<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1997
Commission file number 1-13316
Newbridge Networks Corporation
(Exact name of registrant as specified in its charter)
Canada 98-0077506
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
600 March Road, Kanata, Ontario, Canada K2K 2E6
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (613) 591-3600
Securities registered pursuant to Section 12(b) of the Act:
Common Shares, no par value New York Stock Exchange
(Title of class) (Name of each exchange on which registered)
The common shares are also listed on The Toronto Stock Exchange in Canada.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
At June 12, 1997 the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately Cdn$7,177,000,000. The number
of common shares of the registrant outstanding as at June 12, 1997 was
172,825,492.
Exhibit index begins on Page 66
Page 1 of 193
<PAGE>
EXCHANGE RATES
Financial information herein is expressed in Canadian dollars ($ or Cdn$),
unless expressly stated in United States dollars (US$) or otherwise. The Company
maintains its financial data in Canadian dollars. The high and low exchange
rates (the highest and lowest rates at which Canadian dollars were sold), the
average exchange rate (the average of the exchange rates on the last day of each
month during the period), and the period end exchange rate of the Canadian
dollar in exchange for United States dollars in each of the five 12 month
periods ended April 30, 1997, as calculated from the exchange rates reported by
the Federal Reserve Bank of New York, are set forth below.
<TABLE>
<CAPTION>
12 Month Period Ended April 30,
------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
High US$0.7513 US$0.7527 US$0.7457 US$0.7933 US$0.8453
Low 0.7145 0.7224 0.7023 0.7166 0.7761
Average 0.7319 0.7345 0.7248 0.7536 0.8067
Period End 0.7158 0.7345 0.7355 0.7237 0.7873
</TABLE>
On June 12, 1997, the noon buying rate in New York City for the Canadian dollar
as reported by the Federal Reserve Bank of New York was US$1.00 = Cdn$1.3825
(equivalent to US$0.7233 = Cdn$1.00).
-------------------------
The following trademarks are mentioned in this Report on Form 10-K:
Newbridge(R), MainStreetXpress(TM), VIVID(R) and MainStreet(R) which are
trademarks of Newbridge Networks Corporation; and ACC(R), which is a trademark
of Advanced Computer Communications.
Page 2
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I
<S> <C>
Item 1. Business
General................................................................................. 4
Networking Industry..................................................................... 4
Business Strategy....................................................................... 5
Products................................................................................ 6
Research and Product Development........................................................ 8
Sales, Marketing and Distribution....................................................... 8
Customer Service and Support............................................................ 9
Manufacturing........................................................................... 9
Competition.............................................................................10
Government Regulation...................................................................10
Proprietary Rights......................................................................11
Employees...............................................................................11
Item 2. Properties................................................................................11
Item 3. Legal Proceedings.........................................................................12
Item 4. Submission of Matters to a Vote of Security Holders.......................................12
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
Common Share Price Range and Dividends..................................................13
Cautionary Statement Regarding Forward-Looking Information..............................14
Certain Tax Considerations..............................................................17
Item 6. Selected Financial Data...................................................................18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........................................20
Item 8. Financial Statements and Supplementary Data...............................................28
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..................................................54
PART III
Item 10. Directors and Executive Officers of the Registrant........................................55
Item 11. Executive Compensation....................................................................57
Item 12. Security Ownership of Certain Beneficial Owners
and Management..........................................................................57
Item 13. Certain Relationships and Related Transactions............................................59
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.................................................................60
SIGNATURES...............................................................................................63
</TABLE>
Page 3
<PAGE>
PART I
Item 1. BUSINESS
GENERAL
Newbridge Networks Corporation (the "Company" or "Newbridge") is a world leader
in designing, manufacturing, marketing and servicing a comprehensive
desktop-to-desktop family of networking products and systems that enables
customers in more than 100 countries to access the power of multimedia
communications. The Company was incorporated in June 1986 in Ontario under the
Canada Business Corporations Act.
NETWORKING INDUSTRY
The networking industry encompasses a broad array of communications services and
equipment. An increasing variety and volume of communications in the form of
voice, data, text, electronic mail, graphics, video, imaging, facsimile,
videoconferencing, online transaction processing and others are transmitted
across communications networks.
Networks are experiencing robust growth, driven by the demand for networking
solutions from both consumers and corporations. Information networks are
becoming essential to companies in the emerging global, networked economy, as
more and more companies are networked together and electronic commerce enhances
and even supplants traditional business transactions. Computer networks have
become the electronic matrix through which vital business information flows, as
large and small organizations alike seek to communicate more rapidly and
efficiently with their key stakeholder groups, including branch offices, field
force, telecommuters, customers and suppliers.
In addition, the number of households throughout the world connected to the
Internet is projected to increase from around 20 million in 1996 to more than 60
million by the year 2000 (source: Forrester Research). For corporations, the
demand for equipment to create intranets, a term used increasingly to describe
enterprise networks, continues to increase at a compound annual growth rate of
more than 30% (source: Forrester Research).
The key driver for growth in network capacity starts with the desktop computer
where processing power continues to increase dramatically. At the same time,
software suppliers leverage this growing computing power by creating
increasingly power-intensive software applications. This constant upgrade of the
power of the desktop computer pressures network managers to expand the size and
traffic-handling capacity of their networks. In addition, companies are
increasingly reliant on networked computers.
The enterprise network in today's global economy is much more geographically
dispersed than in the past. As well, it is faced with an increasing number of
users demanding higher quality of service. Companies have discovered that
software applications in a client/server environment require larger amounts of
switching and transmission capacity, or bandwidth, which is increasingly
stretched in traditional local area networks (LANs).
In addition, the advent and growth of bandwidth-intensive multimedia
applications have subjected networks to greater quality-of-service (QoS) and
capacity pressures. Multimedia is defined as the combination of multiple media
forms for conveying information. While formats vary and will continue to evolve,
they usually involve elements such as voice, text, image, video, audio and
animation. Combinations of these media provide powerful communications tools,
but they are not tolerant of the quality impairing delays associated with the
"store-and-forward" nature of router-based networks.
Page 4
<PAGE>
The term "local area network" is becoming an anachronism as the majority of
network traffic today moves off the LAN on which it originated. In most cases
the network traffic traverses some form of local and/or long distance telephone
company's (carrier) network thus extending the bandwidth pressure to the wide
area network (WAN).
To meet the growing customer demand for network resources, carriers have
deployed new technologies, as they have become available, in a myriad of special
services networks. The networking equipment for special services networks
typically resides as part of the carrier switching and transmission
infrastructure, but separate from the voice-oriented equipment of the public
switched telephone network (PSTN).
Carriers also face a significant second challenge stemming from deregulation and
increased competition. Internet service providers, competitive access providers
and cable television operators have entered the market and provide both indirect
competition through the offering of new services and direct competition through
the offering of lower cost traditional services. This competitive challenge
requires them to reduce costs and optimize network resources while the challenge
of growing demand for new communications services requires carriers to invest in
new infrastructures.
In order to reconcile these conflicting needs, carriers are migrating the
disparate array of networks and services offered from these networks onto a
single, unifying, flexible infrastructure. The scalability and flexibility of
asynchronous transfer mode (ATM) switching technology make it well suited for
multiple traffic types, or services, enabling carriers to launch new higher
margin value-added services. At the same time carriers can lower their up-front
and operating costs and improve the manageability of their overall network
infrastructure by consolidating their present networks onto one ATM-based
network.
BUSINESS STRATEGY
The Company's business strategy is to provide comprehensive fully managed
end-to-end networking solutions to carriers and corporate customers based on a
broad product family which cost effectively addresses their current and future
communications requirements.
Newbridge products are designed in accordance with a common, flexible,
architecture to provide customers with a seamless migration and integration path
across the product family. The full product family is modular for flexibility
and highly scalable to meet evolving customer requirements. Products are
software controlled and remotely manageable for customer ease of use and
efficiency. All Newbridge products are designed to comply with industry
standards throughout the world in order to deliver optimal interoperability and
performance in multiprotocol, multivendor networks.
The markets for Newbridge products are characterized by rapid technological
change. To maintain its leadership position in advanced networking technologies,
Newbridge is committed to research and development. The Company conducts the
majority of its research and development in a lower cost environment compared
with many competitors.
Because of the Company's focus on and commitment to research and development,
coupled with the cost advantages, Newbridge's strategy has been oriented towards
in-house product development. This is in contrast with some other networking
vendors who devote proportionately fewer resources to research and development
and who have more often taken the approach of obtaining technology and products
through acquisitions of other companies. Newbridge believes that its strategy
results in a more cohesive product solution set for delivering seamless
end-to-end networking solutions.
Page 5
<PAGE>
For example, common ATM hardware and software development undertaken by the
Company is shared by the VIVID switched routing system for the enterprise
networking market and the MainStreetXpress product line for the wide area
network space. This approach results in lower overall development costs and
allows Newbridge to leverage product functionality developed for one market to
products addressing other markets.
The Company's architectural approach for ATM networks is directed towards
providing solutions to issues facing both carriers and corporate network
managers. For carriers, the Company' product strategy emphasizes robustness and
scalability in the core of the carrier network, versatility and high scalability
at the edge, and a fully-featured, low cost access solution from the customer
premise. This approach enables carriers to reduce infrastructure costs and
differentiate service offerings by provisioning multiple services on a single
network.
The enterprise networking solution, VIVID, is designed to integrate networking
capabilities for video, voice, image and data based on Multi Protocol Over ATM
(MPOA), the only industry standard for switched routing. The VIVID architecture
addresses issues inherent in today's traditional router-based networks with by
optimally handling delay-sensitive multimedia traffic with QoS. VIVID can
deliver significant performance improvements addressing capacity constraints
created by growing demands for connectivity and the changing nature of network
traffic towards bandwidth-intensive multimedia applications.
The Company extends its business strategy through various alliances and strong
relations with affiliated companies. In March 1996 Newbridge and Siemens formed
an alliance to address emerging ATM implementations for carriers. The alliance
incorporates collaborative research and development activities, common branding
under the MainStreetXpress name and joint sales and marketing efforts. Newbridge
maintains other strategic alliances and also works with a family of affiliated
companies. The affiliated companies, in which Newbridge owns an equity stake,
generally address markets within the networking industry which are complementary
to the Newbridge product offering.
PRODUCTS
Newbridge has developed a broad family of digital narrowband and broadband
networking products that are effective in carrier, corporate and hybrid
networks. These products operate under a center-weighted network management
system, which is advantageous for scalable networks, and offer software
controlled end-to-end connectivity. Newbridge products employ a common
architecture that allows time division multiplexing (TDM), X.25, frame relay,
ATM and LAN internetworking to coexist within the same network and provides a
migration path from narrowband to broadband networks.
TDM products from Newbridge, such as the 3600 and 3645 MainStreet Bandwidth
Managers, are leading platforms for private line services throughout the world
because of their wide range of voice and data interfaces, adherence to the range
of domestic and international standards, quality and reliability, end-to-end
network manageability, and flexibility for seamless expansion and migration as
networks grow and applications evolve.
Based on the 3600 MainStreet Bandwidth Manager, the 36120 MainStreet can be used
to deploy frame relay or X.25 networks over a TDM circuit switched network
infrastructure. Network bandwidth can be flexibly divided between frame relay
and circuit switching applications. With just one network architecture handling
circuit and packet switching, network design tasks are simplified and network
efficiency is enhanced. The 36120 MainStreet frame relay switch interworks with
the Company's ATM systems so end-to-end network conversion is not required to
take advantage of the benefits of a high capacity ATM-based core network.
Page 6
<PAGE>
The Newbridge family of ATM products represents a broad and flexible array of
end-to-end managed networking solutions. The Newbridge ATM product family
includes high performance enterprise, access, edge and core switches for
corporate and wide area networks. Network operators can build consolidated
networks that deliver services for a variety of applications managed by a single
network management system. This approach enables operators to reduce
infrastructure costs and differentiate service offerings by provisioning
multiple services on a single network.
The MainStreetXpress 36170 Multiservices Switch is a high capacity platform,
designed to scale from 800 Mbit/s (millions of bits per second) to 51.2 Gbit/s
(billions of bits per second). It supports multiple services, including native
cell relay, frame relay, circuit emulation for private line services, LAN
connectivity, internetworking and wireless broadband. The modular architecture
of the MainStreetXpress 36170 switch enables network operators to expand from a
single-shelf system to a large multi-shelf system in an as-needed fashion. The
high port density of the system translates into competitive per-port pricing.
The Company's MainStreetXpress product line also includes the MainStreetXpress
36150 Access Switch, which provides a wide variety of service and transmission
interfaces, and the MainStreetXpress 36190 Core Services Switch, a high
performance ATM backbone or core switch, designed to scale beyond one Terabit (a
trillion bits) per second.
The VIVID switched routing system is an internetworking solution that optimally
supports high bandwidth, delay-sensitive applications such as desktop
videoconferencing, distance learning and collaborative work sessions, while
integrating seamlessly with existing LANs. VIVID uses MPOA switching technology
to combine the performance and simplicity of switching with routing
functionality. The VIVID system also includes a variety of integrated products
for LAN switching and distribution to the desktop, generally acquired as part of
the Company's purchase of Ungermann-Bass Networks, Inc. ("UB Networks") in
fiscal 1997.
Newbridge also addresses the access market segment with products which allow
carriers to deploy multiple services and permit access to those services for
customers with multiple applications. These products include a variety of
primary rate WAN access devices, as well as narrowband WAN access devices for
connecting remote and small sites. In addition, the MainStreet Data Termination
Units extend the network beyond the multiplexer to the end point of both circuit
and packet switched connections. Through its subsidiary ACC, the Company has
also developed a range of bridge/routers for enterprise-wide remote access.
In May 1997 Newbridge and its subsidiary ACC jointly announced the Tigris remote
access concentrator to address a new high growth segment of the networking
market. Tigris was designed as an integrated access platform to deliver Internet
access over both dial-in (modem and ISDN) and dedicated (frame relay, SMDS,
X.25, private line) services.
Newbridge complements products providing connectivity with an extensive suite of
network and service management software products ranging from configuration and
alarm monitoring to interfaces to umbrella management systems and customer
service management systems. The MainStreetXpress 46020 Network Manager provides
unified management of Newbridge, Siemens and third-party LANs and WANs across
multiple technologies, including circuit switching, packet switching, LAN
internetworking and ATM. It features a rich, object-oriented user interface for
efficient user navigation, and a scalable client/server architecture to provide
simultaneous access for up to 128 operators and cost-effective management for
networks containing up to 5,000 nodes and 100,000 network paths.
Sales of networking products and related services accounted for 100% of the
Company's sales in fiscal 1997 and 99% of the Company's sales in fiscal 1996 and
fiscal 1995.
Page 7
<PAGE>
RESEARCH AND PRODUCT DEVELOPMENT
The Company's research and product development activities apply the latest
technologies to the development of advanced functionality in networking hardware
and software. In its product development strategy, Newbridge employs an
"evergreen" approach in which new products and features are designed to
accommodate the architecture of existing products. This approach protects
customers' investment in their installed base of networking equipment.
In addition to the ongoing evolution of product functionality, a significant
portion of the research and development effort is directed towards the
development of new products for new applications and markets. Major initiatives
include development efforts on new networking products, features and interfaces
for ATM platforms in carrier, carrier access and enterprise network applications
and network and service management software. In addition to the Company's
internal research and product development, the Newbridge development strategy
includes relationships with affiliated companies developing technology
complementary to Newbridge, strategic partnering, such as joint research and
development programs with Siemens, and acquisitions.
Research and development project schedules for high technology products are
inherently difficult to predict, and there can be no assurance that the Company
will achieve its expected initial shipment dates of products in development.
Because timely availability of new and enhanced products is critical to the
success of the Company, delays in availability of these products, or lack of
market acceptance of such products, could adversely affect the Company.
The Company's ability to anticipate changes in technology, industry standards
and communications service provider offerings, and to develop and introduce new
and enhanced products on a timely basis that are successful in the market will
be a significant factor in the Company's competitive position and its prospects
for growth.
For additional discussion of the Company's research and development expenditures
in fiscal 1997, 1996 and 1995, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SALES, MARKETING AND DISTRIBUTION
Newbridge sells its products in more than 100 countries. The Company has
established direct sales forces throughout the world, as well as marketing and
distribution arrangements with telephone companies, original equipment
manufacturers (OEMs), distributors and dealers.
In March 1996, the Company formed an alliance with Siemens which includes common
branding under the MainStreetXpress name for ATM products and joint sales and
marketing efforts. Siemens sells the Company's circuit switched networking
products, ATM products and network and service management products, primarily to
carriers in Europe, Latin America, Asia and North America. Newbridge products
are also distributed throughout the world by Alcatel, Lucent Technologies, Cable
and Wireless, Nippon Telegraph and Telephone and other telecommunications
equipment suppliers as well as by global carriers and consortia.
In acquiring UB Networks in January 1997, the Company added sales, pre-sales and
support personnel located throughout the world focused on enterprise network
sales to large corporate and government customers. The acquisition also provided
a global network of distributors, value added resellers and dealers specializing
in enterprise networking equipment.
The Newbridge sales force in the United States and Canada sells directly to
carriers and other communications service providers such as AT&T, Regional Bell
Operating Companies (RBOCs)
Page 8
<PAGE>
and MCI for central office applications for tariffed services, internal network
applications, as well as for resale to users. Newbridge also sells to Fortune
1000 sized companies and institutions directly and through distributors.
The product line is sold throughout Europe, the Middle East and Africa by a
direct sales force as well as through OEM partners and distributors. During
fiscal 1997 the Company enhanced its direct sales presence in Europe through
acquisitions of Ouest Standard Telematique S.A. in France and Danring A/S in
Denmark.
In Latin America and the Asia Pacific area, networking products are sold
primarily through distributors, which are supported by local Newbridge sales and
support offices. The Company extended its distribution capabilities during
fiscal 1997 through acquisitions of systems integrators in Chile, Brazil, Costa
Rica and Argentina.
The Newbridge sales organization throughout the world receives support from
business unit management groups which provide product strategy and consultation
on industry trends and pricing, and which solicit customer feedback for research
and product development planning. The Company's marketing activities are
centrally coordinated and emphasize complete network solutions for the carrier
market and the enterprise network market.
The amount of sales, operating income and identifiable assets attributable to
the Company's principal geographical regions and the amount of export sales from
the Company's operations in Canada for each of the last three fiscal years are
set forth in Note 17 to the Consolidated Financial Statements. For additional
discussion of the Company's geographic segments, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
CUSTOMER SERVICE AND SUPPORT
Reliability, performance, up-time and mean-time-to-repair are important factors
customers consider in developing long term relationships with potential
suppliers of networking systems. The increasing dependency of many domestic and
international customers upon information networks has generated a demand for a
very rapid problem response time. To satisfy this customer demand, the Company
offers 24-hour Network Technical Assistance Centers, complemented by the service
support organizations of the Company's distributors. Because of remote
diagnostic capabilities of the Company's products, support engineers can
immediately begin to diagnose field problems. When necessary, support engineers
are dispatched from the Company's sales and support offices or by third party
service providers. The Company's standard product warranty covers defects in
material and workmanship and generally applies for 3 to 15 months after
shipment.
MANUFACTURING
The principal steps in the manufacturing process are the purchase and management
of materials, assembly, testing and final inspection. Because Newbridge
manufactures and assembles virtually all of its products, the Company maintains
direct control over production, quality and product availability. The Company
purchases parts and components for assembly of its products from a large number
of suppliers through a worldwide sourcing program. Although the Company single
sources certain components, no single supplier has accounted for more than 10%
of the Company's total purchases in any of the past three fiscal years.
Newbridge has established strong relationships with key vendors to reduce the
risk of significant shortages or delays relating to availability of materials.
Shortages or delays in the supply of components, however, could adversely affect
the Company's ability to meet scheduled product shipments in any particular
fiscal quarter, which could materially affect the Company's operating results.
Page 9
<PAGE>
The Company currently has manufacturing, logistics and warehousing facilities in
Canada, the United Kingdom and France. The Company also has logistics and
warehousing facilities in the United States, Ireland, Hong Kong and Malaysia.
The Company schedules some production of its products based on internal sales
forecasts. The Company's manufacturing procedures are designed to assure rapid
response to customer orders, but may, in certain circumstances, create risk of
excess or inadequate inventory if orders do not match forecast. Because a
substantial portion of customer orders are filled within the fiscal quarter of
receipt, and because of the ability of customers to revise or cancel orders and
change delivery schedules without significant penalty, Management believes that
the Company's backlog as of any given date is not necessarily indicative of
actual revenues for any succeeding period.
COMPETITION
The market for the Company's products is characterized by rapid technological
change, evolving standards and regulatory developments. Many of the Company's
competitors and potential competitors have greater financial, technological,
manufacturing, marketing, and personnel resources than the Company.
In the market for core network products, the Company's competitors include
Alcatel, Cascade Communications, Cisco Systems and Northern Telecom, as well as
traditional circuit switched multiplexer vendors such as Ascom/Timeplex, Network
Equipment Technologies and Tellabs. In the market for network access products
for both service providers and enterprise networks, the Company competes with
Ascend Communications, Cisco Systems and U.S. Robotics, among others. In
addition, the Company's enterprise networking products compete with product
offerings from various vendors including Bay Networks, Cabletron Systems and
Cisco Systems.
Principal competitive factors are product line capabilities including
integration of multiple applications on to a single network, price, ability to
offer complete end-to-end networking solutions, reliability, adherence to
standards, network management capabilities and market presence. Certain
competitors, including traditional carrier core switch suppliers such as
Ericsson, Fujitsu and Lucent Technologies, have a very large installed base of
existing products in carrier and enterprise networks, some of which can be
upgraded to accommodate new technologies and features.
The networking industry recently has been consolidating through strategic
alliances, mergers and acquisitions and joint technology agreements. As a
result, boundaries between different segments of the networking industry are
being blurred as competitors attempt to position their product lines to address
a broader spectrum of networking requirements.
GOVERNMENT REGULATION
The sale of networking products may be affected by governmental regulatory
policies, the imposition of carrier tariffs, and taxation of telecommunications
services, which may also affect the availability of high speed digital
transmission lines. These policies are under continuous review and are subject
to change.
In the United States, regulatory policies are likely to have a significant
impact on the competitive environment in which the Company operates. The
Telecommunications Act of 1996 and associated regulatory developments will
eliminate or modify many regulatory restrictions in the telecommunications
market. Deregulation enables local exchange telephone companies, RBOCs, long
distance carriers, and other communications service providers as well as cable
television operators and electric utilities to compete with each other in
offering local and long
Page 10
<PAGE>
distance telephone and multimedia communications services. In addition, the
RBOCs are now permitted to manufacture and sell telecommunications equipment
under certain conditions. Given the substantial resources and large customer
base of the RBOCs, Newbridge could face competition from these companies should
they satisfy these conditions and elect to manufacture networking products.
The regulatory environment in the European Union continues to increase
competition and to open markets for telecommunications equipment vendors. Since
July 1996 the only service which Member States can reserve exclusively for their
public switched network operators is voice telephony. Voice telephony must be
liberalized by January 1, 1998, subject to certain limited exclusions, and by
that date the Member States which have not already fully liberalized their
telecommunications markets are required to have in place the regulatory and
licensing structures that will enable new operators to enter their markets.
Deregulation may also permit mergers among the RBOCs and other major
telecommunications companies throughout the world. Although the impact of
mergers that have been announced or are in the process of consummation cannot be
predicted, greater concentration in the market for telecommunications services
could adversely affect the market for networking products.
Governmental communications regulatory authorities have promulgated regulations
which, among other things, set installation and equipment standards for private
telecommunications systems and require that all newly installed hardware be
registered and meet certain governmental approval standards. Management believes
that the Company currently complies with, and expects to be able to continue to
comply with these requirements.
PROPRIETARY RIGHTS
The name Newbridge, the Company's corporate logo, MainStreet and VIVID are
registered trademarks of the Company in Canada, the United States, the United
Kingdom, Germany, France and many other countries. A number of the Company's
other trademarks and service marks are registered in Canada as well as in
various other jurisdictions. The Company also claims rights to a number of
unregistered trademarks, including MainStreetXpress, and other intellectual
property rights. The Company protects its trademarks, inventions, trade secrets,
and other proprietary rights by contract, trademark registration, patent
registration and appropriate trademark and copyright markings, as well as with
internal security. The Company licenses certain intellectual property rights
from third parties. Management believes that the Company's competitive success
will not depend on the ownership of intellectual property rights, but primarily
on the innovative skills, technical competence and marketing abilities of the
Company's employees.
EMPLOYEES
As of April 30, 1997, the Company had 5,761 employees. None of the Company's
employees is represented by a collective bargaining agreement nor has the
Company ever experienced any work stoppage. Management believes the Company's
relations with its employees are good.
Item 2. PROPERTIES
The Company owns its corporate headquarters in Kanata, Ontario as well as
facilities for research and development, manufacturing, sales and marketing. The
Company also owns facilities in Newport, Wales for sales, marketing, network
services and manufacturing.
Newbridge leases other facilities in Kanata primarily used for manufacturing
from companies owned by Mr. Terence H. Matthews, Chairman of the Board and Chief
Executive Officer of the Company and its largest single shareholder. In addition
to Kanata, Ontario and Newport,
Page 11
<PAGE>
Wales, the Company also leases manufacturing and warehouse space in Herndon,
Virginia; Rennes, France; Shannon, Ireland; Ogdensburg, New York; Hong Kong and
Kuala Lumpur, Malaysia.
The Company conducts research and development in leased facilities in Herndon,
Virginia; Rennes, France; metropolitan London, England; Santa Clara, California;
Andover, Massachusetts; Santa Barbara, California and Vancouver, British
Columbia. The Company also leases sales and support facilities throughout the
United States and Canada, and in over 40 locations throughout Europe, the Middle
East and Africa, in over 25 locations in Asia Pacific and Russia, and over 10
locations in Latin America.
A facility owned by the Company in Wales is subject to a mortgage. The
outstanding balance and scheduled payments of this mortgage at April 30, 1997
are disclosed in Note 10 to the Consolidated Financial Statements.
Item 3. LEGAL PROCEEDINGS
Subsequent to the close of the fiscal year ended April 30, 1997, Lucent
Technologies Inc. ("Lucent Technologies") filed a complaint dated June 24, 1997
in United States District Court in Delaware against the Company and its United
States subsidiary, Newbridge Networks Inc. Lucent Technologies manufactures and
sells telecommunications systems, software and products, and is both a
distributor of the Company's products and a competitor of the Company. The
complaint alleges that the Company's manufacture and sale in the United States
of Newbridge frame relay and ATM switch products infringe certain United States
patent rights claimed by Lucent Technologies, and requests actual and trebled
damages in an unspecified amount. The Company is in the process of responding to
the complaint, and intends to defend this action vigorously. Based upon its
present understanding of the laws in the United States and the facts, the
Company believes it has meritorious defenses to these claims.
During the fiscal year ended April 30, 1995, the Company was served with one of
several complaints filed in United States District Court in Washington, D.C. by
certain persons purporting to be purchasers of Common Shares of the Company. On
or about May 8, 1995 these complaints were combined into a single consolidated
and amended complaint (the "First Amended Complaint") which named the Company
and certain of its executive officers as defendants. The First Amended Complaint
purported to be a class action on behalf of a class of persons who purchased
securities of the Company between March 29 and August 1, 1994 and alleged that
the Company made false and misleading statements in violation of United States
securities law and common law, for which damages were sought in unspecified
amounts. On June 3, 1996, the Court issued an order granting in part and denying
in part the defendants' motion to dismiss. Among other things, the Court
dismissed with prejudice the claim alleging violation of common law. The Court
also dismissed the majority of plaintiffs' allegations of violation of United
States securities law, but granted plaintiffs leave to replead these allegations
in a Second Amended Complaint, which plaintiffs filed on July 3, 1996. The Court
further conditionally certified the action as a class action without prejudice
to the Company's right to renew its objection to class action certification upon
completion of discovery. On April 10, 1997, the Court issued an order granting
in part and denying in part the defendants' motion to dismiss the Second Amended
Complaint. Among other things, the Court dismissed with prejudice a substantial
portion of plaintiffs' allegations. The Company has served an answer denying
plaintiffs' claims. The Company intends to continue to defend this action
vigorously. Based upon its present understanding of the laws in the United
States and the facts, the Company believes it has meritorious defenses to the
action.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Page 12
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON SHARE PRICE RANGE AND DIVIDENDS
Market Price
The Common Shares are listed for trading on the New York Stock Exchange in the
United States under the symbol NN and are listed for trading on The Toronto
Stock Exchange in Canada under the symbol NNC. The following table sets forth
the range of high and low sale prices for the Company's Common Shares during the
current fiscal year through June 12, 1997 and the fiscal years ended April 30,
1997 and 1996. The reported sales prices have been adjusted to reflect the two
for one stock split effected in the form of a stock dividend, effective
September 30, 1996.
<TABLE>
<CAPTION>
New York Toronto
Stock Exchange Stock Exchange
Price Range Price Range
------------------------------ ------------------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
Fiscal year 1998:
First quarter (through
June 12, 1997) US$43 1/2 US$31 1/2 Cdn$60.00 Cdn$43.80
Fiscal year 1997:
Fourth quarter US$35 1/8 US$27 1/4 Cdn$47.25 Cdn$38.25
Third quarter 35 1/4 26 1/2 47.15 35.75
Second quarter 36 7/16 20 5/8 50.00 28.25
First quarter 37 1/8 20 3/16 51.00 27.75
Fiscal year 1996:
Fourth quarter US$33 1/16 US$22 13/16 Cdn$45 1/4 Cdn$28 1/16
Third quarter 26 5/8 14 7/16 36 3/8 19 5/8
Second quarter 16 3/16 12 9/16 22 1/4 17
First quarter 18 15/16 14 1/2 26 1/16 20
</TABLE>
At June 12, 1997 there were 1,309 shareholders of record of the Company.
Under the provisions of the Investment Canada Act, as amended (the "IC Act"),
the acquisition by non-Canadians, or by corporations in which non-Canadians have
a majority controlling interest, of control of a corporation incorporated in
Canada and carrying on business in Canada is subject to notification and may be
subject to review and approval in certain instances. Given the current value of
the gross assets of the Company, the IC Act requires a non-Canadian who makes an
investment to acquire control of the Company to file an application for review
and obtain an approval.
Dividends
The Company has not paid cash dividends on its Common Shares, and it presently
intends to continue this policy for the foreseeable future in order to retain
earnings for the development of the Company's business.
Page 13
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The Company cautions that certain statements in this Report and in the Company's
other periodic reports filed pursuant to the United States Securities Exchange
Act of 1934, as amended (the "Exchange Act"), in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere, may be
forward-looking statements within the meaning of Section 21E of the Exchange
Act, the "safe harbor" for forward-looking statements enacted in the Private
Securities Litigation Reform Act of 1995. The forward-looking statements that
may be contained in the Company's reports under the Exchange Act and in other
oral or written statements made by the Company or by its authorized
representatives involve a number of risks and uncertainties. As a consequence,
actual results might differ materially from results forecast or suggested in
these forward-looking statements. Some of these risks and uncertainties are
identified in the discussion to follow. Additional information regarding these
factors and other important factors that could cause actual results to differ
materially may be referred to as part of particular forward-looking statements.
The forward-looking statements made by the Company or on its behalf are
qualified in their entirety by reference to the important factors discussed
below and to those that may be discussed as part of particular forward-looking
statements.
The Company cautions that the following important factors, among others, could
cause actual results for the fiscal year ending April 30, 1998 and for
subsequent financial reporting periods to differ materially from those forecast
or suggested in any forward-looking statement made by the Company or on its
behalf, in this Report or otherwise. A number of these important factors have
been discussed in this Annual Report on Form 10-K for the fiscal year ended
April 30, 1997 and its quarterly reports on Form 10-Q previously filed with the
United States Securities and Exchange Commission.
Potential Fluctuations in Quarterly Results and Growth Rate
A significant portion of the Company's quarterly sales are derived from products
shipped against orders received in each fiscal quarter and from products shipped
against firm purchase orders released in that fiscal quarter. The Company
schedules some production of its products and budgets expenses based on
forecasts of sales, which are difficult to predict. The Company's manufacturing
procedures are designed to assure rapid response to customer demand, but may, in
certain circumstances, create risk of excess or inadequate inventory if orders
do not match forecast. Moreover, shortages or delays in the supply of
manufacturing components at acceptable prices could adversely affect the
Company's ability to meet scheduled product shipments in any particular quarter,
which could materially affect the Company's operating results. Because a
substantial portion of customer orders are filled within the fiscal quarter of
receipt, and because of the ability of customers to revise or cancel orders and
change delivery schedules without significant penalty, quarter to quarter
revenues and, to a greater degree, net earnings, may be subject to greater
variability and less predictability.
The Company cautions that its sales may grow at a slower rate in the future than
historical rates of sales growth. The growth of the Company's sales may be
subject to the rate at which carriers deploy service offerings based on newer
technologies such as ATM. The Company expects the proportion of sales derived
from products based on ATM and other packet based technologies to increase
relative to sales derived from circuit switched networking products in fiscal
1998. As a result quarter to quarter revenues may be subject to greater
variability due to longer sales cycles often associated with the adoption of new
technologies. In addition, the Company is subject to a degree of variation in
quarterly sales as a substantial portion of sales is derived from less mature,
higher growth markets outside of North America and Western Europe. Sales in
these markets are often subject to customer financing, licensing or other import
or foreign exchange controls, and other pre-conditions that can result in delays
or substantial modifications of orders.
Page 14
<PAGE>
Unforeseen delays in product deliveries or closing large sales, introductions of
new products by the Company or its competitors, seasonal patterns of customer
capital expenditures or other conditions affecting the networking industry in
particular or the economy generally during any fiscal quarter could cause
quarterly revenue and, to a greater degree, net earnings, to vary greatly. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Manufacturing".
Technological Changes
The market for the Company's products is characterized by rapid technological
change, evolving industry standards, frequent product introductions and evolving
methods used by carriers and corporations in building and managing networks.
Such changes in the market for networking products may adversely affect the
Company's ability to sell its products. The Company's operating results will
depend in significant part upon its ability to maintain the competitiveness of
its product offerings while reducing unit manufacturing costs. In fiscal 1998,
the Company expects that the demand for networking products in more advanced
markets such as North America will continue the trend toward ATM and other
packet based technologies and away from circuit switched networking products.
The Company's ability to anticipate changes in technology, industry standards
and the evolution in methods of building and managing networks, and to develop
and introduce new and enhanced products on a timely basis that are successful in
the market, will be significant factors in the Company's competitive position
and its prospects for growth. Moreover, if technologies or standards supported
by the Company's products or carrier service offerings based on the Company's
products become obsolete or fail to gain widespread commercial acceptance, the
Company's business may be adversely affected. As a result, Management believes
that continued significant expenditures for research and development will be
required in the future. Research and development project schedules for high
technology products are inherently difficult to predict, and there can be no
assurance that the Company will achieve its expected initial shipment dates of
products in development. Because timely availability of new and enhanced
products is critical to the success of the Company, delays in availability of
these products, or lack of market acceptance of such products, could adversely
affect the Company. See "Business".
Competition
The market for the Company's products is also characterized by intense
competition. With the development of the worldwide communications market and the
growing demand for related equipment, numerous manufacturers such as the Company
have emerged to offer products for these markets in competition with traditional
communications equipment suppliers. Competition could further increase if new
companies enter the market or if existing competitors expand their product lines
or upgrade existing products to accommodate new technologies and features. The
Company competes for customers on the basis of product line capabilities,
including integration of multiple applications on to a single network, price,
ability to offer complete end-to-end networking solutions, reliability,
adherence to standards, network management capabilities, and market presence. An
increase in competition could require increased spending by the Company on
research and development and sales and marketing and may otherwise adversely
affect the Company's business. Many of the Company's competitors and potential
competitors have greater financial, technological, manufacturing, marketing, and
personnel resources than the Company. The networking industry recently has been
consolidating through strategic alliances, mergers and acquisitions and joint
technology agreements. As a result, boundaries between different segments of the
networking industry are being blurred as competitors attempt to position their
product lines to address a broader spectrum of networking requirements.
Continued consolidation of the networking industry could result in a
strengthening of the Company's competitors and may adversely affect the
Company's competitive position. See "Business--Competition".
Page 15
<PAGE>
Dependence on Key Employees
The Company's success depends upon the continued contributions of its employees,
many of whom would be difficult to replace. Newbridge believes that its future
success will depend in significant part upon its ability to attract and retain
skilled and talented engineers, sales and marketing personnel, and management.
Failure to attract and retain key employees could adversely affect the Company's
business and operating results.
Acquisitions
The Company's strategy includes acquisitions to enhance its business, diversify
its marketing and distribution, and supplement its product development.
Acquisitions involve numerous risks, including difficulties in the integration
of the operations, technologies and products of the acquired enterprises with
those of the Company, the diversion of management and financial resources to the
task of integration of the respective businesses, the entry into markets in
which Newbridge has limited direct prior experience and where competitors have
stronger market positions, and the potential loss of key employees of the
acquired enterprises. In view of these challenges, if the Company is unable to
integrate acquired enterprises efficiently and effectively, it may not obtain
the anticipated benefits of acquisitions, and its business and operating results
could be adversely affected. In addition, acquisitions may affect financial
results. For example, in fiscal 1997 the Company acquired Ungermann-Bass
Networks, Inc. and charged to net earnings $96,940,000 related to a write off of
purchased research and development in process.
Market Price Volatility of Common Shares
The Company's Common Shares have been subject to substantial market price
volatility, some of which has occurred when there have been variations between
the Company's actual or anticipated financial results and the published
expectations of investment analysts and in the aftermath of public announcements
by the Company and its competitors. In addition, the stock market has
experienced extreme price and volume fluctuations from time to time which have
affected the market price of many technology companies in particular and which
have often been unrelated to the operating performance of these companies. These
broad market fluctuations, as well as general economic and political conditions,
may adversely affect the market price of the Company's Common Shares. Because of
the Company's reliance on stock options as an incentive to its employees,
changes in the market price of the Company's Common Shares could adversely
affect the Company's ability to attract and retain key employees.
Regulation
The sale of networking products may be affected by governmental regulatory
policies, the imposition of carrier tariffs, and taxation of telecommunications
services, which may also affect the availability of high speed digital
transmission lines. These policies are under continuous review and are subject
to change. In the United States, regulatory policies are likely to have a
significant impact on the competitive environment in which the Company operates.
The Telecommunications Act of 1996 and associated regulatory developments will
eliminate or modify many regulatory restrictions in the telecommunications
market. Deregulation may facilitate the increasingly competitive offerings by
communications service providers. In addition, the RBOCs are now permitted to
manufacture and sell telecommunications equipment under certain conditions.
Given the substantial resources and large customer base of the RBOCs, Newbridge
could face competition from these companies should they satisfy these conditions
and elect to manufacture networking products. Notwithstanding the deregulatory
process in the United States and elsewhere, governmental communications
regulatory authorities have promulgated regulations which, among other things,
set installation and equipment standards for private telecommunications systems
and require that all newly
Page 16
<PAGE>
installed hardware be registered and meet certain governmental standards.
Carriers also establish standards for interconnection and integration of network
equipment with public switched telephone networks. Although the Company designs
its products to comply with international standards, to the extent those
standards are changed or if the Company is unable to manufacture standards
compliant products on a cost effective basis, the Company's business may be
adversely affected. See "Business -- Government Regulation" and "-- Networking
Industry".
Foreign Currency Exposure and Concentration of Credit Risk
Because substantial portions of the Company's sales, cost of sales and other
expenses are denominated in U.S. dollars and Pounds Sterling, the Company's
results of operations are subject to change based on fluctuations in the rates
of exchange of those currencies for the Canadian dollar. The Company uses
financial instruments, principally forward exchange contracts, in its management
of foreign currency exposures. Realized and unrealized foreign exchange
contracts are recognized and offset foreign exchange gains and losses on the
underlying net asset or net liability position. These contracts primarily
require the Company to purchase and sell certain foreign currencies with or for
Canadian dollars at contractual rates. Several major financial institutions are
counterparties to the Company's financial instruments. It is Company practice to
monitor the financial standing of the counterparties and limit the amount of
exposure to any one institution. The Company may be exposed to a credit loss in
the event of nonperformance by the counterparties to these contracts. With
respect to accounts receivable, concentration of credit risk is limited due to
the diverse areas covered by the Company's operations. The Company has credit
evaluation, approval and monitoring processes intended to mitigate potential
credit risks. Anticipated bad debt loss has been provided for in the allowance
for doubtful accounts. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Other Factors
The Company further cautions that the factors referred to above and those
referred to as part of particular forward-looking statements may not be
exhaustive, and that new risk factors emerge from time to time in its rapidly
changing business. The Company does not undertake to update any forward-looking
statements it may make or has made on its behalf to reflect changes in its
expectations or assumptions or the risks and uncertainties referred to.
CERTAIN TAX CONSIDERATIONS
The following discussion outlines Canadian and United States federal income tax
consequences of ownership of the Company's Common Shares that could be relevant
for persons who are not residents of Canada.
Gains on Disposition of Common Shares
Under the provisions of the 1980 Convention between Canada and the United States
with respect to Taxes on Income and on Capital, as amended by the 1983, 1984 and
1995 Protocols thereto (the "Convention"), United States corporations or
individual residents of the United States ("U.S. Shareholders") that do not, and
are not deemed to, use or hold the Common Shares in carrying on a business in
Canada ("Unconnected U.S. Shareholders") generally will not be subject to
Canadian federal income tax on any capital gain recognized upon the disposition
of their Common Shares, provided that the value of the Common Shares is not
derived principally from real estate situated in Canada, as determined at the
time of their disposition. The Company is of the view that the Common Shares
currently do not derive their value principally from such real estate.
Page 17
<PAGE>
For United States federal income tax purposes, an Unconnected U.S. Shareholder
generally will recognize a capital gain or loss on the disposition of Common
Shares in an amount equal to the difference between the amount realized upon the
disposition and the U.S. Shareholder's adjusted basis in the Common Shares.
Capital losses are deductible to the extent of capital gains and, in the case of
non-corporate U.S. Shareholders, may be used to offset up to US$3,000 of
ordinary income (US$1,500 in the case of married individuals filing separately).
Taxation of Dividends
Dividends paid to Unconnected U.S. Shareholders owning less than 10% of the
voting shares of the Company generally are subject to Canadian withholding tax
at the reduced rate of 15% under the Convention. In the case of a corporate
Unconnected U.S. Shareholder owning 10% or more of such shares, the withholding
tax rate generally is reduced to 5% under the Convention.
Unconnected U.S. Shareholders generally will treat the gross amount of dividends
paid by the Company, without reduction for Canadian withholding taxes, as
ordinary taxable income for United States federal income tax purposes. In
certain circumstances, however, Unconnected U.S. Shareholders may be eligible to
receive a foreign tax credit for such taxes and, in the case of a corporate
Unconnected U.S. Shareholder owning 10% or more of the voting shares of the
Company, for a portion of the Canadian taxes paid by the Company itself.
Dividends paid by the Company to United States corporations will not, however,
give rise to the dividends received deduction generally allowed those
corporations under United States federal income tax law.
Item 6. SELECTED FINANCIAL DATA
The income statement data of the Company presented below for each of the five
fiscal years ended April 30, 1997 and the balance sheet data as at April 30,
1997, 1996, 1995, 1994, and 1993 have been derived from the audited Consolidated
Financial Statements of the Company that are included as part of this Annual
Report on Form 10-K and the Company's Annual Reports on Form 10-K for the prior
three fiscal years.
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Annual Report on Form 10-K.
Page 18
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Canadian dollars, in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Sales $1,376,727 $921,244 $800,523 $552,521 $307,570
Cost of sales 507,588 319,745 260,471 171,922 115,949
--------- ------- ------- ------- -------
Gross margin 869,139 601,499 540,052 380,599 191,621
Expenses
Selling, general and administrative 346,106 231,060 196,073 115,670 78,225
Research and development 155,330 97,205 66,066 38,578 26,746
Purchased research and
development in process /(1)/ 96,940 -- -- -- --
--------- ------- ------- ------- -------
Income from operations 270,763 273,234 277,913 226,351 86,650
Interest income, net 18,605 22,607 15,952 8,941 181
Gain on sale of long term investments -- 12,715 -- -- --
Other expenses (9,615) (3,443) (6,512) (1,389) (2,611)
--------- ------- ------- ------- -------
Earnings before income taxes
and non-controlling interest 279,753 305,113 287,353 233,903 84,220
Provision for income taxes 117,718 100,779 96,944 76,092 24,198
Non-controlling interest 5,118 1,470 2,019 -- --
--------- ------- ------- ------- -------
Net earnings $ 156,917 $202,864 $188,390 $157,811 $ 60,022
========= ======= ======= ======= =======
Net earnings per share
Basic 92(c) $1.22 $1.16 99(c) 41(c)
Fully diluted 91 1.19 1.11 94 38
Weighted average number of shares
Basic 170,510 165,842 162,891 159,427 147,428
Fully diluted 184,595 179,665 175,823 171,868 161,049
U.S. GAAP /(2)/
Net earnings $156,917 $202,864 $188,390 $157,811 $60,022
Net earnings per share
Primary 90(c) $1.19 $1.13 94(c) 38(c)
Fully diluted 90 1.17 1.13 94 38
Fully diluted-- US$ US$0.66 US$0.86 US$0.82 US$0.71 US$0.31
Weighted average number of shares
Primary 174,525 170,990 166,646 167,137 157,336
Fully diluted 174,525 172,780 166,646 167,137 158,077
</TABLE>
Page 19
<PAGE>
<TABLE>
<CAPTION>
As at April 30,
-------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Canadian dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 638,392 $ 658,087 $491,888 $351,458 $219,964
Total assets 1,496,703 1,093,417 827,163 584,764 383,877
Short term debt (including current
portion of long term obligations) 7,353 2,302 2,562 7,272 18,731
Long term obligations 10,817 860 3,493 7,767 14,447
Shareholders' equity 1,126,499 902,686 674,645 473,572 288,154
</TABLE>
- --------------
/(1)/ See Note 5 to the Consolidated Financial Statements.
/(2)/ Financial information in this Annual Report on Form 10-K is presented in
accordance with accounting principles generally accepted in Canada, which
also conform in all material respects with accounting principles generally
accepted in the United States ("U.S. GAAP"), except for the disclosure of
certain cash equivalents on the Consolidated Balance Sheets and investing
activities on the Consolidated Statements of Cash Flows, as disclosed in
Note 2, the write off of purchased research and development in process, as
disclosed in Note 5, and the method of calculation of earnings per share,
as reconciled in Note 15.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain parts of the following discussion and analysis may be forward-looking
statements that involve a number of risks and uncertainties. As a consequence,
actual results might differ materially from results forecast or suggested in any
forward-looking statements. See "Market for Registrant's Common Equity and
Related Stockholder Matters -- Cautionary Statement Regarding Forward-Looking
Information".
