Tax Act (Canada), as 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, persons with whom
you did not deal at arm's length for the purposes of the Income Tax Act
(Canada), or you and such persons owned or had interests in or rights or options
to acquire 25% or more of our issued common shares of any class of the capital
stock of our company at any time during the five year period immediately
preceding the disposition or deemed disposition. Where a capital gain realized
on a disposition or deemed disposition of our common shares is subject to tax
under the Income Tax Act (Canada), the Canada-United States Income Tax
Convention (1980) will exempt the capital gain from Canadian tax if, on the
disposition of our shares, the value of our common shares is not derived
principally from real property situated in Canada. This relief under the
Canada-United States Income Tax Convention (1980) may not be available if you
had a permanent establishment or fixed base available in Canada during the
12 months immediately preceding the disposition of the shares.
Dividends paid, credited or deemed to have been paid or credited on the
shares to Unconnected U.S. Shareholders will generally be subject to a Canadian
withholding tax at a rate of 25% under the Income Tax Act (Canada). 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%.
The Canadian federal government 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 your death.
Capital gains realized on the deemed disposition, if any, will generally have
the income tax consequences described above.
65
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated , 2000, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, U.S. Bancorp Piper
Jaffray Inc., CIBC World Markets Corp. and DLJDIRECT Inc., have severally agreed
to purchase from us the number of common shares set forth opposite their names
below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
U.S. Bancorp Piper Jaffray Inc..............................
CIBC World Markets Corp.....................................
DLJDIRECT Inc...............................................
-------
Total...................................................
=======
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase and accept delivery of the common shares offered by this prospectus
are subject to approval by their counsel of legal matters concerning the
offering and to conditions that must be satisfied by us. The underwriters are
obligated to purchase and accept delivery of all of the common shares offered by
this prospectus, other than those common shares covered by the over-allotment
option described below, if any are purchased.
The underwriters initially propose to offer the common shares in part
directly to the public at the initial public offering price set forth on the
cover page of this prospectus and in part to dealers, including the
underwriters, at such price less a concession not in excess of $ per
common share. The underwriters may allow, and such dealers may re-allow, to
other dealers a concession not in excess of $ per common share. After the
initial offering of the common shares, the public offering price and other
selling terms may be changed by the representatives at any time without notice.
The underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The following table shows the underwriting commissions to be paid by us to
the underwriters assuming either no exercise or full exercise by the
underwriters of their over-allotment options.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
<S> <C> <C>
Per share............................................ $ $
Total................................................ $ $
</TABLE>
Changepoint will pay the offering expenses, estimated to be $750,000.
An electronic prospectus will be available on the Web site maintained by
DLJDIRECT Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation. Other than the prospectus in electronic format, the information on
this Web site relating to the offering is not part of this prospectus and has
not been approved or endorsed by Changepoint or the underwriters, and should not
be relied on by prospective investors.
Changepoint has granted to the underwriters an option, exercisable for
30 days after the date of this prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of
66
<PAGE>
additional common shares at the initial public offering price less underwriting
commissions. The underwriters may exercise the option solely to cover
over-allotments, if any, made in connection with the offering. To the extent
that the underwriters exercise the option, each underwriter will become
obligated, subject to conditions contained in the underwriting agreement, to
purchase its pro rata portion of such additional common shares based on the
underwriters' percentage underwriting commitment as indicated in the above
table.
Changepoint has agreed to indemnify the underwriters against liabilities
which may arise in connection with the offering, including liabilities under the
Securities Act, or to contribute to payments that the underwriters may be
required to make.
Changepoint, its officers, directors, shareholders and substantially all of
its option holders are subject to agreements providing that, with limited
exceptions, they will not:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend, or otherwise transfer or dispose of directly
or indirectly any common shares or any securities convertible into or
exercisable or exchangeable for common shares; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common shares, whether any such transaction described above is to be
settled by delivery of common shares or other securities, in cash or
otherwise
for a period of 180 days after the date of this prospectus. Donaldson, Lufkin &
Jenrette Securities Corporation may release some or all of these shares from
such restrictions prior to the expiration of the 180-day period lock-up period,
although it has no current intention of doing so. Changepoint currently is not
aware of any officer, director or current shareholder that intends to ask for a
release from the lock-up restrictions.
In addition, during such 180-day period, Changepoint has also agreed not to
file any registration statement with respect to the registration of any common
shares or any securities convertible into or exercisable or exchangeable for
common shares without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation, other than a registration statement on Form S-8 relating
to the registration of common shares underlying options. Furthermore, no
Changepoint shareholders have demand registration rights that may be exercised
during such 180 day period which have not been waived.
Prior to the offering, there has been no established trading market for the
common shares. The initial public offering price of the common shares offered by
this prospectus will be determined by negotiation among Changepoint and the
underwriters. The factors to be considered in determining the initial public
offering price include:
- the history of and the prospects for the industry in which Changepoint
competes;
- the past and present operations of Changepoint;
- the historical results of operations of Changepoint;
- the prospects for future earnings of Changepoint;
- the recent market prices of securities of generally comparable companies;
and
- the general condition of the securities markets at the time of the
offering.
The underwriters have reserved up to common shares to be sold in this
offering for sale to some of our employees and associates of our employees and
directors, and to other individuals or companies who have commercial
arrangements or personal relationships with us, including a company
67
<PAGE>
with which we have a relationship that has a contractual right to participate.
Through this directed share program, we intend to ensure that those individuals
and companies that have supported us, that have a contractual relationship, or
who are in a position to support us in the future, have the opportunity to
purchase our common shares at the same price that we are offering our common
shares to the general public. Prospective participants will not receive any
investment materials other than a copy of this prospectus, and will be permitted
to participate in this offering at the initial public offering price presented
on the cover page of this prospectus. No commitment to purchase common shares by
any participant in the directed share program will be accepted until after the
registration statement of which this prospectus is a part is effective and an
initial public offering price has been established. The number of common shares
available for sale to the general public will be reduced by the number of common
shares sold through the directed share program. Any common shares reserved for
the directed share program which are not so purchased will be offered by the
underwriters to the general public on the same basis as the other common shares
offered hereby.
Of the common shares to be reserved in the directed share program, up
to common shares may be offered directly by Changepoint to its employees
who reside in Canada at the initial public offering price. In accordance with
applicable Canadian securities laws, the underwriters may not receive any
commissions on sales of securities by Changepoint to such employees.
Consequently, to the extent that these employees purchase shares in the directed
share program, the underwriters' commissions, as set forth in the table above
and on the cover page of this prospectus, will be reduced accordingly. No
commitment to purchase common shares by any employee who resides in Canada will
be accepted by Changepoint until after the registration statement of which this
prospectus is a part is effective. Any common shares reserved for employees who
reside in Canada which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other common shares offered
hereby.
Other than in the United States, no action has been taken by Changepoint or
the underwriters that would permit a public offering of the common shares
offered in any jurisdiction where action for that purpose is required. The
common shares offered may not be offered or sold, directly or indirectly, nor
may this prospectus or any other offering material or advertisements in
connection with the offer and sale of any such common shares be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of such jurisdiction.
Persons into whose possession this prospectus comes are advised to inform
themselves about and observe any restrictions relating to the offering and the
distribution of this prospectus. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any common shares offered in any
jurisdiction in which such an offer or a solicitation is unlawful.
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 in 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.
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common shares.
Specifically, the underwriters may over-allot the offering, creating a syndicate
short position. The underwriters may bid for and stabilize the price of the
common shares. In addition, the underwriting syndicate may reclaim selling
concessions from syndicate members and selected dealers if they repurchase
previously distributed common shares in syndicate covering transactions, in
stabilizing transactions or otherwise. These activities may stabilize or
maintain the market price of the common shares above independent market levels.
The underwriters are not required to engage in these activities, and may end any
of these activities at any time.
68
<PAGE>
LEGAL MATTERS
Goldman, Spring, Schwartz & Kichler, Toronto, Ontario, will pass upon the
legality of the common shares offered by this prospectus. Skadden, Arps, Slate,
Meagher & Flom LLP, Toronto, Ontario is acting as our United States counsel with
respect to the offering. Goodwin, Procter & Hoar LLP, Boston, Massachusetts, is
acting as United States counsel to the underwriters. Goodman, Phillips &
Vineberg, Toronto, Ontario, is acting as Canadian counsel to the underwriters.
EXPERTS
The consolidated balance sheets of Changepoint as of July 31, 1998 and 1999
and the consolidated statements of operations, comprehensive income (loss),
shareholders' equity (deficiency) and cash flows for each of the years in the
three year period ended July 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.
69
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, a registration statement on Form F-1 covering the
common shares being sold in this offering. We have not included in this
prospectus all the information contained in the registration statement, and you
should refer to the registration statement and its exhibits for further
information.
Any statement in this prospectus about any of our contracts or other
documents is not necessarily complete. If the contract or document is filed as
an exhibit to the registration statement, the contract or 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 Changepoint, that file electronically with the SEC.
You may read and copy any reports, statements or other information that we
file with the SEC 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 Securities Exchange Act of 1934. As
a foreign private issuer, we are exempt from the rules under the 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 Exchange
Act. Under the Exchange Act, as a foreign private issuer, we are not required to
publish financial statements as frequently or as promptly as United States
companies.
70
<PAGE>
CHANGEPOINT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Form of Auditors' Report.................................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Comprehensive Income (Loss)...... F-5
Consolidated Statements of Shareholders' Equity
(Deficiency).............................................. F-6
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE>
FORM OF INDEPENDENT AUDITORS' REPORT
When the split of the common shares described in note 16 to the consolidated
financial statements is completed, we will be in a position to render the
following report.
To the Board of Directors of Changepoint Corporation
We have audited the accompanying consolidated balance sheets of Changepoint
Corporation as of July 31, 1998 and 1999 and the related consolidated statements
of operations, comprehensive income (loss), shareholders' equity (deficiency)
and cash flows for each of the years in the three year period ended July 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as at July 31, 1998 and 1999 and the results of its operations and its cash
flows for each of the years in the three year period ended July 31, 1999 in
conformity with generally accepted accounting principles in the United States.
Chartered Accountants
Toronto, Canada
September 20, 1999, except
as to note 16 which is
as of March 31, 2000
F-2
<PAGE>
CHANGEPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31,
2000
JULY 31, PRO FORMA
------------------- JANUARY 31, SHAREHOLDERS'
1998 1999 2000 EQUITY
-------- -------- ------------ -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,598 $ 4,504 $ 353
Short-term investments (note 3)........................... -- -- 3,796
Accounts receivable, net of allowance for doubtful
accounts of $81 at July 31, 1998; $231 at July 31, 1999;
and $248 at January 31, 2000............................ 1,014 2,311 2,989
Investment tax credits receivable......................... 131 44 46
Prepaid expenses and other................................ 207 450 557
------- ------- ---------
Total current assets........................................ 2,950 7,309 7,741
Property and equipment (note 4)............................. 484 502 861
------- ------- ---------
Total assets.............................................. $ 3,434 $ 7,811 $ 8,602
======= ======= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable.......................................... $ 127 $ 141 $ 392
Accrued liabilities (note 5).............................. 507 731 1,018
Deferred revenue.......................................... 209 401 720
Current portion of obligations under capital leases
(note 7)................................................ 25 82 87
------- ------- ---------
Total current liabilities................................... 868 1,355 2,217
LONG-TERM LIABILITIES:
Obligations under capital leases (note 7)................. 52 131 94
------- ------- ---------
Total liabilities....................................... 920 1,486 2,311
Class A redeemable convertible preferred shares (note 8):
Authorized:
5,983,962 shares
Issued and outstanding:
4,022,450 shares at July 31, 1999 and 5,983,962 shares
at January 31, 2000..................................... -- 6,557 74,800 $ --
Common shares eligible for redemption (note 9):
Issued and outstanding:
5,916,127 shares at July 31, 1998; 5,757,066 shares at
July 31, 1999; and 4,878,571 shares at January 31,
2000.................................................... 5,873 6,243 40,655 --
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common shares:
Authorized:
Unlimited shares
Issued and outstanding:
12,159,010 shares at July 31, 1998; 10,184,017 shares
at July 31, 1999; 10,051,588 shares at January 31,
2000; and 23,906,102 shares at January 31, 2000
pro forma............................................. 178 182 4,425 119,880
Share purchase loans receivable........................... (93) (93) (56) (56)
Deferred stock-based compensation......................... -- -- (3,353) (3,353)
Cumulative other comprehensive income (loss).............. (244) (229) 28 28
Deficit................................................... (3,200) (6,335) (110,208) (110,208)
------- ------- --------- ---------
Total shareholders' equity (deficiency)................. (3,359) (6,475) (109,164) $ 6,291
------- ------- --------- =========
Total liabilities and shareholders' equity.................. $ 3,434 $ 7,811 $ 8,602
======= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CHANGEPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JULY 31, JANUARY 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES:
Products..................................... $ 1,008 $ 1,821 $ 3,974 $ 1,774 $ 2,781
Services..................................... 1,922 1,986 1,963 814 1,157
------- ------- ------- ------- --------
Total revenues 2,930 3,807 5,937 2,588 3,938
------- ------- ------- ------- --------
COST OF REVENUES:
Products..................................... 172 69 206 119 19
Services..................................... 1,478 1,231 1,151 511 850
------- ------- ------- ------- --------
Total cost of revenues..................... 1,650 1,300 1,357 630 869
------- ------- ------- ------- --------
Gross profit................................... 1,280 2,507 4,580 1,958 3,069
OPERATING EXPENSES:
Research and development..................... 1,283 1,536 2,073 881 1,264
Sales and marketing.......................... 781 1,670 2,178 982 3,121
General and administrative................... 516 722 993 390 706
Amortization of deferred stock-based
compensation............................... -- -- -- -- 903
------- ------- ------- ------- --------
Total operating expenses................... 2,580 3,928 5,244 2,253 5,994
------- ------- ------- ------- --------
Loss from operations........................... (1,300) (1,421) (664) (295) (2,925)
Interest income................................ 52 57 50 36 153
Other income (note 15)......................... -- -- 250 -- --
------- ------- ------- ------- --------
Loss before provision for income taxes......... (1,248) (1,364) (364) (259) (2,772)
Provision for income tax expense (recovery).... (131) (17) 20 26 --
------- ------- ------- ------- --------
Net loss....................................... (1,117) (1,347) (384) (285) (2,772)
Class A preferred share accretion (note 8)..... -- -- (2,293) -- (65,136)
------- ------- ------- ------- --------
Net loss applicable to common shares........... $(1,117) $(1,347) $(2,677) $ (285) $(67,908)
======= ======= ======= ======= ========
Basic and diluted net loss per common share.... $ (0.09) $ (0.08) $ (0.15) $ (0.02) $ (4.45)
======= ======= ======= ======= ========
Shares used in computation, basic and
diluted...................................... 12,003 16,817 18,062 18,136 15,263
======= ======= ======= ======= ========
Pro forma basic and diluted net loss per
common share................................. $ (0.02) $ (0.11)
======= ========
Pro forma shares used in computation, pro forma
basic and diluted............................ 24,096 24,239
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CHANGEPOINT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JULY 31, JANUARY 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net loss........................................ $ (1,117) $ (1,347) $ (384) $ (285) $ (2,772)
Other comprehensive income (loss):
Foreign currency translation adjustment....... (1) (241) 15 9 257
-------- -------- ------ ------ --------
Comprehensive loss.............................. $ (1,118) $ (1,588) $ (369) $ (276) $ (2,515)
======== ======== ====== ====== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CHANGEPOINT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CUMULATIVE
SHARE OTHER TOTAL
COMMON SHARES PURCHASE DEFERRED COMPREHENSIVE RETAINED SHAREHOLDERS'
--------------------- LOANS STOCK-BASED INCOME EARNINGS EQUITY
NUMBER AMOUNT RECEIVABLE COMPENSATION (LOSS) (DEFICIT) (DEFICIENCY)
---------- -------- ---------- ------------ ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JULY 31, 1996........... 11,983,101 $ 48 $ -- $ -- $ (2) $ 491 $ 537
Stock options exercised........... 123,201 93 (93) -- -- -- --
Issuance of common shares for
cash............................ 41,458 28 -- -- -- -- 28
Currency translation adjustment... -- -- -- -- (1) -- (1)
Adjustment to fair value on common
shares eligible for redemption
(note 9)........................ -- -- -- -- -- (729) (729)
Net loss.......................... -- -- -- -- -- (1,117) (1,117)
---------- ------ ---- ------- ----- --------- ---------
BALANCES, JULY 31, 1997........... 12,147,760 169 (93) -- (3) (1,355) (1,282)
Issuance of common shares for
cash............................ 11,250 9 -- -- -- -- 9
Currency translation adjustment... -- -- -- -- (241) -- (241)
Adjustment to fair value on common
shares eligible for
redemption...................... -- -- -- -- -- (498) (498)
Net loss.......................... -- -- -- -- -- (1,347) (1,347)
---------- ------ ---- ------- ----- --------- ---------
BALANCES, JULY 31, 1998........... 12,159,010 178 (93) -- (244) (3,200) (3,359)
Stock options exercised........... 109,701 33 -- -- -- -- 33
Issuance of Class A preferred
shares in exchange for common
shares.......................... (2,084,694) (29) -- -- -- -- (29)
Currency translation adjustment... -- -- -- -- 15 -- 15
Class A preferred share accretion
(note 8)........................ -- -- -- -- -- (2,293) (2,293)
Adjustment to fair value on common
shares eligible for redemption
(note 9)........................ -- -- -- -- -- (458) (458)
Net loss.......................... -- -- -- -- -- (384) (384)
---------- ------ ---- ------- ----- --------- ---------
BALANCES, JULY 31, 1999........... 10,184,017 182 (93) -- (229) (6,335) (6,475)
Compensation options exercised*... 58,323 37 -- -- -- -- 37
Purchase of common shares for
cancellation*................... (190,752) (50) -- -- -- (164) (214)
Deferred stock-based
compensation*................... -- 4,256 -- (4,256) -- -- --
Currency translation
adjustment*..................... -- -- -- -- 257 -- 257
Class A preferred shares
accretion* (note 8)............. -- -- -- -- -- (65,136) (65,136)
Adjustment to fair value on common
shares eligible for redemption*
(note 9)........................ -- -- -- -- -- (35,801) (35,801)
Payment of share purchase loans
receivable*..................... -- -- 37 -- -- -- 37
Amortization of deferred
stock-based compensation*....... -- -- -- 903 -- -- 903
Net loss*......................... -- -- -- -- -- (2,772) (2,772)
---------- ------ ---- ------- ----- --------- ---------
BALANCES, JANUARY 31, 2000*....... 10,051,588 $4,425 $(56) $(3,353) $ 28 $(110,208) $(109,164)
========== ====== ==== ======= ===== ========= =========
</TABLE>
- ------------------------------
* Unaudited
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CHANGEPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JULY 31, JANUARY 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $(1,117) $(1,347) $ (384) $ (285) $(2,772)
Depreciation and amortization........................... 137 164 163 83 86
Amortization of deferred stock-based compensation....... -- -- -- -- 903
Changes in non-cash operating working capital:
Accounts receivable................................... (594) 22 (1,080) (583) (395)
Investment tax credits receivable..................... (132) -- (87) (57) (2)
Prepaid expenses and other............................ 13 (209) (227) (83) (108)
Accounts payable...................................... (74) 71 43 (63) 269
Accrued liabilities................................... 261 (9) 151 28 52
Deferred revenue...................................... 64 161 190 88 297
------- ------- ------- ------ -------
Net cash used in operating activities................... (1,442) (1,147) (1,231) (872) (1,670)
------- ------- ------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments...................... -- -- -- -- (3,796)
Purchase of property and equipment...................... (480) (99) (3) (15) (429)
------- ------- ------- ------ -------
Net cash used in investing activities................... (480) (99) (3) (15) (4,225)
------- ------- ------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Class A preferred shares.................... -- -- 4,235 -- 3,107
Issuance of special warrants............................ 1,836 -- -- -- --
Issuance of common shares eligible for redemption....... -- 2,810 -- -- --
Issuance of common shares............................... 28 9 33 -- 37
Repurchase of common shares eligible for redemption..... -- -- -- -- (1,389)
Purchase of common shares for cancellation.............. -- -- (88) -- (214)
Repayment of obligations under capital leases........... -- (13) (40) (26) (32)
------- ------- ------- ------ -------
Net cash from (used in) financing activities............ 1,864 2,806 4,140 (26) 1,509
------- ------- ------- ------ -------
Effect of currency translation on cash balances........... (1) (143) -- 4 235
------- ------- ------- ------ -------
Increase (decrease) in cash and cash equivalents.......... (59) 1,417 2,906 (909) (4,151)
Cash and cash equivalents, beginning of period............ 240 181 1,598 1,598 4,504
------- ------- ------- ------ -------
Cash and cash equivalents, end of period.................. $ 181 $ 1,598 $ 4,504 $ 689 $ 353
======= ======= ======= ====== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.............................................. $ -- $ 3 $ 8 $ 3 $ 1
Income taxes.......................................... -- -- 25 25 --
------- ------- ------- ------ -------
$ -- $ 3 $ 33 $ 28 $ 1
======= ======= ======= ====== =======
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations............................... $ -- $ 95 $ 175 $ -- $ --
======= ======= ======= ====== =======
Deferred stock-based compensation....................... $ -- $ -- $ -- $ -- $ 4,256
======= ======= ======= ====== =======
Class A preferred shares accretion...................... $ -- $ -- $ -- $ -- $65,136
======= ======= ======= ====== =======
Adjustment to fair value on common shares eligible for
redemption............................................ $ -- $ -- $ -- $ -- $35,801
======= ======= ======= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 1--DESCRIPTION OF THE BUSINESS
Changepoint Corporation ("the Company") designs, develops, and markets
comprehensive solutions to automate and streamline the business processes of
information technology, or IT, services organizations and facilitate business
transactions and collaboration among buyers and suppliers of IT services over
the Internet.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
These financial statements are stated in U.S. dollars, except as otherwise
noted. They have been prepared in accordance with accounting principles
generally accepted in the United States.
BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany transactions and
balances have been eliminated.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim consolidated balance sheet of the Company as of
January 31, 2000 and the consolidated statements of operations, comprehensive
income (loss), shareholders' equity (deficiency) and cash flows for the six
months ended January 31, 1999 and 2000 have been included herein. In the opinion
of management, these unaudited interim consolidated financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company as of January 31, 2000 and
the results of its operations and its cash flows for the six months ended
January 31, 1999 and 2000. Results for the six months ended January 31, 2000 are
not necessarily indicative of the results to be expected for the entire year.
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 reporting
period. Actual results could differ from those estimates.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with an original
maturity date of three months or less from the date of purchase to be cash
equivalents.
The Company has classified its short-term investments as "available for
sale". These items are carried at fair value, based on the quoted market prices,
and unrealized gains and losses, if material, are reported as a separate
component of accumulated other comprehensive income (loss) in shareholders'
equity. Because of the short-term nature of the Company's short-term
investments, realized and unrealized gains and losses have been immaterial.
F-8
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization, and are depreciated and 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 following methods and annual rates:
<TABLE>
<CAPTION>
ASSET BASIS RATE
----- ----- ----
<S> <C> <C>
Computer hardware....................... Declining balance 30%
Furniture and fixtures.................. Declining balance 20%
Computer software....................... Straight-line 1 - 3 years
Leasehold improvements.................. Straight-line Over the term of the lease
</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 of the asset to estimated fair value is charged
to the statement of operations. Assets to be sold are carried at estimated fair
value less disposal costs.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2, Software Revenue Recognition, as amended by SOP 98-4 and
SOP 98-9. SOP 97-2, as amended, generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on the relative fair value of the elements.
To date, the Company has derived its revenue from licenses of its products,
maintenance and support, implementation, training and consulting services.
Revenue recognized from multiple-element software arrangements is allocated
to each element of the arrangement based on the fair values of the elements,
such as software products, maintenance and support, and implementation and
training services. The determination of fair value is based on objective
evidence specific to the Company.
Revenue from license fees is recognized when persuasive evidence of an
arrangement exists, delivery of the product has occurred, no significant Company
obligations with regard to implementation remain, the fee is fixed or
determinable, and collectibility is probable. If collectibility is not
considered probable, revenue is recognized when the fee is collected.
Maintenance and support revenue is deferred and recognized on a
straight-line basis over the life of the related agreement, which is typically
one year. Revenue from implementation, training, consulting and other services
is recognized when the services are performed.
Deferred revenue includes amounts billed to customers for which revenue has
not been recognized which generally results from deferred maintenance and
support and consulting services not yet rendered.
F-9
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CURRENCY TRANSLATION
Monetary assets and liabilities of the Company and of its wholly owned
subsidiaries, which are integrated foreign operations, are denominated in
foreign currencies and translated into Canadian dollars (which is considered to
be the functional currency) at the exchange rate prevailing at the balance sheet
date. Non-monetary assets and liabilities are translated at the historical
exchange rates. Transactions included in operations are translated at the
average rates in effect during such period, except for depreciation, which is
translated at historical rates. 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.
Foreign exchange gains (losses) included in the net loss for the years ended
July 31, 1997, 1998 and 1999 are $(19,000), $(135,000) and $(42,000),
respectively, and for the six months ended January 31, 1999 and 2000 are $23,000
and $(41,000), respectively.
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 in other comprehensive income
(loss).
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.
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.
INCOME TAXES
Under the asset and liability method of Statement of Financial 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
F-10
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 of a change in tax rates on deferred tax
assets and liabilities is recognized in the consolidated statement of operations
in the period that includes the enactment date.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees" and related interpretations, in
accounting for its employee stock options. Under APB 25, deferred stock-based
compensation is recorded at the option grant date at 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 resulting from employee
option grants is amortized over the vesting period of the individual options,
which is generally three years.
NET LOSS PER COMMON SHARE
Net loss per common share has been calculated on the basis of earnings
divided by the weighted average number of common shares, including common shares
eligible for redemption, outstanding during each period. Diluted net loss per
common share has been calculated assuming that the Class A redeemable
convertible preferred shares 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 be
dilutive. Pro forma basic and diluted net loss per common share has been
calculated to give effect to the conversion of all outstanding Class A
redeemable convertible preferred shares which will occur upon the completion of
the public share offering.
FINANCIAL INSTRUMENTS
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents,
short-term investments and accounts receivable. 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, 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.
FOREIGN CURRENCY RISK MANAGEMENT
A substantial portion of the Company's sales are denominated in U.S.
dollars. The Company uses the revenue stream in U.S. dollars as a natural
hedge to cover expenses denominated in U.S. dollars. The Company does not
hedge the risk related to fluctuations of the exchange rate between
F-11
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
U.S. and Canadian dollars from the date of the sales transaction to the
collection date due to the short-term nature of this exposure.
FAIR VALUES OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The carrying values of cash and cash equivalents, short-term
investments, accounts receivable, 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 and Class A redeemable convertible preferred shares and
common shares eligible for redemption approximate their fair values. The
following methods and assumptions were used to estimate the fair value of
the following financial instruments:
(a) 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.
(b) Class A redeemable convertible preferred shares -- at the greater of
the estimated fair value of the common shares into which the Class A
shares are convertible, and 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.
(c) Common shares eligible for redemption--at the estimated fair value of
the common shares.
COMPREHENSIVE LOSS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income", which establishes standards for the
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes methods of accounting for derivative financial instruments
and hedging activities related to those instruments as well as other hedging
activities. The Company has not assessed the impact on its financial position,
results of operations or cash flows of adopting SFAS No. 133. The Company will
be required to implement SFAS No. 133, as amended by SFAS No. 137 for its fiscal
year ending July 31, 2002.
NOTE 3--SHORT-TERM INVESTMENTS
The Company's investments consist of commercial paper and bankers'
acceptances all due within one year.
F-12
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31,
--------------------- JANUARY 31,
1998 1999 2000
--------- --------- ------------
<S> <C> <C> <C>
Computer hardware................................... $ 418 $ 497 $ 774
Furniture and fixtures.............................. 274 337 373
Computer software................................... 33 33 147
Leasehold improvements.............................. 116 116 121
----- ----- ------
841 983 1,415
Less accumulated depreciation and amortization...... (357) (481) (554)
----- ----- ------
$ 484 $ 502 $ 861
===== ===== ======
</TABLE>
The cost and the accumulated depreciation and amortization of assets under
capital leases are $84,000 and $10,000 at July 31, 1998; $260,000 and $33,000 at
July 31, 1999; and $270,000 and $66,000 at January 31, 2000.
NOTE 5--ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31,
--------------------- JANUARY 31,
1998 1999 2000
--------- --------- ------------
<S> <C> <C> <C>
Accrued payroll related expenses.................... $ 397 $ 569 $ 887
Accrued other....................................... 110 162 131
----- ----- ------
$ 507 $ 731 $1,018
===== ===== ======
</TABLE>
NOTE 6--OPERATING LINE OF CREDIT
The Company has an operating line of credit of up to Cdn $1,500,000
(approximately $1,038,000) payable on demand, bearing interest at prime plus 1%
and secured by a general security agreement, which provides for charges on all
assets of the Company. No amounts had been drawn on the operating line at
July 31, 1998, July 31, 1999 or January 31, 2000.
F-13
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 7--OBLIGATIONS UNDER LEASES
CAPITAL LEASES
The following is an analysis by year of the future minimum lease payments
for capital leases (in thousands):
<TABLE>
<S> <C>
Year ending July 31,
2000...................................................... $ 52
2001...................................................... 93
2002...................................................... 53
----
198
Less amount representing interest (at rates ranging
from 6.66% to 7.5%)....................................... 17
----
Balance of obligation....................................... 181
Less current portion........................................ 87
----
$ 94
====
</TABLE>
OPERATING LEASES
The Company is committed to make payments under an operating lease agreement
for office space expiring in November, 2010. Future minimum lease payments by
fiscal year are as follows (in thousands):
<TABLE>
<S> <C>
Year ending July 31,
2000...................................................... $ 163
2001...................................................... 287
2002...................................................... 339
2003...................................................... 339
2004...................................................... 339
Thereafter................................................ 2,387
------
$3,854
======
</TABLE>
Rent expense was $132,000, $290,000 and $301,000 for the years ended
July 31, 1997, 1998 and 1999, respectively and $144,000 and $249,000 for the six
months ended January 31, 1999 and 2000, respectively.
NOTE 8--CLASS A REDEEMABLE CONVERTIBLE PREFERRED SHARES
The Company is authorized to issue and has issued 5,983,962 Class A
redeemable convertible preferred shares (the "Class A Shares").
The holders of the Class A Shares are entitled to receive cumulative
dividends, at a rate per annum of $0.17 per share. To January 31, 2000, there
have been no dividends paid or declared by the Company and dividends in arrears
amounted to approximately $449,000. The Class A Shares are convertible into
common shares at the option of the holder, initially on a one-for-one basis and
F-14
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 8--CLASS A REDEEMABLE CONVERTIBLE PREFERRED SHARES (CONTINUED)
thereafter based on a formula and subject to adjustments for future dilution.
Class A Shares automatically convert into common shares at the then applicable
conversion rate upon a public offering of the Company's common shares. Such a
public offering must be at a price per share of not less than approximately
$3.40 and must be for aggregate proceeds in excess of $20,000,000. Each holder
of Class A Shares is entitled to that number of votes equal to the number of
common shares into which the Class A shares are convertible.
All the Class A Shares are required to be redeemed on or after September 1,
2004 if such redemption is approved by a majority of the then outstanding
Class A Shares. The redemption price for the Class A Shares is an amount equal
to the greater of (i) the Liquidation Preference Payment, or (ii) the fair
market value of the Class A Shares. The Liquidation Preference Payment is the
amount equal to the greater of (i) $1.70 per Class A Share plus all accrued
dividends unpaid thereon (whether or not declared) and any other dividends
declared but unpaid thereon, computed to the date payment thereof is made
available, or (ii) such amount per Class A Share as would have been payable had
each such Class A Share been converted to common shares based on a formula
immediately prior to the liquidation, dissolution or winding up of the Company.
Accordingly, such shares have been classified outside of equity and are being
adjusted to fair value at each reporting period, with periodic adjustments
recorded as preferred share accretion.
The following summarizes the activities in the Class A shares for each of
the periods noted below (in thousands, except number of shares):
<TABLE>
<CAPTION>
NUMBER OF
SHARES AMOUNT
--------- --------
<S> <C> <C>
Balances, July 31, 1997 and 1998........................ -- $ --
Issued in exchange for 2,084,694 common shares.......... 1,389,796 29
Issued for cash......................................... 2,632,654 4,235
Adjustment to fair value................................ -- 2,293
--------- -------
Balances, July 31, 1999................................. 4,022,450 6,557
Issued for cash (unaudited)............................. 1,961,512 3,107
Adjustment to fair value (unaudited).................... -- 65,136
--------- -------
Balances, January 31, 2000 (unaudited).................. 5,983,962 $74,800
========= =======
</TABLE>
NOTE 9--COMMON SHARES ELIGIBLE FOR REDEMPTION
The Company's share capital and loss per share information has been restated
to reflect a 3-for-2 split of the Company's common shares, which is expected to
be effective by May, 2000.
In September 1996, the Company issued 1,767,352 special warrants and
1,767,352 options to buy common shares for net proceeds of $1,836,000. Each
special warrant entitled the holder to acquire 1.5 common shares for no
additional consideration if the Company issued shares in an initial public
offering by September 1, 1997. Otherwise, each special warrant entitled the
holder to acquire 1.65 common shares for no additional consideration. The
special warrants were exercised on
F-15
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 9--COMMON SHARES ELIGIBLE FOR REDEMPTION (CONTINUED)
September 30, 1997 and 2,916,127 common shares were issued. Each option entitles
the holder to acquire, without further payment, 0.21 common shares in the event
that the price of a common share in an initial public offering or a sale of the
shares of the Company to a third party produces an effective yield of less than
25% per annum to the holder of the common shares issued in this offering. As of
January 31, 2000, there were 1,446,016 options outstanding.
On November 3, 1997, the Company issued 2,000,000 units for net proceeds of
$2,810,000. Each unit consists of 1.5 common shares of the Company and one
option to purchase 0.2648 additional common shares without further payment
exercisable if the Company does not complete an initial public offering or sale
of the Company by November 3, 1999. During the six month period ended
January 31, 2000, all of the options issued in connection with this financing
were either purchased for cancellation or exercised.
The holders of the common shares acquired through either the conversion of
the special warrants or the purchase of units have the right to sell their
common shares back to the Company for fair market value on September 1, 2004 if
the Company does not complete a public offering of common shares for proceeds of
at least $4,842,000 on specified stock exchanges, or has not been sold or is in
material default under the terms of the shareholders' agreement.
Accordingly, such shares have been classified outside of equity and are
being adjusted to fair value at each reporting period by charges to deficit.
F-16
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 9--COMMON SHARES ELIGIBLE FOR REDEMPTION (CONTINUED)
The following summarizes the activity in the special warrants and common
shares eligible for redemption related to the above financings (in thousands,
except number of special warrants and shares):
<TABLE>
<CAPTION>
COMMON SHARES ELIGIBLE
SPECIAL WARRANT FOR REDEMPTION
--------------------- -----------------------
NUMBER AMOUNT NUMBER AMOUNT
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Balances, July 31, 1996............................. -- $ -- -- $ --
---------- ------- ---------- -------
September 12, 1996 financing........................ 1,767,352 1,836 -- --
Adjustment to fair value............................ -- 729 -- --
---------- ------- ---------- -------
Balances, July 31, 1997............................. 1,767,352 2,565 -- --
Exercise of special warrants........................ (1,767,352) (2,565) 2,916,127 2,565
November 3, 1997 financing.......................... -- -- 3,000,000 2,810
Adjustment to fair value............................ -- -- -- 498
---------- ------- ---------- -------
Balances, July 31, 1998............................. -- -- 5,916,127 5,873
Purchase for cancellation........................... -- -- (159,061) (88)
Adjustment to fair value............................ -- -- -- 458
---------- ------- ---------- -------
Balances, July 31, 1999............................. -- -- 5,757,066 6,243
Purchase for cancellation (unaudited)............... -- -- (1,252,392) (1,389)
Exercise of options (unaudited)..................... -- -- 373,897 --
Adjustment to fair value (unaudited)................ -- -- -- 35,801
---------- ------- ---------- -------
Balances, January 31, 2000 (unaudited).............. - $ -- 4,878,571 $40,655
========== ======= ========== =======
</TABLE>
NOTE 10--EMPLOYEE STOCK OPTION PLANS
1997 EMPLOYEE STOCK OPTION PLAN
The 1997 Employee Stock Option Plan (the "1997 Plan") was established for
the benefit of employees of the Company and provides for the granting of up to
1,500,000 options. Options granted under the 1997 Plan vest over three years and
expire five years from the date of grant. As a result of the establishment of
the 1999 Employee Stock Option Plan, no additional options have been granted
under the 1997 Plan since September 2, 1998.
1999 EMPLOYEE STOCK OPTION PLAN
The 1999 Employee Stock Option Plan (the "1999 Plan") was established for
the benefit of employees and directors of the Company. The 1999 Plan provides
for the granting of up to 3,000,000 options. Generally, options granted under
the Plan vest over three years and expire ten years from the date of grant. In
some cases, options granted under the 1999 Plan may vest immediately, or over
periods other than three years.
F-17
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 10--EMPLOYEE STOCK OPTION PLANS (CONTINUED)
OTHER GRANTS OF EMPLOYEE STOCK OPTIONS
In addition to the stock options granted pursuant to the 1997 Plan and the
1999 Plan, the Company also issued additional options to employees and directors
between May 1996 and July 1999. The terms and conditions of such options varied
from case to case.
Details of employee stock option transactions are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------------------------------ SIX MONTHS ENDED
1997 1998 1999 JANUARY 31, 2000
-------------------- -------------------- -------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
PRICE PER PRICE PER PRICE PER PRICE PER
NUMBER SHARE NUMBER SHARE NUMBER SHARE NUMBER SHARE
-------- --------- -------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period..... 66,550 $0.01 489,751 $0.70 872,518 $0.75 926,535 $0.85
Granted.............................. 546,402 $0.79 583,999 $0.94 394,860 $0.98 2,037,307 $2.67
Exercised............................ (123,201) $0.76 -- -- (109,701) $1.05 -- --
Cancelled............................ -- -- (201,232) $0.91 (231,142) $0.30 (112,341) $1.05
-------- -------- -------- ---------
Outstanding, end of period........... 489,751 $0.70 872,518 $0.75 926,535 $0.85 2,851,501 $2.19
======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JULY 31, ENDED
------------------------------ JANUARY 31,
1997 1998 1999 2000
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Weighted average fair value of options granted during the
period with exercise prices equal to fair value at date of
grant..................................................... $0.79 $0.94 $0.98 $1.12
Weighted average fair value of options granted during the
period with exercise prices less than fair value at date
of grant.................................................. -- -- -- $6.11
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
January 2010. As of January 31, 2000, the weighted average remaining contractual
lives of outstanding and exercisable options were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL LIFE NUMBER
PRICES OUTSTANDING (YEARS) EXERCISABLE
-------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.72 270,000 1.98 270,000
$0.92 374,559 2.88 214,707
$1.04 258,134 3.58 96,965
$1.15 1,370,558 9.66 184,807
$6.67 578,250 9.70 --
--------- -------
2,851,501 766,479
========= =======
</TABLE>
F-18
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 10--EMPLOYEE STOCK OPTION PLANS (CONTINUED)
The Company recorded deferred stock-based compensation amounting to
$4,256,000 for the period from August 1, 1999 to January 31, 2000. Amortization
of deferred stock-based compensation amounted to $903,000 for the period from
August 1, 1999 to January 31, 2000. The compensation was determined based on the
fair value at the grant date of the stock options.
The amortization of deferred stock-based compensation relates to the
following cost of service revenues and operating expense categories (in
thousands):
PERIOD FROM AUGUST 1, 1999 TO JANUARY 31, 2000
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Cost of services............................................ $ 42
Sales and marketing......................................... 202
Research and development.................................... 36
General and administrative.................................. 623
----
$903
====
</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 net loss and net 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 5 years.
Historical and pro forma information for the periods indicated is as follows
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JULY 31, JANUARY 31,
--------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net loss--as reported........................... $1,117 $1,347 $ 384 $ 285 $2,772
Net loss--pro forma............................. 1,140 1,388 456 321 2,183
Net loss per common share--as reported.......... 0.09 0.08 0.15 0.02 4.45
Net loss per common share--pro forma............ 0.09 0.08 0.15 0.02 4.41
Weighted average grant date fair value of
options granted during the period............. 0.79 0.94 0.98 0.98 4.75
</TABLE>
F-19
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 11--INCOME TAXES
Income tax expense (recovery) attributable to loss for the period consists
of (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JULY 31, JANUARY 31,
--------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Current:
Domestic...................... $(131) $ (17) $ -- $ -- $ --
Foreign....................... -- -- 20 26 --
----- ----- ----- ----- -----
$(131) $ (17) $ 20 $ 26 $ --
===== ===== ===== ===== =====
</TABLE>
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>
SIX MONTHS ENDED
YEAR ENDED JULY 31, JANUARY 31,
--------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Loss before provision for income taxes.......... $(1,248) $(1,364) $(364) $(259) $(2,717)
======= ======= ===== ===== =======
Computed expected tax recovery.................. $ (557) $ (608) $(162) $(116) $(1,212)
Increase (reduction) in income tax recovery
resulting from:
Effect of different tax rates on losses of
foreign subsidiaries........................ 135 508 312 200 43
Permanent differences:
Utilization of net capital loss............. -- -- (109) -- --
Amortization of deferred stock-based
compensation.............................. -- -- -- -- 403
Change in beginning of the period balance of
the valuation allowance allocated to income
tax expense................................. 306 34 (23) (67) 768
Other......................................... (15) 49 2 9 (2)
------- ------- ----- ----- -------
Provision for income tax expense (recovery)... $ (131) $ (17) $ 20 $ 26 $ --
======= ======= ===== ===== =======
</TABLE>
F-20
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 11--INCOME TAXES (CONTINUED)
The tax effect of temporary differences that give rise to significant
portions of the future tax assets and future tax liabilities at July 31, 1998
and 1999 and January 31, 2000 are presented below (in thousands):
<TABLE>
<CAPTION>
JULY 31,
--------------------- JANUARY 31,
1998 1999 2000
--------- --------- ------------
<S> <C> <C> <C>
Future tax assets:
Non-capital loss carried forward.......... $211 $151 $901
Share issue costs......................... -- 18 72
Other..................................... -- 19 14
---- ---- ----
Total gross future tax assets............. 211 188 987
Less valuation allowance.................. 211 188 956
---- ---- ----
Net future tax assets..................... -- -- 31
Future tax liabilities:
Depreciation and amortization............. -- -- (31)
---- ---- ----
Total gross future tax liabilities........ -- -- (31)
---- ---- ----
Net future tax assets (liabilities)....... $ -- $ -- $ --
==== ==== ====
</TABLE>
In assessing the realizability of future tax assets, management considers
whether it is more likely than not that some portion or all of the future tax
assets will not be realized. The ultimate realization of future 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.
As of January 31, 2000, the Company had losses and deductions of
approximately $1,120,000 available to reduce future years' taxable income in
Canada, of which $860,000 expire in 2007 and the remainder expire in 2005. In
addition, the Company has approximately $750,000 of losses and deductions
available to reduce future years' taxable income in the United States, all of
which expire in 2020.
Furthermore, the Company has capital losses of approximately $380,000 which
may be utilized to reduce future taxes on capital gains and have no expiry date.
The income tax benefits of these losses have not been reflected in the
consolidated financial statements.
NOTE 12--SEGMENTED INFORMATION
The Company is managed along product lines and currently operates in one
reportable segment: the development and sale of Web-based software that
automates and streamlines the business processes of professional services
organizations and corporate IT departments ("Changepoint Solution").
F-21
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 12--SEGMENTED INFORMATION (CONTINUED)
Until March 31, 1998, the Company also engaged in providing project
management consulting services to the IT service industry, which it phased out
to focus on its software business.
From January 1, 1997 until June 30, 1999, the Company also offered an
Internet software product called "involv" which was a Web-based team
collaboration product that allowed groups of individuals to work together over
the Internet or over corporate intranets on team initiatives. On June 30, 1999,
the Company sold its interest in the involv product to focus exclusively on its
Changepoint Solution (see note 14).
Accordingly, the Company operated in two reportable segments in the year
ended July 31, 1997, three segments in the year ended July 31, 1998, two
segments in the year ended July 31, 1999, and one segment in the period ended
January 31, 2000.
Management evaluated the performance of its segments and allocated resources
to them based on gross margin. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. The Company's assets, operating expenses, interest and
other income are maintained at the Company's corporate headquarters and are not
allocated to the segments.
Year ended July 31, 1997 (in thousands):
<TABLE>
<CAPTION>
CONSULTING CHANGEPOINT
SERVICES SOLUTION TOTAL
---------- ----------- --------
<S> <C> <C> <C>
Product revenues.............................. $ -- $1,008 $ 1,008
Service revenues.............................. 1,208 714 1,922
------- ------ -------
1,208 1,722 2,930
Cost of revenues.............................. (1,107) (543) (1,650)
------- ------ -------
Gross profit.................................. $ 101 $1,179 $ 1,280
======= ====== =======
</TABLE>
Year ended July 31, 1998 (in thousands):
<TABLE>
<CAPTION>
CONSULTING CHANGEPOINT
SERVICES INVOLV SOLUTION TOTAL
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Product revenues................... $ -- $270 $1,551 $ 1,821
Service revenues................... 538 -- 1,448 1,986
----- ---- ------ -------
538 270 2,999 3,807
Cost of revenues................... (667) (48) (585) (1,300)
----- ---- ------ -------
Gross profit....................... $(129) $222 $2,414 $ 2,507
===== ==== ====== =======
</TABLE>
F-22
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 12--SEGMENTED INFORMATION (CONTINUED)
Year ended July 31, 1999 (in thousands):
<TABLE>
<CAPTION>
CHANGEPOINT
INVOLV SOLUTION TOTAL
-------- ----------- --------
<S> <C> <C> <C>
Product revenues............................ $ 273 $3,701 $ 3,974
Service revenues............................ -- 1,963 1,963
------- ------ -------
273 5,664 5,937
Cost of revenues............................ (98) (1,259) (1,357)
------- ------ -------
Gross profit................................ $ 175 $4,405 $ 4,580
======= ====== =======
</TABLE>
All long-lived assets relating to the Company's operations are located in
Canada. Revenue per geographic location, based on the location of the external
customer, is as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JULY 31, JANUARY 31,
--------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue by geographic locations:
United States................. $ 715 $2,067 $3,674 $1,213 $2,814
Canada........................ 2,202 1,718 1,951 1,375 914
United Kingdom................ 13 2 141 -- 148
New Zealand................... -- -- -- -- 62
Venezuela..................... -- 20 171 -- --
------ ------ ------ ------ ------
$2,930 $3,807 $5,937 $2,588 $3,938
====== ====== ====== ====== ======
</TABLE>
For the year ended July 31, 1997, three customers accounted for 18%, 16%,
and 10% of revenues, respectively. For the year ended July 31, 1998, one
customer accounted for 13% of revenues. For the six months ended January 31,
1999, three customers accounted for 15%, 12% and 10% of revenues, respectively.
For the six months ended January 31, 2000 and the year ended July 31, 1999, no
customer accounted for more than 10% of revenues.
As of July 31, 1998, the Company had receivables from two significant
customers amounting to 36% and 11% of total accounts receivable and 12% and 10%
at July 31, 1999. As of January 31, 2000, the Company had no customer accounts
receivable balance over 10% of total accounts receivable.
F-23
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 13--NET LOSS PER COMMON SHARE
The following table reconciles the numerators and denominators of the
historical and pro forma basic and diluted net loss per common share computation
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JULY 31, JANUARY 31,
--------------------------- ------------------
1997 1998 1999 1999 2000
------- ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator for basic and diluted net loss per
common share:
Net loss..................................... $(1,117) $(1,347) $ (384) $ (285) $ (2,772)
Class A preferred share accretion.......... -- -- (2,293) -- (65,136)
------- ------- ------- ------- --------
Net loss applicable to common shares......... $(1,117) $(1,347) $(2,677) $ (285) $(67,908)
======= ======= ======= ======= ========
Denominator for basic and diluted net loss per
common share:
Weighted average number of common shares..... 12,003 16,817 18,062 18,136 15,263
======= ======= ======= ======= ========
Basic and diluted net loss per common share.... $ (0.09) $ (0.08) $ (0.15) $ (0.02) $ (4.45)
======= ======= ======= ======= ========
Numerator for pro forma basic and diluted net
loss per common share:
Net loss..................................... $ (384) $ (2,772)
Denominator:
Weighted average common shares, basic
and diluted................................ 18,062 15,263
Conversion of Class A preferred shares....... 6,034 8,976
------- ------- ------- ------- --------
24,096 24,239
======= ======= ======= ======= ========
Pro forma basic and diluted net loss per
common share................................. $ (0.02) $ (0.11)
</TABLE>
Due to the net 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.
NOTE 14--SALE OF INVOLV CORPORATION
On June 30, 1999, the Company sold its subsidiary involv Corporation to a
third party.
The Company received shares of the purchaser and two promissory notes
aggregating Cdn. $500,000 (approximately $346,000) as consideration. In
addition, the Company may receive additional amounts based upon future revenue
and future equity financings of the purchaser. As the purchaser is a development
stage company without the financing to pay the Company in cash, the Company has
not recorded any proceeds on the sale and there was no gain or loss on the sale.
Any payments received from the purchaser will be recorded as income when
received.
F-24
<PAGE>
CHANGEPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 2000 AND FOR THE
SIX MONTHS ENDED JANUARY 31, 1999 AND 2000 IS UNAUDITED)
NOTE 15--OTHER INCOME
The other income of $250,000 in 1999 represents a payment received by the
Company in connection with an unconsummated business relationship.
NOTE 16--SUBSEQUENT EVENTS
(a) On February 29, 2000, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission
("SEC") that would permit the Company to sell its common shares in
connection with a proposed initial public offering ("IPO"). If the
offering is consummated under the terms presently anticipated, all the
then outstanding Class A redeemable convertible preferred shares will
automatically convert into common shares of the Company on a 3-for-2
basis upon the closing of the proposed IPO. In addition, the right of
holders of common shares eligible for redemption to sell their shares to
the Company for fair market value will be cancelled upon closing of the
offering under the terms presently anticipated. The effect of the
conversion of the Class A shares and the expiry of the redemption
privilege on certain common shares have been reflected as unaudited pro
forma shareholders' equity in the accompanying consolidated balance sheet
as at January 31, 2000.
(b) Effective February 1, 2000 and as amended March 31, 2000, the Company
entered into an agreement with Protege Virtual Management Limited
("Protege"), under which Protege has agreed to provide certain
administrative and sales services in order to establish the Company's
European direct sales presence. Protege will receive a fixed monthly fee
in connection with providing these services as well as commissions on
sales of Company products in Europe initiated by Protege. In connection
with the agreement, the Company granted options to Protege for 180,000
shares with an exercise price of $1.63. The options vest immediately and
expire on April 14, 2000. The fair value of the common shares as
determined under SFAS 123 aggregating approximately $1.7 million will be
recorded as stock-based compensation expense in the month of March 2000.
F-25
<PAGE>
[DESCRIPTION OF BACK COVER ARTWORK]
The following statement appears in a shaded rectangular box at the top of
the page : "The Professional Services Industry Cycle"
In the center of the page is a large circle containing symbols, such as a
telephone and an alarm clock, that bear the following titles: (1) Engagement
Management, (2) Projet Management, (3) Resource Management, (4) Time & Expense
Management, (5) Invoicing, and (6) Support. The symbols are linked by arrows.
Above the circle appears a line graph and the words "Faster Technology
Results".
To the upper-left of the circle appears the following:
Demand: Enabling positive business results through effective technology
deployment
To the lower-left of the circle are geometric symbols, above which are the
words: "Requirement: Request Management."
To the lower-right of the circle are geometric symbols, above which are the
words: "Opportunity: Sales and Marketing."
At the bottom of the page appears the following:
"Supply: Increasing revenue and improving customer satisfaction for
professional services organizations."
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
[LOGO]
COMMON SHARES
--------------
P R O S P E C T U S
-------------------
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
CIBC WORLD MARKETS
DLJDIRECT INC.
------------------------------------------------------------
We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Changepoint
have not changed since the date hereof. We are under no duty to update any
information contained herein after the date of this prospectus, other than as
required by law.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these common shares may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
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 shares being registered, other than the underwriting
discounts and commissions. All amounts are estimates except the SEC registration
fee and the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 19,800
NASD filing fee............................................. 8,000
Nasdaq National Market Fee.................................. 95,000
Blue Sky fees and expenses.................................. 15,000
Printing and engraving expenses............................. 125,000
Legal fees and expenses..................................... 300,000
Transfer Agent and Registrar fees........................... 10,000
Accounting fees and expenses................................ 150,000
Miscellaneous............................................... 27,200
--------
Total....................................................... $750,000
========
</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
shareholder 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
being or having been a director or officer of the Registrant or such other
company, 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 the 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>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
THE SHARE AND PER SHARE INFORMATION SET FORTH BELOW DOES NOT REFLECT THE
3-FOR-2 SHARE SPLIT THAT IS EXPECTED TO OCCUR PRIOR TO THE CLOSING OF THIS
OFFERING.
(a) Securities sold:
1. On September 12, 1996, the Registrant issued 1,767,352 special
warrants and 1,767,352 options to buy common shares for cash
consideration of Cdn$2,750,000, less issue costs of Cdn$232,128, for
net proceeds of Cdn$2,517,872. Each special warrant entitled the
holder to acquire one common share for no additional consideration
five business days after the issuance of a receipt by the Ontario
Securities Commission for a prospectus covering the Registrant's
initial public offering and the common shares issuable upon exercise
of the special warrants. If the Registrant did not file a prospectus
with the Ontario Securities Commission by September 1, 1997, the
special warrants would be exercised into 1.1 common shares. The
holders of these common shares have the right to sell the common
shares back to the Registrant on September 1, 2004 for fair market
value if the Registrant does not complete a public offering of its
common shares by that time. The options entitle their holders to
acquire, without further payment, 0.14 common shares if the price of
common shares in the Registrant's initial public offering does not
result in an effective yield of 25% per year from Cdn$1.556.
Trinity Capital Securities Ltd. acted as agent in connection with the
offering and was paid an aggregate commission of Cdn$165,000. In
addition, Trinity Capital received a broker warrant entitling it to
acquire 35,347 special warrants. All of the special warrants and
options were sold to persons in Canada. The transaction was exempt
under Regulation S under the Securities Act.
2. On February 10, 1997, the Registrant issued 27,639 common shares to
employees or their designees, all of whom were Canadian, as part of
annual bonuses. The purchase price of these shares was Cdn$1.40,
approximately 10% below the fair market value of the shares on that
date. The transaction was exempt under Regulation S under the
Securities Act.
3. On July 31, 1997, the Registrant issued options to purchase 82,134
common shares to two employees, both of whom were Canadian. The
exercise price of the options was Cdn$1.556. The transaction was
exempt under Regulation S under the Securities Act.
4. On September 30, 1997, each outstanding special warrant was converted
to 1.1 common shares without further consideration for a total of
1,944,085 common shares. The transaction was exempt under
Section 3(a)(9) of the Securities Act.
5. On November 3, 1997, the Registrant issued 2,000,000 units for cash
consideration of Cdn$4,000,000, less issue costs of Cdn$49,018, for
net proceeds of Cdn$3,950,982. Each unit consisted of one common
share of the Registrant and one option to purchase 0.1765 additional
common shares without further payment, exercisable if the Registrant
did not complete its initial public offering by November 3, 1999. The
holders of these common shares have the right to sell the common
shares back to the Registrant on September 1, 2004 for fair market
value if the Registrant does not complete a public offering of its
common shares by that time. The units were issued to Canadian
institutional investors and one U.S. accredited investor. The
transaction was exempt under Regulation S under the Securities Act
and Section 4(2) of the Securities Act.
6. On November 19, 1997, the Registrant issued 7,500 common shares to
one Canadian employee as an annual bonus at an assigned value of
Cdn$13,500. The transaction was exempt under Regulation S under the
Securities Act.
7. On August 17, 1998, the Registrant issued 41,000 common shares to
three Canadian employees, who exercised options acquired as part of
an early investment in the
II-2
<PAGE>
Registrant. The aggregate exercise price of the options was Cdn$3.00.
The transaction was exempt under Regulation S of the Securities Act.
8. On July 31, 1999, the Registrant amalgamated with five related
Canadian holding companies whose principals represented and warranted
to the Registrant that the sole asset was their common shareholdings
in the Registrant. As a consequence of the amalgamation, all the
outstanding shares of the holders of the amalgamating companies were
replaced by 6,523,204 common shares and 1,389,796 Class A preferred
shares. The transactions were exempt under Regulation S under the
Securities Act.
9. On July 31, 1999, the Registrant issued 2,632,654 Class A preferred
shares for cash consideration of Cdn$6,450,000, less issue costs of
Cdn$69,840, for net proceeds of Cdn$6,380,160. All of the Class A
preferred shares were sold to persons in Canada. The transaction was
exempt under Regulation S under the Securities Act.
10. On July 31, 1999, the Registrant issued 32,134 common shares to one
Canadian employee, who exercised options with an exercise price of
Cdn$1.556. The transaction was exempt under Regulation S under the
Securities Act.
11. On September 8, 1999, Trinity Capital exercised its broker warrant
for the 35,347 special warrants, which were then exercised at a price
of Cdn$1.556 entitling Trinity to 1.1 common shares per warrant for a
total of 38,882 common shares. The transaction was exempt under
Regulation S under the Securities Act.
12. On October 8, 1999, the Registrant issued 1,961,512 Class A preferred
shares for cash consideration of Cdn$4,805,704, less issue costs of
Cdn$236,133, for net proceeds of Cdn$4,569,571. The Class A preferred
shares were sold to five accredited investors in the U.S. and one
person in Barbados. The transaction was exempt under Regulation S
under the Securities Act and Section 4(2) of the Securities Act.
13. On November 3, 1999, the Registrant issued 249,265 common shares to
the purchasers of the 2,000,000 units issued by the Registrant on
November 3, 1997, who exercised options issued on November 3, 1997.
The transaction was exempt under Regulation S under the Securities
Act and Section 4(2) of the Securities Act.
14. On December 30, 1999, the Registrant entered into an agreement with
Protege Virtual Management Limited, a corporation organized under the
laws of England, pursuant to which it granted Protege the right to
purchase 25,000 common shares in the Registrant's initial public
offering at the initial public offering price. The transaction was
exempt under Regulation S under the Securities Act. This right to
purchase was terminated in connection with the March 31, 2000
amendment to the agreement with Protege as described in paragraph 19
below.
15. On February 7, 2000, the Registrant issued 40,000 common shares to
two U.S. option holders, who exercised options with an exercise price
of Cdn$2.50. The transaction was exempt under Rule 701 under the
Securities Act.
16. On March 2, 2000, the Registrant issued 20,000 common shares to a
U.S. option holder, who exercised options with an exercise price of
Cdn$2.00. The transaction was exempt under Rule 701 under the
Securities Act.
17. On March 8, 2000, the Registrant issued 20,000 common shares to a
U.S. option holder, who exercised options with an exercise price of
Cdn$1.556. The transaction was exempt under Rule 701 under the
Securities Act.
18. On March 31, 2000, the Registrant issued 23,667 common shares to one
Canadian employee, who exercised 20,000 options with an exercise
price of Cdn$2.50 and 3,667
II-3
<PAGE>
options with an exercise price of Cdn$2.00. The transaction was
exempt under Regulation S under the Securities Act.
19. On March 31, 2000, the Registrant amended its agreement with Protege
described in paragraph 14 above to grant Protege a right to purchase
120,000 common shares of the Registrant at an exercise price of
Cdn$2.45. The transaction was exempt under Regulation S under the
Securities Act.
20. On April 10, 2000, the Registrant issued 120,000 common shares to
Protege who exercised the options described in paragraph 20 above.
The transaction was exempt under Regulation S under the Securities
Act.
(b) Underwriters and Other Purchasers.
See (a) above.
(c) Consideration.
See (a) above.
(d) Exemption from Registration Claimed.
See (a) above.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
The following exhibits are attached hereto:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<C> <S>
1.1* Form of Underwriting Agreement
3.1+ Articles of Amalgamation of the Registrant
3.2+ Articles of Amendment of the Registrant
3.3+ By-laws of the Registrant
4.1* Specimen Common Share certificate
5.1* Opinion of Goldman, Spring, Schwartz & Kichler as to the
legality of the securities offered hereby
10.1+ Amended and Restated Registration Rights Agreement, dated
July 31, 1999, between the Registrant and certain
shareholders of the Registrant
10.2+ Credit Facility, dated March 3, 1999, between the Registrant
and the Royal Bank of Canada
10.3+ 1997 Stock Option Plan
10.4+ 1999 Stock Option Plan
10.5+ Agreement, dated February 5, 2000, between the Registrant
and SkillsVillage(1)
10.6+ License and Hosting Agreement, dated December 13, 1999,
between the Registrant and Corio, Inc.(1)
10.7+ OEM Agreement, dated December 30, 1999, between the
Registrant and Softrax Corp.(1)
10.8 Lease, dated May 18, 1995, between the Registrant and Menkes
Office Parks and Investors Group Trust
10.9 Lease, dated February 24, 2000, between Menkes Office Parks
Ltd., Denburn Investments Inc. and the Registrant.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<C> <S>
10.10 Employee Stock Purchase Plan
10.11 Agreement, dated December 30, 1999, between the Registrant
and Protege Virtual Management Limited
10.12 Amending Agreement, dated March 31, 2000, between the
Registrant and Protege Virtual Management Limited
10.13 Form of Amalgamation Agreement
23.1* Consent of Goldman, Spring, Schwartz & Kichler (included in
Exhibit 5.1)
23.3 Consent of KPMG LLP
24.1+ Powers of Attorney
</TABLE>
- ------------------------
* To be supplied by amendment.
+ Filed previously.
(1) Confidential treatment has been requested from the Commission for portions
of Exhibit 10.5, Exhibit 10.6 and Exhibit 10.7. The marked portions of
Exhibit 10.5, Exhibit 10.6 and Exhibit 10.7 indicate text that has been
omitted and a separate filing of such omitted text has been made with the
Commission.
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.
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-5
<PAGE>
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 Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Toronto, Province of Ontario, Canada, on
April 14, 2000.
<TABLE>
<S> <C> <C>
CHANGEPOINT CORPORATION
By: /s/ GERALD W. SMITH
---------------------------------------------
Gerald W. Smith
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by or on behalf of the
following persons in the capacities indicated on April 14, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
Chairman, President and Chief
/s/ GERALD W. SMITH Executive Officer
------------------------------------------------ (Principal Executive
Gerald W. Smith Officer)
Chief Financial Officer
* (Principal Financial
------------------------------------------------ Officer and Principal
John A. Anhang Accounting Officer)
*
------------------------------------------------ Director
Bernard M. Goldsmith
*
------------------------------------------------ Director
David C. Wetmore
*
------------------------------------------------ Director
Robert J. Sywolski
*
------------------------------------------------ Director
J. Ian Giffen
*
------------------------------------------------ Director
David W. Ferguson
*
------------------------------------------------ Director
Howard T. Gwin
</TABLE>
<TABLE>
<S> <C> <C> <C>
* /s/ GERALD W. SMITH
---------------------------------------------
Gerald W. Smith,
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
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
Changepoint Corporation and has duly caused this Amendment to the Registration
Statement to be signed on behalf of each of them by the undersigned, thereunto
duly authorized, in the City of Chicago, State of Illinois, on April 14, 2000.
<TABLE>
<S> <C> <C>
CHANGEPOINT INC.
(Authorized United States Representative)
By: /s/ GERALD W. SMITH
-----------------------------------------
Gerald W. Smith
PRESIDENT AND SECRETARY
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1+ Articles of Amalgamation of the Registrant
3.2+ Articles of Amendment of the Registrant
3.3+ By-laws of the Registrant
4.1* Specimen Common Share certificate
5.1* Opinion of Goldman, Spring, Schwartz & Kichler as to the
legality of the securities offered hereby
10.1+ Amended and Restated Registration Rights Agreement, dated
July 31, 1999, between the Registrant and certain
shareholders of the Registrant
10.2+ Credit Facility, dated March 3, 1999, between the Registrant
and the Royal Bank of Canada
10.3+ 1997 Stock Option Plan
10.4+ 1999 Stock Option Plan
10.5+ Agreement, dated February 5, 2000, between the Registrant
and SkillsVillage(1)
10.6+ License and Hosting Agreement, dated December 13, 1999,
between the Registrant and Corio, Inc.(1)
10.7+ OEM Agreement, dated December 30, 1999, between the
Registrant and Softrax Corp.(1)
10.8 Lease, dated May 18, 1995, between the Registrant and Menkes
Office Parks and Investors Group Trust
10.9+ Lease, dated February 24, 2000, between Menkes Office
Parks Ltd., Denburn Investments Inc. and the Registrant
10.10 Employee Stock Purchase Plan
10.11 Agreement, dated December 30, 1999, between the Registrant
and Protege Virtual Management Limited
10.12 Amending Agreement, dated March 31, 2000, between the
Registrant and Protege Virtual Management Limited
10.13 Form of Amalgamation Agreement
23.1* Consent of Goldman, Spring, Schwartz & Kichler (included in
Exhibit 5.1)
23.3 Consent of KPMG LLP
24.1+ Powers of Attorney
</TABLE>
- ------------------------
* To be supplied by amendment.
+ Filed previously.
(1) Confidential treatment has been requested from the Commission for portions
of Exhibit 10.5, Exhibit 10.6 and Exhibit 10.7. The marked portions of
Exhibit 10.5, Exhibit 10.6 and Exhibit 10.7 indicate text that has been
omitted and a separate filing of such omitted text has been made with the
Commission.
<PAGE>
LEASE
THIS LEASE made as of the 18th day of May, 1995
PURSUANT TO THE SHORT FORMS OF LEASES ACT
BETWEEN
MENKES OFFICE PARKS LTD. and
INVESTORS GROUP TRUST CO. LTD. as
trustee for INVESTORS REAL PROPERTY FUND
(the "Landlord")
OF THE FIRST PART
- AND -
CHANGEPOINT CORPORATION
(the "Tenant")
OF THE SECOND PART
ARTICLES. For convenience of reference this Lease has been divided
into the following Articles:
Article I - Definitions
Article II - Lease Term and Payments
Article III - Landlord and Tenant Covenants
Article IV - Repair and Damage
Article V - Taxes and Operating Costs
Article VI - Utilities and Additional Services
Article VII - Assigning and Subletting
Article VIII - Fixtures and Improvements
Article IX - Insurance and Liability
Article X - Subordination, Attornment and Certificates
Article XI - Remedies of Landlord on Tenant's Default
Article XII - Events Terminating Lease
Article XIII - Miscellaneous
Article XIV - Other Provisions
LIST OF SCHEDULES. The following schedules form an integral part of this
Lease:
Schedule "A" - Legal Description of Lands
Schedule "B" - Leased Premises
Schedule "C" - Rules and Regulations
Schedule "D" - Landlord's Work
ARTICLE I - DEFINITIONS
1.0 DEFINITIONS. In this Lease the following defined terms shall have the
meanings set forth below.
"ADDITIONAL RENT" means Operating Costs under Section 5.5, Taxes under
5.3, Electricity under 6.2, and Insurance under Article IX and all
other charges, costs and expenses required to be paid by the Tenant
under the terms of this Lease (other than Base Rent) whether payable to
the Landlord or not.
"ADDITIONAL SERVICES" means the services and supervision supplied by
the Landlord to the Leased Premises and Common Area Facilities and
referred to herein or in any other provision hereof as Additional
Services and any other services which from time to time the Landlord
supplies to the Tenant at the Tenant's written request or as the
Landlord deems necessary, acting reasonably and which are additional to
the janitor and cleaning and other services typically supplied in a
first class office building, supervision in connection with the making
of any repairs or alterations by the Tenant affecting the Base
Building, building systems or Leasehold Improvements.
"ATTIC STOCK" means spare fan, pump and cooling tower motors, base
Building light fixtures, fuses, etc.
<PAGE>
2
"BASE RENT" means the base rent payable by the Tenant in accordance
with Section 2.3.
"BUILDING" means the building municipally known as 1595 16th Avenue,
Richmond Hill, Ontario.
"CAPITAL TAX" is an amount presently or hereafter imposed from time to
time pursuant to Part III of the Corporations Tax Act (Ontario) (the
"Act") upon the Landlord or the owner of the Building and Lands and
payable by the Landlord on account of its interest in the Building and
the Lands or any part thereof, or its interest in or capital employed
in the Building and the Lands, as the case may be.
"COMMENCEMENT DATE" means June 23, 1995.
"COMMON AREA FACILITIES" means all facilities, improvements,
installations, utilities and equipment located in the Building or the
Lands immediately surrounding the Building.
"COMMON AREAS" means those areas, facilities, utilities, improvements,
equipment and installations comprising the Lands and Building and which
are not leased or designated for lease to tenants but are provided to
be used in common by (or by the sublessees, agents, employees,
customers or licensees of) the Landlord, the Tenant, and other tenants
of the Building and other buildings on the Lands, whether or not the
same are open to the general public or a specific tenant of the
Building, and include, but are not limited to, parking areas and all
vestibules for and entrances and exits thereto; driveways, truckways
and related areas; corridors and underground or above ground tunnels or
passageways; stairways, escalators, ramps, and elevators and other
transportation equipment and systems; tenant, common and public
washrooms; telephone, meter, valve, mechanical, mail, storage, service
and janitor rooms; fire prevention, security and communication systems,
any fixtures, chattels, systems, decor, signs, facilities, or
landscaping and planted areas contained therein or maintained or used
in connection therewith.
"COST OF ADDITIONAL SERVICES" shall mean in the case of Additional
Services provided by the Landlord a reasonable charge made therefor by
the Landlord which shall not exceed the cost of obtaining such services
from independent contractors and in the case of Additional Services
provided by independent contractors the Landlord's total cost of
providing Additional Services to the Tenant including the proportionate
cost of all direct labour (including salaries, wages and fringe
benefits) and materials and other direct expenses incurred, the cost of
supervision without duplication or profit and other expenses reasonably
allocated thereto.
"INSURED DAMAGE" means that part of any damage occurring to the Leased
Premises of which the entire cost of repair is actually recovered by
the Landlord under a policy of insurance in respect of fire and other
perils from time to time effected by the Landlord, or for which the
Landlord has self-insured under Section 9.1 herein.
"LAND" means those lands described in Schedule "A" attached
hereto.
"LEASE" means this lease between the Landlord and the Tenant,
and all amendments hereto.
"LEASEHOLD IMPROVEMENTS" means all fixtures, improvements,
installations, alterations and additions from time to time made,
erected or installed by or on behalf of the Tenant or by or on behalf
of any other previous occupant in the Leased
<PAGE>
3
Premises (including the Landlord) with the exception of trade
fixtures, furniture and equipment, (not of the nature of fixtures),
modular office furniture systems, improvements of a cosmetic nature
such as rugs (but not broadloom), decorations and other improvements
moveable without the use of tools, but Leasehold Improvements
include all office partitions however affixed and includes
wall-to-wall and other carpeting with the exception of such
carpeting where laid over vinyl tile or other finished floor and
affixed so as to be readily removable without damage.
"LEASED PREMISES" means approximately 8,504 square feet of Rentable
Area on the 7th floor of the Building as outlined in red on the plans
attached as Schedule "B".
"NORMAL BUSINESS HOURS" means the hours of 7:00 a.m. to 7:00
p.m. Monday to Friday, except public holidays.
"OPERATING COSTS" means the total of all expenses, costs, and outlays
incurred in the complete maintenance, repair and operation of the
Building and Common Area Facilities, whether incurred by or on behalf
of the Landlord.
(i) Operating Costs shall include without limiting the
generality of the foregoing (but subject to certain
deductions as hereinafter provided), the cost of providing
complete cleaning and janitorial services, the cost of
building supplies used in the maintenance of the Building,
Attic Stock, supervisory (if any) and maintenance
services, exterior landscaping, snow removal, garbage and
waste collection and disposal, rental of equipment and
signs, janitorial services to the Common Areas of the
Building, the cost of operating elevators, the cost of
heating, cooling and ventilating all space including both
rentable and non-rentable areas, the cost of providing hot
and cold water, electricity (including lighting), and the
replacement of electric light bulb tubes, starters and
ballasts, telephone and other utilities and services to
both rentable and non-rentable areas, the cost of all
repairs including repairs to the Building or services in
the Building or Common Area Facilities including elevators,
depreciation on the central HVAC systems distribution plant
and associated equipment, depreciation on all fixtures,
equipment and facilities requiring periodic maintenance or
substantial replacement, the cost of window cleaning, and
providing security (if any), the cost of all insurance for
liability or fire or other casualties referred to in
Article 9.1, accounting costs incurred in connection with
maintenance and operation including computations required
for the imposition of charges to tenants and audit charges
required to be incurred for the conclusive determination of
any costs hereunder, legal fees, the amount of all salaries
(only to the extent that such salaries or a proportion
thereof, relate directly to the Building), wages and fringe
benefits, unemployment and workers compensation insurance
premiums, pension plan contributions and other similar
premiums and contributions paid or provided to employees
directly or a reasonable proportion thereof engaged in the
maintenance, repair or operation of the Building, amounts
paid to independent contractors for any services in
connection with such maintenance, repair or operation, the
cost of management fees, and other indirect expenses to the
extent allocable to the maintenance, repair and operation
of the Building and Common Area Facilities and all other
expense of every nature incurred in connection with the
maintenance, repair and operation of the Building and
Common Area Facilities; and
(ii) Operating Costs shall exclude:
<PAGE>
4
(a) debt service, and all management costs not allocable
to the actual maintenance, repair and operation of
the Building (such as that incurred in connection
with leasing and rental advertising); and
<PAGE>
5
(b) costs of structural repairs, depreciation on the
building structure and all proceeds of insurance
received by the Landlord or the mortgagee.
"PROPERTY" means the Land and Building.
"PROPORTIONATE SHARE" shall mean the fraction which has as its
numerator the Rentable Area of the Leased Premises and has as its
denominator the total Rentable Area of the Building. The total Rentable
Area of the Leased Premises shall be adjusted from time to time, as may
be reasonably necessary, to give effect to any structural or functional
changes affecting the calculation of total Rentable Areas.
"RENT" means Base Rent and Additional Rent.
"RENTABLE AREA" in this Lease means:
(i) in the case of a single tenancy on a whole floor of the
Building, all areas within the inside finished surface of
the dominant portion of the permanent outer Building walls
and shall be computed by measuring the inside finished
surface of the dominant portion of the permanent outer
Building walls and shall include Service Areas and any
special stairs and/or elevators for the specific sole use
of that floor, but excluding stairs, elevator shafts,
flues, pipe shafts and vertical ducts and the like and
their enclosing walls (the "VERTICAL OPENINGS"), with no
deductions for columns or projections necessary to the
Building plus a gross-up factor for ground floor services
in common with other tenants, including, but not limited to
vestibules, corridors, elevator lobbies, mechanical,
electrical, telephone, mail, garbage and janitor's rooms,
such factor to be based upon a ratio which the ground floor
Service Areas of the Building bears to the gross floor
area, less Vertical Openings of the Building; and
(ii) in the case of a floor of the Building to be occupied by
more than one tenant, all areas from the inside finished
surface of the dominant portion of the permanent outer
Building walls to the Tenant's side of corridors and/or
other permanent interior walls and to the centre of
demising partitions which separate the area occupied from
adjoining rentable premises, herein referred to as the
"USABLE AREA", plus a gross-up factor for the Service Areas
on the floor in common with other tenants on the same
floor, including, but not limited to, corridors, elevator
lobbies, mechanical, electrical, telephone and janitor's
rooms exclusively serving the floor, such factor to be
based upon a ratio which the Service Areas of the floor
bear to the sum of the Usable Area of the floor, plus an
additional gross-up factor for ground floor services in
common with other tenants, including, but not limited to,
vestibules, corridors, elevator lobbies, mechanical,
electrical, telephone, mail, garbage and janitor's rooms,
such factor to be based upon a ratio which the ground floor
Service Areas of the Building bears to the gross floor
area, less Vertical Openings of the Building.
"RULES AND REGULATIONS" means the rules and regulations attached as
Schedule "C".
"SERVICE AREAS" shall mean the area of corridors, elevator, lobbies,
service elevator lobbies, washrooms, air-cooling rooms, fan rooms,
janitor's closets, telephone and electrical closets and other closets
serving the Leased Premises in common with other premises on the same
floor.
"TAXES" means all taxes, rates, duties, levies and assessments
whatsoever, whether municipal, parliamentary or otherwise,
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6
levied, imposed or assessed against the Building, Common Areas or
Common Area Facilities or upon the Landlord in respect thereof
including Capital Tax and commercial concentration tax, or from time
to time levied, imposed or assessed in the future in lieu thereof,
or in addition thereto, whether now contemplated or not, and those
levied, imposed or assessed for education, schools and local
improvements and including all costs and expenses (including legal
and other professional fees and interest and penalties on deferred
payments), incurred by the Landlord in good faith in contesting,
resisting or appealing any taxes, rates, duties, levies or
assessments, but excluding taxes and license fees in respect of any
business carried on by tenants and occupants of the Building
(including the Landlord) to the extent such taxes are not levied in
lieu of taxes, rates, duties, levies and assessments against the
Building or upon the Landlord in respect thereof, and shall also
include any and all taxes which may in future be levied in lieu of
taxes as hereinbefore defined, and also including Large Corporations
Tax or any similar or successor tax in lieu thereof or in addition
thereto assessed upon the Landlord.
"TERM" means the term of the Lease stipulated in paragraph 2.2.
"UTILITIES" means electricity as described in Article 6.2, natural gas
and any other utility required in the operation of the Building.
ARTICLE II - LEASE TERM AND PAYMENTS
2.1 DEMISE. In consideration of the rents, covenants and agreements
hereinafter reserved and contained, the Landlord hereby leases to the
Tenant, for the exclusive use of the Tenant, the Leased Premises for
the Term.
2.2 TERM. The Lease shall have a term of five (5) years commencing on the
23rd day of June, 1995 and ending the 22nd day of June, 2000, unless
such term shall be sooner terminated as hereinafter provided.
2.3 It is understood and agreed that for the purposes of calculating the
Base Rent and Additional Rent payable during the first six (6) months
of the Term, the Leased Premises shall be divided into Area A being
6,000 square feet and Area B being 2,504 square feet.
After the first six (6) months of the Term there shall be no further
need to designate separate areas and the Leased Premises shall be
deemed one Rentable Area of 8,504 square feet.
AREA A
BASE RENT. The Tenant shall pay for Area A from June 23, 1995 until
December 22, 1995 of the within Term, the sum of $31,500.00 of lawful
money of Canada in six (6) equal monthly installments of $5,250.00 in
advance, the first of such installment to become due and payable on
June 23, 1995. The aforesaid Base Rent is calculated at the rate of
$10.50 per square foot of Rentable Area per annum calculated on 6,000
square feet.
AREA B
The Tenant shall not be obligated to pay Base Rent or Additional Rent
for Area B for the first two (2) months of the Term.
BASE RENT. The Tenant shall pay for Area B from August 23,
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7
1995 until December 22, 1995 of the within Term, the sum of
$10,959.16 of lawful money of Canada in four (4) equal monthly
installments of $2,739.79 in advance, the first of such
installment to become due and payable on August 23, 1995. The
aforesaid Base Rent is calculated at the rate of $13.13 per square foot
of Rentable Area per annum calculated on 2,504 square feet.
AREA A TOGETHER WITH AREA B
BASE RENT. The Tenant shall pay for Area A and Area B, yearly and every
year from December 23, 1995 until June 22, 2000 of the within Term, the
sum of $44,646.00 of lawful money of Canada in six (6) equal monthly
installments of $7,441.00 in advance, the first of such installment to
become due and payable on June 23, 1996. The aforesaid Base Rent is
calculated at the rate of $10.50 per square foot of Rentable Area per
annum calculated on 8,504 square feet.
It is understood and agreed that the Tenant shall not be obligated to
pay Base Rent for the Leased Premises for the period of December 23rd
through June 22nd of each year of the Original Term of the Lease.
During the Base Rent free periods, the Tenant shall be responsible for
the payment of all Additional Rent attributable to the Leased Premises.
IF THE TERM COMMENCES on any day other than the first or ends on any
day other than the last day of the month, the Base Rental and
additional rental for the fractions of a month at the commencement and
at the end of the Term shall be adjusted pro rata. All Base Rental
payments shall be payable on the first of each month.
2.4 PREPAID RENT. The Landlord acknowledges receipt of the sum of
$15,000.00, including GST, representing payment towards the first Rents
due under the Lease.
2.5 POST-DATED CHEQUES
The Tenant shall deliver to the Landlord, prior to the Tenant taking
possession of the Premises, twelve (12) post-dated cheques each in
the amount equal to the monthly Base Rent plus the Additional Rent
payments required under this Lease. One month prior to the first and
subsequent anniversaries of the Lease, the Tenant agrees to deliver
twelve (12) post-dated cheques to the Landlord.
ARTICLE III - LANDLORD AND TENANT COVENANTS
3.1 LANDLORD COVENANTS. The Landlord covenants with the Tenant:
(a) QUIET ENJOYMENT. To provide for quiet enjoyment.
(b) INTERIOR CLIMATE CONTROL. To provide to the Leased Premises
during Normal Business Hours, processed air by means of a
system for heating and cooling, filtering and circulating,
processed in such quantities, and at such temperatures as
shall be reasonable in accordance with good standards of
interior climate control generally pertaining to normal
occupancy of premises for office purposes. The Landlord shall
have no responsibility for inadequacy of the performance of
the said system if the Leased Premises depart from the design
criteria.
(c) ELEVATORS. Subject to the supervision of the Landlord and
except when repairs are being made thereto, to furnish for use
by the Tenant and its employees and invitees in common with
other persons entitled thereto reasonable standards of
passenger elevator service to the
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8
Leased Premises. The Tenant shall be responsible for any
damages caused to the elevator as a result of taking
possession or giving up possession of the Leased Premises
and shall pay such costs forthwith upon demand as
Additional Rent.
(d) ENTRANCES LOBBYS, ETC.. To permit the Tenant and its employees
and invitees to have the use in common with others entitled
thereto of the common entrances, lobbies, stairways, elevators
and corridors of the Building giving access to the Leased
Premises (subject to the Rules and Regulations and such other
reasonable limitations as the Landlord may from time to time
impose).
(e) WASHROOMS. To permit the Tenant and its employees and
invitees, in common with others entitled thereto to use the
washrooms available to the Leased Premises on each floor of
the Building upon which any part of the Leased Premises is
located.
(f) JANITOR SERVICE. To cause when reasonably necessary from time
to time the floors and windows of the Leased Premises to be
swept and cleaned and the desks, tables and other furniture of
the Tenant to be dusted, all in keeping with a first-class
office building, such work shall be done at the Landlord's
direction without interference by the Tenant, its servants or
employees.
(g) MAINTENANCE OF COMMON AREAS. To cause the elevators, common
entrances, lobbies, stairways, corridors, washrooms and other
parts of the Building from time to time provided for common
use and enjoyment to be swept, cleaned or otherwise maintained
substantially in keeping with a first-class office building.
