<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 8, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Shares $75,000,000 $19,800
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) and based on a bona fide estimate
of the maximum offering price. Includes common shares that the Underwriters
have the option to purchase to cover over-allotments, if any.
--------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
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.......................... 33
Management........................ 45
Transactions with Related
Parties......................... 52
Principal Shareholders............ 53
Description of Share Capital...... 55
Shares Eligible for Future Sale... 58
Tax Considerations................ 60
Underwriting...................... 64
Legal Matters..................... 66
Experts........................... 66
Additional Information............ 67
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 solutions
automate and streamline the business processes of IT services organizations and
facilitate business transactions and collaboration among buyers and suppliers of
IT services over the Internet. Our software is designed for and marketed to both
buyers and suppliers of IT services, such as professional services organizations
and corporate IT departments. The benefits of our software are further enhanced
when our customers interact and collaborate over the Internet with their
customers and partners through myChangepoint.com. 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,
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.
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. Much of the core
business processes of IT services are performed by using manual procedures,
internally-developed applications or point solutions that offer limited
functionality. Moreover, these applications are neither compatible with one
another nor Web-based and do not allow IT services organizations to take a
centralized approach to managing their business. 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 has created a significant demand for solutions that streamline the
delivery of IT services and facilitate Internet-based business transactions and
collaboration among buyers and suppliers of IT services.
Our Web-based software and myChangepoint.com are designed to significantly
improve 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 opportunity management, engagement management,
knowledge management, project and resource management, financial
management and customer support;
- facilitate collaboration over the Internet to streamline the entire IT
services delivery process by allowing buyers and suppliers of IT services
to jointly allocate and synchronize resources, coordinate ongoing IT
projects and manage the process of capturing time and expense and
invoicing; and
3
<PAGE>
- effectively source, procure and manage external IT services professionals
over the Internet according to their availability and specific skill sets.
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 opportunity
management, 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. We also offer a hosted solution
through our partnership with Corio.
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
business-to-business e-commerce in the IT services industry, leveraging the
network effect created by the Changepoint solution, targeting large IT services
organizations, continuing to expand our direct and indirect sales channels and
expanding internationally.
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 includes:
- 14,930,159 common shares outstanding as of January 31, 2000; and
- 8,975,943 common shares to be issued prior to the closing of this offering
as a result of the conversion of our outstanding Class A redeemable
convertible preferred shares.
The number of common shares to be outstanding after the offering does not
include:
- 2,851,501 common shares issuable upon exercise of options outstanding at
January 31, 2000, with a weighted average exercise price of $2.19 per
share; and
- 1,051,192 common shares reserved for future issuance under our 1999 Stock
Option Plan as of January 31, 2000.
PRESENTATION OF FINANCIAL INFORMATION
Our financial statements are reported in U.S. dollars and have been prepared
in accordance with generally accepted accounting principles in the United
States.
We express all dollar amounts in this prospectus in U.S. dollars, except
where otherwise indicated. References to "$" 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.
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.
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
have increased our operating expenses in recent periods and expect to continue
to increase 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.
As a result, 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.
WE ONLY RECENTLY INTRODUCED MYCHANGEPOINT.COM AND WE CANNOT BE CERTAIN THAT IT
WILL GAIN MARKET ACCEPTANCE.
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 are uncertain
whether a significant market will develop for myChangepoint.com. 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
my Changepoint.com. 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.
FAILURE OF OUR SOFTWARE TO GAIN INCREASED MARKET ACCEPTANCE AND COMPETE
SUCCESSFULLY WOULD ADVERSELY AFFECT OUR BUSINESS.
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 adversely affect our business. 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 PROSPECTS DEPEND ON
THIS MARKET'S CONTINUED GROWTH.
The market for our solution is newly emerging. IT services organizations
have only recently begun to automate the management of their business processes.
We cannot be certain that this market will continue to develop and grow or that
IT services organizations will choose to use our solution over manual processes,
point solutions or internally-developed applications. 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. 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.
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 professional
services automation software, project management software, contractor management
software and enterprise resource management software. 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 project, contractor and enterprise resource management
software since these products each seek to automate at least one aspect of the
IT services business. We also face competition from staffing companies,
developers of collaboration software and Web-based time and expense 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,
and increased competitive pressures may seriously harm our business.
WE HAVE EXPERIENCED RAPID GROWTH, WHICH HAS PLACED A STRAIN ON OUR RESOURCES,
AND ANY FAILURE TO MANAGE OUR GROWTH EFFECTIVELY MAY CAUSE OUR BUSINESS TO
SUFFER.
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 January 31, 2000, we had a total of 145 full-time
employees compared to 96 on October 31, 1999. In addition, since July 31, 1999,
we have opened eight 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. Any failure
to do so could negatively affect the quality of our products, our ability to
respond to our customers and retain key personnel, and our business in general.
8
<PAGE>
WE MUST 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.
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, in part, 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. 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 to market our
products successfully and to increase our revenues will be impaired.
DELAYS IN INTRODUCING NEW AND ENHANCED PRODUCTS COULD HARM OUR BUSINESS.
The development of proprietary technologies 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, our business would
suffer.
FACTORS RELATING TO OUR BUSINESS AND THE MARKET FOR SOLUTIONS FOR THE IT
SERVICES INDUSTRY MAKE OUR FUTURE OPERATING RESULTS UNCERTAIN, AND MAY CAUSE
THEM TO FLUCTUATE FROM PERIOD TO PERIOD.
Our operating results have varied in the past, and we expect that they may
continue to fluctuate in the future. If our quarterly revenues or operating
results 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;
9
<PAGE>
- 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 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;
- 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
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.
We intend to consider investments in complementary companies, products or
technologies. If we undertake an acquisition or investment, we may not realize
the anticipated benefits. If we buy a company, we may not be able to
successfully assimilate the acquired personnel, 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
per common share. Furthermore, we may have to issue equity or incur debt to pay
for future acquisitions or investments, the issuance of which could be dilutive
to us or our existing shareholders or affect our profitability. In addition, our
profitability may suffer because of acquisition-related costs or amortization
costs for acquired goodwill and other acquired intangible assets.
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 business will be harmed 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.
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
10
<PAGE>
terminate their employment with us at any time without penalty. 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.
FAILURE TO INTEGRATE NEW MEMBERS OF OUR EXECUTIVE TEAM MAY INTERFERE WITH
OPERATIONS.
Several key members of our executive team have been hired in the past six
months. In addition to performing their regular duties, these individuals must
spend a significant amount of time developing interpersonal relationships and
learning our business model and management system to integrate into our company.
Accordingly, the integration of new executive personnel has resulted, and may
continue to result, in some disruption of our ongoing operations.
OUR FUTURE REVENUE GROWTH COULD BE IMPAIRED IF WE ARE UNABLE TO DEVELOP
ADDITIONAL DISTRIBUTION CHANNELS FOR OUR PRODUCTS.
We believe that our success in penetrating our target market depends in part
on our ability to develop and expand our indirect distribution channels,
including third-party distribution companies, software vendors and application
service providers. 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 operating results may suffer.
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, which we may not be able to
manage successfully.
OUR TECHNOLOGY COULD CONTAIN UNDETECTED OR UNRESOLVED DEFECTS OR ERRORS.
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.
A 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. We currently host
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<PAGE>
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. 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.
IF OUR SECURITY SYSTEM IS BREACHED, OUR BUSINESS AND REPUTATION 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 users of myChangepoint.com, our reputation and business may be
damaged and we may be subjected to liability.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS.
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. In addition, reverse engineering, unauthorized copying or other
misappropriation of our technology could enable third parties to benefit from
our technology without paying us for it, which would significantly harm our
business.
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.
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<PAGE>
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.
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 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.
OUR BUSINESS MAY SUFFER IF WE FAIL TO ADAPT APPROPRIATELY TO THE CHALLENGES
ASSOCIATED WITH OPERATING INTERNATIONALLY.
Expanding our operations outside the United States and Canada subjects us to
numerous inherent potential risks associated with international operations.
Factors that could 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. Our sales cycle
is subject to a number of significant risks, including customers' budgetary
constraints and internal acceptance reviews, over which we have little or no
control. We invest significant amounts of time and resources educating and
providing information to
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<PAGE>
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 that are lower than expected.
WE EXPECT SEASONAL TRENDS TO CAUSE OUR QUARTERLY REVENUES TO FLUCTUATE.
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 that these trends are likely
to continue in the future.
OUR FUTURE GROWTH DEPENDS ON THE CONTINUED DEMAND FOR IT SERVICES.
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 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 business could be materially and adversely affected.
OUR FUTURE REVENUES AND PROFITS 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;
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<PAGE>
- 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.
FLUCTUATIONS IN EXCHANGE RATES MAY AFFECT OUR OPERATING RESULTS.
A substantial portion of our revenues are now, and are expected to continue
to be, realized in currencies other than Canadian dollars. Our operating
expenses are primarily paid in Canadian dollars. Fluctuations in the exchange
rate between the Canadian dollar and these other currencies may have a material
effect on our results of operations. In particular, we may be adversely affected
by a significant strengthening of the Canadian dollar against the U.S. dollar.
We do not currently engage in currency hedging activities.
OUR INSURANCE MAY NOT BE SUFFICIENT TO COVER ALL POTENTIAL PRODUCT LIABILITY AND
WARRANTY CLAIMS.
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.
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. 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.
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
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<PAGE>
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.
WE WILL HAVE BROAD DISCRETION REGARDING THE USE OF PROCEEDS FROM THIS OFFERING,
WHICH WE MAY NOT USE 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 23 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 23.9 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. We
cannot predict the extent to which investor interest in our common shares will
lead to the development of a trading market or how liquid that market might
become. The initial public offering price for our common shares will be
determined by negotiations between us and the representatives of the
underwriters. Among the factors to be considered in these negotiations are
prevailing market conditions, our financial information, market valuations of
other companies that we and the representatives believe to be comparable to us,
estimates of our business potential and the present state of our development.
The initial public offering price for our common shares may not be
indicative of the prices that will prevail in the trading market. In addition,
the stock market in general, and the Nasdaq National 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
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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.
AFTER THIS OFFERING, OUR OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS WILL
BENEFICIALLY OWN MORE THAN % OF OUR COMMON SHARES, AND MAY 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, may be able to control matters requiring shareholder approval,
including the election of directors, thereby permitting these shareholders to
obtain control of our management and affairs. The voting power of these
shareholders under certain circumstances could have the effect of delaying or
preventing a change in control of 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 enforce against us or any of our
directors, controlling persons, officers or experts who are not resident in the
United States, liabilities based solely upon the federal securities laws of the
United States. See "Enforceability of Civil Liabilities."
OUR BOARD OF DIRECTORS MAY ISSUE, WITHOUT SHAREHOLDER APPROVAL, PREFERRED SHARES
THAT HAVE RIGHTS AND PREFERENCES SUPERIOR TO THOSE OF COMMON SHARES 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
articles of amalgamation will allow the issuance of an unlimited number of
preferred shares in one or more series. After the offering, there will be no
preferred shares outstanding. However, our board of directors may set the rights
and preferences of, 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.
See "Description of Share Capital."
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA
This prospectus contains so-called forward-looking statements under
"Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere. These include
statements about our expectations, beliefs, intentions or strategies for the
future, which we indicate by words or phrases such as "anticipate," "expect,"
"intend," "plan," "will," "we believe," and similar language. We base all
forward-looking statements on our current expectations, and these statements are
subject to risks and uncertainties and to assumptions we have made. Important
factors that could cause our actual results to differ materially from those
expressed or implied by these forward-looking statements include those listed
under "Risk Factors" or described elsewhere in this prospectus.
This prospectus 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
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.
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 March 3, 2000, the inverse of the noon buying rate was Cdn$1.00 per
$0.6892.
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ENFORCEABILITY OF CIVIL LIABILITIES
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.
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
- 1,051,192 shares reserved for future issuance under our 1999 Stock Option
Plan 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. In
addition, there were 1,051,192 options available for future grant under our 1999
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. Our products are sold primarily through our direct sales
force. In addition, we have recently developed indirect distribution channels
and, in the future, expect to derive an increasing percentage of our revenues
from these sources.
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
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.
24
<PAGE>
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 interest in involv to
focus exclusively on our Web-based solution for the IT services industry.
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
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
25
<PAGE>
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.
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.
26
<PAGE>
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 enhancing existing 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 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.
27
<PAGE>
FISCAL 1997, 1998 AND 1999
REVENUES
TOTAL REVENUES. Total revenues were $2.9 million, $3.8 million and
$5.9 million in fiscal 1997, 1998 and 1999, increasing 29.9% from fiscal 1997 to
1998 and 55.9% from fiscal 1998 to 1999.
PRODUCTS. Product revenues were $1.0 million, $1.8 million and
$4.0 million in fiscal 1997, 1998 and 1999, increasing 80.7% from fiscal 1997 to
1998 and 118.2% from fiscal 1998 to 1999. The increase in revenues over the
respective periods was primarily due to greater market acceptance of our
software and increased sales to new customers. Product revenues accounted for
34.4%, 47.8% and 66.9% of total revenues in fiscal 1997, 1998 and 1999. The
increase as a percentage of revenues is attributable primarily to the phase-out
of our prior consulting services business in fiscal 1998.
SERVICES. Service revenues were $1.9 million, $2.0 million and
$2.0 million in fiscal 1997, 1998 and 1999, increasing 3.3% from fiscal 1997 to
1998 and decreasing 1.2% from fiscal 1998 to 1999. Service revenues accounted
for 65.6%, 52.2% and 33.1% of total revenues in fiscal 1997, 1998 and 1999.
Service revenues remained constant throughout the respective periods as we
derived increased service revenues from services related to our software, which
were offset by decreased service revenues resulting from the phase-out of our
prior consulting services business in fiscal 1998.
COST OF REVENUES
PRODUCTS. Cost of product revenues was $172,000, $69,000 and $206,000 in
fiscal 1997, 1998 and 1999, representing 17.1%, 3.8% and 5.2% of product
revenues in the respective periods. Changepoint only resells third-party
software to the occasional customer who requests such software, resulting in
high variability for cost of product revenues.
SERVICES. Cost of service revenues was $1.5 million, $1.2 million and
$1.2 million in fiscal 1997, 1998 and 1999, representing 76.9%, 62.0% and 58.6%
of service revenues in the respective periods. The decrease from fiscal 1997 to
1998 was primarily due to reduced staff resulting from the phase-out of our
prior consulting services business in fiscal 1998.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses were
$1.3 million, $1.5 million and $2.1 million in fiscal 1997, 1998 and 1999,
representing 43.8%, 40.3% and 34.9% of total revenues in the respective periods.
The increases for each of the periods was primarily due to increases in research
and development personnel.
SALES AND MARKETING. Sales and marketing expenses were $781,000,
$1.7 million and $2.2 million in fiscal 1997, 1998 and 1999, representing 26.7%,
43.9% and 36.7% of total revenues in the respective periods. The dollar
increases for each of the periods was primarily due to expanded marketing
activities and increases in sales and marketing personnel.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$516,000, $722,000 and $993,000 in fiscal 1997, 1998 and 1999, representing
17.6%, 19.0% and 16.7% of total revenues in the respective periods. The dollar
increases for each of the periods was primarily due to increases in consultant
expenses, increased compensation expenses, increased travel and other
activities. In fiscal 1998 and 1999, we booked foreign exchange losses, which
increased reported general and administrative expenses.
INTEREST INCOME AND OTHER INCOME. Interest income was $52,000, $57,000 and
$50,000 for fiscal 1997, 1998 and 1999, reflecting the interest earned on the
cash and cash equivalents and short-term
28
<PAGE>
investments arising from our financings in September 1996 and November 1997.
Other income was $250,000 in fiscal 1999 due to amounts received pursuant to an
unconsummated business relationship.
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>
29
<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 $250,000 in connection
with an unconsummated business relationship. 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.
30
<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, 2002. 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.
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<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 solutions automate and streamline the business
processes of IT services organizations and facilitate business transactions and
collaboration among buyers and suppliers of IT services over the Internet. Our
software is designed for and marketed to both buyers and suppliers of
IT services, such as professional service organizations and corporate
IT departments. The benefits of our software are further enhanced when our
customers interact and collaborate over the Internet with their customers and
partners through myChangepoint.com. 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 independence 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 BUSINESS-TO-BUSINESS
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 in real-time, 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 particularly well-suited
for industries that are highly dispersed and fragmented, have a
33
<PAGE>
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 point
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 Internet-based business transactions and
collaboration among buyers and suppliers of IT services.
THE CHANGEPOINT SOLUTION
Our Web-based software and online exchange are designed to significantly
improve 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 opportunity management, engagement management,
knowledge management, project and resource management, financial
management and customer support;
- facilitate collaboration over the Internet to streamline the entire IT
services delivery process by allowing buyers and suppliers of IT services
to jointly allocate and synchronize resources, coordinate ongoing IT
projects and manage the process of capturing time and expense and
invoicing; 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"
"www.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.
The following language appears in the upper-right part of the outer region,
just below and to the right of the "Corporate IT Departments" label:
- "Increased speed of technology delivery
- Improved productivity & quality of work
- Aligning IT resources with business objectives."
The following language appears in the bottom-center of the outer region,
just below the "IT Staffing Organizations" label:
- "Increased revenue
- Higher utilization and retention rates
- Improved customer satisfaction."
The following language appears in the upper-left part of the outer region,
just below and to the left of the "Professional Services Organizations" label:
- "Increased revenue
- Higher utilization and retention rates
- Improved customer satisfaction."
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<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 opportunity creation and
management, more efficient services delivery and more accurate financial
management. By providing a real-time 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 capture 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.
35
<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 B2B
E-COMMERCE IN THE IT SERVICES INDUSTRY. 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 enable collaboration in order to transact across the IT
services supply chain.
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 a hosted solution. 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.
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<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
SERVICE DELIVERY MANAGEMENT Engagements - Projects - Programs - Projects - Tasks -
Tasks - Resources Resources
Service Supply Chain Service Supply Chain
Integration Integration
FINANCIAL MANAGEMENT Contracts - Time and Expense - Contracts - Time and Expense
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.
SERVICE 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.
37
<PAGE>
FINANCIAL MANAGEMENT. Our software enables professional services
organizations to capture 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.
SUPPORT MANAGEMENT. Our software allows professional services organizations
to automate the process of providing ongoing support to their customers. Our
software also provides the tools for managing customer support such as call
tracking, issue escalation, and asset and configuration tracking as well as for
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.
SERVICE 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 such as
call tracking, issue escalation, and asset and configuration tracking as well as
for 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 a business-to-business online exchange that allows
professional services organizations, corporate IT departments and external IT
contract staff to effectively deploy and manage
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<PAGE>
their resources across the IT services supply chain. The current version of our
software has a built-in connection to myChangepoint.com that enables our
customers to extend functionality to other participants in the IT services
supply chain in a transaction-based environment. These external participants
connect to our customers through an easy-to-use, browser-based interface
provided at myChangepoint.com.
myChangepoint.com provides the following specific capabilities:
- extending the functionality of our software to buyers or sellers of IT
services that do not currently use our software;
- jointly allocating and synchronizing resources among buyers and sellers of
IT services that are working together on a project;
- managing time and expense reporting and the associated approval process
and invoicing; and
- performing skill and availability searches for IT services personnel in
either internal databases or those of external IT staffing organizations.
CUSTOMERS
To date, over 75 professional services organizations and corporate IT
departments have purchased our software. The following is a list of our
customers:
<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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<PAGE>
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, 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 professional services automation software,
project management software, contractor management software and enterprise
resource management software. 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
project, contractor and enterprise resource management software since these
products each seek to automate at least one aspect of the IT services business.
We also face competition from staffing companies, developers of collaboration
software and Web-based time and expense 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. In order to
maintain our focus on developing new products and enhancements, 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 and product enhancements. 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
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misappropriation or infringement of our intellectual property. In addition, laws
of some countries do not protect our proprietary rights to the same extent as do
the United States or Canada. We cannot assure you that protection of our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology.
There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. It is possible that
in the future third parties may claim that we or our current or potential future
products infringe their intellectual property 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 January 31, 2000, we had 145 full-time employees, including 49 in
research and development, 49 in sales and marketing, 35 in client services and
customer support and 12 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(1)........................ 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(2)....................... 51 Director
Robert J. Sywolski(1)..................... 62 Director
J. Ian Giffen(2).......................... 42 Director
David W. Ferguson(1)(2)................... 40 Director
Howard T. Gwin............................ 41 Director
</TABLE>
- ------------------------
(1) Member of the compensation committee
(2) Member of the audit 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.
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. Smith, 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.
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
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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, the value of John Link's
exercisable options was $54,200, and the value of his unexercisable options was
$108,375. Gerald Smith did not own any options at July 31, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION PROGRAM
With the exception of Mr. Smith, 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
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Cdn$120,000 (approximately $83,000). 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 $138,000).
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. Of the
common shares reserved for issuance under the 1997 Stock Option Plan, options to
purchase 678,860 of those shares have been granted. 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.
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 3,000,000 common shares. As of
January 31, 2000, options to purchase 2,037,307 common shares have been granted
to directors and employees under the 1999 Stock Option Plan, of which 88,500
held by former employees have been cancelled, and options to purchase
1,051,192 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
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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 965,973
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.
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.
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<PAGE>
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.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information about the beneficial ownership of
our outstanding common shares on January 31, 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 January 31, 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 23,906,102
common shares outstanding as of January 31, 2000, including 8,975,943 common
shares into which our outstanding redeemable convertible preferred shares will
convert upon completion of this offering and 14,930,159 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 January 31, 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 17.8%
Barry M. Goldsmith.......................... 598,502 30,000 628,502 2.6
David C. Wetmore............................ 369,954 30,000 399,954 1.7
Robert J. Sywolski(2)....................... -- -- -- *
J. Ian Giffen............................... -- 30,000 30,000 *
David W. Ferguson(2)(3)..................... 5,855,730 45,000 5,900,730 24.6
Howard T. Gwin(4)........................... -- -- -- *
The Vengrowth Investment Fund Inc.(2)....... 5,855,730 45,000 5,900,730 24.6
145 Wellington Street West,
Suite 200
Toronto, Ontario M5J 1H8
JMI Equity Fund (Barbados) SRL(2)........... 3,673,470 30,000 3,703,472 15.5
1119 St. Paul Street
Baltimore, Maryland 21202
Paul Edwards(1)............................. 2,845,010 -- 2,845,010 12.0
Randall N. Remme(1)......................... 1,353,062 -- 1,353,062 5.8
Paul Lupinacci(1)........................... 1,405,103 -- 1,405,103 6.0
All current directors and executive officers
as a
group (15 persons)(3)..................... 13,906,268 361,251 14,267,519 58.8
</TABLE>
- ------------------------
* Less than 1% of our outstanding common shares.
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(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.
(4) Howard T. Gwin joined our board of directors on March 3, 2000 and was
granted options to acquire 30,000 shares at that time. These options are not
reflected in the table above, which sets forth beneficial ownership on
January 31, 2000.
To our knowledge, we are not directly or indirectly owned or controlled by
another corporation or by any foreign government.
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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 January 31, 2000, there
were 14,930,159 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 January 31, 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
23,906,102 common shares outstanding held of record by 32 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
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qualifications, limitations or restrictions. Special rights which may be granted
to a series of preferred shares may include dividend rights, conversion rights,
voting rights, terms of redemption and liquidations preferences, any of which
may be superior to the rights of the common shares. Preferred share issuances
could decrease the market price of the common shares and may adversely affect
the voting and other rights of the holders of common shares. The issuance of
preferred shares also could have the effect of delaying or preventing a change
of control of 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 the articles of
amalgamation or other charter documents of the Company on the right of a
non-resident to hold or vote common shares, other than as provided by the
Investment Canada Act, the North American Free Trade Agreement Implementation
Act (Canada) and the World Trade Organization Agreement Implementation Act. The
Investment Canada Act requires notification and, in certain cases, advance
review and approval by the Government of Canada of the acquisition by a
"non-Canadian" of "control" of a "Canadian business,"
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<PAGE>
all as defined in the Investment Canada Act. Generally speaking, the threshold
for review will be higher in monetary terms for a member of the World Trade
Organization or North American Free Trade Agreement.
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.
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<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.................. 23,906,102
Later than 180 days after the date of this prospectus....... --
</TABLE>
Holders of approximately 23.9 million common shares 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, 1,419,668 common shares
will be held by U.S. residents or others. As a result of the lock-up agreements
and the provisions of Rule 144 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
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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."
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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, as amended, 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.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
As an Unconnected U.S. Shareholder, you generally will include in income
dividend distributions paid by us to the extent of our current or accumulated
earnings and profits. You must include in income an amount equal to the
U.S. dollar value of such dividends on the date of receipt based on the exchange
rate on such date, without reduction for the Canadian withholding tax. You will
generally be entitled to a foreign tax credit, or deduction for U.S. federal
income tax purposes, in an amount equal to the Canadian tax withheld. To the
extent dividend distributions paid by us exceed our current or accumulated
earnings and profits, they will be treated first as a return of capital up to
your adjusted tax basis in the shares, and then as a gain from the sale or
exchange of the shares.
Dividends paid by us generally will constitute "passive income" for purposes
of the foreign tax credit, which could reduce the amount of foreign tax credit
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 gross income from specified
passive sources, such as royalty payments.
A personal holding company is taxed on a portion of its undistributed
U.S. source income, including specific types of foreign source income which are
connected with the conduct of a U.S. trade or business, to the extent this
income is not distributed to shareholders. We do not believe we are a personal
holding company presently, and we do not expect to become one. However, we can
not assure you that we will not qualify as a personal holding company in the
future.
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FOREIGN PERSONAL HOLDING COMPANIES
We could be classified as a foreign personal holding company if in any
taxable year both of the following tests are satisfied:
- five or fewer individuals who are United States citizens or residents own
or are deemed to own more than 50% of the total voting power of all
classes of our shares entitled to vote or the total value of our shares;
and
- at least 60%, 50% in some cases, of our gross income consists of "foreign
personal holding company income," which generally includes passive income
such as dividends, interests, gains from the sale or exchange of shares or
securities, rent and royalties.
If we are classified as a foreign personal holding company and if you hold
shares on the last day of our taxable year, you must include in your gross
income as a dividend your pro rata portion of our undistributed foreign personal
holding company income. If you dispose of your shares prior to such date, you
will not be subject to tax under these rules. We do not believe we are a foreign
personal holding company presently, and we do not expect to become one. However,
we can not assure you that we will not qualify as a foreign personal holding
company in the future.
PASSIVE FOREIGN INVESTMENT COMPANIES
The rules governing "passive foreign investment companies" can have
significant tax effects on Unconnected U.S. Shareholders. We could be classified
as a passive foreign investment company if, for any taxable year, either:
- 75% or more of our gross income is "passive income," which includes
interest, dividends and some types of rents and royalties, or
- the average percentage, by fair market value, or, in some cases, by
adjusted tax basis, of our assets that produce or are held for the
production of "passive income" is 50% or more.
Distributions which constitute "excess distributions," as defined in
Section 1291 of the Internal Revenue Code, from a passive foreign investment
company and dispositions of shares of a passive foreign investment company are
subject to the highest rate of tax on ordinary income in effect and to an
interest charge based on the value of the tax deferred during the period during
which the shares are owned. However, if an Unconnected U.S. Shareholder makes a
timely election to treat us as a qualified electing fund under section 1295, the
above-described rules generally will not apply. Instead, the Unconnected
U.S. Shareholder would include annually in his gross income his pro rata share
of our ordinary earnings and net capital gain, regardless of whether such income
or gain was actually distributed. Tax on this income, however, may be deferred.
In 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
62
<PAGE>
aware, however, that if we are or become a passive foreign investment company we
may not be able to satisfy record-keeping requirements that would permit you to
make a qualified electing fund election. You should consult your tax advisor
with respect to how the passive foreign investment company rules affect your tax
situation, including the advisability of making an election to treat us as a
qualified electing fund or making a mark to market election.
CONTROLLED FOREIGN CORPORATION
If more than 50% of the voting power of all classes of our shares or the
total value of our shares is owned, directly or indirectly, by citizens of the
United States, U.S. domestic partnerships and corporations or estates or trusts
other than foreign estates or trusts, each of which owns 10% or more of the
total combined voting power of all classes of our shares, we could be treated as
a "controlled foreign corporation" under Subpart F of the Internal Revenue Code.
This classification would effect many complex results, including requiring such
shareholders to include in income their pro rata shares of our "Subpart F
Income," as defined by the Internal Revenue Code. In addition, gain from the
sale or exchange of shares by an Unconnected U.S. Shareholder who is or was 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.
63
<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...............................................
-------
Subtotal................................................
=======
</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.
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 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.
64
<PAGE>
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.
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 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
65
<PAGE>
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.
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.
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.
66
<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.
67
<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 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 consolidated balance sheets of Changepoint Corporation
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. 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 Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements 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 accordance 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 February 29, 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
======= ======= ======= ====== =======
</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.
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 EVENT
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.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
<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.
II-2
<PAGE>
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 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 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.
15. On February 1, 2000, the Registrant entered into an agreement with
Protege Software 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.
(b) Underwriters and Other Purchasers.
See (a) above.
(c) Consideration.
See (a) above.
(d) Exemption from Registration Claimed.
See (a) above.
II-3
<PAGE>
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
8.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
certain U.S. Federal tax matters
8.2* Opinion of Goldman, Spring, Schwartz & Kichler as to certain
Canadian Federal tax matters (included in Exhibit 5.1)
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
10.11 Lease, dated February 24, 2000, between Menkes Office Parks
Ltd., Denburn Investments Inc. and the Registrant.
23.1* Consent of Goldman, Spring, Schwartz & Kichler (included in
Exhibit 5.1)
23.2* Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 8.1)
23.3 Consent of KPMG LLP
24.1 Powers of Attorney (contained on the signature pages of this
Registration Statement)
</TABLE>
- ------------------------
* To be supplied by amendment.
(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.
II-4
<PAGE>
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Toronto, Province of Ontario, Canada, on March 8,
2000.
<TABLE>
<S> <C> <C>
CHANGEPOINT CORPORATION
By: /s/ GERALD W. SMITH
-----------------------------------------
Gerald W. Smith
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
II-6
<PAGE>
POWERS OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each officer or director of
Changepoint Corporation whose signature appears below constitutes and appoints
Gerald W. Smith and John A. Anhang, and each of them, with full power to act
without the other, his true and lawful attorneys-in-fact and agents, with full
and several power of substitution, for him and in his name, place and stead, in
any and all capacities, to execute any or all amendments, including
post-effective amendments, and supplements to this Registration Statement and
any subsequent Registration Statement for the same offering which may be filed
under Rule 462(b) increasing the number of securities for which registration is
sought, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by or on behalf of the following
persons in the capacities indicated and on March 8, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
Chairman, President and
/s/ GERALD W. SMITH Chief Executive Officer
------------------------------------------- (Principal Executive
Gerald W. Smith Officer)
Chief Financial Officer
/s/ JOHN A. ANHANG (Principal Financial
------------------------------------------- Officer and Principal
John A. Anhang Accounting Officer)
/s/ BERNARD M. GOLDSMITH
------------------------------------------- Director
Bernard M. Goldsmith
/s/ DAVID C. WETMORE
------------------------------------------- Director
David C. Wetmore
/s/ ROBERT J. SYWOLSKI
------------------------------------------- Director
Robert J. Sywolski
/s/ J. IAN GIFFEN
------------------------------------------- Director
J. Ian Giffen
/s/ DAVID W. FERGUSON
------------------------------------------- Director
David W. Ferguson
/s/ HOWARD T. GWIN
------------------------------------------- Director
Howard T. Gwin
</TABLE>
II-7
<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 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 March 8, 2000.
<TABLE>
<S> <C> <C>
CHANGEPOINT INC.
(Authorized United States Representative)
By: /s/ GERALD W. SMITH
-----------------------------------------
Gerald W. Smith
PRESIDENT AND SECRETARY
</TABLE>
II-8
<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
8.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
certain U.S. Federal tax matters
8.2* Opinion of Goldman, Spring, Schwartz & Kichler as to certain
Canadian Federal tax matters (included in Exhibit 5.1)
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
23.1* Consent of Goldman, Spring, Schwartz & Kichler (included in
Exhibit 5.1)
23.2* Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 8.1)
23.3 Consent of KPMG LLP
24.1 Powers of Attorney (contained on the signature pages of this
Registration Statement)
</TABLE>
- ------------------------
* To be supplied by amendment.
(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>
For Ministry Use Only Ontario Corporation Number
A L'USAGE EXCLUSIF DU MINISTERE NUMERO DE LA COMPAGNIE EN ONTARIO 1.
[LOGO] Ministry of Ministero de 1367764
Consumer and la Consommation ---------------------
Commercial Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigueur le
JULY 31 JUILLET, 1999
-------------------------------------------------------------
/s/ [ILLEGIBLE]
Director / Directeur
Business Corporations Act / Loi sur les societes par actions
- -------------------------------------------------------------------------------
ARTICLES OF AMALGAMATION
Form 4 STATUTS DE FUSION
Business
Corporations 1. The name of the amalgamated corporation is:
Act
DENOMINATION SOCIALE DE LA COMPAGNIE ISSUE DE LA FUSION:
<TABLE>
<S><C>
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- -- -- -- -- -- --
C H A N G E P O I N T C O R P O R A T I O N
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- -- -- -- -- -- --
FORMULE --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- -- -- -- -- -- --
NUMBERO 4
LOI SUR LES --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- -- -- -- -- -- --
COMPAGNIES
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- -- -- -- -- -- --
</TABLE>
2. The address of the registered office is:
ADRESSE DU SIEGE SOCIAL:
1595 SIXTEENTH AVENUE, SUITE 702
--------------------------------------------------------------
(Street & Number, or R.R. Number & if Multi-Office
Building give Room No.)
(RUE ET NUMERO, OU NUMERO DE LA R.R. ET, S'IL S'AGIT EDIFICE
A BUREAUX, NUMERO DU BUREAU)
--------------
RICHMOND HILL, ONTARIO L4B3N9
--------------------------------------------------------------
(Name of Municipality or Post Office) (Postal Code/
(NOM DE LA MUNICIPALITE OU DU BUREAU DE POSTE) CODE POSTAL)
3. Number (or minimum and maximum number) of
directors is:
NOMBRE (OU NOMBRES MINIMAL ET MAXIMAL)
D'ADMINISTRATEURS:
MINIMUM OF 1 AND A MAXIMUM OF 12.
4. The director(s) is/are:
ADMINISTRATEUR(S):
<TABLE>
<CAPTION>
Resident
Canadian
State
First name, initials and surname Address for service, giving Street & No. or R.R. No., Yes or No
PRENOM, INITIALES ET NOM DE FAMILLE Municipality and Postal Code RESIDENT
DOMICILE ELU, Y COMPRIS LA RUE ET LE NUMERO, LE NUMERO CANADIEN
DE LA R.R. OU LE NOM DE LA MUNICIPALITE ET LE CODE POSTAL OUI/NON
-------------------------------------- ----------------------------------------------------------- ------------
<S> <C> <C>
SEE ATTACHED.
</TABLE>
<PAGE>
1A
4. The director(s) are:
<TABLE>
<CAPTION>
First name, initials and Address for service, giving Street & No. Or R.R. Resident
surname or R.R. No., Municipality and Postal Code Canadian
<S> <C> <C>
Paul Edwards 444 Merton Street Yes
Toronto, Ontario
M4S 1B3
Gerald William Smith 1169 Secretariate Road Yes
Newmarket, Ontario
L3X 1M5
Peter Brennan 3537 Fair Oaks Lane No
Longboat Key, Florida
34228 U.S.A.
Lamont Smith 50 Prince Arthur Avenue Yes
Apt. #1108
Toronto, Ontario
M5R 1B5
A. David Ferguson 231 Grenview Boulevard South Yes
Etobicoke, Ontario
M8Y 3V2
</TABLE>
<PAGE>
2.
5. (A) The amalgamation agreement has been duly adopted by the
shareholders of each of the amalgamating corporations as required by
subsection 176 (4) of the Business Corporations Act on the date set out
below.
(A) LES ACTIONNAIRES DE CHAQUE COMPAGNIE QUI FUSIONNE ONT DUMENT ADOPTE LA
CONVENTION DE FUSION CONFORMEMENT AU PARAGRAPHE 176 (4) DE LA LOI SUR
LES COMPAGNIES A LA DATE MENTIONNEE CI-DESSOUS.
/X/
Check COCHER
A or B A OU B
/ /
(B) The amalgamation has been approved by the directors of each
amalgamating corporation by a resolution as required by section 177 of
the Business Corporations Act on the date set out below.
The articles of amalgamation in substance contain the provisions of the
articles of incorporation of
(B) LES ADMINISTRATEURS DE CHAQUE COMPAGNIE QUI FUSIONNE ONT APPROUVE LA
FUSION PAR VOIE DE RESOLUTION CONFORMEMENT A L'ARTICLE 177 DE LA LOI
SUR LES COMPAGNIES A LA DATE MENTIONNEE CI-DESSOUS.
LES STATUTS DE FUSION REPRENNENT ESSENTIELLEMENT LES DISPOSITIONS DES
STATUTS CONSTITUTIFS DE
- -------------------------------------------------------------------------------
and are more particularly set out in these articles.
ET SONT ENONCES TEXTUELLEMENT AUX PRESENTS STATUTS.
<TABLE>
<CAPTION>
Names of amalgamating Ontario Corporation Number Date of Adoption/Approval
corporations NUMERO DE LA COMPAGNIE EN DATE D'ADOPTION OU D'APPROBATION
DENOMINATION SOCIALE DES COMPAGNIES ONTARIO
QUI FUSIONNENT
- ----------------------------------------- ------------------------------------ -----------------------------------
<S> <C> <C>
1086598 ONTARIO INC. 1086598 July 30, 1999
1253236 ONTARIO LIMITED 1253236 July 30, 1999
1316603 ONTARIO LIMITED 1316603 July 30, 1999
CHANGEPOINT CORPORATION 857884 July 30, 1999
DISKETTE PUBLISHING
(CANADA) LTD. 794045 July 30, 1999
MACROSOFT DEVELOPMENT
CORPORATION 1001214 July 30, 1999
</TABLE>
<PAGE>
3.
6. Restrictions, if any, or business the corporation may carry
on or on powers the corporation may exercise.
LIMITES, S'IL Y A LIEU, IMPOSEES AUX ACTIVITES COMMERCIALES OU
AUX POUVOIRS DE LA COMPAGNIE.
NONE.
7. The classes and any maximum number of shares that the
corporation is authorized to issue:
CATEGORIES ET NOMBRE MAXIMAL, S'IL Y A LIEU, D'ACTIONS QUE LA
COMPAGNIE EST AUTORISEE A EMETTRE:
THE CORPORATION IS AUTHORIZED TO ISSUE AN UNLIMITED NUMBER OF
CLASS A PREFERRED SHARES AND AN UNLIMITED NUMBER OF COMMON
SHARES.
<PAGE>
4.
8. Rights, privileges, restrictions and conditions (if any)
attaching to each class of shares and directors authority with
respect to any class of shares which may be issued in series:
Droits, privileges, restrictions et conditions, s'il y a lieu,
rattaches a chaque categorie d'actions et pouvoirs des
administrateurs relatifs a chaque categorie d'actions qui peut
etre emise en serie:
<PAGE>
CLASS A PREFERRED SHARES
1. NUMBER OF SHARES. The class of Preferred Shares designated and known as Class
A Preferred Shares shall consist of an unlimited number of Class A Preferred
Shares. Unless otherwise noted all references to $ and dollars shall refer to
Canadian dollars.
2. VOTING.
2A. GENERAL. Except as may be otherwise provided in these terms of
the Class A Preferred Shares or by law, the Class A Preferred
Shares shall vote together with all other classes and series
of stock of the Corporation as a single class on all actions
to be taken by the stockholders of the Corporation. Each Class
A Preferred Share shall entitle the holder thereof to such
number of votes per Class A Preferred Share on each such
action as shall equal the number of Common Shares (including
fractions of Common Shares) into which each Class A Preferred
Share is then convertible.
2B. BOARD SIZE. Except as provided for in any unanimous
shareholder agreement, the Corporation shall not, without the
written consent or affirmative vote of the holders of at least
two-thirds of the then outstanding Class A Preferred Shares,
given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a class, increase the
maximum number of directors constituting the Board of
Directors to a number in excess of seven (7).
3. DIVIDENDS. The holders of the Class A Preferred Shares shall be
entitled to receive, out of funds legally available therefor, when and if
declared by the Board of Directors, quarterly dividends at the rate per annum of
$0.245 per share (the "Accruing Dividends"). Accruing Dividends shall accrue
from day to day, whether or not earned or declared, and shall be cumulative.
4. LIQUIDATION. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Class A
Preferred Shares shall be entitled, before any distribution or payment is made
upon any stock ranking on liquidation junior to the Class A Preferred Shares, to
be paid an amount equal to the greater of (i) $2.45 per share plus, in the case
of each share, an amount equal to all Accruing 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 share as
would have been payable had each such share been converted to Common Shares
pursuant to paragraph 6 immediately prior to such liquidation, dissolution or
winding up, and the holders of Class A Preferred Shares shall not be entitled to
any further payment, such amount payable with respect to one share of Class A
Preferred Shares being sometimes referred to as the "Liquidation Preference
Payment" and with respect to all shares of Class A Preferred Shares being
sometimes referred to as the "Liquidation Preference Payments". If upon such
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the holders
<PAGE>
4A
of Class A Preferred Shares shall be insufficient to permit payment to the
holders of Class A Preferred Shares of the amount distributable as aforesaid,
then the entire assets of the Corporation to be so distributed shall be
distributed ratably among the holders of Class A Preferred Shares. Upon any such
liquidation, dissolution or winding up of the Corporation, after the holders of
Class A Preferred Shares shall have been paid in full the amounts to which they
shall be entitled, the remaining net assets of the Corporation may be
distributed to the holders of stock ranking on liquidation junior to the Class A
Preferred Shares. Written notice of such liquidation, dissolution or winding up,
stating a payment date, the amount of the Liquidation Preference Payments and
the place where said Liquidation Preference Payments shall be payable, shall be
delivered in person, mailed by certified or registered mail, return receipt
requested, or sent by telecopier or telex, not less than 20 days prior to the
payment date stated therein, to the holders of record of Class A Preferred
Shares, such notice to be addressed to each such holder at its address as shown
by the records of the Corporation. The consolidation, amalgamation or merger of
the Corporation into or with any other entity or entities which results in the
exchange of outstanding shares of the Corporation for securities or other
consideration issued or paid or caused to be issued or paid by any such entity
or affiliate thereof (other than a merger to reincorporate the Corporation in a
different jurisdiction), and the sale, lease, abandonment, transfer or other
disposition by the Corporation of all or substantially all its assets, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of the provisions of this paragraph 4. For purposes hereof, the
Common Shares shall rank on liquidation junior to the Class A Preferred Shares.
5. RESTRICTIONS. At any time when Class A Preferred Shares are
outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by the
Articles of the Corporation, and in addition to any other vote required by law
or the Articles of the Corporation, without the approval of either the holders
of at least two-thirds of the then outstanding shares of Class A Preferred
Shares given in writing, or the holders of at least two-thirds of those of the
Class A Preferred Shares the holders of which are present (in person or by
proxy) at a meeting of the holders of Class A Preferred Shares, consenting or
voting (as the case may be) separately as a series, the Corporation will not:
5A. Create or authorize the creation of any additional class or
series of shares of stock unless the same ranks junior to the
Class A Preferred Shares as to the distribution of assets on
the liquidation, dissolution or winding up of the Corporation,
or increase the authorized amount of the Class A Preferred
Shares or increase the authorized amount of any additional
class or series of shares of stock unless the same ranks
junior to the Class A Preferred Shares as to the distribution
of assets on the liquidation, dissolution or winding up of the
Corporation, or create or authorize any obligation or security
convertible into Class A Preferred Shares or into shares of
any other class or series of stock unless the same ranks
junior to the Class A Preferred Shares as to the distribution
of assets on the liquidation, dissolution or winding up of the
Corporation, whether any such creation, authorization or
increase shall be by means of amendment to the Articles of the
Corporation or by merger, consolidation, amalgamation or
otherwise;
5B. Consent to any liquidation, dissolution or winding up of the
Corporation or consolidate, amalgamate or merge into or with
any other entity or entities or sell,
<PAGE>
4B
lease, abandon, transfer or otherwise dispose of all or
substantially all its assets;
5C. Amend, alter or repeal its Articles or By-laws;
5D. Pay any dividend or make any distribution on, any shares of
stock other than the Class A Preferred Shares, except for
dividends or other distributions payable on the Common Shares
solely in the form of additional Common Shares;
5E. Redeem or otherwise acquire any Class A Preferred Shares
except as expressly authorized in paragraph 7 hereof or
pursuant to a purchase offer made pro rata to all holders of
the Class A Preferred Shares on the basis of the aggregate
number of outstanding Class A Preferred Shares then held by
each such holder; or
5F. File or qualify a prospectus in any province or territory of
Canada in connection with a public offering of Common Shares
or the qualification of securities therefor.
6. CONVERSIONS. The holders of Class A Preferred Shares shall have the
following conversion rights:
6A. RIGHT TO CONVERT. Subject to the terms and conditions of this
paragraph 6, the holder of any Class A Preferred Shares shall
have the right, at its option at any time, to convert any such
Class A Preferred Shares (except that upon any liquidation of
the Corporation the right of conversion shall terminate at the
close of business on the business day fixed for payment of the
amount distributable on the Class A Preferred Shares) into
such number of fully paid and non-assessable Common Shares as
is obtained by (i) multiplying the number of Class A Preferred
Shares so to be converted by $2.45 and (ii) dividing the
result by the conversion price of $2.45 per share or, in case
an adjustment of such price has taken place pursuant to the
further provisions of this paragraph 6, then by the conversion
price as last adjusted and in effect at the date any Class A
Preferred Shares are surrendered for conversion (such price,
or such price as last adjusted, being referred to as the
"Conversion Price"). Such rights of conversion shall be
exercised by the holder thereof by giving written notice that
the holder elects to convert a stated number of Class A
Preferred Shares into Common Shares and by surrender of a
certificate or certificates for the shares so to be converted
to the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation may
designate by notice in writing to the holders of the Class A
Preferred Shares) at any time during its usual business hours
on the date set forth in such notice, together with a
statement of the name or names (with address) in which the
certificate or certificates for Common Shares shall be issued.
6B. ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED. Promptly
after the receipt of the written notice referred to in
subparagraph 6A and surrender of the certificate or
certificates for the Class A Preferred Shares to be converted,
the Corporation shall issue and deliver, or cause to be issued
and delivered, to the
<PAGE>
4C
holder, registered in such name or names as such holder may
direct, a certificate or certificates for the number of whole
Common Shares issuable upon the conversion of such share or
shares of Class A Preferred Shares. To the extent permitted by
law, such conversion shall be deemed to have been effected and
the Conversion Price shall be determined as of the close of
business on the date on which such written notice shall have
been received by the Corporation and the certificate or
certificates for such share or shares shall have been
surrendered as aforesaid, and at such time the rights of the
holder of such Class A Preferred Shares shall cease, and the
person or persons in whose name or names any certificate or
certificates for Common Shares be issuable upon such
conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby.
6C. FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Class A
Preferred Shares into Common Shares and no payment or
adjustment shall be made upon any conversion on account of any
cash dividends on the Common Shares issued upon such
conversion. At the time of each conversion, the Corporation
shall pay in cash an amount equal to all dividends, excluding
Accruing Dividends, accrued and unpaid on the Class A
Preferred Shares surrendered for conversion to the date upon
which such conversion is deemed to take place as provided in
subparagraph 6B. In case the number of Class A Preferred
Shares represented by the certificate or certificates
surrendered pursuant to subparagraph 6A exceeds the number of
shares converted, the Corporation shall, upon such conversion,
execute and deliver to the holder, at the expense of the
Corporation, a new certificate or certificates for the number
of Class A Preferred Shares represented by the certificate or
certificates surrendered which are not to be converted. If any
fractional Common Shares would, except for the provisions of
the first sentence of this subparagraph 6C, be delivered upon
such conversion, the Corporation, in lieu of delivering such
fractional share, shall pay to the holder surrendering the
Class A Preferred Shares for conversion an amount in cash
equal to the current market price of such fractional share as
determined in good faith by the Board of Directors of the
Corporation.
6D. ADJUSTMENT OF PRICE UPON ISSUANCE OF COMMON SHARES. Except as
provided in subparagraph 6E, if and whenever the Corporation
shall issue or sell, or is, in accordance with subparagraphs
6D(1) through 6D(7), deemed to have issued or sold, any Common
Shares for a consideration per share less than the Conversion
Price in effect immediately prior to the time of such issue or
sale, then, forthwith upon such issue or sale, the Conversion
Price shall be reduced to the price determined by dividing (i)
an amount equal to the sum of (a) the number of Common Shares
outstanding immediately prior to such issue or sale multiplied
by the then existing Conversion Price and (b) the
consideration, if any, received by the Corporation upon such
issue or sale, by (ii) the total number of Common Shares
outstanding immediately after such issue or sale.
For purposes of this subparagraph 6D, the following
subparagraphs 6D(1) to 6D(7) shall also be applicable:
<PAGE>
4D
6D(1) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time
the Corporation shall in any manner grant (whether
directly or by assumption in a merger or otherwise)
any warrants or other rights to subscribe for or to
purchase, or any options for the purchase of, Common
Shares or any stock or security convertible into or
exchangeable for Common Shares (such warrants, rights
or options being called "Options" and such
convertible or exchangeable stock or securities being
called "Convertible Securities") whether or not such
Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable,
and the price per share for which Common Shares is
issuable upon the exercise of such Options or upon
the conversion or exchange of such Convertible
Securities (determined by dividing (i) the total
amount, if any, received or receivable by the
Corporation as consideration for the granting of such
Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the
case of such Options which relate to Convertible
Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (ii) the total
maximum number of Common Shares issuable upon the
exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable
upon the exercise of such Options) shall be less than
the Conversion Price in effect immediately prior to
the time of the granting of such Options, then the
total maximum number of Common Shares issuable upon
the exercise of such Options or upon conversion or
exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of
such Options shall be deemed to have been issued for
such price per share as of the date of granting of
such Options or the issuance of such Convertible
Securities and thereafter shall be deemed to be
outstanding. Except as otherwise provided in
subparagraph 6D(3), no adjustment of the Conversion
Price shall be made upon the actual issue of such
Common Shares or of such Convertible Securities upon
exercise of such Options or upon the actual issue of
such Common Shares upon conversion or exchange of
such Convertible Securities.
6D(2) ISSUANCE OF CONVERTIBLE SECURITIES. In case the
Corporation shall in any manner issue (whether
directly or by assumption in a merger or otherwise)
or sell any Convertible Securities, whether or not
the rights to exchange or convert any such
Convertible Securities are immediately exercisable,
and the price per share for which Common Shares is
issuable upon such conversion or exchange (determined
by dividing (i) the total amount received or
receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation
upon the conversion or exchange thereof, by (ii) the
total maximum number of Common Shares issuable upon
the
<PAGE>
4E
conversion or exchange of all such Convertible
Securities) shall be less than the Conversion Price
in effect immediately prior to the time of such issue
or sale, then the total maximum number of Common
Shares issuable upon conversion or exchange of all
such Convertible Securities shall be deemed to have
been issued for such price per share as of the date
of the issue or sale of such Convertible Securities
and thereafter shall be deemed to be outstanding,
provided that (a) except as otherwise provided in
subparagraph 6D(3), no adjustment of the Conversion
Price shall be made upon the actual issue of such
Common Shares upon conversion or exchange of such
Convertible Securities and (b) if any such issue or
sale of such Convertible Securities is made upon
exercise of any Options to purchase any such
Convertible Securities for which adjustments of the
Conversion Price have been or are to be made pursuant
to other provisions of this subparagraph 6D, no
further adjustment of the Conversion Price shall be
made by reason of such issue or sale.
6D(3) CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the
happening of any of the following events, namely, if
the purchase price provided for in any Option
referred to in subparagraph 6D(1), the additional
consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in
subparagraph 6D(1) or 6D(2), or the rate at which
Convertible Securities referred to in subparagraph
6D(1) or 6D(2) are convertible into or exchangeable
for Common Shares shall change at any time
(including, but not limited to, changes under or by
reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time
of such event shall forthwith be readjusted to the
Conversion Price which would have been in effect at
such time had such Options or Convertible Securities
still outstanding provided for such changed purchase
price, additional consideration or conversion rate,
as the case may be, at the time initially granted,
issued or sold, but only if as a result of such
adjustment the Conversion Price then in effect
hereunder is thereby reduced; and on the termination
of any such Option or any such right to convert or
exchange such Convertible Securities, the Conversion
Price then in effect hereunder shall forthwith be
increased to the Conversion Price which would have
been in effect at the time of such termination had
such Option or Convertible Securities, to the extent
outstanding immediately prior to such termination,
never been issued.
6D(4) STOCK DIVIDENDS. In case the Corporation shall
declare a dividend or make any other distribution
upon any stock of the Corporation (other than the
Common Shares) payable in Common Shares, Options or
Convertible Securities, then any Common Shares,
Options or Convertible Securities, as the case may
be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or
sold without consideration.
<PAGE>
4F
6D(5) CONSIDERATION FOR STOCK. In case any Common Shares,
Options or Convertible Securities shall be issued or
sold for cash, the consideration received therefor
shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of
any expenses incurred or any underwriting commissions
or concessions paid or allowed by the Corporation in
connection therewith. In case any Common Shares,
Options or Convertible Securities shall be issued or
sold for a consideration other than cash, the amount
of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the
Board of Directors of the Corporation, without
deduction of any expenses incurred or any
underwriting commissions or concessions paid or
allowed by the Corporation in connection therewith.
In case any Options shall be issued in connection
with the issue and sale of other securities of the
Corporation, together comprising one integral
transaction in which no specific consideration is
allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued for
such consideration as determined in good faith by the
Board of Directors of the Corporation.
6D(6) RECORD DATE. In case the Corporation shall take a
record of the holders of its Common Shares for the
purpose of entitling them (i) to receive a dividend
or other distribution payable in Common Shares,
Options or Convertible Securities or (ii) to
subscribe for or purchase Common Shares, Options or
Convertible Securities, then such record date shall
be deemed to be the date of the issue or sale of the
Common Shares deemed to have been issued or sold upon
the declaration of such dividend or the making of
such other distribution or the date of the granting
of such right of subscription or purchase, as the
case may be.
6D(7) TREASURY SHARES. The number of Common Shares
outstanding at any given time shall not include
shares owned or held by or for the account of the
Corporation, and the disposition of any such shares
shall be considered an issue or sale of Common Shares
for the purpose of this subparagraph 6D.
6E. CERTAIN ISSUES EXCEPTED. Anything herein to the contrary
notwithstanding, the Corporation shall not be required to make
any adjustment of the Conversion Price in the case of the
issuance from and after the date of filing of these terms of
the Class A Preferred Shares of (i) Common Shares to
directors, officers, employees or consultants of the
Corporation in connection with their service as directors of
the Corporation, their employment by the Corporation or their
retention as consultants by the Corporation and options or
rights to purchase same, provided each such security has been
approved by the Board of Directors or its compensation
committee, plus such number of Common Shares which are
repurchased by the Corporation from such persons after such
date pursuant to contractual rights held by the Corporation
and at repurchase prices not exceeding the respective original
purchase prices paid by such persons to the Corporation
<PAGE>
4G
therefor, provided such repurchases are approved by the Board
of Directors or its Compensation Committee and (ii) Common
Shares issued upon exercise of the options granted pursuant to
the Option Agreements dated as of November 3, 1997, between
the Corporation and each of The VenGrowth Investment Fund
Inc., Brant Investments Ltd., c/o Account No. 9216007, Canada
Trust in Trust for Account No. 058-106400-7, James R. Bensman
and Michael W. Slaunwhite.
6F. SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by any stock split,
stock dividend or otherwise) its outstanding Common Shares
into a greater number of shares, the Conversion Price in
effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely, in case the
outstanding Common Shares shall be combined into a smaller
number of shares, the Conversion Price in effect immediately
prior to such combination shall be proportionately increased.
In the case of any such subdivision, no further adjustment
shall be made pursuant to subparagraph 6D(4) by reason
thereof.
6G. REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way that holders of
Common Shares shall be entitled to receive stock, securities
or assets with respect to or in exchange for Common Shares,
then, as a condition of such reorganization or
reclassification, lawful and adequate provisions shall be made
whereby each holder of a share or shares of Class A Preferred
Shares shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and
in lieu of the Common Shares immediately theretofore
receivable upon the conversion of such Class A Preferred
Shares, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number
of outstanding Common Shares equal to the number of Common
Shares immediately theretofore receivable upon such conversion
had such reorganization or reclassification not taken place,
and in any such case appropriate provisions shall be made with
respect to the rights and interests of such holder to the end
that the provisions hereof (including without limitation
provisions for adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as may be, in relation to
any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights.
6H. ADJUSTMENT FOR ISSUANCE OF COMMON SHARES UPON EXERCISE OF
WARRANT. Notwithstanding any other provision hereof and except
as provided in subparagraph 6E, if and whenever the
Corporation shall issue any Common Shares upon exercise of the
options granted pursuant to the Amended and Restated Option
Agreements made as of September 12, 1996 between the
Corporation and each of The VenGrowth Investment Fund Inc.,
Torbay & Co. Reference Account 5419-0908702, Carr & Co.,
Trinity Capital Securities Limited and Canada Trust Co.
Account 058-105-803-2-121E, 3076601, then, forthwith upon such
issue, the Conversion Price shall be adjusted so that
immediately after such issuance the holders of Class A
Preferred Shares shall have maintained the percentage
ownership of the fully-diluted Common Shares
<PAGE>
4H
of the Corporation to which such holders would be entitled
immediately prior to such issuance pursuant to these Articles
(assuming for such purposes full conversion of the Class A
Preferred Shares).
6I. NOTICE OF ADJUSTMENT. Upon any adjustment of the Conversion
Price, then and in each such case the Corporation shall give
written notice thereof, by delivery in person, certified or
registered mail, return receipt requested, or telecopier,
addressed to each holder of Class A Preferred Shares at the
address of such holder as shown on the books of the
Corporation, which notice shall state the Conversion Price
resulting from such adjustment, setting forth in reasonable
detail the method upon which such calculation is based.
6J. OTHER NOTICES. In case at any time:
(1) the Corporation shall declare any dividend upon its
Common Shares payable in cash or stock or make any
other distribution to the holders of its Common
Shares;
(2) the Corporation shall offer for subscription pro rata
to the holders of its Common Shares any additional
shares of stock of any class or other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the
Corporation, or a consolidation, amalgamation or
merger of the Corporation with or into another entity
or entities, or a sale, lease, abandonment, transfer
or other disposition of all or substantially all its
assets; or
(4) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the
Corporation;
then, in any one or more of said cases, the Corporation shall
give, by delivery in person, certified or registered mail,
return receipt requested, telecopier or addressed to each
holder of any Class A Preferred Shares at the address of such
holder as shown on the books of the Corporation, (a) at least
20 days' prior written notice of the date on which the books
of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger,
amalgamation, disposition, dissolution, liquidation or winding
up and (b) in the case of any such reorganization,
reclassification, consolidation, amalgamation, merger,
disposition, dissolution, liquidation or winding up, at least
20 days' prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date on
which the holders of Common Shares shall be entitled thereto
and such notice in accordance with the foregoing clause (b)
shall
<PAGE>
4I
also specify the date on which the holders of Common Shares
shall be entitled to exchange their Common Shares for
securities or other property deliverable upon such
reorganization, reclassification, consolidation, amalgamation,
merger, disposition, dissolution, liquidation or winding up,
as the case may be.
6K. STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized Common
Shares, solely for the purpose of issuance upon the conversion
of Class A Preferred Shares as herein provided, such number of
Common Shares as shall then be issuable upon the conversion of
all outstanding Class A Preferred Shares. The Corporation
covenants that all Common Shares which shall be so issued
shall be duly and validly issued and fully paid and
non-assessable and free from all taxes, liens and charges with
respect to the issue thereof. The Corporation will take all
such action as may be necessary to assure that all such Common
Shares may be so issued without violation of any applicable
law or regulation, or of any requirement of any national
securities or other exchange upon which the Common Shares may
be listed. The Corporation will not take any action which
results in any adjustment of the Conversion Price if the total
number of Common Shares issued and issuable after such action
upon conversion of the Class A Preferred Shares would exceed
the total number of shares of Common Stock then authorized by
the Articles.
6L. NO REISSUANCE OF CLASS A PREFERRED SHARES. Class A Preferred
Shares which are converted into Common Shares as provided
herein shall not be reissued.
6M. ISSUE TAX. The issuance of certificates for Common Shares upon
conversion of Class A Preferred Shares shall be made without
charge to the holders thereof for any issuance tax in respect
thereof, provided that the Corporation shall not be required
to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Class A Preferred
Shares which is being converted.
6N. CLOSING OF BOOKS. The Corporation will at no time close its
transfer books against the transfer of any Class A Preferred
Shares or of any Common Shares issued or issuable upon the
conversion of any Class A Preferred Shares in any manner which
interferes with the timely conversion of such Class A
Preferred Shares, except as may otherwise be required to
comply with applicable securities laws.
6O. DEFINITION OF COMMON SHARES. As used in this paragraph 6, the
term "Common Shares" shall mean and include the Corporation's
authorized Common Shares, as constituted on the date of filing
of these terms of the Class A Preferred Shares, and shall also
include any capital stock of any class of the Corporation
thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of
assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that
the Common Shares receivable upon conversion of shares of
Class A Preferred Shares shall include only shares
<PAGE>
4J
designated as Common Shares of the Corporation on the date of
filing of this instrument, or in case of any reorganization or
reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in subparagraph 6G.
6P. MANDATORY CONVERSION. If at any time the Corporation shall
effect a firm commitment underwritten public offering in the
United States of Common Shares in which (i) the aggregate
price paid for such shares by the public shall be at least
U.S,$20.0 million and (ii) the price paid by the public for
such shares shall be at least three times the Conversion Price
per share, then effective upon the closing of the sale of such
shares by the Corporation pursuant to such public offering,
all outstanding Class A Preferred Shares shall automatically
convert to Common Shares on the basis set forth in this
paragraph 6. Holders of Class A Preferred Shares so converted
may deliver to the Corporation at its principal office (or
such other office or agency of the Corporation as the
Corporation may designate by notice in writing to such
holders) during its usual business hours, the certificate or
certificates for the shares so converted. As promptly as
practicable thereafter, the Corporation shall issue and
deliver to such holder a certificate or certificates for the
number of whole Common Shares to which such holder is
entitled, together with any cash dividends and payment in lieu
of fractional shares to which such holder may be entitled
pursuant to subparagraph 6C. Until such time as a holder of
Class A Preferred Shares shall surrender his or its
certificates therefor as provided above, such certificates
shall be deemed to represent the Common Shares to which such
holder shall be entitled upon the surrender thereof.
7. REDEMPTION. The Class A Preferred Shares shall be redeemed as follows:
7A. MANDATORY REDEMPTION. On September 1, 2004 (the "Redemption
Date"), the Corporation shall redeem from each holder of Class
A Preferred Shares, all of the Class A Preferred Shares held
by such holder on the Redemption Date.
7B. REDEMPTION PRICE AND PAYMENT. The Class A Preferred Shares to
be redeemed on the Redemption Date shall be redeemed by paying
for each share in cash an amount equal to the greater of (i)
the Liquidation Preference Payment as set forth in paragraph 4
hereof or (ii) the fair market value of the Class A Preferred
Share as of the Redemption Date, such amount being referred to
as the "Redemption Price". Such payment shall be made in full
on the Redemption Date to the holders entitled thereto. For
the purposes hereof, the term "fair market value of the Class
A Preferred Share" shall mean the fair value of the
Corporation attributable to the Class A Preferred Shares, as
determined by a nationally recognized firm of independent
chartered accountants (selected by the auditors of the
Corporation) in accordance with generally accepted valuation
principles then in effect, as at the end of the most recent
fiscal quarter of the Corporation, provided that in making
such determination, no provision shall be made for either a
control premium or a minority discount.
7C. REDEMPTION MECHANICS. At least 20 but not more than 30 days
prior to the Redemption Date, written notice (the "Redemption
Notice") shall be given by
<PAGE>
4K
the Corporation by delivery in person, certified or registered
mail, return receipt requested, telecopier or telex, to each
holder of record (at the close of business on the business day
next preceding the day on which the Redemption Notice is
given) of Class A Preferred Shares notifying such holder of
the redemption and specifying the Redemption Price, the
Redemption Date and the place where said Redemption Price
shall be payable. The Redemption Notice shall be addressed to
each holder at his address as shown by the records of the
Corporation. From and after the close of business on the
Redemption Date, unless there shall have been a default in the
payment of the Redemption Price, all rights of holders of
Class A Preferred Shares (except the right to receive the
Redemption Price) shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books
of the Corporation or be deemed to be outstanding for any
purpose whatsoever. If the funds of the Corporation legally
available for redemption of Class A Preferred Shares on the
Redemption Date are insufficient to redeem the total number of
outstanding Class A Preferred Shares, the holders of Class A
Preferred A Shares shall share ratably in any funds legally
available for redemption of such shares according to the
respective amounts which would be payable with respect to the
full number of shares owned by them if all such outstanding
shares were redeemed in full. The Class A Preferred Shares not
redeemed shall remain outstanding and entitled to all rights
and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for
the redemption of such Class A Preferred Shares, such funds
will be used, at the end of the next succeeding fiscal
quarter, to redeem the balance of such shares, or such portion
thereof for which funds are then legally available, on the
basis set forth above.
7D. REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any Class
A Preferred Shares redeemed pursuant to this paragraph 7 or
otherwise acquired by the Corporation in any manner whatsoever
shall be cancelled and shall not under any circumstances be
reissued; and the Corporation may from time to time take such
appropriate corporate action as may be necessary to reduce
accordingly the number of authorized Class A Preferred Shares.
7E. NO OTHER REDEMPTIONS. The Corporation shall not redeem,
repurchase or otherwise acquire any shares of its capital
stock until the Class A Preferred Shares have been redeemed in
full pursuant to these Articles unless each holder of the
Class A Preferred Shares consents in writing prior to such
redemption.
7F. PURCHASE BY RELATED PARTY. Notwithstanding any provision of
this paragraph 7, but subject to applicable law, in lieu of
redeeming the Class A Preferred Shares, the Corporation shall
be entitled to cause any of its subsidiaries or affiliated
entities to purchase such Class A Preferred Shares from the
holders thereof on the Redemption Date and pay to such holders
the Redemption Price in accordance with the provisions hereof,
and upon the completion of such purchase by such subsidiary or
affiliated entity, the Corporation shall be relieved from any
obligation to redeem the Class A Preferred Shares so
purchased.
<PAGE>
4L
8. AMENDMENTS. No provision of these terms of the Class A Preferred
Shares may be amended (whether by merger, consolidation, amalgamation or
otherwise), modified or waived without the written consent or affirmative vote
of the holders of at least two-thirds of those of the Class A Preferred Shares
the holders of which are present (in person or by proxy) at a meeting of the
holders of the Class A Preferred Shares.
<PAGE>
COMMON SHARES
1. DIVIDENDS. If in any fiscal year after providing for the full dividend
on the Class A 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 Class A Preferred Shares and any
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.
<PAGE>
5
9. The issue, transfer or ownership of shares is/is not restricted and the
restrictions (if any) are as follows:
L'EMISSION, LE TRANSFERT OU LA PROPRIETE D'ACTIONS EST/N'EST PAS
RESTREINTE. LES RESTRICTIONS, S'IL Y A LIEU, SONT LES SUIVANTES:
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.
10. Other provisions, (if any):
AUTRES DISPOSITIONS, S'IL Y A LIEU:
(a) 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
50, 2 or more persons holding 1 or more shares jointly being counted
as 1 shareholder.
(b) Any invitation to the public to subscribe for any securities of the
Corporation is prohibited.
11. The statements required by subsection 178(2) of the Business
Corporations Act are attached as Schedule "A".
LES DECLARATIONS EXIGEES AUX TERMES DU PARAGRAPHE 178(2) DE LA LOI SUR
LES COMPAGNIES CONSTITUENT L'ANNEXE "A".
12. A copy of the amalgamation agreement or directors resolutions (as the
case may be) is/are attached as Schedule "B".
UNE COPIE DE LA CONVENTION DE FUSION OU LES RESOLUTIONS DES
ADMINISTRATEURS (SELON LE CAS) CONSTITUE(NT) L'ANNEXE "B".
<PAGE>
6
These articles are signed in duplicate.
LES PRESENTS STATUTS SONT SIGNES EN DOUBLE EXEMPLAIRE.
- -------------------------------------------------------------------------------
Names of the amalgamating DENOMINATION SOCIALE DES COMPAGNIES
corporations and signatures and QUI FUSIONNENT, SIGNATURE EL FONCTION
descriptions of office of their DE LEURS DIRIGEANTS REGULIEREMENT
proper officers. DESIGNES.
1086598 ONTARIO INC. 1316603 ONTARIO LIMITED
Per: /s/ Paul Lupinacci Per: /s/ Paul Edwards
-------------------------------- ---------------------------
Paul Lupinacci - Secretary Paul Edwards - Secretary
CHANGEPOINT CORPORATION DISKETTE PUBLISHING (CANADA) LTD.
Per: /s/ Paul Edwards Per: /s/ Gerald William Smith
-------------------------------- ----------------------------
Paul Edwards - Secretary Gerald William Smith - Secretary
MACROSOFT DEVELOPMENT CORPORATION 1253236 ONTARIO LIMITED
Per: /s/ Randall Nelson Remme Per: /s/ Paul Lupinacci
-------------------------------- -----------------------
Randall Nelson Remme - Secretary Paul Lupinacci - Secretary-Treasurer
<PAGE>
SCHEDULE "A-1"
The undersigned, Paul Lupinacci, being the Secretary of 1086598
Ontario Inc. hereby state that:
1. There are reasonable grounds for believing that:
(a) each of 1086598 Ontario Inc., 1253236 Ontario Limited, 1316603
Ontario Limited, Changepoint Corporation, Diskette Publishing
(Canada) Ltd. and Macrosoft Development Corporation is and
CHANGEPOINT CORPORATION, the corporation continuing from the
amalgamation of 1086598 Ontario Inc., 1253236 Ontario Limited,
1316603 Ontario Limited, Changepoint Corporation, Diskette
Publishing (Canada) Ltd. and Macrosoft Development Corporation (the
"Amalgamated Corporation") will be able to pay its liabilities as
they become due;
(b) the realizable value of the Amalgamated Corporation's assets will
not be less than the aggregate of its liabilities and stated capital
of all classes;
(c) no creditor will be prejudiced by the amalgamation; and
2. No creditor has notified 1086598 Ontario Inc., 1253236 Ontario Limited,
1316603 Ontario Limited, Changepoint Corporation, Diskette Publishing
(Canada) Ltd. and Macrosoft Development Corporation that such creditor
objects to the amalgamation.
DATED this 30th of July, 1999.
/s/ Paul Lupinacci
- ---------------------
Paul Lupinacci
<PAGE>
SCHEDULE "A-2"
The undersigned, Paul Edwards, being the Secretary of 1316603
Ontario Limited hereby state that:
3. There are reasonable grounds for believing that:
(a) each of 1086598 Ontario Inc., 1253236 Ontario Limited, 1316603
Ontario Limited, Changepoint Corporation, Diskette Publishing (Canada)
Ltd. and Macrosoft Development Corporation is and CHANGEPOINT
CORPORATION, the corporation continuing from the amalgamation of
1086598 Ontario Inc., 1253236 Ontario Limited, 1316603 Ontario Limited,
Changepoint Corporation, Diskette Publishing (Canada) Ltd. and
Macrosoft Development Corporation (the "Amalgamated Corporation") will
be able to pay its liabilities as they become due;
(b) the realizable value of the Amalgamated Corporation's assets will not
be less than the aggregate of its liabilities and stated capital of all
classes;
(c) no creditor will be prejudiced by the amalgamation; and
4. No creditor has notified 1086598 Ontario Inc., 1253236 Ontario Limited,
1316603 Ontario Limited, Changepoint Corporation, Diskette Publishing
(Canada) Ltd. and Macrosoft Development Corporation that such creditor
objects to the amalgamation.
DATED this 30th day of July, 1999.
/s/ Paul Edwards
- ---------------
Paul Edwards
<PAGE>
SCHEDULE "A-3"
The undersigned, Paul Edwards, being the Secretary of Changepoint
Corporation hereby state that:
5. There are reasonable grounds for believing that:
(a) each of 1086598 Ontario Inc., 1253236 Ontario Limited, 1316603
Ontario Limited, Changepoint Corporation, Diskette Publishing (Canada)
Ltd. and Macrosoft Development Corporation is and CHANGEPOINT
CORPORATION, the corporation continuing from the amalgamation of
1086598 Ontario Inc., 1253236 Ontario Limited, 1316603 Ontario
Limited, Changepoint Corporation, Diskette Publishing (Canada) Ltd.
and Macrosoft Development Corporation (the "Amalgamated Corporation")
will be able to pay its liabilities as they become due;
(b) the realizable value of the Amalgamated Corporation's assets will
not be less than the aggregate of its liabilities and stated capital
of all classes;
(c) no creditor will be prejudiced by the amalgamation; and
6. No creditor has notified 1086598 Ontario Inc., 1253236 Ontario Limited,
1316603 Ontario Limited, Changepoint Corporation, Diskette Publishing
(Canada) Ltd. and Macrosoft Development Corporation that such creditor
objects to the amalgamation.
DATED this 30th day of July, 1999.
/s/ Paul Edwards
- ----------------
Paul Edwards
<PAGE>
SCHEDULE "A-4"
The undersigned, Gerald William Smith, being the Secretary of
Diskette Publishing (Canada) Ltd. hereby state that:
7. There are reasonable grounds for believing that:
(a) each of 1086598 Ontario Inc., 1253236 Ontario Limited, 1316603
Ontario Limited, Changepoint Corporation, Diskette Publishing (Canada)
Ltd. and Macrosoft Development Corporation is and CHANGEPOINT
CORPORATION, the corporation continuing from the amalgamation of
1086598 Ontario Inc., 1253236 Ontario Limited, 1316603 Ontario Limited,
Changepoint Corporation, Diskette Publishing (Canada) Ltd. and
Macrosoft Development Corporation (the "Amalgamated Corporation") will
be able to pay its liabilities as they become due;
(b) the realizable value of the Amalgamated Corporation's assets will
not be less than the aggregate of its liabilities and stated capital
of all classes;
(c) no creditor will be prejudiced by the amalgamation; and
8. No creditor has notified 1086598 Ontario Inc., 1253236 Ontario Limited,
1316603 Ontario Limited, Changepoint Corporation, Diskette Publishing
(Canada) Ltd. and Macrosoft Development Corporation that such creditor
objects to the amalgamation.