During the fiscal year ended April 30, 1997, the Company acquired a 100% equity
interest in Ungermann-Bass Networks, Inc. ("UB Networks"), a manufacturer of
local area network equipment based in Santa Clara, California, for cash
consideration of $146,590,000. The operating results of UB Networks are
consolidated into the operating results of the Company commencing in the fourth
fiscal quarter ended April 30, 1997. During fiscal 1997 the Company also
acquired controlling interests in Coasin Chile S.A. ("Coasin"), a Chilean
systems integrator of networking products; Danring A/S ("Danring"), a Danish
systems integrator of networking products; Ouest Standard Telematique S.A.
("OST"), a manufacturer of local area network equipment based in France; and
Acacia S.A. ("Acacia"), a holding company with controlling interests in systems
integrators of networking products in Brazil, Costa Rica and Argentina. Total
consideration paid during fiscal 1997 for these acquisitions was $69,218,000.
The Company's sales of $1,376,727,000 represented an increase of 49% over sales
of $921,244,000 for fiscal 1996. Net earnings for fiscal 1997 were $156,917,000
compared to $202,864,000 for fiscal 1996. Net earnings for fiscal 1997 on a pro
forma basis, excluding the write off of $96,940,000 of purchased research and
development in process related to the acquisition of UB Networks, were
$253,857,000, which would represent a 25% increase over net earnings for fiscal
1996. An increase in sales, offset by a decrease in the gross margin and an
increase in operating expenses, both expressed as a percentage of sales,
resulted in the increase in net earnings on a pro forma basis in fiscal 1997,
but the write off of purchased research and development in process resulted in a
decrease in actual net earnings.
Page 20
<PAGE>
The Company's sales of $921,244,000 for fiscal 1996 represented an increase of
15% over sales of $800,523,000 for fiscal 1995. Net earnings for fiscal 1996
were $202,864,000 compared to $188,390,000 for fiscal 1995. Although an increase
in sales for fiscal 1996 over sales for fiscal 1995 was offset by an increase in
operating expenses and a decrease in gross margin, both expressed as a
percentage of sales, a gain on the sale of a long term investment of $12,715,000
resulted in an improvement in net earnings.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated, the percentage
of sales represented by certain items in the Company's Consolidated Statements
of Earnings.
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales 36.9 34.7 32.5
----- ----- -----
Gross margin 63.1 65.3 67.5
Expenses
Selling, general and administrative 25.1 25.1 24.5
Research and development 11.3 10.5 8.3
Purchased research and
development in process 7.0 -- --
----- ----- -----
Income from operations 19.7 29.7 34.7
Interest income, net 1.3 2.4 2.0
Other income (expenses) (0.7) 1.0 (0.8)
----- ----- -----
Earnings before income taxes
and non-controlling interest 20.3 33.1 35.9
Provision for income taxes 8.5 10.9 12.1
Non-controlling interest 0.4 0.2 0.3
----- ----- -----
Net earnings 11.4% 22.0% 23.5%
===== ===== =====
<CAPTION>
Sales
Fiscal Year Ended April 30,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
(Canadian dollars in thousands)
<S> <C> <C> <C>
Sales $1,376,727 $921,244 $800,523
========= ======= =======
Increase over prior year 49% 15% 45%
Proportion of revenue from:
Carriers 66% 65% 66%
Corporate networks 34% 35% 34%
</TABLE>
Product line enhancements and new product lines introduced in fiscal 1996 and
1997 resulted in increased sales to the carrier and corporate networking markets
worldwide. These increases
Page 21
<PAGE>
primarily reflected growth in sales in Asia, Latin America and Europe. Sales in
fiscal 1997 included approximately $90,000,000 of product and service revenue
generated by UB Networks, which the Company acquired in January 1997. Deliveries
to original equipment manufacturers (OEMs) for carrier customers and deliveries
under certain large contracts with carriers contributed significantly to sales
in fiscal 1997, fiscal 1996 and fiscal 1995. Sales to Siemens A.G. and
subsidiaries, generally under OEM arrangements for resale to end users, were 18%
of total sales for fiscal 1997 (less than 10% in fiscal 1996 and fiscal 1995).
The Company's sales in fiscal 1997 to carriers for central office applications
for tariffed services, for use within their internal networks and for resale to
end users increased proportionately with the overall increase in sales relative
to fiscal 1996 and fiscal 1995. With the acquisition of UB Networks, Management
expects the proportion of revenues derived from corporate network customers to
increase in fiscal 1998 relative to fiscal 1997. The number of networking
switches and other products supplied by the Company continued to increase in
each of the last two fiscal years. Average selling prices declined slightly in
fiscal 1997 relative to fiscal 1996 and in fiscal 1996 relative to fiscal 1995,
primarily due to discounts on certain large contracts for products for more
basic networking applications outside of North America and Western Europe.
Increases in sales for fiscal 1997 and fiscal 1996 reflected growth in sales of
products based on ATM (asynchronous transfer mode) and other packet-based
technologies worldwide and advanced circuit switched networking products in
Asia, Latin America and Europe. The proportion of product sales from products
based on packet technologies was in excess of 40% in fiscal 1997 compared to
less than 30% for fiscal 1996. The Company expects the proportion of sales
derived from products based on packet technologies to increase relative to sales
derived from circuit switched networking products in fiscal 1998 when compared
to fiscal 1997. As a result quarter to quarter revenues may be subject to
greater variability due to longer sales cycles often associated with the
adoption of new technologies.
The Company's sales and service functions are divided into three main geographic
regions: (1) the Americas Region (consisting of North and South America); (2)
the European Region (consisting of Europe, the Middle East and Africa); and (3)
the Asia Pacific Region (consisting of countries in the Asia Pacific region and
Russia). The percentage of consolidated sales derived by sales management in
each geographic region for fiscal 1997, 1996 and 1995 are set forth below.
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Americas Region 49% 55% 59%
European Region 33% 30% 28%
Asia Pacific Region 18% 15% 13%
</TABLE>
The Company is subject to a degree of variation in quarterly sales as a
substantial proportion of sales is derived from less mature, high growth markets
outside of North America and Western Europe. For additional geographic segment
information, see Note 17 to the Consolidated Financial Statements.
A significant portion of the Company's sales are derived from products shipped
against orders received in each fiscal quarter and from products shipped against
firm purchase orders released in that fiscal quarter. In addition, customers
have the ability to revise or cancel orders and change delivery schedules
without significant penalty. As a result, the Company operates without
significant backlog and schedules some production and budgets expenses based on
forecasts of sales, which are difficult to predict. Unforeseen delays in product
deliveries or closing large sales, introductions of new products by the Company
or its competitors, seasonal
Page 22
<PAGE>
patterns of customer capital expenditures or other conditions affecting the
networking industry in particular or the economy generally during any fiscal
quarter could cause quarterly revenue and, to a greater degree, net earnings, to
vary greatly.
Because substantial portions of the Company's sales, cost of sales and other
expenses are denominated in U.S. dollars and Pounds Sterling, the Company's
results of operations are subject to change based on fluctuations in the rates
of exchange of those currencies for the Canadian dollar. During fiscal 1997, the
decrease in the value of the Canadian dollar against the U.S. dollar and the
Pound Sterling relative to exchange rates in fiscal 1996, resulted in no
material variance in reported sales, gross margin or income from operations.
During fiscal 1996, the increase in the value of the Canadian dollar against the
U.S. dollar and the Pound Sterling relative to exchange rates in fiscal 1995,
resulted in no material variance in reported sales, gross margin or income from
operations. For information related to the Company's policies in its management
of foreign exchange exposures, see Note 11 to the Consolidated Financial
Statements.
Cost of Sales and Gross Margin
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
------------------------------------------
1997 1996 1995
-------- -------- --------
(Canadian dollars in thousands)
<S> <C> <C> <C>
Gross margin $869,139 $601,499 $540,052
======= ======= =======
As a percent of sales 63% 65% 67%
</TABLE>
Cost of sales consists of manufacturing costs, warranty expense and costs
associated with the provision of services. The decline in the gross margin as a
percentage of sales in fiscal 1997 relative to fiscal 1996 was primarily the
result of gross margins earned on product sales and service revenues of UB
Networks and other companies acquired during fiscal 1997, which have been below
the average gross margins earned on the Company's other products. The Company
expects the impact of these acquisitions on the gross margin to be greater in
fiscal 1998 compared to fiscal 1997, particularly as only one fiscal quarter of
the operating results of UB Networks are included in the fiscal 1997 results.
The decline in gross margin as a percentage of sales in fiscal 1996 relative to
fiscal 1995 was principally due to a decline in gross margins derived from the
provision of services as the Company invested in programs to strengthen its
customer support and network services organizations as well as an increase in
the proportion of sales derived from service revenues, which yield lower gross
margins than do product sales.
The slight declines in average selling prices in fiscal 1997 relative to fiscal
1996 and in fiscal 1996 relative to fiscal 1995 were generally offset by
reductions in per unit costs of manufacturing, resulting in no material impact
on gross margins. Many component prices are negotiated by the Company with its
suppliers. Component price decreases have been principally due to increases in
volumes purchased. Shortages of certain components can result in increased
component prices.
Page 23
<PAGE>
Selling, General and Administrative Expenses
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
------------------------------------------
1997 1996 1995
-------- -------- --------
(Canadian dollars in thousands)
<S> <C> <C> <C>
Selling, general and administrative expenses $346,106 $231,060 $196,073
======= ======= =======
As a percent of sales 25% 25% 24%
Increase over prior year 50% 18% 70%
</TABLE>
Selling, general and administrative expenses increased in fiscal 1997 and in
fiscal 1996 primarily as a result of increases in sales personnel. The majority
of the increase in personnel in fiscal 1997 was the result of acquisitions made
to enhance the Company's business and diversify its marketing and distribution
channels. Incremental hiring and spending made during fiscal 1997 and 1996 was
directed at programs to strengthen the Company's sales and support
infrastructure throughout the world and to market new products.
Research and Development
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
------------------------------------------
1997 1996 1995
-------- -------- --------
(Canadian dollars in thousands)
<S> <C> <C> <C>
Gross research and development expenditures $195,229 $130,851 $97,905
Investment tax credits 26,400 21,974 22,504
Customer, government and other funding 9,484 7,919 6,509
Net deferral (amortization) of
software development costs 4,015 3,753 2,826
------- ------ ------
Net research and development expenses $155,330 $97,205 $66,066
======= ====== ======
Gross expenditures as a percent of sales 14% 14% 12%
Recoveries as a percent of gross expenditures 20% 26% 33%
Net research and development
expenses as a percent of sales 11% 11% 8%
</TABLE>
Research and development expenditures consist primarily of software and hardware
engineering personnel expenses, costs associated with equipment and facilities,
and subcontracted research and development costs. The increased costs in fiscal
1997 and fiscal 1996 reflect spending on new networking products, features and
interfaces, particularly for ATM platforms in carrier, carrier access and
enterprise network applications and network and service management software.
Recoveries decreased as a percentage of gross expenditures in fiscal 1997
compared to fiscal 1996, and in fiscal 1996 compared to fiscal 1995, due to a
decline in the proportion of research and development expenditures eligible for
investment tax credits and due to other forms of recoveries increasing at rates
less than the growth of gross research and development expenditures. Based on
Management's estimates of the proportion of fiscal 1998 gross research and
development expenditures eligible for investment tax credits, current levels of
committed funding, and estimated amortization of deferred software development
costs, Management expects the level of recoveries as a percentage of gross
research and development expenditures in fiscal 1998 to decline relative to
fiscal 1997.
Page 24
<PAGE>
The markets for the Company's products are characterized by continuing
technological change. As a result, Management believes that continued
significant expenditures for research and development will be required in the
future.
Purchased Research and Development In Process
Purchased research and development in process of $96,940,000 in fiscal 1997
related to the acquisition of UB Networks. The amount of the purchase price of
UB Networks allocated to purchased research and development in process was
determined through valuation techniques common in the high technology industry.
Under U.S. GAAP, research and development in process acquired by the Company on
the acquisition of UB Networks was written off against net earnings upon
acquisition in the third fiscal quarter ended January 26, 1997. Under accounting
principles generally accepted in Canada research and development in process
acquired by the Company on the acquisition of UB Networks was capitalized upon
acquisition and disclosed on the Consolidated Balance Sheet as at January 26,
1997. Upon review of the recoverability of the research and development in
process, undertaken during the fourth quarter of the fiscal year ended April 30,
1997, the Company determined that the purchased research and development in
process no longer met all the criteria for deferral and accordingly the balance
has been written off as a charge to earnings for the fourth fiscal quarter. The
Company has significantly altered product plans associated with the research and
development projects and has concluded that recoverability cannot be reasonably
regarded as assured. In addition, Management has determined that adequate
resources may not be made available in future to complete the projects
associated with the purchased in process research and development, as originally
defined.
Interest and Other Expenses
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
------------------------------------------
1997 1996 1995
-------- -------- --------
(Canadian dollars in thousands)
<S> <C> <C> <C>
Interest income $19,956 $23,193 $17,059
Interest expense on long term obligations 1,351 586 1,107
Other expenses 9,615 3,443 6,512
</TABLE>
Interest income for fiscal 1997 declined compared to fiscal 1996 due to a
decline in the cash position maintained, particularly in the latter part of
fiscal 1997, and due to a decline in interest rates earned on investments.
Interest income for fiscal 1996 increased over fiscal 1995 as a result of the
increased cash position maintained throughout fiscal 1996. Interest expense on
long term obligations increased in fiscal 1997 due to the assumption of long
term obligations of companies acquired by the Company during fiscal 1997.
Reduced borrowings in fiscal 1996 relative to fiscal 1995 resulted in a decline
in interest expense on long term obligations.
Other expenses represented less than 1% of sales in fiscal 1997, fiscal 1996 and
fiscal 1995.
Gain on Sale of Long Term Investment
In fiscal 1996 the Company sold its minority equity interest in InSoft, Inc.
("InSoft"), a privately held multimedia software company. The disposition was
effected through a merger in which InSoft shares were exchanged for common
shares of the acquirer, which are publicly traded. The Company recognized a gain
in fiscal 1996 of $12,715,000 on the sale of its InSoft shares, representing the
excess of the market value of the shares of the acquirer received, discounted to
reflect certain restrictions on resale, over the cost to the Company of the
InSoft shares exchanged.
Page 25
<PAGE>
Income Taxes
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
------------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income tax rate 42% 33% 34%
</TABLE>
The income tax rate for fiscal 1997 was 31% of earnings before income taxes and
non-controlling interest, excluding the expense related to purchased research
and development in process. The composite rates of income tax for fiscal 1997,
1996 and 1995 were reduced from the statutory rate primarily as a result of the
application of certain deductions related to manufacturing and processing
activities and to research and development expenditures in Canada. Future
changes in the composite rate of income tax will be primarily due to the
relative profitability of operations and the national tax policies in each of
the various countries in which the Company operates. Management believes that
the composite rate of income tax will remain lower than the statutory rate
because of the deductibility related to manufacturing and processing activities
and research and development expenditures in Canada as well as other tax
planning measures undertaken by the Company. See Note 14 to the Consolidated
Financial Statements.
Non-Controlling Interest
The non-controlling interests' share of net earnings of $5,118,000 in fiscal
1997, $1,470,000 in fiscal 1996 and $2,019,000 in fiscal 1995 was due primarily
to net earnings of Transistemas S.A., an Argentine systems integrator of
networking products. The Company has a 51% equity interest in Transistemas S.A.
Net Earnings
Net earnings for fiscal 1997 were $156,917,000 compared to $202,864,000 for
fiscal 1996. Net earnings for fiscal 1997 on a pro forma basis, excluding the
write off of $96,940,000 of purchased research and development in process
related to the acquisition of UB Networks, were $253,857,000, which would
represent a 25% increase over net earnings for fiscal 1996. Although sales
increased 49% in fiscal 1997 over fiscal 1996, a decline in the gross margin and
an increase in operating expenses, both expressed as a percentage of sales,
offset a portion of the incremental profitability associated with the sales
increase. In addition, net earnings of fiscal 1996 included a gain on the sale
of a long term investment of $12,715,000.
Net earnings for fiscal 1996 were $202,864,000 compared to $188,390,000 for
fiscal 1995. Although an increase in sales for fiscal 1996 over sales for fiscal
1995 was offset by an increase in operating expenses and a decrease in gross
margin, both expressed as a percentage of sales, a gain on the sale of a long
term investment of $12,715,000 resulted in an improvement in net earnings.
RECONCILIATION OF FINANCIAL RESULTS TO UNITED STATES ACCOUNTING PRINCIPLES
The Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in Canada, which also conform in all
material respects with accounting principles generally accepted in the United
States, except for the disclosure of certain cash equivalents on the
Consolidated Balance Sheets and investing activities on the Consolidated
Statements of Cash Flows, as disclosed in Note 2, the write off of purchased
research and development in process, as disclosed in Note 5, and the method of
calculation of earnings per share, as reconciled in Note 15. Other than the
accounting treatment associated with any future acquisitions or mergers,
Management expects that the differences in future years will not be significant.
Page 26
<PAGE>
FINANCIAL CONDITION
During the fiscal year ended April 30, 1997 working capital decreased from
$658,087,000 to $638,392,000. As at April 30, 1997 the Company had $333,904,000
of cash and cash equivalents, which represented a decrease of $121,845,000
during fiscal 1997. The decrease was primarily the result of cash outlays
associated with acquisitions made in fiscal 1997 of $220,645,000. Offsetting the
cash outflow related to acquisitions was net earnings of $156,917,000 plus the
non-cash expense of $96,940,000 associated with the write off of purchased
research and development in process, less additions to property, plant and
equipment of $131,641,000.
On January 17, 1997, the Company acquired a 100% equity interest in UB Networks,
a manufacturer of local area network equipment based in Santa Clara, California,
by the purchase of shares for cash consideration of $146,590,000. The purchase
price includes professional fees and other direct costs of the acquisition, and
excludes additional contingent payments which may be made over the next two
years calculated as 50% of the gross margin earned on UB Networks' products
above a certain amount which approximates the gross margin earned on the
products prior to the acquisition, up to a maximum of 50% of the purchase price
paid to the seller. The acquisition has been accounted for by the purchase
method of accounting.
Also during fiscal 1997 the Company acquired controlling interests in Coasin, a
Chilean systems integrator of networking products; Danring, a Danish systems
integrator of networking products; OST, a manufacturer of local area network
equipment based in France; and Acacia, a holding company with controlling
interests in systems integrators of networking products in Brazil, Costa Rica
and Argentina. The cash consideration paid for the controlling interests
acquired was $69,218,000 in aggregate. Certain of these acquisitions have
provisions for contingent payments based on financial performance. The maximum
incremental contingent payments total $19,888,000. All of these acquisitions
were accounted for by the purchase method of accounting.
Two principal components of the Company's working capital are accounts
receivable and inventory. Management believes that the payment terms and
conditions extended to the Company's customers, arrangements with the Company's
suppliers, and the levels of inventory the Company carries relative to its
levels of sales are consistent with practices generally prevailing in the
networking industry.
Existing short term bank credit facilities consist of operating lines of credit
with certain banks in the aggregate amount of $106,135,000. At April 30, 1997
Coasin and Acacia were utilizing $12,820,000 under these lines of credit.
Management anticipates that capital expenditures for fiscal 1998 will exceed
those of fiscal 1997 as the Company plans to invest in new facilities in Canada,
in land and facilities in the metropolitan area of Washington, D.C., in research
and development and manufacturing equipment and in information systems. The
Company intends to extinguish its existing long term obligations as they become
due, and may also increase its current investments in subsidiaries and
associated companies. The Company intends to fund the increased capital
expenditures, retirement of long term obligations and increased investments with
existing cash and cash expected to be generated from operations during fiscal
1998. In addition, the Company may use a portion of its cash resources,
supplemented as appropriate by the issuance of shares or debt, to extend or
enhance its business and diversify its marketing and distribution channels
through acquisitions of or investments in businesses, products or technologies
or through the formation of strategic partnerships with other companies.
Page 27
<PAGE>
During August 1996, the Company filed a notice of intention with The Toronto
Stock Exchange to make a normal course issuer bid for common share repurchases
in open market transactions in the United States and Canada. The Company may
purchase up to 4,000,000 outstanding Common Shares in future if Management
considers such investments appropriate. During fiscal 1997, the Company did not
purchase any of its Common Shares. During fiscal 1996, the Company purchased
1,000,000 (fiscal 1995 -- 200,000) of its issued and outstanding Common Shares
for $28,209,000 (fiscal 1995 -- $4,674,000) in open market transactions.
Management believes that the Company's liquidity in the form of existing cash
resources and its credit facilities, as well as cash generated from operations,
will prove adequate to meet its operating and capital expenditure requirements
through the end of fiscal 1998 and into the foreseeable future.
Management believes that inflation did not have a material effect on operations
during the fiscal year ended April 30, 1997.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are filed as part of
this Annual Report on Form 10-K:
Financial Statements
Auditors' Report to the Shareholders
Consolidated Statements of Earnings and Retained Earnings for
the years ended April 30, 1997, 1996 and 1995
Consolidated Balance Sheets as at April 30, 1997 and 1996
Consolidated Statements of Cash Flows for the
years ended April 30, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the
years ended April 30, 1997, 1996 and 1995
Notes to the Consolidated Financial Statements
Selected Quarterly Financial Data (unaudited)
Page 28
<PAGE>
AUDITORS' REPORT
To the Shareholders of Newbridge Networks Corporation:
We have audited the consolidated balance sheets of Newbridge Networks
Corporation as at April 30, 1997 and 1996 and the consolidated statements of
earnings, shareholders' equity and cash flows for the years ended April 30,
1997, 1996 and 1995. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 April 30, 1997
and 1996 and the results of its operations and the changes in its financial
position for the years ended April 30, 1997, 1996 and 1995 in accordance with
accounting principles generally accepted in Canada which, except as disclosed in
Note 2, Note 5 and Note 15 to the consolidated financial statements, also
conform in all material respects with accounting principles generally accepted
in the United States.
/s/ Deloitte and Touche
Chartered Accountants
Ottawa, Canada
June 2, 1997
(June 24, 1997 for Note 18)
Page 29
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Canadian dollars, amounts in thousands except per share data)
<TABLE>
<CAPTION>
Years Ended April 30,
---------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Sales $1,376,727 $921,244 $800,523
Cost of sales 507,588 319,745 260,471
--------- ------- -------
Gross margin 869,139 601,499 540,052
Expenses
Selling, general and administrative 346,106 231,060 196,073
Research and development 155,330 97,205 66,066
Purchased research and development
in process (Note 5) 96,940 -- --
--------- ------- -------
Income from operations 270,763 273,234 277,913
Interest income 19,956 23,193 17,059
Interest expense on long term obligations (1,351) (586) (1,107)
Gain on sale of long term investment (Note 13) -- 12,715 --
Other expenses (9,615) (3,443) (6,512)
--------- ------- -------
Earnings before income taxes
and non-controlling interest 279,753 305,113 287,353
Provision for income taxes (Note 14) 117,718 100,779 96,944
Non-controlling interest 5,118 1,470 2,019
--------- ------- -------
Net earnings $ 156,917 $202,864 $188,390
========= ======= =======
Earnings per share (Note 15)
Basic 92(c) $1.22 $1.16
Fully diluted 91(c) $1.19 $1.11
Weighted average number of shares
Basic 170,510 165,842 162,891
Fully diluted 184,595 179,665 175,823
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
Page 30
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Canadian dollars in thousands)
<TABLE>
<CAPTION>
April 30, April 30,
1997 1996
<S> <C> <C>
Assets
Cash and cash equivalents (Note 2) $ 333,904 $ 455,749
Accounts receivable, net of provision for returns and
doubtful accounts of $10,572 (April 30, 1996 - $6,651) 387,338 244,784
Inventories (Note 3) 159,495 103,555
Prepaid expenses and other current assets 64,191 21,107
--------- ---------
944,928 825,195
Property, plant and equipment (Note 4) 294,939 193,796
Deferred income taxes 37,393 --
Goodwill (Note 6) 125,565 26,672
Software development costs (Note 7) 22,299 18,285
Other assets (Note 8) 71,579 29,469
--------- ---------
$1,496,703 $1,093,417
========= =========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 105,884 $ 64,289
Accrued liabilities 95,804 46,033
Provision for restructuring (Note 5) 35,944 --
Income taxes 61,551 54,484
Current portion of long term obligations 7,353 2,302
--------- ---------
306,536 167,108
Long term obligations (Note 10) 10,817 860
Deferred income taxes 32,439 9,902
Non-controlling interest 20,412 12,861
--------- ---------
370,204 190,731
--------- ---------
Share capital (Note 12)
Common shares - 171,858,984 outstanding
(April 30, 1996 - 168,676,280 outstanding) 351,388 290,170
Accumulated foreign currency translation adjustment 6,963 1,285
Retained earnings 768,148 611,231
--------- ---------
1,126,499 902,686
--------- ---------
$1,496,703 $1,093,417
========= =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
Page 31
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian dollars in thousands)
<TABLE>
<CAPTION>
Years Ended April 30,
--------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Operating activities
Net earnings $156,917 $202,864 $188,390
Items not affecting cash
Amortization 82,987 58,189 37,607
Deferred income taxes 22,989 4,046 3,166
Non-controlling interest 5,118 1,470 2,019
Purchased research and development in process 96,940 -- --
Gain on sale of long term investment -- (12,715) --
Other 7,002 (1,857) 2,545
Cash effect of changes in:
Accounts receivable (87,976) (63,392) (48,858)
Inventories (20,767) (40,785) (20,099)
Prepaid expenses and other current assets (13,668) (627) (7,083)
Accounts payable and accrued liabilities (34,615) 20,840 12,133
Income taxes 8,447 23,757 17,176
------- ------- -------
223,374 191,790 186,996
------- ------- -------
Investing activities
Additions to property, plant and equipment (131,641) (96,235) (81,763)
Acquisitions of subsidiaries,
excluding cash acquired (Note 5) (220,645) (1,622) (19,748)
Capitalized software development costs (12,457) (10,476) (8,575)
Proceeds on sale of long term investment (Note 13) -- 18,364 --
Additions to other assets (34,858) (14,983) (5,723)
------- ------- -------
(399,601) (104,952) (115,809)
------- ------- -------
Financing activities
Issue of common shares 54,096 50,068 12,079
Purchase of common shares -- (28,209) (4,674)
Increase in long term obligations 1,515 -- 753
Repayment of long term obligations (6,733) (2,765) (10,340)
------- ------- -------
48,878 19,094 (2,182)
------- ------- -------
Increase (decrease) in cash and cash equivalents (127,349) 105,932 69,005
Effect of foreign currency translation on cash (2,585) 2,186 1,467
Cash from acquisition of subsidiaries 8,089 (526) 1,900
------- ------- -------
(121,845) 107,592 72,372
Cash and cash equivalents, beginning of the year 455,749 348,157 275,785
------- ------- -------
Cash and cash equivalents, end of the year $333,904 $455,749 $348,157
======= ======= =======
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
Page 32
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Canadian dollars in thousands)
<TABLE>
<CAPTION>
Common Shares Accumulated
-------------------------- Foreign Retained Shareholders'
Number Amount Currency Earnings Equity
<S> <C> <C> <C> <C> <C>
At April 30, 1994 161,564,936 $247,362 $6,233 $219,977 $473,572
Exercise of employees' and
directors' options 3,149,680 12,079 12,079
Purchase of the Company's shares (200,000) (4,674) (4,674)
Income tax benefit related
to stock options 7,679 7,679
Effect of foreign currency translation (2,401) (2,401)
Net earnings 188,390 188,390
----------- ------- ----- ------- ---------
At April 30, 1995 164,514,616 262,446 3,832 408,367 674,645
Exercise of employees' and
directors' options 5,161,664 50,068 50,068
Purchase of the Company's shares (1,000,000) (28,209) (28,209)
Income tax benefit related
to stock options 5,865 5,865
Effect of foreign currency translation (2,547) (2,547)
Net earnings 202,864 202,864
----------- ------- ----- ------- ---------
At April 30, 1996 168,676,280 290,170 1,285 611,231 902,686
Exercise of employees' and
directors' options 3,182,704 54,096 54,096
Income tax benefit related
to stock options 7,122 7,122
Effect of foreign currency translation 5,678 5,678
Net earnings 156,917 156,917
----------- ------- ----- ------- ---------
At April 30, 1997 171,858,984 $351,388 $6,963 $768,148 $1,126,499
=========== ======= ===== ======= =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
Page 33
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
1. Significant Accounting Policies
The Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in Canada. These principles are also
generally accepted in the United States in all material respects except for the
disclosure of certain cash equivalents on the Consolidated Balance Sheets and
investing activities on the Consolidated Statements of Cash Flows, as disclosed
in Note 2, the write off of purchased research and development in process, as
disclosed in Note 5, and the method of calculation of earnings per share, as
reconciled in Note 15.
Basis of Consolidation
The Consolidated Financial Statements include the accounts of the Company and
its subsidiaries. Investments in companies in which the Company has significant
influence are accounted for by the equity method. Investments in which the
Company does not control or have significant influence over the investee are
accounted for by the cost method.
Fiscal Year
The Company's fiscal year ends April 30. Interim fiscal quarters are 13 weeks
long and close on a Sunday except the fourth fiscal quarter, which closes April
30.
Revenue Recognition and Warranties
Revenue from product sales is generally recorded on shipment, with a provision
for estimated returns recorded at that time. In addition, a provision for
potential warranty claims is provided for at the time of sale, based on warranty
terms and prior claims experience. Service revenue is recognized when the
service is performed, or, in the case of maintenance contracts, is recognized as
costs are incurred to secure and fulfill the contract.
Government Incentives and Investment Tax Credits
Government incentives and investment tax credits are recorded as a reduction of
the expense or the cost of the asset acquired to which the incentive applies.
The benefits are recognized when the Company has complied with the terms and
conditions of the approved grant program or the applicable tax legislation.
Software Development Costs
Certain applications and systems software development costs are capitalized once
technical feasibility has been established for the product, the Company has
identified a market for the product and intends to market the developed product.
No other development costs are capitalized. Such capitalized costs are amortized
over the expected life of the related product.
Page 34
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
Inventories
Finished goods are valued at the lower of cost (first in, first out) and net
realizable value. Work in process and raw materials are valued at the lower of
cost and replacement cost.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Buildings and equipment are
generally amortized on a declining balance basis at rates calculated to amortize
the cost of the assets over their estimated useful lives. Leasehold improvements
are amortized using a straight line basis over the term of the lease.
Goodwill
Goodwill is stated at the difference between the Company's cost of the
investments less its proportionate share of the fair value of the net assets of
the subsidiaries. Goodwill is amortized on a straight line basis over the
estimated useful life of the goodwill, generally between ten and twenty years.
The recoverability of such costs is reviewed on an ongoing basis.
Foreign Currency Translation
The Consolidated Financial Statements are prepared using Canadian dollars. All
operations whose principal economic activities are undertaken in currencies
other than Canadian dollars have been determined to be self-sustaining.
The assets and liabilities of non-Canadian operations are translated at fiscal
year end exchange rates and the resulting unrealized exchange gains or losses
are accumulated as a separate component of shareholders' equity described in the
Consolidated Balance Sheets as "Accumulated foreign currency translation
adjustment." The income statements of such operations are translated at exchange
rates prevailing during the fiscal year.
Other monetary assets and liabilities, which are denominated in currencies
foreign to the local currency of any one operation, are translated to the local
currency at fiscal year end exchange rates, and transactions included in
earnings are translated at rates prevailing during the fiscal year. Exchange
gains and losses resulting from the translation of these amounts are included in
the Consolidated Statements of Earnings.
Use of Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company's management to make estimates that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods
presented. Actual results could differ from the estimates made by management.
Page 35
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
Accounting for Stock-Based Compensation
The United States Financial Accounting Standards Board ("FASB") Statement of
Accounting Standard No. 123 ("SFAS 123") maintains that the compensation cost
for stock-based plans should be measured using a fair value based method. The
Company currently calculates the compensation cost for its Consolidated Key
Employee Stock Option Plan in compliance with the provisions of the United
States Accounting Principles Board Opinion No. 25 ("APB 25") which allows no
compensation cost to be recorded provided that the exercise price of the options
granted is equal to the fair market value of the Company's stock as at the date
of the grant. The Company discloses, in the notes to the Consolidated Financial
Statements, the pro forma net earnings and earnings per share as if the fair
value method of measurement had been applied, as is permitted by SFAS 123.
Calculation of Earnings per Share
The United States Financial Accounting Standards Board ("FASB") issued the
Statement of Accounting Standard No. 128 ("SFAS 128") in February 1997 related
to changes to the methodologies used in calculating earnings per share under
U.S. GAAP. Under SFAS 128 primary earnings per share would be replaced by basic
earnings per share, the calculation of which, given the Company's capital
structure, would be the same as the calculation of basic earnings per share
under accounting principles generally accepted in Canada. The calculation of
fully diluted earnings per share under U.S. GAAP would be replaced by diluted
earnings per share, the calculation of which, given the Company's capital
structure, would be the same as the calculation of primary earnings per share
under U.S.
GAAP.
2. Cash and Cash Equivalents
Components of cash and cash equivalents are:
<TABLE>
<CAPTION>
April 30, 1997 April 30, 1996
---------------------- ----------------------
Amortized Market Amortized Market
Cost Value Cost Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Cash $197,007 $197,007 $285,054 $285,074
------- ------- ------- -------
Held to maturity marketable securities, maturing within one year:
Debt issued or guaranteed
by the U.S. Government -- -- 24,550 24,547
Debt issued or guaranteed
by Provincial
governments in Canada -- -- 13,552 13,585
Corporate debt securities 136,278 136,322 114,178 114,187
------- ------- ------- -------
136,278 136,322 152,280 152,319
------- ------- ------- --------
Available for sale marketable securities
Equity securities 619 619 18,415 18,415
------- ------- ------- --------
$333,904 $333,948 $455,749 $455,808
======= ======= ======= =======
</TABLE>
Page 36
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
Held to maturity marketable securities are investments with original maturities
of three months or more. Available for sale securities are common shares of
publicly traded companies, which have certain resale restrictions, principally
acquired upon the Company's disposition of its minority interest in InSoft, Inc.
(Note 13). Under U.S. GAAP held to maturity and available for sale marketable
securities would be disclosed as a separate caption on the Consolidated Balance
Sheets.
Held to maturity marketable securities are carried at amortized cost. The
unrealized gains and losses are not included in the Consolidated Statements of
Earnings as these gains and losses are unlikely to be realized due to the
Company's intent to hold the underlying securities to maturity. Available for
sale securities are carried at the lower of cost and market. Gains and losses on
marketable securities were as follows.
<TABLE>
<CAPTION>
1997 1996
-------- ------
<S> <C> <C>
Held to maturity marketable securities
Unrealized gains $ 44 $72
Unrealized losses -- 13
Realized gains -- --
Realized losses -- --
Available for sales marketable securities
Unrealized gains -- --
Unrealized losses -- --
Realized gains -- --
Realized losses 866 --
</TABLE>
If the Consolidated Statements of Cash Flows were prepared under U.S. GAAP,
purchases, maturities and sales of marketable securities would be disclosed as
an investing activity. Disclosure in the Consolidated Statements of Cash Flows
prepared under U.S. GAAP would be as follows.
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Investing activities in short
term marketable securities:
Held to maturity securities
Maturities $ 508,890 $ 343,000 $314,659
Purchases (475,092) (397,140) (205,439)
------- ------- -------
33,798 (54,140) 109,220
Investing activities, as reported (399,601) (104,952) (115,809)
-------- -------- -------
Investing activities, U.S. GAAP $(365,803) $(159,092) $ (6,589)
======= ======= ========
Increase (decrease) in cash and
cash equivalents, as reported $(121,845) $ 107,592 $ 72,372
Non-cash investing activities
Available for sale
securities (Note 13) -- (18,415) --
Investing activities in short
term marketable securities 33,798 (54,140) 109,220
--------- ------- -------
Increase (decrease) in cash and
cash equivalents, U.S. GAAP $ (88,047) $ 35,037 $181,592
========= ======== =======
</TABLE>
Page 37
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
<TABLE>
<CAPTION>
3. Inventories
April 30, April 30,
1997 1996
-------- ------
<S> <C> <C>
Finished goods $100,405 $ 60,824
Work in process 20,938 12,711
Raw materials 38,152 30,020
------- -------
$159,495 $103,555
======= =======
<CAPTION>
4. Property, Plant and Equipment
Amortization April 30, April 30,
Rate 1997 1996
--------------- -------- ------
<S> <C> <C> <C>
Land -- $ 5,571 $ 4,770
Buildings 2.5%--5% 72,779 49,128
Equipment 10%--50% 500,602 260,195
Furniture and fixtures 20% 34,485 16,256
Leasehold improvements Lease term 9,512 6,758
------- --------
622,949 337,107
Accumulated amortization (328,010) (143,311)
------- --------
$294,939 $193,796
======= ========
Capital leases included above $ 6,918 $ 6,466
======= =======
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Amortization on property,
plant and equipment $73,364 $48,662 $29,770
====== ====== ======
Amortization on property, plant and
equipment under capital leases $ 1,523 $ 1,627 $ 2,016
====== ====== ======
</TABLE>
Page 38
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
5. Acquisitions of Subsidiaries
Cash utilized in the acquisitions of subsidiaries is summarized as follows.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ------
<S> <C> <C> <C>
Acquisition of subsidiaries
excluding cash acquired
Ungermann-Bass Networks Inc. $(146,590) $ -- $ --
Coasin Chile S.A. (14,129) -- --
Danring A/S (11,144) -- --
Ouest Standard Telematique S.A. (34,231) -- --
Acacia S.A. (9,714) -- --
Advanced Computer Communications (3,971) -- (1,394)
Transistemas S.A. (866) (1,622) (18,354)
--------- ------ -------
$(220,645) $(1,622) $(19,748)
======== ====== =======
</TABLE>
Acquisition of Ungermann-Bass Networks Inc.
On January 17, 1997, the Company acquired a 100% equity interest in
Ungermann-Bass Networks, Inc. ("UB Networks"), a manufacturer of local area
network equipment based in Santa Clara, California, by the purchase of shares
for cash consideration of $146,590,000. The purchase price includes professional
fees and other direct costs of the acquisition, and excludes additional
contingent payments which may be made over the next two years calculated as 50%
of the gross margin earned on UB Networks' products above a certain amount which
approximates the gross margin earned on the products prior to the acquisition,
up to a maximum of 50% of the purchase price paid to the seller. The acquisition
has been accounted for by the purchase method of accounting. Goodwill is being
amortized on a straight line basis over a ten year period, commencing in the
fiscal period following that in which the investment was made. The
recoverability of goodwill is reviewed on an ongoing basis. The Company's
investment in UB Networks is summarized below.
<TABLE>
<S> <C>
Non-cash current assets $ 64,985
Property, plant and equipment 24,708
Deferred income tax assets 36,769
Purchased research and development in process 96,940
Goodwill 7,331
Other long term assets 8,290
--------
Non-cash assets acquired 239,023
--------
Provision for restructuring (53,979)
Other current liabilities (64,419)
Long term obligations assumed (836)
Non-controlling interest (1,060)
--------
Liabilities acquired (120,294)
--------
Net non-cash assets acquired 118,729
Cash acquired 11,981
--------
130,710
Goodwill upon acquisition 15,880
--------
Total consideration paid $146,590
========
</TABLE>
Page 39
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
The amount allocated to purchased research and development in process was
determined through valuation techniques common in the high technology industry.
Under U.S. GAAP, research and development in process acquired by the Company on
the acquisition of UB Networks was written off against net earnings upon
acquisition. Under accounting principles generally accepted in Canada research
and development in process acquired by the Company on the acquisition of UB
Networks was capitalized upon acquisition and disclosed on the Consolidated
Balance Sheet at January 26, 1997. Upon review of the recoverability of the
research and development in process, undertaken during the fourth quarter of the
fiscal year ended April 30, 1997, the Company determined that the purchased
research and development in process no longer met all the criteria for deferral
and accordingly the balance has been written off as a charge to earnings for the
fourth fiscal quarter. The Company has significantly altered product plans
associated with the research and development projects and has concluded that
recoverability cannot be reasonably regarded as assured. In addition, Management
has determined that adequate resources may not be made available in future to
complete the projects associated with the purchased in process research and
development, as originally defined.
The provision for restructuring relates to programs instituted by the Company to
integrate the operations of UB Networks with the Company and to eliminate
redundant functions. The components of the provision for restructuring and
related spending to April 30, 1997 are as follows.
<TABLE>
<CAPTION>
Reduction in Reduction Discontinued Other
Work Force in Facilities Activities Restructuring Total
------------ ------------- ------------ ------------- -----
<S> <C> <C> <C> <C> <C>
Provision upon
acquisition $26,153 $11,582 $9,787 $6,457 $53,979
Incurred to
April 30, 1997 9,496 970 4,478 3,091 18,035
------- ------- ----- ----- ------
Provision balances
at April 30, 1997 $16,657 $10,612 $5,309 $3,366 $35,944
====== ====== ===== ===== ======
</TABLE>
The provision for reduction in work force includes severance, related medical
and other benefits, relocation costs and other obligations to employees. The
provision includes termination benefits for approximately 300 employees. The
work force reductions are in all functions and in all regions in which UB
Networks operates. The Company anticipates that these work force reductions will
be substantially completed by the second quarter of fiscal 1998. The provision
for reduction in facilities comprises primarily lease payments and fixed costs
associated with plans to close sales, support and administrative facilities in
the Americas, Europe and Asia Pacific geographic areas. The provision for
discontinued activities includes costs associated with the disposition of assets
and fulfilling prior commitments related to certain discontinued product lines
and activities. The Company anticipates these costs to be incurred over the next
year. The provision for other restructuring costs comprises various direct
incremental costs associated with the integration of operations of UB Networks
with the Company.
The operating results of UB Networks are consolidated into the operating results
of the Company commencing in the fourth fiscal quarter ended April 30, 1997.
Page 40
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
Acquisitions of Coasin Chile S.A., Danring A/S, Ouest Standard Telematique and
Acacia S.A.
During fiscal 1997 the Company acquired controlling interests in Coasin Chile
S.A. ("Coasin"), a Chilean systems integrator of networking products; Danring
A/S ("Danring"), a Danish systems integrator of networking products; Ouest
Standard Telematique S.A. ("OST"), a manufacturer of local area network
equipment based in France; and Acacia S.A. ("Acacia"), a holding company with
controlling interests in systems integrators of networking products in Brazil,
Costa Rica and Argentina. The investments are summarized as follows.
<TABLE>
<CAPTION>
Coasin Danring OST Acacia
------ ------- --- ------
<S> <C> <C> <C> <C>
Month of acquisition Nov 1996 Jan 1997 Aug 1996 Apr 1997
Equity interest acquired 51% 100% 100% 51%
Purchase price $14,129 $11,144 $34,231 $ 9,714
Maximum incremental
contingent payments US$2,595 -- US$10,000 US$1,640
Period over which
contingent payment
may be made 2 years -- 3 years 2 years
Acquisition accounting method Purchase Purchase Purchase Purchase
Goodwill amortization period 20 years 20 years 20 years 20 years
Investment summary:
Non-cash current assets $26,138 $ 6,649 $ 9,984 $ 7,217
Property, plant equipment 3,842 119 6,157 805
Other long term assets 1,393 -- 490 3,950
------- -------- -------- -------
Non-cash assets acquired 31,373 6,768 16,631 11,972
Current liabilities (8,960) (6,877) (27,017) (9,928)
Long term obligations assumed (3,428) -- (6,313) (1,838)
------- -------- ------- -------
Net non-cash assets acquired 18,985 (109) (16,699) 206
Cash (bank indebtedness) acquired (11,320) 3,062 6,165 (1,799)
------ ------- ------- -------
7,665 2,953 (10,534) (1,593)
Non-controlling interest
upon acquisition (3,755) -- -- 780
------- ------- ------- --------
Company's share of assets acquired 3,910 2,953 (10,534) (813)
Goodwill upon acquisition 10,219 8,191 44,765 10,527
------ ------- ------ ------
Total consideration paid $14,129 $11,144 $34,231 $ 9,714
====== ====== ====== =======
<CAPTION>
6. Goodwill
April 30, April 30,
1997 1996
-------- -------
<S> <C> <C>
Goodwill $133,854 $30,169
Accumulated amortization (8,289) (3,497)
-------- -------
$125,565 $26,672
======= ======
</TABLE>
Page 41
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
7. Software Development Costs
<TABLE>
<CAPTION>
April 30, April 30,
1997 1996
------ ------
<S> <C> <C>
Balance, beginning of the year $18,285 $14,532
Amount capitalized 12,457 10,476
Amortization (8,443) (6,723)
------ ------
Balance, end of the year $22,299 $18,285
====== ======
<CAPTION>
8. Other assets
April 30, April 30,
1997 1996
------ ------
<S> <C> <C>
Long term investments
Accounted for by the equity method $19,663 $18,796
Accounted for by the cost method 32,931 1,894
------ ------
52,594 20,690
Other assets 18,985 8,779
------ ------
$71,579 $29,469
====== ======
</TABLE>
Investments in associated companies over which the Company has significant
influence are accounted for by the equity method and as a result the carrying
value equals the Company's proportionate share of the shareholder's equity of
the investee company. Investees which the Company does not control or have
significant influence over are accounted for by the cost method.
9. Bank Credit Facilities
At April 30, 1997 short term bank credit facilities consisted of operating lines
of credit in the aggregate amount of $106,135,000, primarily with banks in
Canada, the United Kingdom and the United States. At April 30, 1997, Coasin S.A.
and Acacia S.A. were utilizing $12,820,000 under these lines of credit. Bank
indebtedness is secured by accounts receivable and a general security agreement
that includes assets that are not otherwise pledged as security. The Company
complies with all covenants and restrictions contained in the credit facilities
agreements, including minimum levels of working capital and tangible net worth.
Page 42
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
10. Long Term Obligations
<TABLE>
<CAPTION>
April 30, April 30,
1997 1996
--------- ---------
<S> <C> <C>
Mortgage $ 283 $2,109
Term loans 15,487 --
Capital lease obligations 2,400 1,053
------ -----
18,170 3,162
Less amounts due within one year (7,353) (2,302)
------ -----
Balance, end of the year $10,817 $ 860
====== =====
</TABLE>
The mortgage is secured by office and manufacturing facilities with an aggregate
book value of $7,071,000.
Future payments under long term obligations and operating leases at April 30,
1997 are as follows.