(h) OPERATION OF BUILDING. Subject to chargeback to the Tenant as
may be permitted under the terms of this Lease, to operate,
maintain, repair and replace the Building including the
structure, roof, foundation, the systems, equipment and
facilities thereon in order to ensure the proper operation of
an office building consistent with a first-class nature.
3.2 TENANT COVENANTS. The Tenant covenants with the Landlord:
(a) RENT. To pay Base Rent and Additional Rent.
(b) PERMITTED USE. To use the Leased Premises only for the purpose
of a business office and not to use or permit to be used the
Leased Premises or any part thereof for any other purpose or
business.
(c) WASTE AND NUISANCE. Not to commit or permit any waste, damage
or injury to the Leased Premises including the Leasehold
Improvements and trade fixtures therein, reasonable wear and
tear excluded, any overloading of the floors thereof, any
nuisance therein or any use or manner of use causing
unreasonable annoyance to other tenants and occupants of the
Building.
(d) CONDITION. Not to permit the Leased Premises to become
hazardous or permit unreasonable quantities of waste or refuse
to accumulate therein and at the end of each business day to
leave the Leased Premises in a condition such as to reasonably
facilitate the performance of the Landlord's janitor and
cleaning services referred to herein.
(e) BY-LAWS. To comply at its own expense with all municipal,
federal, provincial, sanitary, fire, building and safety
statutes, laws, by-laws, regulations, ordinances, orders or
regulations pertaining to the operation and use
<PAGE>
9
of the Leased Premises, the condition of the Leasehold
Improvements, trade fixtures, furniture and equipment
installed by the Tenant therein and the making by the
Tenant of any repairs, changes or improvements therein.
<PAGE>
10
(f) FIRE EXIT DOORS. To permit the installation by the Landlord of
all doors in the exterior wall of the Leased Premises
necessary to comply with the requirements of any statute, law,
by-law, regulation, ordinance, order or regulation.
(g) RULES AND REGULATIONS. To observe and to cause its employees,
invitees and others over whom the Tenant can reasonably be
expected to exercise control, the Rules and Regulations and
such further and other reasonable rules and regulations and
amendments and changes therein as may hereafter be made by the
Landlord and notified to the Tenant.
(h) OVERHOLDING. That in the event that the Tenant remains in
possession of the Leased Premises after the termination of
the original Term hereby created, without other special
agreement, it shall be at the monthly base rent equal to
the Base Rent and Additional Rent payable during the last
month of the Term hereof, times two, payable on the first
day of each and every month and subject in other respects
to the terms of this Lease, including those provisions
requiring the payment of Base Rent and Additional Rent in
monthly installments.
3.3 SIGNS AND DIRECTORY. The Tenant covenants not to permit, paint,
display, inscribe, place or affix any sign, symbol, notice or lettering
of any kind anywhere outside the Leased Premises (whether on the
outside or inside of the Building) or within the Leased Premises so as
to be visible from the outside of the Leased Premises, with the
exception only of an identification sign at or near the entrance to the
Leased Premises and a directory listing in the main lobby of the
Building, in each case containing only the name of the Tenant and to be
subject to the approval of the Landlord as to size, location, content
and design criteria as established by the Landlord. Such identification
sign and directory listing shall be installed by the Landlord at the
expense of the Tenant, which expense shall be the invoice cost plus 15%
for an administration fee. The Landlord's acceptance of any name for
listing upon the directory will not be deemed, nor will it substitute
for the Landlord's consent if required by this Lease to any sublease,
assignment or other occupancy of the Leased Premises.
3.4 INSPECTION AND ACCESS. The Landlord shall be permitted to enter and to
have its authorized agents, employees and contractors enter the Leased
Premises, for the purpose of inspection, window cleaning, maintenance,
providing janitor service, making repairs, alterations or improvements
to the Leased Premises or the Building, or to have access to utilities
and services and access panels which the Tenant agrees not to obstruct,
or to determine the electric light and power consumption by the Tenant
in the Leased Premises and the Tenant shall provide free and unhampered
access for such purposes and, subject to the following, the Tenant
shall not be entitled to compensation for any inconvenience, nuisance,
discomfort or loss caused thereby, but the Landlord, in exercising its
rights hereunder, shall proceed to the extent reasonably possible so as
to minimize interference with the Tenant's use and enjoyment of the
Leased Premises and the Landlord shall be responsible for any damage
caused to the Leased Premises or the Tenant's goods by such inspection
and/or access.
3.5 EXHIBITING PREMISES. The Landlord and its authorized agents and
employees shall be permitted entry to the Leased Premises during the
last six (6) months of the term for the purpose of exhibiting them to
prospective tenants or at any time for the purposes of arranging
financing for the Building.
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11
3.6 LANDLORD'S CONTROL. The Tenant acknowledges that the Common Area
Facilities are at all times subject to the exclusive control and
operation of the Landlord, and the Landlord shall have the right to
construct improvements, alterations and additions thereto and to
relocate the various facilities thereon.
3.7 FINANCIAL STATEMENTS. The Tenant will, at the request of the Landlord,
supply copies of his financial statements in confidence to the
mortgagees, if any, on the said lands or a prospective mortgagee.
ARTICLE IV - REPAIR AND DAMAGE
4.1 TENANT'S REPAIRS. The Tenant covenants with the Landlord:
(a) to keep the Leased Premises in good and reasonable state
of repair and consistent with the general standards of
first-class office buildings in Metropolitan Toronto, to
perform all repairs and replacements as a prudent tenant
would do (reasonable wear and tear, structural repairs,
damage covered by the Landlord's insurance and damage
caused by reason of the negligence of the Landlord or
those for whom the Landlord is in law responsible,
excepted) to the Leased Premises including all Leasehold
Improvements and all trade fixtures therein and all glass
therein.
(b) that the Landlord may enter and view the state of repair from
time to time and that the Tenant will repair if required to do
so pursuant to the terms of this Lease, according to notice in
writing and that the Tenant will leave the Leased Premises in
a good and reasonable state of repair.
(c) that if any part of the Building other than the Leased
Premises becomes out of repair, damaged or destroyed through
the negligence or misuse of the Tenant or its employees,
invitees or others over whom the Tenant can reasonably be
expected to exercise control, the expense of repairs or
replacements thereto necessitated thereby shall be the
responsibility of the Tenant.
4.2 ABATEMENT AND TERMINATION. It is agreed between the Landlord and the
Tenant that:
(a) In the event of damage to the Leased Premises or to the
Building affecting access or services essential to the
conduct of business in the Leased Premises and if the
damage is such that the Leased Premises or any substantial
part thereof is rendered not reasonably capable of use and
occupancy by the Tenant for the purposes of its business
for any period of time in excess of 10 days, then
(i) unless the damage was caused by the misuse, fault,
negligence of the Tenant or its employees,
invitees or others under its control, from and
after the date of occurrence of the damage and
until the Leased Premises are again reasonably
capable of use and occupancy as aforesaid, Base
Rent (but not any other payments required to be
made by the Tenant hereunder) shall abate from
time to time in proportion to the part or parts of
the Leased Premises not reasonably capable of such
use and occupancy, and
(ii) unless this Lease is terminated as hereinafter
provided, the Landlord or the Tenant as the case may
be (according to the nature of the damage and
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12
their respective obligations to repair as provided
herein, it being understood that the Tenant shall
have the obligation to repair and replace all
Leasehold Improvements and all Tenant's trade
fixtures) shall repair such damage with all
reasonable diligence, but to the extent that any
part of the Leased Premises is not reasonably
capable of such use and occupancy by reason of
damage which the Tenant is obligated to repair
hereunder, any abatement of Rent to which the
Tenant is otherwise entitled hereunder shall not
extend later than the time by which repairs by the
Tenant ought to have been completed with reasonable
diligence; and
(b) if either the entire or substantially all of the Leased
Premises, or premises whether of the Tenant or other
tenants of the Building comprising in the aggregate 50% or
more of the Rentable Area of the Building are substantially
damaged or destroyed by any cause to such an extent in the
reasonable opinion of the Landlord cannot be repaired or
rebuilt within 180 days after the occurrence of the damage
or destruction, the Landlord may at its option, exercisable
by written notice to the Tenant given within 30 days after
the occurrence of such damage or destruction terminate this
Lease in which event neither the Landlord nor the Tenant
shall be bound to repair as provided herein and the Tenant
shall instead deliver up possession of the Leased Premises
to the Landlord with reasonable expedition but in any event
within 60 days after delivery of such notice of termination
and rent shall be apportioned and paid to the date upon
which possession is so delivered up (but, subject to any
abatement to which the Tenant may be entitled under
paragraph (a) of this clause 4.2 by reason of the Leased
Premises having been rendered in whole or in part not
reasonably capable of use and occupancy), but otherwise the
Landlord or the Tenant as the case may be (according to the
nature of the damage and their respective obligations to
repair described in 4.2 (a) (ii)) shall repair such damage
with reasonable diligence.
ARTICLE V - TAXES AND OPERATING COSTS
5.1 NET NET LEASE. The Tenant acknowledges and agrees that it is intended
that this Lease is a completely carefree net net lease to the Landlord,
except as expressly herein set out, that 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 Leased
Premises, or the use and occupancy thereof, or the contents thereof or
the business carried on therein, except as expressly set out herein,
and the Tenant shall pay all charges, impositions, costs and expenses
of every nature and kind relating to the Leased Premises.
5.2 LANDLORD'S TAX OBLIGATIONS. The Landlord covenants with the Tenant,
subject to the provisions herein, to pay all Taxes promptly when due to
the taxing authority or authorities having jurisdiction.
5.3 TENANT'S TAX OBLIGATIONS. The Tenant covenants with the
Landlord:
(i) to pay promptly when due to the taxing authority or
authorities having jurisdiction all taxes, rates, duties,
levies and assessments whatsoever, whether municipal,
parliamentary or otherwise, levied, imposed or assessed
in respect of any and every business carried on by the
Tenant, subtenants, licensees, or other occupants of the
Leased Premises or in respect of the use or occupancy
<PAGE>
13
thereof (including licence fees); and
<PAGE>
14
(ii) to pay promptly to the Landlord when demanded or otherwise due
hereunder:
(1) all Taxes charged in respect of all Leasehold
Improvements and trade fixtures and all furniture and
equipment made, owned or installed by or on behalf of
the Tenant in the Leased Premises as Additional Rent;
(2) if by reason of the act, election or religion of the
Tenant or any subtenant, licensee or occupant of the
Leased Premises, the Leased Premises or any part of
them shall be assessed for the support of Separate
Schools, the amount by which the Taxes so payable
exceed those which would have been payable if the
Leased Premises had been assessed for the support of
Public Schools; and
(3) the Tenant's Proportionate Share of Taxes as
Additional Rent in the manner stipulated herein.
(iii) notwithstanding any other provisions of this Lease to the
contrary, the Tenant shall pay to the Landlord, at such
times and in such manner as the Landlord may direct,
without duplication, an amount equal to all goods and
service taxes, sales taxes, value-added taxes or any other
taxes imposed with respect to Base Rent, Additional Rent or
other amounts payable by the Tenant to the Landlord under
this Lease, howsoever such taxes are characterized. The
amount payable by the Tenant hereunder shall not be deemed
to be Base Rent or Additional Rent but the Landlord shall
have all of the same rights and remedies for recovery of
same as it has for recovery of Base Rent and Additional
Rent hereunder.
Whenever requested by the Landlord the Tenant will deliver to it
receipts for payment of all taxes, rates, duties, levies and
assessments payable by the Tenant hereof and furnish such other
information in connection therewith as the Landlord may reasonably
require.
5.4 METHOD OF PAYMENT OF TAXES. The Tax payments required to be made by the
Tenant to the Landlord under the provisions of 5.3 (ii) herein shall be
estimated by the Landlord, and the Tenant shall pay to the Landlord in
addition to the monthly payments of Base Rent hereinbefore reserved,
one-ninth of the estimated annual tax payments in the months of January
to September, both inclusive, in each calendar year with an adjustment
being made when the property tax bill respecting the Building is
received by the Landlord for each year. The Tenant shall within sixty
(60) days of being invoiced pay to the Landlord such additional sums as
may be required in order that out of such monthly additional payments,
the Landlord may pay the whole amount of the annual taxes as the
installments thereof fall due; and if the monthly additional payments
so paid by the Tenant to the Landlord exceed in total the Tenant's
Proportionate Share of the annual property tax bill with respect to the
Building and Lands of which the Leased Premises form part, then the
excess shall be adjusted by the Landlord in favour of the Tenant by
applying such excess on account of the next ensuing rental payments due
(following the issue of the yearly statement) and such next ensuing
rental payments shall be reduced by such excess accordingly. The
Landlord shall forward to the Tenant copies of all notices or tax bills
relating to the imposition of property taxes or other charges required
hereunder to be paid as to part or all thereof by the Tenant. In the
event that the Landlord is unable to obtain or determine a separate
allocation of taxes payable by the Tenant under this Lease, the
Landlord shall have the right to make an allocation, but shall be
obligated to act reasonably and not arbitrarily.
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15
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16
5.5 OPERATING COSTS. During the Term of this Lease, the Tenant shall pay
to the Landlord its Proportionate Share of Operating Costs. Prior to
the commencement of the Term of this Lease and the commencement of
each fiscal period selected by the Landlord thereafter which
commences during the Term the Landlord shall estimate the amount of
Operating Costs and the Tenant's Proportionate Share thereof for the
ensuing fiscal period or (if applicable) broken portion thereof, as
the case may be, and notify the Tenant in writing of such estimate.
The amount so estimated shall be payable in equal monthly
installments in advance over the fiscal period or broken portion
thereof in question, each such instalment being payable on each
monthly rental payment date provided in clause 2.3. The Landlord may
from time to time alter the fiscal period selected, in which case,
and in the case where only a broken portion of a fiscal period is
included with the Term, the appropriate adjustment in monthly
payments shall be made. From time to time during a fiscal period the
Landlord may re-estimate the amount of Operating Costs and the
Tenant's Proportionate Share thereof, in which event the Landlord
shall notify the Tenant in writing of such re-estimate and fixed
monthly installments for the then remaining balance of such fiscal
period or broken portion thereof such that, after giving credit for
installments paid by the Tenant on the basis of the previous
estimate or estimates, the Tenant's entire Proportionate Share of
Operating Costs will have been paid during such fiscal period or
broken period thereof. As soon as practicable after the expiration
of each fiscal period the Landlord shall make a final determination
of Operating Costs and the Tenant's Proportionate Share thereof for
such fiscal period or (if applicable) broken portion thereof and
shall provide a statement to the Tenant and the parties shall make
the appropriate readjustment. Each 12 month period ending December
31st shall be deemed to be an accounting year for adjusting the said
Operating Costs and within 120 days after the end of each such
accounting year, the Landlord shall compute the said costs for such
accounting year and the Proportionate Share of the Tenant therefor
and shall submit to the Tenant a statement to reflect the Operating
Costs specifically permitted under this Lease, and the said
Proportionate Share thereof shall be borne by the Tenant. To the
extent that the Tenant's Proportionate Share of such costs for such
accounting year shall be greater than the total amount actually paid
by the Tenant by said monthly payments in respect of such year the
difference shall be paid by the Tenant to the Landlord within thirty
(30) days after receipt by the Tenant of such statement. Any excess
payments shall be applied by reducing the next ensuing rental
payment(s) by the amount of such excess. The said accounting period
may be modified by the Landlord if reasonably necessary. The Tenant
may not claim a readjustment in respect to the Tenant's
Proportionate Share of Operating Costs based upon any error of
assessment, determination or calculation thereof unless claimed in
writing prior to the expiration of one year after the fiscal period
to which the Operating Costs relate.
5.6 PAYMENT OF ADDITIONAL RENT. Any Additional Rent provided for under this
Lease unless otherwise provided herein, shall become due with each
instalment of monthly Base Rent.
ARTICLE VI- UTILITIES AND ADDITIONAL SERVICES
6.1 WATER AND TELEPHONE. The Landlord shall furnish appropriate openings
for bringing telephone services to the Leased Premises and shall
provide hot and cold water to washrooms in the Leased Premises and to
washrooms available for the Tenant's use in common with others entitled
thereto.
6.2 ELECTRICITY. The Tenant shall pay throughout the Term promptly to the
Landlord (unless paid directly to Hydro authorities pursuant to
separate billing) as Additional Rent
<PAGE>
17
when demanded:
(i) The cost of electric light and power supplied to the Leased
Premises monthly based on the electric light and power
requirements of the Tenant on a Proportionate Share basis as
determined from time to time during the Term by the Landlord
acting reasonably; and
(ii) The cost of cleaning, maintaining and servicing in all
respects all electric lighting fixtures in the Leased
Premises including the cost of replacement of electric
light bulbs, tubes, starters and ballasts used to replace
those installed at the commencement of the Term. Such
cleaning, maintaining, servicing and replacement shall be
within the exclusive right of the Landlord. It is
understood and agreed that the costs described in this
sub-section (ii) shall be included as part of Operating
Costs.
6.3 ADDITIONAL SERVICES. The Landlord, if it shall from time to time so
elect, shall have the exclusive right, by way of Additional Services,
to provide or have its designated agents or contractors provide any
janitor or cleaning service to the Leased Premises and Common Area
Facilities required by the Tenant which are additional to those
required to be provided by the Landlord hereunder, including the
Additional Services which the Landlord agrees to provide by
arrangement, and to supervise the moving of furniture or equipment of
the Tenant in and out of the Building where such moving of furniture or
equipment would be disruptive to the normal business of the Building,
and the making of repairs or alterations conducted within the Leased
Premises affecting base building, building systems or Leasehold
Improvements. The reasonable cost of Additional Services provided to
the Tenant, whether the Landlord shall be obligated hereunder or shall
elect to provide them as Additional Services, shall be paid to the
Landlord by the Tenant from time to time within thirty (30) days
following receipt of invoices therefor from the Landlord. Costs of
Additional Services charged directly to the Tenant and other tenants
shall be credited in computing Operating Costs.
ARTICLE VII- ASSIGNING AND SUBLETTING
7.1 ASSIGNMENTS AND SUBLETTINGS. The Tenant covenants with the Landlord
that it will not assign, sublet, licence or part with the possession of
the Leased Premises or any part thereof, or share the occupation of the
Leased Premises, or any part thereof, without the consent of the
Landlord in writing first had and obtained such consent not to be
unreasonably or arbitrarily withheld or delayed. Provided that as a
condition of the granting of its consent, the Landlord may require any
assignee, subtenant, licensee or occupant of the Leased Premises to
execute an agreement whereby he, it or they attorn to and become the
tenants of the Landlord as if he, it or they had executed this Lease,
or, except in the case of an absolute assignment of this Lease, to
execute an acknowledgement that all the sublessee's or undertenant's
estate, right and interest in and to the Leased Premises absolutely
terminates upon the surrender, release, disclaimer or merger of this
Lease notwithstanding the provisions of the Landlord and Tenant Act of
Ontario, R.S.O. 1990, CL.7 and amendments thereof with specific
reference to Paragraphs 21 and 39 (2) thereof, or other similar
statute. The Tenant shall furnish to the Landlord copies of any
assignment, sublease, licence or other agreement herein contemplated.
Notwithstanding any other provision in this section, no assignment,
subletting, licensing or parting with possession of the Leased Premises
shall in any way release or be deemed to release the Tenant (or any
guarantor hereof) from their obligations under the terms of this Lease.
Provided further that the proposed
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assignee, subtenant, licensee or occupant of the Leased Premises
shall be required to provide financial statements or other financial
information as the Landlord may require. It is agreed that the
Landlord may consider in determining whether to grant consent among
other matters, the following: the personal and business history of
the proposed assignee, occupant, sublessee and its key employees.
The Tenant agrees to pay the reasonable legal fees of the Landlord's
solicitor relating to the preparation of the Landlord's consent, and
determination as to whether to give the consent.
If by sale, transfer or other disposition of its shares, the control of
the Tenant is altered so that 51% of the shares are transferred in any
manner, then same shall be deemed as an assignment and the provisions
of this paragraph shall apply. The Tenant covenants and agrees to
advise the Landlord forthwith if such a transfer is contemplated.
In the event of any sub-letting by the Tenant by virtue of which the
Tenant receives rent in the form of cash, goods, services or other
considerations from the sub-tenant which is higher than the rent
payable hereunder to the Landlord for the premises so sub-let, the
Tenant shall pay any such excess to the Landlord, in addition to all
rent and other costs payable hereunder, for the period of time during
which the said subtenant remains in possession of the premises sub-let
to it.
If the Tenant herein shall receive from any assignee of this lease,
either directly or indirectly, any consideration for the assignment of
this lease, either in the form of cash, goods or services, the Tenant
shall forthwith pay an amount equivalent to such consideration to the
Landlord and same shall be deemed to be further Additional Rent
hereunder.
In the event of any proposed assignment or subletting of the Leased
Premises by the Tenant, the Landlord shall not be obligated to consider
such a proposal nor be required to consent to same, unless the base
rent payable by the proposed assignee or sublessee is, in the sole
discretion of the Landlord, at the then current market rate for similar
space in the immediate and surrounding area. In no event shall the
Tenant be required to sublease or assign this Lease at a base rental
rate in excess of the Base Rent payable hereunder.
In calculating whether there is any additional consideration payable by
an assignee or sublessee as hereinbefore provided, no deduction shall
be made for any commission payable to any agent or other party.
If the Landlord has granted to the Tenant, named on page 1 of this
Lease, any first rights of refusal, exclusive rights or options to
lease additional space or to purchase, it is agreed and understood that
upon the Tenant assigning, subletting, licensing or parting with
possession of the Leased Premises or any part thereof, the aforesaid
rights referred to shall automatically become null and void.
Notwithstanding the above provisions, within ten (10) business days
after the receipt by the Landlord of such request for consent and of
all information which the Landlord shall have requested hereunder, the
Landlord shall have the right upon written notice of termination
submitted to the Tenant to, if the request is to assign this Lease or
sublet the whole of the Leased Premises, cancel and terminate this
Lease, or to, if the request is to sublet a part of the Leased Premises
only, cancel and terminate this Lease with respect to such part, in
each case as of a termination date to be stipulated in the notice of
termination which shall be ninety (90) days following giving of such
notice. In such event the Tenant shall surrender the whole or part, as
the case may be, of the Leased Premises in accordance with such notice
of termination and Base Rent and Additional Rent shall be apportioned
and paid to the date of surrender and, if only a part of the Leased
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19
Premises is surrendered, Base Rent and Additional Rent shall, after
the date of surrender, abate proportionately. If the Landlord does
not elect to terminate as aforesaid and if consent to sublease or
assign will be granted, the Tenant may assign or sublet, as the case
may be, only upon the terms and to the party set out in the offer
submitted to the Landlord as aforesaid.
ARTICLE VIII- FIXTURES AND IMPROVEMENTS
8.1 INSTALLATION OF FIXTURES AND IMPROVEMENTS. The Tenant shall not make,
erect, install or alter any Leasehold Improvements in the Leased
Premises without having requested and obtained the Landlord's prior
written approval which the Landlord shall not unreasonably delay or
withhold. In making, erecting, installing or altering any Leasehold
Improvements the Tenant will not alter or interfere with any
installations which have been made by the Landlord without the prior
written approval of the Landlord and in no event shall it alter or
interfere with window coverings (if any) installed by the Landlord on
exterior windows. The Tenant's request for any approval hereunder shall
be in writing and accompanied by an adequate description of the
contemplated work and, where appropriate, working drawings and
specifications thereof. All work to be performed in the Leased Premises
shall be performed by reputable contractors approved by the Landlord.
The Landlord reserves the right to require the Tenant to utilize the
contractor(s) of the Landlord where base building, building systems
and/or warranties may be affected provided the Landlord agrees that
charges by such contractors shall be in keeping with that which an arms
length contractor would charge. The cost of all such work shall be
estimated by the Landlord in advance and such estimate approved by the
Tenant prior to work commencing. All such work shall be performed at
the Tenant's expense and the Tenant shall be responsible for
application and payment of all fees in connection with any permits
required. All such work shall be subject to inspection by and the
reasonable supervision of the Landlord, as an Additional Service, and
shall be performed in accordance with any reasonable conditions or
regulations imposed by the Landlord and completed in a good and
workmanlike manner in accordance with the description of the work
approved by the Landlord. The Landlord shall be entitled to supervise
the work and charge the Tenant a supervision fee. The Landlord shall
also be entitled to charge reasonable fees for examining plans
respecting the proposed work. The Tenant shall be obligated to pay any
reasonable consultant's fees incurred by the Landlord for review and
approval of plans for construction of any nature after the Commencement
Date as Additional Rent.
8.2 LIENS AND ENCUMBRANCES ON FIXTURES AND IMPROVEMENTS. In connection with
the making, erection, installation or alteration of Leasehold
Improvements and all other work or installations made by or for the
Tenant in the Leased Premises the Tenant shall comply with all the
provisions of the Construction Lien Act (Ontario) and other statutes
from time to time applicable thereto and shall promptly pay all
accounts relating thereto. The Tenant will not create or cause to be
created any mortgage, conditional sale agreement or other encumbrance
in respect of its Leasehold Improvements or permit any such mortgage,
conditional sale agreement or other encumbrance to attach to the Leased
Premises or to the Building and Common Area Facilities. If and whenever
any construction or other lien for work, labour, services or materials
supplied to or for the Tenant for the cost of which the Tenant may be
in any way liable or claims therefor shall arise or be filed or any
such mortgage, conditional sales agreement or other encumbrance shall
attach, the Tenant shall within ten (10) days after receipt of notice
thereof procure the discharge thereof, including any certificate of
action registered in respect of any lien, by payment or giving security
or in such other
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20
manner as may be required or permitted by law failing which the
Landlord may in addition to all other remedies hereunder avail
itself of its remedy hereunder and may make any payments required to
procure the discharge of any such liens or encumbrances and shall be
entitled to be reimbursed by the Tenant as provided herein and its
right to reimbursement shall not be affected or impaired if the
Tenant shall then or subsequently establish or claim that any lien
or encumbrance so discharged was without merit or excessive or
subject to any abatement, set-off or defense.
8.3 REMOVAL OF FIXTURES AND IMPROVEMENTS. All Leasehold Improvements in or
upon the Leased Premises shall immediately upon termination of this
lease be and become the Landlord's property without compensation
therefor to the Tenant. Except to the extent otherwise expressly agreed
by the Landlord in writing no Leasehold Improvements, trade fixtures,
furniture or equipment shall be removed by the Tenant from the Leased
Premises either during or at the expiration or earlier termination of
the Term except that (1) the Tenant shall at the end of the Term remove
its trade fixtures, and (2) the Tenant shall remove its furniture and
equipment at the end of the Term and may remove its furniture and
equipment during the Term in the usual and normal course of its
business where such furniture or equipment has become excess for the
Tenant's purposes or the Tenant is substituting therefor new furniture
and equipment. It is understood that the Tenant, as of the termination
of this Lease, will surrender the Leased Premises free from any
obligation to remove or demolish the original existing, as of the
Commencement Date, leasehold improvements. The Tenant shall, in the
case of every removal either during or at the end of the Term, make
good any damage caused to the Leased Premises by the installation and
removal. Provided that upon the termination of this Lease, the Tenant,
if requested by the Landlord, shall restore any subsequent alterations
to its former condition immediately prior to the installation of such
subsequent alterations or changes, including the restoration of such
standard fixtures as may have been installed by the Landlord, and if
not so requested, any such changes or alterations shall become the
property of the Landlord, or alternatively, the Tenant shall install
such comparable fixtures and materials as may then be in use.
8.4 OCCUPATIONAL HEALTH AND SAFETY. The Tenant covenants and agrees that it
will ensure that a comprehensive and rigorous health and safety program
to protect workers in the Leased Premises is implemented to ensure that
no accidents or injuries occur in connection with the performance of
any Tenant's work. The Tenant will indemnify the Landlord in respect of
all claims, infractions, prosecutions, alleged infractions, losses,
costs and expenses and any fines or proceedings relating to fines or
other offences under all occupational health and safety and any similar
legislation that might be brought, or imposed against or suffered by
the Landlord or any of its officers, directors and employees in
connection with the performance of any Tenant's work. Without limiting
the obligations set out above in this Section 8.4, the Tenant will do
at least the following:
(a) ensure that all obligations imposed by statute, law or
regulation on "constructors" or other persons completing or
co-ordinating any Tenant's work are diligently and properly
completed;
(b) co-operate with the Landlord in having any Tenant's work
designated as a separate project so that the Landlord does not
incur any obligations as a constructor or obligations similar
to those of a constructor at law or by regulation imposed in
connection with the performance of any Tenant's work;
(c) comply with all directions that the Landlord may give to
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the Tenant in connection with the performance of any Tenant's
work having regard to construction health and safety
requirements; and
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(d) provide to the Landlord whatever rights of access, inspection,
and whatever information, documents and other matters the
Landlord requires in order to ensure that the Tenant's
obligations under this Section are complied with.
ARTICLE IX- INSURANCE AND LIABILITY
9.1 LANDLORD'S INSURANCE. The Tenant will during the whole of the Term
hereby granted as part of Operating Costs, pay its Proportionate Share
of all premiums with respect to insurance to be placed by the Landlord
and described in this Section 9.1. The Landlord agrees to maintain
during the Term, insurance coverages as follows:
(i) Property of Every Description (Building and Equipment) against
the perils of "All-Risks", under form providing coverage at
least equivalent to Commercial Building Broad Form I.A.O. Form
No. 700 including "Building By-Laws Endorsements", and to be
insured for the Replacement Value, without allowance for
depreciation and Stated Amount, and with no co-insurance
requirement.
(ii) "Rental Income" for the gross annual rental income on
"All-Risks" basis, as provided under Commercial Building Broad
Form I.A.O. Form 700 including "Building By-Laws
Endorsements", providing coverage at least equivalent to
I.A.O. Profits Form No. 551 with an eighteen (18) month
indemnity period.
(iii) Broad Form Boiler and Machinery Policy on a blanket and
replacement basis with limits for each accident in an
amount not less than the replacement cost of the Building
containing the Leased Premises and which shall cover all
boilers, pressure vessels, air conditioning equipment and
miscellaneous electrical apparatus owned by the Landlord
and which shall include PCB coverage. It shall also
include "Rental Income" for the full gross annual income
equivalent to I.A.O. Profits Form No. 551 with a eighteen
(18) month indemnity period. This policy should also
provide "Building By-Laws Endorsements".
(iv) "General Liability Insurance" on a Comprehensive Form and on
an "occurrence" basis without deductible with retroactive
coverage against claims for Personal and Bodily Injury and
Death and/or Property Damage occurring upon or about the
Leased Premises and for a limit no less than $5,000,000.00
inclusive for one occurrence.
(v) Such other insurance coverage or coverages as a prudent owner
of a first class office building would obtain for protection
respecting loss of, or damage to the Building, the Lands or
the Leased Premises, or liability arising therefrom.
All such insurance coverages shall be kept and maintained by the
Landlord, and in no event shall the coverage be less than the amount
required by any institution then holding a mortgage on the Building and
Common Area Facilities. The Tenant shall pay to the Landlord, as part
of Operating Costs, its Proportionate Share of the Landlord's
Insurance. The Tenant shall not do or permit to be done any act or
thing whereby insurance coverage, premiums or any of them hereinbefore
contemplated, may be increased or cancelled by the insurer, or the
Leased Premises shall be rendered uninsurable, and if by reason of any
act done or permitted or omission, as the case may be, by the Tenant,
the said insurance coverage, premiums or any of them shall be
increased, then the Tenant, if it shall fail to rectify the event
giving rise to the increased premium after written notice thereof from
the Landlord, shall be liable to pay all of such increase in premium,
with respect
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to the entire coverages, and this notwithstanding that the Tenant
occupies only a portion of the Building covered by such insurance
coverages, and if the Leased Premises shall be rendered uninsurable,
or if the said insurance coverages, or any of them, shall be
cancelled by reason of any act or omission as the case may be by the
Tenant and shall not be susceptible of being replaced, after the
Landlord's reasonable efforts under the circumstances to do so, then
the Landlord, after giving the Tenant at least fourteen (14) days
written notice within which to replace insurance coverage or
coverages shall, at its absolute discretion, have the right to
determine that the term hereof has expired and in such event the
Tenant shall deliver up possession of the Leased Premises as if the
Term of this Lease had expired.
PROVIDED that no act required to be done by the Tenant nor any payment
required to be made by the Tenant, including reimbursements of
insurance premiums paid by the Landlord, shall relieve the Tenant from
any liability for damage incurred by the Landlord as result of any act
or omission of the Tenant.
If any other tenant of the Building has his own insurance premiums
increased by his insurers as a result of the use or occupation by the
Tenant herein of the within Leased Premises, the Tenant covenants and
agrees with the Landlord after written notice thereof, to pay the
additional cost forthwith upon demand as Additional Rent.
The Landlord's insurance policy shall contain a waiver of subrogation
in favour of the Tenant or those for whom the Tenant is in law
responsible.
9.2 AGENTS. The Tenant acknowledges, covenants and agrees that every right,
exemption from liability, defence and immunity of whatsoever nature
applicable to the Landlord or to which the Landlord is entitled
hereunder shall also be available and shall extend to protect every
such agent of the Landlord acting (in the course of or in connection
with his employment or otherwise) and for the purposes of all of the
foregoing provisions of this clause, the Landlord is or shall be deemed
to be acting as agent or trustee on behalf of and for the benefit of
persons who are or might be his servants, employees or agents from time
to time.
9.3 TENANT'S INSURANCE. The Tenant covenants to insure and to keep insured
during the whole of the Term, with an insurance company or companies in
good standing and upon terms and conditions all satisfactory to the
Landlord:
(i) "All-Risks" insurance upon all property owned by the Tenant
or for which it is legally liable or installed or affixed
by or on behalf of the Tenant and which is located in the
Building including, without limitation, furniture,
fittings, installations, alterations, additions, partitions
and fixtures or anything in the nature of a Leasehold
Improvement made or installed by or on behalf of the Tenant
in an amount equal to the full replacement cost thereof; if
there is a dispute as to the amount which comprises full
replacement cost the decision of the Landlord's Architect
shall be conclusive.
(ii) All parties hereto on a Comprehensive Form for bodily
injury and property damage, general liability coverage
arising out of the use, maintenance or repair of the Leased
Premises and/or the business of the Tenant or any
sub-tenant, licensees or occupiers of the Leased Premises;
such insurance shall be for a limit of not less than
$2,000,000.00 inclusive for any one occurrence, or such
higher limits as the Landlord, acting reasonably, or any
mortgagee requires from time to time, and shall contain a
severability of interest clause, and a cross liability
clause.
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25
(iii) Glass coverage for the replacement of all glass broken,
cracked or damaged in, on and about the Leased Premises.
(iv) Any other form of insurance that the Landlord or any mortgagee
may reasonably require, from time to time in form, amounts and
for insurance risks acceptable to the Landlord and any
mortgagee.
The Tenant covenants and agrees to provide the Landlord with evidence
of insurance as required under this provision. Such evidence shall be
by way of a certified copy of the policy if available in timely fashion
or failing which a certificate of insurance at such time or times as
the Landlord may require. The Tenant agrees to provide same to the
Landlord forthwith after notice has been given by the Landlord to the
Tenant of its request. The Tenant's policy shall contain a waiver of
subrogation in favour of the Landlord and those for whom the Landlord
is in law responsible.
9.4 LIMITATION OF LANDLORD'S LIABILITY. The Tenant agrees that:
(i) the Landlord shall not be liable for any bodily injury or
death of, or loss or damage to any property belonging to
the Tenant or its employees, invitees, or licensees or
any other person in, on or about the Building and Common
Area Facilities howsoever occurring, unless caused by the
negligent act or omission of the Landlord or those for
whom the Landlord is in law responsible, and in no event
shall the Landlord be liable for:
(1) any damage which is caused by steam, water, rain or
snow which may leak into, issue or flow from any part
of the Building or Common Area Facilities or from the
pipes or plumbing works thereof or from any other
place or quarter or for any damage caused by or
attributable to the condition or arrangement of any
electric or other wiring or for any damage caused by
anything done or omitted by any other tenant; and
(2) any act or omission (including theft, malfeasance or
negligence) on the part of any agent, contractor or
person from time to time employed by it to perform
janitor services, security services, maintenance,
supervision or any other work in or about the Leased
Premises or the Building or Common Area Facilities;
and
(3) loss or damage, however caused, to money, securities,
negotiable instruments, papers or other valuables of
the Tenant; and
(ii) the Landlord shall have no responsibility or liability
for the failure to supply interior climate control or
elevator service when prevented from doing so by strikes,
the necessity of repairs, any order or regulation of any
body have jurisdiction, the failure of the supply of any
utility required for the operation thereof or any other
cause beyond the Landlord's reasonable control, and shall
not be held responsible for any bodily injury, death or
damage to property arising from the use of, or any
happening in or about, any elevator.
9.5 INDEMNITY OF LANDLORD. Save and except for the negligent act or
omission of the Landlord or those for whom the Landlord is in law
responsible, the Tenant agrees to indemnify and save harmless the
Landlord in respect of all claims for bodily injury or death, property
damage or other loss or damage arising from the conduct of any work by
or any act or omission of the Tenant or any assignee, subtenant, agent,
employee, contractor, invitee or licensee of the Tenant, and in respect
of all costs, expenses and liabilities incurred by the Land-
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26
lord in connection with or arising out of all such claims, including
the expenses of any action or proceeding pertaining thereto, and in
respect of any loss, cost, expense or damage suffered or incurred by
the Landlord arising from any breach by the Tenant of any of its
covenants and obligations under this Lease.
ARTICLE X-SUBORDINATION, ATTORNMENT AND CERTIFICATES
10.1 SUBORDINATION AND ATTORNMENT. The Tenant agrees that this Lease and all
the rights of the Tenant hereunder are subject and subordinate to all
mortgages now or hereafter existing (including deeds of trust and all
instruments supplemental thereto) which may now or hereafter affect the
Building or Common Area Facilities and to all renewals, modifications,
consolidations, replacements and extensions thereof, provided such
mortgagee has provided a non-disturbance agreement to the Tenant;
provided that the Tenant whenever requested by any mortgagee (including
any trustee under a deed of trust and mortgage) shall attorn to such
mortgagee as the Tenant upon all the terms of this Lease. Subject to
the foregoing, the Tenant agrees to execute promptly whenever requested
by the Landlord or by such mortgagee such instrument of subordination
or attornment, as the case may be, as may be required of it.
10.2 CERTIFICATES. The Tenant shall promptly whenever requested by the
Landlord from time to time execute and deliver to the Landlord (and if
required by the Landlord, to any mortgagee [including any trustee under
a deed of trust and mortgage] designated by the Landlord) a certificate
in writing as to the then status of this Lease, including as to whether
it is in full force and effect, is modified or unmodified, confirming
the rent payable hereunder and the state of the accounts between the
Landlord and Tenant, the existence or non-existence of defaults, and
any other matters pertaining to this Lease as to which the Landlord
shall request a certificate.
ARTICLE XI-REMEDIES OF LANDLORD ON TENANT'S DEFAULT
11.1 REMEDYING BY LANDLORD. In addition to all rights and remedies of the
Landlord available to it in the event of any default hereunder by the
Tenant either by any other provision of this Lease or by statute or the
general law, the Landlord, subject to the respective notice periods as
required under Section 11.3 below:
(1) shall have the right at all times after the required written
notice of an event of default has been given to the Tenant, to
make any payments due by the Tenant to third parties and may
enter upon the Leased Premises to do any work or other things
therein, as may be reasonably necessary, and in such event all
expenses of the Landlord in remedying or attempting to remedy
such default shall be payable by the Tenant to the Landlord
forthwith upon demand;
(2) shall have the same rights and remedies in the event of any
non-payment by the Tenant of any amounts payable by the Tenant
under any provision of this Lease as in the case of a
non-payment of Rent; and
(3) if the Tenant shall fail to pay any Rent or other amount from
time to time payable by it to the Landlord hereunder promptly
when due, shall be entitled, to interest thereon at a rate of
3% per annum in excess of the minimum lending rate to prime
commercial borrowers from time to time current at The Bank of
Nova Scotia in Toronto from the date upon which the same was
due until actual payment thereof.
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11.2 REMEDIES CUMULATIVE. The Landlord, subject to 11.3 hereof, may from
time to time resort to any or all of the rights and remedies available
to it in the event of any default hereunder by the Tenant, either by
any provision of this Lease or by statute or the general law, all of
which rights and remedies are not to be interpreted as excluding any
other or additional rights and remedies available to the Landlord by
statute or the general law.
11.3 RIGHT OF RE-ENTRY DEFAULT OR TERMINATION. It is expressly agreed that
if and whenever the Base Rent or Additional Rent hereby reserved,
remains unpaid, or if the Tenant shall breach or fail to observe or
perform any of the other covenants, agreements, provisoes, conditions,
reasonable rules or regulations and other obligations on the part of
the Tenant to be kept, observed or performed hereunder, provided the
Landlord has first delivered notice to the Tenant explaining the
non-monetary breach and has allowed the Tenant fifteen (15) days to
rectify such non-monetary breach, or if this Lease shall have become
terminated pursuant to any provision hereof, then and in every such
case it shall be lawful for the Landlord thereafter to enter into and
upon the Leased Premises or any part thereof and to have again,
repossess and enjoy the same as of its former estate, anything in this
Lease contained to the contrary notwithstanding. Five (5) days notice
shall be required in the event of monetary breach.
11.4 TERMINATION RE-ENTRY. If and whenever the Landlord becomes entitled to
re-enter upon the Leased Premises under any provision of this Lease,
the Landlord, in addition to all other rights and remedies, shall have
the right to terminate this Lease forthwith by leaving upon the Leased
Premises notice in writing of such termination.
11.5 PAYMENT ON TERMINATION. Upon the giving by the Landlord of a notice in
writing terminating this Lease, pursuant to 11.4 or 11.3 of this Lease,
this Lease and the Term shall terminate, rent and any other payments
for which the Tenant is liable under this Lease shall be computed,
apportioned and paid in full to the date of such termination, and the
Tenant shall immediately deliver up possession of the Leased Premises
to the Landlord, and the Landlord may re-enter and take possession of
them.
11.6 RENUNCIATION. The Tenant waives and renounces the benefit of any
present or future statute taking away or limiting the Landlord's right
of distress.
11.7 RE-LETTING. Whenever the Landlord becomes entitled to re-enter upon the
Leased Premises under 11.3 or 11.4 hereof of this Lease the Landlord in
addition to all other rights it may have shall have the right as agent
of the Tenant to enter the Leased Premises and re-let them and to
receive the rent therefor and as the agent of the Tenant to take
possession of any furniture or other property thereon and to sell the
same at public or private sale without notice and to apply the proceeds
thereof and any rent derived from re-letting the Leased Premises upon
account of the rent due and to become due under this Lease and the
Tenant shall be liable to the Landlord for the deficiency if any.
ARTICLE XII-EVENTS TERMINATING LEASE
12.1 CANCELLATION OF INSURANCE. If any policy of insurance upon the Building
and Common Area Facilities from time to time effected by the Landlord
shall be cancelled or about to be cancelled by the insurer by reason of
the use or occupation of the Leased Premises by the Tenant or any
assignee, sub-tenant or licensee of the Tenant or anyone permitted by
the Tenant to be upon the Leased Premises and the Tenant after receipt
of notice in
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29
writing from the Landlord and a reasonable time allowed, to
reinstate such insurance or avoid cancellation, shall have failed to
take such immediate steps in respect of such use or occupation as
shall enable the Landlord to reinstate or avoid cancellation (as the
case may be) of such policy of insurance, the Landlord may at its
option terminate this Lease by leaving upon the Leased Premises
notice in writing of such termination.
12.2 PROHIBITED OCCUPANCY, BANKRUPTCY, ETC. If, without the written consent
of the Landlord the Leased Premises shall be used by any persons other
than the Tenant, its employees, invitees and customers or its permitted
assigns or sub-tenants or for any purpose other than that for which
they were leased, or occupied by any persons whose occupancy is
prohibited by this Lease, or if the Leased Premises shall be vacated or
abandoned, or remain unoccupied for 7 days or more while capable of
being occupied, or if the Term or any of the goods and chattels of the
Tenant shall at any time be seized in execution or attachment, or if
the Tenant shall make any assignment for the benefit of creditors,
become bankrupt or insolvent or take the benefit of any statute now or
hereafter in force for bankrupt or insolvent debtors or (if a
corporation) shall take any steps or suffer any order to be made for
its winding-up or other termination of its corporate existence, then in
any such case the Landlord may at its option, subject to compliance
with the procedures set forth in Section 11.3, terminate this Lease by
leaving upon the Leased Premises notice in writing of such termination
and thereupon, in addition to the payment by the Tenant of Rent and
other payments for which the Tenant is liable under this Lease, Rent
for the current month and the next ensuing 3 (three) months' Rent shall
immediately become due and be paid by the Tenant.
ARTICLE XIII-MISCELLANEOUS
13.1 REGISTRATION. The Tenant agrees with the Landlord not to register this
Lease, but nevertheless if the Tenant desires to register a notice of
this Lease, the Landlord agrees to execute a notice or acknowledgement,
if required, sufficient for the purpose in such form as the Landlord
and Tenant mutually approve provided in no event shall rental rates of
this Lease be shown.
13.2 NOTICE. Any notice required or contemplated by any provision of this
Lease shall be given in writing, and if to the Landlord, either
delivered to an executive officer of the Landlord or by facsimile
transmission or mailed by prepaid registered mail addressed to the
Landlord at 3650 Victoria Park Avenue, Suite #500, North York
(Toronto), Ontario, M2H 3P7, and if to the Tenant, either delivered to
the Tenant (or to an officer of the Tenant if the Tenant is a firm or
corporation) or by facsimile transmission or mailed by prepaid
registered mail addressed to the Tenant at the Leased Premises. Every
such notice shall be deemed to have been given when delivered or, if
mailed as aforesaid in Canada, upon the day when it was mailed. The
Landlord may from time to time by notice in writing to the Tenant
designate another address in Canada as the address to which notices are
to be mailed to it.
13.3 EXTRANEOUS AGREEMENTS. The Tenant acknowledges that there are no
covenants, representations, warranties, agreements or conditions
expressed or implied relating to this Lease or the Leased Premises save
as expressly set out in this Lease and in any agreement to Lease in
writing between the Landlord and the Tenant pursuant to which this
Lease has been executed. This Lease may not be modified except by an
agreement in writing executed by the Landlord and the Tenant.
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30
13.4 CONSTRUCTION. All of the provisions of this Lease are to be
construed as covenants and agreements. If any provision of this
Lease is illegal or unenforceable it shall be considered separate
and severable from the remaining provisions of this Lease, which
shall remain in force and be binding as though the said provision
had never been included. The headings and marginal sub-headings of
clauses and sub-clauses are for convenience of reference and are not
intended to limit, enlarge or otherwise affect their meanings.
13.5 NON-WAIVER. No condoning, excusing or overlooking by the Landlord of
any default, breach or non-observance by the Tenant at any time or
times in respect of any covenant, agreement, proviso or condition
herein contained shall operate as a waiver of the Landlord's rights
hereunder in respect of any continuing or subsequent default, breach or
non-observance or so as to defeat or affect in any way the rights of
the Landlord in respect of any such continuing or subsequent default or
breach and no waiver shall be inferred or implied by anything done or
omitted by the Landlord save only express waiver in writing.
13.6 ACCORD AND SATISFACTION. No payment by the Tenant or receipt by the
Landlord of a lesser amount than the Base Rent and Additional Rent from
time to time due shall be deemed to be other than on account of the
earliest stipulated Base Rent and Additional Rent due, nor shall any
endorsement or statement on any cheque or any letter accompanying any
cheque or payment of Base Rent or Additional Rent be deemed an accord
and satisfaction, and the Landlord may accept such cheque or payment
without prejudice to the Landlord's right to recover the balance of
such Base Rent or Additional Rent or pursue any other remedy provided
in this Lease.
13.7 GOVERNING LAW. This Lease shall be governed by and construed
in accordance with the laws of the Province of Ontario.
13.8 TIME OF THE ESSENCE. Time shall be of the essence of this Lease and
every part hereof.
13.9 NO PARTNERSHIP. Nothing contained herein shall be deemed or construed
by the parties hereto, nor any third party, as creating the
relationship of principal and agent, or a partnership, or a joint
venture between the parties hereto, it being understood and agreed that
none of the provisions contained herein nor any acts of the parties
hereto shall be deemed to create any relationship between the parties
hereto other than the relationship of Landlord and Tenant.
13.10 FORCE MAJEURE. Except as herein otherwise expressly provided, if and
whenever and to the extent that the Landlord shall be prevented
delayed or restricted in the fulfilment of any obligations hereunder
in respect of the supply or provision of any service or utility, the
making of any repair, the doing of any work or any other thing by
reason of strikes or work stoppages or being unable to obtain any
material, service, utility or labour required to fulfil such
obligation or by reason of any statute, law or regulation of or
inability to obtain any permission from any governmental authority
having lawful jurisdiction preventing, delaying or restricting such
fulfilment, or by reason of other unavoidable occurrence, the time
for fulfilment of such obligation shall be extended during the
period in which such circumstance operates to prevent, delay or
restrict the fulfilment thereof and the Tenant shall not be entitled
to compensation for any inconvenience, nuisance or discomfort
thereby occasioned.
13.11 CONTRA PROFERENTEM. The Parties acknowledge and agree that both
parties have participated in the drafting of this Lease, and any
rule of law providing that ambiguities shall be
<PAGE>
31
construed against the drafting party, shall be of no force or effect.
<PAGE>
32
13.12 PLANNING ACT. This Lease is expressly conditional upon compliance
with the land division provisions of the Planning Act R.S.O. 1990
(as it may be amended from time to time), if applicable.
13.13 ACCESS. The Tenant, its employees, invitees and customers and
persons connected with the Tenant (subject and except as in this
Lease provided) shall have the right in common with others entitled
thereto from time to time to use the parking areas, driveways,
walkways, lawns, ramps (if any) and other Common Areas in and about
the Building from time to time. The Tenant shall not unreasonably
block or in any manner hinder the Landlord, other tenants or other
persons claiming through or under them or any of them who may be
authorized by the Landlord to utilize the Common Areas from so
doing. The Landlord may, acting reasonably, from time to time permit
the Tenant to have the exclusive use of portions of the parking area
which forms part of the Common Areas and to permit other tenants or
other persons to have exclusive use of portions thereof.
13.14 TRANSFERS BY THE LANDLORD. The Landlord at any time and from time to
time may sell, transfer, lease, assign or otherwise dispose of the
whole or any part of its interest in the Leased Premises or in the
Building and lands of which the Leased Premises form a part, at any
time and from time to time, may enter into any mortgage of the whole
or any of its interest in the Building and Lands or in the Leased
Premises. If the party acquiring such interest shall have agreed to
assume and so long as it holds such interest, to perform each of the
covenants, obligations and agreements of the Landlord under this
Lease in the same manner and to the same extent as if originally
named as the Landlord in this Lease, the Landlord shall, thereupon
be released from all of its covenants and obligations under this
Lease.
The Landlord may assign its rights under this Lease to a lending
institution as collateral security for a loan. If such assignment is
made and executed by the Landlord and notification thereof is given
to the Tenant by or on behalf of the Landlord this Lease shall not
be cancelled or modified for any reason whatsoever except as
provided for by the terms hereof or by law without the consent in
writing of such lending institution.
13.15 OCCUPANCY PERMIT. Provided further that notwithstanding the
Commencement Date of the Lease as hereinbefore set out, the Tenant
shall not be permitted to enter into possession of the Leased
Premises until the Tenant has obtained at its sole expense, an
occupancy permit from the proper governmental authority. The
Landlord, in its sole discretion, may waive this provision. Provided
further, the Tenant agrees to use its best efforts to obtain same
prior to occupancy.
13.16 LEASED PREMISES. Save and except for any work to be performed by the
Landlord as specifically set out herein, the taking of possession of
the Leased Premises by the Tenant shall be conclusive evidence that
the Tenant accepts the Premises in an "as is" condition and that the
said Leased Premises were in good and satisfactory condition at the
time possession was so taken.
13.17 SUCCESSORS AND ASSIGNS. This Lease and everything herein contained
shall enure to the benefit of and be binding upon the successors and
assigns of the Landlord and the permitted successors and assigns of
the Tenant. References to the Tenant shall be read with such changes
in gender as may be appropriate, depending upon whether the Tenant
is a male or a female person or a firm or corporation, and if the
Tenant is more than one person or entity, the covenants of the
Tenants shall be deemed joint and several. All obligations
<PAGE>
33
of the Tenant or the Landlord under this Lease shall be deemed to be
covenants whether or not expressed as same. No rights of the Tenant
in this Lease shall be deemed to be personal, but shall accrue to
the benefit of the Tenant's successors, permitted subtenants and
assigns.
13.18 AREA DETERMINATION. In the event that any calculation or
determination by the Landlord of the Rentable Area of any premises
(including the Demised Premises) or the Building is disputed or
called into question, it shall be calculated or determined by the
Landlord's architect from time to time appointed for the purpose,
whose certificate shall be conclusive and the cost of such
certificate shall be borne by the Tenant.
ARTICLE XIV-OTHER PROVISIONS
14.1 PARKING. The Tenant acknowledges that the Common Area Facilities are at
all times subject to the exclusive control and operation of the
Landlord, and the Landlord shall have the right to construct
improvements, alterations and additions thereto and to relocate the
various facilities thereon. The Tenant further acknowledges that the
parking facilities in the Common Area Facilities are on a non-exclusive
("First Come", "First Serve Basis") and may be altered or diminished
during the term or renewal thereof and the manner in which access is
permitted may be altered.
The Landlord will provide up to 27 unassigned parking spaces in the
parking area of the Building throughout the Term at no charge to the
Tenant.
14.2 WINDOW COVERINGS. The Tenant acknowledges that as at the date of this
Lease the Landlord does not intend to require the Tenant to install and
maintain window coverings. Provided however, that the Landlord shall
have the right at any future time to prescribe a uniform pattern for
window coverings to be utilized in the Leased Premises. In the event
the Landlord so prescribes same, the Tenant shall permit the Landlord
to install window coverings at the cost of the Tenant which cost or the
current portion thereof shall form part of Operating Costs. Until such
time, no window coverings may be installed or utilized by the Tenant
without the written consent of the Landlord, which consent may be
unreasonably or arbitrarily withheld.
14.3 EXTENSION. Provided it is mutually agreed and understood that if the
Tenant duly and regularly pays the Base Rent and Additional Rent and
performs all of the provisos and agreements contained herein on the
part of the Tenant to be performed, and provided further that the
Tenant is not habitually in default under the terms of this Lease and
is not in default at the time of the exercise of the option herein,
then the Landlord shall, at the expiration of the Term hereof, upon
written request of the Tenant, grant to the Tenant an extension of this
Lease for a further period of five (5) years upon the same terms and
conditions as contained herein, save as to the Base Rental rate, and
save as to any further right of extension. Provided always that the
Tenant shall have given to the Landlord 180 days' notice in writing
before the expiration of the Term of its desire to have such extension.
The Base Rental rate for the extension term shall be at the then
current market rate for similar premises in a similar area and as
mutually agreed between the Landlord and the Tenant. In the event that
the Landlord and the Tenant are unable to agree upon the Base Rental
rate for the extension term by 120 days prior to the maturity date, the
matter shall be submitted to arbitration by notice given by either
party to the other. Upon such notice being given, the dispute shall be
determined by the award of 3 arbitrators, or by a majority of them, one
to be named by the Landlord and one by the Tenant
<PAGE>
34
within 30 days of the giving of such notice, and the 3rd to be
selected by these 2 arbitrators within 7 days after both have been
nominated. If either the Landlord or the Tenant shall neglect or
refuse to name its arbitrator in the time specified or to proceed
with the arbitration, the arbitrator named by the other party shall
proceed with the arbitration, and the award of such arbitrator shall
be final and binding upon the Landlord and the Tenant. The
Arbitrators shall have all the power given by the Arbitrations Act
of Ontario and may at any time proceed in such manner as they see
fit on such notice as they deem reasonable in the absence of either
party, if such party fails to attend. Each party shall pay its own
costs and shall share equally the costs of arbitration. The award
and determination of the arbitrators shall be final and binding upon
both parties hereto and each party agrees not to appeal any such
award or determination.
In no event shall the Base Rent for the extension period be less than
the highest Base Rent payable under the original Term.
If the award of the arbitrators is not given before the commencement
date of the extension term, then the Tenant shall commence paying rent
at the market rate as determined by the Landlord together with
Additional Rent, which shall be adjusted forthwith after the award of
the arbitrators has become final and binding, to be calculated from the
commencement date of the extension term.
Interest at the rate set out herein shall be calculated monthly on the
difference between the Base Rent paid by the Tenant and the actual
amount awarded by the arbitrators and shall be paid forthwith upon
demand when the arbitrators' decision has been made.
The extension of lease form shall be prepared by the Landlord at the
Tenant's cost and the Tenant covenants and agrees to pay to the
Landlord said costs forthwith upon demand.
14.4 TAXES, OPERATING COSTS AND HYDRO. The Taxes, Operating Costs and Hydro
applicable to the Leased Premises is currently estimated to be $9.47
per square foot per annum for 1995. The Tenant acknowledges that this
is an estimate only and is subject to adjustment when actual costs are
known.
14.5 SPACE PLANNING. The Landlord shall, at its expense, provide preliminary
space planning services consisting of an initial layout and two
revisions by the Tenant.
14.6 LANDLORD'S WORK. Subject to any adjustments as a result of the above
mentioned space planning service, the Landlord shall, at its own
expense, provide the following Landlord's Work to the Leased Premises
to be completed prior to the commencement of the Term, as listed below,
provided this Lease has been mutually executed by May 23, 1995:
(a) construct full height to deck demising walls insulated
for sound as highlighted in yellow on Schedule "D";
(b) relocate the required secondary access door to the location
highlighted in blue on Schedule "D" and reconstruct the
demising wall in said door's former location;
(c) remove the railing and fill-in the existing stairway, as
outlined in orange on Schedule "D";
(d) insure existing plumbing, electrical outlets and light
fixtures are all in working order; and
(e) repair or replace all damaged ceiling tiles throughout the
Leased Premises.
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35
14.7 LEASEHOLD IMPROVEMENTS. With the exception of the Landlord's Work
listed above, the Tenant shall lease the Leased Premises on an "as
is" basis. Any Leasehold Improvements deemed necessary by the
Tenant shall be constructed by the Landlord, at the Tenant's
expense, based upon a floor plan designed by the Landlord's space
planner, and approved by the Landlord and the Tenant and initialled
by both parties for identification. As the general contractor for
the Leasehold Improvements, the Landlord shall be compensated with a
fee equal to 10% of the total contract cost of the Leasehold
Improvements. Payment by the Tenant shall be made upon presentation
of cost plus invoices by the 25th day of each month and such
invoices shall be payable net 10 days upon receipt thereof. The
Landlord shall make its best efforts to control the costs of the
Leasehold Improvements and when time permits, seek additional
trade/supply quotes.
14.8 EARLY ACCESS TO LEASED PREMISES. Upon the formal execution of this
Lease, and the Agents receipt of the Deposit, the Tenant shall be
granted access to the Leased Premises for the purpose of co-ordinating
the installation of the Tenant's telephone service, computers, etc.,
whether it be exclusively or in common with one of the Landlord's
employees. During this period, the Tenant shall be bound by all the
provisions of this Lease saving those requiring the payment of Rent.
14.9 CO-TENANCY. This Agreement is not personally binding upon and resort
shall not be had nor shall recourse or satisfaction be sought from the
private property of any of the unit holders of Investors Real Property
Fund (the "FUND"), trustees, officers, directors, employees or agents
of the trustee or manager of the Fund, it being intended and agreed
that only the property of the Fund shall be bound by this Agreement.
Only the co-tenancy interests of Menkes and Investors Group shall be
bound hereby and the obligations hereunder are not binding upon either
of Menkes or Investors Group in any other respect nor shall resort be
had to any other property of any of Menkes or Investors Group. The
rights and obligations of each of Menkes and Investors Group hereunder
shall, in every case, be several and proportionate and not either joint
or joint and several.
IN WITNESS WHEREOF the Landlord and Tenant have executed this Lease.
MENKES OFFICE PARKS LTD.
Per:________________________________
(Authorized signing officer)
INVESTORS GROUP TRUST CO. LTD.
as trustee for
INVESTORS REAL PROPERTY FUND
Per:________________________________
(Authorized signing officer)
Per:________________________________
(Authorized signing officer)
CHANGEPOINT CORPORATION
<PAGE>
36
Per:________________________________
(Authorized signing officer)
<PAGE>
LEASE
THIS LEASE made as of the 4th day of April, 1995
PURSUANT TO THE SHORT FORMS OF LEASES ACT
BETWEEN
MENKES OFFICE PARKS LTD. and INVESTORS
GROUP TRUST CO. LTD. as trustee for
INVESTORS REAL PROPERTY FUND
(the "LANDLORD")
OF THE FIRST PART
- AND -
THOMPSON MINWAX (CANADA) LTD.
(the "TENANT")
OF THE SECOND PART
ARTICLES. For convenience of reference this Lease has been divided
into the following Articles:
Article I - Definitions
Article II - Lease Term and Payments
Article III - Landlord and Tenant Covenants
Article IV - Repair and Damage
Article V - Taxes and Operating Costs
Article VI - Utilities and Additional Services
Article VII - Assigning and Subletting
Article VIII - Fixtures and Improvements
Article IX - Insurance and Liability
Article X - Subordination, Attornment and Certificates
Article XI - Remedies of Landlord on Tenant's Default
Article XII - Events Terminating Lease
Article XIII - Miscellaneous
Article XIV - Other Provisions
LIST OF SCHEDULES. The following schedules form an integral part of this
Lease:
Schedule "A" - Legal Description of Lands
Schedule "B" - Leased Premises
Schedule "C" - Rules and Regulations
ARTICLE I - DEFINITIONS
1.0 DEFINITIONS. In this Lease the following defined terms shall have the
meanings set forth below.
"ADDITIONAL RENT" means Operating Costs under Section 5.5, Taxes under
5.3, Electricity under 6.2, and Insurance under Article I and all other
charges, costs and expenses required to be paid by the Tenant under the
terms of this Lease (other than Base Rent) whether payable to the
Landlord or not.
"ADDITIONAL SERVICES" means the services and supervision supplied by
the Landlord to the Leased Premises and Common Area Facilities and
referred to herein or in any other provision hereof as Additional
Services and any other services which from time to time the Landlord
supplies to the Tenant at the Tenant's written request or as the
Landlord deems necessary, acting reasonably, in the event of a default
by the Tenant and which are additional to the janitor and cleaning and
other services typically supplied in a first class office building,
supervision in connection with the making of any repairs or alterations
by the Tenant affecting the Base Building, building systems or
Leasehold Improvements.
"ATTIC STOCK" means spare fan, pump and cooling tower motors, base
Building light fixtures, fuses, etc.
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2
"BASE RENT" means the base rent payable by the Tenant in accordance
with Section 2.3.
"BUILDING" means the building municipally known as 1595 16th Avenue,
Richmond Hill, Ontario.
"CAPITAL TAX" is an amount presently or hereafter imposed from time to
time pursuant to Part III of the Corporations Tax Act (Ontario) (the
"Act") upon the Landlord or the owner of the Building and Lands and
payable by the Landlord on account of its interest in the Building and
the Lands or any part thereof, or its interest in or capital employed
in the Building and the Lands, as the case may be.
"COMMENCEMENT DATE" means April 1, 1995.
"COMMON AREA FACILITIES" means all facilities, improvements,
installations, utilities and equipment located in the Building or the
Lands immediately surrounding the Building.
"COMMON AREAS" means those areas, facilities, utilities, improvements,
equipment and installations comprising the Lands and Building and which
are not leased or designated for lease to tenants but are provided to
be used in common by (or by the sublessees, agents, employees,
customers or licensees of) the Landlord, the Tenant, and other tenants
of the Building and other buildings on the Lands, whether or not the
same are open to the general public or a specific tenant of the
Building, and include, but are not limited to, parking areas and all
vestibules for and entrances and exits thereto; driveways, truckways
and related areas; corridors and underground or above ground tunnels or
passageways; stairways, escalators, ramps, and elevators and other
transportation equipment and systems; tenant, common and public
washrooms; telephone, meter, valve, mechanical, mail, storage, service
and janitor rooms; fire prevention, security and communication systems,
any fixtures, chattels, systems, decor, signs, facilities, or
landscaping and planted areas contained therein or maintained or used
in connection therewith.
"COST OF ADDITIONAL SERVICES" shall mean in the case of Additional
Services provided by the Landlord a reasonable charge made therefor by
the Landlord which shall not exceed the cost of obtaining such services
from independent contractors and in the case of Additional Services
provided by independent contractors the Landlord's total cost of
providing Additional Services to the Tenant including the proportionate
cost of all direct labour (including salaries, wages and fringe
benefits) and materials and other direct expenses incurred, the cost of
supervision without duplication or profit and other expenses reasonably
allocated thereto.
"INSURED DAMAGE" means that part of any damage occurring to the Leased
Premises of which the entire cost of repair is actually recovered by
the Landlord under a policy of insurance in respect of fire and other
perils from time to time effected by the Landlord, or for which the
Landlord has self-insured under Section 9.1 herein.
"LAND" means those lands described in Schedule "A" attached
hereto.
"LEASE" means this lease between the Landlord and the Tenant,
and all amendments hereto.
"LEASEHOLD IMPROVEMENTS" means all fixtures, improvements,
installations, alterations and additions from time to time made,
erected or installed by or on behalf of the Tenant or by or on behalf
of any other previous occupant in the Leased Premises (including the
Landlord) with the exception of trade
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3
fixtures, furniture and equipment, (not of the nature of fixtures),
modular office furniture systems, improvements of a cosmetic nature
such as rugs (but not broadloom), decorations and other improvements
moveable without the use of tools, but Leasehold Improvements include
all office partitions however affixed and includes wall-to-wall and
other carpeting with the exception of such carpeting where laid over
vinyl tile or other finished floor and affixed so as to be readily
removable without damage.
"LEASED PREMISES" means approximately 9,537 square feet of Rentable
Area on the 7th floor of the Building known as suite 701, as outlined
in red on the plans attached as Schedule "B".
"NORMAL BUSINESS HOURS" means the hours of 7:00 a.m. to 7:00
p.m. Monday to Friday, except public holidays.
"OPERATING COSTS" means the total of all expenses, costs, and outlays
incurred in the complete maintenance, repair and operation of the
Building and Common Area Facilities, whether incurred by or on behalf
of the Landlord and calculated without profit (other than the
management fee) or duplication, and subject to Section 14.10, in
accordance with generally accepted accounting principles:
(i) Operating Costs shall include without limiting the
generality of the foregoing (but subject to certain
deductions as hereinafter provided), the cost of
providing complete cleaning and janitorial services, the
cost of building supplies used in the maintenance of the
Building, Attic Stock, maintenance services, exterior
landscaping, snow removal, garbage and waste collection
and disposal, rental of equipment and signs, janitorial
services to the Common Areas of the Building, the cost of
operating elevators, the cost of heating, cooling and
ventilating all space including both rentable and non-
rentable areas, the cost of providing hot and cold water,
electricity (including lighting), and the replacement of
electric light bulb tubes, starters and ballasts,
telephone and other utilities and services to both
rentable and non-rentable areas, the cost of all repairs
including repairs to the Building or services in the
Building or Common Area Facilities including elevators,
the cost of window cleaning, and providing security (if
any), the cost of all insurance for liability or fire or
other casualties referred to in Article 9.1, accounting
costs incurred in connection with maintenance and
operation including computations required for the
imposition of charges to the Tenant and audit charges
required to be incurred for the conclusive determination
of any costs hereunder, reasonable legal fees, the amount
of all salaries (only to the extent that such salaries or
a proportion thereof, relate directly to the Building),
wages and fringe benefits, unemployment and workers
compensation insurance premiums, pension plan
contributions and other similar premiums and
contributions paid or provided to employees directly or
a reasonable proportion thereof engaged in the
maintenance, repair or operation of the Building, amounts
paid to independent contractors for any services in
connection with such maintenance, repair or operation,
the reasonable cost of management fees, and other
indirect expenses to the extent allocable to the
maintenance, repair and operation of the Building and
Common Area Facilities and all other reasonable expense
of every nature incurred in connection with the
maintenance, repair and operation of the Building and
Common Area Facilities; and
(ii) Operating Costs shall exclude debt service, and all management
costs not allocable to the actual maintenance, repair and
operation of the Building (such as that
<PAGE>
4
incurred in connection with leasing and rental advertising).
Notwithstanding anything contained herein, Operating Costs shall not
include:
(a) interest and principal payments on outstanding financing
of the Landlord, and any other debt costs of the
Landlord;
(b) payments under any ground lease;
(c) costs or expenses incurred with respect to the acquisition,
development, construction, furnishing and original landscaping
of the Building and any expansion thereof;
(d) depreciation;
(e) save and except as permitted by Section 14.10, costs and
expenses properly chargeable to capital account including,
without limitation, the cost of repairs of a structural
nature;
(f) costs or expenses resulting from any inadequacy in the design
or construction of the Building or with respect to poor
workmanship or materials in connection with such construction;
(g) costs of repairs done by the Landlord and for which the
Landlord has been or is to be reimbursed either as a result of
an insurance claim or otherwise;
(h) costs of alterations or improvements to the Leased Premises or
the premises of other tenants in the Building and
corresponding costs as to premises occupied or to be occupied
by the Landlord, except as they relate to premises occupied by
the Landlord in the performance of its function as landlord
and manager of the Building;
(i) commissions, fees and all other expenses incurred in
connection with marketing or leasing the Building or any part
thereof, including without limitation the cost of work which
the Landlord does in any other leased premises in the Building
for the purpose of obtaining a new tenant of such premises or
for the purposes of obtaining a renewal;
(j) amounts for which the Landlord is reimbursed by tenants or
third parties including, without limitation, insurance
premiums chargeable to tenants other than pursuant to this
definition;
(k) any bad debt loss, rent loss or reserves for bad debts or
rent loss;
(l) any amount paid as a fine or a penalty as a result of a
violation of law (provided such violation of law was not
caused by or contributed to by the Tenant), or the payment of
which constitutes a violation of law, or the reimbursement of
which would constitute a violation of law;
(m) all costs incurred in connection with the rectification of any
work done by the Landlord in the Leased Premises or in the
Building which did not comply with and conform to every
applicable statute, law, by-law, and regulation, provided such
non-compliance is not attributable to the Tenant or those for
whom the Tenant is in law responsible or the Tenant's use and
occupancy of the Leased Premises;
(n) income taxes and other taxes personal to the Landlord;
<PAGE>
5
(o) sales tax, goods and services tax, value added tax or any
similar tax;
(p) the cost of any insurance premiums relating to risks or
amounts which are not normally insured against by reasonably
prudent owners of similar buildings;
(q) the amount of insurance premiums to the extent they are
payable in respect of insurance coverage arranged by the
Landlord on behalf of a specific tenant of the Building and to
the extent such coverage is not provided for in this Lease;
(r) the cost of any payment which the Landlord is obligated to
make pursuant to an agreement to indemnify any person;
(s) Capital Tax;
(t) operating costs which are recovered from insurance proceeds or
which would be recoverable assuming compliance by the Landlord
with its insurance obligations under this Lease;
(u) costs covered by warranties or guarantees;
(v) charges for services rendered or materials furnished to or
part of any special arrangement with any specific tenant or
tenants of the Building;
(w) any cost which would otherwise be included in Operating Costs,
but consists of an amount paid to a corporate affiliate,
parent or subsidiary of the Landlord, to the extent such
amount is in excess of the fair market value of the said item
or service where the expense incurred in an arms-length
transaction; and
(x) amounts which are deducted from the calculation of Operating
Costs in other tenant's leases.
"PROPERTY" means the Land and Building.
"PROPORTIONATE SHARE" shall mean the fraction which has as its
numerator the Rentable Area of the Leased Premises and has as its
denominator the total Rentable Area of the Building. The total Rentable
Area of the Leased Premises shall be adjusted from time to time, as may
be reasonably necessary, to give effect to any structural or functional
changes affecting the calculation of total Rentable Areas.
"RENT" means Base Rent and Additional Rent.
"RENTABLE AREA" in this Lease means:
(i) in the case of a single tenancy on a whole floor of the
Building, all areas within the inside finished surface of
the dominant portion of the permanent outer Building
walls and shall be computed by measuring the inside
finished surface of the dominant portion of the permanent
outer Building walls and shall include Service Areas and
any special stairs and/or elevators for the specific sole
use of that floor, but excluding stairs, elevator shafts,
flues, pipe shafts and vertical ducts and the like and
their enclosing walls (the "VERTICAL OPENINGS"), with no
deductions for columns or projections necessary to the
Building plus a gross-up factor for ground floor services
in common with other tenants, including, but not limited
to vestibules, corridors, elevator lobbies, mechanical,
electrical, telephone, mail, garbage and janitor's rooms,
such factor to be based upon a ratio which the ground
floor Service Areas of the Building bears to the gross
floor area, less Vertical Openings of the Building; and
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6
(ii) in the case of a floor of the Building to be occupied by
more than one tenant, all areas from the inside finished
surface of the dominant portion of the permanent outer
Building walls to the Tenant's side of corridors and/or
other permanent interior walls and to the centre of
demising partitions which separate the area occupied from
adjoining rentable premises, herein referred to as the
"USABLE AREA", plus a gross-up factor for the Service
Areas on the floor in common with other tenants on the
same floor, including, but not limited to, corridors,
elevator lobbies, mechanical, electrical, telephone and
janitor's rooms exclusively serving the floor, such
factor to be based upon a ratio which the Service Areas
of the floor bear to the sum of the Usable Area of the
floor, plus an additional gross-up factor for ground
floor services in common with other tenants, including,
but not limited to, vestibules, corridors, elevator
lobbies, mechanical, electrical, telephone, mail, garbage
and janitor's rooms, such factor to be based upon a ratio
which the ground floor Service Areas of the Building
bears to the gross floor area, less Vertical Openings of
the Building.
"RULES AND REGULATIONS" means the rules and regulations
attached as Schedule "C".
"SERVICE AREAS" shall mean the area of corridors, elevator, lobbies,
service elevator lobbies, washrooms, air-cooling rooms, fan rooms,
janitor's closets, telephone and electrical closets and other closets
serving the Leased Premises in common with other premises on the same
floor.
"TAXES" means all taxes, rates, duties, levies and assessments
whatsoever, whether municipal, parliamentary or otherwise, levied,
imposed or assessed against the Building, Common Areas or Common Area
Facilities or upon the Landlord in respect thereof, excluding Capital
Tax, Large Corporations Tax and commercial concentration tax, or from
time to time levied, imposed or assessed in the future in lieu thereof,
whether now contemplated or not, and those levied, imposed or assessed
for education, schools and local improvements and including all costs
and expenses (including reasonable legal and other professional fees),
incurred by the Landlord in good faith in contesting, resisting or
appealing any taxes, rates, duties, levies or assessments, but
excluding taxes and license fees in respect of any business carried on
by tenants and occupants of the Building (including the Landlord) to
the extent such taxes are not levied in lieu of taxes, rates, duties,
levies and assessments against the Building or upon the Landlord in
respect thereof, and shall also include any and all taxes which may in
future be levied in lieu of taxes as hereinbefore defined.
"TERM" means the term of the Lease stipulated in paragraph 2.2.
"UTILITIES" means electricity as described in Article 6.2, natural gas
and any other utility required in the operation of the Building.
ARTICLE II - LEASE TERM AND PAYMENTS
2.1 DEMISE. In consideration of the rents, covenants and agreements
hereinafter reserved and contained, the Landlord hereby leases to the
Tenant, for the exclusive use of the Tenant, the Leased Premises for
the Term.
2.2 TERM. The Lease shall have a term of five (5) years commencing on April
1, 1995 and ending March 31, 2000, unless such term shall be sooner
terminated as hereinafter provided.
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7
2.3 BASE RENT. Subject to the provisions of section 14.9 hereof the Tenant
shall pay yearly and every year during the within Term the sum of
$120,833.76 of lawful money of Canada in twelve (12) equal monthly
instalments of $10,069.48, in advance, the first of such instalment to
become due and payable on April 1, 1995 (the "BASE RENTAL").
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8
The aforesaid annual Base Rent is calculated on the basis of the
Rentable Area of the Leased Premises being 9,537 square feet at a rate
of $12.67 for each square foot of Rentable Area.
The parties hereto acknowledge and agree that $0.67 of the Base Rental
rate noted above has been included in lieu of the Tenant not paying a
Proportionate Share of Capital Tax and Large Corporations Tax as part
of Taxes and not paying a Proportionate Share of depreciation of
systems and equipment as part of Operating Costs. It is further agreed
that upon this Lease becoming extended whether pursuant to Section 14.3
hereof or otherwise, there shall be added to the determined Base Rental
rate for the extension term, a corresponding amount of the then current
amount charged by the Landlord under its leases in the Building for
Capital Tax, Large Corporations Tax and depreciation of systems and
equipment of the Building.
The Landlord represents and warrants that the Rentable Area of the
Leased Premises is 9,537 square feet and the Landlord, at its cost,
covenants and agrees to deliver a certificate in respect thereof,
signed by the Landlord's architect, prior to the Commencement Date.
IF THE TERM COMMENCES on any day other than the first or ends on any
day other than the last day of the month, the Base Rental and
additional rental for the fractions of a month at the commencement and
at the end of the Term shall be adjusted pro rata. All Base Rental
payments shall be payable on the first of each month.
2.4 PREPAID RENT. The Landlord acknowledges receipt of the sum of
$39,031.00, including GST, representing payment on account of the Rents
due herein for the months of April, May and part of June, 1995.
ARTICLE III - LANDLORD AND TENANT COVENANTS
3.1 LANDLORD COVENANTS. The Landlord covenants with the Tenant:
(a) QUIET ENJOYMENT. To provide for quiet enjoyment.
(b) INTERIOR CLIMATE CONTROL. To provide to the Leased Premises
during Normal Business Hours, processed air by means of a
system for heating and cooling, filtering and circulating,
processed in such quantities, and at such temperatures as
shall be reasonable in accordance with good standards of
interior climate control generally pertaining to normal
occupancy of premises for office purposes. The Landlord shall
have no responsibility for inadequacy of the performance of
the said system if the Leased Premises depart from the design
criteria.
(c) ELEVATORS. Subject to the supervision of the Landlord and
except when repairs are being made thereto, to furnish for use
by the Tenant and its employees and invitees in common with
other persons entitled thereto reasonable standards of
passenger elevator service to the Leased Premises. The Tenant
shall be responsible for any damages caused to the elevator as
a result of taking possession or giving up possession of the
Leased Premises and shall pay such costs forthwith upon demand
as Additional Rent.
(d) ENTRANCES LOBBYS, ETC.. To permit the Tenant and its employees
and invitees to have the use in common with others entitled
thereto of the common entrances, lobbies, stairways, elevators
and corridors of the Building giving access to the Leased
Premises (subject to the Rules and Regulations and such other
reasonable limitations as the
<PAGE>
9
Landlord may from time to time impose).
(e) WASHROOMS. To permit the Tenant and its employees and
invitees, in common with others entitled thereto to use the
washrooms available to the Leased Premises on each floor of
the Building upon which any part of the Leased Premises is
located.
(f) JANITOR SERVICE. To cause the floors and windows of the Leased
Premises to be swept and cleaned and the desks, tables and
other furniture of the Tenant to be dusted once per business
day, all in keeping with a first-class office building, such
work shall be done at the Landlord's direction without
interference by the Tenant, its servants or employees.
(g) MAINTENANCE OF COMMON AREAS. To cause the elevators, common
entrances, lobbies, stairways, corridors, washrooms and other
parts of the Building from time to time provided for common
use and enjoyment to be swept, cleaned or otherwise maintained
substantially in keeping with a first-class office building.
The Landlord further covenants with the Tenant as follows, subject to
chargeback if permitted by the terms of this Lease:
(i) to observe and perform all of the covenants and
obligations of the Landlord under this Lease;
(ii) to operate, maintain, clean, light, heat, ventilate and
air-condition (during Normal Business Hours), supervise and
regulate the Common Areas and the Common Area Facilities as a
prudent owner of a first-class building would do;
(iii) to provide security services for the Building;
(iv) to repair and maintain the Common Areas and the Common Area
Facilities, the Building and the Lands, including all external
and structural parts of the Building, with reasonable dispatch
and in a good and workmanlike manner, and so as to keep the
Building in good condition and repair as a prudent owner of a
first-class building would do;
(v) to promptly pay and discharge, on or before the times and
in such manner as may be necessary to prevent any default
which would give rise to any remedy which would result in
interference with the interests of the Tenant in the
Leased Premises, all payments (other than payments which
are required by reason of any act or default of the
Tenant or those for whom it is in law responsible)
required to be paid pursuant to any contract,
construction lien, lien, privilege, mortgage, charge or
encumbrance affecting the Leased Premises;
(vi) the Landlord shall, with respect to the Lands and that
portion of the Building which does not include the Leased
Premises: (1) maintain the Building and all electrical,
mechanical and plumbing systems in the Building in good
order and condition consistent with the standards
maintained in buildings in Metropolitan Toronto of
similar location and character as the Building; (2)
maintain in such good order and condition as would a
prudent owner, the roadways, sidewalks, parking areas and
grounds forming part of the Lands; (3) keep the roadways
and parking areas forming part of the Lands reasonably
free of snow and ice; and (4) heat the Building to the
extent necessary for the conduct by tenants of their
businesses;
(vii) the Landlord is the beneficial and legal owner of the Leased
Premises, the Building and the Land and has
<PAGE>
10
authority to enter into this Lease; and
(viii) the Landlord shall comply at all times with any law, by-law,
ordinance, order, rule, regulation or requirement of any
federal, provincial or municipal government or any department,
commission, board or office thereof which relate to or affect
the Leased Premises, the Building and/or the Lands.
3.2 TENANT COVENANTS. The Tenant covenants with the Landlord:
(a) RENT. To pay Base Rent and Additional Rent.
(b) PERMITTED USE. To use the Leased Premises only for the purpose
of any lawful business or office undertaking and not to use or
permit to be used the Leased Premises or any part thereof for
any other purpose or business.
(c) WASTE AND NUISANCE. Not to commit or permit any waste, damage
or injury to the Leased Premises including the Leasehold
Improvements and trade fixtures therein, reasonable wear and
tear excluded, any overloading of the floors thereof, any
nuisance therein or any use or manner of use causing
unreasonable annoyance to other tenants and occupants of the
Building.
(d) CONDITION. Not to permit the Leased Premises to become
hazardous or permit unreasonable quantities of waste or refuse
to accumulate therein and at the end of each business day to
leave the Leased Premises in a condition such as to reasonably
facilitate the performance of the Landlord's janitor and
cleaning services referred to herein.
(e) BY-LAWS. To comply at its own expense with all municipal,
federal, provincial, sanitary, fire, building and safety
statutes, laws, by-laws, regulations, ordinances, orders or
regulations pertaining to the operation and use of the Leased
Premises, the condition of the Leasehold Improvements, trade
fixtures, furniture and equipment installed by the Tenant
therein and the making by the Tenant of any repairs, changes
or improvements therein.
(f) FIRE EXIT DOORS. To permit the installation by the Landlord of
all doors in the exterior wall of the Leased Premises
necessary to comply with the requirements of any statute, law,
by-law, regulation, ordinance, order or regulation.