DATED this 30th day of July, 1999.
/s/ Gerald William Smith
- -------------------------
Gerald William Smith
<PAGE>
SCHEDULE "A-5"
The undersigned, Randall Nelson Remme, being the Secretary of
Macrosoft Development Corporation hereby state that:
9. There are reasonable grounds for believing that:
(a) each of 1086598 Ontario Inc., 1253236 Ontario Limited, 1316603 Ontario
Limited, Changepoint Corporation, Diskette Publishing (Canada) Ltd.
and Macrosoft Development Corporation is and CHANGEPOINT CORPORATION,
the corporation continuing from the amalgamation of 1086598 Ontario
Inc., 1253236 Ontario Limited, 1316603 Ontario Limited, Changepoint
Corporation, Diskette Publishing (Canada) Ltd. and Macrosoft
Development Corporation (the "Amalgamated Corporation") will be able
to pay its liabilities as they become due;
(b) the realizable value of the Amalgamated Corporation's assets will not
be less than the aggregate of its liabilities and stated capital of
all classes;
(c) no creditor will be prejudiced by the amalgamation; and
10. No creditor has notified 1086598 Ontario Inc., 1253236
Ontario Limited, 1316603 Ontario Limited, Changepoint Corporation, Diskette
Publishing (Canada) Ltd. and Macrosoft Development Corporation that such
creditor objects to the amalgamation.
DATED this 30th day of July, 1999.
/s/ Randall Nelson Remme
- -----------------------------------
Randall Nelson Remme
<PAGE>
SCHEDULE "A-6"
The undersigned, Paul Lupinacci, being the Secretary-Treasurer of
1253236 Ontario Limited hereby state that:
11. There are reasonable grounds for believing that:
(1) each of 1086598 Ontario Inc., 1253236 Ontario Limited, 1316603 Ontario
Limited, Changepoint Corporation, Diskette Publishing (Canada) Ltd.
and Macrosoft Development Corporation is and CHANGEPOINT CORPORATION,
the corporation continuing from the amalgamation of 1086598 Ontario
Inc., 1253236 Ontario Limited, 1316603 Ontario Limited, Changepoint
Corporation, Diskette Publishing (Canada) Ltd. and Macrosoft
Development Corporation (the "Amalgamated Corporation") will be able
to pay its liabilities as they become due;
(2) the realizable value of the Amalgamated Corporation's assets will not
be less than the aggregate of its liabilities and stated capital of
all classes;
(3) no creditor will be prejudiced by the amalgamation; and
12. No creditor has notified 1086598 Ontario Inc., 1253236
Ontario Limited, 1316603 Ontario Limited, Changepoint Corporation, Diskette
Publishing (Canada) Ltd. and Macrosoft Development Corporation that such
creditor objects to the amalgamation.
DATED this 28 day of July, 1999.
/s/ Paul Lupinacci
- -----------------------------------
Paul Lupinacci
<PAGE>
SCHEDULE "B"
THIS AMALGAMATION AGREEMENT entered into as of the 30th day of July,
1999
AMONG:
1086598 ONTARIO INC.,
a corporation incorporated under the laws of Ontario
(hereinafter called "1086598")
OF THE FIRST PART
-and-
1253236 ONTARIO LIMITED,
a corporation incorporated under the laws of Ontario
(hereinafter called "1253236")
OF THE SECOND PART
-and-
1316603 ONTARIO LIMITED,
a corporation incorporated under the laws of Ontario
(hereinafter called "1316603")
OF THE THIRD PART
-and-
CHANGEPOINT CORPORATION,
a corporation incorporated under the laws of Ontario
(hereinafter called "CHANGEPOINT")
OF THE FOURTH PART
-and-
DISKETTE PUBLISHING (CANADA) LTD.,
a corporation incorporated under the laws of Ontario
(hereinafter called "DISKETTE")
OF THE FIFTH PART
-and-
<PAGE>
MACROSOFT DEVELOPMENT CORPORATION,
a corporation incorporated under the laws of Ontario
(hereinafter called "MACROSOFT")
OF THE SIXTH PART
WHEREAS all of 1086598, 1253236, 1316603, CHANGEPOINT, DISKETTE and
MACROSOFT are corporations to which the BUSINESS CORPORATIONS ACT (ONTARIO)
applies;
AND WHEREAS 1086598 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 86,678 Class A shares and 1,211,500 common shares
are issued and outstanding;
AND WHEREAS 1253236 is authorized to issue an unlimited number of
Class A shares and an unlimited number of common shares of which 2,200,000
Class A shares and 100 common shares are issued and outstanding;
AND WHEREAS 1316603 is authorized to issue an unlimited number of
preference shares, an unlimited number of Class A shares and an unlimited
number of common shares, of which 308,020 preference shares and 4,126,750
common shares are issued and outstanding;
AND WHEREAS CHANGEPOINT is authorized to issue an unlimited number of
common shares, of which 12,017,186 common shares are issued and outstanding;
AND WHEREAS DISKETTE is authorized to issue an unlimited number of
preference shares, an unlimited number of Class A shares and an unlimited
number of Class B shares of which 394,742 preference shares and 5,329,960
Class A shares are issued and outstanding;
AND WHEREAS MACROSOFT 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 86,678 Class A shares and 1,211,500 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.
<PAGE>
NOW THEREFORE THIS AGREEMENT WITNESSETH as follows:
1. DEFINITION
In this agreement:
(a) "AMALGAMATING CORPORATIONS" means 1086598, 1253236, 1316603,
CHANGEPOINT, DISKETTE and MACROSOFT;
(b) "AMALGAMATION AGREEMENT" or "AGREEMENT" means this amalgamation
agreement;
(c) "ACT" means the BUSINESS CORPORATIONS ACT (ONTARIO);
(d) "CORPORATION" means the corporation continuing from the
amalgamation of the Amalgamating Corporations;
(e) "EFFECTIVE TIME" means 4:00 p.m. on the Effective Date; and
(f) "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.
<PAGE>
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 Class A Preferred Shares; and
an unlimited number of Common Shares.
7. RIGHTS ATTACHING TO SHARES
The Class A Preferred Shares and Common Shares of the Corporation
shall have attached thereto the following rights, privileges, restrictions
and conditions:
<PAGE>
CLASS A PREFERRED SHARES
1. NUMBER OF SHARES. The class of Preferred Shares designated and known as
Class A Preferred Shares shall consist of an unlimited number of Class A
Preferred Shares. Unless otherwise noted all references to $ and dollars
shall refer to Canadian dollars.
2. VOTING.
2A. GENERAL. Except as may be otherwise provided in these terms of
the Class A Preferred Shares or by law, the Class A Preferred
Shares shall vote together with all other classes and series
of stock of the Corporation as a single class on all actions
to be taken by the stockholders of the Corporation. Each Class
A Preferred Share shall entitle the holder thereof to such
number of votes per Class A Preferred Share on each such
action as shall equal the number of Common Shares (including
fractions of Common Shares) into which each Class A Preferred
Share is then convertible.
2B. BOARD SIZE. Except as provided for in any unanimous
shareholder agreement, the Corporation shall not, without the
written consent or affirmative vote of the holders of at least
two-thirds of the then outstanding Class A Preferred Shares,
given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a class, increase the
maximum number of directors constituting the Board of
Directors to a number in excess of seven (7).
3. DIVIDENDS. The holders of the Class A Preferred Shares shall be
entitled to receive, out of funds legally available therefor, when and if
declared by the Board of Directors, quarterly dividends
<PAGE>
at the rate per annum of $0.245 per share (the "Accruing Dividends").
Accruing Dividends shall accrue from day to day, whether or not earned or
declared, and shall be cumulative.
4. LIQUIDATION. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Class A
Preferred Shares shall be entitled, before any distribution or payment is
made upon any stock ranking on liquidation junior to the Class A Preferred
Shares, to be paid an amount equal to the greater of (i) $2.45 per share
plus, in the case of each share, an amount equal to all Accruing 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 share as would have been payable had each such share
been converted to Common Shares pursuant to paragraph 6 immediately prior to
such liquidation, dissolution or winding up, and the holders of Class A
Preferred Shares shall not be entitled to any further payment, such amount
payable with respect to one share of Class A Preferred Shares being sometimes
referred to as the "Liquidation Preference Payment" and with respect to all
shares of Class A Preferred Shares being sometimes referred to as the
"Liquidation Preference Payments". If upon such liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the assets
to be distributed among the holders of Class A Preferred Shares shall be
insufficient to permit payment to the holders of Class A Preferred Shares of
the amount distributable as aforesaid, then the entire assets of the
Corporation to be so distributed shall be distributed ratably among the
holders of Class A Preferred Shares. Upon any such liquidation, dissolution
or winding up of the Corporation, after the holders of Class A Preferred
Shares shall have been paid in full the amounts to which they shall be
entitled, the remaining net assets of the Corporation may be distributed to
the holders of stock ranking on liquidation junior to the Class A Preferred
Shares. Written notice of such liquidation, dissolution or winding up,
stating a payment date, the amount of the Liquidation Preference Payments and
the place where said Liquidation Preference Payments shall be payable, shall
be delivered in person, mailed by certified or registered mail, return
receipt requested, or sent by telecopier or telex, not less than 20 days
prior to the payment date stated therein, to the holders of record of Class A
Preferred Shares, such notice to be addressed to each such holder at its
address as shown by the records of the Corporation. The consolidation,
amalgamation or merger of the Corporation into or with any other entity or
entities which results in the exchange of outstanding shares of the
Corporation for securities or other consideration issued or paid or caused to
be issued or paid by any such entity or affiliate thereof (other than a
merger to reincorporate the Corporation in a different jurisdiction), and the
sale, lease, abandonment, transfer or other disposition by the Corporation of
all or substantially all its assets, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of the
provisions of this paragraph 4. For purposes hereof, the Common Shares shall
rank on liquidation junior to the Class A Preferred Shares.
5. RESTRICTIONS. At any time when Class A Preferred Shares are
outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by the
Articles of the Corporation, and in addition to any other vote required by
law or the Articles of the Corporation, without the approval of either the
holders of at least two-thirds of the then outstanding shares of Class A
Preferred Shares given in writing, or the holders of at least two-thirds of
those of the Class A Preferred Shares the holders of which are present (in
person or by
<PAGE>
proxy) at a meeting of the holders of Class A Preferred Shares, consenting or
voting (as the case may be) separately as a series, the Corporation will not:
5A. Create or authorize the creation of any additional class or
series of shares of stock unless the same ranks junior to the
Class A Preferred Shares as to the distribution of assets on
the liquidation, dissolution or winding up of the Corporation,
or increase the authorized amount of the Class A Preferred
Shares or increase the authorized amount of any additional
class or series of shares of stock unless the same ranks
junior to the Class A Preferred Shares as to the distribution
of assets on the liquidation, dissolution or winding up of the
Corporation, or create or authorize any obligation or security
convertible into Class A Preferred Shares or into shares of
any other class or series of stock unless the same ranks
junior to the Class A Preferred Shares as to the distribution
of assets on the liquidation, dissolution or winding up of the
Corporation, whether any such creation, authorization or
increase shall be by means of amendment to the Articles of the
Corporation or by merger, consolidation, amalgamation or
otherwise;
5B. Consent to any liquidation, dissolution or winding up of the
Corporation or consolidate, amalgamate or merge into or with
any other entity or entities or sell, lease, abandon, transfer
or otherwise dispose of all or substantially all its assets;
5C. Amend, alter or repeal its Articles or By-laws;
5D. Pay any dividend or make any distribution on, any shares of
stock other than the Class A Preferred Shares, except for
dividends or other distributions payable on the Common Shares
solely in the form of additional Common Shares;
5E. Redeem or otherwise acquire any Class A Preferred Shares
except as expressly authorized in paragraph 7 hereof or
pursuant to a purchase offer made pro rata to all holders of
the Class A Preferred Shares on the basis of the aggregate
number of outstanding Class A Preferred Shares then held by
each such holder; or
5F. File or qualify a prospectus in any province or territory of
Canada in connection with a public offering of Common Shares
or the qualification of securities therefor.
6. CONVERSIONS. The holders of Class A Preferred Shares shall have the
following conversion rights:
6A. RIGHT TO CONVERT. Subject to the terms and conditions of this
paragraph 6, the holder of any Class A Preferred Shares shall
have the right, at its option at any time, to convert any such
Class A Preferred Shares (except that upon any liquidation of
the Corporation the right of conversion shall terminate at the
close of business on the business day fixed for payment of the
amount distributable on the Class A Preferred Shares) into
such number of fully paid and non-assessable Common Shares as
is obtained by (i) multiplying the number of Class A Preferred
Shares so to be
<PAGE>
converted by $2.45 and (ii) dividing the result by the
conversion price of $2.45 per share or, in case an adjustment
of such price has taken place pursuant to the further
provisions of this paragraph 6, then by the conversion price
as last adjusted and in effect at the date any Class A
Preferred Shares are surrendered for conversion (such price,
or such price as last adjusted, being referred to as the
"Conversion Price"). Such rights of conversion shall be
exercised by the holder thereof by giving written notice that
the holder elects to convert a stated number of Class A
Preferred Shares into Common Shares and by surrender of a
certificate or certificates for the shares so to be converted
to the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation may
designate by notice in writing to the holders of the Class A
Preferred Shares) at any time during its usual business hours
on the date set forth in such notice, together with a
statement of the name or names (with address) in which the
certificate or certificates for Common Shares shall be issued.
6B. ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED. Promptly
after the receipt of the written notice referred to in
subparagraph 6A and surrender of the certificate or
certificates for the Class A Preferred Shares to be converted,
the Corporation shall issue and deliver, or cause to be issued
and delivered, to the holder, registered in such name or names
as such holder may direct, a certificate or certificates for
the number of whole Common Shares issuable upon the conversion
of such share or shares of Class A Preferred Shares. To the
extent permitted by law, such conversion shall be deemed to
have been effected and the Conversion Price shall be
determined as of the close of business on the date on which
such written notice shall have been received by the
Corporation and the certificate or certificates for such share
or shares shall have been surrendered as aforesaid, and at
such time the rights of the holder of such Class A Preferred
Shares shall cease, and the person or persons in whose name or
names any certificate or certificates for Common Shares be
issuable upon such conversion shall be deemed to have become
the holder or holders of record of the shares represented
thereby.
6C. FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Class A
Preferred Shares into Common Shares and no payment or
adjustment shall be made upon any conversion on account of any
cash dividends on the Common Shares issued upon such
conversion. At the time of each conversion, the Corporation
shall pay in cash an amount equal to all dividends, excluding
Accruing Dividends, accrued and unpaid on the Class A
Preferred Shares surrendered for conversion to the date upon
which such conversion is deemed to take place as provided in
subparagraph 6B. In case the number of Class A Preferred
Shares represented by the certificate or certificates
surrendered pursuant to subparagraph 6A exceeds the number of
shares converted, the Corporation shall, upon such conversion,
execute and deliver to the holder, at the expense of the
Corporation, a new certificate or certificates for the number
of Class A Preferred Shares represented by the certificate or
certificates surrendered which are not to be converted. If any
fractional Common Shares would, except for the provisions of
the
<PAGE>
first sentence of this subparagraph 6C, be delivered upon such
conversion, the Corporation, in lieu of delivering such
fractional share, shall pay to the holder surrendering the
Class A Preferred Shares for conversion an amount in cash
equal to the current market price of such fractional share as
determined in good faith by the Board of Directors of the
Corporation.
6D. ADJUSTMENT OF PRICE UPON ISSUANCE OF COMMON SHARES. Except as
provided in subparagraph 6E, if and whenever the Corporation
shall issue or sell, or is, in accordance with subparagraphs
6D(1) through 6D(7), deemed to have issued or sold, any Common
Shares for a consideration per share less than the Conversion
Price in effect immediately prior to the time of such issue or
sale, then, forthwith upon such issue or sale, the Conversion
Price shall be reduced to the price determined by dividing (i)
an amount equal to the sum of (a) the number of Common Shares
outstanding immediately prior to such issue or sale multiplied
by the then existing Conversion Price and (b) the
consideration, if any, received by the Corporation upon such
issue or sale, by (ii) the total number of Common Shares
outstanding immediately after such issue or sale.
For purposes of this subparagraph 6D, the following
subparagraphs 6D(1) to 6D(7) shall also be applicable:
6D(1) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time
the Corporation shall in any manner grant (whether
directly or by assumption in a merger or otherwise)
any warrants or other rights to subscribe for or to
purchase, or any options for the purchase of, Common
Shares or any stock or security convertible into or
exchangeable for Common Shares (such warrants, rights
or options being called "Options" and such
convertible or exchangeable stock or securities being
called "Convertible Securities") whether or not such
Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable,
and the price per share for which Common Shares is
issuable upon the exercise of such Options or upon
the conversion or exchange of such Convertible
Securities (determined by dividing (i) the total
amount, if any, received or receivable by the
Corporation as consideration for the granting of such
Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the
case of such Options which relate to Convertible
Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (ii) the total
maximum number of Common Shares issuable upon the
exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable
upon the exercise of such Options) shall be less than
the Conversion Price in effect immediately prior to
the time of the granting of such Options, then the
total maximum number of Common Shares issuable upon
the exercise of such Options or upon conversion or
exchange of the
<PAGE>
total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share
as of the date of granting of such Options or the
issuance of such Convertible Securities and
thereafter shall be deemed to be outstanding. Except
as otherwise provided in subparagraph 6D(3), no
adjustment of the Conversion Price shall be made upon
the actual issue of such Common Shares or of such
Convertible Securities upon exercise of such Options
or upon the actual issue of such Common Shares upon
conversion or exchange of such Convertible
Securities.
6D(2) ISSUANCE OF CONVERTIBLE SECURITIES. In case the
Corporation shall in any manner issue (whether
directly or by assumption in a merger or otherwise)
or sell any Convertible Securities, whether or not
the rights to exchange or convert any such
Convertible Securities are immediately exercisable,
and the price per share for which Common Shares is
issuable upon such conversion or exchange (determined
by dividing (i) the total amount received or
receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation
upon the conversion or exchange thereof, by (ii) the
total maximum number of Common Shares issuable upon
the conversion or exchange of all such Convertible
Securities) shall be less than the Conversion Price
in effect immediately prior to the time of such issue
or sale, then the total maximum number of Common
Shares issuable upon conversion or exchange of all
such Convertible Securities shall be deemed to have
been issued for such price per share as of the date
of the issue or sale of such Convertible Securities
and thereafter shall be deemed to be outstanding,
provided that (a) except as otherwise provided in
subparagraph 6D(3), no adjustment of the Conversion
Price shall be made upon the actual issue of such
Common Shares upon conversion or exchange of such
Convertible Securities and (b) if any such issue or
sale of such Convertible Securities is made upon
exercise of any Options to purchase any such
Convertible Securities for which adjustments of the
Conversion Price have been or are to be made pursuant
to other provisions of this subparagraph 6D, no
further adjustment of the Conversion Price shall be
made by reason of such issue or sale.
6D(3) CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the
happening of any of the following events, namely, if
the purchase price provided for in any Option
referred to in subparagraph 6D(1), the additional
consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in
subparagraph 6D(1) or 6D(2), or the rate at which
Convertible Securities referred to in subparagraph
6D(1) or 6D(2) are convertible into or exchangeable
for Common Shares shall change at any time
(including, but not limited to, changes under or by
reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time
of such event shall
<PAGE>
forthwith be readjusted to the Conversion Price which
would have been in effect at such time had such
Options or Convertible Securities still outstanding
provided for such changed purchase price, additional
consideration or conversion rate, as the case may be,
at the time initially granted, issued or sold, but
only if as a result of such adjustment the Conversion
Price then in effect hereunder is thereby reduced;
and on the termination of any such Option or any such
right to convert or exchange such Convertible
Securities, the Conversion Price then in effect
hereunder shall forthwith be increased to the
Conversion Price which would have been in effect at
the time of such termination had such Option or
Convertible Securities, to the extent outstanding
immediately prior to such termination, never been
issued.
6D(4) STOCK DIVIDENDS. In case the Corporation shall
declare a dividend or make any other distribution
upon any stock of the Corporation (other than the
Common Shares) payable in Common Shares, Options or
Convertible Securities, then any Common Shares,
Options or Convertible Securities, as the case may
be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or
sold without consideration.
6D(5) CONSIDERATION FOR STOCK. In case any Common Shares,
Options or Convertible Securities shall be issued or
sold for cash, the consideration received therefor
shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of
any expenses incurred or any underwriting commissions
or concessions paid or allowed by the Corporation in
connection therewith. In case any Common Shares,
Options or Convertible Securities shall be issued or
sold for a consideration other than cash, the amount
of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the
Board of Directors of the Corporation, without
deduction of any expenses incurred or any
underwriting commissions or concessions paid or
allowed by the Corporation in connection therewith.
In case any Options shall be issued in connection
with the issue and sale of other securities of the
Corporation, together comprising one integral
transaction in which no specific consideration is
allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued for
such consideration as determined in good faith by the
Board of Directors of the Corporation.
6D(6) RECORD DATE. In case the Corporation shall take a
record of the holders of its Common Shares for the
purpose of entitling them (i) to receive a dividend
or other distribution payable in Common Shares,
Options or Convertible Securities or (ii) to
subscribe for or purchase Common Shares, Options or
<PAGE>
Convertible Securities, then such record date shall
be deemed to be the date of the issue or sale of the
Common Shares deemed to have been issued or sold upon
the declaration of such dividend or the making of
such other distribution or the date of the granting
of such right of subscription or purchase, as the
case may be.
6D(7) TREASURY SHARES. The number of Common Shares
outstanding at any given time shall not include
shares owned or held by or for the account of the
Corporation, and the disposition of any such shares
shall be considered an issue or sale of Common Shares
for the purpose of this subparagraph 6D.
6E. CERTAIN ISSUES EXCEPTED. Anything herein to the contrary
notwithstanding, the Corporation shall not be required to make
any adjustment of the Conversion Price in the case of the
issuance from and after the date of filing of these terms of
the Class A Preferred Shares of (i) Common Shares to
directors, officers, employees or consultants of the
Corporation in connection with their service as directors of
the Corporation, their employment by the Corporation or their
retention as consultants by the Corporation and options or
rights to purchase same, provided each such security has been
approved by the Board of Directors or its compensation
committee, plus such number of Common Shares which are
repurchased by the Corporation from such persons after such
date pursuant to contractual rights held by the Corporation
and at repurchase prices not exceeding the respective original
purchase prices paid by such persons to the Corporation
therefor, provided such repurchases are approved by the Board
of Directors or its Compensation Committee and (ii) Common
Shares issued upon exercise of the options granted pursuant to
the Option Agreements dated as of November 3, 1997, between
the Corporation and each of The VenGrowth Investment Fund
Inc., Brant Investments Ltd., c/o Account No. 9216007, Canada
Trust in Trust for Account No. 058-106400-7, James R. Bensman
and Michael W. Slaunwhite.
6F. SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by any stock split,
stock dividend or otherwise) its outstanding Common Shares
into a greater number of shares, the Conversion Price in
effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely, in case the
outstanding Common Shares shall be combined into a smaller
number of shares, the Conversion Price in effect immediately
prior to such combination shall be proportionately increased.
In the case of any such subdivision, no further adjustment
shall be made pursuant to subparagraph 6D(4) by reason
thereof.
6G. REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way that holders of
Common Shares shall be entitled to receive stock, securities
or assets with respect
<PAGE>
to or in exchange for Common Shares, then, as a condition of
such reorganization or reclassification, lawful and adequate
provisions shall be made whereby each holder of a share or
shares of Class A Preferred Shares shall thereupon have the
right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the Common Shares
immediately theretofore receivable upon the conversion of such
Class A Preferred Shares, such shares of stock, securities or
assets as may be issued or payable with respect to or in
exchange for a number of outstanding Common Shares equal to
the number of Common Shares immediately theretofore
receivable upon such conversion had such reorganization or
reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the
rights and interests of such holder to the end that the
provisions hereof (including without limitation provisions
for adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the
exercise of such conversion rights.
6H. ADJUSTMENT FOR ISSUANCE OF COMMON SHARES UPON EXERCISE OF
WARRANT. Notwithstanding any other provision hereof and except
as provided in subparagraph 6E, if and whenever the
Corporation shall issue any Common Shares upon exercise of the
options granted pursuant to the Amended and Restated Option
Agreements made as of September 12, 1996 between the
Corporation and each of The VenGrowth Investment Fund Inc.,
Torbay & Co. Reference Account 5419-0908702, Carr & Co.,
Trinity Capital Securities Limited and Canada Trust Co.
Account 058-105-803-2-121E, 3076601, then, forthwith upon such
issue, the Conversion Price shall be adjusted so that
immediately after such issuance the holders of Class A
Preferred Shares shall have maintained the percentage
ownership of the fully-diluted Common Shares of the
Corporation to which such holders would be entitled
immediately prior to such issuance pursuant to these Articles
(assuming for such purposes full conversion of the Class A
Preferred Shares).
6I. NOTICE OF ADJUSTMENT. Upon any adjustment of the Conversion
Price, then and in each such case the Corporation shall give
written notice thereof, by delivery in person, certified or
registered mail, return receipt requested, or telecopier,
addressed to each holder of Class A Preferred Shares at the
address of such holder as shown on the books of the
Corporation, which notice shall state the Conversion Price
resulting from such adjustment, setting forth in reasonable
detail the method upon which such calculation is based.
6J. OTHER NOTICES. In case at any time:
(1) the Corporation shall declare any dividend upon its
Common Shares payable in cash or stock or make any
other distribution to the holders of its Common
Shares;
<PAGE>
(2) the Corporation shall offer for subscription pro rata
to the holders of its Common Shares any additional
shares of stock of any class or other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the
Corporation, or a consolidation, amalgamation or
merger of the Corporation with or into another entity
or entities, or a sale, lease, abandonment, transfer
or other disposition of all or substantially all its
assets; or
(4) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the
Corporation;
then, in any one or more of said cases, the Corporation shall
give, by delivery in person, certified or registered mail,
return receipt requested, telecopier or addressed to each
holder of any Class A Preferred Shares at the address of such
holder as shown on the books of the Corporation, (a) at least
20 days' prior written notice of the date on which the books
of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger,
amalgamation, disposition, dissolution, liquidation or winding
up and (b) in the case of any such reorganization,
reclassification, consolidation, amalgamation, merger,
disposition, dissolution, liquidation or winding up, at least
20 days' prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date on
which the holders of Common Shares shall be entitled thereto
and such notice in accordance with the foregoing clause (b)
shall also specify the date on which the holders of Common
Shares shall be entitled to exchange their Common Shares for
securities or other property deliverable upon such
reorganization, reclassification, consolidation, amalgamation,
merger, disposition, dissolution, liquidation or winding up,
as the case may be.
6K. STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized Common
Shares, solely for the purpose of issuance upon the conversion
of Class A Preferred Shares as herein provided, such number of
Common Shares as shall then be issuable upon the conversion of
all outstanding Class A Preferred Shares. The Corporation
covenants that all Common Shares which shall be so issued
shall be duly and validly issued and fully paid and
non-assessable and free from all taxes, liens and charges with
respect to the issue thereof. The Corporation will take all
such action as may be necessary to assure that all such Common
Shares may be so issued without violation of any applicable
law or regulation, or of any requirement of any national
securities or other exchange upon which the Common Shares may
be listed. The Corporation will not take any action which
results in any adjustment of the Conversion Price if the total
number of
<PAGE>
Common Shares issued and issuable after such action upon
conversion of the Class A Preferred Shares would exceed the
total number of shares of Common Stock then authorized by the
Articles.
6L. NO REISSUANCE OF CLASS A PREFERRED SHARES. Class A Preferred
Shares which are converted into Common Shares as provided
herein shall not be reissued.
6M. ISSUE TAX. The issuance of certificates for Common Shares upon
conversion of Class A Preferred Shares shall be made without
charge to the holders thereof for any issuance tax in respect
thereof, provided that the Corporation shall not be required
to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Class A Preferred
Shares which is being converted.
6N. CLOSING OF BOOKS. The Corporation will at no time close its
transfer books against the transfer of any Class A Preferred
Shares or of any Common Shares issued or issuable upon the
conversion of any Class A Preferred Shares in any manner which
interferes with the timely conversion of such Class A
Preferred Shares, except as may otherwise be required to
comply with applicable securities laws.
6O. DEFINITION OF COMMON SHARES. As used in this paragraph 6, the
term "Common Shares" shall mean and include the Corporation's
authorized Common Shares, as constituted on the date of filing
of these terms of the Class A Preferred Shares, and shall also
include any capital stock of any class of the Corporation
thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of
assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that
the Common Shares receivable upon conversion of shares of
Class A Preferred Shares shall include only shares designated
as Common Shares of the Corporation on the date of filing of
this instrument, or in case of any reorganization or
reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in subparagraph 6G.
6P. MANDATORY CONVERSION. If at any time the Corporation shall
effect a firm commitment underwritten public offering in the
United States of Common Shares in which (i) the aggregate
price paid for such shares by the public shall be at least
U.S,$20.0 million and (ii) the price paid by the public for
such shares shall be at least three times the Conversion Price
per share, then effective upon the closing of the sale of such
shares by the Corporation pursuant to such public offering,
all outstanding Class A Preferred Shares shall automatically
convert to Common Shares on the basis set forth in this
paragraph 6. Holders of Class A Preferred Shares so converted
may deliver to the Corporation at its principal office (or
such other office or agency of the Corporation as the
Corporation may designate by notice in writing to such
holders)
<PAGE>
during its usual business hours, the certificate or
certificates for the shares so converted. As promptly as
practicable thereafter, the Corporation shall issue and
deliver to such holder a certificate or certificates for the
number of whole Common Shares to which such holder is
entitled, together with any cash dividends and payment in lieu
of fractional shares to which such holder may be entitled
pursuant to subparagraph 6C. Until such time as a holder of
Class A Preferred Shares shall surrender his or its
certificates therefor as provided above, such certificates
shall be deemed to represent the Common Shares to which such
holder shall be entitled upon the surrender thereof.
7. REDEMPTION. The Class A Preferred Shares shall be redeemed as follows:
7A. MANDATORY REDEMPTION. On September 1, 2004 (the "Redemption
Date"), the Corporation shall redeem from each holder of Class
A Preferred Shares, all of the Class A Preferred Shares held
by such holder on the Redemption Date.
7B. REDEMPTION PRICE AND PAYMENT. The Class A Preferred Shares to
be redeemed on the Redemption Date shall be redeemed by paying
for each share in cash an amount equal to the greater of (i)
the Liquidation Preference Payment as set forth in paragraph 4
hereof or (ii) the fair market value of the Class A Preferred
Share as of the Redemption Date, such amount being referred to
as the "Redemption Price". Such payment shall be made in full
on the Redemption Date to the holders entitled thereto. For
the purposes hereof, the term "fair market value of the Class
A Preferred Share" shall mean the fair value of the
Corporation attributable to the Class A Preferred Shares, as
determined by a nationally recognized firm of independent
chartered accountants (selected by the auditors of the
Corporation) in accordance with generally accepted valuation
principles then in effect, as at the end of the most recent
fiscal quarter of the Corporation, provided that in making
such determination, no provision shall be made for either a
control premium or a minority discount.
7C. REDEMPTION MECHANICS. At least 20 but not more than 30 days
prior to the Redemption Date, written notice (the "Redemption
Notice") shall be given by the Corporation by delivery in
person, certified or registered mail, return receipt
requested, telecopier or telex, to each holder of record (at
the close of business on the business day next preceding the
day on which the Redemption Notice is given) of Class A
Preferred Shares notifying such holder of the redemption and
specifying the Redemption Price, the Redemption Date and the
place where said Redemption Price shall be payable. The
Redemption Notice shall be addressed to each holder at his
address as shown by the records of the Corporation. From and
after the close of business on the Redemption Date, unless
there shall have been a default in the payment of the
Redemption Price, all rights of holders of Class A Preferred
Shares (except the right to receive the Redemption Price)
shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the
<PAGE>
Corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the Corporation legally available
for redemption of Class A Preferred Shares on the Redemption
Date are insufficient to redeem the total number of
outstanding Class A Preferred Shares, the holders of Class A
Preferred A Shares shall share ratably in any funds legally
available for redemption of such shares according to the
respective amounts which would be payable with respect to the
full number of shares owned by them if all such outstanding
shares were redeemed in full. The Class A Preferred Shares not
redeemed shall remain outstanding and entitled to all rights
and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for
the redemption of such Class A Preferred Shares, such funds
will be used, at the end of the next succeeding fiscal
quarter, to redeem the balance of such shares, or such portion
thereof for which funds are then legally available, on the
basis set forth above.
7D. REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any Class
A Preferred Shares redeemed pursuant to this paragraph 7 or
otherwise acquired by the Corporation in any manner whatsoever
shall be cancelled and shall not under any circumstances be
reissued; and the Corporation may from time to time take such
appropriate corporate action as may be necessary to reduce
accordingly the number of authorized Class A Preferred Shares.
7E. NO OTHER REDEMPTIONS. The Corporation shall not redeem,
repurchase or otherwise acquire any shares of its capital
stock until the Class A Preferred Shares have been redeemed in
full pursuant to these Articles unless each holder of the
Class A Preferred Shares consents in writing prior to such
redemption.
7F. PURCHASE BY RELATED PARTY. Notwithstanding any provision of
this paragraph 7, but subject to applicable law, in lieu of
redeeming the Class A Preferred Shares, the Corporation shall
be entitled to cause any of its subsidiaries or affiliated
entities to purchase such Class A Preferred Shares from the
holders thereof on the Redemption Date and pay to such holders
the Redemption Price in accordance with the provisions hereof,
and upon the completion of such purchase by such subsidiary or
affiliated entity, the Corporation shall be relieved from any
obligation to redeem the Class A Preferred Shares so
purchased.
8. AMENDMENTS. No provision of these terms of the Class A Preferred Shares
may be amended (whether by merger, consolidation, amalgamation or otherwise),
modified or waived without the written consent or affirmative vote of the
holders of at least two-thirds of those of the Class A Preferred Shares the
holders of which are present (in person or by proxy) at a meeting of the
holders of the Class A Preferred Shares.
<PAGE>
COMMON SHARES
1. DIVIDENDS. If in any fiscal year after providing for the full dividend
on the Class A 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 Class A Preferred Shares and any 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 5 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>
Paul Edwards 444 Merton Street Yes
Toronto, Ontario
M4S 1B3
Gerald William Smith 1169 Secretariate Road Yes
Newmarket, Ontario
L3X 1M5
<PAGE>
Peter Brennan 3537 Fair Oaks Lane No
Longboat Key, Florida
34228 U.S.A.
Lamont Smith 50 Prince Arthur Avenue Yes
Apt. #1108
Toronto, Ontario
M5R 1B5
A. David Ferguson 231 Grenview Boulevard South Yes
Etobicoke, Ontario
M8Y 3V2
</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:
<PAGE>
(a) the 23,371 issued and outstanding Class A shares of 1086598 held by
Paul Lupinacci shall be converted into 163,265 Class A Preferred
shares of the Corporation;
(b) the 5,849 issued and outstanding Class A shares of 1086598 held by
Paul Lupinacci shall be converted into 40,858 common shares of the
Corporation;
(c) the 57,458 issued and outstanding Class A shares of 1086598 held by
The Paul Lupinacci Family Trust shall be converted into 401,388
common shares of the Corporation;
(d) the 1,211,500 issued and outstanding common shares of 1086598 held by
1359288 Ontario Limited shall be converted into 494,489 common shares
of the Corporation;
(e) the 100 issued and outstanding common shares of 1253236 all of which
are at the date hereof and will be at the Effective Time held by or on
behalf of MACROSOFT and 1086598, shall be cancelled without any
repayment of capital in respect thereof and shall not be converted
into shares of the Corporation;
(f) the 2,200,000 issued and outstanding Class A shares of 1253236 all of
which are at the date hereof and will be at the Effective Time held by
or on behalf of MACROSOFT and 1086598, shall be cancelled without any
repayment of capital in respect thereof and shall not be converted
into shares of the Corporation;
(g) the 100,020 issued and outstanding preference shares of 1316603 held
by Paul Edwards shall be converted into 204,122 Class A Preferred
shares of the Corporation;
(h) the 103,980 issued and outstanding preference shares of 1316603 held
by The Paul Edwards Family Trust shall be converted into 212,205
Class A Preferred shares of the Corporation;
(i) the 104,020 issued and outstanding preference shares of 1316603 held
by The Paul Edwards Family Trust shall be converted into 212,285
common shares of the Corporation;
(j) the 4,126,750 issued and outstanding common shares of 1316603 held by
1359292 Ontario Limited shall be converted into 1,684,388 common
shares of the Corporation;
(k) the 2,313,000 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
<PAGE>
of 1316603, shall be cancelled without any repayment of capital in
respect thereof and shall not be converted into shares of the
Corporation;
(l) the 3,400,000 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 DISKETTE, shall be cancelled without any repayment
of capital in respect thereof and shall not be converted into shares
of the Corporation;
(m) the 2,200,000 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 1253236 ONTARIO LIMITED, shall be cancelled without
any repayment of capital in respect thereof and shall not be converted
into shares of the Corporation;
(n) the 4,104,186 issued and outstanding common shares of CHANGEPOINT
shall be converted into 4,104,186 common shares of the Corporation;
(o) the 65,795 issued and outstanding preference shares of DISKETTE held
by Gerald William Smith shall be converted into 204,098 Class A
Preferred shares of the Corporation;
(p) the 131,574 issued and outstanding preference shares of DISKETTE held
by The Gerry Smith Family Trust shall be converted into 408,147 Class
A Preferred shares of the Corporation;
(q) the 197,373 issued and outstanding preference shares of DISKETTE held
by The Gerry Smith Family Trust shall be converted into 612,261 common
shares of the Corporation;
(r) the 5,329,960 issued and outstanding Class A shares of DISKETTE held
by 1359290 Ontario Limited shall be converted into 2,175,494 common
shares of the Corporation;
(s) the 28,338 issued and outstanding Class A shares of MACROSOFT held by
Randall Nelson Remme shall be converted into 197,959 Class A Preferred
shares of the Corporation;
(t) the 882 issued and outstanding Class A shares of MACROSOFT held by
Randall Nelson Remme shall be converted into 6,164 common shares of
the Corporation;
(u) the 57,458 issued and outstanding Class A shares of MACROSOFT held by
The Randy Remme Family Trust shall be converted into 401,388 common
shares of the Corporation;
<PAGE>
(v) the 1,211,500 issued and outstanding common shares of MACROSOFT
held by 1359293 Ontario Limited shall be converted into 494,489
common shares of the Corporation;
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
(a) 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 50, 2 or more persons
holding 1 or more shares jointly being counted as 1
shareholder.
(b) Any invitation to the public to subscribe for any securities
of the Corporation is prohibited.
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;
<PAGE>
(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;
(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.
<PAGE>
IN WITNESS WHEREOF this Agreement has been executed by parties
hereto as of the date and year first above written.
1086598 ONTARIO INC. 1316603 ONTARIO LIMITED
Per: /s/ Paul Lupinacci Per: /s/ Paul Edwards
------------------------- -----------------------
Paul Lupinacci-Secretary Paul Edwards-Secretary
CHANGEPOINT CORPORATION DISKETTE PUBLISHING (CANADA) LTD.
Per: /s/ Paul Edwards Per: /s/ Gerry Smith
------------------------- -----------------------
Paul Edwards-Secretary Gerald William Smith-Secretary
MACROSOFT DEVELOPMENT 1253236 ONTARIO LIMITED
CORPORATION
Per: /s/ Randall Nelson Remme Per: /s/ Paul Lupinacci
------------------------- ------------------------
Randall Nelson Remme-Secretary Paul Lupinacci-Secretary-Treasurer
<PAGE>
For Ministry Use Only Ontario Corporation Number
A L'USAGE EXCLUSIT DU MINISTERE NUMERO DE LA COMPAGNIE EN ONTARIO 1.
[LOGO] Ministry of Ministero de 1367764
Consumer and la Consommation ---------------------
Commercial Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Caci certifie que les presents
articles are effective on statuts entrent en vigueur le
OCTOBER 8 OCTOBRE, 1999
-------------------------------------------------------------
Director / Directeur
Business Corporations Act / Loi sur les societes par actions
- -------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
Form 3 STATUTS DE MODIFICATION
Business
Corporations 1. The name of the corporation is:
Act
Denomination sociale de la societe:
<TABLE>
<S><C>
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C H A N G E P O I N T C O R P O R A T I O N
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FORMULE --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- -- -- -- -- -- --
NUMERO 3
LOI SUR LES --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- -- -- -- -- -- --
SOCIETES PAR
ACTIONS --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- -- -- -- -- -- --
</TABLE>
2. The name of the corporation is changed to (if applicable):
NOUVELLE DENOMINATION SOCIALE DE LA SOCIETE (S'IL Y A LIEU):
<TABLE>
<S><C>
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- -- -- -- -- -- --
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</TABLE>
3. Date of incorporation/amalgamation:
Date de la constitution ou de la fusion:
31 - JULY - 1999
- --------------------------------------------------------------------------------
(Day, Month, Year)
(JOUR, MOIS, ANNEE)
4. The articles of the coporation are amended as follows:
LES STATUTS DE LA SOCIETE SONT MODIFIES DE LA FACON SUIVANTE.
1. THE ARTICLES OF AMALGAMATION OF THE CORPORATION BE
AND ARE HEREBY AMENDED (a) TO LIMIT THE NUMBER OF CLASS
A PREFERRED SHARES THAT THE CORPORATION IS AUTHORIZED TO
ISSUE TO 5,983,962 CLASS A PREFERRED SHARES, (b) TO
DELETE THE RIGHTS, PRIVILEGES, RESTRICTIONS AND
CONDITIONS ATTACHING TO THE CLASS A PREFERRED SHARES SET
FORTH IN PARAGRAPH 8 OF THE ARTICLES OF AMALGAMATION OF
THE CORPORATION AND TO REPLACE SAME WITH THE RIGHTS,
PRIVILEGES, RESTRICTIONS AND CONDITIONS SET FORTH IN
EXHIBIT "A" ATTACHED HERETO, AND (c) TO DELETE IN ITS
ENTIRETY SUBPARAGRAPH 10(b) OF THE ARTICLES OF
AMALGAMATION.
2. THE ARTICLES OF AMENDMENT AND FORM CIRCULATED BY AND
ARE HEREBY APPROVED AND ANY DIRECTOR AND/OR OFFICER OF
THE CORPORATION BE AND IS HEREBY AUTHORIZED TO EXECUTE
AND DELIVER SUCH ARTICLES OF AMENDMENT TO THE
DIRECTOR APPOINTED UNDER ACT.
3. ANY OFFICER OR DIRECTOR OF THE CORPORATION BE AND IS
HEREBY AUTHORIZED FOR AND ON BEHALF OF THE CORPORATION
(UNDER ITS CORPORATE SEAL OR OTHERWISE) TO EXECUTE AND
DELIVER ALL SUCH INSTRUMENTS, DOCUMENTS, DIRECTIONS AND
WRITINGS TO PERFORM AND DO ALL SUCH OTHER ACTS AND
THINGS AS HE IN HIS DISCRETION MAY CONSIDER TO BE
NECESSARY, DESIRABLE OR USEFUL FOR THE PURPOSE GIVING
EFFECT TO THIS RESOLUTION, SUCH AUTHORISATION TO BE IN
ADDITION TO THE AUTHORITIES SPECIFICALLY GRANTED BY THIS
RESOLUTION TO ANY OFFICER OR DIRECTOR OF THE CORPORATION.
<PAGE>
1(A)
EXHIBIT "A"
CLASS A PREFERRED SHARES
1. NUMBER OF SHARES. The class of Preferred Shares designated and known as
Class A Preferred Shares shall consist of 5,983,962 Class A Preferred Shares.
Unless otherwise noted all references to $ and dollars shall refer to Canadian
dollars.
2. VOTING.
2A. GENERAL. Except as may be otherwise provided in these terms of
the Class A Preferred Shares or by law, the Class A Preferred
Shares shall vote together with all other classes and series
of stock of the Corporation as a single class on all actions
to be taken by the stockholders of the Corporation. Each Class
A Preferred Share shall entitle the holder thereof to such
number of votes per Class A Preferred Share on each such
action as shall equal the number of Common Shares (including
fractions of Common Shares) into which each Class A Preferred
Share is then convertible.
2B. BOARD SIZE. The Corporation shall not, without the written
consent or affirmative vote of the holders of at least
two-thirds of the then outstanding Class A Preferred Shares,
given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a class, increase the
maximum number of directors constituting the Board of
Directors to a number in excess of seven (7).
3. DIVIDENDS. The holders of the Class A Preferred Shares shall be
entitled to receive, out of funds legally available therefor, when and if
declared by the Board of Directors, quarterly dividends at the rate per annum of
$0.245 per share (the "Accruing Dividends"). Accruing Dividends shall accrue
from day to day, whether or not earned or declared, and shall be cumulative.
4. LIQUIDATION. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Class A
Preferred Shares shall be entitled, before any distribution or payment is made
upon any stock ranking on liquidation junior to the Class A Preferred Shares, to
be paid an amount equal to the greater of (i) $2.45 per share plus, in the case
of each share, an amount equal to all Accruing 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 share as
would have been payable had each such share been converted to Common Shares
pursuant to paragraph 6 immediately prior to such liquidation, dissolution or
winding up, and the holders of Class A Preferred Shares shall not be entitled to
any further payment, such amount payable with respect to one share of Class A
Preferred Shares being sometimes referred to as the "Liquidation Preference
Payment" and with respect to all shares of Class A Preferred Shares being
sometimes referred to as the "Liquidation Preference Payments". If upon such
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the holders of Class A Preferred
Shares shall be insufficient to permit payment to the holders of Class A
Preferred Shares of the amount distributable as aforesaid, then the entire
assets of the Corporation to be so distributed shall be distributed ratably
among the holders of Class A Preferred Shares. Upon any such liquidation,
dissolution or winding up of the Corporation, after the holders of Class A
Preferred Shares shall have been paid in full the amounts to which they shall be
entitled, the remaining net assets of the Corporation may be distributed to the
holders of stock ranking on liquidation junior to the Class A Preferred Shares.
<PAGE>
1(B)
Written notice of such liquidation, dissolution or winding up, stating a payment
date, the amount of the Liquidation Preference Payments and the place where said
Liquidation Preference Payments shall be payable, shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, not less than 20 days prior to the payment date stated
therein, to the holders of record of Class A Preferred Shares, such notice to be
addressed to each such holder at its address as shown by the records of the
Corporation. The consolidation, amalgamation, plan of arrangement or merger of
the Corporation into or with any other entity or entities which results in the
exchange of outstanding shares of the Corporation for securities or other
consideration issued or paid or caused to be issued or paid by any such entity
or affiliate thereof (other than a merger to reincorporate the Corporation in a
different jurisdiction), and the sale, lease, abandonment, transfer or other
disposition by the Corporation of all or substantially all its assets, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of the provisions of this paragraph 4. For purposes hereof, the
Common Shares shall rank on liquidation junior to the Class A Preferred Shares.
5. RESTRICTIONS. At any time when Class A Preferred Shares are outstanding,
except where the vote or written consent of the holders of a greater number of
shares of the Corporation is required by law or by the Articles of the
Corporation, and in addition to any other vote required by law or the Articles
of the Corporation, without the approval of the holders of at least (i) in the
case of subparagraphs 5A, 5B, 5C, 5D, 5E and 5F, two-thirds, and (ii) in the
case of subparagraphs 5G and 5H, a majority, of the then outstanding Class A
Preferred Shares given in writing or by vote at a meeting of the holders of
Class A Preferred Shares, consenting or voting (as the case may be) separately
as a series, the Corporation will not:
5A. Create, authorize or issue the creation of any additional
class or series of shares of stock unless the same ranks
junior to the Class A Preferred Shares as to the distribution
of assets on the liquidation, dissolution or winding up of the
Corporation, the payment of dividends and redemptions, or
increase the authorized amount of the Class A Preferred Shares
or increase the authorized amount of any additional class or
series of shares of stock unless the same ranks junior to the
Class A Preferred Shares as to the distribution of assets on
the liquidation, dissolution or winding up of the Corporation,
the payment of dividends and redemptions, or create or
authorize any obligation or security convertible into Class A
Preferred Shares or into shares of any other class or series
of stock unless the same ranks junior to the Class A Preferred
Shares as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, the payment of
dividends and redemptions, whether any such creation,
authorization, issuance or increase shall be by means of
amendment to the Articles of the Corporation or by merger,
consolidation, amalgamation or otherwise;
5B. Consent to any liquidation, dissolution or winding up of the
Corporation or consolidate, amalgamate or merge into or with
any other entity or entities or sell, lease, abandon, transfer
or otherwise dispose of all or substantially all its assets or
file an application for a plan of arrangement;
5C. Amend, alter or repeal its Articles (including these terms of
the Class A Preferred Shares) or By-laws;
<PAGE>
1(C)
5D. Declare or pay any dividend or make any distribution on, any
shares of stock other than the Class A Preferred Shares,
except for dividends or other distributions payable on the
Common Shares solely in the form of additional Common Shares;
5E. Redeem or otherwise acquire any Class A Preferred Shares
except as expressly authorized in paragraph 7 hereof;
5F. File or qualify a prospectus in any province or territory of
Canada in connection with a public offering of Common Shares
or the qualification of securities therefor, or file a
registration statement in the United States with respect to an
initial public offering of equity securities;
5G. Except as permitted under any unanimous shareholder agreement,
purchase or set aside any sums for the purchase of any shares
of stock in the capital of the Corporation other than the
Class A Preferred Shares, except where the aggregate purchase
price paid by the Corporation in any fiscal year in respect of
(i) such share repurchases and (ii) option repurchases
referred to in sub-paragraph 5H, does not exceed $100,000.00;
and
5H. Repurchase any stock options previously granted by the
Corporation which have vested in favour of the holders
thereof, except where the aggregate purchase price paid by the
Corporation in any fiscal year in respect of (i) such option
repurchases and (ii) share repurchases referred to in
sub-paragraph 5G, does not exceed $100,000.00.
6. CONVERSIONS. The holders of Class A Preferred Shares shall have the
following conversion rights:
6A. RIGHT TO CONVERT. Subject to the terms and conditions of this
paragraph 6, the holder of any Class A Preferred Shares shall
have the right, at its option at any time, to convert any such
Class A Preferred Shares (except that upon any liquidation of
the Corporation the right of conversion shall terminate at the
close of business on the business day fixed for payment of the
amount distributable on the Class A Preferred Shares) into
such number of fully paid and non-assessable Common Shares as
is obtained by (i) multiplying the number of Class A Preferred
Shares so to be converted by $2.45 and (ii) dividing the
result by the conversion price of $2.45 per share or, in case
an adjustment of such price has taken place pursuant to the
further provisions of this paragraph 6, then by the conversion
price as last adjusted and in effect at the date any Class A
Preferred Shares are surrendered for conversion (such price,
or such price as last adjusted, being referred to as the
"Conversion Price"). Such rights of conversion shall be
exercised by the holder thereof by giving written notice that
the holder elects to convert a stated number of Class A
Preferred Shares into Common Shares and by surrender of a
certificate or certificates for the shares so to be converted
to the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation may
designate by notice in writing to the holders of the Class A
Preferred Shares) at any time during its usual business hours
on the date set forth in such notice, together with a
statement of the name or
<PAGE>
1(D)
names (with address) in which the certificate or certificates
for Common Shares shall be issued.
6B. ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED. Promptly
after the receipt of the written notice referred to in
subparagraph 6A and surrender of the certificate or
certificates for the Class A Preferred Shares to be converted,
the Corporation shall issue and deliver, or cause to be issued
and delivered, to the holder, registered in such name or names
as such holder may direct, a certificate or certificates for
the number of whole Common Shares issuable upon the conversion
of such Class A Preferred Shares. To the extent permitted by
law, such conversion shall be deemed to have been effected and
the Conversion Price shall be determined as of the close of
business on the date on which such written notice shall have
been received by the Corporation and the certificate or
certificates for such share or shares shall have been
surrendered as aforesaid, and at such time the rights of the
holder of such Class A Preferred Shares shall cease, and the
person or persons in whose name or names any certificate or
certificates for Common Shares be issuable upon such
conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby.
6C. FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Class A
Preferred Shares into Common Shares and no payment or
adjustment shall be made upon any conversion on account of any
cash dividends on the Common Shares issued upon such
conversion. At the time of each conversion, the Corporation
shall pay in cash an amount equal to all dividends, excluding
Accruing Dividends, accrued and unpaid on the Class A
Preferred Shares surrendered for conversion to the date upon
which such conversion is deemed to take place as provided in
subparagraph 6B. In case the number of Class A Preferred
Shares represented by the certificate or certificates
surrendered pursuant to subparagraph 6A exceeds the number of
shares converted, the Corporation shall, upon such conversion,
execute and deliver to the holder, at the expense of the
Corporation, a new certificate or certificates for the number
of Class A Preferred Shares represented by the certificate or
certificates surrendered which are not to be converted. If any
fractional Common Shares would, except for the provisions of
the first sentence of this subparagraph 6C, be delivered upon
such conversion, the Corporation, in lieu of delivering such
fractional share, shall pay to the holder surrendering the
Class A Preferred Shares for conversion an amount in cash
equal to the current market price of such fractional share as
determined in good faith by the Board of Directors of the
Corporation.
6D. ADJUSTMENT OF PRICE UPON ISSUANCE OF COMMON SHARES. Except as
provided in subparagraph 6E, if and whenever the Corporation
shall issue or sell, or is, in accordance with subparagraphs
6D(1) through 6D(7), deemed to have issued or sold, any Common
Shares for a consideration per share less than the Conversion
Price in effect immediately prior to the time of such issue or
sale, then, forthwith upon such issue or sale, the Conversion
Price shall be reduced to the price determined by dividing (i)
an amount equal to the sum of (a) the number of Common Shares
outstanding immediately prior to such issue or sale multiplied
by the then existing
<PAGE>
1(E)
Conversion Price and (b) the consideration, if any, received
by the Corporation upon such issue or sale, by (ii) the total
number of Common Shares outstanding immediately after such
issue or sale.
For purposes of this subparagraph 6D, the following
subparagraphs 6D(1) to 6D(7) shall also be applicable:
6D(1) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time
the Corporation shall in any manner grant (whether
directly or by assumption in a consolidation,
amalgamation, plan of arrangement or merger or
otherwise) any warrants or other rights to subscribe
for or to purchase, or any options for the purchase
of, Common Shares or any stock or security
convertible into or exchangeable for Common Shares
(such warrants, rights or options being called
"Options" and such convertible or exchangeable stock
or securities being called "Convertible Securities")
whether or not such Options or the right to convert
or exchange any such Convertible Securities are
immediately exercisable, and the price per share for
which Common Shares is issuable upon the exercise of
such Options or upon the conversion or exchange of
such Convertible Securities (determined by dividing
(i) the total amount, if any, received or receivable
by the Corporation as consideration for the granting
of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the
case of such Options which relate to Convertible
Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (ii) the total
maximum number of Common Shares issuable upon the
exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable
upon the exercise of such Options) shall be less than
the Conversion Price in effect immediately prior to
the time of the granting of such Options, then the
total maximum number of Common Shares issuable upon
the exercise of such Options or upon conversion or
exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of
such Options shall be deemed to have been issued for
such price per share as of the date of granting of
such Options or the issuance of such Convertible
Securities and thereafter shall be deemed to be
outstanding. Except as otherwise provided in
subparagraph 6D(3), no adjustment of the Conversion
Price shall be made upon the actual issue of such
Common Shares or of such Convertible Securities upon
exercise of such Options or upon the actual issue of
such Common Shares upon conversion or exchange of
such Convertible Securities.
6D(2) ISSUANCE OF CONVERTIBLE SECURITIES. In case the
Corporation shall in any manner issue (whether
directly or by assumption in a consolidation,
amalgamation, plan of arrangement or merger or
otherwise) or sell any Convertible Securities,
whether or not the rights to exchange or convert any
such Convertible Securities are immediately
exercisable, and the price per
<PAGE>
1(F)
share for which Common Shares is issuable upon such
conversion or exchange (determined by dividing (i)
the total amount received or receivable by the
Corporation as consideration for the issue or sale of
such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or
exchange thereof, by (ii) the total maximum number of
Common Shares issuable upon the conversion or
exchange of all such Convertible Securities) shall be
less than the Conversion Price in effect immediately
prior to the time of such issue or sale, then the
total maximum number of Common Shares issuable upon
conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for
such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter
shall be deemed to be outstanding, provided that (a)
except as otherwise provided in subparagraph 6D(3),
no adjustment of the Conversion Price shall be made
upon the actual issue of such Common Shares upon
conversion or exchange of such Convertible Securities
and (b) if any such issue or sale of such Convertible
Securities is made upon exercise of any Options to
purchase any such Convertible Securities for which
adjustments of the Conversion Price have been or are
to be made pursuant to other provisions of this
subparagraph 6D, no further adjustment of the
Conversion Price shall be made by reason of such
issue or sale.
6D(3) CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the
happening of any of the following events, namely, if
the purchase price provided for in any Option
referred to in subparagraph 6D(1), the additional
consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in
subparagraph 6D(1) or 6D(2), or the rate at which
Convertible Securities referred to in subparagraph
6D(1) or 6D(2) are convertible into or exchangeable
for Common Shares shall change at any time
(including, but not limited to, changes under or by
reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time
of such event shall forthwith be readjusted to the
Conversion Price which would have been in effect at
such time had such Options or Convertible Securities
still outstanding provided for such changed purchase
price, additional consideration or conversion rate,
as the case may be, at the time initially granted,
issued or sold, but only if as a result of such
adjustment the Conversion Price then in effect
hereunder is thereby reduced; and on the termination
of any such Option or any such right to convert or
exchange such Convertible Securities, the Conversion
Price then in effect hereunder shall forthwith be
increased to the Conversion Price which would have
been in effect at the time of such termination had
such Option or Convertible Securities, to the extent
outstanding immediately prior to such termination,
never been issued.
6D(4) STOCK DIVIDENDS. In case the Corporation shall
declare a dividend or make any other distribution
upon any stock of the Corporation (other than the
Common Shares) payable in Common Shares, Options or
Convertible
<PAGE>
1(G)
Securities, then any Common Shares, Options or
Convertible Securities, as the case may be, issuable
in payment of such dividend or distribution shall be
deemed to have been issued or sold without
consideration.
6D(5) CONSIDERATION FOR STOCK. In case any Common Shares,
Options or Convertible Securities shall be issued or
sold for cash, the consideration received therefor
shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of
any expenses incurred or any underwriting commissions
or concessions paid or allowed by the Corporation in
connection therewith. In case any Common Shares,
Options or Convertible Securities shall be issued or
sold for a consideration other than cash, the amount
of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the
Board of Directors of the Corporation, without
deduction of any expenses incurred or any
underwriting commissions or concessions paid or
allowed by the Corporation in connection therewith.
In case any Options shall be issued in connection
with the issue and sale of other securities of the
Corporation, together comprising one integral
transaction in which no specific consideration is
allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued for
such consideration as determined in good faith by the
Board of Directors of the Corporation.
6D(6) RECORD DATE. In case the Corporation shall take a
record of the holders of its Common Shares for the
purpose of entitling them (i) to receive a dividend
or other distribution payable in Common Shares,
Options or Convertible Securities or (ii) to
subscribe for or purchase Common Shares, Options or
Convertible Securities, then such record date shall
be deemed to be the date of the issue or sale of the
Common Shares deemed to have been issued or sold upon
the declaration of such dividend or the making of
such other distribution or the date of the granting
of such right of subscription or purchase, as the
case may be.
6D(7) TREASURY SHARES. The number of Common Shares
outstanding at any given time shall not include
shares owned or held by or for the account of the
Corporation, and the disposition of any such shares
shall be considered an issue or sale of Common Shares
for the purpose of this subparagraph 6D.
6E. CERTAIN ISSUES EXCEPTED. Anything herein to the contrary
notwithstanding, the Corporation shall not be required to make
any adjustment of the Conversion Price in the case of the
issuance from and after the date of filing of these terms of
the Class A Preferred Shares of (i) up to an aggregate of
1,146,248 Common Shares (appropriately adjusted to reflect the
occurrence of any event specified in paragraph 6F) or options
or rights to purchase same to directors, officers, employees
or consultants of the Corporation in connection with their
service as directors of the Corporation, their employment by
the Corporation or their retention as consultants by the
Corporation, plus such higher number of Common Shares (or
options or rights to
<PAGE>
1(H)
purchase same) to such individuals as may be approved by the
prior written consent of the holders of at least a majority in
interest of the Class A Preferred Shares provided that the
issuance of each such security has been approved by the Board
of Directors or its compensation committee (collectively, the
"Option Securities"); (ii) up to 249,306 Common Shares
(appropriately adjusted to reflect the occurrence of any event
specified in paragraph 6F) issued upon exercise of the options
granted pursuant to the Option Agreements dated as of November
3, 1997, between the Corporation and each of The VenGrowth
Investment Fund Inc., Brant Investments Ltd., c/o Account No.
9216007, Canada Trust in Trust for Account No. 058-106400-7,
James R. Bensman and Michael W. Slaunwhite (collectively,
"Special Options #1"); (iii) other than the making of the
adjustment of the Conversion Price contemplated by paragraph
6H, up to 202,442 Common Shares (appropriately adjusted to
reflect the occurrence of any event specified in paragraph 6F)
issued upon exercise of the options granted pursuant to the
separate Amended and Restated Option Agreements made as of
September 12, 1996 between the Corporation and each of The
VenGrowth Investment Fund Inc., Torbay & Co. Reference Account
5419-0908702, Carr & Co., Trinity Capital Securities Limited
and Canada Trust Co. Account 058-105-803-2-121E, 3076601
(collectively, "Special Options #2"); and (iv) Common Shares
upon the conversion of Class A Preferred Shares; provided that
if any of the Special Options #1 or Special Options #2 are
cancelled prior to the exercise thereof (the "Cancelled
Options"), then the number of Option Securities whose issuance
will not require any adjustment of the Conversion Price even
without the prior written consent of the holders of a majority
in interest of the Class A Preferred Shares shall forthwith
upon the cancellation of the Cancelled Options be
automatically increased by that number which equals the number
of Common Shares issuable upon exercise of the Cancelled
Options.
6F. SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by any stock split,
stock dividend or otherwise) its outstanding Common Shares
into a greater number of shares, the Conversion Price in
effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely, in case the
outstanding Common Shares shall be combined into a smaller
number of shares, the Conversion Price in effect immediately
prior to such combination shall be proportionately increased.
In the case of any such subdivision, no further adjustment
shall be made pursuant to subparagraph 6D(4) by reason
thereof.
6G. REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way that holders of
Common Shares shall be entitled to receive stock, securities
or assets with respect to or in exchange for Common Shares,
then, as a condition of such reorganization or
reclassification, lawful and adequate provisions shall be made
whereby each holder of a share or shares of Class A Preferred
Shares shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and
in lieu of the Common Shares immediately theretofore
receivable upon the conversion of such Class A Preferred
Shares, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number
of outstanding
<PAGE>
1(I)
Common Shares equal to the number of Common Shares immediately
theretofore receivable upon such conversion had such
reorganization or reclassification not taken place, and in any
such case appropriate provisions shall be made with respect to
the rights and interests of such holder to the end that the
provisions hereof (including without limitation provisions for
adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the
exercise of such conversion rights.
6H. ADJUSTMENT FOR ISSUANCE OF COMMON SHARES UPON EXERCISE OF
CERTAIN OPTIONS. If and whenever the Corporation shall issue,
or become obligated to issue, any Common Shares upon exercise
of the options granted pursuant to the separate Amended and
Restated Option Agreements made as of September 12, 1996
between the Corporation and each of The VenGrowth Investment
Fund Inc., Torbay & Co. Reference Account 5419-0908702, Carr &
Co., Trinity Capital Securities Limited and Canada Trust Co.
Account 058-105-803-2-121E, 3076601, then, immediately upon
such issuance, the Conversion Price shall be adjusted so that
immediately after such issuance the outstanding Class A
Preferred Shares shall continue to represent the same
percentage of the fully-diluted Common Shares of the
Corporation which such outstanding Class A Preferred Shares
represented immediately prior to such issuance (assuming for
such purposes full conversion of the Class A Preferred
Shares).
6I. NOTICE OF ADJUSTMENT. Upon any adjustment of the Conversion
Price, then and in each such case the Corporation shall give
written notice thereof, by delivery in person, certified or
registered mail, return receipt requested, or telecopier,
addressed to each holder of Class A Preferred Shares at the
address of such holder as shown on the books of the
Corporation, which notice shall state the Conversion Price
resulting from such adjustment, setting forth in reasonable
detail the method upon which such calculation is based.
6J. OTHER NOTICES. In case at any time:
(1) the Corporation shall declare any dividend upon its
Common Shares payable in cash or stock or make any
other distribution to the holders of its Common
Shares;
(2) the Corporation shall offer for subscription pro rata
to the holders of its Common Shares any additional
shares of stock of any class or other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the
Corporation, or a consolidation, amalgamation or
merger of the Corporation with or into another entity
or entities, or a sale, lease, abandonment, transfer
or other disposition of all or substantially all its
assets; or
(4) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the
Corporation;
<PAGE>
1(J)
then, in any one or more of said cases, the Corporation shall
give, by delivery in person, certified or registered mail,
return receipt requested, telecopier or addressed to each
holder of any Class A Preferred Shares at the address of such
holder as shown on the books of the Corporation, (a) at least
20 days' prior written notice of the date on which the books
of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger,
amalgamation, plan of arrangement, disposition, dissolution,
liquidation or winding up and (b) in the case of any such
reorganization, reclassification, consolidation, amalgamation,
plan of arrangement, merger, disposition, dissolution,
liquidation or winding up, at least 20 days' prior written
notice of the date when the same shall take place. Such notice
in accordance with the foregoing clause (a) shall also
specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common
Shares shall be entitled thereto and such notice in accordance
with the foregoing clause (b) shall also specify the date on
which the holders of Common Shares shall be entitled to
exchange their Common Shares for securities or other property
deliverable upon such reorganization, reclassification,
consolidation, amalgamation, merger, disposition, dissolution,
liquidation or winding up, as the case may be.
6K. STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized Common
Shares, solely for the purpose of issuance upon the conversion
of Class A Preferred Shares as herein provided, such number of
Common Shares as shall then be issuable upon the conversion of
all outstanding Class A Preferred Shares. The Corporation
covenants that all Common Shares which shall be so issued
shall be duly and validly issued and fully paid and
non-assessable and free from all taxes, liens and charges with
respect to the issue thereof. The Corporation will take all
such action as may be necessary to assure that all such Common
Shares may be so issued without violation of any applicable
law or regulation, or of any requirement of any national
securities or other exchange upon which the Common Shares may
be listed. The Corporation will not take any action which
results in any adjustment of the Conversion Price if the total
number of Common Shares issued and issuable after such action
upon conversion of the Class A Preferred Shares would exceed
the total number of shares of Common Stock then authorized by
the Articles.
6L. NO REISSUANCE OF CLASS A PREFERRED SHARES. Class A Preferred
Shares which are converted into Common Shares as provided
herein shall not be reissued.
6M. ISSUE TAX. The issuance of certificates for Common Shares upon
conversion of Class A Preferred Shares shall be made without
charge to the holders thereof for any issuance tax in respect
thereof, provided that the Corporation shall not be required
to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Class A Preferred
Shares which is being converted.
6N. CLOSING OF BOOKS. The Corporation will at no time close its
transfer books against the transfer of any Class A Preferred
Shares or of any Common Shares issued or issuable upon the
conversion of any Class A Preferred Shares in any manner which
<PAGE>
1(K)
interferes with the timely conversion of such Class A
Preferred Shares, except as may otherwise be required to
comply with applicable securities laws.
6O. DEFINITION OF COMMON SHARES. As used in this paragraph 6, the
term "Common Shares" shall mean and include the Corporation's
authorized Common Shares, as constituted on the date of filing
of these terms of the Class A Preferred Shares, and shall also
include any capital stock of any class of the Corporation
thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of
assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that
the Common Shares receivable upon conversion of shares of
Class A Preferred Shares shall include only shares designated
as Common Shares of the Corporation on the date of filing of
this instrument, or in case of any reorganization or
reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in subparagraph 6G.
6P. MANDATORY CONVERSION. If at any time the Corporation shall
effect a firm commitment underwritten public offering in the
United States of Common Shares in which (i) the aggregate
price paid to the Corporation for such shares by the public
shall be at least U.S.$20.0 million and (ii) the price paid by
the public for such shares shall be at least three times the
Conversion Price per share (appropriately adjusted to reflect
the occurrence of any event described in paragraph 6F), then
effective upon the closing of the sale of such shares by the
Corporation pursuant to such public offering, all outstanding
Class A Preferred Shares shall automatically convert to Common
Shares on the basis set forth in this paragraph 6. Holders of
Class A Preferred Shares so converted may deliver to the
Corporation at its principal office (or such other office or
agency of the Corporation as the Corporation may designate by
notice in writing to such holders) during its usual business
hours, the certificate or certificates for the shares so
converted. As promptly as practicable thereafter, the
Corporation shall issue and deliver to such holder a
certificate or certificates for the number of whole Common
Shares to which such holder is entitled, together with any
cash dividends and payment in lieu of fractional shares to
which such holder may be entitled pursuant to subparagraph 6C.
Until such time as a holder of Class A Preferred Shares shall
surrender his or its certificates therefor as provided above,
such certificates shall be deemed to represent the Common
Shares to which such holder shall be entitled upon the
surrender thereof.
7. REDEMPTION. The Class A Preferred Shares shall be redeemed as follows:
7A. MANDATORY REDEMPTION. Upon receipt by the Corporation, at any
time on or after September 1, 2004, of notice in writing from
the holders of at least a majority of the then outstanding
Class A Preferred Shares requesting redemption of the Class A
Preferred Shares, the Corporation shall redeem from each
holder of Class A Preferred Shares, all of the Class A
Preferred Shares held by such holder on a date no more than
forty-five (45) days after the date on which the Corporation
has received such redemption request (the "Redemption Date").
<PAGE>
1(L)
7B. REDEMPTION PRICE AND PAYMENT. The Class A Preferred Shares to
be redeemed on the Redemption Date shall be redeemed by paying
for each share in cash an amount equal to the greater of (i)
the Liquidation Preference Payment as set forth in paragraph 4
hereof or (ii) the fair market value of the Class A Preferred
Share as of the Redemption Date, such amount being referred to
as the "Redemption Price". Such payment shall be made in full
on the Redemption Date to the holders entitled thereto. For
the purposes hereof, the term "fair market value of the Class
A Preferred Share" shall mean the fair value of the
Corporation attributable to the Class A Preferred Shares, as
determined by a recognized firm of investment dealers or
investment bankers nationally recognized in the United States
or Canada (selected by the Corporation) in accordance with
generally accepted valuation principles then in effect, as at
the end of the most recent fiscal quarter of the Corporation,
provided that in making such determination, no provision shall
be made for either a control premium or a minority discount.
7C. REDEMPTION MECHANICS. At least 20 but not more than 30 days
prior to the Redemption Date, written notice (the "Redemption
Notice") shall be given by the Corporation by delivery in
person, certified or registered mail, return receipt
requested, telecopier or telex, to each holder of record (at
the close of business on the business day next preceding the
day on which the Redemption Notice is given) of Class A
Preferred Shares notifying such holder of the redemption and
specifying the Redemption Price, the Redemption Date and the
place where said Redemption Price shall be payable. The
Redemption Notice shall be addressed to each holder at his
address as shown by the records of the Corporation. From and
after the close of business on the Redemption Date, unless
there shall have been a default in the payment of the
Redemption Price, all rights of holders of Class A Preferred
Shares (except the right to receive the Redemption Price)
shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the Corporation
or be deemed to be outstanding for any purpose whatsoever. If
the funds of the Corporation legally available for redemption
of Class A Preferred Shares on the Redemption Date are
insufficient to redeem the total number of outstanding Class A
Preferred Shares, the holders of Class A Preferred A Shares
shall share ratably in any funds legally available for
redemption of such shares according to the respective amounts
which would be payable with respect to the full number of
shares owned by them if all such outstanding shares were
redeemed in full. The Class A Preferred Shares not redeemed
shall remain outstanding and entitled to all rights and
preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for
the redemption of such Class A Preferred Shares, such funds
will be used, at the end of the next succeeding fiscal
quarter, to redeem the balance of such shares, or such portion
thereof for which funds are then legally available, on the
basis set forth above.
7D. REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any Class
A Preferred Shares redeemed pursuant to this paragraph 7 or
otherwise acquired by the Corporation in any manner whatsoever
shall be cancelled and shall not under any circumstances be
reissued; and the Corporation may from time to time take such
appropriate corporate action as may be necessary to reduce
accordingly the number of authorized Class A Preferred Shares.
<PAGE>
1(M)
7E. NO OTHER REDEMPTIONS. The Corporation shall not redeem,
repurchase or otherwise acquire any shares of its capital
stock until the Class A Preferred Shares have been redeemed in
full pursuant to these Articles unless each holder of the
Class A Preferred Shares consents in writing prior to such
redemption, repurchase or other acquisition.
7F. PURCHASE BY RELATED PARTY. Notwithstanding any provision of
this paragraph 7, but subject to applicable law, in lieu of
redeeming the Class A Preferred Shares, (i) the Corporation
shall be entitled to cause any of its related or affiliated
entities which is a "taxable Canadian corporation" as defined
in the Income Tax Act (Canada) to purchase such Class A
Preferred Shares from the holders thereof on the Redemption
Date unless such purchase of Class A Preferred Shares would
have negative tax consequences to the holder thereof that are
materially greater than the tax consequences to such holder
arising out of the redemption of such Class A Preferred Shares
and (ii) any holder of a Class A Preferred Share shall be
entitled to require the Corporation to cause any of its
related or affiliated entities to purchase any or all of such
holder's Class A Preferred Shares from it on the Redemption
Date and, in each such case, the purchaser thereof shall, and
the Corporation shall cause such purchaser to pay to such
holders the Redemption Price in accordance with the provisions
hereof, and upon the completion of such purchase by such
subsidiary or affiliated entity, the Corporation shall be
relieved from any obligation to redeem the Class A Preferred
Shares so purchased. If any holder of a Class A Preferred
Share requires the Corporation to cause any of its related or
affiliated entities to purchase such holder's Class A
Preferred Shares pursuant to clause (ii) of this subparagraph
7F and the Corporation fails to do so, the Corporation shall
indemnify such holder and hold such holder harmless from and
against any resulting tax liability.