<TABLE>
<CAPTION>
Principal Amount Minimum
on Mortgages Capital Lease Operating
and Term Loans Payments Leases
--------------- -------- ------
<S> <C> <C> <C>
Fiscal 1998 $ 6,428 $1,070 $29,375
Fiscal 1999 3,595 708 26,439
Fiscal 2000 4,007 523 18,902
Fiscal 2001 601 283 12,127
Fiscal 2002 233 165 3,875
Thereafter 906 9 2,998
------ ----- ------
$15,770 2,758 $93,716
====== ======
Less imputed interest at 9% (358)
-----
$2,400
=====
</TABLE>
Interest paid on capital leases was $266,000 (fiscal 1996 -- $218,000; fiscal
1995 -- $571,000).
11. Financial Instruments and Concentration of Credit Risk
The Company uses financial instruments, principally forward exchange contracts,
in its management of foreign currency exposures. Realized and unrealized foreign
exchange contracts are recognized and offset foreign exchange gains and losses
on the underlying net asset or net liability position. These contracts primarily
require the Company to purchase and sell certain foreign currencies with or for
Canadian dollars at contractual rates. At April 30, 1997 the Company had
$293,414,000 in outstanding foreign exchange contracts (fiscal 1996 --
$129,899,000).
Page 43
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
Several major financial institutions are counterparties to the Company's
financial instruments. It is Company practice to monitor the financial standing
of the counterparties and limit the amount of exposure to any one institution.
The Company may be exposed to a credit loss in the event of nonperformance by
the counterparties to these contracts, but does not anticipate such
nonperformance.
With respect to accounts receivable, concentration of credit risk is limited due
to the diverse areas covered by the Company's operations. The Company has credit
evaluation, approval and monitoring processes intended to mitigate potential
credit risks. Anticipated bad debt loss and product returns have been provided
for in the allowance for returns and doubtful accounts. Net additions to the
provision for returns and doubtful accounts (fiscal 1997 -- $3,921,000; fiscal
1996 -- $1,436,000) primarily relate to product returns and are charged to
sales. The carrying amounts for cash, marketable securities, accounts
receivable, accounts payable and accrued liabilities approximate fair market
value because of the short maturity of these instruments.
12. Share Capital
Authorized
An unlimited number of Common Shares.
An unlimited number of participating preferred shares, ranking in priority upon
distribution of assets over Common Shares, may be issued in series with
additional provisions as fixed by the Board of Directors.
Stock Split
On September 13, 1996 the Board of Directors declared a two for one stock split,
effected in the form of a stock dividend, payable October 11, 1996 to
shareholders of record on September 30, 1996. All references in the consolidated
financial statements with regard to shares outstanding and per share amounts
have been restated to reflect the stock split.
Employee Stock Option Plans
The Company has established the Newbridge Networks Corporation Consolidated Key
Employee Stock Option Plan (the "Plan") applicable to full-time employees,
directors and consultants of the Company and its subsidiaries. The options under
the Plan are granted at the then-current fair market value of the Common Shares
of the Company and generally may be exercised in equal proportions during the
years following the first, second, third and fourth anniversary of the date of
grant, and expire on the fifth anniversary or upon termination of employment.
Options granted under the Plan prior to August 1, 1996 generally may be
exercised in equal proportions during the years following the first, second and
third anniversary of the date of grant, and expire on the fourth anniversary or
upon termination of employment. In addition to the number of options outstanding
as at April 30, 1997, the number of options which may be granted under the Plan
is 8,745,273. Amendments to the Plan related to the vesting period and the
number of shares reserved for issuance were approved by the Board of Directors
in June 1997 and are subject to shareholder approval.
Page 44
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
During the year ended April 30, 1995 the Company's shareholders approved the
1994 Stock Option Amendment Program for all outstanding options (other than
those granted to directors) exercisable at prices greater than $20.00 per share.
Under the program, the Company amended 4,108,760 options so that each such
option has a date of grant of June 23, 1994, the date the program was initiated,
and has an exercise price of $20.00 per share, the closing price of the
Company's Common Shares on The Toronto Stock Exchange on that date.
Activity in the stock option plan is summarized below.
<TABLE>
<CAPTION>
Option Price
---------------------------------
Weighted
Options Low High Average
--------- ------- ------- --------
<S> <C> <C> <C> <C>
Options outstanding April 30, 1994 12,207,658 $ 0.95 $43.74 $15.45
Granted during fiscal 1995 5,134,750 $21.65 $28.60 $24.34
Cancelled and expired (400,656) $ 0.95 $43.74 $20.75
Exercised (3,149,680) $ 0.95 $15.17 $ 3.95
---------
Options outstanding April 30, 1995 13,792,072 $ 1.68 $43.74 $16.46
Granted during fiscal 1996 5,193,100 $19.47 $34.73 $26.94
Cancelled and expired (699,804) $ 1.68 $34.23 $24.41
Exercised (5,161,664) $ 1.68 $26.89 $ 9.98
---------
Options outstanding April 30, 1996 13,123,704 $ 4.73 $43.74 $22.73
Granted during fiscal 1997 7,098,800 $30.18 $46.33 $38.89
Cancelled and expired (785,073) $ 4.76 $44.31 $25.74
Exercised (3,182,704) $ 4.73 $34.23 $17.23
---------
Options outstanding April 30, 1997 16,254,727 $19.47 $46.33 $30.72
==========
<CAPTION>
Option Price
---------------------------------
Weighted
Options Low High Average
--------- ------- ------- --------
<S> <C> <C> <C> <C>
Options outstanding April 30, 1996
Vested 3,598,694 $ 4.73 $43.74 $18.23
Unvested 9,525,010 $19.47 $43.74 $24.43
----------
13,123,704 $ 4.73 $43.74 $22.73
==========
Weighted average remaining
contractual life 2.45 years
==========
Options outstanding April 30, 1997
Vested 4,867,116 $19.47 $43.74 $23.99
Unvested 11,387,611 $19.47 $46.33 $30.72
----------
16,254,727 $19.47 $46.33 $30.72
==========
Weighted average remaining
contractual life 2.14 years
==========
</TABLE>
Page 45
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
Stock Based Compensation
The Company applies APB 25 and related interpretations in accounting for its
Consolidated Key Employee Stock Option Plan. Accordingly, no compensation
expense has been recognized for its stock based compensation plan. Had
compensation costs for the Company's Consolidated Key Employee Stock Option Plan
been determined based on the fair value at the grant date for awards under the
Plan, consistent with the methodology prescribed under SFAS 123, the Company's
net earnings and earnings per share would have been decreased to the following
pro forma amounts.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net earnings, as reported $156,917 $202,864
Estimated stock based compensation costs (57,398) (19,535)
------- -------
Pro forma net earnings $ 99,519 $183,329
======= =======
Basic earnings per share 58c $ 1.11
======= =======
Fully diluted earnings per share 58c $ 1.08
======= =======
</TABLE>
The weighted average fair value of all options granted during fiscal 1997 and
1996 was estimated as of the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Expected option life, in years 4.3 3.5
Volatility 112.1% 100.2%
Risk free interest rate 6.4% 5.5%
Dividend yield nil nil
</TABLE>
The Black-Scholes model used by the Company to calculate option values, as well
as other currently accepted option valuation models, were developed to estimate
the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require highly subjective assumptions, including future stock
price volatility and expected time until exercise, which greatly affect the
calculated values. Accordingly, Management believes that this model does not
necessarily provide a reliable single measure of the fair value of the Company's
stock option awards.
13. Sale of Investment in InSoft, Inc.
On April 25, 1996, the Company sold its minority equity interest in InSoft, Inc.
("InSoft"), a privately held multimedia software company. The disposition was
effected through a merger in which InSoft shares were exchanged for common
shares of the acquirer, which are publicly traded. The Company recognized a gain
in fiscal 1996 on the sale of its InSoft shares of $12,715,000, representing the
excess of the market value of the shares of the acquirer received, discounted to
reflect certain restrictions on resale, over the cost to the Company of the
InSoft shares exchanged.
Page 46
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
14. Income Taxes
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current $94,729 $96,180 $85,977
Deferred 22,989 4,599 10,967
------- ------- -------
$117,718 $100,779 $96,944
======= ======= =======
</TABLE>
The provision for income taxes reported differs from the amount computed by
applying the Canadian statutory rate to income before income taxes for the
following reasons.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Earnings before income taxes:
Domestic $182,745 $155,901 $105,155
Foreign 97,009 149,212 182,198
------- ------- -------
$279,754 $305,113 $287,353
======= ======= =======
Statutory income tax rate (Canada) 43.5% 43.5% 43.5%
==== ==== ====
Expected provision for income tax $121,693 $132,724 $124,998
Canadian rate adjustment for research
and development activities (5,062) (4,318) (3,754)
Canadian rate adjustment for
manufacturing and processing activities (15,625) (13,407) (8,286)
Loss carryforwards utilized (7,262) -- (352)
Foreign tax differential (39,539) (21,686) (17,873)
Purchased research and development in
process related to UB Networks 42,169 -- --
Non-deductible reserves and surtaxes 21,344 7,466 2,211
------- ------- -------
Reported income tax provision $117,718 $100,779 $ 96,944
======= ======= =======
</TABLE>
The components of the annual timing differences and the related deferred tax
provision are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Tax depreciation in excess of
accounting depreciation $ 4,530 $5,560 $ 6,725
Accounting provisions not deductible 3,570 (5,096) (1,750)
Research and development expenses
deducted for tax purposes in excess
of accounting 2,530 3,440 5,509
Restructuring charges related to
UB Networks 13,127 -- --
Losses available to offset future
income taxes (768) 695 483
---- ----- ------
Deferred income tax expense $22,989 $4,599 $10,967
====== ===== ======
</TABLE>
Page 47
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
The components of the deferred tax asset (liability) classified by the source of
cumulative timing difference that gave rise to the credit are as follows:
<TABLE>
<CAPTION>
Deferred Tax Asset Deferred Tax Liability
--------------------- ----------------------
April 30, April 30, April 30, April 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Accounting depreciation in excess
of (less than) tax depreciation $ 6,764 $ -- $(31,309) $(20,033)
Accounting provisions not deductible 5,539 -- 299 9,408
Research and development expenses
deducted for tax purposes less
than (in excess of) accounting -- -- (1,807) 723
Net operating losses and
restructuring charges related to
acquisition of UB Networks 31,102 -- -- --
Other -- -- 378 --
Valuation allowance (6,012) -- -- --
------ ------ ------- -----
$37,393 $ -- $(32,439) $(9,902)
====== ====== ======= =====
</TABLE>
The Company recorded a deferred tax asset for net operating loss carryovers
associated with the acquisition of UB Networks. These losses will expire at
various dates through the year 2012.
The components of the deferred tax asset (liability) classified by the source of
timing difference that gave rise to the credit are not materially different from
the temporary differences as calculated under the application of U.S. GAAP.
At April 30, 1997, the Company had available investment tax credits of
approximately $48,592,000 for the reduction of future years Canadian federal
income tax liability. These credits expire during the years 2005-2007. Of this
amount $20,113,000 has been applied to reduce the deferred tax liability. No
recognition has been given in these financial statements to the potential tax
benefits associated with the remaining balance of investment tax credits.
15. Earnings per Share
Earnings per share has been calculated on the basis of net earnings for the
period divided by the daily weighted average number of Common Shares outstanding
during the fiscal year.
The calculation of fully diluted earnings per share assumes that, if a dilutive
effect is produced, all outstanding options had been exercised at the later of
the beginning of the fiscal period and the option issue date, and includes an
allowance for imputed earnings of $11,589,000 (fiscal 1996 -- $10,469,000;
fiscal 1995 -- $6,812,000) derived from the investment of funds which would have
been received at an after tax rate of 3.1% (fiscal 1996 -- 4.0%; fiscal 1995 --
4.0%).
Page 48
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
Under accounting principles generally accepted in the United States, earnings
per share is calculated using the treasury stock method. The calculation of
earnings per share under United States generally accepted accounting principles
is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net earnings
Primary 90(c) $1.19 $1.13
Fully diluted 90(c) $1.17 $1.13
Weighted average number of shares
Primary 174,525 170,990 166,646
Fully diluted 174,525 172,780 166,646
</TABLE>
16. Related Party Transactions
The Company leases facilities in Canada and the United Kingdom from companies
controlled by Terence H. Matthews, Chairman of the Board of Directors, Chief
Executive Officer and the largest shareholder of the Company, under terms and
conditions reflecting prevailing market conditions at the time the leases were
entered into. Approximately 343,000 square feet has been leased for various
terms expiring between September 1997 and May 2002 at rates between $9.25 and
$14.00 per square foot (approximately $3,200,000 per year). During the fiscal
year ended April 30, 1996 the Company purchased a facility from a company
controlled by Mr. Matthews for its fair market value of $5,244,000.
During the fiscal year ended April 30, 1997 the Company paid $2,621,000 for
research and development services from associated companies under usual trade
terms and conditions (fiscal 1996 -- $507,000). The Company also purchased
$8,597,000 of equipment and software from associated companies under usual trade
terms, generally for resale (fiscal 1996 -- $7,442,000). The Company sold
$20,559,000 of equipment and software to associated companies under usual trade
terms, generally for resale (fiscal 1996 -- $1,207,000). The Company has equity
interests in these associated companies ranging from 22% to 39% and is
represented on the Boards of Directors of these companies.
During the fiscal year ended April 30, 1997 the Company purchased approximately
$3,393,000 of equipment under usual trade terms and conditions from corporations
in which the Company has no equity interest, but for which certain directors of
the Company served as chief executive officer and as a director and from
corporations for which Terence H. Matthews served as a director (fiscal 1996 --
$944,000).
During the fiscal year ended April 30, 1996 the Company performed subcontracted
research and development under agreements between the Company and corporations
controlled by three directors of the Company (the "R&D Corporations").
Subcontracted research and development under these agreements totalled
$3,200,000 for fiscal 1996 (fiscal 1995 -- $4,900,000) and is accounted for as a
recovery of gross research and development costs. The period covered by the
subcontracted research and development agreements ended in the third quarter of
fiscal 1996. The Company will pay a net royalty between 2% and 10%, depending on
the level of cumulative royalties paid, on all sales of products developed.
Page 49
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
17. Business Segment Information
The Company operates primarily in one business segment -- the design,
manufacture, sale and service of networking systems and devices for data and
voice communications. The Company primarily operates in Canada, the United
States, Europe, Asia Pacific and Latin America. Inter-segment sales are recorded
at cost plus a mark up for development and manufacturing charges.
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Sales
Canada
External customers $ 331,139 $ 217,541 $ 176,468
Inter-segment sales 342,729 250,126 173,014
--------- --------- ---------
673,868 467,667 349,482
--------- --------- ---------
United States
External customers 351,937 303,505 330,190
Inter-segment sales 31,904 9,570 7,404
--------- --------- ---------
383,841 313,075 337,594
--------- --------- ---------
Europe
External customers 440,844 273,665 219,535
Inter-segment sales 307,277 142,406 7,906
--------- --------- ---------
748,121 416,071 227,441
--------- --------- ---------
Asia Pacific
External customers 185,987 104,394 68,529
Inter-segment sales 21,028 204 168
--------- --------- ---------
207,015 104,598 68,697
--------- --------- ---------
Latin America
External customers 66,820 22,139 5,801
Inter-segment sales 33,447 32,577 20,818
--------- --------- ---------
100,267 54,716 26,619
--------- --------- ---------
External customers 1,376,727 921,244 800,523
Inter-segment sales 736,385 434,883 209,310
--------- --------- ---------
$2,113,112 $1,356,127 $1,009,833
========= ========= =========
Operating Income
Canada $284,423 $171,367 $116,186
United States 26,847 35,265 91,107
Europe 145,792 111,430 101,142
Asia Pacific 75,260 47,969 30,901
Latin America (9,289) 4,408 4,643
Research and development expenses (155,330) (97,205) (66,066)
Purchased research and development
in process (96,940) -- --
--------- --------- ---------
270,763 273,234 277,913
Non-operating income 8,990 31,879 9,440
Provision for income taxes (117,718) (100,779) (96,944)
Non-controlling interest (5,118) (1,470) (2,019)
--------- --------- ---------
Net earnings $156,917 $202,864 $188,390
========= ========= =========
</TABLE>
Page 50
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996 and 1995
(Canadian dollars, tabular amounts in thousands except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- --------
<S> <C> <C> <C>
Identifiable Assets
Canada $ 405,126 $ 607,969 $471,826
United States 397,808 184,746 172,085
Europe 370,875 131,885 100,227
Asia Pacific 218,015 130,075 68,837
Latin America 104,879 38,742 14,188
---------- ----------- --------
$1,496,703 $1,093,417 $827,163
========== =========== ========
<CAPTION>
Export sales from operations in Canada (excluding inter-segment sales) were as
follows.
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Latin America $169,377 $119,385 $ 85,591
Asia Pacific 49,166 32,902 28,455
---------- -------- --------
$218,543 $152,287 $114,046
========== ======== ========
</TABLE>
Sales to Siemens A.G. and subsidiaries, generally under OEM arrangements for
resale to end users, were 18% of total sales for fiscal 1997.
18. Litigation
Subsequent to the close of the fiscal year ended April 30, 1997, Lucent
Technologies Inc. ("Lucent Technologies") filed a complaint dated June 24, 1997
in United States District Court in Delaware against the Company and its United
States subsidiary, Newbridge Networks Inc. Lucent Technologies manufactures and
sells telecommunications systems, software and products, and is both a
distributor of the Company's products and a competitor of the Company. The
complaint alleges that the Company's manufacture and sale in the United States
of Newbridge frame relay and ATM switch products infringe certain United States
patent rights claimed by Lucent Technologies, and requests actual and trebled
damages in an unspecified amount. The Company is in the process of responding to
the complaint, and intends to defend this action vigorously. Based upon its
present understanding of the laws in the United States and the facts, the
Company believes it has meritorious defenses to these claims.
During the fiscal year ended April 30, 1995, the Company was served with one of
several complaints filed in United States District Court in Washington, D.C. by
certain persons purporting to be purchasers of Common Shares of the Company. On
or about May 8, 1995 these complaints were combined into a single consolidated
and amended complaint (the "First Amended Complaint") which named the Company
and certain of its executive officers as defendants. The First Amended Complaint
purported to be a class action on behalf of a class of persons who purchased
securities of the Company between March 29 and August 1, 1994 and alleged that
the Company made false and misleading statements in violation of United States
securities law and common law, for which damages were sought in unspecified
amounts. On June 3, 1996, the Court issued an order granting in part and denying
in part the defendants' motion to dismiss. Among other things, the Court
dismissed with prejudice the claim alleging
Page 51
<PAGE>
violation of common law. The Court also dismissed the majority of plaintiffs'
allegations of violation of United States securities law, but granted plaintiffs
leave to replead these allegations in a Second Amended Complaint, which
plaintiffs filed on July 3, 1996. The Court further conditionally certified the
action as a class action without prejudice to the Company's right to renew its
objection to class action certification upon completion of discovery. On April
10, 1997, the Court issued an order granting in part and denying in part the
defendants' motion to dismiss the Second Amended Complaint. Among other things,
the Court dismissed with prejudice a substantial portion of plaintiffs'
allegations. The Company has served an answer denying plaintiffs' claims. The
Company intends to continue to defend this action vigorously. Based upon its
present understanding of the laws in the United States and the facts, the
Company believes it has meritorious defenses to the action. Because the outcome
of the action is not certain at this time, no provision for any liability that
may result upon adjudication has been made in these Consolidated Financial
Statements.
Page 52
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
The quarterly financial data for the fiscal years ended April 30, 1997 and 1996
are derived from unaudited consolidated financial statements of the Company
which include, in the opinion of Management, all normal and recurring
adjustments considered necessary for a fair statement of results for such
periods. The selected quarterly financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Fiscal 1996 Quarters Ended Fiscal 1997 Quarters Ended
-------------------------- --------------------------
Jul 30, Oct 29, Jan 28, Apr 30, Jul 28, Oct 27, Jan 26, Apr 30,
1995 1995 1996 1996 1996 1996 1997 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Canadian dollars, amounts in thousands except per share data)
Income Statement Data:
Sales $195,510 $217,116 $236,678 $271,940 $286,037 $316,082 $333,267 $441,341
Gross margin 129,546 141,731 154,075 176,147 185,294 203,897 213,261 266,687
Net earnings 37,112 45,376 53,881 66,495 60,801 62,781 63,031 (29,696)
Earnings per share
Basic 22(c) 27(c) 32(c) 40(c) 36(c) 37(c) 37(c) (17)(c)
Fully diluted 22 27 31 38 35 36 36 (17)
Weighted average
number of shares
Basic 165,115 165,864 166,548 167,807 169,228 170,232 170,941 171,701
Fully diluted 178,824 179,637 180,534 181,280 181,710 184,131 185,037 187,456
U.S. GAAP
Net earnings/(1)/ $37,112 $45,376 $53,881 $66,495 $60,801 $62,781 $(33,909) $67,244
Net earnings per share/(2)/
Primary 22(c) 27(c) 31(c) 38(c) 35(c) 36(c) (20)(c) 38(c)
Fully diluted 22 27 31 38 35 36 (20) 38
Fully diluted US$0.16 US$0.20 US$0.23 US$0.28 US$0.25 US$0.26 US$(0.15) US$0.28
Weighted average
number of shares
Primary 168,847 167,672 171,158 173,036 174,930 174,747 170,941 176,554
Fully diluted 168,847 167,672 172,729 174,454 174,930 174,747 170,941 176,554
</TABLE>
- ----------------------
/(1)/ Under U.S. GAAP, research and development in process acquired by the
Company on the acquisition of UB Networks was written off against net
earnings upon acquisition in the third quarter of fiscal 1997. Under
accounting principles generally accepted in Canada research and
development in process acquired by the Company on the acquisition of UB
Networks was capitalized upon acquisition and disclosed on the
Consolidated Balance Sheet at January 26, 1997. Upon review of the
recoverability of the research and development in process, undertaken
during the fourth quarter of the fiscal year ended April 30, 1997, the
Company determined that the purchased research and development in process
no longer met all the criteria for deferral and accordingly the balance
has been written off as a charge to earnings for the fourth fiscal
quarter. The Company has significantly altered
Page 53
<PAGE>
product plans associated with the research and development projects and
has concluded that recoverability cannot be reasonably regarded as
assured. In addition, Management has determined that adequate resources
may not be made available in future to complete the projects associated
with the purchased in process research and development, as originally
defined.
/(2)/ See Note 15 to the Consolidated Financial Statements.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Page 54
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company and their ages at June 19,
1997 are:
<TABLE>
<CAPTION>
Name and Municipality of Residence Age Position
- ---------------------------------- --- --------
<S> <C> <C>
Terence H. Matthews 54 Chairman of the Board, Chief Executive
Kanata, Ontario, Canada Officer and Director
Peter Sommerer 48 Vice Chairman of the Board
Kanata, Ontario, Canada and Director
Peter D. Charbonneau 43 President, Chief Operating Officer
Ottawa, Ontario, Canada and Director
James C. Avis 47 Executive Vice President,
Ottawa, Ontario, Canada Business Development
John D. Everard 48 Executive Vice President and General
Chepstow, Wales Manager, European Region
Conrad W. Lewis 44 Executive Vice President, Business Units
Stittsville, Ontario, Canada
Constantin S. Loudiadis 48 Executive Vice President and General
Ottawa, Ontario, Canada Manager, Asia Pacific Region
Scott W. Marshall 43 Executive Vice President, Research and
Kanata, Ontario, Canada Development
Dr. Donald Mills 63 Vice President, Administration
Kanata, Ontario, Canada and Director
F. Michael Pascoe 45 Executive Vice President and General
Great Falls, Virginia, USA Manager, Americas Region
Bruce W. Rodgers 42 Executive Vice President, Operations
Richmond, Ontario, Canada
Kenneth B. Wigglesworth 33 Vice President, Finance and
Kanata, Ontario, Canada Chief Financial Officer
</TABLE>
All of the above mentioned executive officers, with the exception of Constantin
S. Loudiadis, have been employed by the Company in various capacities during the
past five years. Prior to joining the Company in January 1997, Mr. Loudiadis
held a variety of positions within the telecommunications group of Bell Canada
since 1970, most recently as Vice President, Corporate Development of BCE Mobile
Communications Inc.
Page 55
<PAGE>
<TABLE>
<CAPTION>
Name and Municipality of Residence Age Position
- ---------------------------------- --- --------
<S> <C> <C>
Dr. Denzil J. Doyle 65 Director
Kanata, Ontario, Canada
Alan D. Horn 45 Director
Toronto, Ontario, Canada
Trevor G. Jones 58 Director
Willowdale, Ontario, Canada
Peter C. Madsen 46 Director
Manassas, Virginia, USA
Graham C. C. Miller 66 Director
Cotuit, Massachusetts, USA
Kent H. E. Plumley 60 Director
Kanata, Ontario, Canada
Daniel C. Rusheleau 46 Director
Renfrew, Ontario, Canada
Dr. John C. J. Thynne 65 Director
London, England
</TABLE>
Terence H. Matthews founded the Company in June 1986 and has served as Chairman
of the Board, Chief Executive Officer and a Director of the Company since that
time. From the inception of the Company to June 1993 Mr. Matthews also served as
President.
Peter Sommerer has been Vice Chairman of Board of the Company since December
1996 and a Director of the Company since July 1991. From February 1987 to
December 1996, Mr. Sommerer held a variety of positions with the Company, most
recently as President and Chief Operating Officer.
Peter D. Charbonneau has been President and Chief Operating Officer of the
Company since December 1996 and a Director since November 1996. From January
1987 to December 1996, Mr. Charbonneau held a variety of positions with the
Company, most recently as Executive Vice President and Chief Financial Officer.
Dr. Denzil J. Doyle has been a Director of the Company since September 1987. Dr.
Doyle has been Chairman of Capital Alliance Ventures Inc., a venture capital
company specializing in investments in high technology companies since November
1995, and President of Doyletech Corporation, a consulting corporation
specializing in new business ventures, since November 1982. He is also a
director of International Datacasting Corporation, a manufacturer of satellite
data broadcasting equipment. Dr. Doyle is a member of the Employee Compensation
Committee and the Directors' Affairs Committee of the Board of Directors of the
Company.
Alan D. Horn has been a Director of the Company since July 1991. Mr. Horn has
been Vice President, Finance and Chief Financial Officer of Rogers
Communications Inc., a communications company, since October 1996. From April
1990 to October 1996 he was President and Chief Operating Officer of Rogers
Telecommunications Limited, an investment holding company. He is Chairman of the
Audit Committee and a member of the Directors' Affairs Committee of the Board of
Directors of the Company.
Trevor G. Jones has been a Director of the Company since June 1991. Mr. Jones
has been President of JWA Associates, a business consulting company, since April
1991. Mr. Jones is
Page 56
<PAGE>
Chairman of the Directors' Affairs Committee and a member of the Audit Committee
of the Board of Directors of the Company.
Peter C. Madsen has been a Director of the Company since September 1987. Mr.
Madsen has been President, Chief Executive Officer and a Director of Fastcomm
Communications Corporation, a telecommunications company, since September 1992.
Mr. Madsen has also been President of Professional Marketing Corporation, a
telecommunications equipment distributor, since February 1992.
Graham C. C. Miller has been a Director of the Company since September 1987. Mr.
Miller has been Chairman of the Board of LTX Corporation, a manufacturer of
semiconductor testing equipment, since 1976, and was President and Chief
Executive Officer until February 1994. He is a member of the Audit Committee and
the Directors' Affairs Committee of the Board of Directors of the Company.
Dr. Donald Mills has been Vice President, Administration of the Company since
April 1989. Dr. Mills has been a Director of the Company since September 1988.
Kent H. E. Plumley has been a Director of the Company since June 1986. Mr.
Plumley has been a partner of Osler, Hoskin & Harcourt, Barristers & Solicitors,
since May 1990. Mr. Plumley is the Chairman of the Employee Compensation
Committee of the Board of Directors of the Company.
Daniel C. Rusheleau has been a Director of the Company since September 1987 and
is a member of the Employee Compensation Committee. Since October 1993 Mr.
Rusheleau has been President and Chief Executive Officer of West End Systems
Corp., a communications equipment vendor. From December 1991 to October 1993 he
was Vice President, Systems Architecture and Technology of the Company.
Dr. John C. J. Thynne has been a Director of the Company since April 1992. Dr.
Thynne has been Director General of the Electronic Components Industry
Federation (United Kingdom) and Managing Director of Camrose Consultancy
Services since January 1991. Dr. Thynne is a member of the Audit Committee of
the Board of Directors of the Company.
All directors of the Company hold office until the next annual meeting of
shareholders or until the election and qualification of their successors.
Executive officers of the Company are appointed by and serve at the discretion
of the Board of Directors.
Item 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
Exhibit 99 to this Annual Report on Form 10-K, "Statement of Executive
Compensation" as set forth in the form of the Company's proxy circular for the
annual and special meeting of shareholders to be held on September 4, 1997. Such
incorporation by reference shall not be deemed to specifically incorporate by
reference the information contained under the sub-captions "Report on Executive
Compensation" and "Performance Graph".
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of
the Company's Common Shares as at June 12, 1997 (i) by each person known by the
Company to own beneficially more than 5% of the Company's Common Shares, (ii) by
each of the Company's directors and (iii) by all directors and executive
officers of the Company as a group. The information as to beneficial ownership
is presented in accordance with the rules and regulations
Page 57
<PAGE>
under the United States Securities Exchange Act of 1934 and consequently may
differ from similar information that appears in the Company's proxy circular
prepared in accordance with the Canada Business Corporations Act for the annual
and special meeting of shareholders to be held on September 4, 1997.
<TABLE>
<CAPTION>
Shares Issuable
Within 60 Days Total Shares
Shares Currently Upon Exercise Beneficially % of
Name and Address Directly Owned of Options/(1)/ Owned Class
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Terence H. Matthews 41,088,808 nil 41,104,808/(2)/ 23.78%
Kanata, Ontario
Donald Mills 1,139,516 8,332 1,166,848/(3)/ *
Peter C. Madsen 388,860 10,000 410,060/(4)/ *
Kent H. E. Plumley 266,052 25,998 338,788/(5)/ *
Peter D. Charbonneau 30,000 44,664 242,364/(6)/ *
Peter Sommerer nil 83,330 108,330/(7)/ *
Graham C. C. Miller 45,616 24,666 70,282/(8)/ *
Denzil J. Doyle 26,000 24,666 54,666/(9)/ *
John C. J. Thynne 23,000 24,000 47,000 *
Alan D. Horn nil 26,664 26,664 *
Trevor G. Jones 8,068 nil 8,068 *
Daniel C. Rusheleau 1,000 nil 1,000 *
All directors and executive
officers as a group (20 persons) 43,409,020 475,642 44,196,498/(10)/ 25.57%
</TABLE>
- ---------------
* Less than 1%
/(1)/ Shares issuable upon exercise of stock options that are exercisable
within 60 days of June 12, 1997.
/(2)/ Includes 4,974,000 shares owned directly; 16,000 shares beneficially
owned through his wife, as to which shares he disclaims beneficial
ownership; 32,395,988 shares beneficially owned through control of
Kanata Research Park Corporation; 1,745,920 shares beneficially owned
through control of 2874806 Canada Inc.; 1,770,000 shares beneficially
owned through control of 3090-8081 Quebec Inc.; 127,900 shares
beneficially owned through 2985314 Canada Inc., and 75,000 shares
beneficially owned through 2874814 Canada Inc.
/(3)/ Includes 19,000 shares beneficially owned through his wife, as to which
shares he disclaims beneficial ownership.
/(4)/ Includes 11,200 shares beneficially owned through his children, as to
which shares he disclaims beneficial ownership.
/(5)/ Includes 42,872 shares and 3,866 shares issuable within 60 days upon
the exercise of options beneficially owned through his wife, as to
which shares and shares issuable upon the exercise of options he
disclaims beneficial ownership.
/(6)/ Includes 167,700 shares beneficially owned through his wife, as to
which shares he disclaims beneficial ownership.
Page 58
<PAGE>
/(7)/ Includes 25,000 shares beneficially owned through his wife, as to which
shares he disclaims beneficial ownership.
/(8)/ Includes 45,616 shares owned jointly with his wife.
/(9)/ Includes 4,000 shares beneficially owned through his wife, as to which
shares he disclaims beneficial ownership.
/(10)/ Includes, in the aggregate, 303,972 shares and 7,864 shares issuable
within 60 days of June 12, 1997 upon the exercise of options
beneficially owned through spouses and children, as to which shares and
shares issuable upon the exercise of options they disclaim beneficial
ownership.
Except as otherwise indicated, the persons in the table have sole voting and
investment powers with respect to all Common Shares beneficially owned by them
subject to community property laws where applicable and the information
contained in the footnotes to the table.
Statements contained in the table as to shares beneficially owned by directors
and executive officers or over which they exercise control or direction are, in
each instance, based upon information obtained from such directors and executive
officers. The Company is not aware of any person except the holder set forth
above who beneficially owns or exercises control or direction over shares
carrying more than 5% of the votes attached to such shares of the Company as at
June 12, 1997.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
Exhibit 99 to this Annual Report on Form 10-K, "Statement of Executive
Compensation" as set forth in the form of the Company's proxy circular for the
annual and special meeting of shareholders to be held on September 4, 1997. Such
incorporation by reference shall not be deemed to specifically incorporate by
reference the information contained under the sub-captions "Report on Executive
Compensation" and "Performance Graph".
Page 59
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The following financial statements and supplementary data
are filed as part of this Report under Item 8:
<TABLE>
<CAPTION>
Page
----
Financial Statements
<S> <C>
Auditors' Report to the Shareholders......................................29
Consolidated Statements of Earnings and
Retained Earnings for the years
ended April 30, 1997, 1996 and 1995....................................30
Consolidated Balance Sheets as at
April 30, 1997 and 1996................................................31
Consolidated Statements of Cash Flows for the
years ended April 30, 1997, 1996 and 1995..............................32
Consolidated Statements of Shareholders' Equity
for the years ended April 30, 1997, 1996 and 1995......................33
Notes to the Consolidated Financial Statements............................34
Selected Quarterly Financial Data (unaudited)................................53
</TABLE>
(b) The Registrant filed a Current Report on Form 8-K dated January 17,
1997 related to the purchase of Ungermann-Bass Networks, Inc.
(c) The following exhibits are filed or incorporated by reference as
part of this Report (Exhibit 10.1 is a compensatory plan or
arrangement):
3.1 Articles of Amalgamation./(1)/
3.2 By-Law No. 3.
10.1 Newbridge Networks Corporation Consolidated Key Employee
Stock Option Plan, as amended.
10.2 Notice of Intention to make a normal course issuer bid
dated August 16, 1996 filed with The Toronto Stock
Exchange regarding common share repurchases./(2)/
10.3--
10.7 [Reserved]
10.8 Credit Facilities Letter dated June 20, 1994 between
Newbridge Networks Corporation and Royal Bank of Canada.
/(3)/
10.9--
10.13 [Reserved]
10.14 License Agreement effective May 1, 1994 between 2880016
Canada Inc. and Newbridge Networks Corporation;
Development Agreement effective May 1, 1994 between
2880016 Canada Inc. and Newbridge Networks Corporation.
/(4)/
10.15 License Agreement effective May 1, 1994 between 3015955
Canada Inc. and Newbridge Networks Corporation;
Development Agreement effective May 1, 1994 between
3015955 Canada Inc. and Newbridge Networks Corporation.
/(4)/
Page 60
<PAGE>
10.16 License Agreement effective May 1, 1994 between 3028623
Canada Inc. and Newbridge Networks Corporation;
Development Agreement effective May 1, 1994 between
3028623 Canada Inc. and Newbridge Networks Corporation.
/(4)/
10.17 Lease dated May 29, 1997 for 76,230.65 square feet at 359
Terry Fox Drive, Kanata, Ontario.
10.18 Agreement and Purchase and Sale dated February 16, 1996
for approximately 25,000 square feet at Langstone Business
Park, Langstone, Newport, Wales./(5)/
10.19 Letter Agreement dated May 10, 1995 and Lease dated April
1, 1990 for 4,573 square feet, more or less, at 362 Terry
Fox Drive, Kanata, Ontario./(5)/
10.20 Lease dated May 1, 1995 for 1,882 square feet, more or
less, at 362 Terry Fox Drive, Kanata, Ontario./(4)/
10.21 Lease dated April 1, 1995 for 13,106 square feet, more or
less, at 50 Sandhill Road, Kanata, Ontario./(4)/
10.22 Lease dated April 23, 1997 for 242,856.67 square feet,
more or less, at 349 Terry Fox Drive, Kanata, Ontario.
10.23 Sublease dated October 1, 1996 for 20,718 square feet,
more or less, at 350 Terry Fox Drive, Kanata, Ontario.
10.24 Non-Competition Agreement between Terence Matthews and
Newbridge Networks Corporation dated October 14, 1987.
/(6)/
11.1 Computation of earnings per share under accounting
principles generally accepted in Canada.
11.2 Computation of earnings per share under accounting
principles generally accepted in the United States.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule
99 "Statement of Executive Compensation" as set forth in the
form of the Company's proxy circular for the annual and
special meeting of shareholders to be held on September 4,
1997, incorporated by reference in Items 11 and 13 of this
Annual Report on Form 10-K, to the extent set forth
therein. This exhibit shall not be deemed to be
"soliciting material" or to be "filed" with the United
States Securities and Exchange Commission for purposes of
Section 14 of the United States Securities Exchange Act of
1934, nor shall it be deemed to be a "management proxy
circular" for the purposes of soliciting proxies under the
Canada Business Corporations Act.
_____________________
/(1)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
(File No. 0-17865) for the fiscal quarter ended July 30, 1994.
/(2)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
(File No. 1-13316) for the fiscal quarter ended July 28, 1996.
Page 61
<PAGE>
/(3)/ Incorporated by reference to the Company's Annual Report on Form 10-K
(File No. 0-17865) for the fiscal year ended April 30, 1994.
/(4)/ Incorporated by reference to the Company's Annual Report on Form 10-K
(File No. 1-13316) for the fiscal year ended April 30, 1995.
/(5)/ Incorporated by reference to the Company's Annual Report on Form 10-K
(File No. 1-13316) for the fiscal year ended April 30, 1996.
/(6)/ Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-29187) filed on June 8, 1989, as amended.
Page 62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NEWBRIDGE NETWORKS CORPORATION
Date: June 25, 1997 By: /s/ Terence H. Matthews
--------------------------------
Terence H. Matthews,
Chairman of the Board of
Directors and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: June 25, 1997 By: /s/ Terence H. Matthews
--------------------------------
Terence H. Matthews,
Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer)
Date: June 25, 1997 By: /s/ Kenneth B. Wigglesworth
--------------------------------
Kenneth B. Wigglesworth,
Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: June 25, 1997 By: /s/ Peter D. Charbonneau
--------------------------------
Peter D. Charbonneau,
President, Chief Operating Officer
and Director
Page 63
<PAGE>
Date: June 25, 1997 By: /s/ Dr. Denzil J. Doyle
----------------------------------
Dr. Denzil J. Doyle,
Director
Date: June 25, 1997 By: /s/ Alan D. Horn
----------------------------------
Alan D. Horn,
Director
Date: June 25, 1997 By: /s/ Trevor G. Jones
----------------------------------
Trevor G. Jones,
Director
Date: June 25, 1997 By: /s/ Peter C. Madsen
----------------------------------
Peter C. Madsen,
Director
Date: June 25, 1997 By: /s/ Graham C. C. Miller
----------------------------------
Graham C. C. Miller,
Director
Date: June 25, 1997 By: /s/ Dr. Donald Mills
----------------------------------
Dr. Donald Mills,
Vice President and Director
Date: June 25, 1997 By: /s/ Kent H. E. Plumley
----------------------------------
Kent H. E. Plumley,
Director
Page 64
<PAGE>
Date: June 25, 1997 By: /s/ Daniel C. Rusheleau
----------------------------------
Daniel C. Rusheleau,
Director
Date: June 25, 1997 By: /s/ Peter Sommerer
----------------------------------
Peter Sommerer,
Vice Chairman of the Board
and Director
Date: June 25, 1997 By: /s/ Dr. John C. J. Thynne
----------------------------------
Dr. John C. J. Thynne,
Director
Page 65
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Page
- ------- ----
<S> <C> <C>
3.1 Articles of Amalgamation.(1)
3.2 By-Law No. 3. ............................................................68--79
10.1 Newbridge Networks Corporation Consolidated Key Employee Stock Option
Plan, as amended. ........................................................80--93
10.2 Notice of Intention to make a normal course issuer bid dated August 16,
1996 filed with The Toronto Stock Exchange regarding common share
repurchases.(2)
10.3--
10.7 [Reserved]
10.8 Credit Facilities Letter dated June 20, 1994 between Newbridge Networks
Corporation and Royal Bank of Canada.(3)
10.9--
10.13 [Reserved]
10.14 License Agreement effective May 1, 1994 between 2880016 Canada Inc. and
Newbridge Networks Corporation; Development Agreement effective May 1,
1994 between 2880016 Canada Inc. and Newbridge Networks Corporation.(4)
10.15 License Agreement effective May 1, 1994 between 3015955 Canada Inc. and
Newbridge Networks Corporation; Development Agreement effective May 1,
1994 between 3015955 Canada Inc. and Newbridge Networks Corporation.(4)
10.16 License Agreement effective May 1, 1994 between 3028623 Canada Inc. and
Newbridge Networks Corporation; Development Agreement effective May 1,
1994 between 3028623 Canada Inc. and Newbridge Networks Corporation.(4)
10.17 Lease dated May 29, 1997 for 76,230.65 square feet at 359 Terry Fox
Drive, Kanata, Ontario. ..................................................94--134
10.18 Agreement and Purchase and Sale dated February 16, 1996 for
approximately 25,000 square feet at Langstone Business Park, Langstone,
Newport, Wales.(5)
10.19 Letter Agreement dated May 10, 1995 and Lease dated April 1, 1990 for
4,573 square feet, more or less, at 362 Terry Fox Drive, Kanata,
Ontario.(5)
10.20 Lease dated May 1, 1995 for 1,882 square feet, more or less, at 362
Terry Fox Drive, Kanata, Ontario.(4)
</TABLE>
Page 66
<PAGE>
EXHIBIT 3.2
Page 68
<PAGE>
BY-LAW NO. 3
------------
A by-law relating generally to the transaction of the business
and affairs of
NEWBRIDGE NETWORKS CORPORATION
------------------------------
BE IT ENACTED as a by-law of the Corporation as follows:
1- INTERPRETATION
--------------
1.0 Definitions - In the by-laws of the Corporation, unless the
-----------
context otherwise requires:
"Act" means the Canada Business Corporations Act, and any
statute that may be substituted therefor, as from time to time
amended;
"articles" means the articles attached to the certificate of
incorporation dated June 9, 1986 of the Corporation as from
time to time amended or restated;
"board" means the Board of Directors of the Corporation;
"by-laws" means this by-law and all other by-laws of the
Corporation from time to time in force and effect;
"Corporation" means Newbridge Networks Corporation;
"meeting of shareholders" includes an annual meeting of
shareholders or a special meeting of shareholders or both, and
includes a meeting of any class or series of any class of
shareholders;
"non-business day" means Saturday, Sunday and any other day
that is a holiday as defined in the Interpretation Act
(Canada);
"recorded address" means in the case of a shareholder the
address as recorded in the securities register and in the case
of joint shareholders the address appearing in the securities
register in respect of such joint holdings or the first
address so appearing if there are more than one; and in the
case of a
Page 69
<PAGE>
director, officer, auditor or member of a committee of the
board, the latest address as recorded in the records of the
Corporation;
"signing officer" means, in relation to any instrument, any
person authorized to sign the same on behalf of the
Corporation by section 2.2 or by a resolution passed pursuant
thereto;
Words importing the singular number include the plural and
vice versa; words importing gender include the masculine, feminine and
neuter genders; and words importing persons include individuals, bodies
corporate, partnerships, trusts and unincorporated organizations.
2 - BUSINESS OF THE CORPORATION
---------------------------
2.1 Financial Year - Until changed by the board, the financial
--------------
year of the Corporation shall end on the 30th day of April in each
year.
2.2 Execution of Instruments - The board may from time to time
------------------------
determine the officers or other persons by whom any particular
documents or instrument or class of documents or instruments of the
Corporation shall be executed and the manner of execution thereof,
including the use of facsimile reproductions of any or all signatures
and the use of the corporate seal or a facsimile reproduction thereof.
3 - BORROWING AND SECURITIES
------------------------
3.1 Borrowing Power - Without limiting the borrowing powers of
----------------
the Corporation as set forth in the Act, the board may from time
to time:
(a) borrow money upon the credit of the Corporation;
(b) issue, reissue, sell or pledge, bonds, debentures,
notes or other evidence of indebtedness or guarantee of the
Corporation, whether secured or unsecured;
(c) to the extent permitted by the Act, give, directly
or indirectly, financial assistance to any person by means of
a loan, a guarantee to secure the performance of an obligation
or otherwise;
(d) mortgage, hypothecate or otherwise create a security
interest in all or any property of the Corporation, owned or
Page 70
<PAGE>
subsequently acquired, to secure any obligation of the
Corporation.
Nothing in this section limits or restricts the borrowing of money by
the Corporation on bills of exchange or promissory notes made, drawn,
accepted or endorsed by or on behalf of the Corporation.
3.2 Delegation - The board may from time to time by resolution delegate
----------
to a director, a committee of directors or an officer of the
Corporation as may be designated by the board all or any of the powers
conferred on the board by section 3.1 or by the Act to such extent and
in such manner as the board shall determine at the time of each such
delegation.
4 - DIRECTORS
---------
4.1 Number of Directors and Quorum - Until changed in accordance with
------------------------------
the Act, the board shall consist of not fewer than the minimum number
and not more than the maximum number of directors provided in the
articles. Subject to the Act, the quorum for the transaction of
business at any meeting of the board shall consist of a majority of
directors or such other number of directors as the board may from time
to time determine.
4.2 Election and Term - Directors shall be elected yearly to hold
-----------------
office until the next annual meeting of shareholders and until their
successors are elected. At each annual meeting of shareholders, all the
directors then in office shall retire but, if qualified, shall be
eligible for re-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. The number of directors
to be elected at any such meeting shall be the number of directors then
in office unless the directors otherwise determine. The election shall
be by resolution. If directors are not elected at a meeting of
shareholders the incumbent directors continue in office until their
successors are elected.
4.3 Vacancies - Subject to the Act, a quorum of the directors may fill
---------
a vacancy in the board, except a vacancy resulting from a failure of
the shareholders to elect the number or minimum number of directors
required by the articles. In the absence of a quorum of the board, or
if the vacancy has arisen from a failure of the shareholders to elect
the number or minimum number of directors required by the articles, the
directors then in office shall forthwith call a special meeting of
shareholders to fill the vacancy. If the directors fail to call such
meeting or if there are no such directors then in office, any
shareholder may call the meeting.
Page 71
<PAGE>
4.4 Place of Meetings - Meetings of the board may be held at the
------------------
registered office of the Corporation or at any other place in
or outside Canada.