(g) RULES AND REGULATIONS. To observe and to cause its employees,
invitees and others over whom the Tenant can reasonably be
expected to exercise control, the Rules and Regulations and
such further and other reasonable rules and regulations and
amendments and changes therein as may hereafter be made by the
Landlord and notified to the Tenant.
(h) OVERHOLDING. That in the event that the Tenant remains in
possession of the Leased Premises after the termination of
the original Term hereby created, without other special
agreement, it shall be at the monthly base rent equal to
the Base Rent and Additional Rent payable during the last
month of the Term hereof, times two, payable on the first
day of each and every month and subject in other respects
to the terms of this Lease, including those provisions
requiring the payment of Base Rent and Additional Rent in
monthly instalments.
3.3 SIGNS AND DIRECTORY. The Tenant covenants not to permit, paint,
display, inscribe, place or affix any sign, symbol, notice or lettering
of any kind anywhere outside the Leased Premises (whether on the
outside or inside of the Building) or
<PAGE>
11
within the Leased Premises so as to be visible from the outside of the
Leased Premises, with the exception only of an identification sign at
or near the entrance to the Leased Premises, a directory listing in the
main lobby of the Building, and corporate identification on the podium
sign fronting on to 16th Avenue, in each case containing only the name
of the Tenant and to be subject to the approval of the Landlord, not to
be unreasonably withheld or delayed, as to size, location, content and
design criteria as established by the Landlord. Such identification
sign, directory listing and podium signage shall be installed by the
Landlord at the expense of the Tenant, which expense shall be the
invoice cost plus 15% for an administration fee. The Landlord's
acceptance of any name for listing upon the directory will not be
deemed, nor will it substitute for the Landlord's consent if required
by this Lease to any sublease, assignment or other occupancy of the
Leased Premises.
3.4 INSPECTION AND ACCESS. The Landlord shall be permitted to enter and to
have its authorized agents, employees and contractors enter the Leased
Premises, for the purpose of inspection, window cleaning, maintenance,
providing janitor service, making repairs, alterations or improvements
to the Leased Premises or the Building, or to have access to utilities
and services and access panels which the Tenant agrees not to obstruct,
or to determine the electric light and power consumption by the Tenant
in the Leased Premises and the Tenant shall provide free and unhampered
access for such purposes and shall not be entitled to compensation for
any inconvenience, nuisance, discomfort or loss caused thereby, but the
Landlord, in exercising its rights hereunder, shall proceed to the
extent reasonably possible so as to minimize interference with the
Tenant's use and enjoyment of the Leased Premises.
3.5 EXHIBITING PREMISES. The Landlord and its authorized agents and
employees shall be permitted entry to the Leased Premises during the
last six (6) months of the term for the purpose of exhibiting them to
prospective tenants or at any time for the purposes of arranging
financing for the Building.
3.6 LANDLORD'S CONTROL. The Tenant acknowledges that the Common Area
Facilities are at all times subject to the exclusive control and
operation of the Landlord, and the Landlord shall have the right to
construct improvements, alterations and additions thereto and to
relocate the various facilities thereon.
3.7 BANK REFERENCES. The Tenant will, at the request of the Landlord,
supply bank references to the Landlord or to the mortgagees, if any, on
the said lands or a prospective mortgagee.
ARTICLE IV - REPAIR AND DAMAGE
4.1 TENANT'S REPAIRS. The Tenant covenants with the Landlord:
(a) to keep the Leased Premises in a good and reasonable state of
repair and consistent with the general standards of
first-class office buildings in Metropolitan Toronto, to
perform all repairs and replacements as a prudent tenant would
do (reasonable wear and tear excepted) to the Leased Premises
including all Leasehold Improvements and all trade fixtures
therein and all glass therein.
(b) that the Landlord may enter and view the state of repair from
time to time and that the Tenant will repair if required to do
so pursuant to the terms of this Lease, according to notice in
writing and that the Tenant will leave the Leased Premises in
a good and reasonable state
<PAGE>
12
of repair.
(c) that if any part of the Building other than the Leased
Premises becomes out of repair, damaged or destroyed through
the negligence or misuse of the Tenant or its employees,
invitees or others over whom the Tenant can reasonably be
expected to exercise control, the expense of repairs or
replacements thereto necessitated thereby shall be the
responsibility of the Tenant.
Notwithstanding the foregoing or anything else contained herein, the
Landlord agrees that the Tenant's obligations under this Lease shall
not include reasonable wear and tear to the Leased Premises and
maintenance, repairs or replacements:
(i) necessitated due to damage by fire, lightning, tempest or
other casualties;
(ii) necessitated due to the negligent or wilful acts or omissions
of the Landlord or those for whom it is in law responsible;
(iii) to any structural portion of the Building or the Leased
Premises, including the exterior walls, the roof, roof
structure and roof membrane;
(iv) necessitated due to structural defect or weaknesses or
improper or faulty workmanship, construction, design or
materials;
(v) to the extent same are covered by insurance maintained or
otherwise required to be maintained by the Landlord hereunder;
or
(vi) to the mechanical, electrical and base building systems,
subject to chargeback to the Tenant if permitted under this
Lease,
which shall all be the Landlord's responsibility at the Landlord's sole
expense in addition to the Landlord's other obligations pursuant to
this Lease.
4.2 ABATEMENT AND TERMINATION. It is agreed between the Landlord and the
Tenant that:
(a) In the event of damage to the Leased Premises or to the
Building affecting access or services essential to the
conduct of business in the Leased Premises and if the
damage is such that the Leased Premises or any substantial
part thereof is rendered not reasonably capable of use and
occupancy by the Tenant for the purposes of its business
for any period of time in excess of 10 days, then
(i) unless the damage was caused by the misuse, fault,
negligence of the Tenant or its employees,
invitees or others under its control, from and
after the date of occurrence of the damage and
until the Leased Premises are again reasonably
capable of use and occupancy as aforesaid, Rent
shall abate from time to time in proportion to the
part or parts of the Leased Premises not
reasonably capable of such use and occupancy, and
(ii) unless this Lease is terminated as hereinafter
provided, the Landlord or the Tenant as the case
may be (according to the nature of the damage and
their respective obligations to repair as provided
herein, it being understood that the Tenant shall
have the obligation to repair and replace all
Leasehold Improvements and all Tenant's trade
fixtures) shall repair such damage with all
<PAGE>
13
reasonable diligence, but to the extent that any
part of the Leased Premises is not reasonably
capable of such use and occupancy by reason of
damage which the Tenant is obligated to repair
hereunder, any abatement of Rent to which the
Tenant is otherwise entitled hereunder shall not
extend later than the time by which repairs by the
Tenant ought to have been completed with
reasonable diligence; and
(b) if either the entire or substantially all of the Leased
Premises, or premises whether of the Tenant or other
tenants of the Building comprising in the aggregate 50% or
more of the Rentable Area of the Building are substantially
damaged or destroyed by any cause to such an extent in the
reasonable opinion of the Landlord cannot be repaired or
rebuilt within 180 days after the occurrence of the damage
or destruction, the Landlord may at its option, exercisable
by written notice to the Tenant given within 30 days after
the occurrence of such damage or destruction terminate this
Lease in which event neither the Landlord nor the Tenant
shall be bound to repair as provided herein and the Tenant
shall instead deliver up possession of the Leased Premises
to the Landlord with reasonable expedition but in any event
within 60 days after delivery of such notice of termination
and Rent shall be apportioned and paid to the date upon
which possession is so delivered up (but, subject to any
abatement to which the Tenant may be entitled under
paragraph (a) of this clause 4.2 by reason of the Leased
Premises having been rendered in whole or in part not
reasonably capable of use and occupancy), but otherwise the
Landlord or the Tenant as the case may be (according to the
nature of the damage and their respective obligations to
repair described in 4.2 (a) (ii)) shall repair such damage
with reasonable diligence. Notwithstanding the foregoing,
it is understood and agreed that in the event damage or
destruction should occur to the Premises during the last
year of the tenancy to the degree that the Tenant cannot
continue to occupy the Premises, the Tenant shall then have
the mutual right to terminate the Lease by notice given to
the Landlord, unless the Tenant exercises its right to
extend the Lease in which case the Tenant shall reoccupy
the Leased Premises once the damage or destruction has been
made good.
ARTICLE V - TAXES AND OPERATING COSTS
5.1 NET NET LEASE. The Tenant acknowledges and agrees that it is intended
that this Lease is a completely carefree net net lease to the Landlord,
except as expressly herein set out, that 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 Leased
Premises, or the use and occupancy thereof, or the contents thereof or
the business carried on therein, except as expressly set out herein,
and the Tenant shall pay all charges, impositions, costs and expenses
of every nature and kind relating to the Leased Premises.
5.2 LANDLORD'S TAX OBLIGATIONS. The Landlord covenants with the Tenant,
subject to the provisions herein, to pay all Taxes promptly when due to
the taxing authority or authorities having jurisdiction.
5.3 TENANT'S TAX OBLIGATIONS. The Tenant covenants with the
Landlord:
(i) to pay promptly when due to the taxing authority or
authorities having jurisdiction all taxes, rates, duties,
levies and assessments whatsoever, whether municipal,
<PAGE>
14
parliamentary or otherwise, levied, imposed or assessed in
respect of any and every business carried on by the Tenant,
subtenants, licensees, or other occupants of the Leased
Premises or in respect of the use or occupancy thereof
(including licence fees); and
(ii) to pay promptly to the Landlord when demanded or otherwise due
hereunder:
(1) all Taxes charged in respect of all Leasehold
Improvements and trade fixtures and all furniture and
equipment made, owned or installed by or on behalf of
the Tenant in the Leased Premises as Additional Rent;
(2) if by reason of the act, election or religion of the
Tenant or any subtenant, licensee or occupant of the
Leased Premises, the Leased Premises or any part of
them shall be assessed for the support of Separate
Schools, the amount by which the Taxes so payable
exceed those which would have been payable if the
Leased Premises had been assessed for the support of
Public Schools; and
(3) the Tenant's Proportionate Share of Taxes as
Additional Rent in the manner stipulated herein.
(iii) notwithstanding any other provisions of this Lease to the
contrary, the Tenant shall pay to the Landlord, at such times
and in such manner as the Landlord may direct, without
duplication, an amount equal to all goods and service taxes,
sales taxes, value-added taxes or any other taxes imposed with
respect to Base Rent, Additional Rent or other amounts payable
by the Tenant to the Landlord under this Lease, howsoever such
taxes are characterized. The amount payable by the Tenant
hereunder shall not be deemed to be Base Rent or Additional
Rent but the Landlord shall have all of the same rights and
remedies for recovery of same as it has for recovery of Base
Rent and Additional Rent hereunder.
Whenever requested by the Landlord the Tenant will deliver to it
receipts for payment of all taxes, rates, duties, levies and
assessments payable by the Tenant hereof and furnish such other
information in connection therewith as the Landlord may reasonably
require.
The Tenant shall have the right to contest at its own expense by
appropriate legal proceedings, the validity of any tax, rate, including
local improvement rates, assessment or other charges in respect of the
Leased Premises or the use and occupancy thereof or any other part of
the Building or the Lands by the Tenant, provided the Tenant forthwith
pays the same under protest to the City of Richmond Hill (the "CITY")
or furnishes to the City sufficient security by bond or otherwise to
ensure the payment of same. Should, as a result of such contestations,
the amount of the Taxes payable hereunder by the Tenant be decreased as
a result of such contestation or appeal, the Landlord hereby agrees to
promptly reimburse the Tenant accordingly to the extent such overpaid
amounts have been paid, when reimbursed to the Landlord.
5.4 METHOD OF PAYMENT OF TAXES. The Tax payments required to be made by the
Tenant to the Landlord under the provisions of 5.3 (ii) herein shall be
estimated by the Landlord, and the Tenant shall pay to the Landlord in
addition to the monthly payments of Base Rent hereinbefore reserved,
one-ninth of the estimated annual tax payments in the months of January
to September, both inclusive, in each calendar year with an adjustment
being made when the property tax bill respecting the Building is
received by the Landlord for each year. The Tenant shall within sixty
(60) days of being invoiced pay to
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15
the Landlord such additional sums as may be required in order that out
of such monthly additional payments, the Landlord may pay the whole
amount of the annual taxes as the instalments thereof fall due; and if
the monthly additional payments so paid by the Tenant to the Landlord
exceed in total the Tenant's Proportionate Share of the annual property
tax bill with respect to the Building and Lands of which the Leased
Premises form part, then the excess shall be adjusted by the Landlord
in favour of the Tenant by applying such excess on account of the next
ensuing rental payments due (following the issue of the yearly
statement) and such next ensuing rental payments shall be reduced by
such excess accordingly. The Landlord shall forward to the Tenant
copies of all notices or tax bills relating to the imposition of
property taxes or other charges required hereunder to be paid as to
part or all thereof by the Tenant. In the event that the Landlord is
unable to obtain or determine a separate allocation of taxes payable by
the Tenant under this Lease, the Landlord shall have the right to make
an allocation, but shall be obligated to act reasonably and not
arbitrarily.
5.5 OPERATING COSTS. During the Term of this Lease, the Tenant shall pay to
the Landlord its Proportionate Share of Operating Costs. Prior to the
commencement of the Term of this Lease and the commencement of each
fiscal period selected by the Landlord thereafter which commences
during the Term the Landlord shall estimate the amount of Operating
Costs and the Tenant's Proportionate Share thereof for the ensuing
fiscal period or (if applicable) broken portion thereof, as the case
may be, and notify the Tenant in writing of such estimate. The amount
so estimated shall be payable in equal monthly instalments in advance
over the fiscal period or broken portion thereof in question, each such
instalment being payable on each monthly rental payment date provided
in clause 2.3. The Landlord may from time to time alter the fiscal
period selected, in which case, and in the case where only a broken
portion of a fiscal period is included with the Term, the appropriate
adjustment in monthly payments shall be made. From time to time during
a fiscal period the Landlord may re-estimate the amount of Operating
Costs and the Tenant's Proportionate Share thereof, in which event the
Landlord shall notify the Tenant in writing of such re-estimate and
fixed monthly instalments for the then remaining balance of such fiscal
period or broken portion thereof such that, after giving credit for
instalments paid by the Tenant on the basis of the previous estimate or
estimates, the Tenant's entire Proportionate Share of Operating Costs
will have been paid during such fiscal period or broken period thereof.
As soon as practicable after the expiration of each fiscal period the
Landlord shall make a final determination of Operating Costs and the
Tenant's Proportionate Share thereof for such fiscal period or (if
applicable) broken portion thereof and shall provide a statement to the
Tenant and the parties shall make the appropriate readjustment. Each 12
month period ending December 31st shall be deemed to be an accounting
year for adjusting the said Operating Costs and within 120 days after
the end of each such accounting year, the Landlord shall compute the
said costs for such accounting year and the Proportionate Share of the
Tenant therefor and shall submit to the Tenant a statement to reflect
the Operating Costs specifically permitted under this Lease, and the
said Proportionate Share thereof shall be borne by the Tenant. To the
extent that the Tenant's Proportionate Share of such costs for such
accounting year shall be greater than the total amount actually paid by
the Tenant by said monthly payments in respect of such year the
difference shall be paid by the Tenant to the Landlord within thirty
(30) days after receipt by the Tenant of such statement. Any excess
payments shall be applied by reducing the next ensuing rental
payment(s) by the amount of such excess. The said accounting period may
be modified by the Landlord if reasonably necessary.
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16
The Landlord shall keep proper and sufficient records of all its costs
relating to Additional Rent and the Tenant shall have the right at any
time during the Term and any extensions thereof and up to 2 years
following expiration of the tenancy, to claim a readjustment in respect
of any item of Additional Rent. For this purpose, the Tenant shall have
the right during such times to review all invoices, receipts and other
records used by the Landlord in the calculation of Additional Rent
relating to the Leased Premises, such review to take place at the
Landlord's offices and upon seven (7) business days' prior written
notice by the Tenant to the Landlord.
5.6 PAYMENT OF ADDITIONAL RENT. Any Additional Rent provided for under this
Lease unless otherwise provided herein, shall become due with each
instalment of monthly Base Rent.
ARTICLE VI- UTILITIES AND ADDITIONAL SERVICES
6.1 WATER AND TELEPHONE. The Landlord shall furnish appropriate openings
for bringing telephone services to the Leased Premises and shall
provide hot and cold water to washrooms in the Leased Premises and to
washrooms available for the Tenant's use in common with others entitled
thereto.
6.2 ELECTRICITY. The Tenant shall pay throughout the Term promptly to the
Landlord (unless paid directly to Hydro authorities pursuant to
separate billing) as Additional Rent when demanded:
(i) The cost of electric light and power supplied to the Leased
Premises monthly based on the electric light and power
requirements of the Tenant on a pro rata basis as determined
from time to time during the Term by the Landlord acting
reasonably; and
(ii) The cost of cleaning, maintaining and servicing in all
respects all electric lighting fixtures in the Leased
Premises including the cost of replacement of electric
light bulbs, tubes, starters and ballasts used to replace
those installed at the commencement of the Term. Such
cleaning, maintaining, servicing and replacement shall be
within the exclusive right of the Landlord. It is
understood and agreed that the costs described in this
sub-section (ii) shall be included as part of Operating
Costs.
6.3 ADDITIONAL SERVICES. The Landlord, if it shall from time to time so
elect, shall have the exclusive right, by way of Additional Services,
to provide or have its designated agents or contractors provide any
janitor or cleaning service to the Leased Premises and Common Area
Facilities required by the Tenant which are additional to those
required to be provided by the Landlord hereunder, including the
Additional Services which the Landlord agrees to provide by
arrangement, and to supervise the moving of furniture or equipment of
the Tenant in and out of the Building where such moving of furniture or
equipment would be disruptive to the normal business of the Building,
and the making of repairs or alterations conducted within the Leased
Premises affecting Base Building, building systems or Leasehold
Improvements. The reasonable cost of Additional Services provided to
the Tenant, whether the Landlord shall be obligated hereunder or shall
elect to provide them as Additional Services, shall be paid to the
Landlord by the Tenant from time to time within thirty (30) days
following receipt of invoices therefor from the Landlord. Costs of
Additional Services charged directly to the Tenant and other tenants
shall be credited in computing Operating Costs.
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17
ARTICLE VII- ASSIGNING AND SUBLETTING
7.1 ASSIGNMENTS AND SUBLETTINGS. The Tenant covenants with the Landlord
that it will not assign, sublet, licence or part with the possession of
the Leased Premises or any part thereof, or share the occupation of the
Leased Premises, or any part thereof, without the consent of the
Landlord in writing first had and obtained such consent not to be
unreasonably or arbitrarily withheld or delayed. Provided that as a
condition of the granting of its consent, the Landlord may require any
assignee, subtenant, licensee or occupant of the Leased Premises to
execute an agreement whereby he, it or they attorn to and become the
tenants of the Landlord as if he, it or they had executed this Lease,
or, except in the case of an absolute assignment of this Lease, to
execute an acknowledgement that all the sublessee's or undertenant's
estate, right and interest in and to the Leased Premises absolutely
terminates upon the surrender, release, disclaimer or merger of this
Lease notwithstanding the provisions of the Landlord and Tenant Act of
Ontario, R.S.O. 1980, Chapter 232 and amendments thereof with specific
reference to Paragraphs 21 and 39 (2) thereof, or other similar
statute. The Tenant shall furnish to the Landlord copies of any
assignment, sublease, licence or other agreement herein contemplated.
Notwithstanding any other provision in this section, no assignment,
subletting, licensing or parting with possession of the Leased Premises
shall in any way release or be deemed to release the Tenant (or any
guarantor hereof) from their obligations under the terms of this Lease.
Provided further that the proposed assignee, subtenant, licensee or
occupant of the Leased Premises shall be required to provide reasonable
financial information as the Landlord may require. It is agreed that
the Landlord may consider in determining whether to grant consent among
other matters, the following: the personal and business history of the
proposed assignee, occupant, sublessee and its key employees. The
Tenant agrees to pay the reasonable legal fees of the Landlord's
solicitor relating to the preparation of the Landlord's consent, and
determination as to whether to give the consent.
In the event of any sub-letting by the Tenant by virtue of which the
Tenant receives rent in the form of cash, goods, services or other
considerations from the sub-tenant which is higher than the rent
payable hereunder to the Landlord for the premises so sub-let, the
Tenant shall pay any such excess to the Landlord, in addition to all
rent and other costs payable hereunder, for the period of time during
which the said subtenant remains in possession of the premises sub-let
to it.
If the Tenant herein shall receive from any assignee of this lease,
either directly or indirectly, any consideration for the assignment of
this lease, either in the form of cash, goods or services, the Tenant
shall forthwith pay an amount equivalent to such consideration to the
Landlord and same shall be deemed to be further Additional Rent
hereunder.
Notwithstanding the above provisions, within ten (10) business days
after the receipt by the Landlord of such request for consent and of
all information which the Landlord shall have requested hereunder, the
Landlord shall have the right upon written notice of termination
submitted to the Tenant to, if the request is to assign this Lease or
sublet the whole of the Leased Premises, cancel and terminate this
Lease, or to, if the request is to sublet a part of the Leased Premises
only, cancel and terminate this Lease with respect to such part, in
each case as of a termination date to be stipulated in the notice of
termination which shall be ninety (90) days following giving of such
notice. In such event the Tenant shall surrender the whole or part, as
the case may be, of the Leased Premises in accordance with such notice
of termination and Base Rent and Additional Rent shall be apportioned
and paid to the date of surrender and, if only a part of the Leased
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18
Premises is surrendered, Base Rent and Additional Rent shall, after the
date of surrender, abate proportionately. If the Landlord does not
elect to terminate as aforesaid and if consent to sublease or assign
will be granted, the Tenant may assign or sublet, as the case may be,
only upon the terms and to the party set out in the offer submitted to
the Landlord as aforesaid. If the Landlord elects to terminate, the
Tenant may withdraw its request for consent by notice to the Landlord
given within five (5) days after the Landlord's notice of election in
which event the Landlord's notice of election shall be null and void
and the Tenant shall not proceed with the assigning or subletting for
which such consent was requested.
ARTICLE VIII- FIXTURES AND IMPROVEMENTS
8.1 INSTALLATION OF FIXTURES AND IMPROVEMENTS. The Tenant shall not make,
erect, install or alter any Leasehold Improvements in the Leased
Premises without having requested and obtained the Landlord's prior
written approval which the Landlord shall not unreasonably delay or
withhold. In making, erecting, installing or altering any Leasehold
Improvements the Tenant will not alter or interfere with any
installations which have been made by the Landlord without the prior
written approval of the Landlord and in no event shall it alter or
interfere with window coverings (if any) installed by the Landlord on
exterior windows. The Tenant's request for any approval hereunder shall
be in writing and accompanied by an adequate description of the
contemplated work and, where appropriate, working drawings and
specifications thereof. All work to be performed in the Leased Premises
shall be performed by reputable contractors approved by the Landlord.
The Landlord reserves the right to require the Tenant to utilize the
contractor(s) of the Landlord where Base Building, building systems
and/or warranties may be affected provided the Landlord agrees that
charges by such contractors shall be in keeping with that which an arms
length contractor would charge. The cost of all such work shall be
estimated by the Landlord in advance and such estimate approved by the
Tenant prior to work commencing. All such work shall be performed at
the Tenant's expense and the Tenant shall be responsible for
application and payment of all fees in connection with any permits
required. All such work shall be subject to inspection by and the
reasonable supervision of the Landlord, and shall be performed in
accordance with any reasonable conditions or regulations imposed by the
Landlord and completed in a good and workmanlike manner in accordance
with the description of the work approved by the Landlord. The Landlord
shall be entitled to supervise the work. The Landlord shall be entitled
to charge reasonable fees for examining plans respecting the proposed
work as well as any reasonable consultant's fees where base building
systems and equipment as well as structure may be affected and whereby
the Landlord incurs actual out-of-pocket expenses for the review of
such alterations.
8.2 LIENS AND ENCUMBRANCES ON FIXTURES AND IMPROVEMENTS. In connection with
the making, erection, installation or alteration of Leasehold
Improvements and all other work or installations made by or for the
Tenant in the Leased Premises the Tenant shall comply with all the
provisions of the Construction Lien Act (Ontario) and other statutes
from time to time applicable thereto and shall promptly pay all
accounts relating thereto. The Tenant will not create or cause to be
created any mortgage, conditional sale agreement or other encumbrance
in respect of its Leasehold Improvements or permit any such mortgage,
conditional sale agreement or other encumbrance to attach to the Leased
Premises or to the Building and Common Area Facilities. If and whenever
any construction or other lien for work, labour, services or materials
supplied to or for the Tenant for the cost of which the Tenant may be
in any
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19
way liable or claims therefor shall arise or be filed or any such
mortgage, conditional sales agreement or other encumbrance shall
attach, the Tenant shall within ten (10) days after receipt of notice
thereof procure the discharge thereof, including any certificate of
action registered in respect of any lien, by payment or giving security
or in such other manner as may be required or permitted by law failing
which the Landlord may in addition to all other remedies hereunder
avail itself of its remedy hereunder and may make any payments required
to procure the discharge of any such liens or encumbrances and shall be
entitled to be reimbursed by the Tenant as provided herein and its
right to reimbursement shall not be affected or impaired if the Tenant
shall then or subsequently establish or claim that any lien or
encumbrance so discharged was without merit or excessive or subject to
any abatement, set-off or defense.
8.3 REMOVAL OF FIXTURES AND IMPROVEMENTS. All Leasehold Improvements in or
upon the Leased Premises shall immediately upon termination of this
lease be and become the Landlord's property without compensation
therefor to the Tenant. Except to the extent otherwise expressly agreed
by the Landlord in writing no Leasehold Improvements, trade fixtures,
furniture or equipment shall be removed by the Tenant from the Leased
Premises either during or at the expiration or earlier termination of
the Term except that (1) the Tenant shall at the end of the Term remove
its trade fixtures, and (2) the Tenant shall remove its furniture and
equipment at the end of the Term and may remove its trade fixtures,
furniture and equipment during the Term in the usual and normal course
of its business. The Tenant shall, in the case of every removal either
during or at the end of the Term, make good any damage caused to the
Leased Premises by the installation and removal. Provided that upon the
termination of this Lease, the Tenant, if requested by the Landlord,
shall restore any alterations or installations made by or on behalf of
the Tenant subsequent to the Commencement Date that the Landlord
indicated at the time consent for such alteration or installation was
sought, would require restoration upon expiration of the tenancy, and
if not so requested, any such changes or alterations shall become the
property of the Landlord.
For clarity, it is understood and agreed that the Tenant shall not be
required to restore the Leased Premises or any additional space to base
building condition, whether at the expiration or other termination of
the Term or otherwise.
ARTICLE IX- INSURANCE AND LIABILITY
9.1 LANDLORD'S INSURANCE. The Tenant will during the whole of the Term
hereby granted as part of Operating Costs, pay its Proportionate Share
of all premiums with respect to insurance to be placed by the Landlord
and described in this Section 9.1. The Landlord agrees to maintain
during the Term, insurance coverages as follows:
(i) Property of Every Description (Building and Equipment) against
the perils of "All-Risks", under form providing coverage at
least equivalent to Commercial Building Broad Form I.A.O. Form
No. 700 including "Building By-Laws Endorsements", and to be
insured for the Replacement Value, without allowance for
depreciation and Stated Amount, and with no co-insurance
requirement.
(ii) "Rental Income" for the gross annual rental income on
"All-Risks" basis, as provided under Commercial Building Broad
Form I.A.O. Form 700 including "Building By-Laws
Endorsements", providing coverage at least equivalent to
I.A.O. Profits Form No. 551 with an eighteen (18) month
indemnity period.
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20
(iii) Broad Form Boiler and Machinery Policy on a blanket and
replacement basis with limits for each accident in an
amount not less than the replacement cost of the Building
containing the Leased Premises and which shall cover all
boilers, pressure vessels, air conditioning equipment and
miscellaneous electrical apparatus owned by the Landlord
and which shall include PCB coverage. It shall also
include "Rental Income" for the full gross annual income
equivalent to I.A.O. Profits Form No. 551 with a eighteen
(18) month indemnity period. This policy should also
provide "Building By-Laws Endorsements".
(iv) "General Liability Insurance" on a Comprehensive Form and on
an "occurrence" basis without deductible with retroactive
coverage against claims for Personal and Bodily Injury and
Death and/or Property Damage occurring upon or about the
Leased Premises and for a limit no less than $5,000,000.00
inclusive for one occurrence.
(v) Such other insurance coverage or coverages as a prudent owner
of a first class office building would obtain for protection
respecting loss of, or damage to the Building, the Lands or
the Leased Premises, or liability arising therefrom.
All such insurance coverages shall be kept and maintained by the
Landlord, and in no event shall the coverage be less than the amount
required by any institution then holding a mortgage on the Building and
Common Area Facilities. The Tenant shall pay to the Landlord, as part
of Operating Costs, its Proportionate Share of the Landlord's
Insurance. The Tenant shall not do or permit to be done any act or
thing whereby insurance coverage, premiums or any of them hereinbefore
contemplated, may be increased or cancelled by the insurer, or the
Leased Premises shall be rendered uninsurable, and if by reason of any
act done or permitted or omission, as the case may be, by the Tenant,
the said insurance coverage, premiums or any of them shall be
increased, then the Tenant, if it shall fail to rectify the event
giving rise to the increased premium after written notice thereof from
the Landlord, shall be liable to pay all of such increase in premium,
with respect to the entire coverages, and this notwithstanding that the
Tenant occupies only a portion of the Building covered by such
insurance coverages, and if the Leased Premises shall be rendered
uninsurable, or if the said insurance coverages, or any of them, shall
be cancelled by reason of any act or omission as the case may be by the
Tenant and shall not be susceptible of being replaced, after the
Landlord's reasonable efforts under the circumstances to do so, then
the Landlord, after giving the Tenant at least fourteen (14) days
written notice within which to replace insurance coverage or coverages
shall, at its absolute discretion, have the right to determine that the
term hereof has expired and in such event the Tenant shall deliver up
possession of the Leased Premises as if the Term of this Lease had
expired.
PROVIDED that no act required to be done by the Tenant nor any payment
required to be made by the Tenant, including reimbursements of
insurance premiums paid by the Landlord, shall relieve the Tenant from
any liability for damage incurred by the Landlord as result of any act
or omission of the Tenant.
If any other tenant of the Building has his own insurance premiums
increased by his insurers as a result of the use or occupation by the
Tenant herein of the within Leased Premises, the Tenant covenants and
agrees with the Landlord after written notice thereof, to pay the
additional cost forthwith upon demand as Additional Rent.
The Landlord's insurance policy shall contain a waiver of subrogation
in favour of the Tenant or those for whom the Tenant is in law
responsible.
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21
9.2 AGENTS. The Tenant acknowledges, covenants and agrees that every right,
exemption from liability, defence and immunity of whatsoever nature
applicable to the Landlord or to which the Landlord is entitled
hereunder shall also be available and shall extend to protect every
such agent of the Landlord acting (in the course of or in connection
with his employment or otherwise) and for the purposes of all of the
foregoing provisions of this clause, the Landlord is or shall be deemed
to be acting as agent or trustee on behalf of and for the benefit of
persons who are or might be his servants, employees or agents from time
to time.
9.3 TENANT'S INSURANCE. The Tenant covenants to insure and to keep insured
during the whole of the Term, with an insurance company or companies in
good standing and upon terms and conditions all satisfactory to the
Landlord:
(i) "All-Risks" insurance upon all property owned by the
Tenant or for which it is legally liable or installed or
affixed by or on behalf of the Tenant and which is
located in the Building including, without limitation,
furniture, fittings, installations, alterations,
additions, partitions and fixtures or anything in the
nature of a Leasehold Improvement made or installed by or
on behalf of the Tenant in an amount equal to the full
replacement cost thereof; if there is a dispute as to the
amount which comprises full replacement cost the decision
of the Landlord's Architect shall be conclusive.
(ii) All parties hereto on a Comprehensive Form for bodily
injury and property damage, general liability coverage
arising out of the use, maintenance or repair of the
Leased Premises and/or the business of the Tenant or any
sub-tenant, licensees or occupiers of the Leased
Premises; such insurance shall be for a limit of not less
than $2,000,000.00 inclusive for any one occurrence, or
such higher limits as the Landlord, acting reasonably, or
any mortgagee requires from time to time, and shall
contain a severability of interest clause, and a cross
liability clause.
(iii) Any other form of insurance that the Landlord or any mortgagee
may reasonably require, from time to time in form, amounts and
for insurance risks acceptable to the Landlord and any
mortgagee.
The Tenant covenants and agrees to provide the Landlord with evidence
of insurance as required under this provision. Such evidence shall be
by way of a certified copy of the policy if available in timely fashion
or failing which a certificate of insurance at such time or times as
the Landlord may require. The Tenant agrees to provide same to the
Landlord forthwith after notice has been given by the Landlord to the
Tenant of its request. The Tenant's policy shall contain a waiver of
subrogation in favour of the Landlord and those for whom the Landlord
is in law responsible.
9.4 LIMITATION OF LANDLORD'S LIABILITY. The Tenant agrees that:
(i) the Landlord shall not be liable for any bodily injury or
death of, or loss or damage to any property belonging to the
Tenant or its employees, invitees, or licensees or any other
person in, on or about the Building and Common Area Facilities
howsoever occurring and in no event shall the Landlord be
liable for:
(1) any damage which is caused by steam, water, rain or
snow which may leak into, issue or flow from any part
of the Building or Common Area Facilities or from the
pipes or plumbing works thereof or from any other
place or quarter or for any damage caused by or
attributable to the condition or arrangement
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22
of any electric or other wiring or for any damage
caused by anything done or omitted by any other
tenant; and
(2) any act or omission (including theft, malfeasance or
negligence) on the part of any agent, contractor or
person from time to time employed by it to perform
janitor services, security services, maintenance,
supervision or any other work in or about the Leased
Premises or the Building or Common Area Facilities;
and
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23
(3) loss or damage, however caused, to money, securities,
negotiable instruments, papers or other valuables of
the Tenant; and
(ii) the Landlord shall have no responsibility or liability
for the failure to supply interior climate control or
elevator service when prevented from doing so by strikes,
the necessity of repairs, any order or regulation of any
body have jurisdiction, the failure of the supply of any
utility required for the operation thereof or any other
cause beyond the Landlord's reasonable control, and shall
not be held responsible for any bodily injury, death or
damage to property arising from the use of, or any
happening in or about, any elevator.
9.5 INDEMNITY OF LANDLORD. The Tenant agrees to indemnify and save harmless
the Landlord in respect of all claims for bodily injury or death,
property damage or other loss or damage arising from the conduct of any
work by or any act or omission of the Tenant or any assignee,
subtenant, agent, employee, contractor, invitee or licensee of the
Tenant, and in respect of all costs, expenses and liabilities incurred
by the Landlord in connection with or arising out of all such claims,
including the expenses of any action or proceeding pertaining thereto,
and in respect of any loss, cost, expense or damage suffered or
incurred by the Landlord arising from any breach by the Tenant of any
of its covenants and obligations under this Lease.
ARTICLE X-SUBORDINATION, ATTORNMENT AND CERTIFICATES
10.1 SUBORDINATION AND ATTORNMENT. The Tenant agrees that this Lease and all
the rights of the Tenant hereunder are subject and subordinate to all
mortgages now or hereafter existing (including deeds of trust and all
instruments supplemental thereto) which may now or hereafter affect the
Building or Common Area Facilities and to all renewals, modifications,
consolidations, replacements and extensions thereof, provided such
mortgagee has provided a non-disturbance agreement to the Tenant;
provided that the Tenant whenever requested by any mortgagee (including
any trustee under a deed of trust and mortgage) shall attorn to such
mortgagee as the Tenant upon all the terms of this Lease. Subject to
the foregoing, the Tenant agrees to execute promptly whenever requested
by the Landlord or by such mortgagee such instrument of subordination
or attornment, as the case may be, as may be required of it.
10.2 CERTIFICATES. The Tenant shall promptly whenever requested by the
Landlord from time to time execute and deliver to the Landlord (and if
required by the Landlord, to any mortgagee [including any trustee under
a deed of trust and mortgage] designated by the Landlord) a certificate
in writing as to the then status of this Lease, including as to whether
it is in full force and effect, is modified or unmodified, confirming
the rent payable hereunder and the state of the accounts between the
Landlord and Tenant, the existence or non-existence of defaults, and
any other matters pertaining to this Lease as to which the Landlord
shall request a certificate.
ARTICLE XI-REMEDIES OF LANDLORD ON TENANT'S DEFAULT
11.1 REMEDYING BY LANDLORD. In addition to all rights and remedies of the
Landlord available to it in the event of any default hereunder by the
Tenant either by any other provision of this Lease or by statute or the
general law, the Landlord:
(1) shall have the right at all times after reasonable written
notice of an event of default has been given to
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24
the Tenant and a reasonable time given to cure such default
provided the Tenant is proceeding diligently, to remedy or
attempt to remedy any default of the Tenant, and in so
doing may make any payments due by the Tenant to third
parties and may enter upon the Leased Premises to do any
work or other things therein, as may be reasonably
necessary, and in such event all expenses of the Landlord
in remedying or attempting to remedy such default shall be
payable by the Tenant to the Landlord forthwith upon demand;
(2) subject to 11.3 below, shall have the same rights and remedies
in the event of any non-payment by the Tenant of any amounts
payable by the Tenant under any provision of this Lease as in
the case of a non-payment of Rent; and
(3) if the Tenant shall fail to pay any Rent or other amount from
time to time payable by it to the Landlord hereunder within 5
days of notice of same becoming due, shall be entitled, to
interest thereon at a rate of 3% per annum in excess of the
minimum lending rate to prime commercial borrowers from time
to time current at The Bank of Nova Scotia in Toronto from the
date upon which the same was due until actual payment thereof.
11.2 REMEDIES CUMULATIVE. The Landlord, subject to 11.3 hereof, may from
time to time resort to any or all of the rights and remedies available
to it in the event of any default hereunder by the Tenant, either by
any provision of this Lease or by statute or the general law, all of
which rights and remedies are not to be interpreted as excluding any
other or additional rights and remedies available to the Landlord by
statute or the general law.
11.3 RIGHT OF RE-ENTRY DEFAULT OR TERMINATION. It is expressly agreed that
if and whenever the Base Rent or Additional Rent hereby reserved,
remains unpaid, or if the Tenant shall breach or fail to observe or
perform any of the other covenants, agreements, provisoes, conditions,
reasonable rules or regulations and other obligations on the part of
the Tenant to be kept, observed or performed hereunder, provided the
Landlord has first delivered notice to the Tenant explaining the breach
and has allowed the Tenant five (5) days to rectify any monetary breach
and ten (10) days, (or such longer period as is reasonable in the
circumstances), to rectify any non-monetary breach, or if this Lease
shall have become terminated pursuant to any provision hereof, then and
in every such case it shall be lawful for the Landlord thereafter to
enter into and upon the Leased Premises or any part thereof and to have
again, repossess and enjoy the same as of its former estate, anything
in this Lease contained to the contrary notwithstanding.
11.4 TERMINATION RE-ENTRY. If and whenever the Landlord becomes entitled to
re-enter upon the Leased Premises under any provision of this Lease,
the Landlord, in addition to all other rights and remedies, shall have
the right to terminate this Lease forthwith by leaving upon the Leased
Premises notice in writing of such termination.
11.5 PAYMENT ON TERMINATION. Upon the giving by the Landlord of a notice in
writing terminating this Lease, pursuant to 11.4 or 11.3 of this Lease,
this Lease and the Term shall terminate, rent and any other payments
for which the Tenant is liable under this Lease shall be computed,
apportioned and paid in full to the date of such termination, and the
Tenant shall immediately deliver up possession of the Leased Premises
to the Landlord, and the Landlord may re-enter and take possession of
them.
11.6 RENUNCIATION. The Tenant waives and renounces the benefit of any
present or future statute taking away or limiting the
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25
Landlord's right of distress.
<PAGE>
26
11.7 RE-LETTING. Whenever the Landlord becomes entitled to re-enter upon the
Leased Premises under 11.3 or 11.4 hereof of this Lease the Landlord in
addition to all other rights it may have shall have the right as agent
of the Tenant to enter the Leased Premises and re-let them and to
receive the rent therefor and as the agent of the Tenant to take
possession of any furniture or other property thereon and to sell the
same at public or private sale without notice and to apply the proceeds
thereof and any rent derived from re-letting the Leased Premises upon
account of the rent due and to become due under this Lease and the
Tenant shall be liable to the Landlord for the deficiency if any.
ARTICLE XII-EVENTS TERMINATING LEASE
12.1 CANCELLATION OF INSURANCE. If any policy of insurance upon the Building
and Common Area Facilities from time to time effected by the Landlord
shall be cancelled or about to be cancelled by the insurer by reason of
the use or occupation of the Leased Premises by the Tenant or any
assignee, sub-tenant or licensee of the Tenant or anyone permitted by
the Tenant to be upon the Leased Premises and the Tenant after receipt
of notice in writing from the Landlord and a reasonable time allowed,
to reinstate such insurance or avoid cancellation, shall have failed to
take such immediate steps in respect of such use or occupation as shall
enable the Landlord to reinstate or avoid cancellation (as the case may
be) of such policy of insurance, the Landlord may at its option
terminate this Lease by leaving upon the Leased Premises notice in
writing of such termination.
12.2 PROHIBITED OCCUPANCY, BANKRUPTCY, ETC. If, without the written consent
of the Landlord the Leased Premises shall be used by any persons other
than the Tenant, its employees, invitees and customers or its permitted
assigns or sub-tenants or for any purpose other than that for which
they were leased, or occupied by any persons whose occupancy is
prohibited by this Lease, or if the Leased Premises shall be vacated or
abandoned, or remain unoccupied for 7 days or more while capable of
being occupied, or if the Term or any of the goods and chattels of the
Tenant shall at any time be seized in execution or attachment, or if
the Tenant shall make any assignment for the benefit of creditors,
become bankrupt or insolvent or take the benefit of any statute now or
hereafter in force for bankrupt or insolvent debtors or (if a
corporation) shall take any steps or suffer any order to be made for
its winding-up or other termination of its corporate existence, then in
any such case the Landlord may at its option, subject to compliance
with the procedures set forth in Section 11.3, terminate this Lease by
leaving upon the Leased Premises notice in writing of such termination
and thereupon, in addition to the payment by the Tenant of Rent and
other payments for which the Tenant is liable under this Lease, Rent
for the current month and the next ensuing 3 (three) months' Rent shall
immediately become due and be paid by the Tenant.
ARTICLE XIII-MISCELLANEOUS
13.1 REGISTRATION. The Tenant agrees with the Landlord not to register this
Lease, but nevertheless if the Tenant desires to register a notice of
this Lease, the Landlord agrees to execute a notice or acknowledgement,
if required, sufficient for the purpose in such form as the Landlord
and Tenant mutually approve provided in no event shall rental rates of
this Lease be shown.
13.2 NOTICE. Any notice required or contemplated by any provision of this
Lease shall be given in writing, and if to the Landlord, either
delivered to an executive officer of the
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27
Landlord or by facsimile transmission or mailed by prepaid
registered mail addressed to the Landlord at 3650 Victoria Park
Avenue, Suite #500, North York (Toronto), Ontario, M2H 3P7, and if
to the Tenant, either delivered to the Tenant (or to an officer of
the Tenant if the Tenant is a firm or corporation) or by facsimile
transmission or mailed by prepaid registered mail addressed to the
Tenant at the Leased Premises. Every such notice shall be deemed to
have been given when delivered or, if mailed as aforesaid in Canada,
upon the day when it was mailed. The Landlord may from time to time
by notice in writing to the Tenant designate another address in
Canada as the address to which notices are to be mailed to it.
13.3 EXTRANEOUS AGREEMENTS. The Tenant acknowledges that there are no
covenants, representations, warranties, agreements or conditions
expressed or implied relating to this Lease or the Leased Premises save
as expressly set out in this Lease and in any agreement to Lease in
writing between the Landlord and the Tenant pursuant to which this
Lease has been executed. This Lease may not be modified except by an
agreement in writing executed by the Landlord and the Tenant.
13.4 CONSTRUCTION. All of the provisions of this Lease are to be construed
as covenants and agreements. If any provision of this Lease is illegal
or unenforceable it shall be considered separate and severable from the
remaining provisions of this Lease, which shall remain in force and be
binding as though the said provision had never been included. The
headings and marginal sub-headings of clauses and sub-clauses are for
convenience of reference and are not intended to limit, enlarge or
otherwise affect their meanings.
13.5 NON-WAIVER. No condoning, excusing or overlooking by the Landlord of
any default, breach or non-observance by the Tenant at any time or
times in respect of any covenant, agreement, proviso or condition
herein contained shall operate as a waiver of the Landlord's rights
hereunder in respect of any continuing or subsequent default, breach or
non-observance or so as to defeat or affect in any way the rights of
the Landlord in respect of any such continuing or subsequent default or
breach and no waiver shall be inferred or implied by anything done or
omitted by the Landlord save only express waiver in writing.
13.6 ACCORD AND SATISFACTION. No payment by the Tenant or receipt by the
Landlord of a lesser amount than the Base Rent and Additional Rent from
time to time due shall be deemed to be other than on account of the
earliest stipulated Base Rent and Additional Rent due, nor shall any
endorsement or statement on any cheque or any letter accompanying any
cheque or payment of Base Rent or Additional Rent be deemed an accord
and satisfaction, and the Landlord may accept such cheque or payment
without prejudice to the Landlord's right to recover the balance of
such Base Rent or Additional Rent or pursue any other remedy provided
in this Lease.
13.7 GOVERNING LAW. This Lease shall be governed by and construed
in accordance with the laws of the Province of Ontario.
13.8 TIME OF THE ESSENCE. Time shall be of the essence of this Lease and
every part hereof.
13.9 NO PARTNERSHIP. Nothing contained herein shall be deemed or construed
by the parties hereto, nor any third party, as creating the
relationship of principal and agent, or a partnership, or a joint
venture between the parties hereto, it being understood and agreed that
none of the provisions contained herein nor any acts of the parties
hereto shall be deemed to create any relationship between the parties
hereto other than the relationship of Landlord and Tenant.
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28
13.10 FORCE MAJEURE. Except as herein otherwise expressly provided, if and
whenever and to the extent that the Landlord or the Tenant shall be
prevented delayed or restricted in the fulfilment of any obligations
hereunder in respect of the supply or provision of any service or
utility, the making of any repair, the doing of any work or any
other thing by reason of strikes or work stoppages or being unable
to obtain any material, service, utility or labour required to
fulfil such obligation or by reason of any statute, law or
regulation of or inability to obtain any permission from any
governmental authority having lawful jurisdiction preventing,
delaying or restricting such fulfilment, or by reason of other
unavoidable occurrence (save for any financial reason), the time for
fulfilment of such obligation shall be extended during the period in
which such circumstance operates to prevent, delay or restrict the
fulfilment thereof and the other party shall not be entitled to
compensation for any inconvenience, nuisance or discomfort thereby
occasioned.
13.11 CONTRA PROFERENTEM. The Parties acknowledge and agree that both
parties have participated in the drafting of this Lease, and any
rule of law providing that ambiguities shall be construed against
the drafting party, shall be of no force or effect.
13.12 PLANNING ACT. This Lease is expressly conditional upon compliance
with the land division provisions of the Planning Act R.S.O. 1990
(as it may be amended from time to time), if applicable.
13.13 ACCESS. The Tenant, its employees, invitees and customers and
persons connected with the Tenant (subject and except as in this
Lease provided) shall have the right in common with others entitled
thereto from time to time to use the parking areas, driveways,
walkways, lawns, ramps (if any) and other Common Areas in and about
the Building from time to time. The Tenant shall not unreasonably
block or in any manner hinder the Landlord, other tenants or other
persons claiming through or under them or any of them who may be
authorized by the Landlord to utilize the Common Areas from so
doing. The Landlord may, acting reasonably, from time to time permit
the Tenant to have the exclusive use of portions of the parking area
which forms part of the Common Areas and to permit other tenants or
other persons to have exclusive use of portions thereof.
13.14 TRANSFERS BY THE LANDLORD. The Landlord at any time and from time to
time may sell, transfer, lease, assign or otherwise dispose of the
whole or any part of its interest in the Leased Premises or in the
Building and lands of which the Leased Premises form a part, at any
time and from time to time, may enter into any mortgage of the whole
or any of its interest in the Building and Lands or in the Leased
Premises. If the party acquiring such interest shall have agreed to
assume and so long as it holds such interest, to perform each of the
covenants, obligations and agreements of the Landlord under this
Lease in the same manner and to the same extent as if originally
named as the Landlord in this Lease, the Landlord shall, thereupon
be released from all of its covenants and obligations under this
Lease.
The Landlord may assign its rights under this Lease to a lending
institution as collateral security for a loan. If such assignment is
made and executed by the Landlord and notification thereof is given
to the Tenant by or on behalf of the Landlord this Lease shall not
be cancelled or modified for any reason whatsoever except as
provided for by the terms hereof or by law without the consent in
writing of such lending institution.
13.15 OCCUPANCY PERMIT. - deleted intentionally.
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29
13.16 LEASED PREMISES. Save and except for any work to be performed by
the Landlord as specifically set out herein, the taking of
possession of the Leased Premises by the Tenant shall be conclusive
evidence that the Tenant accepts the Premises in an "as is"
condition and that the said Leased Premises were in good and
satisfactory condition at the time possession was so taken.
13.17 SUCCESSORS AND ASSIGNS. This Lease and everything herein contained
shall enure to the benefit of and be binding upon the successors and
assigns of the Landlord and the permitted successors and assigns of
the Tenant. References to the Tenant shall be read with such changes
in gender as may be appropriate, depending upon whether the Tenant
is a male or a female person or a firm or corporation, and if the
Tenant is more than one person or entity, the covenants of the
Tenants shall be deemed joint and several. All obligations of the
Tenant or the Landlord under this Lease shall be deemed to be
covenants whether or not expressed as same. No rights of the Tenant
in this Lease shall be deemed to be personal, but shall accrue to
the benefit of the Tenant's successors, permitted subtenants and
assigns.
13.18 AREA DETERMINATION. In the event that any calculation or
determination by the Landlord of the Rentable Area of any premises
(including the Demised Premises) or the Building is disputed or
called into question, it shall be calculated or determined by the
Landlord's architect from time to time appointed for the purpose,
whose certificate shall be conclusive and the cost of such
certificate shall be borne by the Tenant.
13.19 APPROVAL. Unless specifically provided herein to the contrary,
whenever any reference is made to any notice, consent, approval,
lease, designation, requirement, opinion, judgement, permission, or
discretion, on the part of either the Landlord or the Tenant, the
same shall be given, granted, determined, required of exercised
reasonably without undue delay.
ARTICLE XIV-OTHER PROVISIONS
14.1 PARKING. The Tenant acknowledges that the Common Area Facilities are at
all times subject to the exclusive control and operation of the
Landlord, and the Landlord shall have the right to construct
improvements, alterations and additions thereto and to relocate the
various facilities thereon. The Tenant further acknowledges that the
parking facilities in the Common Area Facilities are on a non-exclusive
("First Come", "First Serve Basis") and may be altered or diminished
during the term or renewal thereof and the manner in which access is
permitted may be altered.
The Landlord shall provide to the Tenant for the Term of the lease,
free of charge, one (1) covered reserved stall and the use of thirty
(30) surface parking stalls on a first-come, first-serve basis.
14.2 WINDOW COVERINGS. - deleted intentionally.
14.3 EXTENSION. Provided that the Tenant is not habitually in default under
the terms of this Lease and is not in default at the time of the
exercise of the option herein, then the Landlord shall, at the
expiration of the Term hereof, upon written request of the Tenant,
grant to the Tenant an extension of this Lease for a further period of
five (5) years upon the same terms and conditions as contained herein,
save as to the Base Rental rate, and save as to any further right of
extension. Provided always that the Tenant shall have given to the
Landlord 180 days' notice in writing before the
<PAGE>
30
expiration of the Term of its desire to have such extension. The
Base Rental rate for the extension term shall be at the then current
market rate for similar premises in a similar area and as mutually
agreed between the Landlord and the Tenant. In the event that the
Landlord and the Tenant are unable to agree upon the Base Rental
rate for the extension term by 120 days prior to the maturity date,
the matter shall be submitted to arbitration by notice given by
either party to the other. Upon such notice being given, the dispute
shall be determined by the award of 3 arbitrators, or by a majority
of them, one to be named by the Landlord and one by the Tenant
within 30 days of the giving of such notice, and the 3rd to be
selected by these 2 arbitrators within 7 days after both have been
nominated. If either the Landlord or the Tenant shall neglect or
refuse to name its arbitrator in the time specified or to proceed
with the arbitration, the arbitrator named by the other party shall
proceed with the arbitration, and the award of such arbitrator shall
be final and binding upon the Landlord and the Tenant. The
Arbitrators shall have all the power given by the Arbitrations Act
of Ontario and may at any time proceed in such manner as they see
fit on such notice as they deem reasonable in the absence of either
party, if such party fails to attend. Each party shall pay its own
costs and shall share equally the costs of arbitration. The award
and determination of the arbitrators shall be final and binding upon
both parties hereto and each party agrees not to appeal any such
award or determination.
If the award of the arbitrators is not given before the commencement
date of the extension term, then the Tenant shall commence paying rent
at the market rate as determined by the Landlord together with
Additional Rent, which shall be adjusted forthwith after the award of
the arbitrators has become final and binding, to be calculated from the
commencement date of the extension term.
Interest at the rate set out herein shall be calculated monthly on the
difference between the Base Rent paid by the Tenant and the actual
amount awarded by the arbitrators and shall be paid forthwith upon
demand when the arbitrators' decision has been made.
14.4 TAXES, OPERATING COSTS AND HYDRO. The Landlord represents and warrants
that the Taxes, Operating Costs and Hydro applicable to the Leased
Premises is currently estimated to be $8.80 per Rentable square foot
per annum for 1995. The Tenant acknowledges that this is an estimate
only and is subject to adjustment when actual costs are known.
14.5 LEASEHOLD IMPROVEMENTS. As soon as possible and in any event, no later
than April 21, 1995, at its sole cost, but subject to force majeure and
delays attributable to the Tenant, the Landlord agrees to turnkey (that
is to complete the construction of improvements in the Leased Premises
so that the Tenant can commence business operations immediately), the
Leased Premises to a standard consistent with existing leasehold
improvements in the Leased Premises, and in accordance with the layout
attached hereto as Schedule "B".
The Landlord further agrees to utilize in the construction of the
Leased Premises existing materials and improvements (ie. doors and
frames, sidelights, glass partitions, glass entry doors, hardware,
cabinetry etc.) from adjoining vacant space on the 7th and 6th floor of
the Building at no cost to the Tenant, such materials and improvements
to be approved by the Tenant and agreed to by the Landlord.
14.6 RIGHT OF FIRST REFUSAL. Subject to prior rights of tenants in the
Building as of the Commencement Date, the Tenant will have the right of
first refusal, from time to time, to lease any part or all of any
office space on the 7th floor of the Building which becomes available
for lease. The rent and
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31
terms shall be equal to a bona fide offer received by the Landlord.
The Tenant shall have five (5) business days following written
notice by the Landlord containing all relevant information
pertaining to such bona fide offer received in which to confirm to
the Landlord that it wishes to exercise its right of first refusal
to lease such space on the same terms and conditions as the bona
fide offer, failing which the Landlord shall be free to lease such
space to the bona fide offeror. This right becomes effective on the
Commencement Date of this Lease and thereafter will remain in effect
provided the Tenant is not in default under this Lease at the time
of exercising this right.
14.7 EXISTING FIXTURES. It is agreed and understood that all existing
fixtures as of the Commencement Date, including but not limited to
light fixtures, venetian blinds, and built-in cabinetry shall be
available to the Tenant at no additional cost.
14.8 CO-TENANCY. This Agreement is not personally binding upon and resort
shall not be had nor shall recourse or satisfaction be sought from the
private property of any of the unit holders of Investors Real Property
Fund (the "FUND"), trustees, officers, directors, employees or agents
of the trustee or manager of the Fund, it being intended and agreed
that only the property of the Fund shall be bound by this Agreement.
Only the co-tenancy interests of Menkes and Investors Group shall be
bound hereby and the obligations hereunder are not binding upon either
of Menkes or Investors Group in any other respect nor shall resort be
had to any other property of any of Menkes or Investors Group. The
rights and obligations of each of Menkes and Investors Group hereunder
shall, in every case, be several and proportionate and not either joint
or joint and several.
14.9 BASE RENT FREE PERIOD. The Tenant shall not be obligated to pay Base
Rent during twenty-two (22) months of the within Term, however, the
Tenant shall be responsible for the payment of all Additional Rent
during the Base Rent free period. The twenty-two (22) month period
shall occur as:
- the last eight (8) months of each of years 1 & 2 of the
Term; and
- the last six (6) months of year 3 of the Term.
Notwithstanding the foregoing, the parties agree that the $0.67 that
has been included in the Base Rent in lieu of the Tenant not paying
Capital and Large Corporations Tax and not paying for depreciation of
systems and equipment, shall be due and owing during the Base Rent Free
Period.
14.10 CAPITAL REPAIRS AND REPLACEMENTS. Notwithstanding anything contained
in this Lease to the contrary:
(a) it is understood and agreed that the Tenant shall not be
responsible for (and the Landlord shall not be permitted to
chargeback to the Tenant) replacements to the Building that
are of a capital nature (as such term is determined under
generally accepted accounting principles); and
(b) in the event of repairs to the Building that are of a capital
nature, the Tenant shall be responsible for its Proportionate
Share of the costs thereof provided that any repair costs that
exceed $10,000.00 in any given year shall be charged to
Operating Costs on an amortization- over-useful-life basis.
Provided however, should a capital repair or replacement be
necessitated by reason of the negligent act or omission of the
Tenant or those for whom the Tenant is in law responsible, the
entire cost of such repair or replacement shall be borne by the
Tenant payable to the Landlord
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32
forthwith as Additional Rent.
14.11 COMMISSIONS. The Landlord shall be responsible for any and all real
estate commissions and brokerage fees, if any, payable in connection
with this Lease.
IN WITNESS WHEREOF the Landlord and Tenant have executed this Lease.
MENKES OFFICE PARKS LTD.
Per:_______________________________
(Landlord)
INVESTORS GROUP TRUST CO. LTD.
as trustee for
INVESTORS REAL PROPERTY FUND
Per:________________________________
(Landlord)
Per:________________________________
(Landlord)
THOMPSON MINWAX (CANADA) LTD.
Per:________________________________
(Tenant)
<PAGE>
SCHEDULE "C"
RULES AND REGULATIONS
The Rules and Regulations may differentiate between different types of
businesses in the Building but the Rules and Regulations will be adopted and
promulgated by the Landlord acting reasonably and in such manner as would a
prudent Landlord of a reasonably similar office building. The Tenant's failure
to keep and observe the Rules and Regulations now or from time to time in force
constitutes a default under this Lease in such manner as if the same were
contained herein as covenants. The Landlord reserves the right from time to time
to amend or supplement the Rules and Regulations applicable to the Leased
Premises or the Building as in the Landlord's absolute and unfettered discretion
are from time to time needed for the safety, care, cleanliness and more
efficient operation of the Building and for the preservation of good order
therein. Notice of the Rules and Regulations and amendments and supplements, if
any, shall be given to the Tenant and the Tenant shall thereupon comply with and
observe all such Rules and Regulations provided that no Rules and Regulations
shall contradict any terms, covenants and conditions of this Lease. The Rules
and Regulations as at the Commencement Date are as follows:
1. The Tenant shall not place any debris, garbage, trash or refuse or
permit same to be placed or left in or upon any part of the Building
outside of the Leased Premises and the Tenant shall not allow any undue
accumulation of any debris, garbage, trash or refuse in or outside of
the Leased Premises.
2. The Landlord shall permit the Tenant and the Tenant's
employees and all Persons lawfully requiring communication
with them to have the use during such hours as the Landlord
deems reasonable in common with others entitled thereto of the
main entrance and stairways, corridors, elevators or other
mechanical means of access leading to the Leased Premises. At
times other than during such hours as the Landlord deems
reasonable the Tenant and the employees of the Tenant shall
have access to the Building and to the Leased Premises only in
accordance with the Rules and Regulations and shall be
required to satisfactorily identify themselves and to register
in any book which may at the Landlord's option be kept by the
Landlord for such purpose. If identification is not
satisfactory, the Landlord is entitled to prevent the Tenant
or the Tenant's employees or other Persons lawfully requiring
communication with the Tenant from having access to the
Building. In addition, the Landlord is not required to open
the door to the Leased Premises for the purpose of permitting
entry therein to any Person not having a key to the Leased
Premises.
3. The Landlord shall permit the Tenant and the employees of the
Tenant in common with others entitled thereto, to use the
washrooms on the floor of the Building on which the Leased
Premises are situated or, in lieu thereof, those washrooms
designated by the Landlord, save and except when the general
water supply may be turned off from the public main or at such
other times when repair and maintenance undertaken by the
Landlord shall necessitate the non-use of the facilities.
4. The Tenant shall permit window cleaners to clean the windows of the
Leased Premises during such hours as the Landlord deems reasonable.
5. The sidewalks, entrances, passages, elevators and staircases
shall 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 offices. The
Landlord reserves entire control of all parts of the Building
employed for the common benefit of the tenants and without
restricting the generality of the foregoing, the sidewalks,
entrances, corridors and passages not within the Leased
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2
Premises, washrooms, lavatories, air-conditioning closets, fan
rooms, janitor's closets, electrical closets and other closets, stairs,
elevator shafts, flues, stacks, pipe shafts and ducts and shall have
the right to place such signs and appliances therein, as it deems
advisable, provided that ingress to and egress from the Leased Premises
is not unduly impaired thereby.
6. The Tenant, its agents, servants, contractors, invitees or
employees, shall not bring in or take out, position, construct,
install or move any safe, business machinery or other heavy
machinery or equipment or anything liable to injure or destroy any
part of the Building without first obtaining the consent in writing
of the Landlord. In giving such consent, the Landlord shall have
the right in its absolute and unfettered discretion, to prescribe
the weight permitted and the position thereof, and the use and
design of planks, skids or platforms, to distribute the weight
thereof. All damage done to the Building by moving or using any such
heavy equipment or other office equipment or furniture shall be
repaired at the expense of the Tenant. The moving of all heavy
equipment or other office equipment or furniture shall occur only by
prior arrangement with the Landlord. Safes and other heavy office
equipment and machinery shall 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.
7. The Tenant shall not place or cause to be placed any additional
locks upon any doors of the Leased Premises without the approval of
the Landlord and subject to any conditions imposed by the Landlord.
Two keys shall be supplied to the Landlord for each entrance door to
the Leased Premises and all locks shall be standard to permit access
to the Landlord's master key. If additional keys are requested,
they must be paid for by the Tenant. No one, other than the
Landlord's staff will have keys to the outside entrance doors of the
Building.
8. The water closets and other water apparatus shall not be used for
any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, ashes or other substances shall be thrown
therein. Any damage resulting from misuse shall be borne by the
Tenant by whom or by whose agents, servants, or employees the same
is caused. The Tenant shall not (a) let the water run unless it is
in actual use, (b) deface or mark any part of the Building, (c)
drive nails, spikes, hooks or screws into the walls or woodwork of
the Building, or (d) bore, drill or cut into the walls or woodwork
of the Building in any manner or for any reason.
9. No one shall use the Leased Premises for sleeping apartments or
residential purposes, or for the storage of personal effects or
articles other than those required for business purposes.
10. The Tenant shall not permit any cooking of any foods or liquids in
the Leased Premises without the written consent of the Landlord. The
Tenant shall be permitted the use of a microwave oven, a coffee
maker and a toaster.
11. Canvassing, soliciting and peddling in or about the Building and in the
parking facilities of the Building are prohibited.
12. It shall be the duty of the Tenant to assist and co-operate with the
Landlord in preventing injury to the Leased Premises.
13. No flammable oils or other flammable, dangerous or explosive material
save for samples of the Tenant's products and those approved in writing
by the Landlord's insurers shall be kept or permitted to be kept in the
Leased Premises. The Tenant
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3
shall be solely responsible for ensuring full compliance with all
statutory regulations with respect to the keeping or storing of the
Tenant's products on the Leased Premises.
14. No bicycles or other vehicles shall be brought within the building
without the consent of the Landlord.
15. No animals or birds shall be brought into the Building without the
consent of the Landlord.
16. If the Tenant desires telegraphic or telephonic connections, the
Landlord will direct the electricians as to where and how the wires are
to be introduced. This restriction shall not extend to the installation
of the Tenant's phones within the Leased Premises. No gas pipe or
electric wire will be permitted which has not been ordered or
authorized by the Landlord.
17. The Tenant shall not cover or obstruct any of the skylights and windows
that reflect or admit light into any part of the Building except for
the proper use of approved window coverings.
18. Any hand trucks, carryalls, or similar appliances used in the Building
with the consent of the Landlord, shall be equipped with rubber tires,
slide guards and such other safeguards as the Landlord requires.
19. The Tenant shall not place or maintain any supplies, merchandise or
other articles in any vestibule or entry of the Leased Premises, on the
footwalks adjacent thereto or elsewhere on the exterior of the Leased
Premises or the Building.
20. The Tenant shall not commit or suffer or permit to be committed any
waste upon, or damage to, or disfiguration of the Leased Premises or
any nuisance or other act or thing which disturbs the quiet enjoyment
of any other tenant in the Building or which unreasonably disturbs or
interferes with or annoys any Person, nor perform any acts or carry on
any practices which may damage the building.
21. The Tenant shall not refer to the Building by any name other than that
designated from time to time by the Landlord, nor use such name for any
purpose other than that of the business address of the Tenant, provided
that the Tenant may use the municipal number of the Building assigned
to it by the Landlord instead of the name of the Building.
22. The Tenant shall not install or allow on the Leased Premises any
transmitting device, nor erect any aerial on the roof of the
Building or on any exterior walls of the Leased Premises. Any such
installations shall be subject to removal by the Landlord without
notice at any time and such removal shall be done and all damage as
a result thereof shall be made good, in each case, at the cost of
the Tenant, payable as Additional Rent forthwith on demand.
23. The Tenant shall not use any travelling or flashing lights or signs
or any loudspeakers, television, phonographs, radio or other
audio-visual or mechanical devices in a manner so that they can be
heard or seen outside of the Leased Premises. If the Tenant uses
any such equipment without receiving the prior written consent of
the Landlord, the Landlord shall be entitled to remove such
equipment without notice at any time and such removal shall be done
and all damage as a result thereof shall be made good, in each case,
at the cost of the Tenant, payable as Additional Rent forthwith on
demand.
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4
24. The Landlord shall have the right to restrict access to the elevators
for move-in and move-out purposes. The Tenant shall consult prior to
taking or giving up occupation of the Leased Premises in order to
obtain an elevator schedule from the Landlord.
25. If the Tenant requires the supply of water, electricity, heating,
air conditioning or any other utility or service after the normal
hours during which the Landlord supplies same or on a weekend or
holiday, the Tenant shall purchase its requirements for those
utilities or services from the Landlord and the Tenant shall pay to
the Landlord as Additional Rent forthwith upon demand the cost of
same at the rates current from time to time set by the Landlord.
The Tenant acknowledges that reasonable prior verbal notice must be
given to the Landlord in the event that the Tenant requires the
supply of utilities after the hours the Landlord normally supplies
same.
<PAGE>
SUBLEASE AGREEMENT
This Sublease, made as of the 31st day of August, 1997 by and between
Thompson Minwax (Canada) Ltd., having an address c/o The Sherwin-Williams
Company, Attn: Corporate Real Estate Department, 101 Prospect Avenue, N.W.,
Cleveland, Ohio 44115-1075, herein called "Sublessor", and Changepoint Corp.,
an Ontario corporation, having an address of 1595 16th Avenue, Suite #702,
Richmond Hill, Canada, herein called "Sublessee",
WITNESSETH:
That Tenant does hereby rent and sublease unto Sublessee, and Sublessee
hereby subleases from Tenant, those certain Premises which are depicted on
Exhibit "A" which is attached hereto and made a part hereof (hereinafter
referred to as the "Premises"), consisting of approximately 9,537 rentable
square feet of space located in that certain Building located at 1595 16th
Avenue, Richmond Hill, Canada (hereinafter referred to as the "Building"),
and known as Suite #701 in said Building, which Premises were leased to
Sublessor, under the terms of that certain Lease entered into by and between
Menkes Office Parks Ltd. and Investors Group Trust Co. Ltd. as Trustee for
Investors Real Property Fund as Landlord (herein referred to as "Prime
Lessor") and Sublessor, dated the 4th day of April, 1995 (said Lease being
herein referred to as the "Prime Lease" and attached hereto as Exhibit "I").
To Have And To Hold the Premises with the appurtenances thereunto
belonging, (including all rights which Sublessor may have under said Prime
Lease to use any common areas) unto Sublessee, for a term commencing October
1, 1997 and ending on February 28, 2000 (unless sooner terminated as
hereinafter provided) subject, however, to all covenants, agreements,
restrictions and conditions contained in said Prime Lease, the terms and
conditions of which the Sublessee hereunder agrees to carry out insofar as
they pertain to said Premises, except as may be inconsistent with the terms
which are hereinafter provided for in this Sublease. As of February 1, 2000,
if Sublessee is not then in default and can provide documentation of a lease
executed between itself and the Prime Lessor for its continued tenancy of the
Premises, from and after March 31, 2000, Sublessee may continue its occupancy
of the Premises on the same terms and conditions of this Sublease through and
including March 31, 2000.
This Sublease us subject and subordinate to the Prime Lease. Except as
may be inconsistent with the terms hereof, all covenants and obligations
required of Sublessor under said Prime Lease shall be applicable to this
Sublease with the same force and effect as if Sublessor were the Lessor under
the Prime Lease and Sublessee were the Lessee thereunder; and in case of any
breach hereby by Sublessee, Sublessor shall have all the rights against
Sublessee as would be available to Lessor against Lessee under the Prime
Lease if such breach were by Lessee thereunder.
The Premises shall be used and occupied by Sublessee for the following
purpose only, and for no other purposes without the written consent of
Sublessor and Prime Lessor, which consent may be arbitrarily withheld: for
the purpose of any lawful business or undertaking. Sublessee will not permit
the Premises to be used for any unlawful purpose. Sublessee shall use the
Premises in a careful, safe and proper manner, and shall comply with all
laws, ordinances and regulations of the governing authorities having
jurisdiction over the Premises. The Premises are hereby subleased to and
accepted by Sublessee subject to matters of record; zoning ordinances;
building and other codes and law; utility installations, if any, and rights,
if any, of others connected therewith; and any matters which would be
disclosed by an accurate survey and personal inspection of the Premises.
Sublessor makes no warranties or representations to Sublessee that the
Premises can or may be used or occupied for the above-stated purpose, and
Sublessor is hereby expressly released and discharged from any and all
responsibility in that connection, should zoning ordinances, building and use
restrictions or anything else prohibit Sublessee's purpose.
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Sublessee covenants and agrees, at its sole expense, to observe all
regulations and requirements of underwriters concerning the use and condition
of the Premises tending to reduce fire hazards and insurance rates and not
permit nor allow any rubbish, waste material or products to accumulate on the
Premises. Should Sublessee maintain any conditions upon the Premises which
would increase the normal insurance rate of Sublessor or Prime Lessor, then
Sublessor may require Sublessee to reimburse Sublessor or Prime Lessor for
any additional insurance costs it may incur as a result of Sublessee
maintaining such condition.
It Is Mutually Covenanted And Agreed as follows:
PARAGRAPH 1
RENT
During said term, Sublessee shall pay to Sublessor, without notice,
demand or offset, as base rent for the Premises, the sum of Seven Thousand
Six Hundred Eighty-Five and 23/100 Dollars ($7,685.23) per month plus any GST
and/or capital taxes thereon assessed by the Province of Ontario or other
governmental entity. The first month's rent in the amount of Seven Thousand
Six Hundred Eighty-Five and 23/100 Dollars ($7,685.23) and a security deposit
in the amount of Seven Thousand Six Hundred Eighty-Five and 23/100 Dollars
($7,685.23) are paid herewith. Future monthly rent payments plus any GST
thereon shall be made on or before the first business day of every
consecutive calendar month throughout the term, payable to The
Sherwin-Williams Company, Attn: Dave Stefko, 101 Prospect Avenue, N.W.,
Cleveland, Ohio 44115-1075, or Sublessee shall mail said rent to such other
address as Sublessor may, from time to time, designate by written notice to
Sublessee. If the Sublease term shall commence on a day other than the first
day of a calendar month or shall end on a day other than the last day of a
calendar month, the rental for such fractional month shall be such proportion
of the monthly rental as the number of days of such fractional month bears to
the total number of days in the calendar month. Rental payments received
after the fifth (5th) day of the month shall bear interest thereon at a rate
of 3% per annum in excess of the minimum lending rate to prime commercial
borrowers from time to time current at the Bank of Nova Scotia in Toronto
from the date upon which the same was due until actual payment thereof.
PARAGRAPH 2
NOTICES
Any notice or consent required to be given by or on behalf of either
party to the other shall be in writing and given by mailing such notice or
consent by registered or certified mail; return receipt requested, addressed
to the other party as follows:
(i) If to Sublessee: Changepoint Corp.
1595 16th Avenue, Suite #702
Richmond Hill, Canada
Attention: Corporate Financial Officer
(ii) If to Sherwin-Williams: The Sherwin-Williams Company
101 Prospect Avenue, N.W.
Cleveland, Ohio 44115-1075
Attn: Corporate Real Estate Department
or at such other address as may be specified from time to time in writing by
either party. Any notice or consent given hereunder by Sublessor or Sublessee
shall be deemed effective on the date such notice or
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consent is deposited in a post office of the United States Postal Service and
on the date five (5) days after delivery of any notice or consent from
Sublessee to Sublessor.
PARAGRAPH 3
CONDITION OF PREMISES AND REPAIRS
Sublessee acknowledges that it has examined the Premises prior to the
making of this Sublease, and knows the condition thereof, and that no
representations as to the condition or state of repair thereof have been made
by Sublessor or its agents which are not herein expressed, and Sublessee
hereby accepts the Premises in their present condition. Sublessor does not
warrant the condition of the Premises in any respect, and shall not be
responsible for any injury that may happen to Sublessee or any property
brought, existing or permitted on the premises, nor shall Sublessor be
responsible for any injuries to third parties which occur on said Premises
during the continuance of this Sublease.
Sublessee shall use the Premises in a careful and proper manner and at
its own cost and expense shall repair and/or replace any damage or injury
done to the premises or any part thereof, caused by Sublessee or Sublessee's
agent, employees, invitees or visitors and any repairs to be performed by
Sublessor under the terms of the Prime Lease; provided, however, it is
further agreed that if Sublessee fails to make such repairs or replacements
promptly, then, and in that event Prime Lessor or, Sublessor may, at their
option, make such repairs and/or replacements, and Sublessee agrees, upon
demand by Sublessor, to forthwith reimburse Sublessor or Prime Lessor for the
cost of such repairs and/or replacements.
Sublessee hereby agrees to indemnify and hold Prime Lessor and Sublessor
harmless from and against all costs and expenses relative to damage to the
Premises, Building or appurtenances caused by Sublessee, its agents,
employees, customers, invitees or visitors.
Sublessee further agrees, that at the expiration or sooner termination
of this Sublease, Sublessee will surrender possession of the Premises
(including, but not limited to, all equipment and fixtures forming a part
thereof), in good condition and repair, reasonable use thereof, only,
excepted. Sublessee's obligations under this Paragraph 3 shall survive the
expiration or sooner termination of this Sublease.
Sublessor shall have the right, but no obligation of any nature or kind,
to make or erect any improvements on the Premises, nor any obligation to
Sublessee of any nature or kind to make any repairs and/or replacements to
said Premises. Sublessor agrees to cooperate with Sublessee in obtaining the
Prime Lessor's compliance with its repair obligations under the term of the
Prime Lease.
Sublessor covenants and agrees to leave all patch panels in the computer
room together with all existing wiring and cabling for computer and telephone
connections between the computer and the telephone rooms and the drop points
for office and workstations. Sublessee accepts such items in "as is"
condition, with no warranty of said condition provided by Sublessor.
PARAGRAPH 4
ASSIGNMENT AND SUBLETTING
Sublessee shall not sublet the Premises or assign this Sublease or any
part thereof without first obtaining the prior written consent of the
Sublessor or the Prime Lessor, said approval not to be unreasonably withheld
or delayed by Sublessor. Sublessor will make a reasonable attempt to obtain
Prime Lessor's consent, but shall in no event be liable for inability to do
so. Notwithstanding anything contained herein to the contrary, (i) Sublessee
agrees to pay the reasonable legal fees of both the Prime Lessor and
Sublessor relating to obtaining Prime Lessor's and Sublessor's consent, the
determination as to whether to give the consent; and the review of any
documents and/or financial statements without first obtaining the prior
written consent of both Sublessor and the Prime Lessor, (ii) Sublessor will
use reasonable efforts to obtain Prime
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Lessor's consent, but shall in no event be liable for failure to obtain same.
Any profit Sublessee may receive from any future assignment or Sublease shall
be paid to Sublessor.
PARAGRAPH 5
QUIET ENJOYMENT
Except as otherwise provided for herein, if Sublessee performs the
requirements hereof on its part to be performed, it shall have the quiet and
peaceable possession of the premises during the term of this Sublease. The
Sublessor shall pay the rent reserved under the Prime Lease to Prime Lessor
and to duly perform and observe all of the monetary obligations of Sublessor
as Tenant under the Prime Lease. The Sublessor shall use reasonable effort to
enforce for the benefit of the Sublessee the obligations of the Prime Lessor
under the Prime Lease, with the intent that the benefit of such covenants
shall extend to the Premises and be enjoyed by the Sublessee, but Sublessor
shall in no event be liable to Sublessee for any breach by Prime Lessor of
its obligations under said Prime Lease.
PARAGRAPH 6
WAIVER OF CLAIMS AND SUBROGATION
Notwithstanding anything to the contrary contained in this Sublease,
Sublessee waives all claims which arise or may arise in its favor against the
Prime Lessor or Sublessor during the term of this Sublease for any and all
loss of, or damage to, any of its property located within or upon, or
constituting a part of, the Premises, which loss or damage is caused by
perils normally insured against by standard "all-risk" coverage insurance
policies, regardless of the cause of such loss or damage, including any such
loss or damage resulting from the negligence of Prime Lessor Sublessor, its
agents, servants or employees. Inasmuch as such waiver will preclude the
assignment of any aforesaid claim by way of subrogation or otherwise to an
insurance company, Sublessee hereby agrees immediately to give to each
insurance company which has issued to it policies of "all-risk" coverage
insurance, written notice of the terms of such waiver, and to cause such
insurance policies to be properly endorsed, if necessary, to prevent the
invalidation of such insurance coverages by reason of such waivers.
PARAGRAPH 7
LIABILITY INSURANCE
The Sublessee covenants to insure and to keep insured during the whole
of the term, with an insurance company or companies in good standing and upon
terms and conditions all satisfactory to the Sublessor and Prime Lessor:
(i) "All-Risks'' insurance upon all property owned by the Sublessee or
for which it is legally liable or installed or affixed by or on
behalf of the Sublessee and which is located in the Premises,
including, without limitation, furniture, fittings, installations,
alterations, additions, partitions and fixtures or anything in the
nature of a leasehold improvement made or installed by or on
behalf of the Sublessee in an amount equal to the full replacement
cost thereof; if there is a dispute as to the amount which
comprises full replacement cost the decision of the Sublessor's
and/or Prime Lessor's Architect shall be conclusive.
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(ii) All parties hereto on a Comprehensive Forum for bodily injury and
property damage, general liability coverage arising out of the
use, maintenance or repair of the Premises and/or the business of
the Sublessee or any sub-tenant, licensees or occupiers of the
Premises; such insurance shall be for a limit of not less than
$2,000,000.00 inclusive for any one occurrence, or such higher
limits as the Sublessor and/or Prime Lessor, acting reasonably, or
any mortgages requires from time to time, and shall contain a
severability of interest clause, and a cross liability clause.
(iii) Any other form of insurance that the Sublessor and/or Prime Lessor
or any mortgagee may reasonably require, from time to time in
form, amounts and for insurance risks acceptable to the Sublessor
and/or Prime Lessor or any mortgagee.
The Sublessee covenants and agrees to provide the Sublessor and/or Prime
Lessor with evidence of insurance as required under this provision. Such
evidence shall be by way of a certified copy of the policy if available in
timely fashion or failing which a certificate of insurance at such time or
times as the Sublessor and/or Prime Lessor may require. Sublessee agrees to
have Sublessor and Prime Lessor named as additional insureds under such
policy. The Sublessee agrees to provide same to the Sublessor and Prime
Lessor forthwith after notice has been given by the Sublessor and/or Prime
Lessor to the Sublessee of its request. The Sublessee's policy shall contain
a waiver of subrogation in favor of the Sublessor and Prime Lessor and those
for whom the Sublessor and Prime Lessor are in law responsible.
PARAGRAPH 8
DAMAGE BY FIRE OR OTHER CASUALTY
In the event that the Premises shall be damaged by fire or other
casualty, the provisions of Paragraph 4.2 of the Prime Lease shall apply.
PARAGRAPH 9
FIXTURES AND ALTERATIONS
Sublessee shall make no alterations or changes to the Premises unless
such changes and alterations are approved, in writing, by both Sublessor and
the Prime Lessor said approval not to be unreasonably withheld or delayed by
Sublessor. If Sublessee does not hear from Sublessor within fourteen (14)
days after receipt of such written application for changes and alterations,
Sublessor's consent shall be deemed given. Sublessor will make a reasonable
attempt to obtain Prime Lessor's consent, but shall in no event be liable for
inability to do so. Sublessee shall submit plans and specifications to
Sublessor and Prime Lessor for their written consent before making any
changes or alterations. Notwithstanding anything to the contrary contained
herein, as a condition of Sublessor's approval, if Prime Lessor places any
additional requirements on Sublessor such as removing any alterations or
improvements at the expiration of the term of this Sublease, Sublessor may
withhold its consent to Sublessee's request. Sublessee shall not permit any
mechanics' or other liens to stand against the premises for work or material
furnished to it. Sublessor and the Prime Lessor shall have the right to post
a notice of non-responsibility on the Premises with respect to any such work
by Sublessee. All such changes and alterations as well as any installations
of fixtures, appliances and/or equipment shall be undertaken and completed in
a good and workmanlike manner and in compliance with all federal, state and
local building and other laws, ordinances, codes, and regulations. If
requested by Sublessor or Prime Lessor, Sublessee shall remove any
alterations from the premises and make any alterations or replacements caused
by such removal prior to the expiration or termination of this Sublease
Agreement.
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PARAGRAPH 10
MECHANICS' LIENS
Sublessee shall not do or suffer anything to be done whereby the
Premises shall be encumbered by any mechanic's or other lien or order for the
payment of money, and Sublessee shall at its own cost and expense, whenever
and as often as any mechanic's lien purporting to be for labor, material or
services furnished or to be furnished to Sublessee, or other lien or order
for the payment of money shall be filed against the Premises, cause the same
to be canceled and discharged of record within ten (10) days after the date
of filing thereof, and further shall indemnify and save harmless Sublessor
and Prime Lessor from and against any and all costs, expenses, claims, losses
or damages resulting therefrom or by reason thereof. In the event that any
such lien shall be filed against the premises and not canceled or discharged
within such ten (10) day period, Sublessor or Prime Lessor shall have the
right to pay said lien in full on Sublessee's behalf and Sublessee shall
reimburse Sublessor or Prime Lessor for the cost thereof upon demand.
