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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 May 2, 1999
Commission file number 1-13316
Newbridge Networks Corporation
(Exact name of registrant as specified in its charter)
Canada 98-0077506
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
600 March Road, Kanata, Ontario, Canada K2K 2E6
(Address of principal (Zip Code)
executive offices)
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 17, 1999 the aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately Cdn$5,600,944,000. The number of
common shares of the registrant outstanding as at June 17, 1999 was 180,427,602.
Exhibit index begins on Page 85
Page 1 of 231
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EXCHANGE RATES
Financial information herein is expressed in Canadian dollars ($ 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 May 2, 1999, 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
-----------------------------------------------------
May 2, April 30, April 30, April 30, April 30,
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
High US$0.6982 US$0.7317 US$0.7513 US$0.7527 US$0.7457
Low 0.6341 0.6832 0.7145 0.7224 0.7023
Average 0.6619 0.7099 0.7319 0.7345 0.7248
Period End 0.6860 0.6992 0.7158 0.7345 0.7355
</TABLE>
On June 17, 1999, 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$1.4610
(equivalent to US$0.6845 = Cdn$1.00).
____________________________________
The following trademarks are mentioned in this Report on Form 10-K:
Newbridge(R), MainStreetXpress(TM) and MainStreet(R) which are trademarks
of Newbridge Networks Corporation.
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NEWBRIDGE NETWORKS CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I
<S> <C>
Item 1. Business
General....................................................... 4
Networking Industry........................................... 4
Business Strategy............................................. 6
Products...................................................... 7
Research and Product Development.............................. 8
Sales, Marketing and Distribution............................. 9
Customer Service and Support.................................. 10
Manufacturing................................................. 10
Competition................................................... 11
Government Regulation......................................... 11
Proprietary Rights............................................ 12
Employees..................................................... 12
Item 2. Properties..................................................... 12
Item 3. Legal Proceedings.............................................. 13
Item 4. Submission of Matters to a Vote of Security Holders............ 13
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
Common Share Price Range and Dividends........................ 14
Cautionary Statement Regarding Forward-Looking Information.... 15
Certain Tax Considerations.................................... 20
Item 6. Selected Financial Data........................................ 21
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..... 41
Item 8. Financial Statements and Supplementary Data.................... 43
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................ 74
PART III
Item 10. Directors and Executive Officers of the Registrant............. 75
Item 11. Executive Compensation......................................... 78
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................ 78
Item 13. Certain Relationships and Related Transactions................. 79
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K....................................... 80
SIGNATURES............................................................... 83
</TABLE>
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PART I
Item 1. BUSINESS
GENERAL
Newbridge Networks Corporation (the "Company" or "Newbridge") designs,
manufactures, markets and services networking solutions to customers in more
than 100 countries. Newbridge customers include the world's 350 largest service
providers and more than 10,000 corporations, government organizations and other
institutions. The Company was incorporated in June 1986 in Ontario under the
Canada Business Corporations Act.
NETWORKING INDUSTRY
Communications networks may be broadly categorized as local area networks (LANs)
and wide area networks (WANs). As the term suggests, LANs typically cover a
smaller geographic footprint, such as an office floor, a building, or an
enterprise campus, and normally serve the needs of a single corporate user.
WANs, on the other hand cover a broader geographic area in a hierarchical
fashion; for example, a metropolitan area network will connect to a pan-national
network which, in turn, links to a global WAN infrastructure.
Today's communications networks are experiencing unprecedented change, driven by
two principal factors: the Internet and convergence of data, voice and video
traffic. These changes require an overhaul to the existing global public
telecommunications infrastructure as discussed below.
The Internet
The Internet is changing the way we work and live. Internet traffic has been
growing at an exponential rate over the last number of years and this
extraordinary growth has forced service providers and Internet Service Providers
(ISPs) to build their network infrastructures at an unprecedented rate.
The growth in Internet traffic is being driven by a number of factors. As its
value as an information pool and communications/business resource continues to
increase, more and more individuals and companies are going on line.
Additionally, the growing use of the multimedia capabilities of the World Wide
Web has increased the amount of data that needs to be transmitted for the
typical Web page. Multimedia is defined as the combination of multiple media
forms of information. While formats vary and will continue to evolve, they
typically involve elements such as voice, text, graphics, image, video, and
audio. Combinations of these media provide powerful communications tools, but
they are not tolerant of the quality impairing delays associated with "best
effort" Internet protocol (IP) networks based on legacy router technology. Such
next-generation high-bandwidth applications are driving the need for networks
that deliver greater capacity and scalability, performance, quality, and
reliability.
Convergence of Data, Voice and Video Traffic
As the Internet continues to grow in terms of its capabilities, reach and
capacity, the amount of data traffic on the public telecommunications network,
or public switched telephone network (PSTN), as it is known as, now exceeds the
total amount of voice traffic in a growing number of countries throughout the
world. At current growth rates, this will be the case on a global basis
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within a few years. This phenomenon, together with the convergence of traffic
types encompassing combinations of voice, video and various forms of data into
multimedia communications packages, and the growth of voice over IP (VoIP),
voice over frame relay (VoFR), voice over asynchronous transfer mode (VoATM), is
leading network engineers with the service providers to plan and design so
called "next generation networks" (NGNs) to handle voice, data, and video
traffic over a single, unifying, broadband multiservice infrastructure.
This converged network infrastructure involves the migration from a highly
centralized, narrowband circuit-switched architecture to a distributed
architecture where the call control and advanced intelligent network (AIN)
functionality reside on intelligent call and service control servers. The
relatively inflexible narrowband circuit switches are being replaced by flexible
broadband packet/cell switches distributed throughout the network. This
transition will occur in stages, with long distance toll or tandem Class 4
switches being the first to migrate, followed by the local or end Class 5
switching centers.
Higher Capacity Backbones
Both traffic carrying requirements and capacity are increasing at every point in
the network hierarchy. Higher bandwidth traffic and capacity within LANs puts
greater capacity pressure on what has traditionally been the first point of
constriction or bottleneck within the public or wide area network, namely the
access portion of the network. New, broadband access technologies, such as cable
modems, various high speed digital subscriber loop technologies (such as ADSL
and SDSL) and broadband wireless access based on LMDS (local multipoint
distribution system) are breaking down the access or "last mile" roadblock.
This, in turn, is putting increasing pressure on the backbone or core of the
network. Where DS-3 (45 Mbit/s or millions of bits per second) connections were
considered adequate only a few years ago, many Internet backbones today are
constructed using OC-3 (155 Mbit/s) links, and these are moving quickly to OC-12
(622 Mbit/s) and OC-48 (2.4 Gbit/s or billions of bits per second) speeds.
Competitive Landscape for Service Providers
The networking industry has seen the birth and growth of a large number of new
service providers, particularly since the mainstream commercialization of the
Internet. The new generation, or "alternate" service providers - including
competitive local exchange service providers (CLECs), competitive access
providers (CAPs), Internet Service Providers (ISPs) and competitive long
distance service providers - coupled with deregulation throughout the industry,
have put increasing pressure on the established service providers. This
competitive challenge requires the established service providers to reduce costs
and optimize network resources, while the growing demand for new communications
services requires them to invest in new infrastructures.
In order to reconcile these conflicting needs, service providers are migrating
the current disparate array of networks and services offered from their networks
onto a single, unifying, broadband infrastructure. The scalability, flexibility,
and inherent quality of service (QoS) of asynchronous transfer mode (ATM)
switching technology make it well suited for multiple traffic types or services,
including delay-sensitive traffic such as real-time voice or video, enabling
service providers to launch new, higher margin, value-added services. At the
same time service providers can lower their up-front and operating costs and
improve the manageability of their overall network infrastructure by
consolidating their present disparate networks onto one ATM-based network.
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For example, real-world business case analyses related to the transition from a
narrowband circuit-switched architecture to a broadband packet/cell network
infrastructure estimate that the new solution represents less than half the cost
and one-tenth the space requirements of conventional circuit switches.
BUSINESS STRATEGY
The Company's business strategy is to provide comprehensive, fully managed, end-
to-end wide area networking solutions to service providers and corporate
customers based on a broad product family that cost effectively addresses their
constantly evolving communications requirements. Newbridge products are designed
in accordance with an "evergreen" architecture to provide customers with a
seamless migration and integration path across the entire product family. The
full product family is highly flexible and scalable to meet evolving customer
requirements. Products are software controlled and remotely manageable for ease
of use, efficiency and cost effectiveness. 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 Company's architectural approach for broadband, multiservice WANs is
directed at providing solutions to issues facing service providers in the core,
edge and access points of the networks. At the core of the WAN, the Company's
strategy focuses on the accelerating deployment of a new core infrastructure
that is highly robust and scalable and capable of supporting various types and
classes of service including "business class" IP. The Company delivers ATM and
IP products for the core of the service provider network to collapse multiple
services onto a single platform. The Company's product strategy also encompasses
the access portion of the network. In addition to a multi-service access server
(MRAS) family of products, the Company provides various access solutions, with a
specific Product Group focussed on this high-end segment of the access market.
Particular areas of focus within broadband access include the relatively new and
rapidly evolving digital subscriber loop (DSL) and LMDS broadband wireless
markets. The Company's product strategy for broadband WANs enables service
providers to compete successfully in the face of increasing competition and
deregulation by reducing capital and operational costs associated with network
infrastructure and creating differentiated, business class service offerings by
delivering multiple services on a single network.
The Company also addresses the enterprise network market with various WAN and
WAN access products based on ATM and TDM technologies and supplements its
network solutions offerings through strategic alliances and other collaborative
undertakings.
The Company extends its business strategy through alliances and strong relations
with a family of over 20 Newbridge Affiliate companies. The Newbridge Affiliate
companies, in which Newbridge owns an equity stake, generally address markets
within the networking industry which are complementary to the Newbridge product
offering. Many of the Newbridge Affiliate companies are addressing opportunities
related to equipment and services for networks optimized for IP traffic. In
March 1996 Newbridge and Siemens formed an alliance encompassing common branding
under the MainStreetXpress banner and joint sales, marketing and customer
service activities.
PRODUCTS
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Newbridge has developed a broad family of digital networking products that are
effective in the core, edge and access portions of service provider or corporate
WANs. These products operate under a highly scalable, center-weighted network
and service management system, which is advantageous for large bandwidth-
intensive networks. Newbridge products employ a common architecture that allows
TDM, X.25, frame relay, ATM, SMDS and LAN internetworking to coexist within the
same network and provides a migration path from legacy narrowband to next
generation broadband networks.
The Newbridge family of ATM and IP products includes high performance core, edge
and access switches for service provider networks. Network operators can build
consolidated networks that deliver services for a variety of applications,
employing various forms of access technologies, managed by a single, end-to-end
network and service management system. This approach enables operators to reduce
infrastructure costs and create differentiated service offerings by provisioning
multiple services on a single, unifying, broadband, multiservice network.
The MainStreetXpress 36170 Multiservices Switch is a high capacity platform,
designed to scale from 800 Mbit per second to over 50 Gbit/s. The platform
supports a broad array of services, including native cell relay, frame relay,
circuit emulation for advanced private line services, LAN connectivity, managed
IP services, SMDS services, switched voice services, broadcast-quality video
services, broadband wireless access and other high-capacity access technologies
such as DSL. 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
36190 Core Services Switch, a high performance ATM backbone or core switch,
designed to scale beyond one terabit (trillion bits) per second, as well as the
MainStreetXpress 36150 Access Switch for premium video service, the
MainStreetXpress 36177 ATM Multiservices Access Switch, the MainStreetXpress
36030 and 36060 Modular LAN Service Units for LAN access and the
MainStreetXpress 36100 Access Concentrator.
TDM products from Newbridge, such as the 3600 and 3645 MainStreet Bandwidth
Managers, are market leading platforms in delivering private line services
throughout the world because of their wide range of voice and data interfaces,
adherence to the full range of domestic and international standards, quality and
reliability, end-to-end and remote 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 Packet
Transfer Engine frame relay system can be used to deploy frame relay or X.25
networks over a TDM circuit switched network infrastructure. This product
interworks with the Company's TDM and ATM systems for seamless end-to-end,
multiservice network solutions.
Newbridge also addresses the access market segment with products that enable
service providers to deploy multiple services and permit access to those
services for customers with multiple applications. These products include a
variety of WAN access devices for connecting remote and small sites and devices
to extend the network to the end points of both circuit and packet/cell switched
connections.
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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 and third-party networks across multiple
technologies, including circuit switching, packet/cell switching, SMDS and X.25.
It features a rich, object-oriented graphical user interface (GUI) 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 1999, fiscal 1998 and fiscal 1997.
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
integrate seamlessly with existing products. This approach protects customers'
investment in their installed base of networking equipment. The Company's
research and development strategy also focuses on leveraging product
functionality developed for one market to deliver products addressing other
markets.
In addition to the ongoing evolution of product functionality, a significant
portion of the research and development effort is directed towards expanding the
breadth of network solutions for new value-added service capabilities and access
technologies. Major initiatives include development of higher and lower capacity
ATM multiservice switches and interfaces; development of broadband access
platforms, switches, forwarding engines, interfaces and services optimized for
IP traffic; and related network and service management software. In addition to
the Company's internal research and product development, the Newbridge
development strategy includes investments in affiliated companies developing
networking technology complementary to Newbridge.
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, the Newbridge
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 the acquisition of other companies.
Newbridge believes that its strategy results in a more cohesive product solution
set for delivering seamless end-to-end networking solutions.
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.
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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 1999, 1998 and 1997, 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 service providers, 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 broadband WAN 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 service providers in Europe, Latin America and Asia. Newbridge
products are also distributed throughout the world by AT&T Solutions, Alcatel
and other telecommunications equipment suppliers, as well as by global service
providers and consortia.
The Newbridge sales force in the United States and Canada sells directly to
service providers and other communications service providers. In the United
States, a portion of the direct sales force is focussed on established service
providers including interexchange service providers and Regional Bell Operating
Companies (RBOCs), such as SBC and Bell Atlantic. The other portion of the
direct sales force is dedicated to the emerging alternate service providers.
Newbridge also sells to Fortune 1000 sized companies and institutions,
predominantly through distributors.
The product line is sold throughout Europe, the Middle East and Africa by a
direct sales force as well as through OEMs and distributors. In Latin America
and the Asia Pacific region, networking products are sold primarily through
distributors, which are supported by local Newbridge sales and support offices.
In Latin America, the Company holds a majority equity interest in certain of its
distributors.
The Newbridge sales organization throughout the world receives support from
product line management and network solutions 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 service provider markets (established service providers and
new generation or alternate service providers) and the enterprise network
market.
The amount of sales, cost of sales and expenses, and operating contribution
attributable to the Company's geographically-based operating segments, the
amount of identifiable assets attributable to the Company's principal geographic
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
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Note 20 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 average 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 to run virtually all aspects
of their businesses has generated a demand for a very rapid service 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 the remote diagnostic capabilities of
the Company's products, support engineers can immediately begin to diagnose and
solve field problems. When necessary, support engineers are dispatched from the
Company's sales and support offices or by third party technical support 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 the majority 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.
The Company currently has its principal manufacturing, logistics and warehousing
facilities in Canada. The Company also has logistics and warehousing facilities
in the United States, Ireland, the United Kingdom, France, 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. In the fourth
quarter of fiscal 1999, the Company's revenues were below Management's
expectations, predominantly due to the combination of orders for the Company's
product being skewed towards the end of the quarter, and inadequate inventory of
certain components. Because a substantial portion of customer orders are filled
within the fiscal quarter that they are received 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.
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COMPETITION
The market for the Company's products is characterized by rapid technological
change, convergence of technologies, mergers and acquisitions of service
providers and equipment suppliers, 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.
The Company's principal competitors include Cisco Systems, Lucent Technologies
and Nortel Networks, as well as traditional circuit switched equipment vendors
such as Tellabs.
Principal competitive factors are product line capabilities including
integration of multiple applications onto a single network, network management
capabilities, ability to offer complete end-to-end networking solutions,
scalability, price, reliability, adherence to standards, and market presence.
Certain competitors, including traditional telecommunications equipment vendors,
such as Ericsson, Fujitsu, Lucent Technologies and Nortel Networks have a very
large installed base in service provider 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 thereby creating companies with larger
market shares, financial resources, customer bases, sales forces, product
offerings, research and development and marketing resources. Increasing
competition from larger competitors may adversely affect the Company's business,
particularly with respect to sales and service resources, networking equipment
pricing or vendor financing packages offered to potential customers.
GOVERNMENT REGULATION
The sale of networking products may be affected by governmental regulatory
policies, the imposition of service provider tariffs, and taxation of
telecommunications services, which may also affect the availability of high
capacity 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 is
affecting many regulatory restrictions in the telecommunications market.
Deregulation enables local exchange telephone service providers, RBOCs, long
distance service providers, and other communications service providers, as well
as cable television operators and electric utilities to compete with each other
in offering local and long distance voice and data 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 promote
competition for provision of communications services and to open markets for
telecommunications equipment vendors. Member states which have not already fully
liberalized their telecommunications markets by January 1, 1998 are required to
have in place the regulatory and licensing structures that will enable new
operators to enter their markets.
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Deregulation is resulting in mergers among the RBOCs and other major
telecommunications companies throughout the world. Although the impact of
mergers that have been announced or are in process cannot be predicted, greater
concentration in the market for telecommunications services could adversely
affect the market for networking products.
Government regulatory authorities have established 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 government 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, and MainStreet are registered
trademarks of the Company in approximately 50 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 depend primarily on the innovative skills, technical competence and
marketing abilities of the Company's employees.
The Company has entered into technology licenses with other companies, and may
need to continue to do so in the future, because of the existence of the large
number of patents in the networking field, the rapid rate of issuance of new
patents, new standards that may be issued, or to obtain important technology.
Such licenses may impact the Company's operating results.
EMPLOYEES
As of May 2, 1999, the Company had 6,530 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 as well as facilities for reasearch
and development, sales and marketing in Kanata, Ontario. The Company also owns
facilities in Newport, Wales for sales, marketing, network services and
logistics and warehousing.
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, the Company also leases logistics and warehouse space in
Rennes, France; Shannon, Ireland; Ogdensburg, New York; Hong Kong and Kuala
Lumpur, Malaysia.
The Company conducts research and development in leased facilities in Rennes,
France; metropolitan London, England; Herndon, Virginia; and Vancouver, British
Columbia. The Company also leases sales and support facilities throughout the
United States and Canada, and
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in over 40 locations throughout Europe, the Middle East and Africa, in over 25
locations in the Asia Pacific region, and over 10 locations in Latin America.
Item 3. LEGAL PROCEEDINGS
In the fourth quarter of fiscal 1998 the Company reached an agreement in
principle to settle the class action lawsuit which was filed in United States
District Court in Washington, D.C. during the fiscal year ended April 30, 1995.
The lawsuit 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. The Court entered an order and
final judgment approving the settlement and dismissing the lawsuit with
prejudice on October 23, 1998. The Company recorded the expense in connection
with the settlement of $2,642,000 in the fourth quarter of fiscal 1998
representing the direct costs incurred.
Lucent Technologies Inc. ("Lucent Technologies") filed a complaint during the
fiscal year ended April 30, 1998 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 some of the standardized functions on the
Newbridge frame relay and ATM switch products, along with its ADPCM (adaptive
differential pulse code modulation) and card initialization implementations,
infringe certain United States patent rights claimed by Lucent Technologies. The
Complaint requests actual and trebled damages in an unspecified amount. 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. The Company
has filed an answer to the Complaint and is defending this action vigorously.
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.
From time to time, the Company receives notifications that it is or may be
infringing the intellectual property rights of third parties. There can be no
assurance that any such claims or potential claims will not require the Company
to enter into license agreements or result in protracted and costly litigation,
regardless of the merits of such claims. No assurance can be given that any
necessary licenses will be available or that, if available, such licenses can be
obtained on commercially reasonable terms.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Page 13
<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 17, 1999 and the fiscal years ended May 2, 1999
and April 30, 1998.
<TABLE>
<CAPTION>
New York Toronto
Stock Exchange Stock Exchange
Price Range Price Range
------------------------ -----------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
Fiscal year 2000:
First quarter (through
June 17, 1999) US$38 US$25 /1/2/ Cdn$55.20 Cdn$37.65
Fiscal year 1999:
Fourth quarter US$39 /1/2/ US$23 /1/2/ Cdn$58.00 Cdn$35.55
Third quarter 39 /7/8/ 20 /5/16/ 60.50 31.55
Second quarter 24 /7/16/ 15 /7/16/ 37.75 23.85
First quarter 32 /3/4/ 20 /1/8/ 47.00 30.35
Fiscal year 1998:
Fourth quarter US$30 /7/16/ US$18 /15/16/ Cdn$43.20 Cdn$27.00
Third quarter 58 /7/8/ 25 /7/8/ 82.75 37.50
Second quarter 69 /3/8/ 42 /1/2/ 95.00 58.90
First quarter 52 /7/16/ 31 /1/2/ 72.20 43.80
</TABLE>
At June 17, 1999 there were 1,206 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.
Page 14
<PAGE>
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.
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, 2000 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 May
2, 1999 and its quarterly reports on Form 10-Q as 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 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. As is prevalent in
emerging segments of the networking industry, a disproportionate amount of the
Company's shipments occur in the third month of each fiscal quarter. 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. 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. Quarterly operating results are consequently
difficult to predict, even towards the end of a given fiscal quarter. The
Page 15
<PAGE>
Company's ability to meet financial expectations may be adversely affected if
the non-linear pattern of shipments from month to month continues.
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 markets outside of
North America and Western Europe. These markets can be more susceptible to
uncontrollable and changing factors including foreign currency exchange rates,
political or economic conditions in a specific country or region, trade
protection measures, government spending patterns, and other factors. In the
latter part of fiscal 1998, the Company's sales in the Asia Pacific region
declined. Sales in these less mature markets are also often subject to customer
financing, licensing or other import or foreign exchange controls, and other
pre-conditions that can result in requirements to ship orders only if all
components ordered are shipped at the same time ("ship-complete" requirements).
Delays in orders and the Company's ability to fulfill orders with ship-complete
requirements may cause quarter to quarter revenues and, to a greater degree, net
earnings, to be subject to greater variability and less predictability.
In recent fiscal periods, the Company has increased the proportion of revenue
derived from service providers. This market is characterized by large contracts,
although purchases against these contracts will vary from quarter to quarter.
Unforeseen delays in product deliveries or closing large sales, introductions of
new products by the Company or its competitors, seasonal or fiscal 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 service providers 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 2000, the Company expects that the demand for networking
products will continue the trend toward ATM, IP, and other packet based
technologies and away from circuit switched networking products.
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 service providers deploy service offerings based on
newer technologies such as ATM and IP. Although most network equipment suppliers
have introduced ATM-based product offerings and many service providers have
implemented or announced intentions to implement ATM, the degree of commercial
acceptance of ATM switching technology has not been determined. A key element of
the Company's business strategy is utilizing ATM technology in its network
solutions. Accordingly, the Company's future sales growth and results of
operations are dependent on continued growth and market acceptance of ATM
technology. In addition, quarter to quarter revenues may be subject to greater
variability due to longer sales cycles often associated with the adoption of new
technologies.
Page 16
<PAGE>
The Company's ability to anticipate changes in technology, industry standards
and the evolution in methods of constructing 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 service provider 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 and Strategic Alliances
The market for the Company's products is also characterized by intense
competition. The Company competes for customers on the basis of product line
capabilities including integration of multiple applications onto a single
network, network and service management capabilities, ability to offer complete
end-to-end networking solutions, scalability, price, reliability, adherence to
standards, 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 has been consolidating through mergers and acquisitions
thereby creating companies with larger market shares, financial resources,
customer bases, sales forces, product offerings, research and development and
marketing resources. These larger competitors typically have product lines that
address a broader spectrum of networking requirements, and have greater sales
and services resources to address the market for service providers. Increasing
competition from larger competitors may also adversely affect the Company's
business with respect to networking equipment pricing or vendor financing
packages offered to potential customers. 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".
The Company has an alliance with Siemens, formed to facilitate a coordinated
sales and marketing approach and reseller arrangements. There can be no
assurance that the alliance will lead to competitive products or marketing. In
addition, if this relationship fails to develop as planned, the Company's
business and operating results could be adversely affected.
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
Page 17
<PAGE>
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. For example, the restructuring costs of
$181,444,000 incurred in fiscal 1998 were attributable largely to the operations
of Ungermann-Bass Networks, Inc. acquired in fiscal 1997. In addition,
acquisitions may affect financial results. For example, in fiscal 1998 the
Company acquired RadNet Ltd. and charged to net earnings $52,762,000 related to
the amortization of purchased research and development in process.
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, retain
and motivate skilled and talented engineers, sales and marketing personnel, and
management. Competition for such personnel is intense. Failure to attract,
retain and motivate key employees could adversely affect the Company's business
and operating results.
In June 1998 the Company appointed a new President and Chief Operating Officer.
Over the year following the appointment there have been a number of additional
changes in senior management. There are risks inherent in any reorganization,
and the Company can give no assurances that these recent appointments will
ensure that the Company achieves its objectives.
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 government regulatory
policies, the imposition of service provider tariffs, and taxation of
telecommunications services, which may also affect the availability of high
capacity 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 is affecting many regulatory restrictions in the telecommunications
market. Deregulation is stimulating 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,
Page 18
<PAGE>
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, government regulatory
authorities have established 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
government standards. Service providers 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".
Proprietary 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.
There can be no assurance that the steps taken by the Company to protect its
intellectual property rights will be adequate to prevent misappropriation of its
technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. In addition, some foreign countries do not have or enforce laws that
protect the Company's intellectual property rights to the same extent as do the
laws of the United States and Canada.
The Company is subject to the risk of adverse claims and litigation alleging
infringement of the intellectual property rights of others. From time to time
the Company has received claims of infringement of other parties' proprietary
rights, and has been sued by Lucent Technologies as described in "Legal
Proceedings". There can be no assurance that third parties will not assert
infringement claims in the future with respect to the Company's current or
future products or that any such claims will not require the Company to enter
into license agreements or result in protracted and costly litigation,
regardless of the merits of such claims. No assurance can be given that any
necessary licenses will be available or that, if available, such licenses can be
obtained on commercially reasonable terms.
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 gains and losses on
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
Page 19
<PAGE>
been provided for in the allowance for doubtful accounts. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Quantitative and Qualitative Disclosures About Market Risks".
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,
1995 and 1997 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 property 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 property.
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
Page 20
<PAGE>
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 May 2, 1999 and the balance sheet data as at fiscal year end
dates in 1999, 1998, 1997, 1996 and 1995 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.
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------
May 2, April 30, April 30, April 30, April 30,
1999 1998 1997 1996 1995
(Canadian dollars, in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Sales $1,790,705 $1,620,620 $1,376,727 $ 921,244 $ 800,523
Cost of sales 751,874 625,065 507,588 319,745 260,471
---------- ---------- ---------- ---------- ---------
Gross margin 1,038,831 995,555 869,139 601,499 540,052
Expenses
Selling, general and administrative 531,308 494,429 346,106 231,060 196,073
Research and development 264,421 258,879 155,330 97,205 66,066
Restructuring costs /(1)/ 118,030 181,444 -- -- --
Purchased research and
development in process /(2)/ -- 52,762 96,940 -- --
---------- ---------- ---------- ---------- ---------
Income from operations 125,072 8,041 270,763 273,234 277,913
Interest income, net 8,121 9,761 18,605 22,607 15,952
Net gain on investments /(3)/ 188,726 50,401 (1,564) 12,715 --
Other expenses (20,802) (12,889) (8,051) (3,443) (6,512)
---------- ---------- ---------- ---------- ---------
Earnings before income taxes
and non-controlling interest 301,117 55,314 279,753 305,113 287,353
Provision for income taxes 121,303 73,001 117,718 100,779 96,944
Non-controlling interest 653 631 5,118 1,470 2,019
---------- ---------- ---------- ---------- ---------
Net earnings (loss) /(4)/ $ 179,161 $ (18,318) $ 156,917 $ 202,864 $ 188,390
========== ========== ========== ========== =========
Earnings (loss) per share
Basic $ 1.01 $ (0.10) $ 0.92 $ 1.22 $ 1.16
Fully diluted $ 1.01 $ (0.10) $ 0.91 $ 1.19 $ 1.11
Weighted average number of shares
Basic 177,630 174,617 170,510 165,842 162,891
Fully diluted 177,630 174,617 184,595 179,665 175,823
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------------------
May 2, April 30, April 30, April 30, April 30,
1999 1998 1997 1996 1995
(Canadian dollars, in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data (continued):
U.S. GAAP /(5)/
Net earnings (loss) $179,161 $(18,318) $156,917 $202,864 $188,390
Earnings (loss) per share
Basic $1.01 $(0.10) $0.92 $1.22 $1.16
Diluted $0.99 $(0.10) $0.90 $1.19 $1.13
Diluted-- US US$0.66 US$(0.07) US$0.66 US$0.87 US$0.82
Weighted average number of shares
Basic 177,630 174,617 170,510 165,842 162,891
Diluted 180,376 174,617 174,525 170,990 166,646
<CAPTION>
May 2, April 30, April 30, April 30, April 30,
1999 1998 1997 1996 1995
(Canadian dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $1,243,991 $ 945,892 $ 638,392 $ 658,087 $ 491,888
Total assets 2,470,624 1,966,825 1,496,703 1,093,417 827,163
Short term debt (including current
portion of long term obligations) 2,869 4,136 7,353 2,302 2,562
Long term obligations 384,021 383,311 10,817 860 3,493
Shareholders' equity 1,529,219 1,233,620 1,126,499 902,686 674,645
</TABLE>
- -----------
(1) See Note 14 to the Consolidated Financial Statements.