8. AMENDMENTS. No provision of these terms of the Class A Preferred Shares
may be amended (whether by merger, consolidation, amalgamation or otherwise),
modified or waived without the written consent or affirmative vote of the
holders of at least two-thirds of the then outstanding Class A Preferred Shares.
<PAGE>
5. The amendment has been duly authorized as required by Sections
168 & 170 (as applicable) of the Business Corporations Act.
LA MODIFICATION A ETE DUMENT AUTORISEE CONFORMEMENT AUX
ARTICLES 168 ET 170 (SELON LE CAS) DE LA LOI SUR LES SOCIETES
PAR ACTIONS.
6. The resolution authorizing the amendment was approved by the
shareholders/directors (as applicable) of the corporation on
LES ACTIONNAIRES OU LES ADMINISTRATEURS (SELON LE CAS) DE LA
SOCIETE ONT APPROUVE LA RESOLUTION AUTORISANT LA MODIFICATION
LE
08 - OCTOBER - 1999
-----------------------------------------------------------------------
(Day, Month, Year)
(JOUR, MOIS, ANNEE)
These articles are signed in duplicate.
LES PRESENTS STATUTS SONT SIGNES EN DOUBLE EXEMPLAIRE.
CHANGEPOINT CORPORATION
-----------------------------------------
(Name of Corporation)
(DENOMINATION SOCIALE DE LA SOCIETE)
By:/PAR: /s/ Gerry Smith
--------------------------------------
(Signature) (Description of Office)
(SIGNATURE) (FONCTION)
GERRY SMITH PRESIDENT
<PAGE>
BY-LAW NO.1
A by-law relating generally to the conduct
of the business and affairs of
ALLAN FOSTER MANAGEMENT LIMITED
(herein called the "Corporation")
CONTENTS
1. Interpretation 8. Dividends
2. Directors 9. Financial Year
3. Meetings of Directors 10. Notices
4. Remuneration and Indemnification 11. Execution of Documents
5. Officers 12. Effective Date
6. Meetings of Shareholders
7. Shares
BE IT ENACTED as a by-law of the Corporation as follows:
1. INTERPRETATION
1.01 In this by-law and all other by-laws and resolutions of the
Corporation, unless the context otherwise requires:
(a) "Act" means the Business Corporations Act, 1982, and includes
the Regulations made pursuant thereto;
(b) "articles" means the articles of incorporation of the
Corporation as amended from time to time;
(c) "board" means the board of directors of the Corporation;
(d) "by-laws" means all by-laws, including special by-laws, of the
Corporation as amended from time to time;
(e) "Corporation" means this Corporation;
<PAGE>
(f) "person" includes an individual, sole proprietorship,
partnership, unincorporated association, unincorporated
syndicate, unincorporated organization, trust, body corporate,
and a natural person in his capacity as trustee, executor,
administrator, or other legal representative;
1.02 In this by-law where the context requires words importing the
singular include the plural and vice versa and words importing gender include
the masculine, feminine and neuter genders.
1.03 All the words and terms appearing in this by-law shall have
the same definitions and application as in the Act.
2. DIRECTORS
2.01 POWERS - Subject to any unanimous shareholders' agreement,
the business and affairs of the Corporation shall be managed or supervised by
a board of directors being composed of:
A variable board of not fewer than one and not more than five
directors.
2.02 RESIDENT CANADIANS - Except where the Corporation is a
non-resident Corporation, a majority of the directors shall be resident
Canadians but where the Corporation has only one or two directors, one
director shall be a resident Canadian.
2.03 QUALIFICATIONS - Any individual may be a director of the
Corporation except:
(i) A person who is less than eighteen years of age.
(ii) A person who is of unsound mind and has been so found by a court;
(iii) A person who has the status of a bankrupt.
<PAGE>
2.04 ELECTION AND TERM - The election of directors shall take
place at the first meeting of shareholders and at each succeeding annual
meeting at which an election of directors is required. The directors shall
hold office for an expressly stated term which shall expire not later than
the close of the third annual meeting of shareholders following the election.
A director not elected for an expressly stated term ceases to hold office at
the close of the first annual meeting of shareholders following his election.
Incumbent directors, if qualified, shall be eligible for re-election. If an
election of directors is not held at the proper time the directors shall
continue in office until their successors are elected.
2.05 Resignation - A director who is not named in the articles may
resign from office upon giving a written resignation to the Corporation and
such resignation becomes effective when received by the Corporation or at the
time specified in the resignation, whichever is later. A director named in
the articles shall not be permitted to resign his office unless at the time
the resignation is to become effective a successor is elected or appointed.
2.06 REMOVAL - Subject to clause (f) of section 120 of the Act,
the shareholders may, by ordinary resolution at an annual or special meeting
remove any director or directors from office before the expiration of his
term and may, by a majority of the votes cast at the meeting, elect any
person in his place for the remainder of his term.
<PAGE>
2.07 VACATION OF OFFICE - A director ceases to hold office when he
dies, resigns, is removed from office by the shareholders, or ceases to have
the necessary qualifications.
2.08 VACANCIES - Subject to the exceptions in section 124 of the Act,
where a vacancy occurs on the board, a quorum of the directors then in office
may appoint a person to fill the vacancy for the remainder of the term. If
there is not a quorum of directors or if there has been a failure to elect
the number of directors required by the articles or in the case of a variable
board as required by special resolution, the directors then in office shall
forthwith call a special meeting of shareholders to fill the vacancy and, if
they fail to call a meeting or if there are no directors then in office, the
meeting may be called by any shareholder.
3. MEETINGS OF DIRECTORS
3.01 PLACE OF MEETINGS - Meetings of the board may be held at the
registered office of the Corporation or at any other place within or outside
of Ontario but, except where the Corporation is a non-resident corporation,
or the articles or by-laws otherwise provide, in any financial year of the
Corporation a majority of the meetings of the board shall be held at a place
within Canada.
3.02 MEETINGS BY TELEPHONE - Where all the directors present at or
participating in the meeting have consented thereto, any director may
participate in a meeting of the board by means of conference telephone,
<PAGE>
electronic or other communication facilities as permit all persons
participating in the meeting to communicate with each other simultaneously
and instantaneously and a director participating in such a meeting by such
means is deemed for the purposes of the Act and these by-laws to be present
at the meeting. If a majority of the directors participating in such a
meeting are then in Canada the meeting shall be deemed to have been held in
Canada.
3.03 CALLING OF MEETINGS - Meetings of the board shall be held from
time to time at such place, at such time and on such day as the president or
a vice-president who is a director or any two directors may determine, and
the secretary shall call meetings when directed or authorized by the
president or by a vice-president who is a director or by any two directors.
Notice of every meeting so called shall be given to each director not less
than 48 hours (excluding any part of a Sunday and of a holiday as defined by
the Interpretation Act) before the time when the meeting is to be held,
except that no notice of meeting shall be necessary if all the directors are
present or if those absent have waived notice of or otherwise signified their
consent to the holding of such meeting. A notice of a meeting of directors
need not specify the purpose of or the business to be transacted at the
meeting except where the Act requires such purpose or business to be
specified.
3.04 REGULAR MEETINGS - The board may appoint a day or days in any
month or months for regular meetings at a place and hour to be named. A copy
of any resolution of the board fixing the place and time of regular meetings
of the board shall be sent to each director forthwith after being passed, but
no other notice shall be required for any such regular meetings.
<PAGE>
3.05 FIRST MEETING OF NEW BOARD - Each newly elected board may without
notice hold its first meeting for the purpose of organization and the
election and appointment of officers immediately following a meeting of
shareholders at which such board is elected, provided that a quorum of
cirectors is present.
3.06 QUORUM - Where the Corporation has only one director, that
director may constitute a quorum for the transaction of business at any
meeting of the board. Where the Corporation has two directors both directors
of the Corporation must be present at any meeting of the board to constitute
a quorum. Subject to the articles or by-laws of the Corporation a majority of
the number of directors or minimum number of directors required by the
articles constitutes a quorum at any meeting of directors but in no case
shall a quorum be less than two-fifths of the number of directors or less
than the minimum number of directors, as the case may be.
3.07 RESIDENT CANADIANS - Directors shall not transact business at a
meeting of the board unless a majority of the directors present are resident
Canadians. However, directors may transact business at a meeting of the
board where a majority of resident Canadian directors is not present if,
(a) a resident Canadian director who is unable to be present approves
in writing or by telephone or other communications facilities the
business transacted at the meeting, and
(b) a majority of resident Canadian directors would have been present
had the director been present at the meeting.
3.08 CHAIRMAN - The Chairman of any meeting of the board shall be the
first mentioned of such of the following officers as have been appointed
<PAGE>
-7-
and who is a director and is present at the meeting:
Chairman of the Board,
President, or
A Vice-President who is a director.
If not such officer is present, the directors present shall
choose one of their number to be Chairman.
3.09 VOTES TO GOVERN - At all meetings of the board,
every question shall be decided by a majority of the votes
cast on the question.
3.10 CASTING VOTE - In the case of an equality of votes on
Complete any question at a meeting of the board, the Chairman of the
accordingly. meeting shall be entitled to a second or casting vote.
3.11 DISCLOSURE OF INTERESTS IN CONTRACTS - Every
director or officer of the Corporation who is a party to a
material contract or proposed material contract with the
Corporation, or is a director or officer or has a material
interest in any corporation which is a party to a material
contract or proposed material contract with the Corporation
shall disclose in writing to the Corporation or request to
have entered in the minutes of the meeting of directors the
nature and extent of his interest as required by section 132
of the Act.
3.12 RESOLUTION IN LIEU OF MEETING - A resolution in
writing, signed by all the directors entitled to vote on that
resolution at a meeting of directors or committee of
directors, is as valid as if it had been passed at a meeting
of directors or committee of directors. A copy of every such
resolution shall be kept with the minutes of the proceedings
of the directors
<PAGE>
-8-
or committee of directors.
3.13 DELEGATION - Directors may appoint from their number a managing
director who is a resident Canadian or a committee of directors and delegate
to such managing director or committee any of the powers of the directors. If
the directors appoint a committee of directors, a majority of the members of
the committee must be resident Canadians. Unless otherwise determined by the
board, each committee shall have the power to fix its quorum at not less than
a majority of its members, to elect its chairman and to regulate its
procedure.
4. REMUNERATION AND INDEMNIFICATION
4.01 REMUNERATION - Subject to the articles, the by-laws or any
Unanimous Shareholders' Agreement, the board may fix the remuneration of the
directors. Such remuneration shall be in addition to any salary or
professional fees payable to a director who serves the Corporation in any
other capacity. In addition, directors shall be paid such sums in respect of
their out-of-pocket expenses incurred in attending board, committee or
shareholders' meetings or otherwise in respect of the performance by them of
their duties as the board may from time to time determine.
4.02 LIMITATION OF LIABILITY - No director or officer shall be
liable for the acts, receipts, neglects or defaults of any other director or
officer or employee, or for joining in any receipt or other act for
conformity, or for any loss, damage or expense happening to the Corporation
through the
<PAGE>
-9-
insufficiency or deficiency of title to any property acquired for or on
behalf of the Corporation, or for the insufficiency or deficiency of any
security in or upon which any of the monies of the Corporation shall be
invested, or for any loss or damage arising from the bankruptcy, insolvency
or tortious acts of any person with whom any of the monies, securities or
effects of the Corporation shall be deposited, or for any loss occasioned by
any error of judgment or oversight on his part, or for any other loss, damage
or misfortune whatever which shall happen in the execution of the duties of
his office or in relation thereto, unless the same are occasioned by his own
willful neglect or default; provided that nothing herein shall relieve any
director or officer from the duty to act in accordance with the Act or from
liability for any breach thereof.
4.03 INDEMNITY OF DIRECTORS AND OFFICERS - Except as provided in
section 136 of the Act, every director and officer of the Corporation, every
former director or officer of the Corporation or a person who acts or acted
at the Corporation's request as a director or officer of a body corporate of
which the Corporation is or was a shareholder or creditor, and his heirs and
legal representatives shall, from time to time, be indemnified and saved
harmless by the Corporation from and against all costs, charges and expenses,
including an amount paid to settle an action or satisfy a judgment,
reasonably incurred by him in respect to 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 such corporation or body
corporate if,
(a) he acted honestly and in good faith with a view to the best
interests of the Corporation; and
<PAGE>
-10-
(b) in the case of a criminal or administrative action
or proceeding that is enforced by a monetary penalty,
he had reasonable grounds for believing that his
conduct was lawful.
4.04 INSURANCE - Subject to the limitations contained in
the Act, the Corporation may purchase and maintain such insurance
for the benefit of its directors and officers as such, as the board may from
time to time determine.
5. OFFICERS
5.01 ELECTION OR APPOINTMENT - At the first meeting of the board after
each election of directors, the board shall elect or appoint a president, and
a secretary and if deemed advisable may appoint one or more vice-presidents,
a general manager, a treasurer and such other officers as the board may
determine including one or more assistants to any of the officers so
appointed. Any two of the said offices may be held by the same person. If
the same person holds the office of secretary and treasurer, he may, but need
not, be known as the secretary-treasurer.
5.02 TERM, REMUNERATION AND REMOVAL - The terms of employment and
remuneration of all officers elected or appointed by the board (including the
president) shall be determined from time to time by resolution of the board.
The fact that any officer or employee is a director or shareholder of the
Corporation shall not disqualify him from receiving such remuneration as may
be determined. All officers, in the absence of agreement to the
<PAGE>
-11-
contrary, shall be subject to removal by resolution of the board at any time
with or without cause.
5.03 PRESIDENT - The president shall be the chief executive officer of
the Corporation. He shall, if present, preside at all meetings of the
shareholders and of the directors and shall be charged with the general
supervision of the business and affairs of the Corporation except the power
to do anything referred to in sub-section 127(3) of the Act. Except when the
board has appointed a general manager or managing director, the president
shall also have the powers and be charged with the duties of that office
except the power to do anything referred to in sub-section 127(3) of the Act.
5.04 VICE-PRESIDENT - The vice-president, or if there are more than one,
the vice-presidents in order of seniority (as determined by the board) shall
be vested with all the powers and shall perform all the duties of the
president in the absence or disability or refusal to act of the president,
except that he shall not preside at meetings of the directors or shareholders
unless he is qualified to attend meetings of directors or shareholders as the
case may be. If a vice-president exercises any such duty or power, the
absence or inability of the president shall be presumed with reference
thereto. A vice-president shall also perform such duties and exercise such
powers as the president may from time to time delegate to him or the board
may prescribe.
<PAGE>
-12-
5.05 GENERAL MANAGER - The general manager, if one is appointed, shall
have the general management and direction, subject to the authority of the
board and the supervision of the president, of the Corporation's business and
affairs and the power to appoint and remove any and all officers, employees
and agents of the Corporation not elected or appointed directly by the board
and to settle the terms of their employment and remuneration but shall not
have the power to do any of the things set forth in sub-section 127(3) of the
Act. If and so long as the general manager is a director, he may but need not
be known as the managing director.
5.06 SECRETARY - The secretary shall attend all meetings of the
directors, shareholders and committees of the board and shall enter or cause
to be entered in books kept for that purpose minutes of all proceedings at
such meetings; he shall give, or cause to be given, when instructed, notices
required to be given to shareholders, directors, auditors and members of
committees; he shall be the custodian of the stamp or mechanical device
generally used for affixing the corporate seal of the Corporation and of all
books, papers, records, documents and other instruments belonging to the
Corporation; and he shall perform such other duties as may from time to time
be prescribed by the board.
5.07 TREASURER - The treasurer shall keep, or cause to be kept proper
accounting records as required by the Act; he shall deposit or cause to be
deposited all monies received by the Corporation in the Corporation's bank
account; he shall, under the direction of the board, supervise the
<PAGE>
-13-
safekeeping of securities and the disbursement of the funds of the
Corporation; he shall render to the board, whenever required, an account of
all his transactions as treasurer and of the financial position of the
Corporation; and he shall perform such other duties as may from time to time
be prescribed by the board.
5.08 OTHER OFFICERS - The duties of all other officers of the
Corporation shall be such as the terms of their engagement call for or the
board requires of them. Any of the powers and duties of an officer to whom
an assistant has been appointed may be exercised and performed by such
assistant, unless the board otherwise directs.
5.09 VARIATION OF DUTIES - From time to time the board may vary,
add to or limit the powers and duties of any officer or officers, but shall
not delegate to any officer any of the powers set forth in sub-section 127(3)
of the Act.
5.10 AGENTS AND ATTORNEYS - The board shall have power from time
to time to appoint agents or attorneys for the Corporation in or out of
Ontario with such powers of management or otherwise (including the power to
sub-delegate) as may be thought fit.
5.11 FIDELITY BONDS - The board may require such officers,
employees and agents of the Corporation as it deems advisable to furnish
bonds for the faithful performance of their duties, in such form and with
such surety as the board may from time to time prescribe.
<PAGE>
-14-
6. MEETINGS OF SHAREHOLDERS
6.01 ANNUAL MEETINGS - The directors shall call the first annual
meeting of shareholders not later than eighteen months after the Corporation
comes into existence and subsequently not later than fifteen months after
holding the last preceding annual meeting. The annual meeting of shareholders
of the Corporation shall be held at such time and on such day in each year as
the board may from time to time determine, for the purpose of receiving the
reports and statements required by the Act to be laid before the annual
meeting, electing directors, appointing auditors and fixing or authorizing
the board to fix their remuneration, and for the transaction of such other
business as may properly be brought before the meeting.
6.02 SPECIAL MEETINGS - The board may at any time call a special
meeting of shareholders for the transaction of any business which may
properly be brought before such meeting of shareholders. All business
transacted at an annual meeting of shareholders, except consideration of the
financial statements, auditor's report, election of directors and
reappointment of the incumbent auditor, is deemed to be special business.
6.03 PLACE OF MEETINGS - Meetings of shareholders shall be held at
the registered office of the Corporation, or at such other place within or
outside of Ontario as the board from time to time determines.
6.04 NOTICE OF MEETINGS - Notice of the time and place of each
meeting of shareholders shall be sent not less than 10 days and not more
<PAGE>
-15-
than 50 days before the date of the meeting to the auditor of the
Corporation, to each director, and to each person whose name appears on the
records of the Corporation at the close of business on the day next preceding
the giving of the notice as a shareholder entitled to vote at the meeting.
Notice of a special meeting of shareholders shall state:
(a) the nature of the business to be transacted at the meeting in
sufficient detail to permit the shareholders to form a reasoned
judgment thereon; and
(b) the text of any special resolution or by-law to be submitted
to the meeting.
6.05 PERSONS ENTITLED TO BE PRESENT - The only persons entitled to
attend a meeting of shareholders shall be those entitled to vote thereat, the
directors and the auditor of the Corporation and others who although not
entitled to vote are entitled or required under any provision of the Act or
by-laws of the Corporation to be present at the meeting. Any other persons
may be admitted only on the invitation of the chairman of the meeting or with
the consent of the meeting.
6.06 QUORUM - The holders of a majority of the shares entitled to
vote at a meeting of shareholders present in person or by proxy constitutes a
quorum for the transaction of business at any meeting of shareholders.
6.07 ONE SHAREHOLDER MEETING - If the Corporation has only one
shareholder, or only one holder of any class or series of shares, the
shareholder present in person or by proxy constitutes a meeting.
<PAGE>
-16-
6.08 RIGHT TO VOTE - At any meeting of shareholders, unless the
articles otherwise provide, each share of the Corporation entitles the holder
thereof to one vote at a meeting of shareholders.
6.09 JOINT SHAREHOLDERS - Where two or more persons hold the same
share or shares jointly, any one of such persons present at a meeting of
shareholders may in the absence of the others vote the shares but, if two or
more of such persons who are present in person or by proxy, vote, they shall
vote as one on the shares jointly held by them.
6.10 PROXIES - Every shareholder entitled to vote at a meeting of
shareholders may be means of a proxy appoint a proxy holder or one or more
alternate proxy holders who are not required to be shareholders to attend and
act at the meeting in the manner and to the extent authorized by the proxy
and with the authority conferred by the proxy. A proxy shall be in writing
and executed by the shareholder or by his attorney authorized in writing.
Subject to the requirements of the Act the instrument may be in such form as
the directors from time to time prescribe or in such other form as the
chairman of the meeting may accept as sufficient. It shall be deposited with
the Corporation before any vote is taken under its authority, or at such
earlier time and in such manner as the board by resolution prescribes.
6.11 SCRUTINEERS - At each meeting of shareholders one or more
scrutineers may be appointed by a resolution of the meeting or by the
chairman with the consent of the meeting to serve at the meeting. Such
<PAGE>
-17-
scrutineers need not be shareholders of the Corporation.
6.12 VOTES TO GOVERN - Unless otherwise required by the Act, or
the articles or by-laws of the Corporation, all questions proposed for the
consideration of the shareholders at a meeting shall be decided by a majority
of the votes cast thereon.
6.13 SHOW OF HANDS - At all meetings of shareholders every
question shall be decided by a show of hands unless a ballot thereon be
required by the chairman or be demanded by a shareholder or proxyholder
present and entitled to vote. Upon a show of hands every person present and
entitled to vote, has one vote regardless of the number of shares he
represents. After a show of hands has been taken upon any question, the
chairman may require or any shareholder or proxyholder present and entitled
to vote may demand a ballot thereon. Whenever a vote by show of hands shall
have been taken upon a question, unless a ballot thereon be so required or
demanded, a declaration by the chairman that the vote upon the question has
been carried or carried by a particular majority or not carried and an entry
to that effect in the minutes of the meeting shall be prima facie evidence of
the fact without proof of the number or proportion of the votes recorded in
favour of or against the question. The result of the vote so taken and
declared shall be the decision of the Corporation on the question. A demand
for a ballot may be withdrawn at any time prior to the taking of the ballot.
6.14 BALLOTS - If a ballot is required by the chairman of the
meeting or is demanded and the demand is not withdrawn, a ballot upon the
<PAGE>
-18-
question shall be taken in such manner as the chairman of the meeting directs.
6.15 ADJOURNMENT - The chairman of a meeting of shareholders may,
with the consent of the meeting and subject to such conditions as the meeting
may decide, adjourn the meeting from time to time and from place to place.
7. SHARES
7.01 ALLOTMENT - Subject to any Unanimous Shareholders' Agreement,
the board may from time to time issue or grant options to purchase the whole
or any part of the authorized and unissued shares of the Corporation at such
time and to such persons and for such consideration as the board shall
determine, provided that no share shall be issued until it is fully paid as
prescribed by the Act.
7.02 LIEN FOR INDEBTEDNESS - Subject to the Act, the Corporation
has a lien on shares registered in the name of a shareholder or his legal
representative for any debt of the shareholder to the Corporation. The
Corporation may enforce the lien by:
(i) in the case of redeemable shares, redeeming the shares at
their redemption price; and
(ii) in the case of all other shares by purchasing such shares at
their book value for cancellation or for re-sale;
and by applying the value of such shares so determined to the debt of the
shareholder. In enforcing the lien as aforesaid the Corporation shall not be
obliged to redeem or purchase all of the shares of that class but only
<PAGE>
the shares subject to the lien. In electing to enforce the lien in this manner
the Corporation shall not prejudice or surrender any other rights of enforcement
of the lien which may in law be available to it or any other remedy available to
the Corporation for collection of the debt or any part thereof.
7.03 SHARE CERTIFICATES - Every holder of one or more shares of the
Corporation is entitled, at his option, to a share certificate, or to a
non-transferable written acknowledgment of his right to obtain a share
certificate, stating the number and class or a series of shares held by him as
shown on the records of the Corporation. Share certificates and acknowledgments
of a shareholder's right to a share certificate shall be in such form as the
board shall from time to time approve. The share certificate shall be signed
manually by at least one director or officer of the Corporation or by or on
behalf of the registrar or transfer agent and any additional signatures required
on the share certificate may be printed or otherwise mechanically reproduced
thereon.
7.04 REPLACEMENT OF SHARE CERTIFICATES - The directors may by
resolution prescribe, either generally or in a particular case, the conditions
upon which a new share certificate may be issued to replace a share certificate
which has been defaced, lost, stolen or destroyed.
7.05 TRANSFER AGENT AND REGISTRAR - The board may from time to time
appoint a registrar to maintain the securities register and a transfer agent to
maintain the register of transfers and may also appoint one or
<PAGE>
more branch registrars to maintain branch security registers and one or more
branch transfer agents to maintain branch registers of transfers, but one person
may be appointed both registrar and transfer agent. The board may at any time
terminate any such appointment.
7.06 JOINT SHAREHOLDERS - If two or more persons are registered as
joint holders of any share, the Corporation shall not be bound to issue more
than one certificate in respect thereof, and delivery of such certificate to one
of such persons shall be sufficient delivery to all of them. Any one of such
persons may give effectual receipts for the certificate issued in respect
thereof or for any dividends, bonus, return of capital or other money payable or
warrant issuable in respect of such share.
8. DIVIDENDS
8.01 DECLARATION - Subject to the Act and the articles, the board may
declare and the Corporation may pay a dividend to the shareholders according to
their respective rights in the Corporation. Such a dividend may be paid by
issuing fully paid shares of the Corporation or options or rights to acquire
fully paid shares of the Corporation or may be paid in money or property.
8.02 PAYMENT - A dividend payable in cash shall be paid by cheque
drawn on the Corporation's bankers or one of them to the order of each
registered holder of shares of the class in respect of which it has been
declared, and mailed by ordinary mail postage prepaid to such registered
<PAGE>
holder at his last address appearing on the records of the Corporation. In
the case of joint holders the cheque shall, unless such joint holders
otherwise direct, be made payable to the order of all of such joint holders
and if more than one address appears on the books of the Corporation in
respect of such joint holding the cheque shall be mailed to the first address
so appearing. The mailing of such cheque as aforesaid shall satisfy and
discharge all liability for the dividend to the extent of the sum represented
thereby, unless such cheque be not paid on presentation.
8.03 NON-RECEIPT OF CHEQUE - In the event of the non-receipt of any
cheque for a dividend by the person to whom it is so sent as aforesaid, the
Corporation on proof of such non-receipt and upon satisfactory indemnity being
given to it shall issue to such person a replacement cheque for a like amount.
8.04 PURCHASE OF BUSINESS AS OF PAST DATE - Where any business is
purchased by the Corporation as from a past date (whether such date be before
or after the incorporation of the Corporation) upon terms that the
Corporation shall as from that date take the profits and bear the losses of
the business, such profits or losses as the case may be shall, at the
discretion of the directors be credited or debited wholly or in part to
revenue account, and in that case the amount so credited or debited shall,
for the purpose of ascertaining the fund available for dividends, be treated
as a profit or loss arising from the business of the Corporation.
<PAGE>
-22-
9. FINANCIAL YEAR
9.01 FINANCIAL YEAR - The financial or fiscal year of the
Corporation shall end on the 31st day of July in each year.
10. NOTICES
10.01 METHOD OF GIVING NOTICE - Any notice, communication or other
document to be given by the Corporation to a shareholder, director, officer,
or auditor of the Corporation under any provision of the Act, the articles or
by-laws shall be sufficiently given if delivered personally to the person to
whom it is to be given, or if delivered to his recorded address or if mailed
to him at his recorded address by prepaid ordinary mail or if sent to him at
his recorded address by any means of any prepaid transmitted or recorded
communication. A notice so delivered shall be deemed to have been given when
it is delivered personally or delivered to the recorded address as aforesaid;
a notice so mailed shall be deemed to have been given when deposited in a
post office or public letter box and shall be deemed to have been received on
the fourth day after so depositing; and a notice so sent by any means of
transmitted or recorded communication shall be deemed to have been received
on the fifth day after so depositing; appropriate communication company or
agency or its representative for dispatch. The secretary may change or cause
to be changed the recorded address of any shareholder, director, officer or
auditor of the Corporation in accordance with any information believed by him
to be reliable. The recorded address of a director shall be his latest
address as shown in the
<PAGE>
-23-
records of the Corporation or in the most recent notice filed under the
Corporations Information Act, whichever is the more current.
10.02 COMPUTATION OF TIME - In computing the date when notice must
be given under any provision of the articles or by-laws requiring a specified
number of days' notice of any meeting or other event, the date of giving the
notice shall, unless otherwise provided, be included.
10.03 OMISSIONS AND ERRORS - The accidental omission to give any
notice to any shareholder, director, officer, or auditor, or the non-receipt
of any notice by any shareholder, director, officer, or auditor or any error
in any notice not affecting the substance thereof shall not invalidate any
action taken at any meeting held pursuant to such notice or otherwise founded
thereon.
10.04 NOTICE TO JOINT SHAREHOLDERS - All notices with respect to
any shares registered in more than one name may if more than one address
appears on the records of the Corporation in respect of such joint holding,
be given to such joint shareholders at the first address so appearing, and
notice so given shall be sufficient notice to all the holders of such shares.
10.05 PERSONS ENTITLED BY DEATH OR OPERATION OF LAW - Every person
who by operation of law, by transfer or the death of a shareholder or
otherwise becomes entitled to shares, is bound by every notice in respect of
such shares which has been duly given to the registered holder of such shares
prior to his name and address being entered on the records of the
<PAGE>
-24-
Corporation.
10.06 WAIVER OF NOTICE - Any shareholder (or his duly appointed proxy)
director, officer or auditor may waive any notice required to be given under
the articles or by-laws of the Corporation and such waiver, whether given
before or after the meeting or other event of which notice is required to be
given shall cure any default in the giving of such notice.
10.07 SIGNATURES TO NOTICES - The signatures to any notice to be given
by the Corporation may be written, stamped, typewritten or printed or partly
written, stamped, typewritten or printed.
11. EXECUTION OF DOCUMENTS
11.01 SIGNING OFFICERS - Deeds, transfers, assignments, contracts and
obligations of the Corporation may be signed by the president or a
vice-president or a director together with the secretary or treasurer or an
assistant secretary or assistant treasurer or another director.
Notwithstanding this, the board may at any time and from time to time direct
the manner in which and the person or persons by whom any particular deed,
transfer, contract or obligation or any class of deeds, transfers, contracts
or obligations may be signed.
11.02 SEAL - Any person authorized to sign any document may affix the
corporate seal thereto.
<PAGE>
-25-
12. EFFECTIVE DATE
12.01 EFFECTIVE DATE - This by-law comes into force upon confirmation
by the shareholders of the Corporation in accordance with the Act.
ENACTED this 15th day of September 1989
/s/ Allan W. Foster /s/ Allan W. Foster
- ---------------------------- ------------------------------
President Secretary
(Corporate Seal)
<PAGE>
-26-
The foregoing by-law is hereby passed by the directors of the
Corporation pursuant to the Business Corporations Act, 1982 as evidenced by
the respective signatures hereto of all the directors.
Dated the 15th day of September 1989
/s/ Allan W. Foster
---------------------------------------
Allan W. Foster
In lieu of confirmation at a general meeting of the shareholders, we
the undersigned, being all of the shareholders of the Corporation entitled to
vote at a meeting of shareholders, hereby confirm in writing the above by-law
pursuant to the Business Corporations Act, 1982.
Date the 15tg day of September 1989
/s/ Allan W. Foster
---------------------------------------
Allan W. Foster
<PAGE>
-27-
BY-LAW NO. 2
A By-law respecting the borrowing of money and the issuing of securities by:
ALLAN FOSTER MANAGEMENT LIMITED
(herein called the "Corporation")
BE IT ENACTED as a By-law of the Corporation as follows:
1. Without limiting the borrowing powers of the Corporation as set forth
in the Business Corporations Act, 1982 (the "Act") the Directors of the
Corporation may, from time to time, without the authorization of the
Shareholders:
(a) borrow money upon the credit of the Corporation;
(b) issue, re-issue, sell or pledge debt obligations of the
Corporation, including without limitation, bonds, debentures, notes
or other similar obligations of the Corporation whether secured or
unsecured;
(c) subject to Section 20 of the Act, give a guarantee on behalf of the
Corporation to secure performance of any present or future
indebtedness, liability or obligation of any person; and
(d) charge, mortgage, hypothecate, pledge or otherwise create a
security interest in all or any currently owned or subsequently
acquired, real or personal, movable or immovable, property of the
Corporation, including without limitation, book debts, rights, powers,
franchises and undertakings, to secure any present or future
indebtedness, liabilities or other obligations of the Corporation.
2. The Directors may, from time to time, by resolution delegate any or all
of the powers referred to in paragraph 1 of this By-law to a Director, a
Committee of Directors or one or more officers of the Corporation.
PASSED by the Directors and sealed with the Corporation's seal this
15th day of September 1989
/s/ Allan W. Foster
----------------------------
President
/s/ Allan W. Foster
----------------------------
Secretary
SEAL
<PAGE>
The foregoing By-law is hereby passed by the Directors of the
Corporation pursuant to the Business Corporations Act, 1982 as evidenced by
the respective signatures hereto of all the Directors.
Dated the 15th day of September 1989
/s/ Allan W. Foster
------------------------------------
Allan W. Foster
In lieu of confirmation at a general meeting of the Shareholders, we
the undersigned, being all of the Shareholders of the Corporation entitled to
vote at a meeting of Shareholders, hereby confirm in writing the above
By-law pursuant to the Business Corporation Act, 1982.
Dated the 15th day of September 1989
/s/ Allan W. Foster
------------------------------------
Allan W. Foster
<PAGE>
BY-LAW NUMBER 3
-----------------
A By-law respecting the borrowing of money and the issue of securities by
ALLAN FOSTER MANAGEMENT LIMITED
- --------------------------------------------------------------------------
-----------
BE IT ENACTED by the Directors of ALLAN FOSTER MANAGEMENT LIMITED
------------------------------------------
as a Special By-law of the said Corporation as
-----------------------
follows:
The Directors of the Corporation may from time to time:
(a) borrow money upon the credit of the Corporation;
(b) issue, sell or pledge debt obligations of the Corporation, including
without limitation, bonds, debentures, notes or other similar obligations
of the Corporation whether secured or unsecured;
(c) charge, mortgage, hypothecate or pledge all or any currently owned or
subsequently acquired real or personal, movable or immovable property of
the Corporation, including book debts, rights, powers, franchises and
undertaking, to secure any such debt obligations or any money borrowed,
or other debt or liability of the Corporation;
(d) delegate to such one or more of the officers and Directors of the
Corporation as may be designated by the Directors all or any of the
powers conferred by the foregoing clauses of this By-law to such extent
and in such manner as the Directors shall determine at the time of
each such delegation.
PASSED by the Directors and sealed with the Corporation's seal
this 3rd day of October , 1989.
---------- --------------
/s/ Allan W. Foster
------------------------------------
PRESIDENT
/s/ Allan W. Foster
------------------------------------
SECRETARY
<PAGE>
-2-
The foregoing by-law #3 is hereby passed by all the Directors of the
Corporation pursuant to the Business Corporations Act, 1982, as evidenced by
their signatures hereto.
DATED this 3rd day of October, 1989.
/s/ Allan W. Foster
------------------------------------
Allan W. Foster
The foregoing by-law #3 is hereby confirmed by the sole shareholder of
the Corporation pursuant to the Business Corporations Act, 1982, as evidenced
by his signature hereto.
DATED this 3rd day of OCtober, 1989.
/s/ Allan W. Foster
------------------------------------
Allan W. Foster
<PAGE>
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
October 8, 1999
To each of the several Purchasers named in
Schedule 1 to the Class A Preferred Shares
Subscription Agreement made on July 30, 1999
(the "July Purchasers")
- - and -
To each of the several Purchasers named in
Schedule 1 to the Class A Preferred Shares
Subscription Agreement made on October 8, 1999
(the "October Purchasers")
Dear Sirs:
Reference is made to a Class A Preferred Share Subscription
Agreement dated July 30, 1999 (the "July Purchase Agreement") between
Changepoint Corporation, a corporation amalgamated under the laws of Ontario
(the "Company"), and the July Purchasers whereby the July Purchasers agreed
to purchase an aggregate of 2,632,654 Class A Preferred Shares (the "July
Preferred Shares") of the Company, and to a registration rights agreement
(the "Registration Rights Agreement") between the Company and July Purchasers
of even date therewith whereby the Company made certain covenants and
agreements in favour of the July Purchasers in consideration of their
agreement to purchase the July Preferred Shares and as an inducement to them
to consummate the transactions contemplated by the July Purchase Agreement.
Reference is also made to a Class A Preferred Share
Subscription Agreement of even date herewith (the "October Purchase
Agreement") (the July Purchase Agreement and the October Purchase Agreement
being collectively, referred to hereinafter as the "Purchase Agreements")
among the Company and certain of its shareholders (collectively the
"Vendors"), and the October Purchasers whereby the October Purchasers have
agreed to purchase from the Vendors an aggregate of 3,351,308 Class A
Preferred Shares of the Company (the "October Preferred Shares") (the July
Preferred Shares and the October Preferred Shares being collectively,
referred to hereinafter as the "Preferred Shares"). In consideration of the
agreement of the October Purchasers to purchase the October Preferred Shares
and as an inducement to the October Purchasers to consummate the transactions
contemplated by the October Purchase Agreement, the Company wishes to provide
the October Purchasers with the identical registration rights provided to the
July Purchasers in the Registration Rights Agreement.
To ensure that the registration rights granted by the
Company to holders of the Preferred Shares apply equally in favour of all
holders of Preferred Shares, the Company has agreed to amend and restate the
Registration Rights Agreement accordingly. Therefore, for good and valuable
consideration, the receipt and sufficiency whereof is hereby acknowledged by
the Company, the Company covenants and agrees with each of you as follows:
<PAGE>
-2-
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"CANADIAN SECURITIES LAWS" shall mean the Securities Act (Ontario), the
Regulation thereunder and all rules, policies, rulings and orders of
applicable securities regulatory authorities, and similar legislation
in each of the other provinces and territories of Canada where the
Corporation is a "reporting issuer" for purposes of such legislation.
"COMMISSION" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the
Securities Act.
"COMMON SHARES" shall mean the Common Shares of the Company, as
constituted as of the date of this Agreement.
"CONVERSION SHARES" shall mean Common Shares issued upon conversion of
the Preferred Shares.
"EXCHANGE ACT" shall mean the United States Securities Exchange Act of
1934, as amended, or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"REGISTRATION EXPENSES" shall mean the expenses so described in Section
8.
"RESTRICTED STOCK" shall mean the Conversion Shares, excluding
Conversion Shares which have been (a) registered under the Securities
Act pursuant to an effective registration statement filed thereunder
and disposed of in accordance with the registration statement covering
them or (b) publicly sold pursuant to Rule 144 under the Securities
Act.
"SECURITIES ACT" shall mean the United States Securities Act of 1933,
as amended, or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"SELLING EXPENSES" shall mean the expenses so described in Section 8.
"U.S. PERSON" shall have the meaning ascribed thereto in Rule 902(a) of
Regulation S under the Securities Act.
2. RESTRICTIVE LEGEND. Each certificate representing Preferred Shares or
Conversion Shares owned by any U.S. Person or entity shall, except as
otherwise provided in this Section 2 or in Section 3, be stamped or
otherwise imprinted with a legend substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
<PAGE>
-3-
REGISTERED UNDER SUCH ACT AND ALL SUCH APPLICABLE LAWS OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE."
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company (it being agreed that Testa, Hurwitz &
Thibeault, LLP shall be satisfactory) the securities represented
thereby may be publicly sold without registration under the Securities
Act and any applicable state securities laws.
3. NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer by a U.S.
Person of any Preferred Shares or Conversion Shares (other than under
the circumstances described in Sections 4, 5 or 6), the holder thereof
shall give written notice to the Company of its intention to effect
such transfer. Each such notice shall describe the manner of the
proposed transfer and, if requested by the Company, shall be
accompanied by an opinion of counsel satisfactory to the Company (it
being agreed that Testa, Hurwitz & Thibeault, LLP shall be
satisfactory) to the effect that the proposed transfer may be effected
without registration under the Securities Act and any applicable state
securities laws, whereupon the holder of such stock shall be entitled
to transfer such stock in accordance with the terms of its notice;
PROVIDED, HOWEVER, that no such opinion of counsel shall be required
for a transfer to one or more partners or members of the transferor (in
the case of a transferor that is a partnership or a limited liability
company, respectively) or to an affiliated corporation (in the case of
a transferor that is a corporation). Each certificate for Preferred
Shares or Conversion Shares transferred to any U.S. Person or entity as
above provided shall bear the legend set forth in Section 2, except
that such certificate shall not bear such legend if (i) such transfer
is in accordance with the provisions of Rule 144 (or any other rule
permitting public sale without registration under the Securities Act)
or (ii) the opinion of counsel referred to above is to the further
effect that the transferee and any subsequent transferee (other than an
affiliate of the Company) would be entitled to transfer such securities
in a public sale without registration under the Securities Act. The
restrictions provided for in this Section 3 shall not apply to
securities which are not required to bear the legend prescribed by
Section 2 in accordance with the provisions of that Section.
4. REQUIRED REGISTRATION.
(a) At any time after the earliest of (i) six months after (x) any
registration statement covering a public offering of
securities of the Company under the Securities Act shall have
become effective or (y) a prospectus has been qualified in a
Canadian province or territory for the Company's initial
public offering of Common Shares, or (ii) the third
anniversary of the date of this Agreement, the holders of
Restricted Stock constituting at least 40% of the total shares
of Restricted Stock then outstanding may request the Company
to register under the Securities Act all or any portion of the
shares of Restricted Stock held by such requesting holder or
holders for sale in the manner specified in such notice,
PROVIDED that the shares of Restricted Stock for which
registration has been requested shall constitute at least 20%
of the total shares of Restricted Stock originally issued if
such holder or holders shall request the registration of less
than all shares of Restricted Stock then held by such holder
or holders (or any lesser percentage if the reasonably
anticipated aggregate price to the public of such public
offering would exceed
<PAGE>
-4-
U.S. $2,000,000). For purposes of this Section 4 and
Sections 5, 6, 13(a) and 13(d), the term "Restricted Stock"
shall be deemed to include the number of shares of
Restricted Stock which would be issuable to a holder of
Preferred Shares upon conversion of all Preferred Shares
held by such holder at such time, PROVIDED, HOWEVER, that
the only securities which the Company shall be required to
register pursuant hereto shall be shares of Common Shares,
and PROVIDED, FURTHER, HOWEVER, that, in any underwritten
public offering contemplated by this Section 4 or Sections 5
and 6, the holders of Preferred Shares shall be entitled to
sell such Preferred Shares to the underwriters for conversion
and sale of the shares of Common Shares issued upon
conversion thereof. Notwithstanding anything to the
contrary contained herein, no request may be made under
this Section 4 within 90 days after the effective date of a
registration statement filed by the Company covering a firm
commitment underwritten public offering in which the
holders of Restricted Stock shall have been entitled to
join pursuant to Sections 5 or 6 and in which there shall
have been effectively registered all shares of Restricted
Stock as to which registration shall have been requested.
(b) Following receipt of any notice under this Section 4, the
Company shall immediately notify all holders of Restricted
Stock from whom notice has not been received and shall use its
best efforts to register under the Securities Act, for public
sale in accordance with the method of disposition specified in
such notice from requesting holders, the number of shares of
Restricted Stock specified in such notice (and in all notices
received by the Company from other holders within 30 days
after the giving of such notice by the Company). If such
method of disposition shall be an underwritten public
offering, the holders of a majority of the shares of
Restricted Stock to be sold in such offering may designate the
managing underwriter of such offering, subject to the approval
of the Company, which approval shall not be unreasonably
withheld or delayed. The Company shall be obligated to
register Restricted Stock pursuant to this Section 4 on two
occasions only, PROVIDED, HOWEVER, that such obligation shall
be deemed satisfied only when a registration statement
covering all shares of Restricted Stock specified in notices
received as aforesaid, for sale in accordance with the method
of disposition specified by the requesting holders, shall have
become effective and, if such method of disposition is a firm
commitment underwritten public offering, all such shares shall
have been sold pursuant thereto.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in
accordance with the method of disposition specified by the
requesting holders, shares of Common Shares to be sold by the
Company for its own account, except as and to the extent that,
in the opinion of the managing underwriter (if such method of
disposition shall be an underwritten public offering), such
inclusion would adversely affect the marketing of the
Restricted Stock to be sold. Except for registration
statements on Form S-4, S-8 or any successor thereto, the
Company will not file with the Commission any other
registration statement with respect to its Common Shares,
whether for its own account or that of other stockholders,
from the date of receipt of a notice from requesting holders
pursuant to this Section 4 until the completion of the period
of distribution of the registration contemplated thereby.
<PAGE>
-5-
5. INCIDENTAL REGISTRATION. If the Company at any time (other than
pursuant to Section 4 or Section 6) proposes to register any of its
securities under the Securities Act for sale to the public, whether for
its own account or for the account of other security holders or both
(except with respect to registration statements on Forms S-4, S-8 or
another form not available for registering the Restricted Stock for
sale to the public), each such time it will give written notice to all
holders of outstanding Restricted Stock of its intention so to do. Upon
the written request of any such holder, received by the Company within
30 days after the giving of any such notice by the Company, to register
any of its Restricted Stock, the Company will use its best efforts to
cause the Restricted Stock as to which registration shall have been so
requested to be included in the securities to be covered by the
registration statement proposed to be filed by the Company, all to the
extent requisite to permit the sale or other disposition by the holder
of such Restricted Stock so registered. In the event that any
registration pursuant to this Section 5 shall be, in whole or in part,
an underwritten public offering of Common Shares, the number of shares
of Restricted Stock to be included in such an underwriting may be
reduced (pro rata among the requesting holders based upon the number of
shares of Restricted Stock owned by such holders) if and to the extent
that the managing underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the securities to be
sold by the Company therein, PROVIDED, HOWEVER, that such number of
shares of Restricted Stock shall not be reduced if any shares are
to be included in such underwriting for the account of any person
other than the Company or requesting holders of Restricted Stock, and
PROVIDED, FURTHER, HOWEVER, that in no event may less than one-third
of the total number of shares of Common Shares to be included in such
underwriting be made available for shares of Restricted Stock.
Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 5 without thereby
incurring any liability to the holders of Restricted Stock.
6. REGISTRATION ON FORM S-3 OR F-3; SPECIAL PROVISION RELATING TO CANADIAN
OFFERINGS. If at any time (i) a holder or holders of Preferred Shares
or Restricted Stock request that the Company file a registration
statement on Form S-3 or F-3 or any successors thereto for a public
offering of all or any portion of the shares of Restricted Stock held
by such requesting holder or holders, the reasonably anticipated
aggregate price to the public of which would exceed U.S.$500,000, and
(ii) the Company is a registrant entitled to use Form S-3 or F-3 or any
successors thereto to register such shares, then the Company shall use
its best efforts to register under the Securities Act on Form S-3 or
F-3 or any successors thereto, for public sale in accordance with the
method of disposition specified in such notice, the number of shares of
Restricted Stock specified in such notice. Whenever the Company is
required by this Section 6 to use its best efforts to effect the
registration of Restricted Stock, each of the procedures and
requirements of Section 4 (including but not limited to the requirement
that the Company notify all holders of Restricted Stock from whom
notice has not been received and provide them with the opportunity to
participate in the offering) shall apply to such registration,
PROVIDED, HOWEVER, that there shall be no limitation on the number of
registrations on Form S-3 or F-3 which may be requested and obtained
under this Section 6, and PROVIDED, FURTHER, HOWEVER, that the
requirements contained in the first sentence of Section 4(a) shall not
apply to any registration on Form S-3 or F-3 which may be requested and
obtained under this Section 6.
<PAGE>
-6-
In addition to the other registration rights herein, the Company hereby
grants to the holders of Preferred Stock of the Company registration
rights with respect to required, incidental and short-form
registrations in Canada, which rights shall be substantially equivalent
to those set forth in Sections 4, 5 and 6 of this Agreement with all
appropriate changes in recognition of the differences between U.S. and
Canadian offerings. The other provisions of this Agreement shall also
apply to such Canadian offerings and registration rights, again with
appropriate changes.
7. REGISTRATION PROCEDURES. If and whenever the Company is required by the
provisions of Sections 4, 5 or 6 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities
Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering
pursuant to Section 4, shall be on Form S-1, F-1 or F-10 or
other form of general applicability satisfactory to the
managing underwriter selected as therein provided) with
respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for
the period of the distribution contemplated thereby
(determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such
registration statement effective for the period specified in
paragraph (a) above and comply with the provisions of the
Securities Act with respect to the disposition of all
Restricted Stock covered by such registration statement in
accordance with the sellers' intended method of disposition
set forth in such registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration
statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request
in order to facilitate the public sale or other disposition of
the Restricted Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Restricted
Stock covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the
sellers of Restricted Stock or, in the case of an underwritten
public offering, the managing underwriter reasonably shall
request, PROVIDED, HOWEVER, that the Company shall not for any
such purpose be required to qualify generally to transact
business as a foreign corporation in any jurisdiction where it
is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) use its best efforts to list the Restricted Stock covered by
such registration statement with any securities exchange on
which the Common Shares of the Company are then listed;
<PAGE>
-7-
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time
when a prospectus relating thereto is required to be delivered
under the Securities Act or pursuant to Canadian or provincial
securities laws, of the happening of any event of which the
Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances then existing;
(g) if the offering is underwritten and at the request of any
seller of Restricted Stock, use its best efforts to furnish on
the date that Restricted Stock is delivered to the
underwriters for sale pursuant to such registration: (i) an
opinion dated such date of counsel representing the Company
for the purposes of such registration, addressed to the
underwriters and to such seller, stating that such
registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such
counsel, no stop order suspending the effectiveness thereof
has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Securities
Act, (B) the registration statement, the related prospectus
and each amendment or supplement thereof comply as to form in
all material respects with the requirements of the Securities
Act (except that such counsel need not express any opinion as
to financial statements contained therein) and (C) to such
other effects as reasonably may be requested by counsel for
the underwriters or by such seller or its counsel and (ii) a
letter dated such date from the independent public accountants
retained by the Company, addressed to the underwriters and to
such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that,
in the opinion of such accountants, the financial statements
of the Company included in the registration statement or the
prospectus, or any amendment or supplement thereof, comply as
to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter
shall additionally cover such other financial matters
(including information as to the period ending no more than
five business days prior to the date of such letter) with
respect to such registration as such underwriters reasonably
may request; and
(h) make available for inspection by each seller of Restricted
Stock, any underwriter participating in any distribution
pursuant to such registration statement, and any attorney,
accountant or other agent retained by such seller or
underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all
information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with
such registration statement.
For purposes of Section 7(a) and 7(b) and of Section 4(c), the period
of distribution of Restricted Stock in a firm commitment underwritten
public offering shall be deemed to extend until each underwriter has
completed the distribution of all securities purchased by it, and the
period of distribution of Restricted Stock in any other registration
shall be deemed to extend until the earlier of the sale of all
Restricted Stock covered thereby and 120 days after the effective date
thereof.
<PAGE>
-8-
In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such
information with respect to themselves and the proposed distribution by
them as reasonably shall be necessary in order to assure compliance
with federal and applicable state securities laws.
In connection with each registration pursuant to Sections 4, 5 or 6
covering an underwritten public offering, the Company and each seller
agree to enter into a written agreement with the managing underwriter
selected in the manner herein provided in such form and containing such
provisions as are customary in the securities business for such an
arrangement between such underwriter and companies of the Company's
size and investment stature.
8. EXPENSES. All expenses incurred by the Company in complying with
Sections 4, 5 and 6, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel
and independent public accountants for the Company, fees and expenses
(including counsel fees) incurred in connection with complying with
state securities or "blue sky" laws, fees of the National Association
of Securities Dealers, Inc., transfer taxes, fees of transfer agents
and registrars, costs of insurance and fees and disbursements of one
counsel for the sellers of Restricted Stock, but excluding any Selling
Expenses, are called "Registration Expenses". All underwriting
discounts and selling commissions applicable to the sale of Restricted
Stock are called "Selling Expenses".
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 4, 5 or 6. All Selling Expenses
in connection with each registration statement under Sections 4, 5 or 6
shall be borne by the participating sellers in proportion to the number
of shares sold by each, or by such participating sellers other than the
Company (except to the extent the Company shall be a seller) as they
may agree.
<PAGE>
-9-
9. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 4, 5 or 6, the
Company will indemnify and hold harmless each seller of such
Restricted Stock thereunder, each underwriter of such
Restricted Stock thereunder and each other person, if any, who
controls such seller or underwriter within the meaning of the
Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any
registration statement under which such Restricted Stock was
registered under the Securities Act pursuant to Sections 4, 5
or 6, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out
of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and
will reimburse each such seller, each such underwriter and
each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or
action, PROVIDED, HOWEVER, that the Company will not be liable
in any such case if and to the extent that any such loss,
claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information
furnished by any such seller, any such underwriter or any such
controlling person in writing specifically for use in such
registration statement or prospectus.
(b) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 4, 5 or 6, each
seller of such Restricted Stock thereunder, severally and not
jointly, will indemnify and hold harmless the Company, each
person, if any, who controls the Company within the meaning of
the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each
underwriter and each person who controls any underwriter
within the meaning of the Securities Act, against all losses,
claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling
person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration
statement under which such Restricted Stock was registered
under the Securities Act pursuant to Sections 4, 5 or 6, any
preliminary prospectus or final prospectus contained therein,
or any amendment or supplement thereof, or arise out of or are
based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse
the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action, PROVIDED,
HOWEVER, that such seller will be
<PAGE>
-10-
liable hereunder in any such case if and only to the extent
that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance
upon and in conformity with information pertaining to such
seller, as such, furnished in writing to the Company by
such seller specifically for use in such registration
statement or prospectus, and PROVIDED, FURTHER, HOWEVER,
that the liability of each seller hereunder shall not in
any event to exceed the net proceeds received by such
seller from the sale of Restricted Stock covered by such
registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made
against the indemnifying party hereunder, notify the
indemnifying party in writing thereof, but the omission so to
notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other
than under this Section 9 and shall only relieve it from any
liability which it may have to such indemnified party under
this Section 9 if and to the extent the indemnifying party is
prejudiced by such omission. In case any such action shall be
brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to
the extent it shall wish, to assume and undertake the defense
thereof with counsel satisfactory to such indemnified party,
and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake
the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 9 for any
legal expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so
selected, PROVIDED, HOWEVER, that, if the defendants in any
such action include both the indemnified party and the
indemnifying party and the indemnified party shall have
reasonably concluded that there may be reasonable defenses
available to it which are different from or additional to
those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict
with the interests of the indemnifying party, the indemnified
party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the
defense of such action, with the expenses and fees of such
separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as
incurred.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which
either (i) any holder of Restricted Stock exercising rights
under this Agreement, or any controlling person of any such
holder, makes a claim for indemnification pursuant to this
Section 9 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced
in such case notwithstanding the fact that this Section 9
provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the
part of any such selling holder or any such controlling person
in circumstances for which
<PAGE>
-11-
indemnification is provided under this Section 9; then, and
in each such case, the Company and such holder will
contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after
contribution from others) in such proportion so that such
holder is responsible for the portion represented by the
percentage that the public offering price of its Restricted
Stock offered by the registration statement bears to the
public offering price of all securities offered by such
registration statement, and the Company is responsible for
the remaining portion; PROVIDED, HOWEVER, that, in any such
case, (A) no such holder will be required to contribute any
amount in excess of the public offering price of all such
Restricted Stock offered by it pursuant to such
registration statement; and (B) no person or entity guilty
of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty
of such fraudulent misrepresentation.
10. CHANGES IN COMMON SHARES OR PREFERRED STOCK. If, and as often as, there
is any change in the Common Shares or the Preferred Stock by way of a
stock split, stock dividend, combination or reclassification, or
through a merger, consolidation, reorganization amalgamation, or
recapitalization, or by any other means, appropriate adjustment shall
be made in the provisions hereof so that the rights and privileges
granted hereby shall continue with respect to the Common Shares or the
Preferred Stock as so changed.
11.A RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time
permit the sale of the Restricted Stock to the public without
registration, at all times after 90 days after any registration
statement covering a public offering of securities of the Company under
the Securities Act shall have become effective, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon
request a written statement by the Company as to its
compliance with the reporting requirements of such Rule 144
and of the Securities Act and the Exchange Act, a copy of the
most recent annual or quarterly report of the Company, and
such other reports and documents so filed by the Company as
such holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing such holder to
sell any Restricted Stock without registration.
11.B CANADIAN SECURITIES LAW REQUIREMENTS
With a view to making available the benefits of certain rules and
regulations of the Canadian Securities Laws that may at any time permit
the sale of the Restricted Stock to the public without the filing of a
Prospectus, once a public market exists for the Common Shares, the
Corporation agrees to use all reasonable efforts to:
<PAGE>
-12-
(a) make and keep public information available, as those terms are
understood and defined under the Securities Act (Ontario), at
all times after the date the Corporation becomes a reporting
issuer under Canadian Securities Laws;
(b) file with the appropriate Canadian Securities Laws regulatory
authorities in a timely manner all reports and other documents
required of the Corporation under Canadian Securities Laws (at
any time after the date that the Corporation becomes a
reporting issuer under Canadian Securities Laws); and
(c) furnish to each holder of Restricted Stock forthwith upon
request (i) a written statement by the Corporation stating
that the Corporation is a reporting issuer and is not in
default of any requirement of Canadian Securities Laws (at any
time after the date that the Corporation becomes a reporting
issuer under Canadian Securities Laws), (ii) a copy of the
most recent annual or quarterly report of the Corporation, and
(iii) any other reports and documents of the Corporation and
other information in the possession of or reasonably obtained
by the Corporation as the holder of Restricted Stock may
reasonably request in order to avail itself of any of the
Canadian Securities Laws that allow such holder to sell
Restricted Stock without filing a Prospectus.
12. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to you as follows:
(a) The execution, delivery and performance of this Agreement by
the Company have been duly authorized by all requisite
corporate action and will not violate any provision of law,
any order of any court or other agency of government, the
Articles or By-laws of the Company or any provision of any
indenture, agreement or other instrument to which it or any or
its properties or assets is bound, conflict with, result in a
breach of or constitute (with due notice or lapse of time or
both) a default under any such indenture, agreement or other
instrument or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its
terms.
<PAGE>
-13-
13. MISCELLANEOUS.
(a) All covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the
parties hereto (including without limitation transferees of
any Preferred Shares or Restricted Stock), whether so
expressed or not, PROVIDED, HOWEVER, that registration rights
conferred herein on the holders of Preferred Shares or
Restricted Stock shall only inure to the benefit of a
transferee of Preferred Shares or Restricted Stock if (i)
there is transferred to such transferee at least 20% of the
total shares of Restricted Stock originally issued pursuant to
the Purchase Agreements to the direct or indirect transferor
of such transferee or (ii) such transferee is a partner,
member, shareholder or affiliate of a party hereto.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered in
person, mailed by certified or registered mail, return receipt
requested, or sent by telecopier or telex, addressed as
follows:
(i) if to the Company or any other party hereto, at the
address of such party set forth in the Purchase
Agreements;
(ii) if to any subsequent holder of Preferred Shares or
Restricted Stock, to it at such address as may have
been furnished to the Company in writing by such
holder;
or, in any case, at such other address or addresses as shall
have been furnished in writing to the Company (in the case of
a holder of Preferred Shares or Restricted Stock) or to the
holders of Preferred Shares or Restricted Stock (in the case
of the Company) in accordance with the provisions of this
paragraph.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the
laws of Canada applicable therein. Each of the parties hereby
irrevocably attorns to the jurisdiction of the courts of the
Province of Ontario.
(d) This Agreement may not be amended or modified, and no
provision hereof may be waived, without the written consent of
the Company and the holders of at least two-thirds of the
outstanding shares of Restricted Stock.
(e) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) The obligations of the Company to register shares of
Restricted Stock under Sections 4, 5 or 6 shall terminate on
the fifteenth anniversary of the date of this Agreement.
(g) If requested in writing by the underwriters for the initial
underwritten public offering of securities of the Company,
each holder of Restricted Stock who is a
<PAGE>
-14-
party to this Agreement shall agree not to sell publicly
any shares of Restricted Stock or any other shares of
Common Shares (other than shares of Restricted Stock or
other shares of Common Shares being registered in such
offering), without the consent of such underwriters, for a
period of not more than 90 days following the effective
date of the registration statement relating to such
offering; PROVIDED, HOWEVER, that all persons entitled to
registration rights with respect to shares of Common Shares
who are not parties to this Agreement, all other persons
selling shares of Common Shares in such offering, all
persons holding in excess of 1% of the capital stock of the
Company on a fully diluted basis and all executive officers
and directors of the Company shall also have agreed not to
sell publicly their Common Shares under the circumstances
and pursuant to the terms set forth in this Section 13(g).
(h) Notwithstanding the provisions of Section 7(a), the Company's
obligation to file a registration statement, or cause such
registration statement to become and remain effective, shall
be suspended for a period not to exceed 90 days in any
24-month period if there exists at the time material
non-public information relating to the Company which, in the
reasonable opinion of the Company, should not be disclosed.
(i) The Company shall not grant to any third party any
registration rights more favorable than or inconsistent with
any of those contained herein, so long as any of the
registration rights under this Agreement remains in effect.
(j) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity
or unenforceability shall attach only to such provision and
shall not in any manner affect or render illegal, invalid or
unenforceable any other provision of this Agreement, and this
Agreement shall be carried out as if any such illegal, invalid
or unenforceable provision were not contained herein.
Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this
Agreement shall be a binding agreement between the Company and you.
Very truly yours,
CHANGEPOINT CORPORATION
By:_______________________________
Gerry Smith
Title: President
____________________________
<PAGE>
-15-
AGREED TO AND ACCEPTED as of the date first above written.
Purchasers named in Schedule 1 to the Purchase Agreements:
__________________________________
By: ______________________________
Title: ___________________________
By: ______________________________
Title: ___________________________
<PAGE>
[ROYAL BANK LETTERHEAD]
EXHIBIT 10.2
March 3, 1999
PRIVATE AND CONFIDENTIAL
Changepoint Corporation
1595 16th Ave.
Richmond Hill, Ontario
L4B 3N9
Dear Sirs:
Further to our recent discussions, we are pleased to offer the revolving demand
Credit Facility described below, subject to the following terms and conditions.
DEFINITIONS: The definitions attached hereto in Schedule "A" are
incorporated in this agreement by reference as if
set out in full herein.
BORROWER: CHANGEPOINT CORPORATION (the "Borrower").
LENDER: Royal Bank of Canada (the "Bank"), through its
Branch at 260 East Beaver Creek Rd., Richmond Hill,
Ontario (the "Branch of Account").
CREDIT
FACILITY: The Credit Facility is available in the following
segments in Canadian Dollars by way of, at the
Borrower's option:
Segment (1) Operating:
(a) Royal Bank Prime based loans
("RBP Loans").
(b) Letters of Credit ("L/C's")
Segment (2) Corporate Visa expense account(s)
("Visa").
Segment (3) Merchant Visa
Segment (4) Lease line of credit ("Leases").
(collectively the "Borrowings").
AMOUNT(S): Segment (1) $ 1,500,000.
Segment (2) $ 50,000.
Segment (3) $ 50,000.
Segment (4) $ 500,000.
TERMS OF
SEGMENTS (2),(3)
AND (4): The terms and conditions regarding Leases and Visa
will be as outlined in separate agreements entered
into by the Borrower with the Bank.
REPAYMENT: Notwithstanding compliance with the Covenants
section contained herein, Borrowings under Segment
(1) are repayable on demand.
Drawings under L/C's will be charged to the
Borrowers account at their maturity.
REPAYMENT: (Cont'd) Upon demand, the Borrower shall pay to the
Bank all Borrowings under this agreement
<PAGE>
CHANGEPOINT CORPORATION
February 3, 1999 Page 2
- -------------------------------------------------------------------------------
including the face amounts of all L/Cs which are
unmatured or unexpired, which face amounts shall
be held by the Bank as collateral security for the
Borrower's obligations to reimburse the Bank for
any payment made by the Bank in respect of such
L/Cs. The Bank may enforce its rights to realize
upon its security and retain sufficient funds to
cover amounts outstanding by way of these
instruments.
AVAILABILITY: The Borrower may borrow, repay, convert and reborrow
up to the amount of the Segment (1) operating
facility, provided that:
(a) the aggregate of Potential Preferred Claims
and Borrowings outstanding under Segment (1)
must not exceed the aggregate of:
(i) 75% of good, effectively assigned,
unencumbered Canadian and U.S. trade
accounts receivable of Changepoint
Corporation and Changepoint Inc.,
excluding:
(a) the entire outstanding balance of
receivables accounts where any
portion exceeds 90 days past
invoice except accounts where the
over 90 days portion has
previously been designated by the
Bank as nevertheless "good", in
which case the under 90 day
portion may be included- (CN RAIL
IS DESIGNATED "GOOD");
AND
(b) all amounts due by any associate
(as defined in the Business
Corporations Act of Ontario);
AND
(ii) it is understood by the Borrower that
the aggregate amount calculated as
outlined in the foregoing clause (i)
represents the maximum Borrowings
available, provided if such amount
exceeds $1,500,000 the maximum
available shall be $1,500,000, until
such time as the next monthly reports
are provided to the Bank as called for
in Covenant (b) below.
(b) the Credit Facility is made available at the
sole discretion of the Bank and the Bank may
cancel any undrawn portion of the Credit
Facility at any time and from time to time
without notice;
(c) L/C's will have sight drawings and bills of
lading will be make payable to the order of
the Bank.
INTEREST
RATES & FEES: (a) Royal Bank Prime ("RBP") plus 1.00%
(b) Fees for L/C's will be advised on a
transaction by transaction basis.
PAYMENT OF
INTEREST & FEES: RBP LOANS
Interest on these loans shall be computed on the
daily principal amounts outstanding, at the
aforementioned rates, based on the actual number of
days elapsed divided by 365, and shall be payable in
arrears on the 26th of each month.
<PAGE>
CHANGEPOINT CORPORATION
February 3, 1999 Page 3
- -------------------------------------------------------------------------------
The yearly rates of interest to which the rates
determined in accordance with this Payment of
Interest and Fees section are equivalent, are the
rates so determined multiplied by the actual number
of days in the calendar year and divided by 365.
PAYMENT OF
INTEREST & FEES:
(Cont'd) OVERDUE PAYMENTS
Any overdue payment in Canadian Dollars shall be
deemed to be a RBP Loan with interest payable at RBP
plus 5% per annum.
OTHER FEES: REVOLVEMENT FEE
An administration fee of $175, for revolving RBP
Loans and margining advances under Segment 1)
against accounts receivable is payable monthly in
arrears.
Nothing in this agreement shall be construed as
obliging the Borrower to pay any interest, charges
or other expenses as provided by this agreement or
in any other security agreement related thereto in
excess of what is permitted by law.
COLLATERAL
SECURITY: General Security Agreement covering all assets other
than real property of Changepoint Corporation.
General Security Agreement covering all assets other
than real property of Changepoint Inc. (USA
subsidiary).
Guarantee and Postponement of Claim signed by
Changepoint Inc. (USA subsidiary). Supported by:
- Director's Resolution
- Letter from U.S. Counsel confirming validity
and enforceability of the Guarantees in the
United States.
CONDITIONS
PRECEDENT: The obligation of the Bank to make available the
Borrowings to the Borrower is subject to and
conditional upon:
(1) receipt by the Bank of a properly executed
copy of this agreement;
(2) receipt by the Bank of the within stipulated
Collateral Security in form and substance
satisfactory to the Bank, together with such
corporate authorizations and legal opinions
as the Bank may require;
EVIDENCE OF
INDEBTEDNESS: The Bank shall open and maintain at the Branch of
Account accounts and records evidencing the
Borrowings made available to the Borrower by the
Bank under this agreement. The Bank shall record the
principal amount of such Borrowings, the payment of
principal and interest on account of the loans, and
all other amounts becoming due to the Bank under
this agreement.
The Bank's accounts and records constitute, in the
absence of manifest error, PRIMA FACIE evidence of
the indebtedness of the Borrower to the Bank
pursuant to this agreement.
The Borrower authorizes and directs the Bank to
automatically debit, by mechanical, electronic or
manual means, any bank account of the Borrower for
all amounts payable
<PAGE>
CHANGEPOINT CORPORATION
February 3, 1999 Page 4
- -------------------------------------------------------------------------------
under this agreement, including but not limited
to, the repayment of principal and the payment of
interest, fees and all charges for the keeping of
such bank accounts.
REVOLVEMENT: The Bank shall establish an account (the
"Revolvement Account") for the conduct of the
Borrower's day to day banking business other than
pursuant to this agreement and if the balance in
the Revolvement Account:
(a) is a credit, the Bank may apply the amount of
such credit or any part thereof, rounded to
the nearest $10,000, as a repayment of
Borrowings outstanding under Segment (1) of
the Credit Facility, or
(b) is a debit, the Bank shall make available a
Borrowing in an amount, rounded to the
nearest $10,000, required to place the
Borrower in a minimum net credit position of
$10,000, provided there are sufficient funds
available under Segment (1) of the Credit
Facility.
REPRESENTATIONS
AND WARRANTIES: The Borrower represents and warrants to the Bank
that:
(a) it is a corporation validly incorporated and
subsisting under the laws of Ontario, and
that it is duly registered or qualified to
carry on business in all jurisdictions where
the character of the properties owned by it
or the nature of its business transacted
makes such registration or qualification
necessary; and
(b) the execution and delivery of this agreement
has been duly authorized by all necessary
actions and does not violate any law or any
provision of its constating documents or
by-laws or any unanimous shareholders'
agreement to which it is subject, or result
in the creation of any encumbrance on its
properties and assets except as contemplated
hereunder.
NON-MERGER: The provisions of this agreement shall not merge
with any security given by the Borrower to the Bank,
but shall continue in full force for the benefit of
the parties hereto.
COVENANTS: The Borrower agrees:
(a) to pay all sums of money when due under this
agreement;
(b) to provide the Bank with the following
reports on a monthly basis, within 20 days of
each month-end of its fiscal year for
CHANGEPOINT CORPORATION and CHANGEPOINT INC.:
(i) aged listing of accounts receivable;
(ii) aged listing of accounts payable;
(iii) detailed listing of Potential
Preferred Claims;
(c) to provide the Bank with the following
reports on a quarterly basis, within 30 days
of each quarter-end of its fiscal year:
(i) company prepared balance sheet, on a
consolidated and unit basis, income
statement and cash flow comparing
actual to plan;
<PAGE>
CHANGEPOINT CORPORATION
February 3, 1999 Page 5
- -------------------------------------------------------------------------------
COVENANTS: (Cont'd) (d) to provide the Bank with the following
reports on an annual basis, within
90 days of the end of its fiscal year:
(i) audited consolidated financial
statements for Changepoint Corporation,
supported by company prepared unit
statements;
(ii) annual proforma balance sheets,
income statements, and cash flow
statements for the next year and
such other reports as the Bank
may reasonably request;(iii)
business plan;
(e) to give the Bank prompt notice of any breach
of covenant or condition of the within
agreement or any event which, with notice or
lapse of time or both, would constitute a
breach;
(f) to maintain, on a consolidated basis,
Tangible Net Worth of not less than
$2,500,000; (TESTED QUARTERLY)
(g) to maintain Total Debt to Tangible Net Worth
of not greater than 1:1; (TESTED QUARTERLY)
(h) to file all material tax returns which are or
will be required to be filed, to pay or make
provision for payment of all material taxes
(including interest and penalties) and other
Potential Preferred Claims which are or will
become due and payable and to provide
adequate reserves for the payment of any tax,
the payment of which is being contested;
(i) not to dispose of shares of any of its
subsidiaries, without the prior written
consent of the bank, not to be unreasonably
withheld except in the ordinary course of
business;
(j) not to grant, create, assume or suffer to
exist any mortgage, charge, lien, pledge,
security interest, including a purchase money
security interest, or other encumbrance
affecting any of its properties, assets or
other rights, without the prior written
consent of the bank, not to be unreasonably
withheld except in the ordinary course of
business;
(k) not to sell, transfer, convey, lease or
otherwise dispose of any part of its property
or assets, without the prior written consent
of the Bank, not to be unreasonably withheld
except in the ordinary course of business;
(l) not to, directly or indirectly, guarantee or
otherwise provide for, on a direct or
indirect or contingent basis, the payment of
any monies or performance of any obligations
by any third party except as provided
herein, without the prior written consent
of the bank, not to be unreasonably withheld
except in the ordinary course of business;
(m) to give the Bank 30 days prior notice in
writing of any intended change in the
ownership of its shares, provided the company
has advance knowledge, if not immediately
after the change;
(n) to insure and to keep fully insured all
properties customarily insured by
<PAGE>
CHANGEPOINT CORPORATION
February 3, 1999 Page 6
- -------------------------------------------------------------------------------
companies carrying on a similar business; and
(o) not to change its name or merge, amalgamate
or consolidate with any other corporation,
without the prior written consent of the
bank, not to be unreasonably withheld except
in the ordinary course of business.
EXPENSES: The Borrower agrees to pay all of the Bank's costs
incurred from time to time in the preparation,
negotiation and execution of this agreement and the
collateral security, and any costs incurred in the
operation or enforcement of this agreement or any
other agreement entered into pursuant to this
agreement.
GAAP: Unless otherwise provided, all accounting terms used
in this agreement shall be interpreted in accordance
with Canadian Generally Accepted Accounting
Principles from time to time.
SEVERABILITY: If any provision of this agreement is or becomes
prohibited or unenforceable in any jurisdiction,
such prohibition or unenforceability shall not
invalidate or render unenforceable the provision
concerned in any other jurisdiction nor shall it
invalidate, affect or impair any of the remaining
provisions.
GOVERNING LAW: This agreement shall be construed in accordance with
and governed by the laws of the Province of Ontario
and of Canada applicable therein.
ACCEPTANCE: This offer expires if not accepted by March 19,
1999, unless extended in writing by the Bank.
If this agreement is acceptable, kindly sign and return the attached copy to the
Bank.
Yours truly,
A.F. LaVista
Account Manager
We acknowledge and accept the within terms and conditions.
CHANGEPOINT CORPORATION
Per: Date:
--------------------------------
Name:
Title:
Per: Date:
--------------------------------
Name:
Title:
<PAGE>
SCHEDULE "A"
Schedule "A" to the Letter Agreement dated the 19th day of March 1999 between
CHANGEPOINT CORPORATION as the Borrower and Royal Bank of Canada as the Bank.