Sublessee shall be permitted to remove its trade fixtures from the Premises
at the expiration of termination of the Sublease to the extent Sublessor is
permitted to do so under the Prime Lease and further provided that Sublessee
repairs any damage caused by such removal.
PARAGRAPH 11
DEFAULTS, REMEDIES
If Sublessee shall fail to pay to Sublessor any installment of rent or
any additional rent or other charges as and when the same are required to be
paid hereunder, within five (5) days of notice of same become due, Sublessor
shall be entitled, to interest thereon at a rate of 3% per annum in excess of
the minimum lending rate to prime commercial borrowers from time to time
current at The Bank of Nova Scotia in Toronto from the date upon which the
same was due until actual payment thereof. Sublessor shall have all of the
rights and remedies of Prime Lessor in the event of any default hereunder by
Sublessee either by provision of this Sublease or the Prime Leases, as well
as all remedies at law or in equity.
Sublessor shall not be deemed in breach of this Sublease unless it
commences to remedy same within five (5) days after written notice and
proceeds therewith with due diligence.
PARAGRAPH 12
NON-USE, BANKRUPTCY, INSOLVENCY, ETC.
In the event without the written consent of Sublessor the Premises shall
become and remain vacant or not used for a period of ten (10) days while the
same are suitable for use by Sublessee or in the event they shall be used by
any person other than Sublessee, or if the estate created hereby shall be
taken in execution or by other process of law, or if Sublessee shall file a
voluntary petition in bankruptcy or be declared bankrupt or insolvent
according to law, or any receiver be appointed for the business and property
of Sublessee, or it any assignment shall be made of Sublessee's property for
the benefit of creditors, then, and in that event, this Sublease may be
canceled at the sole option of Sublessor, by Sublessor giving Sublessee ten
(10) days' prior written notice of such termination.
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PARAGRAPH 13
EFFECT OF WAIVER
The failure of Sublessor to insist in any one or more instances upon the
strict performance of any of the terms, covenants, conditions, and agreements
of this Sublease, or to exercise any option herein conferred, shall not be
considered as waiving or relinquishing for the future any such terms,
covenants or conditions, agreements or options, but the same shall continue
and shall remain in full force and effect; and the receipt of any rent or any
part thereof, whether the rent be that specifically reserved or that which
may become payable under any of the covenants herein contained, and whether
the same be received from Sublessee or from anyone claiming under or through
it or otherwise shall not be deemed to operate as a waiver of the rights of
Sublessor to enforce the payment of rent or charges of any kind previously
due or which may thereafter become due, or the right to terminate this
Sublease and to recover possession of the Premises by summary proceedings or
otherwise, as Sublessor may deem proper, or to exercise any of the rights or
remedies reserved to Sublessor hereunder or which Sublessor may have at law,
in equity or otherwise.
PARAGRAPH 14
HOLDOVER
In the event Sublessee shall remain in the Premises after the expiration
or sooner termination of this Sublease without having executed a new written
Sublease/extension of this Sublease with Sublessor, or having executed a
Lease with the Prime Lessor, such holding over shall not constitute a renewal
or extension of this Sublease. Sublessor may, at its option, elect to treat
Sublessee as one who has not removed at the end of his term, and thereupon be
entitled to all the remedies against Sublessee provided by law in that
situation.
PARAGRAPH 15
SUBLESSEE'S PERSONAL PROPERTY
Sublessee, at Sublessee's sole expense, shall maintain all insurance on
its inventory, trade fixtures and personal property, and shall pay before
delinquency all taxes assessed against said personal property or against
Sublessee's business.
PARAGRAPH 16
ENTIRE AGREEMENT
The parties agree that this Sublease sets forth all the promises,
agreements, conditions and understandings between them relative to the
Premises and that there are no promises, agreements, conditions or
understandings between them, either oral or written, other than are herein
set forth.
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PARAGRAPH 17
SUCCESSORS AND ASSIGNS
The terms and conditions of this Sublease shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs,
representatives, successors and permitted assigns.
PARAGRAPH 18
INDEPENDENT CONTRACTOR
Sublessee is an independent contractor for the purposes of this
agreement and nothing in this agreement expressed or implied shall be
construed as creating or evidencing any purpose or intention to create the
relationship of employer and employee by the contracting parties.
PARAGRAPH 19
HEAD NOTES
The head notes are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of intent of this
Sublease nor in any way affect this Sublease. Words of any gender in this
Sublease shall be held to include any other gender and words in the singular
number shall be held to include the plural when the sense requires.
PARAGRAPH 20
SECURITY DEPOSIT
Sublessor acknowledges receipt from Sublessee of the sum of Seven
Thousand Six Hundred Eighty-Five and 23/100 Dollars ($7,685.23), which sum
Sublessor shall retain as security for the performance by Sublessee of each
of its obligations hereunder. If Sublessee fails at any time to perform its
obligations, Sublessor may at its option apply said deposit, or so much
thereof as is required, to cure Sublessee's default. Unless Sublessor uses
the same to cure a default of Sublessee or to restore the Premises to the
condition that Sublessee is required to leave them at the conclusion of the
term, Sublessor shall, within thirty (30) days of the termination or
expiration of the Sublease and Sublessee vacating the Premises or continuing
its occupation under a lease executed with the Prime Lessor, whichever is
applicable, refund so much of the deposit as remains.
PARAGRAPH 21
REALTOR
Sublessee warrants and represents that it has dealt with no realtor in
conjunction with this transaction and agrees to indemnify and hold harmless
Sublessor from the claims of any realtor asserting that it has represented
Sublessee in this transaction.
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PARAGRAPH 22
PRIME LESSOR'S CONSENT REQUIRED
The term of this Sublease is subject to and conditioned upon the Prime
Lease continuing in full force and effect, and in the event that the Prime
Lease expires or is otherwise terminated, then this Sublease shall also
terminate simultaneously therewith. Sublessor's receipt of the written
consent of Prime Lessor is a prerequisite to consummation of this Sublease
prior to this Sublease taking effect.
PARAGRAPH 23
TAXES, OPERATING EXPENSES, UTILITIES AND ADDITIONAL RENT
Sublessee shall pay to Sublessor upon receipt of a written invoice from
Sublessor, all taxes, operating expenses and utilities, additional rent and
other charges billed to Sublessor by Prime Lessor in accordance with the
terms of said Lease, including but not limited to Articles I (Additional
Rent), V (Taxes and Operating Costs), and VI (Utilities) of the Prime Lease.
PARAGRAPH 24
SIGNS AND DIRECTORY
Sublessee shall have the right to use the identification signage and
directory listing privileges of Sublessor in accordance with Article III,
Paragraph 3.3 (Signs and Directory) of the Prime Lease.
PARAGRAPH 25
PARKING
Sublessee may use throughout the term of this Sublease, the parking
spaces under the provisions provided in Article XIV (Other Provisions) of the
Prime Lease.
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PARAGRAPH 26
MUTUAL INDEMNIFICATION
Each party hereto agrees to indemnify and save the other harmless from
and against any and all loss, cost, damage and expense, including reasonable
attorneys' fees, arising out of or connected with the breach of this Sublease
by it, its agents or employees.
IN WITNESS WHEREOF, the parties hereto have executed this agreement.
WITNESSES AS TO SUBLESSOR: SUBLESSOR: THOMPSON MINWAX (CANADA)
LTD.
1. /s/ Laura A. Moore By: /s/ Richard A. Legenza
- ---------------------------------- ----------------------------------
2. /s/ Robbie T. House Its: Assistant Secretary
- ---------------------------------- ----------------------------------
I have authorization to bind the
corporation.
WITNESSES AS TO SUBLESSEE: SUBLESSEE: CHANGEPOINT CORP.
1. /s/ illegible By: /s/ Gerry Smitz
- ---------------------------------- ----------------------------------
2. /s/ illegible Its: President
- ---------------------------------- ----------------------------------
I have authorization to bind the
corporation.
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<PAGE>
CONSENT OF PRIME LESSOR
The Prime Lessor does hereby consent to the above Sublease. The Prime
Lessor hereby further warrants and represents that the Prime Lease, dated
April 4, 1995 between Menkes Office Parks Ltd. and Investors Group Trust Co.
Ltd. as Trustee for Investors Real Property Fund, as Landlord, and Thompson
Minwax (Canada) Ltd., as Tenant, is in full force and effect and that no
known default exists by either Landlord or Tenant thereunder.
WITNESSES AS TO PRIME LESSOR: MENKES OFFICE PARKS LTD. AND
INVESTORS GROUP TRUST CO. LTD.
AS TRUSTEE FOR INVESTORS REAL
PROPERTY FUND
1. By:
-------------------------------- ------------------------------
2. Its:
-------------------------------- ------------------------------
I have authorization to bind the
corporation.
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<PAGE>
[FLOOR PLAN]
Base Building Grid 1500 x 1500
18,041 SF Rentable
EXHIBIT "A"
<PAGE>
LEASE
THIS LEASE made as of the 4th day of April, 1995
PURSUANT TO THE SHORT FORMS OF LEASES ACT
BETWEEN
MENKES OFFICE PARKS LTD. and INVESTORS
GROUP TRUST CO. LTD. as trustee for
INVESTORS REAL PROPERTY FUND
(the "LANDLORD")
OF THE FIRST PART
- AND -
THOMPSON MINWAX (CANADA) LTD.
(the "TENANT")
OF THE SECOND PART
ARTICLES. For convenience of reference this Lease has been divided
into the following Articles:
Article I - Definitions
Article II - Lease Term and Payments
Article III - Landlord and Tenant Covenants
Article IV - Repair and Damage
Article V - Taxes and Operating Costs
Article VI - Utilities and Additional Services
Article VII - Assigning and Subletting
Article VIII - Fixtures and Improvements
Article IX - Insurance and Liability
Article X - Subordination, Attornment and Certificates
Article XI - Remedies of Landlord on Tenant's Default
Article XII - Events Terminating Lease
Article XIII - Miscellaneous
Article XIV - Other Provisions
LIST OF SCHEDULES. The following schedules form an integral part of this
Lease:
Schedule "A" - Legal Description of Lands
Schedule "B" - Leased Premises
Schedule "C" - Rules and Regulations
ARTICLE I - DEFINITIONS
1.0 DEFINITIONS. In this Lease the following defined terms shall have the
meanings set forth below.
"ADDITIONAL RENT" means Operating Costs under Section 5.5, Taxes
under 5.3, Electricity under 6.2, and Insurance under Article I and
all other charges, costs and expenses required to be paid by the
Tenant under the terms of this Lease (other than Base Rent) whether
payable to the Landlord or not.
"ADDITIONAL SERVICES" means the services and supervision supplied by
the Landlord to the Leased Premises and Common Area Facilities and
referred to herein or in any other provision hereof as Additional
Services and any other services which from time to time the Landlord
supplies to the Tenant at the Tenant's written request or as the
Landlord deems necessary, acting reasonably, in the event of a
default by the Tenant and which are additional to the janitor and
cleaning and other services typically supplied in a first class
office building, supervision in connection with the making of any
repairs or alterations by the Tenant affecting the Base Building,
building systems or Leasehold Improvements.
"ATTIC STOCK" means spare fan, pump and cooling tower motors, base
Building light fixtures, fuses, etc.
"BASE RENT" means the base rent payable by the Tenant in accordance
with Section 2.3.
<PAGE>
2
"BUILDING" means the building municipally known as 1595 16th Avenue,
Richmond Hill, Ontario.
"CAPITAL TAX" is an amount presently or hereafter imposed from time
to time pursuant to Part III of the Corporations Tax Act (Ontario)
(the "Act") upon the Landlord or the owner of the Building and Lands
and payable by the Landlord on account of its interest in the
Building and the Lands or any part thereof, or its interest in or
capital employed in the Building and the Lands, as the case may be.
"COMMENCEMENT DATE" means April 1, 1995.
"COMMON AREA FACILITIES" means all facilities, improvements,
installations, utilities and equipment located in the Building or the
Lands immediately surrounding the Building.
"COMMON AREAS" means those areas, facilities, utilities,
improvements, equipment and installations comprising the Lands and
Building and which are not leased or designated for lease to tenants
but are provided to be used in common by (or by the sublessees,
agents, employees, customers or licensees of) the Landlord, the
Tenant, and other tenants of the Building and other buildings on the
Lands, whether or not the same are open to the general public or a
specific tenant of the Building, and include, but are not limited
to, parking areas and all vestibules for and entrances and exits
thereto; driveways, truckways and related areas; corridors and
underground or above ground tunnels or passageways; stairways,
escalators, ramps, and elevators and other transportation equipment
and systems; tenant, common and public washrooms; telephone, meter,
valve, mechanical, mail, storage, service and janitor rooms; fire
prevention, security and communication systems, any fixtures,
chattels, systems, decor, signs, facilities, or landscaping and
planted areas contained therein or maintained or used in connection
therewith.
"COST OF ADDITIONAL SERVICES" shall mean in the case of Additional
Services provided by the Landlord a reasonable charge made therefor
by the Landlord which shall not exceed the cost of obtaining such
services from independent contractors and in the case of Additional
Services provided by independent contractors the Landlord's total
cost of providing Additional Services to the Tenant including the
proportionate cost of all direct labour (including salaries, wages
and fringe benefits) and materials and other direct expenses
incurred, the cost of supervision without duplication or profit and
other expenses reasonably allocated thereto.
"INSURED DAMAGE" means that part of any damage occurring to the
Leased Premises of which the entire cost of repair is actually
recovered by the Landlord under a policy of insurance in respect of
fire and other perils from time to time effected by the Landlord, or
for which the Landlord has self-insured under Section 9.1 herein.
"LAND" means those lands described in Schedule "A" attached
hereto.
"LEASE" means this lease between the Landlord and the Tenant,
and all amendments hereto.
"LEASEHOLD IMPROVEMENTS" means all fixtures, improvements,
installations, alterations and additions from time to time made,
erected or installed by or on behalf of the Tenant or by or on
behalf of any other previous occupant in the Leased Premises
(including the Landlord) with the exception of trade fixtures,
furniture and equipment, (not of the nature of fixtures), modular
office furniture systems, improvements of a cosmetic nature such as
rugs (but not broadloom), decorations and other improvements
moveable without the use of tools, but Leasehold Improvements
include all office partitions however affixed and includes
wall-to-wall and other
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3
carpeting with the exception of such carpeting where laid over vinyl
tile or other finished floor and affixed so as to be readily
removable without damage.
"LEASED PREMISES" means approximately 9,537 square feet of Rentable
Area on the 7th floor of the Building known as suite 701, as outlined
in red on the plans attached as Schedule "B".
"NORMAL BUSINESS HOURS" means the hours of 7:00 a.m. to 7:00
p.m. Monday to Friday, except public holidays.
"OPERATING COSTS" means the total of all expenses, costs, and outlays
incurred in the complete maintenance, repair and operation of the
Building and Common Area Facilities, whether incurred by or on behalf
of the Landlord and calculated without profit (other than the
management fee) or duplication, and subject to Section 14.10, in
accordance with generally accepted accounting principles:
(i) Operating Costs shall include without limiting the
generality of the foregoing (but subject to certain
deductions as hereinafter provided), the cost of
providing complete cleaning and janitorial services, the
cost of building supplies used in the maintenance of the
Building, Attic Stock, maintenance services, exterior
landscaping, snow removal, garbage and waste collection
and disposal, rental of equipment and signs, janitorial
services to the Common Areas of the Building, the cost of
operating elevators, the cost of heating, cooling and
ventilating all space including both rentable and non-
rentable areas, the cost of providing hot and cold water,
electricity (including lighting), and the replacement of
electric light bulb tubes, starters and ballasts,
telephone and other utilities and services to both
rentable and non-rentable areas, the cost of all repairs
including repairs to the Building or services in the
Building or Common Area Facilities including elevators,
the cost of window cleaning, and providing security (if
any), the cost of all insurance for liability or fire or
other casualties referred to in Article 9.1, accounting
costs incurred in connection with maintenance and
operation including computations required for the
imposition of charges to the Tenant and audit charges
required to be incurred for the conclusive determination
of any costs hereunder, reasonable legal fees, the amount
of all salaries (only to the extent that such salaries or
a proportion thereof, relate directly to the Building),
wages and fringe benefits, unemployment and workers
compensation insurance premiums, pension plan
contributions and other similar premiums and
contributions paid or provided to employees directly or
a reasonable proportion thereof engaged in the
maintenance, repair or operation of the Building, amounts
paid to independent contractors for any services in
connection with such maintenance, repair or operation,
the reasonable cost of management fees, and other
indirect expenses to the extent allocable to the
maintenance, repair and operation of the Building and
Common Area Facilities and all other reasonable expense
of every nature incurred in connection with the
maintenance, repair and operation of the Building and
Common Area Facilities; and
(ii) Operating Costs shall exclude debt service, and all
management costs not allocable to the actual maintenance,
repair and operation of the Building (such as that incurred
in connection with leasing and rental advertising).
Notwithstanding anything contained herein, Operating Costs shall not
include:
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4
(a) interest and principal payments on outstanding financing
of the Landlord, and any other debt costs of the
Landlord;
(b) payments under any ground lease;
(c) costs or expenses incurred with respect to the acquisition,
development, construction, furnishing and original
landscaping of the Building and any expansion thereof;
(d) depreciation;
(e) save and except as permitted by Section 14.10, costs and
expenses properly chargeable to capital account including,
without limitation, the cost of repairs of a structural
nature;
(f) costs or expenses resulting from any inadequacy in the
design or construction of the Building or with respect to
poor workmanship or materials in connection with such
construction;
(g) costs of repairs done by the Landlord and for which the
Landlord has been or is to be reimbursed either as a result
of an insurance claim or otherwise;
(h) costs of alterations or improvements to the Leased Premises
or the premises of other tenants in the Building and
corresponding costs as to premises occupied or to be
occupied by the Landlord, except as they relate to premises
occupied by the Landlord in the performance of its function
as landlord and manager of the Building;
(i) commissions, fees and all other expenses incurred in
connection with marketing or leasing the Building or any
part thereof, including without limitation the cost of work
which the Landlord does in any other leased premises in the
Building for the purpose of obtaining a new tenant of such
premises or for the purposes of obtaining a renewal;
(j) amounts for which the Landlord is reimbursed by tenants or
third parties including, without limitation, insurance
premiums chargeable to tenants other than pursuant to this
definition;
(k) any bad debt loss, rent loss or reserves for bad debts or
rent loss;
(l) any amount paid as a fine or a penalty as a result of a
violation of law (provided such violation of law was not
caused by or contributed to by the Tenant), or the payment
of which constitutes a violation of law, or the
reimbursement of which would constitute a violation of law;
(m) all costs incurred in connection with the rectification of
any work done by the Landlord in the Leased Premises or in
the Building which did not comply with and conform to every
applicable statute, law, by-law, and regulation, provided
such non-compliance is not attributable to the Tenant or
those for whom the Tenant is in law responsible or the
Tenant's use and occupancy of the Leased Premises;
(n) income taxes and other taxes personal to the Landlord;
(o) sales tax, goods and services tax, value added tax or any
similar tax;
(p) the cost of any insurance premiums relating to risks or
amounts which are not normally insured against by reasonably
prudent owners of similar buildings;
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5
(q) the amount of insurance premiums to the extent they are
payable in respect of insurance coverage arranged by the
Landlord on behalf of a specific tenant of the Building and to
the extent such coverage is not provided for in this Lease;
(r) the cost of any payment which the Landlord is obligated to
make pursuant to an agreement to indemnify any person;
(s) Capital Tax;
(t) operating costs which are recovered from insurance proceeds or
which would be recoverable assuming compliance by the Landlord
with its insurance obligations under this Lease;
(u) costs covered by warranties or guarantees;
(v) charges for services rendered or materials furnished to or
part of any special arrangement with any specific tenant or
tenants of the Building;
(w) any cost which would otherwise be included in Operating Costs,
but consists of an amount paid to a corporate affiliate,
parent or subsidiary of the Landlord, to the extent such
amount is in excess of the fair market value of the said item
or service where the expense incurred in an arms-length
transaction; and
(x) amounts which are deducted from the calculation of Operating
Costs in other tenant's leases.
"PROPERTY" means the Land and Building.
"PROPORTIONATE SHARE" shall mean the fraction which has as its
numerator the Rentable Area of the Leased Premises and has as its
denominator the total Rentable Area of the Building. The total Rentable
Area of the Leased Premises shall be adjusted from time to time, as may
be reasonably necessary, to give effect to any structural or functional
changes affecting the calculation of total Rentable Areas.
"RENT" means Base Rent and Additional Rent.
"RENTABLE AREA" in this Lease means:
(i) in the case of a single tenancy on a whole floor of the
Building, all areas within the inside finished surface of
the dominant portion of the permanent outer Building
walls and shall be computed by measuring the inside
finished surface of the dominant portion of the permanent
outer Building walls and shall include Service Areas and
any special stairs and/or elevators for the specific sole
use of that floor, but excluding stairs, elevator shafts,
flues, pipe shafts and vertical ducts and the like and
their enclosing walls (the "VERTICAL OPENINGS"), with no
deductions for columns or projections necessary to the
Building plus a gross-up factor for ground floor services
in common with other tenants, including, but not limited
to vestibules, corridors, elevator lobbies, mechanical,
electrical, telephone, mail, garbage and janitor's rooms,
such factor to be based upon a ratio which the ground
floor Service Areas of the Building bears to the gross
floor area, less Vertical Openings of the Building; and
(ii) in the case of a floor of the Building to be occupied by
more than one tenant, all areas from the inside finished
surface of the dominant portion of the permanent outer
Building walls to the Tenant's side of corridors and/or
other permanent interior walls and to the centre of
demising partitions which separate the area occupied from
adjoining rentable premises, herein referred to as the
"USABLE AREA", plus a gross-up factor for the Service
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6
Areas on the floor in common with other tenants on the
same floor, including, but not limited to, corridors,
elevator lobbies, mechanical, electrical, telephone and
janitor's rooms exclusively serving the floor, such
factor to be based upon a ratio which the Service Areas
of the floor bear to the sum of the Usable Area of the
floor, plus an additional gross-up factor for ground
floor services in common with other tenants, including,
but not limited to, vestibules, corridors, elevator
lobbies, mechanical, electrical, telephone, mail, garbage
and janitor's rooms, such factor to be based upon a ratio
which the ground floor Service Areas of the Building
bears to the gross floor area, less Vertical Openings of
the Building.
"RULES AND REGULATIONS" means the rules and regulations
attached as Schedule "C".
"SERVICE AREAS" shall mean the area of corridors, elevator, lobbies,
service elevator lobbies, washrooms, air-cooling rooms, fan rooms,
janitor's closets, telephone and electrical closets and other closets
serving the Leased Premises in common with other premises on the same
floor.
"TAXES" means all taxes, rates, duties, levies and assessments
whatsoever, whether municipal, parliamentary or otherwise, levied,
imposed or assessed against the Building, Common Areas or Common Area
Facilities or upon the Landlord in respect thereof, excluding Capital
Tax, Large Corporations Tax and commercial concentration tax, or from
time to time levied, imposed or assessed in the future in lieu thereof,
whether now contemplated or not, and those levied, imposed or assessed
for education, schools and local improvements and including all costs
and expenses (including reasonable legal and other professional fees),
incurred by the Landlord in good faith in contesting, resisting or
appealing any taxes, rates, duties, levies or assessments, but
excluding taxes and license fees in respect of any business carried on
by tenants and occupants of the Building (including the Landlord) to
the extent such taxes are not levied in lieu of taxes, rates, duties,
levies and assessments against the Building or upon the Landlord in
respect thereof, and shall also include any and all taxes which may in
future be levied in lieu of taxes as hereinbefore defined.
"TERM" means the term of the Lease stipulated in paragraph 2.2.
"UTILITIES" means electricity as described in Article 6.2, natural gas
and any other utility required in the operation of the Building.
ARTICLE II - LEASE TERM AND PAYMENTS
2.1 DEMISE. In consideration of the rents, covenants and agreements
hereinafter reserved and contained, the Landlord hereby leases to the
Tenant, for the exclusive use of the Tenant, the Leased Premises for
the Term.
2.2 TERM. The Lease shall have a term of five (5) years commencing on April
1, 1995 and ending March 31, 2000, unless such term shall be sooner
terminated as hereinafter provided.
2.3 BASE RENT. Subject to the provisions of section 14.9 hereof the
Tenant shall pay yearly and every year during the within Term the
sum of of lawful money of Canada in twelve (12) equal
monthly instalments of , in advance, the first of such
instalment to become due and payable on April 1, 1995 (the "BASE
RENTAL").
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7
The aforesaid annual Base Rent is calculated on the basis of the
Rentable Area of the Leased Premises being 9,537 square feet at a
rate of for each square foot of Rentable Area.
The parties hereto acknowledge and agree that of the Base Rental
rate noted above has been included in lieu of the Tenant not paying a
Proportionate Share of Capital Tax and Large Corporations Tax as part
of Taxes and not paying a Proportionate Share of depreciation of
systems and equipment as part of Operating Costs. It is further agreed
that upon this Lease becoming extended whether pursuant to Section 14.3
hereof or otherwise, there shall be added to the determined Base Rental
rate for the extension term, a corresponding amount of the then current
amount charged by the Landlord under its leases in the Building for
Capital Tax, Large Corporations Tax and depreciation of systems and
equipment of the Building.
The Landlord represents and warrants that the Rentable Area of the
Leased Premises is 9,537 square feet and the Landlord, at its cost,
covenants and agrees to deliver a certificate in respect thereof,
signed by the Landlord's architect, prior to the Commencement Date.
IF THE TERM COMMENCES on any day other than the first or ends on any
day other than the last day of the month, the Base Rental and
additional rental for the fractions of a month at the commencement and
at the end of the Term shall be adjusted pro rata. All Base Rental
payments shall be payable on the first of each month.
2.4 PREPAID RENT. The Landlord acknowledges receipt of the sum of
including GST, representing payment on account of the Rents
due herein for the months of April, May and part of June, 1995.
ARTICLE III - LANDLORD AND TENANT COVENANTS
3.1 LANDLORD COVENANTS. The Landlord covenants with the Tenant:
(a) QUIET ENJOYMENT. To provide for quiet enjoyment.
(b) INTERIOR CLIMATE CONTROL. To provide to the Leased Premises
during Normal Business Hours, processed air by means of a
system for heating and cooling, filtering and circulating,
processed in such quantities, and at such temperatures as
shall be reasonable in accordance with good standards of
interior climate control generally pertaining to normal
occupancy of premises for office purposes. The Landlord shall
have no responsibility for inadequacy of the performance of
the said system if the Leased Premises depart from the design
criteria.
(c) ELEVATORS. Subject to the supervision of the Landlord and
except when repairs are being made thereto, to furnish for use
by the Tenant and its employees and invitees in common with
other persons entitled thereto reasonable standards of
passenger elevator service to the Leased Premises. The Tenant
shall be responsible for any damages caused to the elevator as
a result of taking possession or giving up possession of the
Leased Premises and shall pay such costs forthwith upon demand
as Additional Rent.
(d) ENTRANCES LOBBYS, ETC.. To permit the Tenant and its
employees and invitees to have the use in common with
others entitled thereto of the common entrances, lobbies,
stairways, elevators and corridors of the Building giving
access to the Leased Premises (subject to the Rules and
Regulations and such other reasonable limitations as the
Landlord may from time to time impose).
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8
(e) WASHROOMS. To permit the Tenant and its employees and
invitees, in common with others entitled thereto to use the
washrooms available to the Leased Premises on each floor of
the Building upon which any part of the Leased Premises is
located.
(f) JANITOR SERVICE. To cause the floors and windows of the Leased
Premises to be swept and cleaned and the desks, tables and
other furniture of the Tenant to be dusted once per business
day, all in keeping with a first-class office building, such
work shall be done at the Landlord's direction without
interference by the Tenant, its servants or employees.
(g) MAINTENANCE OF COMMON AREAS. To cause the elevators, common
entrances, lobbies, stairways, corridors, washrooms and other
parts of the Building from time to time provided for common
use and enjoyment to be swept, cleaned or otherwise maintained
substantially in keeping with a first-class office building.
The Landlord further covenants with the Tenant as follows, subject to
chargeback if permitted by the terms of this Lease:
(i) to observe and perform all of the covenants and
obligations of the Landlord under this Lease;
(ii) to operate, maintain, clean, light, heat, ventilate and
air-condition (during Normal Business Hours), supervise and
regulate the Common Areas and the Common Area Facilities as a
prudent owner of a first-class building would do;
(iii) to provide security services for the Building;
(iv) to repair and maintain the Common Areas and the Common Area
Facilities, the Building and the Lands, including all external
and structural parts of the Building, with reasonable dispatch
and in a good and workmanlike manner, and so as to keep the
Building in good condition and repair as a prudent owner of a
first-class building would do;
(v) to promptly pay and discharge, on or before the times and
in such manner as may be necessary to prevent any default
which would give rise to any remedy which would result in
interference with the interests of the Tenant in the
Leased Premises, all payments (other than payments which
are required by reason of any act or default of the
Tenant or those for whom it is in law responsible)
required to be paid pursuant to any contract,
construction lien, lien, privilege, mortgage, charge or
encumbrance affecting the Leased Premises;
(vi) the Landlord shall, with respect to the Lands and that
portion of the Building which does not include the Leased
Premises: (1) maintain the Building and all electrical,
mechanical and plumbing systems in the Building in good
order and condition consistent with the standards
maintained in buildings in Metropolitan Toronto of
similar location and character as the Building; (2)
maintain in such good order and condition as would a
prudent owner, the roadways, sidewalks, parking areas and
grounds forming part of the Lands; (3) keep the roadways
and parking areas forming part of the Lands reasonably
free of snow and ice; and (4) heat the Building to the
extent necessary for the conduct by tenants of their
businesses;
(vii) the Landlord is the beneficial and legal owner of the Leased
Premises, the Building and the Land and has
authority to enter into this Lease; and
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9
(viii) the Landlord shall comply at all times with any law, by-law,
ordinance, order, rule, regulation or requirement of any
federal, provincial or municipal government or any department,
commission, board or office thereof which relate to or affect
the Leased Premises, the Building and/or the Lands.
3.2 TENANT COVENANTS. The Tenant covenants with the Landlord:
(a) RENT. To pay Base Rent and Additional Rent.
(b) PERMITTED USE. To use the Leased Premises only for the purpose
of any lawful business or office undertaking and not to use or
permit to be used the Leased Premises or any part thereof for
any other purpose or business.
(c) WASTE AND NUISANCE. Not to commit or permit any waste, damage
or injury to the Leased Premises including the Leasehold
Improvements and trade fixtures therein, reasonable wear and
tear excluded, any overloading of the floors thereof, any
nuisance therein or any use or manner of use causing
unreasonable annoyance to other tenants and occupants of the
Building.
(d) CONDITION. Not to permit the Leased Premises to become
hazardous or permit unreasonable quantities of waste or refuse
to accumulate therein and at the end of each business day to
leave the Leased Premises in a condition such as to reasonably
facilitate the performance of the Landlord's janitor and
cleaning services referred to herein.
(e) BY-LAWS. To comply at its own expense with all municipal,
federal, provincial, sanitary, fire, building and safety
statutes, laws, by-laws, regulations, ordinances, orders or
regulations pertaining to the operation and use of the Leased
Premises, the condition of the Leasehold Improvements, trade
fixtures, furniture and equipment installed by the Tenant
therein and the making by the Tenant of any repairs, changes
or improvements therein.
(f) FIRE EXIT DOORS. To permit the installation by the Landlord of
all doors in the exterior wall of the Leased Premises
necessary to comply with the requirements of any statute, law,
by-law, regulation, ordinance, order or regulation.
(g) RULES AND REGULATIONS. To observe and to cause its employees,
invitees and others over whom the Tenant can reasonably be
expected to exercise control, the Rules and Regulations and
such further and other reasonable rules and regulations and
amendments and changes therein as may hereafter be made by the
Landlord and notified to the Tenant.
(h) OVERHOLDING. That in the event that the Tenant remains in
possession of the Leased Premises after the termination of
the original Term hereby created, without other special
agreement, it shall be at the monthly base rent equal to
the Base Rent and Additional Rent payable during the last
month of the Term hereof, times two, payable on the first
day of each and every month and subject in other respects
to the terms of this Lease, including those provisions
requiring the payment of Base Rent and Additional Rent in
monthly instalments.
3.3 SIGNS AND DIRECTORY. The Tenant covenants not to permit, paint,
display, inscribe, place or affix any sign, symbol, notice or
lettering of any kind anywhere outside the Leased Premises (whether
on the outside or inside of the Building) or within the Leased
Premises so as to be visible from the outside of the Leased
Premises, with the exception only of an identification sign at or
near the entrance to the Leased
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10
Premises, a directory listing in the main lobby of the Building, and
corporate identification on the podium sign fronting on to 16th
Avenue, in each case containing only the name of the Tenant and to
be subject to the approval of the Landlord, not to be unreasonably
withheld or delayed, as to size, location, content and design
criteria as established by the Landlord. Such identification sign,
directory listing and podium signage shall be installed by the
Landlord at the expense of the Tenant, which expense shall be the
invoice cost plus 15% for an administration fee. The Landlord's
acceptance of any name for listing upon the directory will not be
deemed, nor will it substitute for the Landlord's consent if
required by this Lease to any sublease, assignment or other
occupancy of the Leased Premises.
3.4 INSPECTION AND ACCESS. The Landlord shall be permitted to enter and to
have its authorized agents, employees and contractors enter the Leased
Premises, for the purpose of inspection, window cleaning, maintenance,
providing janitor service, making repairs, alterations or improvements
to the Leased Premises or the Building, or to have access to utilities
and services and access panels which the Tenant agrees not to obstruct,
or to determine the electric light and power consumption by the Tenant
in the Leased Premises and the Tenant shall provide free and unhampered
access for such purposes and shall not be entitled to compensation for
any inconvenience, nuisance, discomfort or loss caused thereby, but the
Landlord, in exercising its rights hereunder, shall proceed to the
extent reasonably possible so as to minimize interference with the
Tenant's use and enjoyment of the Leased Premises.
3.5 EXHIBITING PREMISES. The Landlord and its authorized agents and
employees shall be permitted entry to the Leased Premises during the
last six (6) months of the term for the purpose of exhibiting them to
prospective tenants or at any time for the purposes of arranging
financing for the Building.
3.6 LANDLORD'S CONTROL. The Tenant acknowledges that the Common Area
Facilities are at all times subject to the exclusive control and
operation of the Landlord, and the Landlord shall have the right to
construct improvements, alterations and additions thereto and to
relocate the various facilities thereon.
3.7 BANK REFERENCES. The Tenant will, at the request of the Landlord,
supply bank references to the Landlord or to the mortgagees, if any, on
the said lands or a prospective mortgagee.
ARTICLE IV - REPAIR AND DAMAGE
4.1 TENANT'S REPAIRS. The Tenant covenants with the Landlord:
(a) to keep the Leased Premises in a good and reasonable state of
repair and consistent with the general standards of
first-class office buildings in Metropolitan Toronto, to
perform all repairs and replacements as a prudent tenant would
do (reasonable wear and tear excepted) to the Leased Premises
including all Leasehold Improvements and all trade fixtures
therein and all glass therein.
(b) that the Landlord may enter and view the state of repair from
time to time and that the Tenant will repair if required to do
so pursuant to the terms of this Lease, according to notice in
writing and that the Tenant will leave the Leased Premises in
a good and reasonable state of repair.
(c) that if any part of the Building other than the Leased
Premises becomes out of repair, damaged or destroyed
through the negligence or misuse of the Tenant or its
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11
employees, invitees or others over whom the Tenant can
reasonably be expected to exercise control, the expense of
repairs or replacements thereto necessitated thereby shall
be the responsibility of the Tenant.
Notwithstanding the foregoing or anything else contained herein, the
Landlord agrees that the Tenant's obligations under this Lease shall
not include reasonable wear and tear to the Leased Premises and
maintenance, repairs or replacements:
(i) necessitated due to damage by fire, lightning, tempest or
other casualties;
(ii) necessitated due to the negligent or wilful acts or omissions
of the Landlord or those for whom it is in law responsible;
(iii) to any structural portion of the Building or the Leased
Premises, including the exterior walls, the roof, roof
structure and roof membrane;
(iv) necessitated due to structural defect or weaknesses or
improper or faulty workmanship, construction, design or
materials;
(v) to the extent same are covered by insurance maintained or
otherwise required to be maintained by the Landlord hereunder;
or
(vi) to the mechanical, electrical and base building systems,
subject to chargeback to the Tenant if permitted under this
Lease,
which shall all be the Landlord's responsibility at the Landlord's sole
expense in addition to the Landlord's other obligations pursuant to
this Lease.
4.2 ABATEMENT AND TERMINATION. It is agreed between the Landlord and the
Tenant that:
(a) In the event of damage to the Leased Premises or to the
Building affecting access or services essential to the
conduct of business in the Leased Premises and if the
damage is such that the Leased Premises or any substantial
part thereof is rendered not reasonably capable of use and
occupancy by the Tenant for the purposes of its business
for any period of time in excess of 10 days, then
(i) unless the damage was caused by the misuse, fault,
negligence of the Tenant or its employees,
invitees or others under its control, from and
after the date of occurrence of the damage and
until the Leased Premises are again reasonably
capable of use and occupancy as aforesaid, Rent
shall abate from time to time in proportion to the
part or parts of the Leased Premises not
reasonably capable of such use and occupancy, and
(ii) unless this Lease is terminated as hereinafter
provided, the Landlord or the Tenant as the case
may be (according to the nature of the damage and
their respective obligations to repair as provided
herein, it being understood that the Tenant shall
have the obligation to repair and replace all
Leasehold Improvements and all Tenant's trade
fixtures) shall repair such damage with all
reasonable diligence, but to the extent that any
part of the Leased Premises is not reasonably
capable of such use and occupancy by reason of
damage which the Tenant is obligated to repair
hereunder, any abatement of Rent to which the
Tenant is otherwise entitled hereunder shall not
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12
extend later than the time by which repairs by the
Tenant ought to have been completed with
reasonable diligence; and
(b) if either the entire or substantially all of the Leased
Premises, or premises whether of the Tenant or other
tenants of the Building comprising in the aggregate 50% or
more of the Rentable Area of the Building are substantially
damaged or destroyed by any cause to such an extent in the
reasonable opinion of the Landlord cannot be repaired or
rebuilt within 180 days after the occurrence of the damage
or destruction, the Landlord may at its option, exercisable
by written notice to the Tenant given within 30 days after
the occurrence of such damage or destruction terminate this
Lease in which event neither the Landlord nor the Tenant
shall be bound to repair as provided herein and the Tenant
shall instead deliver up possession of the Leased Premises
to the Landlord with reasonable expedition but in any event
within 60 days after delivery of such notice of termination
and Rent shall be apportioned and paid to the date upon
which possession is so delivered up (but, subject to any
abatement to which the Tenant may be entitled under
paragraph (a) of this clause 4.2 by reason of the Leased
Premises having been rendered in whole or in part not
reasonably capable of use and occupancy), but otherwise the
Landlord or the Tenant as the case may be (according to the
nature of the damage and their respective obligations to
repair described in 4.2 (a) (ii)) shall repair such damage
with reasonable diligence. Notwithstanding the foregoing,
it is understood and agreed that in the event damage or
destruction should occur to the Premises during the last
year of the tenancy to the degree that the Tenant cannot
continue to occupy the Premises, the Tenant shall then have
the mutual right to terminate the Lease by notice given to
the Landlord, unless the Tenant exercises its right to
extend the Lease in which case the Tenant shall reoccupy
the Leased Premises once the damage or destruction has been
made good.
ARTICLE V - TAXES AND OPERATING COSTS
5.1 NET NET LEASE. The Tenant acknowledges and agrees that it is intended
that this Lease is a completely carefree net net lease to the Landlord,
except as expressly herein set out, that 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 Leased
Premises, or the use and occupancy thereof, or the contents thereof or
the business carried on therein, except as expressly set out herein,
and the Tenant shall pay all charges, impositions, costs and expenses
of every nature and kind relating to the Leased Premises.
5.2 LANDLORD'S TAX OBLIGATIONS. The Landlord covenants with the Tenant,
subject to the provisions herein, to pay all Taxes promptly when due to
the taxing authority or authorities having jurisdiction.
5.3 TENANT'S TAX OBLIGATIONS. The Tenant covenants with the
Landlord:
(i) to pay promptly when due to the taxing authority or
authorities having jurisdiction all taxes, rates, duties,
levies and assessments whatsoever, whether municipal,
parliamentary or otherwise, levied, imposed or assessed in
respect of any and every business carried on by the Tenant,
subtenants, licensees, or other occupants of the Leased
Premises or in respect of the use or occupancy thereof
(including licence fees); and
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13
(ii) to pay promptly to the Landlord when demanded or otherwise due
hereunder:
(1) all Taxes charged in respect of all Leasehold
Improvements and trade fixtures and all furniture and
equipment made, owned or installed by or on behalf of
the Tenant in the Leased Premises as Additional Rent;
(2) if by reason of the act, election or religion of the
Tenant or any subtenant, licensee or occupant of the
Leased Premises, the Leased Premises or any part of
them shall be assessed for the support of Separate
Schools, the amount by which the Taxes so payable
exceed those which would have been payable if the
Leased Premises had been assessed for the support of
Public Schools; and
(3) the Tenant's Proportionate Share of Taxes as
Additional Rent in the manner stipulated herein.
(iii) notwithstanding any other provisions of this Lease to the
contrary, the Tenant shall pay to the Landlord, at such times
and in such manner as the Landlord may direct, without
duplication, an amount equal to all goods and service taxes,
sales taxes, value-added taxes or any other taxes imposed with
respect to Base Rent, Additional Rent or other amounts payable
by the Tenant to the Landlord under this Lease, howsoever such
taxes are characterized. The amount payable by the Tenant
hereunder shall not be deemed to be Base Rent or Additional
Rent but the Landlord shall have all of the same rights and
remedies for recovery of same as it has for recovery of Base
Rent and Additional Rent hereunder.
Whenever requested by the Landlord the Tenant will deliver to it
receipts for payment of all taxes, rates, duties, levies and
assessments payable by the Tenant hereof and furnish such other
information in connection therewith as the Landlord may reasonably
require.
The Tenant shall have the right to contest at its own expense by
appropriate legal proceedings, the validity of any tax, rate, including
local improvement rates, assessment or other charges in respect of the
Leased Premises or the use and occupancy thereof or any other part of
the Building or the Lands by the Tenant, provided the Tenant forthwith
pays the same under protest to the City of Richmond Hill (the "CITY")
or furnishes to the City sufficient security by bond or otherwise to
ensure the payment of same. Should, as a result of such contestations,
the amount of the Taxes payable hereunder by the Tenant be decreased as
a result of such contestation or appeal, the Landlord hereby agrees to
promptly reimburse the Tenant accordingly to the extent such overpaid
amounts have been paid, when reimbursed to the Landlord.
5.4 METHOD OF PAYMENT OF TAXES. The Tax payments required to be made by
the Tenant to the Landlord under the provisions of 5.3 (ii) herein
shall be estimated by the Landlord, and the Tenant shall pay to the
Landlord in addition to the monthly payments of Base Rent
hereinbefore reserved, one-ninth of the estimated annual tax
payments in the months of January to September, both inclusive, in
each calendar year with an adjustment being made when the property
tax bill respecting the Building is received by the Landlord for
each year. The Tenant shall within sixty (60) days of being invoiced
pay to the Landlord such additional sums as may be required in order
that out of such monthly additional payments, the Landlord may pay
the whole amount of the annual taxes as the instalments thereof fall
due; and if the monthly additional payments so paid by the Tenant to
the Landlord exceed in total the Tenant's Proportionate Share of the
annual property tax bill with respect to the Building and Lands of
which the Leased
<PAGE>
14
Premises form part, then the excess shall be adjusted by the
Landlord in favour of the Tenant by applying such excess on account
of the next ensuing rental payments due (following the issue of the
yearly statement) and such next ensuing rental payments shall be
reduced by such excess accordingly. The Landlord shall forward to
the Tenant copies of all notices or tax bills relating to the
imposition of property taxes or other charges required hereunder to
be paid as to part or all thereof by the Tenant. In the event that
the Landlord is unable to obtain or determine a separate allocation
of taxes payable by the Tenant under this Lease, the Landlord shall
have the right to make an allocation, but shall be obligated to act
reasonably and not arbitrarily.
5.5 OPERATING COSTS. During the Term of this Lease, the Tenant shall pay to
the Landlord its Proportionate Share of Operating Costs. Prior to the
commencement of the Term of this Lease and the commencement of each
fiscal period selected by the Landlord thereafter which commences
during the Term the Landlord shall estimate the amount of Operating
Costs and the Tenant's Proportionate Share thereof for the ensuing
fiscal period or (if applicable) broken portion thereof, as the case
may be, and notify the Tenant in writing of such estimate. The amount
so estimated shall be payable in equal monthly instalments in advance
over the fiscal period or broken portion thereof in question, each such
instalment being payable on each monthly rental payment date provided
in clause 2.3. The Landlord may from time to time alter the fiscal
period selected, in which case, and in the case where only a broken
portion of a fiscal period is included with the Term, the appropriate
adjustment in monthly payments shall be made. From time to time during
a fiscal period the Landlord may re-estimate the amount of Operating
Costs and the Tenant's Proportionate Share thereof, in which event the
Landlord shall notify the Tenant in writing of such re-estimate and
fixed monthly instalments for the then remaining balance of such fiscal
period or broken portion thereof such that, after giving credit for
instalments paid by the Tenant on the basis of the previous estimate or
estimates, the Tenant's entire Proportionate Share of Operating Costs
will have been paid during such fiscal period or broken period thereof.
As soon as practicable after the expiration of each fiscal period the
Landlord shall make a final determination of Operating Costs and the
Tenant's Proportionate Share thereof for such fiscal period or (if
applicable) broken portion thereof and shall provide a statement to the
Tenant and the parties shall make the appropriate readjustment. Each 12
month period ending December 31st shall be deemed to be an accounting
year for adjusting the said Operating Costs and within 120 days after
the end of each such accounting year, the Landlord shall compute the
said costs for such accounting year and the Proportionate Share of the
Tenant therefor and shall submit to the Tenant a statement to reflect
the Operating Costs specifically permitted under this Lease, and the
said Proportionate Share thereof shall be borne by the Tenant. To the
extent that the Tenant's Proportionate Share of such costs for such
accounting year shall be greater than the total amount actually paid by
the Tenant by said monthly payments in respect of such year the
difference shall be paid by the Tenant to the Landlord within thirty
(30) days after receipt by the Tenant of such statement. Any excess
payments shall be applied by reducing the next ensuing rental
payment(s) by the amount of such excess. The said accounting period may
be modified by the Landlord if reasonably necessary.
The Landlord shall keep proper and sufficient records of all its costs
relating to Additional Rent and the Tenant shall have the right at any
time during the Term and any extensions thereof and up to 2 years
following expiration of the tenancy, to claim a readjustment in respect
of any item of Additional Rent. For this purpose, the Tenant shall have
the right during such times to review all invoices, receipts and other
records used by the Landlord in the calculation of Additional Rent
<PAGE>
15
relating to the Leased Premises, such review to take place at the
Landlord's offices and upon seven (7) business days' prior written
notice by the Tenant to the Landlord.
5.6 PAYMENT OF ADDITIONAL RENT. Any Additional Rent provided for under this
Lease unless otherwise provided herein, shall become due with each
instalment of monthly Base Rent.
ARTICLE VI- UTILITIES AND ADDITIONAL SERVICES
6.1 WATER AND TELEPHONE. The Landlord shall furnish appropriate openings
for bringing telephone services to the Leased Premises and shall
provide hot and cold water to washrooms in the Leased Premises and to
washrooms available for the Tenant's use in common with others entitled
thereto.
6.2 ELECTRICITY. The Tenant shall pay throughout the Term promptly to the
Landlord (unless paid directly to Hydro authorities pursuant to
separate billing) as Additional Rent when demanded:
(i) The cost of electric light and power supplied to the Leased
Premises monthly based on the electric light and power
requirements of the Tenant on a pro rata basis as determined
from time to time during the Term by the Landlord acting
reasonably; and
(ii) The cost of cleaning, maintaining and servicing in all
respects all electric lighting fixtures in the Leased
Premises including the cost of replacement of electric
light bulbs, tubes, starters and ballasts used to replace
those installed at the commencement of the Term. Such
cleaning, maintaining, servicing and replacement shall be
within the exclusive right of the Landlord. It is
understood and agreed that the costs described in this
sub-section (ii) shall be included as part of Operating
Costs.
6.3 ADDITIONAL SERVICES. The Landlord, if it shall from time to time so
elect, shall have the exclusive right, by way of Additional Services,
to provide or have its designated agents or contractors provide any
janitor or cleaning service to the Leased Premises and Common Area
Facilities required by the Tenant which are additional to those
required to be provided by the Landlord hereunder, including the
Additional Services which the Landlord agrees to provide by
arrangement, and to supervise the moving of furniture or equipment of
the Tenant in and out of the Building where such moving of furniture or
equipment would be disruptive to the normal business of the Building,
and the making of repairs or alterations conducted within the Leased
Premises affecting Base Building, building systems or Leasehold
Improvements. The reasonable cost of Additional Services provided to
the Tenant, whether the Landlord shall be obligated hereunder or shall
elect to provide them as Additional Services, shall be paid to the
Landlord by the Tenant from time to time within thirty (30) days
following receipt of invoices therefor from the Landlord. Costs of
Additional Services charged directly to the Tenant and other tenants
shall be credited in computing Operating Costs.
ARTICLE VII- ASSIGNING AND SUBLETTING
7.1 ASSIGNMENTS AND SUBLETTINGS. The Tenant covenants with the Landlord
that it will not assign, sublet, licence or part with the possession of
the Leased Premises or any part thereof, or share the occupation of the
Leased Premises, or any part thereof, without the consent of the
Landlord in writing first had and obtained such consent not to be
unreasonably or arbitrarily withheld or delayed. Provided that as a
condition of the granting of its consent, the Landlord may require any
<PAGE>
16
assignee, subtenant, licensee or occupant of the Leased Premises to
execute an agreement whereby he, it or they attorn to and become the
tenants of the Landlord as if he, it or they had executed this Lease,
or, except in the case of an absolute assignment of this Lease, to
execute an acknowledgement that all the sublessee's or undertenant's
estate, right and interest in and to the Leased Premises absolutely
terminates upon the surrender, release, disclaimer or merger of this
Lease notwithstanding the provisions of the Landlord and Tenant Act of
Ontario, R.S.O. 1980, Chapter 232 and amendments thereof with specific
reference to Paragraphs 21 and 39 (2) thereof, or other similar
statute. The Tenant shall furnish to the Landlord copies of any
assignment, sublease, licence or other agreement herein contemplated.
Notwithstanding any other provision in this section, no assignment,
subletting, licensing or parting with possession of the Leased Premises
shall in any way release or be deemed to release the Tenant (or any
guarantor hereof) from their obligations under the terms of this Lease.
Provided further that the proposed assignee, subtenant, licensee or
occupant of the Leased Premises shall be required to provide reasonable
financial information as the Landlord may require. It is agreed that
the Landlord may consider in determining whether to grant consent among
other matters, the following: the personal and business history of the
proposed assignee, occupant, sublessee and its key employees. The
Tenant agrees to pay the reasonable legal fees of the Landlord's
solicitor relating to the preparation of the Landlord's consent, and
determination as to whether to give the consent.
In the event of any sub-letting by the Tenant by virtue of which the
Tenant receives rent in the form of cash, goods, services or other
considerations from the sub-tenant which is higher than the rent
payable hereunder to the Landlord for the premises so sub-let, the
Tenant shall pay any such excess to the Landlord, in addition to all
rent and other costs payable hereunder, for the period of time during
which the said subtenant remains in possession of the premises sub-let
to it.
If the Tenant herein shall receive from any assignee of this lease,
either directly or indirectly, any consideration for the assignment of
this lease, either in the form of cash, goods or services, the Tenant
shall forthwith pay an amount equivalent to such consideration to the
Landlord and same shall be deemed to be further Additional Rent
hereunder.
Notwithstanding the above provisions, within ten (10) business days
after the receipt by the Landlord of such request for consent and of
all information which the Landlord shall have requested hereunder,
the Landlord shall have the right upon written notice of termination
submitted to the Tenant to, if the request is to assign this Lease
or sublet the whole of the Leased Premises, cancel and terminate
this Lease, or to, if the request is to sublet a part of the Leased
Premises only, cancel and terminate this Lease with respect to such
part, in each case as of a termination date to be stipulated in the
notice of termination which shall be ninety (90) days following
giving of such notice. In such event the Tenant shall surrender the
whole or part, as the case may be, of the Leased Premises in
accordance with such notice of termination and Base Rent and
Additional Rent shall be apportioned and paid to the date of
surrender and, if only a part of the Leased Premises is surrendered,
Base Rent and Additional Rent shall, after the date of surrender,
abate proportionately. If the Landlord does not elect to terminate
as aforesaid and if consent to sublease or assign will be granted,
the Tenant may assign or sublet, as the case may be, only upon the
terms and to the party set out in the offer submitted to the
Landlord as aforesaid. If the Landlord elects to terminate, the
Tenant may withdraw its request for consent by notice to the
Landlord given within five (5) days after the Landlord's notice of
<PAGE>
17
election in which event the Landlord's notice of election shall be
null and void and the Tenant shall not proceed with the assigning or
subletting for which such consent was requested.
ARTICLE VIII- FIXTURES AND IMPROVEMENTS
8.1 INSTALLATION OF FIXTURES AND IMPROVEMENTS. The Tenant shall not make,
erect, install or alter any Leasehold Improvements in the Leased
Premises without having requested and obtained the Landlord's prior
written approval which the Landlord shall not unreasonably delay or
withhold. In making, erecting, installing or altering any Leasehold
Improvements the Tenant will not alter or interfere with any
installations which have been made by the Landlord without the prior
written approval of the Landlord and in no event shall it alter or
interfere with window coverings (if any) installed by the Landlord on
exterior windows. The Tenant's request for any approval hereunder shall
be in writing and accompanied by an adequate description of the
contemplated work and, where appropriate, working drawings and
specifications thereof. All work to be performed in the Leased Premises
shall be performed by reputable contractors approved by the Landlord.
The Landlord reserves the right to require the Tenant to utilize the
contractor(s) of the Landlord where Base Building, building systems
and/or warranties may be affected provided the Landlord agrees that
charges by such contractors shall be in keeping with that which an arms
length contractor would charge. The cost of all such work shall be
estimated by the Landlord in advance and such estimate approved by the
Tenant prior to work commencing. All such work shall be performed at
the Tenant's expense and the Tenant shall be responsible for
application and payment of all fees in connection with any permits
required. All such work shall be subject to inspection by and the
reasonable supervision of the Landlord, and shall be performed in
accordance with any reasonable conditions or regulations imposed by the
Landlord and completed in a good and workmanlike manner in accordance
with the description of the work approved by the Landlord. The Landlord
shall be entitled to supervise the work. The Landlord shall be entitled
to charge reasonable fees for examining plans respecting the proposed
work as well as any reasonable consultant's fees where base building
systems and equipment as well as structure may be affected and whereby
the Landlord incurs actual out-of-pocket expenses for the review of
such alterations.
8.2 LIENS AND ENCUMBRANCES ON FIXTURES AND IMPROVEMENTS. In connection
with the making, erection, installation or alteration of Leasehold
Improvements and all other work or installations made by or for the
Tenant in the Leased Premises the Tenant shall comply with all the
provisions of the Construction Lien Act (Ontario) and other statutes
from time to time applicable thereto and shall promptly pay all
accounts relating thereto. The Tenant will not create or cause to be
created any mortgage, conditional sale agreement or other
encumbrance in respect of its Leasehold Improvements or permit any
such mortgage, conditional sale agreement or other encumbrance to
attach to the Leased Premises or to the Building and Common Area
Facilities. If and whenever any construction or other lien for work,
labour, services or materials supplied to or for the Tenant for the
cost of which the Tenant may be in any way liable or claims therefor
shall arise or be filed or any such mortgage, conditional sales
agreement or other encumbrance shall attach, the Tenant shall within
ten (10) days after receipt of notice thereof procure the discharge
thereof, including any certificate of action registered in respect
of any lien, by payment or giving security or in such other manner
as may be required or permitted by law failing which the Landlord
may in addition to all other remedies hereunder avail itself of its
remedy hereunder and may make any payments required to procure the
discharge of any such
<PAGE>
18
liens or encumbrances and shall be entitled to be reimbursed by the
Tenant as provided herein and its right to reimbursement shall not
be affected or impaired if the Tenant shall then or subsequently
establish or claim that any lien or encumbrance so discharged was
without merit or excessive or subject to any abatement, set-off or
defense.
8.3 REMOVAL OF FIXTURES AND IMPROVEMENTS. All Leasehold Improvements in or
upon the Leased Premises shall immediately upon termination of this
lease be and become the Landlord's property without compensation
therefor to the Tenant. Except to the extent otherwise expressly agreed
by the Landlord in writing no Leasehold Improvements, trade fixtures,
furniture or equipment shall be removed by the Tenant from the Leased
Premises either during or at the expiration or earlier termination of
the Term except that (1) the Tenant shall at the end of the Term remove
its trade fixtures, and (2) the Tenant shall remove its furniture and
equipment at the end of the Term and may remove its trade fixtures,
furniture and equipment during the Term in the usual and normal course
of its business. The Tenant shall, in the case of every removal either
during or at the end of the Term, make good any damage caused to the
Leased Premises by the installation and removal. Provided that upon the
termination of this Lease, the Tenant, if requested by the Landlord,
shall restore any alterations or installations made by or on behalf of
the Tenant subsequent to the Commencement Date that the Landlord
indicated at the time consent for such alteration or installation was
sought, would require restoration upon expiration of the tenancy, and
if not so requested, any such changes or alterations shall become the
property of the Landlord.
For clarity, it is understood and agreed that the Tenant shall not be
required to restore the Leased Premises or any additional space to base
building condition, whether at the expiration or other termination of
the Term or otherwise.
ARTICLE IX- INSURANCE AND LIABILITY
9.1 LANDLORD'S INSURANCE. The Tenant will during the whole of the Term
hereby granted as part of Operating Costs, pay its Proportionate Share
of all premiums with respect to insurance to be placed by the Landlord
and described in this Section 9.1. The Landlord agrees to maintain
during the Term, insurance coverages as follows:
(i) Property of Every Description (Building and Equipment) against
the perils of "All-Risks", under form providing coverage at
least equivalent to Commercial Building Broad Form I.A.O. Form
No. 700 including "Building By-Laws Endorsements", and to be
insured for the Replacement Value, without allowance for
depreciation and Stated Amount, and with no co-insurance
requirement.
(ii) "Rental Income" for the gross annual rental income on
"All-Risks" basis, as provided under Commercial Building Broad
Form I.A.O. Form 700 including "Building By-Laws
Endorsements", providing coverage at least equivalent to
I.A.O. Profits Form No. 551 with an eighteen (18) month
indemnity period.
(iii) Broad Form Boiler and Machinery Policy on a blanket and
replacement basis with limits for each accident in an
amount not less than the replacement cost of the Building
containing the Leased Premises and which shall cover all
boilers, pressure vessels, air conditioning equipment and
miscellaneous electrical apparatus owned by the Landlord
and which shall include PCB coverage. It shall also
include "Rental Income" for the full gross annual income
equivalent to I.A.O. Profits Form No. 551 with a eighteen
(18) month indemnity period. This policy should also
provide "Building By-Laws Endorsements".
<PAGE>
19
(iv) "General Liability Insurance" on a Comprehensive Form and on
an "occurrence" basis without deductible with retroactive
coverage against claims for Personal and Bodily Injury and
Death and/or Property Damage occurring upon or about the
Leased Premises and for a limit no less than $5,000,000.00
inclusive for one occurrence.
(v) Such other insurance coverage or coverages as a prudent owner
of a first class office building would obtain for protection
respecting loss of, or damage to the Building, the Lands or
the Leased Premises, or liability arising therefrom.
All such insurance coverages shall be kept and maintained by the
Landlord, and in no event shall the coverage be less than the amount
required by any institution then holding a mortgage on the Building and
Common Area Facilities. The Tenant shall pay to the Landlord, as part
of Operating Costs, its Proportionate Share of the Landlord's
Insurance. The Tenant shall not do or permit to be done any act or
thing whereby insurance coverage, premiums or any of them hereinbefore
contemplated, may be increased or cancelled by the insurer, or the
Leased Premises shall be rendered uninsurable, and if by reason of any
act done or permitted or omission, as the case may be, by the Tenant,
the said insurance coverage, premiums or any of them shall be
increased, then the Tenant, if it shall fail to rectify the event
giving rise to the increased premium after written notice thereof from
the Landlord, shall be liable to pay all of such increase in premium,
with respect to the entire coverages, and this notwithstanding that the
Tenant occupies only a portion of the Building covered by such
insurance coverages, and if the Leased Premises shall be rendered
uninsurable, or if the said insurance coverages, or any of them, shall
be cancelled by reason of any act or omission as the case may be by the
Tenant and shall not be susceptible of being replaced, after the
Landlord's reasonable efforts under the circumstances to do so, then
the Landlord, after giving the Tenant at least fourteen (14) days
written notice within which to replace insurance coverage or coverages
shall, at its absolute discretion, have the right to determine that the
term hereof has expired and in such event the Tenant shall deliver up
possession of the Leased Premises as if the Term of this Lease had
expired.
PROVIDED that no act required to be done by the Tenant nor any payment
required to be made by the Tenant, including reimbursements of
insurance premiums paid by the Landlord, shall relieve the Tenant from
any liability for damage incurred by the Landlord as result of any act
or omission of the Tenant.
If any other tenant of the Building has his own insurance premiums
increased by his insurers as a result of the use or occupation by the
Tenant herein of the within Leased Premises, the Tenant covenants and
agrees with the Landlord after written notice thereof, to pay the
additional cost forthwith upon demand as Additional Rent.
The Landlord's insurance policy shall contain a waiver of subrogation
in favour of the Tenant or those for whom the Tenant is in law
responsible.
9.2 AGENTS. The Tenant acknowledges, covenants and agrees that every right,
exemption from liability, defence and immunity of whatsoever nature
applicable to the Landlord or to which the Landlord is entitled
hereunder shall also be available and shall extend to protect every
such agent of the Landlord acting (in the course of or in connection
with his employment or otherwise) and for the purposes of all of the
foregoing provisions of this clause, the Landlord is or shall be deemed
to be acting as agent or trustee on behalf of and for the benefit of
persons who are or might be his servants, employees or agents from time
to time.
<PAGE>
20
9.3 TENANT'S INSURANCE. The Tenant covenants to insure and to keep insured
during the whole of the Term, with an insurance company or companies in
good standing and upon terms and conditions all satisfactory to the
Landlord:
(i) "All-Risks" insurance upon all property owned by the
Tenant or for which it is legally liable or installed or
affixed by or on behalf of the Tenant and which is
located in the Building including, without limitation,
furniture, fittings, installations, alterations,
additions, partitions and fixtures or anything in the
nature of a Leasehold Improvement made or installed by or
on behalf of the Tenant in an amount equal to the full
replacement cost thereof; if there is a dispute as to the
amount which comprises full replacement cost the decision
of the Landlord's Architect shall be conclusive.
(ii) All parties hereto on a Comprehensive Form for bodily
injury and property damage, general liability coverage
arising out of the use, maintenance or repair of the
Leased Premises and/or the business of the Tenant or any
sub-tenant, licensees or occupiers of the Leased
Premises; such insurance shall be for a limit of not less
than $2,000,000.00 inclusive for any one occurrence, or
such higher limits as the Landlord, acting reasonably, or
any mortgagee requires from time to time, and shall
contain a severability of interest clause, and a cross
liability clause.
(iii) Any other form of insurance that the Landlord or any mortgagee
may reasonably require, from time to time in form, amounts and
for insurance risks acceptable to the Landlord and any
mortgagee.
The Tenant covenants and agrees to provide the Landlord with evidence
of insurance as required under this provision. Such evidence shall be
by way of a certified copy of the policy if available in timely fashion
or failing which a certificate of insurance at such time or times as
the Landlord may require. The Tenant agrees to provide same to the
Landlord forthwith after notice has been given by the Landlord to the
Tenant of its request. The Tenant's policy shall contain a waiver of
subrogation in favour of the Landlord and those for whom the Landlord
is in law responsible.
9.4 LIMITATION OF LANDLORD'S LIABILITY. The Tenant agrees that:
(i) the Landlord shall not be liable for any bodily injury or
death of, or loss or damage to any property belonging to the
Tenant or its employees, invitees, or licensees or any other
person in, on or about the Building and Common Area Facilities
howsoever occurring and in no event shall the Landlord be
liable for:
(1) any damage which is caused by steam, water, rain or
snow which may leak into, issue or flow from any part
of the Building or Common Area Facilities or from the
pipes or plumbing works thereof or from any other
place or quarter or for any damage caused by or
attributable to the condition or arrangement
of any electric or other wiring or for any damage
caused by anything done or omitted by any other
tenant; and
(2) any act or omission (including theft, malfeasance or
negligence) on the part of any agent, contractor or
person from time to time employed by it to perform
janitor services, security services, maintenance,
supervision or any other work in or about the Leased
Premises or the Building or Common Area Facilities;
and
<PAGE>
21
(3) loss or damage, however caused, to money, securities,
negotiable instruments, papers or other valuables of
the Tenant; and
(ii) the Landlord shall have no responsibility or liability
for the failure to supply interior climate control or
elevator service when prevented from doing so by strikes,
the necessity of repairs, any order or regulation of any
body have jurisdiction, the failure of the supply of any
utility required for the operation thereof or any other
cause beyond the Landlord's reasonable control, and shall
not be held responsible for any bodily injury, death or
damage to property arising from the use of, or any
happening in or about, any elevator.
9.5 INDEMNITY OF LANDLORD. The Tenant agrees to indemnify and save harmless
the Landlord in respect of all claims for bodily injury or death,
property damage or other loss or damage arising from the conduct of any
work by or any act or omission of the Tenant or any assignee,
subtenant, agent, employee, contractor, invitee or licensee of the
Tenant, and in respect of all costs, expenses and liabilities incurred
by the Landlord in connection with or arising out of all such claims,
including the expenses of any action or proceeding pertaining thereto,
and in respect of any loss, cost, expense or damage suffered or
incurred by the Landlord arising from any breach by the Tenant of any
of its covenants and obligations under this Lease.
ARTICLE X-SUBORDINATION, ATTORNMENT AND CERTIFICATES
10.1 SUBORDINATION AND ATTORNMENT. The Tenant agrees that this Lease and all
the rights of the Tenant hereunder are subject and subordinate to all
mortgages now or hereafter existing (including deeds of trust and all
instruments supplemental thereto) which may now or hereafter affect the
Building or Common Area Facilities and to all renewals, modifications,
consolidations, replacements and extensions thereof, provided such
mortgagee has provided a non-disturbance agreement to the Tenant;
provided that the Tenant whenever requested by any mortgagee (including
any trustee under a deed of trust and mortgage) shall attorn to such
mortgagee as the Tenant upon all the terms of this Lease. Subject to
the foregoing, the Tenant agrees to execute promptly whenever requested
by the Landlord or by such mortgagee such instrument of subordination
or attornment, as the case may be, as may be required of it.
10.2 CERTIFICATES. The Tenant shall promptly whenever requested by the
Landlord from time to time execute and deliver to the Landlord (and if
required by the Landlord, to any mortgagee [including any trustee under
a deed of trust and mortgage] designated by the Landlord) a certificate
in writing as to the then status of this Lease, including as to whether
it is in full force and effect, is modified or unmodified, confirming
the rent payable hereunder and the state of the accounts between the
Landlord and Tenant, the existence or non-existence of defaults, and
any other matters pertaining to this Lease as to which the Landlord
shall request a certificate.
ARTICLE XI-REMEDIES OF LANDLORD ON TENANT'S DEFAULT
11.1 REMEDYING BY LANDLORD. In addition to all rights and remedies of the
Landlord available to it in the event of any default hereunder by the
Tenant either by any other provision of this Lease or by statute or the
general law, the Landlord:
(1) shall have the right at all times after reasonable written
notice of an event of default has been given to the Tenant
and a reasonable time given to cure such default provided
the Tenant is proceeding diligently, to
<PAGE>
22
remedy or attempt to remedy any default of the Tenant, and
in so doing may make any payments due by the Tenant to
third parties and may enter upon the Leased Premises to do
any work or other things therein, as may be reasonably
necessary, and in such event all expenses of the Landlord
in remedying or attempting to remedy such default shall be
payable by the Tenant to the Landlord forthwith upon demand;
(2) subject to 11.3 below, shall have the same rights and remedies
in the event of any non-payment by the Tenant of any amounts
payable by the Tenant under any provision of this Lease as in
the case of a non-payment of Rent; and
(3) if the Tenant shall fail to pay any Rent or other amount from
time to time payable by it to the Landlord hereunder within 5
days of notice of same becoming due, shall be entitled, to
interest thereon at a rate of 3% per annum in excess of the
minimum lending rate to prime commercial borrowers from time
to time current at The Bank of Nova Scotia in Toronto from the
date upon which the same was due until actual payment thereof.
11.2 REMEDIES CUMULATIVE. The Landlord, subject to 11.3 hereof, may from
time to time resort to any or all of the rights and remedies available
to it in the event of any default hereunder by the Tenant, either by
any provision of this Lease or by statute or the general law, all of
which rights and remedies are not to be interpreted as excluding any
other or additional rights and remedies available to the Landlord by
statute or the general law.
11.3 RIGHT OF RE-ENTRY DEFAULT OR TERMINATION. It is expressly agreed that
if and whenever the Base Rent or Additional Rent hereby reserved,
remains unpaid, or if the Tenant shall breach or fail to observe or
perform any of the other covenants, agreements, provisoes, conditions,
reasonable rules or regulations and other obligations on the part of
the Tenant to be kept, observed or performed hereunder, provided the
Landlord has first delivered notice to the Tenant explaining the breach
and has allowed the Tenant five (5) days to rectify any monetary breach
and ten (10) days, (or such longer period as is reasonable in the
circumstances), to rectify any non-monetary breach, or if this Lease
shall have become terminated pursuant to any provision hereof, then and
in every such case it shall be lawful for the Landlord thereafter to
enter into and upon the Leased Premises or any part thereof and to have
again, repossess and enjoy the same as of its former estate, anything
in this Lease contained to the contrary notwithstanding.
11.4 TERMINATION RE-ENTRY. If and whenever the Landlord becomes entitled to
re-enter upon the Leased Premises under any provision of this Lease,
the Landlord, in addition to all other rights and remedies, shall have
the right to terminate this Lease forthwith by leaving upon the Leased
Premises notice in writing of such termination.
11.5 PAYMENT ON TERMINATION. Upon the giving by the Landlord of a notice in
writing terminating this Lease, pursuant to 11.4 or 11.3 of this Lease,
this Lease and the Term shall terminate, rent and any other payments
for which the Tenant is liable under this Lease shall be computed,
apportioned and paid in full to the date of such termination, and the
Tenant shall immediately deliver up possession of the Leased Premises
to the Landlord, and the Landlord may re-enter and take possession of
them.
11.6 RENUNCIATION. The Tenant waives and renounces the benefit of any
present or future statute taking away or limiting the
Landlord's right of distress.
<PAGE>
23
11.7 RE-LETTING. Whenever the Landlord becomes entitled to re-enter upon the
Leased Premises under 11.3 or 11.4 hereof of this Lease the Landlord in
addition to all other rights it may have shall have the right as agent
of the Tenant to enter the Leased Premises and re-let them and to
receive the rent therefor and as the agent of the Tenant to take
possession of any furniture or other property thereon and to sell the
same at public or private sale without notice and to apply the proceeds
thereof and any rent derived from re-letting the Leased Premises upon
account of the rent due and to become due under this Lease and the
Tenant shall be liable to the Landlord for the deficiency if any.
ARTICLE XII-EVENTS TERMINATING LEASE
12.1 CANCELLATION OF INSURANCE. If any policy of insurance upon the Building
and Common Area Facilities from time to time effected by the Landlord
shall be cancelled or about to be cancelled by the insurer by reason of
the use or occupation of the Leased Premises by the Tenant or any
assignee, sub-tenant or licensee of the Tenant or anyone permitted by
the Tenant to be upon the Leased Premises and the Tenant after receipt
of notice in writing from the Landlord and a reasonable time allowed,
to reinstate such insurance or avoid cancellation, shall have failed to
take such immediate steps in respect of such use or occupation as shall
enable the Landlord to reinstate or avoid cancellation (as the case may
be) of such policy of insurance, the Landlord may at its option
terminate this Lease by leaving upon the Leased Premises notice in
writing of such termination.
12.2 PROHIBITED OCCUPANCY, BANKRUPTCY, ETC. If, without the written consent
of the Landlord the Leased Premises shall be used by any persons other
than the Tenant, its employees, invitees and customers or its permitted
assigns or sub-tenants or for any purpose other than that for which
they were leased, or occupied by any persons whose occupancy is
prohibited by this Lease, or if the Leased Premises shall be vacated or
abandoned, or remain unoccupied for 7 days or more while capable of
being occupied, or if the Term or any of the goods and chattels of the
Tenant shall at any time be seized in execution or attachment, or if
the Tenant shall make any assignment for the benefit of creditors,
become bankrupt or insolvent or take the benefit of any statute now or
hereafter in force for bankrupt or insolvent debtors or (if a
corporation) shall take any steps or suffer any order to be made for
its winding-up or other termination of its corporate existence, then in
any such case the Landlord may at its option, subject to compliance
with the procedures set forth in Section 11.3, terminate this Lease by
leaving upon the Leased Premises notice in writing of such termination
and thereupon, in addition to the payment by the Tenant of Rent and
other payments for which the Tenant is liable under this Lease, Rent
for the current month and the next ensuing 3 (three) months' Rent shall
immediately become due and be paid by the Tenant.
ARTICLE XIII-MISCELLANEOUS
13.1 REGISTRATION. The Tenant agrees with the Landlord not to register this
Lease, but nevertheless if the Tenant desires to register a notice of
this Lease, the Landlord agrees to execute a notice or acknowledgement,
if required, sufficient for the purpose in such form as the Landlord
and Tenant mutually approve provided in no event shall rental rates of
this Lease be shown.
13.2 NOTICE. Any notice required or contemplated by any provision of this
Lease shall be given in writing, and if to the Landlord, either
delivered to an executive officer of the Landlord or by facsimile
transmission or mailed by prepaid registered mail addressed to the
Landlord at 3650 Victoria
<PAGE>
24
Park Avenue, Suite #500, North York (Toronto), Ontario, M2H 3P7, and
if to the Tenant, either delivered to the Tenant (or to an officer
of the Tenant if the Tenant is a firm or corporation) or by
facsimile transmission or mailed by prepaid registered mail
addressed to the Tenant at the Leased Premises. Every such notice
shall be deemed to have been given when delivered or, if mailed as
aforesaid in Canada, upon the day when it was mailed. The Landlord
may from time to time by notice in writing to the Tenant designate
another address in Canada as the address to which notices are to be
mailed to it.
13.3 EXTRANEOUS AGREEMENTS. The Tenant acknowledges that there are no
covenants, representations, warranties, agreements or conditions
expressed or implied relating to this Lease or the Leased Premises save
as expressly set out in this Lease and in any agreement to Lease in
writing between the Landlord and the Tenant pursuant to which this
Lease has been executed. This Lease may not be modified except by an
agreement in writing executed by the Landlord and the Tenant.
13.4 CONSTRUCTION. All of the provisions of this Lease are to be construed
as covenants and agreements. If any provision of this Lease is illegal
or unenforceable it shall be considered separate and severable from the
remaining provisions of this Lease, which shall remain in force and be
binding as though the said provision had never been included. The
headings and marginal sub-headings of clauses and sub-clauses are for
convenience of reference and are not intended to limit, enlarge or
otherwise affect their meanings.
13.5 NON-WAIVER. No condoning, excusing or overlooking by the Landlord of
any default, breach or non-observance by the Tenant at any time or
times in respect of any covenant, agreement, proviso or condition
herein contained shall operate as a waiver of the Landlord's rights
hereunder in respect of any continuing or subsequent default, breach or
non-observance or so as to defeat or affect in any way the rights of
the Landlord in respect of any such continuing or subsequent default or
breach and no waiver shall be inferred or implied by anything done or
omitted by the Landlord save only express waiver in writing.
13.6 ACCORD AND SATISFACTION. No payment by the Tenant or receipt by the
Landlord of a lesser amount than the Base Rent and Additional Rent from
time to time due shall be deemed to be other than on account of the
earliest stipulated Base Rent and Additional Rent due, nor shall any
endorsement or statement on any cheque or any letter accompanying any
cheque or payment of Base Rent or Additional Rent be deemed an accord
and satisfaction, and the Landlord may accept such cheque or payment
without prejudice to the Landlord's right to recover the balance of
such Base Rent or Additional Rent or pursue any other remedy provided
in this Lease.
13.7 GOVERNING LAW. This Lease shall be governed by and construed
in accordance with the laws of the Province of Ontario.
13.8 TIME OF THE ESSENCE. Time shall be of the essence of this Lease and
every part hereof.
13.9 NO PARTNERSHIP. Nothing contained herein shall be deemed or construed
by the parties hereto, nor any third party, as creating the
relationship of principal and agent, or a partnership, or a joint
venture between the parties hereto, it being understood and agreed that
none of the provisions contained herein nor any acts of the parties
hereto shall be deemed to create any relationship between the parties
hereto other than the relationship of Landlord and Tenant.
13.10 FORCE MAJEURE. Except as herein otherwise expressly provided, if and
whenever and to the extent that the Landlord or the Tenant shall be
prevented delayed or restricted in the
<PAGE>
25
fulfilment of any obligations hereunder in respect of the supply or
provision of any service or utility, the making of any repair, the
doing of any work or any other thing by reason of strikes or work
stoppages or being unable to obtain any material, service, utility
or labour required to fulfil such obligation or by reason of any
statute, law or regulation of or inability to obtain any permission
from any governmental authority having lawful jurisdiction
preventing, delaying or restricting such fulfilment, or by reason of
other unavoidable occurrence (save for any financial reason), the
time for fulfilment of such obligation shall be extended during the
period in which such circumstance operates to prevent, delay or
restrict the fulfilment thereof and the other party shall not be
entitled to compensation for any inconvenience, nuisance or
discomfort thereby occasioned.
13.11 CONTRA PROFERENTEM. The Parties acknowledge and agree that both
parties have participated in the drafting of this Lease, and any
rule of law providing that ambiguities shall be construed against
the drafting party, shall be of no force or effect.
13.12 PLANNING ACT. This Lease is expressly conditional upon compliance
with the land division provisions of the Planning Act R.S.O. 1990
(as it may be amended from time to time), if applicable.
13.13 ACCESS. The Tenant, its employees, invitees and customers and
persons connected with the Tenant (subject and except as in this
Lease provided) shall have the right in common with others entitled
thereto from time to time to use the parking areas, driveways,
walkways, lawns, ramps (if any) and other Common Areas in and about
the Building from time to time. The Tenant shall not unreasonably
block or in any manner hinder the Landlord, other tenants or other
persons claiming through or under them or any of them who may be
authorized by the Landlord to utilize the Common Areas from so
doing. The Landlord may, acting reasonably, from time to time permit
the Tenant to have the exclusive use of portions of the parking area
which forms part of the Common Areas and to permit other tenants or
other persons to have exclusive use of portions thereof.
13.14 TRANSFERS BY THE LANDLORD. The Landlord at any time and from time to
time may sell, transfer, lease, assign or otherwise dispose of the
whole or any part of its interest in the Leased Premises or in the
Building and lands of which the Leased Premises form a part, at any
time and from time to time, may enter into any mortgage of the whole
or any of its interest in the Building and Lands or in the Leased
Premises. If the party acquiring such interest shall have agreed to
assume and so long as it holds such interest, to perform each of the
covenants, obligations and agreements of the Landlord under this
Lease in the same manner and to the same extent as if originally
named as the Landlord in this Lease, the Landlord shall, thereupon
be released from all of its covenants and obligations under this
Lease.
The Landlord may assign its rights under this Lease to a lending
institution as collateral security for a loan. If such assignment is
made and executed by the Landlord and notification thereof is given
to the Tenant by or on behalf of the Landlord this Lease shall not
be cancelled or modified for any reason whatsoever except as
provided for by the terms hereof or by law without the consent in
writing of such lending institution.
13.15 OCCUPANCY PERMIT. - deleted intentionally.
13.16 LEASED PREMISES. Save and except for any work to be performed by
the Landlord as specifically set out herein, the taking of
possession of the Leased Premises by the Tenant shall be conclusive
evidence that the Tenant accepts the
<PAGE>
26
Premises in an "as is" condition and that the said Leased Premises
were in good and satisfactory condition at the time possession was
so taken.
13.17 SUCCESSORS AND ASSIGNS. This Lease and everything herein contained
shall enure to the benefit of and be binding upon the successors and
assigns of the Landlord and the permitted successors and assigns of
the Tenant. References to the Tenant shall be read with such changes
in gender as may be appropriate, depending upon whether the Tenant
is a male or a female person or a firm or corporation, and if the
Tenant is more than one person or entity, the covenants of the
Tenants shall be deemed joint and several. All obligations of the
Tenant or the Landlord under this Lease shall be deemed to be
covenants whether or not expressed as same. No rights of the Tenant
in this Lease shall be deemed to be personal, but shall accrue to
the benefit of the Tenant's successors, permitted subtenants and
assigns.
13.18 AREA DETERMINATION. In the event that any calculation or
determination by the Landlord of the Rentable Area of any premises
(including the Demised Premises) or the Building is disputed or
called into question, it shall be calculated or determined by the
Landlord's architect from time to time appointed for the purpose,
whose certificate shall be conclusive and the cost of such
certificate shall be borne by the Tenant.
13.19 APPROVAL. Unless specifically provided herein to the contrary,
whenever any reference is made to any notice, consent, approval,
lease, designation, requirement, opinion, judgement, permission, or
discretion, on the part of either the Landlord or the Tenant, the
same shall be given, granted, determined, required of exercised
reasonably without undue delay.
ARTICLE XIV-OTHER PROVISIONS
14.1 PARKING. The Tenant acknowledges that the Common Area Facilities are at
all times subject to the exclusive control and operation of the
Landlord, and the Landlord shall have the right to construct
improvements, alterations and additions thereto and to relocate the
various facilities thereon. The Tenant further acknowledges that the
parking facilities in the Common Area Facilities are on a non-exclusive
("First Come", "First Serve Basis") and may be altered or diminished
during the term or renewal thereof and the manner in which access is
permitted may be altered.
The Landlord shall provide to the Tenant for the Term of the lease,
free of charge, one (1) covered reserved stall and the use of thirty
(30) surface parking stalls on a first-come, first-serve basis.