(2) See Note 15 to the Consolidated Financial Statements.
(3) See Note 16 to the Consolidated Financial Statements.
(4) Pro forma net earnings, which exclude net gain on investments and non-
recurring charges, relating primarily restructuring costs and purchased
research and development, for the periods presented are disclosed in the
"Net Earnings (Loss)" section of "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
(5) Financial information in this Annual Report on Form 10-K is presented in
accordance with accounting principles generally accepted in Canada
("Canadian GAAP"), 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 15, and
the method of calculation of earnings per share, as disclosed in Note 18.
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<PAGE>
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".
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
-----------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales 42.0 38.6 36.9
----- ----- -----
Gross margin 58.0 61.4 63.1
Expenses
Selling, general and administrative 29.7 30.5 25.1
Research and development 14.7 16.0 11.3
Restructuring costs 6.6 11.2 --
Purchased research and
development in process -- 3.2 7.0
----- ----- -----
Income from operations 7.0 0.5 19.7
Interest income, net 0.5 0.6 1.3
Net gain on investments 10.5 3.0 --
Other expenses (1.2) (0.7) (0.7)
----- ----- -----
Earnings before income taxes
and non-controlling interest 16.8 3.4 20.3
Provision for income taxes 6.8 4.5 8.5
Non-controlling interest 0.0 0.0 0.4
----- ----- -----
Net earnings (loss) 10.0% (1.1)% 11.4%
===== ===== =====
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Sales
Fiscal Year Ended
------------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
<S> <C> <C> <C>
Sales $1,790,705 $1,620,620 $1,376,727
========== ========== ==========
Increase over prior year 10% 18% 49%
</TABLE>
Sales grew in fiscal 1999 compared to fiscal 1998 due to increased sales volume
of products based on packet technologies for wide area network applications (WAN
Packet products) offset in part by a decline in revenues from products based on
packet technologies for local area network applications (LAN Packet products).
Sales grew in fiscal 1998 compared to fiscal 1997 due to increased sales volume
of both WAN Packet and LAN Packet products, offset in part by a decline in sales
of circuit switched networking products.
The following table illustrates, for the periods indicated, the percentage of
sales that comprise each of the Company's major product lines.
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
WAN Packet products 59% 46% 33%
Circuit switched networking products 38 41 57
LAN Packet products 3 13 10
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
The following table illustrates, for the periods indicated, the annual sales
growth rates for each of the Company's major product lines.
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
WAN Packet 43% 62% 98%
Circuit switched networking 2 -15 20
LAN Packet -78 56 673
</TABLE>
Growth in sales of WAN Packet products was predominantly the result of increased
acceptance and demand by service providers throughout the world for the
Company's asynchronous transfer mode (ATM) products.
Sales of circuit switched networking products have been and are expected to be
subject to potential declines and quarterly variability as customers throughout
the world increasingly adopt packet technologies.
LAN Packet product revenues declined in fiscal 1999 relative to fiscal 1998 as a
result of sharp decreases in revenue derived from products associated with the
former Ungermann-Bass Networks Inc. ("UB") organization, which the Company
acquired in January 1997. The
Page 24
<PAGE>
Company restructured its activities in the LAN business, including the former
UB, in the third quarter of fiscal 1998 and instituted an end of life program in
the second quarter of fiscal 1999 to discontinue the sale and development of LAN
Layer 2 Switching products. In fiscal 1998 and in fiscal 1997 LAN Packet product
revenues increased, mainly as a result of the purchase of UB.
The Company expects the proportion of sales derived from WAN Packet products to
continue to increase relative to sales derived from circuit switched networking
products in fiscal 2000 when compared to fiscal 1999. Sales growth, however, may
be impeded due to longer sales cycles often associated with the adoption of
newer, less established technologies.
The Company sells its products to service providers for applications that
provide a range of value-added services, such as Virtual Private Networks
(VPNs), wide area network support and Internet access, and for resale to end
users. Deliveries to original equipment manufacturers (OEMs) for service
provider customers and deliveries under certain large contracts with service
providers contributed significantly to sales in fiscal 1999, fiscal 1998 and
fiscal 1997. Sales to Siemens AG and subsidiaries were generally under OEM
arrangements for resale to end users. Sales to service providers and enterprises
as a percentage of total sales and the proportion of sales to Siemens AG were as
follows.
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Service providers 75% 69% 66%
Enterprises 25 31 34
--- --- ---
100% 100% 100%
=== === ===
Sales to Siemens A.G. 18% 16% 18%
=== === ===
</TABLE>
The proportion of revenue derived from service providers in fiscal 1999
increased relative to fiscal 1998 due to the decline in revenues of former UB
Networks products, which largely serve enterprise customers. The proportion of
revenue derived from service providers in fiscal 1998 increased relative to
fiscal 1997 primarily as a result of increased acceptance and demand by service
providers for the Company's WAN Packet products.
The following table sets forth, for the periods indicated, the percentage of
consolidated sales derived by sales management in each of the principal
geographic regions in which the Company operates.
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Americas Region 51% 51% 49%
European Region 35% 31% 33%
Asia Pacific Region 14% 18% 18%
</TABLE>
Sales increased in fiscal 1999 relative to fiscal 1998 in both the Americas
Region and the European Region, although sales decreased in the Asia Pacific
Region during the same period as a result of a downturn in economic activity in
that region. For additional geographic segment information, see Note 20 to the
Consolidated Financial Statements.
Page 25
<PAGE>
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 decrease in
exchange rates of the Canadian dollar for the Pound Sterling and the U.S. dollar
during fiscal 1999, relative to exchange rates during fiscal 1998, resulted in a
6% or $91,248,000 positive variance in reported sales as compared to fiscal
1998. The decrease in exchange rates of the Canadian dollar for the Pound
Sterling and the U.S. dollar during fiscal 1998, relative to exchange rates
during fiscal 1997, resulted in a 7% or $95,736,000 positive variance in
reported sales as compared to fiscal 1997. As substantial portions of the
Company's cost of sales and other expenses are also incurred in U.S. dollars and
Pounds Sterling, the variations in rates of exchange did not result in a
material variance in net earnings for fiscal 1999, fiscal 1998 or fiscal 1997.
For information related to the Company's policies in its management of foreign
exchange exposures, see "Quantitative and Qualitative Disclosures About Market
Risk" and Note 10 to the Consolidated Financial Statements.
The Company derives a significant portion of its sales from products shipped
against orders received in each fiscal quarter and from products shipped against
firm purchase orders released in that fiscal quarter. As is prevalent in
emerging segments of the networking industry, a disproportionate amount of the
Company's shipments occur in the third month of each 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 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.
Quarterly operating results are consequently difficult to predict, even towards
the end of a given fiscal quarter.
The Company may become subject to sales fluctuations toward the end of calendar
1999 as the issue of Year 2000 date compliance may influence customer buying
patterns. Sales mix shifts may occur due to customers limiting their purchases
of networking equipment to products that they have already tested for Year 2000
Compliance within their networks, which would shift sales mix away from emerging
product offerings and software upgrades. Sales declines could result if
customers decide to delay expansion of their networks to after January 1, 2000.
The majority of the Company's current product offerings have Year 2000 Compliant
versions available and all emerging offerings are designed to be Year 2000
Compliant, so the Company does not anticipate significant sales fluctuations
associated with Year 2000 date compliance. The Company will have a better
indication of potential fluctuations in the second half of calendar 1999. Refer
to the "Year 2000 Date Compliance" section of this report for a summary of the
Company's program for ensuring that all of its products are Year 2000 date
compliant.
Page 26
<PAGE>
Cost of Sales and Gross Margin
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
<S> <C> <C> <C>
Gross margin $1,038,831 $995,555 $869,139
========== ======== ========
As a percentage of sales 58% 61% 63%
</TABLE>
Cost of sales consists of manufacturing costs, warranty expense and costs
associated with the provision of services. The gross margin as a percentage of
sales declined in fiscal 1999 relative to fiscal 1998 due to the continuing
shift in the mix of sales from higher gross margin circuit switched networking
products to lower margin WAN Packet products. In addition, the gross margin,
expressed as a percentage of sales, was negatively impacted by lower average
selling prices as the Company experienced increased competition on product
pricing, particularly in the market for products based on packet technologies.
The decline in the gross margin as a percentage of sales in fiscal 1998 relative
to fiscal 1997 was primarily the result of the decline in revenues from circuit
switched networking products, which carried gross margins above the average
gross margins earned on the Company's other products.
The impact on product pricing of increased competition, particularly in the
market for products based on packet technologies, may constrain the Company's
ability to maintain gross margins with reductions in per unit costs. As a
result, the gross margin as a percentage of sales may deteriorate in fiscal 2000
compared to fiscal 1999.
Selling, General and Administrative Expenses
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
<S> <C> <C> <C>
Selling, general and administrative expenses $531,308 $494,429 $346,106
======== ======== ========
As a percentage of sales 30% 31% 25%
Increase over prior year 7% 43% 50%
</TABLE>
Selling, general and administrative expenses increased in fiscal 1999 relative
fiscal 1998 principally as a result of increased remuneration costs associated
with salary increases and the addition of sales, marketing and technical support
personnel. Other increases in fiscal 1999 relative to fiscal 1998 included
amortization costs associated with upgrading information technology
infrastructure, and increased marketing costs related to the introduction of new
products and expanded advertising programs.
Page 27
<PAGE>
The decrease in selling, general and administrative expenses as a percentage of
sales in fiscal 1999 relative to fiscal 1998 resulted from the lower percentage
increase in expenditures as compared to the larger percentage increase in
revenues over the same period. Management anticipates that selling, general and
administrative expenses as a percentage of sales will continue to decline in
fiscal 2000 relative to fiscal 1999.
The increase in selling, general and administrative expenses as a percentage of
sales in fiscal 1998 over fiscal 1997 reflects the higher cost structure of
companies acquired during fiscal 1997 and the impact of sequential sales
declines in the first three quarters of fiscal 1998.
Research and Development
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
<S> <C> <C> <C>
Gross research and development expenditures $339,844 $305,357 $195,229
Investment tax credits 37,846 34,971 26,400
Customer, government and other funding 30,013 5,507 9,484
Net deferral (amortization) of
software development costs 7,564 6,000 4,015
-------- -------- --------
Net research and development expenses $264,421 $258,879 $155,330
======== ======== ========
Gross expenditures as a percentage of sales 19% 19% 14%
Increase in gross expenditures over prior year 11% 56% 49%
Recoveries as a percentage of gross expenditures 22% 15% 20%
Net research and development
expenses as a percentage of sales 15% 16% 11%
Increase in net expenditures over prior year 2% 67% 60%
</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 sequential increases in
gross research and development expenditures in fiscal 1999 and fiscal 1998
reflect spending on the development of higher and lower capacity ATM switches
and interfaces, development of switches, forwarding engines, interfaces and
services for IP traffic, and related network management and service software.
The majority of the increase resulted from salary increases for engineering
staff and increased amortization associated with capital deployed in research
and development.
Recoveries increased as a percentage of gross expenditures in fiscal 1999
compared to fiscal 1998 due to an increase in customer, government and other
funding. The increase in customer, government and other funding is mainly as a
result of funding secured for the Company's broadband wireless access product
initiative, as described in Note 13 to the Consolidated Financial Statements.
Management expects the level of recoveries, as a percentage of gross research
and development expenditures, in fiscal 2000 to approximate or exceed the level
in
Page 28
<PAGE>
fiscal 1999 based on current levels of committed customer, government and other
funding relative to planned spending levels.
Recoveries decreased as a percentage of gross expenditures in fiscal 1998
compared to fiscal 1997 due to declines in investment tax credits and in
customer, government and other funding as a proportion of gross research and
development expenditures.
The markets for the Company's products are characterized by continuing
technological change. The Company plans to increase gross research and
development expenditures in fiscal 2000 relative to fiscal 1999 to address the
requirements of service providers as they invest in new infrastructures to meet
the challenges of growing demand for new communications services and increased
competition.
Restructuring Costs
Restructuring costs are comprised of the following.
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Restructuring programs, April 1999 $ 73,570 $ -- $ --
Layer 2 Switching End of Life 37,928 -- --
Asia Pacific Resources Relocation 6,532 -- --
LAN business restructuring, November 1997 -- 181,444 --
-------- -------- --------
$118,030 $181,444 $ --
======== ======== ========
</TABLE>
In April 1999, the Company decided to streamline the operations of regional
sales and support organizations as well as its marketing and product development
organizations. The restructuring costs associated with the sales, support and
marketing organizations ("Sales and Marketing") consisted primarily of costs
related to workforce and facilities reductions, as the Company has announced a
reduction in the number of locations in which it will have a physical presence
in favour of distributors in certain markets, and subcontractors for certain
functions. Restructuring costs associated with product development relate
primarily to asset impairment losses related to the capping, discontinuation or
divestiture of the development of certain products, and the centralization of
development laboratories to make the development process more efficient.
Restructuring costs of $73,570,000 comprise the following:
<TABLE>
<CAPTION>
Sales and Product
Marketing Development Total
<S> <C> <C> <C>
Asset impairment losses
Inventory $ 2,606 $ 8,994 $11,600
Property, plant and equipment 6,576 29,104 35,680
Other current and non-current assets 568 2,249 2,817
------- ------- -------
9,750 40,347 50,097
------- ------- -------
Provision for restructuring
Reduction in work force 14,595 427 15,022
Reduction in facilities 6,627 -- 6,627
Other restructuring costs 1,653 171 1,824
------- ------- -------
22,875 598 23,473
------- ------- -------
Restructuring costs $32,625 $40,945 $73,570
======= ======= =======
</TABLE>
Page 29
<PAGE>
All of the amounts listed in the provision for restructuring are reflected in
accrued liabilities as at May 2, 1999.
The provision for the reduction in work force includes severance, related
medical and other benefits, and other obligations to employees. The provision
includes termination benefits for approximately 200 employees. The work force
reductions will occur in Japan, Russia and various other countries. The Company
anticipates that these work force reductions will be substantially completed in
the first half of fiscal 2000.
The provision for the reduction in facilities comprises primarily lease payments
and fixed costs associated with the closure of sales, support and administrative
facilities in Europe, Japan and the United States. The Company expects to
complete these facilities closures in the first half of fiscal 2000.
The provision for other restructuring costs comprises professional fees and
other various direct incremental costs associated with the restructuring plan.
In October 1998, the Company decided to discontinue the sale and development of
local area network (LAN) Layer 2 Switching products as part of the enhancement
of the focus on the Company's dominant and more profitable products. This
program, substantially complete at the end of fiscal 1999, created impairment
losses associated with certain assets deployed in this business and obligations
related to fulfilling previous customer commitments.
In October 1998, the Company commenced relocating certain employees and
activities that support the Asia Pacific region from Kanata, Ontario to Hong
Kong and Malaysia in order to provide more efficient and cost effective services
to customers in that region. The charge of $6,532,000 incurred in October 1998
reflects the accrual of involuntary termination benefits, lease cancellation
penalties and other direct costs associated with the transition. As at May 2,
1999, $1,215,000 of these costs had been incurred. Additional costs related to
the transfer of personnel and equipment, the recruitment of new staff and the
expansion of facilities in Hong Kong are being expensed as incurred. These
additional costs, estimated at $9,000,000, were not significant in fiscal 1999
with the majority of the costs to be incurred during the first two quarters of
fiscal 2000.
In November 1997, the Company restructured its activities relating to its LAN
business. The restructuring plan involved the formation of an alliance with a
company strongly positioned in the LAN business, and the reduction of the
Company's direct participation, and related costs, in the LAN business. In
repositioning the way in which the Company addressed the LAN market, the
restructuring plan created impairment losses on certain assets associated with
the LAN business and liabilities associated with restructuring activities.
Accordingly, the Company recognized restructuring costs of $181,444,000 in the
third quarter of fiscal 1998. The restructuring plan is completed.
Purchased Research and Development In Process
In November 1997, the Company acquired a 49.9% equity interest in RadNet Ltd.,
an Israeli developer and manufacturer of access switches for ATM networks, for
cash consideration of $53,676,000. The majority of the purchase price
($52,762,000) was allocated to purchased research and development in process.
Under accounting principles generally accepted in Canada, the
Page 30
<PAGE>
purchased research and development in process was amortized on a straight line
basis over its estimated useful life of six months. Accordingly, the Company
recorded amortization of $52,762,000 in fiscal 1998.
The Company capitalized purchased research and development in process of
$96,940,000 in fiscal 1997 related to the acquisition of UB Networks. The
Company reviewed the recoverability of the purchased research and development in
process during the fourth quarter of the fiscal 1997, and determined that it no
longer met all the criteria for deferral, which resulted in the balance being
written off as a charge to net earnings.
Interest and Other Expenses
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
<S> <C> <C> <C>
Interest income $34,248 $11,581 $19,956
Interest expense on long term obligations 26,127 1,820 1,351
Other expenses 20,802 10,448 9,615
</TABLE>
Interest income earned in fiscal 1999 increased as compared to fiscal 1998 due
to an increase in the average cash position maintained by the Company. The
primary contributors to the increase in the cash position were proceeds received
from the sale of long term investments and proceeds from the issuance of Senior
Notes in April 1998. Interest income earned in fiscal 1998 decreased as compared
to fiscal 1997 due to declines in the cash position maintained by the Company
and due to declines in interest rates earned on investments. Interest expense on
long term obligations increased in fiscal 1999 relative to fiscal 1998 and
fiscal 1997 primarily due to the issuance of US$225,000,000 in Senior Notes in
April 1998. Other expenses increased in fiscal 1999 relative to fiscal 1998 and
fiscal 1997 primarily as a result of the Company's equity share of its affiliate
companies losses.
Page 31
<PAGE>
Net Gain on Investments
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
<S> <C> <C> <C>
Cambrian Systems Corporation $131,748 $ -- $ --
Advanced Computer Communications 128,336 -- --
Vienna Systems Corporation 15,846 -- --
Tundra Semiconductor Corporation 11,748 -- --
Broadband Networks Inc. -- 47,960 --
West End Systems Corp. (33,521) -- --
Other divestitures -- 6,528 --
Investment impairment write downs (65,431) (4,087) (1,564)
-------- ------- -------
$188,726 $50,401 $(1,564)
======== ======= =======
</TABLE>
In December 1998, the Company sold its minority ownership position in Cambrian
Systems Corporation ("Cambrian") to Northern Telecom Limited ("Nortel") for cash
proceeds of US$95,674,000 (Cdn$147,158,000). The proceeds include an earn-out
payment of US$1,935,000 (Cdn$2,855,000) received by the Company as a result of
certain specified financial performance targets being met by Cambrian. The
proceeds exclude future potential earn-out payments of approximately
US$21,000,000 which will be received by the Company if certain specified
financial performance targets are met by Cambrian.
In October 1998, the Company completed the sale of its majority ownership
position in Advanced Computer Communications ("ACC") to Telefonaktiebolaget LM
Ericsson for cash proceeds of US$167,319,000 (Cdn$258,308,000). ACC's results of
operations were consolidated with the Company's results for the first six months
of fiscal 1999 ended November 1, 1998. The results of operations and the
financial position of ACC were not significant relative to the Company's
consolidated results of operations and financial position for all periods
presented.
In December 1998, the Company sold its minority ownership position in Vienna
Systems Corporation to Nokia Corporation for cash proceeds of $39,716,000.
In February 1999, the Company sold a portion of its minority ownership position
in Tundra Semiconductor Corporation for cash proceeds of $19,498,000 as part of
an initial and secondary share offering by Tundra.
In January 1998, the Company sold its minority interest in Broadband Networks
Inc. to Nortel for proceeds of $66,672,000. The proceeds received included cash
of $23,775,000 and Nortel shares valued at $42,897,000.
On February 10, 1999 West End Systems Corp., a manufacturer of access and
transmission products for the communications and cable television industries,
filed an assignment in bankruptcy under the Canadian Bankruptcy and Insolvency
Act. As a result, the Company recorded losses related to the Company's minority
ownership position in West End Systems Corp. and unsecured trade accounts
outstanding.
The Company evaluates, on an ongoing basis, the value of its long term
investments considering the evolution of the market segments of investee
companies, any impact of
Page 32
<PAGE>
deteriorating economic conditions in various countries, and any other specific
information which indicates impairment of value of these investments. In fiscal
1999, the financial performance of certain investee companies as well as
deteriorating economic conditions in Brazil and Russia led to investment
impairment write downs of $65,431,000.
Income Taxes
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Income tax rate 40% 132% 42%
Income tax rate excluding
non-recurring gains and charges 30% 30% 31%
</TABLE>
The income tax rates for fiscal 1999, fiscal 1998 and fiscal 1997 differ from
the income tax rates, excluding non-recurring gains and charges, due to limits
on the deductibility of certain elements of restructuring costs recorded in
fiscal 1999 and fiscal 1998 and purchased research and development in process
recorded in fiscal 1998 and fiscal 1997. The composite rates of income tax,
excluding non-recurring gains and charges, for fiscal 1999, 1998 and 1997 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
rates 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, excluding non-recurring gains and charges, 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 17 to
the Consolidated Financial Statements.
Non-Controlling Interest
The non-controlling interests' share of net earnings in fiscal 1999, fiscal 1998
and fiscal 1997 represented less than 1% of the Company's sales in fiscal 1999,
fiscal 1998 and fiscal 1997. The non-controlling interests' share of net
earnings in fiscal 1997 of $5,118,000 related primarily to profits from the
operations of Transistemas S.A., an Argentine systems integrator of networking
products. As at May 2, 1999 there are non-controlling interests in three of the
Company's subsidiaries. All three of these subsidiaries are systems integrators
of networking products in Latin America.
Page 33
<PAGE>
Net Earnings (Loss)
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
<S> <C> <C> <C>
Net earnings (loss) $ 179,161 $(18,318) $156,917
Non-recurring gains and charges
Restructuring costs 118,030 181,444 --
Purchased research and
development in process -- 52,762 96,940
Settlement of litigation/(1)/ -- 2,642 --
Net gain on investments (188,726) (50,401) 1,564
Provision for income taxes on
non-recurring gains and charges 53,329 767 --
--------- -------- --------
Pro forma net earnings, excluding
non-recurring gains and charges $ 161,794 $168,896 $255,421
========= ======== ========
Pro forma net earnings, excluding non-recurring
gains and charges, as a percent of sales 9% 10% 19%
Pro forma net earnings, excluding non-recurring
gains and charges, per share
Canadian GAAP
Basic $ 0.91 $ 0.97 $ 1.50
Fully diluted $ 0.91 $ 0.97 $ 1.45
U.S. GAAP
Basic $ 0.91 $ 0.97 $ 1.50
Diluted $ 0.90 $ 0.95 $ 1.46
Diluted - US US$ 0.59 US$ 0.68 US$ 1.07
</TABLE>
(1) Included within selling, general and administrative expenses on the
Consolidated Statement of Earnings.
Page 34
<PAGE>
A reconciliation of the major components of the change in net earnings, as
compared to the prior fiscal year, for each of the fiscal years reported is as
follows.
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
<S> <C> <C> <C>
Gross margin from sales increase $104,484 $153,972 $297,394
(Decrease) in product gross margins
as a percentage of sales (61,208) (27,556) (29,754)
(Increase) in operating expenses (45,063) (249,230) (173,171)
(Increase) in interest and other expenses, net (11,994) (9,677) (10,174)
Decrease (increase) in income taxes on
pro forma net earnings 4,260 45,484 (21,136)
(Increase) decrease in non-controlling interest (22) 4,487 (3,648)
-------- -------- --------
(Decrease) increase in pro forma net earnings (9,543) (82,520) 59,511
Change in non-recurring gains and charges,
net of income taxes 207,022 (92,715) (105,458)
-------- --------
Increase (decrease) in net earnings 197,479 (175,235) (45,947)
Net earnings (loss) in prior year (18,318) 156,917 202,864
-------- -------- --------
Net earnings (loss) $179,161 $(18,318) $156,917
======== ======== ========
</TABLE>
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 ("Canadian GAAP"). These
principles are also generally accepted in the United States ("U.S. GAAP") 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 in
process research and development, as disclosed in Note 15, and the method of
calculation of earnings per share, as disclosed in Note 18. Other than the
accounting treatment associated with any future acquisitions or mergers, the
Company expects that the differences in future years will not be significant.
Page 35
<PAGE>
Financial Condition
During the fiscal year ended May 2, 1999 working capital increased from
$945,892,000 to $1,243,991,000. As at May 2, 1999 the Company had $879,694,000
of cash and cash equivalents, which represented an increase of $380,416,000
during fiscal 1999. The most significant contributing item to the increase in
cash and cash equivalents in fiscal 1999 was proceeds from the sale of long term
investments, which amounted to $456,966,000 (see Note 16 to the Consolidated
Financial Statements). A summary of the major cash flow components by activity
is as follows.
<TABLE>
<CAPTION>
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
<S> <C> <C> <C>
Net earnings (loss) $179,161 $(18,318) $ 156,917
Add back items not affecting cash
Non recurring (gains) and charges (73,551) 183,805 96,940
Amortization and other non-cash charges 235,062 158,474 118,096
(Increase) decrease in working capital,
excluding cash and cash equivalents (121,688) (222,436) (148,579)
Cash flow from operating activities 218,984 101,525 223,374
-------- --------- ---------
Additions to property, plant and equipment (213,903) (276,778) (131,641)
Proceeds on sale of long term investments 456,966 66,672 --
Long term investments and other (184,882) (199,581) (267,960)
Cash flow from investing activities 58,181 (409,687) (399,601)
--------
Proceeds from stock option exercises 112,293 89,430 54,096
Net increase (decrease) in long term debt 2,533 366,312 (5,218)
-------- --------- ---------
Cash flow from financing activities 114,826 455,742 48,878
-------- --------- ---------
Impact of foreign currency translation
and cash from acquisitions (11,575) 17,794 5,504
-------- --------- ---------
Net cash flow during the period $380,416 $ 165,374 $(121,845)
======== ========= =========
</TABLE>
Principal components of the Company's working capital are accounts receivable,
inventory, and accounts payable. 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. Accounts receivable, as a proportion of revenue, remained
consistent in fiscal 1999 as compared to fiscal 1998. Inventory turns improved
during the year from 3.2 times in fiscal 1998 to 3.6 times in fiscal 1999.
In April 1998 the Company issued US$225,000,000 Senior Notes due April 2003
bearing a coupon rate of 6.51%. The Senior Notes require semi-annual payments of
interest only, with the principal due at maturity. The Company's obligation
under the Senior Notes can be satisfied at any time prior to maturity subject to
a make whole provision. The Senior Notes are unsecured.
In January 1998 the Company entered into and received $50,000,000 under a long
term loan agreement. The loan agreement includes a term loan portion and a
demand loan portion, both
Page 36
<PAGE>
due January 2003. The term loan bears interest at the fixed rate of 5.46% and
the demand loan bears interest at a floating rate equal to the one month's
bankers' acceptance rate. The term loan requires semi-annual payments of
interest only, with the principal due at maturity. The Company's obligation
under the term loan can be satisfied at any time prior to maturity subject to a
make whole provision. The term loan is secured by 654,220 Nortel shares. The
demand loan, which is unsecured, requires monthly payments of interest only,
with the principal due at maturity.
Existing short term bank credit facilities consist of operating lines of credit
with certain banks in the aggregate amount of $156,258,000, primarily with banks
in Canada, the United Kingdom, the United States and Chile. At May 2, 1999
$5,881,000 was being utilized under these credit facilities, primarily
attributed to non-wholly owned subsidiary Coasin S.A.
During fiscal 1999 and fiscal 1998 the Company generated cash proceeds of
$456,966,000 and $66,672,000, respectively, on the sale of equity positions in
the following companies. Details of each transaction are described in Note 16 to
the Consolidated Financial Statements.
<TABLE>
<CAPTION>
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
<S> <C> <C> <C>
Advanced Computer Communications $258,308 $ -- $ --
Cambrian Systems Corporation 147,158 -- --
Vienna Systems Corporation 39,716 -- --
Tundra Semiconductor Corporation 19,498 -- --
Broadband Networks Inc. -- 66,672 --
Less: escrow provisions (7,714) -- --
-------- -------- -----
Proceeds on sale of long term investments $456,966 $66,672 $ --
======== ======== =====
</TABLE>
Capital expenditures for fiscal 1999 of $213,903,000 declined as compared to
those of fiscal 1998 ($276,778,000) because there was no major facilities
expansion cost incurred during fiscal 1999. Capital expenditures for fiscal 1998
exceeded those of fiscal 1997 as the Company invested in new facilities in
Canada, in land in the metropolitan area of Washington, D.C., in research and
development and manufacturing equipment and in information systems. Management
anticipates that the level of capital expenditures for fiscal 2000 will be
approximately consistent with the level of capital expenditures incurred in
fiscal 1999. The Company may also increase its current investments in associated
companies. The Company intends to fund capital expenditures and investments with
existing cash and cash expected to be generated from operations during fiscal
2000, supplemented as appropriate by divestitures or the issuance of shares or
debt. In addition, the Company may use a portion of its cash resources 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.
Management believes that the Company's liquidity in the form of existing cash
resources, its credit facilities, as well as cash generated from operations and
financing activities, will prove adequate to meet its operating and capital
expenditure requirements through the end of fiscal 2000 and into the foreseeable
future.
Management believes that inflation did not have a material effect on operations
during the fiscal year ended May 2, 1999.