For purposes of the foregoing agreement, the following terms and phrases shall
have the following meanings:
"Business Day" means a day on which the Branch of Account is open for business;
"Canadian Dollars" and "Cdn$" means lawful money of Canada;
"Person" includes an individual, a partnership, a joint venture, a trust, an
incorporated organization, a company, a corporation, an association, a
government or any department or agency thereof, and any other incorporated or
unincorporated entity;
"Potential Preferred Claims" means amounts owing for wages, employee deductions,
sales tax, excise tax, income tax, worker's compensation, government royalties,
pension fund obligations, overdue rents or taxes, purchase-money security
interests, and other statutory preferred claims;
"RBP" means the annual rate of interest announced by the Bank from time to time
as being a reference rate then in effect for determining interest rates on
Canadian Dollar commercial loans in Canada;
"Tangible Net Worth" means the aggregate of stated capital, retained earnings,
and debt, repayment of which is formally postponed and assigned to the Bank less
amounts invested in or owed by other Persons (other than trade accounts
receivable meeting normal terms) and less goodwill, deferred costs and other
assets normally regarded as intangible under GAAP in Canada;
"U.S. Dollars" and "US$" means lawful money of the United States of America in
same day immediately available funds or, if such funds are not available, the
form of money of the United States of America that is customarily used in the
settlement of international banking transactions on the day payment is due
hereunder.
<PAGE>
CHANGEPOINT CORPORATION
EMPLOYEE STOCK OPTION PLAN
September 2, 1997
CHANGEPOINT CORPORATION (the "Company) has instituted an Employee Stock
Option Plan. The primary objective of the plan is to attract, motivate and keep
top quality people and to encourage all staff to contribute to the best of their
ability, to the success of the Company. The plan will enable employees to
acquire common shares and participate in the growth and financial success of the
Company.
1. ELIGIBILITY
Full time employees in good standing, who are designated by the Board
of Directors of the Company, shall have the opportunity to acquire common shares
of the Company under this plan. Directors, as directors, and others who are not
otherwise bona fide full-time employees of the Corporation shall not be eligible
to become participants in the plan.
2. GRANT OF OPTIONS
a. PARTICIPATING EMPLOYEES AND NUMBER OF OPTIONS
Participating employees who have been chosen by the Board of
Directors shall be notified as to their participation and the number of share
options available to them.
b. OBLIGATION TO OBTAIN OPTIONS
Employees shall not be obliged to participate in this plan and
any decision not to participate therein shall not affect the Participant's
employment by or engagement with the Corporation.
3. MAXIMUM NUMBER OF SHARES AUTHORIZED FOR ISSUANCE UNDER OPTION
The total number of authorized shares allocated to and made available
to be granted to employees under the plan shall not exceed one million
(1,000,000) of the common shares, as such may from time to time be issued and
outstanding in the capital stock of the Corporation as the same is presently
constituted, and the aggregate number of common shares which may be issued under
the plan to any one employee shall not exceed fifty percent (50%) of the said
aggregate number of common shares allocated to and made available for the plan.
4. OPTION TERMS
Each option granted by the Company under the plan shall have the
following terms and conditions:
- -----------------------------------------------------------------------------
-1
<PAGE>
a. The exercise of the stock options granted under the plan shall
be as set by the Board of Directors of the Company, in its
sole discretion, from time to time. In no event shall the
option price be less than that from time to time permitted by
the applicable regulations and policies of any stock exchange
or exchanges as any securities of the Corporation may from
time to time be listed.
b. Each option granted hereunder shall be for a term not
exceeding five years and shall vest and be exercisable on such
date or dates as set by the Board of Directors and as
stipulated in the Stock Option Agreement entered into between
the employee and the Company (each date sometimes referred to
as a "vesting date"), and all or any part of the shares that
have so vested may be purchased at any time or from time to
time thereafter, until expiration or termination of the
option.
c. Any options that are granted but that have not vested shall
become null and void on the date that the holder ceases to be
employed by the Company, for any reason whatsoever.
5. DISPOSITION OR TRANSFER OF OPTIONS OR SHARES
a. OPTION SALE RESTRICTIONS
The employee shall not for any reason whatsoever transfer,
assign, pledge or otherwise dispose of or encumber any of the options received
by him/her under the plan.
b. COMPANY SHAREHOLDERS AGREEMENT
As a condition of and prior to the issuance of any shares of
the Company to the employee, the employee must first agree to be bound by the
terms of the shareholders agreement in respect of the Company in use by the
Company's shareholders at that time. The Employee shall receive a copy of the
said shareholders agreement for his or her review prior to the said share issue.
In the event that the Company becomes a public company, the
shareholders agreement and any restrictions with respect to the sale of shares
of the Company thereunder shall at that time cease and become invalid.
c. INCOME TAX LIABILITY ON EXERCISE OF OPTIONS OR SALE OF SHARES
The employee shall have the sole responsibility for
understanding the tax implications, and the calculation and payment of any
income tax liability resulting from the exercise of his/her share purchase
options granted hereunder and from the sale of shares of the Company.
6. TERMINATION OF EMPLOYMENT
If the employment of the employee for Company is terminated for any
reason whatsoever, then at the sole option of the Company, the employee shall
sell to the Company all of the options issued to the employee under the plan
that have vested at or prior to the date of such termination and all of the
shares which the employee purchased through the employee's exercise of any
options granted hereunder at or prior to the date of such termination. The
Company's option hereunder shall be exercisable by notice by the Company to the
employee, delivered to the last known address for the employee contained in the
Company's records, within sixty (60) days of the date that the employee's
employment with the Company is terminated. The purchase price payable by the
Company for any shares purchased by it pursuant to this provision shall be the
"fair market value" of the common shares at the date of the employee's
termination.
- -----------------------------------------------------------------------------
-2
<PAGE>
The purchase price payable by the Company for an option purchased by it under
this provision shall be an amount equal to the difference between the option
exercise price and the "fair market value" of the shares on the date that the
Optionee gave notice of such exercise in accordance with paragraph 1. (a)
hereof. "Fair market value" of the shares means the fair market value of such
shares at the particular date as determined by the Company's Board of
Directors, acting reasonably.
Payment shall be made by the Company on the date that is the first
anniversary of the termination date of the employee, provided that the Company
may, at its sole discretion, pay the said amount to the employee, with interest
as hereinafter provided to the date of such payment, at any time prior to the
aforesaid due date. Interest at the current savings rate shall be added to the
payment.
7. DEATH OF EMPLOYEE
At the sole option of the Company, any and all options that have vested
in the employee at the date of his or her death and any and all shares which the
employee purchased through the employee's exercise of any options granted
hereunder prior to the date of death shall be resold to the Company within
ninety (90) days from the date of death of the employee or whatever period of
time is legally required by the executors or personal representatives of the
deceased employee to obtain required releases for the shares in question. The
exercise of this option, the purchase price payable by the Company and the terms
of payment shall be the same as that determined above with respect to the
termination of an employee's employment.
The provision and conditions of this plan are legally binding upon the
employee's representatives, heirs and executors.
8. RIGHT TO CONTINUED EMPLOYMENT
The right granted to an employee to acquire shares under this plan
shall not be construed as conferring upon the employee any right to continued
employment with the Company.
9. TRANSFER OF OPTIONS
The employee's rights under this plan are not transferable or
assignable.
10. INTERPRETATION OF THE PLAN
The Board of Directors of the Company has the power to interpret and
administer the terms and conditions of the plan. Any interpretation by the Board
shall be final, conclusive and binding on all persons affected by the plan. The
Board of Directors of the Company may, from time to time, amend the terms of
this plan as it, in its sole discretion, deems appropriate, provided that if an
employee has entered into a stock agreement with the Company prior to the date
of such an amendment, then such amendment shall not be binding upon the employee
with respect of the options issued pursuant to the said agreement.
11. NO LIMIT ON COMPANY ACTION
Nothing contained in this plan or in any right to acquire shares under
this plan, shall prevent the Company from taking any corporate action which is
deemed by the Company to be appropriate or in its best interest, whether or not
such action would have an adverse effect on this plan or the rights granted to
any employee affected by this plan.
- -----------------------------------------------------------------------------
-3
<PAGE>
12. MISCELLANEOUS TERMS
a. Subject to the provisions of the plan, the options granted
hereunder may be exercised from time to time by delivery to
the Company at its registered office of a written notice of
exercise specifying the number of shares with respect to which
the option is being exercised and accompanied by payment in
full of the purchase price of the shares then being purchased
by way of cash or certified cheque in favour of the Company.
Such notice shall contain the employee's undertaking to
comply, to the satisfaction of the Company, with all
applicable requirements of any stock exchange or exchanges
upon which any securities of the Company are from time to time
listed and any applicable regulatory authority or authorities.
b. If the Company shall be a party to any reorganization, merger,
dissolution or sale or lease of all or substantially all its
assets, whether or not the Company is the surviving entity,
the option shall be adjusted so as to apply to the securities
to which the holder of the number of shares of capital stock
of the Company subject to the option would have been entitled
by reason of such reorganization, merger or sale or lease of
all or substantially all of its assets. Adjustments under this
paragraph or any determinations as to the fair market value of
any securities shall be made by the Board of Directors and any
reasonable determination made by the said Board or committee
thereof shall be binding and conclusive.
c. In the event of any subdivision or subdivisions of the common
shares of the Company as said common shares were constituted
at the time any options granted hereunder were granted into a
greater number of common shares, the Company will thereafter
deliver at the time of exercise thereof in addition to the
number of shares in respect of which the option is then being
exercised, such additional number of shares as result from
such subdivision or subdivisions of the shares for which the
option is being exercised without the employee exercising the
option making any additional payment or giving any other
consideration therefor.
d. In the event of any consolidation or consolidations of the
common shares of the Company as said common shares were
constituted at the time any options granted hereunder were
granted into a lesser number of common shares, the employee
shall accept, at the time of the exercise thereof in lieu of
the number of shares in respect of which the option is then
being exercised, the lesser number of shares as result from
such consolidation or consolidations of the shares for which
the option is being exercised.
e. In the event of any change of the common shares of the Company
as said common shares were constituted at the time any options
granted hereunder were granted the Company shall thereafter
deliver at the time of the exercise thereof the number of
shares of the appropriate class resulting from the said change
as the employee exercising the option would have been entitled
to receive in respect of the number of shares so purchased had
the option been exercised before such change.
f. If the Company at any time while any options granted hereunder
are outstanding shall pay any stock dividend or stock
dividends upon the shares of the Company in respect of which
any options were granted hereunder, the Company will
thereafter deliver at the time of exercise thereof in addition
to the number of shares in respect of which the option is then
being exercised, the additional number of shares of the
appropriate class as would
- -----------------------------------------------------------------------------
-4
<PAGE>
have been payable on the shares so purchased if they had been
outstanding on the record date for the payment of said stick
dividend or dividends.
g. The Company shall not be obligated to issue fractional shares
in satisfaction of any of its obligations hereunder.
13. NOTICES
All written notices by an employee under the provisions of this plan
may be delivered personally or by mail addressed to the Company at its Head
Office at:
Changepoint Corporation
1595 Sixteenth Avenue, Suite 702
Richmond Hill, ON L4B 3N9
Attention: Chief Financial Officer
This mailing address may be changed by notice given to the employee by
the Company.
Any notice required to be given by an employee under this plan shall
not be effective until received by the Company at the above address.
- -----------------------------------------------------------------------------
-5
<PAGE>
SCHEDULE "A"
STOCK OPTION AGREEMENT
THIS AGREEMENT made the ____ day of ____________, 19 __, between
CHANGEPOINT CORPORATION, a corporation incorporated under the laws of the
Province of Ontario (the "Corporation") and _________________________________
(the "Optionee");
For valuable consideration, the receipt and sufficiency is hereby
acknowledged, the parties agree as follows:
1. Pursuant to the stock Option Plan (the "Plan") of the corporation
established by the directors of the Corporation on the 2nd of
September, 1997, the Corporation hereby grants to the Optionee the
irrevocable option to purchase up to ___________ common shares (the
"Shares") in the capital stock of the Corporation, as presently
constituted, for cash, at a price of $____________ per Share, upon
the following terms and conditions:
(a) The option shall vest and shall be exercisable on the
following date or dates:
<TABLE>
<CAPTION>
----------------------------------------- -----------------------------------------
VESTING DATES PORTION OF OPTION THAT VESTS
(EXPRESSED AS THE NUMBER OF SHARES
THAT THE OPTIONEE IS ENTITLED TO
PURCHASE ON THE PARTICULAR VESTING
DATE)
<S> <C>
----------------------------------------- -----------------------------------------
----------------------------------------- -----------------------------------------
----------------------------------------- -----------------------------------------
----------------------------------------- -----------------------------------------
----------------------------------------- -----------------------------------------
</TABLE>
All or any part of the Shares for which the option has vested,
as described above, may be purchased at any time or times
after the particular Vesting Date. The option may only be
exercised by the Optionee by the delivery to the Corporation
at its head office of written notice of election to exercise
the same in the form attached as Schedule "A" and accompanied
by payment in full of the purchase price of the Shares then
purchased by way of cash or certified cheque in favour of the
Corporation. Concurrently with its receipt of any such notice
and payment, the Corporation shall deliver, or cause to be
delivered, to the Optionee a certificate representing the
Shares purchased by the Optionee. The Corporation may at its
election require that this Agreement be presented for
appropriate endorsement upon any such exercise.
(b) The option shall be non-assignable and nontransferable by the
Optionee.
(c) The option shall expire and all rights to purchase Shares
hereunder shall cease and become null and void if not
exercised within five years from the date hereof, and the
- -----------------------------------------------------------------------------
-6
<PAGE>
option hereby granted shall expire and all rights hereunder
shall cease at such time or upon the happening of certain
events as outlined in the plan.
2. Nothing in this Agreement shall confer upon the Optionee any right to
continue in the employ of the Corporation or its subsidiaries and
nothing herein contained shall interfere in any way with the right of
the Corporation or any of its subsidiaries to terminate the employment
of the Optionee at any time.
3. The Corporation hereby represents to and agrees with the Optionee that
if for any reason, other than the failure of default of the Optionee,
the Corporation is unable to issue and deliver the Shares as
contemplated herein to the Optionee upon the exercise by the Optionee
of the option to purchase any of the Shares covered by this option, the
Corporation will pay, in complete satisfaction of its obligations
hereunder, to the Optionee, in cash, an amount equal to the difference
between the option exercise price and the fair market value of such
Shares on the date that the Optionee gave notice of such exercise in
accordance with paragraph 1.(a) hereof. For the purposes of this
Agreement, if the Shares subject to this option are traded on a stock
exchange or exchanges, the fair market value shall be the closing sale
price on the exchange having the greatest volume of trading on the last
trading day immediately prior to the date such notice is given.
4. The Optionee hereby acknowledges receipt from the Corporation of a copy
of the Stock Option Plan. The Optionee acknowledges that the plan forms
part of the legal arrangement between the Corporation and the Optionee
and that the plan is hereby incorporated by reference. The Optionee
acknowledges that upon any conflict between the terms of said plan and
this option agreement the terms of this Agreement shall prevail.
IN WITNESS WHEREOF this Agreement has been executed by the parties as
of the ____ day of __________________ , 19__ .
CHANGEPOINT CORPORATION
Per:
-----------------------------------
Name:
---------------------------------
(Print)
Title
----------------------------------
---------------------------l/s
Optionee
---------------------------
Print Name
- -----------------------------------------------------------------------------
-7
<PAGE>
SCHEDULE "B"
OPTION EXERCISE FORM
RE: EXERCISE OF OPTION TO ACQUIRE SHARES OF CHANGEPOINT CORPORATION
PURSUANT TO A STOCK OPTION AGREEMENT DATED_________________________
__________________________ (THE "OPTION AGREEMENT")
For the purposes of this Form all capitalized terms shall have the
meaning set out in the Option Agreement.
The undersigned Optionee hereby irrevocably elects to exercise the
option, as set out in the Option Agreement, for the number and class of Shares
(or other property or securities subject thereto) as set forth below:
(a) Number of Shares to be Acquired:
-------------------------
(b) Option Exercise Price per Share:
-------------------------
(c) Aggregate Purchase Price [(a) times (b)]:
-------------------------
and hereby tenders a certified cheque or bank draft to Changepoint Corporation
for such aggregate purchase price.
The undersigned acknowledges having received a copy of the Shareholders
Agreement in respect of Changepoint Corporation dated ________________________.
The undersigned further acknowledges that he has reviewed the said shareholders
agreement and for valuable consideration hereby agrees to be bound to the
shareholders as if an original signatory thereto.
DATED in ____________________________ as of the ______________________
day of ___________________________, 19 ___ .
WITNESS TO EXECUTION )
)
) -------------------------
) Name of Optionee
)
- ---------------------------------------- )
) -------------------------
) Signature of Optionee
)
- -----------------------------------------------------------------------------
-8
<PAGE>
CHANGEPOINT CORPORATION
1999 STOCK OPTION PLAN
1. PURPOSE OF PLAN
1.1 The purpose of this Plan (the "Plan") is to attract, retain
and motivate persons as directors, officers, employees and
consultants of Changepoint Corporation (the "Corporation") and
its affiliated corporations and to advance the interests of
the Corporation by providing such persons with the
opportunity, through share options, to acquire an increased
proprietary interest in the Corporation. Those provisions of
the Plan which make express reference to Section 422 of the
United States Internal Revenue Code of 1986, as amended or
replaced from time to time, shall apply only to Incentive
Stock Options (as that term is defined in the Plan). The Plan
was adopted by the Board of Directors of the Corporation
effective as of August 1, 1999.
2. DEFINED TERMS
Where used herein, the following terms shall have the following
meanings, respectively:
2.1 "Affiliate" means any corporation which is an affiliate body
corporate (within the meaning of subsection 1(4) of the
Business Corporations Act (Ontario) as such provision is from
time to time amended, varied or re-enacted) of the
Corporation.
2.2 "Board" means the board of directors of the Corporation or, if
established and duly authorised to act, any committee of the
Board of directors of the Corporation.
2.3 "Business Day" means any day, other than a Saturday or a
Sunday, on which the applicable stock exchange as set forth in
Section 2.11 is open for trading or, if the Shares are not
listed and posted for trading on any stock exchange, any day,
other than a Saturday or a Sunday, that is not a statutory
holiday in the Province of Ontario.
2.4 "Change of Control" means:
(a) the acquisition or continuing ownership of securities
("Convertible Securities") convertible into,
exchangable for or representing the right to acquire
shares of the Corporation and/or shares of the
Corporation as a result of which a Person
beneficially owns shares of the Corporation and/or
Convertible Securities such that, assuming only the
conversion, exchange or exercise of Convertible
Securities beneficially owned by such Person, such
Person would beneficially own shares that would
entitle the holders thereof to cast more than fifty
percent (50%) of the votes attaching to all shares in
the capital of the Corporation that may be cast to
elect directors of the Corporation; or
(b) the approval by the shareholders of the Corporation
of a reorganization, amalgamation, merger or
consolidation (a "Reorganization"), other than a
Reorganization where all of the members of the board
of directors of the Corporation resulting from such
Reorganization (the "Resulting Corporation") are
Incumbent Directors with respect to the Corporation
or
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were approved as directors of the Resulting
Corporation by the affirmative vote of at least
seventy-five percent (75%) of the Incumbent
Directors; or
(c) the approval by the shareholders of the Corporation
of (i) a dissolution or winding-up of the
Corporation, or (ii) a sale or other disposition (
"Sale") of all or substantially all of the assets of
the Corporation, other than a Sale to a corporation
(the "Purchaser") where following such Sale, all of
the members of the Board of Directors of the
Purchaser are Incumbent Directors with respect to the
Corporation or were approved as directors of the
Purchaser by the affirmative vote of at least
seventy-five percent (75%) of the Incumbent
Directors.
2.5 "Code" means the United States Internal Revenue Code of 1986,
as amended or replaced from time to time.
2.6 "Consultant" means an individual, other than an employee, a
director or an officer of the Corporation or its Affiliate,
that:
(a) is engaged to provide on a bona fide basis
consulting, technical, management or other services
to the Corporation or to an Affiliate under a written
contract between the Corporation or the Affiliate and
the individual or a company or partnership of which
the individual is an employee, shareholder or
partner; and
(b) in the reasonable opinion of the Corporation, spends
or will spend a significant amount of time and
attention on the affairs and business of the
Corporation or an Affiliate.
2.7 "Corporation" means Changepoint Corporation and includes any
successor corporation thereto.
2.8 "Incentive Stock Option" means an incentive stock option which
is intended to meet the requirements of Section 422 of the
Code.
2.9 "Incumbent Director" means any member of the board of
directors of the Corporation who is a member of the board of
directors of the Corporation as of the date hereof and any
successor to an Incumbent Director who is recommended or
elected or appointed to succeed any Incumbent Director by the
affirmative vote of the directors when that affirmative vote
includes the affirmative vote of a majority of the Incumbent
Directors then on the board of directors of the Corporation;
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2.10 "Insider" means:
2.10.1 an insider as defined under Section 1(1) of the
SECURITIES ACT (ONTARIO), other than a person who
falls within that definition solely by virtue of
being a director or senior officer of an Affiliate;
and
2.10.2 an associate as defined under Section 1(1) of the
SECURITIES ACT (ONTARIO) of any person who is an
insider by virtue of Section 2.10.1 above.
2.11 "Market Price" at any date in respect of the Shares shall be
the closing price of such Shares on such stock exchange or
automated quotation service in Canada or the United States on
which such Shares are listed and posted for trading as may be
selected for such purpose by the board (the "Exchange") on the
last Business Day preceding the date on which the Option is
approved by the Board. In the event that such Shares did not
trade on such Business Day, the Market Price shall be the
average of the bid and ask prices in respect of such Shares at
the close of trading on such date. In the event that such
Shares are not listed and posted for trading on any Exchange,
the Market Price shall be the fair market value of such Shares
as determined by the Board, having regard to generally
accepted valuation principles.
2.12 "Non-Qualified Option" means a non-statutory option which is
not intended to meet the requirements of Section 422 of the
Code.
2.13 "Option" means an option to purchase Shares granted under the
Plan.
2.14 "Option Price" means the price per Share at which Shares may
be purchased under the Option, as the same may be adjusted
from time to time in accordance with Article 9.
2.15 "Optionee" means a person to whom an Option has been granted.
2.16 "Parent" means a parent corporation within the meaning of
Section 424(e) of the Code.
2.17 "Person" means a person, group of persons or persons acting
joint or in concert, or persons associated or affiliated with
the meaning of the Business Corporation Act (Ontario) with any
such person, group of persons or any of such persons acting
jointly or in concert, and the term "person" as used in this
definition shall have the meaning ascribed thereto in the
Business Corporations Act (Ontario).
2.18 "Plan" means the Changepoint Corporation 1999 Stock Option
Plan, as the same may be amended or varied from time to time.
2.19 "Share Compensation Arrangement" means any stock option, stock
option plan, employee stock purchase plan or any other
compensation or incentive mechanism involving the issuance or
potential issuance of Shares, including a share purchase from
treasury which is financially assisted by the Corporation by
way of a loan, guarantee or otherwise.
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2.20 "Shares" means the common shares of the Corporation or, in the
event of an adjustment contemplated by Article 9, such other
shares or securities to which an Optionee may be entitled upon
the exercise of an Option as a result of such adjustment.
2.21 "Subsidiary" means a subsidiary corporation within the meaning
of Section 424(f) of the Code.
3. TYPE OF OPTIONS AND ADMINISTRATION OF THE PLAN
3.1 Options granted pursuant to the Plan shall be authorized by
action of the Board and may be either Incentive Stock Options
or Non-Qualified Options.
3.2 The Plan shall be administered by the Board in accordance with
applicable laws and regulatory requirements including, without
limitation, requirements imposed pursuant to applicable
securities and tax laws in Canada and the United States.
3.3 The Board shall have the power, where consistent with the
general purpose and intent of the Plan and subject to the
specific provisions of the Plan:
3.3.1 To establish policies and to adopt rules and
regulations for carrying out the purposes, provisions
and administration of the Plan.
3.3.2 To interpret and construe the Plan and to determine
all questions arising out of the Plan and any Option
granted pursuant to the Plan and any such
interpretation, construction or determination made by
the Board shall be final, binding and conclusive for
all purposes.
3.3.3 To determine which persons are granted Options and
the number of Shares covered by each Option.
3.3.4 To determine the Option Price.
3.3.5 To determine the time or times when Options will be
granted and exercisable.
3.3.6 To determine if the Shares which are subject to an
Option will be subject to any restrictions upon the
exercise of such Option.
3.3.7 To grant Options and to prescribe the form of the
instruments relating to the grant, exercise and other
terms of Options.
4. SHARES SUBJECT TO THE PLAN
4.1 Options may be granted in respect of authorised and unissued
Shares provided that, subject to the increase by the Board and
the receipt of any and all requisite approvals, the maximum
aggregate number of Shares which may be purchased upon the
exercise of all Options granted under the Plan shall not
exceed 2,000,000, subject to adjustment or increase of such
number pursuant to the provisions of Article 9. Shares in
respect of which Options have expired or otherwise been
cancelled shall be
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available for subsequent Options under the Plan. No
fractional Shares may be purchased or issued under the Plan.
5. ELIGIBILITY; GRANT; TERMS OF OPTIONS
5.1 Options may be granted to directors, officers, full-time and
part-time employees and Consultants of the Corporation or of
any Affiliate, provided that Incentive Stock Options may only
be granted to individuals who are employees (within the
meaning of Section 3401(c) of the Code) of the Corporation or
any Affiliate. Non-Qualified Options may also be granted to a
corporation of which a Consultant is an employee or a
shareholder or to a partnership of which a Consultant is an
employee or partner, and reference herein to a grant of an
Option to a Consultant shall include a grant to such
corporation or partnership.
5.2 Options may be granted by the Corporation pursuant to the
recommendations of the President of the Corporation from time
to time provided and to the extent that such decisions are
approved by the Board.
5.3 Subject as herein and otherwise specifically provided in this
Article 5, the number of Shares subject to each Option, the
Option Price, the expiration date of each Option, the extent
to which each Option shall vest and be exercisable from time
to time during the term of the Option and other terms and
conditions relating to each such Option shall be determined by
the Board, provided, that all such terms and provisions shall
not be inconsistent with the requirements of applicable law
and shall not cause any Incentive Stock Option granted under
the Plan to fail to qualify as an Incentive Stock Option
within the meaning of Section 422 of the Code. At no time
shall the period during which an Option shall be exercisable
exceed ten (10) years.
5.4 Except as provided in Section 8.1(c) hereof with respect to
Incentive Stock Options, in the event that no specific
determination otherwise is made by the Board, the period
during which an Option shall be exercisable shall be ten (10)
years from the date the Option is granted to the Optionee.
5.5 Subject to the provisions of Section 8.1(b) hereof with
respect to Incentive Stock Options, the Option Price of Shares
which are the subject of any Option shall in no circumstances
be lower than the Market Price of the Shares at the date of
the grant of the Option.
5.6 The maximum number of Shares which may be reserved for
issuance to any one Optionee under this Plan or under any
other Share Compensation Arrangement shall not exceed five
percent (5%) of the Shares outstanding at the date of the
grant (on a non-diluted basis).
5.7 The maximum number of Shares which may be reserved for
issuance to Insiders under the Plan or under any other Share
Compensation Arrangement shall be ten percent (10%) of the
Shares outstanding at the date of the grant (on a non-diluted
basis).
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5.8 The maximum number of Shares which may be issued to any one
Insider and such Insider's associates under the Plan and any
other Share Compensation Arrangement in any 12 month period
shall be five percent (5%) of the Shares outstanding at the
date of the issuance (on a non-diluted basis). The maximum
number of Shares which may be issued to any Insiders under the
Plan and any other Share Compensation Arrangement in any
twelve (12) month period shall be ten percent (10%) of the
Shares outstanding at the date of the issuance (on a
non-diluted basis).
5.9 Any entitlement to acquire Shares granted pursuant to the Plan
or any other Share Compensation Arrangement prior to the
Optionee becoming an Insider shall be excluded for the
purposes of the limits set out in Sections 5.7 and 5.8 above.
5.10 An Option is personal to the Optionee and may not in any
circumstances be assigned, sold, transferred, pledged or
otherwise disposed of or encumbered.
6. CHANGE OF CONTROL OR TERMINATION OF DIRECTORSHIP, EMPLOYMENT OR
CONSULTANCY; DEATH
6.1 a) Subject to any express resolution passed by the Board
with respect to an Option, in the event that there
occurs a Change of Control and the Shares are not
listed and posted for trading on any Exchange, then
the Optionee, if so required by the Corporation by
notice in writing delivered to the Optionee prior to
the effective time of the Change of Control (the
"Effective Time"), shall at the Effective Time
exercise all of the Options held by the Optionee and,
concurrent with such exercise, the Corporation shall
purchase from the Optionee, at the greater of the
Option Price and Market Price of the Options, all of
the Shares issued to the Optionee upon such exercise.
(b) Subject to the provisions of Section 8(d) hereof with
respect to Incentive Stock Options and any express
resolution passed by the Board with respect to an
Option, in the event that the Optionee ceases for any
reason, including resignation, termination,
disability or death, to be any of a director,
officer, employee or Consultant of the Corporation or
of any Affiliate (a "Termination"), the following
shall apply:
(i) if the Shares are not listed and posted for
trading on any Exchange, then the Optionee,
if so required by the Corporation by notice
in writing delivered to the Optionee prior
to the expiry of ninety (90) days from the
date of the Termination, shall forthwith
upon receipt of such notice exercise all of
the Options held by the Optionee and,
concurrent with such exercise, the
Corporation shall purchase from the
Optionee, at the greater of the Option Price
and the Market Price of such Options, all of
the Shares issued to the Optionee upon such
exercise; and
(ii) if the Shares are listed and posted for
trading on any Exchange, then any and all
Options held by the Optionee which are then
otherwise exercisable shall automatically
expire and cease to be exercisable upon the
expiry of ninety (90) days from the date of
the Termination, unless the Termination was
due to the death or disability of the
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Optionee, in which case such Options shall
automatically expire and cease to be
exercisable upon the expiry of one hundred
and eighty (180) days from the date of the
Termination.
(c) In the event that an Optionee fails to exercise an
Option in accordance with the provisions of this
Section 6.1, such Options shall immediately expire
and cease to be exercisable.
6.2 Notwithstanding any other provision hereof, an Option which
has not yet vested shall:
(i) automatically expire immediately upon the occurrence
of a Termination; and
(ii) immediately upon the occurrence of a Change of
Control be subject to cancellation by the
Corporation, in its sole and exclusive discretion, at
any time, provided that if the Corporation elects to
cancel an unvested Option upon a Change of Control it
shall provide the Optionee with money or property,
including but not limited to securities of the
Corporation or another corporation, of substantially
equivalent value to that of the cancelled Option,
such value to be determined by the Board, having
regard to generally accepted valuation principles.
6.3 In the event the Corporation purchases or cancels an Option
pursuant to Section 6.1 or 6.2 above, the Corporation shall be
entitled to withhold from any and all amounts payable to the
Optionee all amounts required by law to be deducted at source,
including but not limited to income taxes, pension plan
premiums and unemployment insurance premiums.
7. EXERCISE OF OPTIONS
7.1 Subject to the provisions of the Plan, an Option may be
exercised from time to time by delivery to the Corporation at
its registered office of a written notice of exercise
addressed, and satisfactory in form and substance, to the
Secretary of the Corporation specifying the number of Shares
with respect to which the Option is being exercised and
accompanied by payment in full, in the manner approved by the
Board, of the Option Price of the Shares to be purchased.
Certificates for such Shares shall be issued and delivered to
the Optionee within a reasonable period of time following the
receipt of such notice and payment.
7.2 Notwithstanding any of the provisions contained in the Plan or
in any Option, the Corporation's obligation to issue Shares to
an Optionee pursuant to the exercise of an Option shall be
subject to:
7.2.1 completion of such registration or other
qualification of such Shares (or the availability of
an exemption therefrom) or obtaining approval of such
governmental or regulatory authority as counsel to
the Corporation shall reasonably determine to be
necessary or advisable in connection with the
authorization, issuance or sale thereof;
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7.2.2 the admission of such Shares to listing on the
Exchange, if applicable;
7.2.3 the receipt from the Optionee of an agreement and
undertaking, in form and substance satisfactory to
counsel to the Corporation, to be bound by the terms
of any unanimous shareholder agreement then in effect
among the shareholders of the Corporation; and
7.2.4 the receipt from the Optionee of such
representations, agreements and undertakings,
including as to future dealings in such Shares, as
counsel to the Corporation reasonably determines to
be necessary or advisable in order to safeguard
against the violation of the laws of any
jurisdiction.
8. INCENTIVE STOCK OPTIONS
8.1 Options granted under the Plan which are intended to be
Incentive Stock Options shall be subject to the following
additional terms and conditions:
(a) All Incentive Stock Options granted under the Plan
shall, at the time of grant, be specifically
designated as such in the option agreement covering
such Incentive Stock Options.
(b) The Option Price of an Incentive Stock Option, shall
not be less than 100% of the Market Price of the
Shares at the time of grant of such Option, or less
than 110% of such Fair Market Value in the case of
Options described in Section 8(c) hereof.
(c) If any employee to whom an Incentive Stock Option is
to be granted under the Plan is, at the time of the
grant of such Option, the owner of Shares possessing
more than 10% of the total combined voting power of
all classes of shares of the Corporation (after
taking into account the attribution of stock
ownership rules of Section 424(d) of the Code), then
the following special provisions shall be applicable
to the Incentive Stock Option granted to such
individual:
(i) the purchase price per Share subject to such
Incentive Stock Option shall not be less
than 110% of the Market Price of one Share
at the time of grant; and
(ii) the option exercise period shall not exceed
five (5) years from the date of grant.
(d) For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other
incentive stock option plans of the Corporation)
which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options
to the extent that such options, in the aggregate,
become exercisable for the first time in any one
calendar
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year for Shares with an aggregate Market Price , as
of the respective date or dates of grant, of more
than $100,000.
(e) No Incentive Stock Option may be exercised unless, at
the time of such exercise, the Optionee is, and has
been continuously since the date of grant of his or
her Option, employed by the Corporation or its Parent
or Subsidiary, except that:
(i) an Incentive Stock Option may be exercised
within the period of three (3) months after
the date the Optionee ceases to be an
employee of the Corporation or its Parent or
Subsidiary(or within such lesser period as
may be specified in the applicable option
agreement), to the extent it is otherwise
exercisable at the time of such cessation,
(ii) if the Optionee dies while in the employ of
the Corporation or its Parent or Subsidiary,
or within three (3) months after the
Optionee ceases to be such an employee, the
Incentive Stock Option may be exercised by
the person to whom it is transferred by will
or the laws of descent and distribution
within the period of one (1) year after the
date of death (or within such lesser period
as may be specified in the applicable option
agreement), to the extent it is otherwise
exercisable at the time of the Optionee's
death, and
(iii) if the Optionee becomes disabled (within the
meaning of Section 22(e)(3) of the Code or
any successor provisions thereto) while in
the employ of the Corporation or its Parent
or Subsidiary, the Incentive Stock Option
may be exercised within the period of one
(1) year after the date the Optionee ceases
to be such an employee because of such
disability (or within such lesser period as
may be specified in the applicable option
agreement), to the extent it is otherwise
exercisable at the time of such cessation.
For all purposes of the Plan and any Option granted hereunder,
"employment" shall be defined in accordance with the
provisions of United States Department of Treasury Regulations
Section 1.421-7(h) (or any successor regulations).
Notwithstanding the foregoing provisions, no Incentive Stock
Option may be exercised after its expiration date.
9. CERTAIN ADJUSTMENTS
9.1 Appropriate adjustments in the number of Shares subject to the
Plan, and as regards Options granted or to be granted, in the
number of Shares optioned and in the Option Price shall be
made by the Board to give effect to adjustments in the number
of Shares of the Corporation resulting from subdivisions,
consolidations or reclassifications of the Shares of the
Corporation, the payment of stock dividends or cash dividends
by the Corporation (other than dividends in the ordinary
course), the
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distribution of securities, property or assets by way of
dividend or otherwise (other than dividends in the ordinary
course), or other relevant changes in the capital stock of
the Corporation, subsequent to the approval of the Plan by
the Board.
10. WITHHOLDING
10.1 The Corporation shall have the right to deduct and withhold
from payments or distributions of any kind otherwise due to
the Optionee any United States or Canadian federal, state,
provincial or local taxes of any kind required by law to be so
deducted and withheld with respect to any Shares issued upon
exercise of Options under the Plan. Subject to the prior
approval of the Corporation, which may be withheld by the
Corporation in its sole discretion, the Optionee may elect to
satisfy such obligations, in whole or in part by (i) causing
the Corporation to withhold Shares otherwise issuable pursuant
to the exercise of an Option, (ii) delivering to the
Corporation Shares already owned by the Optionee, or (iii)
delivering to the Corporation cash or a cheque to the order of
the Corporation in an amount equal to the amount required to
be so deducted and withheld. The Shares delivered in
accordance with method (ii) above or withheld in accordance
with method (i) above shall have a Market Price equal to such
withholding obligation as of the date that the amount of tax
to be withheld is to be determined. An Optionee who has made
(with the Corporation's approval) an election pursuant to
method (i) or (ii) of this Section 10.1 may only satisfy his
or her withholding obligation with Shares which are not
subject to any repurchase, forfeiture, unfulfilled vesting or
other similar requirements.
10.2 The acceptance of Shares upon exercise of an Incentive Stock
Option shall constitute an agreement by the Optionee (i) to
notify the Corporation if any or all of such Shares are
disposed of by the Optionee within two (2) years from the date
the Option was granted or within one (1) year from the date
the Shares were issued to the Optionee pursuant to the
exercise of the Option, and (ii) if required by law, to remit
to the Corporation, at the time of and in the case of any such
disposition, an amount sufficient to satisfy the Corporation's
federal, state, provincial, local or other withholding tax
obligations with respect to such disposition, whether or not,
as to both (i) and (ii), the Optionee is in the employ of the
Corporation or its Affiliate at the time of such disposition.
11. AMENDMENT OR DISCONTINUANCE OF PLAN
11.1 Subject to the provisions of Section 13.1 hereof and
compliance with all applicable legal and regulatory
requirements, the Board may amend or discontinue the Plan at
any time, provided however that no such amendment may without
the consent of the Optionee alter or impair, in a manner which
is materially adverse to the Optionee, any of the terms of any
Option previously granted to an Optionee under the Plan.
12. MISCELLANEOUS PROVISIONS
12.1 The holder of any Option shall not have any rights as a
shareholder of the Corporation with respect to any of the
Shares covered by such Option until such
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holder shall have exercised such Option in accordance with
the terms of the Plan (including tendering payment in full
of the Option Price of the Shares in respect of which the
Option is being exercised) and the Corporation shall be
obliged to issue such Shares to the Optionee in accordance
with the terms of the Plan.
12.2 Nothing in the Plan or any Option shall confer upon an
Optionee any right to continue in the employ of the
Corporation or any Affiliate or affect in any way the right of
the Corporation or any Affiliate to terminate his employment
at any time. Nor shall anything in the Plan or any Option be
deemed or construed to constitute an agreement or an
expression of intent, on the part of the Corporation or any
Affiliate to extend the employment of any Optionee beyond the
time which he would normally be retired pursuant to the
provisions of any present or future retirement plan of the
Corporation or any Affiliate or beyond the time at which he
would otherwise be retired pursuant to the provisions of any
contract of employment with the Corporation or any Affiliate.
12.3 Each Optionee shall have the sole responsibility for
understanding the income tax consequences and the calculation
and payment of any income tax liability resulting from the
exercise of an Option granted hereunder and the sale of Shares
issued by the Corporation pursuant to the exercise of an
Option.
13. EFFECTIVE DATE AND REGULATORY APPROVAL
13.1 The Plan shall become effective as of the date set forth in
Section 1.1 hereof, but no Incentive Stock Option granted
under the Plan shall become exercisable unless and until the
Plan shall have been approved by the shareholders of the
Corporation. If such shareholder approval is not obtained
within twelve (12) months after the date of the Board's
adoption of the Plan, no options previously granted under the
Plan shall be deemed to be Incentive Stock Options and no
Incentive Stock Options shall be granted thereafter.
Amendments to the Plan shall become effective as of the latest
of (i) the date of adoption of the amendment by the Board,
(ii) the date set forth in the amendment or (iii) in the case
of any amendment requiring shareholder approval, the date such
amendment is approved by the shareholders of the Corporation.
Notwithstanding the foregoing, no Incentive Stock Option
granted on or after the effective date of any such amendment
requiring shareholder approval to qualify for Incentive Stock
Option treatment under Section 422 of the Code shall become
exercisable unless and until such amendment shall have been
approved by the shareholders of the Corporation. If such
shareholder approval is not obtained within twelve (12) months
of the Board's adoption of such amendment, no Options granted
on or after the effective date of such amendment shall be
deemed Incentive Stock Options and no Incentive Stock Options
shall be granted thereafter.
13.2 The Plan shall be subject to the approval of any relevant
regulatory authority whose approval is required. Any Options
granted prior to such approval shall be conditional upon such
approval being given and no such Options may be exercised
unless such approval is given.
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13.3 The Plan shall terminate automatically ten (10) years after
its adoption by the Board. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon
exercise of an Option granted prior to such termination.
<PAGE>
CONFIDENTIAL TREATMENT - REDACTED VERSION
Memorandum of Understanding
between
SkillsVillage.com ("SkillsVillage")
and
Changepoint Corporation ("Changepoint")
This Memorandum of Understanding ("MOU") contains a statement of the
understandings between SkillsVillage.com and Changepoint Corporation
(collectively the "Parties") with regard to the objectives stated below. The
parties intend to use reasonable efforts and exercise good faith to be
consistent with the intentions and coverage of this MOU.
1. OBJECTIVE
a) The objective of this MOU is to establish a non-exclusive
strategic partnership between the parties to allow users to
access each other's web sites and for the parties to cooperate in
marketing each other's products and/or services.
b) The two parties will cooperate (responsibilities detailed below)
to develop functionality that will allow a Changepoint or
MyChangepoint user to interact with the SkillsVillage products
and services to utilize the services of SkillsVillage such as
selection of personnel. At a minimum it is envisioned that a user
of Changepoint will have the capability within Changepoint to
send a resource requirement to SkillsVillage and receive a list
of available personnel meeting the specifications. The interface
will also allow the user to request detailed information on any
of the available personnel on the list.
c) There are a number of additional opportunities for interaction
between the two party's products and services that are being
discussed, and will be developed as soon as feasible. One of
these functions is the capability to pass time reports and other
information between the systems. The parties agree to continue to
explore opportunities that will benefit the joint user community
of the parties.
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2. UNDERSTANDINGS
The parties anticipate that the terms and conditions of this MOU will
include, but need not be limited to, the following:
Changepoint agrees to the following criteria:
(a) Feature SkillsVillage prominently on WWW.CHANGEPOINT.COM in such
areas where appropriate.
(b) Provide direct links to WWW.SKILLSVILLAGE.COM from within the
Changepoint applications or develop functionality based on API
specifications to be provided by SkillsVillage that will allow
for direct interaction. The intellectual property rights for
functionality developed by Changepoint will remain the sole
property of Changepoint.
(c) Changepoint will provide SkillsVillage its logo to be used to
co-brand any Skillsvillage.com pages viewed through the
SkillsVillage web site.
(d) Work with SkillsVillage on a co-marketing plan to expand the
reach in each other's markets.
SkillsVillage agrees to the following criteria:
(a) Changepoint shall be prominently featured on
WWW.SKILLSVILLAGE.COM in such areas as Resource Center and other
areas where appropriate.
(b) Provide specifications of API's and reasonable technical
assistance to Changepoint to allow development of the interfaces
between the products and thereafter to support new releases. The
intellectual property rights for functionality developed by
SkillsVillage will remain the sole property of SkillsVillage.
(c) Provide direct links to WWW.CHANGEPOINT.COM or
WWW.MYCHANGEPOINT.COM as appropriate.
(d) SkillsVillage will create a Changepoint co-branded landing page,
which will be used when Changepoint users click through to
WWW.SKILLSVILLAGE.COM.
(e) Work with Changepoint on a co-marketing plan to expand the reach
in each other's markets.
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CONFIDENTIAL TREATMENT
3. TRANSACTION FEES
SkillsVillage agrees to pay the following transaction fees to
Changepoint on a quarterly basis:
(a) ***
(b) ***
All fees are to be paid to Changepoint for any transaction made
against a Changepoint referral within a 12 (twelve) month period of
that referral.
Either party can request that the value of the transaction fees in (a)
and (b) above will be reviewed in good faith on the semi-annual or
annual anniversary of this agreement, based on changes in volume of
business volume generated or changes in the established market prices
for similar services.
4. PUBLIC ANNOUNCEMENTS
Prior to the execution of this MOU by the Parties, neither party shall
make any public announcement about this MOU or the parties'
discussions without the written consent of the other party, which
consent shall not be unreasonably withheld or delayed. . The content
of the press release will be agreed upon by both parties. In addition,
each party may issue individual press releases concerning the
execution of this MOU with prior written approval from the other
party.
5. EXPENSES
Each of the Parties agrees to pay all costs it incurs in connection
with this MOU and the publishing of logos on each parties respective
web site.
6. CONFIDENTIALITY
This MOU and all information exchanged pursuant to this MOU (whether
in tangible or intangible form) shall be held confidential by the
Parties unless written permission is granted from the other party.
7. TERM AND TERMINATION
This Agreement will remain in effect for one (1) year after the
Effective Date, and shall automatically renew for additional one-year
periods, unless terminated by either party by written notice to the
other party at least thirty (30) days prior to the end of the
then-current term. Six months form the commencement of the
*** The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
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Agreement, SkillsVillage and Changepoint will revisit the terms of
this Agreement.
7.1 If either party commits any material breach of any material
provision of this Agreement, the other party will have the right
to terminate this Agreement by written notice unless the
breaching party remedies such breach within thirty (30) calendar
days after receiving written notice from the non breaching party
describing such breach in detail.
7.2 Either party shall have the right to terminate this Agreement,
without cause, within (30) thirty days of written notice of such
termination to the other party.
7.3 Either party may terminate this Agreement immediately if the
other party ceases conducting business in the normal course,
becomes insolvent, makes a general assignment for the benefit of
creditors, suffers or permits the appointment of a receiver for
its business or assets, avails itself of or becomes subject to
any petition or proceeding under any statute of any state or
country relating to insolvency or the protection of the rights of
creditors, or any other insolvency or bankruptcy proceeding or
other similar proceeding for the settlement of the other party's
debt is instituted.
7.4 Upon any expiration or termination of this Agreement, all
licenses granted hereunder and all other the rights and
obligations of the parties under this Agreement will terminate.
In addition, each party will cease display of the other party's
icons, links, logos, and marks on its web sites, and each party
shall promptly remove the other party's materials from its
servers and all marketing and promotional materials. Affiliate is
only eligible to earn referral fees on revenues earned during the
term of this Agreement from qualifying transactions.
8. LEGAL EFFECT, LEGAL APPROVALS
This MOU sets forth the current intentions of the parties with respect
to the activities described, but in no way gives rise to any legal
obligations other than the confidentiality obligations set forth
above.
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IN WITNESS WHEREOF, the parties have caused this MOU to be executed by their
respective authorized representatives as of the latter of the two dates set
forth below.
SKILLSVILLAGE.COM CHANGEPOINT CORPORATION
By: /s/ Kevin Kennedy By: /s/ Harvey Gordon
------------------------------ -----------------------------
Name: Kevin Kennedy Name: Harvey Gordon
------------------------------ -----------------------------
Title: VP, Business Development Title: VP, Business Development
------------------------------ -----------------------------
Date: 2/4/00 Date: 2/5/00
------------------------------ -----------------------------
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CONFIDENTIAL TREATMENT - REDACTED VERSION
CORIO INC.
LICENSE AND HOSTING AGREEMENT
This License and Hosting Agreement (the "AGREEMENT") is made and
entered into as of December 13, 1999 ("EFFECTIVE DATE") by and between Corio
Inc., a Delaware corporation, having its principal place of business at 700 Bay
Road, Suite 210, Redwood City, CA 94063 ("CORIO") and Changepoint, Inc., a
Delaware corporation having a place of business at 1595 Sixteenth Ave., Suite
700, Richmond Hill, Ontario, Canada L4B 3N9 ("CHANGEPOINT").
BACKGROUND
A. Changepoint is the owner or has the right to license certain
proprietary software products (the "SOFTWARE" as further defined
below); and
B. Corio wishes to obtain a license to use and host the Software on the
terms and conditions set forth herein in connection with the hosting
services that Corio will provide to its Customers (as defined below)
and Changepoint wishes to grant Corio such a license on such terms;
C. The parties further wish to jointly market and promote the other
party's software and/or services as well as provide support services to
Corio and its Customers in accordance with this Agreement.
NOW, THEREFORE, for good and valuable consideration, the parties hereby
agree as follows:
1. DEFINITIONS.
The following terms shall have the following meanings:
1.1 "SOFTWARE USER" means a named user of the Corio Services worldwide to
whom a user identification number and password has been assigned, which
permits that user to access and use the Software on a designated Corio
Server. The identification number and password used by a Software User
is reusable and reassignable and may be used and transferred by Corio,
in accordance with the licenses granted below, between Customers as one
Customer discontinues the Corio Services and another Customer
subscribes.
1.2 "ASP" means Application Service Provider.
1.3 "APPLICATION MANAGEMENT REVENUE" means all revenue Corio receives from
Customers for use of the Software and basic support of the Software
provided at no additional charge to Customers (Level 1 and Level 2
support as defined in Exhibit C hereto), operational support of the
Software and basic infrastructure support (hardware, database and
operating system) for the Software, less taxes, freight, insurance,
refunds or credits and other non-product items.
1.4 "CORIO SERVERS" means the unlimited number of computer servers owned or
operated by or for Corio in North America which will contain the
installed Software (as defined below) for access by Customers in
connection with the Corio Services.
1.5 "CORIO SERVICES" means the hosting services offered by Corio to its
Customers in which Corio allows Customers to access the Corio Servers.
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1.6 "CUSTOMER(S)" means one or more customers of the Corio Services having
its principal executive offices in North America who obtains a
sublicense from Corio to use the Software by accessing one or more
Corio Servers.
1.7 "DEMONSTRATION SOFTWARE" means copies of the Software which are for
demonstration purposes only and which contain sample data and
transactions.
1.8 "DOCUMENTATION" means any on-line help files or written instruction
manuals regarding the use of the Software.
1.9 "RELATIONSHIP MANAGERS" means the appointed employee of each party, as
set forth on EXHIBIT A attached hereto and made a part hereof, who
shall be the primary contact for implementing and administering the
terms and conditions of this Agreement.
1.10 "SOFTWARE" means Changepoint's proprietary software described in
EXHIBIT A attached hereto and made a part hereof, in object code form
only, and any Updates or Upgrades (as defined below) thereto. The
Software shall also include any Application Programming Interfaces
("API") provided by Changepoint to Corio, but such API intellectual
property shall not be sublicenseable to Customers.
1.11 "TERRITORY" means throughout the world.
1.12 "UPDATE(S)" means any error corrections, bug fixes, modifications or
enhancements to the Software made generally available by Changepoint to
its licensees, which are indicated by a change in the numeric
identifier to the Software in the digit to the right of the decimal, or
any error corrections, bug fixes, modifications or enhancements of the
Software.
1.13 "UPGRADE(S)" means a release, function or version of the Software
designated as such by Changepoint which contains new features or
significant functional enhancements to the Software, which are
indicated by a change in the numeric identifier for the Software in the
digit to the left of the decimal, which Upgrade is provided to
Changepoint's installed customer base for the Software. For the
purposes of this Agreement, "Software Support and Maintenance" means
those services listed in Section 5.3 of this Agreement and EXHIBIT C
and the provision of Updates and Upgrades as called for by this
Agreement.
1.14 "PSA APPLICATION" means a commercially available suite or collection of
integrated proprietary software applications marketed as a suite or a
combination of software products which offer substantially the
following functionality specifically designed for information
technology professional services users : (i) time and expense, which
allows users to enter and modify time and expenses associated with a
project/task for a time period, approve time and expenses entered, and
determine who has submitted time and expense reports, (ii) project
accounting and billing, which allows users to apply cost and billing
rates to time entered for projects, generate client invoices based on
terms and conditions of engagement, track amounts billed and earned for
each project, feed invoice data to an accounts receivables system, and
feed cost and billing accounting entries to a general ledger system,
(iii) project management, which allows users to create work breakdown
structure, schedule dates and resource assignments for project, record
project and task status, and create reports to monitor project
progress, (iv) resource management, which allows users to assign
resources to projects based on skills and availability, and create
reports to monitor and manage resource utilization, (v) engagement
management, which allows users to create billing terms and conditions
for a client, and create reports to monitor and manage engagement
billing, (vi) opportunity management, which allows users to track
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customers/prospects, sales opportunities and sales activities, and
forecast sales by various criteria, and (vii) marketing campaign
management, which allows users to create marketing campaigns, track
campaign effectiveness, and manage marketing lists.
2. GRANT OF RIGHTS.
2.1 HOSTING SOFTWARE LICENSE. Subject to the terms and conditions of this
Agreement, Changepoint hereby grants to Corio a fee-bearing,
irrevocable, nonexclusive, nontransferable (except in accordance with
Section 14.1 of this Agreement) license in the Territory to (i)
reproduce the Software in machine executable object code format only
for installation on the Corio Servers; (ii) install multiple copies of
the Software on Corio's Servers which will be made remotely accessible
to Corio's Customers for their internal business purposes, (iii) permit
limited access to and use of the Software by Customers through Corio
Servers solely for such Customer's internal business purposes; (iv)
sublicense an unlimited number of Customers to access and use the
Software only through the installation on Corio Servers solely for such
Customer's internal business purposes; and (v) use Changepoint's tools
and utilities, if any, subject to any restrictions placed on the
Changepoint by third party software providers and payment of any
applicable fees required by such third parties, to configure, integrate
and manage the Software. Corio shall not authorize Customers to
download or reproduce the Software for use except as necessary in
connection with the Corio Services. Except as specifically authorized
by this Agreement, no license is granted under this Agreement to Corio
to distribute the Software to its Customers or for use other than as
part of the Corio Services.
2.2 INTERNAL USE LICENSE FOR PRODUCTION, TESTING, DEVELOPMENT, UPGRADE,
REPORTING AND TRAINING. Subject to the terms and conditions of this
Agreement, Changepoint grants to Corio a nonexclusive, nontransferable
(except in accordance with Section 14.1 of this Agreement),
royalty-free, fully paid up license in the Territory to reproduce,
install and use additional copies of the Software, Documentation, and
Software tools and utilities if any, subject to any restrictions placed
on the Changepoint by third party software providers and payment of any
applicable fees required by such third parties, in machine executable
object code for production, testing, development, upgrade, reporting
and training for the purpose of allowing the Software to be made
available to Customers as part of the Corio Services. This license
includes the right to integrate the Software with Corio's system
software and other hosted applications in connection with providing the
Software to Customers as part of the Corio Services.
2.3 INTERNAL USE LICENSE FOR CORIO'S INTERNAL BUSINESS OPERATIONS.
Changepoint grants to Corio a nonexclusive, nontransferable (except in
accordance with Section 14.1 of this Agreement), royalty-free, fully
paid-up license to install and use the Software, Documentation, and
Software tools and utilities if any, for an unlimited number of Corio
users, subject to any restrictions placed on the Changepoint by third
party software providers and payment of any applicable fees required by
such third parties, in machine executable object code for Corio's
internal business purposes. Corio's internal use license under this
Section 2.3 is subject to and shall be in accordance with the terms and
conditions of Changepoint's standard License Agreement, a copy of which
is attached hereto as EXHIBIT G and made a part hereof. The provisions
of EXHIBIT G shall apply only to the internal use license granted in
this Section 2.3 and not to any other licenses granted to Corio in this
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CONFIDENTIAL TREATMENT
Agreement. Any conflict or inconsistency between the terms of this
Agreement and the terms of the license set forth in EXHIBIT G with
respect to the internal use license granted in this Section 2.3 shall
be controlled by the terms of this Agreement. Notwithstanding anything
to the contrary in Section 11 of this Agreement, the internal use
license in this Section 2.3 shall remain in effect during the term of
this Agreement and for a period of nine (9) months after termination or
expiration of this Agreement.
2.4 DEMONSTRATION LICENSE. Subject to the terms and conditions of this
Agreement, Changepoint hereby grants to Corio a nonexclusive,
nontransferable (except in accordance with Section 14.1 of this
Agreement) royalty-free, fully paid up right and license in the
Territory, on Corio Servers, to make a reasonable number of copies of
the Demonstration Software solely for demonstration purposes to
potential Customers. Demonstration Software shall be made available to
Corio's sales personnel and the parties agree to cooperate to make the
Changepoint demonstration database available to Corio sales personnel
on an ongoing basis. Corio shall not distribute any demonstration
copies of the Software. Corio shall not demonstrate the Software to any
one Customer for more than sixty (60) days from the start of that
Customer demonstration, and Corio shall not demonstrate the Software to
more than ten (10) Software Users at any one time. Further, the
demonstration copies shall not permit the entry of additional data.
2.5 DISTRIBUTION LICENSE: Corio shall have the right to resell licenses for
the Software to any Corio Customer according to the terms and
conditions of Changepoint's standard Distribution Agreement
("Changepoint's Distribution Agreement"). Corio and Changepoint shall
enter into Changepoint's Distribution Agreement within sixty (60) days
following the Effective Date, the terms of which shall be in
substantial accordance with the copy of Changepoint's Distribution
Agreement provided to Corio. Any conflict or inconsistency between the
terms of this Agreement and the terms of Changepoint's distribution
license with respect to the distribution license granted in this
Section 2.5 shall be controlled by the terms of this Agreement. Under
Changepoint's Distribution Agreement, Changepoint shall give a ***
discount from the then-current Changepoint list price for
such Software licenses to Corio for the first Two Million Dollars
($2,000,000U.S.) of such cumulative calendar year sales based on
Changepoint's list price, and a *** discount based on
Changepoint's then-current list price thereafter. This pricing formula
shall apply for each calendar year during the term of this Agreement
which Corio has distribution rights under this Section 2.5. For those
Corio Customers who purchase Changepoint Software licenses from Corio
pursuant to this Section 2.5 and Changepoint's Distribution Agreement,
Corio shall pay to Changepoint a Software Support and Maintenance fee
equal to *** of Changepoint's standard support and
maintenance services for the Software Support and Maintenance services
provided by Changepoint as specified in Section 5.3 of this Agreement
and EXHIBIT C attached hereto and made a part hereof, and for Updates
and Upgrades. Subject to Corio's payment of the Software support and
maintenance fee as set forth in this Section 2.5, Changepoint's
Software Support and Maintenance obligation with respect to Software
distributed by Corio pursuant to this Section 2.5 shall continue after
termination or expiration of this Agreement with respect to all
Software Users granted access to the Software prior to termination or
expiration of this Agreement, for the remaining duration of each such
Software Users' rights to use the Software pursuant to agreements
between Corio and its Customers. Under no circumstances shall
Changepoint contact Corio Customers regarding a non-hosting license
sale, unless requested to do so by Corio. Further, if a Corio Customer
contacts Changepoint to purchase the Software license independent of
the Corio Services, Changepoint shall immediately refer that Customer
to
*** The omitted material has been filed separately with the
Securities and Exchange Commission pursuant to a request for
confidential treatment.
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Corio. Changepoint shall not be entitled to share in any Application
Management Revenue received by Corio related to or arising from hosting
services provided to Customers which obtain a license to the Software
from Changepoint pursuant to this Section 2.5. Corio's right to collect
fees from Customers under the Changepoint licenses under this Section
2.5 will expire upon termination of the Corio contracts with its
Customers for such Software.
2.6 LICENSE AGREEMENTS. Corio shall make the Software on the Corio Servers
remotely accessible to Customers under the then-current terms of its
standard Customer license agreement. Each such Customer license shall,
at a minimum, contain the provisions set forth in EXHIBIT E attached
hereto and made a part hereof ("CUSTOMER LICENSE AGREEMENT TERMS"), or
the substantial equivalent thereof. As to each Software User who is
provided access to the Software, Corio or its Customers shall secure
the Software User's consent to an end user agreement with terms at
least equivalent to those in EXHIBIT E hereto.
2.7 RESTRICTIONS. Corio may not copy, distribute, reproduce, use or allow
access to the Software except as explicitly permitted under this
Agreement, and Corio shall not, nor will it permit any third party to,
modify, adapt, translate, prepare derivative works from, decompile,
reverse engineer, disassemble or otherwise attempt to derive source
code from the Software or any internal data files generated by the
Software.
2.8 OWNERSHIP. Changepoint and its licensors hereby retain all of their
right, title, and interest in and to the Software and Documentation,
including all copyrights, patents, trade secret rights, trademarks and
other intellectual property rights therein. All rights not expressly
granted hereunder are reserved to Changepoint and its licensors. The
Software and Documentation and all copies thereof are licensed, not
sold, to Corio. All changes, modifications and enhancements or
derivative works made to the Software or Documentation by Corio or
Changepoint, or jointly by the parties, shall be owned by Changepoint,
including all copyrights, patents, trade secret rights, trademarks and
other intellectual property rights therein. Any works, inventions and
developments, including but not limited to interface code, created by
Corio or its contractors which enables the Software to work with and in
conjunction with Corio's system software or Corio's other hosted
applications, including all copyrights, patents, trade secret rights,
trademarks and other intellectual property rights therein shall be
owned by Corio. Ownership of any works to be created jointly by the
parties, including all copyrights, patents, trade secret rights,
trademarks and other intellectual property rights therein, shall be
decided by the parties at the commencement of such joint efforts. Each
of the parties shall, from time to time, execute and deliver all
documents and other instruments reasonably requested by the other party
to perfect such other party's ownership of the interests set forth in
this Section 2.8.
2.9 NEW PRODUCTS. Updates and Upgrades to the Software are subject to the
terms of this Agreement and are included in the applicable Software
Support and Maintenance fees payable by Corio. Changepoint and Corio
may, in the future, agree that new products and solutions offered by
Changepoint may be added to this Agreement according to the license
fees and other terms and conditions as the parties may agree.
2.10 PREFERRED RELATIONSHIP. During the one (1) year period commencing on
the Effective Date (i) Changepoint and its affiliates, to the extent
they publicly promote, market or advertise hosting services for the
Software, will Publicly Promote Corio as its preferred hosting supplier
and partner for the Software and will, in any non-public marketing or
promotion of the Software, treat Corio as its preferred partner and
supplier of hosting services for the Software, and (ii) Corio and its
affiliates, to the extent they publicly promote, market or
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CONFIDENTIAL TREATMENT
advertise the use of a PSA Application in conjunction with the Corio
Services, will Publicly Promote the Software as their preferred PSA
Application and will, in any non-public marketing or promotion of
the hosting services offered by Corio, treat Changepoint as their
preferred supplier and partner for PSA Applications. In this Section
2.10, the term "Publicly Promote" means any marketing, promotion or
solicitation of business made by any means in public or intended for
reception by the public including, without limitation, in published
sales, advertising and marketing materials, materials or statements
posted on websites, public announcements and press releases, but
does not include sales and marketing materials intended for
reception by a specific customer or prospective customer, any
confidential solicitation of business from a specific customer, nor
any referral from a third party to solicit a specific customer.
Should either party be in violation of the terms of the Preferred
Relationship set forth in this Section 2.10, both parties agree that
the sole and exclusive remedy for such breach is for the accused
party to diligently use best commercial efforts to cease the
activities in violation of this Section 2.10 and to correct the
violation and, as soon as reasonably possible, cease to distribute
or publish and destroy "Offensive Materials" after receiving written
notice from the other party, and to provide such other party with
commercially reasonable evidence that it has done so. "Offensive
Materials", for purposes of this provision, means published sales,
advertising and marketing brochures and collateral, statements
posted on websites and public announcements and press releases or
any other promotional materials, all intended for viewing by the
public and published by or with the concurrence of the accused party.
2.11. MARKET DEFINITION. During the term of this Agreement, Corio agrees not
to provide the Software in connection with Corio Services or distribute
the Software under Section 2.5 of this Agreement to the following
companies or their subsidiaries: ***. Corio and Changepoint agree that
on an semi-annual basis, this list of companies will be reviewed by
the parties and each party agrees that its consent to the other
party's request for changes to this list (additions and deletions)
will not be unreasonably withheld or delayed.
3. DELIVERY OF SOFTWARE.
3.1 DELIVERY AND ACCEPTANCE. Changepoint shall issue to Corio, via
electronic means of delivery, as soon as practicable, one (1)
machine-readable copy of the Software, along with one (1) copy of the
on-line Documentation. Changepoint will provide Corio with five (5)
written copies of the Documentation at no cost, and any additional
written copies at Changepoint's standard charges. Corio acknowledges
that no copy of the source code of the Software will be provided to
Corio. Within one hundred twenty (120) days after delivery of the
Software, Corio shall test the Software for conformance with the
Documentation ("Acceptance Test"). If the Software performs in
substantial accordance with the Documentation, then Corio shall notify
Changepoint in writing of its acceptance of the Software. In the event
Corio finds material errors or defects with the Software, Corio shall
notify Changepoint in writing of such errors or defects and provide
adequate detail to facilitate Changepoint replicating the error or
defect. Upon receipt of written notice, Changepoint shall have fifteen
(15) days to correct the defect, reinstall the Software at the Corio
site and re-perform the Acceptance Test. If Corio does not accept the
Software after the second Acceptance Test, a third Acceptance Test will
be performed. If after the third
*** The omitted material has been filed separately with the
Securities and Exchange Commission pursuant to a request for
confidential treatment.
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Acceptance Test Corio does not accept the Software, Corio may, at
its sole option, elect to (i) repeat the Acceptance Test in
accordance with the provisions of this Section 3.1 as many times as
Corio chooses or (ii) terminate the Agreement and receive a refund
of any fees paid to Changepoint as of such date. Termination of this
Agreement by Corio for non conformance of the Software to the
Documentation under this Section 3.1 shall, upon a refund of all
fees paid to Changepoint, be Corio's sole and exclusive remedy
against Changepoint for any nonconformance of the Software with the
Documentation. Both parties acknowledge that any professional
services provided to Corio subsequent to the installation and
acceptance of the Software are non-essential for the purpose of the
acceptance of the Software.
3.2 NEW VERSIONS. Changepoint shall use commercially reasonable efforts to
provide Corio with any pre-release versions of relevant Updates or
Upgrades of the Software. Changepoint shall make these versions
available to Corio to preview at the earliest possible date.
Changepoint shall provide all such Updates and Upgrades to Corio free
of additional charge and Corio shall provide any such Updates and/or
Upgrades to its Customers within twenty four (24) months after their
release to Corio. Changepoint agrees to make changes to the Software
such that all functionality currently available in the Software will be
one hundred percent (100%) thin client and browser-based as set forth
in the schedule attached hereto as EXHIBIT F and made a part hereof.
Changepoint agrees to promptly provide existing APIs for the Software
to Corio and use commercially reasonable efforts to develop and provide
applicable APIs for the web-enabled version of the Software.
3.3 ADDITIONAL MATERIALS. Changepoint shall use all commercially reasonable
efforts to promptly provide Corio with, at a minimum, the following:
(i) release notes; (ii) beta releases; (iii) contacts at beta
customers, when requested by Corio and subject to the approval of the
Changepoint; (iv) proactive bug notification; (v) Software patches;
(vi) release documentation including technical reference manuals and
user guides; and (vii) all applicable set-up data, data structures and
other files relevant to installing and integrating the Software, but
not including source code. These materials shall be provided at no cost
to Corio.
4 FEES.
4.1 LICENSE FEES. In consideration for the licenses granted to Corio
pursuant to Section 2 (except Section 2.5) of this Agreement, Corio
shall pay the revenue sharing fees specified in EXHIBIT B hereto.
Payment terms of such revenue sharing fees shall be as set forth in
EXHIBIT B hereto.
4.2 SOFTWARE SUPPORT AND MAINTENANCE FEES. Except with respect to Software
Support and Maintenance under the distribution license granted to Corio
pursuant to Section 2.5 of this Agreement, Corio shall pay to
Changepoint a Software Support and Maintenance fee for the support
services to be provided by Changepoint specified in Section 5.3 of this
Agreement and EXHIBIT C attached hereto and made a part hereof, and
Updates and Upgrades, according to the fees set forth in EXHIBIT B
hereto. Payment terms of Software Support and Maintenance fees shall be
as set forth in EXHIBIT B hereto. Software Support and Maintenance
shall automatically continue during the term of this Agreement and
thereafter for the remaining term of any contracts Corio has with its
Customers to continue providing the Corio Services, provided that Corio
continues to pay the revenue sharing fees as provided in EXHIBIT B
hereto.
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CONFIDENTIAL TREATMENT
4.3 TAXES. All fees are exclusive of any sales taxes, Goods and Services
use taxes, other use taxes and any other taxes and charges of any kind
imposed by any federal, state, provincial or local governmental entity
for products and services provided under this Agreement, and Corio is
responsible for payment of all taxes concerning the Corio Services,
excluding taxes based solely upon Changepoint's income or revenue.
4.4 AUDIT RIGHTS. Corio shall keep true and accurate books of accounts and
records for determining the amounts payable to Changepoint under this
Agreement. Such books and records shall be kept for at least three (3)
years following the end of the calendar month to which they pertain,
and shall be open for inspection by an independent certified public
accountant reasonably acceptable to Corio, and made subject to Corio's
standard non-disclosure agreement, for the sole purpose of verifying
the amounts payable to Changepoint under this Agreement. Such
inspections may be made no more than once each calendar year, at
reasonable times and upon reasonable notice. Changepoint shall bear all
costs and expenses of such inspection. If any such inspection discloses
a shortfall or an overpayment, the appropriate party shall promptly pay
the amount of such shortfall or refund such overpayment. In addition,
if any such inspection reveals an underpayment of more than five
percent (5%) for the period under audit, Corio shall reimburse
Changepoint for the reasonable cost of the examination.
4.5 REPORTING. Within thirty (30) days following the end of each calendar
month, Corio will submit to Changepoint a report in a form reasonably
acceptable to both parties setting forth the number of Customers and
Software Users which have been licensed to use the Software during the
preceding month, as well as the Application Management Revenue received
by Corio during the preceding month. The report shall also set forth
all amounts collected by Corio pursuant to the Distribution License
granted under Section 2.5 of this Agreement during the preceding month,
and a calculation of all amounts due to Changepoint for such
distributions by Corio during the preceding month.
4.6 INTEREST. In the event any payment by Corio under this Agreement is not
made within thirty (30) calendar days of its due date, interest on any
such unpaid amount shall accrue at a rate of eighteen percent (18%) per
annum, or the maximum amount permitted by law, whichever is less.
4.7 FEE EXCEPTIONS. Changepoint agrees that for all Software Users of the
Corio Services that Corio must use software products from *** .
5 INSTALLATION SUPPORT, MAINTENANCE AND TRAINING.
5.1 INSTALLATION. Changepoint shall provide Corio with access to full-time
operations personnel at no charge to Corio as part of the installation
project as described in the "Corio, Inc.
*** The omitted material has been filed separately with the
Securities and Exchange Commission pursuant to a request for
confidential treatment.
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CONFIDENTIAL TREATMENT
Statement of Work", dated December 9, 1999 ("Statement of Work")
incorporated herein by reference.
5.2 IMPLEMENTATION. Changepoint shall provide Corio with sufficient access
to Changepoint's professional services organization during the first
four (4) implementations of the Software (Corio's internal
implementation as defined in Section 2.3 of this Agreement plus
implementation by three (3) Corio Customers) conducted by Corio and its
Customers subject to the payment by Corio of Changepoint's standard
professional services fee at a *** discount.
Additionally, during the term of this Agreement the parties shall meet
periodically to discuss Updates and Upgrades to the Software to better
support Corio's and its Customers' specific application requirements,
to be provided at no charge to Corio. Changepoint agrees to share its
consulting implementation methodologies with Corio. Corio acknowledges
that such consulting methodologies are confidential information of
Changepoint and shall be used by Corio solely in connection with the
Software when offered as part of the Corio Services. Changepoint agrees
to provide Corio with proposal development materials.
5.3 SOFTWARE SUPPORT AND MAINTENANCE. Changepoint shall provide Corio with
support described in EXHIBIT C hereto, and maintenance in the form of
Updates and Upgrades, subject to Corio's payment of the fees set forth
in EXHIBIT B hereto. Corio shall be responsible for providing its
Customers with routine technical support of the Software (Levels 1 and
2) as described in the schedule set forth in EXHIBIT C hereto.
Changepoint agrees to provide Level 2 support and maintenance to Corio
for the first four (4) months after the first Customer commences using
the Software in connection with the Corio Services. Corio shall
escalate any technical support questions or problems it is unable to
answer or resolve directly to Changepoint for Changepoint to resolve as
described in the schedule set forth in EXHIBIT C hereto. The support
described in this Section 5.3 and EXHIBIT C hereto shall be provided to
Corio, but Changepoint shall have no obligation to provide any Software
Support or Maintenance services to other third parties. Subject to
Corio's payment of the Software revenue sharing fees as set forth in
EXHIBIT B hereto and the Software Support and Maintenance fee as
provided in Section 2.5 of this Agreement, Changepoint's Software
Support and Maintenance obligation shall continue after termination or
expiration of this Agreement with respect to all Software Users granted
access to the Software prior to termination or expiration of this
Agreement for the remaining duration of each such Software Users'
rights to use the Software pursuant to agreements between Corio and its
Customers. Corio shall assign up to five (5) trained persons to contact
Changepoint on Software Support and Maintenance matters within the
scope of Changepoint's responsibility under EXHIBIT C.
5.4 MANAGEMENT MEETINGS. The parties agree to meet either in person or via
teleconference on no less than a quarterly basis to discuss, without
limitation, engineering, feature-functionality and architecture-related
issues as they pertain to the Software. The specific topics of the
meetings will be determined on a meeting-by-meeting basis. Each party
shall appoint a product manager to coordinate these meetings.
Changepoint may, where appropriate, provide Corio with information
relevant to future Software development efforts, including product and
service roadmap, rollout strategy, and plans for future development
efforts. The product managers shall be those persons set forth on
EXHIBIT A hereto or as subsequently agreed by the parties. The parties
also agree to discuss the amount of Application Management Revenue
received by Corio for Corio Services related to the Software and, at
the end of eighteen (18) months after the Effective Date, the parties
agree to
*** The omitted material has been filed separately with the
Securities and Exchange Commission pursuant to a request for
confidential treatment.
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CONFIDENTIAL TREATMENT
discuss the license fee structure set forth in EXHIBIT B attached
hereto. Corio agrees to use commercially reasonable efforts to
maximize Application Management Revenue received from Customers for
the Corio Services.
5.5 TRAINING. Changepoint shall provide Corio with training as reasonably
requested by Corio to train Corio's technical and support personnel
regarding implementation, use and operation of the Software at no
charge to Corio as set forth in the Statement of Work. Upon completion
of the Statement of Work, during the first year of this Agreement,
Changepoint shall provide training to Corio employees at Corio's
request subject to payment of Changepoint's standard training fees at a
*** discount. Corio Customers may receive training
directly from Changepoint at Changepoint's normal training fees. Corio
shall otherwise be responsible for training its Customers regarding the
Software. Throughout the term of this Agreement, Changepoint shall
provide Corio with training materials and instruction manuals and the
right to re-distribute these training materials and instruction manuals
to its Customers of the Software solely in connection with the Corio
Services. Further, the parties shall work together and cooperate to
train Corio's sales force and product consultants on the Software and
the alliance contemplated by this Agreement, including without
limitation, how to position, sell and demonstrate the Software to
potential customers.