14.2 WINDOW COVERINGS. - deleted intentionally.
14.3 EXTENSION. Provided that the Tenant is not habitually in default
under the terms of this Lease and is not in default at the time of
the exercise of the option herein, then the Landlord shall, at the
expiration of the Term hereof, upon written request of the Tenant,
grant to the Tenant an extension of this Lease for a further period
of five (5) years upon the same terms and conditions as contained
herein, save as to the Base Rental rate, and save as to any further
right of extension. Provided always that the Tenant shall have given
to the Landlord 180 days' notice in writing before the expiration of
the Term of its desire to have such extension. The Base Rental rate
for the extension term shall be at the then current market rate for
similar premises in a similar area and as mutually agreed between
the Landlord and the Tenant. In the event that the Landlord and the
Tenant are unable to agree upon the Base Rental rate for the
extension
<PAGE>
27
term by 120 days prior to the maturity date, the matter shall be
submitted to arbitration by notice given by either party to the
other. Upon such notice being given, the dispute shall be determined
by the award of 3 arbitrators, or by a majority of them, one to be
named by the Landlord and one by the Tenant within 30 days of the
giving of such notice, and the 3rd to be selected by these 2
arbitrators within 7 days after both have been nominated. If either
the Landlord or the Tenant shall neglect or refuse to name its
arbitrator in the time specified or to proceed with the arbitration,
the arbitrator named by the other party shall proceed with the
arbitration, and the award of such arbitrator shall be final and
binding upon the Landlord and the Tenant. The Arbitrators shall have
all the power given by the Arbitrations Act of Ontario and may at
any time proceed in such manner as they see fit on such notice as
they deem reasonable in the absence of either party, if such party
fails to attend. Each party shall pay its own costs and shall share
equally the costs of arbitration. The award and determination of the
arbitrators shall be final and binding upon both parties hereto and
each party agrees not to appeal any such award or determination.
If the award of the arbitrators is not given before the commencement
date of the extension term, then the Tenant shall commence paying rent
at the market rate as determined by the Landlord together with
Additional Rent, which shall be adjusted forthwith after the award of
the arbitrators has become final and binding, to be calculated from the
commencement date of the extension term.
Interest at the rate set out herein shall be calculated monthly on the
difference between the Base Rent paid by the Tenant and the actual
amount awarded by the arbitrators and shall be paid forthwith upon
demand when the arbitrators' decision has been made.
14.4 TAXES, OPERATING COSTS AND HYDRO. The Landlord represents and warrants
that the Taxes, Operating Costs and Hydro applicable to the Leased
Premises is currently estimated to be $8.80 per Rentable square foot
per annum for 1995. The Tenant acknowledges that this is an estimate
only and is subject to adjustment when actual costs are known.
14.5 LEASEHOLD IMPROVEMENTS. As soon as possible and in any event, no later
than April 21, 1995, at its sole cost, but subject to force majeure and
delays attributable to the Tenant, the Landlord agrees to turnkey (that
is to complete the construction of improvements in the Leased Premises
so that the Tenant can commence business operations immediately), the
Leased Premises to a standard consistent with existing leasehold
improvements in the Leased Premises, and in accordance with the layout
attached hereto as Schedule "B".
The Landlord further agrees to utilize in the construction of the
Leased Premises existing materials and improvements (ie. doors and
frames, sidelights, glass partitions, glass entry doors, hardware,
cabinetry etc.) from adjoining vacant space on the 7th and 6th floor of
the Building at no cost to the Tenant, such materials and improvements
to be approved by the Tenant and agreed to by the Landlord.
14.6 RIGHT OF FIRST REFUSAL. Subject to prior rights of tenants in the
Building as of the Commencement Date, the Tenant will have the right
of first refusal, from time to time, to lease any part or all of any
office space on the 7th floor of the Building which becomes
available for lease. The rent and terms shall be equal to a bona
fide offer received by the Landlord. The Tenant shall have five (5)
business days following written notice by the Landlord containing
all relevant information pertaining to such bona fide offer received
in which to confirm to the Landlord that it wishes to exercise its
right of first refusal to lease such space on the same terms and
conditions as the bona fide offer, failing
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28
which the Landlord shall be free to lease such space to the bona
fide offeror. This right becomes effective on the Commencement Date
of this Lease and thereafter will remain in effect provided the
Tenant is not in default under this Lease at the time of exercising
this right.
14.7 EXISTING FIXTURES. It is agreed and understood that all existing
fixtures as of the Commencement Date, including but not limited to
light fixtures, venetian blinds, and built-in cabinetry shall be
available to the Tenant at no additional cost.
14.8 CO-TENANCY. This Agreement is not personally binding upon and resort
shall not be had nor shall recourse or satisfaction be sought from the
private property of any of the unit holders of Investors Real Property
Fund (the "FUND"), trustees, officers, directors, employees or agents
of the trustee or manager of the Fund, it being intended and agreed
that only the property of the Fund shall be bound by this Agreement.
Only the co-tenancy interests of Menkes and Investors Group shall be
bound hereby and the obligations hereunder are not binding upon either
of Menkes or Investors Group in any other respect nor shall resort be
had to any other property of any of Menkes or Investors Group. The
rights and obligations of each of Menkes and Investors Group hereunder
shall, in every case, be several and proportionate and not either joint
or joint and several.
14.9 INTENTIONALLY DELETED AS PART OF SUBLEASE AGREEMENT EXHIBIT
14.10 CAPITAL REPAIRS AND REPLACEMENTS. Notwithstanding anything contained
in this Lease to the contrary:
(a) it is understood and agreed that the Tenant shall not be
responsible for (and the Landlord shall not be permitted to
chargeback to the Tenant) replacements to the Building that
are of a capital nature (as such term is determined under
generally accepted accounting principles); and
(b) in the event of repairs to the Building that are of a capital
nature, the Tenant shall be responsible for its Proportionate
Share of the costs thereof provided that any repair costs that
exceed $10,000.00 in any given year shall be charged to
Operating Costs on an amortization-over-useful-life basis.
Provided however, should a capital repair or replacement be
necessitated by reason of the negligent act or omission of the
Tenant or those for whom the Tenant is in law responsible, the
entire cost of such repair or replacement shall be borne by the
Tenant payable to the Landlord forthwith as Additional Rent.
14.11 COMMISSIONS. The Landlord shall be responsible for any and all real
estate commissions and brokerage fees, if any, payable in connection
with this Lease.
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29
IN WITNESS WHEREOF the Landlord and Tenant have executed this Lease.
MENKES OFFICE PARKS LTD.
Per: /s/ Illegible
______________________________
(Landlord)
INVESTORS GROUP TRUST CO. LTD.
as trustee for
INVESTORS REAL PROPERTY FUND
Per: /s/ Illegible
______________________________
(Landlord)
Vice President
Per: /s/ Illegible
______________________________
(Landlord)
Assistant Secretary
THOMPSON MINWAX (CANADA) LTD.
Witness: /s/ Illegible Per: /s/ Patrick Draper
______________________________
(Tenant)
President
<PAGE>
SCHEDULE "A"
Lots 4 & 5, Plan 65M-2139, in the Town of Richmond Hill, in the Regional
Municipality of York.
<PAGE>
[GRAPHIC -- FLOOR PLAN]
SCHEDULE "B"
<PAGE>
SCHEDULE "C"
RULES AND REGULATIONS
The Rules and Regulations may differentiate between different types of
businesses in the Building but the Rules and Regulations will be adopted and
promulgated by the Landlord acting reasonably and in such manner as would a
prudent Landlord of a reasonably similar office building. The Tenant's failure
to keep and observe the Rules and Regulations now or from time to time in force
constitutes a default under this Lease in such manner as if the same were
contained herein as covenants. The Landlord reserves the right from time to time
to amend or supplement the Rules and Regulations applicable to the Leased
Premises or the Building as in the Landlord's absolute and unfettered discretion
are from time to time needed for the safety, care, cleanliness and more
efficient operation of the Building and for the preservation of good order
therein. Notice of the Rules and Regulations and amendments and supplements, if
any, shall be given to the Tenant and the Tenant shall thereupon comply with and
observe all such Rules and Regulations provided that no Rules and Regulations
shall contradict any terms, covenants and conditions of this Lease. The Rules
and Regulations as at the Commencement Date are as follows:
1. The Tenant shall not place any debris, garbage, trash or refuse or
permit same to be placed or left in or upon any part of the Building
outside of the Leased Premises and the Tenant shall not allow any undue
accumulation of any debris, garbage, trash or refuse in or outside of
the Leased Premises.
2. The Landlord shall permit the Tenant and the Tenant's
employees and all Persons lawfully requiring communication
with them to have the use during such hours as the Landlord
deems reasonable in common with others entitled thereto of the
main entrance and stairways, corridors, elevators or other
mechanical means of access leading to the Leased Premises. At
times other than during such hours as the Landlord deems
reasonable the Tenant and the employees of the Tenant shall
have access to the Building and to the Leased Premises only in
accordance with the Rules and Regulations and shall be
required to satisfactorily identify themselves and to register
in any book which may at the Landlord's option be kept by the
Landlord for such purpose. If identification is not
satisfactory, the Landlord is entitled to prevent the Tenant
or the Tenant's employees or other Persons lawfully requiring
communication with the Tenant from having access to the
Building. In addition, the Landlord is not required to open
the door to the Leased Premises for the purpose of permitting
entry therein to any Person not having a key to the Leased
Premises.
3. The Landlord shall permit the Tenant and the employees of the
Tenant in common with others entitled thereto, to use the
washrooms on the floor of the Building on which the Leased
Premises are situated or, in lieu thereof, those washrooms
designated by the Landlord, save and except when the general
water supply may be turned off from the public main or at such
other times when repair and maintenance undertaken by the
Landlord shall necessitate the non-use of the facilities.
4. The Tenant shall permit window cleaners to clean the windows of the
Leased Premises during such hours as the Landlord deems reasonable.
5. The sidewalks, entrances, passages, elevators and staircases
shall 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 offices. The
Landlord reserves entire control of all parts of the Building
employed for the common benefit of the tenants and without
restricting the generality of the foregoing, the sidewalks,
entrances, corridors and passages not within the Leased
Premises, washrooms, lavatories, air-conditioning closets, fan
<PAGE>
2
rooms, janitor's closets, electrical closets and other closets, stairs,
elevator shafts, flues, stacks, pipe shafts and ducts and shall have
the right to place such signs and appliances therein, as it deems
advisable, provided that ingress to and egress from the Leased Premises
is not unduly impaired thereby.
6. The Tenant, its agents, servants, contractors, invitees or
employees, shall not bring in or take out, position, construct,
install or move any safe, business machinery or other heavy
machinery or equipment or anything liable to injure or destroy any
part of the Building without first obtaining the consent in writing
of the Landlord. In giving such consent, the Landlord shall have
the right in its absolute and unfettered discretion, to prescribe
the weight permitted and the position thereof, and the use and
design of planks, skids or platforms, to distribute the weight
thereof. All damage done to the Building by moving or using any such
heavy equipment or other office equipment or furniture shall be
repaired at the expense of the Tenant. The moving of all heavy
equipment or other office equipment or furniture shall occur only by
prior arrangement with the Landlord. Safes and other heavy office
equipment and machinery shall 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.
7. The Tenant shall not place or cause to be placed any additional
locks upon any doors of the Leased Premises without the approval of
the Landlord and subject to any conditions imposed by the Landlord.
Two keys shall be supplied to the Landlord for each entrance door to
the Leased Premises and all locks shall be standard to permit access
to the Landlord's master key. If additional keys are requested,
they must be paid for by the Tenant. No one, other than the
Landlord's staff will have keys to the outside entrance doors of the
Building.
8. The water closets and other water apparatus shall not be used for
any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, ashes or other substances shall be thrown
therein. Any damage resulting from misuse shall be borne by the
Tenant by whom or by whose agents, servants, or employees the same
is caused. The Tenant shall not (a) let the water run unless it is
in actual use, (b) deface or mark any part of the Building, (c)
drive nails, spikes, hooks or screws into the walls or woodwork of
the Building, or (d) bore, drill or cut into the walls or woodwork
of the Building in any manner or for any reason.
9. No one shall use the Leased Premises for sleeping apartments or
residential purposes, or for the storage of personal effects or
articles other than those required for business purposes.
10. The Tenant shall not permit any cooking of any foods or liquids in
the Leased Premises without the written consent of the Landlord. The
Tenant shall be permitted the use of a microwave oven, a coffee
maker and a toaster.
11. Canvassing, soliciting and peddling in or about the Building and in the
parking facilities of the Building are prohibited.
12. It shall be the duty of the Tenant to assist and co-operate with the
Landlord in preventing injury to the Leased Premises.
13. No flammable oils or other flammable, dangerous or explosive material
save for samples of the Tenant's products and those approved in writing
by the Landlord's insurers shall be kept or permitted to be kept in the
Leased Premises. The Tenant
<PAGE>
3
shall be solely responsible for ensuring full compliance with all
statutory regulations with respect to the keeping or storing of the
Tenant's products on the Leased Premises.
14. No bicycles or other vehicles shall be brought within the building
without the consent of the Landlord.
15. No animals or birds shall be brought into the Building without the
consent of the Landlord.
16. If the Tenant desires telegraphic or telephonic connections, the
Landlord will direct the electricians as to where and how the wires are
to be introduced. This restriction shall not extend to the installation
of the Tenant's phones within the Leased Premises. No gas pipe or
electric wire will be permitted which has not been ordered or
authorized by the Landlord.
17. The Tenant shall not cover or obstruct any of the skylights and windows
that reflect or admit light into any part of the Building except for
the proper use of approved window coverings.
18. Any hand trucks, carryalls, or similar appliances used in the Building
with the consent of the Landlord, shall be equipped with rubber tires,
slide guards and such other safeguards as the Landlord requires.
19. The Tenant shall not place or maintain any supplies, merchandise or
other articles in any vestibule or entry of the Leased Premises, on the
footwalks adjacent thereto or elsewhere on the exterior of the Leased
Premises or the Building.
20. The Tenant shall not commit or suffer or permit to be committed any
waste upon, or damage to, or disfiguration of the Leased Premises or
any nuisance or other act or thing which disturbs the quiet enjoyment
of any other tenant in the Building or which unreasonably disturbs or
interferes with or annoys any Person, nor perform any acts or carry on
any practices which may damage the building.
21. The Tenant shall not refer to the Building by any name other than that
designated from time to time by the Landlord, nor use such name for any
purpose other than that of the business address of the Tenant, provided
that the Tenant may use the municipal number of the Building assigned
to it by the Landlord instead of the name of the Building.
22. The Tenant shall not install or allow on the Leased Premises any
transmitting device, nor erect any aerial on the roof of the
Building or on any exterior walls of the Leased Premises. Any such
installations shall be subject to removal by the Landlord without
notice at any time and such removal shall be done and all damage as
a result thereof shall be made good, in each case, at the cost of
the Tenant, payable as Additional Rent forthwith on demand.
23. The Tenant shall not use any travelling or flashing lights or signs
or any loudspeakers, television, phonographs, radio or other
audio-visual or mechanical devices in a manner so that they can be
heard or seen outside of the Leased Premises. If the Tenant uses
any such equipment without receiving the prior written consent of
the Landlord, the Landlord shall be entitled to remove such
equipment without notice at any time and such removal shall be done
and all damage as a result thereof shall be made good, in each case,
at the cost of the Tenant, payable as Additional Rent forthwith on
demand.
<PAGE>
4
24. The Landlord shall have the right to restrict access to the elevators
for move-in and move-out purposes. The Tenant shall consult prior to
taking or giving up occupation of the Leased Premises in order to
obtain an elevator schedule from the Landlord.
25. If the Tenant requires the supply of water, electricity, heating,
air conditioning or any other utility or service after the normal
hours during which the Landlord supplies same or on a weekend or
holiday, the Tenant shall purchase its requirements for those
utilities or services from the Landlord and the Tenant shall pay to
the Landlord as Additional Rent forthwith upon demand the cost of
same at the rates current from time to time set by the Landlord.
The Tenant acknowledges that reasonable prior verbal notice must be
given to the Landlord in the event that the Tenant requires the
supply of utilities after the hours the Landlord normally supplies
same.
<PAGE>
CONSENT TO SUBLEASE
THIS AGREEMENT made this 24th day of September, 1997.
B E T W E E N:
MENKES OFFICE PARKS LTD. AND INVESTORS GROUP
TRUST CO. LTD., AS TRUSTEE FOR INVESTORS REAL
PROPERTY FUND
(hereinafter called the "LANDLORD")
OF THE FIRST PART
A N D:
THOMPSON MINWAX (CANADA) LTD.
(hereinafter called the "TENANT")
OF THE SECOND PART
A N D:
CHANGEPOINT CORP.
(hereinafter called the "SUBTENANT")
OF THE THIRD PART
WHEREAS:
(a) by a lease dated the 4th day of April, 1995 (the "LEASE"), the
Landlord leased to the Tenant the premises known as Suite 701,
1595 16th Avenue, Richmond Hill (the "PREMISES"), subject to the
terms, covenants, provisos and conditions therein set forth;
(b) the Tenant intends to sublease by a sublease agreement dated
August 31, 1997, a copy of which the Landlord is in receipt of,
(the "SUBLEASE") to the Subtenant and the Tenant and the Subtenant
have applied to the Landlord for consent to the Sublease.
NOW THIS INDENTURE WITNESSETH that in consideration of the covenants herein
exchanged the Parties agree as follows:
1. Subject to the provisions of this Agreement, the Landlord does herein
consent to such Sublease.
2. The Tenant acknowledges that notwithstanding such consent and Sublease,
the Tenant shall not be relieved of any of the covenants, provisos,
conditions and agreements set forth in the Lease and that this Consent
shall not be deemed to permit any further subletting. The Tenant further
acknowledges that the execution of this Consent to Sublease by the
Landlord does not imply approval by the Landlord of the provisions of
the sublease agreement to be entered into by the Tenant and Subtenant.
3. The Tenant and Subtenant acknowledges and agree that the payment of Base
Rent and Additional Rent required under the Lease shall continue to be
payable
<PAGE>
2
to the Landlord by the Tenant at the times required, provided that in
the event of default by the Tenant (after notice and anytime to cure
provided under the Lease), in the payment of Base Rent or Additional
Rent, the Landlord shall have the right to collect the rent payable by
the Subtenant pursuant to the terms and conditions of the Sublease
directly from the Subtenant as agent for the Tenant and to apply any
rent so collected against rental arrears owing by the Tenant to the
Landlord.
The Tenant and the Subtenant hereby acknowledge that the Landlord shall
exercise this right to collect the rent payable pursuant to the Sublease
by giving written notice to the Tenant and the Subtenant. The Subtenant
covenants and agrees to thereafter pay such rent to the Landlord until
such time as the Landlord notifies the Subtenant that the default has
been cured by the Tenant. It is acknowledged that any such collection of
rent by the Landlord from the Subtenant shall not be construed as to
create a landlord/tenant relationship between the Landlord and the
Subtenant and shall in no way limit the Tenant's liability to pay all
rent outstanding under the Lease or in any way limit the Landlord's
rights and remedies under the Lease or at law.
4. The Tenant and Subtenant covenant and agree with the Landlord not to
amend the terms of the Sublease without the consent in writing of the
Landlord.
5. The Subtenant covenants and agrees to abide by all the terms, covenants,
provisos, conditions and agreements contained in the Lease save for the
payment of Base Rent and Additional Rent.
6. The Tenant agrees that in consideration of the Landlord giving such
consent, it shall pay any fee charged by the Landlord for processing
this Agreement. Said fee shall be approximately $425.00.
7. The Subtenant covenants and agrees with the Landlord that if the Lease
is terminated for any reason or surrendered, that from such date of
termination or surrender the Sublease shall be deemed to be terminated.
8. Notwithstanding the terms of the Sublease, the Tenant and Subtenant
acknowledge and agree that the Premises will not be used for any purpose
other than as permitted under the Lease.
9. Notwithstanding the terms of paragraph 9 of the Sublease, it is agreed
and understood that until such time as the Landlord delivers its written
approval for any proposed changes or alterations, the Subtenant shall
not be entitled to perform such changes or alterations notwithstanding
that the Tenant may not have replied within a period of 14 days as set
out in paragraph 9 of the Sublease.
10. This Agreement shall enure to and be binding upon the respective heirs,
executors, administrators and successors and permitted assigns of the
Parties hereto.
11. The parties acknowledge that the Lease is not personally binding upon
and resort shall not be had nor shall recourse or satisfaction be sought
from the private property of any of the unit holders of Investors Real
Property Funds (the "FUND"), trustees, officers, directors, employees or
agents of the trustee or manger of the Fund, it being intended and
agreed that only the property of the Fund shall be bound by the Lease.
Only the co-tenancy interests of Menkes Office Parks Ltd. and Investors
Group Trust Co. Ltd. shall be bound by the Lease and the obligations
under the Lease are not binding upon either of Menkes Office Parks Ltd.
or Investors Group Trust Co. Ltd. in any other respect nor shall resort
be had to any other property of any of Menkes Office Parks Ltd. or
Investors Group Trust Co. Ltd. The rights and obligations of each of
Menkes
<PAGE>
3
Office Parks Ltd. and Investors Group Trust Co. Ltd. under the Lease
shall, in every case, be several and proportionate and not either joint
or joint and several.
IN WITNESS WHEREOF the parties hereto have hereunto caused to be affixed
their corporate seals duly attested to by the hands of their respective
proper signing officers authorized in that behalf the day and year first
above written.
LANDLORD: LANDLORD:
MENKES OFFICE PARKS LTD. INVESTORS GROUP TRUST CO. LTD.,
AS TRUSTEE FOR INVESTORS REAL
Per: /s/ Illegible PROPERTY FUND
--------------------------------
[Authorized Signing Officer]
Per: /s/
------------------------------
ROBERT G. DARLING
Vice President
Per: /s/
------------------------------
MURRAY J. MITCHELL
Assistant Secretary
TENANT: SUBTENANT:
THOMPSON MINWAX (CANADA) LTD. CHANGEPOINT CORP.
Per: /s/ Illegible Per: /s/ Illegible
-------------------------------- -------------------------------
[Authorized Signing Officer] [Authorized Signing Officer]
Per: /s/ Illegible Per: /s/ John Anhang
-------------------------------- -------------------------------
[Authorized Signing Officer] [Authorized Signing Officer]
<PAGE>
ADDENDUM TO AND EXTENSION OF LEASE
THIS AGREEMENT made this 28th day of October, 1999
B E T W E E N:
MENKES OFFICE PARKS LTD., AND
INVESTORS GROUP TRUST CO. LTD. AS TRUSTEE
FOR INVESTORS REAL PROPERTY FUND
(collectively Hereinafter called the "LANDLORD")
OF THE FIRST PART
- and -
CHANGEPOINT CORPORATION
(Hereinafter called the "TENANT")
OF THE SECOND PART
WITNESSETH
WHEREAS:
A. By a lease dated the 18th day of May, 1995 (hereinafter called the
"LEASE") made between the Landlord and the Tenant, the Landlord leased
to the Tenant the premises known as 1595 16th Avenue, Suite 702,
Richmond Hill, Ontario (the "PREMISES") for a term of five (5) years
from the 23rd day of June, 1995 upon the terms and conditions therein
set forth.
B. The Tenant has made known its desire to lease certain additional
premises known municipally as 1595 16th Avenue, Suite 701, Richmond
Hill, Ontario (the "ADDITIONAL PREMISES"), containing approximately
9,537 square feet for a term commencing the 1st day of April, 2000 and
terminating the 30th day of September, 2000 (the "ADDENDUM TERM") and
the Landlord has agreed to do so.
C. The Tenant has also requested the Landlord grant to it this Extension
of the Lease for the Premises for a further term of three (3) months
and eight (8) days (the "EXTENSION TERM") from the 23rd day of June,
2000 on the terms hereinafter set forth and the Landlord has agreed to
do so.
Now in consideration of the mutual covenants hereinafter contained the Parties
agree as follows:
1. The Landlord hereby leases to the Tenant the Additional Premises
subject to the payment on the same days and in the like manner of
Base Rental and additional rent save and except that the Base Rental
for the Additional Premises from the 1st day of April, 2000, until
the 30th day of September, 2000 shall be in the amount of $85,833.00
per annum and the Base Rental monthly payments shall be in the
amount of $7,152.75 per month plus G.S.T. The term of lease for the
Additional Premises shall be six (6) months commencing on the 1st
day of April, 2000 and
<PAGE>
-2-
terminating the 30th day of September, 2000, and subject to and with
the benefit of the Tenant's and Landlord's covenants, provisos and
conditions as contained in the Lease.
2. The Landlord hereby leases to the Tenant the Premises subject to the
payment on the same days and in the like manner of Base Rental and
additional rent save and except that the Base Rental for the Extension
Term shall be in the amount of $76,536.00 per annum and the Base Rental
monthly payments shall be in the amount of $6,378.00 per month plus
GST. The Extension Term for the Premises shall be for three (3) months
eight (8) days commencing on the 23rd day of June, 2000 and terminating
on the 30th day of September, 2000 and subject to and with the benefit
of the Tenant's and Landlord's covenants, provisos and conditions
contained in the Lease.
3. The Landlord and Tenant hereby mutually covenant that they will perform
and observe the several covenants, provisos and conditions in the Lease
as fully as if such covenants, provisos and conditions has been
repeated herein in full with such modifications only as are necessary
to make them applicable to this Addendum to and Extension of Lease. It
is further understood and agreed that any clauses in the Lease relating
to Landlord's work, Base Rental free or additional rent free periods,
Landlord's warranties, options to extend, early occupancy, early
access, additional rent estimates and any other such tenant inducements
are not applicable to the Addendum Term or Extension Term unless
otherwise stated herein.
4. Provided it is mutually agreed and understood that if the Tenant
duly and regularly pays the Base Rental and additional rental and
performs all of the provisos and agreements contained in the Lease
and this Addendum to and Extension of Lease on the part of the
Tenant to be performed, and provided further that the Tenant is not
habitually in default under the terms of the Lease and this Addendum
to and Extension of Lease and is not in default at the time of the
exercise of the option herein, then the Landlord shall, at the
expiration of the Addendum Term and Extension Term hereof, upon
written request of the Tenant, grant to the Tenant a further
extension of the Lease, as extended, for a further period of five
(5) years upon the same terms and conditions as contained herein,
save as to the Base Rental rate, save as to any further right of
extension and in an "as is" condition. Provided always that the
Tenant shall have given to the Landlord notice in writing on or
before March 28, 2000 of its desire to have such extension. The Base
Rental rate for such extension term shall be at the then fair market
rate at the time of the exercise by the Tenant for similar premises
in a similar area and as mutually agreed between the Landlord and
the Tenant. In the event that the Landlord and the Tenant are unable
to agree upon the Base Rental rate for such extension term by 120
days prior to the maturity date, the matter shall be submitted to
arbitration by notice given by either party to the other. Upon such
notice being given, the dispute shall be determined by the award of
3 arbitrators, or by a majority of them, one to be named by the
Landlord and one by the Tenant within 30 days of the giving of such
notice, and the 3rd to be selected by these 2 arbitrators within 7
days after both have been nominated. If either the Landlord or the
Tenant shall neglect or refuse to name its arbitrator in the time
specified or to proceed with the arbitration, the arbitrator named
by the other party shall proceed with the arbitration, and the award
of such arbitrator shall be final and binding upon the Landlord and
the Tenant. The Arbitrators shall have all the power given by the
Arbitrations Act of
<PAGE>
-3-
Ontario and may at any time proceed in such manner as they see fit
on such notice as they deem reasonable in the absence of either
party, if such party fails to attend. Each party shall pay its own
costs and shall share equally the costs of arbitration. The award
and determination of the arbitrators shall be final and binding upon
both parties hereto and each party agrees not to appeal any such
award or determination.
In no event shall the Base Rental for the extension period be less than
the highest Base Rental payable under the final year of the Extension
Term.
If the award of the arbitrators is not given before the commencement
date of such extension term, then the Tenant shall commence paying base
rental at the market rate as determined by the Landlord together with
additional rental, which shall be adjusted forthwith after the award of
the arbitrators has become final and binding, to be calculated from the
commencement date of the extension term.
Interest at the rate set out herein shall be calculated monthly on the
difference between the base rental paid by the Tenant and the actual
amount awarded by the arbitrators and shall be paid forthwith upon
demand when the arbitrators' decision has been made.
The extension of lease form shall be prepared by the Landlord at the
Tenant's cost and the Tenant covenants and agrees to pay to the
Landlord said costs forthwith upon demand.
5. It is understood and mutually agreed that there is no further right of
extension for either the Premises or the Additional Premises unless
otherwise negotiated between the Parties.
6. The Parties agree to execute such further and other documentation as
may be necessary to give this agreement full force and effect.
7. This agreement shall be binding upon the respective heirs, executors,
administrators, successors and permitted assigns of the Parties hereto.
IN WITNESS WHEREOF the Parties hereto have hereunto caused to be affixed their
corporate seals, duly attested to by the hands of their proper signing officers
authorized in that behalf.
<PAGE>
-4-
SIGNED, SEALED AND DELIVERED ) MENKES OFFICE PARKS LTD.
IN THE PRESENCE OF )
)
) Per: ________________________________
) (Landlord)
)
)
) INVESTORS GROUP TRUST CO. LTD. AS
) TRUSTEE FOR INVESTORS REAL
) PROPERTY FUND
)
)
) Per: ________________________________
) (Landlord)
)
)
) Per: ________________________________
) (Landlord)
)
)
) CHANGEPOINT CORPORATION
)
)
) Per: ________________________________
) (Tenant)
)
<PAGE>
LEASE
THIS LEASE made as of the 15th day of August, 1994
PURSUANT TO THE SHORT FORMS OF LEASES ACT
BETWEEN
MENKES OFFICE PARKS LTD. AND
INVESTORS GROUP TRUST CO. LTD.
AS TRUSTEE FOR INVESTORS REAL
PROPERTY FUND
(the "Landlord")
OF THE FIRST PART
- AND -
BATTERY TECHNOLOGIES INC.
(the "Tenant")
OF THE SECOND PART
ARTICLES. For convenience of reference this Lease has been divided
into the following Articles:
Article I - Definitions
Article II - Lease Term and Payments
Article III - Landlord and Tenant Covenants
Article IV - Repair and Damage
Article V - Taxes and Operating Costs
Article VI - Utilities and Additional Services
Article VII - Assigning and Subletting
Article VIII - Fixtures and Improvements
Article IX - Insurance and Liability
Article X - Subordination, Attornment and Certificates
Article XI - Remedies of Landlord on Tenant's Default
Article XII - Events Terminating Lease
Article XIII - Miscellaneous
Article XIV - Other Provisions
LIST OF SCHEDULES. The following schedules form an integral part
of this Lease:
Schedule "A" - Legal Description of Lands
Schedule "B" - Leased Premises
Schedule "C" - Rules and Regulations
ARTICLE I - DEFINITIONS
1.0 DEFINITIONS. In this Lease the following defined terms shall have the
meanings set forth below.
"ADDITIONAL RENT" means Operating Costs under Section 5.5, Taxes under
5.3, Electricity under 6.2, and Insurance under Article IX and all
other charges, costs and expenses required to be paid by the Tenant
under the terms of this Lease (other than Base Rent) whether payable to
the Landlord or not.
"ADDITIONAL SERVICES" means the services and supervision supplied by
the Landlord to the Leased Premises and Common Area Facilities and
referred to herein or in any other provision hereof as Additional
Services and any other services which from time to time the Landlord
supplies to the Tenant at the Tenant's written request or as the
Landlord deems necessary, acting reasonably and which are additional to
the janitor and cleaning and other services typically supplied in a
first class office building, supervision in connection with the making
of any repairs or alterations by the Tenant affecting the Base
Building, building systems or Leasehold Improvements.
"ATTIC STOCK" means spare fan, pump and cooling tower motors, base
Building light fixtures, fuses, etc.
<PAGE>
2
"BASE RENT" means the base rent payable by the Tenant in accordance
with Section 2.3.
"BUILDING" means the building municipally known as 1595 16th Avenue,
Richmond Hill, Ontario.
"CAPITAL TAX" is an amount presently or hereafter imposed from time to
time pursuant to Part III of the Corporations Tax Act (Ontario) (the
"Act") upon the Landlord or the owner of the Building and Lands and
payable by the Landlord on account of its interest in the Building and
the Lands or any part thereof, or its interest in or capital employed
in the Building and the Lands, as the case may be.
"COMMENCEMENT DATE" means October 1, 1994.
"COMMON AREA FACILITIES" means all facilities, improvements,
installations, utilities and equipment located in the Building or the
Lands immediately surrounding the Building.
"COMMON AREAS" means those areas, facilities, utilities, improvements,
equipment and installations comprising the Lands and Building and which
are not leased or designated for lease to tenants but are provided to
be used in common by (or by the sublessees, agents, employees,
customers or licensees of) the Landlord, the Tenant, and other tenants
of the Building and other buildings on the Lands, whether or not the
same are open to the general public or a specific tenant of the
Building, and include, but are not limited to, parking areas and all
vestibules for and entrances and exits thereto; driveways, truckways
and related areas; corridors and underground or above ground tunnels or
passageways; stairways, escalators, ramps, and elevators and other
transportation equipment and systems; tenant, common and public
washrooms; telephone, meter, valve, mechanical, mail, storage, service
and janitor rooms; fire prevention, security and communication systems,
any fixtures, chattels, systems, decor, signs, facilities, or
landscaping and planted areas contained therein or maintained or used
in connection therewith.
"COST OF ADDITIONAL SERVICES" shall mean in the case of Additional
Services provided by the Landlord a reasonable charge made therefor by
the Landlord which shall not exceed the cost of obtaining such services
from independent contractors and in the case of Additional Services
provided by independent contractors the Landlord's total cost of
providing Additional Services to the Tenant including the proportionate
cost of all direct labour (including salaries, wages and fringe
benefits) and materials and other direct expenses incurred, the cost of
supervision without duplication or profit and other expenses reasonably
allocated thereto.
"INSURED DAMAGE" means that part of any damage occurring to the Leased
Premises of which the entire cost of repair is actually recovered by
the Landlord under a policy of insurance in respect of fire and other
perils from time to time effected by the Landlord, or for which the
Landlord has self-insured under Section 9.1 herein.
"LAND" means those lands described in Schedule "A" attached
hereto.
"LEASE" means this lease between the Landlord and the Tenant,
and all amendments hereto.
"LEASEHOLD IMPROVEMENTS" means all fixtures, improvements,
installations, alterations and additions from time to time made,
erected or installed by or on behalf of the Tenant or by or on behalf
of any other previous occupant in the Leased Premises (including the
Landlord) with the exception of trade
<PAGE>
3
fixtures, furniture and equipment, (not of the nature of fixtures),
modular office furniture systems, improvements of a cosmetic nature
such as rugs (but not broadloom), decorations and other improvements
moveable without the use of tools, but Leasehold Improvements
include all office partitions however affixed and includes wall-to-wall
and other carpeting with the exception of such carpeting where laid
over vinyl tile or other finished floor and affixed so as to be
readily removable without damage.
"LEASED PREMISES" means approximately 5,801 square feet of Rentable
Area on the 6th floor of the Building as outlined in red on the plans
attached as Schedule "B" and known as suite 601.
"NORMAL BUSINESS HOURS" means the hours of 7:00 a.m. to 7:00
p.m. Monday to Friday, except public holidays.
"OPERATING COSTS" means the total of all expenses, costs, and outlays
incurred in the complete maintenance, repair and operation of the
Building and Common Area Facilities, whether incurred by or on behalf
of the Landlord.
(i) Operating Costs shall include without limiting the
generality of the foregoing (but subject to certain
deductions as hereinafter provided), the cost of providing
complete cleaning and janitorial services, the cost of
building supplies used in the maintenance of the Building,
Attic Stock, supervisory (if any) and maintenance
services, exterior landscaping, snow removal, garbage and
waste collection and disposal, rental of equipment and
signs, janitorial services to the Common Areas of the
Building, the cost of operating elevators, the cost of
heating, cooling and ventilating all space including both
rentable and non-rentable areas, the cost of providing hot
and cold water, electricity (including lighting), and the
replacement of electric light bulb tubes, starters and
ballasts, telephone and other utilities and services to
both rentable and non-rentable areas, the cost of all
repairs including repairs to the Building or services in
the Building or Common Area Facilities including elevators,
depreciation on the central HVAC systems distribution plant
and associated equipment, depreciation on all fixtures,
equipment and facilities requiring periodic maintenance or
substantial replacement, the cost of window cleaning, and
providing security (if any), the cost of all insurance for
liability or fire or other casualties referred to in
Article 9.1, accounting costs incurred in connection with
maintenance and operation including computations required
for the imposition of charges to tenants and audit charges
required to be incurred for the conclusive determination of
any costs hereunder, legal fees, the amount of all salaries
(only to the extent that such salaries or a proportion
thereof, relate directly to the Building), wages and fringe
benefits, unemployment and workers compensation insurance
premiums, pension plan contributions and other similar
premiums and contributions paid or provided to employees
directly or a reasonable proportion thereof engaged in the
maintenance, repair or operation of the Building, amounts
paid to independent contractors for any services in
connection with such maintenance, repair or operation, the
cost of management fees, and other indirect expenses to the
extent allocable to the maintenance, repair and operation
of the Building and Common Area Facilities and all other
expense of every nature incurred in connection with the
maintenance, repair and operation of the Building and
Common Area Facilities; and
(ii) Operating Costs shall exclude debt service, and all management
costs not allocable to the actual maintenance,
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4
repair and operation of the Building (such as that incurred
in connection with leasing and rental advertising).
"PROPERTY" means the Land and Building.
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5
"PROPORTIONATE SHARE" shall mean the fraction which has as its
numerator the Rentable Area of the Leased Premises and has as its
denominator the total Rentable Area of the Building. The total Rentable
Area of the Leased Premises shall be adjusted from time to time, as may
be reasonably necessary, to give effect to any structural or functional
changes affecting the calculation of total Rentable Areas.
"RENT" means Base Rent and Additional Rent.
"RENTABLE AREA" in this Lease means:
(i) in the case of a single tenancy on a whole floor of the
Building, all areas within the inside finished surface of
the dominant portion of the permanent outer Building
walls and shall be computed by measuring the inside
finished surface of the dominant portion of the permanent
outer Building walls and shall include Service Areas and
any special stairs and/or elevators for the specific sole
use of that floor, but excluding stairs, elevator shafts,
flues, pipe shafts and vertical ducts and the like and
their enclosing walls (the "VERTICAL OPENINGS"), with no
deductions for columns or projections necessary to the
Building plus a gross-up factor for ground floor services
in common with other tenants, including, but not limited
to vestibules, corridors, elevator lobbies, mechanical,
electrical, telephone, mail, garbage and janitor's rooms,
such factor to be based upon a ratio which the ground
floor Service Areas of the Building bears to the gross
floor area, less Vertical Openings of the Building; and
(ii) in the case of a floor of the Building to be occupied by
more than one tenant, all areas from the inside finished
surface of the dominant portion of the permanent outer
Building walls to the Tenant's side of corridors and/or
other permanent interior walls and to the centre of
demising partitions which separate the area occupied from
adjoining rentable premises, herein referred to as the
"USABLE AREA", plus a gross-up factor for the Service
Areas on the floor in common with other tenants on the
same floor, including, but not limited to, corridors,
elevator lobbies, mechanical, electrical, telephone and
janitor's rooms exclusively serving the floor, such
factor to be based upon a ratio which the Service Areas
of the floor bear to the sum of the Usable Area of the
floor, plus an additional gross-up factor for ground
floor services in common with other tenants, including,
but not limited to, vestibules, corridors, elevator
lobbies, mechanical, electrical, telephone, mail, garbage
and janitor's rooms, such factor to be based upon a ratio
which the ground floor Service Areas of the Building
bears to the gross floor area, less Vertical Openings of
the Building.
"RULES AND REGULATIONS" means the rules and regulations
attached as Schedule "C".
"SERVICE AREAS" shall mean the area of corridors, elevator, lobbies,
service elevator lobbies, washrooms, air-cooling rooms, fan rooms,
janitor's closets, telephone and electrical closets and other closets
serving the Leased Premises in common with other premises on the same
floor.
"TAXES" means all taxes, rates, duties, levies and assessments
whatsoever, whether municipal, parliamentary or otherwise, levied,
imposed or assessed against the Building, Common Areas or Common Area
Facilities or upon the Landlord in respect thereof including Capital
Tax and commercial concentration tax, or from time to time levied,
imposed or assessed in the future in lieu thereof, or in addition
thereto, whether now
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6
contemplated or not, and those levied, imposed or assessed for
education, schools and local improvements and including all
costs and expenses (including legal and other professional fees and
interest and penalties on deferred payments), incurred by the Landlord
in good faith in contesting, resisting or appealing any taxes, rates,
duties, levies or assessments, but excluding taxes and license fees in
respect of any business carried on by tenants and occupants of the
Building (including the Landlord) to the extent such taxes are not
levied in lieu of taxes, rates, duties, levies and assessments against
the Building or upon the Landlord in respect thereof, and shall also
include any and all taxes which may in future be levied in lieu of
taxes as hereinbefore defined, and also including Large Corporations
Tax or any similar or successor tax in lieu thereof or in addition
thereto assessed upon the Landlord.
"TERM" means the term of the Lease stipulated in paragraph
2.2.
"UTILITIES" means electricity as described in Article 6.2, natural gas
and any other utility required in the operation of the Building.
ARTICLE II - LEASE TERM AND PAYMENTS
2.1 DEMISE. In consideration of the rents, covenants and agreements
hereinafter reserved and contained, the Landlord hereby leases to the
Tenant, for the exclusive use of the Tenant, the Leased Premises for
the Term.
2.2 TERM. The Lease shall have a term of six (6) years commencing on the
1st day of October, 1994 and terminating the 30th day of September,
2000, unless such term shall be sooner terminated as hereinafter
provided.
2.3 BASE RENT. THE TENANT SHALL PAY during the first year of the within
Term the sum of $39,156.75 of lawful money of Canada in nine (9) equal
monthly instalments of $4,350.75, in advance, the first of such
instalment to become due and payable on January 1, 1995 (the "BASE
RENTAL").
BASE RENT. THE TENANT SHALL PAY during the second year of the within
Term the sum of $52,209.00 of lawful money of Canada in twelve (12)
equal monthly instalments of $4,350.75, in advance, the first of such
instalment to become due and payable on October 1, 1995 (the "BASE
RENTAL").
BASE RENT. THE TENANT SHALL PAY during the third year of the within
Term the sum of $58,010.04 of lawful money of Canada in twelve (12)
equal monthly instalments of $4,834.17, in advance, the first of such
instalment to become due and payable on October 1, 1996 (the "BASE
RENTAL").
BASE RENT. THE TENANT SHALL PAY YEARLY AND EVERY YEAR during the
fourth, fifth and sixth year of the within Term the sum of $69,612.00
of lawful money of Canada in twelve (12) equal monthly instalments of
$5,801.00, in advance, the first of such instalment to become due and
payable on October 1, 1997 (the "BASE RENTAL").
The aforesaid annual Base Rent is calculated on the basis of the
Rentable Area of the Leased Premises being 5,801 square feet at a rate
of:
$9.00 per square foot of Rentable Area for the first two (2)years of
the Term; $10.00 per square foot of Rentable Area for the third year of
the Term; and
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7
$12.00 per square foot of Rentable Area for the fourth, fifth and
sixth year of the Term.
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8
IF THE TERM COMMENCES on any day other than the first or ends on any
day other than the last day of the month, the Base Rental and
additional rental for the fractions of a month at the commencement and
at the end of the Term shall be adjusted pro rata. All Base Rental
payments shall be payable on the first of each month.
2.4 PREPAID RENT. The Landlord acknowledges receipt of the sum of
$8,392.13, including GST, representing payment on account of the first
Rents due hereunder.
2.5 SECURITY DEPOSIT. The Landlord acknowledges receipt of the sum of
$8,000.00, to be held by the Landlord without any liability on the part
of the Landlord for the payment of interest thereon as a security
deposit for the faithful performance by the Tenant of the terms,
covenants and conditions of this Lease during the Term hereof and not
be applied on account of Base Rent. It is understood and agreed between
the Parties that any portion of this security deposit may be applied
towards the payment of overdue or unpaid Base Rent or Additional Rent
and may also be applied as compensation to the Landlord for any loss or
damage sustained with respect to the breach on the part of the Tenant
of any terms, covenants and conditions of this Lease, provided in all
cases however, that all the Landlord's other rights, either in law or
under this Lease are observed, and the Tenant's liability hereunder is
not limited to the amount of this security. If during the Term of this
Lease any portion of the security deposit is so applied, then the
Tenant will on written demand provide the Landlord with a sufficient
amount in cash to restore this deposit to the original sum deposited.
The Landlord will refund to the Tenant forthwith after the expiry date
of the within lease any portion of the security deposit not used by the
Landlord after application by the Landlord to any damage incurred by
the default of the Tenant under the terms of this Lease. It is further
provided that the Landlord will be discharged from any liability to the
Tenant with respect to this security if it is transferred to any
purchaser of the Landlord's interest in the Leased Premises.
2.6 POST-DATED CHEQUES
The Tenant shall deliver to the Landlord, prior to the Tenant taking
possession of the Premises, twelve (12) post-dated cheques each in the
amount equal to the monthly Base Rent plus the Additional Rent payments
required under this Lease. One month prior to the first and subsequent
anniversaries of the Lease, the Tenant agrees to deliver twelve (12)
post-dated cheques to the Landlord.
ARTICLE III - LANDLORD AND TENANT COVENANTS
3.1 LANDLORD COVENANTS. The Landlord covenants with the Tenant:
(a) QUIET ENJOYMENT. To provide for quiet enjoyment.
(b) INTERIOR CLIMATE CONTROL. To provide to the Leased
Premises during Normal Business Hours, processed air by
means of a system for heating and cooling, filtering and
circulating, processed in such quantities, and at such
temperatures as shall be reasonable in accordance with
good standards of interior climate control generally
pertaining to normal occupancy of premises for office
purposes. The Landlord shall have no responsibility for
inadequacy of the performance of the said system if the
Leased Premises depart from the design criteria.
(c) ELEVATORS. Subject to the supervision of the Landlord and
except when repairs are being made thereto, to
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9
furnish for use by the Tenant and its employees and invitees
in common with other persons entitled thereto reasonable
standards of passenger elevator service to the Leased
Premises. The Tenant shall be responsible for any damages
caused to the elevator as a result of taking possession
or giving up possession of the Leased Premises and shall
pay such costs forthwith upon demand as Additional Rent.
(d) ENTRANCES LOBBYS, ETC.. To permit the Tenant and its employees
and invitees to have the use in common with others entitled
thereto of the common entrances, lobbies, stairways, elevators
and corridors of the Building giving access to the Leased
Premises (subject to the Rules and Regulations and such other
reasonable limitations as the Landlord may from time to time
impose).
(e) WASHROOMS. To permit the Tenant and its employees and
invitees, in common with others entitled thereto to use the
washrooms available to the Leased Premises on each floor of
the Building upon which any part of the Leased Premises is
located.
(f) JANITOR SERVICE. To cause when reasonably necessary from time
to time the floors and windows of the Leased Premises to be
swept and cleaned and the desks, tables and other furniture of
the Tenant to be dusted, all in keeping with a first-class
office building, such work shall be done at the Landlord's
direction without interference by the Tenant, its servants or
employees.
(g) MAINTENANCE OF COMMON AREAS. To cause the elevators, common
entrances, lobbies, stairways, corridors, washrooms and other
parts of the Building from time to time provided for common
use and enjoyment to be swept, cleaned or otherwise maintained
substantially in keeping with a first-class office building.
3.2 TENANT COVENANTS. The Tenant covenants with the Landlord:
(a) RENT. To pay Base Rent and Additional Rent.
(b) PERMITTED USE. To use the Leased Premises only for the purpose
of any lawful business or office undertaking and not to use or
permit to be used the Leased Premises or any part thereof for
any other purpose or business.
(c) WASTE AND NUISANCE. Not to commit or permit any waste, damage
or injury to the Leased Premises including the Leasehold
Improvements and trade fixtures therein, reasonable wear and
tear excluded, any overloading of the floors thereof, any
nuisance therein or any use or manner of use causing
unreasonable annoyance to other tenants and occupants of the
Building.
(d) CONDITION. Not to permit the Leased Premises to become
hazardous or permit unreasonable quantities of waste or refuse
to accumulate therein and at the end of each business day to
leave the Leased Premises in a condition such as to reasonably
facilitate the performance of the Landlord's janitor and
cleaning services referred to herein.
(e) BY-LAWS. To comply at its own expense with all municipal,
federal, provincial, sanitary, fire, building and safety
statutes, laws, by-laws, regulations, ordinances, orders or
regulations pertaining to the operation and use of the Leased
Premises, the condition of the Leasehold Improvements, trade
fixtures, furniture and equipment installed by the Tenant
therein and the making by the Tenant of any repairs, changes
or improvements therein.
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10
<PAGE>
11
(f) FIRE EXIT DOORS. To permit the installation by the Landlord of
all doors in the exterior wall of the Leased Premises
necessary to comply with the requirements of any statute, law,
by-law, regulation, ordinance, order or regulation.
(g) RULES AND REGULATIONS. To observe and to cause its employees,
invitees and others over whom the Tenant can reasonably be
expected to exercise control, the Rules and Regulations and
such further and other reasonable rules and regulations and
amendments and changes therein as may hereafter be made by the
Landlord and notified to the Tenant.
(h) OVERHOLDING. That in the event that the Tenant remains in
possession of the Leased Premises after the termination of
the original Term hereby created, without other special
agreement, it shall be at the monthly base rent equal to the
Base Rent and Additional Rent payable during the last month of
the Term hereof, times two, payable on the first day of each
and every month and subject in other respects to the terms of
this Lease, including those provisions requiring the payment
of Base Rent and Additional Rent in monthly installments.
3.3 SIGNS AND DIRECTORY. The Tenant covenants not to permit, paint,
display, inscribe, place or affix any sign, symbol, notice or lettering
of any kind anywhere outside the Leased Premises (whether on the
outside or inside of the Building) or within the Leased Premises so as
to be visible from the outside of the Leased Premises, with the
exception only of an identification sign at or near the entrance to the
Leased Premises and a directory listing in the main lobby of the
Building, in each case containing only the name of the Tenant and to be
subject to the approval of the Landlord as to size, location, content
and design criteria as established by the Landlord. Such identification
sign and directory listing shall be installed by the Landlord at the
expense of the Tenant, which expense shall be the invoice cost plus 15%
for an administration fee. The Landlord's acceptance of any name for
listing upon the directory will not be deemed, nor will it substitute
for the Landlord's consent if required by this Lease to any sublease,
assignment or other occupancy of the Leased Premises.
3.4 INSPECTION AND ACCESS. The Landlord shall be permitted to enter and to
have its authorized agents, employees and contractors enter the Leased
Premises, for the purpose of inspection, window cleaning, maintenance,
providing janitor service, making repairs, alterations or improvements
to the Leased Premises or the Building, or to have access to utilities
and services and access panels which the Tenant agrees not to obstruct,
or to determine the electric light and power consumption by the Tenant
in the Leased Premises and the Tenant shall provide free and unhampered
access for such purposes and shall not be entitled to compensation for
any inconvenience, nuisance, discomfort or loss caused thereby, but the
Landlord, in exercising its rights hereunder, shall proceed to the
extent reasonably possible so as to minimize interference with the
Tenant's use and enjoyment of the Leased Premises.
3.5 EXHIBITING PREMISES. The Landlord and its authorized agents and
employees shall be permitted entry to the Leased Premises during the
last six (6) months of the term for the purpose of exhibiting them to
prospective tenants or at any time for the purposes of arranging
financing for the Building.
3.6 LANDLORD'S CONTROL. The Tenant acknowledges that the Common Area
Facilities are at all times subject to the exclusive control and
operation of the Landlord, and the Landlord shall
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12
have the right to construct improvements, alterations and additions
thereto and to relocate the various facilities thereon.
3.7 FINANCIAL STATEMENTS. The Tenant will, at the request of the Landlord,
supply copies of his financial statements to the Landlord or to the
mortgagees, if any, on the said lands or a prospective mortgagee.
ARTICLE IV - REPAIR AND DAMAGE
4.1 TENANT'S REPAIRS. The Tenant covenants with the Landlord:
(a) to keep in good and reasonable state of repair and consistent
with the general standards of first-class office buildings in
Metropolitan Toronto, to perform all repairs and replacements
as a prudent tenant would do (reasonable wear and tear
excepted) to the Leased Premises including all Leasehold
Improvements and all trade fixtures therein and all glass
therein.
(b) that the Landlord may enter and view the state of repair from
time to time and that the Tenant will repair if required to do
so pursuant to the terms of this Lease, according to notice in
writing and that the Tenant will leave the Leased Premises in
a good and reasonable state of repair.
(c) that if any part of the Building other than the Leased
Premises becomes out of repair, damaged or destroyed through
the negligence or misuse of the Tenant or its employees,
invitees or others over whom the Tenant can reasonably be
expected to exercise control, the expense of repairs or
replacements thereto necessitated thereby shall be the
responsibility of the Tenant.
4.2 ABATEMENT AND TERMINATION. It is agreed between the Landlord and the
Tenant that:
(a) In the event of damage to the Leased Premises or to the
Building affecting access or services essential to the
conduct of business in the Leased Premises and if the
damage is such that the Leased Premises or any substantial
part thereof is rendered not reasonably capable of use and
occupancy by the Tenant for the purposes of its business
for any period of time in excess of 10 days, then
(i) unless the damage was caused by the misuse, fault,
negligence of the Tenant or its employees,
invitees or others under its control, from and
after the date of occurrence of the damage and
until the Leased Premises are again reasonably
capable of use and occupancy as aforesaid, Base
Rent (but not any other payments required to be
made by the Tenant hereunder) shall abate from
time to time in proportion to the part or parts of
the Leased Premises not reasonably capable of such
use and occupancy, and
(ii) unless this Lease is terminated as hereinafter
provided, the Landlord or the Tenant as the case may
be (according to the nature of the damage and their
respective obligations to repair as provided herein,
it being understood that the Tenant shall have the
obligation to repair and replace all Leasehold
Improvements and all Tenant's trade fixtures) shall
repair such damage with all reasonable diligence, but
to the extent that any part of the Leased Premises is
not reasonably capable of such use and occupancy by
reason of
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13
damage which the Tenant is obligated to repair
hereunder, any abatement of Rent to which the Tenant
is otherwise entitled hereunder shall not extend
later than the time by which repairs by the Tenant
ought to have been completed with reasonable
diligence; and
(b) if either the entire or substantially all of the Leased
Premises, or premises whether of the Tenant or other
tenants of the Building comprising in the aggregate 50% or
more of the Rentable Area of the Building are substantially
damaged or destroyed by any cause to such an extent in the
reasonable opinion of the Landlord cannot be repaired or
rebuilt within 180 days after the occurrence of the damage
or destruction, the Landlord may at its option, exercisable
by written notice to the Tenant given within 30 days after
the occurrence of such damage or destruction terminate this
Lease in which event neither the Landlord nor the Tenant
shall be bound to repair as provided herein and the Tenant
shall instead deliver up possession of the Leased Premises
to the Landlord with reasonable expedition but in any event
within 60 days after delivery of such notice of termination
and rent shall be apportioned and paid to the date upon
which possession is so delivered up (but, subject to any
abatement to which the Tenant may be entitled under
paragraph (a) of this clause 4.2 by reason of the Leased
Premises having been rendered in whole or in part not
reasonably capable of use and occupancy), but otherwise the
Landlord or the Tenant as the case may be (according to the
nature of the damage and their respective obligations to
repair described in 4.2 (a) (ii)) shall repair such damage
with reasonable diligence.
ARTICLE V - TAXES AND OPERATING COSTS
5.1 NET NET LEASE. The Tenant acknowledges and agrees that it is intended
that this Lease is a completely carefree net net lease to the Landlord,
except as expressly herein set out, that 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 Leased
Premises, or the use and occupancy thereof, or the contents thereof or
the business carried on therein, except as expressly set out herein,
and the Tenant shall pay all charges, impositions, costs and expenses
of every nature and kind relating to the Leased Premises.
5.2 LANDLORD'S TAX OBLIGATIONS. The Landlord covenants with the Tenant,
subject to the provisions herein, to pay all Taxes promptly when due to
the taxing authority or authorities having jurisdiction.
5.3 TENANT'S TAX OBLIGATIONS. The Tenant covenants with the
Landlord:
(i) to pay promptly when due to the taxing authority or
authorities having jurisdiction all taxes, rates, duties,
levies and assessments whatsoever, whether municipal,
parliamentary or otherwise, levied, imposed or assessed
in respect of any and every business carried on by the
Tenant, subtenants, licensees, or other occupants of the
Leased Premises or in respect of the use or occupancy
thereof (including licence fees); and
(ii) to pay promptly to the Landlord when demanded or otherwise due
hereunder:
(1) all Taxes charged in respect of all Leasehold
Improvements and trade fixtures and all furniture and
equipment made, owned or installed by or on
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14
behalf of the Tenant in the Leased Premises as
Additional Rent;
(2) if by reason of the act, election or religion of the
Tenant or any subtenant, licensee or occupant of the
Leased Premises, the Leased Premises or any part of
them shall be assessed for the support of Separate
Schools, the amount by which the Taxes so payable
exceed those which would have been payable if the
Leased Premises had been assessed for the support of
Public Schools; and
(3) the Tenant's Proportionate Share of Taxes as
Additional Rent in the manner stipulated herein.
(iii) notwithstanding any other provisions of this Lease to the
contrary, the Tenant shall pay to the Landlord, at such
times and in such manner as the Landlord may direct,
without duplication, an amount equal to all goods and
service taxes, sales taxes, value-added taxes or any other
taxes imposed with respect to Base Rent, Additional Rent or
other amounts payable by the Tenant to the Landlord under
this Lease, howsoever such taxes are characterized. The
amount payable by the Tenant hereunder shall not be deemed
to be Base Rent or Additional Rent but the Landlord shall
have all of the same rights and remedies for recovery of
same as it has for recovery of Base Rent and Additional
Rent hereunder.
Whenever requested by the Landlord the Tenant will deliver to it
receipts for payment of all taxes, rates, duties, levies and
assessments payable by the Tenant hereof and furnish such other
information in connection therewith as the Landlord may reasonably
require.
5.4 METHOD OF PAYMENT OF TAXES. The Tax payments required to be made by the
Tenant to the Landlord under the provisions of 5.3 (ii) herein shall be
estimated by the Landlord, and the Tenant shall pay to the Landlord in
addition to the monthly payments of Base Rent hereinbefore reserved,
one-ninth of the estimated annual tax payments in the months of January
to September, both inclusive, in each calendar year with an adjustment
being made when the property tax bill respecting the Building is
received by the Landlord for each year. The Tenant shall within sixty
(60) days of being invoiced pay to the Landlord such additional sums as
may be required in order that out of such monthly additional payments,
the Landlord may pay the whole amount of the annual taxes as the
installments thereof fall due; and if the monthly additional payments
so paid by the Tenant to the Landlord exceed in total the Tenant's
Proportionate Share of the annual property tax bill with respect to the
Building and Lands of which the Leased Premises form part, then the
excess shall be adjusted by the Landlord in favour of the Tenant by
applying such excess on account of the next ensuing rental payments due
(following the issue of the yearly statement) and such next ensuing
rental payments shall be reduced by such excess accordingly. The
Landlord shall forward to the Tenant copies of all notices or tax bills
relating to the imposition of property taxes or other charges required
hereunder to be paid as to part or all thereof by the Tenant. In the
event that the Landlord is unable to obtain or determine a separate
allocation of taxes payable by the Tenant under this Lease, the
Landlord shall have the right to make an allocation, but shall be
obligated to act reasonably and not arbitrarily.
5.5 OPERATING COSTS. During the Term of this Lease, the Tenant shall pay to
the Landlord its Proportionate Share of Operating Costs. Prior to the
commencement of the Term of this Lease and the commencement of each
fiscal period selected by the Landlord thereafter which commences
during the Term the Landlord shall estimate the amount of Operating
Costs and the
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15
Tenant's Proportionate Share thereof for the ensuing fiscal
period or (if applicable) broken portion thereof, as the case may
be, and notify the Tenant in writing of such estimate. The amount
so estimated shall be payable in equal monthly installments in
advance over the fiscal period or broken portion thereof in
question, each such instalment being payable on each monthly
rental payment date provided in clause 2.3. The Landlord may from
time to time alter the fiscal period selected, in which case, and
in the case where only a broken portion of a fiscal period is
included with the Term, the appropriate adjustment in monthly
payments shall be made. From time to time during a fiscal period
the Landlord may re-estimate the amount of Operating Costs and
the Tenant's Proportionate Share thereof, in which event the
Landlord shall notify the Tenant in writing of such re-estimate
and fixed monthly installments for the then remaining balance of
such fiscal period or broken portion thereof such that, after
giving credit for installments paid by the Tenant on the basis of
the previous estimate or estimates, the Tenant's entire
Proportionate Share of Operating Costs will have been paid during
such fiscal period or broken period thereof. As soon as
practicable after the expiration of each fiscal period the
Landlord shall make a final determination of Operating Costs and
the Tenant's Proportionate Share thereof for such fiscal period
or (if applicable) broken portion thereof and shall provide a
statement to the Tenant and the parties shall make the
appropriate readjustment. Each 12 month period ending December
31st shall be deemed to be an accounting year for adjusting the
said Operating Costs and within 120 days after the end of each
such accounting year, the Landlord shall compute the said costs
for such accounting year and the Proportionate Share of the
Tenant therefor and shall submit to the Tenant a statement to
reflect the Operating Costs specifically permitted under this
Lease, and the said Proportionate Share thereof shall be borne by
the Tenant. To the extent that the Tenant's Proportionate Share
of such costs for such accounting year shall be greater than the
total amount actually paid by the Tenant by said monthly payments
in respect of such year the difference shall be paid by the
Tenant to the Landlord within thirty (30) days after receipt by
the Tenant of such statement. Any excess payments shall be
applied by reducing the next ensuing rental payment(s) by the
amount of such excess. The said accounting period may be modified
by the Landlord if reasonably necessary. The Tenant may not claim
a readjustment in respect to the Tenant's Proportionate Share of
Operating Costs based upon any error of assessment, determination
or calculation thereof unless claimed in writing prior to the
expiration of one year after the fiscal period to which the
Operating Costs relate.
5.6 PAYMENT OF ADDITIONAL RENT. Any Additional Rent provided for under this
Lease unless otherwise provided herein, shall become due with each
instalment of monthly Base Rent.
ARTICLE VI- UTILITIES AND ADDITIONAL SERVICES
6.1 WATER AND TELEPHONE. The Landlord shall furnish appropriate openings
for bringing telephone services to the Leased Premises and shall
provide hot and cold water to washrooms in the Leased Premises and to
washrooms available for the Tenant's use in common with others entitled
thereto.
6.2 ELECTRICITY. The Tenant shall pay throughout the Term promptly to the
Landlord (unless paid directly to Hydro authorities pursuant to
separate billing) as Additional Rent when demanded:
(i) The cost of electric light and power supplied to the Leased
Premises monthly based on the electric light and power
requirements of the Tenant on a pro rata basis as determined
from time to time during the Term by the
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16
Landlord acting reasonably; and
(ii) The cost of cleaning, maintaining and servicing in all
respects all electric lighting fixtures in the Leased Premises
including the cost of replacement of electric light bulbs,
tubes, starters and ballasts used to replace those installed
at the commencement of the Term. Such cleaning, maintaining,
servicing and replacement shall be within the exclusive right
of the Landlord. It is understood and agreed that the costs
described in this sub-section (ii) shall be included as part
of Operating Costs.
6.3 ADDITIONAL SERVICES. The Landlord, if it shall from time to time so
elect, shall have the exclusive right, by way of Additional Services,
to provide or have its designated agents or contractors provide any
janitor or cleaning service to the Leased Premises and Common Area
Facilities required by the Tenant which are additional to those
required to be provided by the Landlord hereunder, including the
Additional Services which the Landlord agrees to provide by
arrangement, and to supervise the moving of furniture or equipment of
the Tenant in and out of the Building where such moving of furniture or
equipment would be disruptive to the normal business of the Building,
and the making of repairs or alterations conducted within the Leased
Premises affecting Base Building, building systems or Leasehold
Improvements. The reasonable cost of Additional Services provided to
the Tenant, whether the Landlord shall be obligated hereunder or shall
elect to provide them as Additional Services, shall be paid to the
Landlord by the Tenant from time to time within thirty (30) days
following receipt of invoices therefor from the Landlord. Costs of
Additional Services charged directly to the Tenant and other tenants
shall be credited in computing Operating Costs.
ARTICLE VII- ASSIGNING AND SUBLETTING
7.1 ASSIGNMENTS AND SUBLETTINGS. The Tenant covenants with the Landlord
that it will not assign, sublet, licence or part with the possession of
the Leased Premises or any part thereof, or share the occupation of the
Leased Premises, or any part thereof, without the consent of the
Landlord in writing first had and obtained such consent not to be
unreasonably or arbitrarily withheld or delayed. Provided that as a
condition of the granting of its consent, the Landlord may require any
assignee, subtenant, licensee or occupant of the Leased Premises to
execute an agreement whereby he, it or they attorn to and become the
tenants of the Landlord as if he, it or they had executed this Lease,
or, except in the case of an absolute assignment of this Lease, to
execute an acknowledgement that all the sublessee's or undertenant's
estate, right and interest in and to the Leased Premises absolutely
terminates upon the surrender, release, disclaimer or merger of this
Lease notwithstanding the provisions of the Landlord and Tenant Act of
Ontario, R.S.O. 1980, Chapter 232 and amendments thereof with specific
reference to Paragraphs 21 and 39 (2) thereof, or other similar
statute. The Tenant shall furnish to the Landlord copies of any
assignment, sublease, licence or other agreement herein contemplated.
Notwithstanding any other provision in this section, no assignment,
subletting, licensing or parting with possession of the Leased Premises
shall in any way release or be deemed to release the Tenant (or any
guarantor hereof) from their obligations under the terms of this Lease.
Provided further that the proposed assignee, subtenant, licensee or
occupant of the Leased Premises shall be required to provide financial
statements or other financial information as the Landlord may require.
It is agreed that the Landlord may consider in determining whether to
grant consent among other matters, the following: the personal and
business history of the proposed assignee,
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occupant, sublessee and its key employees. The Tenant agrees to pay
the reasonable legal fees of the Landlord's solicitor relating to the
preparation of the Landlord's consent, and determination as to whether
to give the consent.
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If by sale, transfer or other disposition of its shares, the control of
the Tenant is altered so that 51% of the shares are transferred in any
manner, then same shall be deemed as an assignment and the provisions
of this paragraph shall apply. The Tenant covenants and agrees to
advise the Landlord forthwith if such a transfer is contemplated.
In the event of any sub-letting by the Tenant by virtue of which the
Tenant receives rent in the form of cash, goods, services or other
considerations from the sub-tenant which is higher than the rent
payable hereunder to the Landlord for the premises so sub-let, the
Tenant shall pay any such excess to the Landlord, in addition to all
rent and other costs payable hereunder, for the period of time during
which the said subtenant remains in possession of the premises sub-let
to it.
If the Tenant herein shall receive from any assignee of this lease,
either directly or indirectly, any consideration for the assignment of
this lease, either in the form of cash, goods or services, the Tenant
shall forthwith pay an amount equivalent to such consideration to the
Landlord and same shall be deemed to be further Additional Rent
hereunder.
In the event of any proposed assignment or subletting of the Leased
Premises by the Tenant, the Landlord shall not be obligated to consider
such a proposal nor be required to consent to same, unless the base
rent payable by the proposed assignee or sublessee is, in the sole
discretion of the Landlord, at the then current market rate for similar
space in the immediate and surrounding area.
In calculating whether there is any additional consideration payable by
an assignee or sublessee as hereinbefore provided, no deduction shall
be made for any commission payable to any agent or other party.
If the Landlord has granted to the Tenant, named on page 1 of this
Lease, any first rights of refusal, exclusive rights or options to
lease additional space or to purchase, it is agreed and understood that
upon the Tenant assigning, subletting, licensing or parting with
possession of the Leased Premises or any part thereof, the aforesaid
rights referred to shall automatically become null and void.
ARTICLE VIII- FIXTURES AND IMPROVEMENTS
8.1 INSTALLATION OF FIXTURES AND IMPROVEMENTS. The Tenant shall not make,
erect, install or alter any Leasehold Improvements in the Leased
Premises without having requested and obtained the Landlord's prior
written approval which the Landlord shall not unreasonably delay or
withhold. In making, erecting, installing or altering any Leasehold
Improvements the Tenant will not alter or interfere with any
installations which have been made by the Landlord without the prior
written approval of the Landlord and in no event shall it alter or
interfere with window coverings (if any) installed by the Landlord on
exterior windows. The Tenant's request for any approval hereunder shall
be in writing and accompanied by an adequate description of the
contemplated work and, where appropriate, working drawings and
specifications thereof. All work to be performed in the Leased Premises
shall be performed by reputable contractors approved by the Landlord.
The Landlord reserves the right to require the Tenant to utilize the
contractor(s) of the Landlord where Base Building, building systems
and/or warranties may be affected provided the Landlord agrees that
charges by such contractors shall be in keeping with that which an arms
length contractor would charge. The cost of all such work shall be
estimated by the Landlord in advance and such estimate approved by the
Tenant prior to work commencing. All such work shall be performed at
the Tenant's expense and the Tenant shall be responsible for
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19
application and payment of all fees in connection with any permits
required. All such work shall be subject to inspection by and the
reasonable supervision of the Landlord, as an Additional Service,
and shall be performed in accordance with any reasonable conditions or
regulations imposed by the Landlord and completed in a good and
workmanlike manner in accordance with the description of the work
approved by the Landlord. The Landlord shall be entitled to supervise
the work and charge the Tenant a supervision fee. The Landlord shall
also be entitled to charge reasonable fees for examining plans
respecting the proposed work. The Tenant shall be obligated to pay any
reasonable consultant's fees incurred by the Landlord for review and
approval of plans for construction of any nature after the Commencement
Date as Additional Rent.
8.2 LIENS AND ENCUMBRANCES ON FIXTURES AND IMPROVEMENTS. In connection with
the making, erection, installation or alteration of Leasehold
Improvements and all other work or installations made by or for the
Tenant in the Leased Premises the Tenant shall comply with all the
provisions of the Construction Lien Act (Ontario) and other statutes
from time to time applicable thereto and shall promptly pay all
accounts relating thereto. The Tenant will not create or cause to be
created any mortgage, conditional sale agreement or other encumbrance
in respect of its Leasehold Improvements or permit any such mortgage,
conditional sale agreement or other encumbrance to attach to the Leased
Premises or to the Building and Common Area Facilities. If and whenever
any construction or other lien for work, labour, services or materials
supplied to or for the Tenant for the cost of which the Tenant may be
in any way liable or claims therefor shall arise or be filed or any
such mortgage, conditional sales agreement or other encumbrance shall
attach, the Tenant shall within ten (10) days after receipt of notice
thereof procure the discharge thereof, including any certificate of
action registered in respect of any lien, by payment or giving security
or in such other manner as may be required or permitted by law failing
which the Landlord may in addition to all other remedies hereunder
avail itself of its remedy hereunder and may make any payments required
to procure the discharge of any such liens or encumbrances and shall be
entitled to be reimbursed by the Tenant as provided herein and its
right to reimbursement shall not be affected or impaired if the Tenant
shall then or subsequently establish or claim that any lien or
encumbrance so discharged was without merit or excessive or subject to
any abatement, set-off or defense.
8.3 REMOVAL OF FIXTURES AND IMPROVEMENTS. All Leasehold Improvements in or
upon the Leased Premises shall immediately upon termination of this
lease be and become the Landlord's property without compensation
therefor to the Tenant. Except to the extent otherwise expressly agreed
by the Landlord in writing no Leasehold Improvements, trade fixtures,
furniture or equipment shall be removed by the Tenant from the Leased
Premises either during or at the expiration or earlier termination of
the Term except that (1) the Tenant shall at the end of the Term remove
its trade fixtures, (2) the Tenant shall at the end of the Term remove
such Leasehold Improvements as the Landlord shall require to be
removed, and (3) the Tenant shall remove its furniture and equipment at
the end of the Term and may remove its furniture and equipment during
the Term in the usual and normal course of its business where such
furniture or equipment has become excess for the Tenant's purposes or
the Tenant is substituting therefor new furniture and equipment. The
Tenant shall, in the case of every removal either during or at the end
of the Term, make good any damage caused to the Leased Premises by the
installation and removal. Provided that upon the termination of this
Lease, the Tenant, if requested by the Landlord, shall restore the
interior of the Leased Premises to its former condition immediately
prior to the installation of such alterations or changes, including the
restoration of such standard fixtures as may have been
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installed by the Landlord, and if not so requested, any such
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21
changes or alterations shall become the property of the Landlord, or
alternatively, the Tenant shall install such comparable fixtures and
materials as may then be in use.
8.4 OCCUPATIONAL HEALTH AND SAFETY. The Tenant covenants and agrees that it
will ensure that a comprehensive and rigorous health and safety program
to protect workers in the Leased Premises is implemented to ensure that
no accidents or injuries occur in connection with the performance of
any Tenant's work. The Tenant will indemnify the Landlord in respect of
all claims, infractions, prosecutions, alleged infractions, losses,
costs and expenses and any fines or proceedings relating to fines or
other offences under all occupational health and safety and any similar
legislation that might be brought, or imposed against or suffered by
the Landlord or any of its officers, directors and employees in
connection with the performance of any Tenant's work. Without limiting
the obligations set out above in this Section 8.4, the Tenant will do
at least the following:
(a) ensure that all obligations imposed by statute, law or
regulation on "constructors" or other persons completing or
co-ordinating any Tenant's work are diligently and properly
completed;
(b) co-operate with the Landlord in having any Tenant's work
designated as a separate project so that the Landlord does not
incur any obligations as a constructor or obligations similar
to those of a constructor at law or by regulation imposed in
connection with the performance of any Tenant's work;
(c) comply with all directions that the Landlord may give to the
Tenant in connection with the performance of any Tenant's work
having regard to construction health and safety requirements;
and
(d) provide to the Landlord whatever rights of access, inspection,
and whatever information, documents and other matters the
Landlord requires in order to ensure that the Tenant's
obligations under this Section are complied with.
ARTICLE IX- INSURANCE AND LIABILITY
9.1 LANDLORD'S INSURANCE. The Tenant will during the whole of the Term
hereby granted as part of Operating Costs, pay its Proportionate Share
of all premiums with respect to insurance to be placed by the Landlord
and described in this Section 9.1. The Landlord agrees to maintain
during the Term, insurance coverages as follows:
(i) Property of Every Description (Building and Equipment) against
the perils of "All-Risks", under form providing coverage at
least equivalent to Commercial Building Broad Form I.A.O. Form
No. 700 including "Building By-Laws Endorsements", and to be
insured for the Replacement Value, without allowance for
depreciation and Stated Amount, and with no co-insurance
requirement.
(ii) "Rental Income" for the gross annual rental income on
"All-Risks" basis, as provided under Commercial Building Broad
Form I.A.O. Form 700 including "Building By-Laws
Endorsements", providing coverage at least equivalent to
I.A.O. Profits Form No. 551 with an eighteen (18) month
indemnity period.
(iii) Broad Form Boiler and Machinery Policy on a blanket and
replacement basis with limits for each accident in an amount
not less than the replacement cost of the Building containing
the Leased Premises and which shall cover all
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boilers, pressure vessels, air conditioning equipment and
miscellaneous electrical apparatus owned by the Landlord
and which shall include PCB coverage. It shall also
include "Rental Income" for the full gross annual income
equivalent to I.A.O. Profits Form No. 551 with a eighteen
(18) month indemnity period. This policy should also
provide "Building By-Laws Endorsements".
(iv) "General Liability Insurance" on a Comprehensive Form and on
an "occurrence" basis without deductible with retroactive
coverage against claims for Personal and Bodily Injury and
Death and/or Property Damage occurring upon or about the
Leased Premises and for a limit no less than $5,000,000.00
inclusive for one occurrence.
(v) Such other insurance coverage or coverages as a prudent owner
of a first class office building would obtain for protection
respecting loss of, or damage to the Building, the Lands or
the Leased Premises, or liability arising therefrom.
All such insurance coverages shall be kept and maintained by the
Landlord, and in no event shall the coverage be less than the amount
required by any institution then holding a mortgage on the Building and
Common Area Facilities. The Tenant shall pay to the Landlord, as part
of Operating Costs, its Proportionate Share of the Landlord's
Insurance. The Tenant shall not do or permit to be done any act or
thing whereby insurance coverage, premiums or any of them hereinbefore
contemplated, may be increased or cancelled by the insurer, or the
Leased Premises shall be rendered uninsurable, and if by reason of any
act done or permitted or omission, as the case may be, by the Tenant,
the said insurance coverage, premiums or any of them shall be
increased, then the Tenant, if it shall fail to rectify the event
giving rise to the increased premium after written notice thereof from
the Landlord, shall be liable to pay all of such increase in premium,
with respect to the entire coverages, and this notwithstanding that the
Tenant occupies only a portion of the Building covered by such
insurance coverages, and if the Leased Premises shall be rendered
uninsurable, or if the said insurance coverages, or any of them, shall
be cancelled by reason of any act or omission as the case may be by the
Tenant and shall not be susceptible of being replaced, after the
Landlord's reasonable efforts under the circumstances to do so, then
the Landlord, after giving the Tenant at least fourteen (14) days
written notice within which to replace insurance coverage or coverages
shall, at its absolute discretion, have the right to determine that the
term hereof has expired and in such event the Tenant shall deliver up
possession of the Leased Premises as if the Term of this Lease had
expired.
PROVIDED that no act required to be done by the Tenant nor any payment
required to be made by the Tenant, including reimbursements of
insurance premiums paid by the Landlord, shall relieve the Tenant from
any liability for damage incurred by the Landlord as result of any act
or omission of the Tenant.
If any other tenant of the Building has his own insurance premiums
increased by his insurers as a result of the use or occupation by the
Tenant herein of the within Leased Premises, the Tenant covenants and
agrees with the Landlord after written notice thereof, to pay the
additional cost forthwith upon demand as Additional Rent.
The Landlord's insurance policy shall contain a waiver of subrogation
in favour of the Tenant or those for whom the Tenant is in law
responsible.
9.2 AGENTS. The Tenant acknowledges, covenants and agrees that every right,
exemption from liability, defence and immunity of whatsoever nature
applicable to the Landlord or to which the
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Landlord is entitled hereunder shall also be available and shall extend
to protect every such agent of the Landlord acting (in the course of
or in connection with his employment or otherwise) and for the
purposes of all of the foregoing provisions of this clause, the
Landlord is or shall be deemed to be acting as agent or trustee on
behalf of and for the benefit of persons who are or might be his
servants, employees or agents from time to time.
9.3 TENANT'S INSURANCE. The Tenant covenants to insure and to keep insured
during the whole of the Term, with an insurance company or companies in
good standing and upon terms and conditions all satisfactory to the
Landlord:
(i) "All-Risks" insurance upon all property owned by the Tenant
or for which it is legally liable or installed or affixed
by or on behalf of the Tenant and which is located in the
Building including, without limitation, furniture,
fittings, installations, alterations, additions, partitions
and fixtures or anything in the nature of a Leasehold
Improvement made or installed by or on behalf of the Tenant
in an amount equal to the full replacement cost thereof; if
there is a dispute as to the amount which comprises full
replacement cost the decision of the Landlord's Architect
shall be conclusive.
(ii) All parties hereto on a Comprehensive Form for bodily
injury and property damage, general liability coverage
arising out of the use, maintenance or repair of the Leased
Premises and/or the business of the Tenant or any
sub-tenant, licensees or occupiers of the Leased Premises;
such insurance shall be for a limit of not less than
$2,000,000.00 inclusive for any one occurrence, or such
higher limits as the Landlord, acting reasonably, or any
mortgagee requires from time to time, and shall contain a
severability of interest clause, and a cross liability
clause.
(iii) Glass coverage for the replacement of all glass broken,
cracked or damaged in, on and about the Leased Premises.
(iv) Any other form of insurance that the Landlord or any mortgagee
may reasonably require, from time to time in form, amounts and
for insurance risks acceptable to the Landlord and any
mortgagee.
The Tenant covenants and agrees to provide the Landlord with evidence
of insurance as required under this provision. Such evidence shall be
by way of a certified copy of the policy if available in timely fashion
or failing which a certificate of insurance at such time or times as
the Landlord may require. The Tenant agrees to provide same to the
Landlord forthwith after notice has been given by the Landlord to the
Tenant of its request. The Tenant's policy shall contain a waiver of
subrogation in favour of the Landlord and those for whom the Landlord
is in law responsible.
9.4 LIMITATION OF LANDLORD'S LIABILITY. The Tenant agrees that:
(i) the Landlord shall not be liable for any bodily injury or
death of, or loss or damage to any property belonging to the
Tenant or its employees, invitees, or licensees or any other
person in, on or about the Building and Common Area Facilities
howsoever occurring and in no event shall the Landlord be
liable for:
(1) any damage which is caused by steam, water, rain or
snow which may leak into, issue or flow from any part
of the Building or Common Area Facilities or from the
pipes or plumbing works thereof or from any other
place or quarter or for any damage caused by or
attributable to the condition or arrangement
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23
of any electric or other wiring or for any damage
caused by anything done or omitted by any other
tenant; and
(2) any act or omission (including theft, malfeasance or
negligence) on the part of any agent, contractor or
person from time to time employed by it to perform
janitor services, security services, maintenance,
supervision or any other work in or about the Leased
Premises or the Building or Common Area Facilities;
and
(3) loss or damage, however caused, to money, securities,
negotiable instruments, papers or other valuables of
the Tenant; and
(ii) the Landlord shall have no responsibility or liability for
the failure to supply interior climate control or elevator
service when prevented from doing so by strikes, the
necessity of repairs, any order or regulation of any body
have jurisdiction, the failure of the supply of any utility
required for the operation thereof or any other cause
beyond the Landlord's reasonable control, and shall not be
held responsible for any bodily injury, death or damage to
property arising from the use of, or any happening in or
about, any elevator.
9.5 INDEMNITY OF LANDLORD. The Tenant agrees to indemnify and save harmless
the Landlord in respect of all claims for bodily injury or death,
property damage or other loss or damage arising from the conduct of any
work by or any act or omission of the Tenant or any assignee,
subtenant, agent, employee, contractor, invitee or licensee of the
Tenant, and in respect of all costs, expenses and liabilities incurred
by the Landlord in connection with or arising out of all such claims,
including the expenses of any action or proceeding pertaining thereto,
and in respect of any loss, cost, expense or damage suffered or
incurred by the Landlord arising from any breach by the Tenant of any
of its covenants and obligations under this Lease.
ARTICLE X-SUBORDINATION, ATTORNMENT AND CERTIFICATES
10.1 SUBORDINATION AND ATTORNMENT. The Tenant agrees that this Lease and all
the rights of the Tenant hereunder are subject and subordinate to all
mortgages now or hereafter existing (including deeds of trust and all
instruments supplemental thereto) which may now or hereafter affect the
Building or Common Area Facilities and to all renewals, modifications,
consolidations, replacements and extensions thereof, provided such
mortgagee has provided a non-disturbance agreement to the Tenant;
provided that the Tenant whenever requested by any mortgagee (including
any trustee under a deed of trust and mortgage) shall attorn to such
mortgagee as the Tenant upon all the terms of this Lease. Subject to
the foregoing, the Tenant agrees to execute promptly whenever requested
by the Landlord or by such mortgagee such instrument of subordination
or attornment, as the case may be, as may be required of it.