4.5 Calling of Meetings - Meetings of the board shall be held from
-------------------
time to time at such time and at such place as the board, the chairman
of the board or any two directors may determine.
4.6 Notice of Meeting - Notice of the time and place of each meeting
-----------------
of the board shall be given to each director not less than 48 hours
before the time when the meeting is to be held. 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.
A director may in any manner waive notice of or otherwise consent to a
meeting of the board. Attendance of a director at a meeting of
directors is a waiver of notice of the meeting, except where a director
attends a meeting for the express purpose of objecting to the
transaction of any business on the grounds that the meeting is not
lawfully called.
4.7 Adjourned Meeting - Notice of an adjourned meeting of the board is
-----------------
not required if the time and place of the adjourned meeting is
announced at the original meeting.
4.8 Chairman - The chairman of any meeting of the board shall be the
--------
first mentioned of such of the following officers as have been
appointed 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 no
such officer is present, the directors present shall choose one of
their number to be chairman.
4.9 Votes to Govern - At all meetings of the board every question
---------------
shall be decided by a majority of the votes cast on the question. In
case of an equality of votes the chairman of the meeting (unless
precluded from voting pursuant to the Act) be entitled to a second or
casting vote. Any question at a meeting of the board shall be decided
by a show of hands unless a ballot is required or demanded.
4.10 Conflict of Interest - A director or officer of the Corporation
--------------------
who is a party to, or who is a director or officer of or has a material
interest in any person who 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
Page 72
<PAGE>
meetings of directors the nature and extent of his interest at the time
and in the manner provided by the Act. Any such contract or proposed
contract shall be referred to the board or the shareholders for
approval even if such contract is one that in the ordinary course of
the business would not require approval by the board or the
shareholders, and a director interested in a contract so referred to
the board shall not vote on any resolution to approve the same except
as provided by the Act.
4.11 Remuneration and Expenses - The directors shall be paid such
-------------------------
remuneration for their services as the board may from time to time
authorize. The directors shall also be entitled to be reimbursed for
travelling and other expenses properly incurred by them in attending
meetings of the board or any committee thereof. Nothing herein
contained shall preclude any director from serving the Corporation in
any other capacity and receiving remuneration therefor.
5 - COMMITTEES
----------
5.1 Committee of Directors - The board may appoint from its members a
----------------------
committee of directors, however designated, and delegate to such
committee any of the powers of the board except those which, under the
Act, a committee of directors has no authority to exercise.
5.2 Procedure - Unless otherwise determined by the board, each
---------
committee shall have the power to fix its quorum at not less than a
majority of its members, to elect its chairman and to regulate its
procedure.
6 - OFFICERS
--------
6.1 Appointment - The board may from time to time appoint a chief
-----------
executive officer, president, one or more vice-presidents (to which
title may be added words indicating seniority or function), a
secretary, a treasurer and such other officers as the board may
determine, including one or more assistants to any of the officers so
appointed. The board may specify the duties of and, in accordance with
this by-law and subject to the provisions of the Act, delegate to such
officers power to manage the business and affairs of the Corporation.
An officer may but need not be a director and one person may hold more
than one office.
6.2 Officers of Divisions - From time to time the board or, if
---------------------
authorized by the board, the chief executive officer, may appoint one
or more officers for any division as the board may consider
Page 73
<PAGE>
appropriate and prescribe their powers and duties and settle their
terms of employment and remuneration.
6.3 Powers and Duties of Officers - The powers and duties of all
-----------------------------
officers shall be such as the terms of their engagement call for or as
the board or chief executive officer may specify. 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.
6.4 Agents and Attorneys - The board may from time to time to appoint
--------------------
agents or attorneys for the Corporation in or outside Canada with such
powers of management or otherwise (including the power to sub-delegate)
as may be thought fit.
7 - PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
--------------------------------------------
7.1 Limitation of Liability - Every director and officer of the
-----------------------
Corporation in exercising his powers and discharging his duties shall
act honestly and in good faith with a view to the best interests of the
Corporation and exercise the care, diligence and skill that a
reasonably prudent person would exercise in comparable circumstances.
Subject to the foregoing, 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 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
moneys 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 moneys, securities or effects of the Corporation
shall be deposited, or for any loss occasioned by any error of
judgement 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 wilful neglect or default; provided that nothing herein shall
relieve any director or officer from the duty to act in accordance with
the Act and the regulations thereunder or from liability for any breach
thereof.
7.2 Indemnity - Except in respect of an action by or on behalf of the
---------
Corporation or body corporate to procure a judgement in its favour, the
Corporation shall indemnify a director or officer of the Corporation, a
former director or officer of the Corporation, or a
Page 74
<PAGE>
person who acts or acted at the Corporation's request as a director of
officer of a body corporate of which the Corporation 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 Corporation or body corporate or by reason
of having undertaken such liability; and the Corporation shall with the
approval of a court indemnify any such person in respect of an action
by or on behalf of the Corporation or body corporate to procure a
judgement in its favour, to which such person is made a party by reason
of being or having been a director or an officer of the Corporation or
body corporate, against all costs, charges and expenses reasonably
incurred by such director or officer in connection with such action;
if in each case such person:
(a) acted honestly and in good faith with a view to the best
interests of the Corporation; and
(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he had reasonable
grounds for believing that his conduct was lawful.
Notwithstanding the foregoing, the Corporation shall, without requiring
the approval of a court, indemnify any person referred to above, in
respect of an action by or on behalf of the Corporation or body
corporate to procure a judgment in its favour who has been
substantially successful on the merits in the defence of any civil,
criminal or administration action or proceeding to which such person is
made a party by reason of being or having been a director or officer of
the Corporation or body corporate, against all costs, charges and
expenses reasonably incurred by such person in respect of such action
or proceeding, provided that such person has satisfied the appropriate
conditions referred to in (a) and (b) above.
The Corporation shall also indemnify such person in such other
circumstances as the Act permits or requires. Nothing in this by-law
shall limit the right of any person entitled to indemnity to claim
indemnity apart from the provisions of this by-law.
7.2 Insurance - Subject to the limitations contained in the Act, the
---------
Corporation may purchase and maintain insurance for the benefit of any
person referred to in section 7.2 as the board may from time to time
determine.
Page 75
<PAGE>
8 - SHARES
------
8.1 Share Certificates - Every holder of one or more shares of the
------------------
Corporation shall be entitled, at the holder's option, to a share
certificate, or to a non-transferable written acknowledgment of the
holder's right to obtain a share certificate, stating the number of
class or series of shares held by the holder as shown on the securities
register. Share certificates and acknowledgments of a shareholder's
right to a share certificate, respectively, shall be in such form as
the board shall from time to time approve. Any share certificate shall
be signed in accordance with section 2.2 and need not be under the
corporate seal; provided that, unless the board otherwise determines,
certificates representing shares in respect of which a transfer agent
and/or registrar has been appointed shall not be valid unless
countersigned by or on behalf of such transfer agent and/or registrar.
The signature of one of the signing officers or, in the case of share
certificates which are not valid unless countersigned by or on behalf
of a transfer agent and/or registrar, the signatures of both signing
officers, may be printed or mechanically reproduced in facsimile upon
share certificates and every such facsimile signature shall for all
purposes be deemed to be the signature of the officer whose signature
it reproduces and shall be binding upon the Corporation. A share
certificate executed as aforesaid shall be valid notwithstanding that
one or both of the officers whose facsimile signature appears thereon
no longer holds office at the date of issue of the certificate.
9 - DIVIDENDS AND RIGHTS
--------------------
9.1 Dividend Cheques - A dividend payable in cash shall be paid by
----------------
cheque drawn on the Corporation's bankers or one of them to the order
of each registered holder of shares of the class or series in respect
of which it has been declared and mailed by prepaid ordinary mail to
such registered holder at his recorded address, unless such holder
otherwise directs. In the case of joint holders the cheque shall,
unless such joint holders otherwise direct, be made payable to the
order of all of such joint holders and mailed to them at their recorded
address. The mailing of such cheque as aforesaid, unless the same is
not paid on due presentation, shall satisfy and discharge the liability
for the dividend to the extent of the sum represented thereby plus the
amount of any tax which the Corporation is required to and does
withhold.
9.2 Non-Receipt of Cheques - In the event of non-receipt of any
----------------------
dividend cheque by the person to whom it is sent as aforesaid, the
Corporation shall issue to such person a replacement cheque for a like
Page 76
<PAGE>
amount on such terms as to indemnity, reimbursement of expenses and
evidence of non-receipt and of title as the board or any officer or
agent designated by the board may from time to time prescribe, whether
generally or in any particular case.
9.3 Unclaimed Dividends - Any dividend unclaimed after a period of 6
-------------------
years from the date on which the same has been declared to be payable
shall be forfeited and shall revert to the Corporation.
10 - MEETING OF SHAREHOLDERS
-----------------------
10.1 Annual Meetings - The board shall call an annual meeting of
---------------
shareholders. The annual meeting of shareholders shall be held at such
time in each year and, subject to section 10.3, at such place as the
board may from time to time determine, for the purpose of considering
the financial statements and reports required by the Act to be placed
before the annual meeting, electing directors, appointing auditors and
for the transaction of such other business as may properly be brought
before the meeting provided, in the case of any annual meeting called
other than by the board, the board shall approve the submission to the
meeting of any question or matter requiring approval of the
shareholders.
10.2 Special Meetings - The board shall have power to call a
----------------
special meeting of shareholders at any time.
10.3 Place of Meeting - Meetings of shareholders shall be held at the
----------------
registered office of the Corporation or elsewhere in the municipality
in which the registered office is situate or, if the board shall so
determine, at some other place in Canada or, if all the shareholders
entitled to vote at the meeting so agree, at some place outside Canada
and a shareholder who attends a meeting outside Canada is deemed to
have so agreed except when such shareholder attends such meeting for
the express purpose of objecting to the transaction of any business on
the grounds that the meeting is not lawfully held.
10.4 Chairman, Secretary and Scrutineers - The chairman of any meeting
-----------------------------------
of shareholders shall be the first mentioned of such of the following
director or officers as have been appointed and who are present at the
meeting: chairman of the board, president, or a director designated by
the board. If the secretary of the Corporation is absent, the chairman
shall appoint some person, who need not be a shareholder, to act as
secretary of the meeting. If desired, one or more scrutineers, who need
not be shareholders, may be appointed by the chairman with such duties
as the chairman may prescribe.
Page 77
<PAGE>
10.5 Quorum - A quorum for the transaction of business at any meeting of
------
shareholders shall be five persons present in person, each being a
shareholder or representative duly authorized in accordance with the Act
entitled to vote thereat or a duly appointed proxy for a shareholder so
entitled and together holding or representing by proxy not less than 10% of
the outstanding shares of the Corporation entitled to vote at the meeting.
If a quorum is present at the opening of the meeting, the shareholders
present in person or by proxy may proceed with the business of the meeting
even if a quorum is not present throughout the meeting.
10.6 Votes to Govern - At any meeting of shareholders every question
---------------
shall, unless otherwise required by the articles or by-laws or by law, be
determined by the majority of the votes cast on the question. In case of an
equality of votes either upon a show of hands or upon a poll, the chairman
of the meeting shall be entitled to a second or casting vote.
10.7 Show of Hands - Subject to the provisions of the Act, any question at
-------------
a meeting of shareholders shall be decided by a show of hands unless a
ballot thereon is required or demanded as hereinafter provided. Upon a show
of hands every person who is present and entitled to vote shall have one
vote. Whenever a vote by show of hands shall have been taken upon a
question, unless a ballot thereon is so required or demanded, a declaration
by the chairman of the meeting that the vote upon the question has been
carried or carried by a particular majority or not carried and an entry to
that effect in the minutes of the meeting shall be prima facie evidence of
the fact without proof of the number or proportion of the votes recorded in
favour of or against any resolution or other proceeding in respect of the
said question, and the result of the vote so taken shall be the decision of
the shareholders upon the said question.
10.8 Ballots - On any question proposed for consideration at a meeting of
-------
shareholders, and whether or not a show of hands has been taken thereon,
the chairman may require, or any shareholder or proxyholder entitled to
vote at the meeting may require or demand a ballot. A ballot so required or
demanded shall be taken in such manner as the chairman shall direct. A
requirement or demand for a ballot may be withdrawn at any time prior to
the taking of the ballot. If a ballot is taken each person present shall be
entitled, in respect of the shares which each person is entitled to vote at
the meeting upon the question, to that number of votes provided by the Act
or the articles, and the result of the ballot so taken shall be the
decision of the shareholders upon the said question.
Page 78
<PAGE>
11 - REPEAL
------
11.1 Repeal - Upon this by-law coming into force, By-law No. 2 of the
------
Corporation is repealed. However, such repeal shall not affect the previous
operation of such by-law or affect the validity of any act done or right,
privilege, obligation or liability acquired or incurred under the validity
of any contract or agreement made pursuant to such by-law prior to its
repeal. All officers and persons acting under such repealed by-law shall
continue to act as if appointed under the provisions of this by-law and all
resolutions of the shareholders or board with continuing effect passed
under such repealed by-law shall continue good and valid, until amended or
repealed, except to the extent inconsistent with this by-law.
12 - EFFECTIVE DATE
--------------
12.1 Effective Date - This by-law shall come into force when enacted by
--------------
the directors, subject to the Act.
Page 79
<PAGE>
EXHIBIT 10.1
Page 80
<PAGE>
[LOGO OF NEWBRIDGE NETWORKS APPEARS HERE]
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED KEY EMPLOYEE STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of the Newbridge Networks Corporation Consolidated Key Employee
Stock Option Plan is to develop the interest of and provide an incentive to
eligible employees, directors and consultants of Newbridge Networks
Corporation (the "Corporation") and its subsidiaries in the Corporation's
growth and development by granting to eligible employees, directors and
consultants from time to time options to purchase Common Shares of the
Corporation, thereby advancing the interests of the Corporation and its
shareholders.
2. Definitions
In this Plan:
(a) "Associates" has the meaning assigned by the Ontario Securities Act;
(b) "Board of Directors" means the board of directors of the Corporation;
(c) "Committee" means:
(i) with respect to Participants, the Employee Compensation Committee
of three or more members appointed by the Board of Directors to
administer the Plan and the Board of Directors if no Employee
Compensation Committee has been appointed; and
(ii) with respect to Director Participants, the Board of Directors;
(d) "Common Shares" means the common shares of the Corporation;
(e) "Corporations Act" means the Canada Business Corporations Act, as
amended, and the regulations promulgated thereunder.
(f) "Date of Grant" means, for any Option, the date upon which the Option
was granted;
Page 81
<PAGE>
(g) "Director Participant" means a director of the Corporation who is not
an employee of the Corporation;
(h) "Disability" means permanent and total disability as determined under
policies established by the Committee for the purposes of the Plan;
(i) "Exercise Period" means, with respect to any Option Shares, the period
during which an Optionee may purchase such Option Shares;
(j) "Insider" means an insider of the Corporation as defined in the
"Employee Stock Option and Stock Purchase Plans, Options for Service
and Related Matters" section of The Toronto Stock Exchange Company
Manual;
(k) "Ontario Securities Act" means the Securities Act, RSO 1990, c.s 5, as
amended;
(l) "Option" means a non-assignable and non-transferable option to
purchase Common Shares granted pursuant to the Plan;
(m) "Optionee" means a Participant or a Director Participant who has been
granted one or more Options;
(n) "Option Shares" means Common Shares which are subject to purchase upon
the exercise of outstanding Options;
(o) "Participant" means a current or former full-time permanent employee
of the Corporation or any of its Subsidiaries or a director (other
than a Director Participant) of any Subsidiary of the Corporation, or
a person (other than a Director Participant) or corporation or other
entity providing consulting or similar services to the Corporation or
any of its Subsidiaries;
(p) "Plan" means the Newbridge Networks Corporation Consolidated Key
Employee Stock Option Plan as set out herein;
(q) "Plan Shares" means that number of Common Shares reserved for issuance
pursuant to the exercise of stock options in accordance with the terms
of the Plan;
(r) "Retirement" means retirement from active employment with the
Corporation or a Subsidiary in accordance with the Corporation's or
Subsidiary's policies from time to time relating to mandatory or early
retirement of employees, or with the consent for purposes of the Plan
of such officer of the Corporation as may be designated by the
Committee, at or after such earlier age and upon the completion of
such years of service as the Committee may specify; and
Page 82
<PAGE>
(s) "Subsidiary" means any corporation in which the Corporation, directly
or through one or more corporations which are themselves Subsidiaries
of the Corporation, owns 50% or more of the shares eligible to vote at
meetings of the shareholders.
3. Eligibility
All Participants and Director Participants shall be eligible to participate
in the Plan. Eligibility to participate shall not confer upon any
Participant any right to be granted Options pursuant to the Plan. The
extent to which any Participant shall be entitled to be granted Options
pursuant to the Plan shall be determined in the sole and absolute
discretion of the Committee.
Provided however that:
(i) The number of Common Shares reserved for issuance to any one
person pursuant to Options shall not exceed 5% of the
outstanding issue; and
(ii) The number of Common Shares reserved for issuance pursuant to
Options granted to Insiders shall not exceed 10% of the
outstanding issue;
(iii) The number of Common Shares issued to Insiders within a one year
period pursuant to the Plan shall not exceed 10% of the
outstanding issue; and
(iv) The number of Common Shares issued to any one Insider and such
Insider's Associates within a one-year period shall not exceed
5% of the outstanding issue.
For purposes of the meaning of "outstanding issue" in (iii) and (iv) above,
this shall be determined on the basis of the number of Common Shares that
are outstanding immediately prior to the share issuance in question,
excluding shares issued pursuant to the Plan over the preceding one-year
period.
4. Number of Option Shares Available for Grants
The Plan Shares shall not exceed 25,000,000 Common Shares, subject to the
adjustment of such number pursuant to paragraph 18.
No Option may be granted by the Committee which would have the effect of
causing the total number of all Option Shares to exceed the number of Plan
Shares.
Page 83
<PAGE>
Upon the expiration, cancellation or termination, in whole or in part, of
an unexercised Option, the Option Shares subject to such Option shall be
available for other Options to be granted from time to time.
5. Granting of Options
The Committee may from time to time grant Options to Participants to
purchase a specified number of Common Shares at a specified exercise price
per share. The number of Option Shares to be granted, the exercise price,
the Date of Grant, and such other terms and conditions of the Option shall
be as determined by the Committee.
The Committee shall grant Options to Director Participants upon the
occurrence of the events set forth in Schedule I to the Plan. For all such
Options, the Date of Grant, exercise price and number of Option Shares
shall, subject to the adjustment of the number of Option Shares pursuant to
paragraph 18, be as set forth in Schedule I, and such other terms and
conditions of the Option as determined by the Committee.
6. Exercise Price
The exercise price per Common Share purchasable under an Option shall not
be lower than the average of the average of the daily high and low board
lot trading prices on the Toronto Stock Exchange for the five days
preceding the Date of Grant, rounded to the next highest cent.
7. Exercise Period
Unless otherwise specified by the Committee at the time of granting an
Option, and except as otherwise provided in the Plan, each Option shall be
exercisable in the following installments:
Page 84
<PAGE>
<TABLE>
<CAPTION>
Percentage of Total Number
of Option Shares Which
May Be Purchased Exercise Period
------------------------------ --------------------------------
<S> <C>
25% From the first anniversary of the
Date of Grant to and including the
fifth anniversary of the Date of Grant
25% From the second anniversary of the
Date of Grant to and including the
fifth anniversary of the Date of Grant
25% From the third anniversary of the
Date of Grant to and including the
fifth anniversary of the Date of Grant
25% From the fourth anniversary of the
Date of Grant to and including the
fifth anniversary of the Date of Grant
</TABLE>
Once an installment becomes exercisable it shall remain exercisable until
expiration or termination of the Option, unless otherwise specified by the
Committee. Each Option or installment may be exercised at any time or from
time to time, in whole or in part, for up to the total number of Common
Shares with respect to which it is then exercisable. The Committee shall
have the right to accelerate the date upon which any installment of any
Option is exercisable.
8. Term of Options
Subject to accelerated termination as provided for in the Plan, each Option
shall, unless otherwise specified by the Committee, expire on the fifth
anniversary of the Date of Grant, provided, however, that no Option may be
exercised after the tenth anniversary of the Date of Grant.
9. Exercise of Options
An Optionee or the transferee of an Option pursuant to paragraph 14 may, at
any time within the Exercise Period elect to purchase all or a portion of
the Option Shares which the Optionee is then entitled to purchase by
delivering to the Corporation a completed notice of exercise, specifying
the Date of Grant of the Option being exercised, the exercise price of the
Option and the number of Option Shares the Optionee desires to purchase.
The notice of exercise shall be accompanied by payment in full of the
purchase price for such Option Shares.
Page 85
<PAGE>
Payment can be made by cash, certified cheque, bank draft, money order or
the equivalent payable to the order of the Corporation.
10. Withholding of Tax
If the Corporation determines that under the requirements of applicable
taxation laws it is obliged to withhold for remittance to a taxing
authority any amount upon exercise of an Option, the Corporation may, prior
to and as a condition of issuing the Option Shares, require the Optionee or
the transferee of an Option pursuant to paragraph 14 exercising the Option
to pay to the Corporation, in addition to and in the same manner as the
purchase price for the Option Shares, such amount as the Corporation is
obliged to remit to such taxing authority in respect of the exercise of the
Option. Any such additional payment shall, in any event, be due no later
than the date as of which the applicable amount must be remitted by the
Corporation to the appropriate taxing authority.
11. Share Certificates
Upon exercise of an Option and payment in full of the purchase price and
any applicable tax withholdings, the Corporation shall cause to be issued
and delivered to the Optionee within a reasonable period of time a
certificate or certificates in the name of or as directed by the Optionee
representing the number of Common Shares the Optionee has purchased.
12. Termination of Employment or Services
Unless otherwise determined by the Committee, if an Optionee's
employment or services as a director or consultant terminate for any reason
other than death, Disability or Retirement, any Option held by such
Optionee shall expire and be cancelled upon the earlier of the 60th day
following such termination or the expiration of the stated term of such
Option.
Options shall not be affected by any change of employment within or among
the Corporation or its Subsidiaries or by termination of services as a
director, unless otherwise determined by the Committee, so long as the
Participant continues to be an employee of or consultant to the Corporation
or a Subsidiary or a director of the Corporation or a Subsidiary.
13. Termination by Reason of Death, Disability or Retirement
Unless otherwise determined by the Committee, if an Optionee's employment
or services as a director or consultant terminate by reason of death,
Disability or Retirement, any Option held by such Optionee shall expire and
be cancelled upon the earlier of the 180th day following such termination
or the expiration of the stated term of such Option.
Page 86
<PAGE>
14. Transfer and Assignment
Options granted under the Plan are not assignable or transferable by the
Optionee or the Optionee's personal representative or subject to any other
alienation, sale, pledge or encumbrance by such Optionee except by will or
by the laws of intestacy. During the Optionee's lifetime Options shall be
exercisable only by the Optionee or the Optionee's personal
representatives. The obligations of each Optionee shall be binding on his
heirs, executors and administrators.
15. No Right to Employment
The granting of an Option to a Participant under the Plan does not confer
upon the Participant any right to expectation of employment by, or to
continue in the employment of, the Corporation or any Subsidiary, or to be
retained as a consultant by the Corporation or any Subsidiary.
16. Rights as Shareholders
The Optionee or the transferee of an Option pursuant to paragraph 14 shall
not have any rights as a shareholder with respect to Option Shares until
the Common Shares have been duly purchased and paid for in accordance with
the terms of the Plan.
17. Administration of the Plan
The Plan shall be administered by the Committee. No member of the
Committee, while a member, shall be eligible to participate in the Plan
other than with respect to Options granted as set forth in Schedule I to
the Plan. Subject to the terms of the Plan, the Committee shall have the
authority to:
(a) determine the individuals and entities (from among the class of
individuals and entities eligible to receive Options) to whom Options
may be granted;
(b) determine the number of Common Shares to be subject to each Option;
(c) determine the terms and conditions of any grant of Option, including
but not limited to
(i) the time or times at which Options may be granted;
(ii) the exercise price at which Option Shares may be purchased;
(iii) the time or times when each Option shall become exercisable and
the duration of the Exercise Period;
Page 87
<PAGE>
(iv) whether restrictions or limitations are to be imposed on Option
Shares, and the nature of such restrictions or limitations, if
any; and
(v) any acceleration of exercisability or waiver of termination
regarding any Option, based on such factors as the Committee
may determine;
(d) interpret the Plan and prescribe and rescind rules and regulations
relating to the Plan.
The interpretation and construction by the Committee or the Board of
Directors of any provisions of the Plan or of any Option granted under it
shall be final and binding on all persons. No member of the Committee or
the Board of Directors shall be liable for any action or determination made
in good faith with respect to the Plan or any Option granted under it. The
day-to-day administration of the Plan may be delegated to such officers and
employees of the Corporation or any Subsidiary as the Committee shall
determine.
18. Recapitalization and Reorganization
The number of Plan Shares, the number of Option Shares subject to each
outstanding and unexercised Option and the exercise price for such Option
Shares, as well as the number of Option Shares for Director Participants
set out in Schedule 1, shall be appropriately adjusted for any change in
the Common Shares or in the number of Common Shares outstanding by reason
of any stock split, stock dividend on the Common Shares payable in Common
Shares other than pursuant to any optional stock dividend program,
subdivision, combination, reclassification, amalgamation, arrangement,
consolidation, rights or warrant offering to purchase Common Shares at or
below market price, or any other relevant change or event affecting the
Common Shares. Each adjustment to the exercise price for Option Shares
pursuant to this provision shall be calculated and rounded to the nearest
higher cent. Any fractional shares which might otherwise become subject to
an Option as a result of an adjustment pursuant to this paragraph shall be
eliminated without any payment therefor.
19. Conditions of Exercise
The Plan and each Option shall be subject to the requirement that, if at
any time the Committee determines that the listing, registration or
qualification of the Common Shares subject to such Option upon any
securities exchange or under any provincial, state or federal law, or the
consent or approval of any governmental body, securities exchange, or the
holders of the Common Shares generally, is necessary or desirable, as a
condition of, or in connection with, the granting of such Option or the
issue or purchase of Common Shares thereunder, no such Option may be
granted or exercised in whole or in part unless such
Page 88
<PAGE>
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the
Committee.
20. Loans
The Board of Directors may, in its discretion, but subject always to
section 44 of the Corporations Act, grant loans, on such terms as are
permitted by law and the Board of Directors may determine, to Optionees,
who are employees of the Corporation or its subsidiaries, to enable them to
purchase Option Shares, provided that all Common Shares purchased with the
proceeds of such loans shall be held by a trustee until the Corporation has
been repaid in full.
21. Notices
All written notices to be given by the Optionee to the Corporation shall be
delivered personally or by registered mail, postage prepaid, addressed as
follows:
Newbridge Networks Corporation
600 March Road
Kanata, Ontario
K2K 2E6
Attention: Secretary
Any notice given by the Optionee pursuant to the terms of an Option shall
not be effective until actually received by the Corporation at the above
address.
22. Corporate Action
Nothing contained in the Plan or in an Option shall be construed so as to
prevent the Corporation or any Subsidiary of the Corporation from taking
corporate action which is deemed by the Corporation or the Subsidiary to be
appropriate or in its best interest, whether or not such action would have
an adverse effect on the Plan or any Option.
Page 89
<PAGE>
23. Amendments
The Board of Directors shall have the right, in its sole discretion,
subject to the prior approval of The Toronto Stock Exchange and, if
required, of the holders of Common Shares of the Corporation, to alter,
amend, modify or terminate the Plan or any Option granted under the Plan at
any time without notice. The Board of Directors shall not, however, alter,
amend or modify Schedule I more often than once every six months other than
to comport with changes to applicable tax and employee benefit laws and the
respective rules and regulations thereunder. No such amendment, however,
may, without the consent of the Optionee or the transferee of an Option
pursuant to paragraph 14, alter or impair any rights or increase any
obligations with respect to an Option previously granted under the Plan.
24. Amendment and Consolidation of Prior Plans
This Plan amends, consolidates and restates each of the Newbridge Networks
Corporation 1989-1994 Stock Option Plan for United States Subsidiaries, the
Newbridge Networks Corporation Canadian Key Employee Stock Option Plan and
the Newbridge Networks Corporation United Kingdom Key Employee Stock Option
Plan (together, the "Prior Plans"), and the terms and provisions of this
Plan shall be deemed to supersede and replace the terms and provisions of
each of the Prior Plans. No provision of this Plan, however, may, without
the consent of the Optionee, alter or impair any rights or increase any
obligations with respect to an option granted under the Prior Plans prior
to the effective date of this Plan.
25. Change in Control
In the event of a "Change in Control", as defined below, unless otherwise
determined by the Committee or the Board of Directors prior to the
occurrence of such Change in Control, any Options outstanding as of the
date such Change in Control is determined to have occurred and not then
exercisable shall become fully exercisable effective one day prior to the
date of such Change of Control. In addition, the value of all outstanding
Options shall, unless otherwise determined by the Committee or the Board of
Directors at or after the Date of Grant, be cashed out on the basis of the
"Change in Control Price", as defined below, as of the date such Change in
Control is determined to have occurred or such other date as the Committee
or the Board of Directors may determine prior to the Change in Control.
Outstanding options as of the date of such Change of Control may be cashed
out only if the Change in Control Price is higher than the Exercise Price
of such outstanding options. Further, the Committee or the Board of
Directors shall have the right to provide for the conversion or exchange of
any outstanding Options into or for options, rights or other securities in
any entity participating in, or resulting from, the Change in Control.
Page 90
<PAGE>
For purposes of the Plan, a "Change in Control" means the happening of any
of the following:
(a) When any "person", together with any "affiliate" or "associate" of
such person, as such terms are defined by the Corporations Act (other
than the Corporation, a Subsidiary or a Corporation employee benefit
plan, including any trustee of such plan acting as trustee), or a
group of persons acting jointly or in concert with one another,
hereafter acquires the "beneficial ownership", as defined in the
Corporations Act, of, or control or direction over, directly or
indirectly, securities of the Corporation representing 20 percent or
more of the combined voting power of the Corporation's then
outstanding securities; or
(b) The occurrence of a transaction requiring shareholder approval
involving the acquisition of the Corporation by an entity other than
the Corporation or a Subsidiary through purchase of assets, by
amalgamation or otherwise.
For purposes of the Plan, "Change in Control Price" means the highest price
per Common Share paid in any transaction reported on The Toronto Stock
Exchange or paid or offered in any bona fide transaction related to a
potential or actual change in control of the Corporation at any time during
the preceding 60-day period as determined by the Committee or the Board of
Directors.
26. Termination of Plan
Except as otherwise provided herein, Options may be granted only within the
ten year period from the date the Plan has been adopted by the Board of
Directors. The termination of the Plan shall have no effect on outstanding
Options, which shall continue in effect in accordance with their terms and
conditions and the terms and conditions of the Plan, provided that no
Option may be exercised after the tenth anniversary of its Date of Grant.
27. Further Assurances
Each Participant or Director Participant shall, when requested to do so by
the Corporation, sign and deliver all such documents relating to the
granting or exercise of Options deemed necessary or desirable by the
Corporation.
Page 91
<PAGE>
28. Governing Law
The Plan is established under the laws of the Province of Ontario, and the
rights of all parties and the construction and effect of each provision of
the Plan shall be according to the laws of the Province of Ontario.
DATED the 21st day of October, 1991, as amended the 13th day of September, 1993,
the 6th day of June, 1995, the 5th day of July, 1996 and the 3rd day of June,
1997.
NEWBRIDGE NETWORKS CORPORATION
/s/ Terence H. Matthews
- ---------------------------------
Chairman
/s/ John A. Farmer
- ---------------------------------
Secretary
Page 92
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Reason for Grant Date of Grant Option Grant
- ---------------- ------------- ------------
<S> <C> <C>
Annual service on Board of Date of each annual meeting of 10,000 Option Shares
Directors shareholders at which the
Director Participant is elected to
the Board of Directors by the
shareholders
Annual service as member Date of each annual meeting of 2,000 Option Shares
of a Standing Committee shareholders following which
(other than as Chair) the Director Participants is
appointed as a member of a
Standing Committee by the
Board of Directors
Annual service as Chair of Date of each annual meeting of 4,000 Option Shares
a Standing Committee Shareholders following which
the Director Participant is
appointed as Chair of a Standing
Committee by the Board of
Directors
</TABLE>
Notes:
1. A Director Participant must be a member of the Board of Directors or a
Standing Committee of the Board of Directors, as the case may be, as of the
Date of Grant.
2. The exercise price of Options granted to Director Participants shall not be
lower than the average of the average of the daily high and low board lot
trading prices of the Common Shares on The Toronto Stock Exchange for the
five days preceding the Date of Grant, rounded to the next highest cent.
3. "Standing Committee" of the Board of Directors means a committee formed by
the board to meet on a regular basis over an extended period of time, and
which is declared by the Board of Directors to be a Standing Committee, and
includes the Audit Committee, the Employee Compensation Committee and the
Directors' Affairs Committee.
Page 93
<PAGE>
EXHIBIT 10.17
Page 94
<PAGE>
THIS INDENTURE made this 29th day of May, 1997.
BETWEEN:
KANATA RESEARCH PARK CORPORATION
(Hereinafter called the "Landlord")
OF THE FIRST PART
AND:
NEWBRIDGE NETWORKS CORPORATION
(Hereinafter called the "Tenant")
OF THE SECOND PART
WITNESSETH that in consideration of the rents, covenants, conditions and
agreements herein contained, the Landlord and the Tenant covenant and agree as
follows:
1.00 LEASED PREMISES
The Landlord hereby leases to the Tenant all those premises consisting
of the building known municipally as 359 Terry Fox Drive and comprising
approximately Seventy-Six Thousand Two Hundred and Thirty point Six Five
(76,230.65) rentable square feet of space on the ground floor ("Leased
Premises") in the City of Kanata which said building is erected on the
lands (herein called the "Lands") described in Schedule "A" annexed
hereto. The Leased Premises are more particularly outlined on the floor
plan annexed hereto and marked Schedule "B".
1.01 ADDITIONAL DEFINITIONS
For the purposes of this Lease and any additions or amendments thereto:
(a) "Improvements" means all improvements located on the Lands,
including the Building, the parking lot or structure servicing
the Building and other facilities and physical structures which
are for the exclusive use of occupants of the Building;
(b) "Common Areas" means at any time those portions of the Lands and
Building not leased or designated for lease to tenants but
provided to be used in common by (or by the sublesses, agents,
employees, customers or licensees of) Landlord, Tenant and other
tenants of the Building, whether or not they are open to general
public and shall include any fixtures, chattels, systems, decor,
signs, facilities or landscaping contained in those areas or
maintained or used in connection with them, and shall be deemed
to include the city sidewalks adjacent to the Lands and any
pedestrian walkway system (either above or below ground), park,
or other public facility in respect of which Landlord is from
time to time subject to obligations arising from the Lands and
Building.
Page 95
<PAGE>
(c) "Tenant's Proportionate Share" means seventy-nine percent (79%)
provided the said percentage may be varied based on the actual
area of the Leased Premises as certified by the Landlord.
2.00 TERM
To have and to hold the Leased Premises for and during a period of
years, (hereinafter called the "Term") commencing on the 1st day of
June, l997 for approximately Fifty-Eight Thousand Two Hundred and Thirty
point Six Five rentable square feet and for approximately Eighteen
Thousand rentable square feet from the 1st day of August, 1997 or the
date the area is substantially complete in accordance with Schedule "G"
whichever is the later and from thenceforth next ensuing and fully to be
completed and ended on the 31st day of May 2002.
2.01 INABILITY TO GIVE OCCUPANCY
It is hereby agreed that if the Landlord is unable to deliver vacant
possession of the Leased Premises on the date of commencement of the
Term by reason of the Leased Premises or the Building being uncompleted
or by reason of any previous tenant or occupant overholding (but not by
reason of circumstances beyond the Landlord's control or by reason of
the failure of the Tenant to complete Tenant's Work herein or by reason
of the Tenant failing on or before the date occurring six (6) weeks
prior to the commencement of the Term herein to supply all necessary
approvals and specifications which the Landlord requires in order to
complete the Leasehold Improvements herein,) the Landlord shall
diligently exercise all of its rights to obtain completion and vacant
possession of the Leased Premises and the rent payable hereunder shall
abate at a rental per day equal to 1/365th of the Annual Rent payable
until such completion or vacant possession is obtained but the Landlord
shall not be liable to the Tenant for damages of any nature whatsoever
and this Lease shall continue in full force and effect subject only to
the abatement of rent as aforesaid.
2.02 EARLY OCCUPANCY
If the Tenant occupies the Leased Premises prior to the commencement of
the Term, then during the period up to the date of commencement the
Tenant shall be a tenant of the Landlord subject to all the covenants,
conditions and agreements set out in this Lease and at a rental per day
equal to 1/365th of the Annual Rent and Additional Rent and such rental
shall be paid on or before the commencement of the Term.
2.03 OVERHOLDING
If the Tenant shall continue to occupy the Leased Premises after the
expiration of this Lease with or without the consent of the Landlord and
without any further written agreement, the Tenant shall be a monthly
tenant at a rent equivalent to 150% of the Monthly Rent and Additional
Rent hereby reserved and subject to all the terms and conditions herein
set out except as to length of tenancy.
3.00 RENT - Basic Rent
In each year during the Term of this Lease the Tenant covenants and
agrees to pay without any set-off or deduction whatsoever, to the
Landlord, as rent for the Leased Premises the following:
Page 96
<PAGE>
<TABLE>
<CAPTION>
Years Rate/sq foot Leased Premises
----- ------------ ---------------
<S> <C> <C>
1-5 $9.25 $705,133.51
</TABLE>
herein called "Annual Rent". The Annual Rent will be adjusted
proportionately for any lease year which is other than twelve months.
3.01 MONTHLY RENTAL
The Annual Rent shall be payable in equal monthly installments of Fifty-
Eight Thousand Seven Hundred and Sixty-One Dollars and Thirteen Cents
($58,761.13) (hereinafter called the "Monthly Rent") in advance on the
first day of each calendar month during the Term. If the Term commences
on any day other than the first (1st) or ends on any day other than the
last of a calendar month, rent for the fraction of a month at the
commencement and at the end of the Term shall be prorated at a rate per
day equal to 1/365th of the Annual Rent payable.
3.02 ADDITIONAL RENT
The Tenant covenants to pay as additional rent all sums to be paid to
the Landlord hereunder including, without limiting the generality of the
foregoing, all tax on the Tenant's leasehold improvements, Goods and
Services Tax and the Tenant's Proportionate Share of the Tax, Capital
Tax, Landlord's Business Tax and Operating Costs (herein called
"Additional Rent").
3.03 ESTIMATED ADDITIONAL RENTALS
During the Term, the Tenant shall pay to the Landlord monthly in advance
on the 1st day of each and every month during the Term, one-twelfth
(1/12) of the amount of such annual Additional Rent as reasonably
estimated by the Landlord to be due from the Tenant. Such estimates may
be adjusted from time to time and re-adjusted by the Landlord and the
Tenant shall pay to the Landlord monthly installments of Additional Rent
according to such estimates, as so adjusted.
3.04 DEFICIENCY OF ADDITIONAL RENT
If the aggregate amount of such estimated Additional Rent payments made
by the Tenant in any year should be less than the Additional Rent due
for such year, then the Tenant shall pay to the Landlord as Additional
Rent within thirty (30) days of receipt of notice thereof from the
Landlord the amount of such deficiency.
3.05 EXCESS OF ADDITIONAL RENTAL INSTALLMENTS
If the aggregate amount of such Additional Rent payments made by the
Tenant in any year of the Term should be greater than the Additional
Rent due for such year, then should the Tenant not be otherwise in
default hereunder, the amount of such excess will be applied by the
Landlord to the next succeeding installments of such Additional Rent due
hereunder; and if there be any such excess for the last year of the
Term, the amount thereof will be refunded by the Landlord to the Tenant
within thirty (30) days after the completion of the Landlord's year-end
audit provided the Tenant is not otherwise in default under the terms of
the Lease.
Page 97
<PAGE>
3.06 PRO-RATING OF ADDITIONAL RENT
If only part of any calendar year is included within the Term the amount
of the Additional Rent payable by the Tenant for such partial year shall
be prorated and shall be based upon the estimates made by the Landlord
and upon a final determination of such Additional Rent, the amount
remaining unpaid at the termination of this Lease shall, notwithstanding
such termination, be adjusted and paid within a reasonable time
thereafter.
3.07 PREPAYMENT OF ADDITIONAL RENT
Notwithstanding the foregoing, if the Landlord is required to pay any
amount, which it is entitled to collect from the tenants of the
Building, more frequently than provided for in this Lease or if the
Landlord is required to prepay any such amount, the Tenant shall pay to
the Landlord its portion of such amount calculated in accordance with
this Lease, forthwith upon demand.
3.08 DISPUTE AS TO AMOUNT OF ADDITIONAL RENT
In the event of any dispute by the Tenant as to the amount of any
Additional Rent claimed by the Landlord or the amount of the Tenant's
Proportionate Share thereof, the opinion of the Landlord's auditors
shall be conclusive and binding as to the amount thereof for any period
to which the opinion relates.
3.09 MANNER AND PLACE OF PAYMENT OF RENT
All rent shall, until further written notice is received from the
Landlord, be paid by the Tenant without any prior demand therefor to
Kanata Research Park Corporation, at par in the City of Ottawa at the
principal office of, Kanata Research Park Corporation, 600 March Road,
P.O. Box l3600, Kanata, Ontario, Canada K2K 2E6, or at such other place
in Canada as Kanata Research Park Corporation may designate in writing
from time to time and shall be payable in lawful money of Canada. The
Landlord agrees that payments made to Kanata Research Park Corporation
pursuant to this Lease shall be deemed to be payments made to the
Landlord and the Tenant shall not be required to see to the application
thereof.
3.10 DEFAULT
Any sums received by the Landlord from or for the account of the Tenant
when the Tenant is in default hereunder may be applied at the Landlord's
option to the satisfaction, in whole or part, of any of the obligations
of the Tenant then due hereunder in such manner as the Landlord sees
fit, and regardless of any designation or instructions of the Tenant to
the contrary.
3.11 ACCRUAL OF RENT
Rent shall be considered as annual and accruing from day to day, and
where it becomes necessary for any reason to calculate such rent for an
irregular period of less than one (1) year an appropriate apportionment
and adjustment shall be made. Where the calculation of any Additional
Rent is not made until after the termination of this Lease, the
obligation of the Tenant to pay such Additional Rent shall survive the
termination of this Lease and such amounts shall be payable by the
Tenant upon demand by the Landlord.
Page 98
<PAGE>
3.12 NET LEASE
The Tenant acknowledges and agrees that it is intended that this Lease
shall be a completely carefree net lease for the Landlord and that the
Landlord shall not be responsible during the Term for any costs,
charges, expenses or outlays of any nature whatsoever arising from or
relating to the Leased Premises, whether foreseen or unforeseen and
whether or not within the contemplation of the parties at the
commencement of the Term except as shall be otherwise expressly provided
for in this Lease and other than Income Tax due by the Landlord, the
Tenant shall be responsible for any business transfer tax, value added
tax, multi-stage sales tax, goods and services tax or any other tax or
levy on rental income that may be charged, levied or assessed by any
government or other applicable taxing authority against the Landlord
whether known as a goods and services tax or any other name ("Goods and
Services Tax").
4.00 TENANT'S BUSINESS TAX
In each and every year during the Term the Tenant covenants to pay and
discharge prior to the same becoming due and payable all taxes, rates,
duties and assessments and other charges that may be levied, rated,
charged or assessed against or in respect of the Tenant's or other
occupant's use and occupancy of the Leased Premises or in respect of the
Tenant's or other occupant's leasehold improvements, equipment,
machinery, trade fixtures and facilities situate or installed on or in
the Leased Premises and every tax and licence fee in respect of any and
every business carried on in the Leased Premises or in respect of the
use or occupancy thereof by the Tenant (and any and every subtenant,
licensee or occupant thereof) whether such taxes, rates, duties,
assessments and licence fees are charged by any municipal,
parliamentary, school or other body during the term hereby demised. The
Tenant will indemnify and keep indemnified the Landlord from and against
payment of all loss, costs, charges and expenses occasioned by, or
arising from any and all such taxes, rates, duties, assessments, licence
fees, and any and all taxes which may in future be levied or charged in
lieu of such taxes; and any such loss, costs, charges and expenses
suffered by the Landlord may be collected by the Landlord as rent with
all rights of distress and otherwise as reserved to the Landlord in
respect of rent in arrears. The Tenant further covenants and agrees that
upon written request of the Landlord, the Tenant will promptly deliver
to the Landlord for inspection receipts for payment of all such taxes,
rates, duties, assessments, licence fees and other charges in respect of
all improvements, equipment and facilities of the Tenant on or in the
Leased Premises or in respect of any business carried on in the Leased
Premises which were due and payable up to one (1) month prior to such
request.
4.01 LANDLORD'S BUSINESS TAX
In the event that there are any taxes, rates, duties, assessments or
charges levied, rated, charged or assessed against the Landlord by any
municipal or other governmental authority with respect to the Landlord's
use or occupancy of any part of the Building or the Land which the
Tenant is entitled to use in common with other persons or with respect
to any other part of the Building which the Landlord uses or occupies
for the purpose of supplying services to the Leased Premises (such
taxes, rates, duties, assessments or charges hereinafter called the
"Landlord's Business Tax"), then it is agreed that in addition to all
other sums, the Tenant is required to pay pursuant to this Lease, the
Tenant shall pay to the Landlord as Additional Rent, the Tenant's
Proportionate Share of such Landlord's Business Tax.
Page 99
<PAGE>
4.02 TAX ON TENANT'S LEASEHOLD IMPROVEMENTS
The Tenant shall pay to the Landlord as Additional Rent, in respect of
each applicable tax year, an amount equal to that portion of the Tax for
such tax year, as determined by the Landlord, which may reasonably be
regarded as being attributable to the fixtures, improvements,
installations, alterations, additions and equipment from time to time
made, erected or installed by or on behalf of the Tenant in the Leased
Premises.
4.03 PROPERTY TAX
"Tax" in this Lease means an amount equivalent to all taxes, rates,
duties, levies and assessments whatsoever levied, rated, charged or
assessed by any municipal, parliamentary, educational, school or other
governmental authority charged upon the Building, the Lands, the
property and all improvements now or hereafter appurtenant thereto or
upon the Landlord on account thereof including all taxes, rates, duties,
levies and assessments for local improvements and including any tax
which has been attracted by the Tenant's leasehold improvements and
equipment and for which the Tenant is responsible hereunder and
excluding any portion of Tax payable solely by any other tenant and
excluding any Tax charged against or applicable to the other office
buildings constructed on the Lands and the parking spaces (excluding
visitor parking) applicable to such buildings and excluding such taxes
as corporate income, capital gains, profits or excess profits, taxes
assessed upon the income of the Landlord, and shall also include any and
all taxes which may in future be levied in lieu of Tax as hereinbefore
defined.