Page 37
<PAGE>
Recent Developments
In May 1999, the Company completed its investment in TeraBridge Technologies
Corporation ("Terabridge"), which specializes in delivering intelligent call and
service control products to service providers and is headquartered in Gurnee,
Illinois. The Company acquired a 19% equity ownership position for US$60,000,000
(Cdn$90,511,000) and has an option to increase its equity ownership position to
50% for US$10,000,000.
In June 1999, the Company announced a definitive agreement to acquire Stanford
Telecommunications Inc. ("STII") (STII: NASDAQ), a leading supplier of broadband
wireless technology and products. The net purchase price of the acquisition is
estimated at US$280,000,000 (Cdn$ 411,740,000) which represents the gross
purchase price of approximately US$490,000,000 (Cdn$720,545,000) net of proceeds
from the divestiture of divisions of STII that are unrelated to the Company's
core business. The boards of directors of the Company and STII have approved an
agreement and plan of merger, subject to conditions including approval by STII's
stockholders, whereby the Company will acquire all of the outstanding shares of
common stock of STII in a tax-free, stock-for-stock exchange. Under the
agreement STII stockholders will receive for each share of common stock US$30 in
the Company stock plus a contingent value right (CVR) which will give them a
participation in the proceeds on the sale of other operations above a minimum
amount. This participation will also be payable in the form of the Company
common shares. The CVR is expected to have a value of up to US$5 per share.
Year 2000 Date Compliance
The Company acknowledges the Year 2000 transition as a serious business issue
and is committed to addressing the challenge of becoming Year 2000 date
compliant. The Company's program ("Year 2000 Date Compliance"), established in
May 1997, addresses compliance both externally, to our customers, suppliers, and
other associates, and internally for the Company's systems and procedures. The
program continues to receive sponsorship and support from the highest levels of
the Company's Management and regular progress meetings are conducted, including
formal quarterly reports to a senior management committee. Despite the extensive
efforts dedicated to the program, there can be no assurance that all Year 2000
Date Compliance activities will be completed before problems associated with the
Year 2000 transition potentially occur.
Various formal messages for conveying Year 2000 Date Compliance information to
customers and other external parties have been developed for Company products.
. Year 2000 Date Compliance Statement to Customers and Definition of Terms,
which indicates how the Company interprets Year 2000 Date Compliance;
. The Year 2000 Date Compliance Requirements Specification, which sets forth
evaluation of products for Year 2000 Date Compliance;
. Year 2000 Date Compliance Product List, which lists the Year 2000 Date
Compliance characterization for the majority of the Company's products and
releases, including many "discontinued" product offerings.
Page 38
<PAGE>
The Company has completed the evaluation of its major product offerings. The
majority of products have been classified as either Compliant, having Compliant
versions currently available or are Date Compliance Not Applicable. The majority
of older or "discontinued" product offerings have been reviewed, with certain
offerings found to be Non-Compliant, and others that will not be evaluated for
Year 2000 Date Compliance. All the formal messages and Year 2000 Date Compliance
Additional Notes are available on the Company's worldwide web site at
http://www.newbridge.com/year2000/.
The Company recognizes that customers view the Year 2000 rollover as a sensitive
time for their networks and are looking for reassurance that their organizations
will continue to receive service support during this time. It is the Company's
intent to fulfill our contractual obligations to customers during this period.
Throughout the Year 2000 and the following leap year rollovers the three
regional Newbridge Technical Assistance Centers will be operating under the
normal practice of 24 hour, 365 days a year service coverage, including
readiness to address Year 2000 issues. The Company will also ensure staffing
during the rollover period of its Strategic Network Services and Network Design
groups during the rollover period as a component of the Year 2000 Date
Compliance Contingency Planning process. The Company is investigating the
various means by which technical information is disseminated to customers to
ensure the most effective delivery of Year 2000 bulletins during the transition
period. Formal messages from the Company's service organizations to customers
and other external parties are available on the Company's worldwide web site at
http://www.newbridge.com/year2000/.
The internal compliance element of Year 2000 Date Compliance includes the
distribution of responsibility among fourteen "Program Areas" of which each of
the Company's operating groups is represented by at least one. Each group is
responsible for eight main activities that address the exposure of their Program
Areas, as follows.
i) Awareness - Inform all employees and ensure awareness of Year
2000 Date Compliance issues and how they affect the employees,
their customers and their suppliers. This includes ensuring
support and dedication to the program throughout the Company.
ii) Inventory - Take stock of all information technology (IT) systems
and equipment and non-IT systems and equipment in use by the
Company potentially affected by Year 2000 Date Compliance.
iii) Impact Analysis - Assess the significance of each item in the
inventory in order to prioritize investigation and testing
activities.
iv) Investigation and Testing - Examine items recorded during the
inventory stage to determine their state of compliance based on
the priority set during the impact analysis stage. This step
includes requesting product information from suppliers and the
formal testing of systems and equipment under controlled
conditions.
v) Remedial Activities - After analyzing the compliance status of an
item, determine remedial action, if any, to be taken should an
item be found to be non-compliant. Actions include fixing
errors, following a path to make the item compliant, or
complete replacement with a compliant alternative.
vi) Implementation/Adoption - Once compliance status has been reached
the item is made available for use.
Page 39
<PAGE>
vii) Critical Supplier Assessment - Identify, analyze and assess the
Year 2000 readiness of critical suppliers of products and
services. Actions include judging assurances that equipment
supplied is date compliant, the supplier is also diligently
undertaking a Year 2000 readiness plan with respect to its own
internal systems to minimize the risk of supply disruptions and
that contingency planning activities are active. To assist with
and to standardize this task, a formal Year 2000 Date
Compliance Supplier Assessment process is being used of which
one part is the use of formal readiness questionnaires. The
Company's supplier assessment initiatives commenced in April
1998 with a mass mailing to over 11,500 vendors from which the
Critical Supplier list was originally built. Further targeted
mailings and vendor contacts have since been adopted. The
Company has not yet obtained adequate assurances from suppliers
with respect to their Year 2000 readiness because a significant
number (nearly 40% as at end of May, 1999) of questionnaires
sent to critical suppliers have not generated a response. The
Company will use alternate suppliers in the event that the
supplier does not provide satisfactory answers.
viii) Contingency Planning - Identify, review and address methods by
which the potential of Year 2000 related risks can be further
mitigated before they occur. Identify, review and address the
criteria for invoking a contingency plan. Identify, review and
address the steps which may be necessary to cope with actual
operational problems including, as an integral part, increases
in service and support resources. To assist with and to
standardize this task, a formal Year 2000 Date Compliance
Contingency Planning process is being used following a business
function review and Year 2000 risk exposure assessment. An
essential part of this process is the formulation of Crisis
Communications Plans for Year 2000 scenarios.
The Company believes that PC desktop and Unix hardware environments are
substantially compliant. Repeatable automated inventory and remediation
procedures are used to monitor, install and maintain compliance. Adoption of
compliant versions of wide area network equipment is completed and compliance of
office-based local area networks and telephony is proceeding as planned in
accordance with office relocations and infrastructure reinforcement initiatives.
The Company believes that compliance of all business-critical systems has been
substantially completed. To meet changing business requirements the Company
continues to re-evaluate applications that are scheduled for retirement prior to
the Year 2000 rollover and, in some cases, is ensuring their compliance as a
part of ongoing risk mitigation.
The Company's efforts to ensure awareness are on-going throughout the program,
disseminated via the Company's internal web site and through various print
media, which recently included a brochure "The Year 2000 Problem and You"
attached to employee pay stubs.
The costs incurred for Year 2000 Date Compliance are financed internally by the
operating groups within the framework of their operating budgets have not had a
material impact on the Company's financial results (operating expenses as a
percentage of sales, for example). Incremental spending on the Year 2000 Date
Compliance issue is limited to specific program costs which are outside of the
normal course of business and are necessitated purely as a result of Year 2000
date compliance. Incremental spending incurred in fiscal periods reported to
date and projected to be spent in fiscal 2000 associated with the Year 2000
transition represent less than 1% of the Company's revenues and expected
revenues. There can be no assurance that
Page 40
<PAGE>
these costs will not be greater than anticipated, however, as the Company
progresses through its program and greater certainty regarding costs,
particularly related to remediation and contingency plans for identified risks,
will be possible.
The Company is still assessing the potential impact of Year 2000 Date Compliance
on its suppliers and customers and currently cannot fully determine the effect
on its operations and financial condition if key suppliers or customers do not
adequately prepare for Year 2000 Date Compliance transition on a timely basis.
Failure of critical suppliers or customers to address the issue on a timely
basis could result in material financial risk to the Company. As a result, the
Company is actively undertaking Year 2000 Date Compliance contingency planning
as an integral part of the overall program, including service and support
requirements for its customers over the Year 2000 rollover period.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company conducts business in several major international currencies through
its worldwide operations. The Company uses financial instruments, principally
forward exchange contracts, in its management of foreign currency exposures. The
Company does not enter into forward exchange contracts for trading purposes. The
Company's management of foreign currency exposures is based upon estimates of
the net asset or net liability position of various currencies, and to the extent
that these estimates are over or understated during periods of currency
volatility, the Company could experience unanticipated currency gains or losses.
Realized and unrealized gains and losses on foreign exchange contracts are
recognized and offset foreign exchange gains and losses on the underlying net
asset or net liability position. The net foreign currency gains and losses, if
any, are recognized in the Consolidated Statements of Earnings as "Other income
(expense)".
The forward exchange contracts primarily require the Company to purchase and
sell certain foreign currencies with or for Canadian dollars at contractual
rates. The table that follows presents a summary of the value of forward
exchange rate contracts outstanding at May 2, 1999 for each currency in which
the Company has hedged a foreign currency exposure. The term of all forward
exchange contracts outstanding at May 2, 1999 was less than one year. The values
shown are the Canadian dollar values of the agreed upon amounts for each foreign
currency that will be delivered to a third party on the agreed upon date.
Page 41
<PAGE>
<TABLE>
<CAPTION>
Average
Currency Contract Rate Value
(Canadian dollars
in thousands)
<S> <C> <C>
Forward contracts to sell foreign currencies for Canadian Dollars:
Euro 1.6131 $ 86,531
Japanese Yen 0.0125 27,491
British Pound 2.4380 22,430
Singapore Dollar 0.8744 6,630
--------
143,082
--------
Forward contracts to sell Canadian Dollars for foreign currencies:
Euro 1.5902 48,977
U.S. Dollar 1.4900 54,534
British Pound 2.3593 32,558
Singapore Dollar 0.8853 1,328
--------
137,397
--------
Forward contracts to sell foreign currencies for other foreign currencies:
U.S. Dollar for British Pound 1.6116 42,817
British Pound for U.S. Dollar 1.6079 19,935
Euro for U.S. Dollar 1.0574 12,441
Euro for British Pound 0.6804 4,434
All other foreign currency contracts 2,922
--------
82,549
--------
Total forward exchange contracts outstanding at May 2, 1999 $363,028
========
</TABLE>
The unrealized gains or losses on these contracts represent hedges of foreign
exchange gains and losses on the Company's underlying net asset or net liability
position of the various currencies. As a result, Management does not expect
future gains or losses on these contracts to have a material impact on the
Company's financial results.
The Company maintains an investment portfolio consisting of debt securities of
various issuers, types and maturities. The securities that are classified as
held to maturity are recorded on the balance sheet at amortized cost. Due to the
average maturities and conservative nature of the investment portfolio, a sudden
change in interest rates would not have a material effect on the value of the
portfolio.
In January 1998 the Company entered into a Forward Share Price Hedge Agreement
with a major bank in order to fix the value of 545,976 Northern Telecom Limited
(Nortel) shares pledged as security against a term loan. In January 1999 the
Company amended the Forward Share Price Hedge Agreement in order to fix the
value of a further 108,244 Nortel shares. The terms of the amended Share Price
Hedge Agreement provide the Company with the option of delivering 654,220 Nortel
shares in January 2003 for proceeds of $51,613,000, or the present value of
$51,613,000, if terminated prior to January 2003, or delivering the cash
equivalent of the market value of 654,220 Nortel shares at January 2003 or at
the date of early termination.
In April 1998 the Company issued US$225,000,000 Senior Notes due April 2003
bearing a coupon rate of 6.51%. Prior to the closing of the Senior Notes the
Company entered into a swap transaction with a major bank under which the
effective coupon rate on US$200,000,000 of the Senior Notes was fixed at 6.678%.
Page 42
<PAGE>
In January 1998 the Company entered into and received $50,000,000 under a loan
agreement which includes a term loan portion and a demand loan portion. The term
loan bears interest at a fixed rate of 5.46% and the demand loan bears interest
at a floating rate equal to one month's bankers acceptance rate. The demand loan
portion of the loan agreement was approximately $15,000,000 at May 2, 1999.
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 May 2, 1999, April 30, 1998 and 1997
Consolidated Balance Sheets as at May 2, 1999 and April 30, 1998
Consolidated Statements of Cash Flows for the
years ended May 2, 1999, April 30, 1998 and 1997
Consolidated Statements of Shareholders' Equity for the
years ended May 2, 1999, April 30, 1998 and 1997
Notes to the Consolidated Financial Statements
Selected Quarterly Financial Data (unaudited)
Page 43
<PAGE>
AUDITORS' REPORT
To the Shareholders of Newbridge Networks Corporation:
We have audited the consolidated balance sheets of Newbridge Networks
Corporation as at May 2, 1999 and April 30, 1998 and the consolidated statements
of earnings, shareholders' equity and cash flows for the years ended May 2,
1999, April 30, 1998 and April 30, 1997. 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 May 2, 1999 and
April 30, 1998 and the results of its operations and the changes in its
financial position for the years ended May 2, 1999, April 30, 1998 and April 30,
1997 in accordance with accounting principles generally accepted in Canada
which, except as disclosed in Note 2, Note 15 and Note 18 to the consolidated
financial statements, also conform in all material respects with accounting
principles generally accepted in the United States.
/s/ Deloitte and Touche LLP
Chartered Accountants
Ottawa, Canada
June 1, 1999, except Note 23
which is as of June 22, 1999
Page 44
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Canadian dollars, amounts in thousands except per share data)
<TABLE>
<CAPTION>
Years Ended
---------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Sales $1,790,705 $1,620,620 $1,376,727
Cost of sales 751,874 625,065 507,588
---------- ---------- ----------
Gross margin 1,038,831 995,555 869,139
Expenses
Selling, general and administrative 531,308 494,429 346,106
Research and development (Note 13) 264,421 258,879 155,330
Restructuring costs (Note 14) 118,030 181,444 --
Purchased research and
development in process (Note 15) -- 52,762 96,940
---------- ---------- ----------
Income from operations 125,072 8,041 270,763
Interest income 34,248 11,581 19,956
Interest expense on long term obligations (26,127) (1,820) (1,351)
Net gain on investments (Note 16) 188,726 50,401 (1,564)
Other expenses (20,802) (12,889) (8,051)
---------- ---------- ----------
Earnings before income taxes
and non-controlling interest 301,117 55,314 279,753
Provision for income taxes (Note 17) 121,303 73,001 117,718
Non-controlling interest 653 631 5,118
---------- ---------- ----------
Net earnings (loss) $ 179,161 $ (18,318) $ 156,917
========== ========== ==========
Earnings (loss) per share (Note 18)
Basic $ 1.01 $ (0.10) $ 0.92
Fully diluted $ 1.01 $ (0.10) $ 0.91
Weighted average number of shares
Basic 177,630 174,617 170,510
Fully diluted 177,630 174,617 184,595
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
Page 45
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Canadian dollars in thousands)
<TABLE>
<CAPTION>
May 2, April 30,
1999 1998
<S> <C> <C>
Assets
Cash and cash equivalents (Note 2) $ 879,694 $ 499,278
Accounts receivable, net of provision for returns and
doubtful accounts of $16,217 (April 30, 1998 - $13,067) 472,811 428,527
Inventories (Note 3) 210,286 196,285
Prepaid expenses 46,753 32,728
Other current assets 46,160 44,872
---------- ----------
1,655,704 1,201,690
Property, plant and equipment (Note 4) 455,483 450,735
Goodwill (Note 5) 40,022 72,719
Software development costs (Note 6) 35,909 28,299
Future tax benefits (Note 17) 59,999 50,443
Other assets (Note 7) 223,507 162,939
---------- ----------
$2,470,624 $1,966,825
========== ==========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 190,630 $ 127,040
Accrued liabilities 201,361 118,771
Income taxes 16,853 5,851
Current portion of long term obligations 2,869 4,136
---------- ----------
411,713 255,798
Long term obligations (Note 9) 384,021 383,311
Future tax obligations (Note 17) 123,088 71,197
Non-controlling interest 22,583 22,899
---------- ----------
941,405 733,205
---------- ----------
Share capital (Note 11)
Common shares - 180,104,582 outstanding
(April 30, 1998 - 175,686,083 outstanding) 572,990 456,510
Accumulated foreign currency translation adjustment 27,238 27,280
Retained earnings 928,991 749,830
---------- ----------
1,529,219 1,233,620
---------- ----------
$2,470,624 $1,966,825
========== ==========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
Page 46
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
----------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Operating activities
Net earnings (loss) $ 179,161 $ (18,318) $ 156,917
Items not affecting cash
Amortization 182,547 125,429 82,987
Future tax benefits and obligations 46,698 27,158 22,989
Non-controlling interest 674 (1,390) 5,118
Restructuring costs 118,030 181,444 --
Purchased research and development in process -- 52,762 96,940
Net gain on investments (191,581) (50,401) 1,564
Other 5,143 7,277 5,438
Cash effect of changes in:
Accounts receivable (99,291) (32,931) (87,976)
Inventories (70,724) (86,288) (20,767)
Prepaid expenses and other current assets (16,832) (13,004) (13,668)
Accounts payable and accrued liabilities 49,893 (50,766) (34,615)
Income taxes 15,266 (39,447) 8,447
--------- --------- ---------
218,984 101,525 223,374
--------- --------- ---------
Investing activities
Additions to property, plant and equipment (213,903) (276,778) (131,641)
Proceeds on sale of long term investments (Note 16) 456,966 66,672 --
Acquisitions of subsidiaries, excluding
cash acquired -- (58,936) (220,645)
Capitalized software development costs (20,801) (16,069) (12,457)
Additions to other assets (164,081) (124,576) (34,858)
--------- --------- ---------
58,181 (409,687) (399,601)
--------- --------- ---------
Financing activities
Issue of common shares 112,293 89,430 54,096
Increase in long term obligations 44,671 378,628 1,515
Repayment of long term obligations (42,138) (12,316) (6,733)
--------- --------- ---------
114,826 455,742 48,878
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 391,991 147,580 (127,349)
Effect of foreign currency translation on cash (11,575) 15,919 (2,585)
Cash from acquisition of subsidiaries -- 1,875 8,089
--------- --------- ---------
380,416 165,374 (121,845)
Cash and cash equivalents, beginning of the year 499,278 333,904 455,749
--------- --------- ---------
Cash and cash equivalents, end of the year $ 879,694 $ 499,278 $ 333,904
========= ========= =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
Page 47
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Canadian dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Shares Foreign Retained Shareholders'
---------------------
Number Amount Currency Earnings Equity
<S> <C> <C> <C> <C> <C>
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
Exercise of employees' and
directors' options 3,827,099 89,430 89,430
Income tax benefit related
to stock options 15,692 15,692
Effect of foreign currency translation 20,317 20,317
Net loss (18,318) (18,318)
----------- ------- ------ ------- ---------
At April 30, 1998 175,686,083 456,510 27,280 749,830 1,233,620
Exercise of employees' and
directors' options 4,418,499 112,293 112,293
Income tax benefit related
to stock options 4,187 4,187
Effect of foreign currency translation (42) (42)
Net earnings 179,161 179,161
----------- -------- -------- -------- ----------
At May 2, 1999 180,104,582 $572,990 $27,238 $928,991 $1,529,219
=========== ======== ======== ======== ==========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
Page 48
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(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 ("Canadian GAAP"). These
principles are also generally accepted in the United States ("U.S. GAAP") 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 in
process research and development, as disclosed in Note 15, and the method of
calculation of earnings per share, as disclosed in Note 18.
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
In fiscal 1998 and years prior the Company's fiscal quarters were 13 weeks long
and closed on a Sunday, except the fourth quarter which closed on April 30.
Commencing in fiscal 1999 the Company adopted the policy of closing its fiscal
years on the Sunday closest to April 30. Accordingly, fiscal 1999 was 52 weeks
long with interim fiscal quarters closing on a Sunday and 13 weeks long.
Occasionally fiscal years will be 53 weeks long, the first occurrence of which
will be for the fiscal year ending May 2, 2004.
Revenue Recognition and Warranties
Revenue from product sales is generally recorded on shipment provided that no
significant obligations remain, 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.
<PAGE>
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 49
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(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 statements of earnings 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 Management to make estimates that affect the
reported amounts of assets
<PAGE>
and liabilities and disclosure of contingent assets and liabilities as at the
date of the Consolidated Financial Statements and the reported amounts of sales
and expenses during the reporting periods presented. Actual results could differ
from the estimates made by Management.
Page 50
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS 130,
"Reporting Comprehensive Income". SFAS 130 establishes standards for reporting
comprehensive income and its components in the financial statements. The Company
has adopted SFAS 130.
In June 1998, FASB issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS 133 requires all derivatives to be recorded on the
balance sheet at fair value. SFAS 133 is effective for fiscal years beginning
after June 15, 2000. The Company is in the process of evaluating the impact of
the reporting requirements of SFAS 133.
CICA Handbook - Accounting Section 1540, Cash Flow Statements, which replaces
existing Section 1540 Statement of Changes in Financial Position was issued in
June 1998 and is effective for fiscal years beginning after July 31, 1998. The
impact of this standard will be the disclosure of purchases, maturities and
sales of marketable securities as an investing activity on the Statement of Cash
Flows, in a manner consistent with U.S. GAAP, as is described in Note 2 to these
financial statements. Under this new standard, investing and financing
activities that do not require the use of cash or cash equivalents will be
excluded from the Statement of Cash Flows. However, these activities will be
disclosed elsewhere in the consolidated financial statements. The Company will
adopt this standard in the first quarter of fiscal 2000.
2. Cash and Cash Equivalents
Components of cash and cash equivalents are:
<TABLE>
<CAPTION>
May 2, 1999 April 30, 1998
------------------- -------------------
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Cash $666,019 $666,019 $467,464 $467,464
Held to maturity marketable securities
Maturing within one year:
Corporate debt securities 213,675 213,683 22,447 22,447
Available for sale marketable securities
Equity securities -- -- 9,367 9,367
--------- -------- -------- --------
$879,694 $879,702 $499,278 $499,278
========= ======== ======== ========
</TABLE>
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
<PAGE>
minority interest in Broadband Networks Inc. 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. During fiscal
1999 there were no realized gains or losses and unrealized gains of
Page 51
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
$70,000 and unrealized losses of $62,000 on held to maturity securities. During
fiscal 1998 there were no realized or unrealized gains or losses on held to
maturity securities. Available for sale securities are carried at the lower of
cost and market. During fiscal 1999 the Company incurred $707,000 of realized
losses and in fiscal 1998 the Company realized gains of $573,000 from available
for sale securities.
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>
Years Ended
-----------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Investing activities in short
term marketable securities:
Held to maturity securities
Maturities $ 287,723 $ 185,958 $ 508,890
Purchases (478,951) (72,126) (475,092)
--------- --------- ---------
(191,228) 113,832 33,798
Available for sale securities
Sales 9,367 569 --
Purchases -- (9,317) --
--------- --------- ---------
(181,861) 105,084 33,798
Investing activities, as reported 58,181 (409,687) (399,601)
--------- --------- ---------
Investing activities, U.S. GAAP $(123,680) $(304,603) $(365,803)
========= ========= =========
Increase (decrease) in cash and
cash equivalents, as reported $ 380,416 $ 165,374 $(121,845)
Investing activities in short
term marketable securities (181,861) 105,084 33,798
--------- --------- ---------
Increase (decrease) in cash and
cash equivalents, U.S. GAAP $ 198,555 $ 270,458 $ (88,047)
========= ========= =========
</TABLE>
3. Inventories
<TABLE>
<CAPTION>
May 2, April 30,
1999 1998
<S> <C> <C>
Finished goods $118,251 $129,850
Work in process 27,807 18,178
Raw materials 64,228 48,257
-------- --------
$210,286 $196,285
======== ========
</TABLE>
Page 52
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
4. Property, Plant and Equipment
<TABLE>
<CAPTION>
Amortization May 2, April 30,
Rate 1999 1998
<S> <C> <C> <C>
Land -- $ 16,118 $ 14,763
Buildings 2.5%--5% 92,390 88,189
Equipment 10%--50% 803,399 705,744
Furniture and fixtures 10%--33% 43,878 45,067
Leasehold improvements Lease term 27,530 27,797
------- -------
983,315 881,560
Accumulated amortization (527,832) (430,825)
------- -------
$ 455,483 $ 450,735
======= =======
Capital leases included above $ 2,683 $ 6,606
======= =======
</TABLE>
<TABLE>
<CAPTION>
Years Ended
--------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Amortization on property,
plant and equipment $163,097 $ 112,175 $ 73,364
======== ========= =========
Amortization on property, plant and
equipment under capital leases $ 1,384 $ 2,035 $ 1,523
======== ========= =========
</TABLE>
5. Goodwill
<TABLE>
<CAPTION>
May 2, April 30,
1999 1998
<S> <C> <C>
Goodwill, beginning of the year $ 72,719 $ 125,565
Additions associated with investments -- 15,377
Amortization (2,752) (5,683)
Divestitures (29,945) (1,232)
LAN business restructuring (Note 14) -- (61,308)
--------- ---------
Goodwill, end of the year $ 40,022 $ 72,719
========= =========
Accumulated goodwill amortization $ 7,131 $ 11,098
========= =========
</TABLE>
Page 53
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
6. Software Development Costs
<TABLE>
<CAPTION>
May 2, April 30,
1999 1998
<S> <C> <C>
Balance, beginning of the year $ 28,299 $22,299
Amount capitalized 20,755 15,627
Amortization (13,145) (9,627)
-------- -------
Balance, end of the year $ 35,909 $28,299
======== =======
</TABLE>
7. Other Assets
<TABLE>
<CAPTION>
May 2, April 30,
1999 1998
<S> <C> <C>
Long term investments
Accounted for by the equity method $ 29,236 $ 30,163
Accounted for by the cost method 161,901 103,980
-------- --------
191,137 134,143
Other assets 32,370 28,796
-------- --------
$223,507 $162,939
======== ========
</TABLE>
8. Bank Credit Facilities
At May 2, 1999 short term bank credit facilities consisted of operating lines of
credit in the aggregate amount of $156,258,000, primarily with banks in Canada,
the United Kingdom, the United States, and Chile. At May 2, 1999 $5,881,000 was
being utilized under these credit facilities, primarily attributed to non-wholly
owned Chilean subsidiary Coasin S.A. The Company's primary facility with a
Canadian bank in the amount of $100,000,000 is unsecured. Certain of the other
bank facilities are secured by the accounts receivable and other assets of the
borrowing subsidiary. The Company complies with all covenants and restrictions
contained in the credit facilities agreements.
Page 54
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
9. Long Term Obligations
<TABLE>
<CAPTION>
May 2, April 30,
1999 1998
<S> <C> <C>
6.51% Senior Notes, due 2003 $330,602 $322,098
Loan agreement, due 2003 50,000 50,000
Term loans 3,150 11,033
Capital lease obligations 3,138 4,316
-------- --------
386,890 387,447
Current portion of long term obligations (2,869) (4,136)
-------- --------
Long term obligations $384,021 $383,311
======== ========
</TABLE>
In April 1998 the Company issued US$225,000,000 Senior Notes due April 2003
bearing a coupon rate of 6.51%. Costs associated with the issue totaled
US$1,303,000. Prior to the closing of the Senior Notes the Company entered into
a swap transaction with a major bank under which the effective coupon rate on
US$200,000,000 of the Senior Notes was fixed at 6.678%. The Senior Notes require
semi-annual payments of interest only, with the principal due at maturity. The
Company's obligation under the Senior Notes can be satisfied at any time prior
to maturity subject to a make whole provision. The Senior Notes are unsecured.
The Company complies with all covenants and restrictions contained in the Senior
Notes. The fair value of Senior Notes at May 2, 1999 is estimated at
US$226,369,000
In January 1998 the Company entered into and received $50,000,000 under a loan
agreement that includes a term loan portion and a demand loan portion, both due
January 2003. The term loan bears interest at the fixed rate of 5.46% and the
demand loan bears interest at a floating rate equal to the one month's bankers'
acceptance rate. The term loan requires semi-annual payments of interest only,
with the principal due at maturity. The Company's obligation under the term loan
can be satisfied at any time prior to maturity subject to a make whole
provision. The demand loan requires monthly payments of interest only, with the
principal due at maturity. The term loan is secured by 654,220 Northern Telecom
Limited (Nortel) shares. The demand loan is unsecured. The Company complies with
all covenants and restrictions contained in the long term loan agreement. The
fair value of the term loan at May 2, 1999 is estimated at $48,510,000.
Page 55
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
Future payments under long term obligations and operating leases at May 2, 1999
are as follows.
<TABLE>
<CAPTION>
Principal Amount Minimum
on Mortgages Capital Lease Operating
and Term Loans Payments Leases
<S> <C> <C> <C>
Fiscal 2000 $ 1,630 $1,335 $ 37,516
Fiscal 2001 433 1,663 24,869
Fiscal 2002 3,171 302 19,153
Fiscal 2003 378,144 9 15,403
Fiscal 2004 150 -- 14,079
Thereafter 224 -- 75,523
-------- ------ --------
$383,752 3,309 $186,543
======== ========
Less imputed interest (171)
------
$3,138
======
</TABLE>
Interest paid on capital leases was $456,000 (fiscal 1998 -- $401,000; fiscal
1997 -- $266,000).