10.2 CERTIFICATES. The Tenant shall promptly whenever requested by the
Landlord from time to time execute and deliver to the Landlord (and if
required by the Landlord, to any mortgagee [including any trustee under
a deed of trust and mortgage] designated by the Landlord) a certificate
in writing as to the then status of this Lease, including as to whether
it is in full force and effect, is modified or unmodified, confirming
the rent payable hereunder and the state of the accounts between the
Landlord and Tenant, the existence or non-existence of defaults, and
any other matters pertaining to this Lease as to which the Landlord
shall request a certificate.
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26
ARTICLE XI-REMEDIES OF LANDLORD ON TENANT'S DEFAULT
11.1 REMEDYING BY LANDLORD. In addition to all rights and remedies of the
Landlord available to it in the event of any default hereunder by the
Tenant either by any other provision of this Lease or by statute or the
general law, the Landlord:
(1) shall have the right at all times after reasonable written
notice of an event of default has been given to the Tenant and
a reasonable time given to cure such default provided the
Tenant is proceeding diligently, to remedy or attempt to
remedy any default of the Tenant, and in so doing may make any
payments due by the Tenant to third parties and may enter upon
the Leased Premises to do any work or other things therein, as
may be reasonably necessary, and in such event all expenses of
the Landlord in remedying or attempting to remedy such default
shall be payable by the Tenant to the Landlord forthwith upon
demand;
(2) subject to 11.3 below, shall have the same rights and remedies
in the event of any non-payment by the Tenant of any amounts
payable by the Tenant under any provision of this Lease as in
the case of a non-payment of Rent; and
(3) if the Tenant shall fail to pay any Rent or other amount from
time to time payable by it to the Landlord hereunder promptly
when due, shall be entitled, to interest thereon at a rate of
3% per annum in excess of the minimum lending rate to prime
commercial borrowers from time to time current at The Bank of
Nova Scotia in Toronto from the date upon which the same was
due until actual payment thereof.
11.2 REMEDIES CUMULATIVE. The Landlord, subject to 11.3 hereof, may from
time to time resort to any or all of the rights and remedies available
to it in the event of any default hereunder by the Tenant, either by
any provision of this Lease or by statute or the general law, all of
which rights and remedies are not to be interpreted as excluding any
other or additional rights and remedies available to the Landlord by
statute or the general law.
11.3 RIGHT OF RE-ENTRY DEFAULT OR TERMINATION. It is expressly agreed that
if and whenever the Base Rent or Additional Rent hereby reserved,
remains unpaid, or if the Tenant shall breach or fail to observe or
perform any of the other covenants, agreements, provisoes, conditions,
reasonable rules or regulations and other obligations on the part of
the Tenant to be kept, observed or performed hereunder, provided the
Landlord has first delivered notice to the Tenant explaining the
non-monetary breach and has allowed the Tenant ten (10) days to rectify
such non-monetary breach, or if this Lease shall have become terminated
pursuant to any provision hereof, then and in every such case it shall
be lawful for the Landlord thereafter to enter into and upon the Leased
Premises or any part thereof and to have again, repossess and enjoy the
same as of its former estate, anything in this Lease contained to the
contrary notwithstanding. No notice shall be required in the event of
monetary breach.
11.4 TERMINATION RE-ENTRY. If and whenever the Landlord becomes entitled to
re-enter upon the Leased Premises under any provision of this Lease,
the Landlord, in addition to all other rights and remedies, shall have
the right to terminate this Lease forthwith by leaving upon the Leased
Premises notice in writing of such termination.
11.5 PAYMENT ON TERMINATION. Upon the giving by the Landlord of a notice in
writing terminating this Lease, pursuant to 11.4 or
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11.3 of this Lease, this Lease and the Term shall terminate, rent
and any other payments for which the Tenant is liable under this
Lease shall be computed, apportioned and paid in full to the date of
such termination, and the Tenant shall immediately deliver up
possession of the Leased Premises to the Landlord, and the Landlord may
re-enter and take possession of them.
11.6 RENUNCIATION. The Tenant waives and renounces the benefit of any
present or future statute taking away or limiting the Landlord's right
of distress.
11.7 RE-LETTING. Whenever the Landlord becomes entitled to re-enter upon the
Leased Premises under 11.3 or 11.4 hereof of this Lease the Landlord in
addition to all other rights it may have shall have the right as agent
of the Tenant to enter the Leased Premises and re-let them and to
receive the rent therefor and as the agent of the Tenant to take
possession of any furniture or other property thereon and to sell the
same at public or private sale without notice and to apply the proceeds
thereof and any rent derived from re-letting the Leased Premises upon
account of the rent due and to become due under this Lease and the
Tenant shall be liable to the Landlord for the deficiency if any.
ARTICLE XII-EVENTS TERMINATING LEASE
12.1 CANCELLATION OF INSURANCE. If any policy of insurance upon the Building
and Common Area Facilities from time to time effected by the Landlord
shall be cancelled or about to be cancelled by the insurer by reason of
the use or occupation of the Leased Premises by the Tenant or any
assignee, sub-tenant or licensee of the Tenant or anyone permitted by
the Tenant to be upon the Leased Premises and the Tenant after receipt
of notice in writing from the Landlord and a reasonable time allowed,
to reinstate such insurance or avoid cancellation, shall have failed to
take such immediate steps in respect of such use or occupation as shall
enable the Landlord to reinstate or avoid cancellation (as the case may
be) of such policy of insurance, the Landlord may at its option
terminate this Lease by leaving upon the Leased Premises notice in
writing of such termination.
12.2 PROHIBITED OCCUPANCY, BANKRUPTCY, ETC. If, without the written consent
of the Landlord the Leased Premises shall be used by any persons other
than the Tenant, its employees, invitees and customers or its permitted
assigns or sub-tenants or for any purpose other than that for which
they were leased, or occupied by any persons whose occupancy is
prohibited by this Lease, or if the Leased Premises shall be vacated or
abandoned, or remain unoccupied for 7 days or more while capable of
being occupied, or if the Term or any of the goods and chattels of the
Tenant shall at any time be seized in execution or attachment, or if
the Tenant shall make any assignment for the benefit of creditors,
become bankrupt or insolvent or take the benefit of any statute now or
hereafter in force for bankrupt or insolvent debtors or (if a
corporation) shall take any steps or suffer any order to be made for
its winding-up or other termination of its corporate existence, then in
any such case the Landlord may at its option, subject to compliance
with the procedures set forth in Section 11.3, terminate this Lease by
leaving upon the Leased Premises notice in writing of such termination
and thereupon, in addition to the payment by the Tenant of Rent and
other payments for which the Tenant is liable under this Lease, Rent
for the current month and the next ensuing 3 (three) months' Rent shall
immediately become due and be paid by the Tenant.
ARTICLE XIII-MISCELLANEOUS
<PAGE>
28
13.1 REGISTRATION. The Tenant agrees with the Landlord not to register
this Lease, but nevertheless if the Tenant desires to register a
notice of this Lease, the Landlord agrees to execute a notice or
acknowledgement, if required, sufficient for the purpose in such
form as the Landlord and Tenant mutually approve provided in no
event shall rental rates of this Lease be shown.
13.2 NOTICE. Any notice required or contemplated by any provision of this
Lease shall be given in writing, and if to the Landlord, either
delivered to an executive officer of the Landlord or by facsimile
transmission or mailed by prepaid registered mail addressed to the
Landlord at 3650 Victoria Park Avenue, Suite #500, North York
(Toronto), Ontario, M2H 3P7, and if to the Tenant, either delivered to
the Tenant (or to an officer of the Tenant if the Tenant is a firm or
corporation) or by facsimile transmission or mailed by prepaid
registered mail addressed to the Tenant at the Leased Premises. Every
such notice shall be deemed to have been given when delivered or, if
mailed as aforesaid in Canada, upon the day when it was mailed. The
Landlord may from time to time by notice in writing to the Tenant
designate another address in Canada as the address to which notices are
to be mailed to it.
13.3 EXTRANEOUS AGREEMENTS. The Tenant acknowledges that there are no
covenants, representations, warranties, agreements or conditions
expressed or implied relating to this Lease or the Leased Premises save
as expressly set out in this Lease and in any agreement to Lease in
writing between the Landlord and the Tenant pursuant to which this
Lease has been executed. This Lease may not be modified except by an
agreement in writing executed by the Landlord and the Tenant.
13.4 CONSTRUCTION. All of the provisions of this Lease are to be construed
as covenants and agreements. If any provision of this Lease is illegal
or unenforceable it shall be considered separate and severable from the
remaining provisions of this Lease, which shall remain in force and be
binding as though the said provision had never been included. The
headings and marginal sub-headings of clauses and sub-clauses are for
convenience of reference and are not intended to limit, enlarge or
otherwise affect their meanings.
13.5 NON-WAIVER. No condoning, excusing or overlooking by the Landlord of
any default, breach or non-observance by the Tenant at any time or
times in respect of any covenant, agreement, proviso or condition
herein contained shall operate as a waiver of the Landlord's rights
hereunder in respect of any continuing or subsequent default, breach or
non-observance or so as to defeat or affect in any way the rights of
the Landlord in respect of any such continuing or subsequent default or
breach and no waiver shall be inferred or implied by anything done or
omitted by the Landlord save only express waiver in writing.
13.6 ACCORD AND SATISFACTION. No payment by the Tenant or receipt by the
Landlord of a lesser amount than the Base Rent and Additional Rent from
time to time due shall be deemed to be other than on account of the
earliest stipulated Base Rent and Additional Rent due, nor shall any
endorsement or statement on any cheque or any letter accompanying any
cheque or payment of Base Rent or Additional Rent be deemed an accord
and satisfaction, and the Landlord may accept such cheque or payment
without prejudice to the Landlord's right to recover the balance of
such Base Rent or Additional Rent or pursue any other remedy provided
in this Lease.
13.7 GOVERNING LAW. This Lease shall be governed by and construed
in accordance with the laws of the Province of Ontario.
<PAGE>
29
13.8 TIME OF THE ESSENCE. Time shall be of the essence of this Lease and
every part hereof.
<PAGE>
30
13.9 NO PARTNERSHIP. Nothing contained herein shall be deemed or construed
by the parties hereto, nor any third party, as creating the
relationship of principal and agent, or a partnership, or a joint
venture between the parties hereto, it being understood and agreed that
none of the provisions contained herein nor any acts of the parties
hereto shall be deemed to create any relationship between the parties
hereto other than the relationship of Landlord and Tenant.
13.10 FORCE MAJEURE. Except as herein otherwise expressly provided, if and
whenever and to the extent that the Landlord shall be prevented
delayed or restricted in the fulfilment of any obligations hereunder
in respect of the supply or provision of any service or utility, the
making of any repair, the doing of any work or any other thing by
reason of strikes or work stoppages or being unable to obtain any
material, service, utility or labour required to fulfil such
obligation or by reason of any statute, law or regulation of or
inability to obtain any permission from any governmental authority
having lawful jurisdiction preventing, delaying or restricting such
fulfilment, or by reason of other unavoidable occurrence, the time
for fulfilment of such obligation shall be extended during the
period in which such circumstance operates to prevent, delay or
restrict the fulfilment thereof and the Tenant shall not be entitled
to compensation for any inconvenience, nuisance or discomfort
thereby occasioned.
13.11 CONTRA PROFERENTEM. The Parties acknowledge and agree that both
parties have participated in the drafting of this Lease, and any
rule of law providing that ambiguities shall be construed against
the drafting party, shall be of no force or effect.
13.12 PLANNING ACT. This Lease is expressly conditional upon compliance
with the land division provisions of the Planning Act R.S.O. 1990
(as it may be amended from time to time), if applicable.
13.13 ACCESS. The Tenant, its employees, invitees and customers and
persons connected with the Tenant (subject and except as in this
Lease provided) shall have the right in common with others entitled
thereto from time to time to use the parking areas, driveways,
walkways, lawns, ramps (if any) and other Common Areas in and about
the Building from time to time. The Tenant shall not unreasonably
block or in any manner hinder the Landlord, other tenants or other
persons claiming through or under them or any of them who may be
authorized by the Landlord to utilize the Common Areas from so
doing. The Landlord may, acting reasonably, from time to time permit
the Tenant to have the exclusive use of portions of the parking area
which forms part of the Common Areas and to permit other tenants or
other persons to have exclusive use of portions thereof.
13.14 TRANSFERS BY THE LANDLORD. The Landlord at any time and from time to
time may sell, transfer, lease, assign or otherwise dispose of the
whole or any part of its interest in the Leased Premises or in the
Building and lands of which the Leased Premises form a part, at any
time and from time to time, may enter into any mortgage of the whole
or any of its interest in the Building and Lands or in the Leased
Premises. If the party acquiring such interest shall have agreed to
assume and so long as it holds such interest, to perform each of the
covenants, obligations and agreements of the Landlord under this
Lease in the same manner and to the same extent as if originally
named as the Landlord in this Lease, the Landlord shall, thereupon
be released from all of its covenants and obligations under this
Lease.
The Landlord may assign its rights under this Lease to a
<PAGE>
31
lending institution as collateral security for a loan. If such
assignment is made and executed by the Landlord and notification
thereof is given to the Tenant by or on behalf of the Landlord this
Lease shall not be cancelled or modified for any reason whatsoever
except as provided for by the terms hereof or by law without the
consent in writing of such lending institution.
13.15 OCCUPANCY PERMIT. Provided further that notwithstanding the
Commencement Date of the Lease as hereinbefore set out, the Tenant
shall not be permitted to enter into possession of the Leased
Premises until the Tenant has obtained at its sole expense, an
occupancy permit from the proper governmental authority. The
Landlord, in its sole discretion, may waive this provision. Provided
further, the Tenant agrees to use its best efforts to obtain same
prior to occupancy.
13.16 LEASED PREMISES. Save and except for any work to be performed by the
Landlord as specifically set out herein, the taking of possession of
the Leased Premises by the Tenant shall be conclusive evidence that
the Tenant accepts the Premises in an "as is" condition and that the
said Leased Premises were in good and satisfactory condition at the
time possession was so taken.
13.17 SUCCESSORS AND ASSIGNS. This Lease and everything herein contained
shall enure to the benefit of and be binding upon the successors and
assigns of the Landlord and the permitted successors and assigns of
the Tenant. References to the Tenant shall be read with such changes
in gender as may be appropriate, depending upon whether the Tenant
is a male or a female person or a firm or corporation, and if the
Tenant is more than one person or entity, the covenants of the
Tenants shall be deemed joint and several. All obligations of the
Tenant or the Landlord under this Lease shall be deemed to be
covenants whether or not expressed as same. No rights of the Tenant
in this Lease shall be deemed to be personal, but shall accrue to
the benefit of the Tenant's successors, permitted subtenants and
assigns.
13.18 AREA DETERMINATION. In the event that any calculation or
determination by the Landlord of the Rentable Area of any premises
(including the Demised Premises) or the Building is disputed or
called into question, it shall be calculated or determined by the
Landlord's architect from time to time appointed for the purpose,
whose certificate shall be conclusive and the cost of such
certificate shall be borne by the Tenant.
ARTICLE XIV-OTHER PROVISIONS
14.1 PARKING. The Tenant acknowledges that the Common Area Facilities are at
all times subject to the exclusive control and operation of the
Landlord, and the Landlord shall have the right to construct
improvements, alterations and additions thereto and to relocate the
various facilities thereon. The Tenant further acknowledges that the
parking facilities in the Common Area Facilities are on a non-exclusive
("First Come", "First Serve Basis") and may be altered or diminished
during the term or renewal thereof and the manner in which access is
permitted may be altered.
The Landlord shall grant to the Tenant the use of eighteen (18) surface
and covered unreserved parking spaces free of charge throughout the
Term of this Lease or any extension thereof.
14.2 WINDOW COVERINGS. The Tenant acknowledges that as at the date of this
Lease the Landlord does not intend to require the Tenant to install and
maintain window coverings. Provided
<PAGE>
32
however, that the Landlord shall have the right at any future time
to prescribe a uniform pattern for window coverings to be utilized in
the Leased Premises. In the event the Landlord so prescribes same, the
Tenant shall permit the Landlord to install window coverings at the
cost of the Tenant which cost or the current portion thereof shall form
part of Operating Costs. Until such time, no window coverings may be
installed or utilized by the Tenant without the written consent of the
Landlord, which consent may be unreasonably or arbitrarily withheld.
14.3 EXTENSION. Provided it is mutually agreed and understood that if the
Tenant is not in default at the time of the exercise of the option
herein, then the Landlord shall, at the expiration of the Term hereof,
upon written request of the Tenant, grant to the Tenant an extension of
this Lease for a further period of five (5) years upon the same terms
and conditions as contained herein, save as to the Base Rental rate,
save as to any further right of extension and save as to Landlord's
Work. Provided always that the Tenant shall have given to the Landlord
180 days' notice in writing before the expiration of the Term of its
desire to have such extension. The Base Rental rate for the extension
term shall be at the then current market rate for similar premises in a
similar area and as mutually agreed between the Landlord and the
Tenant. In the event that the Landlord and the Tenant are unable to
agree upon the Base Rental rate for the extension term by 120 days
prior to the maturity date, the matter shall be submitted to
arbitration by notice given by either party to the other. Upon such
notice being given, the dispute shall be determined by the award of 3
arbitrators, or by a majority of them, one to be named by the Landlord
and one by the Tenant within 30 days of the giving of such notice, and
the 3rd to be selected by these 2 arbitrators within 7 days after both
have been nominated. If either the Landlord or the Tenant shall neglect
or refuse to name its arbitrator in the time specified or to proceed
with the arbitration, the arbitrator named by the other party shall
proceed with the arbitration, and the award of such arbitrator shall be
final and binding upon the Landlord and the Tenant. The Arbitrators
shall have all the power given by the Arbitrations Act of Ontario and
may at any time proceed in such manner as they see fit on such notice
as they deem reasonable in the absence of either party, if such party
fails to attend. Each party shall pay its own costs and shall share
equally the costs of arbitration. The award and determination of the
arbitrators shall be final and binding upon both parties hereto and
each party agrees not to appeal any such award or determination.
In no event shall the Base Rent for the extension period be less than
the highest Base Rent payable under the original Term.
If the award of the arbitrators is not given before the commencement
date of the extension term, then the Tenant shall commence paying rent
at the market rate as determined by the Landlord together with
Additional Rent, which shall be adjusted forthwith after the award of
the arbitrators has become final and binding, to be calculated from the
commencement date of the extension term.
Interest at the rate set out herein shall be calculated monthly on the
difference between the Base Rent paid by the Tenant and the actual
amount awarded by the arbitrators and shall be paid forthwith upon
demand when the arbitrators' decision has been made.
The extension of lease form shall be prepared by the Landlord at the
Tenant's cost and the Tenant covenants and agrees to pay to the
Landlord said costs forthwith upon demand.
14.4 TAXES, OPERATING COSTS AND HYDRO. The Taxes, Operating Costs
<PAGE>
33
and Hydro applicable to the Leased Premises is currently estimated to
be $9.47 per square foot per annum for 1994. The Tenant acknowledges
that this is an estimate only and is subject to adjustment when actual
costs are known.
14.5 LANDLORD'S WORK. The Landlord shall complete, at its expense, leasehold
improvements to the Leased Premises (the "LANDLORD'S WORK") to a
maximum value of $23.00 per Rentable square foot, prior to commencement
of the Lease Term, in accordance with the Tenant's space plan. The
Tenant shall finalize and submit its space plan to the Landlord within
ten (10) business days preceding this Lease and shall approve final
working drawings by August 15, 1994. The Landlord shall arrange, at no
cost to the Tenant, use of the Landlord's space planner to complete a
space plan for the Leased Premises. The Landlord and the Tenant shall
agree in advance upon the selection and cost of leasehold materials
prior to commencement of the Landlord's Work.
14.6 BASE BUILDING. In addition to the Landlord's Work, the Landlord shall
provide the following base building work to the Leased Premises, prior
to the Commencement Date:
i) at the Tenant's expense, place the Tenant's name on the
main directory board and standard building tenant
identification on the Tenant's main entrance door; and
ii) at the Landlord's expense, provide a general clean-up of the
Leased Premises including minor repairs as needed.
14.7 EARLY ACCESS. The Tenant shall have the right of early access to the
Leased Premises for the purpose of making modifications to the Leased
Premises from September 15, 1994 as is convenient with the Landlord as
long as this Lease has been signed by both parties.
14.8 CO-TENANCY. This Agreement is not personally binding upon and resort
shall not be had nor shall recourse or satisfaction be sought from the
private property of any of the unit holders of Investors Real Property
Fund (the "FUND"), trustees, officers, employees or agents of the
trustee or manager of the Fund, it being intended and agreed that only
the property of the Fund shall be bound by this Agreement. Only the
co-tenancy interests of Menkes and Investors Group shall be bound
hereby and the obligations hereunder are not binding upon either of
Menkes or Investors Group in any other respect nor shall resort be had
to any other property of any of Menkes or Investors Group. The rights
and obligations of each of Menkes and Investors Group hereunder shall,
in every case, be several and proportionate and not either joint or
joint and several.
IN WITNESS WHEREOF the Landlord and Tenant have executed this Lease.
MENKES OFFICE PARKS LTD.
Per:_______________________________
(Landlord)
INVESTORS GROUP TRUST CO. LTD. AS
TRUSTEE FOR INVESTORS REAL PROPERTY FUND
Per:________________________________
(Landlord)
BATTERY TECHNOLOGIES INC.
<PAGE>
PER:________________________________
(Tenant)
<PAGE>
THIS SUBLEASE is made as of the 1st day of January, 1997.
BETWEEN:
BATTERY TECHNOLOGIES INC., a corporation
incorporated under the laws of Ontario
(the "Sublandlord")
-and-
CHANGEPOINT CORPORATION, a corporation
incorporated under the laws of Ontario
(the "Subtenant")
RECITALS:
A. By a lease dated as of the 15th day of August, 1994, (the "Lease"),
Menkes Office Parks Limited and Investors Group Trust Co. Ltd., as
trustee for Investors Real Property Fund (the "Head Landlord") leased to
the Sublandlord certain premises (the "Premises") situate, lying and
being in the Town of Richmond Hill, in the Province of Ontario and
designated as Suite 601 in the building (the "Building") municipally
known as 1595 Sixteenth Avenue, Richmond Hill as more particularly
described in the Lease.
B. The term of the Lease expires on the 30th day of September, 2000, and is
subject to the tenant's covenants and agreements therein contained.
C. The Sublandlord has agreed to grant to the Subtenant, on the terms and
conditions hereinafter set forth, a sublease of the Premises, as shown
on Schedule "A" annexed to the Lease comprising approximately 5,801
square feet of gross leasable area (the "Subleased Premises").
NOW THERFORE IN CONSIDERATION of the rents, covenants and
agreements herein contained and by the parties to be respectively paid,
observed and performed, the parties hereto hereby covenant and agree each
with the other as follows:
1. All capitalized words and phrases used herein shall have the meaning
ascribed to them in the Lease unless specifically stated otherwise.
2. The Sublandlord hereby leases the Subleased Premises to the Subtenant,
subject to the reservation of rent and to the terms, covenants and
conditions hereinafter contained.
3. This Sublease shall be for a term of three (3) years and nine (9) months
less one (1) day to be computed from the 1st, day of January, 1997 and
expiring on the 29th day of September, 2000 (the "Sublease Term").
4. The Subtenant covenants to pay to the Sublandlord, as Base Rent, during
each year of the Sublease Term, without any deduction, abatement or
set-off, an annual rental in the amount of Fifty-Two Thousand, Two
Hundred and Nine Dollars ($52,209.00), which rent is based on a rate of
Nine Dollars ($9.00) per square foot of the gross leasable area of the
Subleased Premises and shall be paid in advance in equal monthly
installments of Four Thousand, Three Hundred and Fifty Dollars and
Seventy-Five Cents ($4,350.75) each, on the first day of each and every
month during the Sublease Term.
The Base Rent payable hereunder shall be adjusted, if at any time, the
Base Rent payable to the Head Landlord under the Head Lease is adjusted
by virtue of an architect's certificate under Section 2.1 of the Head
Lease.
<PAGE>
-2-
The Subtenant also covenants to pay Additional Rent payable under the
Head Lease.
5. The Sublandlord acknowledges the receipt of Ten Thousand Dollars
($10,000.00) to be held by the Sublandlord and to be applied on account
of the Base Rent for the months of January and February 1997 and partial
payment towards the Base Rent for March 1997.
6. The Subtenant shall at the same time as it shall make payment of Base
Rent to the Sublandlord pay all Goods and Services Tax ("GST") exigible
with respect to such gross rent pursuant to the EXCISE TAX ACT (Canada).
GST shall not be deemed to be additional rent but the Sublandlord shall
have all of the same remedies with respect to collection of GST as it
shall have with respect to rent in arrears.
7. As security for the Subtenant's obligation to pay rent under the
Sublease, the Subtenant will provide to the Sublandlord a letter of
credit from a chartered Canadian bank in the amount of $50,000 on terms
and conditions satisfactory to the parties acting reasonably.
8. The Subtenant shall use the Subleased Premises for the purposes of
general corporate office use and for no other purpose.
9. The Subtenant acknowledges and agrees that it has inspected the
Subleased Premises and that it subleases the Subleased Premises on an
"as is" basis except that Sublandlord will arrange for, or reimburse
Subtenant for, steam cleaning of carpets prior to Subtenant taking
possession.
10. The Subtenant shall not take possession of the Subleased Premises until
such time as this Sublease has been executed by both parties and the
Subtenant has provided to the Sublandlord, satisfactory evidence of
insurance in accordance with the terms of the Head Lease, said insurance
to include both Head Landlord and Sublandlord as named insureds.
11. The terms and conditions contained in the Lease shall, mutatis mutandis,
be deemed to be the terms and conditions herein contained with respect
to the Subleased Premises, except where otherwise expressly provided
herein, and, except that the covenants on the part of the Head Landlord
contained in the Lease shall be deemed not to be contained herein as
covenants on the part of the Sublandlord. The Sublandlord hereby assigns
to the Subtenant for the Sublease Term such covenants on the part of the
Head Landlord (the same being automatically re-assigned to the
Sublandlord on the expiry or earlier termination of the Sublease) and
that the covenants therein contained on the part of the Sublandlord
shall be deemed to be contained herein as covenants on the part of the
Subtenant with the Sublandlord.
12. The following terms and conditions of the Lease shall are hereby deemed
not to be terms and conditions of this sublease:
(a) The Subtenant shall pay Base Rent in the amount provided herein
and not in the Head Lease.
13. Subject to the due performance of the Subtenant of its obligations and
agreements herein contained, the Sublandlord covenants with the
Subtenant:
(i) for quiet possession;
(ii) that it will pay all rents and other monies due and payable
under the terms of the Lease;
(iii) that it will perform and observe the covenants, terms and
conditions contained in the Lease on its part to be
performed and observed, to the extent that the same are not
required to be performed or observed by the Subtenant under
this sublease; and
(iv) that it will at the request of the Subtenant, acting
reasonably, take all necessary steps and procedures
available to it under the provisions of the Lease to enforce
all the rights and benefits that accrue to the Sublandlord
under the Lease and to the Subtenant under this Sublease.
14. The Sublandlord represents and warrants to the Subtenant that, as at the
date hereof:
(i) the Sublandlord and, to the best of the Sublandlord's
knowledge, the Head Landlord are in compliance with their
respective obligations under the Lease;
(ii) the Lease has not been amended and remains in full force and
effect; and
(iii) it has full power and authority to enter into and grant this
Sublease.
15. The provisions of Article VII of the Lease with respect to assignment
and subletting, shall be applicable to any assignment or sublease by the
Subtenant.
16. When and whenever the consent of the Sublandlord is required pursuant to
the Sublease, such consent shall be deemed to mean the consent of the
Sublandlord, acting reasonably (unless otherwise expressly stated), and
the Head Landlord.
17. In the event that the Subtenant breaches any covenant or agreement in or
is in any other way in default of, this Sublease, or the Lease, then the
Sublandlord shall have such remedies against the Subtenant as those of
the Head Landlord against the Sublandlord, pursuant to the Lease.
18. All sums, for rent or otherwise, payable to the Sublandlord under the
terms of this Sublease, shall bear interest at the rate of interest
determined in accordance with the provisions of the Head Lease relating
to delayed payment thereunder until the actual date of payment.
19. Any notice, demand, request or other instrument which may be or is
required to be given under this Sublease shall be delivered in person or
sent by registered mail postage prepaid and shall be addressed, if to
the Sublandlord, at Battery Technologies Inc., 30 Pollard Street,
Richmond Hill, Ontario, or to such other person or at such other address
as the Sublandlord designates by written notice and, if to the
Subtenant, at the Subleased Premises. Any notice, demand request or
consent is conclusively deemed to have been given or made on the day
upon which it is delivered or, if mailed, then seventy-two (72) hours
following the date of mailing, as the case may be. Any party may give
written notice of any change of its address and thereafter the new
address is deemed to be the address of any change for the giving of
notices. If the postal service is interrupted or is substantially
delayed, any notice, demand, request or other instrument will be
delivered in person
20. This Sublease sets forth all the covenants, promises, agreements,
conditions and understandings between the Sublandlord and the Subtenant
concerning the Subleased Premises and there are no covenants, promises,
agreements, conditions, or understandings, either oral or written,
between them or relied upon by the Subtenant to induce it to enter into
this Sublease, other than are herein set forth. Except as herein
otherwise provided, no alteration, amendment, change or addition to this
Sublease shall be binding upon the Sublandlord or the Subtenant unless
in writing and signed by the Subtenant and the Sublandlord.
21. This Sublease is conditional upon obtaining the Head Landlord's consent
to it.
22. This Sublease shall be governed by and construed in accordance with the
laws of the Province of Ontario.
<PAGE>
-4-
23. This Sublease shall extend to, be binding upon and enure to the benefit
of the parties hereto and their respective permitted, successors and
assigns.
IN WITNESS WHEREOF the parties hereto have executed these presents.
BATTERY TECHNOLOGIES INC.
Per: /s/ Illegible c/s
-----------------------------
CHANGEPOINT CORPORATION
Per: /s/ Illegible c/s
-----------------------------
<PAGE>
SCHEDULE "A"
[DIAGRAM]
<PAGE>
CONSENT TO SUBLEASE
THIS AGREEMENT made this 20th day of November, 1996.
BETWEEN: MENKES OFFICE PARKS LIMITED ("MENKES), AND
INVESTORS GROUP TRUST CO. LTD. ("INVESTORS
GROUP") AS TRUSTEE FOR INVESTORS REAL
PROPERTY FUND
(collectively HEREINAFTER called the "LANDLORD")
OF THE FIRST PART
-and-
BATTERY TECHNOLOGIES INC.
(HEREINAFTER called the "TENANT")
OF THE SECOND PART
-and-
CHANGEPOINT CORPORATION
(HEREINAFTER called the "SUBTENANT")
OF THE THIRD PART
WHEREAS:
(a) by a lease dated the 15th day of August, 1994 (the "Lease"), the
Landlord leased to the Tenant the premises known as suite 601 (the
"PREMISES"), subject to the terms, covenants, provisos and conditions
therein set forth;
(b) the Tenant intends to sublease by a sublease agreement dated November
11, 1996 (the "SUBLEASE"), a copy of which the Landlord is in receipt
of, to the Subtenant and the Tenant and the Subtenant have applied to
the Landlord for consent to sublease.
NOW THIS INDENTURE WITNESSETH that in consideration of the covenants herein
exchanged the Parties agree as follows:
1. Subject to the provisions of this Agreement, the Landlord does herein
consent to such sublease.
2. The Tenant acknowledges that notwithstanding such consent and Sublease,
the Tenant shall not be relieved of any of the covenants, provisos,
conditions and agreements set forth in the Lease and that this Consent
shall not be deemed to permit any further subletting. The Tenant further
acknowledges that the execution of this Consent to Sublease by the
Landlord does not imply approval by the Landlord of the provisions of
sublease agreement to be entered into by the Tenant and Subtenant and,
in particular, the Landlord does not consent to the provisions of
subparagraphs 11(ii) and 22(b) of the Sublease.
3. The Tenant and Subtenant acknowledge and agree that the payment of Base
Rent and Additional Rent required under the Lease shall continue to be
payable to the Landlord by the Tenant at the times required, provided
that in the event of default by the Tenant in the payment of Base Rent
or Additional Rent, the Landlord shall have the right to collect the
rent
<PAGE>
-2-
payable by the Subtenant pursuant to the terms and conditions of the
Sublease directly from the Subtenant as agent for the Tenant and to
apply any rent so collected against rental arrears owing by the Tenant
to the Landlord.
The Tenant and the Subtenant hereby acknowledge that the Landlord shall
exercise this right to collect the rent payable pursuant to the Sublease
by giving written notice to the Tenant and the Subtenant. The Subtenant
covenants and agrees to thereafter pay such rent to the Landlord until
such time as the Landlord notifies the Subtenant that the default has
been cured by the Tenant. It is acknowledged that any such collection of
rent by the Landlord from the Subtenant shall not be construed as to
create a landlord/tenant relationship between the Landlord and the
Subtenant and shall in no way limit the Tenant's liability to pay all
rent outstanding under the Lease or in any way limit the Landlord's
rights and remedies under the Lease or at law.
4. The Tenant and Subtenant covenant and agree with the Landlord not to
amend the terms of the Sublease without the consent in writing of the
Landlord.
5. The Subtenant covenants and agrees to abide by all the terms, covenants,
provisos, conditions and agreements contained in the Lease save for the
payment of Base Rent and Additional Rent.
6. The Subtenant covenants and agrees with the Landlord that if the Lease
is terminated for any reason or surrendered, that from such date of
termination or surrender the Sublease shall be deemed to be terminated.
7. The Sublandlord agrees that in consideration of the Landlord giving such
consent it shall pay any fee charged by the Landlord or its solicitors
for processing this Sublease.
8. This Agreement shall enure to and be binding upon the respective heirs,
executors, administrators and successors and permitted assigns of the
Parties hereto.
9. The parties acknowledge that the Lease is not personally binding upon
and resort shall not be had nor shall recourse or satisfaction be sought
from the private property of any of the unit holders of Investors Real
Property Fund (the "FUND"), trustees, officers, directors, employees or
agents of the trustee or manager of the Fund, it being intended and
agreed that only the property of the Fund shall be bound by the Lease.
Only the co-tenancy interests of Menkes and Investors Group shall be
bound by the Lease and the obligations under the Lease are not binding
upon either of Menkes or Investors Group in any other respect nor shall
resort be had to any other property of any of Menkes or Investors Group.
The rights and obligations of each of Menkes and Investors Group under
the Lease shall, in every case, be several and proportionate and not
either joint or joint and several.
<PAGE>
-3-
IN WITNESS WHEREOF the parties hereto have hereunto caused to be affixed
their corporate seals duly attested to by the hands of their respective
proper signing officers authorized in that behalf the day and year first
above written.
MENKES OFFICE PARKS LTD.
Per: /s/ Illegible
---------------------------------
(Landlord)
INVESTORS GROUP TRUST CO. LTD. AS
TRUSTEE FOR INVESTORS REAL
PROPERTY FUND
Per: /s/ Illegible
---------------------------------
Vice President (Landlord)
Per: /s/ Illegible
---------------------------------
Assistant Secretary (Landlord)
BATTERY TECHNOLOGIES INC.
Per: /s/ Illegible
---------------------------------
(Tenant)
CHANGEPOINT CORPORATION
Per: /s/ Illegible
---------------------------------
(Subtenant)
10/96
<PAGE>
LEASE
THIS LEASE made as of the 8th day of July, 1996
PURSUANT TO THE SHORT FORMS OF LEASES ACT
BETWEEN
MENKES OFFICE PARKS LTD. and INVESTORS
GROUP TRUST CO. LTD. as trustee for
INVESTORS REAL PROPERTY FUND
(the "LANDLORD")
OF THE FIRST PART
- AND -
WALL DATA INCORPORATED
(the "TENANT")
OF THE SECOND PART
ARTICLES. For convenience of reference this Lease has been divided
into the following Articles:
Article I - Definitions
Article II - Lease Term and Payments
Article III - Landlord and Tenant Covenants
Article IV - Repair and Damage
Article V - Taxes and Operating Costs
Article VI - Utilities and Additional Services
Article VII - Assigning and Subletting
Article VIII - Fixtures and Improvements
Article IX - Insurance and Liability
Article X - Subordination, Attornment and Certificates
Article XI - Events of Default and Remedies
Article XII - Miscellaneous
Article XIII - Other Provisions
LIST OF SCHEDULES. The following schedules form an integral part of this
Lease:
Schedule "A" - Legal Description of Lands
Schedule "B" - Leased Premises
Schedule "C" - Rules and Regulations
Schedule "D" - Lease Rider
ARTICLE I - DEFINITIONS
1.0 DEFINITIONS. In this Lease the following defined terms shall have the
meanings set forth below.
"ADDITIONAL RENT" means Operating Costs under Section 5.5, Taxes
under 5.3, Electricity under 6.2, and Insurance under Article IX and
all other charges, costs and expenses required to be paid by the
Tenant under the terms of this Lease (other than Base Rent) whether
payable to the Landlord or not.
"ADDITIONAL SERVICES" means the services and supervision supplied by
the Landlord to the Leased Premises and Common Area Facilities and
referred to herein or in any other provision hereof as Additional
Services and any other services which from time to time the Landlord
supplies to the Tenant at the Tenant's written request or as the
Landlord deems necessary, acting reasonably and which are additional
to the janitor and cleaning and other services typically supplied in
a first class office building, supervision in connection with the
making of any repairs or alterations by the Tenant affecting the
Base Building, building systems or Leasehold Improvements.
"ATTIC STOCK" means spare fan, pump and cooling tower motors, base
Building light fixtures, fuses, etc.
<PAGE>
2
"BASE RENT" means the base rent payable by the Tenant in accordance
with Section 2.3.
"BUILDING" means the building municipally known as 1595 16th Avenue,
Richmond Hill, Ontario.
"CAPITAL TAX" is an amount presently or hereafter imposed from time to
time pursuant to Part III of the Corporations Tax Act (Ontario) (the
"Act") upon the Landlord or the owner of the Building and Lands and
payable by the Landlord on account of its interest in the Building and
the Lands or any part thereof, or its interest in or capital employed
in the Building and the Lands, as the case may be.
"COMMENCEMENT DATE" means September 16, 1996.
"COMMON AREA FACILITIES" means all facilities, improvements,
installations, utilities and equipment located in the Building or the
Lands immediately surrounding the Building.
"COMMON AREAS" means those areas, facilities, utilities, improvements,
equipment and installations comprising the Lands and Building and which
are not leased or designated for lease to tenants but are provided to
be used in common by (or by the sublessees, agents, employees,
customers or licensees of) the Landlord, the Tenant, and other tenants
of the Building and other buildings on the Lands, whether or not the
same are open to the general public or a specific tenant of the
Building, and include, but are not limited to, parking areas and all
vestibules for and entrances and exits thereto; driveways, truckways
and related areas; corridors and underground or above ground tunnels or
passageways; stairways, escalators, ramps, and elevators and other
transportation equipment and systems; tenant, common and public
washrooms; telephone, meter, valve, mechanical, mail, storage, service
and janitor rooms; fire prevention, security and communication systems,
any fixtures, chattels, systems, decor, signs, facilities, or
landscaping and planted areas contained therein or maintained or used
in connection therewith.
"COST OF ADDITIONAL SERVICES" shall mean in the case of Additional
Services provided by the Landlord a reasonable charge made therefor by
the Landlord which shall not exceed the cost of obtaining such services
from independent contractors and in the case of Additional Services
provided by independent contractors the Landlord's total cost of
providing Additional Services to the Tenant including the proportionate
cost of all direct labour (including salaries, wages and fringe
benefits) and materials and other direct expenses incurred, the cost of
supervision without duplication or profit and other expenses reasonably
allocated thereto.
"INSURED DAMAGE" means that part of any damage occurring to the Leased
Premises of which the entire cost of repair is actually recovered by
the Landlord under a policy of insurance in respect of fire and other
perils from time to time effected by the Landlord, or for which the
Landlord has self-insured under Section 9.1 herein.
"LAND" means those lands described in Schedule "A" attached
hereto.
"LEASE" means this lease between the Landlord and the Tenant,
and all amendments hereto.
"LEASEHOLD IMPROVEMENTS" means all fixtures, improvements,
installations, alterations and additions from time to time made,
erected or installed by or on behalf of the Tenant or by or on behalf
of any other previous occupant in the Leased
<PAGE>
3
Premises (including the Landlord) with the exception of trade
fixtures, furniture and equipment, (not of the nature of fixtures),
modular office furniture systems, and moveable partitions,
improvements of a cosmetic nature such as rugs (but not broadloom),
decorations and other improvements moveable without the use of
tools, but Leasehold Improvements include all office partitions
however affixed and includes wall-to-wall and other carpeting with
the exception of such carpeting where laid over vinyl tile or other
finished floor and affixed so as to be readily removable without
damage.
"LEASED PREMISES" means approximately 4,396 square feet of Rentable
Area on the third floor of the Building known as suite 303, as
outlined in red on the plans attached as Schedule "B".
"NORMAL BUSINESS HOURS" means the hours of 7:00 a.m. to 7:00
p.m. Monday to Friday, except public holidays.
"OPERATING COSTS" means the total of all expenses, costs, and outlays
incurred in the complete maintenance, repair and operation of the
Building and Common Area Facilities, whether incurred by or on behalf
of the Landlord.
(i) Operating Costs shall include without limiting the
generality of the foregoing (but subject to certain
deductions as hereinafter provided), the cost of providing
complete cleaning and janitorial services, the cost of
building supplies used in the maintenance of the Building,
Attic Stock, supervisory (if any) and maintenance services,
exterior landscaping, snow removal, garbage and waste
collection and disposal, rental of equipment and signs,
janitorial services to the Common Areas of the Building,
the cost of operating elevators, the cost of heating,
cooling and ventilating all space including both rentable
and non-rentable areas, the cost of providing hot and cold
water, electricity (including lighting), and the
replacement of electric light bulb tubes, starters and
ballasts, telephone and other utilities and services to
both rentable and non-rentable areas, the cost of all
repairs including repairs to the Building or services in
the Building or Common Area Facilities including elevators,
depreciation on the central HVAC systems distribution plant
and associated equipment, depreciation on all fixtures,
equipment and facilities requiring periodic maintenance or
substantial replacement, the cost of window cleaning, and
providing security (if any), the cost of all insurance for
liability or fire or other casualties referred to in
Article 9.1, accounting costs incurred in connection with
maintenance and operation including computations required
for the imposition of charges to the tenants and audit
charges required to be incurred for the conclusive
determination of any costs hereunder, legal fees, the
amount of all salaries (only to the extent that such
salaries or a proportion thereof, relate directly to the
Building), wages and fringe benefits, unemployment and
workers compensation insurance premiums, pension plan
contributions and other similar premiums and contributions
paid or provided to employees directly or a reasonable
proportion thereof engaged in the maintenance, repair or
operation of the Building, amounts paid to independent
contractors for any services in connection with such
maintenance, repair or operation, the reasonable cost of
management fees, and other indirect expenses to the extent
allocable to the maintenance, repair and operation of the
Building and Common Area Facilities and all other
reasonable expense of every nature incurred in connection
with the maintenance, repair and operation of the Building
and Common Area Facilities; and
<PAGE>
4
(ii) Operating Costs shall exclude debt service, and all
management costs not allocable to the actual maintenance,
repair and operation of the Building (such as that incurred
in connection with leasing and rental advertising).
"PROPERTY" means the Land and Building.
"PROPORTIONATE SHARE" shall mean the fraction which has as its
numerator the Rentable Area of the Leased Premises and has as its
denominator the total Rentable Area of the Building. The total Rentable
Area of the Leased Premises shall be adjusted from time to time, as may
be reasonably necessary, to give effect to any structural or functional
changes affecting the calculation of total Rentable Areas.
"RENT" means Base Rent and Additional Rent.
"RENTABLE AREA" in this Lease means:
(i) in the case of a single tenancy on a whole floor of the
Building, all areas within the inside finished surface of
the dominant portion of the permanent outer Building
walls and shall be computed by measuring the inside
finished surface of the dominant portion of the permanent
outer Building walls and shall include Service Areas and
any special stairs and/or elevators for the specific sole
use of that floor, but excluding stairs, elevator shafts,
flues, pipe shafts and vertical ducts and the like and
their enclosing walls (the "VERTICAL OPENINGS"), with no
deductions for columns or projections necessary to the
Building plus a gross-up factor for ground floor services
in common with other tenants, including, but not limited
to vestibules, corridors, elevator lobbies, mechanical,
electrical, telephone, mail, garbage and janitor's rooms,
such factor to be based upon a ratio which the ground
floor Service Areas of the Building bears to the gross
floor area, less Vertical Openings of the Building; and
(ii) in the case of a floor of the Building to be occupied by
more than one tenant, all areas from the inside finished
surface of the dominant portion of the permanent outer
Building walls to the Tenant's side of corridors and/or
other permanent interior walls and to the centre of
demising partitions which separate the area occupied from
adjoining rentable premises, herein referred to as the
"USABLE AREA", plus a gross-up factor for the Service
Areas on the floor in common with other tenants on the
same floor, including, but not limited to, corridors,
elevator lobbies, mechanical, electrical, telephone and
janitor's rooms exclusively serving the floor, such
factor to be based upon a ratio which the Service Areas
of the floor bear to the sum of the Usable Area of the
floor, plus an additional gross-up factor for ground
floor services in common with other tenants, including,
but not limited to, vestibules, corridors, elevator
lobbies, mechanical, electrical, telephone, mail, garbage
and janitor's rooms, such factor to be based upon a ratio
which the ground floor Service Areas of the Building
bears to the gross floor area, less Vertical Openings of
the Building.
"RULES AND REGULATIONS" means the rules and regulations
attached as Schedule "C".
"SERVICE AREAS" shall mean the area of corridors, elevator, lobbies,
service elevator lobbies, washrooms, air-cooling rooms, fan rooms,
janitor's closets, telephone and electrical closets and other closets
serving the Leased Premises in common with other premises on the same
floor.
<PAGE>
5
"TAXES" means all taxes, rates, duties, levies and assessments whatsoever,
whether municipal, parliamentary or otherwise, levied, imposed or
assessed against the Building, Common Areas or Common Area
Facilities or upon the Landlord in respect thereof, excluding
Capital Tax and commercial concentration tax, or from time to time
levied, imposed or assessed in the future in lieu thereof, or
addition thereto, whether now contemplated or not, and those levied,
imposed or assessed for education, schools and local improvements
and including all costs and expenses (including legal and other
professional fees and interest and penalties on deferred payments),
incurred by the Landlord in good faith in contesting, resisting or
appealing any taxes, rates, duties, levies or assessments, but
excluding taxes and license fees in respect of any business carried
on by tenants and occupants of the Building (including the Landlord)
to the extent such taxes are not levied in lieu of taxes, rates,
duties, levies and assessments against the Building or upon the
Landlord in respect thereof, and shall also include any and all
taxes which may in future be levied in lieu of taxes as hereinbefore
defined, and also including Large Corporations Tax or any similar or
successor tax in lieu thereof or in addition thereto assessed upon
the Landlord.
"TERM" means the term of the Lease stipulated in paragraph 2.2.
"UTILITIES" means electricity as described in Article 6.2, natural gas
and any other utility required in the operation of the Building.
ARTICLE II - LEASE TERM AND PAYMENTS
2.1 DEMISE. In consideration of the rents, covenants and agreements
hereinafter reserved and contained, the Landlord hereby leases to the
Tenant, for the exclusive use of the Tenant, the Leased Premises for
the Term.
2.2 TERM. The Lease shall have a term of two (2) years commencing on the
Commencement Date and ending two (2) years after the Commencement
Date, unless such term shall be sooner terminated as hereinafter
provided.
2.3 BASE RENT. THE TENANT SHALL PAY yearly and every year during the
within Term the sum of $26,376.00 of lawful money of Canada in
twelve (12) equal monthly instalments of $2,198.00, in advance, the
first of such instalments of $2,198.00, in advance, the first of
such instalment to become due and payable on September 16, 1996 (the
"BASE RENTAL").
The aforesaid annual Base Rent is calculated on the basis of the
Rentable Area of the Leased Premises being 4,396 square feet at a rate
of $6.00 for each square foot of Rentable Area per annum.
IF THE TERM COMMENCES on any day other than the first or ends on any
day other than the last day of the month, the Base Rental and
additional rental for the fractions of a month at the commencement and
at the end of the Term shall be adjusted pro rata. All Base Rental
payments shall be payable on the first of each month.
2.4 PREPAID RENT. On execution of this Lease, the Tenant shall submit
$2,351.86, including GST, representing payment on account of Base
Rent for the first month of the Term herein.
2.5 SECURITY DEPOSIT. On execution of this Lease, the Tenant shall
submit $2,351.86, including GST, to be held by the Landlord without
any liability on the part of the Landlord for
<PAGE>
6
the payment of interest thereon as a security deposit for the
faithful performance by the Tenant of the terms, covenants and
conditions of this Lease during the Term hereof and not be applied
on account of Base Rent. It is understood and agreed between the
Parties that any portion of this security deposit may be applied
towards the payment of overdue or unpaid Base or Rent or Additional
Rent and may also be applied as compensation to the Landlord for any
loss or damage sustained with respect to the breach on the part of
the Tenant of any terms, covenants and conditions of this Lease,
provided in all cases however, that all the Landlord's other rights,
either in law or under this Lease are observed, and the Tenant's
liability hereunder is not limited to the amount of this security.
If during the Term of this Lease any portion of the security deposit
is so applied, then the Tenant will on written demand provide the
Landlord with a sufficient amount in cash to restore this deposit to
the original sum deposited. The Landlord will refund to the Tenant
forthwith after the expiry date of the within lease any portion of
the security deposit not used by the Landlord after application by
the Landlord to any damage incurred by the default of the Tenant
under the terms of this Lease. It is further provided that the
Landlord will be discharged from any liability to the Tenant with
respect to this security if it is transferred to any purchaser of
the Landlord's interest in the Leased Premises.
ARTICLE III - LANDLORD AND TENANT COVENANTS
3.1 LANDLORD COVENANTS. The Landlord covenants with the Tenant:
(a) QUIET ENJOYMENT. To provide for quiet enjoyment.
(b) INTERIOR CLIMATE CONTROL. To provide to the Leased Premises
during Normal Business Hours, processed air by means of a
system for heating and cooling, filtering and circulating,
processed in such quantities, and at such temperatures as
shall be reasonable in accordance with good standards of
interior climate control generally pertaining to normal
occupancy of premises for office purposes. The Landlord shall
have no responsibility for inadequacy of the performance of
the said system if the Leased Premises depart from the design
criteria.
(c) ELEVATORS. Subject to the supervision of the Landlord and
except when repairs are being made thereto, to furnish for use
by the Tenant and its employees and invitees in common with
other persons entitled thereto reasonable standards of
passenger elevator service to the Leased Premises. The Tenant
shall be responsible for any damages caused to the elevator as
a result of taking possession or giving up possession of the
Leased Premises and shall pay such costs forthwith upon demand
as Additional Rent.
(d) ENTRANCES LOBBYS, ETC.. To permit the Tenant and its employees
and invitees to have the use in common with others entitled
thereto of the common entrances, lobbies, stairways, elevators
and corridors of the Building giving access to the Leased
Premises (subject to the Rules and Regulations and such other
reasonable limitations as the Landlord may from time to time
impose).
(e) WASHROOMS. To permit the Tenant and its employees and
invitees, in common with others entitled thereto to use the
washrooms available to the Leased Premises on each floor of
the Building upon which any part of the Leased Premises is
located.
<PAGE>
7
(f) JANITOR SERVICE. To cause when reasonably necessary from
time to time the floors and windows of the Leased Premises
to be swept and cleaned and the desks, tables and other
furniture of the Tenant to be dusted, all in keeping with a
first-class office building, such work shall be done at the
Landlord's direction without interference by the Tenant,
its servants or employees.
(g) MAINTENANCE OF COMMON AREAS. To cause the elevators, common
entrances, lobbies, stairways, corridors, washrooms and other
parts of the Building from time to time provided for common
use and enjoyment to be swept, cleaned or otherwise maintained
substantially in keeping with a first-class office building.
3.2 TENANT COVENANTS. The Tenant covenants with the Landlord:
(a) RENT. To pay Base Rent and Additional Rent.
(b) PERMITTED USE. To use the Leased Premises only for the purpose
of any lawful business or office undertaking and not to use or
permit to be used the Leased Premises or any part thereof for
any other purpose or business.
(c) WASTE AND NUISANCE. Not to commit or permit any waste, damage
or injury to the Leased Premises including the Leasehold
Improvements and trade fixtures therein, reasonable wear and
tear excluded, any overloading of the floors thereof, any
nuisance therein or any use or manner of use causing
unreasonable annoyance to other tenants and occupants of the
Building.
(d) CONDITION. Not to permit the Leased Premises to become
hazardous or permit unreasonable quantities of waste or refuse
to accumulate therein and at the end of each business day to
leave the Leased Premises in a condition such as to reasonably
facilitate the performance of the Landlord's janitor and
cleaning services referred to herein.
(e) BY-LAWS. To comply at its own expense with all municipal,
federal, provincial, sanitary, fire, building and safety
statutes, laws, by-laws, regulations, ordinances, orders or
regulations pertaining to the operation and use of the Leased
Premises, the condition of the Leasehold Improvements, trade
fixtures, furniture and equipment installed by the Tenant
therein and the making by the Tenant of any repairs, changes
or improvements therein.
(f) FIRE EXIT DOORS. To permit the installation by the Landlord of
all doors in the exterior wall of the Leased Premises
necessary to comply with the requirements of any statute, law,
by-law, regulation, ordinance, order or regulation.
(g) RULES AND REGULATIONS. To observe and to cause its employees,
invitees and others over whom the Tenant can reasonably be
expected to exercise control, the Rules and Regulations and
such further and other reasonable rules and regulations and
amendments and changes therein as may hereafter be made by the
Landlord and notified to the Tenant.
(h) OVERHOLDING. That in the event that the Tenant remains in
possession of the Leased Premises after the termination of
the original Term hereby created, without other special
agreement, it shall be at the monthly base rent equal to
the Base Rent and Additional Rent payable during the last
month of the Term hereof, times two, payable on the first
day of each and every month and subject in other respects
to the terms of this Lease,
<PAGE>
8
including those provisions requiring the payment of Base
Rent and Additional Rent in monthly instalments.
3.3 SIGNS AND DIRECTORY. The Tenant covenants not to permit, paint,
display, inscribe, place or affix any sign, symbol, notice or
lettering of any kind anywhere outside the Leased Premises (whether
on the outside or inside of the Building) or within the Leased
Premises so as to be visible from the outside of the Leased
Premises, with the exception only of an identification sign at or
near the entrance to the Leased Premises, a directory listing in the
main lobby of the Building, in each case containing only the name of
the Tenant and to be subject to the approval of the Landlord as to
size, location, content and design criteria as established by the
Landlord. Such identification sign, directory listing shall be
installed by the Landlord at the expense of the Tenant, which
expense shall be the invoice cost plus 15% for an administration
fee. The Landlord's acceptance of any name for listing upon the
directory will not be deemed, nor will it substitute for the
Landlord's consent if required by this Lease to any sublease,
assignment or other occupancy of the Leased Premises.
3.4 INSPECTION AND ACCESS. The Landlord shall be permitted to enter and to
have its authorized agents, employees and contractors enter the Leased
Premises, for the purpose of inspection, window cleaning, maintenance,
providing janitor service, making repairs, alterations or improvements
to the Leased Premises or the Building, or to have access to utilities
and services and access panels which the Tenant agrees not to obstruct,
or to determine the electric light and power consumption by the Tenant
in the Leased Premises and the Tenant shall provide free and unhampered
access for such purposes and shall not be entitled to compensation for
any inconvenience, nuisance, discomfort or loss caused thereby, but the
Landlord, in exercising its rights hereunder, shall proceed to the
extent reasonably possible so as to minimize interference with the
Tenant's use and enjoyment of the Leased Premises.
3.5 EXHIBITING PREMISES. The Landlord and its authorized agents and
employees shall be permitted entry to the Leased Premises during the
last six (6) months of the term for the purpose of exhibiting them to
prospective tenants or at any time for the purposes of arranging
financing for the Building.
3.6 LANDLORD'S CONTROL. The Tenant acknowledges that the Common Area
Facilities are at all times subject to the exclusive control and
operation of the Landlord, and the Landlord shall have the right to
construct improvements, alterations and additions thereto and to
relocate the various facilities thereon.
3.7 FINANCIAL STATEMENTS. The Tenant will, at the request of the
Landlord, supply copies of his financial statements to the Landlord
or to the mortgagees, if any, on the said lands or a prospective
mortgagee.
ARTICLE IV - REPAIR AND DAMAGE
4.1 TENANT'S REPAIRS. The Tenant covenants with the Landlord:
(a) to keep the Leased Premises in a good and reasonable state of
repair and consistent with the general standards of
first-class office buildings in Metropolitan Toronto, to
perform all repairs and replacements as a prudent tenant would
do (reasonable wear and tear excepted) to the Leased Premises
including all Leasehold Improvements and all trade fixtures
therein and all glass therein.
<PAGE>
9
(b) that the Landlord may enter and view the state of repair from
time to time and that the Tenant will repair if required to do
so pursuant to the terms of this Lease, according to notice in
writing and that the Tenant will leave the Leased Premises in
a good and reasonable state of repair.
(c) that if any part of the Building other than the Leased
Premises becomes out of repair, damaged or destroyed through
the negligence or misuse of the Tenant or its employees,
invitees or others over whom the Tenant can reasonably be
expected to exercise control, the expense of repairs or
replacements thereto necessitated thereby shall be the
responsibility of the Tenant.
4.2 ABATEMENT AND TERMINATION. It is agreed between the Landlord and the
Tenant that:
(a) In the event of damage to the Leased Premises or to the
Building affecting access or services essential to the
conduct of business in the Leased Premises and if the
damage is such that the Leased Premises or any substantial
part thereof is rendered not reasonably capable of use and
occupancy by the Tenant for the purposes of its business
for any period of time in excess of 10 days, then
(i) unless the damage was caused by the misuse, fault,
negligence of the Tenant or its employees,
invitees or others under its control, from and
after the date of occurrence of the damage and
until the Leased Premises are again reasonably
capable of use and occupancy as aforesaid, Base
Rent (but not any other payments required to be
made by the Tenant hereunder) shall abate from
time to time in proportion to the part or parts of
the Leased Premises not reasonably capable of such
use and occupancy, and
(ii) unless this Lease is terminated as hereinafter
provided, the Landlord or the Tenant as the case
may be (according to the nature of the damage and
their respective obligations to repair as provided
herein, it being understood that the Tenant shall
have the obligation to repair and replace all
Leasehold Improvements and all Tenant's trade
fixtures) shall repair such damage with all
reasonable diligence, but to the extent that any
part of the Leased Premises is not reasonably
capable of such use and occupancy by reason of
damage which the Tenant is obligated to repair
hereunder, any abatement of Rent to which the
Tenant is otherwise entitled hereunder shall not
extend later than the time by which repairs by the
Tenant ought to have been completed with
reasonable diligence; and
(b) if either the entire or substantially all of the Leased
Premises, or premises whether of the Tenant or other
tenants of the Building comprising in the aggregate 50% or
more of the Rentable Area of the Building are substantially
damaged or destroyed by any cause to such an extent in the
reasonable opinion of the Landlord cannot be repaired or
rebuilt within 180 days after the occurrence of the damage
or destruction, the Landlord may at its option, exercisable
by written notice to the Tenant given within 30 days after
the occurrence of such damage or destruction terminate this
Lease in which event neither the Landlord nor the Tenant
shall be bound to repair as provided herein and the Tenant
shall instead deliver up possession of the Leased Premises
to the
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10
Landlord with reasonable expedition but in any event
within 60 days after delivery of such notice of termination
and rent shall be apportioned and paid to the date upon
which possession is so delivered up (but, subject to any
abatement to which the Tenant may be entitled under
paragraph (a) of this clause 4.2 by reason of the Leased
Premises having been rendered in whole or in part not
reasonably capable of use and occupancy), but otherwise the
Landlord or the Tenant as the case may be (according to the
nature of the damage and their respective obligations to
repair described in 4.2 (a) (ii)) shall repair such damage
with reasonable diligence.
ARTICLE V - TAXES AND OPERATING COSTS
5.1 NET NET LEASE. The Tenant acknowledges and agrees that it is intended
that this Lease is a completely carefree net net lease to the Landlord,
except as expressly herein set out, that 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 Leased
Premises, or the use and occupancy thereof, or the contents thereof or
the business carried on therein, except as expressly set out herein,
and the Tenant shall pay all charges, impositions, costs and expenses
of every nature and kind relating to the Leased Premises.
5.2 LANDLORD'S TAX OBLIGATIONS. The Landlord covenants with the Tenant,
subject to the provisions herein, to pay all Taxes promptly when due to
the taxing authority or authorities having jurisdiction.
5.3 TENANT'S TAX OBLIGATIONS. The Tenant covenants with the
Landlord:
(i) to pay promptly when due to the taxing authority or
authorities having jurisdiction all taxes, rates, duties,
levies and assessments whatsoever, whether municipal,
parliamentary or otherwise, levied, imposed or assessed in
respect of any and every business carried on by the Tenant,
subtenants, licensees, or other occupants of the Leased
Premises or in respect of the use or occupancy thereof
(including licence fees); and
(ii) to pay promptly to the Landlord when demanded or otherwise due
hereunder:
(1) all Taxes charged in respect of all Leasehold
Improvements and trade fixtures and all furniture and
equipment made, owned or installed by or on behalf of
the Tenant in the Leased Premises as Additional Rent;
(2) if by reason of the act, election or religion of the
Tenant or any subtenant, licensee or occupant of the
Leased Premises, the Leased Premises or any part of
them shall be assessed for the support of Separate
Schools, the amount by which the Taxes so payable
exceed those which would have been payable if the
Leased Premises had been assessed for the support of
Public Schools; and
(3) the Tenant's Proportionate Share of Taxes as
Additional Rent in the manner stipulated herein.
(iii) notwithstanding any other provisions of this Lease to the
contrary, the Tenant shall pay to the Landlord, at such times
and in such manner as the Landlord may direct, without
duplication, an amount equal to all goods and
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11
service taxes, sales taxes, value-added taxes or any other
taxes imposed with respect to Base Rent, Additional Rent or
other amounts payable by the Tenant to the Landlord under
this Lease, howsoever such taxes are characterized. The
amount payable by the Tenant hereunder shall not be deemed
to be Base Rent or Additional Rent but the Landlord shall
have all of the same rights and remedies for recovery of
same as it has for recovery of Base Rent and Additional
Rent hereunder.
Whenever requested by the Landlord the Tenant will deliver to it
receipts for payment of all taxes, rates, duties, levies and
assessments payable by the Tenant hereof and furnish such other
information in connection therewith as the Landlord may reasonably
require.
5.4 METHOD OF PAYMENT OF TAXES. The Tax payments required to be made by
the Tenant to the Landlord under the provisions of 5.3 (ii) herein
shall be estimated by the Landlord, and the Tenant shall pay to the
Landlord in addition to the monthly payments of Base Rent
hereinbefore reserved, one-ninth of the estimated annual tax
payments in the months of January to September, both inclusive, in
each calendar year with an adjustment being made when the property
tax bill respecting the Building is received by the Landlord for
each year. The Tenant shall within sixty (60) days of being invoiced
pay to the Landlord such additional sums as may be required in order
that out of such monthly additional payments, the Landlord may pay
the whole amount of the annual taxes as the installments thereof fall
due; and if the monthly additional payments so paid by the Tenant to
the Landlord exceed in total the Tenant's Proportionate Share of the
annual property tax bill with respect to the Building and Lands of
which the Leased Premises form part, then the excess shall be
adjusted by the Landlord in favour of the Tenant by applying such
excess on account of the next ensuing rental payments due (following
the issue of the yearly statement) and such next ensuing rental
payments shall be reduced by such excess accordingly. The Landlord
shall forward to the Tenant copies of all notices or tax bills
relating to the imposition of property taxes or other charges
required hereunder to be paid as to part or all thereof by the
Tenant. In the event that the Landlord is unable to obtain or
determine a separate allocation of taxes payable by the Tenant under
this Lease, the Landlord shall have the right to make an allocation,
but shall be obligated to act reasonably and not arbitrarily.
5.5 OPERATING COSTS. During the Term of this Lease, the Tenant shall pay
to the Landlord its Proportionate Share of Operating Costs. Prior to
the commencement of the Term of this Lease and the commencement of
each fiscal period selected by the Landlord thereafter which
commences during the Term the Landlord shall estimate the amount of
Operating Costs and the Tenant's Proportionate Share thereof for the
ensuing fiscal period or (if applicable) broken portion thereof, as
the case may be, and notify the Tenant in writing of such estimate.
The amount so estimated shall be payable in equal monthly
installments in advance over the fiscal period or broken portion
thereof in question, each such instalment being payable on each
monthly rental payment date provided in clause 2.3. The Landlord may
from time to time alter the fiscal period selected, in which case,
and in the case where only a broken portion of a fiscal period is
included with the Term, the appropriate adjustment in monthly
payments shall be made. From time to time during a fiscal period the
Landlord may re-estimate the amount of Operating Costs and the
Tenant's Proportionate Share thereof, in which event the Landlord
shall notify the Tenant in writing of such re-estimate and fixed
monthly installments for the then remaining balance of such fiscal
period or broken portion thereof such that, after giving credit for
installments paid by the Tenant on the basis
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12
of the previous estimate or estimates, the Tenant's entire
Proportionate Share of Operating Costs will have been paid during
such fiscal period or broken period thereof. As soon as practicable
after the expiration of each fiscal period the Landlord shall make a
final determination of Operating Costs and the Tenant's
Proportionate Share thereof for such fiscal period or (if
applicable) broken portion thereof and shall provide a statement to
the Tenant and the parties shall make the appropriate readjustment.
Each 12 month period ending December 31st shall be deemed to be an
accounting year for adjusting the said Operating Costs and within
120 days after the end of each such accounting year, the Landlord
shall compute the said costs for such accounting year and the
Proportionate Share of the Tenant therefor and shall submit to the
Tenant a statement to reflect the Operating Costs specifically
permitted under this Lease, and the said Proportionate Share thereof
shall be borne by the Tenant. To the extent that the Tenant's
Proportionate Share of such costs for such accounting year shall be
greater than the total amount actually paid by the Tenant by said
monthly payments in respect of such year the difference shall be
paid by the Tenant to the Landlord within thirty (30) days after
receipt by the Tenant of such statement. Any excess payments shall
be applied by reducing the next ensuing rental payment(s) by the
amount of such excess. The said accounting period may be modified by
the Landlord if reasonably necessary. The Tenant may not claim a
readjustment in respect to the Tenant's Proportionate Share of
Operating Costs based upon any error of assessment, determination or
calculation thereof unless claimed in writing prior to the
expoiration of one year after the fiscal period to which the
Operating Costs relate.
5.6 PAYMENT OF ADDITIONAL RENT. Any Additional Rent provided for under this
Lease unless otherwise provided herein, shall become due with each
instalment of monthly Base Rent.
ARTICLE VI- UTILITIES AND ADDITIONAL SERVICES
6.1 WATER AND TELEPHONE. The Landlord shall furnish appropriate openings
for bringing telephone services to the Leased Premises and shall
provide hot and cold water to washrooms in the Leased Premises and to
washrooms available for the Tenant's use in common with others entitled
thereto.
6.2 ELECTRICITY. The Tenant shall pay throughout the Term promptly to the
Landlord (unless paid directly to Hydro authorities pursuant to
separate billing) as Additional Rent when demanded:
(i) The cost of electric light and power supplied to the Leased
Premises monthly based on the electric light and power
requirements of the Tenant on a pro rata basis as determined
from time to time during the Term by the Landlord acting
reasonably; and
(ii) The cost of cleaning, maintaining and servicing in all
respects all electric lighting fixtures in the Leased
Premises including the cost of replacement of electric
light bulbs, tubes, starters and ballasts used to replace
those installed at the commencement of the Term. Such
cleaning, maintaining, servicing and replacement shall be
within the exclusive right of the Landlord. It is
understood and agreed that the costs described in this
sub-section (ii) shall be charged to the Tenant as an
Additional Service payable upon receipt of invoice from
the Landlord.
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13
6.3 ADDITIONAL SERVICES. The Landlord, if it shall from time to time so
elect, shall have the exclusive right, by way of Additional Services,
to provide or have its designated agents or contractors provide any
janitor or cleaning service to the Leased Premises and Common Area
Facilities required by the Tenant which are additional to those
required to be provided by the Landlord hereunder, including the
Additional Services which the Landlord agrees to provide by
arrangement, and to supervise the moving of furniture or equipment of
the Tenant in and out of the Building where such moving of furniture or
equipment would be disruptive to the normal business of the Building,
and the making of repairs or alterations conducted within the Leased
Premises affecting Base Building, building systems or Leasehold
Improvements. The reasonable cost of Additional Services provided to
the Tenant, whether the Landlord shall be obligated hereunder or shall
elect to provide them as Additional Services, shall be paid to the
Landlord by the Tenant from time to time within thirty (30) days
following receipt of invoices therefor from the Landlord. Costs of
Additional Services charged directly to the Tenant and other tenants
shall be credited in computing Operating Costs.
ARTICLE VII- ASSIGNING AND SUBLETTING
7.1 ASSIGNMENTS AND SUBLETTINGS. The Tenant covenants with the Landlord
that it will not assign, sublet, licence or part with the possession of
the Leased Premises or any part thereof, or share the occupation of the
Leased Premises, or any part thereof, without the consent of the
Landlord in writing first had and obtained such consent not to be
unreasonably or arbitrarily withheld or delayed. Provided that as a
condition of the granting of its consent, the Landlord may require any
assignee, subtenant, licensee or occupant of the Leased Premises to
execute an agreement whereby he, it or they attorn to and become the
tenants of the Landlord as if he, it or they had executed this Lease,
or, except in the case of an absolute assignment of this Lease, to
execute an acknowledgement that all the sublessee's or undertenant's
estate, right and interest in and to the Leased Premises absolutely
terminates upon the surrender, release, disclaimer or merger of this
Lease notwithstanding the provisions of the Landlord and Tenant Act of
Ontario, R.S.O. 1980, Chapter 232 and amendments thereof with specific
reference to Paragraphs 21 and 39 (2) thereof, or other similar
statute. The Tenant shall furnish to the Landlord copies of any
assignment, sublease, licence or other agreement herein contemplated.
Notwithstanding any other provision in this section, no assignment,
subletting, licensing or parting with possession of the Leased Premises
shall in any way release or be deemed to release the Tenant (or any
guarantor hereof) from their obligations under the terms of this Lease.
Provided further that the proposed assignee, subtenant, licensee or
occupant of the Leased Premises shall be required to provide reasonable
financial information as the Landlord may require. It is agreed that
the Landlord may consider in determining whether to grant consent among
other matters, the following: the personal and business history of the
proposed assignee, occupant, sublessee and its key employees. The
Tenant agrees to pay the reasonable legal fees of the Landlord's
solicitor relating to the preparation of the Landlord's consent, and
determination as to whether to give the consent.
If by sale, transfer or other disposition of its shares, the control
of the tenant is altered so that 51% of the shares are transferred
in any manner, then same shall be deemed as an assignment and the
provisions of this paragraph shall apply. The Tenant covenants and
agrees to advise the Landlord forthwith if such a transfer is
contemplated.
<PAGE>
14
In the event of any sub-letting by the Tenant by virtue of which the
Tenant receives rent in the form of cash, goods, services or other
considerations from the sub-tenant which is higher than the rent
payable hereunder to the Landlord for the premises so sub-let, the
Tenant shall pay any such excess to the Landlord, in addition to all
rent and other costs payable hereunder, for the period of time during
which the said subtenant remains in possession of the premises sub-let
to it.
If the Tenant herein shall receive from any assignee of this lease,
either directly or indirectly, any consideration for the assignment of
this lease, either in the form of cash, goods or services, the Tenant
shall forthwith pay an amount equivalent to such consideration to the
Landlord and same shall be deemed to be further Additional Rent
hereunder.
In the event of any proposed assignment or subletting of the Leased
Premises by the Tenant, the Landlord shall not be obligated to
consider such a proposal nor be required to consent to same, unless
the base rent payable by the proposed assignee or sublessee is, in
the sole discretion of the Landlord, at the then current market rate
for similar space in the immediate and surrounding area.
In calculating whether there is any additional consideration payable
by an assignee or sublessee as hereinbefore provided, no deduction
shall be made for any commission payable to any agent or other
party.
If the Landlord has granted to the Tenant, named on page 1 of this
Lease, any first rights of refusal, exclusive rights or options to
lease additional space or to purchase, it is agreed and understood
that upon the Tenant assigning, subletting, licensing or parting
with possession of the Leased Premises or any part thereof, the
aforesaid rights referred to shall automatically become null and
void.
Notwithstanding the above provisions, within ten (10) business days
after the receipt by the Landlord of such request for consent and of
all information which the Landlord shall have requested hereunder, the
Landlord shall have the right upon written notice of termination
submitted to the Tenant to, if the request is to assign this Lease or
sublet the whole of the Leased Premises, cancel and terminate this
Lease, or to, if the request is to sublet a part of the Leased Premises
only, cancel and terminate this Lease with respect to such part, in
each case as of a termination date to be stipulated in the notice of
termination which shall be ninety (90) days following giving of such
notice. In such event the Tenant shall surrender the whole or part, as
the case may be, of the Leased Premises in accordance with such notice
of termination and Base Rent and Additional Rent shall be apportioned
and paid to the date of surrender and, if only a part of the Leased
Premises is surrendered, Base Rent and Additional Rent shall, after the
date of surrender, abate proportionately. If the Landlord does not
elect to terminate as aforesaid and if consent to sublease or assign
will be granted, the Tenant may assign or sublet, as the case may be,
only upon the terms and to the party set out in the offer submitted to
the Landlord as aforesaid.
ARTICLE VIII- FIXTURES AND IMPROVEMENTS
8.1 INSTALLATION OF FIXTURES AND IMPROVEMENTS. The Tenant shall not make,
erect, install or alter any Leasehold Improvements in the Leased
Premises without having requested and obtained the Landlord's prior
written approval which the Landlord shall not unreasonably delay or
withhold. In making, erecting, installing or altering any Leasehold
Improvements the Tenant will not alter or interfere with any
installations which have
<PAGE>
15
been made by the Landlord without the prior written approval of the
Landlord and in no event shall it alter or interfere with window
coverings (if any) installed by the Landlord on exterior windows.
The Tenant's request for any approval hereunder shall be in writing
and accompanied by an adequate description of the contemplated work
and, where appropriate, working drawings and specifications thereof.
All work to be performed in the Leased Premises shall be performed
by reputable contractors approved by the Landlord. The Landlord
reserves the right to require the Tenant to utilize the
contractor(s) of the Landlord where Base Building, building systems
and/or warranties may be affected provided the Landlord agrees that
charges by such contractors shall be in keeping with that which an
arms length contractor would charge. The cost of all such work shall
be estimated by the Landlord in advance and such estimate approved
by the Tenant prior to work commencing. All such work shall be
performed at the Tenant's expense and the Tenant shall be
responsible for application and payment of all fees in connection
with any permits required. All such work shall be subject to
inspection by and the reasonable supervision of the Landlord, as an
Additional Service, and shall be performed in accordance with any
reasonable conditions or regulations imposed by the Landlord and
completed in a good and workmanlike manner in accordance with the
description of the work approved by the Landlord. The Landlord shall
be entitled to supervise the work and charge the Tenant a
supervision fee. The Landlord shall also be entitled to charge
reasonable fees for examining plans respecting the proposed work.
The Tenant shall be obligated to pay any reasonable consultant's
fees incurred by the Landlord for review and approval of plans for
construction of any nature after the Commencement Date as Additional
Rent.
8.2 LIENS AND ENCUMBRANCES ON FIXTURES AND IMPROVEMENTS. In connection
with the making, erection, installation or alteration of Leasehold
Improvements and all other work or installations made by or for the
Tenant in the Leased Premises the Tenant shall comply with all the
provisions of the Construction Lien Act (Ontario) and other statutes
from time to time applicable thereto and shall promptly pay all
accounts relating thereto. The Tenant will not create or cause to be
created any mortgage, conditional sale agreement or other
encumbrance in respect of its Leasehold Improvements or permit any
such mortgage, conditional sale agreement or other encumbrance to
attach to the Leased Premises or to the Building and Common Area
Facilities. If and whenever any construction or other lien for work,
labour, services or materials supplied to or for the Tenant for the
cost of which the Tenant may be in any way liable or claims therefor
shall arise or be filed or any such mortgage, conditional sales
agreement or other encumbrance shall attach, the Tenant shall within
ten (10) days after receipt of notice thereof procure the discharge
thereof, including any certificate of action registered in respect
of any lien, by payment or giving security or in such other manner
as may be required or permitted by law failing which the Landlord
may in addition to all other remedies hereunder avail itself of its
remedy hereunder and may make any payments required to procure the
discharge of any such liens or encumbrances and shall be entitled to
be reimbursed by the Tenant as provided herein and its right to
reimbursement shall not be affected or impaired if the Tenant shall
then or subsequently establish or claim that any lien or encumbrance
so discharged was without merit or excessive or subject to any
abatement, set-off or defense.
8.3 REMOVAL OF FIXTURES AND IMPROVEMENTS. All Leasehold Improvements in or
upon the Leased Premises shall immediately upon termination of this
lease be and become the Landlord's property without compensation
therefor to the Tenant. Except to the extent otherwise expressly agreed
by the Landlord in writing no Leasehold Improvements, trade fixtures,
furniture
<PAGE>
16
or equipment shall be removed by the Tenant from the Leased Premises
either during or at the expiration or earlier termination of the
Term except that (1) the Tenant shall at the end of the Term remove
its trade fixtures, (2) the Tenant shall at the end of the Term
remove such Leasehold Improvements as the Landlord shall require to
be removed which items shall be identified at the time the work is
approved, and (3) the tenant shall remove its furniture and
equipment at the end of the Term and may remove its furniture and
equipment during the Term in the usual and normal course of its
business where such furniture or equipment has become excess for the
Tenant's purposes or the or the Tenant is substituting therefor new
furniture and equipment. The Tenant shall, in the case of every
removal either during or at the end of the Term, make good any
damage caused to the Leased Premises by the installation and
removal. Provided that upon the termination of this Lease, the
Tenant, if requested by the Landlord, shall restore the interior of
the Leased Premises to its former condition immediately prior to the
installation of such alterations or changes, including the
restoration or such standard fixtures as may have been installed by
the Landlord, and if not so requested, any such changes or
alterations shall become the property of the Landlord, or
alternatively, the Tenant shall install such comparable fixtures and
materials as may then be in use.
8.4 OCCUPATIONAL HEALTH AND SAFETY. The Tenant covenants and agrees that
it will ensure that a comprehensive and rigorous health and safety
program to protect workers in the Leased Premises is implemented to
ensure that no accidents or injuries occur in connection with the
performance of any Tenant's work. The Tenant will indemnify the
Landlord in respect of all claims, infractions, prosecutions,
alleged infractions, losses, costs and expenses and any fines or
proceedings relating to fines or other offenses under all
occupational health and safety and any similar legislation that
might be brought, or imposed against or suffered by the Landlord or
any of its officers, directors and employees in connection with the
performance of any Tenant's work. Without limiting the obligations
set out above in this Section 8.4, the Tenant will do at least the
following:
(a) ensure that all obligations imposed by statute, law or
regulation on "constructors" or other persons completing or
co-ordinating any Tenant's work are diligently and properly
completed;
(b) co-operate with the Landlord in having any Tenant's work
designated as a separate project so that the Landlord does
not incur any obligations as a constructor or obligations
similar to those of a constructor at law or by regulation
imposed in connection with the performance of any Tenant's
work;
(c) comply with all directions that the Landlord may give to
the Tenant in connection with the performance of any
Tenant's work having regard to construction health and
safety requirements; and
(d) provide to the Landlord whatever rights of access,
inspection, and whatever information, documents and other
matters the Landlord requires in order to ensure that the
Tenant's obligations under this Section are complied with.
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17
ARTICLE IX- INSURANCE AND LIABILITY
9.1 LANDLORD'S INSURANCE. The Tenant will during the whole of the Term
hereby granted as part of Operating Costs, pay its Proportionate Share
of all premiums with respect to insurance to be placed by the Landlord
and described in this Section 9.1. The Landlord agrees to maintain
during the Term, insurance coverages as follows:
(i) Property of Every Description (Building and Equipment) against
the perils of "All-Risks", under form providing coverage at
least equivalent to Commercial Building Broad Form I.A.O. Form
No. 700 including "Building By-Laws Endorsements", and to be
insured for the Replacement Value, without allowance for
depreciation and Stated Amount, and with no co-insurance
requirement.
(ii) "Rental Income" for the gross annual rental income on
"All-Risks" basis, as provided under Commercial Building Broad
Form I.A.O. Form 700 including "Building By-Laws
Endorsements", providing coverage at least equivalent to
I.A.O. Profits Form No. 551 with an eighteen (18) month
indemnity period.
(iii) Broad Form Boiler and Machinery Policy on a blanket and
replacement basis with limits for each accident in an
amount not less than the replacement cost of the Building
containing the Leased Premises and which shall cover all
boilers, pressure vessels, air conditioning equipment and
miscellaneous electrical apparatus owned by the Landlord
and which shall include PCB coverage. It shall also
include "Rental Income" for the full gross annual income
equivalent to I.A.O. Profits Form No. 551 with a eighteen
(18) month indemnity period. This policy should also
provide "Building By-Laws Endorsements".
(iv) "General Liability Insurance" on a Comprehensive Form and on
an "occurrence" basis without deductible with retroactive
coverage against claims for Personal and Bodily Injury and
Death and/or Property Damage occurring upon or about the
Leased Premises and for a limit no less than $5,000,000.00
inclusive for one occurrence.
(v) Such other insurance coverage or coverages as a prudent owner
of a first class office building would obtain for protection
respecting loss of, or damage to the Building, the Lands or
the Leased Premises, or liability arising therefrom.
All such insurance coverages shall be kept and maintained by the
Landlord, and in no event shall the coverage be less than the amount
required by any institution then holding a mortgage on the Building and
Common Area Facilities. The Tenant shall pay to the Landlord, as part
of Operating Costs, its Proportionate Share of the Landlord's
Insurance. The Tenant shall not do or permit to be done any act or
thing whereby insurance coverage, premiums or any of them hereinbefore
contemplated, may be increased or cancelled by the insurer, or the
Leased Premises shall be rendered uninsurable, and if by reason of any
act done or permitted or omission, as the case may be, by the Tenant,
the said insurance coverage, premiums or any of them shall be
increased, then the Tenant, if it shall fail to rectify the event
giving rise to the increased premium after written notice thereof from
the Landlord, shall be liable to pay all of such increase in premium,
with respect to the entire coverages, and this notwithstanding that the
Tenant occupies only a portion of the Building covered by such
insurance coverages, and if the Leased Premises shall be rendered
uninsurable, or if the said insurance coverages, or any of them, shall
be cancelled by reason of any act or
<PAGE>
18
omission as the case may be by the Tenant and shall not be
susceptible of being replaced, after the Landlord's reasonable
efforts under the circumstances to do so, then the Landlord, after
giving the Tenant at least fourteen (14) days written notice within
which to replace insurance coverage or coverages shall, at its
absolute discretion, have the right to determine that the term
hereof has expired and in such event the Tenant shall deliver up
possession of the Leased Premises as if the Term of this Lease had
expired.