5.6 OTHER SERVICES. Upon Corio's request, Changepoint shall provide certain
professional services, including without limitation, consulting
services, to Corio or its Customers, subject to the mutual written
agreement on the scope of such services, pricing and other terms and
conditions.
5.7 SALES AND MARKETING EFFORTS. The parties shall engage in joint
marketing and sales activities as set forth in EXHIBIT D attached
hereto and made a part hereof. Additionally, Changepoint agrees to
provide Corio with marketing and sales presentation materials. During
the term of this Agreement, Corio agrees to use commercially reasonable
efforts to develop joint customer references or testimonials. Corio and
Changepoint agree that they will promote each other as a leading PSA
Application vendor and a leading Enterprise ASP, respectively, as long
as the preferred relationship between the parties continues in effect
as set forth in Section 2.10 of this Agreement.
6 TRADEMARKS.
6.1 RIGHT TO DISPLAY. During the term of this Agreement, each party
authorizes the other party to display and use the other's trademarks,
trade names and logos (collectively, the "TRADEMARKS") in connection
with that party's sale, advertisement, service and promotion of the
Corio Services or the Software. Each party shall indicate in all
product, service, publicity and printed materials relating to the Corio
Services or the Software that such trademarks are the property of the
originating party. Upon termination of this Agreement, each party shall
cease all display, advertising and use of all Trademarks of the other
party and shall not thereafter use, advertise or display any trademark,
trade name or logo which is, or any part of which is, confusingly
similar to any such designation association with Corio or the Corio
Services or Changepoint or any Changepoint product.
6.2 PROMOTION MATERIALS AND ACTIVITIES. All representations of the other
party's Trademarks that a party intends to use shall be exact copies of
those used by the other party and shall first be submitted to the
originating party for approval of design, color and use, including use
in conjunction with advertisement, service and promotional materials,
which consent shall not be unreasonably withheld or delayed. To ensure
trademark quality, each party shall fully
*** The omitted material has been filed separately with the
Securities and Exchange Commission pursuant to a request for
confidential treatment.
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comply with all written guidelines provided by the other party
concerning the use of the originating party's Trademarks. Each party
agrees to change or correct any material or activity that the
originating party determines to be inaccurate, objectionable,
misleading or a misuse of the originating party's Trademarks.
6.3 GOODWILL AND TRADEMARKS. Each party acknowledges that the other has and
will have substantial goodwill in its Trademarks used in conjunction
with this Agreement, and agrees it shall not do anything that could
injure, diminish or depreciate the value of the goodwill associated
with the Trademarks or business of the other. All goodwill associated
with the use of each party's Trademarks shall enure exclusively to the
owner of such Trademarks.
6.4 CONDUCT OF BUSINESS. Each party shall conduct its business of marketing
each other's products and services pursuant to this Agreement in a
manner that will reflect favorably on the good name and reputation of
the other party. Each party shall comply with all laws, regulations and
ordinances in dealing with each other and with third parties, and in
performing their respective obligations under this Agreement. Each
party shall refrain from engaging in any unfair or deceptive trade
practice or unethical business practice that could unfavorably reflect
upon the other party and its products or services.
7 WARRANTIES AND DISCLAIMER.
7.1 NO CONFLICT. Each party represents and warrants to the other party that
it is under no current obligation or restriction, nor will it knowingly
assume any such obligation or restriction that does or would in any way
interfere or conflict with, or that does or would present a conflict of
interest concerning the performance to be rendered hereunder or the
rights and licenses granted herein.
7.2 INTELLECTUAL PROPERTY WARRANTY. Changepoint represents and warrants to
Corio that (a) Changepoint is the sole and exclusive owner of the
Software or is a licensee of the Software; (b) Changepoint has full and
sufficient right, title and authority to grant the rights and/or
licenses granted to Corio under this Agreement; (c) the Software does
not contain any materials developed by a third party used by
Changepoint except pursuant to a license agreement; and (d) the
Software does not, to the best of Changepoint's knowledge and belief,
infringe any patent, copyright, trade secret, trademark or other
intellectual property rights of a third party.
7.3 PRODUCT WARRANTY. Changepoint warrants that the Software will perform
in substantial accordance with the Documentation, and the media on
which the Software is distributed will be free from defects in
materials and workmanship under normal use, for a period of one hundred
twenty (120) days after delivery of the Software to Corio for
Acceptance Testing (the "Warranty Period"). In addition, Changepoint
warrants that during the Warranty Period the Software is free of any
willfully introduced computer virus, or any other similar harmful,
malicious or hidden program or data, which is designed to disable,
erase, or alter the Software, or any other files, data, or software.
If, during the Warranty Period, the Software does not perform in
substantial compliance with the Documentation, Changepoint shall take
all commercially reasonable efforts to correct the Software, or if
correction of the Software is reasonably not possible, at Changepoint's
option, replace such Software free of charge. Changepoint will replace
any defective media returned to Changepoint during the Warranty Period.
In the event any such breach of warranty can not be reasonably
corrected at Changepoint's sole expense, Corio has the right to
terminate this Agreement and receive a
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refund of all prepaid fees, if any. The foregoing are Corio's sole
and exclusive remedies for breach of the foregoing product warranty.
The warranty set forth above is made to and for the benefit of Corio
only. This product warranty shall not apply if:
(a) the Software has been not properly installed and used at all
times and in accordance with the Documentation; and
(b) Corio has requested modifications, alterations or additions to
the Software that cause it to deviate from the Documentation.
7.4 PRODUCT WARRANTY - YEAR 2000 COMPLIANCE. Changepoint warrants that the
Software, when used in accordance with the Documentation, is in all
material respects capable upon installation of accurately processing,
providing and/or receiving date data from, into and between the
twentieth and twenty-first centuries, including the years 1999 and
2000, and leap year calculations; provided that all licensee and third
party equipment, systems, hardware, software and firmware used in
combination with the Software properly exchange date data with the
Software and accurately process, provide and/or receive date data from,
into and between the twentieth and twenty-first centuries, including
the years 1999 and 2000, and leap year calculations. Changepoint's sole
liability under this Section 7.4 is limited to use of reasonable
efforts to correct or replace the defective Software with conforming
Software, and if neither of the foregoing are commercially practicable,
as determined by Changepoint in its reasonable discretion, Changepoint
may, at its option, terminate this Agreement and refund all prepaid
fees, if any. The foregoing are Corio's sole and exclusive remedies for
breach of this Year 2000 warranty and Changepoint's sole obligation.
7.5 CORIO WARRANTIES. Corio represents and warrants that (i) it has the
right and power to enter into and fully perform this Agreement, (ii) in
entering into this Agreement, Corio is not, to the best of its
knowledge and belief, in breach of any contractual or other obligation
to any third party, (iii) it will comply with the terms of its
agreements with its Customers who purchase the right to use the
Software in connection with the Corio Services; (iv) it shall not make
any representations about the Software to third parties, including
Customers, which it is not authorized by Changepoint in writing to
make, or which are not set forth in the Documentation or other written
sales, marketing and training materials provided by Changepoint
intended for distribution to customers, and (v) it shall not make any
representations and warranties on behalf of Changepoint unless
expressly authorized by Changepoint in writing.
7.6 DISCLAIMER. Except as expressly provided herein, CHANGEPOINT LICENSES
THE SOFTWARE TO CORIO ON AN "AS IS" BASIS. NEITHER PARTY MAKES ANY
OTHER WARRANTY OF ANY KIND, WHETHER EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OR
CONDITIONS OF MERCHANTABILITY, MERCHANTABLE QUALITY, NONINFRINGEMENT
AND FITNESS FOR A PARTICULAR PURPOSE.
8 INDEMNIFICATION.
8.1 BY CHANGEPOINT. Changepoint shall indemnify, defend and hold harmless
Corio and its Customers from any and all damages, liabilities, costs
and expenses (including reasonable attorneys' fees) awarded by a court
against Corio or its Customers, and from settlements approved in
writing by Changepoint, arising out of any claim that the Software
infringes any patent, copyright, trademark or trade right secret of a
third party; provided that Corio or its Customer promptly notifies
Changepoint in writing of any such claim and promptly tenders
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the control and the defense and settlement of any such claim to
Changepoint at Changepoint's expense and with Changepoint's choice
of counsel. Nothing in this provision shall limit Changepoint's
immediate duty to defend Corio and its Customers against any such
claims. Corio or its Customer shall cooperate with Changepoint, at
Changepoint's expense, in defending or settling such claims and
Corio or its Customer may join in defense with counsel of its choice
at its own expense. If the Software is, or in the opinion of
Changepoint may become, the subject of any claim of infringement or
if it is adjudicatively determined that the Software infringes, then
Changepoint may, at its sole option and expense, either (i) procure
for Corio the right from such third party to use the Software, (ii)
replace or modify the Software with other suitable and substantially
equivalent products so that the Software becomes noninfringing, or
if (i) and (ii) are not practicable after Changepoint has exhausted
all reasonable efforts, (iii) terminate this Agreement.
8.2 LIMITATIONS. Changepoint shall have no liability for any infringement
based on (i) the use of the Software other than as set forth in the
Documentation; (ii) the modification of the Software by a party other
than Changepoint, when such infringement would not have occurred but
for such modification, (iii) the combination of the Software with any
other hardware or software product or service when such infringement
would not have occurred using the Software by itself or (iv) Corio's
copying, distribution or use of the Software after receiving
Changepoint's written notice to Corio of a third party claim of
infringement applicable to the Software.
8.3 BY CORIO. Corio shall indemnify, defend and hold harmless Changepoint
and its affiliated companies from any and all damages, liabilities,
costs and expenses (including reasonable attorneys' fees) awarded by a
court against Changepoint and its affiliated companies, and from
settlements approved in writing by Corio, for infringement of any
patent, copyright, trademark or trade right secret of a third party
arising out (i) use of the Software by Corio other than as set forth in
the Documentation or as authorized by this Agreement; (ii) modification
of the Software by Corio except as authorized by Changepoint or by this
Agreement, when such infringement would not have occurred but for such
unauthorized modification, (iii) Corio's copying, distribution or use
of the Software after receiving Changepoint's written notice to Corio
of a third party claim of infringement applicable to the Software, or
(iv) a combination of the Software with other hardware or software
product or service, if such infringement would not have occurred using
the Software alone. Corio's obligation to indemnify Changepoint is
subject to Changepoint providing Corio with prompt written notice of
any such claim and promptly tendering the control and the defense and
settlement of any such claim to Corio at Corio's expense and with
Corio's choice of counsel. Nothing in this provision shall limit
Corio's immediate duty to defend Changepoint against any such claims.
Changepoint shall cooperate with Corio, at Corio's expense, in
defending or settling any such claims and Changepoint may join in
defense with counsel of its choice at its own expense.
9 LIMITATION OF LIABILITY.
EXCEPT FOR LIABILITY ARISING UNDER SECTIONS 2.7, 8, 10 AND 12.3 OF THIS
AGREEMENT, IN NO EVENT SHALL EITHER PARTY'S LIABILITY ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE USE OR PERFORMANCE OF THE SOFTWARE
EXCEED THE TOTAL AMOUNT ACTUALLY PAID BY CORIO HEREUNDER FOR THE
TRANSACTION WHICH THE LIABILITY RELATES TO DURING THE TWELVE (12)
MONTHS IMMEDIATELY PRIOR TO THE CAUSE OF
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ACTION FIRST ARISING, EVEN IF IT IS A CONTINUOUS ONE, OR IN THE
AGGREGATE, WITH RESPECT OF ALL CLAIMS ARISING OUT OF OR RELATED TO
THIS AGREEMENT, THE TOTAL AMOUNT ACTUALLY PAID BY CORIO UNDER THIS
AGREEMENT TO CHANGEPOINT. EXCEPT FOR LIABILITY ARISING UNDER
SECTIONS 2.7, 8, 10 AND 12.3 OF THIS AGREEMENT, IN NO EVENT SHALL
EITHER PARTY HAVE ANY LIABILITY TO THE OTHER PARTY FOR ANY LOST
PROFITS OR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR
FOR ANY INDIRECT, INCIDENTIAL, SPECIAL OR CONSEQUENTIAL DAMAGES
HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY AND WHETHER OR NOT
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THE
PARTIES AGREE THAT THIS SECTION 9 REPRESENTS A REASONABLE ALLOCATION
OF RISK.
10 CONFIDENTIALITY.
Each party hereby agrees that it shall not use any Confidential
Information received from the other party other than as expressly
permitted under the terms of the non-disclosure agreement in effect
between the parties dated October 29, 1999, which is incorporated
herein by reference and made a part hereof. For purposes of this
Agreement, "Confidential Information" means the definition given to
that term in such non-disclosure agreement. The parties agree that
Changepoint's Software and Documentation (except that Documentation
which this Agreement contemplates will be provided to Customers) shall
be deemed Confidential Information subject to that non-disclosure
agreement. The terms and conditions of this Agreement shall also be
deemed Confidential Information subject to that non-disclosure
agreement, but the terms of this Agreement may be disclosed by a party
in connection with a significant transaction involving the merger or
sale of all or a substantial part of the assets of the receiving party.
Further, each party represents and warrants that their respective
employees, agents, contractors or consultants that will be provided the
other party's confidential information have or will have signed
agreements with customary terms containing confidentiality provisions
and assignment of inventions ("EMPLOYEE NDA/INVENTION AGREEMENT"). Each
party covenants that during the term of this Agreement, it will
continue to require all of such employees, agents, contractors or
consultants to sign an Employee NDA/Invention Agreement.
11 TERM AND TERMINATION.
11.1 TERM. The term of this Agreement shall commence on the Effective Date
and, subject to the provisions of this Agreement, shall continue in
full force and effect for an initial period of five (5) years.
Thereafter, this Agreement shall automatically renew for subsequent one
(1) year periods unless either party provides the other party with
written notification at least thirty (30) days prior to the expiration
of the initial five (5) year term or any one (1) year renewal thereof
of its intention to terminate this Agreement.
11.2 TERMINATION. If either party breaches any material term or condition of
this Agreement and fails to cure such breach within sixty (60) days
after receiving written notice of the breach, the nonbreaching party
may terminate this Agreement on written notice at any time following
the end of such sixty (60) day period. Notwithstanding the foregoing,
Corio shall have thirty (30) calendar days after receipt of written
notice from Changepoint to cure any nonpayment. Compliance by the
Software with the Software's Documentation after expiration of the
Warranty Period shall be deemed a material condition of this Agreement.
To the extent permitted by applicable law, either party may terminate
this Agreement by
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notice in writing to the other party in the event that (i) a
receiver, trustee, liquidator, administrator or administrative
receiver should be appointed for either party or its property, (ii)
either party should become insolvent or unable to pay its debts as
they mature or cease to pay its debts as they mature in the ordinary
course of business, or makes an assignment for the benefit of
creditors or makes a proposal to its creditors or files a notice of
intention to do so, (iii) any proceedings should be commenced
against either party under any bankruptcy, insolvency or debtor's
relief law, and such proceedings are not vacated or set aside within
fifteen (15) days from the date of commencement thereof, or (iv)
either party is liquidated or dissolved (except as part of an
assignment permitted under Section 14.1 of this Agreement).
11.3 EFFECT OF TERMINATION OR EXPIRATION. The following Sections shall
survive the termination or expiration of this Agreement according to
the provisions of this Section 11.3: 2.1, 2,2, 2.3, 4.2, 4,5, 4.6, 4.7,
5.3, 7, 8, 9, 10, 12, 14 and Exhibits B and C. Corio's right to allow
its then-existing Customers and their Software Users to use and access
the Software in accordance with Sections 2.1 and 2.5 of this Agreement
and all payment obligations related thereto shall survive any
termination or expiration of this Agreement only for the remaining term
of any contracts Corio has with its Customers to continue providing the
Corio Services. Changepoint's obligation to provide Software Support
and Maintenance to Corio and its Customers shall survive any
termination or expiration of this Agreement for the remaining term of
any contracts Corio has with such Customers to continue providing the
Corio Services, provided Corio continues to make its revenue share fee
payments (and Software Support and Maintenance payments under Section
2.5 of this Agreement with respect to those licenses) to Changepoint as
specified in this Agreement. Notwithstanding the foregoing, the license
grants in Sections 2.1 and 2.2 of this Agreement, and Changepoint's
continuing obligation to provide Software Support and Maintenance under
Sections 4.2 and 5.3 of this Agreement shall terminate if Changepoint
terminates this Agreement for Corio's non-payment or other material
breach according to the provisions of Section 11.2 of this Agreement.
Sections 7, 8, 9, 10, 12 and 14 of this Agreement shall survive
termination or expiration of this Agreement for any reason. Upon
termination or expiration of this Agreement, each party shall otherwise
return or destroy any Confidential Information of the other party
provided, however, Corio may retain such Confidential Information as is
necessary for Corio to continue supporting it's then-existing Customers
according to the provisions of this Section 11.3. Upon termination or
expiration of this Agreement, all outstanding and unpaid amounts owed
by Corio to Changepoint under this Agreement shall become immediately
due and payable. Section 2.3 of this Agreement shall survive for the
time period provided in such section.
12 SOURCE CODE ESCROW.
12.1 ESCROW ACCOUNT. Within sixty (60) days of the Effective Date,
Changepoint agrees to execute an escrow agreement by and among Corio,
Changepoint and a mutually acceptable escrow agent (the "ESCROW
AGENT"). The Escrow Agent shall require Changepoint to place in an
escrow account in Toronto a copy of the source code of the Software
including all Updates and Upgrades thereto, documentation and similar
materials (the "SOURCE CODE"). The escrow agreement shall contain, at a
minimum, the terms and conditions set forth in this Section 12. Corio
shall bear all fees, expenses and other charges to open and maintain
such escrow account. If a Release Condition (as defined in Section 12.2
of this Agreement) occurs and the Escrow Agent provides the Source Code
to Corio under the escrow agreement, Corio agrees to hold the Source
Code in strict confidence, and not to use the Source Code for any
purpose other than those purposes set forth under Section 12.3 of this
Agreement. This
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source code escrow shall survive any termination or expiration of
this Agreement for the remaining term of any contracts Corio has
with such Customers to continue providing the Corio Services.
12.2 RELEASE. Corio shall notify Changepoint in writing if it believes that
one of the following events (the "RELEASE CONDITIONS") has occurred and
that it intends to seek release of the Source Code from the escrow
account: (i) Changepoint's dissolution or ceasing to do business in the
normal course, except as a result or a merger, amalgamation or sale of
all or a substantial part of the assets of Changepoint, or (ii)
Changepoint's repeated and material breach of Changepoint's Software
Support and Maintenance obligations defined under Section 5 of this
Agreement and EXHIBIT C pertaining to the correction of programming
errors and such breach is not cured within sixty (60) days of receipt
of written notice thereof from Corio. If Changepoint notifies Corio in
writing that it disputes whether any such event has occurred, officers
of each of the parties shall negotiate for a period of ten (10)
business days to attempt to resolve the dispute. At the end of such ten
(10) business day period, if the parties have not resolved the dispute,
the matter shall be referred to dispute resolution in the manner set
forth in the escrow agreement and there shall be no release until the
dispute is resolved.
12.3 LICENSE. Upon the release of the Source Code to Corio pursuant to
Section 12.2 of this Agreement, Corio shall have a royalty-free,
nonexclusive, nontransferable, right and license at its head office to
use and modify the Source Code to support and maintain the Software
until the expiration or termination of Corio's Customers' License
Agreements for the Corio Services. The object code derived from the
Source Code so modified shall be subject to the same rights and
restrictions on use, reproduction and disclosure that are contained in
this Agreement with respect to the Software. Corio shall not
distribute, sell or sublicense the Source Code or use the Source Code
to develop new products or for commercial purposes other than to
support Customers of the Corio Services. Subject to the licenses
expressly granted in this Agreement, Changepoint shall retain all
right, title and interest in and to the Source Code. Corio may disclose
the Source Code to a contractor(s) for the purposes set forth in this
Section 12.3 provided that such contractor is not a direct or indirect
competitor of Changepoint of any affiliate of Changepoint, and provided
further that such contractor(s) agrees to maintain the Source Code in
strict confidence and to use the Source Code only as expressly
permitted under this Section 12. Access to the Source Code shall be on
a need to know only basis and shall be retained by contractors only for
so long as reasonably required for the purposes set forth in this
Section 12.
13 SHARED RESOURCES.
13.1 OPERATIONS. To the extent not provided for within the Statement of
Work, Changepoint shall provide Corio with access to Changepoint
operations personnel as reasonably requested by Corio, subject to
availability of such personnel and payment by Corio of Changepoint's
standard fees at a twenty percent (20%) discount along with payment by
Corio of reasonable travel and living expenses. These Changepoint
operations personnel shall work together with Corio personnel to
optimize the architecture and performance of the Software in a hosted
environment as well as to help Corio address changes Changepoint has
made to the Software as part of an Update or Upgrade that affect
Corio's ability to host the Software. Changepoint and Corio shall only
commit personnel with expertise in installations, operating
environments and networking functionality.
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13.2 CONSULTING. To the extent not provided for within the Statement of
Work, Changepoint shall provide Corio with access to Changepoint
consulting personnel as reasonably requested by Corio, subject to
availability of such personnel and payment by Corio of Changepoint's
standard professional services fees at a twenty percent (20%) discount
along with payment by Corio of reasonable travel and living expenses.
These Changepoint consulting personnel shall initially work together
with Corio personnel to develop implementation templates.
13.3 ENGINEERING. Subject to availability of such personnel, Changepoint
shall, on a case by base basis, provide Corio with reasonable access to
Changepoint engineering personnel at no additional cost to Corio. Such
joint engineering work may include product development, including
without limitation, technical and functional application development
and integration.
13.4 OTHER. Any other services not provided for under this Agreement shall
be subject to the terms of a separate agreement between the parties at
a cost to Corio of twenty percent (20%) off Changepoint's standard fees
for the applicable services.
14 MISCELLANEOUS.
14.1 ASSIGNMENT. Neither party may assign this Agreement or any rights or
obligations hereunder, whether by operation of law or otherwise,
without the prior written consent of the other party. Notwithstanding
the foregoing, either party shall have the right to assign this
Agreement in connection with the merger or acquisition of such party or
the sale of all or substantially all of its assets related to this
Agreement without such consent, except in the case where such
transaction involves a direct competitor of the other party where
consent of the other party will be required. Subject to the foregoing,
this Agreement will bind and inure to the benefit of the parties, their
respective successors and permitted assigns. Any assignment in
violation of this Section 14.1 shall be null and void.
14.2 WAIVER AND AMENDMENT. No modification, amendment or waiver of any
provision of this Agreement shall be effective unless in writing and
signed by the party to be charged. No failure or delay by either party
in exercising any right, power, or remedy under this Agreement, except
as specifically provided herein, shall operate as a waiver of any such
right, power or remedy.
14.3 CHOICE OF LAW; ARBITRATION; VENUE. This Agreement shall be governed by
the laws of the State of California, USA, excluding conflict of laws
provisions and excluding the 1980 United Nations Convention on
Contracts for the International Sale of Goods. Any disputes arising out
of this Agreement shall be resolved by binding arbitration in
accordance with the then-current commercial arbitration rules of the
American Arbitration Association ("RULES"). The arbitration shall be
conducted by one (1) arbitrator appointed in accordance with the Rules
in San Francisco County, California. A judgment upon the award may be
entered in any court having jurisdiction of the parties, including
without limitation the courts in San Francisco, California. The
non-prevailing party in the arbitration shall pay all fees and charges
of the American Arbitration Association; each party, however, shall be
responsible for the payment of all fees and expenses connected with the
presentation of its respective case.
14.4 NOTICES. All notices, demands or consents required or permitted under
this Agreement shall be in writing. Notice shall be considered
delivered and effective on the earlier of actual receipt or when (a)
personally delivered; (b) the day following transmission if sent by
facsimile followed by written confirmation by registered overnight
carrier or certified United
17
<PAGE>
States or Canadian mail; or (c) one (1) day after posting when sent
by registered private overnight carrier (e.g., DHL, Federal Express,
etc.); or (d) five (5) days after posting when sent by certified
United States or Canadian mail. Notice shall be sent to the parties
at the addresses set forth on the first page of this Agreement or at
such other address as shall be specified by either party to the
other in writing.
14.5 INDEPENDENT CONTRACTORS. The parties are independent contractors with
respect to each other. Each party is not and shall not be deemed to be
an employee, agent, partner or legal representative of the other for
any purpose and shall not have any right, power or authority to create
any obligation or responsibility on behalf of the other.
14.6 SEVERABILITY. If any provision of this Agreement is held by a court of
competent jurisdiction to be contrary to law, such provision shall be
changed and interpreted so as to best accomplish the objectives of the
original provision to the fullest extent allowed by law and the
remaining provisions of this Agreement shall remain in full force and
effect.
14.7 FORCE MAJEURE. Neither party shall be deemed to be in breach of this
agreement for any failure or delay in performance caused by reasons
beyond its reasonable control, including but not limited to acts of
God, earthquakes, strikes or shortages of materials.
14.8 SUBCONTRACT. Changepoint understands and agrees that Corio shall solely
direct the provision of Corio Services and may subcontract certain
portions of the operations of the Corio Services to third parties at
any time during the term of the Agreement. Corio shall not sublicense
its distribution license rights under Section 2.5.
14.9 BANKRUPTCY. The parties hereto agree that Corio, as a licensee of
Changepoint's intellectual property, shall be afforded all of the
protections afforded to a licensee under Section 365(n) of the United
States Bankruptcy Code, as amended from time to time (the "CODE") so
that the Trustee or Debtor in Possession, as defined in the Code, will
not interfere with Corio's license with respect to the Software as
provided in this Agreement, as set forth in Section 365(n) of the Code.
The equivalent provisions of Canadian bankruptcy law shall also apply
to Corio's rights under this Agreement.
14.10 COMPLETE UNDERSTANDING. This Agreement including all Exhibits, the non
disclosure agreement between the parties incorporated herein pursuant
to Section 10 of this Agreement and the Statement of Work referenced in
this Agreement and incorporated by reference herein, constitutes the
final, complete and exclusive agreement between the parties with
respect to the subject matter hereof, and supersedes any prior or
contemporaneous agreement.
14.11 EXPORT CONTROLS AND U.S. GOVERNMENT TRANSACTIONS. Corio agrees that it
shall not export or reexport the Software or Documentation outside the
United States and Canada without first obtaining permission from
applicable authorities in the United States and Canada. Changepoint
agrees to reasonably assist Corio in obtaining any required export
permissions at no additional cost to Corio. Corio agrees not to provide
the Corio Services involving the Software to the United States
government without the prior written consent of Changepoint as to the
form and substance of the restricted rights legends to be applied to
the Software.
14.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and which, if
taken together, shall be deemed to constitute one and the same
instrument.
18
<PAGE>
14.13 CONSTRUCTION. The fact that one party drafted some or all of this
Agreement shall not be held against such party in any dispute regarding
construction or interpretation of this Agreement or any part of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
CORIO, INC. CHANGEPOINT, INC.
By: _______________________________ By: _____________________________
Name: _____________________________ Name: ___________________________
Title: ____________________________ Title: __________________________
Date: _____________________________ Date: ___________________________
19
<PAGE>
EXHIBIT A
SOFTWARE
1. SOFTWARE.
Changepoint v 5.1
2. DEMONSTRATION SOFTWARE.
Changepoint v 5.1
3. RELATIONSHIP MANAGERS. The Corio Relationship Manager shall be:
____________. The Changepoint Relationship Manager shall be:
_____________.
4. PRODUCT MANAGERS. For purposes of Section 5.4 of this Agreement, the
Corio product manager shall be: _______________. The Changepoint
product manager shall be:______________________.
20
<PAGE>
CONFIDENTIAL TREATMENT
EXHIBIT B
PRICING
SOFTWARE:
Changepoint v 5.1
REVENUE SHARING FEES:
1. Corio Customer Application Management Revenue:
Corio to pay Changepoint *** of all Application
Management Revenue from Corio Customers for use of Changepoint Software
subject to the following limitations.
A. The Corio invoice amounts used to calculate the revenues
subject to this revenue share shall not include Professional
Service fees or Network access fees.
B. These Application Management Revenue fees shall begin
accruing when the Corio Customer first commences making
payments to Corio for the Corio Services.
Software support and maintenance fees are included in the 10% Revenue
Sharing Fee.
PAYMENT TERMS
Revenue Sharing Fees: Quarterly payments shall be due to receiving party, net 30
days after quarter close.
Implementation or Professional Service Fees: Net 30 days from date of
Changepoint invoice, which shall be issued only after successful completion of
each agreed upon milestone.
*** The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
21
<PAGE>
EXHIBIT C
CUSTOMER SERVICE OUTLINE
CORIO RESPONSIBILITIES:
Corio will provide "Level 1 Support" and "Level 2 Support" directly to Customers
and Software Users.
Level 1 Support means the service provided in response to the initial phone call
placed by a Customer or Software User which identifies and documents an error in
the Software. This includes problem source identification assistance, problem
analysis, problem resolution, installation planning information and preventative
and corrective service information.
Level 2 Support means the service provided to analyze or reproduce the error or
to determine that the error is not reproducible. This includes problem
recreation and in-depth technical analysis.
Corio shall use all commercially reasonable efforts to promptly provide
Changepoint with notification of "bugs" encountered in the Software.
CHANGEPOINT RESPONSIBILITIES:
Changepoint will provide "Level 3 Support" to Corio for problems that have been
escalated beyond Level 2 Support.
Changepoint will provide Level 3 Support to Corio according to the following
problem priority level definitions and respective schedules:
- - "Priority One Problems" are those in which the Software fails to perform
major functions on a system-wide basis resulting in a critical business
impact. Changepoint will allocate resources to address the problem within
two (2) business hours.
- - "Priority Two Problems" are those in which the functionality of the
Software is substantially restricted or the problem is restricted to
individual workstations. Changepoint will allocate resources to address the
problem within eight (8) business hours.
- - "Priority Three Problems" are those in which the functionality of the
Software is slightly restricted. Changepoint will allocate resources to
address the problem within two (2) business days.
- - "Priority Four Problems" are minor errors that do not affect the
functionality of the Software. Changepoint will allocate resources to
address the problem within five (5) business days.
Beginning February 15, 2000, Changepoint, as part of Level 3 Support will
provide access 24 hours per day, 7 days per week telephone or pager support for
Priority One Problems.
Corio shall use all commercially reasonable efforts to promptly provide
Changepoint with notification of "bugs" encountered in the Software.
22
<PAGE>
EXHIBIT D
SALES AND MARKETING COOPERATION
The parties agree to the following non-binding sales and marketing cooperation
efforts:
1. RELATIONSHIP MANAGERS. The parties' Relationship Managers would attempt to
meet at mutually agreeable times no less than every quarter to review and
coordinate sales efforts and review customer response to the Software and
the Corio Services, and address other topics related to this Agreement.
2. JOINT MARKETING PLANS. During the term of this Agreement the parties agree
to develop, review and submit to each other new and continuing marketing
plans with respect to the Corio Services and the Software, respectively.
3. MARKETING FUND. Within six (6) months after the Effective Date of the
Agreement, Corio and Changepoint each would contribute to a marketing fund
to be jointly managed by the parties to promote the sale and marketing of
the Corio Services and the Software. Each party's initial amount of
contribution is Fifty Thousand dollars ($50,000U.S.).
4. PERSONNEL. Each party agrees to assign sufficient sales or marketing
personnel to assist in the sales and marketing promotional activity set
forth in this Exhibit D.
5. COOPERATION AND PUBLICITY. Upon mutual agreement, Corio and Changepoint may
engage in the following activities: joint publicity releases, joint
marketing materials, joint marketing calls, joint conference and trade show
efforts, and strategy coordination concerned with promoting the Software
and the Corio Services in the commercial marketplace.
6. INITIAL CUSTOMERS. Within sixty (60) days after the Effective Date of the
Agreement, Corio agrees to use commercially reasonable efforts to obtain
orders from two (2) Customers for the Corio Services which include access
to the Software.
7. SALES INCENTIVES. During the period of their preferred relationship, the
parties will provide their internal and external sales personnel sufficient
incentives designed to actively promote and encourage cross selling of the
Corio Services and the Software, respectively.
23
<PAGE>
EXHIBIT E
CUSTOMER LICENSE TERMS AND CONDITIONS
1. THIRD-PARTY BENEFICIARY. Changepoint, Inc. ("Changepoint") shall be a
direct and intended third-party beneficiary to this Agreement.
2. AUDIT. Changepoint's independent certified auditors will have the right,
exercisable not more than once every twelve (12) months, to inspect upon
reasonable notice and during End User's regular business hours, End User's
relevant records to verify End User's compliance with the terms of this
Agreement and/or Changepoint's compliance with its obligations to
Changepoint.
3. NO ADDITIONAL WARRANTY. CORIO MAY PROVIDE THE SOFTWARE TO END USERS WITH
ONLY THOSE WARRANTIES GIVEN BY CHANGEPOINT TO CORIO IN THE ATTACHED
AGREEMENT. ALL OTHER CONDITIONS OR WARRANTIES, WHETHER EXPRESS, IMPLIED,
OR STATUTORY, ARE DISCLAIMED, INCLUDING WITHOUT LIMITATION, ALL IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NONINFRINGEMENT. CORIO SHALL BE SOLELY RESPONSIBLE FOR ANY WARRANTIES IT
MAY GIVE TO END USERS WHICH ARE IN ADDITION TO OR OTHERWISE DIFFERENT FROM
THOSE WARRANTIES GIVEN BY CHANGEPOINT TO CORIO IN THE ATTACHED AGREEMENT.
4. LIMITATION OF LIABILITY. IN NO EVENT WILL CHANGEPOINT BE LIABLE UNDER SUCH
AGREEMENT FOR ANY LOSS OF PROFITS, LOSS OF USE, BUSINESS INTERRUPTION,
LOSS OF DATA, COST OF COVER OR INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY KIND IN CONNECTION WITH OR ARISING OUT OF THE
FURNISHING, PERFORMANCE OR USE OF THE SOFTWARE OR SERVICES PERFORMED
HEREUNDER, WHETHER ALLEGED AS A BREACH OF CONTRACT OR TORTIOUS CONDUCT,
INCLUDING NEGLIGENCE, EVEN IF CHANGEPOINT HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. IN ADDITION, CHANGEPOINT WILL NOT BE LIABLE
FOR ANY DAMAGES CAUSED BY DELAY IN DELIVERY OR FURNISHING THE SOFTWARE OR
SAID SERVICES. CHANGEPOINT'S, LIABILITY UNDER SUCH AGREEMENT FOR DIRECT,
INDIRECT, SPECIAL, INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES OF ANY KIND,
INCLUDING, WITHOUT LIMITATION, RESTITUTION, WILL NOT, IN ANY EVENT, EXCEED
THE FEE PAID BY END USER TO CHANGEPOINT UNDER SUCH AGREEMENT.
5. SOFTWARE USER LIMITS. The Software may only be used by the number of
Software Users licensed under Customer agreements with Corio for the
Software as part of the Corio Services.
6. RESTRICTIONS ON END USE. Software Users shall not reverse engineer the
Software and shall maintain the Software in confidence.
24
<PAGE>
CONFIDENTIAL TREATMENT
EXHIBIT F
SCHEDULE FOR WEB-ENABLED SOFTWARE
LEGEND
[CLOCK] Feature shall exist in v5.2 of the "Software" (shipping
approximately Dec 15, 1999)
Q1/Q2 Feature planned for Q1 or Q2 calendar year 2000
<TABLE>
- ------------------------------------------------------------------------------------
FEATURE DESCRIPTION BROWSER CLIENT
- ------------------- --------------
<S> <C>
- ------------------------------------------------------------------------------------
MY FAVOURITES
- -------------
- ------------------------------------------------------------------------------------
Home Page
- ------------------------------------------------------------------------------------
Reminders ***
- ------------------------------------------------------------------------------------
Workflow ***
- ------------------------------------------------------------------------------------
Approve/Reject Time ***
- ------------------------------------------------------------------------------------
Approve/Reject Expense Reports ***
- ------------------------------------------------------------------------------------
Approve/Reject Invoices ***
- ------------------------------------------------------------------------------------
Scheduled Activities ***
- ------------------------------------------------------------------------------------
Pipeline Report ***
- ------------------------------------------------------------------------------------
My Contacts
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Maintain List ***
- ------------------------------------------------------------------------------------
Projects
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
Delete ***
- ------------------------------------------------------------------------------------
Create Attachment ***
- ------------------------------------------------------------------------------------
View Attachment ***
- ------------------------------------------------------------------------------------
Delete Attachment ***
- ------------------------------------------------------------------------------------
Change Status ***
- ------------------------------------------------------------------------------------
Gantt Planning Tool ***
- ------------------------------------------------------------------------------------
Reassign Project ***
- ------------------------------------------------------------------------------------
Project Rollup ***
- ------------------------------------------------------------------------------------
MSP Integration ***
- ------------------------------------------------------------------------------------
Tasks
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
*** The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
CONFIDENTIAL TREATMENT
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
Delete ***
- ------------------------------------------------------------------------------------
Reorder ***
- ------------------------------------------------------------------------------------
Create Attachment ***
- ------------------------------------------------------------------------------------
View Attachment ***
- ------------------------------------------------------------------------------------
Delete Attachment ***
- ------------------------------------------------------------------------------------
Update Billing Role ***
- ------------------------------------------------------------------------------------
Status Task ***
- ------------------------------------------------------------------------------------
Baseline ***
- ------------------------------------------------------------------------------------
Create Sub-Project ***
- ------------------------------------------------------------------------------------
Timesheet
- ------------------------------------------------------------------------------------
View Time ***
- ------------------------------------------------------------------------------------
Book Time ***
- ------------------------------------------------------------------------------------
Status Tasks ***
- ------------------------------------------------------------------------------------
Central Time Booking ***
- ------------------------------------------------------------------------------------
Expense sheet
- ------------------------------------------------------------------------------------
View Expenses ***
- ------------------------------------------------------------------------------------
</TABLE>
*** The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
25
<PAGE>
CONFIDENTIAL TREATMENT
<TABLE>
- ------------------------------------------------------------------------------------
<S> <C>
Enter Expenses ***
- ------------------------------------------------------------------------------------
Create Expense Report ***
- ------------------------------------------------------------------------------------
Central Expense Submission ***
- ------------------------------------------------------------------------------------
Team Folders
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create New Items ***
- ------------------------------------------------------------------------------------
Edit Items ***
- ------------------------------------------------------------------------------------
Create New Team Folders ***
- ------------------------------------------------------------------------------------
Availability
- ------------------------------------------------------------------------------------
View Calendar ***
- ------------------------------------------------------------------------------------
Update Calendar ***
- ------------------------------------------------------------------------------------
DIRECTORY
- ---------
- ------------------------------------------------------------------------------------
Companies
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
Delete ***
- ------------------------------------------------------------------------------------
Create Attachment ***
- ------------------------------------------------------------------------------------
View Attachment ***
- ------------------------------------------------------------------------------------
Delete Attachment ***
- ------------------------------------------------------------------------------------
Contacts
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
Delete ***
- ------------------------------------------------------------------------------------
Resource
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Group Homepages ***
- ------------------------------------------------------------------------------------
Personal Options ***
- ------------------------------------------------------------------------------------
Product
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
Delete ***
- ------------------------------------------------------------------------------------
*** The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
CONFIDENTIAL TREATMENT
MARKETING
- ---------
- ------------------------------------------------------------------------------------
Prospects
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
Import from file ***
- ------------------------------------------------------------------------------------
Delete ***
- ------------------------------------------------------------------------------------
Leads
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
Delete ***
- ------------------------------------------------------------------------------------
Campaigns
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
Delete ***
- ------------------------------------------------------------------------------------
Competition
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
</TABLE>
*** The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
26
<PAGE>
CONFIDENTIAL TREATMENT
<TABLE>
- ------------------------------------------------------------------------------------
<S> <C>
Edit ***
- ------------------------------------------------------------------------------------
Delete ***
- ------------------------------------------------------------------------------------
Corporate News
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
Delete ***
- ------------------------------------------------------------------------------------
SALES
- -----
- ------------------------------------------------------------------------------------
Opportunities
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
Delete ***
- ------------------------------------------------------------------------------------
Create Attachment ***
- ------------------------------------------------------------------------------------
View Attachment ***
- ------------------------------------------------------------------------------------
Delete Attachment ***
- ------------------------------------------------------------------------------------
Activities
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
Delete ***
- ------------------------------------------------------------------------------------
Print ***
- ------------------------------------------------------------------------------------
Mark Complete ***
- ------------------------------------------------------------------------------------
Customize ***
- ------------------------------------------------------------------------------------
Sales Management
- ------------------------------------------------------------------------------------
CLIENT SERVICES
- ---------------
- ------------------------------------------------------------------------------------
Engagements
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
Delete ***
- ------------------------------------------------------------------------------------
Create Attachment ***
- ------------------------------------------------------------------------------------
View Attachment ***
- ------------------------------------------------------------------------------------
Delete Attachment ***
- ------------------------------------------------------------------------------------
*** The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
CONFIDENTIAL TREATEMNT
Resource Scheduling ***
- ------------------------------------------------------------------------------------
Resource Search ***
- ------------------------------------------------------------------------------------
Skill Search ***
- ------------------------------------------------------------------------------------
SUPPORT DESK
- ------------
- ------------------------------------------------------------------------------------
Support Customers
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Calls
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
Book Time ***
- ------------------------------------------------------------------------------------
Knowledge Base
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
Search ***
- ------------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
</TABLE>
*** The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
27
<PAGE>
CONFIDENTIAL TREATMENT
<TABLE>
- ------------------------------------------------------------------------------------
<S> <C>
FINANCE
- -------
- ------------------------------------------------------------------------------------
Invoices
- ------------------------------------------------------------------------------------
View ***
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Edit ***
- ------------------------------------------------------------------------------------
Delete ***
- ------------------------------------------------------------------------------------
Submit for Approval ***
- ------------------------------------------------------------------------------------
Print ***
- ------------------------------------------------------------------------------------
Approve/Reject Invoice ***
- ------------------------------------------------------------------------------------
Create Credit Note ***
- ------------------------------------------------------------------------------------
Edit Credit Note ***
- ------------------------------------------------------------------------------------
Record Payment ***
- ------------------------------------------------------------------------------------
Archive Invoice ***
- ------------------------------------------------------------------------------------
Expense Advance
- ------------------------------------------------------------------------------------
Create ***
- ------------------------------------------------------------------------------------
Delete ***
- ------------------------------------------------------------------------------------
Currency Exchange
- ------------------------------------------------------------------------------------
Add Exchange Rate ***
- ------------------------------------------------------------------------------------
Modify Exchange Rate ***
- ------------------------------------------------------------------------------------
Time
- ------------------------------------------------------------------------------------
De-Submit Time ***
- ------------------------------------------------------------------------------------
Transfer Time/Expense ***
- ------------------------------------------------------------------------------------
REPORTING
- ---------
- ------------------------------------------------------------------------------------
Report Viewing ***
- ------------------------------------------------------------------------------------
Report Favorites ***
- ------------------------------------------------------------------------------------
OLAP Analysis Tools ***
- ------------------------------------------------------------------------------------
</TABLE>
*** The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
28
<PAGE>
EXHIBIT G
CHANGEPOINT SOFTWARE
LICENSE AND MAINTENANCE AGREEMENT (U.S.A. SS)
<TABLE>
Between: and:
-------------------------------------------------------------------------------------
<S> <C>
CHANGEPOINT INC. CORIO, INC.
1595 Sixteenth Avenue 700 Bay Road
Suite 700 Suite 210
Richmond Hill, Ontario Redwood City, CA 94063
Canada U.S.A.
L4B 3N9
-------------------------------------------------------------------------------------
(hereinafter referred to as "Changepoint") (hereinafter referred to as "Customer")
</TABLE>
Contract No. _______________
This Agreement sets out the terms pursuant to which Customer may use the
Licensed Materials (as that term is hereinafter defined). This Agreement also
sets out the terms pursuant to which Changepoint will provide Implementation
Services and Maintenance Services to Customer.
The "CHANGEPOINT Software License and Maintenance Agreement - Terms and
Conditions" on the following pages of this document and the attached Appendix A
form an integral part of this Agreement.
The parties by their authorized representatives and intending to be legally
bound have entered into this Agreement as of the ___ day of _____, 1999 (the
"Effective Date").
CHANGEPOINT INC. CORIO, INC.
Signature ________________________ Signature _____________________
Name _____________________________ Name __________________________
Title ____________________________ Title _________________________
29
<PAGE>
CHANGEPOINT SOFTWARE
LICENSE AND MAINTENANCE AGREEMENT -
TERMS AND CONDITIONS
ARTICLE 1 - INTERPRETATION
1.1 DEFINITIONS
In this Agreement and in Appendix A the following terms shall have the
respective meanings ascribed to them as follows:
(A) "AFFILIATE" means with respect to any person, any other person directly
or indirectly controlling, controlled by, or under common control of
such person. "Control" as used here means the legal, beneficial or
equitable ownership, directly or indirectly, of more than 50% of the
aggregate of all voting interests in such entity.
(B) "BUSINESS DAYS" means Monday through Friday excluding any day which is
a nationally observed holiday in both the United States of America and
Canada.
(C) "BUSINESS HOURS" means 8:00 a.m. - 7:00 p.m. Eastern Time on Business
Days.
(D) "CLIENT ACCESS LICENSE" means a Software License which authorizes
Customer to install a Component of the Licensed Software on a single
client device (e.g. - computer workstation).
(E) "COMPONENTS" mean the components of the CHANGEPOINT Software referred
to in Appendix A.
(F) "CONFIDENTIAL INFORMATION" means (i) all information of either party or
its affiliates or of third persons to whom a party owes a duty of
confidence that is marked confidential, restricted or proprietary or
that may reasonably be considered as confidential from its nature or
from the circumstances surrounding its disclosure; and (ii) the
Licensed Materials.
(G) "DOCUMENTATION" means in relation to the Licensed Software, the user
documentation made generally available by Changepoint to customers
which have been granted a license from Changepoint to use the Licensed
Software.
(H) "INSTALLATION FEES" has the meaning given to it in Section 4.2.
(I) "INSTALLATION SERVICES" has the meaning given to it in Section 3.2.
(J) "INTELLECTUAL PROPERTY RIGHTS" includes all worldwide intellectual and
industrial property rights including all rights in each country to
copyrights, trademarks, service marks, patents, inventions, industrial
designs, trade secrets, trade dress and all other proprietary rights.
(K) "LICENSE" means Customer's license to use the Licensed Materials
described in Article 2 and in Appendix A.
(L) "LICENSE FEES" means the license fees to be paid by Customer to
Changepoint which are described in Section 4.1.
(M) "LICENSED MATERIALS" means the Licensed Software and Documentation and
includes Maintenance Releases and Enable Codes which Changepoint may
from time to time provide to Customer hereunder.
(N) "LICENSED SOFTWARE" means the Components of the CHANGEPOINT Software in
object code format licensed to Customer hereunder and described in
Appendix A and such additional Components of the CHANGEPOINT Software
which Customer and Changepoint hereinafter agree shall be added to
Appendix A.
(O) "MAINTENANCE" has the meaning given to it in Section 4.2.
(P) "MAINTENANCE FEES" has the meaning given to it in Section 4.2.
(Q) "MAINTENANCE RELEASE" means new versions and releases of the Licensed
Software which Changepoint makes generally available to its customers
who have contracted with it to receive Maintenance Service for the
Licensed Software.
(R) "MAINTENANCE SERVICES" means the services described in Section 7.2.
(S) "SOFTWARE LICENSES" means the utilization licenses and associated
restrictions with respect to the Licensed Software granted to Customer
hereunder which are set forth in Appendix A.
(T) "WARRANTY PERIOD" means the period as set out in Appendix A.
(U) "WARRANTY SUPPORT" means the warranty support set forth in Section
6.1(a).
ARTICLE 2 - LICENSE
2.1 LICENSE
(a) Subject to the provisions of this Agreement including the provisions of
Article 8, Changepoint hereby grants to Customer and Customer hereby accepts
from Changepoint the perpetual, personal, non-transferable and non-exclusive
Software Licenses to use the Licensed Software for Customer's internal business
purposes. Customer may also make a reasonable number of back-up copies, but not
to exceed two (2) copies, of the Licensed Software for use as part of Customer's
disaster recovery plan.
(b) The Licensed Materials may be used only as set out in this Agreement
and Customer agrees not to make any copies (whether in electronic or any other
form) or use thereof other than as expressly permitted herein or by Changepoint
in writing in advance, even if it is technically feasible to do so. Without
limiting the generality of the foregoing, Customer agrees to use the Licensed
Software only to the extent authorized by the Software Licenses.
(c) Customer's License to use the Licensed Materials shall commence on the
Effective Date.
2.2 DOCUMENTATION
30
<PAGE>
The Documentation may be used by Customer at Customer sites for the
purpose of assisting Customer in using the Licensed Software for the internal
business purposes of Customer. Changepoint agrees to deliver one copy of the
Documentation to Customer in either printed or electronic form. Documentation
provided in machine readable form may be printed and used solely for the
internal business purposes of Customer. No other reproduction or use of the
Documentation is permitted.
2.3 THIRD PARTY USERS
For the purpose of operating Customer's business, the parties intend
that certain unrelated third parties with whom Customer has a business
relationship such as a supplier or customer and the employees of such third
person (hereunder "Business Third Parties"), will have limited right to use
certain Components of the Licensed Software solely for the purpose of providing
services to Customer. All such persons must execute an agreement in writing with
Customer to maintain the Confidential Information in confidence and to use the
Licensed Materials only as permitted. Customer agrees to strictly enforce the
provisions of such non-disclosure agreements set forth in this Section 2.3 and
all other provisions of this Agreement as applicable to any and all uses of the
Licensed Materials.
ARTICLE 3 - DELIVERY AND INSTALLATION
3.1 DELIVERY OF LICENSED MATERIALS
Changepoint agrees to deliver to Customer one (1) copy of the most
current release and version of the Licensed Materials. The Documentation will be
provided solely in the English language.
3.2 INSTALLATION SERVICES
Changepoint agrees to provide the installation services (the
"Installation Services") described in Appendix A.
3.3 ENABLE CODES
To enable Customer to install the Licensed Software, Changepoint will
provide Customer with information or data which are intended to enable the
Licensed Software to be used ( the "Enable Codes"). The Enable Codes are
designed to enable Customer to use the Licensed Software in accordance with the
number of Software Licenses acquired hereunder. Customer acknowledges and agrees
that additional Enable Codes will need to be obtained from Changepoint if
Customer acquires one or more additional Software Licenses from Changepoint.
Customer agrees not to, and shall cause all users not to, modify, adapt or
create derivative works of any Enable Codes provided, develop or have developed
any Enable Codes, or use any Enable Codes other than those provided by
Changepoint.
ARTICLE 4 - PRICE AND PAYMENT TERMS
4.1 LICENSE FEES
Customer shall pay to Changepoint the license fees described in
Appendix A (the "License Fees"). The License Fees shall be due and paid as
provided for in Appendix A.
4.2 MAINTENANCE AND INSTALLATION FEES
Customer agrees to pay to Changepoint the Maintenance Fees and the
Installation Fees set out in Appendix A.
4.3 TAXES AND INTEREST
(a) Customer shall pay (and Changepoint shall have no liability for), any
taxes, tariffs, duties and other charges or assessments imposed or levied by any
government or governmental agency in connection with this Agreement, including,
without limitation, any federal, provincial, state and local sales, use, goods
and services, value-added and personal property taxes on any payments due
Changepoint in connection with the Licensed Materials and/or Maintenance
Services and other services provided hereunder, excluding only income taxes
payable by Changepoint.
(b) All overdue payments shall bear interest at a rate of 12% per annum on
the amounts outstanding from the time such amounts become due until payment is
received by Changepoint.
ARTICLE 5 - PROPRIETARY RIGHTS AND CONFIDENTIAL INFORMATION
5.1 TITLE TO LICENSED MATERIALS
Customer acknowledges and agrees that Changepoint or licensors of
Changepoint shall retain all right, title and interest in and to the Licensed
Materials and all copies thereof, including, without limitation, the
Intellectual Property Rights therein, and that nothing herein transfers or
conveys to Customer any ownership right, title or interest in or to the Licensed
Materials or to any copy thereof or any license right with respect to same not
expressly granted herein, including, without limitation, with respect to the
Intellectual Property Rights therein.
5.2 CONFIDENTIAL INFORMATION
(a) Each party agrees to maintain the confidentiality of the Confidential
Information of the other party and to use same only as expressly authorized
herein. Each party shall safeguard and maintain the other party's Confidential
Information in strict confidence and shall not disclose, provide, or make the
Confidential Information or any part thereof available in any form or medium to
any person except to such party's employees, and to contractors and consultants
of
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such party who have executed an agreement in writing to protect such
Confidential Information and who have a need to access such Confidential
Information hereunder.
(b) The provisions of Section 5.2(a) shall not apply to any information
which: (i) was at the time of disclosure to a party, in the public domain, (ii)
after disclosure to a party becomes part of the public domain through no fault
of the receiving party, (iii) was in the possession of the receiving party prior
to the time of disclosure to it without any obligation of confidence or any
breach of confidence, (iv) was received after disclosure to a party from a third
party who had a lawful right to disclose such information to it, (v) was
independently developed by a party without reference to the confidential
information of the other party or (vi) was ordered to be disclosed by a court,
administrative agency, or other governmental body with jurisdiction over the
parties hereto, provided that the ordered party will first have provided the
disclosing party with prompt written notice of such required disclosure and will
take reasonable steps to allow the disclosing party to seek a protective order
with respect to the confidentiality of the information required to be disclosed.
Further, the ordered party will promptly cooperate with and assist the
disclosing party in connection with obtaining such protective order.
5.3 PROTECTION OF PROPRIETARY RIGHTS
(a) Customer shall not remove any proprietary, copyright, patent, trade
mark, design right, trade secret, or any other proprietary rights legends from
the Licensed Materials.
(b) Customer agrees not to disassemble, decompile, translate or convert
into human readable form or into another computer language, reconstruct or
decrypt, or reverse engineer, all or any part of the Licensed Materials in
accordance with law. Further, Customer shall not write or develop any derivative
works or computer programs based upon any part of the Licensed Materials.
5.4 EXPORT OF SOFTWARE
Customer will not export or re-export the Licensed Materials or any
copies thereof, either directly or indirectly, outside of the country in which
such materials are delivered to Customer except in compliance with all
applicable laws, ordinances and regulations. Customer shall have the exclusive
obligation to ensure that any export of the Licensed Materials is in compliance
with all applicable export laws and the laws of any foreign country.
ARTICLE 6 - WARRANTIES OF CHANGEPOINT
6.1 WARRANTY AND DISCLAIMERS
(a) Changepoint warrants that during the Warranty Period: (i) the Licensed
Software will conform substantially to the description thereof in the
Documentation, and (ii) the media upon which the Licensed Software and
Documentation are provided will be free from defects in materials and
workmanship.
(b) Changepoint warrants that the Licensed Software shall be able to
accurately process date data (including but not limited to, calculating,
comparing, and sequencing) from, into and between the 20th and 21st century (the
"Y2K Warranty"). However, such warranty does not apply to any failures to
process date data that result from any software other than the Licensed Software
or hardware or which relate to accepting data from any system not supplied by
Changepoint. For greater clarity the Y2K Warranty shall only apply if Customer
uses the Software in accordance with the Documentation.
(c) Customer's exclusive remedy and Changepoint's sole obligation with
respect to the breach of any of the foregoing warranties is for Changepoint to
(i) make commercially reasonable efforts to correct or provide Customer with a
workaround for the failure of the Licensed Software to conform substantially to
the description thereof in the Documentation or to comply with the Y2K Warranty,
as the case may be, or, at Changepoint's sole option, provide Customer with a
refund for the License Fees paid with respect to such Licensed Software, and
(ii) provide Customer with replacement media in the event there are defects in
materials or workmanship in the media upon which the Licensed Software and
Documentation are provided if the media is returned to Changepoint within the
Warranty Period.
(d) OTHER THAN THE WARRANTIES EXPRESSLY SET FORTH IN SECTION 6.1(A) AND
6.1(B), CHANGEPOINT EXPRESSLY DISCLAIMS ANY AND ALL REPRESENTATIONS, WARRANTIES
AND CONDITIONS OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION, REPRESENTATIONS, WARRANTIES AND CONDITIONS OF QUALITY, PERFORMANCE,
RESULTS, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, AND THOSE
ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR USE OF
TRADE. CHANGEPOINT DOES NOT REPRESENT OR WARRANT THAT (I) THE LICENSED MATERIALS
WILL MEET CUSTOMER'S BUSINESS REQUIREMENTS, (II) THE OPERATION OF THE LICENSED
SOFTWARE WILL BE ERROR-FREE OR UNINTERRUPTED OR (III) THAT ALL PROGRAMMING
ERRORS CAN BE CORRECTED.
(e) Customer is responsible for taking precautionary measures to prevent
the loss or destruction of customer data and databases such as, for example,
making regular backups and verifying the results obtained from using the
Licensed Materials, and Changepoint shall have no obligations or liability
whatsoever with respect to any such loss or destruction.
6.2 LIMIT OF LIABILITY
(a) FOR ANY BREACH OR DEFAULT BY CHANGEPOINT OF ANY OF THE PROVISIONS OF
THIS AGREEMENT, OR WITH RESPECT TO ANY CLAIM ARISING HEREFROM OR RELATED HERETO,
EXCEPT FOR ANY CLAIM FOR BREACH OF SECTION 5.2 (UNAUTHORIZED DISCLOSURE OF
CONFIDENTIAL INFORMATION), OR FOR BREACH OF SECTION 6.4(A) (INTELLECTUAL
PROPERTY INDEMNITY), CHANGEPOINT'S ENTIRE LIABILITY, REGARDLESS OF THE FORM OF
ACTION, WHETHER BASED ON CONTRACT OR TORT, INCLUDING
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NEGLIGENCE, SHALL IN NO EVENT EXCEED (I) THE AMOUNT PAID BY CUSTOMER
HEREUNDER FOR THE LICENSED MATERIALS, (II) THE AMOUNT PAID BY CUSTOMER FOR
THE MAINTENANCE SERVICE THAT IS THE SUBJECT OF THE CLAIM IF THE CLAIM RELATES
TO A BREACH OR DEFAULT BY CHANGEPOINT OF THE PROVISIONS OF ARTICLE 7, (III)
THE AMOUNT PAID BY CUSTOMER FOR THE INSTALLATION SERVICE THAT IS THE SUBJECT
OF THE CLAIM IF THE CLAIM RELATES TO A BREACH OR DEFAULT BY CHANGEPOINT OF
THE PROVISIONS OF THIS AGREEMENT PERTAINING TO INSTALLATION SERVICE, OR (IV)
IN THE AGGREGATE WITH RESPECT TO ALL CLAIMS UNDER OR RELATED TO THIS
AGREEMENT, THE AMOUNT PAID BY CUSTOMER UNDER THIS AGREEMENT.
(b) IN NO EVENT WILL CHANGEPOINT BE LIABLE FOR SPECIAL, INCIDENTAL,
INDIRECT, OR CONSEQUENTIAL LOSS OR DAMAGE, LOST BUSINESS REVENUE, LOSS OF
PROFITS, LOSS OF DATA, FAILURE TO REALIZE EXPECTED PROFITS OR SAVINGS OR ANY
CLAIM AGAINST CUSTOMER BY ANY OTHER PERSON (EVEN IF CHANGEPOINT HAS BEEN ADVISED
OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE).
(c) CHANGEPOINT SHALL BE LIABLE TO CUSTOMER AS EXPRESSLY PROVIDED IN THIS
AGREEMENT BUT SHALL HAVE NO OTHER OBLIGATION, DUTY, OR LIABILITY WHATSOEVER IN
CONTRACT, TORT OR OTHERWISE TO CUSTOMER INCLUDING ANY LIABILITY FOR NEGLIGENCE.
THE LIMITATIONS, EXCLUSIONS AND DISCLAIMERS IN THIS AGREEMENT SHALL APPLY
IRRESPECTIVE OF THE NATURE OF THE CAUSE OF ACTION, DEMAND, OR ACTION BY
CUSTOMER, INCLUDING BUT NOT LIMITED TO BREACH OF CONTRACT, NEGLIGENCE, TORT, OR
ANY OTHER LEGAL THEORY AND SHALL SURVIVE A FUNDAMENTAL BREACH OR BREACHES OR THE
FAILURE OF THE ESSENTIAL PURPOSE OF THIS AGREEMENT OR OF ANY REMEDY CONTAINED
HEREIN.
6.3 LIMITATION PERIOD
Neither party may bring an action, regardless of form, arising out of
or related to this Agreement (other than to recover License Fees or Maintenance
Fees) more than two (2) years after the cause of action has arisen or the date
of discovery of such cause, whichever is later.
6.4 INTELLECTUAL PROPERTY CLAIMS
(a) Changepoint will defend or (at its option) settle, any claim or action
brought against Customer to the extent that it is based on a claim that the
Licensed Materials infringe any copyright, patent, trade secret or trademark
enforceable in the United States of America of any third person (an
"Infringement Claim") and will indemnify Customer against damages and costs
awarded against Customer by a court of competent jurisdiction by final order
from which no appeal is taken or the time for appealing has expired, provided
that Customer notifies Changepoint promptly in writing of same, and provided
further that Customer permits Changepoint to control the litigation and to
defend, compromise or settle the claim and provides all available information,
assistance and authority to enable Changepoint to do so. Changepoint shall not
be liable to reimburse Customer for any compromise or settlement made by
Customer without Changepoint's prior written consent, or for any legal fees or
expenses incurred by Customer in connection with such claim. Customer shall have
no authority to settle any claim on behalf of Changepoint.
(b) Should the Licensed Materials or any of them become, or in
Changepoint's sole opinion be likely to become, the subject of a claim of
infringement, misappropriation, or violation of an Intellectual Property Right
(an "Infringement Claim") Changepoint may (i) procure for Customer, at no cost
to Customer the right to continue to use the Licensed Materials which are the
subject of the Infringement Claim (ii) replace or modify the Licensed Materials
or part thereof subject to such Infringement Claim with software or
documentation of at least comparable functionality, at no cost to Customer, or
(iii) if neither of the forgoing alternatives are reasonably practical in
Changepoint's sole judgement, remove the component that is the subject of the
Infringement Claim or any or all other parts of the Licensed Materials and
refund to Customer the License Fees paid by Customer for the part removed as
depreciated on a straight line five (5) year basis from the date of delivery of
the part to Customer.
(c) Notwithstanding the foregoing, Changepoint shall have no liability for
any claim that is based on (i) the use of other than the latest release and
version of the Licensed Materials, if such infringement could have been avoided
by the use of the latest version and release and such version or release had
been made available to Customer, (ii) the use or combination of the Licensed
Materials with software, hardware or any other product not provided by
Changepoint, or (iii) any modification to the Licensed Materials or use of the
Licensed Materials other than as expressly authorized herein or as expressly
described or recommended in writing by Changepoint.
(d) This Section 6.4 states the entire liability of Changepoint and
Customer's sole remedies with respect to any Infringement Claim.
ARTICLE 7 - MAINTENANCE AND ENHANCED MAINTENANCE SERVICE
7.1 TERM
(a) Following the expiry of the Warranty Period, Changepoint shall provide
Customer with Maintenance Services during successive annual maintenance terms
(each such term is referred to here as a "Maintenance Term") provided that
Customer pays to Changepoint the Maintenance Fees for each Maintenance Term as
and when due hereunder.
(b) Customer or Changepoint may terminate Maintenance Services at the end
of a Maintenance Term by providing the other with no less than thirty (30) days
prior written notice before the end of the Maintenance Term.
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7.2 MAINTENANCE SERVICE
(a) During the Warranty Period and each Maintenance Term, Changepoint will
provide Maintenance Releases to Customer. Changepoint will also during Business
Hours provide telephone assistance to Customer with respect to initial error
diagnosis and support regarding the functionality of the Licensed Software.
Maintenance Service shall be provided by Changepoint to up to three (3) customer
support staff who are trained and knowledgeable in the use of the Licensed
Materials and who have been designated from time to time by Customer to request
and receive such service.
(b) As part of Maintenance Service and Warranty Support, Customer will have
access to Changepoint's CHANGEPOINT Knowledge Base technical database which
contains technical information concerning the use of the Licensed Software.
Customer acknowledges that information in this database may not have been
verified by Changepoint. Accordingly, Changepoint shall have no responsibility
hereunder with respect to any inaccurate or incomplete information contained in
the CHANGEPOINT Knowledge Base or the use thereof by Customer.
7.3 SERVICES NOT INCLUDED
(a) Maintenance Services and Warranty Support does not include or apply to
any of the following: (i) making modifications to the Licensed Materials for
Customer, (ii) user training, (iii) consultation for new programs or equipment,
(iv) hardware problems including any malfunction of hardware, or to any external
causes affecting the Licensed Materials including the media upon which the
Licensed Materials are provided such as accident, disaster, electrostatic
discharge, fire, flood, lightning, water or wind, or (v) correction of errors
attributable to software other than the Licensed Software. Changepoint may
charge Customer at its then applicable list price for providing such services.
Changepoint may also charge Customer at its then applicable list price for
analysis or removal of errors which are caused by improper operation or handling
of the Licensed Materials or caused by circumstances unrelated to Changepoint.
Payment for these services shall be made by Customer within 30 days of invoicing
by Changepoint.
(b) The obligation to provide Maintenance Services is subject to the
following: (i) Maintenance Services are only provided for the Licensed Software
provided under this Agreement, (ii) if Customer ceases to pay for and receive
Maintenance Services and later requests Maintenance Services, Customer will be
required to pay to Changepoint the Maintenance Fees not paid during the period
in which the service was discontinued, and (iii) Maintenance Services need not
be provided by Changepoint if Customer is not using the most current or an
immediately previous release of the Licensed Materials, or if Customer has made
any modifications to the Licensed Materials and (iv) Changepoint has no
obligation to provide Customer with any Maintenance Services unless Customer has
paid for the Maintenance Services in advance as required hereunder.
ARTICLE 8 - TERM AND TERMINATION
8.1 TERM
This Agreement shall be effective on the Effective Date and shall
terminate in accordance with this Article.
8.2 TERMINATION
Either party may by notice in writing terminate this Agreement if (i)
the other party breaches or fails to observe or perform any of its obligations
set out in this Agreement, including failure to pay any License Fees due and
owing, and fails to cure such breach or failure within thirty (30) days after
written notice; or (ii) either party becomes insolvent, or makes an assignment
for the general benefit of creditors, or any proceedings are commenced by or
against either party under any bankruptcy or insolvency laws or if proceedings
for the appointment of a trustee, custodian, receiver, or receiver manager for
either party are commenced, or if either party ceases or threatens to cease to
carry on business.
8.3 RETURNING LICENSED MATERIALS
Within fifteen (15) days after termination or expiration of this
Agreement for any reason, Customer shall return to Changepoint the original and
all copies of the Licensed Materials in the possession or control of Customer
(including any copies in the possession or control of Business Third Parties or
other Users) and shall certify to Changepoint in writing that all such copies
have been so returned and/or deleted from all computer records. Customer shall
also cease to use the Licensed Materials and ensure that all Business Third
Parties to whom Customer has given access to the Licensed Software also cease to
use the Licensed Materials.
8.4 SURVIVAL
The parties hereto agree that the provisions of Sections 3.3 (the last
sentence), 4.3, 6.2, 6.3 and 8.3, 9.9 and 9.10 and Article 5 shall survive and
remain in full force and effect after the termination of the License or this
Agreement for any reason.
ARTICLE 9 - GENERAL
9.1 HEADINGS
The division of this Agreement into Articles and Sections and the
insertion of headings are for convenience of reference only and shall not affect
the construction or interpretation of the Agreement, as the case may be. The
terms "this Agreement", "hereof", "hereunder" and similar expressions in this
Agreement refer to this Agreement and not to any particular Article, Section or
other portion and include any Agreement supplemental hereto. Unless something in
the subject matter or context is inconsistent therewith, references herein to
Articles and Sections are to Articles and Sections of this Agreement.
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9.2 EXTENDED MEANINGS
In this Agreement words importing the singular number only shall
include the plural and VICE VERSA, and words importing persons shall include
individuals, partnerships, associations, trusts, unincorporated organizations
and corporations. The terms "provision" and "provisions" in this Agreement refer
to terms, conditions, provisions, covenants, obligations, undertakings,
warranties and representations in this Agreement.
9.3 NOTICES
For the purposes of this Agreement, and for all notices and
correspondence hereunder, the addresses of the respective parties have been set
out at the beginning of this Agreement and no change of address shall be binding
upon the other party hereto until written notice thereof is received by such
party at the address shown herein. All notices shall be effective upon receipt
if delivered personally or sent by facsimile and seven (7) days after mailing if
sent by registered mail.
9.4 CURRENCY
All references to currency are deemed to mean lawful money
of the United States of America unless expressed to be in
some other currency.
9.5 FORCE MAJEURE
If the performance of this Agreement, or any obligation thereunder
except the making of payments hereunder is prevented, restricted, or interfered
with by reason of: fire, flood, earthquake, explosion or other casualty or
accident or act of God; strikes or labour disputes; inability to procure or
obtain delivery of parts, supplies, power, equipment or software from suppliers,
war or other violence; any law, order, regulation, ordinance, demand or
requirement of any governmental authority; or any other act or condition
whatsoever beyond the reasonable control of the affected party, the party so
affected, upon giving prompt notice to the other party, shall be excused from
such performance to the extent of such prevention, restriction or interference;
provided, however, that the party so affected shall take all reasonable steps to
avoid or remove such cause of non-performance and shall resume performance
hereunder with dispatch whenever such causes are removed.
9.6 SEVERABILITY
The parties agree that it is the intention of each party not to violate
any public policy, statutory or common law or government regulation. To the
extent that any provision, portion or extent of this Agreement is deemed to be
invalid, illegal or unenforceable, such provision, portion or extent shall be
severed and deleted herefrom or limited so as to give effect to the intent of
the parties insofar as possible and the parties will use their best efforts to
substitute a new provision of like economic intent and effect for the illegal,
invalid or unenforceable provisions and each remaining provision so remaining
shall be enforced.
9.7 ASSIGNMENT
Customer may assign this Agreement without Changepoint's consent (i) to
an Affiliate of Customer; or (ii) to a purchaser of all or substantially all of
Customer's assets. Otherwise, neither this Agreement nor any rights granted
hereby may be transferred or assigned by Customer to any other person without
Changepoint's prior written consent, (such consent shall not be unreasonably
withheld), and any such attempted assignment shall be null and void. In the
event Customer assigns this Agreement to a third person as permitted by this
Section 9.7 or with consent from Changepoint, Customer shall cease all use of
the Licensed Materials and destroy or cause to be destroyed all copies thereof
within its possession or control and the third party assignee shall agree in
writing with Changepoint to assume all of Customer's obligations hereunder.
Customer shall also certify in writing to Changepoint that the foregoing has
been accomplished. This Agreement shall enure to the benefit of and be binding
upon any successor or assign of Changepoint or, any permitted successor or
assign of Customer. The parties agree that Changepoint may delegate to
affiliates of Changepoint and to agents, suppliers, contractors and resellers of
Changepoint any of the obligations herein imposed upon Changepoint and
Changepoint may disclose to any such persons any information required by them to
perform the duties so delegated to them, but such delegation shall not relieve
Changepoint of its performance obligations hereunder.
9.8 WAIVER
No modification, addition to or waiver of any rights, obligations or
defaults shall be effective unless in writing and signed by the party against
whom the same is sought to be enforced. One or more waivers of any right,
obligation or default shall not be construed as a waiver of any subsequent
right, obligation or default. No delay or failure of either party in exercising
any right hereunder and no partial or single exercise thereof shall be deemed of
itself to constitute a waiver of such right or any other rights hereunder.
9.9 GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without
reference to its conflict or choice of law rules or
principles. Customer hereby submits to the non-exclusive
jurisdiction of the courts of the State of New York for
any legal action arising out of this Agreement or the
performance of the obligations hereunder or thereunder.
This Agreement shall be deemed to be made in the State of
New York, and Customer agrees not to commence any action,
suit or proceeding against Changepoint or any affiliate of
Changepoint or any of their employees, officers or
directors in any jurisdiction other than the State of New
York.
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9.10 DISPUTE RESOLUTION AND ARBITRATION
In the event that any dispute or disagreement between
Customer and Changepoint with respect to the
interpretation of any provision of this Agreement, the
performance of Changepoint or Customer under this
Agreement, or any other matter that is in dispute between
the parties related to this Agreement, upon the written
request of either party, the parties will meet for the
purpose of resolving such dispute. The parties agree to
discuss the problem and negotiate in good faith without
the necessity of any formal proceedings related thereto.
No formal proceedings for the resolution of such dispute
may be commenced until either party concludes in good
faith that the applicable resolution through continued
negotiation of the matter in issue does not appear likely.
The parties further agree that all disputes hereunder
which cannot be settled in the manner hereinbefore
described (any such dispute is referred to here as a
"Dispute") will be settled by final and binding
arbitration conducted in accordance with the American
Arbitration Association (or any successor thereto), as
amended from time to time. Judgment upon the award
rendered in any such arbitration may be entered in any
court having jurisdiction thereof, or application may be
made to such court for a judicial acceptance of the award
and an enforcement, as the law of such jurisdiction may
require or allow.
Notwithstanding the foregoing, disputes with respect to any
Infringement Claim including without limitation any claim based on the
infringement, violation or misappropriation of any Intellectual Property Right
shall not be settled by arbitration, without the prior written consent of the
parties.
The arbitration panel will be composed of one person
appointed by the party requesting the arbitration (the
"Applicant"), one person appointed by the other party (the
"Respondent") and a third person to act as chairperson,
chosen by the two arbitrators, or, if both parties agree,
the arbitration panel will consist of a sole arbitrator.
No person may be appointed as an arbitrator unless he or
she is independent of the Applicant and Respondent, is
skilled in the subject matter of the Dispute and is not
directly or indirectly carrying on or involved in a
business being carried on in competition with the business
of the parties. The decision of the arbitration panel
shall be made by a majority vote or by the sole
arbitrator, as the case may be. In the event of the
failure of the arbitration panel to reach a majority
decision, the decision of the chairperson shall constitute
the decision of the arbitration panel. The venue for the
arbitration shall be at the City of New York, New York
unless otherwise agreed to by the parties in writing.