10. 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 gains
and losses on 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 May 2,
1999 the Company had $363,028,000 in outstanding foreign exchange contracts
(April 30, 1998 - $170,084,000).
In January 1998 the Company entered into a Forward Share Price Hedge Agreement
with a major bank in order to fix the value of the Nortel shares pledged as
security against a term loan (see Note 9). In January 1999 the Company amended
the Forward Share Price Hedge Agreement in order to fix the value of a further
108,244 Nortel shares. The terms of the amended Forward Share Price Hedge
Agreement provide the Company with the option of delivering 654,220 Nortel
shares in January 2003 for proceeds of $51,613,000 or the present value of
$51,613,000 if terminated prior to January 2003, or delivering the cash
equivalent of the market value of 654,220 Nortel shares at January 2003 or at
the date of early termination.
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.
Page 56
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
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 1999 -- $3,150,000; fiscal
1998 -- $2,495,000) primarily relate to estimates for products to be returned
and have been charged to sales. The carrying amounts for cash, marketable
securities, accounts receivable, accounts payable and accrued liabilities
approximate fair value because of the short maturity of these instruments.
11. 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.
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 May 2, 1999, the aggregate number of options which may be granted under
the Plan was 6,624,514.
Page 57
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
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, 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
Granted during fiscal 1998 9,817,645 $38.86 $64.96 $44.75
Cancelled and expired (1,779,070) $19.63 $64.31 $42.46
Exercised (3,827,099) $19.47 $43.74 $23.92
----------
Options outstanding April 30, 1998 20,466,203 $19.47 $64.96 $37.70
Granted during fiscal 1999 8,841,475 $24.65 $42.80 $35.21
Cancelled and expired (2,054,355) $19.63 $64.31 $40.14
Exercised (4,418,499) $19.47 $55.92 $25.79
----------
Options outstanding May 2, 1999 22,834,824 $19.47 $64.96 $38.82
==========
Options outstanding April 30, 1998
Vested 5,979,342 $19.47 $46.33 $28.26
Unvested 14,486,861 $19.47 $64.96 $41.59
----------
20,466,203 $19.47 $64.96 $37.70
==========
Options outstanding by range:
$19.47 to $30.00 4,341,730
$30.01 to $45.00 11,845,623
$45.00 to $64.96 4,278,850
----------
20,466,203
==========
Weighted average remaining
contractual life 3.32 years
==========
Options outstanding May 2, 1999
Vested 5,863,481 $19.47 $64.96 $37.89
Unvested 16,971,343 $24.65 $64.96 $39.14
----------
22,834,824 $19.47 $64.96 $38.82
==========
Options outstanding by range:
$19.47 to $30.00 2,542,777
$30.01 to $45.00 16,474,522
$45.00 to $64.96 3,817,525
----------
22,834,824
==========
Weighted average remaining
contractual life 3.48 years
==========
</TABLE>
Page 58
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(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 (loss) and earnings (loss) per share would have been decreased to
the following pro forma amounts.
<TABLE>
<CAPTION>
Years Ended
---------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Net earnings (loss), as reported $179,161 $(18,318) $156,917
Estimated stock based compensation costs (90,102) (75,164) (35,085)
-------- -------- --------
Pro forma net earnings (loss) $ 89,059 $(93,482) $121,832
======== ======== ========
Basic pro forma earnings (loss) per share $ 0.50 $ (0.54) $ 0.71
======== ======== ========
Fully diluted pro forma
earnings (loss) per share $ 0.50 $ (0.54) $ 0.71
======== ======== ========
</TABLE>
The weighted average fair value of all options granted during fiscal 1999, 1998
and 1997 was estimated as of the date of grant using the Black-Scholes option
pricing model with the following and weighted average results and assumptions.
<TABLE>
<CAPTION>
Years Ended
-------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Weighted average fair value of
of options issued $19.91 $25.32 $18.65
Expected option life, in years 4.5 4.5 4.3
Volatility 65.57% 63.98% 50.18%
Risk free interest rate 4.9% 5.9% 6.4%
Dividend yield nil 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.
Page 59
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
Employee Share Purchase Plan
The Company's Employee Stock Purchase Plan ("ESPP"), was effective June 1, 1999
and allows eligible employees to authorize payroll deductions up to 10% of their
salary to purchase Common Shares of the Company at a price of 85% of the then
current stock price (as defined in the ESPP). Employees purchasing shares under
the ESPP must hold the shares for a minimum of one year. The Company has
reserved 500,000 Common Shares for issuance under the ESPP.
12. Comprehensive Income
The Company has adopted the United States Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income. This statement requires disclosure of Comprehensive Income, which
includes reported net earnings adjusted for other comprehensive income. Other
comprehensive income includes items that cause changes in shareholders' equity
but are not related to share capital or net earnings which, for the Company,
comprises only the foreign currency translation adjustment.
<TABLE>
<CAPTION>
Years Ended
--------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Net earnings (loss) $179,161 $(18,318) $156,917
Other comprehensive income:
Foreign currency translation
adjustment (42) 20,317 5,678
-------- -------- --------
Comprehensive income $179,119 $ 1,999 $162,595
======== ======== ========
</TABLE>
13. Research and Development
During the year, the Company recorded Canadian Investment Tax Credits of
$37,846,000 (fiscal 1998 -- $34,971,000; fiscal 1997 -- $26,400,000) as a
reduction of research and development expenses.
The Company recorded government and customer funding during the year of
$29,234,000 (fiscal 1998 -- $5,507,000; fiscal 1997 -- $9,484,000) as a
reduction in research and development expenses included in the consolidated
statements of earnings. Funding from the government of the province of British
Columbia amounted to $10,000,000 during the year and is contingently repayable
over a period not to exceed ten years. Repayment of the funding is based on a
percentage of sales of products developed in British Columbia and a percentage
of sales of products sold in British Columbia. Any funding not repaid at the end
of the ten year period would be forgiven. The Company also recorded funding of
$17,540,000 during the year related to eligible research and development
expenditures of its broadband wireless program. Royalties are due to the funding
companies based on a percentage of sales of products developed under the
program. The funding companies own the intellectual property rights for products
developed under the program. The Company has an option to acquire those rights
under certain terms and conditions. As part of the arrangements, Newbridge has
provided
<PAGE>
licencing of certain technologies to the funding companies including
Asynchronous Transfer Mode ("ATM") switch software and related technology.
Page 60
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
14. Restructuring Costs
Restructuring costs are comprised of the following.
<TABLE>
<CAPTION>
Years Ended
------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Restructuring programs, April 1999 $ 73,570 $ -- $ --
Layer 2 Switching End of Life 37,928 -- --
Asia Pacific Resources Relocation 6,532 -- --
LAN business restructuring, November 1997 -- 181,444 --
-------- --------- ---------
$118,030 $181,444 $ --
======== ========= =========
</TABLE>
In April 1999, the Company decided to streamline the operations of regional
sales and support organizations as well as its marketing and product development
organizations. The restructuring costs associated with the sales, support and
marketing organizations ("Sales and Marketing") consisted primarily of costs
related to workforce and facilities reductions, as the Company has announced a
reduction in the number of locations in which it will have a physical presence
in favour of distributors in certain markets, and subcontractors for certain
functions. Restructuring costs associated with product development relate
primarily to asset impairment losses related to the capping, discontinuation or
divestiture of the development of certain products, and the centralization of
development laboratories to make the development process more efficient.
Restructuring costs of $73,570,000 comprised the following:
<TABLE>
<CAPTION>
Sales and Product
Marketing Development Total
<S> <C> <C> <C>
Asset impairment losses
Inventory $ 2,606 $ 8,994 $11,600
Property, plant and equipment 6,576 29,104 35,680
Other current and non-current assets 568 2,249 2,817
------- ------- -------
9,750 40,347 50,097
------- ------- -------
Provision for restructuring
Reduction in work force 14,595 427 15,022
Reduction in facilities 6,627 -- 6,627
Other restructuring costs 1,653 171 1,824
------- ------- -------
22,875 598 23,473
------- ------- -------
Restructuring costs $32,625 $40,945 $73,570
======= ======= =======
</TABLE>
<PAGE>
All of the amounts listed in the provision for restructuring are reflected in
accrued liabilities as at May 2, 1999.
Page 61
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
The provision for the reduction in work force includes severance, related
medical and other benefits, and other obligations to employees. The provision
includes termination benefits for approximately 200 employees. The work force
reductions will occur in Japan, Russia and various other countries. The Company
anticipates that these work force reductions will be substantially completed in
the first half of fiscal 2000.
The provision for the reduction in facilities comprises primarily lease payments
and fixed costs associated with the closure of sales, support and administrative
facilities in Europe, Japan and the United States. The Company expects to
complete these facilities closures in the first half of fiscal 2000.
The provision for other restructuring costs comprises professional fees and
other various direct incremental costs associated with the restructuring plan.
In October 1998, the Company decided to discontinue the sale and development of
local area network (LAN) Layer 2 Switching products as part of the enhancement
of the focus on the Company's dominant and more profitable products. This
program, which was completed during the fiscal 1999, created impairment losses
of $30,690,000 associated with certain assets deployed in this business and
obligations related to fulfilling previous customer commitments of $7,238,000,
all of which was incurred prior to the end of fiscal 1999.
In October 1998, the Company commenced relocating certain employees and
activities that support the Asia Pacific region from Kanata, Ontario to Hong
Kong and Malaysia in order to provide more efficient and cost effective services
to customers in that region. The charge of $6,532,000 incurred in October 1998
reflects the accrual of involuntary termination benefits, lease cancellation
penalties and other direct costs associated with the transition. As at May 2,
1999, $1,215,000 of these costs had been incurred. Additional costs related to
the transfer of personnel and equipment, the recruitment of new staff and the
expansion of facilities in Hong Kong are not included in the Asia Pacific
Resources Relocation charge and are being expensed as incurred. These additional
costs are estimated at $9,000,000, with the majority of the costs to be incurred
during the first two quarters of fiscal 2000.
In November 1997, the Company restructured its activities relating to its LAN
business. The restructuring plan involved the formation of an alliance with a
company strongly positioned in the LAN business, and the reduction of the
Company's direct participation, and related costs, in the LAN business. In
repositioning the way in which the Company addressed the LAN market, the
restructuring plan created impairment losses on certain assets associated with
the LAN business and liabilities associated with restructuring activities.
Accordingly, the Company recognized restructuring costs of $181,444,000 in the
third quarter of fiscal 1998. The provision recorded for this restructuring plan
in November 1997, predominantly related to reductions in the Company's
workforce, was $39,638,000. During fiscal 1998, $34,345,000 of these
expenditures were incurred with the remaining $5,293,000 incurred in fiscal
1999. The restructuring plan has been completed.
Page 62
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
15. Purchased Research and Development In Process
In November 1997, the Company acquired a 49.9% equity interest in RadNet Ltd.,
an Israeli developer and manufacturer of access switches for ATM networks, for
cash consideration of $53,676,000. The majority of the purchase price
($52,762,000) was allocated to purchased research and development in process.
The amount allocated to purchased research and development in process was
determined through valuation techniques common in the high technology industry.
Under accounting principles generally accepted in Canada, the purchased research
and development in process was amortized on a straight line basis over its
estimated useful life of six months. Under U.S. GAAP, purchased research and
development in process acquired by the Company was written off at the time of
acquisition.
16. Net Gain on Investments
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
<S> <C> <C> <C>
Cambrian Systems Corporation $131,748 $ -- $ --
Advanced Computer Communications 128,336 -- --
Vienna Systems Corporation 15,846 -- --
Tundra Semiconductor Corporation 11,748 -- --
Broadband Networks Inc. -- 47,960 --
West End Systems Corp. (33,521) -- --
Other divestitures -- 6,528 --
Investment impairment write downs (65,431) (4,087) (1,564)
-------- ------- -------
$188,726 $50,401 $(1,564)
======== ======= =======
</TABLE>
In December 1998, the Company sold its minority ownership position in Cambrian
Systems Corporation ("Cambrian") to Nortel for cash proceeds of US$95,674,000
(Cdn$147,158,000). The proceeds include an earn-out payment of US$1,935,000
(Cdn$2,855,000) received by the Company as a result of certain specified
financial performance targets being met by Cambrian. The proceeds exclude future
potential earn-out payments of approximately US$21,000,000 which will be
received by the Company if certain specified financial performance targets are
met by Cambrian.
In October 1998, the Company completed the sale of its majority ownership
position in Advanced Computer Communications ("ACC") to Telefonaktiebolaget LM
Ericsson for cash proceeds of US$167,319,000 (Cdn$258,308,000). ACC's results of
operations were consolidated with the Company's results for the first six months
of fiscal 1999 ended November 1, 1998. The results of operations and the
financial position of ACC were not significant relative to the Company's
consolidated results of operations and financial position for all periods
presented.
In December 1998, the Company sold its minority ownership position in Vienna
Systems Corporation to Nokia Corporation for cash proceeds of $39,716,000.
Page 63
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
In February 1999, the Company sold a portion of its minority ownership position
in Tundra Semiconductor Corporation for cash proceeds of $19,498,000 as part of
an initial and secondary share offering by Tundra.
In January 1998, the Company sold its minority interest in Broadband Networks
Inc. to Nortel for proceeds of $66,672,000. The proceeds received included cash
of $23,775,000 and Nortel shares valued at $42,897,000.
On February 10, 1999 West End Systems Corp., a manufacturer of access and
transmission products for the communications and cable television industries,
filed an assignment in bankruptcy under the Canadian Bankruptcy and Insolvency
Act. As a result, the Company recorded losses related to its minority ownership
position in West End Systems Corp. and unsecured trade accounts outstanding.
The Company evaluates, on an ongoing basis, the value of its long term
investments considering the evolution of the market segments of investee
companies, any impact of deteriorating economic conditions in various countries,
and any other specific information which indicates impairment of value of these
investments. In fiscal 1999, the financial performance of certain investee
companies as well as deteriorating economic conditions in Brazil and Russia led
to investment impairment write downs of $65,431,000.
17. Income Taxes
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended
------------------------------
May 2, April30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Current $ 78,968 $45,843 $ 94,729
Future 42,335 27,158 22,989
-------- ------- --------
$121,303 $73,001 $117,718
======== ======= ========
</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>
Years Ended
---------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Earnings before income taxes
Domestic $280,968 $ 222,597 $182,745
Foreign 20,149 (167,283) 97,009
-------- -------- --------
$301,117 $ 55,314 $279,754
======== ========= ========
Statutory income tax rate (Canada) 43.5% 43.5% 43.5%
======== ========= ========
</TABLE>
Page 64
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
<TABLE>
<CAPTION>
Years Ended
---------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Expected provision for income tax $130,986 $ 24,062 $121,693
Canadian rate adjustment for research
and development activities (4,236) (6,166) (5,062)
Canadian rate adjustment for
manufacturing and processing activities (13,075) (19,032) (15,625)
Loss carryforwards utilized -- -- (7,262)
Foreign tax differential (21,428) (13,865) (39,539)
Purchased research and
development in process -- 22,952 42,169
Recognition of goodwill devaluation -- 26,677 --
Non-deductible reserves and surtaxes 29,056 38,373 21,344
-------- -------- --------
Reported income tax provision $121,303 $ 73,001 $117,718
======== ======== ========
</TABLE>
The components of the annual temporary differences giving rise to the related
future tax provision are as follows:
<TABLE>
<CAPTION>
Years Ended
-------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Tax depreciation in excess of
accounting amortization $ 1,864 $ 7,163 $ 4,530
Accounting provisions not deductible (5,715) 6,804 3,570
Research and development expenses
deducted for tax purposes in excess
of accounting (677) 677 2,530
Restructuring charges 46,443 10,909 13,127
Losses available to offset future
income taxes and other 420 1,605 (768)
------- ------- -------
Future income tax expense $42,335 $27,158 $22,989
======= ======= =======
</TABLE>
Page 65
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
The components of the future tax benefit (obligation) classified by the source
of temporary differences that gave rise to the benefit (obligation) are as
follows:
<TABLE>
<CAPTION>
Future Tax Benefit Future Tax Obligation
------------------- -----------------------
May 2, April 30, May 2, April 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Accounting depreciation in excess
of (less than) tax depreciation $ 5,064 $13,853 $ (38,636) $(45,561)
Accounting provisions not deductible 13,845 22,409 (93) (14,372)
Research and development expenses
deducted for tax purposes less
than (in excess of) accounting -- -- (11,007) (11,684)
Provisions related to restructuring
charges 41,090 21,412 -- --
Divestitures -- -- (73,352) --
Other -- -- -- 420
Valuation allowance -- (7,231) -- --
------- ------- --------- --------
$59,999 $50,443 $(123,088) $(71,197)
======= ======= ========= ========
</TABLE>
The Company recorded a future tax benefit for net operating loss carryovers
associated with certain acquisitions. These losses will expire at various dates
through the year 2012. The components of the future tax benefit (obligation)
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 May 2, 1999, the Company had available investment tax credits of
approximately $53,106,000 for the reduction of future years' Canadian federal
income tax liability. These credits, which are subject to customary review
procedures by Revenue Canada, expire during the years 2007 to 2009. Of this
amount $10,913,000 has been applied to reduce the future tax obligation. No
recognition has been given in these financial statements to the potential tax
benefits associated with the remaining balance of investment tax credits. Under
U.S. GAAP the remaining balance of investment tax credits would be disclosed,
offset by a valuation allowance.
Page 66
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
18. Earnings (Loss) per Share
Basic earnings (loss) per share has been calculated on the basis of net earnings
(loss) 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 $28,943,000 (fiscal 1998 -- $18,521,000;
fiscal 1997 -- $11,589,000) derived from the investment of funds which would
have been received at an after tax rate of 3.5% (fiscal 1998 -- 3.0%; fiscal
1997 -- 3.1%).
Under U.S. GAAP, basic earnings per share has been calculated as net earnings
for the period divided by the daily weighted average number of Common Shares
outstanding during the period, consistent with the calculation of basic earnings
per share under accounting principles generally accepted in Canada. Diluted
earnings per share is calculated using the treasury stock method. Earnings per
share in U.S. dollars is disclosed for the convenience of the reader. The
exchange rates used for translation are based on the average of the daily noon
buying rates for Canadian dollars in U.S. dollars as reported by the Federal
Reserve Bank of New York. The calculation of earnings per share under U.S. GAAP
is as follows.
<TABLE>
<CAPTION>
Years Ended
-------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Net earnings (loss) per share
Basic $ 1.01 $ (0.10) $ 0.92
Diluted $ 0.99 $ (0.10) $ 0.90
Net earnings (loss) per share - in U.S. dollars
Basic $ 0.67 $ (0.07) $ 0.68
Diluted $ 0.66 $ (0.07) $ 0.66
Weighted average number of shares
Basic 177,630 174,617 170,510
Net effect of dilutive stock options 2,746 -- 4,015
-------- -------- --------
Diluted 180,376 174,617 174,525
======== ======== ========
</TABLE>
Page 67
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
19. Related Party Transactions
The Company leases facilities in Canada 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 355,000 square feet has been leased for various terms expiring
between September 1999 and February 2004 at rates between $9.25 and $14.00 per
square foot (approximately $3,505,000 per year). The Company also purchased
$878,000 of services from these companies throughout fiscal 1999 (fiscal 1998 --
$1,053,000). During the fiscal year ended May 2, 1999 the Company purchased
approximately $5,287,000 (fiscal 1998 -- $2,533,000) of equipment and services
under usual terms and conditions from a corporation in which the Company has no
equity interest, but which is controlled by Terence H. Matthews.
The Company accounts for its equity interests in certain associated companies
using the equity method of accounting. The Company is represented on the Boards
of Directors of these companies. During the fiscal year ended May 2, 1999, the
Company paid $1,729,000 for research and development services from these
associated companies under usual trade terms and conditions (fiscal 1998 --
$2,448,000). The Company also purchased $18,220,000 of equipment and software
under usual trade terms and conditions, generally for resale (fiscal 1998 --
$10,126,000) and sold $21,533,000 of equipment and software to these companies
under usual trade terms and conditions, generally for resale (fiscal 1998 --
$13,846,000).
The Company accounts for its equity interests in certain associated companies
using the cost method of accounting. The Company is generally represented on the
Boards of Directors of these companies. During the fiscal year ended May 2, 1999
the Company paid $1,556,000 for research and development services from these
associated companies under usual trade terms and conditions (fiscal 1998 --
$48,000). The Company also purchased $8,294,000 of equipment and software under
usual trade terms and conditions, generally for resale (fiscal 1998 --
$7,226,000). The Company sold $10,035,000 of equipment and software to these
associated companies under usual trade terms and conditions, generally for
resale (fiscal 1998 -- $6,100,000). The Company has guaranteed $14,498,000 of
obligations of certain of these associated companies.
The Company pays a net royalty between 2% and 10%, depending on the level of
cumulative royalties paid, on all sales of products developed as a result of
subcontracted research and development previously performed under agreements
between the Company and corporations controlled by three directors of the
Company. Royalty payments under these agreements were $564,000 (fiscal 1998 --
$294,000).
Page 68
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
20. Business Segment Information
The Company designs, manufactures, markets and services networking solutions to
customers in more than 100 countries. Management organizes the Company into four
principal operating segments for making operating decisions and assessing
performance. The four operating segments comprise three sales and support
organizations (North and South America, Europe Middle East and Africa, and Asia
Pacific) and one Corporate resources group which develops and manufactures
products, provides marketing and operational support and makes strategic
investments. Revenues generated by the Corporate group are predominantly derived
from the consolidation of non-wholly owned subsidiaries. Cost of sales for the
three sales and support organizations is stated at the cost to manufacture and
does not include any markups.
<TABLE>
<CAPTION>
Years Ended
--------------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
North and South America
Sales $ 765,183 $ 649,388 $ 561,784
Cost of sales and expenses 414,240 365,494 299,408
---------- ---------- ----------
Operating contribution 350,943 283,894 262,376
---------- ---------- ----------
Europe, Middle East and Africa
Sales $ 614,842 $ 511,444 $ 444,885
Cost of sales and expenses 311,025 258,676 214,439
---------- ---------- ----------
Operating contribution 303,817 252,768 230,446
---------- ---------- ----------
Asia Pacific
Sales $ 234,424 $ 273,581 $ 231,625
Cost of sales and expenses 124,518 127,712 96,323
---------- ---------- ----------
Operating contribution 109,906 145,869 135,302
---------- ---------- ----------
Corporate
Sales $ 176,256 $ 186,207 $ 126,433
Cost of sales and expenses 697,820 626,491 386,854
---------- ---------- ----------
Operating contribution (521,564) (440,284) (260,421)
---------- ---------- ----------
Total
Sales $1,790,705 $1,620,620 $1,376,727
Cost of sales and expenses 1,547,603 1,378,373 1,009,024
---------- ---------- ----------
Operating contribution 243,102 242,247 367,703
Restructuring costs (118,030) (181,444) --
Purchased research
and development in process -- (52,762) (96,940)
---------- ---------- ----------
Income from operations 125,072 8,041 270,763
Non-operating income 176,045 47,273 8,990
Provision for income taxes (121,303) (73,001) (117,718)
Non-controlling interest (653) (631) (5,118)
---------- ---------- ----------
Net earnings (loss) $ 179,161 $ (18,318) $ 156,917
========== ========== ==========
</TABLE>
Page 69
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
The Company manages its assets by geographic region, rather than through the
operating segments. Decision making and performance assessment with regard to
assets is done on a geographic basis because the operating segments may share
assets and accountability by operating segment would be less readily
determinable.
<TABLE>
<CAPTION>
Years Ended
----------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Identifiable Assets
Canada $1,290,601 $ 685,315 $ 405,126
United States 444,356 480,148 397,808
Europe 414,487 499,361 370,875
Asia Pacific 187,486 183,507 218,015
Latin America 133,694 118,494 104,879
---------- ---------- ----------
$2,470,624 $1,966,825 $1,496,703
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Years Ended
----------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Capital Expenditure
Canada $ 143,590 $ 176,276 $ 81,678
United States 30,903 57,877 26,723
Europe 25,494 31,579 18,115
Asia Pacific 5,875 6,861 3,081
Latin America 8,041 4,185 2,044
---------- ---------- ----------
$ 213,903 $ 276,778 $ 131,641
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Years Ended
----------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Amortization
Canada $ 110,863 $ 74,070 $ 54,271
United States 31,097 23,558 17,381
Europe 29,487 20,810 8,338
Asia Pacific 5,966 3,955 1,096
Latin America 5,134 3,036 1,902
---------- ---------- ----------
$ 182,547 $ 125,429 $ 82,987
========== ========== ==========
</TABLE>
Page 70
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
Export sales from operations in Canada (excluding inter-subsidiary sales) were
as follows.
<TABLE>
<CAPTION>
Years Ended
------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Latin America $152,210 $171,245 $169,377
Asia Pacific 7,786 48,010 49,166
-------- -------- --------
$159,996 $219,255 $218,543
======== ======== ========
</TABLE>
Sales to Siemens A.G. and subsidiaries, generally under OEM arrangements for
resale to end users, were 18% of sales for fiscal 1999, 16% of total sales for
fiscal 1998 and were 18% of total sales in fiscal 1997.
The following table illustrates, for the periods indicated, the percentage of
sales that comprise each of the Company's major product lines.
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
WAN Packet products 59% 46% 33%
Circuit switched networking products 38 41 57
LAN Packet products 3 13 10
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
21. Litigation
In the fourth quarter of fiscal 1998 the Company reached an agreement in
principle to settle the class action lawsuit which was filed in United States
District Court in Washington, D.C. during the fiscal year ended April 30, 1995.
The lawsuit 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. The Court entered an order and
final judgement approving the settlement and dismissing the lawsuit with
prejudice in October 1998. The Company recorded the expense in connection with
the settlement of $2,642,000 in the fourth quarter of fiscal 1998, which
represents the direct costs incurred.
Lucent Technologies Inc. ("Lucent Technologies") filed a complaint during the
fiscal year ended April 30, 1998 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 some of the standardized functions on the
Newbridge frame relay and ATM switch products, along with its ADPCM (adaptive
Page 71
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
differential pulse code modulation) and card initialization implementations,
infringe certain United States patent rights claimed by Lucent Technologies.
The Complaint requests actual and trebled damages in an unspecified amount.
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. The
Company has filed an answer to the Complaint and is defending this action
vigorously. 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.
22. Uncertainty Due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information that
uses year 2000 dates is processed. In addition, similar problems may arise in
some systems that use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure that could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
23. Subsequent Events
In May 1999, the Company completed its investment in TeraBridge Technologies
Corporation ("Terabridge"), which specializes in delivering intelligent call and
service control products to service providers and is headquartered in Gurnee,
Illinois. The Company acquired a 19% equity ownership position for US$60,000,000
(Cdn$90,511,000) and has an option to increase its equity ownership position to
50% for US$10,000,000.
In June 1999, the Company announced a definitive agreement to acquire Stanford
Telecommunications Inc. ("STII") (STII: NASDAQ), a leading supplier of broadband
wireless technology and products. The net purchase price of the acquisition is
estimated at US$280,000,000 (Cdn$ 411,740,000) which represents the gross
purchase price of approximately US$490,000,000 (Cdn$720,545,000) net of proceeds
from the divestiture of divisions of STII that are unrelated to the Company's
core business. The boards of directors of the Company and STII have approved an
agreement and plan of merger, subject to conditions including approval by STII's
stockholders, whereby the Company will acquire all of the outstanding shares of
common stock of STII in a tax-free, stock-for-stock exchange. Under the
agreement STII stockholders will receive for each share of common stock US$30 in
the Company stock plus a contingent value right (CVR) which will give them a
participation in the proceeds on the sale of other operations above a minimum
amount. This participation will also be payable in the form of the Company
common shares. The CVR is expected to have a value of up to US$5 per share.
Page 72
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
For the purpose of this transaction, the value of a Newbridge common share shall
equal the ten-day average closing price on the New York Stock Exchange, ending
on the fifth trading day immediately preceding STII's stockholder vote, expected
in October. If the Newbridge stock price, pursuant to this calculation, is below
US$24 and the Company does not exercise its right to adjust the exchange ratio,
STII's board will be permitted to terminate the Agreement.
Page 73
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
The quarterly financial data for the fiscal years ended May 2, 1999 and April
30, 1998 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 1998 Quarters Ended Fiscal 1999 Quarters Ended
-------------------------------------- -----------------------------------
Aug 3, Nov 2, Feb 1, Apr 30, Aug 2, Nov 1, Jan 31, May 2,
1997 1997 1998 1998 1998 1998 1999 1999
---- ---- ---- ---- ---- ---- ---- ----
(Canadian dollars, amounts in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $434,738 $432,169 $ 358,520 $395,193 $426,056 $456,781 $450,753 $457,115
Gross margin 274,008 272,368 213,707 235,472 274,008 267,457 262,791 259,089
Net earnings (loss)/(1)/ 64,354 57,993 (144,283) 3,618 35,520 53,314 120,119 (29,792)
Earnings (loss) per share
Basic $ 0.37 $ 0.33 $ 0.82 $ 0.02 $ 0.20 $ 0.30 $ 0.68 $ (0.17)
Fully diluted $ 0.36 $ 0.33 $ 0.82 $ 0.02 $ 0.20 $ 0.30 $ 0.64 $ (0.17)
Weighted average number of shares
Basic 172,964 174,733 175,376 175,598 176,105 176,766 177,596 180,105
Fully diluted 189,082 174,733 175,376 175,598 176,105 176,766 199,951 180,105
U.S. GAAP
Net earnings (loss)/(1)/ $ 64,354 $ 57,993 $(170,664) $ 29,999 $ 35,520 $ 53,314 $120,119 $(29,792)
Earnings (loss) per share/(2)/
Basic $ 0.37 $ 0.33 $ (0.97) $ 0.17 $ 0.20 $ 0.30 $ 0.68 $ (0.17)
Diluted $ 0.36 $ 0.32 $ (0.97) $ 0.17 $ 0.20 $ 0.30 $ 0.66 $ (0.17)
Diluted - US$ US$ 0.26 US$ 0.23 US$ (0.68) US$ 0.12 US$ 0.14 US$ 0.20 US$ 0.43 US$ (0.11)
Weighted average number of shares
Basic 172,964 174,733 175,376 175,598 176,105 176,766 177,596 180,105
Diluted 179,821 182,728 175,376 175,598 176,105 176,766 182,030 180,105
</TABLE>
_____________
(1) Includes non-recurring gains and charges. See Notes 14, 15 and 16 to the
Consolidated Financial Statements.