PROVIDED that no act required to be done by the Tenant nor any payment
required to be made by the Tenant, including reimbursements of
insurance premiums paid by the Landlord, shall relieve the Tenant from
any liability for damage incurred by the Landlord as result of any act
or omission of the Tenant.
If any other tenant of the Building has his own insurance premiums
increased by his insurers as a result of the use or occupation by the
Tenant herein of the within Leased Premises, the Tenant covenants and
agrees with the Landlord after written notice thereof, to pay the
additional cost forthwith upon demand as Additional Rent.
The Landlord's insurance policy shall contain a waiver of subrogation
in favour of the Tenant or those for whom the Tenant is in law
responsible.
9.2 AGENTS. The Tenant acknowledges, covenants and agrees that every right,
exemption from liability, defence and immunity of whatsoever nature
applicable to the Landlord or to which the Landlord is entitled
hereunder shall also be available and shall extend to protect every
such agent of the Landlord acting (in the course of or in connection
with his employment or otherwise) and for the purposes of all of the
foregoing provisions of this clause, the Landlord is or shall be deemed
to be acting as agent or trustee on behalf of and for the benefit of
persons who are or might be his servants, employees or agents from time
to time.
9.3 TENANT'S INSURANCE. The Tenant covenants to insure and to keep insured
during the whole of the Term, with an insurance company or companies in
good standing and upon terms and conditions all satisfactory to the
Landlord:
(i) "All-Risks" insurance upon all property owned by the
Tenant or for which it is legally liable or installed or
affixed by or on behalf of the Tenant and which is
located in the Building including, without limitation,
furniture, fittings, installations, alterations,
additions, partitions and fixtures or anything in the
nature of a Leasehold Improvement made or installed by or
on behalf of the Tenant in an amount equal to the full
replacement cost thereof; if there is a dispute as to the
amount which comprises full replacement cost the decision
of the Landlord's Architect shall be conclusive.
(ii) All parties hereto on a Comprehensive Form for bodily
injury and property damage, general liability coverage
arising out of the use, maintenance or repair of the
Leased Premises and/or the business of the Tenant or any
sub-tenant, licensees or occupiers of the Leased
Premises; such insurance shall be for a limit of not less
than $2,000,000.00 inclusive for any one occurrence, or
such higher limits as the Landlord, acting reasonably, or
any mortgagee requires from time to time, and shall
contain a severability of interest clause, and a cross
liability clause.
<PAGE>
19
(iii) Glass coverage for the replacement of all glass broken,
cracked or damaged in, on and about the Leased Premises.
(iv) Any other form of insurance that the Landlord or any mortgagee
may reasonably require, from time to time in form, amounts and
for insurance risks acceptable to the Landlord and any
mortgagee.
The Tenant covenants and agrees to provide the Landlord with evidence
of insurance as required under this provision. Such evidence shall be
by way of a certified copy of the policy if available in timely fashion
or failing which a certificate of insurance at such time or times as
the Landlord may require. The Tenant agrees to provide same to the
Landlord forthwith after notice has been given by the Landlord to the
Tenant of its request. The Tenant's policy shall contain a waiver of
subrogation in favour of the Landlord and those for whom the Landlord
is in law responsible.
9.4 LIMITATION OF LANDLORD'S LIABILITY. The Tenant agrees that:
(i) the Landlord shall not be liable for any bodily injury or
death of, or loss or damage to any property belonging to the
Tenant or its employees, invitees, or licensees or any other
person in, on or about the Building and Common Area Facilities
howsoever occurring and in no event shall the Landlord be
liable for:
(1) any damage which is caused by steam, water, rain or
snow which may leak into, issue or flow from any part
of the Building or Common Area Facilities or from the
pipes or plumbing works thereof or from any other
place or quarter or for any damage caused by or
attributable to the condition or arrangement
of any electric or other wiring or for any damage
caused by anything done or omitted by any other
tenant; and
(2) any act or omission (including theft, malfeasance or
negligence) on the part of any agent, contractor or
person from time to time employed by it to perform
janitor services, security services, maintenance,
supervision or any other work in or about the Leased
Premises or the Building or Common Area Facilities
provided it is understood that the Landlord shall
require its contractors to maintain insurance
consistent with industry standards; and
(3) loss or damage, however caused, to money, securities,
negotiable instruments, papers or other valuables of
the Tenant; and
(ii) the Landlord shall have no responsibility or liability
for the failure to supply interior climate control or
elevator service when prevented from doing so by strikes,
the necessity of repairs, any order or regulation of any
body have jurisdiction, the failure of the supply of any
utility required for the operation thereof or any other
cause beyond the Landlord's reasonable control, and shall
not be held responsible for any bodily injury, death or
damage to property arising from the use of, or any
happening in or about, any elevator.
9.5 INDEMNITY OF LANDLORD. The Tenant agrees to indemnify and save harmless
the Landlord in respect of all claims for bodily injury or death,
property damage or other loss or damage arising from the conduct of any
work by or any act or omission of the Tenant or any assignee,
subtenant, agent, employee, contractor, invitee or licensee of the
Tenant, and in respect of all costs, expenses and liabilities incurred
by the Landlord in connection with or arising out of all such claims,
<PAGE>
20
including the expenses of any action or proceeding pertaining thereto,
and in respect of any loss, cost, expense or damage suffered or
incurred by the Landlord arising from any breach by the Tenant of any
of its covenants and obligations under this Lease.
ARTICLE X-SUBORDINATION, ATTORNMENT AND CERTIFICATES
10.1 SUBORDINATION AND ATTORNMENT. The Tenant agrees that this Lease and all
the rights of the Tenant hereunder are subject and subordinate to all
mortgages now or hereafter existing (including deeds of trust and all
instruments supplemental thereto) which may now or hereafter affect the
Building or Common Area Facilities and to all renewals, modifications,
consolidations, replacements and extensions thereof, provided such
mortgagee has provided a non-disturbance agreement to the Tenant;
provided that the Tenant whenever requested by any mortgagee (including
any trustee under a deed of trust and mortgage) shall attorn to such
mortgagee as the Tenant upon all the terms of this Lease. Subject to
the foregoing, the Tenant agrees to execute promptly whenever requested
by the Landlord or by such mortgagee such instrument of subordination
or attornment, as the case may be, as may be required of it.
10.2 CERTIFICATES. The Tenant shall promptly whenever requested by the
Landlord from time to time execute and deliver to the Landlord (and if
required by the Landlord, to any mortgagee [including any trustee under
a deed of trust and mortgage] designated by the Landlord) a certificate
in writing as to the then status of this Lease, including as to whether
it is in full force and effect, is modified or unmodified, confirming
the rent payable hereunder and the state of the accounts between the
Landlord and Tenant, the existence or non-existence of defaults, and
any other matters pertaining to this Lease as to which the Landlord
shall request a certificate.
ARTICLE XI-EVENTS OF DEFAULT AND REMEDIES
11.1 EVENTS OF DEFAULT AND REMEDIES. In the event of the happening of any
one of the following events (hereinafter referred to as a "DEFAULT"):
(a) the Tenant shall have failed to pay an instalment of Base
Rent or of Additional Rent or any other amount payable
hereunder when due. No notice shall be required in the
event of a monetary Default;
(b) there shall be a default of or with any condition,
covenant, agreement or other obligation on the part of the
Tenant to be kept, observed or performed hereunder (other
than the obligation to pay Base Rent, Additional Rent or
any other amount of money) and such Default shall be
continuing for a period of more than ten (10) days after
written notice by the Landlord to the Tenant specifying the
Default and requiring that it discontinue or such longer
period as may be reasonably required in order to rectify
such default provided that the Tenant commences curing the
default within such 10 day period and thereafter diligently
attempts to cure such default on a continuous and regular
basis until such default is cured;
(c) if any policy of insurance upon the Building or any part
thereof from time to time affected by the Landlord shall be
cancelled or about to be cancelled by the insurer by reason
of the use or occupation of the Leased Premises by the
Tenant or any assignee, sub-tenant or licensee of the
<PAGE>
21
Tenant or anyone permitted by the Tenant to be upon the
Leased Premises and the Tenant, after receipt of notice in
writing from the Landlord, shall have failed to take such
immediate steps in respect of such use or occupation as
shall enable the Landlord to reinstate or avoid
cancellation (as the case may be) of such policy of
insurance;
(d) the Leased Premises shall, without the prior written
consent of the Landlord, be used by any other persons than
the Tenant or its permitted assigns or sub-tenants or for
any purpose other than that for which they were leased or
occupied or by any persons whose occupancy is prohibited by
this Lease;
(e) the Leased Premises shall be vacated or abandoned, without
the prior written consent of the Landlord for seven (7)
consecutive days or more while capable of being occupied;
(f) the balance of the Term of this Lease or any of the goods
and chattels of the Tenant located in the Leased Premises,
shall at any time be seized in execution or attachment; or
(g) the Tenant shall make any assignment for the benefit of
creditors or become bankrupt or insolvent or take the
benefit of any statute for bankrupt or insolvent debtors
or, if a corporation, shall take any steps or suffer any
order to be made for its winding-up or other termination of
its corporate existence; or a trustee, receiver or
receiver-manager or agent or other like person shall be
appointed of any of the assets of the Tenant;
the Landlord shall have the following rights and remedies all of
which are cumulative and not alternative and not to the exclusion of
any other or additional rights and remedies in law or equity
available to the Landlord by statute or otherwise:
(i) to remedy or attempt to remedy any Default of the Tenant,
and in so doing to make any payments due or alleged to be
due by the Tenant to third parties and to enter upon the
Leased Premises to do any work or other things therein, and
in such event all reasonable expenses of the Landlord in
remedying or attempting to remedy such Default shall be
payable by the Tenant to the Landlord on demand;
(ii) with respect to unpaid overdue Rent, to the payment by the
Tenant of the rent and of interest (which said interest
shall be deemed included herein in the term "Rent") thereon
at a rate equal to three percent (3%) above the prime
commercial loan rate charged to borrowers having the
highest credit rating from time to time by the Landlord's
principal bank from the date upon which the same was due
until actual payment thereof and the maximum amount allowed
under the laws of the jurisdiction in which the Building is
located;
(iii) to terminate this Lease forthwith by leaving upon the
Leased Premises or by affixing to an entrance door to the
Leased Premises notice terminating the Lease and to
immediately thereafter cease to furnish any services
hereunder and enter into and upon the Leased Premises or
any part thereof in the name of the whole and the same to
have again, re-possess and enjoy as of its former estate,
anything in this Lease contained to the contrary
notwithstanding; and
<PAGE>
22
(iv) to enter the Leased Premises as agent of the Tenant and as
such agent to re-let them and to receive the rent therefor
and as the agent of the Tenant to take possession of any
furniture or other property thereon and upon giving ten
(10) days' written notice to the Tenant to store the same
at the expense and risk of the Tenant or to sell or
otherwise dispose of the same at public or private sale
without further notice and to apply the proceeds thereof
and any rent derived from re-letting the Leased Premises
upon the account of the rent due and to become due under
this Lease and the Tenant shall be liable to the Landlord
for the deficiency if any.
11.5 PAYMENT OF RENT, ETC. ON TERMINATION.
(a) Upon the giving by the Landlord of a notice in writing
terminating this Lease under sub-paragraph 11.1 (iii) of
this paragraph, this Lease and the term shall terminate,
Rent and any other payments for which the Tenant is liable
under this Lease shall be computed, apportioned and paid
in full to the date of such termination forthwith, and
there shall immediately become due and payable forthwith
in one lump sum, the next immediately ensuing three (3)
months' Rent (calculated as if full Base Rent and
Additional Rent are owing and not giving credit for any
scheduled free Rent period). Upon termination of this
Lease and the Term, the Tenant shall immediately deliver
up possession of the Leased Premises to the Landlord, and
the Landlord may forthwith re-enter and take possession of
them.
(b) The Tenant shall pay to the Landlord on demand all costs
and expenses, including lawyers' fees and disbursements
incurred by the Landlord in enforcing any of the
obligations of the Tenant under this Lease.
(c) The Tenant shall pay to the Landlord, for any monetary
Default, interest at a fixed rate per annum equal to the
most favourable rate which the Landlord's principal bank
will lend money on prime loans to commercial customers at
the date when interest commences to run plus three percent
(3%) per annum. Such interest shall run from the due date
of such sum without the necessity of a demand until
payment and shall be compounded semi-annually.
11.3 RENUNCIATION. The Tenant waives and renounces the benefit of any
present or future statute taking away or limiting the Landlord's right
of distress.
ARTICLE XII-MISCELLANEOUS
12.1 REGISTRATION. The Tenant agrees with the Landlord not to register this
Lease, but nevertheless if the Tenant desires to register a notice of
this Lease, the Landlord agrees to execute a notice or acknowledgement,
if required, sufficient for the purpose in such form as the Landlord
and Tenant mutually approve provided in no event shall rental rates of
this Lease be shown.
12.2 NOTICE. Any notice required or contemplated by any provision of this
Lease shall be given in writing, and if to the Landlord, either
delivered to an executive officer of the Landlord or by facsimile
transmission or mailed by prepaid registered mail addressed to the
Landlord at 3650 Victoria Park Avenue, Suite #500, North York
(Toronto), Ontario, M2H 3P7, and if to the Tenant, either delivered
to the Tenant (or to an officer of the Tenant if the Tenant is a
firm or corporation) or by facsimile transmission or mailed by
prepaid registered mail addressed to the Tenant at the Leased
<PAGE>
23
Premises. Every such notice shall be deemed to have been given when
delivered or, if mailed as aforesaid in Canada, upon the day when it
was mailed. The Landlord may from time to time by notice in writing
to the Tenant designate another address in Canada as the address to
which notices are to be mailed to it.
12.3 EXTRANEOUS AGREEMENTS. The Tenant acknowledges that there are no
covenants, representations, warranties, agreements or conditions
expressed or implied relating to this Lease or the Leased Premises save
as expressly set out in this Lease and in any agreement to Lease in
writing between the Landlord and the Tenant pursuant to which this
Lease has been executed. This Lease may not be modified except by an
agreement in writing executed by the Landlord and the Tenant.
12.4 CONSTRUCTION. All of the provisions of this Lease are to be construed
as covenants and agreements. If any provision of this Lease is illegal
or unenforceable it shall be considered separate and severable from the
remaining provisions of this Lease, which shall remain in force and be
binding as though the said provision had never been included. The
headings and marginal sub-headings of clauses and sub-clauses are for
convenience of reference and are not intended to limit, enlarge or
otherwise affect their meanings.
12.5 NON-WAIVER. No condoning, excusing or overlooking by the Landlord of
any default, breach or non-observance by the Tenant at any time or
times in respect of any covenant, agreement, proviso or condition
herein contained shall operate as a waiver of the Landlord's rights
hereunder in respect of any continuing or subsequent default, breach or
non-observance or so as to defeat or affect in any way the rights of
the Landlord in respect of any such continuing or subsequent default or
breach and no waiver shall be inferred or implied by anything done or
omitted by the Landlord save only express waiver in writing.
12.6 ACCORD AND SATISFACTION. No payment by the Tenant or receipt by the
Landlord of a lesser amount than the Base Rent and Additional Rent from
time to time due shall be deemed to be other than on account of the
earliest stipulated Base Rent and Additional Rent due, nor shall any
endorsement or statement on any cheque or any letter accompanying any
cheque or payment of Base Rent or Additional Rent be deemed an accord
and satisfaction, and the Landlord may accept such cheque or payment
without prejudice to the Landlord's right to recover the balance of
such Base Rent or Additional Rent or pursue any other remedy provided
in this Lease.
12.7 GOVERNING LAW. This Lease shall be governed by and construed
in accordance with the laws of the Province of Ontario.
12.8 TIME OF THE ESSENCE. Time shall be of the essence of this Lease and
every part hereof.
12.9 NO PARTNERSHIP. Nothing contained herein shall be deemed or construed
by the parties hereto, nor any third party, as creating the
relationship of principal and agent, or a partnership, or a joint
venture between the parties hereto, it being understood and agreed that
none of the provisions contained herein nor any acts of the parties
hereto shall be deemed to create any relationship between the parties
hereto other than the relationship of Landlord and Tenant.
12.10 FORCE MAJEURE. Except as herein otherwise expressly provided, if and
whenever and to the extent that the Landlord or the Tenant shall be
prevented delayed or restricted in the fulfilment of any obligations
hereunder in respect of the supply or provision of any service or
utility,
<PAGE>
24
the making of any repair, the doing of any work or any other thing
by reason of strikes or work stoppages or being unable to obtain any
material, service, utility or labour required to fulfil such
obligation or by reason of any statute, law or regulation of or
inability to obtain any permission from any governmental authority
having lawful jurisdiction preventing, delaying or restricting such
fulfilment, or by reason of other unavoidable occurrence, the time
for fulfilment of such obligation shall be extended during the
period in which such circumstance operates to prevent, delay or
restrict the fulfilment thereof and the Tenant or Landlord, as the
case may be, shall not be entitled to compensation for any
inconvenience, nuisance or discomfort thereby occasioned.
Notwithstanding the foregoing, the Tenant acknowledges and agrees
that this provision shall have no application to the Tenant's
obligation to pay Rent in accordance with the strict provisions of
this Lease.
12.11 CONTRA PROFERENTEM. The Parties acknowledge and agree that both
parties have participated in the drafting of this Lease, and any
rule of law providing that ambiguities shall be construed against
the drafting party, shall be of no force or effect.
12.12 PLANNING ACT. This Lease is expressly conditional upon compliance
with the land division provisions of the Planning Act R.S.O. 1990
(as it may be amended from time to time), if applicable.
12.13 ACCESS. The Tenant, its employees, invitees and customers and
persons connected with the Tenant (subject and except as in this
Lease provided) shall have the right in common with others entitled
thereto from time to time to use the parking areas, driveways,
walkways, lawns, ramps (if any) and other Common Areas in and about
the Building from time to time. The Tenant shall not unreasonably
block or in any manner hinder the Landlord, other tenants or other
persons claiming through or under them or any of them who may be
authorized by the Landlord to utilize the Common Areas from so
doing. The Landlord may, acting reasonably, from time to time permit
the Tenant to have the exclusive use of portions of the parking area
which forms part of the Common Areas and to permit other tenants or
other persons to have exclusive use of portions thereof.
12.14 TRANSFERS BY THE LANDLORD. The Landlord at any time and from time to
time may sell, transfer, lease, assign or otherwise dispose of the
whole or any part of its interest in the Leased Premises or in the
Building and lands of which the Leased Premises form a part, at any
time and from time to time, may enter into any mortgage of the whole
or any of its interest in the Building and Lands or in the Leased
Premises. If the party acquiring such interest shall have agreed to
assume and so long as it holds such interest, to perform each of the
covenants, obligations and agreements of the Landlord under this
Lease in the same manner and to the same extent as if originally
named as the Landlord in this Lease, the Landlord shall, thereupon
be released from all of its covenants and obligations under this
Lease.
The Landlord may assign its rights under this Lease to a lending
institution as collateral security for a loan. If such assignment is
made and executed by the Landlord and notification thereof is given
to the Tenant by or on behalf of the Landlord this Lease shall not
be cancelled or modified for any reason whatsoever except as
provided for by the terms hereof or by law without the consent in
writing of such lending institution.
12.15 OCCUPANCY PERMIT. [Deleted]
<PAGE>
25
12.16 LEASED PREMISES. Save and except for any work to be performed by
the Landlord as specifically set out herein, the taking of
possession of the Leased Premises by the Tenant shall be conclusive
evidence that the Tenant accepts the Premises in an "as is"
condition and that the said Leased Premises were in good and
satisfactory condition at the time possession was so taken.
12.17 SUCCESSORS AND ASSIGNS. This Lease and everything herein contained
shall enure to the benefit of and be binding upon the successors and
assigns of the Landlord and the permitted successors and assigns of
the Tenant. References to the Tenant shall be read with such changes
in gender as may be appropriate, depending upon whether the Tenant
is a male or a female person or a firm or corporation, and if the
Tenant is more than one person or entity, the covenants of the
Tenants shall be deemed joint and several. All obligations of the
Tenant or the Landlord under this Lease shall be deemed to be
covenants whether or not expressed as same. No rights of the Tenant
in this Lease shall be deemed to be personal, but shall accrue to
the benefit of the Tenant's successors, permitted subtenants and
assigns.
12.18 AREA DETERMINATION. In the event that any calculation or
determination by the Landlord of the Rentable Area of any premises
(including the Demised Premises) or the Building is disputed or
called into question by the Tenant, it shall be calculated or
determined by the Landlord's architect from time to time appointed
for the purpose, whose certificate shall be conclusive and the cost
of such certificate shall be borne by the Tenant.
ARTICLE XIII-OTHER PROVISIONS
13.1 COMMON AREAS. The Tenant acknowledges that the Common Area
Facilities are at all times subject to the exclusive control and
operation of the Landlord, and the Landlord shall have the right to
construct improvements, alterations and additions thereto and to
relocate the various facilities thereon.
13.2 PARKING. The Tenant further acknowledges that the parking facilities
in the Common Area Facilities are on a non-exclusive ("First Come",
"First Serve Basis") and may be altered or diminished during the
term or renewal thereof and the manner in which access is permitted
may be altered. The monthly parking rate per space shall be the rate
as determined by the Landlord from time to time in its sole
discretion.
13.3 WINDOW COVERINGS. [Deleted]
13.4 LANDLORD'S WORK.
The Landlord agrees to repaint the Leased Premises and the Tenant
shall assist and co-operate with the Landlord in regard to the
scheduling of such work. Except for such repainting, the Tenant
agrees to lease the Leased Premises on as "as-is" basis.
13.5 CO-TENANCY. This Lease is not personally binding upon and resort
shall not be had nor shall recourse or satisfaction be sought from
the private property of any of the unit holders of Investors Real
Property Fund (the "Fund"), trustees, officers, directors, employees
or agents of the trustee or manager of the Fund, it being intended
and agreed that only the property of the Fund shall be bound by this
Lease. Only the co-tenancy interests of Menkes Office Parks Ltd.
("Menkes") and Investors Group Trust Co. Ltd. ("Investors Group")
shall be bound hereby and
<PAGE>
26
the obligations hereunder are not binding upon either of Menkes or
Investors Group in any other respect nor shall resort be had to any
other property of any of Menkes or Investors Group. The rights and
obligations of each of Menkes and Investors Group hereunder shall,
in every case, be several and proportionate and not either joint or
joint and several.
IN WITNESS WHEREOF the Landlord and Tenant have executed this Lease.
MENKES OFFICE PARKS LTD.
Per: /s/ illegible
_____________________________________________
(I/We have authority to bind the Corporation)
INVESTORS GROUP TRUST CO. LTD.
as trustee for
INVESTORS REAL PROPERTY FUND
Per: /s/ Robert G. Darling
_____________________________________________
(I/We have authority to bind the Corporation)
ROBERT G. DARLING Vice President
Per: /s/ Murray J. Mitchell
_____________________________________________
(I/We have authority to bind the Corporation)
MURRAY J. MITCHELL Assistant Secretary
WALL DATA INCORPORATED
Per: /s/ Richard H. Van Hoesen
_____________________________________________
(I/We have authority to bind the Corporation)
RICHARD VAN HOESEN
VP FINANCE, CO
01/96
<PAGE>
SCHEDULE "A"
Lots 4 & 5 , Plan 65M-2139, in the Town of Richmond Hill, in the Regional
Municipality of York.
<PAGE>
SCHEDULE "B"
[FLOOR PLAN]
Base Building Grid 1500 x 1500
PREPARED BY: 1595 16th Ave. [MENKES LOGO]
[LOGO] Third Floor 491-2222
Richmond Hill, Ontario
<PAGE>
SCHEDULE "C"
RULES AND REGULATIONS
The Rules and Regulations may differentiate between different types of
businesses in the Building but the Rules and Regulations will be adopted and
promulgated by the Landlord acting reasonably and in such manner as would a
prudent Landlord of a reasonably similar office building. The Tenant's failure
to keep and observe the Rules and Regulations now or from time to time in force
constitutes a default under this Lease in such manner as if the same were
contained herein as covenants. The Landlord reserves the right from time to time
to amend or supplement the Rules and Regulations applicable to the Leased
Premises or the Building as in the Landlord's absolute and unfettered discretion
are from time to time needed for the safety, care, cleanliness and more
efficient operation of the Building and for the preservation of good order
therein. Notice of the Rules and Regulations and amendments and supplements, if
any, shall be given to the Tenant and the Tenant shall thereupon comply with and
observe all such Rules and Regulations provided that no Rules and Regulations
shall contradict any terms, covenants and conditions of this Lease. The Rules
and Regulations as at the Commencement Date are as follows:
1. The Tenant shall not place any debris, garbage, trash or refuse or
permit same to be placed or left in or upon any part of the Building
outside of the Leased Premises and the Tenant shall not allow any undue
accumulation of any debris, garbage, trash or refuse in or outside of
the Leased Premises.
2. The Landlord shall permit the Tenant and the Tenant's
employees and all Persons lawfully requiring communication
with them to have the use during such hours as the Landlord
deems reasonable in common with others entitled thereto of the
main entrance and stairways, corridors, elevators or other
mechanical means of access leading to the Leased Premises. At
times other than during such hours as the Landlord deems
reasonable the Tenant and the employees of the Tenant shall
have access to the Building and to the Leased Premises only in
accordance with the Rules and Regulations and shall be
required to satisfactorily identify themselves and to register
in any book which may at the Landlord's option be kept by the
Landlord for such purpose. If identification is not
satisfactory, the Landlord is entitled to prevent the Tenant
or the Tenant's employees or other Persons lawfully requiring
communication with the Tenant from having access to the
Building. In addition, the Landlord is not required to open
the door to the Leased Premises for the purpose of permitting
entry therein to any Person not having a key to the Leased
Premises.
3. The Landlord shall permit the Tenant and the employees of the
Tenant in common with others entitled thereto, to use the
washrooms on the floor of the Building on which the Leased
Premises are situated or, in lieu thereof, those washrooms
<PAGE>
2
designated by the Landlord, save and except when the general
water supply may be turned off from the public main or at such
other times when repair and maintenance undertaken by the
Landlord shall necessitate the non-use of the facilities.
4. The Tenant shall permit window cleaners to clean the windows of the
Leased Premises during such hours as the Landlord deems reasonable.
5. The sidewalks, entrances, passages, elevators and staircases shall
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 offices. The Landlord reserves
entire control of all parts of the Building employed for the common
benefit of the tenants and without restricting the generality of the
foregoing, the sidewalks, entrances, corridors and passages not
within the Leased Premises, washrooms, lavatories, air-conditioning
closets, fan rooms, janitor's closets, electrical closets and other
closets, stairs, elevator shafts, flues, stacks, pipe shafts and
ducts and shall have the right to place such signs and appliances
therein, as it deems advisable, provided that ingress to and egress
from the Leased Premises is not unduly impaired thereby.
6. The Tenant, its agents, servants, contractors, invitees or
employees, shall not bring in or take out, position, construct,
install or move any safe, business machinery or other heavy
machinery or equipment or anything liable to injure or destroy any
part of the Building without first obtaining the consent in writing
of the Landlord. In giving such consent, the Landlord shall have
the right in its absolute and unfettered discretion, to prescribe
the weight permitted and the position thereof, and the use and
design of planks, skids or platforms, to distribute the weight
thereof. All damage done to the Building by moving or using any such
heavy equipment or other office equipment or furniture shall be
repaired at the expense of the Tenant. The moving of all heavy
equipment or other office equipment or furniture shall occur only by
prior arrangement with the Landlord. No Tenant shall employ anyone
to do its moving in the Building other than the staff of the
Building, unless permission to employ anyone else is given by the
Landlord and the reasonable cost of such moving shall be paid by the
Tenant. Safes and other heavy office equipment and machinery shall
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.
7. The Tenant shall not place or cause to be placed any additional
locks upon any doors of the Leased Premises without the approval of
the Landlord and subject to any conditions imposed by the Landlord.
Two keys shall be supplied to the Landlord for each entrance door to
the Leased Premises and all locks shall be standard to permit access
to the Landlord's master key. If additional keys are requested,
they must be paid for by the Tenant. No one, other than the
Landlord's
<PAGE>
3
staff will have keys to the outside entrance doors of the Building.
8. The water closets and other water apparatus shall not be used for
any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, ashes or other substances shall be thrown
therein. Any damage resulting from misuse shall be borne by the
Tenant by whom or by whose agents, servants, or employees the same
is caused. The Tenant shall not (a) let the water run unless it is
in actual use, (b) deface or mark any part of the Building, (c)
drive nails, spikes, hooks or screws into the walls or woodwork of
the Building, or (d) bore, drill or cut into the walls or woodwork
of the Building in any manner or for any reason.
9. No one shall use the Leased Premises for sleeping apartments or
residential purposes, or for the storage of personal effects or
articles other than those required for business purposes.
10. The Tenant shall not permit any cooking of any foods or liquids in
the Leased Premises without the written consent of the Landlord.
11. Canvassing, soliciting and peddling in or about the Building and in the
parking facilities of the Building are prohibited.
12. It shall be the duty of the Tenant to assist and co-operate with the
Landlord in preventing injury to the Leased Premises.
13. No flammable oils or other flammable, dangerous or explosive
material save those approved in writing by the Landlord's insurers
shall be kept or permitted to be kept in the Leased Premises.
14. No bicycles or other vehicles shall be brought within the building
without the consent of the Landlord.
15. No animals or birds shall be brought into the Building without the
consent of the Landlord.
16. The Tenant shall not install of permit the installation or use of
any machine dispensing goods for sale in the Leased Premises or the
Building or permit the delivery of any food or beverage to the
Leased Premises without the approval of the Landlord or in
contravention of any regulations fixed or to be fixed by the
Landlord. Only Persons authorized by the Landlord shall be permitted
to deliver or to use the elevators in the Building for the purpose
of delivering foods or beverages to the Leased Premises.
17. If the Tenant desires telegraphic or telephonic connections, the
Landlord will direct the electricians as to where and how the wires
are to be introduced. No gas pipe or electric wire will be permitted
which has not been ordered or authorized by the Landlord.
<PAGE>
4
18. The Tenant shall not cover or obstruct any of the skylights and
windows that reflect or admit light into any part of the Building
except for the proper use of approved window coverings.
19. Any hand trucks, carryalls, or similar appliances used in the Building
with the consent of the Landlord, shall be equipped with rubber tires,
slide guards and such other safeguards as the Landlord requires.
20. The Tenant shall not place or maintain any supplies, merchandise or
other articles in any vestibule or entry of the Leased Premises, on the
footwalks adjacent thereto or elsewhere on the exterior of the Leased
Premises or the Building.
21. The Tenant shall not commit or suffer or permit to be committed any
waste upon, or damage to, or disfiguration of the Leased Premises or
any nuisance or other act or thing which disturbs the quiet enjoyment
of any other tenant in the Building or which unreasonably disturbs or
interferes with or annoys any Person, nor perform any acts or carry on
any practices which may damage the building.
22. The Tenant shall not refer to the Building by any name other than that
designated from time to time by the Landlord, nor use such name for any
purpose other than that of the business address of the Tenant, provided
that the Tenant may use the municipal number of the Building assigned
to it by the Landlord instead of the name of the Building.
23. The Tenant shall not install or allow on the Leased Premises any
transmitting device, nor erect any aerial on the roof of the
Building or on any exterior walls of the Leased Premises. Any such
installations shall be subject to removal by the Landlord without
notice at any time and such removal shall be done and all damage as
a result thereof shall be made good, in each case, at the cost of
the Tenant, payable as Additional Rent forthwith on demand.
24. The Tenant shall not use any travelling or flashing lights or signs
or any loudspeakers, television, phonographs, radio or other
audio visual or mechanical devices in a manner so that they can be
heard or seen outside of the Leased Premises. If the Tenant uses
any such equipment without receiving the prior written consent of
the Landlord, the Landlord shall be entitled to remove such
equipment without notice at any time and such removal shall be done
and all damage as a result thereof shall be made good, in each case,
at the cost of the Tenant, payable as Additional Rent forthwith on
demand.
25. The Landlord shall have the right to restrict access to the elevators
for move-in and move-out purposes. The Tenant shall consult prior to
taking or giving up occupation of the Leased Premises in order to
obtain an elevator schedule from the Landlord.
<PAGE>
5
26. If the Tenant requires the supply of water, electricity, heating,
air conditioning or any other utility or service after the normal
hours during which the Landlord supplies same or on a weekend or
holiday, the Tenant shall purchase its requirements for those
utilities or services from the Landlord and the Tenant shall pay to
the Landlord as Additional Rent forthwith upon demand the cost of
same at the rates current from time to time set by the Landlord.
The Tenant acknowledges that at least twenty-four hours' prior
written notice must be given to the Landlord in the event that the
Tenant requires the supply of utilities after the hours the Landlord
normally supplies same.
27. There shall be no smoking allowed in any part of the Building
including the Leased Premises and all public areas which shall
include, but not be limited to washrooms, elevators, elevator
lobbies, common area hallways, stairwells, etc.
<PAGE>
SCHEDULE "D"
WALL DATA STANDARD LEASE RIDER
This Lease Rider ("Rider") is attached to and incorporated by reference into
the lease (the "Lease") between Wall Data Incorporated as Tenant and as
Landlord, with respect to premises known as suite 303 (the "Premises") of the
building located at 1595 16th Avenue, Richmond Hill, Ontario (the "Building")
(this Rider, together with the Lease, are hereinafter referred to as the
"Lease"). Notwithstanding anything to the contrary in the Lease, Landlord and
Tenant agree as follows. In the event of any inconsistency between the terms
of the Lease and the terms of this Rider, this Rider shall prevail.
1. PAYMENT OF RENT
All monthly payment of rent, additional rent, and other sums of money
due from Tenant to Landlord under the terms of the Lease shall be payable on
the 1st day of the month, provided that the Tenant shall not be treated as
being in default under the Lease unless rent remains unpaid by the 10th day
of the month.
2. USE
The Premises shall be used for general office purposes, computer program
development and marketing, and uses incidental thereto, and for no other
purpose without the prior written consent of the Landlord which shall not be
unreasonably withheld, delayed or conditioned. Tenant shall comply with all
governmental rules, orders, regulations, and requirements relating to the use
and occupancy of the Premises, except that Tenant shall not be required to
make any capital improvements.
Tenant shall not allow use of the Premises in a manner which increases
Landlord's insurance premiums, in a manner which interferes with any other
tenant in the Building, in a manner which creates undue noise or vibration,
or for any illegal purpose. Tenant shall not use, store or dispose of any
hazardous or toxic waste or materials in the Premises or Building at any
time, except in small amounts as ordinarily and customarily used for general
office purposes, and then strictly in accordance with all applicable laws,
rules, regulations and ordinances.
3. SURRENDER
Upon expiration of the term or sooner termination of the Lease, the
Premises shall be surrendered to Landlord in reasonable condition, ordinary
wear and tear, and damage from fire and other casualty and condemnation
excepted.
4. LANDLORD'S SERVICES
Landlord agrees that the following utilities and services will be
available at or to the Premises at the times and in the manner that they are
ordinarily and customarily available in an office building of the quality and
in the vicinity of the Building:
(a) electricity;
(b) natural gas;
(c) hot and cold water for drinking, rest room and office cleaning
purposes;
(d) heating, ventilation and air conditioning
(e) 24 hour access to the Premises;
(f) telephone service;
(g) computer cabling;
(h) passenger and freight elevator service;
(i) sprinkler riser monitoring;
(j) janitorial and cleaning services; and
(k) window washing services
All such utilities and services shall be paid for as set forth in the
Lease. Interruption of utilities or services shall not be deemed an eviction
or excuse performance of any of Tenant's obligations under this Lease or
render Landlord liable for damages, except that Landlord shall be
<PAGE>
2
liable for damages arising from interruption of utilities or services due to
the negligence or willful misconduct of Landlord, it agents, or employees. If
interruption of utilities and services or any other cause renders the
Premises untenantable for their intended purposes for more than ten (10)
business days, then Tenant's obligations to pay rent shall abate for the time
that the Premises are so untenantable.
5. MAINTENANCE BY LANDLORD
Landlord shall maintain the Building in a first class condition
comparable to other buildings in the vicinity of like quality and use.
Landlord shall maintain in good condition (normal wear and tear excepted) the
structural and exterior components of the Building including, without
limitation, the foundations, bearing and exterior walls, subflooring, roof
unexposed electrical, plumbing and sewage systems and heating, ventilating
and air conditioning systems. Landlord shall also maintain in good condition
and repair the common areas (including light bulbs), elevators, alarm
monitoring, building systems including without limitation plumbing and
electrical systems, parking areas, lobbies, stairwells, restrooms, and
outdoor landscaping. Landlord shall not be obligated to repair or replace any
fixtures or equipment installed by or for Tenant and Landlord shall not be
obligated to make any repair or replacement occasioned by any act or omission
of Tenant, its employees, agents, invitees, or licensees.
6. HAZARDOUS SUBSTANCES
To the best of Landlord's knowledge, after reasonable inquiry, there are
no hazardous waste or substances in the soil or groundwater of the real
property on which the Building is located and Landlord has not disposed of or
approved any disposal by any other party of any hazardous wastes or
substances on or from the Building or real property. Landlord shall
indemnify, defend and save Tenant harmless for any and all cleanup costs,
charges, fees and penalties imposed by any governmental authority with
respect to the use, disposal, transportation, generation or sale of hazardous
substances or hazardous wastes on for from the Building or real property
except such use, disposal, transportation, generation or sale by Tenant.
7. ADDITIONAL PROVISION CONCERNING OPERATING EXPENSES
Notwithstanding anything to the contrary contained in the Lease, the
following items shall be excluded (or, as applicable, deducted) from the
calculation of Tenant's share (if any) of operating costs and expenses of the
Building:
(a) the cost of repairs or other work occasioned by fire, windstorm or
other casualty or loss in excess of the insurance proceeds therefor
(or, if greater, the proceeds that would have been available had
Landlord maintained the insurance required to be maintained by
Landlord pursuant to this Lease);
(b) costs resulting from the correction of any latent construction
defects in all or any portion of the Building, or any condition
that is, as of the date of this Lease, not in compliance with
applicable laws, codes, rules or regulations;
(c) costs of initial landscaping;
(d) rental concessions or lease buyouts;
(e) the costs of renovating or otherwise improving or decorating,
painting or redecorating space (exclusive of common areas) for any
tenants or other occupants of the Building, including, without
limitation, Tenant;
(f) the amounts by which the cost of any work or service performed for
and electricity applied to any tenant or occupant (other than
Tenant) exceeds the greater of (i) the cost of the standard amount
or level of such work, service or electricity provided to tenants
or occupants of the Building in general, or (ii) the cost of the
amount or level of work, service or electricity made available by
Landlord to Tenant under this Lease;
<PAGE>
3
(g) depreciation except as specifically provided hereunder;
(h) premium rates paid on service or other contracts;
(i) overhead or profit paid to Landlord, subsidiaries or affiliates of
Landlord, for services on or to the Building if and to the extent
the cost therefor exceeds competitive costs for such services in
comparable first-class office buildings located within five (5)
miles of the Building were they not so rendered by Landlord, or by
a subsidiary or affiliate of Landlord;
(j) payment of principal interest or other payments of any kind on any
deeds to secure debt, mortgages, ground or underlying leases, or
other hypothecations for security of all or any part of the
Building by Landlord;
(k) rents payable in connection with any ground or underlying lease of
all or any portion of the Building;
(l) Landlord's general overhead and any other expense not directly
related to the Building;
(m) all items, services and/or goods for which Tenant or any other
tenant, occupant, person or other party is obligated to reimburse
Landlord or to pay third parties;
(n) advertising and promotional expenses with respect to leasing space
in or selling the Building;
(o) brokerage, legal and professional fees expended by Landlord in
connection with negotiating and entering into any leases and any
related instruments (including, without limitation, guaranties,
surrender agreements, leasing amendments and consents to assignment
or subletting) with any tenant or other occupant of any portion of
the Building, and the enforcement of any such instruments; or which
are expended or incurred by Landlord in connection with the
negotiating and entering of sale, ground lease, financing,
partnership or similar transaction pertaining to the Building or
any portion thereof, and/or to Landlord or an interest in Landlord,
including without limitation, promissory notes, security deeds,
mortgages, ground or master leases, purchase and sale agreements,
options, and any and all similar and/or related documents,
instruments and agreements;
(p) estate, inheritance, gift franchise and income taxes of Landlord;
(q) wages, salaries and other compensation paid to employees of the
Landlord at the Building who are at or above the level of Building
manager or district manager to the extent of time dedicated to the
management of the Building;
(r) the costs and expenses of maintenance and operating of any parking
facility in or serving the Building except to the extent that they
exceed any revenues for parking received from such operation;
(s) all items that would be capitalized under generally accepted
accounting principles provided that the Landlord shall be entitled
to amortize all such costs over the useful life of the item being
replaced;
(t) the cost of defending against claims in regard to the existence or
release of hazardous substances or materials at the Building and
costs of any clean-up of any such hazardous substances or material
(except with respect to those costs for which Tenant is otherwise
responsible pursuant to the express terms of this Lease);
(u) costs and expenses incurred in connection with compliance with or
the contesting or settlement of any claimed violation of law or
requirements of law;
<PAGE>
4
(v) interest, penalties or damages incurred by Landlord for late
payment of taxes or assessments or under any agreement to which
Landlord is a party by reason of the breach or default of Landlord;
(w) expenses incurred in connection with relocating tenants in the
Building;
(x) the cost of installing, operating and maintaining any specialty
service or special facility such as an observatory, broadcasting
facilities, health club, cafeteria, or dining facility or luncheon
club, other than those facilities generally made available to
tenants of the Building without cost;
(y) the cost of acquiring, securing, cleaning and maintaining works of
art;
(z) amounts received by Landlord through proceeds of insurance to the
extent the proceeds are compensation for expenses which were
previously included in Building operating costs charged to tenants;
(aa) costs related to public transportation, transit or van pools; and
(bb) all other items for which Tenant or any other tenant, occupant or
other party compensates Landlord, so that no duplication of
payments by Tenant or to Landlord shall occur.
8. ASSIGNMENT AND SUBLETTING BY TENANT
Neither this Lease nor any right hereunder may be assigned, transferred,
encumbered, or sublet in whole or in part by Tenant, by operation of law or
otherwise, without Landlord's prior consent, which shall not be unreasonably
withheld, condition, or delayed, No ASSIGNMENT or sublease shall relieve
Tenant of its liabilities hereunder and Tenant shall continue to be primarily
liable therefor. No consent to any assignment or subleases shall be deemed a
consent to any further assignment or sublease. No merger, consolidation,
reorganization or change in ownership of or the power to vote any proportion
(including a majority) of Tenant's outstanding voting stock, shall constitute
an assignment.
Landlord hereby consents to an assignment of this Lease or a subletting
of all or part of the Premises to (a) a parent of Tenant, the parent of such
parent, or a wholly owned subsidiary of Tenant, of such parent, or of the
parent of such parent and (b) any entity to whom Tenant sells all or
substantially of its assets provided that any such entity expressly assumes
all Tenant's obligations hereunder.
9. SIGNS
Landlord shall display Tenant's name and location on the Building
directory.
10. TRANSFER OF PREMISES BY LANDLORD
Landlord may, at Landlord's sole option, sell the Building or the
property on which the Building is located and/or assign this Lease or any of
Landlord's rights hereunder. In the event of any such sale and/or assignment
by Landlord, Landlord shall not be released and relieved of Landlord's
duties, obligations or liability under any of the covenants and obligations
contained in or derived from this Lease unless the purchaser at such sale or
any subsequent sale, and/or the assignee if Landlord assigns this Lease,
assumes and agrees to carry out any and all of the covenants, duties and
obligations of the Landlord under this Lease ("Assumption"). In any event,
Landlord shall not be released or relieved from any covenants or obligations
or liability under the lease arising or incurred prior to the date of the
Assumption.
<PAGE>
5
11. SUBORDINATION AND NONDISTURBANCE AGREEMENT
The Lease is and shall be prior to any mortgage recorded after the
date of the Lease affecting the Building. If, however, a lender requires that
this Lease be subordinate to any mortgage, this Lease shall be subordinate to
that mortgage only if Landlord first obtains from the lender a written
nondisturbance agreement in commercially reasonable form that provides
substantially the following:
As long as Tenant performs its obligations under this Lease, no foreclosure
of, deed given in lieu of foreclosure of, or sale under the mortgage, and no
steps or procedures taken under the mortgage, shall affect Tenant's rights
under this Lease.
Tenant shall attorn to any purchaser at any foreclosure sale, or to
any grantee or transferee designated in any deed given in lieu of
foreclosure. Tenant shall execute a written agreement reasonably required by
any lender to accomplish the purpose of this Section.
12. RELEASE AND WAIVER OR SUBROGATION
Neither Landlord nor Tenant shall be liable to the other or to any
insurance company (by way of subrogation or otherwise) insuring the other
party for any loss or damage to any building, structure or tangible personal
property of the other or of any third party occurring in or about the
Premises of Building, even though such loss or damage might have been
occasioned by the negligence of such party, its agents or employees, if such
loss or damage would fall within the scope of a fire and extended coverage
(all risk) policy of insurance, whether or not the party suffering the loss
actually maintained such insurance. Each party shall obtain from its
respective insurer under each insurance policy it maintains a waiver of all
rights of subrogation which the insurer of one party may have against the
other party, and Landlord and Tenant shall each indemnify the other against
any loss or expense, including reasonable attorney's fees, resulting from the
failure to obtain such a waiver.
13. DISCRETION TO BE EXERCISED REASONABLY
Whenever, under the terms of this Lease, either party shall have the
right to exercise its discretion, or to grant or withhold its consent, that
party shall exercise its discretion reasonably, and shall not unreasonably
withhold or delay its consent.
14. LANDLORD'S INDEMNIFICATION
Except as otherwise provided in this Section 14, Landlord shall
indemnify, defend (using legal counsel acceptable to Tenant) and save Tenant,
its board, officers, agents, employees and contractors harmless from all
claims, suits, losses, damages, fines, penalties, liabilities and expenses
(including Tenant's personnel and overhead costs and attorney's fees and
other costs incurred in connection with claims, regardless of whether such
claims involve litigation) resulting from any actual or alleged loss of or
damage to, any property arising out of or in connection with (i) Landlord's
breach of its obligations under the Lease, or (ii) any act or omission of
Landlord, or any partner, officer, agent or employee of Landlord, or of any
such entity in or about the Building outside the Premises. Landlord agrees
that the foregoing indemnity with respect to acts or omissions during the
term of the Lease shall survive termination or expiration of the Lease. The
foregoing indemnity is specifically and expressly intended to constitute a
waiver of Landlord's immunity under any applicable workmen's compensation
law, to the extent necessary to provide Tenant with a full and complete
indemnity from claims made by Landlord and its employees, to the extent of
their negligence.
<PAGE>
6
15. NOTICE
Any notice required to be given to Tenant shall be sent via
facsimile, overnight express mail or U.S. mail, postage prepaid, addressed
as follows:
Wall Data Incorporated
11332 NE 122nd Way
Kirkland, WA 98034
Attention: Facilities Manager
Fax Number: 206-814-4368
Notices shall be effective upon receipt.
<PAGE>
EXTENSION OF LEASE
THIS EXTENSION OF LEASE made this 15th day of September, 1998
BETWEEN:
MENKES OFFICE PARKS LTD. and
INVESTORS GROUP TRUST CO. LTD. as Trustee for
INVESTORS REAL PROPERTY FUND
(HEREINAFTER called the "LANDLORD")
OF THE FIRST PART
- and -
WALL DATA INCORPORATED
(HEREINAFTER called the "TENANT")
OF THE SECOND PART
WITNESSETH
WHEREAS:
A. By a lease dated the 8th day of July, 1996 (herein called the "LEASE")
made between the Landlord and the Tenant, the Landlord leased to the
Tenant the premises municipally known as 1915 16th Avenue, Suite 303,
Richmond Hill, Ontario (the "PREMISES") for a term of two (2) years from
October 1, 1996 upon the terms and conditions therein set forth in the
Lease;
B. The Tenant has requested the Landlord grant to it this Extension of the
LEASE for the Premises for a further term of two (2) years (the
"EXTENSION TERM") from the 1st day of October, 1998 on the terms
hereinafter set forth and the Landlord has agreed to do so.
Now in consideration of the mutual covenants hereinafter contained the
Parties agree as follows:
1. The Landlord hereby leases to the Tenant the Premises subject to the
payment on the same days and in the like manner of Base Rental and
additional rent save and except that the Base Rental for the Extension
Term shall be as follows:
(a) from the 1st day of October, 1998, until the 30th day of September,
1999 shall be in the amount of $52,752.00, Canadian currency, per
annum and the Base Rental monthly payments shall be in the amount
of $4,396.00, Canadian currency, per month plus G.S.T.;
(b) from the 1st day of October, 1999 until the 30th day of September,
2000 shall be in the amount of $57,148.00, Canadian currency, per
annum and the Base Rental monthly payments shall be in the amount
of $4,762.33, Canadian currency, per month plus G.S.T.;
The Extension Term shall be for two (2) years commencing on the 1st day
of October, 1998 and terminating on the 30th day of September, 2000 and
subject to and with the benefit of the Tenant's and Landlord's
covenants, provisos and conditions contained in the Lease.
Page 1
<PAGE>
2. Provided it is mutually agreed and understood that if the Tenant duly and
regularly pays the Base Rental and additional rental and performs all of
the provisos and agreements contained in the Lease and this Extension of
Lease on the part of the Tenant to be performed, and provided further
that the Tenant is not habitually in default under the terms of the
Lease and this Extension of Lease and is not in default at the time of
the exercise of the option herein, then the Landlord shall, at the
expiration of the Extension Term hereof, upon written request of the
Tenant, grant to the Tenant a further extension of the Lease, as
extended, for a further period of two (2) years upon the same terms and
conditions as contained herein, save as to the Base Rental rate, save
as to any Landlord's Work, save as to any further right of extension and
in an "as is" condition. Provided always that the Tenant shall have
given to the Landlord 180 days' notice in writing before the expiration
of the Extension Term of its desire to have such extension. The Base
Rental rate for such extension term shall be at the then fair market
rate at the time of the exercise by the tenant for similar premises in a
similar area and as mutually agreed between the Landlord and the Tenant.
In the event that the Landlord and the Tenant are unable to agree upon
the base rental rate for such extension term by 120 days prior to the
maturity date, the matter shall be submitted to arbitration by notice
given by either party to the other. Upon such notice being given, the
dispute shall be determined by the award of 3 arbitrators, or by a
majority of them, one to be named by the Landlord and one by the Tenant
within 30 days of the giving of such notice, and the 3rd to be selected
by these 2 arbitrators within 7 days after both have been nominated. If
either the Landlord or the Tenant shall neglect to refuse to name its
arbitrator in the time period specified or to proceed with the
arbitration, the arbitrator named by the other party shall proceed with
the arbitration, and the award of such arbitrator shall be final and
binding upon the Landlord and the Tenant. The Arbitrators shall have all
the power given by the Arbitrations Act of Ontario and may at any time
proceed in such manner as they see fit on such notice as they deem
reasonable in the absence of either party, if such party fails to
attend. Each party shall pay its own costs and shall share equally the
costs of arbitration. The award and determination of the arbitrators
shall be final and binding upon both parties hereto and each party
agrees not to appeal any such award or determination.
In no event shall the base rental for the extension period be less than
the highest Base Rental payable under the final year of the Extension
Term.
If the award of the arbitrators is not given before the commencement
date of such extension term, then the Tenant shall commence paying base
rental at the market rate as determined by the Landlord together with
additional rental, which shall be adjusted forthwith after the award of
the arbitrators has become final and binding, to be calculated from the
commencement date of the extension term.
The extension of lease form shall be prepared by the Landlord at its own
expense.
3. The Landlord and Tenant hereby mutually covenant that they will perform
and observe the several covenants, provisos and conditions in the Lease
as fully as if such covenants, provisos and conditions have been
repeated herein in full with such modifications only as are necessary to
make them applicable to this Extension of Lease. It is further
understood and agreed that any clauses in the Lease relating to
Landlord's work, Base Rental free or additional rent free periods,
Landlord's warranties, early occupancy, early access, additional rent
estimates and any other such tenant inducements are not applicable to
this extension term unless otherwise stated herein.
Page 2
<PAGE>
4. The Tenant covenants and agrees to deliver to the Landlord forthwith
upon execution of this Extension of Lease a cheque in the amount of
$2,743.83 which, when added to the amount being held by the Landlord as
a security deposit, will provide the Landlord with a sum equal to the
last month's base rental for a security deposit.
5. The Landlord shall, at its own expense, and in accordance with its
standard plans and specifications, complete the following work to the
Premises:
1. Repaint the Premises. Paint colour to be chosen by Tenant from
Landlord's standard samples.
2. Shampoo carpet and glue/repair any pulls in carpet.
Tenant agrees to move within the premises any of its furniture,
equipment, etc., at its own cost, to allow the Landlord unimpeded access
in order to complete its work;
6. This Agreement is not personally binding upon and resort shall not be
had nor shall recourse or satisfaction to be sought from the private
property of any of the unit holders of Investors Real Property Fund (the
"FUND"), trustees, officers, directors, employees of agents of the
trustee or manager of the Fund, it being intended and agreed that only
the property of the Fund shall be bound by this Agreement. Only the
co-tenancy interests of Menkes and Investors Group shall be bound hereby
and the obligations hereunder are not binding upon either of Menkes or
Investors Group in any other respect nor shall resort be had to any
other property of any of Menkes or Investors Group. The rights and
obligations of each of Menkes and Investors Group hereunder shall, in
every case, be several and proportionate and not either joint or joint
and several.
7. The Parties agree to execute such further and other documentation as may
be necessary to give this Extension of Lease full force and effect.
8. This Extension of Lease shall be binding upon the respective heirs,
executors, administrators, successors and permitted assigns of the
Parties hereto.
IN WITNESS WHEREOF the Parties have hereunto set their hands and seals or
caused their corporate seals to be affixed, duly attested by the hands of
their proper signing officers in that behalf.
SIGNED, SEALED AND DELIVERED)MENKES OFFICE PARKS LTD.
IN THE PRESENCE OF )
) Per: Illegible
) ---------------------------------
) Name:
) Title:
)
) INVESTORS GROUP TRUST CO. LTD. AS
) TRUSTEE FOR INVESTORS REAL PROPERTY
) FUND
) Per: Illegible
) ---------------------------------
SEAL ) Name:
) Title:
)
) WALL DATA INCORPORATED
)
) Per: Illegible
) ---------------------------------
) Name:
) Title:
Page 3
<PAGE>
OFFER TO SUBLEASE
B E T W E E N :
WALL DATA INCORPORATED
(SUBLANDLORD)
- AND -
CHANGEPOINT CORPORATION
(SUBTENANT)
- ------------------------------------------------------------------------------
COLLIERS MACAULAY NICOLLS (ONTARIO) INC.
(AGENT)
- ------------------------------------------------------------------------------
Patrick E. Cowie
492-2001 ext. 437
John Paddon
777-2200 ext. 275
<PAGE>
OFFER TO SUBLEASE
25th day of January, 2000
1595 SIXTEENTH AVENUE
(the "Building")
TO: WALL DATA INCORPORATION
("SUBLANDLORD")
WE, CHANGEPOINT CORPORATION
("SUBTENANT")
hereby offer to sublease from the Sublandlord, through Colliers Macaulay
Nicolls (Ontario) Inc., ("Agent") upon the following terms and conditions,
approximately 4,396 square feet of Rentable Area (hereafter referred to as
the "Subleased Premises") in the Building located at 1595 Sixteenth Avenue,
Toronto, Ontario being a portion of the third (3rd) floor.
The area of the Subleased Premises is shown outlined in heavy black on the
plan attached hereto as Schedule "A".
1. TERM
The Term of the lease shall be seven (7) months commencing on the 1st
day of March, 2000 (the "Commencement Date") and ending on the 30th day of
September, 2000, (the "Termination Date").
2. GROSS RENT
Based on the Subleased Premises containing approximately 4,390 square
feet of Rentable Area, the Subtenant shall pay to the Sublandlord the
following gross rent (the "Gross Rent") payable in advance on the 1st day
of each and every month during the Term in accordance with the following
schedule:
$8,571.43 PER MONTH GROSS, PLUS APPLICABLE G.S.T., CANADIAN DOLLARS
Gross rent includes all net or basic rent and the provision for realty
taxes, hydro and operating costs.
<PAGE>
OFFER TO SUBLEASE Page 2
3. "AS IS" CONDITION
The Premises shall be accepted on an "as is" basis. The Subtenant shall
be permitted to install new leasehold improvements or make alterations to
the existing leasehold improvements upon approval by the Sublandlord and
Head Landlord, subject to the provisions as contained in the Head Lease.
4. SUBLANDLORD'S WORK
The Sublandlord will complete the following work in the Subleased Premises
at its expense prior to the Commencement Date:
(a) Subleased Premises clean and free of debris or garbage; and
5. FURNITURE
THE SUBLANDLORD WILL INCLUDE FOR THE SUBTENANT ALL EXISTING FURNITURE IN
THE SUBLEASED PREMISES AT NO ADDITIONAL COST TO THE SUBTENANT. ALL
FURNITURE WILL BECOME THE PROPERTY OF THE SUBTENANT UPON THE COMMENCEMENT
DATE.
6. DEPOSIT
A CHEQUE FOR SEVENTEEN THOUSAND ONE HUNDRED AND FORTY TWO DOLLARS AND
EIGHTY SIX CENTS ($17,142.86) (the "Deposit") payable to the Agent,
Colliers Macaulay Nicolls, in trust, shall be tendered within five (5)
business days of unconditional acceptance of this agreement to apply as a
deposit and to be applied in payment of the first rents due hereunder.
Such Deposit shall be held by the Agent "in Trust" in an interest bearing
account with interest credited to the Subtenant until the Commencement
Date or as otherwise agreed between the parties.
7. HEAD LEASE
The Subtenant shall abide by the terms and conditions of the Head Lease
dated July 8, 1996 and as extended October 15, 1998 between Menkes Office
Parks Ltd., Investors Group Trust Company Ltd. As Trustee for Investors
Real Property Fund (herein referred to as "Head Landlord") and Wall Data
Incorporated (herein referred to as "Sublandlord"). The Subtenant
acknowledges receiving a true copy of the Head Lease Agreement.
<PAGE>
OFFER TO SUBLEASE Page 3
8. SUBLEASE
Should the parties so elect, a Sublease Agreement shall be executed and
shall be in the Head Landlord's standard form, incorporating the terms of
this Offer (the "Sublease") and subject to the changes as are mutually
agreed upon by the Sublandlord, Subtenant and Head Landlord acting
reasonably. The form of Sublease shall be prepared by the Head Landlord
and shall be delivered by the Head Landlord to the Subtenant or
Sublandlord within ten (10) days after acceptance of this Offer. If
required, the Sublease shall be executed and delivered by the Subtenant to
the Sublandlord within thirty (30) days of receipt by the Subtenant but in
any event before commencement of any construction and before the date of
Commencement of the Term and prior to the Subtenant taking occupancy.
9. FIXTURING PERIOD & EARLY OCCUPANCY
The Subtenant shall have access to the Building and Subleased Premises
for the purposes of planning, engineering, design and staff announcements
free of any Basic Rent of Additional Rent charges.
Provided the Sublease has been executed by both parties or upon written
approval of the Sublandlord and Head Landlord, the Subtenant will have
access to the Subleased Premises free of Basic Rent, Additional Rent and
Hydro immediately upon unconditional acceptance by both parties of this
Agreement until the Commencement Date for the purpose of carrying out the
Subtenant's Work ("Fixturing Period"). During said Fixturing Period, there
shall be no supervision fees payable by the Subtenant relating to the
initial construction of the
<PAGE>
OFFER TO SUBLEASE Page 4
Subtenant's leasehold construction. Contractor(s) must abide by the
Building's rules and regulations relating to construction, as per the Head
Lease.
10. PARKING
The Subtenant shall be entitled but not obligated during the Term of the
Sublease to have the use of up to twelve (12) unreserved parking stalls
located in the parking facility of the Building at no additional cost AS
PER THE HEADLEASE.
11. USE
The Subtenant shall use the Subleased Premises as an office for the
provision a general sales and administrative office in all its aspects as
offered by the Subtenant, in accordance with existing zoning by-laws.
12. ASSIGNMENT/SUBLET
The Subtenant shall not assign this Offer to Sublease or the Sublease
resulting herefrom or sublet or part with possession of all or part of the
Subleased Premises or mortgage or encumber the Sublease without the prior
written consent of the Sublandlord and Head Landlord and in accordance
with the terms of the Sublease, which consent shall not be unreasonably
withheld or delayed.
13. NO REPRESENTATIONS
There are no covenants, representations, agreements, warranties or
conditions in any way relating to the subject matter of this agreement
expressed or implied, collateral or otherwise, except as expressly set
forth herein and in the Sublease.
14. HEAD LANDLORD APPROVAL - CONDITION
This Offer to Sublease shall be subject to the approval of the Head
Landlord as contained in the provisions of the Head Lease.
15. NO RESTORATION
The Subtenant shall not be required to return the Subleased Premises to
base building condition or remove its leasehold improvement at the expiry
of the sublease term or earlier
<PAGE>
OFFER TO SUBLEASE Page 5
termination thereof. The Subtenant shall have the right but not the
obligation to remove its fixtures, subject to the Sublandlord's approval,
acting reasonably, provided any damage is repaired by the Subtenant.
16. SIGNAGE
The Subtenant shall be permitted to have Building standard directory
board signage at the cost of the Subtenant.
17. TIME OF THE ESSENCE
Time shall be of the essence of this agreement and the transactions
contemplated herein, provided that the time for doing or completing any
matter herein may be amended by an agreement in writing signed by both
parties.
18. DEFINITIONS
Words defined in the Sublease and used herein shall have the same
meaning ascribed to them by the Head Lease.
19. ENUREMENT
This Offer and the agreement resulting herefrom shall enure to and be
binding upon the parties hereto there, and their respective successors and
assigns.
20. WAIVER TO AGENT
The parties to this agreement acknowledge that the Agent has recommended
that they obtain advice from their legal Counsel prior to signing this
document. The parties further acknowledge that the information provided by
the Agent is not legal, accounting, environmental or tax advice, and the
parties are cautioned not to rely on any such information without seeking
specific legal, accounting, environmental or tax advice with respect to
their unique circumstances.
21. G.S.T.
All amounts referred to in this Offer are quoted prior to inclusion of
goods and services taxes.
<PAGE>
OFFER TO SUBLEASE Page 6
22. NOTICE
Any notice, document or other communication required or permitted to be
given under this Agreement shall be in writing and shall be delivered to:
SUBLANDLORD: WALL DATA CORPORATION
(NOW OPERATING AS NETMANAGE)
11332 N.E. 122ND WAY
KIRKLAND, WA
U.S.A. 98034-6931
ATTN: MATT ROYAL, FACILITIES MANAGER
PH: 425-814-3307
FX: 425-814-4368
SUBTENANT: CHANGEPOINT CORPORATION
1595 SIXTEENTH AVENUE
SUITE 700
RICHMOND HILL, ONTARIO
CANADA L4B 3N9
ATTN: JOHN ANHANG, CFO AND VICE PRESIDENT
PH: 905-886-7000
FX: 905-886-7023
<PAGE>
OFFER TO SUBLEASE Page 7
23. TIME FOR ACCEPTANCE
This Offer shall be irrevocable and open for acceptance until 3:00 p.m.
on the 22st day of February, 2000 after which time, if not accepted, this
Offer shall be null and void and the Deposit shall be returned in full.
Acceptance of this Offer may be communicated by facsimile transmission
of an accepted Offer or by delivery of such facsimile without limiting
other methods of communicating acceptance available to the parties.
Dated at Richmond Hill this 14th day of February , 2000.
------------------- ---------- --------------
CHANGEPOINT CORPORATION
[ILLEGIBLE] per: /s/ John Anhang
- ----------------------- -------------------------
Witness Date
Title: VP & CFO
-----------------------
ACCEPTANCE
We hereby agree that the above correctly sets forth the terms of our
agreement and undertake to carry out the provisions thereof.
Dated at ___________________ this __________ day of ______________, 2000.
WALL DATA INCORPORATED
_______________________ per: _________________________
Witness Date
Title: _______________________
<PAGE>
SCHEDULE "A"
Attached hereto and forming an integral part of this Offer to Sublease
between WALL DATA INCORPORATED (Sublandlord) and CHANGEPOINT CORPORATION
(Subtenant) to be initialled by both parties for identification purposes.
- -------------------------------------------------------------------------
<PAGE>
OFFER TO SUBLEASE
B E T W E E N :
WALL DATA INCORPORATED
(SUBLANDLORD)
- AND -
CHANGEPOINT CORPORATION
(SUBTENANT)
- ------------------------------------------------------------------------------
COLLIERS MACAULAY NICOLLS (ONTARIO) INC.
(AGENT)
- ------------------------------------------------------------------------------
Patrick E. Cowie
492-2001 ext. 437
John Paddon
777-2200 ext. 275
<PAGE>
OFFER TO SUBLEASE
25th day of January, 2000
1595 SIXTEENTH AVENUE
(the "Building")
TO: WALL DATA INCORPORATION
("SUBLANDLORD")
WE, CHANGEPOINT CORPORATION
("SUBTENANT")
hereby offer to sublease from the Sublandlord, through Colliers Macaulay
Nicolls (Ontario) Inc., ("Agent") upon the following terms and conditions,
approximately 4,396 square feet of Rentable Area (hereafter referred to as
the "Subleased Premises") in the Building located at 1595 Sixteenth Avenue,
Toronto, Ontario being a portion of the third (3rd) floor.
The area of the Subleased Premises is shown outlined in heavy black on the
plan attached hereto as Schedule "A".
1. TERM
The Term of the lease shall be seven (7) months commencing on the 1st
day of March, 2000 (the "Commencement Date") and ending on the 30th day of
September, 2000, (the "Termination Date").
2. GROSS RENT
Based on the Subleased Premises containing approximately 4,390 square
feet of Rentable Area, the Subtenant shall pay to the Sublandlord the
following gross rent (the "Gross Rent") payable in advance on the 1st day
of each and every month during the Term in accordance with the following
schedule:
$8,571.43 per month gross, plus applicable G.S.T.
Gross rent includes all net or basic rent and the provision for realty
taxes, hydro and operating costs.
<PAGE>
OFFER TO SUBLEASE Page 2
3. "AS IS" CONDITION
The Premises shall be accepted on an "as is" basis. The Subtenant shall
be permitted to install new leasehold improvements or make alterations to
the existing leasehold improvements upon approval by the Sublandlord and
Head Landlord, subject to the provisions as contained in the Head Lease.
4. SUBLANDLORD'S WORK
The Sublandlord will complete the following work in the Subleased Premises
at its expense prior to the Commencement Date:
(a) Subleased Premises clean and free of debris or garbage; and
5. SYSTEM FURNITURE
The Sublandlord will include for the Subtenant the existing system
furniture in the Subleased Premises at no additional cost.
6. DEPOSIT
A cheque for SEVENTEEN THOUSAND ONE HUNDRED AND FORTY-TWO DOLLARS AND
EIGHTY-SIX CENTS ($17,142.86) (the "Deposit") payable to the Agent,
Colliers Macaulay Nicolls, in trust, shall be tendered within five (5)
business days of unconditional acceptance of this agreement to apply as a
deposit and to be applied in payment of the first rents due hereunder.
Such Deposit shall be held by the Agent "in Trust" in an interest bearing
account with interest credited to the Subtenant until the Commencement
Date or as otherwise agreed between the parties.
7. HEAD LEASE
The Subtenant shall abide by the terms and conditions of the Head Lease
dated July 8, 1996 and as extended October 15, 1998 between Menkes Office
Parks Ltd., Investors Group Trust Company Ltd. As Trustee for Investors
Real Property Fund (herein referred to as "Head Landlord") and Wall Data
Incorporated (herein referred to as "Sublandlord"). The Subtenant
acknowledges receiving a true copy of the Head Lease Agreement.
<PAGE>
OFFER TO SUBLEASE Page 3
8. SUBLEASE
Should the parties so elect, a Sublease Agreement shall be executed and
shall be in the Head Landlord's standard form, incorporating the terms of
this Offer (the "Sublease") and subject to the changes as are mutually
agreed upon by the Sublandlord, Subtenant and Head Landlord acting
reasonably. The form of Sublease shall be prepared by the Head Landlord
and shall be delivered by the Head Landlord to the Subtenant or
Sublandlord within ten (10) days after acceptance of this Offer. If
required, the Sublease shall be executed and delivered by the Subtenant to
the Sublandlord within thirty (30) days of receipt by the Subtenant but in
any event before commencement of any construction and before the date of
Commencement of the Term and prior to the Subtenant taking occupancy.
9. FIXTURING PERIOD & EARLY OCCUPANCY
The Subtenant shall have access to the Building and Subleased Premises
for the purposes of planning, engineering, design and staff announcements
free of any Basic Rent of Additional Rent charges.
Provided the Sublease has been executed by both parties or upon written
approval of the Sublandlord and Head Landlord, the Subtenant will have
access to the Subleased Premises free of Basic Rent, Additional Rent and
Hydro immediately upon unconditional acceptance by both parties of this
Agreement until the Commencement Date for the purpose of carrying out the
Subtenant's Work ("Fixturing Period"). During said Fixturing Period, there
shall be no supervision fees payable by the Subtenant relating to the
initial construction of the Subtenant's leasehold construction.
Contractor(s) must abide by the Building's rules and regulations relating
to construction, as per the Head Lease.
<PAGE>
OFFER TO SUBLEASE Page 4
10. PARKING
The Subtenant shall be entitled but not obligated during the Term of the
Sublease to have the use of up to twelve (12) unreserved parking stalls
located in the parking facility of the Building at no additional cost as
per the Head Lease.
11. USE
The Subtenant shall use the Subleased Premises as an office for the
provision a general sales and administrative office in all its aspects as
offered by the Subtenant, in accordance with existing zoning by-laws.
12. ASSIGNMENT/SUBLET
The Subtenant shall not assign this Offer to Sublease or the Sublease
resulting herefrom or sublet or part with possession of all or part of the
Subleased Premises or mortgage or encumber the Sublease without the prior
written consent of the Sublandlord and Head Landlord and in accordance
with the terms of the Sublease, which consent shall not be unreasonably
withheld or delayed.
13. NO REPRESENTATIONS
There are no covenants, representations, agreements, warranties or
conditions in any way relating to the subject matter of this agreement
expressed or implied, collateral or otherwise, except as expressly set
forth herein and in the Sublease.
14. HEAD LANDLORD APPROVAL - CONDITION
This Offer to Sublease shall be subject to the approval of the Head
Landlord as contained in the provisions of the Head Lease.
15. NO RESTORATION
The Subtenant shall not be required to return the Subleased Premises to
base building condition or remove its leasehold improvement at the expiry
of the sublease term or earlier termination thereof. The Subtenant shall
have the right but not the obligation to remove its
<PAGE>
OFFER TO SUBLEASE Page 5
fixtures, subject to the Sublandlord's approval, acting reasonably,
provided any damage is repaired by the Subtenant.
16. SIGNAGE
The Subtenant shall be permitted to have Building standard directory
board signage at the cost of the Subtenant.
17. TIME OF THE ESSENCE
Time shall be of the essence of this agreement and the transactions
contemplated herein, provided that the time for doing or completing any
matter herein may be amended by an agreement in writing signed by both
parties.
18. DEFINITIONS
Words defined in the Sublease and used herein shall have the same
meaning ascribed to them by the Head Lease.
19. ENUREMENT
This Offer and the agreement resulting herefrom shall enure to and be
binding upon the parties hereto there, and their respective successors and
assigns.
20. WAIVER TO AGENT
The parties to this agreement acknowledge that the Agent has recommended
that they obtain advice from their legal Counsel prior to signing this
document. The parties further acknowledge that the information provided by
the Agent is not legal, accounting, environmental or tax advice, and the
parties are cautioned not to rely on any such information without seeking
specific legal, accounting, environmental or tax advice with respect to
their unique circumstances.
21. G.S.T.
All amounts referred to in this Offer are quoted prior to inclusion of
goods and services taxes.
<PAGE>
OFFER TO SUBLEASE Page 6
22. TIME FOR ACCEPTANCE
This Offer shall be irrevocable and open for acceptance until 3:00 p.m.
on the 9th day of February, 2000 after which time, if not accepted, this
Offer shall be null and void and the Deposit shall be returned in full.
Acceptance of this Offer may be communicated by facsimile transmission
of an accepted Offer or by delivery of such facsimile without limiting
other methods of communicating acceptance available to the parties.
Dated at _____________ this __________ day of ______________, 2000.
CHANGEPOINT CORPORATION
______________________ per: _________________________
Witness Date
Title: _______________________
ACCEPTANCE
We hereby agree that the above correctly sets forth the terms of our
agreement and undertake to carry out the provisions thereof.
Dated at Kirkland this 9th day of February , 2000.
-------------- --------- --------------
WALL DATA INCORPORATED
per: /s/ [ILLEGIBLE] 2/09/00
- ---------------------- -------------------------
Witness Date
Title: _______________________
<PAGE>
SCHEDULE "A"
Attached hereto and forming an integral part of this Offer to Sublease
between WALL DATA INCORPORATED (Sublandlord) and CHANGEPOINT CORPORATION
(Subtenant) to be initialled by both parties for identification purposes.
- -------------------------------------------------------------------------
1595 16th AVENUE
SUITE 303
RICHMOND HILL
[FLOOR PLAN]
<PAGE>
CONSENT TO SUBLEASE
THIS AGREEMENT made as of this 1st day of March, 2000,
B E T W E E N :
MENKES OFFICE PARKS LTD. and INVESTORS GROUP
TRUST CO. LTD., as Trustee for INVESTORS REAL
PROPERTY FUND
(hereinafter called the "LANDLORD")
OF THE FIRST PART
A N D :
WALL DATA INCORPORATED
(hereinafter called the "TENANT")
OF THE SECOND PART
A N D :
CHANGEPOINT CORPORATION
(hereinafter called the "SUBTENANT"
OF THE THIRD PART
WHEREAS:
(a) by a lease dated the 8th day of July, 1996 (the "Lease"), the
Landlord leased to the Tenant premises known as Suite 303,
1595-16th Avenue, Richmond Hill, Ontario (the
"Premises"), subject to the terms, covenants, provisos and
conditions therein set forth;
(b) the Tenant intends to sublease by an offer to sublease agreement
dated January 25th, 2000, a copy of which the Landlord is in
receipt of, (the "Sublease") to the Subtenant and the Tenant and the
Subtenant have applied to the Landlord for consent to the Sublease.
NOW THIS INDENTURE WITNESSETH that in consideration of the covenants herein
exchanged the Parties agree as follows:
1. Subject to the provisions of this Agreement, the Landlord does herein
consent to such Sublease.
2. The Tenant acknowledges that notwithstanding such consent and Sublease,
the Tenant shall not be relieved of any of the covenants, provisos,
conditions and agreements set forth in the Lease and that this Consent
shall not be deemed to permit any further subletting. The Tenant further
acknowledges that the execution of this Consent to Sublease by the
Landlord does not imply approval by the Landlord of the provisions of
the sublease agreement to be entered into by the Tenant and Subtenant.
3. The Tenant and Subtenant acknowledge and agree that the payment of Base
Rent and Additional Rent required under the Lease shall continue to be
payable to the Landlord by the Tenant at the times required, provided
that in the event of default by the Tenant in the payment of Base Rent
or Additional Rent, the Landlord shall have the right to collect the
rent payable by the Subtenant pursuant to the terms and conditions of
the Sublease directly from the Subtenant as agent for the Tenant
<PAGE>
2
and to apply any rent so collected against rental arrears owing by the
Tenant to the Landlord.
The Tenant and the Subtenant hereby acknowledge that the Landlord shall
exercise this right to collect the rent payable pursuant to the Sublease
by giving written notice to the Tenant and the Subtenant. The Subtenant
covenants and agrees to thereafter pay such rent to the Landlord until
such time as the Landlord notifies the Subtenant that the default has
been cured by the Tenant. It is acknowledged that any such collection of
rent by the Landlord from the Subtenant shall not be construed as to
create a landlord/tenant relationship between the Landlord and the
Subtenant and shall in no way limit the Tenant's liability to pay all
rent outstanding under the Lease or in any way limit the Landlord's
rights and remedies under the Lease or at law.
4. The Tenant and Subtenant covenant and agree with the Landlord that no
leasehold improvements or alterations to the Premises will be performed
until the Landlord's prior written consent has been obtained. It is
acknowledged and agreed by the Tenant that any improvements or
alterations to be performed by the Subtenant shall be subject to the
requirement of the Landlord that same are removed on the termination
date of the Lease and the Premises restored to their former condition.
The Tenant acknowledges that any installation of cabling shall be
construed as an alteration to be removed and restored.
5. This Consent to Sublease is not personally binding upon and resort shall
not be had nor shall recourse or satisfaction be sought from the private
property of any of the unit holders of Investors Real Property Fund (the
"Fund"), trustees, officers, directors, employees or agents of the
trustee or manager of the fund, it being intended and agreed that only
the property of the fund shall be bound by this Consent to Sublease.
Only the co-tenancy interests of the Landlord shall be bound hereby and
the obligations hereunder are not binding upon the Landlord in any other
respect nor shall resort be had to any other property of the Landlord.
The rights and obligations of the Landlord hereunder shall in every case
be several and proportionate and not joint or joint and several.
6. The Tenant and Subtenant covenant and agree with the Landlord not to
amend the terms of the Sublease without the consent in writing of the
Landlord.
7. The Subtenant covenants and agrees to abide by all the terms,
covenants, provisos, conditions and agreements contained in the Lease
save for the payment of Base Rent and Additional Rent.
8. The Tenant agrees that in consideration of the Landlord giving such
consent, it shall pay any fee charged by the Landlord or its solicitor
for processing this Agreement.
9. The Subtenant covenants and agrees with the Landlord that if the Lease
is terminated for any reason or surrendered, that from such date of
termination or surrender the Sublease shall be deemed to be terminated.
10. This Agreement shall enure to and be binding upon the respective heirs,
executors, administrators and successors and permitted assigns of the
Parties hereto.
<PAGE>
3
IN WITNESS WHEREOF the parties hereto have hereunto caused to be affixed
their corporate seals duly attested to by the hands of their respective
proper signing officers authorized in that behalf the day and year first
above written.
MENKES OFFICE PARKS LTD.
Per: /s/ illegible
----------------------------------
[Authorized Signing Officer]
Per: __________________________________
[Authorized Signing Officer]
INVESTORS GROUP TRUST CO. LTD.
as Trustee for INVESTORS REAL PROPERTY
FUND
Per: /s/ Robert G. Darling
----------------------------------
[Authorized Signing Officer]
Robert G. Darling Vice President
Per: /s/ Murray J. Mitchell
----------------------------------
[Authorized Signing Officer]
Murray J. Mitchell Assistant Secretary
WALL DATA INCORPORATED
Per: /s/ illegible
----------------------------------
[Authorized Signing Officer]
Per: __________________________________
[Authorized Signing Officer]
CHANGEPOINT CORPORATION
Per: /s/ John Anhang
----------------------------------
[Authorized Signing Officer]
Per: __________________________________
[Authorized Signing Officer]
<PAGE>
CHANGEPOINT CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
1. DEFINITIONS
"Code" means the U.S. Internal Revenue Code of 1986, as amended or succeeded
by later legislative enactments.
"Committee" means the Committee provided for in Section 4, which shall
administer this ESPP.
"Common Shares" means common shares of Changepoint Corporation.
"Company" means Changepoint Corporation, and its Subsidiaries.
"Compensation" means a Participant's base salary plus any amounts payable on
account of overtime, shift premium, incentive compensation, bonuses and
commissions.
"ESPP" means this Changepoint Corporation Employee Stock Purchase Plan.
"Fair Market Value" of the Common Shares as of any day means the weighted
average trading price of the Shares in the period of five trading days
immediately preceding such day on the quotation system or stock exchange on
which the greatest volume of trading of Common Shares in that period has
occurred. The Committee, in its sole discretion, shall make all
determinations required by this definition.
"Participant" means an employee of the Company who, at all relevant times, is
and has been treated as an employee by the Company for all purposes and is
regularly scheduled to work a minimum of 20 hours per week and a minimum of
five months in a calendar year.
"Purchase Period" means a six month period commencing on January 1 or July 1
of any calendar year, except that the first Purchase Period shall commence on
the date that Changepoint Corporation completes an initial public offering of
its Common Shares and shall end on August 31, 2000, and the second Purchase
Period shall commence on September 1,2000 and end on December 31, 2000.
"Subsidiary" means any corporation in which the Company or a Subsidiary owns,
directly or indirectly, 50% or more of the voting shares, and which
corporation has been designated by the Committee, in its sole discretion, as
a corporation the employees of which shall be eligible to participate in the
ESPP.
<PAGE>
- 2 -
2. PURPOSE
The purpose of this ESPP is to enable Participants to acquire a larger
personal proprietary interest in Changepoint Corporation, and to encourage
Participants to remain in the employ of the Company and have a personal
interest in the success of the Company. This ESPP is intended to qualify as
an "employee stock purchase plan" within the meaning of Section 423 of the
Code, and shall be interpreted and administered to further that intent.
This ESPP is intended to provide Common Shares for investment and not for
resale. The Company does not, however, intend to restrict or influence the
conduct of any Participant's affairs. A Participant, therefore, may sell
Common Shares that are purchased under this ESPP at any time, subject to
compliance with any applicable federal or state tax and securities laws. THE
EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE
SHARES.
3. GOVERNMENTAL REGULATIONS
The Company's obligation to sell and deliver the Common Shares under this
ESPP is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares, including
the U.S. Securities and Exchange Commission, the securities administrators of
the jurisdictions in which Participants reside, and the U.S. Internal Revenue
Service.
4. ADMINISTRATION
This ESPP shall be administered by the Compensation Committee of the Board of
Directors of Changepoint Corporation. The Compensation Committee shall have
plenary authority, in its discretion, to interpret the ESPP, to prescribe,
amend and rescind rules and regulations relating to it, and to make all other
determinations necessary or advisable for the administration of the ESPP. The
Committee's determinations of the matters referred to in this Section 4 shall
be conclusive. It is the intention of the Company and the Committee that this
ESPP and the administration hereof comply in all respects with Section 16(b)
of the U.S. Securities Exchange Act of 1934 and Section 423(b) of the Code,
and applicable Canadian provincial securities legislation.
5. STOCK SUBJECT TO THE ESPP
There are reserved for issuance under this ESPP 1,000,000 Common Shares which
may be purchased by Participants pursuant to this ESPP, subject to adjustment
as provided in Section 15.