4.04 ALLOCATION OF TAX
If the Tax or any portion thereof that may be payable by the Tenant by
reason of this Lease, depends upon an assessment or an approximation of
an assessment which has not been made by the taxing authority or
authorities having jurisdiction, the Landlord shall determine the same;
any such determination made by the Landlord shall be binding upon the
Tenant unless shown to be unreasonable or erroneous in some substantial
respect. The Landlord shall have the right from time to time to
reasonably allocate and re-allocate Taxes not charged separately to the
various buildings (including the Building) and the parking garages
located on the Lands.
4.05 SEPARATE SCHOOL TAXES
If the Tenant or any subtenant or licensee of the Tenant or any occupant
of the Leased Premises shall elect to have the Leased Premises or any
part thereof assessed for separate school taxes, the Tenant shall pay to
the Landlord, as additional rent, as soon as the amount of the separate
school taxes is ascertained, any amount by which the amount of separate
school taxes exceeds the amount which would have been payable for Tax
had such election not been made and if the Tenant or any subtenant or
licensee of the Tenant shall elect to have the Leased Premises or any
part thereof assessed for separate school taxes as aforesaid and if such
separate school taxes are less than the taxes which would have been
payable for school taxes had such election not been made, then and in
that event, the Tenant shall be entitled to deduct from the rent for the
first month of the year following which such taxes were payable, the
amount by which the separate school taxes were less than the amount
which would have been payable for school taxes in the year prior to such
month.
Page 100
<PAGE>
4.06 TAX APPEAL
Any expense incurred by the Landlord in obtaining or attempting to
obtain a reduction in the amount of the Tax or the assessment upon which
the Tax may be based, shall be added to and included in the amount of
the Tax and if the Tenant shall have paid its Proportionate Share of the
Tax and the Landlord shall thereafter receive a refund of any portion of
the Tax, the Landlord shall make an appropriate refund to the Tenant.
4.07 CAPITAL TAX
"Capital Tax" means the tax or excise imposed or capable of being
imposed upon the Landlord by any government authority having
jurisdiction which is measured or based in whole or in part upon the
taxable capital employed by the Landlord, which said taxable capital
shall be deemed to be the cost to the Landlord of said Building and
Lands computed as if the amount of such tax were that amount due if the
Building and the Lands were the only property of the Landlord, the
Landlord was entitled to no capital deduction, investment allowance or
any other deduction whatsoever. For the purpose of this paragraph the
Term "investment allowance" and "capital deduction" shall be defined by
reference to the applicable taxing statute.
5.00 OPERATING COSTS
"Operating Costs" in this Lease means the total charges, expenses,
costs, fees, rentals, disbursements or outlays incurred, accrued, paid,
payable or attributable whether by the Landlord or others on behalf of
the Landlord for complete repair, maintenance, operation, cleaning and
management of the Building, Lands and all the improvements thereon and
the components of each of them (herein collectively called the
"Property") such as are in keeping with maintaining the standard of a
first class commercial Property so as to give it high character and
distinction; and including, without limiting the generality of the
foregoing, the cost of all repairs and replacements required for such
operation and maintenance, the cost of maintaining and repairing the
heating, air-conditioning, ventilating and mechanical systems and
equipment in the Building, the cost of operating and maintaining any
elevators, (including the cost of service contracts); the costs of
providing hot and cold water; the costs of providing electricity not
otherwise chargeable to tenants; the costs of all fuel, gas and steam
used in heating, ventilating and air-conditioning; the cost of energy
conservation devices or equipment; the cost of snow removal; landscape
maintenance including the cost of replacing any landscaping on the
Lands; the cost of window cleaning; the cost of insurance premiums for
fire, casualty, liability, rental and any other insurance coverage
maintained by the Landlord in connection with the Property; telephone
and other utility costs; the amount paid or payable for all salaries,
wages and benefits and other payments paid to or on behalf of persons
engaged in the cleaning, supervision, maintenance and repair of the
Property (including wages of the on site Property Manager); the cost of
accounting services necessary to prepare the statements and opinions for
the tenants and to compute the rents and other charges payable by the
tenants of the Building and the reasonable cost of collecting and
enforcing payment of all amounts payable by the tenants; the cost of
porters, guards and other protection services; the cost of providing
security services; the cost of garbage or refuse removal from the
Building not otherwise chargeable to tenants; the cost of repair and
maintenance of the roadways, curbs, paving, walkways, pools,
landscaping, lighting and other common facilities and outside areas;
cost of services provided for the common use of the tenants; building
management (not exceeding the going rate charged by trust companies for
building management in the Regional Municipality of Ottawa-Carleton for
similar buildings); the cost of service contracts with independent
Page 101
<PAGE>
contractors and all other expenses, paid or payable by the Landlord in
connection with the operation of the Property together with an
administration fee equal to fifteen percent of Operating Costs, but such
Operating Costs shall not include any interest on any debt or capital;
retirement of any debt; any amounts directly chargeable by the Landlord
to any tenant or tenants of the Building and the cost of any repairs
paid for by insurance proceeds or for which the Landlord was reimbursed
by insurance proceeds.
5.01 ALLOCATION OF OPERATING COSTS
In determining the Operating Costs attributable to the Building, the
Landlord shall have the right from time to time to reasonably allocate
and re-allocate such Operating Costs which represent operating costs
incurred for facilities or services shared by the Building and such
other buildings as are owned or operated by the Landlord and which are
not charged or allocated separately against the Building and any such
other building or buildings. Any such determination made by the Landlord
shall be binding upon the Tenant unless shown to be unreasonable or
erroneous in some substantive respect. The Tenant shall have the right
to reasonable access to the books and records of the Landlord to conduct
an examination and to ascertain whether allocations of Operating Costs
made by the Landlord have been made reasonably.
5.02 FULL OCCUPANCY
If in any year the Building has not been fully occupied for the whole
year, the amount of the Operating Costs for such year may be adjusted by
the Landlord, acting reasonably, to an amount which reflects what the
amount of the Operating Costs would be if the Building had been fully
occupied for the whole year.
5.03 USE OF ELECTRICITY
The Tenant shall not, without the Landlord's prior written consent in
each instance, connect any additional fixtures, appliances or equipment
to the Building's electric distribution system or make any alteration or
addition to the electrical system of the Leased Premises existing at the
commencement of the Term. If the Landlord grants such consent, the cost
of all additional risers and other equipment required therefor shall be
paid as Additional Rent by the Tenant to the Landlord upon demand. As a
condition to granting such consent, the Landlord may require the Tenant
to agree to pay an increase in the Additional Rent for Operating Costs
by an amount which will reasonably reflect the increased cost of the
Landlord of the additional electrical services to be furnished to the
Leased Premises by the Landlord.
5.04 METERS
The Tenant covenants to pay for the cost of any additional metering
which may be required by the Landlord to be installed in the Building
for the purpose of determining the amount of electricity consumed by the
Tenant in the Leased Premises.
6.00 ASSIGNING OR SUBLETTING
The Tenant covenants that it will not assign or sublet the Leased
Premises or any part thereof without the prior written consent of the
Landlord, which consent shall not be unreasonably withheld save and
except in the event of any of the following, in which case the Landlord
may arbitrarily withhold its consent:
Page 102
<PAGE>
(a) an assignment or sublet of the whole of the Leased Premises, the
terms of which have a net present value that are less or more
than the net present value of the terms of the Lease (not
including the value of initial leasehold improvements, leasing
commissions or inducements of any kind under the Lease) and in
the latter event if the Landlord consents to such assigned or
sublet the Tenant shall pay the increased value to the Landlord
as Additional Rent.;
(b) a sublet of a part of the Leased Premises;
(c) where the assignee or subtenant is then a tenant of the Landlord
at the Building and the Landlord has or will have during the next
following six (6) months, vacant space for rent in the Building.
6.01 REQUEST TO ASSIGN OR SUBLET
If the Tenant requests the Landlord's consent to an assignment of this
Lease or to a subletting of the whole or any part of the Leased
Premises, the Tenant shall submit to the Landlord the name and address
of the proposed assignee or subtenant together with a copy of an offer
or agreement to assign or sublet or the sublease or assignment and such
additional information as to the nature of its business and its
financial responsibility and standing (including financial statements)
as the Landlord may reasonably require ("required information").
6.02 ASSIGNMENT
The Landlord's consent to any assignment may be conditional upon the
assignee entering into an assignment in form and content satisfactory to
the Landlord, to perform, observe and keep each and every covenant,
condition and agreement in this Lease on the part of the Tenant to be
performed, observed and kept including the payment of rent and all other
sums and payments agreed to be paid or payable under this Lease on the
days and times and in the manner specified.
6.03 CONSENT NOT TO RELEASE TENANT
In no event shall any assignment or subletting to which the Landlord may
have consented release or relieve the Tenant from his obligations fully
to perform all the terms, covenants and conditions of this Lease to be
performed.
6.04 NOTICE OF CHANGE OF CONTROL
Where there is a change in corporate control of the Tenant, the Tenant
shall forthwith so advise the Landlord in writing.
6.05 COST OF CONSENT
The Tenant further agrees that prior to any consent for assignment,
subletting or change in control being effective and binding upon the
Landlord, the Tenant shall pay on demand the Landlord's reasonable costs
(including the Landlord's own administrative costs) incurred in
connection with the Tenant's request for such consent.
7.00 TENANT'S COVENANTS
The Tenant further covenants with the Landlord as follows:
Page 103
<PAGE>
7.01 TENANT REPAIRS
To repair, maintain and keep the Leased Premises and all trade fixtures
and improvements therein in good and substantial repair subject only to
defects in construction of the structural members of the Building,
reasonable wear and tear and damage by fire, lightning and tempest or
other casualty against which the Landlord is insured (herein
collectively referred to as "Tenant Repair Exceptions"); and that the
Landlord may enter and view state of repair and that the Tenant will
repair according to notice in writing, except for Tenant Repair
Exceptions and that the Tenant will leave the Leased Premises in good
repair, except for Tenant Repair Exceptions. Notwithstanding anything
hereinbefore contained, the Landlord may in any event make repairs to
the Leased Premises without notice if such repairs are, in the
Landlord's opinion, necessary for the protection of the Building and the
Tenant covenants and agrees with the Landlord that if the Landlord
exercises any such option to repair, the Tenant will pay to the Landlord
together with the next instalment of Monthly Rent which shall become due
after the exercise of such option all sums which the Landlord shall have
expended in making such repairs and that such sums, if not so paid
within such time, shall be recoverable from the Tenant as rent in
arrears. Provided further that in the event that the Landlord from time
to time makes any repairs as hereinbefore provided, the Tenant shall not
be deemed to have been relieved from the obligation to repair and leave
the Leased Premises in a good state of repair.
7.02 RULES AND REGULATIONS
That the Tenant and his employees and all persons visiting or doing
business with him on the Leased Premises shall be bound by and shall
observe rules and regulations annexed hereto or as may hereafter be
reasonably set by the Landlord of which notice in writing shall be given
to the Tenant and upon such notice being delivered all such rules and
regulations shall be deemed to be incorporated into and form part of
this Lease. Such rules and regulations shall not be inconsistent with
nor derogate from the terms of this Lease and in any event shall apply
equally to all tenants of the Building and be non-discriminatory in
their application.
7.03 USE OF PREMISES
The Leased Premises shall be used only for office and hi-technology
manufacturing purposes.
7.04 INCREASE IN INSURANCE PREMIUMS
That it will not keep, use, sell or offer for sale in or upon the Leased
Premises any article which may be prohibited by any insurance policy in
force from time to time covering the Building including any regulations
made by any fire insurance underwriters applicable to such policies. In
the event the Tenant's occupancy or conduct or business in, or on the
Leased Premises, whether or not the Landlord has consented to the same,
results in any increase in premiums for the insurance carried from time
to time by the Landlord with respect to the Building, the Tenant shall
pay any such increase in premiums as Additional Rent within ten (10)
days after bills for such additional premiums shall be rendered by the
Landlord. In determining whether increased premiums are a result of the
Tenant's use or occupancy of the Leased Premises, a schedule issued by
the organization computing the insurance rate on the Building showing
the various components of such rate, shall be conclusive evidence of the
several items and charges which make up such rate. The Tenant shall
promptly
Page 104
<PAGE>
comply with all reasonable requirements of the insurance
authority or of any insurer now or hereafter in effect relating to the
Leased Premises.
7.05 CANCELLATION OF INSURANCE
If any policy of insurance upon the Building or any part thereof or upon
the Lands or any part thereof shall be cancelled or rendered voidable by
the insurer by reason of any act, omission or occupation of the Leased
Premises or any part thereof by the Tenant, any assignee or subtenant of
the Tenant or by anyone permitted by the Tenant to be upon the Leased
Premises, and the Tenant, after receipt of notice from the Landlord,
shall have failed to immediately reinstate such insurance policies or
avoid cancellation of such insurance policies, the Landlord may at its
option determine this Lease forthwith by leaving upon the Leased
Premises notice in writing of its intention so to do and thereupon rent
and any other payments for which the Tenant is liable under this Lease
shall be apportioned and paid in full to the date of such determination
and the Tenant shall immediately deliver up possession of the Leased
Premises to the Landlord and the Landlord may re-enter and take
possession of the same or the Landlord shall pay any increased cost of
such insurance and the Tenant shall pay as Additional Rent, on demand,
the amount by which the premiums for such insurance are so increased.
7.06 OBSERVANCE OF LAW
To comply promptly at its own expense with all provisions of law
including without limitation, federal and provincial legislative
enactments, building by-laws, and any other governmental or municipal
regulations which relate to the partitioning, equipment, operation and
use of the Leased Premises, and to the making of any repairs,
replacements, alterations, additions, changes, substitutions or
improvements of or to the Leased Premises. And to comply with all
police, fire and sanitary regulations imposed by any federal, provincial
or municipal authorities or made by fire insurance underwriters, and to
observe and obey all governmental and municipal regulations and other
requirements governing the conduct of any business conducted in the
Leased Premises. Provided that in default of the Tenant so complying the
Landlord may at its option where possible comply with any such
requirement and the cost of such compliance shall be payable on demand
by the Tenant to the Landlord as Additional Rent.
7.07 WASTE AND OVERLOADING OF FLOORS
Not to do or suffer any waste or damage, disfiguration or injury to the
Leased Premises or the fixtures and equipment thereof or permit or
suffer any overloading of the floors thereof; and not to place therein
any safe, heavy business machine or other heavy thing without first
obtaining the consent in writing of the Landlord; and not to use or
permit to be used any part of the Leased Premises for any dangerous,
noxious or offensive trade or business and not to cause or permit any
nuisance in, at or on the Leased Premises; and without the prior consent
in writing of the Landlord, the Tenant will not bring onto or use in the
Leased Premises or permit any person subject to the Tenant to bring onto
or use on the Leased Premises any fuel or combustible material for
heating, lighting or cooking nor will it allow onto the Leased Premises
any stove, burner, kettle, apparatus or appliance for utilizing the same
and the Tenant will not purchase, acquire or use electrical current or
gas for consumption on the Leased Premises except from such supplier
thereof as shall have been approved in writing by the Landlord.
Page 105
<PAGE>
7.08 INSPECTION
To permit the Landlord, its servants or agents to enter upon the Leased
Premises at any time and from time to time for the purpose of inspection
and of making repairs, alterations or improvements to the Leased
Premises or to the Building and the Tenant shall not be entitled to
compensation for any inconvenience, nuisance or discomfort occasioned
thereby. The Landlord, its servants or agents may at any time and from
time to time enter upon the Leased Premises to remove any article or
remedy any condition which, in the opinion of the Landlord, reasonably
arrived at, would be likely to lead to cancellation of any policy of
insurance and such entry by the Landlord shall not be deemed to be a re-
entry. The Tenant shall, upon written request of the Landlord, produce
audited Financial Statements of the Tenant, which statements shall
include a Balance Sheet, Income Statement, Statement of Retained
Earnings, Statement of Source and Application of Funds.
7.09 INDEMNITY TO LANDLORD
To promptly indemnify and save harmless the Landlord for any and all
liabilities, damages, costs, claims, suits or actions of any nature or
kind including the full cost to the Landlord in resisting or defending
the same to which the Landlord shall or may become liable or suffer
arising out of or by reason of:
(a) any breach, violation or non-performance by the Tenant of any of
its covenants and obligations under this Lease;
(b) any damage to property while said property shall be in or about
the Leased Premises including the systems, furnishings and
amenities thereof, as a result of the negligence, misuse or
wilful act of the Tenant, its express or implied invitees,
licensees, agents, servants or employees; and
(c) any injury to any invitee, licensee, agent, servant or employee
of the Tenant, including death resulting at any time therefrom,
occurring on or about the Leased Premises, the Property or the
Lands;
and this indemnity shall survive the expiry or sooner determination of
this Lease.
7.10 DAMAGE BY TENANT
That if the Building including the Leased Premises, the elevators,
boilers, engines, pipes and other apparatus (or any of them) used for
the purpose of heating, ventilating or air-conditioning the Building or
operating the elevators, or if the water pipes, drainage pipes, electric
lighting or other equipment of the Building or the roof or outside walls
or other parts of the Building will not function properly or become
damaged or destroyed through the negligence, carelessness or misuse of
the Tenant, or of any of its invitees, licensees, agents, servants,
employees, clients, customers or contractors, or through it or them in
any way stopping up or injuring any heating, ventilating or air-
conditioning apparatus, elevators, water pipes, drainage pipes or other
equipment or parts of the Building, the expense of the necessary
repairs, replacements or alterations shall be borne by the Tenant and
paid forthwith on demand to the Landlord as Additional Rent.
Page 106
<PAGE>
7.11 TENANT INSURANCE
(a) To maintain in force during currency of this Lease at the Tenant's
expense insurance policies to cover the following:
(i) comprehensive general liability insurance with limits of
not less than Five Million Dollars ($5,000,000.00)
(including bodily injury and property damage, tenant's
legal liability, cross liability and contractual liability)
to cover all responsibilities assumed by the Tenant with
respect to the use or occupancy of and the business carried
on, in or from the Leased Premises, in amounts acceptable
to the Landlord;
(ii) all risk insurance covering leasehold improvements made or
installed by or on behalf of the Tenant in an amount equal
to the full replacement value thereof; and
(iii) any other insurance that the Landlord (or the Landlord's
mortgagee, if any) may reasonably require from time to time
in form and amounts and for insurance risks against which a
prudent Tenant would protect itself;
(b) That all Tenant's insurance required hereunder shall be with
insurers and upon terms and conditions to which the Landlord has no
reasonable objection. Copies of all policies, or certificates
evidencing the insurance or its renewal shall be delivered to the
Landlord at the Landlord's request;
(c) That all policies of insurance to be maintained by the Tenant
shall, in the case of general liability insurance, include the
Landlord (and, where applicable, the Landlord's mortgagee) as
additional insured and, in the case of all other insurance
coverage, contain a waiver by the insurer and Tenant of any rights
of subrogation or indemnity or any other claim to which the insurer
might otherwise be entitled against the Landlord (and mortgagee) or
the agents or employees of the Landlord. All such insurance
policies shall also contain a provision prohibiting the insurer
from cancelling or altering the insurance coverage without first
giving the Landlord thirty (30) days prior written notice thereof;
(d) That if the Tenant fails to take out or maintain in force such
insurance, the Landlord may take out the necessary insurance and
pay the premium therefor and the Tenant shall pay to the Landlord
the amount of such premium immediately on demand as Additional
Rent; and
(e) That if both the Landlord and the Tenant have claims to be
indemnified under any such insurance, the indemnity shall be
applied first to the settlement of the claim of the Landlord and
the balance, if any, to the settlement of the claim of the Tenant.
7.12 NO ABATEMENT OF RENT
That there shall be no abatement or reduction of rent and that the
Landlord shall not be liable for any damage howsoever caused to property
of the Tenant or of any person subject to the Tenant which is in or upon
or being brought to or from the Leased Premises or the Building or for
personal injury (including death) sustained in any
Page 107
<PAGE>
manner by the Tenant or any person subject to the Tenant while the Tenant
or any such person is on or upon entering or leaving the Leased Premises
or Building unless such property damage or personal injury may have been
attributable to fault or neglect on the part of the Landlord or of any
person for whom the Landlord is at law responsible, and that the Tenant
will indemnify and save harmless the Landlord from and against all claims
and demands made against the Landlord by any person for or arising out of
any such property damage or personal injury.
7.13 EXHIBITING PREMISES
To permit the Landlord or its agents or servants to enter and show the
Leased Premises, during normal business hours, to prospective purchasers
of the Building and may after notice of termination of this Lease has
been given or within the last six (6) months of the Term, enter and show
the Leased Premises to prospective tenants and erect signs stating that
the premises are "To Let".
7.14 TENANT MAINTENANCE
That the Tenant will maintain in good repair all plate and window glass,
all electrical fixtures, outlets and wiring, all plumbing and plumbing
fixtures, all heating equipment and all water and gas piping and outlets
within the Leased Premises and that he will make good any damage caused
by or resulting from breakage of glass, interference with the electrical,
plumbing, heating, water or gas systems of the Building or misuse of any
of the equipment, outlets, piping or wiring of any such system by the
Tenant or any person subject to the Tenant and the Tenant agrees that he
shall prior to taking possession of the Leased Premises inspect the
entire Leased Premises and shall be satisfied they are clean and in good
order and in a good state of repair, and that all plate and window glass
is whole and that the sanitary arrangements in the Building are in
satisfactory condition.
7.15 SIGNS
The Tenant shall not paint, display, inscribe or place any sign, symbol,
notice or lettering of any kind anywhere outside the Leased Premises
within the Leased Premises so as to be visible from the outside of the
Building with the exception only of an identification sign (which sign
shall be subject to the Landlord's written approval as to size, design
and location).
7.16 NAME OF BUILDING
Not to refer to the Building by any name other than that designated from
time to time by the Landlord and the Tenant shall use the name of the
Building for the business address of the Tenant but for no other purpose.
7.17 KEEP TIDY
The Tenant shall provide its own cleaning and janitorial services. At the
end of each business day, the Tenant shall leave the Leased Premises in a
tidy condition.
7.18 DELIVERIES
The Tenant shall receive, ship, take delivery of and allow and require
suppliers or others to deliver or take delivery of merchandise, supplies,
fixtures, equipment,
Page 108
<PAGE>
furnishings, wares or merchandise only through the loading entrance and
other facilities provided for that purpose and at the times set by the
Landlord.
7.19 NOTICE OF DAMAGE
To notify the Landlord promptly of any damage to or defect in the Leased
Premises or the Building or any part thereof including any electrical,
plumbing, heating, ventilating, air-conditioning, water, sprinkler or gas
systems or equipment, or the water pipes, gas pipes, telephone lines or
electrical apparatus within or leading to the Leased Premises, and in
case of fire to give immediate notice thereof to the Fire Department.
7.20 ALTERATIONS, ETC
The Tenant will not make or erect in or to the Leased Premises any
installations, alterations, additions or partitions or remove or change
the location or style of any installations, alterations, equipment,
outlets, piping or wiring relating to the electrical, plumbing, water,
gas, air-conditioning, heating or ventilating systems without submitting
drawings and specifications to the Landlord and obtaining the Landlord's
prior written consent in each instance. The Tenant must further obtain
the Landlord's prior written consent to any change or changes in such
drawings and specifications submitted as aforesaid. The Tenant's request
for such consent shall be in writing and accompanied by an adequate
description of contemplated work and with appropriate working drawings
and specifications thereof. The Landlord's cost of having its architects
or engineers examine such drawings and specifications shall be payable by
the Tenant. The Landlord may require that any and all work be performed
by the Landlord's contractors or workmen or by contractors or workmen
engaged by the Tenant but in each case only under written contract
approved in writing by the Landlord and subject to all reasonable
conditions which the Landlord may impose and subject to inspection by and
reasonable supervision of the Landlord. The Landlord may at its option
require that only the Landlord's contractors be engaged for any
mechanical, electrical, plumbing, structural or sprinkler work to be done
in the Leased Premises. Any work performed by or for the Tenant shall be
performed by competent workmen whose labour union affiliations are not
incompatible with those of any workmen who may be employed in the
Building by the Landlord, its contractors or subcontractors. The cost of
all such work and of all materials, labour and services involved therein
and of all services, necessitated thereby shall be at the sole cost and
expense of the Tenant and shall be completed in a good and workmanlike
manner and with reasonable diligence in accordance with the description
of the work approved by the Landlord. Any such alterations, additions,
and fixtures shall, when made or installed, be and become the property of
the Landlord without payment being made therefor; provided that upon the
determination of this Lease the Landlord may at its option require the
Tenant, or itself at the Tenant's expense, to remove the same and to
restore the Leased Premises to the condition in which they were at the
commencement of this Lease.
7.21 CONSTRUCTION LIENS
The Tenant covenants that he will not suffer or permit during the Term
hereof any construction or other liens for work, labour, services or
material ordered by him or for the cost of which he may be in any way
obligated to attach to the Leased Premises or the Building or the Land
and that whenever and so often as any such liens shall attach or claims
therefor shall be filed, the Tenant shall within twenty (20) days after
the
Page 109
<PAGE>
Tenant has notice of the claim for lien, procure the discharge thereof by
payment or by giving security or in such manner as is or may be required
or permitted by law.
7.22 SECURITY
The Tenant will maintain on the Leased Premises sufficient moveable
property to guarantee the payment of one (1) year's Annual Rent and
Additional Rent.
7.23 HAZARDOUS SUBSTANCES
(a) The Tenant shall not cause or permit any Hazardous Substances to be
brought onto, created in, released or discharged from, placed or
disposed of, at or near the Building or Lands;
(b) The Tenant shall not cause or permit to occur any violation of any
federal, provincial, municipal or local law, ordinance, or
regulation, now or hereinafter enacted (the "Laws"), relating to
environmental conditions on, under, at, near or about the Building
or Lands, or relating to the Landlord, the Tenant or the Building,
air, soil or ground water condition, including without limitation,
the generation, storage or disposal of Hazardous Substances;
(c) For the purposes of this section, "Hazardous Substances" means any
substance, or class of substance or mixture of substances which may
be detrimental to the environment, plant or animal life, or human
health and includes, without limitation, flammable, explosives, or
radioactive materials, asbestos, polychlorinated biphenyls (PCBs),
chemicals believed to cause cancer or reproductive toxicity,
pollutants, contaminants, hazardous wastes, toxic substances and
related materials, petroleum and petroleum products, any substance
that, if added to water, may degrade or alter or form part of a
process of degradation or alteration of the quality or temperature
of that water to the extent that it is detrimental to its use by
man or by any animal, fish or plant, and substances declared to be
hazardous or toxic under any law or regulation now or hereafter
enacted or promulgated by any governmental authority having
jurisdiction over the Landlord, the Tenant, the Leased Premises or
the Building (the "Authorities");
(d) The Tenant shall, at its own expense, comply with the Laws;
(e) The Tenant shall, at its own expense, make all submissions to,
provide all information required by, and comply with all
requirements of the Authorities under the Laws;
(f) The Tenant shall indemnify, defend and hold harmless the Landlord,
the Landlord's mortgagees, any manager of the building, and their
respective officers, directors, beneficiaries, shareholders,
partners, agents and employees, from all fines, suits, procedures,
claims and actions of every kind, and all costs associated
therewith (including legal fees on a solicitor and his own client
basis and consultants' fees) arising out of or in any way connected
with any deposit, spill, discharge, or other release of Hazardous
Substances that occurs during the Term or any renewal or extension
period, at or from the Premises, or which arises at any time from
the Tenant's use or occupancy of the Premises, or from the Tenant's
failure to
Page 110
<PAGE>
provide all information, make all submissions, and take all steps
required by this Section or by the Authorities;
(g) Notwithstanding any other provision of this Lease, if the Tenant
creates or brings to the Leased Premises any Hazardous Substances
or if the conduct of the Tenant's business shall cause there to be
any Hazardous Substances at or near the Leased Premises, or
discharged or released on, under or about the Premises, the
building or the lands upon which the building is constructed, the
air, soil or ground water, then, notwithstanding any rule of law to
the contrary, such Hazardous Substances shall be and remain the
sole and exclusive property of the Tenant and shall not become the
property of the Landlord, notwithstanding the degree of affixation
to the Premises of the Hazardous Substances or the goods containing
the Hazardous Substances. This affirmation of the Tenant's interest
in the Hazardous Substances or the goods containing the Hazardous
Substances shall not however prohibit the Landlord from dealing
with such material as otherwise provided for in this Lease.
7.24 NUISANCE
The Tenant shall not cause or maintain any nuisance in or about the
Leased Premises, and shall keep the Leased Premises free of debris,
rodents, vermin and anything of a dangerous noxious or offensive nature
or which could create a fire hazard (through undue load on electrical
circuits or otherwise) or undue vibration, heat or noise.
8.00 LANDLORD'S COVENANTS
The Landlord further covenants with the Tenant:
8.01 QUIET ENJOYMENT
The Landlord covenants with the Tenant that if the Tenant pays the Annual
Rent, Additional Rent and all other sums reserved herein and observes and
performs the covenants, conditions and agreements set out in this Lease,
the Tenant shall and may peaceably possess and enjoy the Leased Premises
during the Term without interruption or disturbance from the Landlord.
8.02 TAXES, ETC
To pay or cause to be paid all taxes and rates, municipal, parliamentary
or otherwise, including, without limiting the generality of the
foregoing, water rates with respect to the Lands, the Building or
assessed against the Landlord in respect thereof, except those directly
assessed or charged to or payable by the Tenant or assessed or charged
with reference to the use or occupation of the Leased Premises and except
as otherwise provided in this Lease.
8.03 HEATING AND AIR-CONDITIONING
To provide for heating and air-conditioning 24 hours per day and seven
(7) days a week so that when heat is reasonably required for the
reasonable use of the Leased Premises the Landlord will furnish heat
therefor up to a reasonable temperature and when the heating system is
not in use and the Landlord considers that air-conditioning is reasonably
required it will operate the air-conditioning systems in the Building.
The said heating and air-conditioning systems will be maintained by the
Landlord during
Page 111
<PAGE>
normal business hours except during the making of repairs and should the
Landlord make default in so doing, it shall not be liable for any
indirect or consequential damages for personal discomfort or illness due
to such default. The Landlord reserves the right to stop the services of
the heating and/or air-conditioning equipment when necessary by reason of
any accident or any repairs, alterations or improvements which, in the
judgment of the Landlord, are desirable or necessary to be made until
such repairs, alterations or improvements shall have been completed. The
Landlord shall have no further responsibility or liability for failure to
supply the said heating and/or air-conditioning service when prevented
from doing so, by strikes or by any cause beyond the Landlord's
reasonable control or by orders or regulations by any body or authority
having jurisdiction or by other reason of any failure of electrical
current, steam or water or suitable power supply or inability upon the
exercise of reasonable diligence to obtain such electrical current, steam
or water for the operation of the heating or air-conditioning equipment.
8.04 REPAIR OF STRUCTURE
To repair, replace and maintain the structural parts of the Building, and
to perform such repairs, replacements and maintenance with reasonable
dispatch, and in a good and workmanlike manner, at any time and from time
to time, and notwithstanding anything contained herein to the contrary,
the Tenant shall not be entitled to compensation for any inconvenience,
nuisance or discomfort occasioned thereby.
8.05 DELAYS IN PROVISION OF SERVICES
It is understood and agreed that whenever and to the extent that the
Landlord shall be unable to fulfil, or shall be delayed or restricted in
the fulfilment of any obligation hereunder in respect of the supply or
provision of any service or utility or the doing of any work or the
making of any repairs by reason of being unable to obtain the material,
goods, equipment, service, utility or labour required to enable it to
fulfil such obligation or by reason of any statute, law or order-in-
council or any regulation or order passed or made pursuant thereto or by
reason of the order or direction of any administrator, controller or
board, or any governmental department or officer or other authority, or
by reason of not being able to obtain any permission or authority
required thereby, or by reason of any other cause beyond its control
whether of the foregoing character or not, the Landlord shall be entitled
to extend the time for fulfilment of such obligation by a time equal to
the duration of such delay or restriction, and the Tenant shall not be
entitled to compensation for any inconvenience, nuisance, discomfort,
direct or indirect or consequential damage or damages thereby occasioned.
9.00 TENANT'S FIXTURES
The Tenant may install its usual trade fixtures in the usual manner,
provided such installation does not damage the structure of the Leased
Premises or the Building and provided further that the Tenant shall have
submitted detailed plans and specifications for such trade fixtures to
the Landlord and obtained its written consent thereto which consent shall
not be unreasonably withheld.
9.01 REMOVAL OF TENANT'S FIXTURES
Provided that the Tenant may remove his trade or tenant's fixtures;
provided further, however, that all installations, alterations,
additions, partitions, and fixtures other than trade or tenant's fixtures
in or upon the Leased Premises, whether placed there by the Tenant or the
Landlord, shall immediately upon such placement, be the Landlord's
Page 112
<PAGE>
property without compensation therefor to the Tenant and, except as
hereinafter mentioned in this paragraph shall not be removed from the
Leased Premises by the Tenant at any time either during or after the
term. Notwithstanding anything herein contained, the Landlord shall be
under no obligation to repair or maintain the Tenant's installations,
alterations, additions, partitions and fixtures or anything in the
nature of a leasehold improvement made or installed by the Tenant or
Landlord or third party; and further, notwithstanding anything herein
contained, the Landlord shall have the right upon termination of this
Lease by affluxion of time or otherwise or within six (6) months
thereafter to require the Tenant to remove, or require the Tenant to pay
to the Landlord the cost to remove, any installations, alterations,
additions, partitions and fixtures or anything in the nature of a
leasehold improvement made or installed by the Tenant, the Landlord or a
third party, whether for the Tenant or a previous occupant, and make
good any damage caused to the Leased Premises by such installation or
removal.
10.00 DAMAGE OR DESTRUCTION OF LEASED PREMISES
Provided that if during the continuation of this Lease, the Building or
the Leased Premises are destroyed or damaged by any cause whatsoever,
then the following provisions shall apply:
10.01 PARTIAL DAMAGE
If damage shall occur to the Building or the Leased Premises so that all
or part of the Leased Premises are rendered untenantable by damage from
fire or other casualty which, in the reasonable opinion of the
Landlord's architect, can be substantially repaired under applicable
laws and governmental regulations within ninety (90) days from the date
of such casualty (employing normal construction methods without overtime
or other premium), the Landlord shall cause such damage to be repaired
with all reasonable speed.
10.02 TOTAL DAMAGE
If the Building or the Leased Premises are damaged to such an extent
that the Leased Premises are rendered untenantable by damage from fire
or other casualty which, in the reasonable opinion of the Landlord's
architect, cannot be substantially repaired under applicable laws and
governmental regulations within ninety (90) days from the date of such
casualty (employing normal construction methods without overtime or
other premium), then either the Landlord or Tenant may elect to
terminate this Lease as of the date of such casualty by written notice
delivered to the other not more than ten (10) days after receipt of such
architect's opinion (failing which the Landlord shall cause such damage
to be repaired at its own expense with all reasonable speed).
10.03 OBLIGATION TO REPAIR
The Landlord's obligation to repair as set forth in the preceding two
paragraphs hereof is conditional upon the Landlord receiving adequate
proceeds from policies of insurance maintained in respect of such
casualties or, if such proceeds are not made available to the Landlord,
the Landlord electing to obtain its own financing for such repairs. In
the event that no such proceeds of insurance are available to the
Landlord and if the Landlord elects not to obtain its own financing for
such repairs, then the Landlord shall, by notice in writing to the
Tenant delivered within ten (10) days after receipt of the opinion of
the Landlord's architect, notify the Tenant that the Lease is
terminated, which termination shall be effective as of the date of such
casualty. In
Page 113
<PAGE>
calculating the amount of insurance proceeds available, the Landlord
will be deemed to have received the deductible portion of any insurance
policy.
10.04 ABATEMENT OF RENT
If the Landlord is required to repair the damage pursuant to the
provisions hereof and does not elect to terminate the Lease, the Annual
Rent and Additional Rent payable by the Tenant under this Lease shall be
proportionately reduced to the extent that the Leased Premises are
thereby rendered unusable by the Tenant in its business from the date of
such casualty until completion by the Landlord of the repairs to the
Leased Premises and the Building so that the Leased Premises are
thereafter fully usable by the Tenant in its business.
10.05 DAMAGE TO 50% OF BUILDING
Notwithstanding anything otherwise contained in this Lease, if fifty
percent (50%) or more of the rentable area of the Building is damaged or
destroyed and if, in the reasonable opinion of the Landlord's Architect,
the said rentable area cannot be rebuilt or made fit for the purposes of
the tenants thereof within ninety (90) days of the date of such
casualty, the Landlord may, at its option, terminate this Lease by
giving notice of termination to the Tenant within thirty (30) days of
the date of such casualty and the Tenant shall, with reasonable dispatch
and expedition, but in any event within sixty (60) days after delivery
of the notice of termination, deliver up possession of the Leased
Premises to the Landlord and the rent and other payments for which the
Tenant is liable hereunder shall be apportioned and paid to the date
possession is so delivered up.
10.06 COMPLETION OF REPAIR
Provided that, if, upon the completion by the Landlord of any repairs
required as a result of any such destruction or damage, a dispute shall
arise between the Landlord and the Tenant as to whether or not the
Leased Premises have been made fit for the purposes of the Tenant under
this Lease, the Landlord may, at its option, terminate this Lease by
giving thirty (30) days notice to the Tenant and if such notice shall be
given this Lease shall, at the expiration of such period, be at an end
and the Tenant shall deliver up the Leased Premises to the Landlord or
whom it may appoint and the Landlord may, on demand, recover the full
rental hereby reserved computed from the date on which such repairs were
completed up to the date on which the Tenant is required to vacate.
11.00 LIABILITY FOR DAMAGE TO PROPERTY
In the absence of negligence or wilful act or default on the part of the
Landlord, its servants, agents or workmen, the Landlord shall not be
liable or responsible in any way for any loss, damage or injury to any
person or for any loss of or damage to any property belonging to the
Tenant, to employees of the Tenant or to any other person while such
property is in the Leased Premises or in the Building or in or on the
surrounding, Lands and buildings owned by the Landlord, the areaways,
the parking garages, the parking areas, lawns, sidewalks, reflective
pools, steps, platforms, corridors, stairways or elevators whether or
not any such property has been entrusted to employees of the Landlord
and without limiting the generality of the foregoing, the Landlord shall
not be liable for any damage to any such property caused by theft or
breakage or by steam, water, rain or snow which may leak into, issue or
flow from any part of the Building or from the water, steam or drainage
pipes or plumbing works of
Page 114
<PAGE>
the Building 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 smoke or anything done or
omitted by any other tenant in the Building or for any other loss
whatsoever with respect to the Leased Premises, goods placed therein or
any business carried on therein.
12.00 DEFAULT OF TENANT
Provided and it is hereby expressly agreed that if and whenever the
Annual Rent or Additional Rent hereby reserved or any part thereof shall
not be paid on the day appointed for payment thereof, whether lawfully
demanded or not, or in case of breach or non-observance or non-
performance of any of the covenants, agreements, provisos, conditions or
Rules and Regulations on the part of the Tenant to be kept, observed or
performed, or in case the Leased Premises shall be vacated or remain
unoccupied for fifteen (15) days or in case the Term shall be taken in
execution or attachment for any cause whatever, then and in every such
case, it shall be lawful for the Landlord thereafter to enter into and
upon the Leased Premises or any part thereof 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 other
than the proviso to this paragraph; PROVIDED that the Landlord shall not
at any time have the right to re-enter and forfeit this Lease by reason
of the Tenant's default in the payment of the rent reserved by this
Lease, unless and until the Landlord shall have given to the Tenant
written notice setting forth the default complained of and the Tenant
shall have the right during five (5) business days next following the
date on such notice to cure any such default in payment of rent. In case
without the written consent of the Landlord, the Leased Premises shall
be used by any other person than the Tenant or for any other purpose
than that for which the same were let or in case the Term or any of the
goods and chattels of the Tenant shall be at any time seized in
execution or attachment by any creditor of the Tenant or if the Tenant
makes any bulk sale, then in any such case this lease shall, at the
option of the Landlord, cease and determine and the Term shall
immediately become forfeited and void in accordance with the provisions
of Section 15, RIGHT OF TERMINATION, herein.
13.00 BANKRUPTCY
Provided further that, in case without the written consent of the
Landlord, the Leased Premises shall be used by any other person than the
Tenant or for any other purposes than that for which the same were let
or in case the Term or any of the goods and chattels of the Tenant shall
be at any time seized in execution or attachment by any creditor of the
Tenant or by the Tenant making any assignment for the benefit of
creditors or any bulk sale or become bankrupt or insolvent or take the
benefit of any act now or hereafter in force for bankrupt or insolvent
debtors, or, if the Tenant is a corporation and any order shall be made
for the winding up of the Tenant, or other termination of the corporate
existence of the Tenant, then in any such case this Lease shall, at the
option of the Landlord, cease and determine and the Term shall
immediately become forfeited and void and the then current month's rent
and the next ensuing three (3) months rent shall immediately become due
and be paid and the Landlord may re-enter and take possession of the
Leased Premises as though the Tenant or other occupant or occupants of
the Leased Premises was or were holding over after the expiration of the
Term without any right whatever.
14.00 RE-ENTRY BY LANDLORD
Page 115
<PAGE>
The Tenant further covenants and agrees that on the Landlord's becoming
entitled to re-enter upon the Leased Premises under any of the
provisions of this Lease, the Landlord, in addition to all other rights,
shall have the right to enter the Leased Premises as the agent of the
Tenant either by force or otherwise, without being liable for any
prosecution therefor and to relet the Leased Premises as the agent of
the Tenant, and to receive the rent therefor and as the agent of the
Tenant, to take possession of any furniture or other property on the
Leased Premises and to sell the same at public or private sale without
notice and to apply the proceeds of such sale and any rent derived from
reletting the Leased Premises upon account of the rent under this Lease,
and the Tenant shall be liable to the Landlord for the deficiency, if
any.
15.00 RIGHT OF TERMINATION
The Tenant further covenants and agrees that on the Landlord becoming
entitled to re-enter upon the Leased Premises under any of the
provisions of this Lease, the Landlord, in addition to all other rights,
shall have the right to determine forthwith this Lease and the Term by
leaving upon the Leased Premises notice in writing of its intention so
to do, and thereupon, rent shall be computed, apportioned and paid in
full to the date of such determination of this Lease and any other
payments for which the Tenant is liable under this Lease shall be paid
and the Tenant shall immediately deliver up possession of the Leased
Premises to the Landlord, and the Landlord may re-enter and take
possession of the same.
16.00 DISTRESS
The Tenant waives and renounces the benefit of any present or future
statute taking away or limiting the Landlord's right of distress, and
covenants and agrees that notwithstanding any such statute, none of the
goods and chattels of the Tenant on the Leased Premises at any time
during the Term shall be exempt from levy by distress for rent in
arrears. In the event that the Tenant shall remove or permit the removal
of any of its goods or chattels from the Leased Premises, the Landlord
may within thirty (30) days thereafter and if the Tenant is in arrears
of rent, seize such goods and chattels wherever the same may be found
and may sell or otherwise dispose of the same as if they had actually
been distrained upon the Leased Premises by the Landlord for arrears of
rent.
17.00 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, 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 herein in respect of any
such continuing or subsequent default or breach, and no waiver shall be
inferred from or implied by anything done or omitted by the Landlord
save only express waiver in writing. All rights and remedies of the
Landlord in this Lease contained shall be cumulative and not
alternative.
18.00 CHANGES TO BUILDING
The Landlord hereby reserves the right at any time and from time to time
to make changes in, additions to, subtractions from or rearrangements of
the Building including, without limitation, all improvements at any time
thereon, all entrances and exits thereto, and to grant, modify and
terminate easements or other agreements
Page 116
<PAGE>
pertaining to the use and maintenance of all or parts of the Building
and to make changes or additions to the pipes, conduits, utilities and
other necessary building services in the Leased Premises which serve
other premises, provided that prior to the commencement of the Term, the
Landlord may alter or relocate the Leased Premises to the extent found
necessary by the Landlord to accommodate changes in construction design
or facilities including major alterations and relocations. The Landlord
agrees that in performing such alterations, it shall do so in a manner
so as to minimize any material interference with the Tenant's use and
enjoyment of the Leased Premises.
19.00 SEVERANCE OF LAND
The Landlord shall have the right from time to time to sever (for
purposes of sale, lease, mortgage, charge or otherwise) any part or
parts of the Land or any buildings or improvements thereon, including
the creation of rights-of-way, easements and parking arrangements which
the Landlord deems necessary and the Tenant hereby consents to any such
severance and agrees to execute, at no cost to the Landlord, any
documents or consents which the Landlord may request for these purposes.
If any part or parts of the Land or the buildings or improvements on the
lands are so severed and are deemed by the Landlord to no longer form
part of the property, such part or parts shall be excluded from the
Lands and the property for the purposes of this Lease at the time
designated by the Landlord and the Tenant shall when requested by the
Landlord, execute, at no cost to the Landlord, a release of any interest
in the Lands so excluded.
20.00 COSTS OF COLLECTION
The Tenant shall pay, as Additional Rent, all costs, expenses and legal
fees (on a solicitor and his client basis) that may be incurred or paid
by or on behalf of the Landlord in enforcing the covenants and
provisions of this Lease.
21.00 PROFITS AND REMEDIES BY LANDLORD
In addition to all rights and remedies available to the Landlord under
the provisions of this Lease or by statute or the general law in the
event of any default by the Tenant of the provisions of this Lease:
21.01 PAYMENTS TO THIRD PARTIES
The Landlord shall have the right at all times to remedy or attempt to
remedy any default of the Tenant, and in so doing, may make any payments
due or alleged to be due by the Tenant to third parties and may enter
upon the Leased Premises to do any work or other things therein, and in
any such event, all costs and expenses of the Landlord in remedying or
attempting to remedy such default shall be payable by the Tenant to the
Landlord forthwith upon demand as Additional Rent.
21.02 NON-PAYMENT OF ADDITIONAL RENT
The Landlord shall have the same rights and remedies in the event of any
non-payment by the Tenant of any amounts payable by the Tenant under any
provision of this Lease and the parking agreement as in the case of non-
payment of rent and may be recovered by the Landlord as rent by any and
all remedies available to the Landlord for the recovery of rent in
arrears.
Page 117
<PAGE>
21.03 INTEREST ON ARREARS
The Landlord shall, if the Tenant shall fail to pay any Monthly Rent,
Additional Rent or other amounts from time to time payable by it to the
Landlord hereunder promptly when due, be entitled to interest on all
such Annual Rent, Additional Rent and other amounts which are unpaid and
overdue under this Lease and the parking agreement, such interest to be
compounded monthly thereon and to be computed at a rate equal to two
percent (2%) per annum in excess of the minimum lending rate to prime
commercial borrowers from time to time charged by the Royal Bank of
Canada or such other chartered bank as the Landlord may designate, from
the date upon which such Monthly Rent, Additional Rent and other amounts
was due until actual payment thereof.