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CONFIDENTIAL TREATMENT
Corio/Changepoint Rev. 12/13/99
Confidential/Draft
APPENDIX A
The Components which are the subject of the License, the Software Licenses
granted to Customer and the fees payable to Changepoint hereunder are as
follows:
1. LICENSED SOFTWARE
The Components of the CHANGEPOINT Software which are licensed to
Customer hereunder are the following: CHANGEPOINT, SQL edition, version
5.2, for an unlimited number of users, including the following modules:
- Service Delivery Management
- Project and Resource Management
- Customer Relationship Management
- Support Management.
2. SOFTWARE LICENSES
The utilization rights of Customer are as follows:
(a) Customer is granted an unlimited number of Client Access Licenses.
Each Client Access License entitles Customer to receive one (1)
Enable Code from Changepoint which will enable Customer to have
one (1) user use the Licensed Materials.
(b) Customer may install Licensed Software on one or more computer
servers as it desires.
3. LICENSE FEES
The License Fee is ***.
4. WARRANTY PERIOD
The Warranty Period for the Licensed Software shall mean the period
commencing on the Effective Date and ending ninety (90) days
thereafter.
5. MAINTENANCE FEES
(a) Customer will pay Changepoint for each Maintenance Term an annual
maintenance fee (the "Annual Maintenance Fee"). The Annual
Maintenance Fee is 18% of the undiscounted License Fees due to
Changepoint hereunder and is payable annually in advance. The
first Annual Maintenance Fee is due upon the expiration of the
Warranty Period and is ***. Subsequent Annual Maintenance Fees
are due on the anniversary of the date the first Annual
Maintenance Fee is due. Additional Maintenance Fees that result
from the acquisition of additional Software Licenses shall become
due when the additional Software Licenses are given to Customer
and shall be prorated to the end of the Maintenance Term.
(b) The Maintenance Fees may be increased annually by Changepoint by
providing Customer with notice of not less than thirty (30) days
prior to the end of a Maintenance Term. Changepoint agrees not to
increase its Maintenance Fees annually by more than six percent
(6%) from the fees charged in the previous Maintenance Term.
6. INSTALLATION SERVICES TO BE PROVIDED BY CHANGEPOINT
(a) Changepoint agrees to provide the following services
("Installation Services") to Customer:
Executive Expectations Review ***
Project Management ***
Infrastructure Support ***
*** The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
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CONFIDENTIAL TREATMENT
Corio/Changepoint Rev. 12/13/99
Confidential/Draft
Systems Configuration & Installation ***
Implementation Support ***
Administrator Training ***
Train-the-Trainer Training ***
(b) Customer agrees to pay Changepoint for any Installation Services
requested by Customer and provided by Changepoint at the daily
rates listed in 6(a) above.
(c) Changepoint does not guarantee that all services will be provided
for the above-mentioned fees. The fees may be higher or lower
depending on the actual services requested by Customer.
(d) Customer shall reimburse Changepoint for reasonable travel
expenses, and reasonable incidental expenses relating to
Installation Service and Maintenance Service at Changepoint's then
current prices then in effect. Changepoint shall invoice Customer
for such fees and expenses on a monthly basis. Customer shall not
be liable for the aforesaid expenses unless Customer has given
Changepoint approval to incur them.
CHANGEPOINT INC. CORIO, INC.
Signature ________________________ Signature _____________________
Name _____________________________ Name __________________________
Title ____________________________ Title _________________________
*** The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
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CONFIDENTIAL TREATMENT - REDACTED VERSION
OEM AGREEMENT
THIS AGREEMENT is made as of December 30, 1999 (the "Effective Date").
BETWEEN
CHANGEPOINT INC., with offices at 1595 Sixteenth Avenue, Suite 702,
Richmond Hill, Ontario, L4B 3N9 ("Changepoint"),
-and-
SOFTRAX CORPORATION, with its principal offices at 45 Shawmut Road,
Canton, Massachusetts, USA, 02021 ("OEM").
IN CONSIDERATION of the premises and the mutual covenants contained
herein, the parties agree as follows:
ARTICLE 1 - INTERPRETATION
1.1 DEFINITIONS
Capitalized terms defined in this Agreement shall have the meaning
given to them herein and the following terms shall have the following meanings:
(A) "AFFILIATE" means with respect to any person, any other person
directly or indirectly controlling, controlled by, or under
common control of such person. "Control" as used here means
the legal, beneficial or equitable ownership, directly or
indirectly, of more than 50% of the aggregate of all voting
interests in such entity.
(B) "CHANGEPOINT SOFTWARE" means the computer programs in object
code form listed in Schedule A-1, such additional programs as
Changepoint and OEM hereinafter may agree to in writing by the
amendment of Schedule A-1, as well as Changepoint Upgrades and
Changes developed by Changepoint for which the Intellectual
Property Rights vest in Changepoint. The term Changepoint
Software shall also include software as Changepoint may
develop or have developed in order to allow interoperability
between the Changepoint Software and such third party software
applications as Changepoint may, from time to time, elect to
license with the Changepoint software.
(C) "CHANGEPOINT DOCUMENTATION" means the end user documentation
describing the operation and use of the Changepoint Software
in printed or machine readable form which is made generally
available from time to time by Changepoint to its customers.
<PAGE>
-2-
(D) "CHANGEPOINT INTELLECTUAL PROPERTY" means the Changepoint
Software, Changepoint Documentation, Changepoint Promotional
Materials, Changepoint Technical Documentation, Changepoint
Training Materials and the Changepoint Source Code.
(E) "CHANGEPOINT UPGRADE" means an Upgrade to the Changepoint
Software developed by Changepoint and made generally available
by Changepoint to its customers.
(F) "CONFIDENTIAL INFORMATION" means the confidential, secret or
proprietary information of one party (the "Disclosing Party")
including technical, financial, and business information and
software of the Disclosing Party which has been or hereafter
may be disclosed, directly or indirectly, to the other party
(the "Recipient") either orally, in writing or in any other
material form, or delivered to the Recipient and (i) with
respect to OEM includes the OEM Source Code, the OEM Software
forming part of an OEM Application Suite, the OEM
Documentation, the OEM Technical Documentation and the OEM
Software, and (ii) with respect to Changepoint includes the
Changepoint Software, the Changepoint Documentation, the
Changepoint Technical Documentation, Training Materials and
the Changepoint Source Code.
(G) "CUSTOMER MAINTENANCE AGREEMENT" means an agreement between
OEM and an End User to receive support or maintenance
including Changepoint Upgrades and Maintenance Releases and
corrections or workarounds for programming errors or defects
in the Changepoint Software.
(I) "END USER" means a Prospect that acquires one or more copies
of the OEM Application Suite from OEM pursuant to an End User
License for such organization's internal business purposes.
(J) "END USER LICENSE" has the meaning set out in Section 2.1.
(K) "GAAP" means, at any time, accounting principles generally
accepted in the United States as recommended in or by the
American Institute of Certified Public Accountants and the
Financial Accounting Standards Board at the relevant time,
applied on a consistent basis (except for necessary or
advisable changes in accordance with promulgations of the
American Institute of Certified Public Accountants and the
Financial Accounting Standards Board).
(L) "INTEGRATED", "TO INTEGRATE" OR "INTEGRATION" means the
combination of the Changepoint Software with the Integrative
Code or the combination of the Changepoint Software with the
Integrative Code and one or more applications of the OEM
Software in either case rebranded to create an OEM Application
Suite, in either event which will be (i) distributed on
compact disk(s) utilising a unified installation process or
(ii) installed on an End User computer by OEM.
(M) "INTEGRATIVE CODE" has the meaning ascribed to it in Section
4.1(c).
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(N) "INTELLECTUAL PROPERTY RIGHTS" includes all intellectual and
industrial property rights such as, copyrights, trade-marks,
patents, inventions, discoveries, industrial designs, design
rights, and rights in trade secrets and information of a
confidential nature.
(O) "LICENSE" means the license granted to OEM in Section 2.1.
(P) "LIST PRICE" has the meaning set out in Schedule E.
(Q) "MAINTENANCE RELEASE" means a change or modification to the
Changepoint Software designed to correct a programming error
or provide a temporary work-around for a programming error
which is made generally available at no additional cost to
customers of Changepoint that have paid to receive maintenance
service for the Changepoint Software.
(R) "MASTER COPY" means the diskette(s) or CD-ROM(s) containing
the Changepoint Software that is delivered by Changepoint to
OEM for use in Integrating the Changepoint Software with the
OEM Software.
(S) "OEM APPLICATION SUITE" means an OEM Software product offering
which includes either OEM Software Integrated with the
Changepoint Software in the manner described in Article 4 or
the Integrative Code Integrated with the Changepoint Software
which has been rebranded; provided, however, that until such
time that the initial Integrative Code has been completed by
OEM (but in any event no later than six (6) months following
the Effective Date of this Agreement), an OEM Application
Suite may mean the Changepoint Software as a standalone
product.
(T) "OEM DOCUMENTATION" means, the end user documentation
describing the operation and use of the OEM Software in
printed or machine readable form which is made generally
available from time to time by OEM to its customers.
(U) "OEM INTELLECTUAL PROPERTY" means the OEM Software, OEM
Documentation, OEM promotional materials, OEM Technical
Documentation, OEM Training Materials, the Integrative Code
and the OEM Source Code.
(V) "OEM SOFTWARE" means any one or more of the computer programs
in object code form listed in Schedule A2 as of the Effective
Date and such additional programs as Changepoint and OEM
hereinafter may agree to in writing by the amendment of
Schedule A-2 and includes Upgrades thereto made generally
available by OEM to its customers. The term "OEM Software"
shall also refer, where applicable by context, to the
Integrative Code and to such other software which OEM may
develop from time to time hereunder as part of its
operations/financials software products.
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(W) "PRICE LIST" means the price list for the Changepoint Software
set out in Schedule E as same may be changed by notice in
writing from Changepoint to OEM pursuant to the provisions of
Section 9.5.
(X) "PROMOTIONAL MATERIALS" means marketing and promotional
materials related to the Changepoint Software provided by
Changepoint to OEM to use in association with marketing an OEM
Application Suite and includes Upgrades thereto released by
Changepoint during the term of this Agreement which Upgrades
shall be promptly provided to OEM prior to or following their
release.
(Y) "PROSPECT" means (i) a Target Company with its head office in
the Territory, (ii) a person which has licensed the
Changepoint Software from Changepoint or an Affiliate of
Changepoint with its head office in the Territory, (iii) a
person which has licensed the OEM Software from OEM with its
head office in the Territory and such person's Affiliates(iv)
Affiliates of licensees of the OEM Application Suite with head
offices outside of Canada or the United States (v) OEM's
strategic partners that promote the OEM Software which have
their head offices in the Territory and (vi) a potential
licensee of Changepoint for the use of the Changepoint
Software which Changepoint has identified to OEM as a
potential licensee for an OEM Application Suite with head
offices in the Territory, and which in each case may be
interested in acquiring the OEM Software or an OEM Application
Suite. Notwithstanding the foregoing, if OEM identifies any of
the above that only have active offices in the Territory, OEM
may identify same to Changepoint and request that such entity
be deemed to be a Prospect for the purposes of this Agreement.
Within a reasonable period of time, Changepoint shall
determine in its sole discretion whether it is prepared to
allow such entity to be a Prospect and promptly communicate
its decision to OEM.
(Z) "SOURCE CODE" means in relation to Changepoint, the
Changepoint Source Code and in relation to OEM, the OEM Source
Code.
(AA) "TARGET COMPANY" means (i) a person whose main business
involves the development, marketing and distribution of
computer software and services related to such computer
software, and (ii) a person whose primary business involves
the development, marketing and distribution of internet-based
products or services related to such products who require
solution for tracking and managing customers, orders,
contracts, products and licenses, but does not include (a) an
information technology organization or group within a
non-information technology company, or (b) any person whose
primary business involves providing consulting or professional
services.
(BB) "TECHNICAL DOCUMENTATION" means technical documentation
related to either the Changepoint Software or the OEM Software
such as specifications, application programming interfaces,
data structures and flow charts and which is provided by one
party to the other hereunder and includes Upgrades thereto
made available by Changepoint to OEM during the term of this
Agreement.
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(CC) "TERRITORY" means the geographic territory of the United
States and Canada.
(DD) "TRAINING MATERIALS" means materials provided by Changepoint
to OEM for the purpose of training its staff in the
implementation and the provision of Level 1 and Level 2
support for the Changepoint Software and includes Upgrades
thereto made available by Changepoint to OEM during the term
of this Agreement.
(EE) "UPGRADES" means upgrades, enhancements, releases and new
Versions of software or documentation and with respect to the
Changepoint Software includes Maintenance Releases.
(FF) "VERSION" means a particular version of software which is
specifically identified by the numbers in the digits to the
immediate left and right of the decimal point in the product
version number, e.g., ((x).(x)x).
1.2 ACCOUNTING TERMS
All accounting terms not specifically defined herein shall be construed
in accordance with GAAP consistently applied.
1.3 SCHEDULES
The following Schedules shall constitute part of this Agreement for all
purposes:
<TABLE>
<S> <C>
Schedule A-1 - Changepoint Software
Schedule A-2 - OEM Software
Schedule B - Terms and Conditions for End User Licenses
Schedule C - Training Materials
Schedule D - Royalties
Schedule E - Changepoint Price List
Schedule F - Escrow Agreement
Schedule G - Changepoint License
Schedule H - OEM License
Schedule I - Program Quick Start
</TABLE>
1.4 HEADINGS
The division of this Agreement into Articles and Sections and the
insertion of headings are for convenience of reference only and shall not affect
the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof", "hereunder" and similar expressions refer to this
Agreement and not to any particular Article or Section or other portion hereof
and include any agreement supplemental hereto. References herein to Articles or
Sections are to Articles or Sections of this Agreement.
<PAGE>
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1.5 CURRENCY
Except for the fees payable to the escrow agent in the Escrow
Agreement, all monetary amounts specified herein are expressed in U.S. dollars.
1.6 EXTENDED MEANINGS
In this Agreement words importing the singular number only shall
include the plural and VICE VERSA, and words importing persons shall include
individuals, partnerships, associations, trusts, unincorporated organizations
and corporations. The terms "provision" and "provisions" refer to terms,
conditions, provisions, covenants, obligations, undertakings, warranties and
representations in this Agreement. The term "includes" or "such as" shall be
construed as meaning "includes without limitation" and "such as without
limitation" as the case may be.
ARTICLE 2 - LICENSE
2.1 LICENSE GRANT
Subject to the provisions of this Agreement including the provisions of
Sections 13.5 and 14.1, Changepoint hereby grants OEM a non-exclusive,
non-transferable and non-assignable license in and for the Territory and during
the term of this Agreement to:
(a) Reproduce the Changepoint Software from the Master Copy for
Integration into an OEM Application Suite and as reasonably required to maintain
and support (but not modify) such product. OEM shall ensure that the Integration
of the OEM Software with the Changepoint Software shall not adversely affect the
full functionality of the Changepoint Software nor disable any substantive
features of the Changepoint Software included in the OEM Application Suite. OEM
shall ensure that the quality of reproduced Changepoint Software Integrated into
an OEM Application Suite is equivalent to the quality of the Changepoint
Software which Changepoint licenses to its customers, and meets or exceeds the
then current applicable standards for media and replication quality for disk or
CD-ROM media. In Integrating the Changepoint Software into an OEM Application
Suite, OEM shall rebrand the Changepoint Software to use the trademarks and
logos of OEM instead of the trademarks and logos of Changepoint provided,
however, that the OEM Application Suite states that it contains the Changepoint
Software by including the tag line "Powered by Changepoint" (or such similar tag
line as provided by Changepoint in consultation with OEM) on marketing
materials, product packaging, documentation and the opening screen of the OEM
Application Suite and provided further that the tag line is displayed so as to
be clearly noticeable without being prominent and such tag lines are approved by
Changepoint, such approval not to be unreasonably withheld.
(b) Reproduce, market, support (but not modify) and distribute in the
Territory to Prospects only, the Changepoint Software as such software is
Integrated into an OEM Application Suite directly to Prospects for their
internal business purposes and not for redistribution and who have agreed to
abide by the terms of the End User License, the minimum provisions of which are
set out in Schedule B (the "End User License"). In addition, OEM may also
appoint properly trained sales agents to market and distribute (but not
reproduce or support) in the Territory to Prospects only the Changepoint
Software as such software is Integrated into
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an OEM Application Suite directly to Prospects for their internal business
purposes and not for redistribution provided that such sales agent are not
authorized to sublicense the software. Notwithstanding the foregoing, OEM may
not distribute or grant any End User License to any person to use the
Changepoint Software portion of the OEM Application Suite who has, at the
date of the proposed transaction, already licensed the Changepoint Software
from Changepoint or an Affiliate of Changepoint or another person authorized
by Changepoint to grant such a license.
(c) Make technically accurate derivative works of the Changepoint
Documentation solely for the purpose of incorporating same into the OEM
Documentation prepared by OEM for an OEM Application Suite. OEM shall not
distribute the Changepoint Documentation as part of any book or other
publication for sale or license separate from an OEM Application Suite without
the prior written approval of Changepoint. OEM shall deliver to Changepoint a
copy of all OEM Documentation relating to an OEM Application Suite, for the sole
purpose of allowing Changepoint to verify the accuracy of such OEM
Documentation. If Changepoint identifies any material error in the OEM
Documentation, Changepoint shall provide reasonable notice of same to OEM
whereupon OEM shall make such changes as are reasonably requested by Changepoint
to render the OEM Documentation technically correct in all material respects.
OEM shall distribute the OEM Documentation in its then-current form in
association with and subject to the End User Licenses and for use only with an
OEM Application Suite. Notwithstanding the foregoing, OEM shall not create
derivative works of any compiled "*.HLP" files, if any, for use on the Internet.
(d) Distribute copies of Changepoint Promotional Materials received
from Changepoint and make derivative works of the Changepoint Promotional
Materials and subject to Section 5.2, distribute such derivative works as stand
alone materials or as integrated with OEM Promotional Materials to Prospects.
OEM shall not distribute any Promotional Materials referencing or describing the
OEM Application Suite without the prior written approval of Changepoint as to
the form and content of such material, which approval shall not be unreasonably
withheld or delayed; provided, however, that OEM shall not need such approval
with respect to derivative copies of Changepoint Promotional Materials where the
only changes to such materials made by OEM were in connection with the
rebranding of the product name. OEM may, at its option, purchase marketing and
promotional materials from Changepoint at cost.
(e) Use and reproduce Technical Documentation provided to OEM hereunder
solely for the purpose of Integrating the OEM Software with the Changepoint
Software, of developing Changes as provided under Article 6, and in providing
the technical support to end users described in Section 8.1. OEM may not
distribute technical documentation to any third person without the prior written
consent of Changepoint.
(f) Use and reproduce the Training Materials for the purposes of
training OEM's sales and support staff.
(g) Reproduce any Changepoint Source Code provided to OEM solely for
the purpose of rebranding the Changepoint Software for use as part of an OEM
Application Suite or for the purpose of making Changes as provided under Article
6.
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2.2 LICENSE RESTRICTIONS
OEM agrees not to supply or grant any sublicense to any person to use
all or any part of an OEM Application Suite unless such person has first become
subject to a binding and enforceable license agreement with OEM that contains
the minimum terms and conditions described in the End User License. OEM agrees
to use reasonable efforts to enforce the terms of the End User Licenses and to
inform Changepoint immediately of any known breach of such terms. OEM agrees, if
requested to do so by Changepoint and at Changepoint's sole cost and expense, to
provide an independent professional adviser to Changepoint with the right to
review copies of all End User Licenses for the purpose of determining whether
OEM is in compliance with the provisions of this Agreement. Where OEM is in
non-compliance with the provisions of this Agreement, the independent adviser
shall so inform Changepoint and OEM and shall provide Changepoint with a summary
of relevant information concerning OEM's non-compliance with the provisions of
this Agreement regarding End User Licenses. The independent adviser retained by
Changepoint shall not be authorized to disclose any OEM Confidential Information
to Changepoint without OEM's prior written consent.
2.3 LICENSE KEYS
OEM acknowledges that the Master Copy is license key protected. OEM
shall notify Changepoint at such time as an End User has executed the End User
License, and shall provide Changepoint with End User name and the number of
users to be licensed. Changepoint will use such information to generate a
license key within a period of forty-eight (48) hours during business days and
shall deliver such license key to OEM so that the Changepoint Software licensed
to the End User can be unlocked so as to be usable by such End User.
Notwithstanding the foregoing, in special circumstances, OEM may request the
generation of a license key within a shorter period and, in this case,
Changepoint agrees to use reasonable efforts to provide a license key within
such shorter period.
2.4 INTERNAL USE LICENSES
(a) OEM agrees to implement the Changepoint Software for its internal
business purposes (to the extent useful for its business) as soon as reasonably
possible. The use thereof shall be subject to the terms of Changepoint's
standard license agreement, a copy of which is attached hereto as Schedule G and
which shall finalized by the parties prior to its execution following the
Effective Date.
(b) Changepoint (or its Affiliate Changepoint Corporation) also agrees
to implement the OEM Software for its internal business purposes (to the extent
useful for its business) as soon as reasonably possible. The use thereof shall
be subject to the terms of OEM's standard license agreement, a copy of which is
attached hereto as Schedule H and which shall be finalized by the parties prior
to its execution following the Effective Date. Changepoint shall permit OEM to
list Changepoint as a user of the OEM Software on its client reference lists and
other marketing and promotional material. OEM shall permit Changepoint to list
OEM as a user of the Changepoint Software on its client reference lists and
other marketing and promotional material.
<PAGE>
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(c) During the term of this Agreement each party will provide to the
other, standard maintenance and support services similar to those provided to
end users of each party's software products, with respect to the software
referred to in paragraphs (a) and (b) above, free of charge. Upon termination of
this Agreement, the licenses granted in paragraphs (a) and (b) above shall
terminate unless, at the time of termination of this Agreement, a party
subscribes for maintenance and support services from the other party at such
other party's then-current rates, and upon such other party's standard terms and
conditions.
(d) Each party shall provide to the other, on request, and at mutually
agreeable times, implementation assistance with respect to such party's software
on a time and materials basis at such party's then-current rates. If any
consulting services are requested by a party, the other party shall provide such
consulting services at mutually agreeable times, at a rate of $1000 per day.
2.5 RESERVATION OF OEM RIGHTS
Except for the express licenses conferred upon Changepoint hereunder,
there are no other licenses granted herein either express or implied and all
other rights with respect to the OEM Software and the OEM Intellectual Property
are expressly reserved by OEM.
2.6 RESERVATION OF CHANGEPOINT RIGHTS
Except for the express licenses conferred upon OEM hereunder, there are
no other licenses granted herein either express or implied and all other rights
with respect to the Changepoint Software and the Changepoint Intellectual
Property are expressly reserved by Changepoint.
2.7 THIRD PARTY SOFTWARE
OEM acknowledges that Changepoint shall not grant to OEM any license in
respect of any third party software that Changepoint may, from time to time,
elect to combine with the Changepoint Software. OEM shall make its own
arrangements to obtain all necessary licenses to use, reproduce and distribute
any such third party software. However, at OEM's request and expense,
Changepoint will assist OEM in dealing with any such third party.
ARTICLE 3 - RELATIONSHIP OF THE PARTIES
3.1 NON-EXCLUSIVE
OEM acknowledges that it has been granted non-exclusive rights to
sublicense and distribute the Changepoint Software as integrated into an OEM
Application Suite to End Users in the Territory. On an annual basis, the parties
will examine their relationship, and at such time OEM may request that all or
some of the rights granted hereunder be made exclusive, or that there be an
extension of the Territory, based on the expansion of OEM's sales and marketing
efforts to such extended regions. Changepoint will consider such request but may
grant or refuse such request(s) at its sole discretion. Further, nothing herein
shall prevent Changepoint from
<PAGE>
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granting any right or license to any third party to use, distribute or
otherwise commercially exploit the Changepoint Software.
3.2 LEAD GENERATION AND COMPENSATION
If either party (the "Finder") identifies a sales lead which it elects
not to pursue and which it believes the other party (the "Receiver") could use
to its advantage, the following procedures shall govern:
(i) the Finder shall register the sales lead with the Receiver
through an e-mail notice (the "Registration"). If the parties
believe that an e-mail registration is inadequate for these
purposes, they shall agree upon another form of Registration
to take effect from the date of such agreement. The
Registration will provide information about the sales lead
such as the names and phone numbers of the key personnel
involved and a description of the needs that may be satisfied
by the Receiver;
(ii) if the Finder has proceeded sufficiently in the sale cycle to
make same commercially acceptable to the sales lead, the
Finder will introduce the Receiver to the sales lead;
(iii) the Receiver will have five (5) days from receipt of the
Registration to accept or reject the Registration. It will be
solely at the discretion of the Receiver as to whether this is
accepted or rejected. If a rejection is made, it will be
accompanied by a short explanation, (i.e. the Receiver was
already working the sales lead);
(iv) if the sales lead has NOT signed an agreement with the
Receiver within 180 days of the date of the Registration, the
Registration will expire. If the sales lead has signed an
agreement with the Receiver for a license of the OEM Software
or the Changepoint Software, as the case may be, within 180
days of the date of the Registration, the Receiver will pay a
finders fee to the Finder equal to five percent (5%) on all
GAAP-recognizable license fees for the OEM Software or the
Changepoint Software, as the case may be, invoiced to the
sales lead within the first 180 days of the signing of such
agreement. The Receiver will pay the Finder this amount within
45 days of the end of each calendar quarter;
(v) there will be no charge backs because payments are made on
recognizable license revenue only (which by definition is
irrevocable);
(vi) in order for a sales lead to qualify under this Section 3.2,
there must have been at least one qualifying discussion
(either by telephone or in person) by a sales representative
of the Finder; and
(vii) the parties agree to pay a minimum of 50% of any finders fee
to the sales representative that resulted in the Registration
in order to incent their respective sales forces to develop
and send sales leads to the other party under the provisions
of this Section.
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CONFIDENTIAL TREATMENT
3.3 OEM TRAINING AND IMPLEMENTATION SUPPORT
In consideration of the payment of a one-time Program Quick Start
fee of ***, which fee shall be paid by cash or cheque on the Effective Date,
Changepoint agrees to provide to OEM a copy of the Training Materials,
Changepoint Promotional Materials, Changepoint Technical Documentation, and
the Changepoint Documentation as well as the services described in Schedule
G. OEM acknowledges that any support over and above the amounts specified in
Schedule G and implementation assistance required by OEM (whether for an End
User or otherwise) shall be charged at Changepoint's then-current time and
materials rates, less a *** discount. Changepoint shall use reasonable
efforts to make available suitable Changepoint personnel to assist OEM in
providing implementation assistance to End Users. Changepoint shall make any
subsequent Training Materials available to OEM promptly following their
development.
ARTICLE 4 - PRODUCT INTEGRATION
4.1 INTEGRATION OF CHANGEPOINT SOFTWARE
(a) Each party shall appoint an experienced staff member (the
"Integration Manager") on behalf of such party to oversee Integration of the
Changepoint Software with the OEM Software to create the OEM Application
Suite.
(b) Within thirty (30) days of the Effective Date, the Integration
Managers shall meet and develop an Integration plan which will, at a minimum,
clearly set out the file/database level of integration functionality as well as
the minimum level of Integration of the OEM Software with the Changepoint
Software which will qualify the integrated offering as an OEM Application Suite,
such minimum level not to exceed the development of Integrative Code allowing
the transfer of data between the OEM Software and the Changepoint Software.
(c) OEM shall have the responsibility for developing the code and other
materials to Integrate the Changepoint Software with the OEM Software (the
"Integrative Code"). Changepoint will provide technical information including
Application Programming Interfaces (APIs) and reasonable assistance as required
by OEM to develop the Integrative Code; however, Changepoint shall not be
required to deliver any Changepoint Source Code to the Changepoint Software to
OEM except to the extent required by OEM to effect the rebranding of the
Changepoint Software as contemplated by the parties under Section 2.1(a). If
Changepoint elects not to provide any Changepoint Source Code to OEM in these
circumstances, Changepoint will provide such services to OEM at no charge as OEM
would have performed using the Changepoint Source Code to effect such
rebranding.
(d) OEM shall develop the Integrative Code as soon as commercially
practicable but, in any case, within six (6) months of the Effective Date.
Following completion, OEM shall provide to Changepoint a complete copy of an OEM
Application Suite for review.
(e) Changepoint shall be entitled to inspect the Integrative Code and
the quality of the Integration of the Changepoint Software with the OEM
Software, including any changes made to the user interface of the Changepoint
Software, and to approve same prior to OEM's marketing
***The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
<PAGE>
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or distribution of same absent any material deficiency in the same.
Changepoint agrees not to unreasonably withhold or delay its approval.
4.2 INTEGRATION OF UPGRADES
(a) OEM shall be responsible for developing and implementing any
changes to the Integrative Code required as a result of any Changepoint
Upgrades. Each Upgrade shall be Integrated by OEM into the OEM Application Suite
after its release by Changepoint within a timely fashion taking into account the
complexity of the Upgrade. Changepoint agrees to give OEM notice as far in
advance as reasonably possible and provide technical information and assistance
to OEM as may be reasonably necessary for OEM to analyse the impact of the
Upgrade on the Integrative Code. The provisions of Section 4.1 shall apply to
any Upgrades to the OEM Application Suite.
(b) OEM may distribute Changepoint Upgrades to End User licensees of
the OEM Application Suite subject to the following limitations in addition to
those specified above:
(i) OEM shall not directly or indirectly distribute any
Changepoint Upgrade to any End User to which OEM did not
directly or indirectly distribute the copy of the OEM
Application Suite into which the Changepoint Upgrade is to be
Integrated; and
(ii) OEM shall, as to every Changepoint Upgrade that OEM
distributes, either: (1) distribute to the End User an Upgrade
of the OEM Application Suite that Integrates the Changepoint
Upgrade or; (2) use commercially reasonable efforts to promote
the Integration of the Changepoint Upgrade into the End User's
copy of the OEM Application Suite promptly upon delivery to
the End User and to ensure that the Upgrade is used for no
purpose other than to upgrade the OEM Application Suite.
Without limiting the generality of the foregoing, such
commercially reasonable efforts shall include requiring End
Users by written contract to use the Changepoint Upgrade only
as an Upgrade to OEM Application Suite.
ARTICLE 5 - MARKETING
5.1 MARKETING OBLIGATIONS OF OEM
During the term of this Agreement, OEM shall:
(a) identify Changepoint as a strategic partner in all marketing
and promotional materials and activities relating to an OEM
Application Suite;
(b) devote sufficient financial resources and technically
qualified sales and service personnel to fulfil its
responsibilities under this Agreement;
(c) use commercially reasonable efforts to meet the Sales Targets
referred to in Section 5.4 (except following the provision of
notice by either party of its intent
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to terminate and/or not to renew this Agreement) and to
carry out the activities and meet the objectives set out in
the marketing plans referred to in Section 5.3;
(d) establish and maintain a team to market and provide support
for every OEM Application Suite. In order to meet this
commitment, OEM agrees that it shall make at least five (5)
members of OEM's sales staff available for use and sales
training and at least five (5) members of OEM's technical
staff available for use and support training to be made
available by Changepoint; and
(e) (except following the provision of notice by either party of
its intent to terminate and/or not to renew this Agreement)
actively promote an OEM Application Suite to Prospects in the
Territory by, among other means, attending trade shows,
advertising on OEM's web site, and featuring the OEM
Application Suite in OEM's product catalogue.
5.2 MARKETING OBLIGATIONS OF CHANGEPOINT
During the term of this Agreement, Changepoint shall:
(a) identify OEM as a strategic partner in its marketing and
promotional materials which describe Changepoint's strategic
partners and which Changepoint makes generally available to
its customers and on the applicable portion of its Web Site;
(b) devote technically qualified personnel to fulfil its
responsibilities under this Agreement;
(c) with the assistance of OEM, provide its sales force with
training in the marketing of the OEM Software; and
(d) at a corporate level, promote OEM as a strategic partner and
the OEM Software as a "product of choice" for operations
including financials within OEM's target market (but not
necessarily in other markets).
5.3 QUARTERLY MARKETING MEETINGS
The parties agree to meet quarterly to: (a) review sales and marketing
efforts by each party with respect to the objectives set forth in this Agreement
during the preceding quarter; (b) discuss and resolve any channel conflict or
other marketing and sales issues which may have arisen during the preceding
quarter; (c) discuss and plan joint marketing opportunities for the forthcoming
quarter; (d) discuss, when desired by the parties, respective sales plans for
the next quarter and put into place such mechanisms as may be most effective in
preventing channel conflict; (e) discuss and implement agreed-upon shared
commission procedures; and (f) discuss such other matters as are pertinent to
the objective that this Agreement continue to the mutual profit of each party.
The quarterly meetings shall be led by an employee of at least the level of Vice
President from each party. Meetings may be held telephonically. The first such
meeting shall occur within thirty (30) days following the Effective Date.
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CONFIDENTIAL TREATMENT
5.4 SALES TARGETS
(a) OEM's sales performance target ("Sales Target") for the period
from the Effective Date through December 31, 2000 (the "First Year") shall be
revenue of at least *** in license fees from the licensing and distribution
of the Changepoint Software portion of an OEM Application Suites to End Users
in the Territory calculated in accordance with GAAP revenue recognition rules.
(b) Sales Targets for subsequent years after the First Year shall be
negotiated in good faith between the parties by October 1st of the
then-current year. The minimum Sales Target for the year after the First Year
will be revenue of at least $ *** in license fees, and the minimum Sales Target
for any subsequent year will be the minimum Sales Target for the previous
year plus at least an additional $ *** in license fees in each case, from the
distribution of the Changepoint Software portion of the OEM Application
Suites to End Users in the Territory calculated in accordance with GAAP
revenue recognition rules.
ARTICLE 6 -- CHANGE REQUESTS
6.1 CHANGE REQUEST PROCESS
(a) OEM may request changes, updates or enhancements (collectively,
"Changes") to the Changepoint Software by delivering such request to Changepoint
in writing, specifying the request in sufficient detail, including relevant time
requirements, to enable Changepoint to analyse the technical feasibility of such
request.
(b) Within a reasonable period of time (and in any event, no more than
ten (10) business days) after receiving such request, Changepoint shall
communicate to OEM whether the request has been accepted, rejected or if further
information is required. If further information is required, the procedure in
this section 6.1 shall be repeated. If the request is accepted, Changepoint
shall indicate by a notice in writing to OEM the anticipated date for
implementation of such Change, having regard to Changepoint's existing
development plans and availability of personnel. Changepoint will use reasonable
efforts to estimate the anticipated date for the implementation of such Change,
but Changepoint shall have no liability to OEM for any delays in implementing
the Change. In the event Changepoint changes its development plans such that the
requested Change will not be made, Changepoint shall so notify OEM and in that
event the request shall be considered to be one which Changepoint rejected and
the provisions of Section 6.1(c) shall apply.
(c) If Changepoint rejects a Change request in writing, or if
Changepoint declines to provide OEM with a commitment to develop a Change in a
timely fashion pursuant to Section 6.1(b), OEM can request Changepoint to quote
a price for the development of such Change. Changepoint will quote a price and a
proposed implementation date and related terms for such request. If OEM agrees
to the price and other terms upon which Changepoint offers to develop the
Change, Changepoint and OEM will enter into a written supplement to this
Agreement setting out the terms and conditions upon which the Change will be
made. Alternatively, if Changepoint notifies OEM in writing that it is not
prepared to develop the Change (other than because the Change is not technically
feasible), and if the change is one which, if not made,
***The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
<PAGE>
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would materially and adversely affect OEM's ability to meet the
then-applicable Sale Targets, then Changepoint will not unreasonably refuse
to provide OEM with access to such portions of the Changepoint Source Code as
is required to implement such Change for the sole purpose of enabling OEM to
make such Change itself under terms and conditions to be agreed upon in
writing by the parties. Such terms and conditions will include:
(i) the nature of the technical information and the portions of
the source code to be provided to OEM to effect the Change;
(ii) the effect of the Change on warranty and other obligations of
Changepoint herein;
(iii) agreement on how the Change will be supported and maintained;
(iv) the quality assurance to be performed by Changepoint;
(v) the technical assistance to be provided by Changepoint with
respect to such Change; and
(vi) the fees and expenses to be paid to Changepoint related to the
Change.
And unless, otherwise agreed to by the parties, any Change so developed by OEM
shall be subject to the following terms:
(i) subject to the pre-existing Intellectual Property rights held
by Changepoint in the Changepoint Software and the Changepoint
Source Code, title to any Change developed by OEM shall vest
immediately and exclusively in OEM;
(ii) OEM shall have sole responsibility for the support and
maintenance of the Change and Changepoint shall not be
required to support or provide warranty protection for the
same;
(iii) technical assistance provided by Changepoint to OEM in
connection with OEM's development of the Change may be charged
by Changepoint at its applicable rates for such services; and
(iv) OEM shall not indicate that the Change is a product of
Changepoint.
6.2 PRICING OF CHANGES
Unless otherwise agreed to by the parties, if Changepoint develops a
Change for OEM pursuant to Section 6.1(c), Changepoint shall price such Change
at a discount of 50% off of Changepoint's then current usual rates for the
development of enhancements to the Changepoint Software.
<PAGE>
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ARTICLE 7 - SOURCE CODE
7.1 ESCROW
(a) Changepoint shall, at OEM's request, deposit a copy of the source
code for the Changepoint Software in escrow with Montreal Trust Company of
Canada pursuant to an escrow agreement substantially in the form of Schedule F
(the "Escrow Agreement") or as may be amended by the parties as soon as
reasonably possible following the Effective Date. All costs and expenses
associated therewith shall be borne by OEM.
(b) Changepoint acknowledges that Prospects of OEM may request OEM to
place in escrow Changepoint Source Code together with the OEM Source Code. In
the event of any such request, Changepoint agrees to provide a letter signed by
an officer of Changepoint addressed to the Prospect offering to enter into a
maintenance agreement for the Changepoint Software in the event of a bankruptcy
of OEM or in the event OEM ceases to carry on business, on Changepoint's
standard terms, provided that any such request is made while Changepoint is
still offering to license the Changepoint Software to Prospects in the
Territory. Changepoint's obligation shall be restricted to offering to maintain
and support the current and immediately previous Version of the Changepoint
Software then being marketed by Changepoint.
(c) The Changepoint Source Code shall only be released to OEM on the
terms and subject to the conditions set out in the Escrow Agreement. The parties
agree that any breach of the terms of the Escrow Agreement by a party hereto
shall be deemed to be a material breach of this Agreement. Except as elsewhere
set forth in the Agreement, nothing in this Article 7 shall require Changepoint
to deliver to OEM all or any part of the Changepoint Source Code, except as
required by the Escrow Agreement.
ARTICLE 8 - MAINTENANCE AND SUPPORT
8.1 TECHNICAL SUPPORT
(a) OEM will provide Level 1 Support and Level 2 Support directly to
End Users who have entered into Customer Maintenance Agreements. Level 1 Support
means the service provided in response to the initial phone call placed by an
End User which identifies and documents an error in the OEM Application Suite.
This includes problem source identification assistance, problem analysis,
problem resolution, installation planning, information and preventative and
corrective service information. Level 2 Support means the service provided to
analyse or reproduce the error or to determine that the error is not
reproducible. This includes problem re-creation and in-depth technical analyses.
During the first six (6) months following the Effective Date, Changepoint will,
if required by OEM, provide Level 2 support and back-up Level 1 support (but not
including taking the support call or making the initial identification and
documentation of the reported error) to OEM. OEM shall use all reasonable
efforts to have its support staff trained as soon as possible so that such
persons are able to provide Level 2 and full Level 1 support as soon as
reasonably possible.
(b) Changepoint shall provide Level 3 Support to OEM for problems that
have been escalated beyond Level 2 Support. Level 3 Support means making changes
to the Changepoint
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CONFIDENTIAL TREATMENT
Software to resolve the problem. Requests for Level 3 Support shall be made
by no more than six (6) persons designated by OEM to receive such support and
who have been fully trained in the use and support of the Changepoint
Software. Changepoint shall also, during the term of this Agreement and for
the period during which OEM is authorized to continue to provide support to
End Users following termination of the Agreement, make electronically
available to OEM on a continuous and ongoing basis through its Web Site
Changepoint's then-current generally available database of support-related
information, including, without limitation, bugs identified in the
Changepoint Software together with fixes, workarounds or other responses
developed by Changepoint to support its own customers.
(c) OEM shall inform all End Users that OEM is the sole support contact
for the OEM Application Suite and that Changepoint is not responsible for
supporting End Users in their use of the Changepoint Software. OEM will also
include within the OEM Application Suite or the OEM Documentation, as
appropriate, a conspicuous description of the Level 1 Support and Level 2
Support it provides and the method and means that End Users shall use to contact
OEM to receive such services.
(d) OEM agrees to provide End Users with support for the current and
immediately previous Version of the Changepoint Software Integrated into an OEM
Application Suite.
ARTICLE 9 - PRICES AND PAYMENT
9.1 END USER LICENSE FEES
(a) OEM shall be entitled to charge license fees to End Users in
respect of an OEM Application Suite as OEM, in its sole discretion, sees fit.
(b) OEM shall remit royalties to Changepoint in respect of the
licensing to the OEM Application Suite, calculated in the manner set out in
Schedule D (the "License Fee Royalties").
(c) For End User Licenses granted by OEM to End Users in the Territory
during the period through June 30, 2000, OEM may remit the License Fee
Royalties, less ***.
9.2 MAINTENANCE FEES
For each Customer Maintenance Agreement entered into by OEM, OEM shall
pay to Changepoint a royalty calculated in the manner set out in Schedule D (the
"Maintenance Fee Royalty").
9.3 PAYMENT OF FEES
All License Fee Royalties and Maintenance Fee Royalties in respect of a
calendar quarter shall be due and payable within forty-five (45) days of the end
of such quarter. Any other fees or charges hereunder shall be due within thirty
(30) days of receipt of invoice by the party owing such fees or charges.
***The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
<PAGE>
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9.4 RECORDS AND REPORTS
(a) Within fifteen (15) days following the end of each calendar month
during the term of this Agreement, OEM will submit to Changepoint a report in a
form reasonably acceptable to Changepoint setting forth separately the number of
OEM Application Suites licensed to End Users during the preceding month and the
End Users with whom OEM has Customer Maintenance Agreements. The report shall
also contain a calculation of the royalties and other payments due to
Changepoint in respect of the month.
(b) OEM agrees to keep full and accurate books of accounts and records
regarding the manufacture, sublicensing and commercial distribution of the OEM
Application Suite in sufficient detail to enable the payments to be made and the
other obligations of OEM hereunder to be verified by Changepoint. Changepoint
may, at its expense, designate an independent accountant, certified public
accountant or auditor to audit such books and records. If any such audit results
in a finding that additional, unreported payments are due to Changepoint that
exceed the amount paid to Changepoint during the same payment period(s) by over
seven and a half percent (7 1/2%), then OEM will additionally be obligated to
pay for the expense of the audit. If the audit determines that additional,
unreported payments are due, such amounts shall be immediately payable.
9.5 PRICE LIST
Changepoint may amend or change its then current Price List by notice
in writing to OEM. The amendments and changes shall become effective sixty (60)
days following the delivery of the notice to OEM. However, the Price List shall
remain effective for a period of up to one hundred and twenty (120) days with
respect to proposals submitted to Prospects by OEM prior to receipt of the new
Price List. In the event that Changepoint's List Price increases by one hundred
percent (100%) or decreases by forty percent (40%) during any calendar year, the
parties shall meet to discuss the effect of such increase or decrease and
determine in good faith whether the annual Sales Target and/or the royalty
payment scale should be adjusted to reflect such increase or decrease.
9.6 TAXES
All amounts payable under this Agreement are exclusive of and OEM
agrees that it shall pay any sales, use, rental, personal property, value added,
consumption or other tax that may be assessed in any jurisdiction based upon,
arising out of or related to this Agreement, except for tax based on the net
income of Changepoint.
ARTICLE 10 - TRADE-MARKS, TRADE PRACTICES
AND INTELLECTUAL PROPERTY
10.1 USE OF TRADE-MARKS
OEM shall make no use of trade-marks, trade names or other trade
designations, whether registered or unregistered (a "Trade-Mark"), of
Changepoint without the prior written consent of Changepoint; provided, however,
that the consent of Changepoint is hereby granted for OEM's
<PAGE>
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use of a Trade-Mark (a) to effect the branding and proprietary notices
required by Changepoint under this Agreement, and (b) during the first six
(6) months following the Effective Date, to the extent that such use is
limited to OEM's use of Changepoint Promotional Materials, Changepoint
Documentation and Changepoint Software in connection with its licensed
reproduction, marketing, distribution and support of the Changepoint Software
prior to the completion of relevant Integration efforts. OEM acknowledges
that Changepoint has and will have substantial goodwill in the trade-marks
used in conjunction with the Changepoint Software and OEM agrees that it will
not do anything that could injure, diminish or depreciate the value of the
goodwill associated with the trade-marks or the business of Changepoint. All
goodwill associated with the use of any Changepoint Trade-Mark shall enure
exclusively to Changepoint.
10.2 PROPRIETARY LEGENDS
On all copies of the OEM Application Suite and applicable media
therefor, made by OEM, OEM shall display proprietary, copyright, trademark and
other proprietary legends of Changepoint in the form and locations reasonably
requested by Changepoint. OEM may also display its own proprietary, copyright,
trademark and other proprietary legends in conjunction with the OEM Application
Suite. OEM shall not, however, indicate that the copyright or any other
Intellectual Property Right in the Changepoint Software is owned by or
proprietary to OEM.
10.3 CONDUCT OF BUSINESS
OEM will conduct its business of marketing the OEM Application Suite in
a manner that will reflect favourably on the good name and reputation of
Changepoint and the Changepoint Software. In particular, OEM agrees to comply
with all applicable national, international and local laws, ordinances, and
regulations in its dealings with Changepoint and in performing its obligations
under this Agreement and OEM will refrain from engaging in any unfair, or
deceptive trade practice, or unethical business practice whatever, or practice
that could unfavourably reflect upon Changepoint or the Changepoint Software and
Documentation.
10.4 OWNERSHIP OF CHANGEPOINT INTELLECTUAL PROPERTY
(a) OEM acknowledges that Changepoint and/or licensors of Changepoint
are the owners of all Intellectual Property Rights in the Changepoint
Intellectual Property.
(b) Changepoint shall own all Intellectual Property Rights in and to
all Upgrades and Changes to the Changepoint Intellectual Property, except for
any Change the ownership of which is to be owned by OEM pursuant to the
provisions of Section 10.6; provided, however, that during the Term of this
Agreement, any such Changepoint Changes shall be deemed Changepoint Software for
purposes of this Agreement.
10.5 OWNERSHIP OF OEM INTELLECTUAL PROPERTY
OEM shall retain ownership of Intellectual Property Rights in
Integrative Code except for: (i) any previously owned materials that Changepoint
may provide to OEM to assist OEM in the development of the Integrative Code; and
(ii) any discrete modules/programs that are
<PAGE>
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developed by Changepoint in providing such assistance. OEM agrees that
Changepoint shall own all Intellectual Property Rights in the materials
described in clauses (i) and (ii) above.
10.6 OWNERSHIP OF CHANGES
The parties agree that the Changes and all Intellectual Property Rights
in and to Changes shall be owned as follows:
(a) if developed by Changepoint, it shall be owned by Changepoint
and the licenses granted to OEM pursuant to Sections 2.1(a)
and 2.1(b) shall apply to such Changes; and
(b) if developed by OEM pursuant to Section 6.1(c), then subject
to any agreement to the contrary by the parties, it shall be
owned by OEM. However, and for greater certainty, OEM shall
not own or have any Intellectual Property Right in any part of
any intellectual property or software which forms part of the
Changepoint Software. OEM may market and distribute such
Change in conjunction with the Changepoint Software.
Changepoint shall have the option by notice to OEM to purchase
the Change and all Intellectual Property Rights therein or to
obtain a license to market, distribute, reproduce, create
derivative works and sublicense such Change. Upon a request by
Changepoint, the parties will use good faith efforts to agree
upon the terms of any such sale or licensing of such Change.
Failing agreement, Changepoint shall have the option of
submitting any dispute as to the price or terms of any such
license or sales to arbitration pursuant to the provisions of
Section 14.12.
10.7 RESIDUAL INFORMATION
The provisions related to ownership of Changes and Integrative Code
referred to in Sections 10.5 and 10.6 shall not restrict internal business use
of "Residual Information" by a party to develop a competitive or comparable
software feature or product where such Residual Information was obtained in
connection with the party's development of a Change or Integrative Code provided
however that neither party knowingly uses the Confidential Information of the
other party. "Residual Information" as used in this section means technical
information which is retained in the unaided memories of a parting party
receiving technical information from the other party's employees or contractors.
However, nothing in this Section 10.7 grants the receiving party any right or
license under any trademark, copyright or patent now or hereafter owned or
controlled by the party disclosing the technical information. For the avoidance
of doubt, nothing herein shall prevent the party not owning a Change or
Integrative Code from developing a similar Change or Integrative Code provided
that none of the Intellectual Property Rights of the other party is used in the
course of such development.
<PAGE>
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10.8 FURTHER ASSURANCES
To the extent that any Intellectual Property Rights do not vest
automatically in the party that is to own the rights pursuant to this Article,
the other party assigns (and to the extent necessary agrees to assign) all
relevant Intellectual Property Rights in and to such Changes or Integrative Code
to the other party.
ARTICLE 11 - CONFIDENTIAL INFORMATION
11.1 CONFIDENTIAL OBLIGATION
Each party acknowledges that Confidential Information will be exchanged
between the parties pursuant to this Agreement. Each party shall use no less
than the same means it uses to protect its similar confidential and proprietary
information, but in any event not less than reasonable means, to prevent the
disclosure and to protect the confidentiality of the Confidential Information of
the other party. Except as otherwise provided herein, each party agrees that it
will not use the Confidential Information of the other party except for the
purposes of this Agreement and will not disclose such Confidential Information
or make it available to third persons other than to its full-time employees or
its professional consultants having a need for access to such Confidential
Information in connection with their employment with such party and with respect
to whom such party takes steps, no less rigorous than those it takes to protect
its own proprietary information, but in any event not less than reasonable
means, to prevent such employees or professional consultants from acting in a
manner inconsistent with the terms of this Agreement. Information disclosed by
either party, in any form regarding pre-released products, access numbers and
passwords provided to the Recipient party, shall be deemed to be Confidential
Information. OEM and Changepoint, and their respective Affiliates, shall treat
the terms and conditions of this Agreement as confidential; however, either
party may disclose such information in confidence to its immediate legal and
financial consultants as required in the ordinary course of that party's
business. Nothing in this Section shall be construed to require either party to
refuse to disclose any information as and to the extent required by valid
judicial or governmental order, as long as such party makes reasonable efforts
to provide the other party sufficient prior notice to permit it to meaningfully
contest such order.
11.2 PUBLICLY KNOWN INFORMATION
Notwithstanding Section 11.1, the Recipient of Confidential Information
may use or disclose the Confidential Information to the extent that such
Confidential Information is (i) already known by the Recipient without an
obligation of confidentiality, (ii) publicly known or becomes publicly known
through no unauthorized act of the Recipient, (iii) rightfully received from a
third party, (iv) independently developed by the Recipient without use of the
information of the Disclosing Party, (v) approved by the Disclosing Party for
disclosure, or (vi) required to be disclosed pursuant to a requirement of a
governmental agency or law so long as the Recipient provides the other party
with notice of such requirement prior to any such disclosure and takes all
reasonable steps available to maintain the information in confidence.
<PAGE>
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11.3 RETURN OF CONFIDENTIAL INFORMATION
Upon the termination or expiration of this Agreement, each party will
return to the other all programs, documents and information, however recorded,
which contain any of the other's Confidential Information. Notwithstanding the
foregoing, OEM may retain a copy of that portion of Changepoint's Confidential
Information to the extent necessary to exercise its rights under Section
13.5(a).
11.4 THIRD PARTY INFORMATION
Each party agrees not to disclose or deliver to the other any
proprietary, confidential, secret or private information or intellectual
property including any software of any third person which it is under a duty or
has contracted not to disclose, without the prior written consent of such third
person and the other party.
11.5 LOSS OF CONFIDENTIAL INFORMATION
In the event of any unauthorized disclosure or loss of, or inability to
account for, Confidential Information of the furnishing party, the receiving
party will notify the furnishing party immediately.
11.6 REVERSE ENGINEERING
(a) OEM acknowledges that the Changepoint Software is valuable
Confidential Information of Changepoint or licensors of Changepoint.
Accordingly, OEM agrees not to disassemble, decompile, translate or convert into
human readable form or into another computer language, reconstruct or decrypt or
reverse engineer, all or any part of the Changepoint Software.
(b) Changepoint acknowledges that the OEM Software is valuable
Confidential Information of OEM or licensors of OEM. Accordingly, Changepoint
agrees not to disassemble, decompile, translate or convert into human readable
form or into another computer language, reconstruct or decrypt or reverse
engineer, all or any part of the OEM Software.
11.7 ENFORCEMENT OF CONFIDENTIALITY OBLIGATION
Each of OEM and Changepoint acknowledges and agrees that irreparable
injury may result to the other party if such party breaches the provisions of
this Agreement relating to Confidential Information and that damages may be an
inadequate remedy in respect of such breach. Each party hereby agrees in advance
that, in the event of such breach, the other party shall be entitled to seek, in
addition to such other remedies, damages and relief as may be available under
applicable law, the granting of injunctive relief in such party's favour.
<PAGE>
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ARTICLE 12 - WARRANTIES AND COVENANTS
12.1 CHANGEPOINT WARRANTIES
Changepoint represents, warrants and covenants to OEM that (i) it has
the right and power to enter into and fully perform this Agreement, (ii) in
entering into this Agreement, Changepoint is not and will not be in breach of
any contractual or other obligation to any third party, (iii) that, in the form
delivered by Changepoint, the Changepoint Software and the Changepoint Upgrades
will not contain any virus, and (iv) the pricing practices (fee or free) that it
applies in connection with Upgrades and Maintenance Releases under this
Agreement for the benefit of End Users shall be the same as are applied to
Changepoint's own end users.
12.2 LIMITED WARRANTY
Changepoint warrants, for the benefit only of OEM, that (i) the
Changepoint Software conforms in all material respects to the Documentation when
used as specified in the Documentation and within the scope of the license
granted to OEM herein and (ii) the Changepoint Software shall be able to
accurately process date data (including but not limited to, calculating,
comparing and sequencing) from, into and between the 20th and 21st century,
however, such warranty does not apply to any failure to process date data that
results from any software other than the Changepoint Software or that relates to
accepting data from any software or hardware not supplied by Changepoint, (the
"Software Warranty"). The Software Warranty does not apply (i) to the extent
that OEM has changed, modified or enhanced the Changepoint Software, except as
authorized under this Agreement (e.g., the cosmetic rebranding contemplated
under Section 2.1(a)) and then only to the extent of such change, modification
or enhancement (ii) if the failure to conform to the Documentation is due to its
use in combination with the OEM Software or the Integration thereof with the
Changepoint Software; or (iii) the Changepoint Software is not used as specified
by Changepoint in the Changepoint Documentation or if the failure to comply with
the Documentation is due to computer equipment or third party product
malfunctions or any cause external to the Changepoint Software; or (iv)
Changepoint has not been notified of the existence and nature of such
nonconformity or defect after discovery of same by OEM. OEM shall be entitled to
extend End Users warranties that are similar to the Software Warranty provided
that any such warranty claims by End Users shall be made to and handled by and
through OEM, without the visible involvement of Changepoint.
12.3 EXCLUSIVE REMEDIES
(a) For any breach of the Software Warranty, OEM's sole and exclusive
remedies and Changepoint's entire obligation shall be to use reasonable efforts
to fix, bypass or replace the portions of the Changepoint Software that fail to
substantially comply with the Software Warranty; or, in the event such
reasonable efforts are unsuccessful, to accept a return of the defective
software and provide to OEM a complete refund of the applicable License Fee
Royalty and Maintenance Fee Royalty provided that OEM has paid or is legally
obligated to pay such amounts to an End User.
(b) Changepoint makes no representations or warranties of any kind with
respect to the operation or use of any Third Party Software.
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(c) The remedies in this Section 12.3 are expressly in lieu of any or
all other remedies in warranty that may be available to OEM resulting from the
use, performance, non-performance, or quality of any of the Changepoint
Software; provided, however, that in no event shall the warranty coverage
afforded End Users hereunder be more limited than that provided to Changepoint
licensees under Changepoint's standard end user license agreement, a copy of
which is attached hereto as Schedule G.
12.4 INTELLECTUAL PROPERTY
(a) Changepoint or licensors of Changepoint will defend, at its
expense, any action brought against OEM or an End User to the extent that it is
based on a claim that the use of the Changepoint Software within the scope and
as authorized by this Agreement infringes any Canadian or United States
copyright, patent or trade secret of any third person and will indemnify OEM or
an End User from any costs, damages, and legal fees finally awarded against OEM
or an End User by a court of competent jurisdiction from which no appeal is
taken or from which all appeals have been dismissed in such action which are
attributable to such claim and pay any settlements approved in writing by
Changepoint; provided that OEM and/or the End User, as applicable, notifies
Changepoint promptly in writing of same; and provided further that OEM and/or
the End User, as applicable, permits Changepoint or licensors of Changepoint to
defend, compromise or settle the claim and provides all available information,
assistance and authority to enable Changepoint or its licensors to do so.
Changepoint shall not be liable to reimburse OEM or an End User for any
compromise or settlement made by OEM or the End User without Changepoint's prior
written consent, or for any legal fees or expenses incurred by OEM in connection
with such claim. Neither OEM nor an End User shall have authority to settle any
claim on behalf of Changepoint.
(b) In the event Changepoint receives information concerning an
Intellectual Property Right infringement claim (including a claim referred to in
Section 12.4(a) related to the Changepoint Software, it may, at its expense and
without obligation to do so, either (i) procure for (A) OEM the right to
continue to use the allegedly infringing Changepoint Software in accordance with
the provisions of this Agreement, and (B) the End User the right to continue to
use the allegedly infringing Changepoint Software, (ii) replace or modify the
Changepoint Software to make it not infringing, in which case, OEM shall
thereupon cease distribution and copying of the allegedly infringing Changepoint
Software and shall distribute to and install for End Users, at Changepoint's
sole expense, the replacement or modified software, or (iii) terminate this
Agreement whereupon OEM shall cease all distribution and copying of the
allegedly infringing Changepoint Software except to the extent contractually
required to do so prior to the termination by Changepoint, and Changepoint shall
refund to OEM the full amount of the applicable License Fee Royalties less
depreciation for actual use calculated at the rate of twenty percent (20%) per
annum on a straight-line basis calculated from the date of the commencement of
such use.
(c) Changepoint shall have no liability for any Intellectual Property
Right infringement claim based on (i) OEM's distribution and copying of the
allegedly infringing Software following termination of this Agreement by
Changepoint as provided for in paragraph (b)(iii) above except to the extent
authorized by such clause, (ii) OEM's or any End User's
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internal use of any Changepoint Software which continues after Changepoint's
notice that OEM and all End Users to which OEM has distributed directly or
indirectly the allegedly infringing Changepoint Software should cease using
the allegedly infringing Changepoint Software due to a claim; (iii)
combination of the Changepoint Software with any other non-Changepoint
product, program or data to the extent the infringement would not occur
absent such combination; (iv) any claim that the infringement results from or
relates to the Third Party Software except to the extent the infringement is
attributable to the Changepoint Software; (v) adaptation or modification of
any Changepoint Software except to the extent the infringement would not
occur absent such adaptation or modification; or (vi) that relates solely to
the use, copying, or distribution of the OEM Software or the Integrative Code
except for those portions (if any) of the Integrative Code which may be owned
by Changepoint pursuant to the provisions of Section 10.5. For claims in this
Section 12.4(c) for which OEM is responsible, OEM agrees to defend, at its
expense, any action brought against Changepoint and its Affiliates to the
extent of the same, and to indemnify Changepoint and its Affiliates from and
against all damages, costs and expenses, including reasonable attorney's fees
finally awarded against Changepoint and its Affiliates by a court of
competent jurisdiction from which no appeal is taken or from which all
appeals have been dismissed in such action which are attributable to such
claim and to pay any settlements approved in writing by OEM; provided that
Changepoint notifies OEM promptly in writing of same; and provided further
than Changepoint permits OEM to defend, compromise or settle the claim and
provides all available information, assistance and authority to enable OEM to
do so. OEM shall not be liable to reimburse Changepoint for any compromise or
settlement made by Changepoint without OEM's prior written consent, or for
any legal fees or expenses incurred by Changepoint in connection with such
claim. Changepoint shall have no authority to settle any such claim on behalf
of OEM.
(d) For any Intellectual Property Right claim attributable in part to
the Changepoint Software and in part to the OEM Software, OEM and Changepoint
each agree to contribute to any liability resulting from such Intellectual
Property Right claim in proportion to such party's comparative responsibility in
causing such liability.
(e) This Section 12.4 states the entire liability of Changepoint and
OEM and Changepoint's and OEM's sole remedies, respectively with respect to any
Infringement Claim.
12.5 DISCLAIMER
(a) EXCEPT FOR THE EXPRESS WARRANTIES CONTAINED HEREIN, THERE ARE NO
OTHER WARRANTIES OR CONDITIONS WHETHER EXPRESS OR IMPLIED HEREIN MADE BY EITHER
PARTY, INCLUDING ANY IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABLE QUALITY,
FITNESS FOR A PARTICULAR PURPOSE, TITLE OR THOSE ARISING BY STATUTE OR OTHERWISE
BY LAW OR FROM A COURSE OF DEALING OR USE OF TRADE, ALL OF WHICH ARE EXPRESSLY
DISCLAIMED.
(b) IN NO EVENT WILL CHANGEPOINT OR OEM BE LIABLE FOR SPECIAL,
INCIDENTAL, INDIRECT OR CONSEQUENTIAL LOSS OR DAMAGE, LOST BUSINESS REVENUE,
LOSS OF PROFITS, LOSS OF DATA, FAILURE TO REALIZE EXPECTED PROFITS OR SAVINGS,
DAMAGES FOR DELAY, EXEMPLARY OR PUNITIVE
<PAGE>
-26-
DAMAGES OR ANY CLAIM AGAINST OEM BY ANY OTHER PERSON EVEN IF OEM OR
CHANGEPOINT, AS THE CASE MAY BE, HAS BEEN ADVISED OF THE POSSIBILITY OF ANY
SUCH LOSS OR DAMAGE.
(c) EACH PARTY'S MAXIMUM LIABILITY TO THE OTHER UNDER THIS AGREEMENT
SHALL IN NO EVENT EXCEED THE AMOUNTS PAID BY OEM TO CHANGEPOINT AS OF THE DATE
THE CLAIMING PARTY FIRST BECAME AWARE OR OUGHT TO HAVE BECOME AWARE OF SUCH
CLAIM. PROVIDED THAT NOTHING IN THIS AGREEMENT SHALL EXCLUDE OR RESTRICT A
PARTY'S LIABILITY FOR DEATH OR PERSONAL INJURY ARISING FROM THE NEGLIGENCE OF
THE PARTY OR ITS EMPLOYEES WHILE ACTING IN THE COURSE OF THEIR EMPLOYMENT.
(d) Each party shall be liable to the other as expressly provided for
in this Agreement but shall have no other obligation, duty or liability
whatsoever in contract, tort or otherwise to the other including any liability
for negligence.
(e) The limitations, exclusions and disclaimers in this agreement shall
apply irrespective of the nature of the cause of action, demand, or action by
either party, including but not limited to breach of contract, negligence, tort
or any other legal theory and shall survive a fundamental breach or breaches or
the failure of the essential purpose of this Agreement or of any remedy
contained herein. Notwithstanding the foregoing, the limitations, exclusions and
disclaimers in Sections 12.5(b) and 12.5(c) shall not apply to any claim or
breach of Sections 2.5, 2.6 or 12.4 or Articles 10 or 11.
(f) Neither party shall be responsible or liable for any loss, damage
or inconvenience suffered by the other or by any third person, to the extent
that such loss, damage or inconvenience is caused by the failure of the other
party to comply with its obligations under this Agreement.
(g) The parties expressly waive any right to a jury trial regarding
disputes arising from or related to this Agreement.
12.6 WARRANTY AND COVENANTS OF OEM
(a) OEM represents, warrants and covenants to Changepoint that (i) it
has the right and power to enter into and fully perform this Agreement, and (ii)
in entering into this Agreement, OEM is not and will not be in breach of any
contractual or other obligation to any third party.
(b) OEM agrees to provide End Users with support of a technical nature
for all aspects of the OEM Application Suite including its installation and use;
provided, however, that Changepoint provides the services described in Section
8.1(a) and the implementation assistance described in Section 3.4. To this end
OEM shall employ and make available to End Users technically qualified personnel
in sufficient numbers to provide such services.
<PAGE>
-27-
CONFIDENTIAL TREATMENT
(c) During the term of this Agreement, Changepoint will provide to OEM
Maintenance Releases for the Changepoint Software. OEM will use commercially
reasonable efforts to enter into Customer Maintenance Agreements with End Users
to provide support and maintenance to End Users. OEM agrees to offer maintenance
and support services to all End Users and to assist End Users who have purchased
Customer Maintenance Agreements in the installation and use of Changepoint
Upgrades delivered by Changepoint hereunder.
(d) OEM shall not make to any End User any representation or warranty
with respect to the Changepoint Software or any Changepoint Upgrades or the use
thereof in the name of, as agent for, or on behalf of Changepoint.
(e) OEM agrees to defend, indemnify and hold Changepoint harmless from
and against any and all claims arising as a result of any claim by an End User
regarding: (i) OEM's improper installation or Integration of the Changepoint
Software or any Changepoint Upgrades; (ii) any computer software virus
introduced by OEM that can be demonstrated to have been in the copy of the
Changepoint Software or any Changepoint Upgrades delivered to the End User; and
(iii) its use or inability to use the Changepoint Software if such claim would
not have occurred solely from the use of the Changepoint Software or the
Changepoint Upgrade.
ARTICLE 13 - TERM AND TERMINATION
13.1 TERM
The term of this Agreement shall commence on the Effective Date and
shall continue until December 31, 2001. Thereafter it shall automatically
renew up to four (4) successive one (1) year periods if OEM meets at least
*** of the then-current year's Sales Target, set in accordance with Section
5.4. If OEM does not meet *** of such Sales Target, renewal for an additional
one (1) year period shall be at Changepoint's discretion. If Changepoint
elects not to renew the Agreement, it shall terminate one hundred and eighty
(180) days from the provision of a notice from Changepoint to OEM of its
decision not to renew. Unless otherwise agreed to by the parties in writing
this Agreement shall terminate no later than December 31, 2005.
13.2 TERMINATION
To the extent permitted by applicable law, either party may
terminate this Agreement by notice in writing to the other party in the event
that (i) a receiver, trustee, liquidator, administrator or administrative
receiver should be appointed for either party or its property, (ii) either
party should become insolvent or unable to pay its debts as they mature or
cease to pay its debts as they mature in the ordinary course of business, or
makes an assignment for the benefit of creditors, or makes a proposal to its
creditors or files a notice of intention to do so, (iii) any proceedings
should be commenced against either party under any bankruptcy, insolvency, or
debtor's relief law, and such proceedings shall not be vacated or set aside
within fifteen (15) days from the date of commencement thereof, or (iv)
either party should be liquidated or dissolved.
***The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
<PAGE>
-28-
13.3 TERMINATION FOR CAUSE
(a) Changepoint may terminate this Agreement immediately upon written
notice to OEM in the event that (i) OEM fails to make any payment as and when
due to Changepoint (unless such payment is disputed by OEM) or fails to provide
the reports required pursuant to Section 9.3, and, in either case, fails to cure
same within thirty (30) days of receiving notice of such failure from
Changepoint or (ii) OEM fails to perform or breaches any material obligation,
duty or responsibility imposed on it under this Agreement and, in the event any
of the foregoing occur, OEM fails to cure such default or terminate such event
within thirty (30) days of receiving notice of such failure/breach from
Changepoint.
(b) OEM may terminate this Agreement immediately upon written notice to
Changepoint in the event that Changepoint fails to perform or breaches any
material obligation, duty or responsibility imposed under this Agreement,
including payment of any monies which may become due and owing to OEM hereunder
(unless such payment is disputed by Changepoint), and fails to cure such default
within thirty (30) days of receiving notice of such failure/breach from OEM.
13.4 TERMINATION FOR CONVENIENCE
OEM may terminate this Agreement for convenience upon ninety (90) days
prior written notice.
13.5 EFFECT OF TERMINATION
(a) Upon termination or expiration of this Agreement for any reason
other than for breaches by OEM of the provisions of Article 11 (Confidential
Information), or Section 2.6, or the failure of OEM to make any of the payments
due to Changepoint hereunder (unless such payment is the subject of a good faith
dispute between the parties), OEM may continue to provide support and
maintenance services to End Users for a period of three (3) months, or until the
expiry of the Customer Maintenance Agreement (provided that such expiry date is
a maximum of twelve (12) months from the date of expiration or termination of
this Agreement), whichever is greater.
(b) Upon termination or expiration of this Agreement for any reason:
(i) OEM shall notify End Users of the termination of this
Agreement and offer them the option of contracting
with Changepoint directly for maintenance;
(ii) the License shall terminate and OEM shall cease all
Integration, reproduction and distribution of the
Changepoint Software and the OEM Application Suite;
(iii) End User Licenses permitted hereunder and which have
been granted prior to the termination of this
Agreement shall survive the termination for as
<PAGE>
-29-
long as the End Users are not in breach of their
respective End User Licenses;
(iv) Changepoint and OEM will co-operate to minimize any
negative publicity regarding the other that could
arise from the termination of the relationship; and
(v) Changepoint and OEM will work jointly in good faith
to establish a process and cost sharing arrangement
for maintaining the interfaces between the
Changepoint Software and the other programs in the
OEM Application Suite for those End Users that wish
to continue to use the OEM Application Suite.
13.6 RETURN OF MATERIALS
Upon termination of this Agreement for any reason, OEM agrees promptly
to return or destroy, at Changepoint's option all materials provided by, or
which reference in any way, Changepoint or the Changepoint Software except such
Changepoint Technical Documentation as may be necessary for OEM to exercise its
rights under Section 13.5(a); provided, however, that following the termination
of such End User support as is authorized under such Section, OEM shall promptly
return or destroy, at Changepoint's option, any such retained materials.
Effective upon the termination of this Agreement, OEM shall cease to use all
trade-marks, marks and trade names of Changepoint. Upon termination of this
Agreement for any reason, Changepoint agrees promptly to return or destroy, at
OEM's option all materials provided by OEM or which reference in any way, OEM or
the OEM Software.
13.7 SURVIVAL
The provisions of Articles 9 ( other than 9.1 and 9.5), 10 (other than
10.2 and 10.3), and 11 and Sections 2.4, 2.5, 2.6, 7.1(d), 12.4, 12.5, 12.6(e),
13.5 13.6, 13.7, 14.7, 14.10, 14.12 and 14.13 shall remain in force and effect
after the termination or expiration of this Agreement until such time as the
parties may mutually agree to the release of the obligations contained herein.
In addition, the provisions of Article 8 shall survive the termination or
expiration of this Agreement for such period as OEM continues to provide support
to End Users as authorized under Section 13.5(a).
ARTICLE 14 - GENERAL
14.1 ASSIGNMENT
(a) Neither this Agreement nor any rights or obligations of a party
hereto may be assigned by OEM without the prior written consent of Changepoint,
which consent will not be unreasonably withheld or delayed. Any such purported
assignment without such consent shall be void. Notwithstanding the foregoing,
OEM may assign this Agreement in connection with the sale of all or
substantially all of its assets provided OEM provides reasonable notice of same
to Changepoint. Further, such assignment shall not be effective as between the
parties until such
<PAGE>
-30-
time as the assignee agrees in writing with Changepoint to be bound all the
provisions of this Agreement.
(b) Notwithstanding the foregoing, if OEM assign this Agreement in
connection with the sale of all or substantially all of its assets or merges or
amalgamates with one or more entities that are a direct competitor of
Changepoint, OEM agrees that Changepoint may terminate this Agreement
immediately upon written notice to OEM.
(b) Changepoint may assign this Agreement or any of its rights or
obligations on written notice to OEM. Notwithstanding the foregoing, if
Changepoint assigns this Agreement to a direct competitor of OEM, OEM may
exercise its right to terminate this Agreement for convenience pursuant to
Section 13.4.
(c) This Agreement shall inure to the benefit of and be binding upon
the successors and permitted assigns of the parties hereto.
14.2 FORCE MAJEURE
If the performance of this Agreement, or of any obligation hereunder,
by either party is interfered with by fire, explosion, an Act of God, war,
revolution, civil commotion, an act of public enemies, the prohibition of
exportation or importation or any other causes beyond the reasonable control of
the party then such party will be excused from performance to the extent of such
interference and the other party will likewise be excused from performance of
its obligations to the extent such party's obligations relate to the performance
so interfered with.
14.3 MODIFICATIONS AND AMENDMENTS
No modification of or amendment to this Agreement shall be valid or
binding unless set forth in writing and duly executed by the parties hereto and
no waiver of any breach of any term or provision of this Agreement shall be
effective or binding unless made in writing and signed by the party purporting
to give the same and, unless otherwise provided, shall be limited to the
specific breach waived.
14.4 RELATIONSHIP BETWEEN THE PARTIES
Nothing contained in this Agreement shall be construed to give either
party the power to direct or control the day-to-day activities of the other.
Changepoint and OEM are independent persons and nothing herein shall be
construed to create any partnership, joint venture, agency or other similar
relationship. Neither party has the power or authority, directly or indirectly,
or through its servants to bind the other party to any agreement with any third
person or otherwise to contract, or enter into a binding relationship or make
any representation, warranty or contractual commitment for or on behalf of the
other party. Neither of the parties shall be or become liable or bound by any
agreement, representation, act or omission whatsoever of the other party unless
specifically provided for in this Agreement.
<PAGE>
-31-
14.5 EXPORT CONTROLS
OEM acknowledges that the license and distribution of the Changepoint
Software are subject to the export control laws and regulations of Canada and
the United States of America, and any amendments thereof, which restrict exports
and re-exports of software, technical data, and direct products of technical
data, including services derived from the use of the Changepoint Software. OEM
agrees that it will not export or re-export any Changepoint Software, or any
information and documentation related thereto, directly or indirectly, without
first obtaining permission to do so as required by all applicable laws or
regulations to any countries, End Users or for any end uses that are restricted
by the Canadian or United States export laws and regulations, and any amendments
thereof.
14.6 RESTRICTED RIGHTS
No licensing of the OEM Application Suite shall be made to the United
States Government without the prior written agreement of Changepoint as to the
form and substance of the restricted rights legends to be applied to the OEM
Application Suite.