(2) See Note 18 to the Consolidated Financial Statements.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Page 74
<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 17,
1999 are:
<TABLE>
<CAPTION>
Name and Municipality of Residence Age Position
- ---------------------------------- --- --------
<S> <C> <C>
Terence H. Matthews 56 Chairman of the Board, Chief Executive
Kanata, Ontario, Canada Officer and Director
Peter D. Charbonneau 45 Vice Chairman of the Board
Ottawa, Ontario, Canada and Director
Alan G. Lutz 53 President, Chief Operating Officer
McLean, Virginia, USA and Director
James D. Arseneault 39 Executive Vice President Internetworking
Woodlawn, Ontario, Canada Products Group
Satjiv S. Chahil 49 Executive Vice President, Marketing
Los Altos, California, USA
Pearse J. Flynn 36 Executive Vice President and General
Graystones, Kirkmalcolm, Scotland Manager, European Region
Roger K.Y. Fung 46 Executive Vice President and General
Happy Valley, Hong Kong Manager, Asia Pacific Region
Giulio M. Gianturco 43 Executive Vice President and General
Sudbury, Massachusetts, USA Manager, Americas Region
Brian M. Jervis 48 Executive Vice President, Switching
Almonte, Ontario, Canada Product Group
Conrad W. Lewis 46 Executive Vice President, Access
Stittsville, Ontario, Canada Products Group
Dr. Donald Mills 65 Corporate Vice President, Administration
Kanata, Ontario, Canada and Director
Peter A. Nadeau 43 Corporate Vice President and
Ottawa, Ontario, Canada General Counsel
Kenneth B. Wigglesworth 35 Executive Vice President, Finance and
Kanata, Ontario, Canada Chief Financial Officer
</TABLE>
All of the above mentioned executive officers, with the exception of Alan G.
Lutz, Satjiv S. Chahil, Pearse J. Flynn, Giulio M. Gianturco, and Brian M.
Jervis, have been employed by the Company in various capacities during the past
five years.
Alan G. Lutz joined the Company in June 1998 as President, Chief Operating
Officer and a Director of the Company. Prior to joining the Company, Mr. Lutz
was Senior Vice President and Group General Manager, Communication Products
Group for Compaq Computer, a worldwide information technology company and
supplier of personal computers, since
Page 75
<PAGE>
November 1996. He served as Executive Vice President, Unisys Corporation and
President, Computer Systems Group from May 1994 to October 1996.
Satjiv S. Chahil joined Newbridge in February 1999 as Executive Vice President,
Marketing. Prior to joining the Company, Mr. Chahil was President of Chahil.com,
a marketing consulting organization based in California's Silicon Valley, since
May 1997. From August 1992 to April 1997 Mr. Chahil was an executive at Apple
Computer Inc., a leading personal computer company, and most recently was
Corporate Senior Vice President responsible for Worldwide Marketing and
Corporate Communications. Mr. Chahil also has extensive experience in global
sales and marketing roles at IBM and Xerox.
Pearse J. Flynn joined the Company in February 1999 as Executive Vice President,
European Region. Prior to joining the Company, from June 1987 to January 1999,
Mr. Flynn served in various capacities at Compaq Computer Corporation, a leading
information technology company and supplier of personal computers. Most
recently, Mr. Flynn held the position Vice President, Worldwide Channel
Services.
Giulio M. Gianturco joined the Company in November 1998 as Executive Vice
President and General Manager, Americas Region. Prior to joining the Company,
from January 1998 to November 1998, Mr. Gianturco served as President, Digital
Networks Products Group at Cabletron Systems, a supplier of LAN and WAN
equipment. From June 1995 to January 1998 he served in various capacities at
Digital Equipment Corporation ("DEC"), a worldwide information technology
company, most recently as Vice President - Americas. From November 1991 until
joining DEC, Mr. Gianturco served as National Channel Manager at AT&T, a nation
wide service provider in the USA, in their Global Business Communications unit.
Brian M. Jervis joined Newbridge in November 1998 as Executive Vice President,
Switching Products Group. During the five years prior to joining the Company Mr.
Jervis served in various capacities at Northern Telecom Limited, most recently
as Senior Vice President and General Manager of Magellan Passport/DPN (Data
Packet Networks).
<TABLE>
<CAPTION>
Name and Municipality of Residence Age Position
- ---------------------------------- --- --------
<S> <C> <C>
Dr. Denzil J. Doyle 67 Director
Kanata, Ontario, Canada
Alan D. Horn 47 Director
Toronto, Ontario, Canada
Trevor G. Jones 60 Director
Willowdale, Ontario, Canada
Graham C. C. Miller 68 Director
Cotuit, Massachusetts, USA
Kent H. E. Plumley 62 Director
Kanata, Ontario, Canada
Dr. John C. J. Thynne 67 Director
London, England
</TABLE>
Page 76
<PAGE>
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. Mr. Matthews also serves as Chairman of the Board of Directors for
Crosskeys Systems Corporation and Tundra Semiconductor Corporation.
Peter D. Charbonneau has been Vice Chairman of the Board of the Company since
June 1998 and a Director of the Company since December 1996. Mr. Charbonneau was
President and Chief Operating Officer of the Company from December 1996 to June
1998. 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. Mr. Charbonneau is also a director of Crosskeys Systems
Corporation.
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 Chairman of the Directors' Affairs Committee and a member of
the Audit Committee of the Board of Directors of the Company.
Graham C. C. Miller has been a Director of the Company since September 1987. Mr.
Miller is Chairman Emeritus of LTX Corporation, a manufacturer of semiconductor
testing equipment, was Chairman of the Board of Directors from 1976 through to
1998, 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 Corporate 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.
Dr. John C. J. Thynne has been a Director of the Company since April 1992. Dr.
Thynne has been Managing Director of Camrose Consultancy Services since January
1991. Dr. Thynne is a member of the Audit Committee and Employee Compensation
Committee of the Board of Directors of the Company.
Page 77
<PAGE>
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 23, 1999.
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 17, 1999 (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 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 23, 1999.
<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 39,710,908 nil 39,726,908/(2)/ 22.02%
Kanata, Ontario
FMR Corp. 18,375,407 nil 18,375,407/(3)/ 10.18%
Boston, Massachusetts, USA
Donald Mills 784,016 1,325 801,341/(4)/ *
Kent H. E. Plumley 289,187 24,500 358,909/(5)/ *
Peter D. Charbonneau 28,000 102,250 283,650/(6)/ *
Alan G. Lutz 10,000 166,666 176,666 *
John C. J. Thynne 34,000 17,000 51,000 *
Graham C. C. Miller 35,616 10,500 46,116/(7)/ *
Denzil J. Doyle 29,000 10,500 43,200/(8)/ *
Trevor G. Jones 8,000 12,000 20,000 *
Alan D. Horn nil nil nil
</TABLE>
Page 78
<PAGE>
All directors and executive
officers as a group (19 persons) 41,045,225 529,723 41,810,220/(9)/ 23.17%
_______________
* Less than 1%
(1) Shares issuable upon exercise of stock options that are exercisable within
60 days of June 17, 1999.
(2) Includes 4,974,000 shares owned directly; 16,000 shares beneficially owned
through his wife, as to which shares he disclaims beneficial ownership;
32,379,153 shares beneficially owned through control of Wesley Clover
Corporation; 1,745,920 shares beneficially owned through 2874806 Canada
Inc.; 595,000 shares beneficially owned through control of 3090-8081
Quebec Inc.; 16,835 shares beneficially owned through 2985314 Canada Inc.,
and 1,745,920 shares beneficially owned through 2874814 Canada Inc.
(3) Shares held by Fidelity Management & Research Company, an investment
advisor registered under Section 203 of the Investment Advisors Act of
1940, as amended, and a subsidiary of FMR Corp.
(4) Includes 16,000 shares beneficially owned through his wife, as to which
shares he disclaims beneficial ownership.
(5) Includes 42,872 shares and 2,350 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 153,400 shares beneficially owned through his wife, as to which
shares he disclaims beneficial ownership.
(7) Includes 35,616 shares owned jointly with his wife.
(8) Includes 3,500 shares beneficially owned through his wife, as to which
shares he disclaims beneficial ownership.
(9) Includes, in the aggregate, 232,922 shares and 2,350 shares issuable
within 60 days of June 17, 1999 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 holders 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 17, 1999.
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 23, 1999.
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 79
<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
----
<S> <C>
Financial Statements
Auditors' Report to the Shareholders............................. 44
Consolidated Statements of Earnings and
Retained Earnings for the years
ended May 2, 1999, and April 30, 1998 and 1997................. 45
Consolidated Balance Sheets as at
May 2, 1999 and April 30, 1998................................ 46
Consolidated Statements of Cash Flows for the
years ended May 2, 1999, and April 30 1998 and 1997............ 47
Consolidated Statements of Shareholders' Equity for the
years ended May 2, 1999, and April 30 1998 and 1997............ 48
Notes to the Consolidated Financial Statements................... 49
Selected Quarterly Financial Data (unaudited)...................... 74
</TABLE>
(b) The Registrant filed no reports on Form 8-K during the fourth quarter
of the fiscal year ended May 2, 1999.
(c) The following exhibits are filed or incorporated by reference as part
of this Report (Exhibit 10.1 and 10.2 are compensatory plans or
arrangements):
3.1 Articles of Amalgamation.
3.2 By-Law No. 3./(1)/
10.1 Newbridge Networks Corporation Consolidated Key Employee
Stock Option Plan, as amended./(2)/
10.2 Newbridge Networks Corporation 1999 Key Employee Stock
Option Plan./(2)/
10.3--
10.7 [Reserved]
10.8 Credit Facilities Letter dated December 19, 1997 between
Newbridge Networks Corporation and Royal Bank of
Canada./(3)/
10.9 Loan Agreement dated January 30, 1998 between Newbridge
Networks Corporation and Citibank Canada./(2)/
10.10 Note Purchase Agreement dated April 28, 1998 between
Newbridge Networks Corporation and the Purchasers named
therein./(2)/
10.11--
10.13 [Reserved]
Page 80
<PAGE>
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./(1)/
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 Reserved
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./(1)/
10.23 Sublease dated October 1, 1996 for 20,718 square feet, more
or less, at 350 Terry Fox Drive, Kanata, Ontario./(1)/
10.23a Letter Agreement dated March 12, 1998 amending Sublease
referred to in Exhibit 10.23.
10.24 Non-Competition Agreement between Terence Matthews and
Newbridge Networks Corporation dated October 14, 1987.
10.25 Employment Agreement between Alan G. Lutz and Newbridge
Networks Corporation dated May 21, 1998./(2)/
10.26 Lease amendment between Kanata Research Park Corporation and
Newbridge Networks Corporation dated January 7, 1998 for
10,930 square feet at 555 Legget Drive.
10.27 Lease amendment between Crosskeys Systems Corporation,
Kanata Research Park Corporation and Newbridge Networks
Corporation dated September 21, 1998.
Page 81
<PAGE>
10.28 Lease assignment dated November 5, 1998 between Castleton
Network Systems Corporation, Kanata Research Park
Corporation and Newbridge Networks Corporation.
10.29 Lease agreement between Kanata Research Park Corporation and
Newbridge Networks Corporation dated February 26, 1999
amending Sublease referred to in Exhibit 10.17.
10.30 Lease agreement between Kanata Research Park Corporation and
Newbridge Networks Corporation dated March 15, 1999 for
6,832 square feet at 555 Legget Drive.
10.31 Lease agreement between Kanata Research Park Corporation and
Newbridge Networks Corporation dated March 15, 1999 for
1,151 square feet at 555 Legget Drive.
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 23,
1999, 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 Annual Report on Form 10-K
(File No. 1-13316) for the fiscal year ended April 30, 1997.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
(File No. 1-13316) for the fiscal year ended April 30, 1998.
(3) Incorporated by reference to the Company's Quarterly Report on Form
10-Q (File No. 1-13316) for the fiscal quarter ended February 1, 1998.
(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.
Page 82
<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 17, 1999 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 17, 1999 By: /s/ Terence H. Matthews
-----------------------
Terence H. Matthews,
Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer)
Date: June 17, 1999 By: /s/ Kenneth B. Wigglesworth
---------------------------
Kenneth B. Wigglesworth,
Executive Vice President, Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: June 17, 1999 By: /s/ Alan G. Lutz
----------------
Alan G. Lutz,
President, Chief Operating Officer
and Director
Page 83
<PAGE>
Date: June 17, 1999 By: /s/ Peter D. Charbonneau
------------------------
Peter D. Charbonneau,
Vice Chairman of the Board
and Director
Date: June 17, 1999 By: /s/ Dr. Denzil J. Doyle
-----------------------
Dr. Denzil J. Doyle,
Director
Date: June 17, 1999 By: /s/ Alan D. Horn
----------------
Alan D. Horn,
Director
Date: June 17, 1999 By: /s/ Trevor G. Jones
-------------------
Trevor G. Jones,
Director
Date: June 17, 1999 By: /s/ Graham C. C. Miller
-----------------------
Graham C. C. Miller,
Director
Date: June 17, 1999 By: /s/ Dr. Donald Mills
--------------------
Dr. Donald Mills,
Corporate Vice President and Director
Date: June 17, 1999 By: /s/ Kent H. E. Plumley
---------------------
Kent H. E. Plumley,
Director
Date: June 17, 1999 By: /s/ Dr. John C. J. Thynne
-------------------------
Dr. John C. J. Thynne,
Director
Page 84
<PAGE>
EXHIBIT INDEX
Exhibit
No. Page
- --- ----
3.1 Articles of Amalgamation. 88
3.2 By-Law No. 3./(1)/
10.1 Newbridge Networks Corporation Consolidated Key Employee Stock
Option Plan, as amended./(2)/
10.2 Newbridge Networks Corporation 1999 Key Employee Stock Option
Plan./(2)/
10.3--
10.7 [Reserved]
10.8 Credit Facilities Letter dated December 19, 1997 between
Newbridge Networks Corporation and Royal Bank of Canada./(3)/
10.9 Loan Agreement dated January 30, 1998 between Newbridge
Networks Corporation and Citibank Canada./(2)/
10.10 Note Purchase Agreement dated April 28, 1998 between Newbridge
Networks Corporation and the Purchasers named therein./(2)/
10.11--
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./(1)/
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 [Reserved]
10.20 Lease dated May 1, 1995 for 1,882 square feet, more or less,
at 362 Terry Fox Drive, Kanata, Ontario./(4)/
Page 85
<PAGE>
Exhibit
No. Page
- --- ----
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./(1)/
10.23 Sublease dated October 1, 1996 for 20,718 square feet, more
or less, at 350 Terry Fox Drive, Kanata, Ontario./(1)/
10.23a Letter Agreement dated March 12, 1998 amending Sublease
referred to in Exhibit 10.23./(2)/
10.24 Non-Competition Agreement between Terence Matthews and
Newbridge Networks Corporation dated October 14, 1987. 108
10.25 Employment Agreement between Alan G. Lutz and Newbridge
Networks Corporation dated May 21, 1998./(2)/
10.26 Lease amendment between Kanata Research Park Corporation and
Newbridge Networks Corporation dated January 7, 1998 for
10,930 square feet at 555 Legget Drive. 114
10.27 Lease amendment between CrossKeys Systems Corporation,
Kanata Research Park Corporation and Newbridge Networks
Corporation dated September 21, 1998. 119
10.28 Lease assignment dated November 5, 1998 between Castleton
Network Systems Corporation, Kanata Research Park Corporation
and Newbridge Networks Corporation. 123
10.29 Lease agreement between Kanata Research Park Corporation and
Newbridge Networks Corporation dated February 26, 1999
amending Sublease referred to in Exhibit 10.17. 128
10.30 Lease agreement between Kanata Research Park Corporation and
Newbridge Networks Corporation dated March 15, 1999 for 6,832
square feet at 555 Legget Drive. 133
10.31 Lease agreement between Kanata Research Park Corporation and
Newbridge Networks Corporation dated March 15, 1999 for 1,151
square feet at 555 Legget Drive. 181
11.1 Computation of earnings per share under accounting principles
generally accepted in Canada. 227
11.2 Computation of earnings per share under accounting principles
generally accepted in the United States. 228
21 Subsidiaries of the Registrant. 229
23 Consent of Independent Accountants. 230
Page 86
<PAGE>
Exhibit
No. Page
- --- ----
27 Financial Data Schedule. 231
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 23,
1999, 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 Annual Report on Form 10-K
(File No. 1-13316) for the fiscal year ended April 30, 1997.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
(File No. 1-13316) for the fiscal year ended April 30, 1998.
(3) Incorporated by reference to the Company's Quarterly Report on Form
10-Q (File No. 1-13316) for the fiscal quarter ended February 1, 1998.
(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.
(6) 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.
Page 87
<PAGE>
EXHIBIT 3.1
Page 88
<PAGE>
Industry Canada Industrie Canada
Certificate Certificat
of Amalgamation de fusion
Canada Business Loi canadienne sur
Corporations Act les societes par actions
NEWBRIDGE NETWORKS CORPORATION
SOCIETE PAR ACTIONS DE REGIME FEDERAL
DE RESEAUX NEWBRIDGE 299165-9
Name of corporation-Denomination de la societe Corporation
number-Numero de la societe
I hereby certify that the above-named Je certifie que la societe
susmentionnee
corporation resulted from an amalgamation, est issue d'une fusion, en
vertu de
under section 185 of the Canada Business l'article 185 de la Loi
Canadienne sur
Corporations Act, of the corporations set les societes par actions,
out in des societes
the attached articles of amalgamation. Les statuts de fusion ci-
joints.
Director - Directeur January 6, 1994/le 6 janvier
1994
Date of Amalgamation - Date
de fusion
Page 89
<PAGE>
Industry Canada Industrie Canada FORM 9
FORMULE 9
Canada Business Loi regissant les societes ARTICLES OF AMALGAMATION
STATUTS DE FUSION
Corporations Act par actions de regime federal (SECTION 185)
(ARTICLE 185)
1 - Name of amalgamated corporation Denomination de la
societe issue de la fusion
NEWBRIDGE NETWORKS CORPORATION
SOCIETE PAR ACTIONS DE REGIME FEDERAL DE RESEAUX NEWBRIDGE
2 - The place in Canada where the registered office is to Lieu au Canada ou
doit etre situe le siege social
be situated
Regional Municipality of Ottawa-Carleton
3 - The classes and any maximum number of shares that the Categories et tout
nombre maximal d'actions que la societe est
corporation is authorized to issue autorisee a ernettre
See attached Schedule A
4 - Restrictions, if any, on share transfers Restrictions sur le
transfert des actions, s'il y alieu
None
5 - Number (or minimum and maximum number) of directors Nombre (ou nombre
minimal et maximal) d'administrateurs
Minimum of one (1) - maximum of fifteen (15)
6 - Restricitions, if any, on business the corporation may carry on Limites
imposees a l'activite commerciale de la societe, s'il y
lieu
None
7 - Other provisions, if any Autres dispositions, s'il y a lieu
See attached Schedule B
8 - The amalgamation has been approved pursuant to that section La fusion a ete
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approuvee en accord avec l'article ou le
or subsection of the Act which is indicated as follows: paragraphe de la Loi
indique ci-apres.
183
X 184(1)
184(2)
9 - Name of the amalgamating corporations Corporation No. Signature
Date Title
Denomination des societes fusionnantes No de la societe Titre
NEWBRIDGE NETWORKS CORPORATION 270281-9 James C. Avis
Jan. 6/94 Secretary
ELCOMBE SYSTEMS LIMITED 268981-2 James C. Avis Jan. 6/94
Secretary
For Departmental Use Only - A L'Usage du ministrie seulement Filed - Deposee
Corporation No. - No de la societe
299165-9 January 10, 1994
SCHEDULE "A"
3. The classes and any maximum number of shares that the Corporation is
authorized to issue:
COMMON SHARES
- -------------
(a) an unlimited number of Common Shares without nominal or par value (the
"Common Shares"), the holders of which are entitled:
(i) to one vote per share at all meetings of shareholders, except
meetings at which only holders of a specified class of shares are
entitled to vote;
(ii) subject to the rights, privileges, restrictions and conditions
attaching to any other class or series of shares of the Corporation,
to receive any dividends declared and payable by the Corporation on
the Common Shares; and
(iii) subject to the rights, privileges, restrictions and conditions
attaching to any other class or series of shares of the Corporation,
to receive the remaining property of the Corporation upon a
liquidation, dissolution or winding-up of the Corporation;
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PREFERRED SHARES
(b) an unlimited number of Preferred Shares without nominal or par value (the
"Preferred Shares") which, as a class, have attached thereto the following
rights, privileges, restrictions and conditions:
(i) the directors of the Corporation may, at any time and from time to
time, issue the Preferred Shares in one or more series, each series
to consist of such number of shares as may before issuance thereof
be fixed by the directors;
(ii) the directors of the Corporation may (subject as hereinafter
provided) from time to time before issuance determine the
designation, rights, privileges, restrictions and conditions to
attach to the Preferred Shares of each series including, without
limiting the generality of the foregoing, the rate, amount or method
of calculation of dividends, whether cumulative or non-cumulative or
partially cumulative, and whether such rate, amount or method of
calculation shall be subject to change or adjustment in the future,
the currency or currencies of payment, the date or dates and place
or places of payment thereof, the rights of retraction, if any,
vested in the holder of Preferred Shares of such series, and the
prices and the other terms and conditions of any rights of
retraction and whether any additional rights of retraction may be
vested in such holders in the future, voting rights (if any) and
conversion rights (if any) and any sinking fund, purchase fund or
other provisions attaching to the Preferred Shares of such series,
the whole subject to the issue by the Director, Corporations Branch,
Department of Consumer and Corporate Affairs, of a certificate of
amendment in respect of articles of amendment in prescribed form to
designate a series of shares;
(iii) when any fixed cumulative dividends or amounts payable on a return
of capital are not paid in full, the Preferred Shares of all series
shall participate rateably in respect of such dividends including
accumulations, if any, in accordance with amounts which would be
payable on the Preferred Shares if all such dividends were declared
and paid in full, and on any return of capital in accordance with
sums which would be payable on such return of capital if all amounts
so payable were paid in full;
(iv) the Preferred Shares of each series shall rank on a parity with the
Preferred Shares of every other series with respect to priority in
payment of dividends and in the distribution of assets in the event
of liquidation, dissolution or winding-up of the Corporation,
whether voluntary or
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involuntary;
(v) in the event of the liquidation, dissolution or winding-up of the
Corporation or other distribution of assets of the Corporation among
shareholders for the purpose of winding-up its affairs, the holders
of the Preferred Shares shall, before any amount shall be paid to or
any property or assets of the Corporation shall be distributed among
the holders of the Common Shares or any other shares of the
Corporation ranking junior to the Preferred Shares, be entitled to
receive (a) an amount equal to the amount of the redemption price
specified therefor, together with, in the case of cumulative
Preferred Shares all unpaid cumulative dividends (which for such
purpose shall be calculated as if such cumulative dividends were
accruing from day to day for the period from the expiration of the
last period for which cumulative dividends have been paid up to and
including the date of distribution) and in the case of non-
cumulative dividends, all declared and unpaid non-cumulative
dividends, and (b) if such liquidation, dissolution, winding-up or
distribution shall be voluntary, an additional amount equal to the
premium, if any, which would have been payable on the redemption of
the said Preferred Shares if they had been called for redemption by
the Corporation on the date of liquidation, dissolution, winding-up
or distribution and, if said Preferred Shares couldnot be redeemed
on such date, then an additional amount equal to the greatest
premium, if any, which would have been payable on the redemption of
said Preferred Shares;
(vi) no dividends shall at any time be declared or paid on or set apart
for payment on the Common Shares or any other shares of the
Corporation ranking junior to the Preferred Shares unless all
dividends up to and including the dividend payable for the last
completed period for which such dividends shall be payable on each
series of Preferred Shares then issued and outstanding shall have
been declared and paid or set apart for payment at the date of such
declaration or payment or setting apart for payment on the Common
Shares or such other shares of the Corporation ranking junior to the
Preferred Shares nor shall the Corporation call for redemption or
redeem or purchase for cancellation or reduce or otherwise pay off
any of the Preferred Shares (less than the total amount then
outstanding) or any Common Shares or any other shares of the
Corporation ranking junior to the Preferred Shares unless all
dividends up to and including the dividend payable for the last
completed period for which such dividends shall be payable on each
series of the Preferred Shares then issued and outstanding shall
have been declared and paid or set apart for payment at the date of
such call for redemption, purchase, reduction or other payment;
(vii) the Preferred Shares of any series may be purchased for cancellation
or
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made subject to redemption by the Corporation at such times and at
such prices and upon such other terms and conditions as may be
specified in the rights, privileges, restrictions and conditions
attaching to the Preferred Shares of such series as set forth in the
resolution of the board of directors of the Corporation and
certificate of amendment relating to such series;
(viii) the approval of the holders of the Preferred Shares, given in the
manner described in paragraph (ix) below, shall be required for the
creation of any new shares ranking prior to or on a parity with the
Preferred Shares; and
(ix) the provisions of paragraph (i) to (viii), inclusive, and of this
paragraph (ix) may be repealed, altered, modified, amended or varied
in whole or in part only with the prior approval of the holders of
the Preferred Shares given in the manner hereinafter specified in
addition to any other approval required by the Canada Business
Corporations Act or any other applicable statutory provision of like
or similar effect, from time to time in force. The approval of the
holders of the Preferred Shares with respect to any and all matters
hereinbefore referred to may be given by at least 66-2/3% of the
votes cast at a meeting of the holders of the Preferred Shares duly
called for that purpose and held upon at least 21 days' notice at
which the holders of a majority of the outstanding Preferred Shares
are present or represented by proxy. If at any such meeting the
holders of a majority of the outstanding Preferred Shares are not
present or represented by proxy within-one-half an hour after the
time appointed for such meeting, then the meeting shall be adjourned
to such date being not less than 30 days later and to sucb time and
place as may be appointed by the chairman of the meeting and not
less than 21 days' notice shall be given of such adjourned meeting
but it shall be necessary in such notice to specify the purpose for
which the meeting was originally called. At such adjourned meeting
the holders of the Preferred Shares present or represented by proxy
may transact the business for which the meeting was originally
called and resolution passed thereat by not less than 66-2/3% of the
votes cast at such adjourned meeting and the conduct thereof shall
be from time to time prescribed by the by-laws of the Corporation
with respect to meetings of shareholders. On every poll taken at
every such meeting or adjourned meeting every holder of Preferred
Shares shall be entitled to one vote in respect of each Preferred
Share held by him.
SERIES A PREFERRED SHARES
- -------------------------
(c) The directors of the Corporation hereby fix the number of shares for the
first series of the Preferred Shares at 3,846,155 shares;
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(d) The directors of the Corporation hereby determine that the designation of
the first series of Preferred Shares is Series A Convertible Preferred Shares
(hereinafter called the "Series A Preferred Shares") and that the rights,
privileges, restrictions and conditions attaching to the Series A Preferred
Shares (in addition to the rights, privileges, restrictions and conditions
attaching to the Preferred Shares as a class) shall be as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions In these Articles:
-----------
(a) "Businass Day" in respect of any specified place means any day other than a
------------
Saturday, a Sunday or any other day that is a statutory or civic holiday in such
place;
(b) "close of business," means the normal closing hour of the principal office
------------------
of the Transfer Agent;
(c) "Common Shares" means the common shares of the Corporation;
-------------
(d) "Conversion Price" as at any particular time, means the conversion price
----------------
at which the Series A Preferred Shares are convertible into Common Shares in
accordance with Article 3;
(e) "Conversion Privilege" means the right to convert any of the Series A
--------------------
Preferred Shares into Common Shares in accordance with Article 3;
(f) "Directors" means the board of directors of the Corporation and reference
---------
without more to action by the Directors shall mean action by the Directors as a
board or by any authorized committee thereof;
(g) "herein", "hereto", "hereunder", "hereof", "hereby" and similar expressions
------ ------ --------- ------ ------
mean or refer to these Series A Preferred Share provisions and not to any
particular Section, subsection, subdivision or portion hereof, and the
expressions "Article", "Section" and "subsection", followed by a number and/or
------- ------- ----------
letter mean and refer to the specified Article, Section or subsection hereof;
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(h) "holder", in respect of any share of a specified class or series means the
-----
registered holder thereof; and
(i) "Transfer Agent" means the Company or such person or persons from time to
--------------
time appointed by the Directors as the transfer agent and registrar for the
Series A Preferred Shares and includes any agent of such transfer agent.
1.2 Interpretation
--------------
(a) Words importing the singular number only include the plural and vice versa
and words importing any gender include all genders.