22.00 NOTICE
Any notice required or contemplated by any provisions of this Lease
shall be given in writing, enclosed in a sealed envelope addressed, in
the case of notice to the Landlord c/o Kanata Research Park Corporation,
600 March Road, P.O. Box l3600, Kanata, Ontario, Canada, K2K 2E6 and in
the case of notice to the Tenant, to it at the Leased Premises in the
event of a notice of distress and otherwise to it at 600 March Road,
P.O. Box l3600, Kanata, Ontario, Canada, K2K 2E6 and mailed by
registered mail, postage prepaid or telefaxed. The time of giving of
such notice shall be conclusively deemed to be, if mailed the third
(3rd) business day after the day of such mailing, if telefaxed, the next
business day following the date sent as evidenced by the sender's
transmittal record. Such notice shall also be sufficiently given if and
when the same shall be delivered, in the case of notice to the Landlord,
to an executive officer of the Landlord, and in the case of notice to
the Tenant, to him personally or to an executive officer, manager or a
person who appears to be in charge, of the Tenant if the Tenant is a
corporation. Such notice, if delivered, shall be conclusively deemed to
have been given and received at the time of such delivery. If, in this
Lease, two or more persons are named as Tenant, such notice shall also
be sufficiently given if and when the same shall be delivered personally
to any one of such persons. Provided that either party may, by notice to
the other, from time to time, designate another address in Canada to
which notices mailed more than ten (10) days thereafter shall be
addressed. The word "notice" in this paragraph shall include any
request, demand, direction, or statement in this Lease provided or
permitted to be given by the Landlord to the Tenant or by the Tenant to
the Landlord.
23.00 SUBORDINATION, POSTPONEMENT, ATTORNMENT
The Tenant shall promptly upon the written request of the Landlord,
enter into an agreement:
(a) subordinating the Term and the rights of the Tenant hereunder to
any mortgage, charge, ground lease, trust deed or debenture
present or future and all renewals, modifications, replacements or
extensions thereof, which may affect the Leased Premises, the
Property, the Lands or the Building;
(b) agreeing that the Term hereof shall be subsequent in priority to
any such mortgage, charge, ground lease, trust deed or debenture;
provided that the Tenant's obligations under this paragraph shall be
conditional upon any such mortgagee or secured party entering into a
non-disturbance agreement with
Page 118
<PAGE>
the Tenant under which the Tenant's continued possession of the Leased
Premises is ensured notwithstanding any act taken by the mortgagee or
secured party.
23.01 TENANT'S RIGHT TO POSSESSION
Notwithstanding any postponement or subordination referred to herein,
the Tenant acknowledges that its obligations under this Lease shall
remain in full force and effect notwithstanding any action at any time
taken by a mortgagee, chargee or ground lessor to enforce the security
of any mortgage charge, ground lease, trust deed or debenture; provided,
however, that any postponement or subordination given hereunder shall
reserve to the Tenant the right to continue in possession of the Leased
Premises under the terms of this Lease so long as the Tenant shall not
be in default hereunder.
23.02 ATTORNMENT BY TENANT
The Tenant, whenever requested by any mortgagee (including any trustee
under a deed of trust and mortgage), chargee or ground lessor, shall
attorn to such mortgagee, chargee or ground lessor as a tenant upon all
the terms of this Lease.
24.00 CERTIFICATE
The Tenant agrees that he will at any time and from time to time upon
not less than five (5) days' prior notice execute and deliver to the
Landlord or any mortgagee of the Lands (including a deed of trust and
mortgage) a statement in writing certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the
modifications and that the same is in full force and effect as
modified), the amount of the Annual Rental then being paid hereunder,
the dates to which the same, by instalments or otherwise, and other
charges hereunder have been paid, and whether or not there is any
existing default on the part of the Landlord of which the Tenant has
notice.
25.00 REGISTRATION
The Tenant covenants and agrees with the Landlord that the Tenant will
not register this Lease in this form in any Registry Office or the Land
Titles Office. If the Tenant desires to make a registration for the
purposes only of giving notice of this Lease, then the parties hereto
shall contemporaneously with the execution of this Lease execute a short
form thereof solely for the purpose of supporting an application for
registration of notice thereof.
26.00 PLANNING ACT
Where applicable, this Lease shall be subject to the condition that it
is effective only if The Planning Act, 1983, as amended is complied
with. Pending such compliance the Term and any renewal thereof shall be
deemed to be for a total period of one (1) year less than the maximum
lease Term permitted by law without such compliance.
27.00 TRANSFER BY LANDLORD
In the event of a sale, transfer or lease by the Landlord of the
Building, the Lands or a portion thereof containing the Leased Premises
or the assignment by the Landlord of this Lease or any interest of the
Landlord hereunder, the Landlord shall, without further written
agreement, to the extent that such purchaser, transferee or lessee has
become bound by the covenants and obligations of the Landlord hereunder,
be freed,
Page 119
<PAGE>
released and relieved of all liability or obligations under this Lease
incurred or arising after the date of such sale, transfer or lease.
28.00 NO ADVERTISING OF LEASED PREMISES
The Tenant shall not print, publish, post, display or broadcast any
notice or advertisement to the effect that the whole or any part of the
Leased Premises are for rent, and it shall not permit any broker or
other person to do so without the consent in writing of the Landlord.
29.00 TIME OF ESSENCE
Time shall be of the essence of this Lease.
30.00 LAWS OF ONTARIO
This Lease shall be deemed to have been made in and shall be construed
in accordance with the Laws of the Province of Ontario.
31.00 SEVERABILITY OF COVENANTS
The Landlord and the Tenant agree that all of the provisions of this
Lease are to be construed as covenants and agreements as though the
words importing such covenants and agreements were used in each separate
paragraph hereof. Should any provision or provisions of this Lease be
illegal or not enforceable it or they shall be considered separate and
severable from the Lease and its remaining provisions shall remain in
force and be binding upon the parties hereto as though the said
provision or provisions had never been included.
32.00 HEADINGS
The captions appearing in the margin or the headings contained in this
Lease have been inserted as a matter of convenience and for reference
only and in no way define, limit or enlarge the scope or meaning of this
Lease or of any provision hereof.
33.00 SCHEDULES
The following Schedules attached hereto form part of this Lease:
Schedules: "A", "B", "C", "D", "E" "F" and "G"
34.00 LEASE ENTIRE AGREEMENT
The Tenant acknowledges that there are no covenants, representations,
warranties, agreements or conditions expressed or implied, collateral or
otherwise forming part of or in any way affecting or relating to this
Lease save as expressly set out in this Lease and that this Lease
constitutes the entire agreement between the Landlord and the Tenant and
may not be modified except as herein explicitly provided or except by
subsequent agreement in writing of equal formality hereto executed by
the Landlord and the Tenant.
Page 120
<PAGE>
35.00 INTERPRETATION
IN THIS INDENTURE:
(a) "herein", "hereof", "hereby", "hereunder", "hereto",
"hereinafter", and similar expressions refer to this indenture and
not to any particular paragraph, section or other portion thereof,
unless there is something in the subject matter or context
inconsistent therewith.
(b) "business day(s)" means any of the days from Monday to Friday of
each week inclusive unless such day is a statutory holiday or
public holiday.
(c) "normal business hours" means the hours from 8:00 a.m. to
6:00 p.m. on business days.
36.00 SUCCESSORS
This indenture and everything herein contained shall enure to the
benefit of and be binding upon the respective heirs, executors,
administrators, permitted successors and assigns, of the Tenant and
other legal representatives as the case may be, of each and every of the
parties hereto, and every reference herein to any party hereto shall
include the heirs, executors, administrators, permitted successors,
assigns and other legal representatives of such party, and where there
is more than one tenant or there is a female party or a corporation, the
provisions hereof shall be read with all grammatical and gender changes
thereby rendered necessary and all covenants shall be deemed joint and
several.
Page 121
<PAGE>
37.00 JOINT AND SEVERAL COVENANT
If more than one person executes this Lease as Tenant, each such person
shall be bound jointly and severally with the other(s), waiving the
benefit of division and discussion, for the fulfilment of all of the
obligations of Tenant hereunder.
IN WITNESS WHEREOF the parties hereto have hereunto affixed their
corporate seals duly attested to by the hands of their proper signing officers
authorized in that behalf.
SIGNED, SEALED AND DELIVERED )
in the presence of: ) KANATA RESEARCH PARK
) CORPORATION
)
)
) c/s
) Per: /s/ Bronwen A. Heins
) ------------------------------------------
) Name: Bronwen A. Heins
) Title: Corporate Secretary
) I have the authority to bind the corporation
)
) NEWBRIDGE NETWORKS
) CORPORATION
)
)
) c/s
) Per: /s/ Donald Mills
) ------------------------------------------
) Name: Donald Mills
) Title: Vice President, Administration
)
)
) Per: /s/ Peter Nadeau
) ------------------------------------------
) Name: Peter Nadeau
) Title: Vice President, Legal Services
)
)I/We have the authority to bind the corporation.
Page 122
<PAGE>
SCHEDULE "A"
------------
LEGAL DESCRIPTION
-----------------
Monmouth Building - 359 Terry Fox Drive
FIRSTLY: Parcel 8-4, Section March 4, Part of Lot 8, Concession 4, formerly
Township of March, now in the City of Kanata, Regional Municipality of Ottawa
Carleton, designated as Part 1, Plan 4R-12934 (Part of PIN 04517-0468)
SECONDLY: Parcel 2-1, Section 4M-642, Block 2, Registered Plan 4M-642, City
of Kanata designated as Parts 2, 3, 4, 5, 6 & 7 on Plan 4R-12934
Subject to an easement over the said Part 5 on Plan 4R-12934
Subject to an easement over the said Part 3 on Plan 4R-12934
(Part of PIN 04517-0489)
Page 123
<PAGE>
SCHEDULE "B"
------------
FLOOR PLAN
----------
Page 124
<PAGE>
SCHEDULE "C"
------------
RULES AND REGULATIONS
---------------------
The Tenant and its invitees and employees shall observe the following rules and
regulations (as added to, amended or modified from time to time by the
Landlord).
1. The sidewalks, entrances, elevators, stairways, passageways, shipping areas
and corridors of the Building shall not be obstructed or used for any other
purpose by the Tenant than for ingress and egress to and from the Leased
Premises; the Tenant shall not place or allow to be placed in such areas or
facilities any waste paper, garbage, refuse or anything that shall tend to
make them appear unclean or untidy.
2. The Tenant and its employees shall use washrooms only for the purpose for
which they were designed and nothing shall be placed in toilets that might
cause them to block.
3. The Tenant shall not make any noise which might disturb other tenants and
no animals or bicycles or other vehicles other than appropriate vehicles
for the Tenant's use shall be brought into the Leased Premises or the
Building.
4. The Leased Premises shall not be used as overnight sleeping accommodation,
for public sales nor for entertaining purposes.
5. The Tenant shall make arrangements with the Landlord ahead of time to
install any machines or equipment which may substantially increase the load
on the electrical systems, installations will not be made until the
Landlord's consent is obtained.
6. Windows will not be left open so as to admit rain or snow.
7. The Tenant will not alter any existing locks nor will any additional locks
or similar devices be attached to any door or window without the
Landlord's written consent.
8. Keys or other devices which are made available to the Tenant for the
purpose of providing access to the exterior doors of the Building shall not
be duplicated and shall be returned to the Landlord immediately upon
termination of the Lease.
9. All adjustments to mechanical equipment such as thermostats, radiators,
diffusers, etc. shall be made by the Landlord's staff and no one else.
10. It shall be the responsibility of the Tenant to prevent any person from
throwing objects out of windows or into the ducts or stairwells of the
Building, and the Tenant shall pay for any cost, damage or injury resulting
from any such acts.
11. The Tenant shall provide adequate receptacles for garbage, refuse and
waste paper and all such garbage, refuse and waste paper shall be placed in
such containers. The Leased Premises shall be kept in a tidy, healthy and
clean condition.
12. The Tenant shall not bring upon the Leased Premises any safes, heavy
equipment, motors or any other thing which might overload floors or damage
the Leased Premises or the Building.
Page 125
<PAGE>
13. The Tenant shall not use or keep inflammable materials in the Leased
Premises.
14. The Landlord shall have the right to establish rules and regulations
governing the use of the parking facilities from time to time and the
Tenant hereby agrees to observe and abide by all such rules and
regulations.
15. Smoking is prohibited in all common areas of the Building.
The foregoing rules and regulations, as from time to time amended, are not
necessarily of uniform application, but may be waived in whole or in part in
respect of other tenants without affecting their enforceability with respect to
the Tenant or the Leased Premises. There is no obligation on the Landlord to
enforce the rules and regulations, and the Landlord shall not be liable by
reason of their non-enforcement.
Page 126
<PAGE>
SCHEDULE "D"
------------
PARKING
-------
1. During the Term the Landlord hereby agrees to allow the Tenant, its
employees, agents and invitees shall park their vehicles in the parking
facilities located on the Lands ("parking facilities").
2. The Landlord shall not be responsible for any theft, loss or damage to
the Tenant's vehicles whatsoever, or for injury to the Tenant or others
in the parking facilities.
3. The Landlord shall have the right to establish rules and regulations
governing the use of the parking facilities from time to time and the
Tenant hereby agrees to observe and abide by all such rules and
regulations.
Page 127
<PAGE>
SCHEDULE "E"
------------
OPTION TO RENEW
---------------
1. Provided the Tenant is in good standing, during the Term has not been in
substantial default under this Lease and has not assigned this Lease or
sublet all or a portion of the Leased Premises, the Tenant shall have and
is hereby granted an option to renew this Lease for a further term of
five (5) years provided that in order to exercise this option, the Tenant
shall be required to give to the Landlord notice of the exercise of such
option in writing not less than six (6) months prior to the date of
expiry of the initial Term.
2. Any renewal pursuant to this proviso shall be on the same terms and
conditions contained in this Lease except:
(a) there shall be no additional right of renewal, and no Leasehold
Improvements;
(b) the Annual Rent payable by the Tenant for such renewal period shall
be in accordance with rates for similar premises in a similar
location and as agreed upon by the Landlord and Tenant and shall in
no event be less than the Annual Rent paid during the last year of
the Term; such agreement to be reached not later than three (3)
months prior to the expiry of the original Term. Failing such
agreement, either party shall submit the matter to arbitration in
accordance with the following terms:
The dispute shall be submitted to a single arbitrator to be
agreed upon by the parties, provided that if a single
arbitrator cannot be agreed upon by the parties hereto within
ten (10) days after the appointment of a single arbitrator has
been requested by one of the parties in writing, then the
dispute shall be referred to a board of three arbitrators, one
to be appointed by each of the Landlord and the Tenant and a
third arbitrator to be appointed by the first two arbitrators
in writing; and if either the Landlord or the Tenant shall
refuse or neglect to appoint an arbitrator within ten (10) days
after the other party shall have appointed an arbitrator and
shall have served a written notice upon the party so refusing
or neglecting to appoint an arbitrator requiring such party to
make such appointment, then the arbitrator first appointed
shall, at the request of the party appointing him, proceed to
hear and determine the dispute as if he were a single
arbitrator appointed by both the Landlord and the Tenant for
that purpose. If two arbitrators are so named within the time
prescribed and they do not agree within a period of ten (10)
days upon the appointment of the third arbitrator, then upon
the application of either the Landlord or the Tenant, the third
arbitrator shall be appointed by a Judge of the Ontario Court
(General Division). The determination which shall be made by
the said arbitrators or a majority of them, or by the single
arbitrator, as the case may be, shall be final and binding upon
the parties hereto and the costs of the arbitration and
remuneration of the third arbitrator, if any, shall be borne
equally between the parties hereto, each of the parties bearing
the remuneration of the arbitrator appointed by it. The
provisions of this paragraph shall be deemed to be submission
to arbitration within the provisions of The Arbitration Act of
----------------------
Ontario and any statutory modification or re-enactment thereof;
-------
provided that any limitation on the remuneration of arbitrators
imposed by such legislation shall not have application to any
arbitration proceeding commenced pursuant to this paragraph.
Page 128
<PAGE>
SCHEDULE "F"
------------
LEASEHOLD IMPROVEMENTS
----------------------
The Landlord will, at its cost, design the Tenant's space with the
Tenant's co-ordination. The Landlord shall, construct on behalf of
the Tenant and install on a turnkey basis to building standards,
those leasehold improvements agreed upon by both Landlord and Tenant
as chosen from the Landlord's samples.
Page 129
<PAGE>
SCHEDULE "G"
------------
ADDITIONAL TERMS
----------------
Notwithstanding anything contained in the Offer to the contrary the Tenant will
not be required to pay Annual Rent or Additional Rent on that portion of the
Leased Premises known as the second expansion space of Eighteen Thousand
(18,000) rentable square feet until August 1, 1997 or upon substantial
completion in accordance with the Construction Lien Act of Ontario whichever is
the later.
Page 130
<PAGE>
DATED the 29th day of May, 1997.
BETWEEN:
KANATA RESEARCH PARK CORPORATION
OF THE FIRST PART
AND:
NEWBRIDGE NETWORKS CORPORATION
OF THE SECOND PART
- --------------------------------------------------------------------------------
L E A S E
- --------------------------------------------------------------------------------
Prepared by: Bronwen A. Heins
Date Edited:
Disk Reference: Monmouth.lse
Page 131
<PAGE>
KANATA RESEARCH PARK CORPORATION
AND
NEWBRIDGE NETWORKS CORPORATION
1.00 LEASED PREMISES............................................................
1.01 ADDITIONAL DEFINITIONS.....................................................
2.00 TERM.......................................................................
2.01 INABILITY TO GIVE OCCUPANCY................................................
2.02 EARLY OCCUPANCY............................................................
2.03 OVERHOLDING................................................................
3.00 RENT - Basic Rent..........................................................
3.01 MONTHLY RENTAL.............................................................
3.02 ADDITIONAL RENT............................................................
3.03 ESTIMATED ADDITIONAL RENTALS...............................................
3.04 DEFICIENCY OF ADDITIONAL RENT..............................................
3.05 EXCESS OF ADDITIONAL RENTAL INSTALLMENTS...................................
3.06 PRO-RATING OF ADDITIONAL RENT..............................................
3.07 PREPAYMENT OF ADDITIONAL RENT..............................................
3.08 DISPUTE AS TO AMOUNT OF ADDITIONAL RENT....................................
3.09 MANNER AND PLACE OF PAYMENT OF RENT........................................
3.10 DEFAULT....................................................................
3.11 ACCRUAL OF RENT............................................................
3.12 NET LEASE..................................................................
4.00 TENANT'S BUSINESS TAX......................................................
4.01 LANDLORD'S BUSINESS TAX....................................................
4.02 TAX ON TENANT'S LEASEHOLD IMPROVEMENTS.....................................
4.03 PROPERTY TAX...............................................................
4.04 ALLOCATION OF TAX..........................................................
4.05 SEPARATE SCHOOL TAXES......................................................
4.06 TAX APPEAL.................................................................
4.07 CAPITAL TAX................................................................
5.00 OPERATING COSTS............................................................
5.01 ALLOCATION OF OPERATING COSTS..............................................
5.02 FULL OCCUPANCY.............................................................
5.03 USE OF ELECTRICITY.........................................................
5.04 METERS.....................................................................
6.00 ASSIGNING OR SUBLETTING....................................................
6.01 REQUEST TO ASSIGN OR SUBLET................................................
6.02 ASSIGNMENT AGREEMENT.......................................................
6.03 CONSENT NOT TO RELEASE TENANT..............................................
6.04 NOTICE OF CHANGE OF CONTROL................................................
6.05 COST OF CONSENT............................................................
7.00 TENANT'S COVENANTS.........................................................
7.01 TENANT REPAIRS.............................................................
7.02 RULES AND REGULATIONS......................................................
7.03 USE OF PREMISES............................................................
7.04 INCREASE IN INSURANCE PREMIUMS.............................................
7.05 CANCELLATION OF INSURANCE..................................................
7.06 OBSERVANCE OF LAW..........................................................
7.07 WASTE AND OVERLOADING OF FLOORS............................................
7.08 INSPECTION.................................................................
7.09 INDEMNITY TO LANDLORD......................................................
Page 132
<PAGE>
7.10 DAMAGE BY TENANT...........................................................
7.11 TENANT INSURANCE...........................................................
7.12 NO ABATEMENT OF RENT.......................................................
7.13 EXHIBITING PREMISES........................................................
7.14 TENANT MAINTENANCE.........................................................
7.15 SIGNS......................................................................
7.16 NAME OF BUILDING...........................................................
7.17 KEEP TIDY..................................................................
7.18 DELIVERIES.................................................................
7.19 NOTICE OF DAMAGE...........................................................
7.20 ALTERATIONS, ETC...........................................................
7.21 CONSTRUCTION LIENS.........................................................
7.22 SECURITY...................................................................
7.23 HAZARDOUS SUBSTANCES.......................................................
7.24 NUISANCE...................................................................
8.00 LANDLORD'S COVENANTS.......................................................
8.01 QUIET ENJOYMENT............................................................
8.02 TAXES, ETC.................................................................
8.03 HEATING AND AIR-CONDITIONING...............................................
8.04 REPAIR OF STRUCTURE........................................................
8.05 DELAYS IN PROVISION OF SERVICES............................................
9.00 TENANT'S FIXTURES..........................................................
9.01 REMOVAL OF TENANT'S FIXTURES...............................................
10.00 DAMAGE OR DESTRUCTION OF LEASED PREMISES..................................
10.01 PARTIAL DAMAGE............................................................
10.02 TOTAL DAMAGE..............................................................
10.03 OBLIGATION TO REPAIR......................................................
10.04 ABATEMENT OF RENT.........................................................
10.06 COMPLETION OF REPAIR......................................................
10.05 DAMAGE TO 50% OF BUILDING.................................................
11.00 LIABILITY FOR DAMAGE TO PROPERTY..........................................
12.00 DEFAULT OF TENANT.........................................................
13.00 BANKRUPTCY................................................................
14.00 RE-ENTRY BY LANDLORD......................................................
15.00 RIGHT OF TERMINATION......................................................
16.00 DISTRESS..................................................................
17.00 NON-WAIVER................................................................
18.00 CHANGES TO BUILDING.......................................................
19.00 SEVERANCE OF LAND.........................................................
20.00 COSTS OF COLLECTION.......................................................
21.00 PROFITS AND REMEDIES BY LANDLORD..........................................
21.01 PAYMENTS TO THIRD PARTIES.................................................
21.02 NON-PAYMENT OF ADDITIONAL RENT............................................
21.03 INTEREST ON ARREARS.......................................................
22.00 NOTICE....................................................................
23.00 SUBORDINATION, POSTPONEMENT, ATTORNMENT...................................
23.01 TENANT'S RIGHT TO POSSESSION..............................................
23.02 ATTORNMENT BY TENANT......................................................
24.00 CERTIFICATE...............................................................
25.00 REGISTRATION..............................................................
26.00 PLANNING ACT..............................................................
27.00 TRANSFER BY LANDLORD......................................................
28.00 NO ADVERTISING OF LEASED PREMISES.........................................
29.00 TIME OF ESSENCE...........................................................
30.00 LAWS OF ONTARIO...........................................................
31.00 SEVERABILITY OF COVENANTS.................................................
32.00 HEADINGS..................................................................
33.00 SCHEDULES.................................................................
34.00 LEASE ENTIRE AGREEMENT....................................................
Page 133
<PAGE>
35.00 INTERPRETATION............................................................
36.00 SUCCESSORS................................................................
37.00 JOINT AND SEVERAL COVENANT
SCHEDULE "A"....................................................................
- ------------
SCHEDULE "B"....................................................................
- ------------
SCHEDULE "C"....................................................................
- ------------
SCHEDULE "D"....................................................................
- ------------
SCHEDULE "E"....................................................................
- ------------
SCHEDULE "F"....................................................................
- ------------
SCHEDULE "G"....................................................................
- ------------
Page 134
<PAGE>
EXHIBIT 10.22
Page 135
<PAGE>
THIS INDENTURE made this 23rd day of April, 1997.
BETWEEN:
KANATA RESEARCH PARK CORPORATION
(Hereinafter called the "Landlord")
OF THE FIRST PART
AND:
NEWBRIDGE NETWORKS CORPORATION
(Hereinafter called the "Tenant")
OF THE SECOND PART
WITNESSETH that in consideration of the rents, covenants, conditions and
agreements herein contained, the Landlord and the Tenant covenant and agree as
follows:
1.00 LEASED PREMISES
The Landlord hereby leases to the Tenant all those premises consisting
of the building known municipally as 349 Terry Fox Drive and comprising
approximately two hundred and forty-two thousand eight hundred and
fifty-six point six seven (242,856.67) square feet (herein called either
the "Leased Premises" or the "Building") in the City of Kanata which
said building is erected on the lands (herein called the "Lands")
described in Schedule "A" annexed hereto. The Leased Premises are more
particularly outlined on the floor plan annexed hereto and marked
Schedule "B".
1.01 ADDITIONAL DEFINITIONS
For the purposes of this Lease and any additions or amendments thereto:
(a) "Improvements" means all improvements located on the Lands,
including the Building, the parking lot or structure servicing
the Building and other facilities and physical structures which
are for the exclusive use of occupants of the Building;
(b) "Common Areas" means at any time those portions of the Lands and
Building not leased or designated for lease to tenants but
provided to be used in common by (or by the sublesses, agents,
employees, customers or licensees of) Landlord, Tenant and other
tenants of the Building, whether or not they are open to general
public and shall include any fixtures, chattels, systems, decor,
signs, facilities or landscaping contained in those areas or
maintained or used in connection with them, and shall be deemed
to include the city sidewalks adjacent to the Lands and any
pedestrian walkway system (either above or below ground), park,
or other public facility in respect of which Landlord is from
time to time subject to obligations arising from the Lands and
Building.
Page 136
<PAGE>
(c) "Tenant's Proportionate Share" means one hundred percent (100%)
provided the said percentage may be varied based on the actual
area of the Leased Premises as certified by the Landlord.
2.00 TERM
To have and to hold the Leased Premises for and during the Term,
(hereinafter called the "Term") of five (5) years to be computed from
the 1st day of June, l997 or from the date the Tenant takes occupancy of
the Leased Premises, whichever is sooner, and from thenceforth next
ensuing and fully to be completed and ended on the 31st day of May 2002.
2.01 INABILITY TO GIVE OCCUPANCY
It is hereby agreed that if the Landlord is unable to deliver vacant
possession of the Leased Premises on the date of commencement of the
Term by reason of the Leased Premises or the Building being uncompleted
or by reason of any previous tenant or occupant overholding (but not by
reason of circumstances beyond the Landlord's control or by reason of
the failure of the Tenant to complete Tenant's Work herein or by reason
of the Tenant failing on or before the date occurring six (6) weeks
prior to the commencement of the Term herein to supply all necessary
approvals and specifications which the Landlord requires in order to
complete the Leasehold Improvements herein,) the Landlord shall
diligently exercise all of its rights to obtain completion and vacant
possession of the Leased Premises and the rent payable hereunder shall
abate at a rental per day equal to 1/365th of the Annual Rent payable
until such completion or vacant possession is obtained but the Landlord
shall not be liable to the Tenant for damages of any nature whatsoever
and this Lease shall continue in full force and effect subject only to
the abatement of rent as aforesaid.
2.02 EARLY OCCUPANCY
If the Tenant occupies the Leased Premises prior to the commencement of
the Term, then during the period up to the date of commencement the
Tenant shall be a tenant of the Landlord subject to all the covenants,
conditions and agreements set out in this Lease and at a rental per day
equal to 1/365th of the Annual Rent and Additional Rent and such rental
shall be paid on or before the commencement of the Term.
2.03 OVERHOLDING
If the Tenant shall continue to occupy the Leased Premises after the
expiration of this Lease with or without the consent of the Landlord and
without any further written agreement, the Tenant shall be a monthly
tenant at a rent equivalent to 150% of the Monthly Rent and Additional
Rent hereby reserved and subject to all the terms and conditions herein
set out except as to length of tenancy.
3.00 RENT - Basic Rent
In each year during the Term of this Lease the Tenant covenants and
agrees to pay without any set-off or deduction whatsoever, to the
Landlord, as rent for the Leased Premises the following:
Page 137
<PAGE>
<TABLE>
<CAPTION>
Years Rate/sq foot Leased Premises
----- ------------ ---------------
<S> <C> <C>
1-5 $9.40 $2,282,852.60
</TABLE>
herein called "Annual Rent". The Annual Rent will be adjusted
proportionately for any lease year which is other than twelve months.
3.01 MONTHLY RENTAL
The Annual Rent shall be payable in equal monthly installments of One
Hundred and Ninety Thousand Two Hundred and Thirty-Seven Dollars and
Seventy-Two Cents ($190,237.72) (hereinafter called the "Monthly Rent")
in advance on the first day of each calendar month during the Term. If
the Term commences on any day other than the first (1st) or ends on any
day other than the last of a calendar month, rent for the fraction of a
month at the commencement and at the end of the Term shall be prorated
at a rate per day equal to 1/365th of the Annual Rent payable.
3.02 ADDITIONAL RENT
The Tenant covenants to pay as additional rent all sums to be paid to
the Landlord hereunder including, without limiting the generality of the
foregoing, all tax on the Tenant's leasehold improvements, Goods and
Services Tax and the Tenant's Proportionate Share of the Tax, Capital
Tax, Landlord's Business Tax and Operating Costs (herein called
"Additional Rent").
3.03 ESTIMATED ADDITIONAL RENTALS
During the Term, the Tenant shall pay to the Landlord monthly in advance
on the 1st day of each and every month during the Term, one-twelfth
(1/12) of the amount of such annual Additional Rent as reasonably
estimated by the Landlord to be due from the Tenant. Such estimates may
be adjusted from time to time and re-adjusted by the Landlord and the
Tenant shall pay to the Landlord monthly installments of Additional Rent
according to such estimates, as so adjusted.
3.04 DEFICIENCY OF ADDITIONAL RENT
If the aggregate amount of such estimated Additional Rent payments made
by the Tenant in any year should be less than the Additional Rent due
for such year, then the Tenant shall pay to the Landlord as Additional
Rent within thirty (30) days of receipt of notice thereof from the
Landlord the amount of such deficiency.
3.05 EXCESS OF ADDITIONAL RENTAL INSTALLMENTS
If the aggregate amount of such Additional Rent payments made by the
Tenant in any year of the Term should be greater than the Additional
Rent due for such year, then should the Tenant not be otherwise in
default hereunder, the amount of such excess will be applied by the
Landlord to the next succeeding installments of such Additional Rent due
hereunder; and if there be any such excess for the last year of the
Term, the amount thereof will be refunded by the Landlord to the Tenant
within thirty (30) days after the completion of the Landlord's year-end
audit provided the Tenant is not otherwise in default under the terms of
the Lease.
Page 138
<PAGE>
3.06 PRO-RATING OF ADDITIONAL RENT
If only part of any calendar year is included within the Term the amount
of the Additional Rent payable by the Tenant for such partial year shall
be prorated and shall be based upon the estimates made by the Landlord
and upon a final determination of such Additional Rent, the amount
remaining unpaid at the termination of this Lease shall, notwithstanding
such termination, be adjusted and paid within a reasonable time
thereafter.
3.07 PREPAYMENT OF ADDITIONAL RENT
Notwithstanding the foregoing, if the Landlord is required to pay any
amount, which it is entitled to collect from the tenants of the
Building, more frequently than provided for in this Lease or if the
Landlord is required to prepay any such amount, the Tenant shall pay to
the Landlord its portion of such amount calculated in accordance with
this Lease, forthwith upon demand.
3.08 DISPUTE AS TO AMOUNT OF ADDITIONAL RENT
In the event of any dispute by the Tenant as to the amount of any
Additional Rent claimed by the Landlord or the amount of the Tenant's
Proportionate Share thereof, the opinion of the Landlord's auditors
shall be conclusive and binding as to the amount thereof for any period
to which the opinion relates.
3.09 MANNER AND PLACE OF PAYMENT OF RENT
All rent shall, until further written notice is received from the
Landlord, be paid by the Tenant without any prior demand therefor to
Kanata Research Park Corporation, at par in the City of Ottawa at the
principal office of, Kanata Research Park Corporation, 600 March Road,
P.O. Box l3600, Kanata, Ontario, Canada K2K 2E6, or at such other place
in Canada as Kanata Research Park Corporation may designate in writing
from time to time and shall be payable in lawful money of Canada. The
Landlord agrees that payments made to Kanata Research Park Corporation
pursuant to this Lease shall be deemed to be payments made to the
Landlord and the Tenant shall not be required to see to the application
thereof.
3.10 DEFAULT
Any sums received by the Landlord from or for the account of the Tenant
when the Tenant is in default hereunder may be applied at the Landlord's
option to the satisfaction, in whole or part, of any of the obligations
of the Tenant then due hereunder in such manner as the Landlord sees
fit, and regardless of any designation or instructions of the Tenant to
the contrary.
3.11 ACCRUAL OF RENT
Rent shall be considered as annual and accruing from day to day, and
where it becomes necessary for any reason to calculate such rent for an
irregular period of less than one (1) year an appropriate apportionment
and adjustment shall be made. Where the calculation of any Additional
Rent is not made until after the termination of this Lease, the
obligation of the Tenant to pay such Additional Rent shall survive the
termination of this Lease and such amounts shall be payable by the
Tenant upon demand by the Landlord.
Page 139
<PAGE>
3.12 NET LEASE
The Tenant acknowledges and agrees that it is intended that this Lease
shall be a completely carefree net lease for the Landlord and that the
Landlord shall not be responsible during the Term for any costs,
charges, expenses or outlays of any nature whatsoever arising from or
relating to the Leased Premises, whether foreseen or unforeseen and
whether or not within the contemplation of the parties at the
commencement of the Term except as shall be otherwise expressly provided
for in this Lease and other than Income Tax due by the Landlord, the
Tenant shall be responsible for any business transfer tax, value added
tax, multi-stage sales tax, goods and services tax or any other tax or
levy on rental income that may be charged, levied or assessed by any
government or other applicable taxing authority against the Landlord
whether known as a goods and services tax or any other name ("Goods and
Services Tax").
4.00 TENANT'S BUSINESS TAX
In each and every year during the Term the Tenant covenants to pay and
discharge prior to the same becoming due and payable all taxes, rates,
duties and assessments and other charges that may be levied, rated,
charged or assessed against or in respect of the Tenant's or other
occupant's use and occupancy of the Leased Premises or in respect of the
Tenant's or other occupant's leasehold improvements, equipment,
machinery, trade fixtures and facilities situate or installed on or in
the Leased Premises and every tax and license fee in respect of any and
every business carried on in the Leased Premises or in respect of the
use or occupancy thereof by the Tenant (and any and every subtenant,
licensee or occupant thereof) whether such taxes, rates, duties,
assessments and license fees are charged by any municipal,
parliamentary, school or other body during the term hereby demised. The
Tenant will indemnify and keep indemnified the Landlord from and against
payment of all loss, costs, charges and expenses occasioned by, or
arising from any and all such taxes, rates, duties, assessments, license
fees, and any and all taxes which may in future be levied or charged in
lieu of such taxes; and any such loss, costs, charges and expenses
suffered by the Landlord may be collected by the Landlord as rent with
all rights of distress and otherwise as reserved to the Landlord in
respect of rent in arrears. The Tenant further covenants and agrees that
upon written request of the Landlord, the Tenant will promptly deliver
to the Landlord for inspection receipts for payment of all such taxes,
rates, duties, assessments, license fees and other charges in respect of
all improvements, equipment and facilities of the Tenant on or in the
Leased Premises or in respect of any business carried on in the Leased
Premises which were due and payable up to one (1) month prior to such
request.
4.01 LANDLORD'S BUSINESS TAX
In the event that there are any taxes, rates, duties, assessments or
charges levied, rated, charged or assessed against the Landlord by any
municipal or other governmental authority with respect to the Landlord's
use or occupancy of any part of the Building or the Land which the
Tenant is entitled to use in common with other persons or with respect
to any other part of the Building which the Landlord uses or occupies
for the purpose of supplying services to the Leased Premises (such
taxes, rates, duties, assessments or charges hereinafter called the
"Landlord's Business Tax"), then it is agreed that in addition to all
other sums, the Tenant is required to pay pursuant to this Lease, the
Tenant shall pay to the Landlord as Additional Rent, the Tenant's
Proportionate Share of such Landlord's Business Tax.
Page 140
<PAGE>
4.02 TAX ON TENANT'S LEASEHOLD IMPROVEMENTS
The Tenant shall pay to the Landlord as Additional Rent, in respect of
each applicable tax year, an amount equal to that portion of the Tax for
such tax year, as determined by the Landlord, which may reasonably be
regarded as being attributable to the fixtures, improvements,
installations, alterations, additions and equipment from time to time
made, erected or installed by or on behalf of the Tenant in the Leased
Premises.
4.03 PROPERTY TAX
"Tax" in this Lease means an amount equivalent to all taxes, rates,
duties, levies and assessments whatsoever levied, rated, charged or
assessed by any municipal, parliamentary, educational, school or other
governmental authority charged upon the Building, the Lands, the
property and all improvements now or hereafter appurtenant thereto or
upon the Landlord on account thereof including all taxes, rates, duties,
levies and assessments for local improvements and including any tax
which has been attracted by the Tenant's leasehold improvements and
equipment and for which the Tenant is responsible hereunder and
excluding any portion of Tax payable solely by any other tenant and
excluding any Tax charged against or applicable to the other office
buildings constructed on the Lands and the parking spaces (excluding
visitor parking) applicable to such buildings and excluding such taxes
as corporate income, capital gains, profits or excess profits, taxes
assessed upon the income of the Landlord, and shall also include any and
all taxes which may in future be levied in lieu of Tax as hereinbefore
defined.
4.04 ALLOCATION OF TAX
If the Tax or any portion thereof that may be payable by the Tenant by
reason of this Lease, depends upon an assessment or an approximation of
an assessment which has not been made by the taxing authority or
authorities having jurisdiction, the Landlord shall determine the same;
any such determination made by the Landlord shall be binding upon the
Tenant unless shown to be unreasonable or erroneous in some substantial
respect. The Landlord shall have the right from time to time to
reasonably allocate and re-allocate Taxes not charged separately to the
various buildings (including the Building) and the parking garages
located on the Lands.
4.05 SEPARATE SCHOOL TAXES
If the Tenant or any subtenant or licensee of the Tenant or any occupant
of the Leased Premises shall elect to have the Leased Premises or any
part thereof assessed for separate school taxes, the Tenant shall pay to
the Landlord, as additional rent, as soon as the amount of the separate
school taxes is ascertained, any amount by which the amount of separate
school taxes exceeds the amount which would have been payable for Tax
had such election not been made and if the Tenant or any subtenant or
licensee of the Tenant shall elect to have the Leased Premises or any
part thereof assessed for separate school taxes as aforesaid and if such
separate school taxes are less than the taxes which would have been
payable for school taxes had such election not been made, then and in
that event, the Tenant shall be entitled to deduct from the rent for the
first month of the year following which such taxes were payable, the
amount by which the separate school taxes were less than the amount
which would have been payable for school taxes in the year prior to such
month.
Page 141
<PAGE>
4.06 TAX APPEAL
Any expense incurred by the Landlord in obtaining or attempting to
obtain a reduction in the amount of the Tax or the assessment upon which
the Tax may be based, shall be added to and included in the amount of
the Tax and if the Tenant shall have paid its Proportionate Share of the
Tax and the Landlord shall thereafter receive a refund of any portion of
the Tax, the Landlord shall make an appropriate refund to the Tenant.
4.07 CAPITAL TAX
"Capital Tax" means the tax or excise imposed or capable of being
imposed upon the Landlord by any government authority having
jurisdiction which is measured or based in whole or in part upon the
taxable capital employed by the Landlord, which said taxable capital
shall be deemed to be the cost to the Landlord of said Building and
Lands computed as if the amount of such tax were that amount due if the
Building and the Lands were the only property of the Landlord, the
Landlord was entitled to no capital deduction, investment allowance or
any other deduction whatsoever. For the purpose of this paragraph the
Term "investment allowance" and "capital deduction" shall be defined by
reference to the applicable taxing statute.
5.00 OPERATING COSTS
"Operating Costs" in this Lease means the total charges, expenses,
costs, fees, rentals, disbursements or outlays incurred, accrued, paid,
payable or attributable whether by the Landlord or others on behalf of
the Landlord for complete repair, maintenance, operation, cleaning and
management of the Building, Lands and all the improvements thereon and
the components of each of them (herein collectively called the
"Property") such as are in keeping with maintaining the standard of a
first class commercial Property so as to give it high character and
distinction; and including, without limiting the generality of the
foregoing, the cost of all repairs and replacements required for such
operation and maintenance, the cost of maintaining and repairing the
heating, air-conditioning, ventilating and mechanical systems and
equipment in the Building, the cost of operating and maintaining any
elevators, (including the cost of service contracts); the costs of
providing hot and cold water; the costs of providing electricity not
otherwise chargeable to tenants; the costs of all fuel, gas and steam
used in heating, ventilating and air-conditioning; the cost of energy
conservation devices or equipment; the cost of snow removal; landscape
maintenance including the cost of replacing any landscaping on the
Lands; the cost of window cleaning; the cost of insurance premiums for
fire, casualty, liability, rental and any other insurance coverage
maintained by the Landlord in connection with the Property; telephone
and other utility costs; the amount paid or payable for all salaries,
wages and benefits and other payments paid to or on behalf of persons
engaged in the cleaning, supervision, maintenance and repair of the
Property (including wages of the on site Property Manager); the cost of
accounting services necessary to prepare the statements and opinions for
the tenants and to compute the rents and other charges payable by the
tenants of the Building and the reasonable cost of collecting and
enforcing payment of all amounts payable by the tenants; the cost of
porters, guards and other protection services; the cost of providing
security services; the cost of garbage or refuse removal from the
Building not otherwise chargeable to tenants; the cost of repair and
maintenance of the roadways, curbs, paving, walkways, pools,
landscaping, lighting and other common facilities and outside areas;
cost of services provided for the common use of the tenants; building
management (not exceeding the going rate charged by trust companies for
building management in the Regional Municipality of Ottawa-Carleton for
similar buildings); the cost of service contracts with independent
Page 142
<PAGE>
contractors and all other expenses, paid or payable by the Landlord in
connection with the operation of the Property together with an
administration fee equal to fifteen percent of Operating Costs, but such
Operating Costs shall not include any interest on any debt or capital;
retirement of any debt; any amounts directly chargeable by the Landlord
to any tenant or tenants of the Building and the cost of any repairs
paid for by insurance proceeds or for which the Landlord was reimbursed
by insurance proceeds.
5.01 ALLOCATION OF OPERATING COSTS
In determining the Operating Costs attributable to the Building, the
Landlord shall have the right from time to time to reasonably allocate
and re-allocate such Operating Costs which represent operating costs
incurred for facilities or services shared by the Building and such
other buildings as are owned or operated by the Landlord and which are
not charged or allocated separately against the Building and any such
other building or buildings. Any such determination made by the Landlord
shall be binding upon the Tenant unless shown to be unreasonable or
erroneous in some substantive respect. The Tenant shall have the right
to reasonable access to the books and records of the Landlord to conduct
an examination and to ascertain whether allocations of Operating Costs
made by the Landlord have been made reasonably.
5.02 FULL OCCUPANCY
If in any year the Building has not been fully occupied for the whole
year, the amount of the Operating Costs for such year may be adjusted by
the Landlord, acting reasonably, to an amount which reflects what the
amount of the Operating Costs would be if the Building had been fully
occupied for the whole year.
5.03 USE OF ELECTRICITY
The Tenant shall not, without the Landlord's prior written consent in
each instance, connect any additional fixtures, appliances or equipment
to the Building's electric distribution system or make any alteration or
addition to the electrical system of the Leased Premises existing at the
commencement of the Term. If the Landlord grants such consent, the cost
of all additional risers and other equipment required therefor shall be
paid as Additional Rent by the Tenant to the Landlord upon demand. As a
condition to granting such consent, the Landlord may require the Tenant
to agree to pay an increase in the Additional Rent for Operating Costs
by an amount which will reasonably reflect the increased cost of the
Landlord of the additional electrical services to be furnished to the
Leased Premises by the Landlord.
5.04 METERS
The Tenant covenants to pay for the cost of any additional metering
which may be required by the Landlord to be installed in the Building
for the purpose of determining the amount of electricity consumed by the
Tenant in the Leased Premises.
6.00 ASSIGNING OR SUBLETTING
The Tenant covenants that it will not assign or sublet the Leased
Premises or any part thereof without the prior written consent of the
Landlord, which consent shall not be unreasonably withheld save and
except in the event of any of the following, in which case the Landlord
may arbitrarily withhold its consent:
Page 143
<PAGE>
(a) an assignment or sublet of the whole of the Leased Premises, the
terms of which have a net present value that are less or more
than the net present value of the terms of the Lease (not
including the value of initial leasehold improvements, leasing
commissions or inducements of any kind under the Lease) and in
the latter event if the Landlord consents to such assigned or
sublet the Tenant shall pay the increased value to the Landlord
as Additional Rent.;
(b) a sublet of a part of the Leased Premises;
(c) where the assignee or subtenant is then a tenant of the Landlord
at the Building and the Landlord has or will have during the next
following six (6) months, vacant space for rent in the Building.
6.01 REQUEST TO ASSIGN OR SUBLET
If the Tenant requests the Landlord's consent to an assignment of this
Lease or to a subletting of the whole or any part of the Leased
Premises, the Tenant shall submit to the Landlord the name and address
of the proposed assignee or subtenant together with a copy of an offer
or agreement to assign or sublet or the sublease or assignment and such
additional information as to the nature of its business and its
financial responsibility and standing (including financial statements)
as the Landlord may reasonably require ("required information").
6.02 ASSIGNMENT
The Landlord's consent to any assignment may be conditional upon the
assignee entering into an assignment in form and content satisfactory to
the Landlord, to perform, observe and keep each and every covenant,
condition and agreement in this Lease on the part of the Tenant to be
performed, observed and kept including the payment of rent and all other
sums and payments agreed to be paid or payable under this Lease on the
days and times and in the manner specified.
6.03 CONSENT NOT TO RELEASE TENANT
In no event shall any assignment or subletting to which the Landlord may
have consented release or relieve the Tenant from his obligations fully
to perform all the terms, covenants and conditions of this Lease to be
performed.
6.04 NOTICE OF CHANGE OF CONTROL
Where there is a change in corporate control of the Tenant, the Tenant
shall forthwith so advise the Landlord in writing.