14.7 NOTICES
Any demand, notice or other communication to be given in connection
with this Agreement shall be given in writing and shall be given by personal
delivery, by registered or certified first class mail, by Federal Express or
other express courier or by electronic means of communication addressed to the
recipient as follows:
To Changepoint:
1595 Sixteenth Avenue
Suite 702
Richmond Hill, Ontario
L4B 3N9
Telecopy: (905) 886-7023
Attention: Chief Financial Officer
To OEM:
45 Shawmut Road
Canton, Massachusetts
USA 02021
Telecopy: (781) 830-9340
Attention: Chief Financial Officer
or to such other address, individual or electronic communication number as may
be designated hereafter from time to time by notice given by either party to the
other. Any demand, notice or other communication given by personal delivery or
express courier shall be conclusively deemed
<PAGE>
-32-
to have been given on the business day of actual delivery thereof and, if
given by registered or certified mail, on the 4th business day following the
deposit thereof in the mail and, if given by electronic communication, on the
day of transmittal thereof if given during the normal business hours of the
recipient and on the business day during which such normal business hours
next occur if not given during such hours on any day. If the party giving any
demand, notice or other communication knows or ought reasonably to know of
any difficulties with the postal system which might affect the delivery of
mail, any such demand, notice or other communication shall not be mailed but
shall be given by personal delivery, express courier or by electronic
communication.
14.8 SEVERABILITY
If a court or other lawful authority of competent jurisdiction declares
any provision or Section of this Agreement invalid, illegal or unenforceable,
this Agreement will continue in full force and effect with respect to all other
provisions and Sections and giving as much adherence as lawful to the spirit of
the invalid, illegal or unenforceable clause, and all rights and remedies
accrued under such other provisions and Sections will survive any such
declaration.
14.9 PRESS RELEASE
OEM and Changepoint shall jointly develop a press release or similar
statement, mutually acceptable to both parties, describing the existence of the
relationship contemplated by this Agreement and the scope of their respective
activities and furtherance hereof. Each party shall be entitled to publish the
press release or similar statement.
14.10 GOVERNING LAW
This Agreement shall be exclusively governed by and construed in
accordance with the laws in force in the State of New York without reference to
its conflict of laws principles. Both parties submit to the jurisdiction of the
courts of the State of New York for any legal action arising out of this
Agreement or the performance of the obligations hereunder which shall be the
exclusive forum for any claim brought hereunder. This Agreement, and the rights
and obligations of the parties under this Agreement, will not be governed by the
provisions of the 1980 UNITED NATIONS CONVENTION ON CONTRACTS FOR THE
INTERNATIONAL SALE OF GOODS.
14.11 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and of which taken together shall be
deemed to constitute one and the same instrument.
14.12 DISPUTE RESOLUTION AND ARBITRATION
In the event that any dispute or disagreement arises between OEM and
Changepoint with respect to (i) the interpretation of any provision of this
Agreement, (ii) the performance of Changepoint or OEM under this Agreement, or
(iii) any other matter related to this Agreement, upon the written request of
either party, the parties will meet for the purpose of resolving such
<PAGE>
-33-
dispute. The parties agree to discuss the problem and negotiate in good faith
without the necessity of any formal proceedings related thereto. No formal
proceedings for the resolution of such dispute may be commenced until either
party concludes in good faith that the applicable resolution through
continued negotiation of the matter in issue does not appear likely. The
parties further agree that all disputes hereunder which cannot be settled in
the manner hereinbefore described (any such dispute is referred to here as a
"Dispute") will be settled by final and binding arbitration conducted in
accordance with the American Arbitration Association (or any successor
thereto), as amended from time to time. Judgment upon the award rendered in
any such arbitration may be entered in any court having jurisdiction thereof,
or application may be made to such court for a judicial acceptance of the
award and an enforcement, as the law of such jurisdiction may require or
allow. Notwithstanding the foregoing, disputes with respect to any
infringement claim including without limitation any claim based on the
infringement, violation or misappropriation of any Intellectual Property
Right shall not be settled by arbitration, without the prior written consent
of the parties.
The arbitration panel will be composed of one person appointed by the
party requesting the arbitration (the "Applicant"), one person appointed by the
other party (the "Respondent") and a third person to act as chairperson, chosen
by the two arbitrators, or, if both parties agree, the arbitration panel will
consist of a sole arbitrator. No person may be appointed as an arbitrator unless
he or she is independent of the Applicant and Respondent, is skilled in the
subject matter of the Dispute and is not directly or indirectly carrying on or
involved in a business being carried on in competition with the business of the
parties. The decision of the arbitration panel shall be made by a majority vote
or by the sole arbitrator, as the case may be. In the event of the failure of
the arbitration panel to reach a majority decision, the decision of the
chairperson shall constitute the decision of the arbitration panel. The venue
for the arbitration shall be at New York City, New York unless otherwise agreed
to by the parties in writing. The arbitration shall be conducted pursuant to the
legislation in the State of New York implementing the MODEL LAW ON INTERNATIONAL
COMMERCIAL ARBITRATION adopted by the United Nations Commission on International
Trade Law.
14.13 ENTIRE AGREEMENT
This Agreement and the schedules attached hereto constitute the entire
Agreement between the parties hereto with respect to the subject matter hereof
and cancels and supersedes any prior understandings and Agreements between the
parties hereto with respect thereto. There are no representations, warranties,
terms, conditions, provisions, undertakings or collateral Agreements, expressed,
implied or statutory, between the parties other than as expressly set forth in
this Agreement.
<PAGE>
-34-
IN WITNESS WHEREOF the parties have executed this Agreement as of the Effective
Date by their duly authorized officers.
CHANGEPOINT INC. SOFTRAX CORPORATION
Per: _______________________________ Per: ________________________________
Title: _____________________________ Title: ______________________________
<PAGE>
SCHEDULE A-1
CHANGEPOINT SOFTWARE
SQL Edition:
Service Delivery Management
Project and Resource Management
Customer Relationship Management
Support Management
Guest User Access
<PAGE>
SCHEDULE A-2
OEM SOFTWARE
SOFTRAX Financial applications
SOFTRAX Operations applications
SOFTRAX Web applications
<PAGE>
SCHEDULE B
TERMS AND CONDITIONS FOR END USER LICENSES
The End User License shall contain the following provisions:
-the Documentation may be used solely in conjunction with the
applicable Changepoint Software provided to the End User.
-the Changepoint Software must be used in and not transferred or
exported outside of the Territory except in accordance with applicable
laws and regulations regarding the export of technology enacted by the
United States and/or Canadian government.
-an express prohibition against the granting of sublicenses to any
portion of the Changepoint Software or the OEM Application Suite
without the prior written consent of OEM and Changepoint.
-End Users may not make copies of the Changepoint Software, except for
making back-up or archival copies thereof. All copies must include
proprietary, copyright, trademark and other proprietary legends of
Changepoint in the same form and locations as the legends appearing on
or in the said software.
-an acknowledgement that OEM or its licensors retain the title to and
Intellectual Property Rights in the Changepoint Software.
-an acknowledgement that the Changepoint Software contains trade
secrets of licensors of OEM and a requirement that the End User use no
less than the same means it uses to protect its similar confidential
and proprietary information, but in any event not less than reasonable
means, to prevent the disclosure and to protect the confidentiality of
the said software.
-a covenant not to disassemble, decompile, translate or convert into
human readable form or into another computer language, reconstruct or
decrypt or reverse engineer, all or any part of the Changepoint
Software.
-a requirement that upon the termination or expiration of the End User
License that the End User return to OEM all copies of the Changepoint
Software or certify to OEM that all copies have been destroyed and
cease using the said software.
-a disclaimer that licensors of OEM shall have no liability to End
Users including any liability for damages, whether direct, indirect,
incidental or consequential or for loss of profits arising from or
related to the use of the Changepoint Software provided by OEM to the
End User or the OEM Application Suite.
-an acknowledgement that OEM's licensors of software are intended third
party beneficiaries of the End User License and may enforce it directly
against the End User.
<PAGE>
SCHEDULE C
TRAINING MATERIALS
End User Training Manual
Customer Relationship Training Manual
Revenue Management Training Manual
Service Delivery Training Manual
<PAGE>
CONFIDENTIAL TREATMENT
SCHEDULE D
ROYALTIES
1. LICENSE FEE ROYALTIES
OEM will pay Changepoint License Fee Royalties on all licenses sold by
OEM of Changepoint Software. For purposes of this Schedule, the term "License
Fee" shall refer to the actual selling price of the Changepoint Software license
charged by OEM. The License Fee Royalty paid will be calculated by multiplying
the applicable Royalty Percentage (based on the table in section 1.1 below) by
the greater of (a) the License Fee or (b) the Minimum Royalty Factor (as defined
in section 1.3 below).
1.1 Royalty Percentage
The Royalty Percentage to be used in
calculating the License Fee Royalty
payable by OEM to Changepoint
hereunder shall be determined by the
following table:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Aggregate Revenues in Applicable Royalty
License Fees to OEM during Percentage
Calendar Year
-----------------------------------------------------------------------
<S> <C>
*** ***
-----------------------------------------------------------------------
*** ***
-----------------------------------------------------------------------
*** ***
-----------------------------------------------------------------------
*** ***
-----------------------------------------------------------------------
*** ***
-----------------------------------------------------------------------
</TABLE>
For the purposes of this Schedule D, revenues received in calendar year
1999 shall be considered as received in calendar year 2000. In
addition, the applicable royalty percentage shall be reduced by
*** for all sales closed during the period beginning on the
Effective Date and running through June 30, 2000.
***The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
<PAGE>
CONFIDENTIAL TREATMENT
1.1.1 OEM may, at its option, lock in a royalty percentage rate to
be applied from the first dollar of revenue in a calendar year
by paying the fee associated with such rate as indicated in
the following table:
<TABLE>
<CAPTION>
------------------------------------------------------------
Royalty Percentage
from $0 to commitment
Discount Level level Fee
------------------------------------------------------------
<S> <C> <C>
*** *** ***
------------------------------------------------------------
*** *** ***
------------------------------------------------------------
*** *** ***
------------------------------------------------------------
</TABLE>
1.1.2 Royalty payments for License Fee revenue in excess of the
discount level contracted for would be calculated using the
royalty percentage set forth in the table in section 1.1 above
applicable to the aggregate revenue amount achieved by OEM for
the applicable calendar year (including all revenues for which
the contracted discount percentage was applied).
1.1.3 In the event OEM elects to lock in a Royalty Percentage rate
pursuant to the terms of section 1.1.1 above, the choice of
the applicable rate will be made by January 1st of each year
and an irrevocable commitment to pay Changepoint the
associated fee will be required at that time. Payment of the
fee will be made in 4 payments on the 15th day of February,
May, August and November.
1.1.4 If, at any time during the term of this Agreement, (a)
Changepoint elects to integrate into the Changepoint Software
or develops a new module for the Changepoint Software, in
either event which incorporates or requires third party
software, and (b) OEM, in its sole discretion, elects to
include such additional third party software as integrated
into or as an additional module to the Changepoint Software,
and (c) Changepoint provides OEM the right hereunder to
license such third party software to End Users, then OEM shall
remit to Changepoint, with respect to each license of any such
third party software, that amount which Changepoint actually
paid to the third party for the license of such software plus
fifty percent (50%) of the difference, if any, between the
list price of such third party software and the amount which
Changepoint actually paid to the third party for the license
of such software.
1.2 Minimum Royalty Factor
The current Price List is attached in Schedule E. For the calculation
of the Minimum Royalty Factor, the then applicable list prices, as per section
9.5, will be used. The Minimum Royalty Factor shall be determined by selecting
the list price for the license sold from the appropriate column(s) for the bands
and number of seats purchased from the Price List, multiplied by the number of
seats purchased and applying the additional discount from the table below:
***The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL TREATMENT
-------------------------------------------------------
SEATS ADDITIONAL DISCOUNT
-------------------------------------------------------
<S> <C>
*** ***
-------------------------------------------------------
*** ***
-------------------------------------------------------
*** ***
-------------------------------------------------------
*** ***
-------------------------------------------------------
*** ***
-------------------------------------------------------
*** ***
-------------------------------------------------------
</TABLE>
The resulting amount will be multiplied by the Royalty Percentage in
1.1 of this Schedule to determine the License Fee Royalty Amount.
***The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
<PAGE>
CONFIDENTIAL TREATMENT
2. MAINTENANCE FEE ROYALTIES
OEM will pay Changepoint Maintenance Fee Royalties on all Customer
Maintenance Agreements for licenses sold by OEM. For purposes of this Schedule,
the term "License Fee" shall refer to the actual selling price of the
Changepoint Software license charged by OEM. Maintenance Fee Royalties are
annual fees.
The License Fee Royalty paid will be calculated by multiplying:
(i) the Applicable Royalty Percentage (based on the table
below)
(i) an amount equal to the Maintenance Percentage in
Schedule E (as may be amended from time to time
pursuant to by Section 9.5 of the OEM Agreement)
(iii) the greater of (a) the License Fee or (b) the Minimum
Royalty Factor (as defined in section 1.2 above).
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Aggregate Maintenance Revenues (in any Applicable Royalty
calendar year). Percentage
<S> <C>
*** ***
*** ***
*** ***
----------------------------------------------------------------------
</TABLE>
An Example:
1. Sale price: $ ***
2. Aggregate Maintenance Revenues (to date): $ *** (this means the
Applicable Royalty Percentage is *** %)
3. Maintenance Percentage: *** %
Calculation of Maintenance Fee Royalties: $100,000 x 18% x 30% = $5,400
***The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
<PAGE>
CONFIDENTIAL TREATMENT
SCHEDULE E
CHANGEPOINT PRICE LIST
CHANGEPOINT DISCOUNT SCHEDULE
CHANGEPOINT LICENSES
1) SOFTWARE CAN BE LICENSED AS "FULL SEAT" WHICH INCLUDES THE MANDATORY
SERVICE DELIVERY MODULE AND THE THREE ADDITIONAL MODULES LISTED BELOW.
2) SOFTWARE CAN BE LICENSED BY MODULE WHICH MEANS THE MANDATORY SERVICE
DELIVERY MODULE AND ANY OR NONE OF THE ADDITIONAL MODULES ON THE
UNDERSTANDING THAT WHAT EVER MODULES ARE LICENSED FOR AN ENTERPRISE
MUST ALL BE THE SAME MODULES FOR ALL SEATS IN THE ENTERPRISE. THIS
MEANS THAT ONE SET OF USERS CANNOT HAVE SOME FUNCTIONS WHILE ANOTHER
SET OF USERS HAS DIFFERENT FUNCTIONS WITHIN THE SAME ENTERPRISE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
FULL SEAT SERVICE PROJECT &
SEATS DISCOUNT PRICE BANDS DELIVERY RES CRM SUPPORT
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
*** *** *** *** *** *** ***
- -------------------------------------- --------------------------------------------------
*** *** *** *** *** *** ***
- -------------------------------------- --------------------------------------------------
*** *** *** *** *** *** ***
- -------------------------------------- --------------------------------------------------
*** *** *** *** *** *** ***
- -------------------------------------- --------------------------------------------------
*** *** *** *** *** *** ***
- -------------------------------------- --------------------------------------------------
*** *** *** *** *** *** ***
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
GUEST ACCESS LICENSES SCENARIO
--------------------------------------------------------------------------
DEAL 500 FULL
EXAMPLE SEATS PRICE DISCOUNT SUB TOT PRICE
- ----------------------------------------- --------------------------------------------------------------------------
GUEST DISCOUNT FULL SEAT <S> <C> <C> <C> <C> <C>
PRICE *** *** *** *** ***
- ----------------------------------------- --------------------------------------------------------------------------
<S> <C> <C>
*** *** *** *** *** *** *** ***
- ----------------------------------------- --------------------------------------------------------------------------
*** *** *** *** *** *** *** ***
- ----------------------------------------- --------------------------------------------------------------------------
*** *** *** *** *** *** *** ***
- ----------------------------------------- --------------------------------------------------------------------------
*** ***
--------------------------------------------------------------------------
CUM DISC: ***
--------------------------------------------------------------------------
- ----------------------------------------- --------------------------------------------------------------------------
MAINTENANCE DEAL 1000 FULL
PERCENTAGE *** EXAMPLE SEATS PRICE DISCOUNT TOTAL PRICE
- ----------------------------------------- --------------------------------------------------------------------------
*** *** *** *** ***
--------------------------------------------------------------------------
*** *** *** *** ***
--------------------------------------------------------------------------
*** *** *** *** ***
--------------------------------------------------------------------------
*** *** *** *** ***
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*** *** *** *** ***
--------------------------------------------------------------------------
*** *** *** *** ***
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CUM DISC: ***
--------------------------------------------------------------------------
</TABLE>
TERMS
- - All discounts based on single order quantity
***The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
<PAGE>
SCHEDULE F
ESCROW AGREEMENT
THIS AGREEMENT made as of this 17th day of January, 1997
between CHANGEPOINT CORPORATION ("Changepoint"), a company with offices located
at 1595 Sixteenth Avenue, Suite 702, Richmond Hill, Ontario, Canada, L4B 3N9 and
MONTREAL TRUST COMPANY OF CANADA, a trust company with offices at 151 Front
Street West, Suite 605, Toronto, Ontario, M5J 2N1 ("Escrow Agent") and those
customers of Changepoint or Affiliates of Changepoint who have requested to be
part of the escrow program established by this agreement and who are made party
to this agreement by signing the form of letter attached to this agreement as
schedule B ("Letter Agreement"), having same approved by Escrow Agent and having
copies of same returned to Changepoint and customer (each such customer shall be
referred to herein as a "Customer" and all such customers shall collectively be
referred to herein as the "Customers").
WHEREAS, Changepoint or an Affiliate of Changepoint has or
proposes to enter into agreements with Customers to provide certain maintenance
services (each such contract with a Customer shall be referred to as an
"Agreement" and all such contracts with Customers shall collectively be referred
to as the "Agreements") in respect of software licensed or to be licensed by
Changepoint or an Affiliate of Changepoint to Customers (the "Software").
AND WHEREAS, Changepoint and Customers wish to assure the
continued availability of the source code to the Software for the Customers in
the event of an Emergency condition and to establish and maintain in escrow the
source code for the Software;
AND WHEREAS, Escrow Agent agrees to store and release such
source code under the terms of this agreement.
NOW THEREFORE, in consideration of the premises and covenants
contained herein, the parties hereby agree as follows:
1. DEFINITIONS
In this agreement and in the Recitals and Schedules hereto,
unless otherwise specified or patently required by the context, the words and
phrases defined in this agreement shall have the meanings ascribed to them
herein and the following terms shall have the following meanings indicated
below:
"AFFILIATE" shall have the meaning ascribed to it in the
Canada Business Corporations Act as amended.
"EFFECTIVE DATE" means the date first written above.
"EMERGENCY" in relation to a Customer means:
<PAGE>
-2-
A. Changepoint ceases to carry on business as a
going concern; or
B. Changepoint makes an assignment in
bankruptcy for the general benefit of its
creditors, or a receiving order is made
against Changepoint and such order is not
discharged within thirty (30) days of its
making;
AND within forty-five (45) days of any such
event in A or B above, (i) no entity
acquires the assets of Changepoint or (ii)
no entity is willing and able to support and
maintain the Software; or
C. Changepoint and its Affiliates (or their
successors or assigns) are unwilling or
unable in any material respect to comply
with the obligations under the Agreement
with the Customer to correct programming
errors in the Software delivered to the
Customer which materially and adversely
affect the Customer's use of such software
and has failed to take all reasonable steps
to cure such default after the receipt of no
less than thirty (30) business days prior
written notice (a "Changepoint Default").
"SOURCE CODE" in relation to any Customer means the source
code for the modules of the Software licensed by Changepoint or an Affiliate to
the Customer and identified as the Source Code applicable to the Customer.
"UPDATED SOFTWARE" means maintenance releases and other
changes or additions to the Software in object code form that are provided to a
customer as part of maintenance services under an Agreement.
"UPDATED SOURCE CODE" in relation to any Customer means an
amended version of the Source Code that incorporates all changes, modifications,
enhancements and updates pertaining to the Updated Software that have been
delivered to the Customer under an Agreement and identified as the Updated
Source Code applicable to the Customer.
2. DEPOSIT AND SUBSTITUTION
(a) Changepoint agrees to deposit in escrow with Escrow Agent for the
benefit of each Customer a copy of the Source Code applicable to the Customer
within thirty (30) business days of the commencement of the term of the
Agreement to supply support and maintenance to the Customer.
(b) Within thirty (30) days of Changepoint or an Affiliate supplying to
a Customer Updated Software, Changepoint agrees to deposit in escrow with Escrow
Agent the Updated Source Code corresponding to such Updated Software. During the
term of the Agreement, Escrow Agent shall retain the Source Code or Updated
Source Code, as the case may be, for the current and prior release of the
Customer's Software. Other versions of the Source Code and
<PAGE>
-3-
Updated Source Code shall be returned to Changepoint by Escrow Agent upon the
written request of Changepoint. In its written request, Changepoint shall
specifically and clearly identify those versions of the Source Code and
Updated Source Code that shall be returned to Changepoint by Escrow Agent.
3. TERM OF AGREEMENT
Unless terminated earlier according to its terms, this
agreement shall remain in full force and effect as between Changepoint and
Escrow Agent from the Effective Date of this agreement until the expiration or
termination of the Agreements. Obligations hereunder with respect to a specific
Customer shall commence on the date the Customer becomes a party to this
agreement by signing the Letter Agreement and delivering same to Changepoint and
Escrow Agent and shall continue unless earlier terminated according to the terms
of this agreement, on the effective date of the termination or expiration of the
Agreement with the Customer. The obligations of Changepoint and Escrow Agent to
any Customer shall also terminate upon delivery to the Customer of a copy of the
Source Code or Updated Source Code according to the provisions of sections 6, 8,
or 9 of this agreement.
4. CHARGES
Changepoint shall pay Escrow Agent's annual fee for services
that are set out in Schedule A attached hereto. These charges are solely for the
storage of the Source Code and Updated Source Code. Any other services provided
by Escrow Agent shall be at then current hourly rates. Customer shall pay the
charges of Escrow Agent pertaining to services provided on behalf of Customer
(other than the storage of the Source Code and Updated Source Code) including
(a) Escrow Agent's fees and actual costs related to any Customer request, (b)
Escrow Agent's fees and actual costs related to validating a claim by Customer
that an Emergency exists, and (c) releasing the Source Code and Updated Source
Code to Customer. In addition to the charges set out, the Customer shall pay all
applicable taxes related to items (a) to (c) above, exclusive of taxes based on
Escrow Agent's net income.
5. APPOINTMENT OF ESCROW AGENT
The parties agree that Escrow Agent is hereby appointed to act
as Escrow Agent for the Customers and to receive the Source Code or Updated
Source Code according to the provisions of this agreement.
6. RELEASE OF SOURCE CODE TO THE CUSTOMER
If the Customer reasonably determines that there is an
Emergency, the Customer shall so notify Changepoint and Escrow Agent in writing
describing the Emergency in detail and making a formal demand that Escrow Agent
release the Source Code or Updated Source Code applicable to the Customer. If
Changepoint disagrees with the Customer that an Emergency exists or continues to
exist, Changepoint shall so notify Escrow Agent and the Customer in writing
within ten business days (10) days after receipt of the Customer's demand for
release of
<PAGE>
-4-
the Source Code or Updated Source Code and Escrow Agent shall not release the
Source Code or Updated Source Code except as provided in sections 8 or 9 of
this agreement. Failure of Changepoint to give timely notice objecting to the
release of the Source Code or Updated Source Code shall conclusively
establish its consent to the immediate release of the Source Code or Updated
Source Code to the Customer under the terms of this agreement.
7. INJUNCTIVE RELIEF
Changepoint and the Customer acknowledge and agree that
Changepoint will suffer irreparable harm in the event that the Source Code or
Updated Source Code is wrongly released to the Customer and that Changepoint may
obtain injunctive relief from a court of competent jurisdiction to prevent
Escrow Agent from releasing the Source Code or Updated Source Code
unjustifiably.
8. DISPUTE RESOLUTION
In the event of any dispute under section 6 of this agreement,
senior management of Changepoint and the Customer shall meet no later than seven
(7) business days after service of Changepoint's or the Customer's dispute
notice and shall enter into good faith negotiations aimed at resolving the
dispute in an amicable manner. If they are unable to resolve the dispute in a
mutually satisfactory manner within the next one (1) business day, either
Changepoint or the Customer may submit the matter to binding arbitration under
section 9 of this agreement.
9. ARBITRATION
Upon receipt by Escrow Agent of written notice by Changepoint
or the Customer calling for arbitration as provided for in section 8, the
dispute shall be settled by arbitration pursuant to the provisions of the
Arbitration Act, 1991 (Ontario), as amended from time to time. The arbitration
proceedings shall take place in the Municipality of Metropolitan Toronto
provided that the arbitration panel may, for the convenience of the parties and
without changing the venue of the arbitration proceeding, take evidence outside
of the Municipality of Metropolitan Toronto. In addition to the rules governing
such arbitration, the parties shall have at their disposal the broadest
pre-trial document discovery rights as are then available under the laws and
judicial rules of the Province of Ontario, provided that any dispute between the
parties relating to discovery shall be submitted to the arbitration panel for
resolution. The sole issues for arbitration shall be the matters set out in
section 6. If the arbitrator(s) decide the matter in favour of the Customer, the
arbitrator(s) shall order the Source Code or Updated Source Code to be released
to the Customer forthwith, and may make a determination about costs of the
parties. The arbitrator(s) shall have the power to make interim orders where
necessary. The arbitrator(s) shall establish a procedure to attempt to have all
disputes resolved in an expeditious manner.
10. OBLIGATIONS OF ESCROW AGENT AND THE CUSTOMER UPON TERMINATION
Upon the expiration or termination of an Agreement,
Changepoint may give written notice of such termination or expiration to Escrow
Agent. Following the expiration of
<PAGE>
-5-
thirty (30) days from the receipt of such notice by Escrow Agent, Escrow
Agent shall cease to have any obligation to the Customer concerning the
Source Code or Updated Source Code and Escrow Agent shall return same to
Changepoint.
11. INDEMNIFICATION OF ESCROW AGENT
Escrow Agent shall not, because of its signing this agreement,
assume any responsibility or liability for any transaction between Changepoint
and the Customer other than the performance of its obligations according to this
agreement. Except for a breach of the obligations set out in section 12 herein,
in no event shall Escrow Agent be liable to Changepoint, the Customer or to any
other party for consequential or incidental damages. If for any reason (except
for a breach of the obligations set out in section 12 herein), Escrow Agent
shall be found liable to Changepoint, the Customer or to any other party, then
in such event the parties agree that such liability shall not exceed the amounts
paid to Escrow Agent hereunder. The party on whose behalf, or pursuant to whose
direction Escrow Agent acts, shall indemnify and hold harmless Escrow Agent, its
officers and employees from any and all liability, damages, costs or expenses,
including reasonable fees that shall be sustained or incurred by Escrow Agent
because of taking such action.
12. NONDISCLOSURE BY ESCROW AGENT
Escrow Agent recognizes and agrees that Source Code and
Updated Source Code is the valuable proprietary and confidential information of
Changepoint and/or licensors of Changepoint and agrees to hold same in strict
confidence and that it will take all appropriate actions to preserve its
confidentiality. Except as expressly provided for in this agreement, Escrow
Agent agrees that it will not use or disclose, divulge or make available the
Source Code or Updated Source Code to any person, association, firm, partnership
or corporation either directly or indirectly in any manner whatsoever without
the prior written consent of Changepoint.
13. USE AND NONDISCLOSURE BY THE CUSTOMER
(c) The Customer recognizes and agrees that the Source Code and Updated
Source Code is the valuable proprietary and confidential information of
Changepoint. The Customer agrees to hold same in the strictest of confidence and
to preserve its confidentiality in the event that it obtains same from Escrow
Agent pursuant to this agreement. In the event that an Emergency condition has
occurred and the Customer has received the Source Code or the Updated Source
Code from Escrow Agent pursuant to the provisions hereof, the Customer shall
have and Changepoint hereby grants to the Customer a non-exclusive
non-transferable license to use the Source Code or Updated Source Code solely
for the purpose of correcting Changepoint Defaults and, in the case the release
of the Source Code to the Customer was as a result of an Emergency condition
described in clause A or B of the definition of Emergency, to correct other
programming errors that result in the Software not operating in the manner
described in the user documentation provided by Changepoint to the Customer for
as long as such Emergency condition continues to exist. No other use of the
Source Code or Updated Source Code
<PAGE>
-6-
whatsoever may be made by Customer. The Customer agrees not to disclose or
provide access to the Source Code or Updated Source Code to any third party
except in confidence to its employees and contractors approved in writing by
Changepoint requiring such information for the purposes herein. Changepoint
agrees not to unreasonably refuse or delay the approval of a contractor
proposed by the Customer and Changepoint shall notify the Customer of its
approval or non-approval within seven (7) business days of receipt of a
written request from the Customer for an approval. A contractor will be
deemed approved by Changepoint in the event Changepoint fails to respond to a
Customer request for approval within the seven (7) business day period, or if
the release of the Source Code was as a result of an Emergency condition
described in clause A or B of the definition of Emergency. Customer will
instruct such employees and contractors in writing to keep such material and
information confidential. Customer shall be responsible to Changepoint for
any failure by employees and contractors to maintain such material and
information in confidence. Customer will promptly notify Changepoint of the
existence of any circumstances surrounding any unauthorized possession or use
of any such confidential information and material of which it becomes aware.
In the event that the Source Code, or Updated Source Code, as the case may
be, is released pursuant to the Emergency described in clause 1.C, the Source
Code or Updated Source Code, as the case may be, shall be returned to Escrow
Agent with notice to Changepoint after Customer has corrected the Changepoint
Defaults described in the written notice referred to in clause 1.C.
(d) The parties agree that Changepoint would have no adequate remedy at
law upon the Customer's threatened or actual breach of its obligations under the
terms of this agreement and accordingly agree that, in addition to such monetary
relief as may be recoverable by law, Changepoint may apply to a court of
competent jurisdiction for an injunction restraining any such threatened or
actual breach without showing or proving any actual damages sustained by
Changepoint. Changepoint shall be entitled to terminate the Customer's license
to use the Source Code and Updated Source Code in Section 13(a) by written
notice to the Customer in the event the Customer breaches any of its obligations
in Section 13(a) or uses such software for any unauthorized purpose. On any such
termination the Customer shall immediately stop using such software and shall
forthwith return and/or destroy all copies thereof and certify in writing to
Changepoint that it has done so within five (5) days of the termination.
14. TERMINATION BY ESCROW AGENT
This agreement may be terminated by Escrow Agent by giving at
least ninety (90) days written notice to Changepoint and the Customer. In that
event, Changepoint shall appoint and Customer hereby consents to the appointment
of a new escrow agent on terms substantially the same as those contained herein
subject to such modifications as the new escrow agent shall require and that
shall be reasonably acceptable to Changepoint.
15. LIABILITIES OF ESCROW AGENT
(a) Escrow Agent will not have any responsibility or liability with
respect to any transactions between Changepoint and Customers other than its
obligation to deliver copies of the Source Code and Updated Source Code, as the
case may be, held by it in accordance with the
<PAGE>
-7-
terms of this agreement. Escrow Agent will not be responsible for the truth
of any matter represented or stated in any affidavit or communication.
(b) Escrow Agent is not a party to, or is not bound by, any provisions
which may be evidenced by, or arise out of, any agreement other than as herein
set forth under the express provisions of this agreement.
(c) Escrow Agent acts hereunder as a depository only and is not
responsible or liable in any manner whatever for the efficiency, correctness,
genuineness or validity of any Source Code or Updated Source Code deposited with
it, or for the form or execution of such instrument, or for the identity or
authority or right of any person or party executing or depositing it.
(d) Escrow Agent may act upon any written notice, request, waiver,
consent, receipt or other paper or document apparently signed by the proper
person or party, unless Escrow Agent knows or has reason to believe that such
notice, request, waiver, consent, receipt, or other paper or document, as the
case may be, was not signed by the proper person or party.
(e) Escrow Agent may seek the advice of legal counsel in the event of
any question or dispute as to the construction of any of the provisions hereof
or its duties hereunder, and it shall incur no liability in acting in accordance
with the opinion and instructions of such counsel, unless such action involves a
breach of this agreement.
(f) Escrow Agent shall not be liable for any error of judgement, or for
any act done or omitted by it in good faith, or for any mistake of fact or law,
or for anything which it may do or omit from doing in connection herewith,
except its own wilful misconduct or breach of this agreement.
(g) None of the provisions contained in this agreement shall require
Escrow Agent to expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers unless Escrow Agent is indemnified by the person for whom
Escrow Agent is asked to act against the costs, charges and expenses and
liabilities to be incurred thereby and any loss and damage it may suffer by
reason thereof.
16. APPROVAL OF CUSTOMER BY ESCROW AGENT
Within ten (10) business days of the receipt of the Letter
Agreement from a prospective Customer, Escrow Agent shall approve of the
prospective Customer by countersigning the Letter Agreement and sending same to
prospective Customer and Changepoint or shall disapprove of a prospective
Customer by providing notice of such disapproval to both the prospective
Customer and Changepoint. Escrow Agent shall not withhold its approval of a
prospective Customer pursuant to the Letter Agreement unless Escrow Agent
determines, after acting reasonably and after consultation of the prospective
Customer, that prospective Customer does not have sufficient resources to meet
its obligations under section 11 of this agreement.
<PAGE>
-8-
17. ASSIGNMENT
Except as otherwise provided herein, no party may assign this
agreement without the prior written consent of the other parties. Changepoint
may assign this agreement in connection with the sale of all or substantially
all of its business or the merger, amalgamation, or other corporate
reorganization of Changepoint provided that Escrow Agent is notified thereof and
the assignee hereof agrees to perform and assume the obligations of Changepoint
hereunder.
18. SURVIVAL
It is agreed that the provisions of sections 10, 11, 12 and 13
shall remain in force and effect after the termination hereof until such time as
the parties may mutually agree to the release of the obligations contained
therein.
19. SEVERABILITY
If any term, provision, covenant or condition of this
agreement is held by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of the provisions shall remain in full force and
effect and shall not be affected, impaired or invalidated thereby.
20. WAIVER
Except as otherwise provided herein, no term or provision
hereof shall be deemed waived and no breach excused unless such waiver or
consent shall be in writing and signed by the party claimed to have waived or
consented. Any consent by any party to, or waiver of, a breach by the other,
whether expressed or implied, shall not constitute a consent to, waiver of, or
excuse for any other different or subsequent breach.
21. NOTICE
Any notice, request, demand, consent or other communication
provided or permitted hereunder shall be in writing and given by personal
delivery, transmitted by facsimile or sent by special delivery mail, postage
prepaid, addressed to the party for which it is intended at its address as set
out above or as may be designated by notice pursuant hereto addressed to the
President in the case of Changepoint, to the President (or other similar
employee, officer or director of Customer designated by the Customer and
disclosed to Changepoint and Escrow Agent in the case of the Customer), and to
the employee, officer or director of Montreal Trust Company of Canada referred
to in the Letter Agreement in the case of Escrow Agent. Any party may change its
address for purposes of transmittal or receipt of any such communication by
giving ten (10) days' prior written notice of such change to the other parties
in the manner prescribed above. Any notice so given shall be deemed to have been
received on the date on which it was delivered or transmitted by facsimile or if
mailed, on the third day following the mailing thereof.
<PAGE>
-9-
22. GOVERNING LAW
This agreement shall be governed by, subject to and
interpreted in accordance with the laws in force in the Province of Ontario.
23. ENTIRE AGREEMENT
This agreement including the attached schedules contains the
entire agreement between the parties with respect to the subject matter thereof
as of its date and supersedes all other prior agreements, negotiations, written
or oral, relating to its subject matter.
IN WITNESS WHEREOF the parties have executed this agreement as
of the date first written above.
CHANGEPOINT CORPORATION MONTREAL TRUST COMPANY
OF CANADA
By: ___________________________ By: _______________________________
Name: _________________________ Name: _____________________________
Title: ________________________ Title: ____________________________
By: _______________________________
Name: _____________________________
Title: ____________________________
<PAGE>
SCHEDULE A
Annual Fee CDN $500.00
<PAGE>
SCHEDULE B
[TO BE PLACED ON CHANGEPOINT LETTERHEAD]
(Date)
Softrax Corporation
45 Shawmut Road
Canton, Massachusetts
02021
U.S.A.
Dear Sirs:
RE: ESCROW OF SOURCE CODE FOR CHANGEPOINT CORPORATION (THE -SOFTWARE-)
In response to your request for the escrow of the source code
to the Software, we wish to inform you that Changepoint has established a Master
Source Code Escrow Agreement (the "Escrow Agreement") which is generally
available to customers of Changepoint and affiliates of Changepoint.
Attached to this letter (the "Letter Agreement") is a copy of
the Escrow Agreement for your files. Please sign, date and return a copy of the
Letter Agreement both to my attention and to the attention of Tina Vitale at
Montreal Trust Company of Canada.
Prior to deposit of the escrowed materials with the Escrow
Agent, you may request verification that Changepoint's source code of the
Software is executable on the appropriate computer, is capable of compiling the
object code of the Software licensed to you and that when so compiled performs
consistent with the latest version of the Software delivered to you by
Changepoint pursuant to the Licence Agreement to which we are both parties (the
"Conditions"). Should you wish such verification, you must send written notice
of such a request to Changepoint specifying:
(a) the date and time (on normal business days and during normal
business hours) when you wish the verification to be
conducted; and
(b) whether you prefer the verification to take place at your or
Changepoint's premises.
At the date, time and location specified in the notice, or (if either party is
unable to attend at the specified date and time) at such other time as we may
both agree, Changepoint will perform such series of tasks and verification
procedures as you may require to enable you to determine that the source code
satisfies the Conditions. Changepoint will ensure that the source code is erased
from any computer at your premises and you agree to permit Changepoint to
perform such tasks and procedures necessary to confirm that the source code has
been fully removed. Upon completion of the verification, you may designate a
person to accompany Changepoint to deliver the escrowed materials to the Escrow
Agent. If during the verification the escrowed materials do not
<PAGE>
-2-
satisfy the Conditions, Changepoint will take all necessary measures to
ensure that the escrowed materials are updated with new or corrected
materials so that the source code does satisfy the Conditions within thirty
(30) days after the conclusion of the initial verification. You will pay any
costs or expenses on a time and materials basis incurred in connection with
any verification of the escrowed materials.
Changepoint and you agree that upon receipt by you of any of
the escrowed materials you will have a personal, non-exclusive, non-transferable
and non-assignable license to use them solely at 45 Shawmut Road, Canton,
Massachusetts, 02021, U.S.A., on a single, non-networked, micro-computer or
workstation solely for the purposes set out in, and subject to the terms and
conditions of, section 13(a) of the Escrow Agreement. Changepoint will have the
right to terminate the license conferred by this paragraph and to require you to
return any escrowed materials delivered to you in the event you breach the terms
of this paragraph or use the escrowed materials in a manner not authorized in
this paragraph.
Once Escrow Agent receives a signed copy of this Letter
Agreement and approves of you as a Customer by countersigning the Letter
Agreement and returning it to both you and Changepoint, you will then become a
party to the Escrow Agreement and Escrow Agent shall add your company's name to
the list of escrow customers. Changepoint will send a copy of the Software in
your name to Montreal Trust Company of Canada or will designate a copy sent to
be retained in your name for safekeeping as described in the Escrow Agreement.
In the event that Escrow Agent disapproves of you as a Customer, notice will be
provided to you and Changepoint in accordance with section 16 of the Escrow
Agreement.
This Letter Agreement shall become effective on the date it is
signed by both yourself and Escrow Agent and thereafter returned to both you and
Changepoint.
Yours truly,
Changepoint Corporation
Agreed to by:
SOFTRAX CORPORATION
Name of Customer
______________________________
Signature
______________________________
Print Name
______________________________
<PAGE>
-3-
Title
45 Shawmut Road
Canton, Massachusetts
02021
U.S.A.
MONTREAL TRUST COMPANY OF CANADA
By: ___________________________________
Name: _________________________________
Title: ________________________________
<PAGE>
SCHEDULE G
CHANGEPOINT LICENSE
CHANGEPOINT SOFTWARE
LICENSE AND MAINTENANCE AGREEMENT (U.S.A. SS)
Between: and:
CHANGEPOINT INC.
1595 Sixteenth Avenue
Suite 700
Richmond Hill, Ontario
Canada
L4B 3N9
(hereinafter referred to as "Changepoint") (hereinafter referred to as
"Customer")
Contract No. _______________
This Agreement sets out the terms pursuant to which Customer may use the
Licensed Materials (as that term is hereinafter defined). This Agreement also
sets out the terms pursuant to which Changepoint will provide Implementation
Services and Maintenance Services to Customer.
The "CHANGEPOINT Software License and Maintenance Agreement - Terms and
Conditions" on the following pages of this document and the attached Appendix A
form an integral part of this Agreement. These documents constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and cancels and supersedes any prior understandings and agreements between the
parties hereto with respect thereto. There are no provisions, representations,
undertakings, agreements, or collateral agreements between the parties other
than as set out herein in this Agreement.
The parties by their authorized representatives and intending to be legally
bound have entered into this Agreement as of the ___ day of _____, 1999 (the
"Effective Date").
CHANGEPOINT INC.
Signature _________________________ Signature _________________________
Name ______________________________ Name ______________________________
Title _____________________________ Title _____________________________
<PAGE>
-5-
CHANGEPOINT SOFTWARE
LICENSE AND MAINTENANCE AGREEMENT -
TERMS AND CONDITIONS
ARTICLE 1 - INTERPRETATION
1.1 DEFINITIONS
In this Agreement and in Appendix A the following terms shall have the
respective meanings ascribed to them as follows:
"AFFILIATE" means with respect to any person, any other person directly
or indirectly controlling, controlled by, or under common control of
such person. "Control" as used here means the legal, beneficial or
equitable ownership, directly or indirectly, of more than 50% of the
aggregate of all voting interests in such entity.
"BUSINESS DAYS" means Monday through Friday excluding any day which is
a nationally observed holiday in both the United States of America and
Canada.
"BUSINESS HOURS" means 8:00 a.m. - 7:00 p.m. Eastern Time on Business
Days.
"CLIENT ACCESS LICENSE" means a Software License which authorizes
Customer to install a Component of the Licensed Software on a single
client device (e.g. - computer workstation).
"COMPONENTS" mean the components of the CHANGEPOINT Software referred
to in Appendix A.
"CONFIDENTIAL INFORMATION" means (i) all information of either party or
its affiliates or of third persons to whom a party owes a duty of
confidence that is marked confidential, restricted or proprietary or
that may reasonably be considered as confidential from its nature or
from the circumstances surrounding its disclosure; and (ii) the
Licensed Materials.
"DOCUMENTATION" means in relation to the Licensed Software, the user
documentation made generally available by Changepoint to customers
which have been granted a license from Changepoint to use the Licensed
Software.
"INSTALLATION FEES" has the meaning given to it in Section 4.2.
"INSTALLATION SERVICES" has the meaning given to it in Section 3.2.
"INTELLECTUAL PROPERTY RIGHTS" includes all worldwide intellectual and
industrial property rights including all rights in each country to
copyrights, trademarks, service marks, patents, inventions, industrial
designs, trade secrets, trade dress and all other proprietary rights.
"LICENSE" means Customer's license to use the Licensed Materials
described in Article 2 and in Appendix A.
"LICENSE FEES" means the license fees to be paid by Customer to
Changepoint which are described in Section 4.1.
"LICENSED MATERIALS" means the Licensed Software and Documentation and
includes Maintenance Releases and Enable Codes which Changepoint may
from time to time provide to Customer hereunder.
"LICENSED SOFTWARE" means the Components of the CHANGEPOINT Software in
object code format licensed to Customer hereunder and described in
Appendix A and such additional Components of the CHANGEPOINT Software
which Customer and Changepoint hereinafter agree shall be added to
Appendix A.
"MAINTENANCE" has the meaning given to it in Section 4.2.
"MAINTENANCE FEES" has the meaning given to it in Section 4.2.
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"MAINTENANCE RELEASE" means new versions and releases of the Licensed
Software which Changepoint makes generally available to its customers
who have contracted with it to receive Maintenance Service for the
Licensed Software.
"MAINTENANCE SERVICES" means the services described in Section 7.2.
"SOFTWARE LICENSES" means the utilization licenses and associated
restrictions with respect to the Licensed Software granted to Customer
hereunder which are set forth in Appendix A.
"WARRANTY PERIOD" means the period as set out in Appendix A.
"WARRANTY SUPPORT" means the warranty support set forth in Section
6.1(a).
ARTICLE 2 - LICENSE
2.1 LICENSE
(a) Subject to the provisions of this Agreement including the provisions of
Article 8, Changepoint hereby grants to Customer and Customer hereby accepts
from Changepoint the perpetual, personal, non-transferable and non-exclusive
Software Licenses to use the Licensed Software for Customer's internal business
purposes. Customer may also make a reasonable number of back-up copies, but not
to exceed two (2) copies, of the Licensed Software for use as part of Customer's
disaster recovery plan.
(b) The Licensed Materials may be used only as set out in this Agreement
and Customer agrees not to make any copies (whether in electronic or any other
form) or use thereof other than as expressly permitted herein or by Changepoint
in writing in advance, even if it is technically feasible to do so. Without
limiting the generality of the foregoing, Customer agrees to use the Licensed
Software only to the extent authorized by the Software Licenses. (c) Customer's
License to use the Licensed Materials shall commence on the Effective Date.
2.2 DOCUMENTATION
The Documentation may be used by Customer at Customer sites for the
purpose of assisting Customer in using the Licensed Software for the internal
business purposes of Customer. Changepoint agrees to deliver one copy of the
Documentation to Customer in either printed or electronic form. Documentation
provided in machine readable form may be printed and used solely for the
internal business purposes of Customer. No other reproduction or use of the
Documentation is permitted.
2.3 THIRD PARTY USERS
For the purpose of operating Customer's business, the parties intend
that certain unrelated third parties with whom Customer has a business
relationship such as a supplier or customer and the employees of such third
person (hereunder "Business Third Parties"), will have limited right to use
certain Components of the Licensed Software solely for the purpose of providing
services to Customer. All such persons must execute an agreement in writing with
Customer to maintain the Confidential Information in confidence and to use the
Licensed Materials only as permitted. Customer agrees to strictly enforce the
provisions of such non-disclosure agreements set forth in this Section 2.3 and
all other provisions of this Agreement as applicable to any and all uses of the
Licensed Materials.
ARTICLE 3 - DELIVERY AND INSTALLATION
3.1 DELIVERY OF LICENSED MATERIALS
Changepoint agrees to deliver to Customer one (1) copy of the most
current release and version of the Licensed Materials. The Documentation will be
provided solely in the English language.
3.2 INSTALLATION SERVICES
Changepoint agrees to provide the installation services (the
"Installation Services") described in Appendix A.
3.3 ENABLE CODES
To enable Customer to install the Licensed Software, Changepoint will
provide Customer with information or data which are intended to enable the
Licensed Software to be used ( the "Enable Codes"). The Enable Codes are
designed to enable Customer to use the Licensed Software in accordance with the
number of Software Licenses acquired hereunder. Customer acknowledges and agrees
that additional Enable Codes will need to be obtained from Changepoint if
Customer acquires one or more additional Software Licenses from Changepoint.
Customer agrees not to, and shall cause all users not to, modify, adapt or
create derivative works of any Enable Codes provided, develop or have developed
any Enable Codes, or use any Enable Codes other than those provided by
Changepoint.
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ARTICLE 4 - PRICE AND PAYMENT TERMS
4.1 LICENSE FEES
Customer shall pay to Changepoint the license fees described in
Appendix A (the "License Fees"). The License Fees shall be due and paid as
provided for in Appendix A.
4.2 MAINTENANCE AND INSTALLATION FEES
Customer agrees to pay to Changepoint the Maintenance Fees and the
Installation Fees set out in Appendix A.
4.3 TAXES AND INTEREST
(a) Customer shall pay (and Changepoint shall have no liability for), any
taxes, tariffs, duties and other charges or assessments imposed or levied by any
government or governmental agency in connection with this Agreement, including,
without limitation, any federal, provincial, state and local sales, use, goods
and services, value-added and personal property taxes on any payments due
Changepoint in connection with the Licensed Materials and/or Maintenance
Services and other services provided hereunder, excluding only income taxes
payable by Changepoint.
(b) All overdue payments shall bear interest at a rate
of 12% per annum on the amounts outstanding from the time such amounts become
due until payment is received by Changepoint.
ARTICLE 5 - PROPRIETARY RIGHTS AND CONFIDENTIAL INFORMATION
5.1 TITLE TO LICENSED MATERIALS
Customer acknowledges and agrees that Changepoint or licensors of
Changepoint shall retain all right, title and interest in and to the Licensed
Materials and all copies thereof, including, without limitation, the
Intellectual Property Rights therein, and that nothing herein transfers or
conveys to Customer any ownership right, title or interest in or to the Licensed
Materials or to any copy thereof or any license right with respect to same not
expressly granted herein, including, without limitation, with respect to the
Intellectual Property Rights therein.
5.2 CONFIDENTIAL INFORMATION
(a) Each party agrees to maintain the confidentiality of the Confidential
Information of the other party and to use same only as expressly authorized
herein. Each party shall safeguard and maintain the other party's Confidential
Information in strict confidence and shall not disclose, provide, or make the
Confidential Information or any part thereof available in any form or medium to
any person except to such party's employees, and to contractors and consultants
of such party who have executed an agreement in writing to protect such
Confidential Information and who have a need to access such Confidential
Information hereunder.
(b) The provisions of Section 5.2(a) shall not apply to any information
which: (i) was at the time of disclosure to a party, in the public domain, (ii)
after disclosure to a party becomes part of the public domain through no fault
of the receiving party, (iii) was in the possession of the receiving party prior
to the time of disclosure to it without any obligation of confidence or any
breach of confidence, (iv) was received after disclosure to a party from a third
party who had a lawful right to disclose such information to it, (v) was
independently developed by a party without reference to the confidential
information of the other party or (vi) was ordered to be disclosed by a court,
administrative agency, or other governmental body with jurisdiction over the
parties hereto, provided that the ordered party will first have provided the
disclosing party with prompt written notice of such required disclosure and will
take reasonable steps to allow the disclosing party to seek a protective order
with respect to the confidentiality of the information required to be disclosed.
Further, the ordered party will promptly cooperate with and assist the
disclosing party in connection with obtaining such protective order.
5.3 PROTECTION OF PROPRIETARY RIGHTS
(a) Customer shall not remove any proprietary, copyright, patent, trade
mark, design right, trade secret, or any other proprietary rights legends from
the Licensed Materials.
(b) Customer agrees not to disassemble, decompile, translate or convert
into human readable form or into another computer language, reconstruct or
decrypt, or reverse engineer, all or any part of the Licensed Materials in
accordance with law. Further, Customer shall not write or develop any derivative
works or computer programs based upon any part of the Licensed Materials.
5.4 EXPORT OF SOFTWARE
Customer will not export or re-export the Licensed Materials or any
copies thereof, either directly or indirectly, outside of the country in which
such materials are delivered to Customer except in compliance with all
applicable laws, ordinances and regulations. Customer shall have the exclusive
obligation to ensure that any export of the Licensed Materials is in compliance
with all applicable export laws and the laws of any foreign country.
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ARTICLE 6 - WARRANTIES OF CHANGEPOINT
6.1 WARRANTY AND DISCLAIMERS
(a) Changepoint warrants that during the Warranty Period: (i) the Licensed
Software will conform substantially to the description thereof in the
Documentation, and (ii) the media upon which the Licensed Software and
Documentation are provided will be free from defects in materials and
workmanship.
(b) Changepoint warrants that the Licensed Software shall be able to
accurately process date data (including but not limited to, calculating,
comparing, and sequencing) from, into and between the 20th and 21st century (the
"Y2K Warranty"). However, such warranty does not apply to any failures to
process date data that result from any software other than the Licensed Software
or hardware or which relate to accepting data from any system not supplied by
Changepoint. For greater clarity the Y2K Warranty shall only apply if Customer
uses the Software in accordance with the Documentation.
(c) Customer's exclusive remedy and Changepoint's sole obligation with
respect to the breach of any of the foregoing warranties is for Changepoint to
(i) make commercially reasonable efforts to correct or provide Customer with a
workaround for the failure of the Licensed Software to conform substantially to
the description thereof in the Documentation or to comply with the Y2K Warranty,
as the case may be, or, at Changepoint's sole option, provide Customer with a
refund for the License Fees paid with respect to such Licensed Software, and
(ii) provide Customer with replacement media in the event there are defects in
materials or workmanship in the media upon which the Licensed Software and
Documentation are provided if the media is returned to Changepoint within the
Warranty Period.
(d) OTHER THAN THE WARRANTIES EXPRESSLY SET FORTH IN SECTION 6.1(A) AND
6.1(B), CHANGEPOINT EXPRESSLY DISCLAIMS ANY AND ALL REPRESENTATIONS, WARRANTIES
AND CONDITIONS OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION, REPRESENTATIONS, WARRANTIES AND CONDITIONS OF QUALITY, PERFORMANCE,
RESULTS, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, AND THOSE
ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR USE OF
TRADE. CHANGEPOINT DOES NOT REPRESENT OR WARRANT THAT (I) THE LICENSED MATERIALS
WILL MEET CUSTOMER'S BUSINESS REQUIREMENTS, (II) THE OPERATION OF THE LICENSED
SOFTWARE WILL BE ERROR-FREE OR UNINTERRUPTED OR (III) THAT ALL PROGRAMMING
ERRORS CAN BE CORRECTED.
(e) Customer is responsible for taking precautionary measures to prevent
the loss or destruction of customer data and databases such as, for example,
making regular backups and verifying the results obtained from using the
Licensed Materials, and Changepoint shall have no obligations or liability
whatsoever with respect to any such loss or destruction.
6.2 LIMIT OF LIABILITY
(a) FOR ANY BREACH OR DEFAULT BY CHANGEPOINT OF ANY OF THE PROVISIONS OF
THIS AGREEMENT, OR WITH RESPECT TO ANY CLAIM ARISING HEREFROM OR RELATED HERETO,
EXCEPT FOR ANY CLAIM FOR BREACH OF SECTION 5.2 (UNAUTHORIZED DISCLOSURE OF
CONFIDENTIAL INFORMATION), OR FOR BREACH OF SECTION 6.4(A) (INTELLECTUAL
PROPERTY INDEMNITY), CHANGEPOINT'S ENTIRE LIABILITY, REGARDLESS OF THE FORM OF
ACTION, WHETHER BASED ON CONTRACT OR TORT, INCLUDING NEGLIGENCE, SHALL IN NO
EVENT EXCEED (I) THE AMOUNT PAID BY CUSTOMER HEREUNDER FOR THE LICENSED
MATERIALS, (II) THE AMOUNT PAID BY CUSTOMER FOR THE MAINTENANCE SERVICE THAT IS
THE SUBJECT OF THE CLAIM IF THE CLAIM RELATES TO A BREACH OR DEFAULT BY
CHANGEPOINT OF THE PROVISIONS OF ARTICLE 7, (III) THE AMOUNT PAID BY CUSTOMER
FOR THE INSTALLATION SERVICE THAT IS THE SUBJECT OF THE CLAIM IF THE CLAIM
RELATES TO A BREACH OR DEFAULT BY CHANGEPOINT OF THE PROVISIONS OF THIS
AGREEMENT PERTAINING TO INSTALLATION SERVICE, OR (IV) IN THE AGGREGATE WITH
RESPECT TO ALL CLAIMS UNDER OR RELATED TO THIS AGREEMENT, THE AMOUNT PAID BY
CUSTOMER UNDER THIS AGREEMENT.
(b) IN NO EVENT WILL CHANGEPOINT BE LIABLE FOR SPECIAL, INCIDENTAL,
INDIRECT, OR CONSEQUENTIAL LOSS OR DAMAGE, LOST BUSINESS REVENUE, LOSS OF
PROFITS, LOSS OF DATA, FAILURE TO REALIZE EXPECTED PROFITS OR SAVINGS OR ANY
CLAIM AGAINST CUSTOMER BY ANY OTHER PERSON (EVEN IF CHANGEPOINT HAS BEEN ADVISED
OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE).
(c) CHANGEPOINT SHALL BE LIABLE TO CUSTOMER AS EXPRESSLY PROVIDED IN THIS
AGREEMENT BUT SHALL HAVE NO OTHER OBLIGATION, DUTY, OR LIABILITY WHATSOEVER IN
CONTRACT, TORT OR OTHERWISE TO CUSTOMER INCLUDING ANY LIABILITY FOR NEGLIGENCE.
THE LIMITATIONS, EXCLUSIONS AND DISCLAIMERS IN THIS AGREEMENT SHALL APPLY
IRRESPECTIVE OF THE NATURE OF THE CAUSE OF ACTION, DEMAND, OR ACTION BY
CUSTOMER, INCLUDING BUT NOT LIMITED TO BREACH OF CONTRACT, NEGLIGENCE, TORT, OR
ANY OTHER LEGAL THEORY AND SHALL
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SURVIVE A FUNDAMENTAL BREACH OR BREACHES OR THE FAILURE OF THE ESSENTIAL
PURPOSE OF THIS AGREEMENT OR OF ANY REMEDY CONTAINED HEREIN.
6.3 LIMITATION PERIOD
Neither party may bring an action, regardless of form, arising out of
or related to this Agreement (other than to recover License Fees or Maintenance
Fees) more than two (2) years after the cause of action has arisen or the date
of discovery of such cause, whichever is later.
6.4 INTELLECTUAL PROPERTY CLAIMS
(a) Changepoint will defend or (at its option) settle, any claim or action
brought against Customer to the extent that it is based on a claim that the
Licensed Materials infringe any copyright, patent, trade secret or trademark
enforceable in the United States of America of any third person (an
"Infringement Claim") and will indemnify Customer against damages and costs
awarded against Customer by a court of competent jurisdiction by final order
from which no appeal is taken or the time for appealing has expired, provided
that Customer notifies Changepoint promptly in writing of same, and provided
further that Customer permits Changepoint to control the litigation and to
defend, compromise or settle the claim and provides all available information,
assistance and authority to enable Changepoint to do so. Changepoint shall not
be liable to reimburse Customer for any compromise or settlement made by
Customer without Changepoint's prior written consent, or for any legal fees or
expenses incurred by Customer in connection with such claim. Customer shall have
no authority to settle any claim on behalf of Changepoint.
(b) Should the Licensed Materials or any of them become, or in
Changepoint's sole opinion be likely to become, the subject of a claim of
infringement, misappropriation, or violation of an Intellectual Property Right
(an "Infringement Claim") Changepoint may (i) procure for Customer, at no cost
to Customer the right to continue to use the Licensed Materials which are the
subject of the Infringement Claim (ii) replace or modify the Licensed Materials
or part thereof subject to such Infringement Claim with software or
documentation of at least comparable functionality, at no cost to Customer, or
(iii) if neither of the forgoing alternatives are reasonably practical in
Changepoint's sole judgement, remove the component that is the subject of the
Infringement Claim or any or all other parts of the Licensed Materials and
refund to Customer the License Fees paid by Customer for the part removed as
depreciated on a straight line five (5) year basis from the date of delivery of
the part to Customer.
(c) Notwithstanding the foregoing, Changepoint shall have
no liability for any claim that is based on (i) the use of other than the latest
release and version of the Licensed Materials, if such infringement could have
been avoided by the use of the latest version and release and such version or
release had been made available to Customer, (ii) the use or combination of the
Licensed Materials with software, hardware or any other product not provided by
Changepoint, or (iii) any modification to the Licensed Materials or use of the
Licensed Materials other than as expressly authorized herein or as expressly
described or recommended in writing by Changepoint.
(d) This Section 6.4 states the entire liability of Changepoint and
Customer's sole remedies with respect to any Infringement Claim.
ARTICLE 7 - MAINTENANCE AND ENHANCED MAINTENANCE SERVICE
7.1 TERM
(a) Following the expiry of the Warranty Period, Changepoint shall provide
Customer with Maintenance Services during successive annual maintenance terms
(each such term is referred to here as a "Maintenance Term") provided that
Customer pays to Changepoint the Maintenance Fees for each Maintenance Term as
and when due hereunder.
(b) Customer or Changepoint may terminate Maintenance Services at the end
of a Maintenance Term by providing the other with no less than thirty (30) days
prior written notice before the end of the Maintenance Term.
7.2 MAINTENANCE SERVICE
(a) During the Warranty Period and each Maintenance Term, Changepoint will
provide Maintenance Releases to Customer. Changepoint will also during Business
Hours provide telephone assistance to Customer with respect to initial error
diagnosis and support regarding the functionality of the Licensed Software.
Maintenance Service shall be provided by Changepoint to up to three (3) customer
support staff who are trained and knowledgeable in the use of the Licensed
Materials and who have been designated from time to time by Customer to request
and receive such service.
(b) As part of Maintenance Service and Warranty Support, Customer will have
access to Changepoint's CHANGEPOINT Knowledge Base technical database which
contains technical information concerning the use of the Licensed Software.
Customer acknowledges that information in this database may not have been
verified by Changepoint. Accordingly, Changepoint shall have no responsibility
hereunder with respect to any inaccurate or incomplete information contained in
the CHANGEPOINT Knowledge Base or the use thereof by Customer.
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7.3 SERVICES NOT INCLUDED
(a) Maintenance Services and Warranty Support does not include or apply to
any of the following: (i) making modifications to the Licensed Materials for
Customer, (ii) user training, (iii) consultation for new programs or equipment,
(iv) hardware problems including any malfunction of hardware, or to any external
causes affecting the Licensed Materials including the media upon which the
Licensed Materials are provided such as accident, disaster, electrostatic
discharge, fire, flood, lightning, water or wind, or (v) correction of errors
attributable to software other than the Licensed Software. Changepoint may
charge Customer at its then applicable list price for providing such services.
Changepoint may also charge Customer at its then applicable list price for
analysis or removal of errors which are caused by improper operation or handling
of the Licensed Materials or caused by circumstances unrelated to Changepoint.
Payment for these services shall be made by Customer within 30 days of invoicing
by Changepoint.
(b) The obligation to provide Maintenance Services is subject to the
following: (i) Maintenance Services are only provided for the Licensed Software
provided under this Agreement, (ii) if Customer ceases to pay for and receive
Maintenance Services and later requests Maintenance Services, Customer will be
required to pay to Changepoint the Maintenance Fees not paid during the period
in which the service was discontinued, and (iii) Maintenance Services need not
be provided by Changepoint if Customer is not using the most current or an
immediately previous release of the Licensed Materials, or if Customer has made
any modifications to the Licensed Materials and (iv) Changepoint has no
obligation to provide Customer with any Maintenance Services unless Customer has
paid for the Maintenance Services in advance as required hereunder.
ARTICLE 8 - TERM AND TERMINATION
8.1 TERM
This Agreement shall be effective on the Effective Date and shall
terminate in accordance with this Article.
8.2 TERMINATION
Either party may by notice in writing terminate this Agreement if (i)
the other party breaches or fails to observe or perform any of its obligations
set out in this Agreement, including failure to pay any License Fees due and
owing, and fails to cure such breach or failure within thirty (30) days after
written notice; or (ii) either party becomes insolvent, or makes an assignment
for the general benefit of creditors, or any proceedings are commenced by or
against either party under any bankruptcy or insolvency laws or if proceedings
for the appointment of a trustee, custodian, receiver, or receiver manager for
either party are commenced, or if either party ceases or threatens to cease to
carry on business.
8.3 RETURNING LICENSED MATERIALS
Within fifteen (15) days after termination or expiration of this
Agreement for any reason, Customer shall return to Changepoint the original and
all copies of the Licensed Materials in the possession or control of Customer
(including any copies in the possession or control of Business Third Parties or
other Users) and shall certify to Changepoint in writing that all such copies
have been so returned and/or deleted from all computer records. Customer shall
also cease to use the Licensed Materials and ensure that all Business Third
Parties to whom Customer has given access to the Licensed Software also cease to
use the Licensed Materials.
8.4 SURVIVAL
The parties hereto agree that the provisions of Sections 3.3 (the last
sentence), 4.3, 6.2, 6.3 and 8.3, 9.9 and 9.10 and Article 5 shall survive and
remain in full force and effect after the termination of the License or this
Agreement for any reason.
ARTICLE 9 - GENERAL
9.1 HEADINGS
The division of this Agreement into Articles and Sections and the
insertion of headings are for convenience of reference only and shall not affect
the construction or interpretation of the Agreement, as the case may be. The
terms "this Agreement", "hereof", "hereunder" and similar expressions in this
Agreement refer to this Agreement and not to any particular Article, Section or
other portion and include any Agreement supplemental hereto. Unless something in
the subject matter or context is inconsistent therewith, references herein to
Articles and Sections are to Articles and Sections of this Agreement.
9.2 EXTENDED MEANINGS
In this Agreement words importing the singular number only shall
include the plural and VICE VERSA, and words importing persons shall include
individuals, partnerships, associations, trusts, unincorporated organizations
and corporations. The terms "provision" and "provisions" in this Agreement refer
to terms, conditions, provisions, covenants, obligations, undertakings,
warranties and representations in this Agreement.
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9.3 NOTICES
For the purposes of this Agreement, and for all notices and
correspondence hereunder, the addresses of the respective parties have been set
out at the beginning of this Agreement and no change of address shall be binding
upon the other party hereto until written notice thereof is received by such
party at the address shown herein. All notices shall be effective upon receipt
if delivered personally or sent by facsimile and seven (7) days after mailing if
sent by registered mail.
9.4 CURRENCY
All references to currency are deemed to mean lawful money of the
United States of America unless expressed to be in some other currency.
9.5 FORCE MAJEURE
If the performance of this Agreement, or any obligation thereunder
except the making of payments hereunder is prevented, restricted, or interfered
with by reason of: fire, flood, earthquake, explosion or other casualty or
accident or act of God; strikes or labour disputes; inability to procure or
obtain delivery of parts, supplies, power, equipment or software from suppliers,
war or other violence; any law, order, regulation, ordinance, demand or
requirement of any governmental authority; or any other act or condition
whatsoever beyond the reasonable control of the affected party, the party so
affected, upon giving prompt notice to the other party, shall be excused from
such performance to the extent of such prevention, restriction or interference;
provided, however, that the party so affected shall take all reasonable steps to
avoid or remove such cause of non-performance and shall resume performance
hereunder with dispatch whenever such causes are removed.
9.6 SEVERABILITY
The parties agree that it is the intention of each party not to violate
any public policy, statutory or common law or government regulation. To the
extent that any provision, portion or extent of this Agreement is deemed to be
invalid, illegal or unenforceable, such provision, portion or extent shall be
severed and deleted herefrom or limited so as to give effect to the intent of
the parties insofar as possible and the parties will use their best efforts to
substitute a new provision of like economic intent and effect for the illegal,
invalid or unenforceable provisions and each remaining provision so remaining
shall be enforced.
9.7 ASSIGNMENT
Customer may assign this Agreement without Changepoint's consent (i) to
an Affiliate of Customer; or (ii) to a purchaser of all or substantially all of
Customer's assets. Otherwise, neither this Agreement nor any rights granted
hereby may be transferred or assigned by Customer to any other person without
Changepoint's prior written consent, (such consent shall not be unreasonably
withheld), and any such attempted assignment shall be null and void. In the
event Customer assigns this Agreement to a third person as permitted by this
Section 9.7 or with consent from Changepoint, Customer shall cease all use of
the Licensed Materials and destroy or cause to be destroyed all copies thereof
within its possession or control and the third party assignee shall agree in
writing with Changepoint to assume all of Customer's obligations hereunder.
Customer shall also certify in writing to Changepoint that the foregoing has
been accomplished. This Agreement shall enure to the benefit of and be binding
upon any successor or assign of Changepoint or, any permitted successor or
assign of Customer. The parties agree that Changepoint may delegate to
affiliates of Changepoint and to agents, suppliers, contractors and resellers of
Changepoint any of the obligations herein imposed upon Changepoint and
Changepoint may disclose to any such persons any information required by them to
perform the duties so delegated to them, but such delegation shall not relieve
Changepoint of its performance obligations hereunder.
9.8 WAIVER
No modification, addition to or waiver of any rights, obligations or
defaults shall be effective unless in writing and signed by the party against
whom the same is sought to be enforced. One or more waivers of any right,
obligation or default shall not be construed as a waiver of any subsequent
right, obligation or default. No delay or failure of either party in exercising
any right hereunder and no partial or single exercise thereof shall be deemed of
itself to constitute a waiver of such right or any other rights hereunder.
9.9 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without reference to its conflict or choice of
law rules or principles. Customer hereby submits to the non-exclusive
jurisdiction of the courts of the State of New York for any legal action arising
out of this Agreement or the performance of the obligations hereunder or
thereunder. This Agreement shall be deemed to be made in the State of New York,
and Customer agrees not to commence any action, suit or proceeding against
Changepoint or any affiliate of Changepoint or any of their employees, officers
or directors in any jurisdiction other than the State of New York.
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9.10 DISPUTE RESOLUTION AND ARBITRATION
In the event that any dispute or disagreement between Customer and
Changepoint with respect to the interpretation of any provision of this
Agreement, the performance of Changepoint or Customer under this Agreement, or
any other matter that is in dispute between the parties related to this
Agreement, upon the written request of either party, the parties will meet for
the purpose of resolving such dispute. The parties agree to discuss the problem
and negotiate in good faith without the necessity of any formal proceedings
related thereto. No formal proceedings for the resolution of such dispute may be
commenced until either party concludes in good faith that the applicable
resolution through continued negotiation of the matter in issue does not appear
likely. The parties further agree that all disputes hereunder which cannot be
settled in the manner hereinbefore described (any such dispute is referred to
here as a "Dispute") will be settled by final and binding arbitration conducted
in accordance with the American Arbitration Association (or any successor
thereto), as amended from time to time. Judgment upon the award rendered in any
such arbitration may be entered in any court having jurisdiction thereof, or
application may be made to such court for a judicial acceptance of the award and
an enforcement, as the law of such jurisdiction may require or allow.
Notwithstanding the foregoing, disputes with respect to any
Infringement Claim including without limitation any claim based on the
infringement, violation or misappropriation of any Intellectual Property Right
shall not be settled by arbitration, without the prior written consent of the
parties.
The arbitration panel will be composed of one person appointed by the
party requesting the arbitration (the "Applicant"), one person appointed by the
other party (the "Respondent") and a third person to act as chairperson, chosen
by the two arbitrators, or, if both parties agree, the arbitration panel will
consist of a sole arbitrator. No person may be appointed as an arbitrator unless
he or she is independent of the Applicant and Respondent, is skilled in the
subject matter of the Dispute and is not directly or indirectly carrying on or
involved in a business being carried on in competition with the business of the
parties. The decision of the arbitration panel shall be made by a majority vote
or by the sole arbitrator, as the case may be. In the event of the failure of
the arbitration panel to reach a majority decision, the decision of the
chairperson shall constitute the decision of the arbitration panel. The venue
for the arbitration shall be at the City of New York, New York unless otherwise
agreed to by the parties in writing.
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CONFIDENTIAL TREATMENT
APPENDIX A
The Components which are the subject of the License, the Software Licenses
granted to Customer and the fees payable to Changepoint hereunder are as
follows:
1. LICENSED SOFTWARE
The Components of the CHANGEPOINT Software which are licensed to Customer
hereunder are the following:
CHANGEPOINT, SQL edition, version 5.2, for _____ (__) users, including the
following modules:
Service Delivery Management
Project and Resource Management
Customer Relationship Management
Support Management.
OLAP module, for five (5) users only
2. SOFTWARE LICENSES
The utilization rights of Customer are as follows:
Customer is granted ____ (__) Client Access Licenses. Each Client Access License
entitles Customer to receive one (1) Enable Code from Changepoint which will
enable Customer to have one (1) user use the Licensed Materials. Customer is
granted five (5) OLAP Licenses. Each OLAP License entitles Customer to receive
one (1) Enable Code from Changepoint which will enable Customer to have one (1)
user use the OLAP module. Customer may install Licensed Software on one or more
computer servers as it desires.
3. LICENSE FEES
The License Fee is $____ less a discount of $____ to yield a net amount of
$_____.
This price is valid until ___________, 1999 after which time Changepoint
reserves the right to change the License Fee.
50% of the License Fee shall be due and payable to Changepoint upon signing of
this Agreement, and 50% of the License Fee shall be due and paid to within 30
days of invoicing by Changepoint.
4. WARRANTY PERIOD
The Warranty Period for the Licensed Software shall mean the period commencing
on the Effective Date and ending ninety (90) days thereafter.
5. MAINTENANCE FEES
Customer will pay Changepoint for each Maintenance Term an annual maintenance
fee (the "Annual Maintenance Fee"). The Annual Maintenance Fee is 18% of the
undiscounted License Fees due to Changepoint hereunder and is payable annually
in advance. The first Annual Maintenance Fee is due upon the expiration of the
Warranty Period and is $___. Subsequent Annual Maintenance Fees are due on the
anniversary of the date the first Annual Maintenance Fee is due. Additional
Maintenance Fees that result from the acquisition of additional Software
Licenses shall become due when the additional Software Licenses are given to
Customer and shall be prorated to the end of the Maintenance Term.
The Maintenance Fees may be increased annually by Changepoint by providing
Customer with notice of not less than thirty (30) days prior to the end of a
Maintenance Term. Changepoint agrees not to increase its Maintenance Fees
annually by more than six percent (6%) from the fees charged in the previous
Maintenance Term.
6. INSTALLATION SERVICES TO BE PROVIDED BY CHANGEPOINT
Changepoint agrees to provide the following services ("Installation Services")
to Customer:
Executive Expectations Review ***
Project Management ***
Infrastructure Support ***
Systems Configuration & Installation ***
Implementation Support ***
***The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
<PAGE>
-14-
CONFIDENTIAL TREATMENT
Administrator Training ***
Train-the-Trainer Training ***
Customer agrees to pay Changepoint for any Installation Services requested by
Customer and provided by Changepoint at the daily rates listed in 6(a) above.
Changepoint estimates that the fees for Installation Services will be $_____.
These daily rates are valid until __________, 1999 after which time Changepoint
reserves the right to change the daily rates.
Changepoint does not guarantee that all services will be provided for the
above-mentioned fees. The fees may be higher or lower depending on the actual
services requested by Customer.
Customer shall reimburse Changepoint for reasonable travel expenses, and
reasonable incidental expenses relating to Installation Service and Maintenance
Service at Changepoint's then current prices then in effect. Changepoint shall
invoice Customer for such fees and expenses on a monthly basis. Customer shall
not be liable for the aforesaid expenses unless Customer has given Changepoint
approval to incur them.
CHANGEPOINT INC.