<PAGE>
- 3 -
6. PURCHASE PERIODS
This ESPP will be administered based on semi-annual Purchase Periods
commencing January 1 or July 1, except that the first Purchase Period shall
commence on the date that Changepoint Corporation completes an initial public
offering of its Common Shares and shall end on August 31, 2000, and the
second Purchase Period shall commence on September 1,2000 and end on December
31, 2000.
7. PAYROLL DEDUCTIONS
Any person who is properly enrolled as a Participant at the beginning of a
Purchase Period may elect, in accordance with procedures prescribed by the
Committee, to have the Company deduct a specified integer number percentage
of the Participant's Compensation for the purchase of Common Shares pursuant
to the ESPP.
The maximum rate of deduction that a Participant may elect for any Purchase
Period is 15% of the aggregate gross Compensation which the Participant would
otherwise receive during such Purchase Period. An amount equal to the elected
percentage of the Participant's Compensation shall be deducted on each
regular payday falling within the Purchase Period. All amounts will be
deducted from a Participant's Compensation on an after-tax basis. No interest
will be paid on payroll deductions accumulated under this ESPP.
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.
A Participant may, at any time during a Purchase Period, upon 30 days' prior
written notice to the Company or such shorter period as the Company may agree
to, stop any further deductions from the Participant's Compensation for the
purchase of Common Shares pursuant to the ESPP. A Participant that stops
payroll deductions in any Purchase Period in accordance with the foregoing
may not elect to participate further in the ESPP until the next Purchase
Period except with the written consent of the Company.
Subject to the approval of the Committee, a Participant may change the rate
of his or her payroll deductions during a Purchase Period by completing and
filing with the Company a new authorization for payroll deduction. The change
in rate shall be effective as soon as administratively feasible following the
Company's receipt of the new authorization.
A Participant who is enrolled in this ESPP at the end of a Purchase Period
will, unless the Participant gives notice of his or her intent to withdraw
from the ESPP, automatically be enrolled as a Participant in the subsequent
Purchase Period.
<PAGE>
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8. PURCHASE OF COMMON STOCK
On the first business day following the end of a Purchase Period (the
"Purchase Date"), a Participant's accumulated payroll deductions will,
subject to the limitations of Section 9 and the termination provisions of
Section 14, be applied toward the purchase of Common Shares at a purchase
price equal to the lesser of:
(a) 85% of the Fair Market Value for the Common Shares on the
first business day of the Purchase Period; or
(b) 85% of the Fair Market Value for the Common Shares on the
Purchase Date, in either event rounded to the nearest whole
cent.
Common Shares may be purchased under the ESPP only with a Participant's
accumulated payroll deductions. Fractional shares cannot be purchased. At the
conclusion of each Purchase Period, the Company shall automatically re-enroll
each Participant in the next Purchase Period, and any portion of a
Participant's accumulated payroll deductions not used for the purchase of
Common Shares at the end of a Purchase Period shall be applied to the
purchase of Common Shares in the next Purchase Period if the Participant is
participating in the ESPP during that Purchase Period, or returned to the
Participant.
9. LIMITATIONS ON SHARE PURCHASES
No Participant will be granted any option or right to subscribe that permits
his or her rights to purchase shares under all employee stock purchase plans
of the Company to accrue at a rate that exceeds $25,000(U.S.) in fair market
value of the shares (determined at the time such option or right to subscribe
is granted) for each calendar year in which such option or right to subscribe
is outstanding. In addition, no Participant shall be permitted to subscribe
for any shares under this ESPP if such Participant, immediately after such
subscription, owns shares that account for (including all shares that may be
purchased under outstanding subscriptions under the ESPP and any other
outstanding options to purchase Common Shares) five percent or more of the
total combined voting power or value of all classes of shares of Changepoint
Corporation or any Subsidiary. For the foregoing purposes, the rules of
Section 424(d) of the Code shall apply in determining share ownership. In the
event that the number of Common Shares reserved for issuance under this ESPP
pursuant to Section 5 is insufficient to satisfy the number of Common Shares
to be purchased by Participants under this ESPP in any Purchase Period, the
number of Common Shares available to be purchased shall be allocated pro rata
among the Participants in proportion to the number of Common Shares that they
would be entitled to purchase without regard to the limitation resulting from
the number of Common Shares reserved for issuance under Section 5.
<PAGE>
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10. WITHDRAWAL FROM THE ESPP
At any time prior to the last two weeks of a Purchase Period, a Participant
may elect, in accordance with procedures prescribed by the Committee, to
withdraw from the ESPP. If a Participant withdraws from the ESPP, all of the
Participant's payroll deductions for that Purchase Period will be refunded to
the Participant, and the Participant will not be eligible to participate in
the ESPP again before the next Purchase Period. If a Participant withdraws
effective for a Purchase Period that has not yet commenced, the Participant
may elect to participate in any subsequent Purchase Period. If a
Participant's payroll deductions are interrupted by any legal process, the
Participant will be deemed to have elected to withdraw from the ESPP for the
Purchase Period in which the interruption occurs. Upon termination of
employment, all payroll deductions for that Purchase Period will be refunded
to the Participant entitled thereto.
Subject to a determination by the Committee to the contrary on a case-by-case
basis, a Participant's participation and payroll deductions continue during a
leave of absence unless the Participant elects to stop his or her payroll
deductions. Such participation will end automatically at the end of the
current Purchase Period. A Participant may re-enroll to participate in
subsequent Purchase Periods which commence following the employee's return
from the leave of absence.
11. ISSUANCE OF COMMON SHARES TO CUSTODIAL ACCOUNTS
The Common Shares purchased by Participants will be issued by the Company's
transfer agent to a Participant's custodial account as soon as practicable
after each Purchase Date. Common Shares purchased under the ESPP 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 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 Committee determines. A
Participant or his or her legal representative may withdraw Common Shares
from his or her custodial account at any time.
12. WITHHOLDING TAXES
In connection with the purchase of Common Shares under this ESPP, the
Participant shall be required to make adequate provision for payment of the
Company's withholding tax obligations, if any, and the Company (a) shall not
issue a certificate for such shares until it has received payment from the
Participant of any required withholding tax in cash or by the retention or
acceptance upon delivery thereof by the Participant of that number of Common
Shares sufficient in fair market value to cover the amount of such
withholding tax and (b) shall have the right to retain or sell without
notice, or to demand surrender of that number of Common Shares sufficient in
fair market value to cover any withholding
<PAGE>
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tax. The Company shall have the right to withhold from any payroll deductions
made by the Participant under this ESPP an amount equal to any required
withholding tax. In either case, the Company shall make payment (or reimburse
itself for payment made) to the appropriate taxing authority of an amount in
cash equal to the amount of such withholding tax, remitting any balance to
the Participant. For purposes of this Section 12, the value of the Common
Shares so retained or surrendered shall be equal to the fair market value of
such shares on the date that the amount of the withholding tax is to be
determined (the "Tax Date"), and the value of the Common Shares so sold shall
be the actual net sale price per share (after deduction of commissions)
received by the Company.
Notwithstanding the foregoing, the Participant may elect, subject to approval
by the Committee, to satisfy the obligation to pay any withholding tax, in
whole or in part, by providing the Company with funds sufficient to enable
the Company to pay such withholding tax or by having the Company retain or
accept upon delivery thereof by the Participant Common Shares sufficient in
fair market value to cover the amount of such withholding tax. Each election
by a Participant to have shares retained or to deliver shares for this
purpose must be in writing and made on or prior to the Tax Date.
13. TRANSFERABILITY
A Participant's rights under this ESPP, including rights to accumulated
payroll deductions, may not be pledged, assigned, encumbered or otherwise
transferred for any reason other than by will or the laws of descent and
distribution. Any such attempt will be treated as an election by the
Participant to withdraw from this ESPP.
14. TERMINATING EVENTS
Upon (a) the dissolution or liquidation of Changepoint Corporation, (b) a
merger, amalgamation or other reorganization of Changepoint Corporation with
one or more corporations as a result of which there will be a change in
control of Changepoint Corporation, (c) the sale of all or substantially all
of the assets of Changepoint Corporation or a material division of
Changepoint Corporation, (d) a sale or other transfer, pursuant to a tender
offer or otherwise, of more than fifty percent (50%) of the then outstanding
Common Shares of Changepoint Corporation, or (e) an acquisition by
Changepoint Corporation resulting in an extraordinary expansion of
Changepoint Corporation's business or the addition of a material new line of
business (any of such events is herein referred to as a "Terminating Event"),
the Committee may but shall not be required to:
(A) make provision for the continuation of the Participants'
rights under this ESPP on such terms and conditions as the
Committee determines to be appropriate and equitable,
including where applicable, but not limited to, an
arrangement for the substitution, on an equitable basis,
for each Common Share that could otherwise be purchased at
the end of the Purchase Period in progress at the time of
the Terminating Event, of any
<PAGE>
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consideration payable with respect to each then outstanding
Common Share in connection with the Terminating Event; or
(B) terminate all rights of Participants under the ESPP for such
Purchase Period; and
(i) return to the Participants all of their payroll
deductions for such Purchase Period; and
(ii) pay to the Participant for each Common Share, if
any, that could otherwise be purchased under the
ESPP by a Participant at the end of such Purchase
Period (determined by assuming that payroll
deductions at the rate elected by the Participant
were continued to the end of the Purchase Period
and used to purchase shares at a purchase price
equal to 85% of the Fair Market Value of the
Common Shares on the first business day of the
Purchase Period) an amount equal to the excess of
(A) the Fair Market Value of a Common Share on the
first business day of the Purchase Period over (B)
the Fair Market Value of a Common Share on the
date of the Terminating Event.
The Committee shall make all determinations necessary or advisable in
connection with Terminating Events, and its determinations shall, in the
absence of fraud or patent mistake, be conclusive and binding on all persons
with any interest in the ESPP.
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any changes in the outstanding shares of the Company by
reason of stock dividends, stock splits, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, split-ups, split-offs,
spin-offs, liquidations or other similar changes in capitalization, or any
distribution to stockholders other than cash dividends, the Committee shall
make such adjustments, if any, in light of the change or distribution as the
Committee in its sole discretion shall determine to be appropriate in the
number and class of shares and the purchase prices of the Common Shares which
may be purchased by Participants during the current Purchase Period. In the
event of any such change in the outstanding Common Shares of the Company, the
aggregate number and class of shares available under this ESPP and the
maximum number of shares which may be purchased and their purchase price
shall be appropriately adjusted by the Committee.
Notwithstanding the foregoing, such adjustments shall be made only to the
extent that the Committee, based on advice of counsel for the Company,
determines that such adjustments will not constitute a change requiring
shareholder approval under 423(b)(2) of the Code or applicable Canadian Law.
<PAGE>
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16. TERMINATION OF EMPLOYEE'S RIGHTS
Subject to the provisions of the next paragraph, a Participant's rights under
this ESPP will terminate if he or she for any reason (including death,
disability or voluntary or involuntary termination of employment) ceases to
be an employee of the Company. To the extent that the rights of a Participant
terminate in accordance with this Section 16, all of the Participant's
payroll deductions for that Purchase Period will be refunded to the
Participant or his or her personal representative.
This ESPP does not, directly or indirectly, create in any employee or class
of employees any right with respect to continuation of employment by the
Company, and it shall not be deemed to interfere in any way with the
Company's right to terminate, or otherwise modify, an employee's employment
at any time.
17. TERMINATION, SUSPENSION AND AMENDMENTS TO ESPP
This ESPP may be terminated or suspended at any time by the Committee but,
except as provided in Section 14, such termination or suspension shall not
affect the rights of Participants under the ESPP for the Purchase Period in
progress at the time of termination. This ESPP will terminate in any case
when all or substantially all of the unissued Common Shares reserved for the
purposes of the ESPP have been purchased. If at any time the Common Shares
reserved for the purpose of the ESPP remain available for purchase but not in
sufficient number to satisfy all then unfilled purchase requirements, the
available shares shall be apportioned among Participants in proportion to the
respective amounts of their accumulated payroll deductions, and the ESPP
shall terminate. Upon such termination or any other termination of the ESPP,
all payroll deductions not used to purchase shares of Common Stock will be
refunded to the Participants entitled thereto.
The Committee may terminate or suspend this ESPP, or modify or amend the ESPP
in such respects as it shall deem advisable; however, to the extent required
by applicable law or regulation, shareholder approval will be required for
any amendment which will (a) increase the total number of shares which may be
issued under the ESPP, (b) change the class of persons eligible to purchase
Common Shares under the ESPP, or (c) otherwise require shareholder approval
under any applicable law or regulation.
18. APPROVAL OF SHAREHOLDERS
This ESPP shall be effective at the commencement of the first Purchase
Period, subject to approval by the holders of the Common Shares of
Changepoint Corporation by written resolution signed by all such holders (or
by the votes attaching to a majority of the Common Shares held by the holders
of Common Shares present or represented by proxy at the first meeting of the
shareholders of Changepoint Corporation held) after the date on which the
ESPP is adopted by the Board of Directors of Changepoint Corporation. This
ESPP shall also be subject to approval by the shareholders of Changepoint
Corporation in a manner that complies with Section 423(b)(2) of the Code and
applicable Canadian law.
<PAGE>
- 9 -
If such approvals do not occur prior to the end of the first Purchase Period
under the ESPP, this ESPP and all rights of Participants under the ESPP shall
terminate, and all payroll deductions of Participants accumulated under the
ESPP will be promptly refunded to the Participants.
19. 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.
20. CONDITIONS UPON ISSUANCE OF STOCK
Common Shares shall not be issued under the ESPP unless the issuance and
delivery of such shares shall comply with all applicable provisions of law,
domestic or foreign, including, without limitation, the U.S. Securities Act
of 1933, as amended, the U.S. 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.
21. MISCELLANEOUS
All references to currency herein are to Canadian funds unless otherwise
indicated.
<PAGE>
CONFIDENTIAL
PROFESSIONAL SERVICES AGREEMENT
This PROFESSIONAL SERVICES AGREEMENT (the "Agreement") is made this 30th day
of December, 1999 between PROTEGE SOFTWARE LIMITED, whose principal place of
business is Kinetic Centre, Theobald Street, Borehamwood, Hertfordshire WD6
4PJ (the "Contractor") and CHANGEPOINT CORPORATION of 1595 Sixteenth Avenue,
Suite 700, Richmond Hill, Ontario, Canada L4B 3N9 (the "Client Company") who
agree as follows:
1. TERM
The term of this Agreement shall begin on February 1, 2000 (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, and
elsewhere in this Agreement 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 the weekly and the monthly progress
reports to the Client Company set out in Schedule A and such other
reports as may be reasonably requested by the Client Company.
(d) The Contractor shall report to the President and Chief Executive
Officer or, in his/her absence, the Chief Financial Officer or Vice
President, Business Development, who shall act as the authorised
liaison point on behalf of the Client Company.
(e) The Contractor may attend executive meetings of the Client Company.
The Contractor and Client Company will agree upon the method of such
attendances,
<PAGE>
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which methods may include attendances by teleconference, telephone,
or in person attendances.
(f) Within six (6) weeks following the Effective Date, the Contractor will
develop a business plan for the Subsidiary (as defined in Schedule A)
or, as the case may be, any Other Entities (as defined in Schedule A)
(the business plan for such entities is referred to as the "ELP").
The ELP shall contain, among other things, a detailed sales and
marketing plan for the sales and licensing of the Client Company's
professional services automation software currently known as Front
Office for IT (this software and new releases and versions thereof
together with other products which the Contractor and the Client
Company agree will form part of this Agreement are referred to herein
as the "Product"). The ELP shall also contain cash flow projections
for the Subsidiary and Other Entities including a list of all budgeted
costs, expenses and income for the Subsidiary and Other Entities as
well as the other information set out in Schedule A. Upon approval by
the Client Company, the ELP shall be deemed to be incorporated herein.
(g) The Contractor agrees to manage the Subsidiary and Other Entities in
accordance with the terms of the ELP. During the term of this
Agreement, either party may request changes to the ELP. The other
party will not unreasonably refuse to agree to such changes. Pending
approval for any change, the parties will act in accordance with the
latest approved ELP.
3. CONTRACTOR'S REWARD
The Client Company guarantees that the Subsidiary 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 or, as
the case may be, any Other Entities 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 within the agreed ELP or otherwise agreed to by
the Client Company in writing or by e-mail. The Contractor will on behalf
of the Subsidiary keep records of and receipts for all costs incurred by
the Subsidiary and such Other Entities and will provide copies of such
<PAGE>
-3-
records to the Client Company upon reasonable request. All such records
will be the property of Subsidiary.
5. PROPRIETARY INFORMATION
(a) All intellectual property rights including copyrights, designs and
registered designs, patents, trade secrets, trade marks and other
proprietary rights (the foregoing are referred to as "Intellectual
Property Rights") in any intellectual property arising from the
Professional Services including the ELP shall be owned by the Client
Company and shall be considered to be part of its Proprietary
Information (as that term is defined in clause 6(b)). However,
provided that the ELP of the Client Company or the Subsidiary is not
disclosed or used to or for the benefit of any third party, the
Contractor may reuse the ELP and the know-how used in preparing the
ELP for the benefit of its other clients, except for a Client
Competitor (as that term is defined in clause 6(e)), without the
requirement to make any payments or to obtain any further consents
from the Client Company to do so. The Client Company agrees only to
use the ELP for its business purposes including those of its
subsidiaries and affiliates of the Client Company. During the term of
this Agreement, the Client Company agrees not to use the ELP for the
purpose of establishing a subsidiary or other affiliate of Client
Company in the Territory for the licensing or sale of the Products in
competition with the Subsidiary or Other Entities. As used herein,
the term "affiliate" means with respect to any person, any other
person directly or indirectly controlling, controlled by, or under
common control with such first person and for this purpose the term
"control" means DE FACTO control including having the power to direct
the affairs of a person by reason of the ownership of or controlling
the right to vote sufficient number of shares of voting stock, or to
direct the general management of the affairs of such person by
contract or otherwise.
(b) Unless otherwise agreed to in writing by the parties, any work
products (the "Work Products") including without limitation documents,
plans (including business, marketing and financial plans and the ELP),
customer lists, compilations of information, databases, and computer
software developed by Contractor for or on behalf of the Client
Company or furnished to the Client Company as part of the Professional
Services and all Intellectual Property Rights therein shall be owned
by the Client Company and shall be deemed to form part of the
Proprietary
<PAGE>
-4-
Information of the Client Company.
(c) The Subsidiary shall be the owner of all word, symbols, logos,
indicia of origin, and other trade marks used by the Subsidiary,
other than those which are trade marks of the Client Company, which
trade marks shall remain the property of the Client Company.
However, nothing herein shall transfer to the Subsidiary or the
Client Company the trade mark "Protege" or any words, symbols,
logos, indicia of origin, and other trade mark used by the
Contractor as of the date hereof. This provision shall survive the
termination of this Agreement.
(d) 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 or the
business of its affiliates (including in the case of Client Company,
the Subsidiary and Other Entities), 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").
(e) 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).
Notwithstanding the foregoing, the Client Company may disclose the
Proprietary Information of the Contractor to employees, officers and
directors of the Client Company and its affiliates and their
professional advisors for use solely in conjunction with the business
of the Client Company and its affiliates.
(f) 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;
<PAGE>
-5-
(ii) was independently developed by it without resort to the
Proprietary Information of the other party; or
(iii) disclosures which are required by law, however, the party making
the disclosure will notify the other party before a disclosure
is made and use reasonable efforts to have such information
remain confidential.
(g) 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 and shall confirm that all copies of such
materials have been permanently deleted from its computer systems.
(i) 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;
(ii) it has the know how and expertise to provide the Professional
Services and it will use such know how and expertise to assist
the Subsidiary in achieving the objectives set out in the ELP;
(iii) it will use reasonable efforts to provide and transfer to the
Subsidiary expertise related to marketing, promoting, and
distributing software products and services in the Territory;
(iv) any information or materials including Work Products it
discloses to the Client Company, the Subsidiary or Other
Entities shall not be in any way be based upon any confidential
or proprietary information from any third party, unless the
Contractor is specifically authorised in writing by such source
to use and disclose such proprietary information;
(v) if the Client Company, Subsidiary or Other Entity 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 such persons and
<PAGE>
-6-
hold them harmless against all such liability or expense
including reasonable attorney/solicitor's 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;
(vi) it shall not infringe any Intellectual Property Right or moral
right of any third party in the performance of its obligations
hereunder and the Work Products developed or delivered by the
Contractor will not infringe or violate any Intellectual
Property Right or moral right of any third party; and
(vii) it shall perform the Professional Services in a competent,
diligent, professional and careful manner and discharge its
obligations to the Subsidiary honestly and in good faith and
with a view to the best interests of the Subsidiary.
(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 from any third party, unless the Client
Company is specifically authorised in writing by such source to
use such proprietary information;
(iii) 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
(iv) the Client Company will not unreasonably withhold the supply of
Product
<PAGE>
-7-
to the Subsidiary or Other Entities.
(c) The Client Company will defend (or at its option) settle any claim or
action brought against the Contractor to the extent that it is based
on a claim that (i) the performance of the obligations of the Client
Company or the provision of information to the Contractor or any
product supplied by the Subsidiary, any Other Entity, or the Client
Company, infringes any Intellectual Property Right of any third
person, or (ii) any claim or action brought against the Contractor to
the extent that it is based on a claim that the Products suffers from
a design or manufacturing defect or is defective, dangerous or
otherwise faulty (a "Claim") and will indemnify the Contractor against
damages and costs awarded against the Contractor by a court of
competent jurisdiction by final order from which no appeal is taken or
the time for appealing has expired, provided that the Contractor
notifies the Client Company promptly in writing of same, and provided
further that the Contractor permits the Client Company to control the
litigation and to defend, compromise or settle the Claim and provides
all available information, assistance and authority to enable the
Client Company to do so. The Client Company shall not be liable to
reimburse the Contractor for any compromise or settlement made by the
Contractor without the Client Company's prior written consent, or for
any legal fees or expenses incurred by the Contractor in connection
with such Claim (other than such reasonable legal fees or expenses
which the Contractor incurs as a result of the Client Company failing
to comply with its obligation to defend (or at its option) settle any
Claim). The Contractor shall have not authority to settle any claim
on behalf of the Client Company. Notwithstanding the foregoing, the
Client Company shall have no liability for any Claim that is based on
intellectual property created by Contractor to the extent that such
intellectual property is not generated automatically by the functions
or features of the Product, or intellectual property created in the
normal course of installing or implementing the Product if the
Contractor follows the installation procedures prescribed, recommended
or normally used by the Client Company. . This provision shall
survive the termination of this Agreement.
(d) The Client Company undertakes with the Contractor that:
<PAGE>
-8-
(i) it will provide prompt and clear instructions to the Contractor
in response to 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 in the normal course of
business provided that the payments are reflected in the ELP or
have otherwise been agreed to in writing or e-mail by the Client
Company and have been properly incurred;
(iii) it shall procure that the Subsidiary or Client Company will
obtain Directors' Liability Insurance as soon as practicable
after the Subsidiary has been incorporated; and
(iv) following the establishment of the Subsidiary's bank account, it
shall procure that L85,000 will be transferred to such bank
account immediately following the execution. Approximately forty
thousand pounds of this amount shall be used to pay the First
Quarterly Management Fee described in Schedule B and the
remaining amount (apprximately forty-five thousand pounds
(L45,000)) shall be left in the account as a float for the term
of this Agreement.
(e) The Contractor agrees that during the term of this Agreement and for a
period of twelve (12) months that it will not, directly or indirectly,
and whether as principal, employee, officer, director, shareholder or
investor or otherwise without the written consent of the Contractor:
(i) provide substantially similar services to those provided to the
Client Company in the Territory to any Client Competitor;
(ii) be involved in the development, or marketing of any software
directly competitive to the Product; or
(iii) solicit the customers of the Subsidiary or the Client Company
for any products or services of a Client Competitor. In this
Agreement, the term "Client Competitor" means the entities
listed in Schedule D, and such other entities notified to the
Contractor by the Client Company who are in the business of
supplying Professional Services Automation (PSA)
<PAGE>
-9-
software. If Contractor objects to the addition of an
additional entity to the list of Client Competitors,
Contractor may, within thirty (30) days of receiving the
notice, notify the Client Company that it objects to the
addition of the entity to the list of Client Competitors and
provide the Client Company with the reasons why the
Contractor believes such entity should not be added to the
list. The Client Company and the Contractor shall thereafter
discuss in good faith whether the entity should be removed
from the list of Client Competitors. If the parties are
unable to resolve such dispute, either party may, by notice
in writing to the other, request that such dispute be settled
by binding arbitration by Dennis Bennie or such other person
as the parties acting reasonably shall agree to (such person
is referred to as the "Arbitrator"). The Arbitrator shall
meet with the parties to discuss the dispute within twenty
(20) days of being asked to do so and shall within seven (7)
days of such meeting notify the parties of his decision. The
decision of the Arbitrator shall be final and binding upon
the parties and no appeal thereof may be taken by either
party on any grounds. If requested to do so by Contractor,
the Client Company agrees to review the list of Client
Competitors and not to unreasonably refuse to remove the
names of businesses who cease to be Client Competitors. The
reference to "investor" or "shareholder" in this paragraph
(e) above shall not apply to an investor or shareholder in a
public company where the investment does not exceed ten
percent (10%) of the issued shares of the company, or to an
investor in a private company where the investment does not
exceed five percent (5%) of the issued shares of the company
and where the private company is also an existing or former
client company of Contractor for whom the Contractor is or
has provided similar services to those provided to the Client
Company, provided that neither the Contractor nor any
affiliate of Contractor provides any services to such private
company or any affiliate thereof in the Professional Services
Automation software market.
(f) Personnel supplied by the Contractor are employees of the Contractor
and not the Client Company's personnel or agents, and the Contractor
assumes full responsibility for their acts. The Contractor shall be
solely responsible for the payment to the Contractor's employees
assigned to perform services hereunder
<PAGE>
-10-
(including the VP appointed hereunder), of compensation (including
the withholding and the remitting of income taxes, social security
taxes; providing for Workers' Compensation, disability insurance
benefits, unemployment insurance benefits and the like; and any and
all claims made by the Contractor's employees relating to their
employment by the Contractor). The Contractor shall inform its
employees that they are not entitled to any Client Company employee
benefits.
(g) Personnel supplied by the Client Company are employees of the
Subsidiary or the Client Company and not the Contractor's personnel or
agents, and the Client Company assumes full responsibility for their
acts. The Client Company and/or Subsidiary shall be solely
responsible for the payment to the Client Company's employees or hired
as employees by the Subsidiary to perform services for the Subsidiary,
of compensation (including the withholding and the remitting of income
taxes, social security taxes; providing for Workers' Compensation,
disability insurance benefits, unemployment insurance benefits and the
like; and any and all claims made by the Subsidiary or Client
Company's employees relating to their employment by the Client
Company). The Client Company shall inform its employees that they are
not entitled to any of the Contractor's benefits.
(h) If the Contractor, or any shareholder of the Contractor, or any
officer or director of the Contractor appointed by the Shareholders,
the Contractor or its Board of Directors is a party to a material
contract or proposed material contract with the Subsidiary or Other
Entity, or if any such person has a material interest in any person
who is a party to a material contract or a proposed material contract
with the Subsidiary or Other Entity, such person shall disclose such
interest in writing to the Client Company forthwith after the Company
or such individual, as the case may be, becomes aware of the contract
or proposed contract. Further all contracts with any such persons
shall be at market prices, unless this requirement is expressly waived
by the Client Company. For the avoidance of doubt, a person shall not
be considered to be an officer of the Contractor merely because such
person is appointed as a Vice President of any client company for whom
the Contractor is providing substantially similar services to the
Professional Services provided to the Client Company.
(i) The Contractor shall provide to the Subsidiary a full time person to
act as the Vice President of the Subsidiary during the term of this
Agreement. The Contractor
<PAGE>
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shall, within thirty (30) days following the Effective Date,
provide the Client Company with the name, background and
qualifications of the person proposed as well as the reasons why
the Contractor believes such person would be suitable to carry out
the responsibilities of Vice President of the Subsidiary. If the
Client Company agrees that such person is suitable (such agreement
not to be unreasonably withheld), the Client Company will approve
of such person and thereafter such person shall act as the Vice
President of the Subsidiary. Such person shall remain an employee
of the Contractor. Prior to assuming the duties of Vice President
of the Subsidiary, such person shall execute a confidentiality and
proprietary rights agreement with the Client Company and the
Subsidiary in a form acceptable to the Client Company. The
Contractor shall cause the Vice President to devote his or her full
time and attention to performing the Professional Services during
the term of this Agreement. Any replacement of the Vice President
shall be subject to the Client Company's prior written approval
(which approval may be given in writing or by e-mail) and which
approval will not be unreasonably withheld. The Contractor agrees
to use reasonable commercial efforts to replace the Vice President
of the Subsidiary within thirty (30) days of any removal, dismissal
or resignation.
(j) The Client Company shall have the right by notice in writing to the
Contractor to have the Vice President replaced (i) for serious
misconduct, (ii) in the event the Subsidiary's business is not carried
on in material compliance with the terms of the ELP due to the
negligence, incompetence or wilful acts of the Vice President, or
(iii) in the event that in the Client Company's opinion, acting
reasonably, and after discussions with the Contractor, concludes that
the Vice President is not demonstrating the knowledge or skills
required to manage the Subsidiary. In this Agreement the term
"serious misconduct" means (i) the Vice President has been unable to
perform his or her duties by reason of ill health or injury for ninety
(90) days (whether consecutive or not) in any period of fifty-two (52)
consecutive weeks, (ii) the Vice President becomes of unsound mind, a
patient for the purpose of any statute relating to mental health,
becomes bankrupt or applies for protection against creditors
generally, (iii) the Vice President is convicted of a criminal offence
other than one which in the opinion of the Client Company does not
affect his or her position as Vice President of the Subsidiary,
bearing in mind the nature of his or her duties and the capacity in
which the Vice President is performing
<PAGE>
-12-
services, or (iv) the Vice President is guilty of any serious
default or misconduct in connection with or affecting the business
of the Subsidiary, Other Entities, the Client Company or the
Contractor or affiliates of any thereof, commits any serious or
repeated breaches of his or her obligations to the Subsidiary, is
guilty of serious neglect or negligence in the performance of his
duties or behaves in a manner (whether on or off duty) which is
likely to bring the Subsidiary, Other Entities, the Client Company
or the Contractor into disrepute or which seriously impairs his or
her ability to perform his or her duties.
(k) In the event the Vice President of the Subsidiary is not appointed
within thirty (30) days following the Effective Date, or in the event
the Vice President of the Subsidiary is removed, dismissed or resigns
and is not replaced within thirty (30) days of the date thereof, the
Client Company shall have the right to cease paying the Management Fee
until a new Vice President of the Subsidiary is appointed. The
Contractor acknowledges that the Client Company will require the Vice
President to execute a confidentiality and non-competition agreement
with the Client Company and/or the Subsidiary prior to his
appointment. In the event the hiring (or replacement) of the Vice
President is delayed because the Client Company is seeking a
restrictive covenant more onerous than the restrictive covenant that
the Contractor ordinarily requires of the vice presidents it hires for
other client companies for which it provides substantially similar
services to those provided to the Client Company, such delays shall
not be calculated in computing the thirty (30) day period for the
hiring or replacement of the Vice President in this paragraph (k).
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 may be renewed by the parties for subsequent twelve
(12) months periods (each such period is referred to as a "Renewal
Term"), by an agreement in writing. The Client Company agrees to give
the Contractor no less than ninety (90) days notice of its intention
not to renew the Agreement for a Renewal Term prior to the expiration
of the Initial Term or a Renewal Term, as the case may be, provided
that any failure to provide such notice shall not be deemed an
agreement
<PAGE>
-13-
to renew the Agreement for a Renewal Term. If the Client Company
does not give the Contractor a notice of its intention not to renew
this Agreement as provided for herein, then this Agreement will
expire at the end of the Initial Term, or Renewal Term, as the case
may be.
(c) This Agreement may be terminated as follows:
(i) during the Initial Term or any Renewal Term, by either party if
the other party has committed any material breach of the terms
of this Agreement, which breach has not been cured within thirty
(30) days from the receipt of a notice from the other party (a
"Termination for Breach");
(ii) by the Client Company in the event the aggregate of the Net
Revenue and Third Party Related Net Revenue (as those terms are
defined in Schedule B) of the Subsidiary and Other Entities in
any calendar quarter commencing on July 1, 2000 is not at least
five percent (5%) of the Client Company Worldwide Revenue in the
calendar quarter. Client Company shall provide Contractor no
less than thirty (30) days notice of its intention to terminate
this Agreement pursuant to this Clause 7(c)(ii). As used herein
the term "Client Company Worldwide Revenue" means the aggregate
gross revenue of the Client Company and its affiliates
(including the Subsidiary and Other Entities) from the sales
and/or licenses of the Product and third party products related
to the Products and the supply of services related thereto
invoiced and collected by such entities during the relevant
period (net of allowances, credits, discounts (based on volume
or otherwise) and net of actual bad debts in respect of invoices
issued by such entities);
(iii) by the Client Company if there is a change in control of the
Contractor (and for this purpose, the term "control" has the
meaning given to it in Clause 5(a)), other than to an affiliate
the Contractor or in the event of a public offering of the
shares of the Contractor on a public stock exchange;
(iv) by the Client Company if the Contractor breaches its
non-competition covenant to the Client Company set out in
Clause 6(e); or
<PAGE>
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(v) by the Client Company on a winding up, liquidation, bankruptcy,
receivership or other similar event with respect to the
Contractor.
(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, and
such proceedings are not dismissed, discontinued, or abandoned within
sixty (60) days of their commencement.
(e) This Agreement may be terminated by the Client Company for convenience
upon not less than thirty (30) days prior written notice in the event
of a merger, amalgamation or change in control (as that term is
defined in Clause 5(a)) of the Client Company with an arm's length
third party and in such event the Contractor shall become entitled to
the Corporate Bonus referred to in Clause 4(C)(iii) of Schedule B as
the sole and exclusive remedy of the Contractor arising from such
termination.
(f) 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 the Contractor's rights to
payments in accordance with Schedule B.
(g) Prior to and upon the termination of this Agreement for any reason,
the Contractor shall provide the transitional services to the Client
Company set out in Schedule B.
8. MISCELLANEOUS
(a) The laws of the Province of Ontario shall govern this Agreement (other
than its conflict of law rules) and the parties hereby submit and
attorn to the non-exclusive jurisdiction of the courts of the Province
of Ontario for any action arising out of or relating to this
Agreement.
(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 either party cannot perform its respective obligations by reason of
fire, flood, earthquake, explosion or other casualty or accident or
act of God, strikes or labour
<PAGE>
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disputes, war, or inability to obtain power or a material disruption
in telecommunications beyond the party's reasonable control, then the
non-defaulting party shall:
(i) notify the other party as soon as reasonably practicable;
(ii) take reasonable steps to resume performance as soon as possible;
and
(iii) not be considered in breach during the period in which
performance is beyond that party's reasonable control.
(d) 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.
(e) Either party's waiver of a default by the other does not constitute a
waiver of future or other defaults.
(f) Neither party nor any of their affiliates shall, save with the consent
of the other party (which such consent shall, in the case of the
Contractor, be given on the terms set out below), during the term of
this Agreement or for a period of 12 months after its termination,
solicit or engage for employment or for the provision of services, any
employee of the other party, or any employee of an affiliate of the
other party
(g) 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, knowingly solicit or engage for employment or for the
provision of services, any employee of other client companies for whom
the Contractor is providing substantially similar services to those
provided to the Client Company (for as long as the client company
remains a client company for whom the Contractor is providing such
services) and the Contractor agrees that no client company for whom
the Contractor is providing substantially similar services to those
provided to the Client Company will, for the period which is the
shorter of (1) the period
<PAGE>
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during which the client company remains a client company for whom
the Contractor is providing such services, and (2) the term of this
Agreement and for a period of twelve (12) months after its
termination, knowingly solicit or engage for employment or for the
provision of any services, any employee of the Client Company, the
Subsidiary, or Other Entities.
(h) The parties agree that the Contractor will license to the Subsidiary
space at the Kinetic Business Centre at Theobald Street, Borehamwood,
Hertz or other premises in London, England which are suitable for the
Subsidiary's business requirements. The terms of such license shall
be negotiated in good faith by the parties and be executed by no later
than thirty (30) days from the Effective Date. The license will
provide to the Client Company approximately three hundred (300)
square feet of office space. The monthly license fee will be no
greater than thirteen hundred pounds sterling (L1,300) per month, plus
VAT..
(i) Notwithstanding Clause 8(f), the Contractor consents to the Client
Company soliciting the Vice President of the Subsidiary on the
condition that if the Client Company or any affiliate does engage such
person 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 fifty percent (50%) of the guaranteed
minimum pre-tax salary and bonus which the Client Company or any
affiliate thereof has agreed to pay to such person during the first
year of his/her engagement with the Client Company or its affiliate,
plus the reasonable head hunter's fees, if any, paid by the Contractor
originally to hire the Vice President for the position of Vice
President of the Subsidiary.
(j) Neither party shall assign its rights or obligations under this
Agreement, unless it first obtains the prior written consent of the
other party, such consent not to be unreasonably withheld.
(l) 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.
<PAGE>
-17-
Dated at __________________________ this _______day of __________________
_______________________________________
duly authorised for and on behalf of
CHANGEPOINT CORPORATION
of 1595 Sixteenth Avenue, Suite 700,
Richmond Hill, Ontario, Canada L4B 3N9
Dated at __________________________ this _______day of __________________,
_______________________________________
duly authorised for and on behalf of
PROTEGE SOFTWARE LIMITED
of Kinetic Centre, Theobald Street,
Borehamwood, Hertfordshire WD6 4PJ
<PAGE>
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 Changepoint Europe Limited
(the "Subsidiary"); and
(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").
(c) The Client Company shall have the prior right of approval with respect to
the activities described in this paragraph A.
B. DEVELOPMENT OF ELP
The ELP shall contain the following information:
Foreword
SECTION 1
[EXECUTIVE SUMMARY]
European Objectives
MISSION
ANALYSIS OF THE EUROPEAN MARKET
MARKET LEADERSHIP
QUICK BREAK EVEN
REASONABLE PERCENTAGE OF WORLDWIDE SALES
<PAGE>
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LEVERAGE
EXISTING OPPORTUNITIES
SECTION 1
SALES & MARKETING OVERVIEW
European Objectives
MARKETS
European trends by selected country
SPECIFIC MARKET DRIVERS
EUROPEAN COMPETITIVE REVIEW
SECTION 2
PLAN OF EXECUTION
Overall operational objectives
MARKET TIMINGS
EUROPE SALES AND PARTNER STRATEGY OVERVIEW . . . . . . . . . . . . . . . . . .
Content
Routes to Market
Product Strategy
SALES STRATEGY
EUROPEAN PRICING
PROFESSIONAL SERVICES
GEOGRAPHICAL
REFERENCE CUSTOMERS
MARKETING STRATEGY
European Marketing Objectives and Strategies
Key Tactics
KEY METHODS
Localization
Technical Services
Operational Plan
Key issues
<PAGE>
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Eurocentric Content
SECTION 3
Finance & Operations
The Benefits of Outsourcing to Protege Back Office
Financial Plan
Non-financial matters
C. 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.
D. 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:
<PAGE>
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(a) solicitation of orders for Product;
(b) provision of support for the Client Company's distributors and dealers in
the Territory for the Products;
(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 for the Product;
(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 Product of the Client Company
handled by the Contractor);
(h) localisation of marketing materials, and where agreed to by the Client
Company, the Product;
(i) set up and operate 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).
<PAGE>
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E. 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 or e-mail 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 Product 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
and by following the Client Company's credit manager's procedures
communicated to the Contractor. The Client Company will provide to the
Contractor a copy of its credit procedures and will provide updates to the
Contractor when same become available.
F. REPORTS
Unless otherwise agreed to by the parties in writing or by e-mail, the
Contractor shall provide the Client Company with the following monthly
reports:
1. REPORTS REQUIRED BY CLIENT COMPANY
1.1 MONTHLY REPORTS
FINANCIAL REPORTS
- full set of financial statements; B/S, P/L, C/F
- Product Line income statements
<PAGE>
-6-
- Departmental Income statements
- supporting schedules including;
- detailed trial balance
- aged accounts payable listing
- aged accounts receivable listing
- bank reconciliations
- detailed revenue analysis by customer and revenue type, i.e.
software, services, support and other.
MARKETING REPORTS
- summary of marketing activities for the month
HUMAN RESOURCES REPORTS
- copy of payroll activity report and, if available, payroll activity
exception report.
- summary of personnel changes
CONTRACTS REPORTS
- list of contracts signed
- copy of contracts signed
1.2 WEEKLY REPORTS
SALES REPORTS
- detailed sales report
- third party software and services acquired and sold
- detailed pipeline report
- detailed revenue forecast for coming month, balance of quarter, and
next quarter
G. DIRECTIONS
The Contractor shall follow the reasonable instructions of the Client
Company regarding the management and operation of the Subsidiary, provided
that such instructions are not inconsistent with the ELP or the
instructions given by the Board of Directors of the Subsidiary.
<PAGE>
SCHEDULE B
CONTRACTOR'S REWARD
1. GENERAL
Without prejudice to the Subsidiary's liabilities to the Contractor 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 Subsidiary to the Contractor pursuant to this
Agreement. The Client Company will authorize the Vice President of the
Subsidiary to pay the Management Fee referred to in paragraph 2 and the
Financial Services Fee referred to in paragraph 3, in the amounts and at
the times set forth below. All other payments to the Contractor shall be
approved in writing or by e-mail by the Client Company before such payments
are made to the Contractor.
All sums due to the Contractor whether from the Client Company or
Subsidiary 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. MANAGEMENT FEE
The Subsidiary shall pay the Contractor a management fee of L135,000 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. If this Agreement terminates or
is scheduled to terminate prior to the end of a twelve (12) month period
from the Effective Date, the Management Fee shall be pro-rated from the
anniversary of the Effective Date until the effective date of the
termination of this Agreement.
3. PROTEGE FINANCIAL SERVICES FEE
The Subsidiary shall pay to the Contractor a fee, calculated as set out
below, for the provision and/or co-ordination of administration functions
(the "Financial Services Fee"). Such administration functions shall
include:
(a) ensuring that the Subsidiary and any Other Entities are properly
incorporated;
<PAGE>
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(b) providing persons to act as directors, company secretary and (if
required) other officers of the Subsidiary and any Other Entity, all
of which persons shall be subject to the prior approval of the Client
Company;
(c) providing and 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.
The Financial Services Fee will be charged at the rate of L6,500 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 L7,000 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.
4. CORPORATE BONUS
(A) The Subsidiary shall pay a bonus to the Contractor in respect of the
Agreement Period, Termination Period and the Post-termination Period
calculated and payable in accordance with the provisions of this paragraph
4 (the "Corporate Bonus").
(B) The Corporate Bonus in respect of the Agreement Period (other than the
Termination Period) shall be 15% of the Net Revenue and 50% of the Gross
Margin on Third Party Related Net Revenue in respect of that period.
(C) The Corporate Bonus in respect of the Termination Period shall be (i) where
this Agreement is terminated by the Client Company pursuant to Clause 7(c),
there shall be no Corporate Bonus in respect of the Termination Period;
(ii) where this Agreement is
<PAGE>
-3-
terminated by the Contractor pursuant to Clause 7(d) or Clause 7(c)(i),
15% of the Annualised Net Revenue where the Annualised Net Revenue is
the average of the Net Revenue for each completed month of the Agreement
Period prior to the termination of this Agreement multiplied by the
number of months in the Termination Period not to exceed 12 months, plus
50% of the Annualised Gross Margin on Third Party Related Net Revenue
where the Annualised Gross Margin on Third Party Related Net Revenue is
the average of the Gross Margin on Third Party Related Net Revenue for
each completed month of the Agreement Period multiplied by the number of
months in the Termination Period not to exceed 12 months; or (iii) where
this Agreement is terminated by the Client Company pursuant to Clause
7(e) the Contractor will retain the Corporate Bonus for the periods
prior to the termination and in addition the following shall be due: (1)
in the event this Agreement is terminated at any time before the seventh
month of this Agreement, the sum of two hundred and twenty-five thousand
U.S. dollars (U.S.$225,000), and (2) in the event this Agreement is
terminated at any time during the seventh month to the eighteenth month
of the Initial Term, the greater of (A) eighteen thousand, seven hundred
and fifty U.S. dollars (U.S.$18,750) for the remaining months of the
Initial Term, and (B) an amount equal to the average monthly Corporate
Bonus in each completed month of the Agreement Period the period prior
to the termination of this Agreement multiplied by the remaining months
of the Initial Term.
(D) The parties agree that the payment of the Corporate Bonus in respect of the
Termination Period shall be the Contractor's sole remedy with respect to
claims it may have against the Client Company arising from or related to
the termination of this Agreement. This provision will not release the
Client Company for claims for arrears in Management Fees or Financial
Services Fees existing as of the date of the termination of this Agreement
or for other claims which do not arise from or relate to the termination of
the Agreement.
(E) The Corporate Bonus in respect of the Post-termination Period shall be 15%
of the Net Revenue and 50% of the Gross Margin on Third Party Related Net
Revenue during the Post-termination Period for professional services
supplied in connection with Products sold and/or licensed by the Subsidiary
or Other Entities during the Agreement Period.
(F) The Corporate Bonus shall be paid (together with any applicable VAT subject
to submission of an appropriate invoice) within 30 days of the end of the
Agreement Period, Termination Period, and Post-termination Period, as the
case may be. However, unless the Contractor notifies the company in
writing within thirty (30) days of the end of the
<PAGE>
-4-
applicable period that it desires to be paid the Corporate Bonus, the
Contractor shall be deemed instead to subscribe for (or purchase from
the Client Company) warrants exercisable for common shares in the Client
Company with the amount of the appropriate Corporate Bonus (excluding
any VAT) at a price of two Canadian dollars and forty five cents
($CDN2.45), per warrant. Such warrants will be exercisable by the
Contractor at any time during the period of five years commencing upon
the earlier of (i) the day prior to the closing of an initial public
offering of shares by the Client Company and (ii) the completion of the
Post-Termination Period, and shall be exercisable for no additional
consideration. The terms of such warrants will provide, among other
things, that the Client Company has the right, exercisable in its sole
and absolute discretion, to effect the exercise of such warrants
immediately prior to the completion of any transaction (an "Acquisition
Transaction") pursuant to which (i) there is a sale, whether by way of
private agreement or otherwise, of all or substantially all of the
assets or shares of the Client Company, (ii) a merger, amalgamation or
other transaction involving a change of control of the Client Company,
or (iii) an initial public offering (an "IPO") of shares of the Client
Company to the public. The Contractor acknowledges that the terms of
such warrants will provide that upon any exercise thereof it will be
deemed to be bound by the provisions of any unanimous shareholders
agreement then in effect among the shareholders of the Client Company.
The Contractor further acknowledges that the Client Company's
Shareholders Agreement will contain tag-along and drag-along provisions
which would require the Contractor to sell its shares in the Client
Company in the event of certain transactions and would permit the
Contractor to participate in any such transaction, in each case at a
price per share equal to that received by the other Shareholders of the
Client Company participating in such transaction. Upon the exercise of
the warrants, the Contractor agrees to become a party to the
aforementioned Shareholders Agreement before any shares are issued to
the Contractor. The Client Company hereby agrees and undertakes that by
entering into or agreeing to be bound by the aforementioned Shareholders
Agreement the Contractor will be entitled to all of the rights,
privileges and benefits to which the holders of common shares of the
Client Company (other than those who also hold Class A Preferred Shares)
are, generally, entitled to pursuant to such Shareholders Agreement.
The warrants shall not in any event be assignable or transferable. The
Client Company hereby represents and warrants to the Contractor that it
has the requisite power and authority under its constating documents to
issue the warrants and that there is sufficient authorized but unissued
share capital to permit the Client Company to issue the shares
underlying the warrants. The Client
<PAGE>
-5-
Company hereby agrees and undertakes that the warrants will entitle the
Contractor to the benefit of all dividends and distributions made to
holders of common shares of the Client Company as if the Contractor were
the holder of the shares underlying the warrants from the date at which
the Contractor receives the warrants. The Client Company hereby agrees
and undertakes that upon the issuance of warrants to the Contractor the
Contractor shall be registered in the books of the Client Company as the
holder of such warrants with reference to the number of shares
underlying such warrants. If the warrants are not converted into the
common shares of the Client Company within three (3) years of the
Effective Date, the Client Company shallbe deemed as of such date to
have effected the exercise of such warrants on such date.
(G) Each party shall notify the other of the accrued Net Revenue and Gross
Margin on Third Party Related Net Revenue within thirty days of the end of
each month during each Agreement Period. Any disputes as to the amounts
shall be notified to the other party within a reasonable period. Amounts in
currencies other than sterling shall be converted to sterling at the mid
market closing rate on the London market at the end of the applicable
month.
(H) If the aggregate of Net Revenue and Third Party Related Net Revenue during
any calendar quarter commencing July 1, 2000 (a "Period") amounts to less
than 10% of the Client Company World-Wide Revenue (as that term is
described in Clause 7(c)(ii) during that Period; then the Corporate Bonus
for that Period shall be reduced proportionately.
(I) "AGREEMENT PERIOD" means the Initial Term and the Renewal Term, if any, but
does not include any of the Termination Period.
(J) "TERMINATION PERIOD" means any period commencing on the effective date of
the termination of this Agreement, and terminating at the end of the
Initial Term, or if this Agreement has been renewed, at the end of the
Renewal Term as the case may be.
(K) "POST TERMINATION PERIOD" shall mean the period of six months following the
termination or expiration of this Agreement.
(L) "NET REVENUE" shall mean in respect of the Agreement Period or Post
Termination Period the gross revenue generated by the Subsidiary and Other
Entities from the sales and/or licences of the Product and the supply of
services related thereto (the "Subsidiary Services") in the Territory
invoiced by the Subsidiary and/or Other Entities during the
<PAGE>
-6-
Agreement Period (net of allowances, credits, discounts (based on volume
or otherwise) and net of actual bad debts in respect of invoices issued
by the Subsidiary or Other Entities) and specifically excluding (i)
Third Party Related Net Revenue, (ii) revenues of the Subsidiary and
Other Entities from sales and/or licenses of the Product or services
provided outside of the Territory, or (iii) revenues of the Subsidiary
and Other Entities which did not result from any material efforts of the
Subsidiary or Other Entities such as where the Subsidiary has performed
no more than an administrative function with respect to the procurement
of the applicable contract, or has provided only administrative services
such as accounting or collection assistance related to the provision of
the services; however, gross revenue generated by the Subsidiary and
Other Entities from the sales and/or licenses of the Product and the
supply of the services related thereto in the Territory (other than
Third Party Related Net Revenue) which are invoiced by the Client
Company and affiliates thereof shall be deemed to be gross revenue of
the Subsidiary for the purposes of this paragraph to the extent and only
to the extent that such revenue is from the sales and/or licenses of the
Product and the supply services related thereto in the Territory and was
generated by the Subsidiary and Other Entities. In calculating Net
Revenue in respect of the Corporate Bonus for the Agreement Period and
the Post-Termination Period, the Client Company may deduct from the
applicable gross revenue a reasonable amount to reflect anticipated bad
debts in respect of invoices issued. Should the actual bad debts in
respect of such invoices prove to be higher or lower, then an adjustment
shall be made to the Net Revenue prior to the calculation of the
Corporate Bonus in respect of the Post Termination Period. Further, in
calculating Net Revenue for the purpose of determining the Corporate
Bonus for the Post Termination Period, the applicable gross revenue
shall be the gross revenue invoiced and collected.
(M) "THIRD PARTY RELATED NET REVENUE" shall mean in respect of the Agreement
Period and the Post Termination Period the gross revenue generated by the
Subsidiary and Other Entities from the sales and/or licenses of third party
products related to the Product or the supply of services by a third party
related to the Product or such third party products in the Territory
invoiced by the Subsidiary and/or Other Entities during the Agreement
Period (net of allowances, credits, discounts (based on volume or
otherwise) and net of actual bad debts in respect of invoices issued by the
Subsidiary or Other Entities) and specifically excluding (ii) revenues of
the Subsidiary and Other Entities from sales and/or licenses of any of the
products or services provided outside of the Territory, or (iii) revenues
of the Subsidiary and Other Entities which did not result from any material
<PAGE>
-7-
efforts of the Subsidiary or Other Entities. In calculating Third Party
Related Net Revenue in respect of the Corporate Bonus for the Agreement
Period and the Post Termination Period, the Client Company may deduct from
the applicable gross revenue a reasonable amount to reflect anticipated bad
debts in respect of invoices issued. Should the actual bad debts in
respect of such invoices prove to be higher or lower than the actual bad
debts, then an adjustment shall be made to the Third Party Related Net
Revenue prior to the calculation of the Corporate Bonus in respect of the
Post Termination Period. Further, in calculating Third Party Related Net
Revenue for the purpose of determining the Corporate Bonus for the Post
Termination Period, the applicable gross revenue shall be the gross revenue
invoiced prior to the termination of the Post Termination Period and
collected by no later than sixty (60) days after the end of the Post
Termination Period.
(N) "GROSS MARGIN ON THIRD PARTY NET REVENUE" means the Third Party Related Net
Revenue less amounts paid or payable to the third parties for the sales
and/or licenses of products or the supply of services related to the
Product or the third party products.
5. TRANSITION, CHANGE OF CONTROL OR CLOSURE OF THE SUBSIDIARY
Upon the termination of this Agreement for any reason, the Contractor shall
provide Financial Services support in the transition of the Subsidiary and
any Other Entities from the Contractor to a stand-alone basis. The
services 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.
In the event of the closure of the Subsidiary (or any Other Entity) during
the Agreement Period or upon the termination of this Agreement, 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. The maximum payable under this
paragraph is the sum of L12,000 even if more than one entity is closed
during the Agreement Period or upon the termination of this Agreement.
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
<PAGE>
-8-
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 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.
6. SHARE OPTIONS
(a) As soon as reasonably practicable following execution hereof the
Client Company shall grant a share or stock option (the "Share
Option") to the employee of the Contractor appointed as Vice President
of the Subsidiary (the "Nominated Employee") upon the terms of the
Client Company Stock Option Plan (the "Plan") and as provided below.
(b) The Share Option shall be over fifty thousand (50,000) common shares
of common stock of the Client Company with an exercise price in the
amount prescribed by the Plan.
(c) No performance target or performance condition shall attach to the
Share Option. The shares shall vest rateably over a three (3) year
period commencing on the first anniversary of the grant thereof to the
Nominated Employee and thereafter on the subsequent two anniversaries
thereof. However, the Nominated Employee must be a full time employee
of, or a full time consultant to, or a full time employee of a full
time consultant to, the Client Company or one of its Affiliates for
the shares to vest in the Nominated Employee.
(d) Upon exercise of the Share Option by the Nominated Employee the Client
Company shall forthwith notify the Contractor thereof and provide such
details as the Contractor may require to enable it to calculate any
liability it 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 Option ("Option Tax
Liability"). The Nominated Employee agrees to execute the Client
Company's Share Subscription Agreement and become a party to the
Client Company's Shareholder Agreement, before any shares are issued
to the Contractor.
<PAGE>
-9-
(e) The Client Company shall pay to the Contractor (on behalf of the
Nominated Employee) the amount of any Option Tax Liability within
fourteen days of receiving notice from the Contractor of the amount
thereof, (which notice shall be given as soon as reasonably
practicable after receipt of the information referred to in
sub-paragraph (d) above), but in any event, no later than 30 days
from exercise of the Share Option, save in case of default on the
part of the Contractor giving notice. Following receipt of the
amount of the Option Tax Liability the Contractor shall not seek to
recover the same from the Nominated Employee.
(f) The Client Company warrants to the Contractor that it has full power
and authority to grant the Share Option on the foregoing terms.
7. PUBLIC OFFERING OF THE CLIENT COMPANY'S SHARES
(a) In addition and without prejudice to the Contractor's right to
acquire warrants pursuant to Clause 4 (F) of Schedule B, the Client
Company undertakes that if, at any time during the term of this
Agreement or within twelve months after its termination, there is a
public offering of shares in the Client Company, then:
(i) the Contractor shall be entitled to participate in any such
public offering of the Client Company's common shares (each such
share is referred to as a "Share") by subscribing for up to
25,000 Shares of the Client Company at the price and the other
terms at which those shares are offered pursuant to the public
offering;
(ii) it will take all reasonable steps and do all reasonable things
which are necessary and within its power to ensure that the
Contractor is so able to participate in any such public offering
of the Client Company's shares; and
(iii) 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) In case the Client Company shall at any time subdivide the outstanding
common shares of the Client Company into a greater number of common
shares, the purchase price per Share shall be proportionately reduced
and the number of
<PAGE>
-10-
subdivided common shares entitled to be purchased shall be
proportionately increased, and conversely, in case the Client
Company shall at any time consolidate the outstanding common shares
of the Client Company into a smaller number of common shares, the
purchase price per Share shall be proportionately increased and the
number of combined common shares entitled to be purchased hereunder
shall be proportionately decreased; and
(c) If any capital reorganisation, reclassification, subdivision or
consolidation of the capital stock of the Client Company, or the
merger or amalgamation of the Client Company with another corporation
shall be effected, then adequate provision shall be made whereby the
Contractor shall have the right to purchase and receive upon the basis
and upon the terms and conditions specified in this paragraph 7 and in
lieu of the Shares immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby, such shares of
stock, or other securities as may be issued with respect to or in
exchange for such number of outstanding Shares equal to the number of
Shares purchasable and receivable upon the exercise of the rights, had
such reorganisation, reclassification, subdivision or consolidation,
merger or amalgamation not taken place. This paragraph 7(c) shall
apply as well to the shares underlying the warrants which the
Contractor may acquire pursuant to Clause 4(F) of Schedule B.
<PAGE>
SCHEDULE C
TERRITORY
In this Agreement, the term "Territory" means Europe excluding the countries in
the former Eastern Block, Africa and the Middle East subject to the then
prevailing export regulations in Canada, The United States, and other countries
which may be applicable and except to the extent that the sale or licensing of
the Product is prohibited pursuant to the laws of Canada, the United States or
other jurisdictions applicable to the Client Company's or the Subsidiary's
operations.
Client Company shall have the right at any time up to six (6) months following
the Effective Date to request the Contractor to remove from the Territory
countries in which the Contractor does not have any plans to actively market and
promote the Products. The Contractor will not unreasonably refuse any such
request and will respond to such request within ten (10) days of the receipt of
the request.
<PAGE>
SCHEDULE D
LIST OF CLIENT COMPANY COMPETITORS
2. CHANGEPOINT'S PSA (PROFESSIONAL SERVICES AUTOMATION) COMPETITORS
<TABLE>
<CAPTION>
NAME CURRENT PRODUCT NAME
- ---- --------------------
<S> <C>
ABT Results Manager
Augeo Intelliplanner
Automation Center Automation Centre
Business Engine Business Engine
Deltek Costpoint, Front Office
Eden Communications Project Track
Evolve Servicesphere
Extensity Extensity Time
Great Plains Projects
Invisic Invisic
JETech Data Eproject
Marin Research Project Gateway
Netmosphere Netmosphere
Niku Niku
Novient Novient/Engagement,Reso
</TABLE>
<PAGE>
-2-
<TABLE>
<S> <C>
Opus360 Opus Enterprise
Planview Planview
Proamics Proacta
QuickArrow QuickArrow
SHL Systemhouse Project Office
Solomon Project Controller
Suretrak/P3 Primavera
Teamplay Primavera
Work Management Solutions Account 4
WSG Empire Time
</TABLE>
NOTE: PSA is also sometimes referred to as ESA (Enterprise Services Automation)
or ESM (Enterprise Services Management).
<PAGE>
AMENDING AGREEMENT
This AMENDING AGREEMENT is made this 31st day of March, 2000 between PROTEGE
VIRTUAL MANAGEMENT LIMITED (formerly Protege Software Limited) ("Protege") and
CHANGEPOINT CORPORATION ("Changepoint")
WHEREAS Protege and Changepoint are parties to a Professional Services
Agreement made the 30th day of December, 1999 (the "Agreement"); and
WHEREAS Changepoint and Protege have agreed to amend the Agreement on the
terms set forth below (the Agreement, as amended by this Amending Agreement, is
referred to herein as the "Amended Agreement");
NOW THEREFORE for good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged by the parties), the parties agree
as follows:
1. Clause 4(F) of Schedule B of the Agreement is deleted in its entirety and
is replaced with the following:
The Corporate Bonus shall be calculated in respect of each calendar
quarter and shall be paid (together with any applicable VAT subject to
submission of an appropriate invoice) within thirty (30) days of the
end of each calendar quarter.
2. Clause 7 of Schedule B is deleted in its entirety and is replaced with the
following:
7. SHARE OPTIONS TO CONTRACTOR
(a) As partial consideration for the Professional Services to
be provided by the Contractor hereunder, the Client Company
hereby grants to Contractor a share option (in this Clause
7(a) the "Share Option") under the terms of the Client
Company's Stock Option Plan (the 1999 Stock Option Plan)
modified as set out herein and on the terms provided below.
In the event of any inconsistency between the terms of this
Clause 7 of Schedule B and the Client Company Stock Option
Plan (the "Plan"), the terms of this Clause 7 shall
prevail.
(b) The Share Option shall be for one hundred and twenty
thousand (120,000) common shares of the Client Company (the
"Shares") with an exercise price of Cdn$2.45 per share (the
option in respect of each Share is referred to as the
"Option").
(c) The Options shall be granted on March 31, 2000, and shall
vest and be exercisable upon granting. Client Company
<PAGE>
-2-
shall give a Certificate of Grant of Option and a blank
Option Exercise Form to Contractor upon execution of this
Amending Agreement by both parties. The Options shall
expire on April 14, 2000. The Contractor shall be deemed
to have exercised the Options if and when Client Company
receives the aggregate exercise price (120,000 x Cdn$2.45 =
Cdn$294,000) and a completed Option Exercise Form from
Contractor.
(d) The Options shall not be affected by any termination of
the Agreement, but shall survive any such termination
regardless of the reason therefore.
(e) The Contractor agrees to become a party to any unanimous
shareholders agreement then in effect among all of the
shareholders of the Client Company, such that the
Contractor will be subject to the same obligations
hereunder as applied to all other shareholders of the
common shares of the Client Company and will be entitled to
the same benefits thereunder afforded to the other same
shareholders. The unanimous shareholders agreement shall
be entered into before any Shares are issued to the
Contractor.
(f) Notwithstanding anything contained herein or in the Plan,
Section 5.5 and 6.1(b) of the Plan shall not apply to the
grant of the Options, to the Options nor to the exercise
thereof. Subject to the forgoing, Client Company agrees to
treat the Options issued to Contractor on the same basis as
it treats options granted to other persons under the Plan.
3. Clause 4(C)(iii) of Schedule B of the Agreement is deleted in its entirety
and is replaced by the following:
"(iii) where this Agreement is terminated by the Client Company
pursuant to Clause 7(e) of the Agreement, the Contractor will retain
the Corporate Bonus for the periods prior to the termination, but
there shall be no Corporate Bonus in respect of the Termination Period
or other compensation whatsoever related to the termination for
convenience. The Contractor acknowledges that the Share Option
granted pursuant to Clause 7 of Schedule B is in lieu of any monetary
compensation arising from such termination.
4. Clause 7(e) of the Agreement is amended to state:
<PAGE>
-3-
This Agreement may be terminated by the Client Company for convenience
upon not less than thirty (30) days prior written notice and in such
event the Contractor shall become entitled to the Corporate Bonus
referred to in Clause 4(c)(iii) of Schedule B of the Agreement as the
sole and exclusive remedy of Contractor arising from such termination.
6. The laws of the Province of Ontario shall govern this Amending Agreement
(other than its conflict of law rules) and the parties hereby submit and
attorn to the non-exclusive jurisdiction of the courts of the Province of
Ontario for any action arising out of or relating to this Amending
Agreement.
7. The Agreement and the Amending Agreement comprise the entire agreement
between the parties. Any amendment hereto or thereto must be made in
writing and signed by both the Client Company and the Contractor.
8. Neither party shall assign its rights or obligations under this Amending
Agreement, unless it first obtains the prior written consent of the other
party, such consent not to be unreasonably withheld.
9. Capitalized terms not defined herein will have the meaning ascribed to them
in the Agreement.
Dated at __________________________ this _______day of __________________
_______________________________________
duly authorised for and on behalf of
CHANGEPOINT CORPORATION
of 1595 Sixteenth Avenue, Ste 700,
Richmond Hill, Ontario, Canada
Dated at __________________________ this _______day of __________________,
_______________________________________
duly authorized for and on behalf of
PROTEGE VIRTUAL MANAGEMENT LIMITED
of Kinetic Centre, Theobald Street,
Borehamwood, Hertfordshire WD6 4PJ
<PAGE>
1
AMALGAMATION AGREEMENT
THIS AMALGAMATION AGREEMENT entered into as of the ___ day of
_________, 2000.
AMONG:
1359288 ONTARIO LIMITED,
a corporation incorporated under the laws of Ontario
(hereinafter called "1359288")
OF THE FIRST PART
- and -
1359290 ONTARIO LIMITED,
a corporation incorporated under the laws of Ontario
(hereinafter called "1359290")
OF THE SECOND PART
- and -
1359292 ONTARIO LIMITED,
a corporation incorporated under the laws of Ontario
(hereinafter called "1359292")
OF THE THIRD PART
- and -
1359293 ONTARIO LIMITED,
a corporation incorporated under the laws of Ontario
(hereinafter called "1359293")
OF THE FOURTH PART
- and -
1403721 ONTARIO LIMITED,
a corporation incorporated under the laws of Ontario
(hereinafter called "1403721")
OF THE FIFTH PART
<PAGE>
2
- and -
1403627 ONTARIO LIMITED,
a corporation incorporated under the laws of Ontario
(hereinafter called "1403627")
OF THE SIXTH PART
- and -
1403626 ONTARIO LIMITED,
a corporation incorporated under the laws of Ontario
(hereinafter called "1403626")
OF THE SEVENTH PART
- and -
XDL CHANGEPOINT HOLDINGS INC.,
a corporation incorporated under the laws of Ontario
(hereinafter called "XDL")
OF THE EIGHTH PART
- and -
CHANGEPOINT CORPORATION,
a corporation incorporated under the laws of Ontario
(hereinafter called "CHANGEPOINT")
OF THE NINTH PART
WHEREAS all of 1359288, 1359290, 1359292, 1359293, 1403721, 1403627,
1403626, XDL and Changepoint are corporations to which the Business Corporations
Act (Ontario) applies;
AND WHEREAS 1359288 is authorized to issue an unlimited number of Class
A shares, an unlimited number of Class B shares and an unlimited number of
common shares of which 100,001 Class A shares and 100 common shares are issued
and outstanding;
AND WHEREAS 1359290 is authorized to issue an unlimited number of Class
A shares, an unlimited number of Class B shares and an unlimited number of
common shares of which 100,001Class A shares and 100 common shares are issued
and outstanding;
<PAGE>
3
AND WHEREAS 1359292 is authorized to issue an unlimited number of Class
A shares, an unlimited number of Class B shares and an unlimited number of
common shares, of which 100,001 Class A shares and 100 common shares are issued
and outstanding;
AND WHEREAS 1359293 is authorized to issue an unlimited number of Class
A shares, an unlimited number of Class B shares and an unlimited number of
common shares of which 100,001 Class A shares and 100 common shares are issued
and outstanding;
AND WHEREAS 1403721 is authorized to issue an unlimited number of Class
A shares, an unlimited number of Class B shares and an unlimited number of
common shares of which @ Class A shares and @ common shares are issued and
outstanding;
AND WHEREAS 1403627 is authorized to issue an unlimited number of Class
A shares, an unlimited number of Class B shares and an unlimited number of
common shares of which @ Class A shares and @ common shares are issued and
outstanding;
AND WHEREAS 1403626 is authorized to issue an unlimited number of Class
A shares, an unlimited number of Class B shares and an unlimited number of
common shares of which @ Class A shares and @ common shares are issued and
outstanding;
AND WHEREAS XDL is authorized to issue an unlimited number of
[PREFERENCE SHARES] and common shares, of which @ [preference shares] and
[3,150] common shares are issued and outstanding;
AND WHEREAS Changepoint is authorized to issue 5,983,962 Class A
Preferred Shares and an unlimited number of common shares, of which 5,983,962
Class A Preferred Shares and @ common shares are issued and outstanding;
AND WHEREAS the parties hereto, acting under the authority contained in
the Business Corporations Act (Ontario), have agreed to amalgamate upon the
terms and conditions set out hereunder.
NOW THEREFORE THIS AGREEMENT WITNESSETH as follows:
1. DEFINITION
In this agreement:
"AMALGAMATING CORPORATIONS" means 1359288, 1359290,
1359292, 1359293, 1403721, 1403627, 1403626, XDL and
Changepoint;
"AMALGAMATION AGREEMENT" or "AGREEMENT" means this
amalgamation agreement;
<PAGE>
4
"ACT" means the Business Corporations Act (Ontario);
"CORPORATION" means the corporation continuing from
the amalgamation of the Amalgamating Corporations;
"EFFECTIVE TIME" means 4:00 p.m. on the Effective
Date; and
"EFFECTIVE DATE" means the date set out on the
certificate endorsed by the Director appointed under the Act on the
articles of amalgamation giving effect to the amalgamation herein
provided for.
2. AGREEMENT TO AMALGAMATE
The Amalgamating Corporations do hereby agree to amalgamate on
the Effective Date under the provisions of the Act and to continue as one
corporation upon the terms and conditions herein set out.
3. NAME OF CORPORATION
The name of the Corporation shall be CHANGEPOINT CORPORATION.
4. REGISTERED OFFICE
The registered office of the Corporation shall be in the
Regional Municipality of York, in the Province of Ontario. The address of the
registered office of the Corporation shall be 1595 Sixteenth Avenue, Suite 702,
Richmond Hill, Ontario L4B 3N9.
5. RESTRICTIONS
There shall be no restrictions on the business which the
Corporation is authorized to carry on or the powers the Corporation may
exercise.
6. AUTHORIZED CAPITAL
The classes and any maximum number of shares that the
Corporation is authorized to issue are as follows:
an unlimited number of Preferred Shares; and
an unlimited number of Common Shares.
<PAGE>
5
7. RIGHTS ATTACHING TO SHARES
The Preferred Shares and Common Shares of the Corporation
shall have attached thereto the following rights, privileges, restrictions and
conditions:
PREFERRED SHARES
PREFERRED SHARES ISSUABLE IN SERIES
1. ONE OR MORE SERIES - The preferred shares may at any time and from time
to time be issued in one or more series.
2. TERMS OF EACH SERIES - Subject to the Act, the directors may fix,
before the issue thereof, the number of preferred shares of each
series, the designation, rights, privileges, restrictions and
conditions attaching to the preference shares of each series,
including, without limitation, any voting rights, any right to receive
dividends (which may be cumulative or non-cumulative and variable or
fixed) or the means of determining such dividends, the dates of payment
thereof, any terms and conditions of redemption or purchase, any
conversion rights, and any rights on the liquidation, dissolution or
winding-up of the Corporation, any sinking fund or other provisions,
the whole to be subject to the issue of a certificate of amendment
setting forth the designation, rights, privileges, restrictions and
conditions attaching to the preferred shares of the series.
3. RANKING OF PREFERRED SHARES - The preferred shares of each series
shall, with respect to the payment of dividends and the distribution of
assets in the event of the liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary, rank on a parity
with the preferred shares of every other series and be entitled to
preference over the common shares. If any amount of cumulative
dividends (whether or not declared) or declared non-cumulative
dividends or any amount payable on any such distribution of assets
constituting a return of capital in respect of the preferred shares of
any series is not paid in full, the preferred shares of such series
shall participate ratably with the preferred shares of every other
series in respect of all such dividends and amounts.
COMMON SHARES
1. DIVIDENDS. If in any fiscal year after providing for the full dividend on the
Preferred Shares and any other class of shares ranking above the Common Shares,
there shall remain any moneys of the Corporation properly applicable to the
payment of dividends, such moneys may, in the discretion of the directors be
applied to dividends on the Common Shares as and when declared by the directors.
2. LIQUIDATION, DISSOLUTION & WINDING-UP. In the event of the liquidation,
dissolution or winding-up of the Corporation, whether voluntary or involuntary,
the holders of the Common shares shall be entitled to receive, after payment to
the holders of the Preferred Shares and any
<PAGE>
6
other class of shares ranking above the Common Shares, the remaining property
of the Corporation.
3. VOTING RIGHTS. The holders of the Common Shares shall be entitled to receive
notice of and to attend and vote at all meetings of the shareholders of the
Corporation (except where the holders of another class of shares are entitled to
vote separately as a class as provided in the BUSINESS CORPORATIONS ACT or these
Articles) and each Common Share shall confer the right to 1 vote in person or by
proxy at all meetings of shareholders of the Corporation.
8. DIRECTORS
The minimum and maximum number of directors of the
Corporation shall, until changed in accordance with the Act, be a minimum of
1 and a maximum of 12. Until otherwise determined, the number of directors of
the Corporation shall be fixed at 7 persons and, except as otherwise provided
in this Agreement, hereafter the board of directors of the Corporation shall
have full power and authority to determine by ordinary resolution the precise
number of directors of the Corporation within the aforesaid minimum and
maximum numbers. The first directors of the Corporation shall be the
following:
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS RESIDENT CANADIAN
<S> <C> <C>
Gerald William Smith 1169 Secretariate Road Yes
Newmarket, Ontario
L3X 1M5
A. David Ferguson 231 Grenview Boulevard South Yes
Etobicoke, Ontario
M8Y 3V2
Ian Giffen 5 Orchard Street Yes
Markham, Ontario
L3P 2S9
Bernard Goldsmith 16 Avenue of Two Rivers No
South Rumson, New Jersey
USA 07760
David C. Wetmore 530 Walker Road No
Great Falls, Virginia
USA 22066
Bob Sywolski 100 Anchor Drive, #376 No
Key Largo, Florida
USA 33037
</TABLE>
<PAGE>
7
<TABLE>
<S> <C> <C>
Howard Gwin 101 Babypoint Road Yes
Toronto, Ontario
M6S 2G3
</TABLE>
The said first directors shall hold office until the first annual meeting of the
Corporation or until their successors are elected or appointed, subject to the
Corporation's by-laws.
9. BY-LAWS
The by-laws of Changepoint shall be the by-laws of the
Corporation and a copy of the by-laws may be examined at the address of the
registered office of the Corporation at any time during regular business hours.
10. SURRENDER OF SHARE CERTIFICATES
After the Effective Date, the shareholders of the Amalgamating
Corporations shall, when requested by the Corporation, surrender for
cancellation the certificates representing the shares held by them in the
Amalgamating Corporations and shall be entitled to receive certificates for
shares of the Corporation as herein provided. After the Effective Time,
certificates formerly representing the shares of the Amalgamating Corporations
shall represent only the right to receive certificates representing the shares
of the Corporation into which such Amalgamating Corporation Shares have been
converted in accordance with paragraph 11 of this Agreement, together with any
dividends paid or distributions made in respect thereof and any interest accrued
on such dividends and distributions.
11. CONVERSION OF SHARES
The issued and outstanding shares in the capital of the
Amalgamating Corporations shall be converted at the Effective Time into issued
and outstanding shares of the Corporation as follows:
(a) the 205,011 issued and outstanding Class A shares of 1359288
held by The Paul Lupinacci Family Trust shall be converted
into 68,510 common shares of the Corporation;
(b) the 8,255 issued and outstanding common shares of 1359288 held
by Paul Lupinacci shall be converted into 2,759 common shares
of the Corporation;
(c) the ? issued and outstanding ? shares of 1359288 held by
Envision Management Services Inc. shall be converted into
865,466 common shares of the Corporation;
(d) the 728,155 issued and outstanding Class A shares of 1359290
held by The Gerry Smith Family Trust shall be converted into
82,759 common shares of the Corporation;
<PAGE>
8
(e) the 100,000 issued and outstanding Class A shares of 1359290
held by UI Design Inc. shall be converted into 11,362 common
shares of the Corporation;
(f) the 124 issued and outstanding common shares of 1359290 held
by UI Design Inc. shall be converted into 2,693,634 common
shares of the Corporation;
(g) the 2,015,960 issued and outstanding Class A shares of 1359292
held by The Paul Edwards Family Trust shall be converted into
55,724 common shares of the Corporation;
(h) the ? issued and outstanding ? shares of 1359292 held by
Fenwick Design Limited shall be converted into 1,840,949
common shares of the Corporation;
(i) the 205,011 issued and outstanding Class A shares of 1359293
held by The Randy Remme Family Trust shall be converted into
68,510 common shares of the Corporation;
(j) the ? issued and outstanding ? shares of 1359293 held by
Internet Expressions Inc. shall be converted into 833,531
common shares of the Corporation;
(k) the ? issued and outstanding ? shares of 1403721 held by The
Moreau Family Trust shall be converted into 33,500 common
shares of the Corporation;
(l) the ? issued and outstanding ? shares of 1403721 held by The
Moreau Family Trust No. II shall be converted into ? common
shares of the Corporation;
(m) the ? issued and outstanding ? shares of 1403721 held by Rick
Moreau shall be converted into 11,856 common shares of the
Corporation;
(n) the ? issued and outstanding ? shares of 1403627 held by The
Rusch Family Trust shall be converted into 17,170 common
shares of the Corporation;
(o) the ? issued and outstanding ? shares of 1403627 held by The
Rusch Family Trust No. II shall be converted into 44,458
common shares of the Corporation;
(p) the ? issued and outstanding ? shares of 1403627 held by Chris
Rusch shall be converted into 10,372 common shares of the
Corporation;
(q) the ? issued and outstanding ? shares of 1403626 held by The
Tatham Family Trust shall be converted into 38,000 common
shares of the Corporation;
(r) the ? issued and outstanding ? shares of 1403626 held by The
Tatham Family Trust No. II shall be converted into ? common
shares of the Corporation;
(s) the ? issued and outstanding ? shares of 1403721 held by Chuck
Tatham shall be converted into 12,000 common shares of the
Corporation;
<PAGE>
9
(t) the ? issued and outstanding ? [preference] shares of XDL
shall be converted into ? common shares of the Corporation;
(u) the 3,150 issued and outstanding common shares of XDL shall be
converted into ? common shares of the Corporation;
(v) the 3,150 issued and outstanding common shares of Changepoint
shall be cancelled without any repayment of capital in respect
thereof and shall not be converted into shares of the
Corporation;
(w) the 927,735 issued and outstanding common shares of
Changepoint all of which are at the date hereof and will be at
the Effective Time held by or on behalf of 1359288 shall be
cancelled without any repayment of capital in respect thereof
and shall not be converted into shares of the Corporation;
(x) the 2,787,755 issued and outstanding common shares of
Changepoint all of which are at the date hereof and will be at
the Effective Time held by or on behalf of 1359290 shall be
cancelled without any repayment of capital in respect thereof
and shall not be converted into shares of the Corporation;
(y) the 1,896,673 issued and outstanding common shares of
Changepoint all of which are at the date hereof and will be at
the Effective Time held by or on behalf of 1359292 shall be
cancelled without any repayment of capital in respect thereof
and shall not be converted into shares of the Corporation;
(z) the 902,401 issued and outstanding common shares of
Changepoint all of which are at the date hereof and will be at
the Effective Time held by or on behalf of 1359293 shall be
cancelled without any repayment of capital in respect thereof
and shall not be converted into shares of the Corporation;
(aa) the ? issued and outstanding common shares of Changepoint all
of which are at the date hereof and will be at the Effective
Time held by or on behalf of 1403626 shall be cancelled
without any repayment of capital in respect thereof and shall
not be converted into shares of the Corporation;
(bb) the ? issued and outstanding common shares of Changepoint all
of which are at the date hereof and will be at the Effective
Time held by or on behalf of 1403237 shall be cancelled
without any repayment of capital in respect thereof and shall
not be converted into shares of the Corporation;
(cc) the ? issued and outstanding common shares of Changepoint all
of which are at the date hereof and will be at the Effective
Time held by or on behalf of 1403721 shall be cancelled
without any repayment of capital in respect thereof and shall
not be converted into shares of the Corporation.
<PAGE>
10
12. STATED CAPITAL
The stated capital of the shares of the Corporation issued on
the conversion of the shares of the Corporation, subject to section 175(2) of
the Act, shall be the aggregate of the issued stated capital of all of the
amalgamating corporations.
13. TRANSFER OF SHARES
The right to transfer shares of the Corporation shall be
restricted in that there shall be no share transferred without the consent of
the directors of the Corporation expressed by a resolution passed by the board
of directors or by an instrument or instruments in writing signed by all of such
directors.
14. SPECIAL PROVISIONS
The number of shareholders of the Corporation, exclusive of
persons who are in the 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 (50), two (2) or more persons
holding one (1) or more shares jointly being counted as one (1) shareholder.
15. AMALGAMATION
Upon the Effective Time:
(a) the Amalgamating Corporations are amalgamated and continue as
one corporation under the terms and conditions prescribed in
the Amalgamation Agreement;
(b) the Corporation possesses all the property, rights, privileges
and franchises and is subject to all liabilities, including
civil, criminal and quasi-criminal, and all contracts,
disabilities and debts of each of the Amalgamating
Corporations;
(c) a conviction against, or ruling, order or judgment in favour
or against either of the Amalgamating Corporations may be
enforced by or against the Corporation;
(d) the articles of amalgamation giving effect to the amalgamation
herein provided for are deemed to be the articles of
incorporation of the Corporation and, except for the purposes
of subsection 117(1) of the Act, as may be amended from time
to time, the certificate of amalgamation shall be deemed to be
the certificate of incorporation of the Corporation;
<PAGE>
11
(e) the Corporation shall be deemed to be the party plaintiff or
the party defendant, as the case may be, in any civil action
commenced by or against either of the Amalgamating
Corporations before the Effective Time.
16. TERMINATION
At any time before the Effective Time, this Amalgamation
Agreement may be terminated by the directors of either of the Amalgamating
Corporations, notwithstanding the approval of this Amalgamation Agreement by the
shareholders of each of the Amalgamating Corporations.
IN WITNESS WHEREOF this Agreement has been executed by the parties
hereto as of the date and year first above written.
1359288 ONTARIO LIMITED 1359292 ONTARIO LIMITED
Per: Per:
-------------------------------- --------------------------------
Paul Lupinacci - Secretary Paul Edwards - Secretary
1359293 ONTARIO LIMITED 1359290 ONTARIO LIMITED
Per: Per:
-------------------------------- --------------------------------
Randall Nelson Remme - Secretary Gerald William Smith - Secretary
1403721 ONTARIO LIMITED 1403627 ONTARIO LIMITED
Per: Per:
-------------------------------- --------------------------------
Rick Moreau - Secretary Chris Rusch- Secretary
1403626 ONTARIO LIMITED XDL CHANGEPOINT HOLDINGS INC.
Per: Per:
-------------------------------- --------------------------------
Chuck Tatham - Secretary ? - Secretary
<PAGE>
12
CHANGEPOINT CORPORATION
Per:
--------------------------------
John Anhang - Secretary
<PAGE>
EXHIBIT 23.3
THE BOARD OF DIRECTORS
CHANGEPOINT CORPORATION
We consent to the use of our form of report included herein and to the
reference to our firm under the headings "Selected Consolidated Financial
Data" and "Experts" in the prospectus.
Toronto, Canada
April 14, 2000 /s/ KPMG LLP