6.05 COST OF CONSENT
The Tenant further agrees that prior to any consent for assignment,
subletting or change in control being effective and binding upon the
Landlord, the Tenant shall pay on demand the Landlord's reasonable costs
(including the Landlord's own administrative costs) incurred in
connection with the Tenant's request for such consent.
7.00 TENANT'S COVENANTS
The Tenant further covenants with the Landlord as follows:
Page 144
<PAGE>
7.01 TENANT REPAIRS
To repair, maintain and keep the Leased Premises and all trade fixtures
and improvements therein in good and substantial repair subject only to
defects in construction of the structural members of the Building,
reasonable wear and tear and damage by fire, lightning and tempest or
other casualty against which the Landlord is insured (herein
collectively referred to as "Tenant Repair Exceptions"); and that the
Landlord may enter and view state of repair and that the Tenant will
repair according to notice in writing, except for Tenant Repair
Exceptions and that the Tenant will leave the Leased Premises in good
repair, except for Tenant Repair Exceptions. Notwithstanding anything
hereinbefore contained, the Landlord may in any event make repairs to
the Leased Premises without notice if such repairs are, in the
Landlord's opinion, necessary for the protection of the Building and the
Tenant covenants and agrees with the Landlord that if the Landlord
exercises any such option to repair, the Tenant will pay to the Landlord
together with the next instalment of Monthly Rent which shall become due
after the exercise of such option all sums which the Landlord shall have
expended in making such repairs and that such sums, if not so paid
within such time, shall be recoverable from the Tenant as rent in
arrears. Provided further that in the event that the Landlord from time
to time makes any repairs as hereinbefore provided, the Tenant shall not
be deemed to have been relieved from the obligation to repair and leave
the Leased Premises in a good state of repair.
7.02 RULES AND REGULATIONS
That the Tenant and his employees and all persons visiting or doing
business with him on the Leased Premises shall be bound by and shall
observe rules and regulations annexed hereto or as may hereafter be
reasonably set by the Landlord of which notice in writing shall be given
to the Tenant and upon such notice being delivered all such rules and
regulations shall be deemed to be incorporated into and form part of
this Lease. Such rules and regulations shall not be inconsistent with
nor derogate from the terms of this Lease and in any event shall apply
equally to all tenants of the Building and be non-discriminatory in
their application.
7.03 USE OF PREMISES
The Leased Premises shall be used only for office and hi-technology
manufacturing purposes.
7.04 INCREASE IN INSURANCE PREMIUMS
That it will not keep, use, sell or offer for sale in or upon the Leased
Premises any article which may be prohibited by any insurance policy in
force from time to time covering the Building including any regulations
made by any fire insurance underwriters applicable to such policies. In
the event the Tenant's occupancy or conduct or business in, or on the
Leased Premises, whether or not the Landlord has consented to the same,
results in any increase in premiums for the insurance carried from time
to time by the Landlord with respect to the Building, the Tenant shall
pay any such increase in premiums as Additional Rent within ten (10)
days after bills for such additional premiums shall be rendered by the
Landlord. In determining whether increased premiums are a result of the
Tenant's use or occupancy of the Leased Premises, a schedule issued by
the organization computing the insurance rate on the Building showing
the various components of such rate, shall be conclusive evidence of
Page 145
<PAGE>
the several items and charges which make up such rate. The Tenant shall
promptly comply with all reasonable requirements of the insurance
authority or of any insurer now or hereafter in effect relating to the
Leased Premises.
7.05 CANCELLATION OF INSURANCE
If any policy of insurance upon the Building or any part thereof or upon
the Lands or any part thereof shall be cancelled or rendered voidable by
the insurer by reason of any act, omission or occupation of the Leased
Premises or any part thereof by the Tenant, any assignee or subtenant of
the Tenant or by anyone permitted by the Tenant to be upon the Leased
Premises, and the Tenant, after receipt of notice from the Landlord,
shall have failed to immediately reinstate such insurance policies or
avoid cancellation of such insurance policies, the Landlord may at its
option determine this Lease forthwith by leaving upon the Leased
Premises notice in writing of its intention so to do and thereupon rent
and any other payments for which the Tenant is liable under this Lease
shall be apportioned and paid in full to the date of such determination
and the Tenant shall immediately deliver up possession of the Leased
Premises to the Landlord and the Landlord may re-enter and take
possession of the same or the Landlord shall pay any increased cost of
such insurance and the Tenant shall pay as Additional Rent, on demand,
the amount by which the premiums for such insurance are so increased.
7.06 OBSERVANCE OF LAW
To comply promptly at its own expense with all provisions of law
including without limitation, federal and provincial legislative
enactments, building by-laws, and any other governmental or municipal
regulations which relate to the partitioning, equipment, operation and
use of the Leased Premises, and to the making of any repairs,
replacements, alterations, additions, changes, substitutions or
improvements of or to the Leased Premises. And to comply with all
police, fire and sanitary regulations imposed by any federal, provincial
or municipal authorities or made by fire insurance underwriters, and to
observe and obey all governmental and municipal regulations and other
requirements governing the conduct of any business conducted in the
Leased Premises. Provided that in default of the Tenant so complying the
Landlord may at its option where possible comply with any such
requirement and the cost of such compliance shall be payable on demand
by the Tenant to the Landlord as Additional Rent.
7.07 WASTE AND OVERLOADING OF FLOORS
Not to do or suffer any waste or damage, disfiguration or injury to the
Leased Premises or the fixtures and equipment thereof or permit or
suffer any overloading of the floors thereof; and not to place therein
any safe, heavy business machine or other heavy thing without first
obtaining the consent in writing of the Landlord; and not to use or
permit to be used any part of the Leased Premises for any dangerous,
noxious or offensive trade or business and not to cause or permit any
nuisance in, at or on the Leased Premises; and without the prior consent
in writing of the Landlord, the Tenant will not bring onto or use in the
Leased Premises or permit any person subject to the Tenant to bring onto
or use on the Leased Premises any fuel or combustible material for
heating, lighting or cooking nor will it allow onto the Leased Premises
any stove, burner, kettle, apparatus or appliance for utilizing the same
and the Tenant will not purchase, acquire or use electrical current or
gas for consumption on the Leased Premises except from such supplier
thereof as shall have been approved in writing by the Landlord.
Page 146
<PAGE>
7.08 INSPECTION
To permit the Landlord, its servants or agents to enter upon the Leased
Premises at any time and from time to time for the purpose of inspection
and of making repairs, alterations or improvements to the Leased
Premises or to the Building and the Tenant shall not be entitled to
compensation for any inconvenience, nuisance or discomfort occasioned
thereby. The Landlord, its servants or agents may at any time and from
time to time enter upon the Leased Premises to remove any article or
remedy any condition which, in the opinion of the Landlord, reasonably
arrived at, would be likely to lead to cancellation of any policy of
insurance and such entry by the Landlord shall not be deemed to be a re-
entry. The Tenant shall, upon written request of the Landlord, produce
audited Financial Statements of the Tenant, which statements shall
include a Balance Sheet, Income Statement, Statement of Retained
Earnings, Statement of Source and Application of Funds.
7.09 INDEMNITY TO LANDLORD
To promptly indemnify and save harmless the Landlord for any and all
liabilities, damages, costs, claims, suits or actions of any nature or
kind including the full cost to the Landlord in resisting or defending
the same to which the Landlord shall or may become liable or suffer
arising out of or by reason of:
(a) any breach, violation or non-performance by the Tenant of any of
its covenants and obligations under this Lease;
(b) any damage to property while said property shall be in or about
the Leased Premises including the systems, furnishings and
amenities thereof, as a result of the negligence, misuse or
wilful act of the Tenant, its express or implied invitees,
licensees, agents, servants or employees; and
(c) any injury to any invitee, licensee, agent, servant or employee
of the Tenant, including death resulting at any time therefrom,
occurring on or about the Leased Premises, the Property or the
Lands;
and this indemnity shall survive the expiry or sooner determination of
this Lease.
7.10 DAMAGE BY TENANT
That if the Building including the Leased Premises, the elevators,
boilers, engines, pipes and other apparatus (or any of them) used for
the purpose of heating, ventilating or air-conditioning the Building or
operating the elevators, or if the water pipes, drainage pipes, electric
lighting or other equipment of the Building or the roof or outside walls
or other parts of the Building will not function properly or become
damaged or destroyed through the negligence, carelessness or misuse of
the Tenant, or of any of its invitees, licensees, agents, servants,
employees, clients, customers or contractors, or through it or them in
any way stopping up or injuring any heating, ventilating or air-
conditioning apparatus, elevators, water pipes, drainage pipes or other
equipment or parts of the Building, the expense of the necessary
repairs, replacements or alterations shall be borne by the Tenant and
paid forthwith on demand to the Landlord as Additional Rent.
Page 147
<PAGE>
7.11 TENANT INSURANCE
(a) To maintain in force during currency of this Lease at the
Tenant's expense insurance policies to cover the following:
(i) comprehensive general liability insurance with limits of
not less than Five Million Dollars ($5,000,000.00)
(including bodily injury and property damage, tenant's
legal liability, cross liability and contractual
liability) to cover all responsibilities assumed by the
Tenant with respect to the use or occupancy of and the
business carried on, in or from the Leased Premises, in
amounts acceptable to the Landlord;
(ii) all risk insurance covering leasehold improvements made
or installed by or on behalf of the Tenant in an amount
equal to the full replacement value thereof; and
(iii) any other insurance that the Landlord (or the Landlord's
mortgagee, if any) may reasonably require from time to
time in form and amounts and for insurance risks against
which a prudent Tenant would protect itself;
(b) That all Tenant's insurance required hereunder shall be with
insurers and upon terms and conditions to which the Landlord has
no reasonable objection. Copies of all policies, or certificates
evidencing the insurance or its renewal shall be delivered to the
Landlord at the Landlord's request;
(c) That all policies of insurance to be maintained by the Tenant
shall, in the case of general liability insurance, include the
Landlord (and, where applicable, the Landlord's mortgagee) as
additional insured and, in the case of all other insurance
coverage, contain a waiver by the insurer and Tenant of any
rights of subrogation or indemnity or any other claim to which
the insurer might otherwise be entitled against the Landlord (and
mortgagee) or the agents or employees of the Landlord. All such
insurance policies shall also contain a provision prohibiting the
insurer from cancelling or altering the insurance coverage
without first giving the Landlord thirty (30) days prior written
notice thereof;
(d) That if the Tenant fails to take out or maintain in force such
insurance, the Landlord may take out the necessary insurance and
pay the premium therefor and the Tenant shall pay to the Landlord
the amount of such premium immediately on demand as Additional
Rent; and
(e) That if both the Landlord and the Tenant have claims to be
indemnified under any such insurance, the indemnity shall be
applied first to the settlement of the claim of the Landlord and
the balance, if any, to the settlement of the claim of the
Tenant.
7.12 NO ABATEMENT OF RENT
That there shall be no abatement or reduction of rent and that the
Landlord shall not be liable for any damage howsoever caused to property
of the Tenant or of any person subject to the Tenant which is in or upon
or being brought to or from the Lease Premises or the Building or for
personal injury (including death) sustained in any
Page 148
<PAGE>
manner by the Tenant or any person subject to the Tenant while the
Tenant or any such person is on or upon entering or leaving the Leased
Premises or Building unless such property damage or personal injury
may have been attributable to fault or neglect on the part of the
Landlord or of any person for whom the Landlord is at law responsible,
and that the Tenant will indemnify and save harmless the Landlord from
and against all claims and demands made against the Landlord by any
person for or arising out of any such property damage or personal
injury.
7.13 EXHIBITING PREMISES
To permit the Landlord or its agents or servants to enter and show the
Leased Premises, during normal business hours, to prospective
purchasers of the Building and may after notice of termination of this
Lease has been given or within the last six (6) months of the Term,
enter and show the Leased Premises to prospective tenants and erect
signs stating that the premises are "To Let".
7.14 TENANT MAINTENANCE
That the Tenant will maintain in good repair all plate and window
glass, all electrical fixtures, outlets and wiring, all plumbing and
plumbing fixtures, all heating equipment and all water and gas piping
and outlets within the Leased Premises and that he will make good any
damage caused by or resulting from breakage of glass, interference
with the electrical, plumbing, heating, water or gas systems of the
Building or misuse of any of the equipment, outlets, piping or wiring
of any such system by the Tenant or any person subject to the Tenant
and the Tenant agrees that he shall prior to taking possession of the
Leased Premises inspect the entire Leased Premises and shall be
satisfied they are clean and in good order and in a good state of
repair, and that all plate and window glass is whole and that the
sanitary arrangements in the Building are in satisfactory condition.
7.15 SIGNS
The Tenant shall not paint, display, inscribe or place any sign,
symbol, notice or lettering of any kind anywhere outside the Leased
Premises within the Leased Premises so as to be visible from the
outside of the Building with the exception only of an identification
sign (which sign shall be subject to the Landlord's written approval
as to size, design and location).
7.16 NAME OF BUILDING
Not to refer to the Building by any name other than that designated
from time to time by the Landlord and the Tenant shall use the name of
the Building for the business address of the Tenant but for no other
purpose.
7.17 KEEP TIDY
The Tenant shall provide its own cleaning and janitorial services. At
the end of each business day, the Tenant shall leave the Leased
Premises in a tidy condition.
7.18 DELIVERIES
The Tenant shall receive, ship, take delivery of and allow and require
suppliers or others to deliver or take delivery of merchandise,
supplies, fixtures, equipment,
Page 149
<PAGE>
furnishings, wares or merchandise only through the loading entrance
and other facilities provided for that purpose and at the times set by
the Landlord.
7.19 NOTICE OF DAMAGE
To notify the Landlord promptly of any damage to or defect in the
Leased Premises or the Building or any part thereof including any
electrical, plumbing, heating, ventilating, air-conditioning, water,
sprinkler or gas systems or equipment, or the water pipes, gas pipes,
telephone lines or electrical apparatus within or leading to the
Leased Premises, and in case of fire to give immediate notice thereof
to the Fire Department.
7.20 ALTERATIONS, ETC
The Tenant will not make or erect in or to the Leased Premises any
installations, alterations, additions or partitions or remove or
change the location or style of any installations, alterations,
equipment, outlets, piping or wiring relating to the electrical,
plumbing, water, gas, air-conditioning, heating or ventilating systems
without submitting drawings and specifications to the Landlord and
obtaining the Landlord's prior written consent in each instance. The
Tenant must further obtain the Landlord's prior written consent to any
change or changes in such drawings and specifications submitted as
aforesaid. The Tenant's request for such consent shall be in writing
and accompanied by an adequate description of contemplated work and
with appropriate working drawings and specifications thereof. The
Landlord's cost of having its architects or engineers examine such
drawings and specifications shall be payable by the Tenant. The
Landlord may require that any and all work be performed by the
Landlord's contractors or workmen or by contractors or workmen engaged
by the Tenant but in each case only under written contract approved in
writing by the Landlord and subject to all reasonable conditions which
the Landlord may impose and subject to inspection by and reasonable
supervision of the Landlord. The Landlord may at its option require
that only the Landlord's contractors be engaged for any mechanical,
electrical, plumbing, structural or sprinkler work to be done in the
Leased Premises. Any work performed by or for the Tenant shall be
performed by competent workmen whose labour union affiliations are not
incompatible with those of any workmen who may be employed in the
Building by the Landlord, its contractors or subcontractors. The cost
of all such work and of all materials, labour and services involved
therein and of all services, necessitated thereby shall be at the sole
cost and expense of the Tenant and shall be completed in a good and
workmanlike manner and with reasonable diligence in accordance with
the description of the work approved by the Landlord. Any such
alterations, additions, and fixtures shall, when made or installed, be
and become the property of the Landlord without payment being made
therefor; provided that upon the determination of this Lease the
Landlord may at its option require the Tenant, or itself at the
Tenant's expense, to remove the same and to restore the Leased
Premises to the condition in which they were at the commencement of
this Lease.
7.21 CONSTRUCTION LIENS
The Tenant covenants that he will not suffer or permit during the Term
hereof any construction or other liens for work, labour, services or
material ordered by him or for the cost of which he may be in any way
obligated to attach to the Leased Premises or the Building or the Land
and that whenever and so often as any such liens shall attach or
claims therefor shall be filed, the Tenant shall within twenty (20)
days after the
Page 150
<PAGE>
Tenant has notice of the claim for lien, procure the
discharge thereof by payment or by giving security or in such manner
as is or may be required or permitted by law.
7.22 SECURITY
The Tenant will maintain on the Leased Premises sufficient moveable
property to guarantee the payment of one (1) year's Annual Rent and
Additional Rent.
7.23 HAZARDOUS SUBSTANCES
(a) The Tenant shall not cause or permit any Hazardous Substances to
be brought onto, created in, released or discharged from, placed
or disposed of, at or near the Building or Lands;
(b) The Tenant shall not cause or permit to occur any violation of
any federal, provincial, municipal or local law, ordinance, or
regulation, now or hereinafter enacted (the "Laws"), relating to
environmental conditions on, under, at, near or about the
Building or Lands, or relating to the Landlord, the Tenant or
the Building, air, soil or ground water condition, including
without limitation, the generation, storage or disposal of
Hazardous Substances;
(c) For the purposes of this section, "Hazardous Substances" means
any substance, or class of substance or mixture of substances
which may be detrimental to the environment, plant or animal
life, or human health and includes, without limitation,
flammable, explosives, or radioactive materials, asbestos,
polychlorinated biphenyls (PCBs), chemicals believed to cause
cancer or reproductive toxicity, pollutants, contaminants,
hazardous wastes, toxic substances and related materials,
petroleum and petroleum products, any substance that, if added
to water, may degrade or alter or form part of a process of
degradation or alteration of the quality or temperature of that
water to the extent that it is detrimental to its use by man or
by any animal, fish or plant, and substances declared to be
hazardous or toxic under any law or regulation now or hereafter
enacted or promulgated by any governmental authority having
jurisdiction over the Landlord, the Tenant, the Leased Premises
or the Building (the "Authorities");
(d) The Tenant shall, at its own expense, comply with the Laws;
(e) The Tenant shall, at its own expense, make all submissions to,
provide all information required by, and comply with all
requirements of the Authorities under the Laws;
(f) The Tenant shall indemnify, defend and hold harmless the
Landlord, the Landlord's mortgagees, any manager of the
building, and their respective officers, directors,
beneficiaries, shareholders,
Page 151
<PAGE>
partners, agents and employees, from all fines, suits,
procedures, claims and actions of every kind, and all costs
associated therewith (including legal fees on a solicitor and
his own client basis and consultants' fees) arising out of or in
any way connected with any deposit, spill, discharge, or other
release of Hazardous Substances that occurs during the Term or
any renewal or extension period, at or from the Premises, or
which arises at any time from the Tenant's use or occupancy of
the Premises, or from the Tenant's failure to provide all
information, make all submissions, and take all steps required
by this Section or by the Authorities;
(g) Notwithstanding any other provision of this Lease, if the Tenant
creates or brings to the Leased Premises any Hazardous
Substances or if the conduct of the Tenant's business shall
cause there to be any Hazardous Substances at or near the Leased
Premises, or discharged or released on, under or about the
Premises, the building or the lands upon which the building is
constructed, the air, soil or ground water, then,
notwithstanding any rule of law to the contrary, such Hazardous
Substances shall be and remain the sole and exclusive property
of the Tenant and shall not become the property of the Landlord,
notwithstanding the degree of affixation to the Premises of the
Hazardous Substances or the goods containing the Hazardous
Substances. This affirmation of the Tenant's interest in the
Hazardous Substances or the goods containing the Hazardous
Substances shall not however prohibit the Landlord from dealing
with such material as otherwise provided for in this Lease.
7.24 NUISANCE
The Tenant shall not cause or maintain any nuisance in or about the
Leased Premises, and shall keep the Leased Premises free of debris,
rodents, vermin and anything of a dangerous noxious or offensive
nature or which could create a fire hazard (through undue load on
electrical circuits or otherwise) or undue vibration, heat or noise.
8.00 LANDLORD'S COVENANTS
The Landlord further covenants with the Tenant:
8.01 QUIET ENJOYMENT
The Landlord covenants with the Tenant that if the Tenant pays the
Annual Rent, Additional Rent and all other sums reserved herein and
observes and performs the covenants, conditions and agreements set out
in this Lease, the Tenant shall and may peaceably possess and enjoy
the Leased Premises during the Term without interruption or
disturbance from the Landlord.
Page 152
<PAGE>
8.02 TAXES, ETC
To pay or cause to be paid all taxes and rates, municipal,
parliamentary or otherwise, including, without limiting the generality
of the foregoing, water rates with respect to the Lands, the Building
or assessed against the Landlord in respect thereof, except those
directly assessed or charged to or payable by the Tenant or assessed
or charged with reference to the use or occupation of the Leased
Premises and except as otherwise provided in this Lease.
8.03 HEATING AND AIR-CONDITIONING
To provide for heating and air-conditioning 24 hours per day and seven
(7) days a week so that when heat is reasonably required for the
reasonable use of the Leased Premises the Landlord will furnish heat
therefor up to a reasonable temperature and when the heating system is
not in use and the Landlord considers that air-conditioning is
reasonably required it will operate the air-conditioning systems in
the Building. The said heating and air-conditioning systems will be
maintained by the Landlord during normal business hours except during
the making of repairs and should the Landlord make default in so
doing, it shall not be liable for any indirect or consequential
damages for personal discomfort or illness due to such default. The
Landlord reserves the right to stop the services of the heating and/or
air-conditioning equipment when necessary by reason of any accident or
any repairs, alterations or improvements which, in the judgment of the
Landlord, are desirable or necessary to be made until such repairs,
alterations or improvements shall have been completed. The Landlord
shall have no further responsibility or liability for failure to
supply the said heating and/or air-conditioning service when prevented
from doing so, by strikes or by any cause beyond the Landlord's
reasonable control or by orders or regulations by any body or
authority having jurisdiction or by other reason of any failure of
electrical current, steam or water or suitable power supply or
inability upon the exercise of reasonable diligence to obtain such
electrical current, steam or water for the operation of the heating or
air-conditioning equipment.
8.04 REPAIR OF STRUCTURE
To repair, replace and maintain the structural parts of the Building,
and to perform such repairs, replacements and maintenance with
reasonable dispatch, and in a good and workmanlike manner, at any time
and from time to time, and notwithstanding anything contained herein
to the contrary, the Tenant shall not be entitled to compensation for
any inconvenience, nuisance or discomfort occasioned thereby.
8.05 DELAYS IN PROVISION OF SERVICES
It is understood and agreed that whenever and to the extent that the
Landlord shall be unable to fulfil, or shall be delayed or restricted
in the fulfilment of any obligation hereunder in respect of the supply
or provision of any service or utility or the doing of any work or the
making of any repairs by reason of being unable to obtain the
material, goods, equipment, service, utility or labour required to
enable it to fulfil such obligation or by reason of any statute, law
or order-in-council or any regulation or order passed or made pursuant
thereto or by reason of the order or direction of any administrator,
controller or board, or any governmental department or officer or
other authority, or by reason of not being able to obtain any
permission or authority required thereby, or by reason of any other
cause beyond its control whether of the foregoing character or not,
the Landlord shall be entitled to extend the time for fulfilment of
such obligation by a time equal to the duration of such delay or
restriction, and the Tenant
Page 153
<PAGE>
shall not be entitled to compensation for any inconvenience, nuisance,
discomfort, direct or indirect or consequential damage or damages
thereby occasioned.
9.00 TENANT'S FIXTURES
The Tenant may install its usual trade fixtures in the usual manner,
provided such installation does not damage the structure of the Leased
Premises or the Building and provided further that the Tenant shall
have submitted detailed plans and specifications for such trade
fixtures to the Landlord and obtained its written consent thereto
which consent shall not be unreasonably withheld.
9.01 REMOVAL OF TENANT'S FIXTURES
Provided that the Tenant may remove his trade or tenant's fixtures;
provided further, however, that all installations, alterations,
additions, partitions, and fixtures other than trade or tenant's
fixtures in or upon the Leased Premises, whether placed there by the
Tenant or the Landlord, shall immediately upon such placement, be the
Landlord's property without compensation therefor to the Tenant and,
except as hereinafter mentioned in this paragraph shall not be removed
from the Leased Premises by the Tenant at any time either during or
after the term. Notwithstanding anything herein contained, the
Landlord shall be under no obligation to repair or maintain the
Tenant's installations, alterations, additions, partitions and
fixtures or anything in the nature of a leasehold improvement made or
installed by the Tenant or Landlord or third party; and further,
notwithstanding anything herein contained, the Landlord shall have the
right upon termination of this Lease by affluxion of time or otherwise
or within six (6) months thereafter to require the Tenant to remove,
or require the Tenant to pay to the Landlord the cost to remove, any
installations, alterations, additions, partitions and fixtures or
anything in the nature of a leasehold improvement made or installed by
the Tenant, the Landlord or a third party, whether for the Tenant or a
previous occupant, and make good any damage caused to the Leased
Premises by such installation or removal.
10.00 DAMAGE OR DESTRUCTION OF LEASED PREMISES
Provided that if during the continuation of this Lease, the Building
or the Leased Premises are destroyed or damaged by any cause
whatsoever, then the following provisions shall apply:
10.01 PARTIAL DAMAGE
If damage shall occur to the Building or the Leased Premises so that
all or part of the Leased Premises are rendered untenantable by damage
from fire or other casualty which, in the reasonable opinion of the
Landlord's architect, can be substantially repaired under applicable
laws and governmental regulations within ninety (90) days from the
date of such casualty (employing normal construction methods without
overtime or other premium), the Landlord shall cause such damage to be
repaired with all reasonable speed.
10.02 TOTAL DAMAGE
If the Building or the Leased Premises are damaged to such an extent
that the Leased Premises are rendered untenantable by damage from fire
or other casualty which, in the reasonable opinion of the Landlord's
architect, cannot be substantially repaired under applicable laws and
governmental regulations within ninety (90) days from the
Page 154
<PAGE>
date of such casualty (employing normal construction methods without
overtime or other premium), then either the Landlord or Tenant may
elect to terminate this Lease as of the date of such casualty by
written notice delivered to the other not more than ten (10) days
after receipt of such architect's opinion (failing which the Landlord
shall cause such damage to be repaired at its own expense with all
reasonable speed).
10.03 OBLIGATION TO REPAIR
The Landlord's obligation to repair as set forth in the preceding two
paragraphs hereof is conditional upon the Landlord receiving adequate
proceeds from policies of insurance maintained in respect of such
casualties or, if such proceeds are not made available to the
Landlord, the Landlord electing to obtain its own financing for such
repairs. In the event that no such proceeds of insurance are available
to the Landlord and if the Landlord elects not to obtain its own
financing for such repairs, then the Landlord shall, by notice in
writing to the Tenant delivered within ten (10) days after receipt of
the opinion of the Landlord's architect, notify the Tenant that the
Lease is terminated, which termination shall be effective as of the
date of such casualty. In calculating the amount of insurance proceeds
available, the Landlord will be deemed to have received the deductible
portion of any insurance policy.
10.04 ABATEMENT OF RENT
If the Landlord is required to repair the damage pursuant to the
provisions hereof and does not elect to terminate the Lease, the
Annual Rent and Additional Rent payable by the Tenant under this Lease
shall be proportionately reduced to the extent that the Leased
Premises are thereby rendered unusable by the Tenant in its business
from the date of such casualty until completion by the Landlord of the
repairs to the Leased Premises and the Building so that the Leased
Premises are thereafter fully usable by the Tenant in its business.
10.05 DAMAGE TO 50% OF BUILDING
Notwithstanding anything otherwise contained in this Lease, if fifty
percent (50%) or more of the rentable area of the Building is damaged
or destroyed and if, in the reasonable opinion of the Landlord's
Architect, the said rentable area cannot be rebuilt or made fit for
the purposes of the tenants thereof within ninety (90) days of the
date of such casualty, the Landlord may, at its option, terminate this
Lease by giving notice of termination to the Tenant within thirty (30)
days of the date of such casualty and the Tenant shall, with
reasonable dispatch and expedition, but in any event within sixty (60)
days after delivery of the notice of termination, deliver up
possession of the Leased Premises to the Landlord and the rent and
other payments for which the Tenant is liable hereunder shall be
apportioned and paid to the date possession is so delivered up.
10.06 COMPLETION OF REPAIR
Provided that, if, upon the completion by the Landlord of any repairs
required as a result of any such destruction or damage, a dispute
shall arise between the Landlord and the Tenant as to whether or not
the Leased Premises have been made fit for the purposes of the Tenant
under this Lease, the Landlord may, at its option, terminate this
Lease by giving thirty (30) days notice to the Tenant and if such
notice shall be given this Lease shall, at the expiration of such
period, be at an end and the Tenant shall deliver up the Leased
Premises to the Landlord or whom it may appoint and the Landlord may,
on demand, recover the full rental hereby reserved computed from the
Page 155
<PAGE>
date on which such repairs were completed up to the date on which the
Tenant is required to vacate.
11.00 LIABILITY FOR DAMAGE TO PROPERTY
In the absence of negligence or wilful act or default on the part of
the Landlord, its servants, agents or workmen, the Landlord shall not
be liable or responsible in any way for any loss, damage or injury to
any person or for any loss of or damage to any property belonging to
the Tenant, to employees of the Tenant or to any other person while
such property is in the Leased Premises or in the Building or in or on
the surrounding, Lands and buildings owned by the Landlord, the
areaways, the parking garages, the parking areas, lawns, sidewalks,
reflective pools, steps, platforms, corridors, stairways or elevators
whether or not any such property has been entrusted to employees of
the Landlord and without limiting the generality of the foregoing, the
Landlord shall not be liable for any damage to any such property
caused by theft or breakage or by steam, water, rain or snow which may
leak into, issue or flow from any part of the Building or from the
water, steam or drainage pipes or plumbing works of the Building 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 smoke or anything done or omitted
by any other tenant in the Building or for any other loss whatsoever
with respect to the Leased Premises, goods placed therein or any
business carried on therein.
12.00 DEFAULT OF TENANT
Provided and it is hereby expressly agreed that if and whenever the
Annual Rent or Additional Rent hereby reserved or any part thereof
shall not be paid on the day appointed for payment thereof, whether
lawfully demanded or not, or in case of breach or non-observance or
non-performance of any of the covenants, agreements, provisos,
conditions or Rules and Regulations on the part of the Tenant to be
kept, observed or performed, or in case the Leased Premises shall be
vacated or remain unoccupied for fifteen (15) days or in case the Term
shall be taken in execution or attachment for any cause whatever, then
and in every such case, it shall be lawful for the Landlord thereafter
to enter into and upon the Leased Premises or any part thereof 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 other than the proviso to this paragraph; PROVIDED
that the Landlord shall not at any time have the right to re-enter and
forfeit this Lease by reason of the Tenant's default in the payment of
the rent reserved by this Lease, unless and until the Landlord shall
have given to the Tenant written notice setting forth the default
complained of and the Tenant shall have the right during five (5)
business days next following the date on such notice to cure any such
default in payment of rent. In case without the written consent of the
Landlord, the Leased Premises shall be used by any other person than
the Tenant or for any other purpose than that for which the same were
let or in case the Term or any of the goods and chattels of the Tenant
shall be at any time seized in execution or attachment by any creditor
of the Tenant or if the Tenant makes any bulk sale, then in any such
case this lease shall, at the option of the Landlord, cease and
determine and the Term shall immediately become forfeited and void in
accordance with the provisions of Section 15, RIGHT OF TERMINATION,
herein.
13.00 BANKRUPTCY
Provided further that, in case without the written consent of the
Landlord, the Leased Premises shall be used by any other person than
the Tenant or for any other purposes
Page 156
<PAGE>
than that for which the same were let or in case the Term or any of
the goods and chattels of the Tenant shall be at any time seized in
execution or attachment by any creditor of the Tenant or by the Tenant
making any assignment for the benefit of creditors or any bulk sale or
become bankrupt or insolvent or take the benefit of any act now or
hereafter in force for bankrupt or insolvent debtors, or, if the
Tenant is a corporation and any order shall be made for the winding up
of the Tenant, or other termination of the corporate existence of the
Tenant, then in any such case this Lease shall, at the option of the
Landlord, cease and determine and the Term shall immediately become
forfeited and void and the then current month's rent and the next
ensuing three (3) months rent shall immediately become due and be paid
and the Landlord may re-enter and take possession of the Leased
Premises as though the Tenant or other occupant or occupants of the
Leased Premises was or were holding over after the expiration of the
Term without any right whatever.
14.00 RE-ENTRY BY LANDLORD
The Tenant further covenants and agrees that on the Landlord's
becoming entitled to re-enter upon the Leased Premises under any of
the provisions of this Lease, the Landlord, in addition to all other
rights, shall have the right to enter the Leased Premises as the agent
of the Tenant either by force or otherwise, without being liable for
any prosecution therefor and to relet the Leased Premises as the agent
of the Tenant, and to receive the rent therefor and as the agent of
the Tenant, to take possession of any furniture or other property on
the Leased Premises and to sell the same at public or private sale
without notice and to apply the proceeds of such sale and any rent
derived from reletting the Leased Premises upon account of the rent
under this Lease, and the Tenant shall be liable to the Landlord for
the deficiency, if any.
15.00 RIGHT OF TERMINATION
The Tenant further covenants and agrees that on the Landlord becoming
entitled to re-enter upon the Leased Premises under any of the
provisions of this Lease, the Landlord, in addition to all other
rights, shall have the right to determine forthwith this Lease and the
Term by leaving upon the Leased Premises notice in writing of its
intention so to do, and thereupon, rent shall be computed, apportioned
and paid in full to the date of such determination of this Lease and
any other payments for which the Tenant is liable under this Lease
shall be paid and the Tenant shall immediately deliver up possession
of the Leased Premises to the Landlord, and the Landlord may re-enter
and take possession of the same.
16.00 DISTRESS
The Tenant waives and renounces the benefit of any present or future
statute taking away or limiting the Landlord's right of distress, and
covenants and agrees that notwithstanding any such statute, none of
the goods and chattels of the Tenant on the Leased Premises at any
time during the Term shall be exempt from levy by distress for rent in
arrears. In the event that the Tenant shall remove or permit the
removal of any of its goods or chattels from the Leased Premises, the
Landlord may within thirty (30) days thereafter and if the Tenant is
in arrears of rent, seize such goods and chattels wherever the same
may be found and may sell or otherwise dispose of the same as if they
had actually been distrained upon the Leased Premises by the Landlord
for arrears of rent.
Page 156
<PAGE>
17.00 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, 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 herein in
respect of any such continuing or subsequent default or breach, and no
waiver shall be inferred from or implied by anything done or omitted
by the Landlord save only express waiver in writing. All rights and
remedies of the Landlord in this Lease contained shall be cumulative
and not alternative.
18.00 CHANGES TO BUILDING
The Landlord hereby reserves the right at any time and from time to
time to make changes in, additions to, subtractions from or
rearrangements of the Building including, without limitation, all
improvements at any time thereon, all entrances and exits thereto, and
to grant, modify and terminate easements or other agreements
pertaining to the use and maintenance of all or parts of the Building
and to make changes or additions to the pipes, conduits, utilities and
other necessary building services in the Leased Premises which serve
other premises, provided that prior to the commencement of the Term,
the Landlord may alter or relocate the Leased Premises to the extent
found necessary by the Landlord to accommodate changes in construction
design or facilities including major alterations and relocations. The
Landlord agrees that in performing such alterations, it shall do so in
a manner so as to minimize any material interference with the Tenant's
use and enjoyment of the Leased Premises.
19.00 SEVERANCE OF LAND
The Landlord shall have the right from time to time to sever (for
purposes of sale, lease, mortgage, charge or otherwise) any part or
parts of the Land or any buildings or improvements thereon, including
the creation of rights-of-way, easements and parking arrangements
which the Landlord deems necessary and the Tenant hereby consents to
any such severance and agrees to execute, at no cost to the Landlord,
any documents or consents which the Landlord may request for these
purposes. If any part or parts of the Land or the buildings or
improvements on the lands are so severed and are deemed by the
Landlord to no longer form part of the property, such part or parts
shall be excluded from the Lands and the property for the purposes of
this Lease at the time designated by the Landlord and the Tenant shall
when requested by the Landlord, execute, at no cost to the Landlord, a
release of any interest in the Lands so excluded.
20.00 COSTS OF COLLECTION
The Tenant shall pay, as Additional Rent, all costs, expenses and
legal fees (on a solicitor and his client basis) that may be incurred
or paid by or on behalf of the Landlord in enforcing the covenants and
provisions of this Lease.
21.00 PROFITS AND REMEDIES BY LANDLORD
In addition to all rights and remedies available to the Landlord under
the provisions of this Lease or by statute or the general law in the
event of any default by the Tenant of the provisions of this Lease:
Page 158
<PAGE>
21.01 PAYMENTS TO THIRD PARTIES
The Landlord shall have the right at all times to remedy or attempt to
remedy any default of the Tenant, and in so doing, may make any
payments due or alleged to be due by the Tenant to third parties and
may enter upon the Leased Premises to do any work or other things
therein, and in any such event, all costs and expenses of the Landlord
in remedying or attempting to remedy such default shall be payable by
the Tenant to the Landlord forthwith upon demand as Additional Rent.
21.02 NON-PAYMENT OF ADDITIONAL RENT
The Landlord shall have the same rights and remedies in the event of
any non-payment by the Tenant of any amounts payable by the Tenant
under any provision of this Lease and the parking agreement as in the
case of non-payment of rent and may be recovered by the Landlord as
rent by any and all remedies available to the Landlord for the
recovery of rent in arrears.
21.03 INTEREST ON ARREARS
The Landlord shall, if the Tenant shall fail to pay any Monthly Rent,
Additional Rent or other amounts from time to time payable by it to
the Landlord hereunder promptly when due, be entitled to interest on
all such Annual Rent, Additional Rent and other amounts which are
unpaid and overdue under this Lease and the parking agreement, such
interest to be compounded monthly thereon and to be computed at a rate
equal to two percent (2%) per annum in excess of the minimum lending
rate to prime commercial borrowers from time to time charged by the
Royal Bank of Canada or such other chartered bank as the Landlord may
designate, from the date upon which such Monthly Rent, Additional Rent
and other amounts was due until actual payment thereof.
22.00 NOTICE
Any notice required or contemplated by any provisions of this Lease
shall be given in writing, enclosed in a sealed envelope addressed, in
the case of notice to the Landlord c/o Kanata Research Park
Corporation, 600 March Road, P.O. Box l3600, Kanata, Ontario, Canada,
K2K 2E6 and in the case of notice to the Tenant, to it at the Leased
Premises in the event of a notice of distress and otherwise to it at
600 March Road, P.O. Box l3600, Kanata, Ontario, Canada, K2K 2E6 and
mailed by registered mail, postage prepaid or telefaxed. The time of
giving of such notice shall be conclusively deemed to be, if mailed
the third (3rd) business day after the day of such mailing, if
telefaxed, the next business day following the date sent as evidenced
by the sender's transmittal record. Such notice shall also be
sufficiently given if and when the same shall be delivered, in the
case of notice to the Landlord, to an executive officer of the
Landlord, and in the case of notice to the Tenant, to him personally
or to an executive officer, manager or a person who appears to be in
charge, of the Tenant if the Tenant is a corporation. Such notice, if
delivered, shall be conclusively deemed to have been given and
received at the time of such delivery. If, in this Lease, two or more
persons are named as Tenant, such notice shall also be sufficiently
given if and when the same shall be delivered personally to any one of
such persons. Provided that either party may, by notice to the other,
from time to time, designate another address in Canada to which
notices mailed more than ten (10) days thereafter shall be addressed.
The word "notice" in this paragraph shall include any request, demand,
direction, or statement in this Lease provided or permitted to be
given by the Landlord to the Tenant or by the Tenant to the Landlord.
Page 159
<PAGE>
23.00 SUBORDINATION, POSTPONEMENT, ATTORNMENT
The Tenant shall promptly upon the written request of the Landlord,
enter into an agreement:
(a) subordinating the Term and the rights of the Tenant hereunder to
any mortgage, charge, ground lease, trust deed or debenture
present or future and all renewals, modifications, replacements
or extensions thereof, which may affect the Leased Premises, the
Property, the Lands or the Building;
(b) agreeing that the Term hereof shall be subsequent in priority to
any such mortgage, charge, ground lease, trust deed or
debenture;
provided that the Tenant's obligations under this paragraph shall be
conditional upon any such mortgagee or secured party entering into a
non-disturbance agreement with the Tenant under which the Tenant's
continued possession of the Leased Premises is ensured notwithstanding
any act taken by the mortgagee or secured party.
23.01 TENANT'S RIGHT TO POSSESSION
Notwithstanding any postponement or subordination referred to herein,
the Tenant acknowledges that its obligations under this Lease shall
remain in full force and effect notwithstanding any action at any time
taken by a mortgagee, chargee or ground lessor to enforce the security
of any mortgage charge, ground lease, trust deed or debenture;
provided, however, that any postponement or subordination given
hereunder shall reserve to the Tenant the right to continue in
possession of the Leased Premises under the terms of this Lease so
long as the Tenant shall not be in default hereunder.
23.02 ATTORNMENT BY TENANT
The Tenant, whenever requested by any mortgagee (including any trustee
under a deed of trust and mortgage), chargee or ground lessor, shall
attorn to such mortgagee, chargee or ground lessor as a tenant upon
all the terms of this Lease.
24.00 CERTIFICATE
The Tenant agrees that he will at any time and from time to time upon
not less than five (5) days' prior notice execute and deliver to the
Landlord or any mortgagee of the Lands (including a deed of trust and
mortgage) a statement in writing certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the
modifications and that the same is in full force and effect as
modified), the amount of the Annual Rental then being paid hereunder,
the dates to which the same, by instalments or otherwise, and other
charges hereunder have been paid, and whether or not there is any
existing default on the part of the Landlord of which the Tenant has
notice.
25.00 REGISTRATION
The Tenant covenants and agrees with the Landlord that the Tenant will
not register this Lease in this form in any Registry Office or the
Land Titles Office. If the Tenant desires to make a registration for
the purposes only of giving notice of this Lease, then the parties
hereto shall contemporaneously with the execution of this Lease
execute a
Page 160
<PAGE>
short form thereof solely for the purpose of supporting an
application for registration of notice thereof.
26.00 PLANNING ACT
Where applicable, this Lease shall be subject to the condition that it
is effective only if The Planning Act, 1983, as amended is complied
with. Pending such compliance the Term and any renewal thereof shall
be deemed to be for a total period of one (1) year less than the
maximum lease Term permitted by law without such compliance.
27.00 TRANSFER BY LANDLORD
In the event of a sale, transfer or lease by the Landlord of the
Building, the Lands or a portion thereof containing the Leased
Premises or the assignment by the Landlord of this Lease or any
interest of the Landlord hereunder, the Landlord shall, without
further written agreement, to the extent that such purchaser,
transferee or lessee has become bound by the covenants and obligations
of the Landlord hereunder, be freed, released and relieved of all
liability or obligations under this Lease incurred or arising after
the date of such sale, transfer or lease.
28.00 NO ADVERTISING OF LEASED PREMISES
The Tenant shall not print, publish, post, display or broadcast any
notice or advertisement to the effect that the whole or any part of
the Leased Premises are for rent, and it shall not permit any broker
or other person to do so without the consent in writing of the
Landlord.
29.00 TIME OF ESSENCE
Time shall be of the essence of this Lease.
30.00 LAWS OF ONTARIO
This Lease shall be deemed to have been made in and shall be construed
in accordance with the Laws of the Province of Ontario.
31.00 SEVERABILITY OF COVENANTS
The Landlord and the Tenant agree that all of the provisions of this
Lease are to be construed as covenants and agreements as though the
words importing such covenants and agreements were used in each
separate paragraph hereof. Should any provision or provisions of this
Lease be illegal or not enforceable it or they shall be considered
separate and severable from the Lease and its remaining provisions
shall remain in force and be binding upon the parties hereto as though
the said provision or provisions had never been included.
32.00 HEADINGS
The captions appearing in the margin or the headings contained in this
Lease have been inserted as a matter of convenience and for reference
only and in no way define, limit or enlarge the scope or meaning of
this Lease or of any provision hereof.
Page 161
<PAGE>
33.00 SCHEDULES
The following Schedules attached hereto form part of this Lease:
Schedules: "A", "B", "C", "D", "E" and "F"
34.00 LEASE ENTIRE AGREEMENT
The Tenant acknowledges that there are no covenants, representations,
warranties, agreements or conditions expressed or implied, collateral
or otherwise forming part of or in any way affecting or relating to
this Lease save as expressly set out in this Lease and that this Lease
constitutes the entire agreement between the Landlord and the Tenant
and may not be modified except as herein explicitly provided or except
by subsequent agreement in writing of equal formality hereto executed
by the Landlord and the Tenant.
35.00 INTERPRETATION
IN THIS INDENTURE:
(a) "herein", "hereof", "hereby", "hereunder", "hereto",
"hereinafter", and similar expressions refer to this indenture
and not to any particular paragraph, section or other portion
thereof, unless there is something in the subject matter or
context inconsistent therewith.
(b) "business day(s)" means any of the days from Monday to Friday
of each week inclusive unless such day is a statutory holiday
or public holiday.
(c) "normal business hours" means the hours from 8:00 a.m. to 6:00
p.m. on business days.
36.00 SUCCESSORS
This indenture and everything herein contained shall enure to the
benefit of and be binding upon the respective heirs, executors,
administrators, permitted successors and assigns, of the Tenant and
other legal representatives as the case may be, of each and every of
the parties hereto, and every reference herein to any party hereto
shall include the heirs, executors, administrators, permitted
successors, assigns and other legal representatives of such party, and
where there is more than one tenant or there is a female party or a
corporation, the provisions hereof shall be read with all grammatical
and gender changes thereby rendered necessary and all covenants shall
be deemed joint and several.
Page 162
<PAGE>
37.00 JOINT AND SEVERAL COVENANT
If more than one person executes this Lease as Tenant, each such
person shall be bound jointly and severally with the other(s), waiving
the benefit of division and discussion, for the fulfilment of all of
the obligations of Tenant hereunder.
IN WITNESS WHEREOF the parties hereto have hereunto affixed
their corporate seals duly attested to by the hands of their proper signing
officers authorized in that behalf.
SIGNED, SEALED AND DELIVERED )
in the presence of: ) KANATA RESEARCH PARK
) CORPORATION
)
)
) c/s
) Per: /s/ Bronwen A. Heins
------------------------------------------
) Name: Bronwen A. Heins
) Title: Corporate Secretary
) I have the authority to bind the corporation
)
) NEWBRIDGE NETWORKS
) CORPORATION
)
)
) c/s
) Per: /s/ Donald Mills
---------------------------------------
) Name: Donald Mills
) Title: Vice President, Administration
)
)
) Per: /s/ Peter Nadeau
----------------------------------------
) Name: Peter Nadeau
) Title: Vice President, Legal Services
)
)I/We have the authority to bind the corporation.