(b) All dollar amounts referred to herein shall be in lawful money of the
United States and on any date, the Canadian dollar equivalent thereto shall be
based on the Bank of Canada noon rate of exchange in effect on the third
Business Day prior to such date.
(c) The division of these Series A Preferred Share provisions into Articles,
Sections, subsections, clauses, subclauses or other subdivisions and insertion
of headings are for convenience of reference only and shall not affect the
construction or interpretation hereof.
(d) In the event that any date upon or by which any action is required to be
taken by the Corporation hereunder is not a Business Day, then such action shall
be required to be taken on or by the next succeeding day which is a Business
Day.
ARTICLE 2
DIVIDENDS
2.1 Payments of Dividends
---------------------
The holders shall have the right to receive such dividends (if any) as the
Directors in their discretion may declare, provided that the Series A Preferred
Shares and the Common Shares shall rank equally as to dividends and all
dividends declared in any fiscal year shall be declared and paid in equal or
equivalent amounts per share on all the Series A Preferred Shares and all the
Common Shares outstanding at the time without preference or distinction.
ARTICLE 3
CONVERSION PRIVILEGE
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3.1 Conversion into Common Shares
-----------------------------
The holder of Series A Preferred Shares shall have the right, at such
holder's option, at any time, to convert any or all of such shares into fully
paid and non-assessable Common Shares at a Conversion Price of $2.60 per Common
Share, such Conversion Price being subject to adjustment from time time as
provided in Section 3.4. The number of Common Shares issuable upon conversion of
any Series A Preferred Shares shall, subject to the exception as to fractions
contained in Section 3.2, be computed by multiplying the number of Series A
Preferred Shares to be converted by $2.60 and dividing the product by the
Conversion Price.
3.2 Conversion Procedure
--------------------
(1) The right to convert any Series A Preferred Shares into Common Shares
may be exercised by surrendering, at any office of the Transfer Agent
at which the Series A Preferred Shares are transferable, the
certificate representing such shares and a notice in writing (which
notice shall be and be deemed to be irrevocable) specifying the
election to convert such Series A Preferred Shares, the number of
Series A Preferred Shares desired to be converted and the name or
names in which the Common Shares resulting from such conversion are
to-be registered. Such notice shall be signed by the holder of such
shares or such holder's agent duly appointed by an instrument in
writing satisfactory to the Transfer Agent. If any of the Common
Shares are to be issued to a person or persons other than the holder
of Series A Preferred Shares, the signature of the holder of such
notice of conversion shall be guaranteed in a manner satisfactory to
the Transfer Agent.
(2) If less than all of the Series A Preferred Shares represented by any
certificate surrendered pursuant to Section 3.2(l) are to be
converted, the holder shall be entitled to receive, at the expense of
the Corporation, a new certificate representing the Series A Preferred
Shares comprised in the certificate so surrendered which are not to be
converted.
(3) Upon the conversion of any Series A Preferred Shares, there shall be
no payment or adjustment by the Corporation or by the holder of such
Series A Preferred Shares on account of any dividend either on the
shares so converted or on the Common Shares resulting from such
conversion.
(4) The share certificates representing the Common Shares resulting from
any conversion of Series A Preferred Shares shall be issued as
promptly as practicable in the name of the holder of the Series A
Preferred Shares so converted, or subject to payment by such holder of
any stock transfer or other applicable taxes, in such name or names as
such holder may direct
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in writing (either in the notice referred to in Section 3.2(l) or
otherwise).
(5) The Conversion Privilege shall be deemed to have been exercised, and
the holder of the Series A Preferred Shares so converted (or any
person or persons in whose name or names such holder shall have
directed certificates representing Common Shares to be issued) shall
be deemed to become a holder of Common Shares of record for all
purposes, on the date of surrender of the certificates representing
the Series A Preferred Shares so converted accompanied by the notice
referred to in Section 3.2(l), notwithstanding any delay in the
delivery of the certificates representing the Common Shares into which
such Series A Preferred Shares have been converted, provided, however,
that in the event the share transfer registers for Common Shares shall
be closed on such date, the surrender of the Series A Preferred Shares
and the conversion thereof to Common Shares shall be effective on the
next succeeding day on which such share transfer registers are open.
3.3 Avoidance of Fractional Shares
------------------------------
In any case where a fraction of a Common Share would otherwise be issuable
upon conversion of one or more Series A Preferred Shares:
(a) the Conversion Privilege shall be deemed to have been exercised only with
respect to that number of Series A Preferred Shares as can be converted into a
whole number of Common Shares; and
(b) the Corporation shall adjust such fractional interest in a Common Share by
the payment by cheque of an amount equal to the product of such fractional
interest and the Conversion Price applicable to the conversion of such Series A
Preferred Shares.
3.4 Adjustment of Conversion Privilege
----------------------------------
(1) Definitions
-----------
In this Section 3.4:
(a) "Additional Common Shares" mean all Common Shares issued by the
------------------------
Corporation after the Original Issue Date and all Common Shares
issuable by the Corporation on the conversion of Convertible
Securities after the Original issue Date, other than Common Shares
issued or issuable:
(i) upon conversion of any Series A Preferred Shares;
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(ii) to officers, directors or employees of, or consultants to,
the Corporation pursuant to a stock option or option plan
or other employee stock incentive programs contemplated by
the Corporation on the Original Issue Date;
(iii) as consideration for the-purchase of intellectual property
rights and technology pursuant to an agreement dated June
9, 1986 between Mr. Terence H. Matthews, Newbridge
Communication Networks Corp. and the Corporation; and
(iv) by way of stock dividend declared pursuant to Section 2.1;
(b) "Convertible Securities" mean any evidences of indebtedness, shares or
---------------------
other securities directly or indirectly convertible into or
exchangeable for Common Shares;
(c) "current market value" of the Common Shares at any date means a price
--------------------
per share equal to the last board lot sale price on The Toronto Stock
Exchange, on the trading day next preceding such date, or, if the
Common Shares are not then listed on The Toronto Stock Exchange, on
such other stock exchange on which such shares are listed as may be
selected for such purpose by the Directors, or,
the Common Shares are not listed on any stock exchange, the current
market value as determined in good faith by the Directors;
(d) "Original Issue date" means October 14, 1987; and
(e) "Option" shall mean any right, option or warrant to subscribe for,
------
purchase or otherwise acquire either Common Shares or Convertible
Securities.
(2) Share Reorganization
--------------------
If and whenever the Corporation shall:
(i) subdivide the outstanding Common Shares into a greater number of
shares; or
(ii) consolidate the outstanding Common Shares into a smaller number of
shares;
(any of such event being herein called "Sharp Reorganization"), the conversion
--------------------
Price shall be adjusted, effective immediately after the record date at which
the holders of Common Shares are determined for the purposes of the Share
Reorganization, or, if no record date is fixed the effective date of the Share
Reorganization, by multiplying the
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Conversion Price in effect on such record or effective date by a fraction of
which:
(A) the numerator shall be the number of Common Shares outstanding on such
record or effective date; and
(B) the denominator shall be the number of Common Shares outstanding after
giving effect to such Share Reorganization, including, in the case of
securities exchangeable for or convertible into Common Shares, the number
of Common Shares that would have been outstanding if such securities had
been exchanged for or converted into Common Shares on such record or
effective date.
(3) Capital Reorganization
----------------------
If and whenever there shall occur a reclassification or redesignation of the
Common Shares or any change of the Common Shares into other shares, otherwise
than in a Share Reorganization (any such event being herein called "Capital
-------
Reorganization"), the holder of any Series A Preferred Shares who exercises the
- --------------
Conversion Privilege after the effective date of Capital Reorganization shall be
entitled to receive and shall accept, upon the exercise of such right, in lieu
of the number of Common Shares to which such holder was theretofore entitled
upon exercise of the Conversion Privilege , the aggregate number of shares Or
other securities or property of the Corporation or of the body corporate
resulting from such Capital Reorganization that such holder would have been
entitled to receive as a result of such Capital Reorganization if, on the
effective date thereof, such holder had been the holder of the number of Common
Shares to which such holder was theretofore entitled upon conversion; provided,
--------
however, that no Capital Reorganization shall bet carried into effect unless all
necessary steps shall have been taken so that the holders of Series A Preferred
Shares shall thereafter be entitled to receive such number of shares or other
securities of the Corporation or of the body corporate resulting from such
Capital Reorganization, subject to adjustment thereafter in accordance with the
provisions of the same, as nearly as may be possible, as those contained in this
Section 3.4 and Section 3.5.
(4) Conversion Price Adjustment
---------------------------
If and whenever the Corporation shall issue Additional Common Shares without
consideration or for a consideration per share less than $2.60 or the market
price of the Series A Preferred Shares, whichever is greater and if such
issuance does not constitute a Share Reorganization or Special Distribution (any
such event being herein called an "Additional Distribution"), the Conversion
-----------------------
Price shall be adjusted concurrently with such issue or deemed issue by
multiplying the Conversion Price by a fraction of which:
(A) the numerator shall be the number of Common Shares outstanding
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immediately prior to such issue excluding any Common Shares which were
issued as a result of any exclusion enumerated in Section 3.4(l)(a) but
including the number of Common Shares which could be purchased based on the
aggregate consideration received by the Corporation for the total number of
Additional Common Shares so issued at the then Conversion Price, and
(B) the denominator shall be the number of Common Shares outstanding
immediately prior to such issue excluding any Common Shares which were
issued as a result of any exclusion enumerated in Section 3.4(l)(a) but
including the number of such Additional Common Shares so issued.
For purposes of this Section 3.4(4), the consideration received by the
Corporation for the issue of any Additional Common Shares shall be computed as
follows:
(X) insofar as it consists of cash, be computed at the aggregate amount of
cash received by the Corporation excluding amounts paid or payable for
accrued interest or accrued dividends;
(Y) insofar as it consists of property other than cash, be computed at the
fair market value thereof at the time of such issue, as determined in
good faith by the directors; and
(Z) in the event Additional Common Shares are issued together with other
shares or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such
consideration so received for the Additional Common Shares, computed
as provided in clauses (M) and (Y) above, as determined in good faith
by the Directors.
(5) Special Distribution
--------------------
If and whenever the Corporation shall issue or distribute to holders of
Common Shares:
(a) shares of the Corporation of any class other than Common Shares;
(b) Options or Convertible Securities;
(c) evidences of indebtedness; or
(d) any other assets (excluding cash dividends);
for less than fair consideration (as determined by the Board of Directors) and
if such issuance or distribution does not constitute a Share Reorganization (any
such event being herein called "Special Distribution "), the Conversion Price
--------------------
shall be adjusted,
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effective immediately after the record date at which the holders of Common
Shares are determined for purposes of the Special Distribution, by multiplying
the Conversion Price in effect on such record date by a fraction of which:
(i) the numerator shall be the difference between:
(A) the product of the number of Common Shares outstanding on such record
date and - the current market value of the Common Shares on such date;
and
(B) the fair market value to the holders of Common Shares, as determined
by the Directors (whose determination shall be conclusive) of the
shares, rights, options, warrants, evidences of indebtedness or other
assets issued or distributed in the Special Distribution, and
(ii) the denominator shall be the product of the number of Common Shares
outstanding on such record date and the current market value of the Common
Shares on such date.
3.5 Adjustment Rules
----------------
The following rules and procedures shall be applicable to adjustments of
the Conversion Privilege made pursuant to Section 3.4:
(a) no adjustment in the Conversion Price shall be required unless such
adjustment would result in a change of at least $0.01 in the
Conversion Price then in effect, provided, however, that any
adjustments which, but for the provisions of this Section 3.5(a) would
otherwise have been required to be made, shall be carried forward and
taken into account in any subsequent adjustments;
(b) no adjustment in the Conversion Price shall be made in respect of any
event described in Section 3.4 (other than an event described in
Section 3.4 (2) (i) or (ii) and in Section 3. 4 (3) ) if the holders
of the Series A Preferred Shares are entitled to participate in such
event on the same terms mutatis mutandis as if they had converted
----------------
their Series A Preferred Shares prior to the effective date of such
event;
(c) no adjustment in the Conversion Price shall be made pursuant to
Section 3.4 in respect of the issue from time to time of Common Shares
to holders of Common Shares who exercise an option to receive
substantially equivalent dividends in Common Shares in lieu of
receiving cash dividends or pursuant to any dividend reinvestment plan
of the
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Corporation;
(d) if a dispute shall at any time arise with respect to any adjustment of
the Conversion Privilege, such dispute shall be conclusively
determined by the auditor of the Corporation or, if they are unable or
unwilling to act, by a firm of independent chartered accountants
selected by the Directors and in any such determination, shall be
binding upon the Corporation and all transfer agents and shareholder's
of the Corporation; and
(e) forthwith after any adjustment of the Conversion Privilege pursuant to
Section 3.4, the Corporation:
(i) file with the Transfer Agent a certificate certifying as to the
particulars of such adjustment and, in reasonable detail, the
event requiring and the manner of determining such adjustment;
and
(ii) give written notice to the holders of Series A Preferred Shares
of the Conversion Privilege following such adjustment.
3.6 Mandatory Conversion
--------------------
After receiving a receipt for a final prospectus for and prior to the
closing of an underwritten public offering of the Common Shares of the
Corporation, the Corporation may at its option, by notice in writing to each of
the holders, require the holders to convert all of the issued and outstanding
Series A Preferred Shares held by such holders into Common Shares at the
Conversion Price. A notice of conversion shall be given by the Corporation not
less than 10 days prior to and shall be subject to the closing of the
underwritten public offering of the Common Shares of the Corporation and shall
specify therein the date fixed for closing such offering and the date upon which
the Series A Preferred Shares will be deemed to be converted into Common Shares
at the Conversion Price.
3.7 Cancellation
------------
All Series A Preferred Shares surrendered upon the exercise of the
conversion right shall be cancelled by the Transfer Agent and the number thereof
shall not be restored to the status of authorized but unissued shares.
3.8 Reservation of Common Shares
----------------------------
So long as any of the Series A Preferred Shares are outstanding and
entitled to the Conversion Privilege and at any time that the authorized number
of Common Shares is not unlimited, the Corporation shall reserve and at all
times hold out of its
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unissued Common Shares, against the Conversion Privilege herein conferred upon
the holders of the Series A Preferred Shares, a sufficient number of unissued
Common Shares to be converted upon the basis and upon the terms and conditions
provided in this Article 3.
3.9 Compliance with Laws
--------------------
If any Common Shares reserved or to be reserved for the purpose of
conversion of the Series A Preferred Shares hereunder, require registration with
or approval of any governmental authority under any Canadian or Provincial law
before such shares may be validly issued upon conversion, the Corporation will
take such action as may be necessary to secure such registration or approval, as
the case may be.
ARTICLE 4
VOTING RIGHTS
4.1 Voting Rights
-------------
Each holder shall be entitled to receive notice of and to attend any annual
or special meeting of the shareholders of the Corporation and shall be entitled
to one vote for each Series A Preferred Share held by such holder.
ARTICLE 5
LIQUIDATION
5.1 Liquidation
-----------
In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or any other distribution of
assets of the Corporation among its shareholders for the purpose of winding up
its affairs, the holders of the Series A Preferred Shares shall be entitled to
receive, before any distribution of any part of the assets of the Corporation
among the holders of any other shares, an amount equal to $2.60 plus an amount
equal to any dividends declared thereon and unpaid and no more. For the purposes
of this Section 5.1, liquidation includes a disposition of substantially all of
the assets of the Corporation whether by sale, merger or other reorganization.
Upon payment of the amounts so payable to them, the holders of the Series A
Preferred Shares shall not be entitled to share in any further distribution of
assets of the Corporation.
ARTICLE 6
PURCHASE
6.1 Purchase
--------
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Subject to the provisions of applicable law, the Corporation may purchase
at any time all or from time to time any number of the outstanding Series A
Preferred Shares in the open market or pursuant to tenders received by the
Corporation upon invitation for tenders addressed to all holders at the lowest
price or prices which in the opinion of the Directors such shares are obtainable
but not exceeding $2.60 per Series A Preferred Share. If upon any invitation for
tenders, the Corporation receives tenders for Series A Preferred Shares at the
same price in an aggregate number greater than the number for which the
Corporation is prepared to accept tenders, the shares to be purchased shall be
selected from the shares offered at such price as nearly as may be pro rata,
disregarding fractions, according to the number of Series A Preferred Shares
offered in each such tender, in such manner as the Directors in their sole
discretion shall determine.
ARTICLE 7
FURTHER SERIES OF PREFERRED SHARES
7.1 Further Series of Preferred Shares
----------------------------------
So long as the Series A Preferred Shares are outstanding, the Corporation
shall not, without the approval of the holders of the Series A Preferred Shares,
issue any further series of Preferred Shares.
ARTICLE 8
MISCELLANEOUS
8.1 Modification
------------
The rights, privileges, restrictions and conditions attaching to the Series
A Preferred Shares may be repealed, altered, modified, amended or varied in
whole or in part only with the prior approval of the holders of the Series A
Preferred Shares given in the manner provided in Section 8.2 in addition to any
other approval required by the Canada Business Corporations Act or any other
applicable statutory provision of like or similar effect, from time to time in
force.
8.2 Approval
--------
The approval of the holders of the Series A Preferred Shares with respect
to any and all matters hereinbefore referred to may be given by at least 66 2/3%
of the votes cast at a meeting of the holders duly called for that purpose and
held upon at least 21 days notice, at which the holders of a majority of the
outstanding Series A Preferred Shares are present or represented by proxy. If at
any such meeting the holders of a majority of the outstanding Series A Preferred
Shares are not present or represented by proxy within one-half an hour after the
time appointed for such meeting, then the meeting shall be adjourned to such
date being less than 30 days later and to such time and place as may be
appointed the chairman of the meeting and not less than 21 days notice shall be
given for such adjourned meeting but it shall not be necessary in such
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<PAGE>
notice to specify the purpose for which the meeting was originally called. At
such adjourned meeting the holders present or represented by proxy shall
constitute a quorum and may transact the business for which the meeting was
originally called and resolution passed thereat by not less than 66 2/3% of the
votes cast at such adjourned meeting shall be effective notwithstanding that the
holders of a majority of the Series A Preferred Shares are not present or
represented by proxy and the conduct thereof shall be from time to time
prescribed by the by-laws of the Corporation with respect to meetings of
shareholders. On every poll taken at every such meeting or adjourned meeting
every holder shall be entitled to one vote in respect of each Series A Preferred
Share held by him.
8.3 Notices
-------
Any notice required or permitted to be given to a holder shall be mailed by
letter, postage prepaid, or delivered to such holder at his address as it
appears on the records of the Corporation or in the event of the address of any
such holder not so appearing then to the last known address of such holder. The
accidental failure to give notice to one or more of such shareholders shall not
affect the validity of any action requiring the giving of notice by the
Corporation. Any notice given as aforesaid shall be deemed to be given on the
date upon which it is mailed or delivered.
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SCHEDULE "B"
(a) Without in any way limiting the borrowing powers of the directors under the
Canada Business Corporations Act, as amended from time to time, the Board
of Directors may from time to time, in such amounts and on such terms as it
deem expedient:
(i) borrow money on the credit of the Corporation;
(ii) limit or increase the amount to be borrowed;
(iii) issue debentures or other securities of the Corporation;
(iv) pledge or sell such debentures or other securities for such sums and
at such prices as may be deemed expedient;
(v) secure any such debentures, or other securities, or any other
present or future borrowing or liability of the Corporation, by
mortgage, hypothec, charge or pledge of all or any currently owned
or subsequently acquired real and personal, moveable and immoveable,
property of the Corporation, and the undertaking and rights of the
Corporation.
Nothing in this paragraph 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.
The Board of Directors may from time to time delegate to such one or more
of the directors and officers of the Corporation or persons as may be
designated by the Board all or any of the powers conferred on the Board
above -to such extent and in such manner as the Board shall determine at
the time of such delegation.
For greater certainty the foregoing powers conferred on the directors shall
be deemed to include the powers conferred on a company by Division VII of
the Special Corporate Powers Act, being Chapter P-16 of the Revised
Statutes of Quebec, 1977 and every statutory provision that may be
substituted therefor or for any provision therein.
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<PAGE>
STATUTORY DECLARATION
PROVINCE OF ONTARIO ) IN THE MATTER OF the
Canada ) Canada Business Corporations
) Act and in the Articles of
) Amalgamation of Newbridge
) Networks Corporation and
) Elcombe Systems Limited
I, James C. Avis, of the City of Ottawa, in the Province of Ontario do
solemnly declare that:
1. I am the Secretary of Elcombe Systems Limited, one of the amalgamating
corporations (the "Corporation") and as such have personal knowledge of the
matters in this declaration.
2. I have conducted such examinations of the books and records of the
Corporation and have made such inquiries and investigations as are necessary to
enable me to make this declaration.
3. I have satisfied myself that there are reasonable grounds for believing
that:
(a) the Corporation is and the amalgamated corporation Will be able to pay
its liabilities as they become due;
(b) the realizable value of the assets of the amalgamated corporation will
not be less than the aggregate of its liabilities and stated capital of all
classes;
(c) no creditor of the Corporation will be prejudiced by the amalgamation.
And I make this solemn declaration conscientiously believing the same to be
true and knowing that it is of the same force and effect as if made under oath
by virtue of the Canada Evidence Act.
DECLARED before me at the City )
of Ottawa, in the )
Province of Ontario, this 29/th/ )
day of December, 1993. ) /s/ James C. Avis
-----------------
______________________
A Commissioner, etc.
Page 108
<PAGE>
EXHIBIT 10.24
Page 109
<PAGE>
NON-COMPETITION AGREEMENT
THIS AGREEMENT made the 14th day of October, 1987
BETWEEN
TERENCE H. MATTHEWS,
of the City of Kanata,
in the Province of Ontario
(hereinafter called the "Matthews")
AND
NEWBRIDGE NETWORKS CORPORATION,
a corporation incorporated pursuant to the Canada
Business Corporations Act having its registered
office at 1501 Baxter Road, Ottawa, Ontario
(hereinafter called the "Corporation").
WHEREAS Matthews owns or controls a majority of the outstanding
voting shares in the capital of the Corporation; and
WHEREAS it is a condition of the proposed sale of Series A Preferred
Shares of the Corporation to certain investors that Matthews execute and deliver
this Agreement to the Corporation at the time of the closing of the share
purchase transaction contemplated by such sale;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises and sum of $2.00 now paid by each party to the other (the receipt of
which is hereby acknowledged by each of the parties) the parties hereto hereby
respectively covenant and agree as follows:
1. Matthews covenants and agrees with the Corporation that:
(a) he will not at any time while an officer, employee or shareholder
of the Corporation or its affiliates (the "Group Companies") or at any
time within a
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period of two years thereafter either solely or jointly with any
person, directly or indirectly, carry on or be engaged or concerned or
interested or in any way assist in any of the Territories (as
hereinafter defined) in the manufacture, leasing, distribution or sale
of any goods or the supply of any services substantially similar to or
competing with any goods or services which have been manufactured,
leased, distributed, sold or supplied in the normal course of the
business by any of the Group Companies except as a shareholder holding
less than 5.5% of the outstanding shares of any corporation offering
its shares to the public;
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<PAGE>
Page 2
(b) the Territories to which paragraph I (a) shall apply are:
(i) within the Province of Ontario;
(ii) within Canada,
(iii) within North America; and
(iv) within any municipality, city or town, as the case may be,
within which any person, firm, corporation or other entity
which is or has been a customer of the Corporation at any
time within two years preceding the date on which this
Agreement terminates, carries on business;
(c) he will not at any time while an officer, employee or shareholder
of any of the Group Companies or at any time within a period of
two years thereafter, either on his own account or as agent of
any person, canvass or solicit or accept orders for any goods or
services similar to or competing with any goods or services which
have been leased, sold or supplied in the normal course of the
business by any of the Group Companies or induce or endeavour to
induce any such person to cease being a customer of any of the
Group Companies; and
(d) he will not at any time while an officer, employee or shareholder
of any of the Group Companies or at any time within a period of
two years thereafter, either on his own account or as agent of
any person, canvass or solicit for employment any person who is,
or has been an employee of any of the Group Companies or
endeavour to induce any such person to cease being an employee of
any of the Group
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<PAGE>
Companies.
2. Any notice or other instrument required or permitted to be given
to Matthews hereunder shall be in writing and may be given by delivering
the same addressed to Matthews at 7 Oakeswood #3, Kanata, Ontario. Any
notice or other instrument required or permitted to be given to the
Corporation hereunder shall be in writing and may be given by delivering
the same addressed to the Corporation at 1051 Baxter Road, Ottawa, Ontario.
Any notice or other instrument aforesaid if delivered shall be deemed to
have been given or made on the date on which it was delivered. Matthews or
the Corporation may change his or its address for service from time to time
by notice given in accordance with the foregoing.
3. This Agreement shall be governed by and construed in accordance
with the laws of the Province of Ontario and the laws of Canada applicable
therein.
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<PAGE>
Page 3
4. This Agreement is not assignable by either party hereto without the
prior written consent of the other.
5. If any covenant or provision in this Agreement is determined to be
void or unenforceable in whole or in part, it shall not be deemed to affect
or impair the validity of any other covenant or provision hereof and
Matthews hereby agrees that all such covenants and provisions are
reasonable and valid and hereby waives all defences to the strict
enforcement thereof by the
IN WITNESS WHEREOF this Agreement has been executed by the
parties hereto.
SIGNED, SEALED & DELIVERED )
in the presence of: )
)
) /s/ Terence H. Matthews
-----------------------
NEWBRIDGE NETWORKS CORPORATION
Per: /s/ Terence H. Matthews
-----------------------------
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<PAGE>
EXHIBIT 10.26
Page 115
<PAGE>
THIS AGREEMENT made the 7/th/ day of January, 1998
B E T W E E N:
KANATA RESEARCH PARK CORPORATION
(Hereinafter called the "Landlord")
OF THE FIRST PART
AND:
NEWBRIDGE NETWORKS CORPORATION
(Hereinafter called the "Tenant")
OF THE SECOND PART
AMENDMENT TO LEASE
WHEREAS pursuant to a written lease dated the 28th day of July, 1997 (the
"Lease") and pursuant to a written amendment to lease dated the 24th day of
October, 1997 ("Amendment to Lease") Castleton Network Systems Corporation
leased Ten Thousand Nine Hundred and Thirty (10,930) certified rentable square
feet on the sixth (6th) floor of the building known municipally as 555 Legget
Drive (the "Building") from the Landlord.
AND WHEREAS pursuant to paragraph 18:00 of the Lease the Landlord and
Tenant have agreed to relocate the Leased Premises from the sixth (6th) floor to
the seventh (7th) floor of the Building;
THEREFORE in consideration of the rents covenants and conditions contained
herein, the Landlord and Tenant agree as follows:
1. The Landlord and Tenant agree that the Tenant shall relocate to the seventh
(7th ) floor of the Building and vacate the sixth (6th) floor of the
Building effective February 1, 1999.
2. The Lease, as amended, shall be further amended effective February 1, 1999
as follows:
a) Paragraph 1.00 shall be amended by deleting the reference to "Nine
Thousand Six Hundred and Fifty-Five point Nine Four (9,655.94) useable
[Ten thousand Eight Hundred and Fourteen point Six Five (10,814.65)
rentable" and replacing same with "Ten Thousand Nine Hundred and
Ninety-Three point One (10,993.10) certified rentable" and by deleting
the reference to "sixth (6/th/) floor" and replacing same with
"seventh (7/th/) floor)".
b) Notwithstanding the increase in area of the Leased Premises the Tenant
shall continue to pay Annual and Additional Rent based upon the
certified area of the sixth (6th) floor of the Building of Nine
Thousand Seven Hundred and Fifty-Nine (9,759) usable [Ten Thousand
Nine Hundred and Thirty rentable] square feet, therefore the table in
Paragraph 3:00 of the Lease as amended shall be deleted and replaced
with the following:
Rental Rate per For
Square foot For Leased Common Total
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<PAGE>
Years per annum Premises Area per annum
----- --------- -------- ---- ---------
1-5 $ 13.25 $ 129,305.82 $ 15,516.68 $ 144,822.50
b) Schedule "B" shall be replaced with Schedule "B" attached hereto.
c) Schedule "D" shall re replaced with Schedule "D" attached hereto.
d) Schedule "F" shall be deleted.
5. The Tenant shall lease the Leased Premises in an "as is" condition save for
the following work to be performed by the Landlord at the Landlord's
expense:
a) Disconnect all electrified poles relating to the furniture panels on
the sixth (6th) floor of the Building and reconnect same on the
seventh (7th) floor of the Building.
b) Connect existing communications cable infrastructure on the seventh
(7th) floor.
c) Install an additional 135 cable drops on the seventh (7th) floor.
d) Move the Tenant's furniture from the sixth (6th) floor to seventh
(7th) floor.
e) Supply and install mag lock and motion sensor at suite entry door.
f) Activate card reader at suite entry door.
SAVE AND EXCEPT as set out herein all other terms and conditions of the Lease
and Amendment to Lease shall remain unchanged and shall apply to the Leased
Premises and all capitalized terms used herein shall have the same meaning
as in the Lease.
IN WITNESS WHEREOF the parties hereto have affixed their corporate seals
duly attested to by the hands of their authorized signing officers.
SIGNED, SEALED AND DELIVERED
In the Presence of: ) KANATA RESEARCH PARK
) CORPORATION
)
) Per:__________________________________
) Name: Bronwen A. Heins
) Title: President
) I have the authority to bind the corporation.
)
)
) NEWBRIDGE NETWORKS
) CORPORATION
)
) Per:__________________________________
) Name: D. Mills
) Title: Vice President Administration
)
C/S
) Per:__________________________________
) Name: Peter Nadeau
) Title: Vice President, General Counsel
) I/We have the authority to bind the corporation.