Signature ________________________ Signature ________________________
Name _____________________________ Name _____________________________
Title ____________________________ Title ____________________________
***The omitted material has been filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
<PAGE>
SCHEDULE H
[LOGO]
SOFTRAX PRODUCT AND SERVICES AGREEMENT
EFFECTIVE DATE:
SOFTRAX CORPORATION, a Delaware corporation with offices located at 45 Shawmut
Road, Canton, Massachusetts 02021 ("SOFTRAX") offers to sell and deliver, and
COMPANY, a corporation with principal offices located at
_____________________________________________________________________
("Customer") hereby agrees to purchase those products and services identified
below, at the pricing set forth below in the Proposal and on the terms and
conditions set forth below and in Attachment 1 (SOFTRAX Standard Terms and
Conditions), Attachment 2 (Software License Terms), Attachment 3 (Services) and
Attachment 4 (Travel Guidelines) to the Proposal, together with such other
Attachments as the parties may agree to add from time to time (this agreement,
including the Proposal and Attachments, collectively, the "Agreement"). This
Agreement shall not be effective until executed by both parties.
PROPOSAL
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PRODUCTS PRICING/
LICENSE
FEES
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
[Enter here suites, modules and/or applications to be purchased AND INDICATE
PLATFORM OPERATING SYSTEM AND DATABASE ON WHICH THEY WILL BE RUNNING. Also
indicate number of full use Seats, Lite Seats (WebOps), Casual Seat and CPU
(WebOps) licenses purchased, and price per additional seats/CPUs and/or blocks
of seats/CPUs]
Payment terms: 50% of license fees on execution of Agreement; balance on delivery of
Software.
- ------------------------------------------------------------------------------------------------------------------
SERVICES PRICING
- ------------------------------------------------------------------------------------------------------------------
Annual Support Services (20% of list price of Products purchased) $____________
[Enter here description of additional Services to be purchased. Clearly indicate Indicate estimate
where pricing is an estimate only, as opposed to, for example a definite $X,000 per Pricing in this
day for training. Where services are to be charged based on a daily or weekly rate, Column as well.
so indicate. Reference a Statement of Work to be developed by the parties for the
Services following execution of the Agreement]
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-16-
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Service estimates are based on blended hourly rates. Services will be invoiced
at actual hourly rates of Softrax professional performing Service. Rate scale
for Softrax professionals are as follows:
Engagement Manager: $200/hour
Principal Consultant: $190/hour
System Architect: $190/hour
Senior Technical Consultant: $175/hour
Senior Consultant: $175/hour
Technical Consultant: $160/hour
Consultant: $160/hour
Payment Terms: 50% of Service fees (including estimates) on execution Of
Agreement; balance for Support Services only on delivery of Software. Balance
for other Services invoiced monthly during period of Services following paydown
of original deposit.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The parties further agree that any additional services and/or products which
may be purchased by Customer from time to time hereafter shall be governed by
the terms and conditions of this Agreement, unless other terms are agreed to
in writing by the parties for the specific additional services and/or
products purchased. The pricing set forth above for Products shall remain in
effect for an additional period of three months following the Effective Date.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives effective as of the date first above
written.
CUSTOMER NAME SOFTRAX CORPORATION
By: ______________________________ By: ______________________________
Name: ____________________________ Name: ____________________________
Title: ___________________________ Title: ___________________________
<PAGE>
-17-
ATTACHMENT 1: SOFTRAX STANDARD TERMS AND CONDITIONS
(applicable to all purchases of Products and/or Services)
I. DEFINITIONS
1.1 CONFIDENTIAL INFORMATION. The term "Confidential Information" shall refer to
any materials or information received from the other party and which have been
designated as confidential or proprietary on their face or in a separate writing
by the disclosing party, or which, under the circumstances surrounding
disclosure, ought to be recognized as the confidential or proprietary material
of the disclosing party. The terms of the Agreement shall be deemed Confidential
Information. For purposes of this Agreement, all internal business, financial
and marketing information of each party, and any technical documentation or
information relating to the architecture, code, conceptual structure or internal
operation of a Product (including the know-how immanent therein), shall be
deemed Confidential Information whether or not expressly designated as such.
1.2 PRODUCT. The term "Product" shall refer to any SOFTRAX software application
or suite of applications licensed and delivered to Customer hereunder, including
any Product Upgrade or Product Update or Product customization which may be
delivered to Customer either with the initial delivery of the Product or at any
time thereafter. The term "Product" shall not refer to any third party product
not licensed by Customer from SOFTRAX. Where applicable from context, the term
"Product" shall also refer to the User Documentation for such Product.
1.3 PRODUCT UPDATE. The term "Product Update" shall refer to any new release of
a Product or of Product documentation the primary purpose of which is to correct
or provide a workaround for a defect or problem with such Product or such
Product documentation.
1.4 PRODUCT UPGRADE. The term "Product Upgrade" shall refer to any new release
of a Product or of Product documentation where such release enhances or improves
Product performance and/or functionality, or which provides incremental
functionality(ies) to an application, and which, in either event, is customarily
provided to SOFTRAX customers who have contracted for Annual Support Services
(see Attachment 3) with respect to that Product. The term "Product Upgrade" does
not include (a) new modules within a Product suite where such modules offer
discrete new functionalities in addition to or together with the licensed
applications, or (b) new software products released by SOFTRAX which may provide
functionalities comparable to those provided by the Products but which are
marketed as separate and discrete product alternatives from the Products.
1.5 SEATS. The term "Seat" shall refer to one copy of the client portion of the
Product. The term "Casual Seat" shall refer to a "read only" copy of the client
portion of the Product. In addition, the WebOps module affords certain limited
use seats which are referred to as "Lite Seats." Limited use, for purposes of
defining a Lite Seat, shall mean intermittent use by a user in support of
his/her job function provided such job function is not in the area of finance
and operations. The uncapitalized word "seat" shall refer to either a full use
Seat, a Casual Seat and/or a Lite Seat, as applicable from context.
1.6 SERVICES. The term "Services" shall refer to any services, including Annual
Support Services, provided to Customer directly by SOFTRAX or through SOFTRAX
where SOFTRAX has expressly agreed, in writing, to act as general contractor and
to oversee and take responsibility for the work performed. The term "Services"
shall expressly include any consulting, installation, integration, support,
maintenance, customization or other Product-related service which may be
provided to Customer by SOFTRAX. Any Service involving third parties to be
overseen by SOFTRAX must be individually designated as such either in the
Agreement or by separate subsequent purchase order issued under the Agreement
and accepted by SOFTRAX.
II. DELIVERY AND PAYMENT TERMS.
<PAGE>
-18-
2.1 DELIVERY. Delivery of Product shall be F.O.B. SOFTRAX's point of shipment to
the Customer location set forth for Customer in the first paragraph of the
Agreement and shall occur within fifteen (15) business days following Customer's
remittance to SOFTRAX of the downpayment described in section 2.2 below.
Delivery of Services shall be per the terms of the Statement of Work if one is
being used, or per SOFTRAX's standard terms for such Services.
2.2 PRICING AND PAYMENT TERMS. Fees for Products and Services are as set forth
in the Proposal. Fifty percent (50%) of all Service and Product fees (including
estimated fees) are due and payable immediately upon execution of the Agreement.
The balance of the fees for Product and for Annual Support Services shall be due
and payable upon delivery of the Products to Customer. Unless otherwise set
forth in the Proposal, the balance of fees for all other Services shall be
invoiced as incurred, on a monthly basis, after the initial downpayment for such
Services has been exhausted. Fees include, when applicable, packing consistent
with prevailing commercial practices. Prices are exclusive of sales, use and
other applicable taxes and duties (with the exception of those based on
SOFTRAX's revenues or net worth) all of which shall be the responsibility of
Customer. Upon SOFTRAX's request, Customer shall promptly provide SOFTRAX with
documentation confirming payment of all such tax payments. All pricing shall be
stated in United States currency. Unless otherwise stated in the Agreement, all
SOFTRAX invoices shall be due and payable fifteen (15) days following the
invoice date. All fees paid are non-refundable.
2.3 EXPENSE REIMBURSEMENTS. Customer agrees to reimburse SOFTRAX for all
reasonable expenses incurred in connection with SOFTRAX's performance of
Services under the Agreement, including, without limitation, expenses for
travel, lodging and related living expenses that are consistent with the travel
guidelines set forth in Attachment 4 hereto. Such expenses shall be invoiced by
SOFTRAX monthly or as incurred.
III. CONFIDENTIAL INFORMATION. Each party agrees that it shall not publish,
disclose or otherwise provide to any person (except employees of such party with
a legitimate need to know and who have agreed in writing to maintain the
confidentiality of the applicable material), any Confidential Information it
receives hereunder; provided, however that neither party shall have an
obligation to protect Confidential Information received from the other when such
information: (1) as can be reasonably documented, was in the first party's
possession at the time it was received from the second party; (2) is or becomes
a matter of public knowledge; (3) is rightfully provided to the first party by a
third party without restrictions of confidentiality; (4) as can be reasonably
documented, is independently developed by the first party without breach of this
Agreement; or (5) is required to be disclosed by the first party by operation of
law. In the event either party determines to disclose any Confidential
Information provided to it by the other party based on one of the exclusions set
forth above, such party shall provide ten (10) days written notice to the other
party of its intention to so disclose and the basis on which it is doing so.
Each party acknowledges and accepts the responsibility to use its best efforts
to safeguard the Confidential Information and to prevent its unauthorized use or
disclosure taking those measures the receiving party uses to protect its own
confidential information and in any event, no less than reasonable measures.
Each party acknowledges that violations of the terms hereof may cause the other
immediate and irreparable damage for which monetary damages may be inadequate
and for which the other party is entitled to seek injunctive relief.
IV. SOFTRAX INTELLECTUAL PROPERTY INDEMNIFICATION. If any action is instituted
against Customer based upon a claim that a Product infringes a United States
patent, copyright or trade secret, SOFTRAX shall defend such action at its own
expense on behalf of Customer and shall pay all damages attributable to such
claim and awarded against Customer after SOFTRAX has exhausted all rights of
appeal which SOFTRAX in its sole discretion desires to exercise, provided that
Customer gives SOFTRAX prompt notice of and control over any such claim, and any
negotiations for its settlement. If a final injunction is obtained against
Customer's use of a Product due to an infringement of a United States patent,
trade secret or copyright, or, if in SOFTRAX's sole judgment, it would be cost
effective to do so, then SOFTRAX may, at its option and expense, and as
Customer's exclusive remedy hereunder, either procure for Customer the right to
continue using such Product, replace or modify the Product so that it is no
longer infringing but continues to provide comparable functionality, or
repossess all properly licensed copies of the Product in Customer's possession,
reimburse Customer for the amortized purchase price of such Products (based on a
three year straight line amortization rate) and terminate this Agreement.
SOFTRAX shall have no liability to Customer for any infringement action which
arises out of the use of a
<PAGE>
-19-
Product (1) for a process not contemplated by the user documentation, (2)
after it has been modified by Customer or a third party, (3) for purposes not
contemplated by this Agreement (including, but not limited to, distribution
of the Product to third parties) or (4) in combination with any other
equipment or software when use of the Product as a standalone or with other
software and/or equipment would not be infringing. Additionally, SOFTRAX
shall not be liable for any costs incurred by Customer without SOFTRAX's
prior written authorization. This Section IV sets forth the entire obligation
of SOFTRAX and the exclusive remedy of Customer against SOFTRAX or any of its
suppliers for any alleged infringement or adjudicated infringement of any
patent, copyright or other intellectual property right by a Product or
arising out of any Service provided by SOFTRAX under the terms of or in
connection with the Agreement.
V. LIMITATION ON DAMAGES. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER
FOR (1) INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, OR (2) ANY
DAMAGES WHATSOEVER RESULTING FROM LOSS OF USE, DATA, REVENUES OR PROFITS, COSTS
OF PROCUREMENT OF SUBSTITUTE PRODUCTS OR SERVICES, IN EITHER EVENT ARISING OUT
OF OR IN CONNECTION WITH THIS AGREEMENT, OR THE PERFORMANCE OR NON-PERFORMANCE
OF EITHER PARTY HEREUNDER, OR THE PRODUCTS OR SERVICES PROVIDED BY OR THROUGH
SOFTRAX HEREUNDER, EVEN IF THE WARRANTY REMEDY FAILS IN ITS ESSENTIAL PURPOSE
AND EVEN IF SUCH PARTY HAD BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EACH
PARTY AGREES THAT THE OTHER PARTY'S LIABILITY UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR RELATING TO ANY SERVICE OR PRODUCT PROVIDED HEREUNDER SHALL BE
LIMITED SOLELY TO THE FIRST PARTY'S DIRECT DAMAGES AND IN NO EVENT SHALL EXCEED
THE TOTAL AMOUNT IN FEES PAID BY CUSTOMER TO SOFTRAX ASSOCIATED WITH THE PRODUCT
AND/OR SERVICE GIVING RISE TO THE CLAIM AND PAID BY CUSTOMER DURING THE YEAR
PRECEDING THE EVENT OR ACTION GIVING RISE TO THE CLAIM. SOFTRAX EXPRESSLY
DISCLAIMS, AND CUSTOMER AGREES, THAT SOFTRAX SHALL HAVE NO LIABILITY OF ANY KIND
FOR ANY THIRD PARTY PRODUCT OR SERVICE. Any claim made under or in connection
with this Agreement and the Services and/or Products provided hereunder shall be
made within one (1) year from the date on which the claiming party first had
notice of the facts giving rise to the claim. Customer acknowledges and agrees
that it shall have no claim against third party suppliers by reason of the
performance or non-performance of the Products or related to the components such
third parties may have supplied for the Products.
VI. TERMINATION. The software licenses granted under the terms of this
Agreement, and SOFTRAX's obligations to continue providing Services hereunder,
shall terminate in the event of Customer's breach of a material term in the
Agreement (including nonpayment of amounts owed pursuant to the terms set forth
herein), where such breach continues for a period of ten (10) days following
written notice thereof by SOFTRAX; provided, however, that in the event the
breach by Customer of either Section III (Confidential Information) or
Attachment 2 (Software License Terms) is not of a nature as to be remediable, or
is reasonably believed by Softrax to be the result of willful, reckless or
grossly negligent acts of Customer, then SOFTRAX's termination of this Agreement
and the licenses granted hereunder shall be effective immediately with or
without notice to Customer. In the event of any such termination, or in the
event Customer elects to terminate its licenses under this Agreement, Customer
shall immediately destroy or return to SOFTRAX all copies in any form whatever
of the PRODUCTS and of SOFTRAX Confidential Information, and any portion
thereof, and shall provide written certification to SOFTRAX of such destruction
or return. Terms and conditions in this Agreement, which by their nature and
context, are intended to survive any termination, shall so survive such
termination. Without limiting the foregoing, surviving provisions shall include
those set forth in Sections III, V, VI and VII of Attachment 1, paragraphs 1
through 3 of Attachment 2, and paragraphs 4 and 5 of Attachment 3.
VII. MISCELLANEOUS
7.1 ENTIRE AGREEMENT; ASSIGNMENT; CONSTRUCTION; PERFORMANCE. This Agreement
constitutes the entire agreement between the parties with respect to the
Products and Services to be provided by SOFTRAX thereunder. The Agreement
supersedes any prior agreements, promises or understandings, whether written or
oral, relating to the matters covered
<PAGE>
-20-
hereunder. Any modification of the terms and conditions of this Agreement
must be in writing and signed by an authorized representative for each party.
Any purchase orders issued by Customer shall be deemed to be for Customer's
convenience only and, notwithstanding acceptance of such orders by SOFTRAX,
shall in no way change or add to the terms and conditions of this Agreement.
Customer may not assign this Agreement or any of the rights or obligations
hereunder without the prior written consent of SOFTRAX which consent will not
be unreasonably withheld. Failure of either party to insist in any instance
upon strict performance by the other party of any term or condition of this
Agreement shall not be construed to be a permanent waiver of such or any
other term or condition of this Agreement. Headings used in the Agreement are
for reference purposes only and shall not be deemed a part of the Agreement.
If any provision of this Agreement is declared invalid by any authorized
tribunal, then such provision shall be amended or construed in a manner so as
to conform to the requirements for validity as declared at such time with as
much adherence to the original intent of the provision as possible. In any
event, the remaining provisions of this Agreement shall remain in full force
and effect. Nothing contained in this Agreement shall be construed as
creating any agency, partnership or other form of joint enterprise between
the parties. In no event shall either party have the right to bind the other
party except as may be expressly provided for herein. Neither party shall be
liable to the other for any delay in the performance of its obligations
hereunder which is unavoidable with reasonable diligence, which occurs
without its fault or negligence, and which is caused by an event or third
party not within its reasonable control; provided, however, that the party so
delayed in performance shall promptly notify the other party of the delay and
its expected duration.
7.2 OWNERSHIP. SOFTRAX and/or its third party suppliers retain full ownership of
the Products, subject to licenses which may be granted to third parties. SOFTRAX
shall also own any software or other materials it produces as part of any
Services which may be performed under the Agreement. Subject to the terms
protecting Confidential Information, Customer acknowledges that SOFTRAX may use
any ideas, concepts, modifications and information arising out of the Services
and relating to SOFTRAX Products in the development and distribution of new
products, Product enhancements or applications.
7.3 NOTICE. Notice to either party to this Agreement shall be deemed received on
the day of delivery if delivered, with confirmation of receipt, by electronic
facsimile, by courier or by hand during normal business hours, and the following
day if delivered after normal business hours. Delivery of all notices shall be
made to the following persons at the respective addresses of the parties first
set forth above: for SOFTRAX, to the attention of the Vice President, Finance
(fax. number (781) 830-9345); for Customer, to the attention of
_____________________________(fax. number ___-___-____ ).
7.4 PUBLICITY. Each party agrees to submit to the other party for approval prior
to its release any advertising, press releases, sales promotions or other
publicity relating to this Agreement where such materials reference the second
party; provided, however, that SOFTRAX shall be entitled to identify Customer as
a SOFTRAX customer in press releases, marketing materials and other publicly
distributed information. SOFTRAX shall not use Customer as a reference without
Customer's prior consent.
7.5 NO HIRE. Subject to any limitations of applicable law, for so long as
SOFTRAX is providing Product or Services of any kind to Customer, and for the
six month period thereafter, neither party may solicit for employment or employ,
directly or indirectly, an employee of the other party who has had contact as a
result of this Agreement with the first party (unless such employee has left the
employment of such party at least six (6) months previously) without the second
party's prior written consent. In the event either party violates the terms of
this section, that party shall pay to the non-breaching party an amount equal to
the greater of (a) the total annual compensation (including, without limitation,
salary, benefits, bonuses and stock options) being paid to the employee by the
non-breaching party at the time of the breach, and (b) the total compensation
paid or to be paid to the employee by the breaching party during the first year
that the employee is retained or hired by such party.
<PAGE>
-21-
7.7 GOVERNING LAW. This Agreement shall have the effect of a sealed instrument
and shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts, excluding its conflict of law rules. The parties
agree that Massachusetts shall be the exclusive venue for claims arising out of
or in connection with this Agreement. Customer agrees to submit to the personal
jurisdiction of Massachusetts with respect to such claims. The parties further
agree that all disputes, claims or controversies arising out of or relating to
this Agreement or the parties' relationships outside this Agreement, whether
based on facts occurring before, during or after the term of this Agreement,
that are not resolved by the parties' good faith attempt to negotiate a
resolution shall be submitted to final and binding arbitration before the
American Arbitration Association("AAA") (or another entity agreed upon by the
parties), pursuant to the United States Arbitration Act, 9 U.S.C. Section1, et.
seq.; provided, however, that nothing herein shall prevent either party from
seeking injunctive relief in a court of law or other administrative forum with
respect to violations of the terms of Section III (Confidential Information)
above. The arbitration will be conducted in accordance with the provisions of
AAA's (or other agreed upon entity's) streamlined arbitration rules and
procedures in effect at the time of the filing of the demand for arbitration.
The parties will cooperate with AAA (or other agreed upon entity) and each other
in selecting a single arbitrator who shall be a former judge or justice with
substantial experience in resolving business disputes with particular experience
in resolving disputes involving computer software. The arbitrator shall have the
power to award costs and attorneys' fees to the prevailing party. In the absence
of such an award, the cost of arbitration will be shared equally by the parties
and each party shall bear its own expenses. The provisions of this section may
be enforced by any court of competent jurisdiction. The arbitrator shall not be
empowered to award damages in excess of, or inconsistent with, the liability
limitations contained in this Agreement. The parties mutually and voluntarily
agree that the United Nations Convention on Contracts for the International Sale
of Goods shall not apply to transactions covered by this Agreement. Customer
agrees not to permit the delivery of the Product in violation of any applicable
United States or Territory export control laws, restrictions and regulations
relating to the distribution of technical information and software, as they
exist from time to time, including, without limitation, those promulgated by the
United States Department of Commerce.
EACH PARTY RECOGNIZES AND AGREES THAT THE WARRANTY DISCLAIMERS AND LIABILITY AND
REMEDY LIMITATIONS IN THIS AGREEMENT ARE MATERIAL BARGAINED FOR BASES OF THIS
AGREEMENT AND THAT THEY HAVE BEEN TAKEN INTO ACCOUNT AND REFLECTED IN
DETERMINING THE CONSIDERATION TO BE GIVEN BY EACH PARTY UNDER THIS AGREEMENT AND
IN THE DECISION BY EACH PARTY TO ENTER INTO THIS AGREEMENT.
<PAGE>
-22-
ATTACHMENT 2: SOFTWARE LICENSE TERMS
(APPLICABLE TO ALL PRODUCTS DELIVERED UNDER THE AGREEMENT)
1. LICENSED USE OF PRODUCT. Customer is granted a worldwide, perpetual (unless
terminated for breach of the Agreement) license to use the Products solely for
its internal business purposes but shall not use the Products for the internal
purposes of third parties. Customer is authorized to make (a) a reasonable
number of copies of the server portion of the Products for back-up and archival
purposes only, and (b) only that number of copies of the client portion and user
documentation of the software equal to the number of seat licenses which have
been purchased under this Agreement. Customer acknowledges that certain Products
require an "enabling key" which must be obtained from SOFTRAX in order for such
Products to be operational. All copies or partial copies shall include all
copyright, trademark and other proprietary notices and license terms where and
as found in the original Product delivered to Customer. Customer may not
disassemble, reverse engineer, decrypt, decompile, create derivative works from,
or translate any Product, or portion thereof, or recreate or attempt to recreate
the Products, in whole or in part by reference to the Products, or perform any
process intended to determine the source code for the Product except to the
extent that the foregoing restriction is prohibited by applicable law; nor shall
Customer sublicense, distribute, deliver, assign or otherwise provide to a third
party any Product or portion thereof and any attempt to do so will be void AB
INITIO; nor may Customer modify the Products except as contemplated by the
Product user documentation. In the event that Customer elects to terminate its
use of the Software, and in connection therewith to transfer data existing in
the Software database to a different application or database, Customer shall
provide written notice to Softrax of any such election and shall provide Softrax
with prior written notice of and the opportunity to attend and participate in
any database transfer which may be pursued by Customer in order to ensure the
protection of that Softrax proprietary, schematic and architectural information
within the Software which might otherwise be disclosed in connection with any
such transfer. Customer agrees that the User Documentation shall only be used
with the Product with which it is associated. Customer further acknowledges and
agrees that third party suppliers of software to SOFTRAX are third party
beneficiaries of the terms governing Products under this Agreement with respect
to the Products which contain their software and such third parties may enforce
such terms directly.
2. PRODUCT WARRANTY. SOFTRAX hereby warrants to Customer that the Products shall
be free from any material defect in materials and workmanship and shall operate
substantially in accordance with their user documentation for a ninety (90) day
period commencing as of the date of the Products' delivery to Customer ("the
"Warranty Period"). SOFTRAX further warrants that when used in accordance with
its user documentation, and provided that the hardware and software used in
combination with the Products process and transmit correct calendar date data to
the Products, the Products will correctly process and present calendar dates
falling on or after January 1, 2000 in the same manner as the Products process
and present calendar dates falling on or before December 31, 1999 ("Y2K
Warranty"). The foregoing Y2K Warranty shall expire on March 31, 2000. Softrax
does not provide a Y2K Warranty with respect to any third party software or
hardware which may be used by Customer in conjunction with the Products. In the
event a Product is found to be defective or non-conforming during the Warranty
Period, then SOFTRAX shall, at its option, repair or replace such Product upon
its return to SOFTRAX by Customer pursuant to SOFTRAX's standard warranty return
procedures, or, if SOFTRAX determines, in its sole discretion, that neither
repair nor replacement of the defective Product is commercially practicable,
SOFTRAX will, upon receipt of the defective Product from Customer, refund to
Customer the license fees paid by Customer for the returned Product . The terms
of this warranty shall not apply to any Product that (1) has been modified by
Customer or a third party, (2) has been used in combination with equipment or
software other than that which is consistent with its user documentation, (3)
has been damaged by negligence, misuse, fire casualty or other external causes,
or (4) has been subjected to unusual physical or electrical stress. SOFTRAX does
not warrant that the Product will perform error free or without interruptions,
nor does SOFTRAX warrant that the Product will meet Customer's requirements.
Except as expressly provided for in this paragraph, Customer agrees to bear the
entire risk as to the adequacy and performance of the Product. Customer
expressly acknowledges its responsibility to regularly back up data maintained
on any computer system using the Products and to adequately test each new
release of the software in an environment which reasonably simulates Customer's
production environment prior to implementing the same. EXCEPT FOR THE EXPRESS
WARRANTIES SET FORTH IN THIS
<PAGE>
-23-
PARAGRAPH 2, SOFTRAX DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, WITH
REGARD TO THE PRODUCTS, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, FREEDOM FROM VIRUSES
OR FREEDOM FROM INFRINGEMENT, OR THOSE ARISING FROM THE COURSE OF DEALING
BETWEEN THE PARTIES OR USAGE OF TRADE. This Paragraph 2 sets forth Customer's
exclusive remedy in warranty and SOFTRAX's sole warranty responsibility in
the event a Product is defective or fails to perform during the Warranty
Period. Customer acknowledges and agrees that SOFTRAX extends no warranties
of any sort or nature to or by any third party, or with respect to any third
party product or service.
3. PROPRIETARY RIGHTS. Customer acknowledges that the Products (including all
methods, concepts or techniques utilized therein) are commercially valuable
property of SOFTRAX and/or its suppliers and which it and/or they treat as
confidential, proprietary and containing of trade secrets. Except for the rights
expressly granted to Customer hereunder, no right in or title to the Products,
or any intellectual property rights therein or associated therewith, shall be
deemed to have been vested in or transferred to Customer under the terms of the
Agreement. All title to and ownership of the Products, and the intellectual
property rights therein or associated therewith, remain with SOFTRAX and its
suppliers. SOFTRAX shall be entitled to audit, on a reasonable basis, Customer's
use of the Products to ensure compliance with the terms of this license.
Customer may, at its option and payment of the annual subscriber fee,
participate in the source code escrow account which has been established by
SOFTRAX for the benefit of its customers.
4. PER SEAT/CPU LICENSING. Customer acknowledges that the Product is licensed to
Customer on a per server, per seat and/or per central processing unit ("CPU")
basis. In the event Customer elects to expand the number of servers, seats
and/or CPUs licensed with respect to any Product, Customer shall promptly notify
SOFTRAX of the same and remit to SOFTRAX the incremental license fees associated
with the CPU, seat and/or server increase pursuant to the fee schedule set forth
in the Proposal, or if not in the Proposal, then at SOFTRAX's then prevailing
rates. Customer will not allow the number of servers, CPUs or seats of the
Products to exceed the number of server, CPU or seat licenses paid for by
Customer and shall provide SOFTRAX with written notice of the number of seats,
CPUs and servers being used on a quarterly basis.
<PAGE>
-24-
ATTACHMENT 3: SERVICES
(APPLICABLE TO ALL SERVICES PROVIDED UNDER THE AGREEMENT)
1. ANNUAL SUPPORT SERVICES. SOFTRAX Annual Support Services shall commence as of
the effective date of this Agreement. Annual Support Services can be renewed for
successive one (1) year terms by payment of the then current annual renewal fee.
SOFTRAX shall provide notice to Customer when the renewal fee is due. SOFTRAX
shall not increase the renewal fee for Support Services by more than 10% during
any twelve (12) month period. SOFTRAX Support Services do not include on site
services, those services addressed in paragraphs 2 and 3 below, or Product that
is not at the latest revision level as of the start date of the then current
term, that has been modified without the authorization of SOFTRAX or that has
been damaged by negligence, misuse, use with inappropriate software or equipment
or by other external causes. For so long as Customer has purchased Support
Services and current in its payments to SOFTRAX under this Agreement, Customer
shall be entitled to receive unlimited telephone support, Monday through Friday
(SOFTRAX holidays excluded), between the hours of 8:30 AM and 8:00 PM Eastern
Time Zone, through Customer's designated system representatives. For this
purpose, Customer shall designate two of its employees as designated system
representatives, each of whom shall have received training on the Products by
SOFTRAX and shall be relatively proficient in the operation of the Products.
Such Customer representatives shall promptly report to SOFTRAX support any
problems with the Product performance which prevent the Products from operating
substantially in accordance with their user documentation together with such
information as may be required by SOFTRAX to replicate such problems. SOFTRAX
shall address any such replicable problems with an effort commensurate with
their severity and shall deliver to Customer a remedial release or workaround as
it becomes available. In addition, for so long as Customer has purchased Support
Services and current in its payments to SOFTRAX under this Agreement, Customer
shall receive, at no additional cost, Product Upgrades and Product Updates to
the Products which are made generally available at no cost by SOFTRAX to
customers who have purchased Support Services; provided, however, that to the
extent any Product Upgrades include materially new technology for which SOFTRAX
is required to pay additional license fees to the supplier(s) of such
technology, then such Product Upgrades shall be provided to Customers who have
purchased Annual Support Services at the pass through cost of such additional
license fees; and provided further, however, that Customer may elect not to
accept Product Upgrades requiring the payment of additional license fees without
jeopardizing the validity of their support coverage for the then current term.
Customer shall receive one original of any Product Upgrade and/or Product Update
delivered hereunder in electronic form or on media, according to the general
form of distribution implemented by SOFTRAX.
2. TRAINING. SOFTRAX will provide on site and/or remote training on SOFTRAX
Products as specified in the Proposal. Additional Product training will be
available to Customer on SOFTRAX's then standard terms and rates.
3. CONSULTING, INSTALLATION, INTEGRATION AND CUSTOMIZATION SERVICES. SOFTRAX
will provide those consulting, installation, integration and customization
services which may be identified on the Proposal or subsequently by written
agreement of the parties. SOFTRAX shall reserve the right to determine the
method, details and means of performing the required Services. In preparing any
Statement of Work, SOFTRAX shall use its best efforts to accommodate Customer
scheduling and staffing concerns. Statements of Work shall also include any
special terms, milestones and pricing which may be agreed upon by the parties
for specific Services. Additional or extended Services requested by Customer
shall be performed at SOFTRAX's then hourly rates unless otherwise agreed upon
in writing by the parties. Where Services are to be provided by SOFTRAX, or a
SOFTRAX designee, at Customer's site, Customer agrees to provide appropriate
workspace for SOFTRAX, with sufficient access to standard facilities such as
telephone lines, fax and copier equipment, and the like.
4. SERVICES WARRANTY. SOFTRAX warrants that all Services provided under the
Agreement shall be performed professionally, in a workmanlike manner and by
employees with appropriate skills and expertise. SOFTRAX does not warrant that
individual Statements of Work will not be subject to modifications or delays but
SOFTRAX will work to minimize any such modifications or delays unless the same
have been requested or required by Customer or otherwise occur through no fault
of SOFTRAX. If Customer is dissatisfied at any point with the performance of any
SOFTRAX
<PAGE>
-25-
employee(s), Customer shall promptly notify SOFTRAX. If SOFTRAX agrees that
the performance of the employee was materially below the level of competence
reasonably associated with the Service being provided, SOFTRAX will arrange
for the performance to be raised to the warranted level, and for identifiable
defects caused by prior substandard performance to be cured. Except as
provided under this paragraph, CUSTOMER'S SOLE AND EXCLUSIVE REMEDY, IN THE
EVENT IT IS DISSATISFIED WITH A SOFTRAX SERVICE, IS TO TERMINATE THAT SERVICE
PURSUANT TO THE TERMS OF PARAGRAPH 5 BELOW.
5. TERMINATION. Customer may terminate Services at any time upon thirty (30)
days written notice; provided, however, that no fees already paid for such
Services shall be refundable under any circumstances; and provided further, that
Customer shall pay to SOFTRAX for time and materials spent by SOFTRAX in
connection with such Services prior to the effective date of termination, that
exceed any amounts already paid for such Services by Customer, as calculated on
a time and materials basis using SOFTRAX's then current rates for the same.
Invoices for the same shall be payable immediately upon receipt. SOFTRAX shall
use its best efforts during the thirty (30) day notice period to close out the
Services in a manner which provides the most benefit to and future use for
Customer as to that work which may be in progress as of the notice date.
<PAGE>
-26-
ATTACHMENT 4: TRAVEL EXPENSE GUIDELINES
(APPLICABLE TO ALL SERVICES PROVIDED UNDER THIS AGREEMENT)
The intent of the guidelines set forth in this Attachment 4 is to provide
Customer with efficient and cost-effective Services. In any given situation, the
SOFTRAX employee should use sound business judgment in evaluating alternatives
available to him/her with the objective of minimizing, as reasonable, travel
expenses. All invoices to Customer for reimbursable travel related expenditures
will include: the name of the traveler(s); dates of travel; reason for the trip.
Customer shall remit payment to SOFTRAX within thirty (30) days of receipt of
each valid invoice.
AIRFARE
Economy or coach travel is to be utilized whenever possible on flights within
the United States. SOFTRAX shall use commercially reasonable efforts to obtain
discounted fares subject to priority being accorded to non-stop and direct
flights.
LODGING
SOFTRAX should utilize commercially reasonable efforts to obtain modestly priced
business class accommodations that are in reasonable proximity to Customer's
location. Prior to booking, SOFTRAX should consult with Customer as to the
availability of any negotiated rates Customer may have with surrounding business
class hotels and determine if such charges can be billed directly to Customer by
the hotel.
GROUND TRANSPORTATION
SOFTRAX should use sound business judgment in determining the most economical
mode of available transportation whenever practical. Rentals should be limited
to "mid-size" vehicles unless three or more individuals will be sharing the
automobile or if a special promotion makes "larger-size" rentals more
economical.. Gasoline and other rental related expenditures will be reimbursed
based upon actual costs. Taxi, subway and other forms of ground transportation
will be reimbursed at actual cost.
PARKING/TOLLS
Where reasonably practicable, SOFTRAX will utilize long-term or remote parking
for airport parking. All other parking and tolls will be reimbursed at actual
costs.
ACTUAL OUT-OF-POCKET EXPENSES (MEALS & INCIDENTALS)
Customer will reimburse SOFTRAX for the cost of meals, tips and other related
out-of-pocket living expenses incurred while traveling. Customer will not
reimburse SOFTRAX for newspapers, cleaning charges, vending machine charges,
toiletries, personal entertainment and such other like items. SOFTRAX charges a
flat fee of $10.00 per day to cover telephone charges.
<PAGE>
SCHEDULE I
PROGRAM QUICK START
Changepoint will provide to OEM the following:
1. Training: Sales training (three days tentatively scheduled for January,
2000), implementation/support training (up to 25 days).
2. Engineering support (up to 30 days).
2.1. Provide initial training to OEM's technical staff to teach it:
2.1.1. how to use Changepoint functionality
2.1.2. how to administer Changepoint
2.1.3. the data model, technical architecture and
integration points of Changepoint
2.1.4. assist OEM in the design, development, testing and
debugging of integration of Changepoint with OEM
2.2. Provide and define methods and processes for OEM Client
Services to efficiently work with Changepoint's support
services organization
2.2.1. Provide access to Changepoint knowledge base
2.2.2. Provide specialized support training
2.2.3. Create/understand escalation process
3 Pre-sales support (up to 30 days)
3.1. To be provided on request for up to 15 Prospects.
4. Final total is up to 85 days.
OEM to reimburse Changepoint for reasonable travel expenses as per travel
expense guidelines. Changepoint to assist at more than one call per day provided
that calls are in the same geographic distance.
Changepoint shall also deliver the following to OEM:
MATERIALS
1. Training materials, including updates and additions as released from
time to time, in electronic and hard copy.
2. Comprehensive technical documentation for software (including, without
limitation, entity relationship diagrams), including updates and
additions released from time to time, in electronic and hard copy.
<PAGE>
3. Soft copy of marketing collateral materials, including updates and
additions as released from time to time.
4. Soft copy of user documentation, including updates and additions as
released from time to time.
5. Reasonable number of Demonstration/Marketing copies of the Changepoint
software, including demonstration data sets provided that such copies
remain at all times under the control of OEM. (For example, copies are
not installed and left on Prospect equipment for
demonstration/marketing/evaluation purposes.)
6. Soft copy of presentations and proposal materials, including updates
and additions as released from time to time.
\<PAGE>
1
LEASE
THIS LEASE made as of the day of 24th day of February, 2000
PURSUANT TO THE SHORT FORMS OF LEASES ACT
BETWEEN:
MENKES OFFICE PARKS LTD.
(the "LANDLORD")
OF THE FIRST PART
AND:
DENBURN INVESTMENTS INC.
(the "TENANT")
OF THE SECOND PART
AND:
CHANGEPOINT CORPORATION
(the "INDEMNIFIER")
OF THE THIRD 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" - Building Specifications
Schedule "E" - Indemnity Agreement
ARTICLE 1.00 - DEFINITIONS
1.1 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 Rental) 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
<PAGE>
2
systems or Leasehold Improvements.
"ATTIC STOCK" means spare fan, pump and cooling tower motors, base
Building light fixtures, fuses, etc.
"BASE RENTAL" means the Base Rental payable by the Tenant in accordance
with Section 2.3.
"BUILDING" means the building municipally known as 30 Leek Crescent, in
the Town of Richmond Hill.
"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, and for greater clarity
will be computed on the basis that the Building herein is the sole asset
of the Landlord.
"COMMENCEMENT DATE" means November 1st, 2000.
"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 affixed to the floor in a
permanent manner and includes wall-to-wall and other carpeting with the
exception of such carpeting where laid over vinyl tile or other finished
floor and
<PAGE>
3
affixed so as to be readily removable without damage.
"LEASED PREMISES" means approximately 35,000 square feet of Rentable
Area on the 4th and 3rd floors of the Building as outlined in red on the
plans attached as Schedule "B".
"NORMAL BUSINESS HOURS" means the hours of 8:00 a.m. to 6:00 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 calculated in accordance with
industry standards for similar developments, whether incurred by or on
behalf of the Landlord.
(a) 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,
reasonable legal fees, the amount of all reasonable 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
(b) Operating Costs shall exclude structural or major mechanical
repairs and replacements, 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).
(c) the cost of any of the items cited in paragraph (a) above that vary
with the level of occupancy of the Building (such as but not
limited to cleaning and janitorial costs, garbage and waste
collection and the cost of utilities) shall be adjusted and
included in the Operating Costs as if the Building were 100%
occupied (hereinafter referred to as "GROSS UP"). This Gross Up is
for the sole purpose of equitably dividing the cost of such items
among the tenant(s) actually occupying the Building and is to
ensure that: (a) this Lease is on an absolutely net net basis to
the Landlord (except as otherwise set forth herein); and (b) the
Landlord is not subsidizing any tenant in the Building for costs
that would otherwise be paid in full by the tenant if the Building
was in fact 100% occupied. For further clarity the Landlord shall
not profit from the terms of this paragraph and any Gross Up shall
be net revenue neutral with respect to cost recovery to the
Landlord;
"PROPERTY" means the Land and Building.
<PAGE>
4
"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 Rental and Additional Rent.
"RENTABLE AREA" in this Lease means:
(a) in the case of a single tenancy on a whole floor of the Building,
the area as determined by the Landlord's architect in accordance
with current BOMA standards; and
(b) 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 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 2.00 - 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 ten (10) years commencing on
November
<PAGE>
5
1st, 2000 and ending October 31st, 2010 unless such term shall be sooner
terminated as hereinafter provided. In the event the Leased Premises are
not ready for occupancy as of the Commencement Date, other than by
reason of the Tenant's delay, the Tenant shall be entitled to remain in
the premises it currently occupies at the same cost until the Leased
Premises are ready for occupancy and the within term shall be a full ten
(10) years in such event commencing on the actual date of delivery of
the Leased Premises by the Landlord as required herein.
2.3 BASE RENTAL. THE TENANT SHALL PAY yearly and every year during the first
five (5) years of the within Term the sum of $490,000.00 of lawful money
of Canada in twelve (12) equal monthly instalments of $40,833.33, in
advance, the first of such instalments to become due and payable on
November 1st, 2000 (the "BASE RENTAL"). The Tenant shall pay early and
every year during the second five years of the within Term the sum of
$560,000.00 of lawful money of Canada in twelve (12) equal monthly
instalments of $46,666.67, in advance, the first of such instalments to
become due and payable on November 1st, 2005.
The aforesaid annual Base Rental for the first five (5) years is
calculated on the basis of the Rentable Area of the Leased Premises
being 35,000 square feet at a rate of $14.00 for each square foot of
Rentable Area. The aforesaid annual Base Rental for the second five (5)
years is calculated on the basis of the Rentable Area of the Leased
Premises being 35,000 square feet at a rate of $16.00 for each square
foot of Rentable Area.
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 by Colliers Macaulay
Nicolls (Ontario) Inc. of the sum of $50,000.00, including GST,
representing payment on account of Base Rental towards the Base Rental
and Additional Rental first due under of the Term herein.
2.5 SECURITY DEPOSIT. - DELETED INTENTIONALLY
2.6 POST-DATED CHEQUES - DELETED INTENTIONALLY
ARTICLE 3.00 - 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 and, subject to Section 13.17 herein,
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).
<PAGE>
6
(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 Rental and Additional Rent.
(b) PERMITTED USE. To use the Leased Premises only for the purpose of
any lawful business office and other legally permitted uses,
subject to the provisions of this Lease, and not to use or permit
to be used the Leased Premises or any part thereof for any other
purpose or business. However, the Leased Premises shall only be
used by any assignee or sublessee for business office purposes.
(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, provided that any such new rules or amendments are not
inconsistent with the provisions of this Lease.
(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 Rental equal to the Base Rental 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 Rental and
Additional Rent in monthly installments.
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7
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 upon reasonable notice 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 supply financial statements to
the Landlord upon request if, as and when the Tenant has its securities
traded on a recognized stock exchange and such information is public.
ARTICLE 4.00 - 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 (upon reasonable notice) 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; and
(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
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8
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 Rental (but not any other
payments required to be made by the Tenant hereunder) shall
abate from time to time in pro-portion 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 or the Tenant may at its
option, exercisable by written notice to the other 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 5.00 - 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.
The parties acknowledge that separate unit assessments are being
eliminated by the Ontario Provincial Government and as a result thereof,
properties will be assessed as a whole. In determining the Proportionate
Share of taxes payable by the Tenant, the Landlord shall be entitled to
make such allocation or allocations as it deems appropriate and
equitable having regard to the principles of property assessment in
force from time to time.
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9
5.3 TENANT'S TAX OBLIGATIONS. The Tenant covenants with the Landlord:
(a) 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);
(b) to pay promptly to the Landlord when demanded or otherwise due
hereunder:
(i) 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;
(ii) 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
(iii) the Tenant's Proportionate Share of Taxes as Additional Rent
in the manner stipulated herein; and
(c) 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 Rental,
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 Rental 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 Rental 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 Rental 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
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10
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 three (3) years 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 Rental.
ARTICLE 6.00 - 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:
(a) 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
(b) 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.
6.3 ADDITIONAL SERVICES. The Landlord, if it shall from time to time so
elect, shall
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11
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 7.00 - 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 Commercial Tenancies Act of
Ontario, Chapter L-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 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.
In the event of any subletting by the Tenant by virtue of which the
Tenant receives rent in the form of cash, goods, services or other
considerations from the subtenant which is higher than the rent payable
hereunder to the Landlord for the premises so sublet, 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 sublet 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 the Tenant intends to sublet or assign the Leased Premises,
it shall not advertise the rental, if the proposed rental is less than
Base Rental 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
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12
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 8.00 - 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. The Tenant shall be entitled to install an internal stairwell
between floors, subject to the Landlord's approval as contained herein
and the required restoration of same to its original condition.
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 defence.
8.3 REMOVAL OF FIXTURES AND IMPROVEMENTS. All Leasehold Improvements in or
upon the Leased Premises shall immediately upon the expiry of the Term
or earlier 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,
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13
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 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.
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.
ARTICLE 9.00 - 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:
(a) 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;
(b) "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;
(c) 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
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14
eighteen (18) month indemnity period. This policy should also
provide "BUILDING BY-LAWS ENDORSEMENTS";
(d) "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; and
(e) 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.
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:
(a) "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
<PAGE>
15
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;
(b) 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;
(c) glass coverage for the replacement of all glass broken, cracked or
damaged in, on and about the Leased Premises or the Tenant may be a
self-insurer in lieu of carrying such insurance; and
(d) 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:
(a) except if caused by the negligence of the Landlord or those for
whom the Landlord is in law responsible, 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:
(i) 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;
(ii) 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
(iii) loss or damage, however caused, to money, securities,
negotiable instruments, papers or other valuables of the
Tenant; and
(b) 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
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16
Landlord arising from any breach by the Tenant of any of its covenants
and obligations under this Lease.
ARTICLE 10.00 - 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 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. The Landlord will make reasonable
efforts to obtain a non-disturbance agreement from any lenders on their
standard terms or other parties registering interests on title ahead of
the Tenant and shall permit the Tenant to register a Notice of Lease on
title, in a form acceptable to the Landlord and provided it does not
disclose any financial terms of the Lease.
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 11.00 - 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 Rental or
of Additional Rent or any other amount payable hereunder within 5
days following 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 Rental, Additional Rent or any other amount of money) and such
Default shall be continuing for a period of more than fifteen (15)
days after written notice by the Landlord to the Tenant specifying
the Default and requiring that it discontinue;
(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 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, or remain
unoccupied, without the prior written consent of the Landlord for
fourteen (14) 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
<PAGE>
17
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:
(a) 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;
(b) 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;
(c) 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, repossess and enjoy as of its former estate,
anything in this Lease contained to the contrary notwithstanding;
and
(d) 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.
11.2 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 Rental 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, without compensation to the Tenant, 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
<PAGE>
18
(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 12.00 - 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 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 Rental and Additional Rent
from time to time due shall be deemed to be other than on account of the
earliest stipulated Base Rental and Additional Rent due, nor shall any
endorsement or statement on any cheque or any letter accompanying any
cheque or payment of Base Rental 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 Rental 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
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19
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 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.
12.11 CONTRA PROFERENTEM. - DELETED INTENTIONALLY
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 and the Tenant herein.
12.15 OCCUPANCY PERMIT. - DELETED INTENTIONALLY
12.16 LEASED PREMISES. - DELETED INTENTIONALLY
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. Subject to Clause 13.9 herein, in the event that
any calculation or determination by the Landlord of the Rentable Area
of any premises (including the Leased Premises) or the Building is
disputed or called
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20
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 13.00 - 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
extension thereof and the manner in which access is permitted may be
altered. The Landlord will provide one hundred and forty (140)
unreserved parking spaces in the Building parking area throughout the
Term at no cost to the Tenant. In the event that Tenant expands at any
time during the Term and any extension thereof, the Landlord will
provide additional parking spaces in accordance with the parking ratio
of 4 parking spaces for every additional 1,000 square feet leased at no
cost to the Tenant.
13.3 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.
13.4 EXTENSION. Provided it is mutually agreed and understood that if the
Tenant duly and regularly pays the Base Rental 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 and has not been in material 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, Landlord's Work, leasehold improvement allowance, and save
as to any further right of extension. Provided always that the Tenant
shall have given to the Landlord not less than nine (9) months and not
more than twelve (12) months 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 fair market rate for renewing
or extending tenants, all economic inducement factors considered for
comparable premises in comparable buildings in a comparable 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 Arbitration 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
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21
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.
13.5 ZONING.
The Landlord covenants that the use set out in this Lease complies with
all applicable zoning and building by-laws.
13.6 TELECOMMUNICATIONS.
The Landlord warrants that the Building will be equipped with fibre
optic cabling accessible by the Tenant. The Tenant shall be permitted
to connect to the said services, at its own cost insofar that all
connector work, including but not limited to labour and materials, will
be at the Tenant's sole cost and expense. The Building will be
constructed to provide sufficient reasonable capacity to handle future
wiring and cabling requirements. The Tenant shall obtain
telecommunication services directly from the local service providers.
13.7 SATELLITE DISH.
Concurrently with the Term hereof, the Landlord grants to the Tenant a
licence to use a portion of the area located on the roof of the
Building at such location and in such dimension as may be agreed to by
the Landlord and the Tenant, acting reasonably, for the Tenant to
install, operate and maintain one (1) satellite dish for the purpose of
conducting its business only (no third party revenue generating
services shall be permitted through this satellite dish) and in
accordance with all applicable Federal, Provincial and local by-laws,
codes and regulations. Satellite dish means the original satellite
receiving equipment, and any subsequent replacements only installed by
the Tenant on the roof of the Building pursuant to this licence.
The Tenant will:
(a) be responsible for all costs and expenses relating to the
installation and maintenance of the satellite dish, and any
replacements with the Landlord's prior approval;
(b) ensure that the design, construction, installation and operation
of the satellite dish conforms to all applicable Federal,
Provincial and local by-laws, codes and regulations;
(c) at all times maintain insurance coverage in connection with the
satellite dish as part of the general policies of insurance placed
in accordance with the provisions in this Lease relating to
insurance and as may reasonably required by the Landlord;
(d) repair and maintain the satellite dish roof and associated areas
in accordance with the same terms and conditions applicable to
repair by the Tenant of its Tenant Improvements located within its
Leased Premises;
(e) not assign or sublet or share such satellite dish with any other
tenants or third party;
(f) execute the Landlord's standard form of Licence Agreement for the
license of the satellite dish prior to the commencement of
construction of and installation of the satellite dish;
(g) there will be no license fee or other charges associated with the
grant of this license in favour of the Tenant. At the expiry or
earlier termination of the Lease, the Tenant will remove the
satellite dish and repair damage caused by such removal and ensure
the roof is in a first class condition in the area of the
satellite dish.
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22
13.8 NO RELOCATION.
The Landlord shall not be permitted to relocate the Tenant, either in
whole or in part, to other premises within the Building throughout the
term or any extension thereof.
13.9 MEASUREMENT.
The Rentable Area of the Leased Premises shall be verified and/or
adjusted within sixty (60) days after the Commencement Date by the
Landlord in accordance with current BOMA standards and the Basic Rental
and the Additional Rental shall be subject to adjustment based on the
actual Rentable Area of the Leased Premises as determined by the
Landlord's architect in accordance with current BOMA standards. The
Landlord shall provide the Tenant with an Architect's Certificate
confirming the Rentable Area of the Leased Premises as well as the
Rentable Area of the Building. Such measurement as aforesaid shall be
conclusive.
13.10 FIRST RIGHT OF OFFER.
The Tenant shall have the first right of offer concerning any remaining
vacant space on the 3rd floor of the Building for which the Landlord
receives an offer to lease from a third party at any time and from time
to time following the execution of this Lease by both parties and
throughout the Term to be exercised by written notice by the Tenant to
the Landlord within five (5) business days following receipt of written
notice from the Landlord to the Tenant. The terms and conditions shall
be at fair market and as may be mutually negotiated between the parties
within such five (5) business days of notification, both parties acting
reasonably. Should the Tenant fail to notify the Landlord or finalize
the lease within the prescribed time period then the Landlord will be
free to lease the premises to the third party. Should the Landlord fail
to lease the premises to the third party then the provisions of this
clause will apply again. During the Term, the Landlord will promptly
notify the Tenant in writing when vacant space becomes available on the
3rd floor. Notwithstanding the foregoing it is agreed and understood
that in the event the Tenant exercises its right pursuant to Section
13.11 herein to lease the balance of the 3rd floor of the Building
evidenced by an unconditional agreement executed by the Landlord and
the Tenant, then it is agreed that the right of first offer provided
for in this Section 13.10 shall automatically apply to the first floor
of the Building. Until such time as the Landlord and the Tenant have
entered into a signed agreement with respect to the balance of the 3rd
floor of the Building, the Landlord shall be free to lease the first
floor of the Building without notice to the Tenant.
13.11 EXPANSION PREMISES.
The Tenant shall have the right, with notification to the Landlord in
writing by not later than three (3) months prior to the Commencement
Date, provided the Lease has been executed by both parties, to increase
the area of the Leased Premises from 35,000 square feet of Rentable
Area to a maximum of 50,000 rentable square feet but not less than
40,000 rentable square feet (the "Expansion Premises"). The Expansion
Premises shall be situated on the third floor of the Building. All
terms and conditions of this Lease will apply including Basic Rental
and the Turnkey Leasehold Improvement Package, MUTATIS MUTANDIS, in the
Landlord's standard form of addendum to be executed within five (5)
business days of its receipt of same from the Landlord. If the Tenant
fails to exercise this option and/or fails to execute the Addendum to
Lease within said five (5) business days, then this option shall be
null and void. If at any time prior to the expiry of the Expansion
option period the Landlord receives one or more offers by other tenants
acceptable to the Landlord totalling 60,000 square feet or more then
the Landlord shall notify the Tenant and the Tenant shall have five (5)
business days from the date of notice to exercise said Expansion
option, failing which this option shall be considered null and void and
the Landlord shall be free to lease said space to a third party tenant
or tenants.
13.12 TURNKEY LEASEHOLD IMPROVEMENT PACKAGE.
The Landlord shall provide a Turnkey Leasehold Improvement Package to a
maximum of $25.00 per rentable square foot of the Leased Premises (plus
7% G.S.T.), the final price will be adjusted according to the final
square footage determined by the final space plan. The Turnkey
Leasehold Improvement Package will be based on the plans and
specifications to be provided to the
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23
Landlord by the Tenant (the "Specifications"), at the Tenant's sole
cost, no later than May 1, 2000. The Landlord agrees to substantially
complete the Turnkey Leasehold Improvement Package no later than the
Commencement Date, subject only to force majeure and any delay
occasioned directly or indirectly by the Tenant and may be viewed by
the Tenant. All costs and contracts associated with said work will be
completed on an open book basis at the Landlord's cost plus a 8%
management fee for contractors selected by the Tenant that are not
being used by the Landlord and an 8% management fee for contractors
selected by the Tenant that are being used by the Landlord and the
Tenant shall have the right to require the Landlord to tender said work
to a minimum of three contractors with the intent of getting the best
value for the Tenant. If the Turnkey Leasehold Improvement cost exceeds
$25.00 per rentable square foot then such cost in excess of $25.00 per
square foot shall be paid by the Tenant. In the event the Turnkey
Leasehold Improvement cost exceeds $25.00 per rentable square foot, if
the Tenant so elects then the Landlord will provide up to an additional
$5.00 per rentable square foot, with the Tenant reimbursing the
Landlord for this additional amount over the first five (5) years of
the Term as Basic Rental, amortized at 10% interest per year.
13.13 SPACE PLANNING AND DESIGN SERVICES.
The Tenant may select its own space planner to design the Leased
Premises. The Tenant shall assume the responsibilities of retaining
such space planner in the completion of its duties and
responsibilities, and the compensation for such space planning service
shall be at the Tenant's expense which may be deducted from the Turnkey
Leasehold Improvement Package as detailed in Clause 13.12 herein, save
and except for the initial feasibility plan (the "Feasibility Plan")
plus one (1) revision which shall be paid for by the Landlord up to
.06(cent) per rentable square foot.
13.14 RESTORATION OF PREMISES.
Notwithstanding anything herein contained to the contrary, the Tenant
will not be obligated to remove any leasehold improvements installed by
or on behalf of the Tenant within the Leased Premises at the end of the
Term or any extension term other than specialized areas (i.e.: computer
rooms, internal staircases, non-standard office sizes, etc.) which the
Landlord will require restoration of at the expiry or earlier
termination of the Lease, provided the Landlord notifies the Tenant of
such restoration requirement in writing at the plan approval stage. The
Tenant shall remove its chattels and/or trade fixtures and repair any
damage caused by said removal.
13.15 FOOD SERVICE.
Throughout the Term and any extension thereof, the Tenant shall be
permitted to have vending machines installed within the Leased Premises
for use by the Tenant and its employees and if it elects to do so, the
Tenant may, subject to the prior written approval of the Landlord which
shall not be unreasonably withheld, hire an independent food service
contractor to operate within the Leased Premises to facilitate the
needs of the Tenant and its employees.
13.16 LEASE TERMINATION.
Notwithstanding anything herein contained to the contrary, the Tenant
shall have the right to terminate this Lease at the end of the 5th year
of the Term or at the end of the 7th year of the Term (which for the
purposes hereof, in either case, shall be known as (the "Early
Termination Date") by providing written notice of its intention to do
so six (6) months prior to the Early Termination Date and paying a lump
sum penalty on the notice date as follows:
(a) Termination Option 1 (six months prior to the fifth anniversary)
total $903,000.00 plus G.S.T.; or
(b) Termination Option 2 (six months prior to the seventh anniversary)
total $672,000.00 plus G.S.T.
The above Termination Options are based on 35,000 square foot
rentable area. Any additional rentable area shall increase the
penalty accordingly.
13.17 ACCESS.
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24
Notwithstanding anything herein contained to the contrary, it is
understood and agreed that the Tenant, its employees and invitees,
shall have the right to access twenty-four (24) hours a day, seven (7)
days a week, throughout the Term and any extension thereof to the
Leased Premises and to use the Common Areas of the Building for its
intended purposes in common with others entitled thereto. The foregoing
access to the Leased Premises shall include continuous supply (except
in the case of an emergency and schedule maintenance) by the Landlord
of electric power, hot and cold running water in the Leased Premises,
heat (where necessary), air conditioning (where necessary), lights
within the Leased Premises and elevator services to the Leased
Premises, at no extra cost to the Tenant throughout the Term and any
extension thereof, other than after 7:00 p.m. Monday to Friday HVAC
which shall be charged at the rate of $25.00 per hour per floor and
payable in the same manner as Additional Rent.
13.18 REPRESENTATIONS AND WARRANTIES.
The Landlord represents and warrants that:
(a) the Building shall comply with all of the base building
specifications as detailed in Schedule "D" attached;
(b) it shall use reasonable efforts to ensure that the Building shall
be designed and insulated such that the noise level generated by
Highway 404 does not materially affect the day-to-day operation of
the Tenant's business within the Leased Premises throughout the
Term and any extension thereof;
(c) the Landlord shall use reasonable efforts in conjunction with the
local municipal authorities to resolve the current traffic backlog
that occurs as a result of commuters travelling westbound on 16th
Avenue attempting to make a left turn onto Mural Street;
(d) it will attempt to obtain permission through a formal application
with notice to the Tenant from the municipal, regional and
provincial authorities for and exit and entrance from the parking
area that will allow tenants and/or visitors the option of
directly accessing 16th Avenue from the site;
(e) the Building ventilation system shall be equipped with the same
type of air filtration system designed to minimize the level of
exhaust fumes generated from Highway 404 from being circulated
throughout the Leased Premises as well as the Building;
(f) the quality of finishes used in the Building lobby and Common
Areas throughout the Building shall be of a similar quality to
that at 1595 16th Avenue that would be used in an "A" Class
building;
(g) the quality of finishes used for the exterior of the Building
shall be such that the image of the Building shall be comparable
to that of an "A" class office building, similar to 1595 16th
Avenue; and
(h) the landscaped area surrounding the Building shall include a
designated area for tenants of the Building to eat lunch (i.e.,
picnic tables), bicycle racks, etc.
13.19 LANDLORD'S WORK.
The Landlord shall complete the following base building work at the
Landlord's cost in conjunction with the Turnkey Leasehold Improvement
Package:
Floors shall be smooth, level to the standard of a first-class office
building and ready to receive floor coverings;
Full height, insulated demising walls where applicable constructed to
applicable building code, sanded and ready for Tenant finishes;
Firestopping and fireproofing at all locations required by code;
Perimeter and core walls and columns shall be sanded and primed, and
painted in Tenant's choice of colour;
Building standard window treatments;
Building standard acoustic tile on suspended T-Bar system to an open
area concept;
<PAGE>
25
Fluorescent light fixtures to an open area concept. A single pole
switch shall be provided at the main entrance to the premises on each
floor controlling the Tenant's building standard lighting for that
floor;
The Leased Premises shall be completely sprinklered in accordance with
standards of the fire department of the City of Richmond Hill for open
office space with fully downturned sprinkler heads. System distribution
will be adjusted at the time of installation to accommodate Tenant's
plans, thus avoiding further costs to adjust systems at the time of
Tenant's leasehold improvements;
Building security system to be installed that will allow the Tenant 24
hour, 7 days a week access via a card-access system at all entrance
doors and in all elevators. The Tenant at its cost shall be allowed the
ability to control and codify its employee's access cards.
Provide HVAC equipment to meet building standard requirements - base
building VVT system installed to open area plan;
Male and female washroom, including handicap facilities in the core (in
accordance with code);
Supply power sufficient for building standard requirements plus base
building systems and separate electrical panel in sound insulated
electrical room per floor;
Provide all elevator lobbies as per building standard for multi-tenant
floors;
It is understood that ceiling, lighting, window, sprinkler, HVAC work
will be completed after Tenant plans and specifications have been
finalized in order to minimize Tenant's construction expenses.
The Building shall be equipped with coloured CCTV security cameras at
all entrance/exits to the Tenant's suite as part of the Turnkey
Leasehold Improvement Package.
13.20 PROVISO TO SIGNAGE.
(a) Throughout the Term and any extension thereof, at the Tenant's
cost, the Tenant's name will be affixed adjacent to the main
entrance of its Premises and the Tenant's name will be included in
the Tenant Directory located in the main lobby of the Building.
The Tenant shall also be entitled to its proportionate share of
area on the outdoor podium sign, which shall be situated in close
proximity to the entrance to the Building. Such signage rights
shall be assignable subject to the Landlord's reasonable prior
written approval, not to be unreasonably withheld in the event the
Tenant elects to sublease the Leased Premises herein permitted.
(b) Throughout the Term and any extension thereof, the Tenant shall be
granted non-exclusive building-top signage rights. The Landlord
shall only grant building-top signage rights to one (1) other
tenant. The Tenant shall be permitted to install an illuminated
sign on the upper portion of the easterly facing wall of the
Building throughout the Term and to install an illuminated sign on
the upper portion of the westerly facing wall of the Building
throughout the Term and any extension thereof, the design, size
and location/height of which shall be subject to the Landlord and
the municipal authorities approvals and to be in accordance with
governmental guidelines for multi-tenant buildings, it being
further understood that all building-top signage shall be on a
non-exclusive basis. Such signage rights shall be assignable
subject to Landlord's reasonable prior approval in writing, not to
be unreasonably withheld in the event the Tenant elects to
sublease the entire Leased Premises as permitted herein.
13.21 LANDLORD'S CONDITION. - DELETED INTENTIONALLY
13.22 LANDLORD'S WARRANTY.
The Landlord warrants that the Tenant's Proportionate Share of the
Operating Costs and Taxes will not exceed $10.75 per square foot for
the year ending December 31, 2000. The Tenant shall have the right to
audit the calculation of the Additional Rent on an annual basis.
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 one year
following expiration of the applicable year, to claim a readjustment in
respect of any item of Additional Rent.
<PAGE>
26
For this purpose, the Tenant shall have the right through its
controller or at its sole cost to have independent C.A. firm
("Auditor") acceptable to the Landlord during such time, 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 to written notice by the Tenant to the Landlord and
provided that the auditor signs a confidentiality agreement with the
Landlord. In the event the auditor uncovers a discrepancy of less than
2% with respect to Additional Rent charged, then the Tenant shall also
pay the Landlord, for the Landlord's reasonable direct out-of-pocket
expenses with respect to the audit. In any event the management fees
shall not exceed $1.00 per square foot of Rentable Area throughout the
Term and any extension.
13.23 EXCLUSIONS
Notwithstanding anything to the contrary contained in this Lease, the
following items shall be excluded (or, as applicable, deducted) from
the calculation of Tenant's share (if any) of Operating Costs 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 grater, the proceeds that would have been
available had the Landlord maintained the insurance required to be
maintained by the 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, the 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
the Landlord to the Tenant under this Lease;
(g) depreciation except as specifically provided hereunder;
(h) premium rates paid on service or other contracts;
(i) 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 the Landlord;
(j) rents payable in connection with any ground or underlying lease of
all or any portion of the Building;
(k) all items, service and/or goods for which the Tenant or any other
tenant, occupant, person or other party is obligated to reimburse
the Landlord or to pay third parties;
(l) advertising and promotional expenses with respect to leasing space
in or selling the Building;
(m) brokerage, legal and professional fees expended by the 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 the 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 the Landlord or an
interest in the Landlord,
<PAGE>
27
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;
(n) estate, inheritance, gift franchise and income taxes of the
Landlord, (but not excluding Landlord's Capital Tax);
(o) 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 revenue for parking received from such operations;
(p) 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
repaired or replaced;
(q) 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 the Tenant is
otherwise responsible pursuant to the express terms of this Lease);
(r) costs and expenses incurred in connection with compliance with or
the contesting or settlement of any claimed violation of law or
requirements of law;
(s) interest, penalties or damages incurred by the Landlord for late
payment of taxes or assessments or under any agreement to which
the Landlord is a party by reason of the breach or default of the
Landlord;
(t) expenses incurred in connection with relocating tenants in the
Building;
(u) the cost of installing, operating and maintaining any speciality
service or special facility such as an observatory, broadcasting
facilities, health club, cafeteria, or dining facility luncheon
club, other than those facilities generally made available to
tenants of the Building without cost;
(v) the costs of acquiring, securing, cleaning and maintaining works
of art;
(w) amounts received by the 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;
(x) costs related to public transportation, transit or van pools; and
(y) all other items for which the Tenant or any other tenant, occupant
or other party compensates the Landlord, so that no duplication of
payments by the Tenant or to the Landlord shall occur.
13.24 INDEMNIFIER
In order to induce the Landlord to execute and deliver this Lease and
in consideration of the execution and delivery thereof by the Landlord,
the sum of One ($1.00) Dollar now paid by the Landlord to the
Indemnifier (the receipt and sufficiency whereof is by the Indemnifier
hereby acknowledged) and other good and valuable consideration, the
Indemnifier as principal and not as surety, hereby covenants with the
Landlord that, coincidental with the execution of this Lease it has
entered into an indemnification agreement in the form attached hereto
as Schedule "E".
IN WITNESS WHEREOF the Landlord and Tenant have executed this Lease.
MENKES OFFICE PARKS LTD.
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28
Per:____________________________________________
Authorized Signing Officer
(I/We have authority to bind the Corporation)
DENBURN INVESTMENTS INC.
Per:_____________________________________________
Authorized Signing Officer
(I/We have authority to bind the Corporation)
CHANGEPOINT CORPORATION
Per:_____________________________________________
Authorized Signing Officer
(I/We have authority to bind the Corporation)
<PAGE>
29
SCHEDULE "A"
LEGAL DESCRIPTION OF LANDS
<PAGE>
30
SCHEDULE "B"
LEASED PREMISES
<PAGE>
31
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 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, 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
<PAGE>
32
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. 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 Tenant 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. Canvassing, soliciting and peddling in or about the Building and in the
parking facilities of the Building are prohibited.
11. It shall be the duty of the Tenant to assist and co-operate with the
Landlord in preventing injury to the Leased Premises.
12. 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.
13. No bicycles or other vehicles shall be brought within the building
without the consent of the Landlord.
14. No animals or birds shall be brought into the Building without the
consent of the Landlord.
15. No gas pipe or electric wire will be permitted which has not been
ordered or authorized by the Landlord.
16. 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.
17. 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.
18. 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.
19. 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.
20. 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.
<PAGE>
33
21. 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. Cell telephones shall be
permitted. A satellite dish shall be permitted in accordance with
Section 13.7.
22. 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.
23. 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.
24. 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 (24) 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.
25. 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>
34
SCHEDULE "D"
BUILDING SPECIFICATIONS
<PAGE>
35
SCHEDULE "E"
INDEMNITY AGREEMENT
THIS AGREEMENT is made as of this 24th day of February, 2000
B E T W E E N:
MENKES OFFICE PARKS LIMITED
(the "Landlord")
OF THE FIRST PART
- and -
CHANGEPOINT CORPORATION
(the "Indemnifier")
OF THE SECOND PART
In order to induce the Landlord to enter into the lease (the "Lease")
dated the 20th day of October, 1999 between the Landlord and Denburn
Investments Inc. as tenant (the "Tenant"), and for other good and valuable
consideration, the receipt and sufficiency whereof is hereby acknowledged,
the Indemnifier hereby makes the following indemnity and agreement (the
"Indemnity") with and in favour of the Landlord:
1. The Indemnifier hereby agrees with the Landlord that at all times
during the term of the Lease it will (a) make the due and punctual payment of
all rent, moneys, charges and other amounts of any kind whatsoever payable
under the Lease by the Tenant whether to the Landlord or otherwise and
whether the Lease has been disaffirmed or disclaimed; (b) effect prompt and
complete performance of all and singular the terms, covenants and conditions
contained in the Lease on the part of the Tenant to be performed; and (c)
indemnify and save harmless the Landlord from any loss, costs or damages
arising out of any failure by the Tenant to pay the aforesaid rent, money,
charges or other amounts due under the Lease or resulting from any failure by
the Tenant to observe and perform any of the terms, covenants and conditions
contained in the Lease.
2. This Indemnity is absolute and unconditional and the obligations of the
Indemnifier shall not be released, discharged, mitigated, impaired or
affected by (a) any extension of time, indulgences or modifications which the
Landlord extends to or makes with the Tenant in respect of the performance of
any of the obligations of the Tenant under the Lease; (b) any waiver by the
Landlord of or failure of the Landlord to enforce any of the terms, covenants
and conditions contained in the Lease; (c) any assignment of the Lease by the
Tenant or by any trustee, receiver or liquidator; (d) any consent which the
Landlord gives to any such assignment or sub-letting; (e) any amendment to
the Lease or any waiver by the Landlord of any of its rights under the Lease;
or (f) the expiration of the term.
3. The Indemnifier hereby expressly waives notice of the acceptance of
this Indemnity and all notice of non-performance, non-payment or
non-observance on the part of the Tenant of the terms, covenants and
conditions contained in the Lease. Without prejudice to the foregoing, any
notice which the Landlord desires to give to the Indemnifier shall be
sufficiently given if delivered in person to the Indemnifier or if mailed by
prepaid registered or certified post addressed to the Indemnifier at the
premises, and every such notice is deemed to have been given upon the day it
was so delivered in person, or if mailed, forty-eight (48) hours after it was
mailed. The Indemnifier may designate by notice in writing a substitute
address and thereafter notice shall be directed to such substitute address.
If two or more persons are named as Indemnifier, any notice given hereunder
or under the Lease shall be sufficiently given if delivered or mailed in the
foregoing manner to any one of such persons.
4. In the event of a default under the Lease or under this Agreement, the
Indemnifier waives any right to require the Landlord to (a) proceed against
the Tenant or pursue any rights or remedies against the Tenant with respect
to the Lease, (b) proceed against or exhaust any security of the Tenant held
by the Landlord, or (c) pursue any other remedy whatsoever in the Landlord's
power. The Landlord has the right to enforce this Indemnity regardless of the
acceptance of additional security from the Tenant or the Indemnifier and
regardless of any release or discharge of the Tenant by the Landlord or by
others or by operation of any law.
5. Without limiting the generality of the foregoing, the liability of the
Indemnifier under this Indemnity is not and is not deemed to have been
waived, released,
<PAGE>
36
discharged, impaired or affected by reason of the release or discharge of the
Tenant in any receivership, bankruptcy, winding-up or other creditors'
proceedings or the rejection, disaffirmance or disclaimer of the Lease in any
proceeding and shall continue with respect to the periods prior thereto and
thereafter, for and with respect to the term of the Lease, and any renewal
thereof, as if the Lease had not been disaffirmed or disclaimed and in
furtherance thereof, the Indemnifier shall at the option of the Landlord
become the Tenant of the Landlord upon the same terms and conditions as are
contained in the Lease, applied mutatis mutandis.
6. No action or proceeding brought or instituted under this Indemnity and
no recovery in pursuance thereof shall be a bar or defence to any further
action or proceeding which may be brought under this Indemnity by reason of
any further default hereunder or in the performance and observance of the
terms, covenants and conditions contained in the Lease.
7. No modification of this Indemnity shall be effective unless the same is
in writing and is executed by both the Indemnifier and the Landlord.
8. The Indemnifier shall, to the extent of its obligations under this
Indemnity, and without limiting the generality of the foregoing, be bound by
this Indemnity in the same manner as though the Indemnifier were the Tenant
named in the Lease. Notwithstanding the foregoing, or any performance in
whole or in part by the Indemnifier of the covenants of this Indemnity, the
Indemnifier shall not have any entitlement to occupy the premises or
otherwise enjoy the benefits of the Tenant under the Lease.
9. If two or more individuals, corporations, partnerships or other
business associations (or any combination of two or more thereof) execute
this Indemnity as Indemnifier, the liability of each such individual,
corporation, partnership or other business association hereunder is joint and
several. In like manner, if the Indemnifier named in this indemnity is a
partnership or other business association, the members of which are by virtue
of statutory or general law subject to personal liability, the liability of
each member is joint and several.
10. This Indemnity is in addition to and not in substitution for any other
security now or hereafter held by the Landlord, and this security shall not
merge in any other security now or hereafter held by the Landlord from the
Indemnifier or from any other party.
11. All of the terms, covenants and conditions of this indemnity extend to
and are binding upon the Indemnifier, his or its heirs, executors,
administrators, successors and assigns, as the case may be, and shall enure
to the benefit of and may be enforced by the Landlord, its successors and
assigns, as the case may be, and by any mortgagee, chargee, trustee under a
deed of trust or other encumbrancer of all or any part of the building
referred to in the Lease.
12. This Indemnity shall be construed in accordance with the laws of the
Province of Ontario. The Indemnifier hereby submits and attorns to the
jurisdiction of the courts of the Province of Ontario in any action or
proceeding which may be commenced with respect to the enforcement of this
Indemnity.
IN WITNESS WHEREOF the parties hereto have signed this Indemnity as of
the day and year first above written.
MENKES OFFICE PARKS LTD.
Per: __________________________________ c/s
Authorized Signing Officer
CHANGEPOINT CORPORATION
Per: __________________________________ c/s
Authorized Signing Officer
Authorized Signing Officer
<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
March 8, 2000 /s/ KPMG LLP