Page 163
<PAGE>
SCHEDULE "A"
------------
LEGAL DESCRIPTION
-----------------
Swansea Building - 349 Terry Fox Drive
FIRSTLY: Part of Forced Road, Also being a Quarter Sessions Road, known
locally as Sandhill Road being formerly in the Township of March, now in
the City of Kanata, designated as Parts 20 & 21 on Plan 4R-12934
(Part of PIN 04517-0585)
SECONDLY: Parcel 8-2, Section March 4, Part Lot 8, Concession 4,
designated as Parts 22, 23, 24 and 25 on Plan 4R-12934 (PIN 04517-0469)
THIRDLY: Parcel 2-1, Section 4M-642, Part of Block 2, Registered Plan
4M-642, City of Kanata, designated as Parts 8, 9, 10, 11, 12, 13, 14, 15,
16, 17, 18 & 19 on Plan 4R-12934
Subject to an easement as in Instrument Number LT911185 over the said Parts
16, 17 and 19 on Plan 4R-12934 and
Subject to an easement as in Instrument Number LT623394 over the said Part
10 on Plan 4R-12394
(Part of PIN 04517-0489)
Regional Municipality of Ottawa Carleton, Land Titles Office of Ottawa
Carleton No. 4
Page 164
<PAGE>
SCHEDULE "B"
------------
FLOOR PLAN
----------
Page 165
<PAGE>
SCHEDULE "C"
------------
RULES AND REGULATIONS
---------------------
The Tenant and its invitees and employees shall observe the following rules and
regulations (as added to, amended or modified from time to time by the
Landlord).
1. The sidewalks, entrances, elevators, stairways, passageways, shipping areas
and corridors of the Building shall not be obstructed or used for any other
purpose by the Tenant than for ingress and egress to and from the Leased
Premises; the Tenant shall not place or allow to be placed in such areas or
facilities any waste paper, garbage, refuse or anything that shall tend to
make them appear unclean or untidy.
2. The Tenant and its employees shall use washrooms only for the purpose for
which they were designed and nothing shall be placed in toilets that might
cause them to block.
3. The Tenant shall not make any noise which might disturb other tenants and
no animals or bicycles or other vehicles other than appropriate vehicles
for the Tenant's use shall be brought into the Leased Premises or the
Building.
4. The Leased Premises shall not be used as overnight sleeping accommodation,
for public sales nor for entertaining purposes.
5. The Tenant shall make arrangements with the Landlord ahead of time to
install any machines or equipment which may substantially increase the load
on the electrical systems, installations will not be made until the
Landlord's consent is obtained.
6. Windows will not be left open so as to admit rain or snow.
7. The Tenant will not alter any existing locks nor will any additional locks
or similar devices be attached to any door or window without the Landlord's
written consent.
8. Keys or other devices which are made available to the Tenant for the
purpose of providing access to the exterior doors of the Building shall not
be duplicated and shall be returned to the Landlord immediately upon
termination of the Lease.
9. All adjustments to mechanical equipment such as thermostats, radiators,
diffusers, etc. shall be made by the Landlord's staff and no one else.
10. It shall be the responsibility of the Tenant to prevent any person from
throwing objects out of windows or into the ducts or stairwells of the
Building, and the Tenant shall pay for any cost, damage or injury resulting
from any such acts.
11. The Tenant shall provide adequate receptacles for garbage, refuse and waste
paper and all such garbage, refuse and waste paper shall be placed in such
containers. The Leased Premises shall be kept in a tidy, healthy and clean
condition.
12. The Tenant shall not bring upon the Leased Premises any safes, heavy
equipment, motors or any other thing which might overload floors or damage
the Leased Premises or the Building.
Page 166
<PAGE>
13. The Tenant shall not use or keep inflammable materials in the Leased
Premises.
14. The Landlord shall have the right to establish rules and regulations
governing the use of the parking facilities from time to time and the
Tenant hereby agrees to observe and abide by all such rules and
regulations.
15. Smoking is prohibited in all common areas of the Building.
The foregoing rules and regulations, as from time to time amended, are not
necessarily of uniform application, but may be waived in whole or in part in
respect of other tenants without affecting their enforceability with respect to
the Tenant or the Leased Premises. There is no obligation on the Landlord to
enforce the rules and regulations, and the Landlord shall not be liable by
reason of their non-enforcement.
Page 167
<PAGE>
SCHEDULE "D"
------------
PARKING
-------
1. During the Term the Landlord hereby agrees to allow the Tenant, its
employees, agents and invitees shall park their vehicles in the parking
facilities located on the Lands ("parking facilities").
2. The Landlord shall not be responsible for any theft, loss or damage to the
Tenant's vehicles whatsoever, or for injury to the Tenant or others in the
parking facilities.
3. The Landlord shall have the right to establish rules and regulations
governing the use of the parking facilities from time to time and the
Tenant hereby agrees to observe and abide by all such rules and
regulations.
Page 168
<PAGE>
SCHEDULE "E"
------------
OPTION TO RENEW
---------------
1. Provided the Tenant is in good standing, during the Term has not been in
substantial default under this Lease and has not assigned this Lease or
sublet all or a portion of the Leased Premises, the Tenant shall have and
is hereby granted an option to renew this Lease for a further term of
five (5) years provided that in order to exercise this option, the Tenant
shall be required to give to the Landlord notice of the exercise of such
option in writing not less than six (6) months prior to the date of
expiry of the initial Term.
2. Any renewal pursuant to this proviso shall be on the same terms and
conditions contained in this Lease except:
(a) there shall be no additional right of renewal, and no Leasehold
Improvements;
(b) the Annual Rent payable by the Tenant for such renewal period
shall be in accordance with rates for similar premises in a
similar location and as agreed upon by the Landlord and Tenant and
shall in no event be less than the Annual Rent paid during the
last year of the Term; such agreement to be reached not later than
three (3) months prior to the expiry of the original Term. Failing
such agreement, either party shall submit the matter to
arbitration in accordance with the following terms:
The dispute shall be submitted to a single arbitrator to be
agreed upon by the parties, provided that if a single
arbitrator cannot be agreed upon by the parties hereto within
ten (10) days after the appointment of a single arbitrator has
been requested by one of the parties in writing, then the
dispute shall be referred to a board of three arbitrators, one
to be appointed by each of the Landlord and the Tenant and a
third arbitrator to be appointed by the first two arbitrators
in writing; and if either the Landlord or the Tenant shall
refuse or neglect to appoint an arbitrator within ten (10) days
after the other party shall have appointed an arbitrator and
shall have served a written notice upon the party so refusing
or neglecting to appoint an arbitrator requiring such party to
make such appointment, then the arbitrator first appointed
shall, at the request of the party appointing him, proceed to
hear and determine the dispute as if he were a single
arbitrator appointed by both the Landlord and the Tenant for
that purpose. If two arbitrators are so named within the time
prescribed and they do not agree within a period of ten (10)
days upon the appointment of the third arbitrator, then upon
the application of either the Landlord or the Tenant, the third
arbitrator shall be appointed by a Judge of the Ontario Court
(General Division). The determination which shall be made by
the said arbitrators or a majority of them, or by the single
arbitrator, as the case may be, shall be final and binding upon
the parties hereto and the costs of the arbitration and
remuneration of the third arbitrator, if any, shall be borne
equally between the parties hereto, each of the parties bearing
the remuneration of the arbitrator appointed by it. The
provisions of this paragraph shall be deemed to be submission
to arbitration within the provisions of The Arbitration Act of
----------------------
Ontario and any statutory modification or re-enactment thereof;
-------
provided that any limitation on the remuneration of arbitrators
imposed by such legislation shall not have application to any
arbitration proceeding commenced pursuant to this paragraph.
Page 169
<PAGE>
SCHEDULE "F"
------------
LEASEHOLD IMPROVEMENTS
----------------------
The Landlord shall, construct on behalf of the Tenant and install on a turnkey
basis those leasehold improvements agreed upon by both Landlord and Tenant as
chosen from the Landlord's samples. The turnkey cost shall include the
Landlord's administrative costs which relate to the work. The Tenant shall pay
to the Landlord on or before the commencement of the Term the sum of One Million
Nine Hundred Thousand Dollars ($1,900,000.00) towards the costs of such
leasehold improvements.
Page 170
<PAGE>
DATED the 23rd day of April, 1997.
BETWEEN:
KANATA RESEARCH PARK CORPORATION
OF THE FIRST PART
AND:
NEWBRIDGE NETWORKS CORPORATION
OF THE SECOND PART
- -------------------------------------------------------------------------------
L E A S E
- -------------------------------------------------------------------------------
Prepared by: Bronwen A. Heins
Date Edited:
Disk Reference: Swansea.lse
Page 171
<PAGE>
KANATA RESEARCH PARK CORPORATION
AND
NEWBRIDGE NETWORKS CORPORATION
<TABLE>
<C> <S> <C>
1.00 LEASED PREMISES.........................................................
1.01 ADDITIONAL DEFINITIONS..................................................
2.00 TERM....................................................................
2.01 INABILITY TO GIVE OCCUPANCY.............................................
2.02 EARLY OCCUPANCY.........................................................
2.03 OVERHOLDING.............................................................
3.00 RENT - Basic Rent.......................................................
3.01 MONTHLY RENTAL..........................................................
3.02 ADDITIONAL RENT.........................................................
3.03 ESTIMATED ADDITIONAL RENTALS............................................
3.04 DEFICIENCY OF ADDITIONAL RENT...........................................
3.05 EXCESS OF ADDITIONAL RENTAL INSTALLMENTS................................
3.06 PRO-RATING OF ADDITIONAL RENT...........................................
3.07 PREPAYMENT OF ADDITIONAL RENT...........................................
3.08 DISPUTE AS TO AMOUNT OF ADDITIONAL RENT.................................
3.09 MANNER AND PLACE OF PAYMENT OF RENT.....................................
3.10 DEFAULT.................................................................
3.11 ACCRUAL OF RENT.........................................................
3.12 NET LEASE...............................................................
4.00 TENANT'S BUSINESS TAX...................................................
4.01 LANDLORD'S BUSINESS TAX.................................................
4.02 TAX ON TENANT'S LEASEHOLD IMPROVEMENTS..................................
4.03 PROPERTY TAX............................................................
4.04 ALLOCATION OF TAX.......................................................
4.05 SEPARATE SCHOOL TAXES...................................................
4.06 TAX APPEAL..............................................................
4.07 CAPITAL TAX.............................................................
5.00 OPERATING COSTS.........................................................
5.01 ALLOCATION OF OPERATING COSTS...........................................
5.02 FULL OCCUPANCY..........................................................
5.03 USE OF ELECTRICITY......................................................
5.04 METERS..................................................................
6.00 ASSIGNING OR SUBLETTING.................................................
6.01 REQUEST TO ASSIGN OR SUBLET.............................................
6.02 ASSIGNMENT AGREEMENT....................................................
6.03 CONSENT NOT TO RELEASE TENANT...........................................
6.04 NOTICE OF CHANGE OF CONTROL.............................................
6.05 COST OF CONSENT.........................................................
</TABLE>
Page 172
<PAGE>
<TABLE>
<C> <S> <C>
7.00 TENANT'S COVENANTS......................................................
7.01 TENANT REPAIRS..........................................................
7.02 RULES AND REGULATIONS...................................................
7.03 USE OF PREMISES.........................................................
7.04 INCREASE IN INSURANCE PREMIUMS..........................................
7.05 CANCELLATION OF INSURANCE...............................................
7.06 OBSERVANCE OF LAW.......................................................
7.07 WASTE AND OVERLOADING OF FLOORS.........................................
7.08 INSPECTION..............................................................
7.09 INDEMNITY TO LANDLORD...................................................
7.10 DAMAGE BY TENANT........................................................
7.11 TENANT INSURANCE........................................................
7.12 NO ABATEMENT OF RENT....................................................
7.13 EXHIBITING PREMISES.....................................................
7.14 TENANT MAINTENANCE......................................................
7.15 SIGNS...................................................................
7.16 NAME OF BUILDING........................................................
7.17 KEEP TIDY...............................................................
7.18 DELIVERIES..............................................................
7.19 NOTICE OF DAMAGE........................................................
7.20 ALTERATIONS, ETC........................................................
7.21 CONSTRUCTION LIENS......................................................
7.22 SECURITY................................................................
7.23 HAZARDOUS SUBSTANCES....................................................
7.24 NUISANCE...............................................................
8.00 LANDLORD'S COVENANTS....................................................
8.01 QUIET ENJOYMENT.........................................................
8.02 TAXES, ETC..............................................................
8.03 HEATING AND AIR-CONDITIONING............................................
8.04 REPAIR OF STRUCTURE.....................................................
8.05 DELAYS IN PROVISION OF SERVICES.........................................
9.00 TENANT'S FIXTURES.......................................................
9.01 REMOVAL OF TENANT'S FIXTURES............................................
10.00 DAMAGE OR DESTRUCTION OF LEASED PREMISES...............................
10.01 PARTIAL DAMAGE.........................................................
10.02 TOTAL DAMAGE...........................................................
10.03 OBLIGATION TO REPAIR...................................................
10.04 ABATEMENT OF RENT......................................................
10.05 DAMAGE TO 50% OF BUILDING..............................................
10.06 COMPLETION OF REPAIR...................................................
11.00 LIABILITY FOR DAMAGE TO PROPERTY.......................................
12.00 DEFAULT OF TENANT......................................................
13.00 BANKRUPTCY.............................................................
14.00 RE-ENTRY BY LANDLORD...................................................
15.00 RIGHT OF TERMINATION...................................................
16.00 DISTRESS...............................................................
</TABLE>
Page 173
<PAGE>
<TABLE>
<C> <S> <C>
17.00 NON-WAIVER.............................................................
18.00 CHANGES TO BUILDING....................................................
19.00 SEVERANCE OF LAND......................................................
20.00 COSTS OF COLLECTION....................................................
21.00 PROFITS AND REMEDIES BY LANDLORD.......................................
21.01 PAYMENTS TO THIRD PARTIES..............................................
21.02 NON-PAYMENT OF ADDITIONAL RENT.........................................
21.03 INTEREST ON ARREARS....................................................
22.00 NOTICE.................................................................
23.00 SUBORDINATION, POSTPONEMENT, ATTORNMENT................................
23.01 TENANT'S RIGHT TO POSSESSION...........................................
23.02 ATTORNMENT BY TENANT...................................................
24.00 CERTIFICATE............................................................
25.00 REGISTRATION...........................................................
26.00 PLANNING ACT...........................................................
27.00 TRANSFER BY LANDLORD...................................................
28.00 NO ADVERTISING OF LEASED PREMISES......................................
29.00 TIME OF ESSENCE........................................................
30.00 LAWS OF ONTARIO........................................................
31.00 SEVERABILITY OF COVENANTS..............................................
32.00 HEADINGS...............................................................
33.00 SCHEDULES..............................................................
34.00 LEASE ENTIRE AGREEMENT.................................................
35.00 INTERPRETATION.........................................................
36.00 SUCCESSORS.............................................................
37.00 JOINT AND SEVERAL COVENANT.............................................
</TABLE>
<TABLE>
<S> <C>
SCHEDULE "A".................................................................
- ------------
SCHEDULE "B".................................................................
- -----------
SCHEDULE "C".................................................................
- ------------
SCHEDULE "D".................................................................
- ------------
SCHEDULE "E".................................................................
- ------------
SCHEDULE "F".................................................................
- ------------
</TABLE>
Page 174
<PAGE>
EXHIBIT 10.23
Page 175
<PAGE>
THIS AGREEMENT made the 1st day of October, 1996
BETWEEN:
CROSSKEYS SYSTEMS CORPORATION,
(Hereinafter called the "Sublandlord")
OF THE FIRST PART
AND:
NEWBRIDGE NETWORKS CORPORATION
(Hereinafter called the "Subtenant")
OF THE SECOND PART
AND:
KANATA RESEARCH PARK CORPORATION
(Hereinafter called the "Landlord")
OF THE THIRD PART
SUBLEASE
WHEREAS by written Lease dated the 1st day of May, 1996 (the
"Headlease"), Kanata Research Park Corporation leased to the Sublandlord, all
those premises comprising all of the building known municipally as 350 Terry Fox
Drive, (the "Building") in the City of Kanata as more particularly described in
the Headlease (the "Leased Premises").
AND WHEREAS the Subtenant has agreed to sublet a portion of the Leased
Premises comprising twenty thousand and seven hundred and eighteen (20,718)
usable [twenty-two thousand one hundred and forty-nine (22,149) rentable] square
feet of space on the third (3rd) floor of the Building as shown on the floor
plan attached hereto as Schedule "A" (the Sub-leased Premises") and the
Sublandlord has agreed to grant a sublease (the "Sublease") of the Sub-leased
Premises upon the following terms and conditions.
NOW THEREFORE in consideration of the rents, covenants and conditions
herein reserved and contained, the parties agree as follows:
Page 176
<PAGE>
1. (a) The Sublandlord hereby subleases the Sub-leased Premises
to the Subtenant for a term of one (1) year commencing on the
1st day of October, 1996 and ending on the 30th day of
September, 1997, unless earlier terminated in accordance with
the terms hereof.
(b) The Subtenant shall pay to the Sublandlord as rent for the
Sub-leased Premises, and for the non-exclusive use of the
common areas on the floor of the Building on which the
Sub-leased Premises is located (which common area allocation
is six point nine-one (6.91%) percent ), shall be as follows:
<TABLE>
<CAPTION>
Rental Rate Per Sq. For Sub-leased Common Total Per
------------------ -------------- ------ ---------
Term Ft. Per Annum Premises Area Annum
---- ------------- -------- ---- -----
<S> <C> <C> <C> <C>
1 $11.25 $233,077.50 $16,098.75 $249,176.25
</TABLE>
"Basic Rent" plus Goods and Services Tax, payable in advance
on the first day of each calendar month during the term of the
Sublease. The Subtenant shall pay the Basic Rent.
2. In addition the Subtenant covenants and agrees to pay to the Sublandlord
all Occupancy Costs and Other Costs as defined in the Headlease on a
proportionate share basis.
3. The Subtenant's proportionate share shall be that fraction the numerator of
which is the usable area of the Sub-leased Premises and the denominator of
which shall be the usable area of the Building expressed as a percentage
("Proportionate Share"). Calculated in accordance with the foregoing the
Subtenants Proportionate Share is twenty-four point zero eight (24.08%)
percent.
4. Until otherwise notified by the Sublandlord the Subtenant shall make all of
its rent payments directly to the Headlandlord in the same manner and
pursuant to the same covenants and obligations as set out in the Headlease,
however, such direct payment shall in no way derogate from the
Sublandlord's covenants and obligations under the Lease.
5. The Subtenant covenants with the Sublandlord as follows:
(a) To pay rent as aforesaid.
(b) To use the Sub-leased Premises only for offices only.
(c) The Subtenant agrees that this Sublease shall be deemed to contain
all the provisions of the Lease except those which are inconsistent
with the provisions of this Sublease as though they were set forth
and contained in this Sublease and all references to "Landlord" and
"Tenant" shall read, "Sublandlord" and "Subtenant".
Page 177
<PAGE>
(d) The Subtenant covenants and agrees with the Sublandlord that it
shall be bound by and shall fulfil all of the obligations of the
Sublandlord under the Lease as if it had been named "Tenant"
thereunder, save and except for the amounts of rent payable which
shall be as set out herein.
(e) In its use of the Sub-leased Premises, wherever under the Headlease
a consent of the Landlord would be required, to obtain the consent
of the Sublandlord, and where appropriate, the Landlord.
(f) To indemnify and save harmless the Sublandlord from any and all
claims made against the Sublandlord by the Landlord or others as a
result of a contravention by the Subtenant of his covenants herein
contained.
(g) Not to assign the Sublease or sublet any part of the Sub-leased
Premises without the prior written consent of the Sublandlord and
Landlord, such consent to be subject to the same terms and
conditions as contained in the Headlease.
(h) The Subtenant agrees to accept the Sub-leased Premises in their
current condition.
(i) The Subtenant covenants that it has received and reviewed the
Headlease.
6. The Sublandlord covenants and agrees with the Subtenant:
(a) To pay the Annual Rent and the Occupancy Costs and Other Costs
reserved by the Headlease and to perform and observe the covenants
on the Sublandlord's part under the Headlease, so far as such
covenants are not required to be performed and preserved by the
Subtenant, and at all times to keep the Subtenant indemnified
against all actions, expenses, claims and demands on account of the
non-performance by the Sublandlord of its obligations.
(b) For quiet enjoyment.
(c) That it will not amend or surrender the Headlease during the
term of this Sublease.
7. The Landlord hereby consents to this Sublease, it being understood that the
Landlord in granting this consent does not thereby acknowledge or approve
of or agree to be bound by any of the terms of the Sublease as between the
Subtenant and the Sublandlord save for the direct payment of the rent by
the Subtenant to it. It is understood and agreed by the parties that
notwithstanding such direct payment the Sublandlord shall remain liable for
all payments of rent as set out in the Headlease directly to the Landlord
on the dates specified therein it being the responsibility of the
Sublandlord to ensure that the Subtenant makes all payments. The Landlord
shall be under no obligation to notify the Sublandlord that the Subtenant
is in default of its payment(s) and any such default shall be
Page 178
<PAGE>
deemed to be a default of the Sublandlord pursuant to the provisions of the
Headlease.
8. Time shall be of the essence of this Sublease.
9. This Sublease shall be deemed to have been made and shall be construed in
accordance with the laws of the Province of Ontario.
10. The Sublandlord and the Subtenant agree that all of the provisions of the
Sublease are to be construed as covenants and agreements as though the
words importing such covenants and agreements were used in each separate
paragraph hereof. Should any provision or provisions of this Sublease be
illegal or not enforceable, it or they shall be considered separate and
severable from the Sublease and its remaining provisions shall remain in
force and be binding upon the parties hereto as though the said provision
had never been included.
11. The Sublandlord and Subtenant agree that there are no covenants,
representation, agreements, warranties or conditions in any way relating to
the subject matter of this Sublet whether express or implies, collateral or
otherwise, except those set forth in this Sublease.
12. The Sublandlord and the Subtenant agree that this Sublease constitutes
the entire agreement between the Sublandlord and executed by the Subtenant
and the Sublandlord.
Page 179
<PAGE>
THIS Sublease shall enure to the benefit of and be binding upon the
Sublandlord and the Subtenant, their respective heirs, executors,
administrators, successors and permitted assigns.
IN WITNESS WHEREOF the parties hereto have hereunto affixed their
corporate seals duly attested to by the hands of their proper signing officers
authorised in that behalf.
SIGNED, SEALED AND DELIVERED )
in the presence of: ) SUBLANDLORD:
) CROSSKEYS SYSTEMS
) CORPORATION
)
)
)
) Per: /s/ John Selwyn
-----------------------------
) Name: John Selwyn c/s
) Title: Chief Executive Officer
)
)
) SUBTENANT:
) NEWBRIDGE NETWORKS
) CORPORATION
)
) Per: /s/ Kenneth B. Wigglesworth
-----------------------------
) Name: Kenneth B. Wigglesworth c/s
) Title: Vice President, Finance,
Chief Financial Officer
)
)
)
) LANDLORD:
) KANATA RESEARCH PARK
) CORPORATION
)
)
) Per: /s/ Bronwen A. Heins
-----------------------------
) Name: Bronwen A. Heins c/s
) Title: Corporate Secretary
)
Page 180
<PAGE>
SCHEDULE "A"
Floor Plan
----------
DATED the 1st day of October, 1996.
================================================================================
BETWEEN:
CROSSKEYS SYSTEMS CORPORATION
OF THE FIRST PART
AND:
NEWBRIDGE NETWORKS CORPORATION
OF THE SECOND PART
================================================================================
SUBLEASE
================================================================================
Prepared by: BRONWEN A. HEINS
Edit Date:
Disk Reference: X-KEYS\SUBLEASE.AGT \NEWBRIDGE
Page 181
<PAGE>
Exhibit 11.1
NEWBRIDGE NETWORKS CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Accounting principles generally accepted in Canada)
(Canadian dollars, amounts in thousands except per share data)
<TABLE>
<CAPTION>
for the fiscal quarter ended for the fiscal year ended
---------------------------- -------------------------
Jul 28, Oct 27, Jan 26, Apr 30, Apr 30, Apr 30, Apr 30,
1996 1996 1997 1997 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Net earnings $60,801 $62,781 $63,031 $(29,696) $156,917 $202,864 $188,390
====== ====== ====== ====== ======= ======= =======
Common Shares outstanding
at the beginning of the period 168,676 169,754 170,741 171,279 168,676 164,515 161,565
Weighted average number of Common
Shares issued during the period 552 478 200 422 1,834 1,327 1,326
------- ------- ------- ------- ------- ------- -------
Weighted average number of Common
Shares outstanding at the end
of the period 169,228 170,232 170,941 171,701 170,510 165,842 162,891
======= ======= ======= ======= ======= ======= =======
Basic earnings per share 36(c) 37(c) 37(c) (17)(c) 92(c) $1.22 $1.16
== == == == == ==== ====
Fully diluted earnings per share
Earnings before imputed earnings $60,801 $62,781 $63,031 $(29,696) $156,917 $202,864 $188,390
After tax imputed earnings from the
investment of funds received
through dilution 2,883 2,715 2,693 3,298 11,589 10,470 6,812
------ ------ ------ ------- ------- ------- -------
Adjusted net earnings $63,684 $65,496 $65,724 $(26,398) $168,506 $213,334 $195,202
====== ====== ====== ======= ======= ======= =======
Weighted average number of
Common Shares outstanding
at the end of the period 169,228 170,232 170,941 171,701 170,510 165,842 162,891
equivalents based on conversion of
outstanding stock options 18,482 13,899 14,096 15,755 14,085 13,823 12,932
------- ------- ------- ------- ------- ------- -------
Weighted average number of Common
Shares and equivalents outstanding
at the end of the period 181,710 184,131 185,037 187,456 184,595 179,665 175,823
======= ======= ======= ======= ======= ======= =======
Fully diluted earnings per share 35(c) 36(c) 36(c) (17)(c) 91(c) $1.19 $1.11
== == == == == ==== ====
Earnings per share expressed in U.S. dollars
Daily average exchange rate of a Canadian
dollar for U.S. dollars as reported by
the Federal Reserve Bank of New York $0.7309 $0.7322 $0.7406 $0.7284 $0.7344 $0.7345 $0.7248
Basic earnings (loss) per share, in U.S. dollars 26(c) 27(c) 27(c) (13)(c) 68(c) 90(c) 84(c)
Fully diluted earnings (loss) per
share, in U.S. dollars 26(c) 26(c) 26(c) (13)(c) 67(c) 87(c) 80(c)
</TABLE>
Page 182
<PAGE>
Exhibit 11.2
NEWBRIDGE NETWORKS CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Accounting principles generally accepted in the United States)
(Canadian dollars, amounts in thousands except per share data)
<TABLE>
<CAPTION>
for the fiscal quarter ended for the fiscal year ended
---------------------------- -------------------------
Jul 28, Oct 27, Jan 26, Apr 30, Apr 30, Apr 30, Apr 30,
1996 1996 1997 1997 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings per share (U.S. GAAP - Primary)
Net earnings $60,801 $62,781 $(33,909) $67,244 $156,917 $202,864 $188,390
====== ====== ====== ====== ======= ======= =======
Weighted average number of
Common Shares outstanding
at the end of the period 169,228 170,232 170,941 171,701 170,510 165,842 162,891
Net effect of dilutive stock options and
shares to be issued in settlement of
litigation, based on the treasury stock
method 5,702 4,515 -- 4,853 4,015 5,148 3,755
------- ------- ------- ------- ------- ------- -------
Weighted average number of Common
Shares outstanding at the end of the
period as adjusted 174,930 174,747 170,941 176,554 174,525 170,990 166,646
======= ======= ======= ======= ======= ======= =======
Earnings per share (U.S. GAAP) 35(c) 36(c) (20)(c) 38(c) 90(c) $1.19 $1.13
== == == == == ==== ====
Earnings per share (U.S. GAAP - Fully Diluted)
Net earnings $60,801 $62,781 $(33,909) $67,244 $156,917 $202,864 $188,390
====== ====== ====== ====== ======= ======= =======
Weighted average number of
Common Shares outstanding
at the end of the period 169,228 170,232 170,941 171,701 170,510 165,842 162,891
Net effect of dilutive stock options and
shares to be issued in settlement of
litigation, based on the treasury stock
method 5,702 4,515 -- 4,853 4,015 6,938 3,755
------- ------- ------- ------- ------- ------- -------
Weighted average number of Common
Shares outstanding at the end of the
period as adjusted 174,930 174,747 170,941 176,554 174,525 172,780 166,646
======= ======= ======= ======= ======= ======= =======
Earnings per share (U.S. GAAP) 35(c) 36(c) (20)(c) 38(c) 90(c) $1.17 $1.13
== == == == == ==== ====
Earnings per share expressed in U.S. dollars
Daily average exchange rate of a Canadian
dollar for U.S. dollars as reported by
the Federal Reserve Bank of New York $0.7309 $0.7322 $0.7406 $0.7284 $0.7344 $0.7345 $0.7248
Primary earnings (loss) per share, in U.S.
dollars 25(c) 26(c) (15)(c) 28(c) 66(c) 87(c) 82(c)
Fully diluted earnings (loss) per
share, in U.S. dollars 25(c) 26(c) (15)(c) 28(c) 66(c) 86(c) 82(c)
</TABLE>
Page 183
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF NEWBRIDGE NETWORKS CORPORATION
The names of certain other subsidiaries, which considered in the aggregate would
not constitute a significant subsidiary, have been omitted.
<TABLE>
<CAPTION>
Jurisdiction
Name of of Incorporation
Subsidiary or Organization
- ---------- ---------------
<S> <C>
Newbridge Networks Inc. Delaware
Newbridge Networks Limited England and Wales
Newbridge Networks (Asia) Limited Hong Kong
Advanced Computer Communications California
Transistemas S.A. Argentina
Newbridge Networks Telecomunicacoes Ltda. Brazil
Newbridge Networks de Mexico, S.A. de C.V. Mexico
Newbridge Networks S.A. France
Ouest Standard Telematique, S.A. France
Newbridge Networks (Middle East) WLL Bahrain
Newbridge Networks Japan KK Japan
Newbridge Networks Australia (Pty.) Limited Australia
Newbridge Networks Korea Ltd. Korea
Newbridge Networks Venezuela, S.A. Venezuela
Newbridge Networks GmbH Germany
Newbridge Networks Ireland Ltd. Ireland
Newbridge Networks (Pty) Ltd South Africa
Newbridge Networks International Corporation Barbados
Newbridge (Barbados) Corporation Barbados
Newbridge Networks S.p.A. Italy
Newbridge Networks GmbH (Austria) Austria
Coasin Chile S.A. Chile
Acacia Limited Barbados
Newbridge Networks (APL) L. BHD Malaysia
Danring A/S Denmark
</TABLE>
Page 184
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Newbridge Networks Corporation (the "Company") on Form S-8 (File Nos. 33-51538,
33-55964, 33-68710, 33-78276, 33-89624, 33-97472, 333-2446, and 333-30777) of
our report dated June 2, 1997 (June 24, 1997 for Note 18), included herein, on
our audit of the consolidated financial statements of the Company, which are
included in this Annual Report on Form 10-K dated July 14, 1997, as included in
Item 8 herein.
/s/ Deloitte and Touche
Deloitte & Touche
Chartered Accountants
July 14, 1997
Ottawa, Canada
Page 185
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet, consolidated statement of earnings and consolidated
statement of cash flows included in the Company's Form 10-K for the period
ending April 30, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<EXCHANGE-RATE> 0.7319
<CASH> 197,007
<SECURITIES> 136,897
<RECEIVABLES> 397,910
<ALLOWANCES> 10,572
<INVENTORY> 159,495
<CURRENT-ASSETS> 944,928
<PP&E> 622,949
<DEPRECIATION> 328,010
<TOTAL-ASSETS> 1,496,703
<CURRENT-LIABILITIES> 306,536
<BONDS> 0
0
0
<COMMON> 351,388
<OTHER-SE> 775,111
<TOTAL-LIABILITY-AND-EQUITY> 1,496,703
<SALES> 1,376,727
<TOTAL-REVENUES> 0
<CGS> 507,588
<TOTAL-COSTS> 1,105,964
<OTHER-EXPENSES> 9,615
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,351
<INCOME-PRETAX> 279,753
<INCOME-TAX> 117,718
<INCOME-CONTINUING> 156,917
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156,917
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.90
</TABLE>
<PAGE>
EXHIBIT 99
Page 187
<PAGE>
STATEMENT OF EXECUTIVE COMPENSATION
Composition of the Employee Compensation Committee
The Employee Compensation Committee of the Board of Directors (the "Committee")
is comprised of three directors of the Corporation who are neither officers nor
employees of the Corporation or its subsidiaries. The members of the Committee
are Mr. Kent Plumley, the Chairman of the Committee, Dr. Denzil Doyle and Mr.
Daniel Rusheleau.
As established by the Board of Directors, the terms of reference for the
Committee include overall review of current compensation policies and processes
to ensure that (i) the Chief Executive Officer and the other Executive Officers
are fairly and competitively compensated; (ii) human resources development,
succession planning and performance evaluation programs are established and
operating effectively throughout the Corporation and (iii) the Corporation's
Consolidated Key Employee Stock Option Plan (the "Consolidated Plan") is
properly administered.
Report on Executive Compensation
The establishment of salary levels for the executive officers of the Corporation
is the responsibility of the Chairman and Chief Executive Officer, together with
the President and Chief Operating Officer in the case of those Executive
Officers reporting to him; all are subject to review by the Committee. Salaries
are reviewed annually and are based on individual performance against specific
goals or overall accomplishment, the extent of individual responsibility and
comparisons with salaries paid in the industry. On occasion a bonus may be
awarded to an individual Executive Officer in recognition of a specific
achievement.
A significant component of Executive Compensation consists of grants of stock
options under the Consolidated Key Employee Stock Option Plan (the "Consolidated
Plan"). Options are granted primarily based on the extent of individual
responsibility and performance and on occasion are granted to attract new
executives and to recognize job promotions. While the cash compensation of
executives is generally believed to be below industry norms in relation to the
size and profitability of the Corporation, stock options provide a substantial
connection between the total long term remuneration of Executive Officers and
corporate performance as reflected in the market value of the Corporation's
Common Shares, as well as to directly align the interests of Executive Officers
with those of the shareholders.
Options vest after one year and have a maximum term of five years from the date
of grant. Shareholders will be asked to approve certain amendments to the
Consolidated Plan including amendments to the vesting period (see heading
"Resolution No. 1 - Amendment to Newbridge Networks Corporation Consolidated Key
Employee Stock Option Plan" below). The exercise price is equal to the average
of the average of the daily high and low board lot trading prices on The Toronto
Stock Exchange for the five days preceding the date of grant. The value of the
options granted to Executive Officers depends on the market price of the Common
Shares of the Corporation. Options are not transferable and may be exercised
only for so long as the optionholder remains an employee subject to certain
exceptions such as death, disability or retirement. When an option is exercised,
the Common Shares must be paid for in full.
The Corporation implemented the Newbridge Group Retirement Savings Plan/Deferred
Profit Sharing Plan effective January 1, 1997 (the "Group Plan"). Full-time and
permanent part-time employees of the Corporation in Canada are eligible to
participate in the Group Plan. Employees may contribute a percentage of annual
earnings (within the limits prescribed by current Canadian income tax
legislation) and the Corporation will, on a matching basis, contribute an amount
equal to 50% of the employees contribution, up to a maximum amount equal to 5%
of annual salary, into a deferred profit sharing plan. The Group Plan requires
two years of membership from the date of enrollment before the contributions
made by the Corporation vest to an employee.
The Board of Directors established the level of compensation to be paid to the
Chairman and Chief Executive Officer (the "CEO") in 1991 at an amount considered
to be reasonable, fair and equitable. Although the compensation of the CEO has
been reviewed since that time, the CEO has declined to receive any increase in
his annual cash compensation or stock options under either the Consolidated Plan
or its predecessor plans.
The foregoing has been furnished by the members of the Employee Compensation
Committee of the Board of Directors: Mr. Kent Plumley (Chairman) Dr. Denzil
Doyle, Mr. Daniel Rusheleau.
Page 188
<PAGE>
Summary Compensation Table
The following table states the compensation paid for each of the Corporation's
three most recently completed financial years to the Chief Executive Officer and
the next four most highly compensated Executive Officers (the "Named Executive
Officers") during the fiscal year ended April 30, 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
-------------------------------------- ------------ All
Name and Principal Fiscal All Other Securities Under Other
Position Year Salary Bonus Compensation/(1)/ Options Granted/(2)/ Compensation
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Terence H. Matthews /(3)/ 1997 $175,790 -- $22,584 -- --
Chairman of the Board 1996 $149,791 -- $47,105 -- --
& CEO 1995 $148,800 -- $49,878 -- --
Peter Sommerer 1997 $209,511 -- $7,043 70,000 --
Vice Chairman of the 1996 $211,147 -- $3,472 40,000 --
Board 1995 $194,372 -- $3,342 20,000 --
F. Michael Pascoe 1997 $231,880 -- $13,525 20,000 $31,814/(5)/
Executive Vice President 1996 $231,438 -- $9,400 42,000 $16,869/(5)/
and General Manager 1995 $234,872 -- $9,443 12,000 $30,444/(5)/
Americas Region
John Everard 1997 $258,875 -- $29,860 40,000 $20,710/(4)/
Executive Vice President 1996 $237,574 -- $27,902 12,000 $19,006/(4)/
and General Manager 1995 $215,987 -- $21,395 10,000 $13,291/(4)/
European Region
Scott Marshall 1997 $202,413 -- $10,063 20,000 --
Executive Vice President 1996 $135,243 -- $6,308 96,000 --
Research & Development 1995 $136,270 -- $6,279 16,000 --
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Except as specifically disclosed, the value of each Named Executive
Officer's perquisites and other benefits was less than the lesser of (i)
$50,000 and (ii) 10% of such officer's total annual salary and bonus. The
amounts paid under "All Other Compensation" to Mr. Matthews, Mr. Sommerer,
Mr. Pascoe, Mr. Marshall and Mr. Everard principally represent payments
for automobile leases unless otherwise indicated.
(2) During the fiscal year ended on April 30, 1997, the Board of Directors
declared a two-for-one stock split effected in the form of a 100% stock
dividend. The numbers shown in the table for previous years have been
adjusted to reflect the stock split. Each option entitles the holder to
acquire the indicated number of Common Shares. Particulars of stock
options are provided under the heading "Stock Options".
(3) Terence H. Matthews' compensation is paid by means of a management fee to
a company which is controlled by Mr. Matthews.
(4) Amounts paid to Mr. Everard under "All Other Compensation" represent
contributions paid into a Retirement Benefit Plan on Mr. Everard's behalf,
which Plan is available to all employees of the Corporation's United
Kingdom subsidiary. Under the Plan the employer contributed 8% of the
Executive Officer's pensionable earnings. Benefits payable upon retirement
under the Plan are derived from a pension annuity policy purchased from an
insurance company.
Page 189
<PAGE>
(5) Amounts paid to Mr. Pascoe under "All Other Compensation" represent, in
part, the Corporation's share of contributions paid into a 401(k)
retirement benefit plan on Mr. Pascoe's behalf, which plan is available to
all employees of the United States subsidiary. Under the plan, the
employer contributed 50% of the first 6% of the employees base salary
contributed to the plan. The balance of the amount disclosed under "All
Other Compensation" represents employer contributions paid for health and
disability insurance. [In 1995, the amount disclosed under "All Other
Compensation" includes relocation benefits paid to Mr. Pascoe.
Stock Options
The following table provides details of grants of options to purchase Common
Shares of the Corporation to each of the Named Executive Officers during the
fiscal year ended April 30, 1997:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Securities % of Total Exercise Market Value Expiration
Name Under Options Granted Price of Securities Date
Options to Employees in per Underlying
Granted Financial Year Security Options on
Date of Grant
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Terence H. Matthews -- -- -- -- --
Peter Sommerer 20,000 .281% $30.18 $30.18 July 26/00
50,000 .704% $38.86 $38.86 Jan. 6/02
F. Michael Pascoe 20,000 .281% $30.18 $30.18 July 26/00
John Everard 40,000 .563% $30.18 $30.18 July 26/00
Scott Marshall 20,000 .281% $30.18 $30.18 Jan. 6/02
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 190
<PAGE>
The following table provides details of exercises of stock options by each of
the Named Executive Officers during the fiscal year ended April 30, 1997 and the
fiscal year end value of unexercised stock options based on the closing price of
$44.60 per Common Share on April 30, 1997:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Securities Aggregate Unexercised Value of
Acquired Value Options Unexercised
Name on Exercise Realized Exercisable(E) in-the-Money
Unexercisable(U) Options
Exercisable [E]
Unexercisable [U]
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Terence H. Matthews -- -- -- --
Peter Sommerer 132,000 $3,805,920 [E] 59,996 [E] $1,143,185
[U] 120,004 [U] $1,856,899
F. Michael Pascoe - - [E] 35,332 [E] $844,707
[U] 58,668 [U] $1,232,832
John Everard 10,666 $232,476 [E] 2 [E] $49
[U] 54,668 [U] $928,303
Scott Marshall 92,000 $2,744,385 [E] 42,664 [E] $841,162
[U] 89,336 [U] $1,438,757
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Compensation of Directors
Non-employee directors of the Corporation ("Director Participants") receive an
option to purchase 10,000 Common Shares under the Consolidated Plan on the date
of each annual meeting of shareholders at which such director is elected to the
Board of Directors. A Director Participant who is appointed to the Audit
Committee, the Employee Compensation Committee, the Directors' Affairs Committee
or any future committee established by the Board of Directors and declared by
the Board of Directors to be a standing committee ("Standing Committee"), other
than as Chair of such Standing Committee, receives an option to purchase 2,000
Common Shares upon annual appointment to a Standing Committee. A Director
Participant who is appointed Chair of a Standing Committee receives an option to
purchase 4,000 Common Shares upon annual appointment as Chair. Directors are
entitled to reimbursement of all expenses for attendance at Board and Standing
Committee meetings. Directors do not receive a fee for attendance at meetings of
the Board of Directors or Committees thereof. During the fiscal year ended April
30, 1997 Director Participants as a group received options to purchase 277,000
Common Shares at a weighted average exercise price of $38.06 per share. During
the fiscal year ended April 30, 1997, Director Participants as a group exercised
options to purchase 257,998 Common Shares. The aggregate market value of these
Common Shares as at the respective dates of purchase, less the exercise price,
was $1,809,500. As at June 12, 1997, 12 Director Participants held options to
purchase 672,670 Common Shares.
Directors' and Officers' Liability Insurance
The Corporation maintains Directors' and Officers' Liability Insurance in the
amount of US$15,000,000 for the benefit of the directors and officers of the
Corporation and its subsidiaries. During the fiscal year ended April 30, 1997,
the amount of premium paid under the policy was US$1,041,021 which covers a 3
year period from November 1, 1996 to November 1, 1999. No portion of the premium
was paid by the directors and officers of the Corporation. The policy provides
for a retention of US$1 million for each loss claimed by the Corporation. The
by-laws of the Corporation generally provide that the Corporation shall
indemnify a director or officer of the Corporation against liability incurred in
such capacity including acting at the Corporation's request as director or
officer of another corporation, to the extent permitted or required by the CBCA.
Performance Graph
The following graph compares the cumulative return on $100 invested in Common
Shares of the Corporation with selected indices, assuming reinvestment of all
dividends. The Corporation's management consistently cautions that
Page 191
<PAGE>
the stock price performance shown in the graph below should not be considered
indicative of potential future share price performance.
Comparison of Cumulative Total Return Among Newbridge, NYSE Composite Index,
Pacific Stock Exchange Technology Index and TSE 300 Index for the period May 1,
1992 to April 30, 1997
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
April '92 April '93 April '94 April '95 April '96 April '97
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Newbridge $100 $455 $812 $493 $1,024 $1,042
- -------------------------------------------------------------------------------------------------------------------
Pacific Stock $100 $111 $139 $190 $264 $298
Exchange
Technology Index
- -------------------------------------------------------------------------------------------------------------------
NYSE Composite $100 $107 $110 $121 $154 $183
- -------------------------------------------------------------------------------------------------------------------
TSE 300 Index $100 $113 $127 $128 $156 $178
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest of Insiders in Material Transactions
The Corporation leases facilities in Canada and the United Kingdom from
companies controlled by Terence H. Matthews, Chairman of the Board and Chief
Executive Officer and the largest shareholder of the Corporation, under terms
and conditions reflecting prevailing market conditions at the time the leases
were entered into. Approximately 343,000 square feet has been leased for various
terms expiring between September 1997 and May 2002 at rates between $9.25 and
$14.00 per square foot (approximately $3,200,000 per year). During the fiscal
year ended April 30, 1996 the Corporation purchased a facility from a company
controlled by Mr. Matthews for its fair market value of $5,244,000.
During the fiscal year ended April 30, 1997, the Corporation paid $2,621,000 for
research and development services from associated companies under usual trade
terms and conditions (fiscal 1996 -- $507,000). The Corporation also purchased
$8,597,000 of equipment and software from associated companies under usual trade
terms, generally for resale (fiscal 1996 -- $7,442,000). The Corporation sold
$20,559,000 of equipment and software to associated
Page 192
<PAGE>
companies under usual trade terms, generally for resale (fiscal 1996 --
$1,207,000). The Corporation has equity interests in these associated companies
ranging from 22% to 39% and is represented on the boards of directors of these
companies.
During the fiscal year ended April 30, 1997, the Corporation purchased
approximately $3,393,000 of equipment under usual trade terms and conditions
from companies in which the Corporation has no equity interest, but for which
certain directors of the Corporation served as chief executive officer and as a
director and from corporations for which Terence H. Matthews served as a
director (fiscal 1996 -- $944,000).
During the fiscal year ended April 30, 1996, the Corporation performed
subcontracted research and development under agreements between the Corporation
and corporations controlled by three directors of the Corporation. Subcontracted
research and development under these agreements totalled $3,200,000 for fiscal
1996 (fiscal 1995 -- $4,900,000) and is accounted for as a recovery of gross
research and development costs. The period covered by the subcontracted research
and development agreements ended in the third quarter of fiscal 1996. The
Corporation will pay a net royalty between 2% and 10%, depending on the level of
cumulative royalties paid, on all sales of products developed.
Certain officers and directors of the Corporation and members of their immediate
families own Common Shares in entities in which the Corporation also owns Common
Shares.
The Corporation has a policy that all transactions between the Corporation and
it's officers, directors, principal shareholders or their affiliates, including
the extension of any credit, will be on terms no less favourable to the
Corporation than could be obtained from unrelated third parties and will be
approved by a majority of the Board of Directors and a majority of the
Corporation's disinterested directors.
Page 193