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<PAGE>
SCHEDULE "B"
7/th/ Floor Plan
----------------
Page 118
<PAGE>
PARKING
a. During the Term the Landlord hereby agrees to allow the Tenant to park One
(1) vehicle per Three Hundred and Twenty-Three (323) rentable square feet
of Leased Premises, in the parking facilities located on the Lands
("parking facilities"). In the event the Landlord constructs a parking
structure on the Lands, the Tenant shall then be called upon to pay for
parking.
b. 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.
c. 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 119
<PAGE>
EXHIBIT 10.27
Page 120
<PAGE>
THIS AGREEMENT made the 21st day of September, 1998
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
AMENDMENT TO LEASE
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 by written Sublease dated the 1st day of October, 1996 (the
"Sublease"), the Sublandlord subleased to the Subtenant 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 WHEREAS the Subtenant renewed its Sublease the 1st day of October, 1997
for a term of one (1) year.
AND WHEREAS by written Amendment to Lease dated the 12th day of March, 1998
the Subtenant released a part of its Sub-leased Premises whereby the Sub-leased
Premises comprised of sixteen thousand two hundred and eighteen (16,218) usable
[seventeen thousand three hundred and thirty four (17,334) rentable] square
feet.
-2-
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<PAGE>
AND WHEREAS the Subtenant wishes to release a further part of its Sub-
leased Premises and renew the Sublease for a term of twelve (12) months and the
Sublandlord and Landlord are in agreement therewith.
THEREFORE in consideration of the rents covenants and conditions contained
herein, the Sublandlord and Subtenant agree as follows:
1. Effective October 1, 1998 eight thousand five hundred and sixty five (8,565)
usable [nine thousand two hundred and fourteen (9,214) rentable] square feet
shall be released by the Subtenant back to the Sublandlord.
2. The Sublease shall be amended effective October 1, 1998 as follows:
a) The reference to "sixteen thousand two hundred and eighteen (16,218)
usable [seventeen thousand three hundred and thirty four (17,334)
rentable]" shall be replaced with "seven thousand six hundred and
fifty three (7,653) usable [eight thousand one hundred and nineteen
point eighty three (8,119.83) rentable]".
b) Paragraph 1 (b) shall be amended by deleting the table contained
therein and replacing same with the following:
Rental Rate/Sq.Ft. For Sub Leased
Term Per Annum Premises
---------------------------------------------------
1 year $11.25 $91,348.08
c) Paragraph 3 shall be amended by deleting the reference to "eighteen
point twenty eight percent (18.28%) and replacing same with eight
point sixty three percent (8.63%)".
d) Schedule "A" shall be deleted and replaced with Schedule "A" attached
hereto.
3. The Sublandlord hereby renews the Sublease for a term of one (1) year
commencing on the 1st day of October, 1998 and ending on the 30th day of
September, 1999 ("Renewal Term"). The Subtenant shall be liable for any
renovations performed on the Subleased Premises and shall be solely
responsible in returning the Subleased Premises to its pre-subleased state
subject to the Sublandlord's request.
4. Notwithstanding the release of the eight thousand five hundred and sixty five
(8,565) usable square feet of space by the Subtenant to the Sublandlord the
Subtenant
-3-
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<PAGE>
shall be responsible for any year end Additional Rent adjustments for such
space up to September 30, 1998.
SAVE AND EXCEPT as set out herein all other terms and conditions of the
Sublease shall remain unchanged and all capitalized terms used herein shall have
the same meaning as in the Sublease.
IN WITNESS WHEREOF the parties hereto have affixed their corporate seals
duly attested to by the hands of their authorized signing officers.
SIGNED, SEALED AND DELIVERED
In the Presence of: )
) KANATA RESEARCH PARK
) CORPORATION
)
)
)
) Per:_____________________c/s
) Name:
) Title:
) I/We have the authority to bind the corporation.
)
) NEWBRIDGE NETWORKS
) CORPORATION
)
)
)
) Per:_____________________c/s
) Name:
) Title:
) I/We have the authority to bind the corporation.
)
) CROSSKEYS SYSTEMS
) CORPORATION
)
)
)
) Per:_____________________c/s
) Name:
) Title:
) I/We have the authority to bind the corporation.
Page 123
<PAGE>
EXHIBIT 10.28
Page 124
<PAGE>
THIS INDENTURE made the 5/th/ day of November, 1998.
BETWEEN:
CASTLETON NETWORK SYSTEMS CORPORATION
(Hereinafter called the "Assignee")
OF THE FIRST PART
AND:
NEWBRIDGE NETWORKS CORPORATION
(Hereinafter called the "Assignor")
OF THE SECOND PART
AND:
KANATA RESEARCH PARK CORPORATION
(Hereinafter called the "Landlord")
OF THE THIRD PART
WHEREAS by written Lease dated the 28/th/ day of July, 1997, (the "Lease")
and by a written amendment to Lease dated the 24/th/ day of October, 1997, (the
"Amendment to Lease") made between the Assignor as "Tenant"and the Landlord, the
Landlord did demise unto the Tenant the Leased Premises therein described which
Leased Premises is located in the Building known municipally as 555 Legget
Drive, subject to the Tenant's covenants and agreements therein contained;
AND WHEREAS the Assignor has agreed to sell and assign its interests and
obligations under the Lease unto the Assignee and the Landlord is in agreement
with this assignment;
NOW THIS INDENTURE WITNESSETH that in consideration of ten dollars ($10.00)
now paid by the Assignee to the Assignor (the receipt and sufficiency of which
is hereby acknowledged) the Assignor doth hereby grant and assign unto the
Assignee as of November 5th, 1998, those Leased Premises leased by the Landlord
to the Tenant in the aforesaid Lease, together with the unexpired residue of the
Term therein, and all benefit and advantage to be derived therefrom;
TO HAVE AND TO HOLD the same unto the Assignee, its successors and assigns,
subject to the payment of the rent and the observance and performance of the
Tenant's covenants and conditions contained in the Lease;
AND the Assignor hereby covenants with the Assignee that, notwithstanding
any act of the Assignor, the Lease is a good, valid and subsisting Lease, and
that the rents thereby reserved have been duly paid up to the 5/th/ day of
November 1998, and the covenants and
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<PAGE>
conditions therein contained have been duly paid and performed by the Assignor
up to the date hereof, save for any year end adjustments;
AND the Assignor now has good right, full power and absolute authority to
assign the Lease and Leased Premises in the manner aforesaid, according to the
true intent and meaning of these presents;
AND that subject to the payment of rent, and the Tenant's covenants and the
conditions contained in the Lease, the Assignee may enter into and upon and hold
and enjoy the Leased Premises for the residue of the Term granted by the Lease
and every renewal thereof (if any) for its own use and benefit, without any
interruption of the Assignor or any other person whomever claiming or to claim
by, through or under the Assignor;
AND that the Assignor shall and will from time to time, and that at all
times hereafter, at the request and cost of the Assignee, execute such further
assurance of the said Leased Premises as the Assignee shall reasonably require;
AND the Assignee hereby covenants with the Landlord and the Assignor that
the Assignee shall and will from time to time during all the residue of the Term
granted by the Lease, and every renewal thereof, pay the rent and perform the
Tenant's covenants, conditions and agreements therein respectively reserved and
contained, and indemnify and save harmless the Assignor therefrom and from all
actions, suits, costs, losses, charges, damages and expenses for or in respect
thereof;
THE Landlord hereby consents to the within Assignment and notwithstanding
any other terms of this Assignment:
(a) the Assignee covenants and agrees with the Landlord to pay the rent as set
out in the Lease and to observe and perform all of the Tenant's covenants,
obligations, and agreements as set out in the Lease as fully and
effectively as if the Assignee had been named the Tenant in the Lease;
(b) the Assignor shall in no way be relieved of any liability or responsibility
under the Lease and shall continue to be responsible for the due
performance of each and every covenant, proviso, condition and agreement to
be performed and observed by the Tenant under the Lease and hereby waives
any right to require the Landlord to proceed against the Assignee or to
pursue any other remedy whatsoever which may be available to the Landlord
before proceeding against the Assignor;
(c) none of the following or any combination thereof shall release, discharge
or in any way change or reduce the obligations of the Assignor under the
Lease;
(i) neglect of forbearance of the Landlord in endeavouring to obtain
payment of the rent or other amounts required to be paid under the
Lease, as and when due;
(ii) delay by the Landlord in enforcing performance or observance of the
covenants, provisos, conditions or agreements to be performed and
observed by the Assignor under the Lease;
(iii) any extension of time given by the Landlord to the Assignor or any
other act or failure to act by the Landlord.
(d) the Landlord shall be under no obligation whatsoever to notify the Assignor
of the default in payment, condition or proviso under the Lease and the
Landlord may
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<PAGE>
exercise its right of re-entry or its right to terminate the Lease without
notice to the Assignor;
(e) the Assignee covenants and agrees with the Landlord to adjust all financial
matters with the Landlord under the Lease notwithstanding that any such
adjustments relate to a period of occupancy of the Leased Premises by the
Assignor.
The Assignee covenants and agrees with the Assignor that:
(a) the Assignee will assume and perform all the obligations of the Assignor
arising out of the Lease from and including the 5/th/ day of November, 1998
to the end of the Term of the Lease and any renewals thereof;
(b) the Assignee will indemnify and save harmless the Assignor from all costs
and liabilities arising out of the Lease incurred from and including the
5/th/ day of November, 1998.
The Assignor covenants and agrees with the Assignee that:
(a) the Assignor will indemnify and save harmelss the Assignee from all costs
and liabilities arising out of the Lease incurred prior to the 5th day of
November, 1998.
AND it is hereby declared and agreed that these presents and everything
herein contained shall respectively enure to the benefit of and be binding upon
the parties hereto, their heirs, executors, administrators, successors and
assigns respectively.
IN WITNESS WHEREOF the said parties hereto have hereunto set their hands
and seals.
SIGNED, SEALED AND DELIVERED
In the presence of:
ASSIGNEE:
CASTLETON NETWORK SYSTEMS
CORPORATION
Per: ___________________________
Name:
Title:
Per: ___________________________
Name: Peter Nadeau
Title: Director
C/S
ASSIGNOR:
NEWBRIDGE NETWORKS CORPORATION
Per: ___________________________
Name: D. Mills
Title: Vice President Administration
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<PAGE>
Per: ______________________________
Name: Peter Nadeau
Title: Vice President, General Counsel
C/S
LANDLORD:
KANATA RESEARCH PARK CORPORATION
Per: ______________________________
Name: Bronwen A. Heins
Title: President
C/S
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<PAGE>
EXHIBIT 10.29
Page 129
<PAGE>
THIS AGREEMENT made the 26th day of February, 1999
B E T W E E N :
KANATA RESEARCH PARK CORPORATION
(Hereinafter called the "Landlord")
OF THE FIRST PART
AND:
NEWBRIDGE NETWORKS CORPORATION
(Hereinafter called the "Tenant")
OF THE SECOND PART
AMENDMENT TO LEASE
WHEREAS pursuant to a written lease dated the 29th day of May, 1997 (the
"Lease") the Tenant leased those premises consisting of the building known
municipally as 359 Terry Fox Drive (the "Building") and comprising approximately
Seventy Six Thousand Two Hundred & Thirty point Sixty Five (76,230.65) rentable
square feet of space on the ground floor ("Leased Premises") from the Landlord.
AND WHEREAS the Tenant wishes to lease additional premises from the
Landlord and the Landlord is in agreement therewith.
THEREFORE in consideration of the rents covenants and conditions contained
herein, the Landlord and Tenant agree as follows:
1. The Tenant hereby agrees to lease additional space comprising approximately
Six Hundred & Seventy Eight (678) rentable square feet ("Additional
Premises") commencing March 1, 1999 and ending the last day of May, 2002.
2. The Lease shall be amended effective March 1, 1999 as follows:
a) Paragraph 1.00 shall be amended by adding after the words "ground
floor" the words "and an area on the Second (2nd) floor comprising
approximately Six Hundred & Seventy Eight (678) rentable square feet".
b) Paragraph 1.01 c) shall be amended by deleting the reference to
"Seventy Nine percent (79%) and replacing same with "Seventy Nine point
Sixty Six percent (79.66%)".
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<PAGE>
c) Paragraph 3.00 shall be amended by adding the table contained herein:
Second Floor Premises
<TABLE>
<CAPTION>
Rental Rate Per Sq. Ft. Per Total Per Annum
--------------------------- ---------------
Term Annum
---- -----
<S> <C> <C>
March 1/99 -
May 31/02 $9.25 $6,271.50
</TABLE>
d) Paragraph 3.01 shall be amended by deleting the reference to "Fifty
Eight Thousand Seven Hundred & Sixty One and Thirteen Cents ($58,761.13)"
and replacing same with "Sixty Five Thousand and Thirty Two Dollars & Sixty
Three Cents ($65,032.63)".
e) Schedule "B" shall be amended to include the second (2nd) floor plan
attached hereto as Schedule "B".
3. The Tenant shall lease the Additional Premises in an "as is" condition.
There shall be no leasehold improvement allowance provided by the Landlord
for the Additional Premises.
SAVE AND EXCEPT as set out herein all other terms and conditions of the
Lease shall remain unchanged and shall apply to the Additional Premises and all
capitalized terms used herein shall have the same meaning as in the Lease.
IN WITNESS WHEREOF the parties hereto have affixed their corporate seals
duly attested to by the hands of their authorized signing officers.
SIGNED, SEALED AND DELIVERED
In the Presence of:
) KANATA RESEARCH PARK
) CORPORATION
)
)
) c/s
) Per:_____________________________
) Name:
) Title:
) I have the authority to bind the corporation.
)
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<PAGE>
) NEWBRIDGE NETWORKS
CORPORATION
)
)
) Per:_____________________________________
) Name:
) Title:
)
) Per:_____________________________________
) Name:
) Title:
) I/We have the authority to bind the corporation.
Page 132
<PAGE>
SCHEDULE "B"
Second Floor Plan
-----------------
DATED the 26th day of February, 1999
- -----------------------------------------------------------------------------
B E T W E E N :
KANATA RESEARCH PARK CORPORATION
OF THE FIRST PART
AND:
NEWBRIDGE NETWORKS CORPORATION
OF THE SECOND PART
- ------------------------------------------------------------------------------
AMENDMENT TO LEASE
- ------------------------------------------------------------------------------
PAGE 133
<PAGE>
EXHIBIT 10.30
Page 134
<PAGE>
THIS INDENTURE made this 15/th/ day of March, 1999.
BETWEEN:
KANATA RESEARCH PARK CORPORATION
(Hereinafter called the "Landlord")
OF THE FIRST PART
AND:
NEWBRIDGE NETWORKS CORPORATION (Carrying on
Business as Newbridge Learning Services)
(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
approximately Six Thousand Eight Hundred & Thirty Two (6,832) rentable
square feet of space on the Seventh (7th) floor (herein called the
"Leased Premises") of the building known municipally as 555 Legget Drive,
Tower "B" (herein called 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". The
parties acknowledge that the foregoing calculation of the area of the
Leased Premises has been estimated only and that the actual area of the
Leased Premises shall be subject to certification by the Landlord.
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;
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<PAGE>
(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) the 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 the Landlord is from time to time
subject to obligations arising from the Lands and Building.
(c) "Tenant's Proportionate Share" means percent Six point Sixty Seven
percent (6.67%) 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 May, 1999 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 last day of April, 2004.
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 1/365/th/ 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 1/365/th/ of
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<PAGE>
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, and for the non-exclusive use
of the common areas of the Building on which the Leased Premises is
located (which common area allocation shall be 12% of the area of the
Leased Premises), the following:
<TABLE>
<CAPTION>
Rental Rate Per For Leased For Common Total Per
Year Sq. Foot Per Annum Premises Area Annum
---- ------------------ -------- ---- -----
<S> <C> <C> <C> <C>
1-5 $15.00 $91,500 $10,980 $102,480
</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
(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 (1/st/) 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
1/365/th/ of the Annual Rent payable. The Annual Rent and the Monthly
Rent may be varied based on the actual area of the Leased Premises as
certified by the Landlord.
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
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<PAGE>
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 ten (10) 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 review provided the
Tenant is not otherwise in default under the terms of the Lease.
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
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<PAGE>
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 POST-DATED CHEQUES
The Tenant shall, on or before the commencement of each and every Lease
Year of the Term, including the first Lease Year, deliver to the Landlord
a series of post-dated cheques, one for each month of the Lease Year,
drawn for an amount equal to the amount of Monthly Rent and the
Additional Rent (as estimated by the Landlord) payable in each month of
such Lease Year, provided that the first such payment is to include also
any pro-rated Monthly Rent and Additional Rent for the period from the
date of the commencement of the Term to the first day of the first full
calendar month in the Term, provided further that the obligation in the
first Lease Year shall be adjusted to take into account all advance
rental paid hereunder.
3.10 ADVANCE RENTAL
The Landlord hereby acknowledges receipt from the Tenant of the sum of
Thirty Two Thousand Five Hundred & Thirty Dollars and Fifty Six Cents
($32,530.56) inclusive of G.S.T. to be held without interest and applied
against the first and last months' Monthly Rent and Additional Rent.
3.11 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 Kanata at the
principal office of, Kanata Research Park Corporation, 555 Legget Drive,
Suite 206, Kanata, Ontario, Canada K2K 2X3, 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.
3.12 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.
3.13 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
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<PAGE>
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.
3.14 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
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<PAGE>
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.
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
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<PAGE>
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.
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
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<PAGE>
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; 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 fees or an administrative fee (not exceeding the
going rate charged by trust companies or first class building Management
Companies for building management in the Regional Municipality of Ottawa-
Carleton for similar buildings); the cost of service contracts with
independent contractors and all other expenses, paid or payable by the
Landlord in connection with the operation of the Property, 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
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<PAGE>
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's use of electricity in the Leased Premises shall be for the
operation of office lighting and business machines, such as typewriters,
desktop computers and other small office machines and shall not at any
time exceed the capacity of any of the electrical conductors and
equipment in or otherwise serving the Leased Premises. In order to ensure
that such capacity is not exceeded and to avert possible adverse effect
upon the Building's electrical service, the Tenant shall not, without the
Landlord's prior written consent in each instance, connect any additional
fixtures, appliances or equipment (other than normal office electrical
fixtures, lamps, typewriters and similar small office machines) 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:
(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
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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 LANDLORD'S RIGHT TO CANCEL
Upon receipt of such request and the required information from the
Tenant, the Landlord shall have the right, exercisable in writing within
thirty (30) days after such receipt, to cancel and terminate this Lease
if the request is to assign this Lease or to sublet all of the Leased
Premises, or, if the request is to sublet a portion of the Leased
Premises only, to cancel and terminate this Lease with respect to such
portion, in each case as of the date set forth in the Landlord's notice
of exercise of right ("Landlord's notice of termination"), which shall be
neither less than sixty (60) days nor more than one hundred and twenty
(120) days following the delivery of the Landlord's notice of
termination. If the Landlord shall exercise such right, the Tenant shall
surrender possession of the entire Leased Premises or the portion which
is the subject of the right, as the case may be, on the date set forth in
the Landlord's notice of termination in accordance with the provisions of
this Lease relating to the surrender of the Leased Premises at the
expiration of the Term. If this Lease shall be cancelled as to a portion
of the Leased Premises only, the rent payable by the Tenant under this
Lease shall be abated proportionately. In the event that the Landlord
shall not exercise the right to cancel this Lease, then the Landlord's
consent to any such request to assign or sublet shall not be unreasonably
withheld.
6.03 ASSIGNMENT AGREEMENT
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
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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.
6.04 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.
6.05 CHANGE IN CORPORATE CONTROL
If the Tenant is a corporation or if this Lease, with the written consent
of the Landlord, is assigned to a corporation, and if at any time during
the Term any part or all of the corporate shares or voting rights of
shareholders shall be transferred by sale, assignment, bequest,
inheritance, trust, operation of law or other disposition, or treasury
shares be issued, so as to result in a change in the control of such
corporation by the person or persons now owning a majority of the
corporate shares thereof, the Landlord may terminate this Lease at any
time after such change in control by giving the Tenant thirty (30) days
prior written notice of such termination. The Tenant shall, at the
request of the Landlord, make available to the Landlord for inspection or
copying, or both, all books and records of the Tenant which, alone or
with other data, show the applicability or inapplicability of this
paragraph. If any stockholder or shareholder of the Tenant shall, after
the request of the Landlord so to do, fail or refuse to furnish forthwith
to the Landlord any data verified by the affidavit of such stockholder or
shareholder or other credible person, which data, alone or with other
data show the applicability or inapplicability of this paragraph, the
Landlord may terminate this Lease by giving the Tenant thirty (30) days'
prior written notice of such termination.
6.06 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.
6.07 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:
7.01 TENANT REPAIRS
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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.
7.03 USE OF PREMISES
The Leased Premises shall be used only for office 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
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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 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
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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.
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.
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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.
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
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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 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 SIGNS
The Tenant shall not paint, display, inscribe or place any sign, symbol,
notice or lettering of any kind anywhere outside the Leased Premises or
within the Leased Premises so as to be visible from the outside of the
Building or the common areas thereof with the exception only of an
identification sign at the entrance to the Leased Premises (which sign
shall be subject to the Landlord's written approval as to size, design
and location) and the Tenant's name on the directory listing (if any) in
the main lobby of the Building.
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7.15 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.
7.16 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.
7.17 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, furnishings, wares or merchandise only through the
loading entrance and other facilities provided for that purpose and at
the times set by the Landlord.
7.18 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.
7.19 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 (including a
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supervision fee to be paid by the Tenant to the Landlord equal to fifteen
percent (15%) of the total cost of such work). 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.
7.20 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 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.
7.21 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.
7.22 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 Leased Premises, 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 Leased
Premises, 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;
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(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 Leased Premises,
or which arises at any time from the Tenant's use or occupancy of
the Leased 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 Leased 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
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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.
7.23 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 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
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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 JANITORIAL SERVICES
To provide janitorial and cleaning services to the common areas of the
Building. The Landlord shall not be responsible for any act of omission
or commission on the part of any person or persons employed to clean the
Leased Premises or the Building.
8.06 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
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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 date of such
casualty (employing normal construction methods without overtime or other
premium), then either the
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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
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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 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
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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 and in addition, all cash
allowances, tenant inducement payments and the value of any other benefit
paid to or conferred on the Tenant by or on behalf of the Landlord in
connection with this Lease 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.
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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 without
limiting the generality of the foregoing, in addition to any other rights
the Landlord may have against the Tenant, in the event the Tenant wishes
to terminate this Lease early, the Tenant shall be liable for the
unamortized balance of the cost of the Leasehold Improvements, amortized
over the Term of the Lease on a straight line basis.
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
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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. The Landlord shall
also have the right during the Term at its reasonable expense to relocate
the Leased Premises to an alternate location within the Building.
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.
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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 six
percent (6%) 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, 555
Legget Drive, Suite 206, Kanata, Ontario, Canada, Canada K2K 2X3 and in
the case of notice to the Tenant, to it at the Leased Premises 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
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<PAGE>
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
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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, 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.
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<PAGE>
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:
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
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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.
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<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
)
)
)
)
) Per:_________________________________________
) Name:
) Title: c/s
) I have the authority to bind the corporation.
)
) NEWBRIDGE NETWORKS
) CORPORATION (Carrying on
) Business as Newbridge
) Learning Services)
)
)
)
______________________ ) Per:_________________________________________
Witness ) Name:
) Title: c/s
)
)
______________________ ) Per:_________________________________________
Witness ) Name:
) Title:
)
) I/We have the authority to bind the
) corporation.
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<PAGE>
SCHEDULE "A"
------------
LEGAL DESCRIPTION
-----------------
FIRSTLY: Parcel 2-1, Section 4M-642, Part of Block 2, Plan 4M-642, in the
City of Kanata, Regional Municipality of Ottawa Carleton, designated as
Parts 1 and 2 on Plan 4R-13076.
(PIN 04517-0740)
SECONDLY: Part of Parcel 8-1, Section March-4 being part of the Northwest
half of Lot 8, Concession 4, City of Kanata (formerly Township of March)
Regional Municipality of Ottawa Carleton, designated as Parts 3 and 4 on
Plan 4R-13076.
(Part of PIN 04517-0747)
THIRDLY: Part of Parcel 8-1, Section March-4 being part of the Northwest
half of Lot 8, Concession 4, City of Kanata (formerly Township of March)
Regional Municipality of Ottawa Carleton, designated as Part 5 on Plan 4R-
13076.
(Part of PIN 04517-0617)
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SCHEDULE "B
-----------
FLOOR PLAN
----------
Page 170
<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. Between peak periods, the elevators will be used for transporting
passengers only and during these periods no large parcels or items of
equipment will be permitted on the elevators. Peak periods are between 8
a.m. and 10 a.m. in the morning, between 12 noon and 2 p.m. in the
afternoon and between 4 p.m. and 6 p.m. in the evening.
4. The Tenant shall make arrangements with the Landlord ahead of time when
elevators are to be used for carrying freight or furniture, etc..
Elevators must not be used for this purpose until the Landlord has given
its consent and the elevator cabs have been properly protected.
5. The Landlord's janitors shall be permitted prompt access to the Leased
Premises for the purpose of cleaning the office areas thereof.
6. The Tenant shall not make any noise which might disturb other tenants and
no animals or bicycles or other vehicles shall be brought into the Leased
Premises or the Building.
7. The Leased Premises shall not be used as overnight sleeping
accommodation, for public sales nor for entertaining purposes.
8. The Tenant shall make arrangements with the Landlord ahead of time if any
public meeting is to be held in the Leased Premises and the meeting shall
not be held until the Landlord's written consent is obtained.
9. The Tenant shall make arrangements with the Landlord ahead of time to
install any business machines, electric appliances, etc. and these
installations will not be made until the Landlord's consent is obtained.
10. Windows will not be left open so as to admit rain or snow.
11. The Tenant will not alter any existing locks nor will any additional
locks or similar devices be attached to any door or window.
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12. 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.
13. All adjustments to mechanical equipment such as thermostats, radiators,
diffusers, etc. shall be made by the Landlord's staff and no one else.
14. If the Tenant wishes to install any drapes or blinds in any of the
windows on the exterior of the Building or on any window of the Leased
Premises facing the interior of the Building, the Landlord's prior
written consent must be obtained and further the drapes or blinds
installed must conform to a uniform colour which the Landlord may at its
absolute discretion establish.
15. The Tenant shall not place anything next to or have displayed in the
windows of the Leased Premises facing into the common areas so as to
visible therein, without the prior written consent of the Landlord.
16. No admittance by the Tenant or its agents is permitted on the roof or
equipment rooms of the Building.
17. 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.
18. 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.
19. 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.
20. The Landlord may require that all persons entering and leaving the
Building at any time other than normal business hours satisfactorily
identify themselves and register in books kept for the purpose, and may
prevent any person from entering the Leased Premises unless provided with
a key thereto and a pass or other authorization from the Tenant in a form
satisfactory to the Landlord, and may prevent any person removing any
goods therefrom without written authorization.
21. The Tenant shall not use or keep inflammable materials in the Leased
Premises.
22. The Landlord shall not be responsible for any theft, loss or damage to
vehicles parked therein whatsoever, or for any injury to the Tenant or
others in or on the parking facilities whether or not parking charges are
imposed.
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<PAGE>
23. 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.
24. All moving of the Tenant's chattels and trade fixtures and other fixtures
from or to the Leased Premises shall be performed after business hours
and shall be supervised by the Landlord, its agents or a security guard
all at the Tenant's expense.
25. 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 subject to 7.02 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 173
<PAGE>
SCHEDULE "D"
------------
PARKING
-------
1. During the Term the Landlord hereby agrees to allow the Tenant to park
One (1) vehicle per Three Hundred and Twenty-Three (323) rentable square
feet of Leased Premises, in the parking facilities located on the Lands
("parking facilities"). In the event the Landlord constructs a parking
structure on the Lands, the Tenant shall then be called upon to pay for
parking.
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.
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<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 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, this
option shall be null and void and of no further force and effect.
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<PAGE>
SCHEDULE "F"
------------
LEASEHOLD IMPROVEMENTS
----------------------
The Landlord shall, at its sole cost and expense, construct on behalf of the
Tenant and install on a turnkey basis to building standards up to a maximum
value equal to Twelve dollars ($12.00) per rentable square foot of Leased
Premises with the Tenant paying the overrun, if any, 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 be required to provide to the
Landlord a complete set of approved construction drawings and specifications for
the Leased Premises six (6) weeks prior to commencement of the Term, failing
which rent shall still commence on the commencement date of the Term.
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<PAGE>
SCHEDULE "G"
------------
ADDITIONAL TERMS
----------------
The Landlord warrants that any installation of unitized movable walls within the
Leased Premises by the Tenant during the Lease Term shall be permitted to be
removed by the Tenant upon lease termination and the Tenant shall repair any and
all damage caused to the Leased Premises and or Building as a result of the
unitized movable walls' installation and or removal.
Page 177
<PAGE>
DATED THE 15TH DAY OF MARCH, 1999.
- --------------------------------------------------------------------------------
BETWEEN:
KANATA RESEARCH PARK CORPORATION
OF THE FIRST PART
AND:
NEWBRIDGE NETWORKS CORPORATION (Carrying on Business
as Newbridge Learning Services)
OF THE SECOND PART
- --------------------------------------------------------------------------------
L E A S E
- --------------------------------------------------------------------------------
Page 178
<PAGE>
Prepared by: Linda A. Desjardins
Date Edited: July 28, 1999
KANATA RESEARCH PARK CORPORATION
AND
NEWBRIDGE NETWORKS CORPORATION
(Carrying On Business As Newbridge Learning Services)
1.00 LEASED PREMISES....................................................... 1
1.01 ADDITIONAL DEFINITIONS................................................ 1
2.00 TERM.................................................................. 2
2.01 INABILITY TO GIVE OCCUPANCY........................................... 2
2.02 EARLY OCCUPANCY....................................................... 2
2.03 OVERHOLDING........................................................... 2
3.00 RENT - Basic Rent..................................................... 2
3.01 MONTHLY RENTAL........................................................ 3
3.02 ADDITIONAL RENT....................................................... 3
3.03 ESTIMATED ADDITIONAL RENTALS.......................................... 3
3.04 DEFICIENCY OF ADDITIONAL RENT......................................... 3
3.05 EXCESS OF ADDITIONAL RENTAL INSTALLMENTS.............................. 3
3.06 PRO-RATING OF ADDITIONAL RENT......................................... 4
3.07 PREPAYMENT OF ADDITIONAL RENT......................................... 4
3.08 DISPUTE AS TO AMOUNT OF ADDITIONAL RENT............................... 4
3.09 POST-DATED CHEQUES.................................................... 4
3.10 ADVANCE RENTAL........................................................ 4
3.11 MANNER AND PLACE OF PAYMENT OF RENT................................... 4
3.12 DEFAULT............................................................... 5
3.13 ACCRUAL OF RENT....................................................... 5
3.14 NET LEASE............................................................. 5
4.00 TENANT'S BUSINESS TAX................................................. 5
4.01 LANDLORD'S BUSINESS TAX............................................... 6
4.02 TAX ON TENANT'S LEASEHOLD IMPROVEMENTS................................ 6
4.03 PROPERTY TAX.......................................................... 6
4.04 ALLOCATION OF TAX..................................................... 7
4.05 SEPARATE SCHOOL TAXES................................................. 7
4.06 TAX APPEAL............................................................ 7
4.07 CAPITAL TAX........................................................... 7
5.00 OPERATING COSTS....................................................... 7
5.01 ALLOCATION OF OPERATING COSTS......................................... 8
5.02 FULL OCCUPANCY........................................................ 9
5.03 USE OF ELECTRICITY.................................................... 9
5.04 METERS................................................................ 9
6.00 ASSIGNING OR SUBLETTING............................................... 9
6.01 REQUEST TO ASSIGN OR SUBLET........................................... 10
6.02 LANDLORD'S RIGHT TO CANCEL............................................ 10
6.03 ASSIGNMENT AGREEMENT.................................................. 10
6.04 CONSENT NOT TO RELEASE TENANT......................................... 10
6.05 CHANGE IN CORPORATE CONTROL........................................... 10
6.06 NOTICE OF CHANGE OF CONTROL........................................... 11
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<PAGE>
6.07 COST OF CONSENT....................................................... 11
7.00 TENANT'S COVENANTS.................................................... 11
7.01 TENANT REPAIRS........................................................ 11
7.02 RULES AND REGULATIONS................................................. 12
7.03 USE OF PREMISES....................................................... 12
7.04 INCREASE IN INSURANCE PREMIUMS........................................ 12
7.05 CANCELLATION OF INSURANCE............................................. 12
7.06 OBSERVANCE OF LAW..................................................... 12
7.07 WASTE AND OVERLOADING OF FLOORS....................................... 13
7.08 INSPECTION............................................................ 13
7.09 INDEMNITY TO LANDLORD................................................. 13
7.10 DAMAGE BY TENANT...................................................... 14
7.11 TENANT INSURANCE...................................................... 14
7.12 NO ABATEMENT OF RENT.................................................. 15
7.13 EXHIBITING PREMISES................................................... 15
7.14 SIGNS................................................................. 15
7.15 NAME OF BUILDING...................................................... 16
7.16 KEEP TIDY............................................................. 16
7.17 DELIVERIES............................................................ 16
7.18 NOTICE OF DAMAGE...................................................... 16
7.19 ALTERATIONS, ETC...................................................... 16
7.20 CONSTRUCTION LIENS.................................................... 17
7.21 SECURITY.............................................................. 17
7.22 HAZARDOUS SUBSTANCES.................................................. 17
7.23 NUISANCE.............................................................. 18
8.00 LANDLORD'S COVENANTS.................................................. 19
8.01 QUIET ENJOYMENT....................................................... 19
8.02 TAXES, ETC............................................................ 19
8.03 HEATING AND AIR-CONDITIONING.......................................... 19
8.04 REPAIR OF STRUCTURE................................................... 19
8.05 JANITORIAL SERVICES................................................... 20
8.06 DELAYS IN PROVISION OF SERVICES....................................... 20
9.00 TENANT'S FIXTURES..................................................... 20
9.01 REMOVAL OF TENANT'S FIXTURES.......................................... 20
10.00 DAMAGE OR DESTRUCTION OF LEASED PREMISES............................. 21
10.01 PARTIAL DAMAGE....................................................... 21
10.02 TOTAL DAMAGE......................................................... 21
10.03 OBLIGATION TO REPAIR................................................. 21
10.04 ABATEMENT OF RENT.................................................... 21
10.06 COMPLETION OF REPAIR................................................. 22
10.05 DAMAGE TO 50% OF BUILDING............................................ 22
11.00 LIABILITY FOR DAMAGE TO PROPERTY..................................... 22
12.00 DEFAULT OF TENANT.................................................... 22
13.00 BANKRUPTCY........................................................... 23
14.00 RE-ENTRY BY LANDLORD................................................. 23
15.00 RIGHT OF TERMINATION................................................. 24
16.00 DISTRESS............................................................. 24
17.00 NON-WAIVER........................................................... 24
18.00 CHANGES TO BUILDING.................................................. 24
19.00 SEVERANCE OF LAND.................................................... 25
20.00 COSTS OF COLLECTION.................................................. 25
21.00 PROFITS AND REMEDIES BY LANDLORD..................................... 25
21.01 PAYMENTS TO THIRD PARTIES............................................ 25
21.02 NON-PAYMENT OF ADDITIONAL RENT....................................... 25
21.03 INTEREST ON ARREARS.................................................. 26
22.00 NOTICE............................................................... 26
23.00 SUBORDINATION, POSTPONEMENT, ATTORNMENT.............................. 26
23.01 TENANT'S RIGHT TO POSSESSION......................................... 27
23.02 ATTORNMENT BY TENANT................................................. 27
24.00 CERTIFICATE.......................................................... 27
25.00 REGISTRATION......................................................... 27
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<PAGE>
26.00 PLANNING ACT......................................................... 27
27.00 TRANSFER BY LANDLORD................................................. 27
28.00 NO ADVERTISING OF LEASED PREMISES.................................... 28
29.00 TIME OF ESSENCE...................................................... 28
30.00 LAWS OF ONTARIO...................................................... 28
31.00 SEVERABILITY OF COVENANTS............................................ 28
32.00 HEADINGS............................................................. 28
33.00 SCHEDULES............................................................ 28
34.00 LEASE ENTIRE AGREEMENT............................................... 28
35.00 INTERPRETATION....................................................... 29
36.00 SUCCESSORS........................................................... 29
37.00 JOINT AND SEVERAL COVENANT........................................... 30
SCHEDULE "A"............................................................... 31
- -----------
SCHEDULE "B"............................................................... 32
- -----------
SCHEDULE "C"............................................................... 33
- -----------
SCHEDULE "D"............................................................... 36
- -----------
SCHEDULE "E"............................................................... 37
- -----------
SCHEDULE "F"............................................................... 38
- -----------
SCHEDULE "G"............................................................... 39
- -----------
Page 181
<PAGE>
EXHIBIT 10.31
Page 182
<PAGE>
THIS INDENTURE made this 15/th/ day of March, 1999.
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
One Thousand One Hundred & Fifty One point Three (1,151.3) certified
rentable square feet of space on the Tenth (10th) floor (herein called
the "Leased Premises") of the building known municipally as 555 Legget
Drive, Tower "A" (herein called 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,
Page 182
<PAGE>
customers or licensees of) the 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 the Landlord is from time to time
subject to obligations arising from the Lands and Building.
(c) "Tenant's Proportionate Share" means percent point Ninety One
percent (.91%) 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 March, 1999 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 last day of February, 2004.
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.
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<PAGE>
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, and for the non-exclusive use
of the common areas of the Building on which the Leased Premises is
located (which common area allocation shall be 12% of the area of the
Leased Premises), the following:
<TABLE>
<CAPTION>
Rental Rate Per For Leased
Year Sq. Foot Per Annum Premises For Common Area Total Per Annum
- ---------------------- ------------------------------- ------------------ -------------------- ------------------
<S> <C> <C> <C> <C>
1-5 $14.00 $14,390.60 $1,727.60 $16,118.20
</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
(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. The Annual Rent and the Monthly Rent
may be varied based on the actual area of the Leased Premises as
certified by the Landlord.
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
Page 184
<PAGE>
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 ten (10) 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 review provided the
Tenant is not otherwise in default under the terms of the Lease.
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
Page 185
<PAGE>
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 POST-DATED CHEQUES
The Tenant shall, on or before the commencement of each and every Lease
Year of the Term, including the first Lease Year, deliver to the Landlord
a series of post-dated cheques, one for each month of the Lease Year,
drawn for an amount equal to the amount of Monthly Rent and the
Additional Rent (as estimated by the Landlord) payable in each month of
such Lease Year, provided that the first such payment is to include also
any pro-rated Monthly Rent and Additional Rent for the period from the
date of the commencement of the Term to the first day of the first full
calendar month in the Term, provided further that the obligation in the
first Lease Year shall be adjusted to take into account all advance
rental paid hereunder.
3.10 ADVANCE RENTAL
The Landlord hereby acknowledges receipt from the Tenant of the sum of
Five Thousand Three Hundred & Eighty Nine Dollars and Eighty Cents
($5,389.50) inclusive of G.S.T. to be held without interest and applied
against the first and last months' Monthly Rent and Additional Rent.
3.11 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 Kanata at the
principal office of, Kanata Research Park Corporation, 555 Legget Drive,
Suite 206, Kanata, Ontario, Canada K2K 2X3, 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.
3.12 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.
3.13 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
Page 186
<PAGE>
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.
3.14 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
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<PAGE>
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.
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
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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.
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
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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; 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 fees or an administrative fee (not exceeding the
going rate charged by trust companies or first class building Management
Companies for building management in the Regional Municipality of Ottawa-
Carleton for similar buildings); the cost of service contracts with
independent contractors and all other expenses, paid or payable by the
Landlord in connection with the operation of the Property, 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
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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's use of electricity in the Leased Premises shall be for the
operation of office lighting and business machines, such as typewriters,
desktop computers and other small office machines and shall not at any
time exceed the capacity of any of the electrical conductors and
equipment in or otherwise serving the Leased Premises. In order to ensure
that such capacity is not exceeded and to avert possible adverse effect
upon the Building's electrical service, the Tenant shall not, without the
Landlord's prior written consent in each instance, connect any additional
fixtures, appliances or equipment (other than normal office electrical
fixtures, lamps, typewriters and similar small office machines) 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:
(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
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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 LANDLORD'S RIGHT TO CANCEL
Upon receipt of such request and the required information from the
Tenant, the Landlord shall have the right, exercisable in writing within
thirty (30) days after such receipt, to cancel and terminate this Lease
if the request is to assign this Lease or to sublet all of the Leased
Premises, or, if the request is to sublet a portion of the Leased
Premises only, to cancel and terminate this Lease with respect to such
portion, in each case as of the date set forth in the Landlord's notice
of exercise of right ("Landlord's notice of termination"), which shall be
neither less than sixty (60) days nor more than one hundred and twenty
(120) days following the delivery of the Landlord's notice of
termination. If the Landlord shall exercise such right, the Tenant shall
surrender possession of the entire Leased Premises or the portion which
is the subject of the right, as the case may be, on the date set forth in
the Landlord's notice of termination in accordance with the provisions of
this Lease relating to the surrender of the Leased Premises at the
expiration of the Term. If this Lease shall be cancelled as to a portion
of the Leased Premises only, the rent payable by the Tenant under this
Lease shall be abated proportionately. In the event that the Landlord
shall not exercise the right to cancel this Lease, then the Landlord's
consent to any such request to assign or sublet shall not be unreasonably
withheld.
6.03 ASSIGNMENT AGREEMENT
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
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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.
6.04 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.
6.05 CHANGE IN CORPORATE CONTROL
If the Tenant is a corporation or if this Lease, with the written consent
of the Landlord, is assigned to a corporation, and if at any time during
the Term any part or all of the corporate shares or voting rights of
shareholders shall be transferred by sale, assignment, bequest,
inheritance, trust, operation of law or other disposition, or treasury
shares be issued, so as to result in a change in the control of such
corporation by the person or persons now owning a majority of the
corporate shares thereof, the Landlord may terminate this Lease at any
time after such change in control by giving the Tenant thirty (30) days
prior written notice of such termination. The Tenant shall, at the
request of the Landlord, make available to the Landlord for inspection or
copying, or both, all books and records of the Tenant which, alone or
with other data, show the applicability or inapplicability of this
paragraph. If any stockholder or shareholder of the Tenant shall, after
the request of the Landlord so to do, fail or refuse to furnish forthwith
to the Landlord any data verified by the affidavit of such stockholder or
shareholder or other credible person, which data, alone or with other
data show the applicability or inapplicability of this paragraph, the
Landlord may terminate this Lease by giving the Tenant thirty (30) days'
prior written notice of such termination.
6.06 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.
6.07 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:
7.01 TENANT REPAIRS
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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.
7.03 USE OF PREMISES
The Leased Premises shall be used only for office 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
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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 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
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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.
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.
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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.
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
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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 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".
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7.14 SIGNS
The Tenant shall not paint, display, inscribe or place any sign, symbol,
notice or lettering of any kind anywhere outside the Leased Premises or
within the Leased Premises so as to be visible from the outside of the
Building or the common areas thereof with the exception only of an
identification sign at the entrance to the Leased Premises (which sign
shall be subject to the Landlord's written approval as to size, design
and location) and the Tenant's name on the directory listing (if any) in
the main lobby of the Building.
7.15 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.
7.16 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.
7.17 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, furnishings, wares or merchandise only through the
loading entrance and other facilities provided for that purpose and at
the times set by the Landlord.
7.18 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.
7.19 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
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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
(including a supervision fee to be paid by the Tenant to the Landlord
equal to fifteen percent (15%) of the total cost of such work). 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.
7.20 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 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.
7.21 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.
7.22 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 Leased Premises, Building or
Lands;
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(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 Leased
Premises, 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 Leased Premises,
or which arises at any time from the Tenant's use or occupancy of
the Leased 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
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there to be any Hazardous Substances at or near the Leased
Premises, or discharged or released on, under or about the Leased
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.
7.23 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 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.
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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 JANITORIAL SERVICES
To provide janitorial and cleaning services to the common areas of the
Building. The Landlord shall not be responsible for any act of omission
or commission on the part of any person or persons employed to clean the
Leased Premises or the Building.
8.06 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,
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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.
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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
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
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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 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.
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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 and in addition, all cash
allowances, tenant inducement payments and the value of any other benefit
paid to or conferred on the Tenant by or on behalf of the Landlord in
connection with this Lease 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
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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 without
limiting the generality of the foregoing, in addition to any other rights
the Landlord may have against the Tenant, in the event the Tenant wishes
to terminate this Lease early, the Tenant shall be liable for the
unamortized balance of the cost of the Leasehold Improvements, amortized
over the Term of the Lease on a straight line basis.
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
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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.
The Landlord shall also have the right during the Term at its reasonable
expense to relocate the Leased Premises to an alternate location within
the Building.
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
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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.
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 six
percent (6%) 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, 555
Legget Drive, Suite 206, Kanata, Ontario, Canada, Canada K2K 2X3 and in
the case of notice to the Tenant, to it at the Leased Premises 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
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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 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
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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, 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
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<PAGE>
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:
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:
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<PAGE>
(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 214
<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
)
)
)
)
) Per:_______________________________________
) Name:
) Title: c/s
) I have the authority to bind the corporation.
)
) NEWBRIDGE NETWORKS
) CORPORATION
)
)
)
_____________________________ ) Per:_______________________________________
Witness ) Name:
) Title: c/s
)
)
)
_____________________________ ) Per:_______________________________________
Witness ) Name:
) Title: c/s
)
) I/We have the authority to bind the
) Corporation
Page 215
<PAGE>
SCHEDULE "A"
------------
LEGAL DESCRIPTION
-----------------
FIRSTLY: Parcel 2-1, Section 4M-642, Part of Block 2, Plan 4M-642, in the
City of Kanata, Regional Municipality of Ottawa Carleton, designated as
Parts 1 and 2 on Plan 4R-13076.
(PIN 04517-0740)
SECONDLY: Part of Parcel 8-1, Section March-4 being part of the Northwest
half of Lot 8, Concession 4, City of Kanata (formerly Township of March)
Regional Municipality of Ottawa Carleton, designated as Parts 3 and 4 on
Plan 4R-13076.
(Part of PIN 04517-0747)
THIRDLY: Part of Parcel 8-1, Section March-4 being part of the Northwest
half of Lot 8, Concession 4, City of Kanata (formerly Township of March)
Regional Municipality of Ottawa Carleton, designated as Part 5 on Plan 4R-
13076.
(Part of PIN 04517-0617)
Page 216
<PAGE>
SCHEDULE "B
-----------
FLOOR PLAN
----------
Page 217
<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. Between peak periods, the elevators will be used for transporting
passengers only and during these periods no large parcels or items of
equipment will be permitted on the elevators. Peak periods are between 8
a.m. and 10 a.m. in the morning, between 12 noon and 2 p.m. in the
afternoon and between 4 p.m. and 6 p.m. in the evening.
4. The Tenant shall make arrangements with the Landlord ahead of time when
elevators are to be used for carrying freight or furniture, etc..
Elevators must not be used for this purpose until the Landlord has given
its consent and the elevator cabs have been properly protected.
5. The Landlord's janitors shall be permitted prompt access to the Leased
Premises for the purpose of cleaning the office areas thereof.
6. The Tenant shall not make any noise which might disturb other tenants and
no animals or bicycles or other vehicles shall be brought into the Leased
Premises or the Building.
7. The Leased Premises shall not be used as overnight sleeping
accommodation, for public sales nor for entertaining purposes.
8. The Tenant shall make arrangements with the Landlord ahead of time if any
public meeting is to be held in the Leased Premises and the meeting shall
not be held until the Landlord's written consent is obtained.
9. The Tenant shall make arrangements with the Landlord ahead of time to
install any business machines, electric appliances, etc. and these
installations will not be made until the Landlord's consent is obtained.
10. Windows will not be left open so as to admit rain or snow.
11. The Tenant will not alter any existing locks nor will any additional
locks or similar devices be attached to any door or window.
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<PAGE>
12. 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.
13. All adjustments to mechanical equipment such as thermostats, radiators,
diffusers, etc. shall be made by the Landlord's staff and no one else.
14. If the Tenant wishes to install any drapes or blinds in any of the
windows on the exterior of the Building or on any window of the Leased
Premises facing the interior of the Building, the Landlord's prior
written consent must be obtained and further the drapes or blinds
installed must conform to a uniform colour which the Landlord may at its
absolute discretion establish.
15. The Tenant shall not place anything next to or have displayed in the
windows of the Leased Premises facing into the common areas so as to
visible therein, without the prior written consent of the Landlord.
16. No admittance by the Tenant or its agents is permitted on the roof or
equipment rooms of the Building.
17. 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.
18. 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.
19. 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.
20. The Landlord may require that all persons entering and leaving the
Building at any time other than normal business hours satisfactorily
identify themselves and register in books kept for the purpose, and may
prevent any person from entering the Leased Premises unless provided with
a key thereto and a pass or other authorization from the Tenant in a form
satisfactory to the Landlord, and may prevent any person removing any
goods therefrom without written authorization.
21. The Tenant shall not use or keep inflammable materials in the Leased
Premises.
22. The Landlord shall not be responsible for any theft, loss or damage to
vehicles parked therein whatsoever, or for any injury to the Tenant or
others in or on the parking facilities whether or not parking charges are
imposed.
Page 219
<PAGE>
23. 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.
24. All moving of the Tenant's chattels and trade fixtures and other fixtures
from or to the Leased Premises shall be performed after business hours
and shall be supervised by the Landlord, its agents or a security guard
all at the Tenant's expense.
25. 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 subject to 7.02 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 220
<PAGE>
SCHEDULE "D"
------------
PARKING
-------
1. During the Term the Landlord hereby agrees to allow the Tenant to park
One (1) vehicle per Three Hundred and Twenty-Three (323) rentable square
feet of Leased Premises, in the parking facilities located on the Lands
("parking facilities"). In the event the Landlord constructs a parking
structure on the Lands, the Tenant shall then be called upon to pay for
parking.
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 221
<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 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, this
option shall be null and void and of no further force and effect.
Page 222
<PAGE>
SCHEDULE "F"
------------
LEASEHOLD IMPROVEMENTS
----------------------
The Landlord shall, at its sole cost and expense, supply and install the
following leasehold improvements:
. ESD flooring throughout the premises
. suite entrance door with sidelights
Page 223
<PAGE>
SCHEDULE "G"
ADDITIONAL TERMS AND CONDITIONS
During the Term of this Lease the Landlord hereby agrees to allow the Tenant to
install four (4) gravity mount antennas on the rooftop of the building. The
Tenant shall install the antennas in accordance with all specifications and
requirements of the Landlord (as further described in Schedule "H" attached
hereto, which includes compliance with the Landlord's Engineer as also noted in
Schedule "H"). The Tenant shall, at its own expense, maintain the antennas
during the Term and remove same at the conclusion of the Term or earlier
termination of the Lease. The Tenant shall pay for any additional costs
incurred by the Landlord in repairing or maintaining the rooftop of the Building
as a result of the installation, existence and/or removal of the antennas.
The Tenant shall obtain the required approval for the operation of said antennas
from the Department of Communication and/or the Canadian Radio-Television and
Telecommunications Commission and all other applicable regulatory licensing or
building authorities.
Page 224
<PAGE>
SCHEDULE "H"
SPECIFICATIONS AND REQUIREMENTS
FOR GRAVITY MOUNT ANTENNAS
Page 225
<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
---------------------------- -------------------------
Aug 2, Nov 1, Jan 31, May 2, May 2, Apr 30, Apr 30,
1998 1998 1999 1999 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Basic earnings (loss) per share
Net earnings (loss) $ 35,520 $ 53,314 $120,119 $(29,792) $179,161 $(18,318) $156,917
======== ======== ======== ======== ======== ======== ========
Common Shares outstanding
at the beginning of the period 175,686 176,558 176,877 178,579 175,686 171,859 168,676
Weighted average number of Common
Shares issued during the period 419 208 719 1,526 1,944 2,758 1,834
-------- -------- -------- -------- -------- -------- --------
Weighted average number of Common
Shares outstanding during the period 176,105 176,766 177,596 180,105 177,630 174,617 170,510
======== ======== ======== ======== ======== ======== ========
Basic earnings (loss) per share $ 0.20 $ 0.30 $ 0.68 $ (0.17) $ 1.01 $ (0.10) $ 0.92
======== ======== ======== ======== ======== ======== ========
Fully diluted earnings (loss) per share
Earnings (loss) before imputed earnings $ 35,520 $ 53,314 $120,119 $(29,792) $179,161 $(18,318) $156,917
After tax imputed earnings from the
investment of funds received
through dilution 6,817 -- 7,353 -- -- -- 11,589
-------- -------- -------- -------- -------- -------- --------
Adjusted net earnings (loss) $ 42,337 $ 53,314 $127,472 $(29,792) $179,161 $(18,318) $168,506
======== ======== ======== ======== ======== ======== ========
Weighted average number of
Common Shares outstanding
during the period 176,105 176,766 177,596 180,105 177,630 174,617 170,510
Weighted average common share
equivalents based on conversion of
outstanding stock options 20,645 -- 22,355 -- -- -- 14,085
-------- -------- -------- -------- -------- -------- --------
Weighted average number of Common
Shares and equivalents outstanding
during the period 196,750 176,766 199,951 180,105 177,630 174,617 184,595
======== ======== ======== ======== ======== ======== ========
Fully diluted earnings (loss) per share $ 0.20 $ 0.30 $ 0.64 $ (0.17) $ 1.01 $ (0.10) $ 0.91
======== ======== ======== ======== ======== ======== ========
Earnings (loss) 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 $ 0.6817 $ 0.6520 $ 0.6515 $ 0.6660 $ 0.6629 $ 0.7116 $ 0.7344
Basic earnings (loss) per share, in
U.S. dollars $ 0.14 $ 0.20 $ 0.44 $ (0.11) $ 0.67 $ (0.07) $ 0.68
Fully diluted earnings (loss) per
share, in U.S. dollars $ 0.14 $ 0.20 $ 0.42 $ (0.11) $ 0.67 $ (0.07) $ 0.67
</TABLE>
Page 227
<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
---------------------------- -------------------------
Aug 2, Nov 1, Jan 31, May 2, May 2, Apr 30, Apr 30,
1998 1998 1999 1999 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) per share (U.S. GAAP - Basic)
Net earnings (loss) $ 35,520 $ 53,314 $120,119 $(29,792) $179,161 $(18,318) $156,917
======== ======== ======== ======== ======== ======== ========
Weighted average number of Common
Shares outstanding during the period 176,105 176,766 177,596 180,105 177,630 174,617 170,510
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share (U.S. GAAP) $ 0.20 $ 0.30 $ 0.68 $ (0.17) $ 1.01 $ (0.10) $ 0.92
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share (U.S. GAAP - Diluted)
Net earnings (loss) $ 35,520 $ 53,314 $120,119 $(29,792) $179,161 $(18,318) $156,917
======== ======== ======== ======== ======== ======== ========
Weighted average number of
Common Shares outstanding
during the period 176,105 176,766 177,596 180,105 177,630 174,617 170,510
Net effect of dilutive stock options and
warrants, based on the treasury
stock method 2,314 -- 4,434 -- 2,746 -- 4,015
-------- -------- -------- -------- -------- -------- --------
Weighted average number of Common
Shares outstanding during the
Period, as adjusted 178,419 176,766 182,030 180,105 180,376 174,617 174,525
======= ======== ======== ======== ======== ======== ========
Earnings (loss) per share (U.S. GAAP) $ 0.20 $ 0.30 $ 0.66 $ (0.17) $ 0.99 $ (0.10) $ 0.90
======== ======== ======== ======== ======== ======== ========
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 $ 0.6817 $ 0.6520 $ 0.6515 $ 0.6660 $ 0.6629 $ 0.7116 $ 0.7344
Basic earnings (loss) per share, in U.S. dollars $ 0.14 $ 0.20 $ 0.44 $ (0.11) $ 0.67 $ (0.07) $ 0.68
Diluted earnings (loss) per share,
in U.S. dollars $ 0.14 $ 0.20 $ 0.43 $ (0.11) $ 0.66 $ (0.07) $ 0.66
</TABLE>
Page 228
<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.
Jurisdiction
Name of of Incorporation
Subsidiary or Organization
- ---------- ---------------
Newbridge Networks Inc. Delaware
Newbridge Networks Limited England and Wales
Newbridge Networks Services SL United Kingdom
Newbridge Networks (Asia) Limited Hong Kong
Transistemas S.A. Argentina
Newbridge Networks Telecomunicacoes Ltda. Brazil
Newbridge Networks de Mexico, S.A. de C.V. Mexico
Newbridge Networks S.A. France
Newbridge Networks (Middle East) WLL Bahrain
Nihon Newbridge Networks Corporation Japan
Newbridge Networks (Australia) Pty. Ltd Australia
Newbridge Networks Korea Ltd. Korea
Newbridge Networks Venezuela, S.A. Venezuela
Newbridge Networks GmbH Germany
Newbridge Networks Ireland Ireland
Newbridge Networks (Pty) Ltd South Africa
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
Newbridge Networks SDN. BHD. Malaysia
Newbridge Networks A/S Denmark
Newbridge Networks AB Sweden
Newbridge Networks S.L. Spain
Newbridge Networks Benelux S.A. Belgium
Newbridge Networks B.V. Netherlands
Page 229
<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 1, 1999 and June 22, 1999, 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 June 17, 1999, as included in Item 8
herein.
/s/ Deloitte and Touche LLP
Deloitte & Touche
Chartered Accountants
June 22, 1999
Ottawa, Canada
Page 230
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS, CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR
ENDED MAY 2, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> CAN$
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-02-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> MAY-02-1999
<EXCHANGE-RATE> 0.6629
<CASH> 666,019
<SECURITIES> 213,675
<RECEIVABLES> 489,028
<ALLOWANCES> 16,217
<INVENTORY> 210,286
<CURRENT-ASSETS> 1,655,704
<PP&E> 983,315
<DEPRECIATION> 527,832
<TOTAL-ASSETS> 2,470,624
<CURRENT-LIABILITIES> 411,713
<BONDS> 384,021
0
0
<COMMON> 572,990
<OTHER-SE> 956,229
<TOTAL-LIABILITY-AND-EQUITY> 2,470,624
<SALES> 1,790,705
<TOTAL-REVENUES> 1,790,705
<CGS> 751,874
<TOTAL-COSTS> 1,665,633
<OTHER-EXPENSES> 20,802
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,127
<INCOME-PRETAX> 301,117
<INCOME-TAX> 121,303
<INCOME-CONTINUING> 179,161
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179,161
<EPS-BASIC> 1.01
<EPS-DILUTED> 1.01
</TABLE>
